1. Co-ownership fundamentals

Co-ownership

1. Co-ownership fundamentals

While land might be owned by a sole person or single legal entity, there are many circumstances in which people buy (or inherit) land together. For example, spouses typically own their family home together. A group of friends who lease an apartment own the lease together. Two property development companies engaged in a joint venture will typically both own the land being developed. All of these people or companies areco-ownersof interests in land.

There are two kinds of co-ownership in Australian property law - joint tenancy and tenancy in common. Understanding the difference between them is essential if you are going to be able to advise clients about how they should acquire land, and the consequences of the choice they have made.

Don't be confused by the word 'tenancy'. This has nothing to do with lease law. 'Tenant' is just used in the sense of owner.

Joint tenancy

Joint tenancy is the most common form of co-ownership because it is typically used by spouses/de facto partners, and spouses/de facto partners are the most common co-owners. Owning property with someone else is a substantial, complex and on-going commitment, and so people only tend to co-own property with people whose relationships are on-going. It is unusual - although becoming more common - for people to co-own land with friends or family other than a spouse.

There are two key attributes to a joint tenancy:

the four unities, and

the right of survivorship.

The four unities, whichmustexist for there to be a joint tenancy, are:

1. Unity of title: co-owners must have received their interests in land from the same source.

For example.

A

transfer

B and C can be joint tenants

B transfers their share to D

D + C = tenants in common

If B and C both acquire their interest via a transfer from A, there is unity of title and they can be joint tenants. However, if B transfers their share to D, D and C have acquired their interests in land via different sources, there is no unity of title and so they must be tenants in common.

Note that B can only transfer their own share to D. It is not possible for a joint tenant or a tenant in common to alienate their co-owner's share of property because it does not belong to them. This is why we saw forgeries of spouses' signatures in the Torrens fraud section. If only Mrs Frazer had signed the mortgage documents, the bank would only have acquired a mortgage over Mrs Frazer's share of the land. For the bank to acquire a mortgage over the whole land, they needed both co-owners, Mr and Mrs Frazer, to sign the mortgage, hence why Mrs Frazer forged her husband's signature.

2.Unity of time: joint tenants must receive their interest simultaneously. In the example above, D and C have received their interests at different times and cannot be joint tenants. The exception to this rule is beneficiaries under a trust or a will, which might give land to children 'when they reach 18'. The children's interests will vest at different times (unless they are twins) but they can still be joint tenants.

3.Unity of interest: joint tenants must have the same interest in land. For example, it is not possible for one joint tenant to have a life estate and another to have a fee simple. It is also not possible for one joint tenant to have a one third interest in a fee simple and the other to have two thirds. If there are two joint tenants, they must have a half interest each (or a third if there are three joint tenants or a quarter if there are four etc.).

4. Unity of possession: joint tenants (and tenants in common) are entitled to 'occupy the whole'. This means they are all entitled to use the whole of the property, as opposed to physically distinct parts. However, they can vary this basic rule by agreement, although it is not common for this to occur.

The right of survivorship:when one joint tenant dies, their interest in the land ceases to exist and the interest(s) of the other joint tenant(s) correspondingly enlarges. This is the most significant feature of a joint tenancy and it has practical implications:

It avoids problems that can arise if a person dies intestate (without a will). If a person dies intestate, theSuccession Act 2006(NSW) will stipulate who inherits the estate, and this may result in the surviving partner becoming a co-owner of the land with people they do not want to live with or co-own land with, for example the deceased's children, parents or siblings. These people could force a sale of the property, resulting in the surviving partner losing their home. All of this can be avoided if the parties are joint tenants; the deceased's share never forms part of their estate, and is never liable to be distributed according to the statutory formula that applies in the event of intestacy. The deceased's share ceases to exist and the surviving partner becomes the sole owner. They will be the sole owner in equity on the death of their joint tenant, and at law when adeath noticeis received and registered.

It allows joint tenancies to protect property from the deceased party's debts. Before any property is distributed under a will, the deceased's debts are paid. If property needs to be sold to pay those debts, it will be sold, irrespective of who might be named as a beneficiary under the will. However, because a person's share of a joint tenancy simply ceases to exist on their death and never forms part of their estate, it is never liable to be sold to pay debts. The surviving joint tenant's share will enlarge so that they become the sole owner of the property, free from the deceased's sole debts (but not of course free from joint debts, like mortgages).

Despite the importance of the right of survivorship, it is essential to understand that it has no relevanceuntil a joint tenant dies. Before any joint tenant dies, there is no practical difference between the way parties can deal with their share of a joint tenancy or a tenancy in common. In particular, unless they have a contractual agreement prohibiting the sale of a party's share (which commercial co-owners often do, but residential partners almost never do), a joint tenant is able to sell or give away their share of the property, just as a tenant in common can;their other joint tenant has no power to stop them.Itmight be practically difficult to find someone who wants to buy a half share of a suburban house, but it is important to understand that it is perfecty legally possible. The only time at which a joint tenant is prevented from determining who gets their share of the property is after their death; at that point, the right of survivorship kicks in and their other joint tenant will become the sole owner of the property, irrespective of what the deceased joint tenant may have written in their will.

If joint tenants die in an accident together, it might be unclear who has died first. It is necessary to ascertain this to determine who was, at least momentarily in theory, the surviving co-owner. Sadly, this dilemma is not uncommon because people who die in accidents (planes, cars or even WWII bombs) are quite likely to be with their co-owner.Section 35of theConveyancing Act 1919(NSW) creates a presumption that the older joint tenant has died first, resulting in the younger (or youngest) joint tenant being the survivor. If both joint tenants have named the same beneficiaries under their wills, for example their common children, this will not be a problem. However, if the joint tenants have different beneficiaries, for example their respective families, this will result in one family receiving the entire property to the exclusion of the other family. This may not be a result that the joint tenants envisaged or wanted.

In addition to spouses/de facto partners, trustees typically own property as joint tenants. This is to avoid the possibility that if one dies, their share of the trust property is inherited by their beneficiaries under their will, none of whom might be appropriate trustees. If trustees are joint tenants and one dies, their share simply ceases to exist, and the other trustees' share correspondingly enlarges.

Tenancy in common

The only unity that applies to tenancies in common is the unity of possession. This has practical implications, for example in strata schemes where the common property is owned by all lot owners as tenants in common in proportion to their unit entitlements. This means that lot owners (or their tenants) cannot be excluded from common property, like the gym or pool, because they have not paid their strata levies (tempting and logical as that may seem to an owners corporation).

Because there is no need for unity of time, title or interest, tenants in common can acquire their interests in land at different times, from different sources and in different shares. The latter is important because it may be appropriate for people to own land in unequal shares, resulting in the unequal distribution of money when land is sold, and the co-ownership comes to an end. For exampe, in a joint venture, one party may contribute significantly more to the purchase price and ultimate joint endeavour, and it will be appropriate for them to own a greater share of any land acquired.

Co-owners at law and in equity

In the past, determining whether existing co-owners were tenants in common or joint tenants at law was often complicated. This was because private citizens had the power to transfer legal title into other people's names using a deed. If not advised by lawyers (and sometimes even when advised by lawyers), parties could fail to clearly specify in a deed or will the kind of co-ownership that was intended. As a result, if the kind of co-ownership was unclear, the law had to apply presumptions: the old common law presumed people owned as joint tenants, and later s26(1) of theConveyancing Act1919 (NSW) presumed they owned as tenants in common.

Today, as least forinter vivostransactions (i.e., notgifts in a will), this problem does not arise because it is not possible for private citizens to transfer legal title to each other. Only the state can do this via the process of registration and the state will not register someone as a co-owner of property unless the dealing lodged for registration specifies whether the new co-owners are to be joint tenants or tenants in common, and if the latter, in what proportions:Real Property Regulation2019(NSW), reg 6. Further, with the advent of eConveyancing, private citizens cannot even fill in and lodge transfer forms; this must be done by a lawyer or licenced conveyancer through PEXA, which prompts the professional to select joint tenancy or tenancy in common. You will remember that when you did yourmock PEXA transfer, the form asked you to specify 'Tenancy Type'. If there was more than one purchaser, you would have needed to specify here if they were joint tenants or tenants in common before the form would have been accepted by LRS for registration. As a result, today, it will always be clear whether someone is a tenant in common or joint tenant - the Torrens register will say so.

Section 100(1) of theReal Property Act1900 states that "Two or more persons who may be registered as joint proprietors of an estate or interest in land under the provisions of this Act, shall be deemed to be entitled to the same as joint tenants". Even courts have held that the meaning of this section is "obscure": per Gzell JAoun Investments Pty Ltd v Chief Commissioner of State Revenue[2006] NSWSC 1394 at [27]. This is because no one is ever registered as a 'joint proprietor'; they are registered explicitly as a joint tenant or tenant in common. We can't deem people who are registered as tenants in common to be joint tenants, and we do notneedto deem people, who are already registered as joint tenants, joint tenants. While there was some discussion of s100 by the High Court inCassegrain v Cassegrain[2015] HCA 2 (and by the Court of Appeal), it is still difficult to see how the section was relevant or meaningful - Claude and Felicity Cassegrain were joint tenants as a matter of fact, and so there was no room for them to be 'deemed' joint tenants. However, the High Court did clarify that whatever s100 means, it does not mean that the general law rule in relation to joint tenants when one is fraudulent applies in the Torrens system. The general law rule is that if one joint tenant is fraudulent, then all joint tenants' titles are affected by that fraud. The High Court held that the general law and s100 must be read in light of s42. The rule in s42 is that for a registered proprietor's title to be upset by fraud it must be proved that the registered proprietor is themselves is fraudulent or has knowledge of someone else's fraud. The High Court held that Felicity was not fraudulent and had no knowledge of the fraud,and so her title to the initial half share she acquired from the company was indefeasible. The general law rule had no application to a joint tenant registered in the Torrens system.

Although the legal title to the property might be clear from the Torrens register, sometimes equity will conclude that the legal title does not represent the true ownership of land. Inevitably, this is when parties are joint tenants at law, but equity does not think the right of survivorship should apply and/or that the parties should not own the property equally - or more specifically, that they should not own the pool of money that the property has become on sale equally. In a commercial context, if parties are joint venturers or business partners, equity assumes that the right of survivorship should not apply between people in business together, and they will hold their legal title as joint tenants on trust for themselves as tenants in common in equity:Lake v Craddock(1732) 3 P Wms 158; 24 ER 1011.Similarly, if two or more people lend money to a landowner, and are granted a mortgage as security, equity will assume that they own the mortgage as tenants in common:Morley v Bird(1798) 3 Ves 628; 30 ER 1192. If one lender died, it would not be assumed that his or her family should not benefit when the loan is repaid. However, in contemporary transactions, it is unlikely that commercial parties or mortgagees would accidently end up on the register as joint tenants, and then have to rely on these equitable presumptions.

The much more common scenario in which equity assumes parties are tenants in common is when they have contributed unequally to the purchase price of property but nonetheless have been registered as joint tenants. Equity assumes that people do not intend to make significant gifts of property to 'strangers', so if A pays for property, but it is registered in B's name, B will hold the legal title on trust for A. This is an important way of preventing people like A avoiding the tax and creditor obligations that come from owning property; their equitable ownership of the land will be part of their assets accessible by the ATO and creditors. In the context of co-ownership, if A pays 80% of the purchase price and B pays 20%, but they are registered as joint tenants, equity will assume that they hold their legal title as joint tenants on trust for themselves as tenants in common in equity in proportion to the contributions they made, i.e., 80/20:Calverley v Green[1984] 155 CLR 242. It is assumed that A did not intend to gift 30% of the property to B. This becomes significant when the property is sold, and the proceeds of sale are being distributed. Having paid a greater proportion of the purchase price, A will be able to argue that they are entitled to a greater proportion of the sale price, rather than the 50% they would be entitled to as a joint tenant at law. If the property has increased in price over time, a greater proportionate ownership will constitute a substantial amount of money. The presumption that arises from unequal contribution to purchase price can be rebutted by evidence that shows the parties really did intend to be joint tenants or by a corresponding presumption that if A is B's husband or parent, A really did intend to make a gift of the property to B. This is called the presumption of advancement. It only applies between husband and wife or parent and child. You will learn more about purchase price resulting trusts in Equity and Trusts, but for now, just be aware that it is possible to be a joint tenant at law, but a tenant in common in equity. Ultimately, it will be the equitable ownership that determines distribution of sale price.

2. Ending a co-ownership

If parties no longer want to own property together (typically because their personal relationship has broken down), they can sell the property and divide the proceeds of sale. It does not matter if they are joint tenants or tenants in common for the purposes of the transfer. As long as both co-owners authorise the lawyer/conveyancer to sign the transfer form, the entire fee simple interest in land will be transferred to the purchaser and the joint tenancy or tenancy in common of the vendors will cease to exist. Its only relevance will be to how the proceeds of sale are divided. Alternatively, if they can afford to do so, one party can buy the other's share, becoming the sole owner of the property.

As co-owners are often also spouses, any dispute they have about the property at the end of their relationship may be determined by s79 of theFamily Law Act 1979(Cth), which empowers the court to make orders in relation to property 'as it considers appropriate'. For example, the court may order the husband to transfer his share of a joint tenancy to his wife or for the property to be sold and proceeds divided once the oldest child is 18. If co-owners are not married but live in a de facto or 'domestic relationship' (friends or family who live together with one or both providing domestic support and personal care), an application can be made to the Supreme Court under s20 of theProperty (Relationships) Act 1984(NSW) for an order adjusting the ownership of property. The court will do this in a way that seems 'just and equitable', taking into account financial and non-financial contributions to the property, including care of children. You are not required to know these two Acts for the Property course, but in practice they are significant.

Outside of legislation that deals with the termination of personal relationships and adjustment of property rights, any co-owner can seek a court order for the sale of the property if the other co-owner will not agree.In the past, co-owners could sometimes physically divide their land, (this was called partition), but that is not realistic or permissible for suburban housing or even large rural properties with council-mandated minimum lot sizes. As a result, the fairest way to divide property is to turn it into a pool of money. Court ordered sales are made with the appointment of a trustee for sale unders66Gof theConveyancing Act 1919. The trustee will sell the land andthen distribute the purchase money in accordance with

a) the titles recorded on the register or

b) in accordance with any court order following a successful action to establish that the property is owned in equity in different proportions to those recorded on the register (the principles mentioned briefly in the previous chapter).

It is almost impossible for a co-owner to prevent a court ordered sale. It does not matter that the property is their home, has been for 50 years or that the co-owner who wishes to sell only owns a small share. A co-owner who wants to retain the property may be permitted to bid at auction on special terms such as no deposit, if agreed by the court:s66Iof theConveyancing Act 1919.

The inevitability of a court ordered sale in the event of disagreement highlights how important it is to explain to clients that buying property with someone else, either as a joint tenant or tenant in common, does not amount to a promise by that other person that they will remain a co-owner until both parties agree otherwise. Any co-owner can unilaterally bring a co-ownership to an end.

Severance of a joint tenancy

There are some circumstances in which parties might continue to own the land together, but they cease to be joint tenants and become tenants in common. This is described as severance of a joint tenancy. It may be the result of unilateral action by one joint tenant, by mutual action of all joint tenants or by operation of law.

Unilateral severance (i.e., one joint tenant acting alone)

We have learned that co-owners do not typically physically divide their land into sections reflecting their shares; they can, and usually do "occupy the whole". Further, joint tenants are said to own "per my et per tout" (for nothing and for all), and tenants in common are described as having an "undivided share". Despite this apparent unity of ownership, the fact remains that all co-owners have the power to deal independently with their own share of the land. They are free to sell or give away their share, and there is typically nothing the other co-owner(s) can do to stop this. As noted in the previous chapter, as a matter of practically, as opposed to law, in the residential context a half share of a house is not a particularly marketable proposition, and so sales of half shares of homes are not a frequent occurrence.However, the fact that co-owners,including joint tenants, can sell or give away their share of property, is significant. It means that a joint tenant has always been free to 'sever' a joint tenancy during their lifetime, turning the joint tenancy into a tenancy in common. They could do this by transferring their share to someone else, which would destroy the unities of time and title. However, this would mean that they no longer owned an interest in the land. If they want to remain an owner of the property, but as a tenant in common not joint tenant, they could transfer their share to themselves. This would also destroy the unities of time and title but allow them to remain an owner. For example,

V

transfer to A and B as joint tenants

A and B joint tenants

transfer from A to A

A and B = tenants in common.

In this example, A and B originally acquired their interest in the land via a transfer from V at the same time, giving them unity of time and title. However, at a later date, A transferred her share to herself, now acquiring her title from a different document, at a different time. By definition, A and B must now be tenants in common. They will be tenants in common in equal shares because A and B must have owned half of the property each if they were initially joint tenants, and so all A can have transferred to herself is a 50% share.

A joint tenant might wish to become a tenant in common if they do not want the right of survivorship to operate but they are not in a position to arrange a sale of the property in its entirety. For example, inCorin v Patton [1990] HCA 12; (1990) 169 CLR 540, Mrs Patten owned a property as a joint tenant with her estranged husband. She was dying and did not want her share to pass by survivorship. Her lawyer advised her to execute a transfer of her half share to her brother, Mr Corin, so that he could become the registered proprietor of that share, which would make him a tenant in common with Mr Patten at law. Mr Corin then declared a trust of that share back in favour of Mrs Patten, so that she could become the owner of the half share again in equity. Of necessity, she would have held that share as a tenant in common with her estranged husband as she had acquired it at a different time and under a different title to her estranged husband's share; they could not be joint tenants. She could then leave her share as a tenant in common to beneficiaries under her will.

What was meant to happen:

executed transfer of 1/2 share CT

Mr Patten and Mrs Patten Mr Corin registered Bank

registered joint tenants

declaration of trust

equitable 1/2 share

Result:

Mr Patten and Mr Corin tenants in common at law (registered title)

on trust for

Mr Patten and Mrs Patten as tenants in common in equity

Mrs Patten's will

Named beneficiaries become tenants in common with Mr Patten in equity.

However, Mrs Patten died a week after she executed the transfer and before the CT could be obtained from the bank, which held it for safe keeping. As a result, Mr Corin was not able to register the transfer and never became the owner of Mrs Patten's share at law. The question arose, although the gift was not effective at law was it nonetheless effective in equity? That is, would equity step in to assist with a failure to comply with legal formalities? We know that in a commercial context, if someone has not become the registered owner, but they have a specifically enforceable contract in their favour promising them an interest in land, they will be the owner of that interest in equity. This is because equity regards as done what ought to be done. But a gift is not a contract. The recipient - the donee - has not provided value, and so different principles apply; equity will not be so ready to assist. Gifts are meant to be freely given, and as a general rule, equity will not enforce a gift if the donor has not successfully made the gift at law; it is said that 'equity will not perfect an imperfect gift'. However, if a donor has gone sufficiently down the path to make a gift of property, there is a point at which equity will say, 'Fair enough, it is clear they intended to make a gift and we will enforce it'. The High Court held inCorin v Pattenthat equity would enforce a giftif the donor had done everything that only the donor could do to make the gift effective at law. This is wheresome knowledge of the old paper process of conveyancing helps. What were the things that only Mrs Patten could do to make a gift of land at law, that is, to transfer the legal title to her brother? The steps in a paper transfer were:

1. transferor/donor signs thetransfer form2. transferee/donee signs the transfer form

3. theCTis obtained (from safe keeping or from a first mortgagee who would always hold it if the property were mortgaged)

4. the transfer and CT are given to the transferee/donee and lodged at LRS

5. the state registers the transfer, making the transferee/donee the owner of the land.

Logically, only Mrs Patten could do 1. and 3. As the owner of property, she had a right to the CT, and only she could sign the transfer as the owner of her share. However, 2. needed to be done by Mr Corin, 4. could be done by anyone, and 5. could only be done by the state.

The High Court held that because Mrs Patten had not obtained the CT, she had not done everything necessary to be doneby herto transfer the property at law and so equity would not enforce the gift. Her estranged husband took her share of the property by survivorship.

AfterCorin v Patten, it was felt that the law was unsatisfactory. Mrs Patten was legally entitled to sever the joint tenancy during her lifetimeto prevent the right of survivorship, she just died before she was able to do so. Further, a transfer to oneself or to a third party who then declares a trust, would triggerad valoremstamp duty, making these alienations of shares in order to sever a joint tenancy prohibitively expensive.

The New South Wales Law Reform Commission was given a reference to reform the law, ands97 of theReal Property Actwas enacted. This specifically authorises a joint tenant to register a transfer to themselves making them a tenant in common with their other co-owner(s). This transfer is not subject toad valoremland transfer duty. The Registrar General will notify the other joint tenant, not so they can prevent the severance but so they can write or redraft their will. As a joint tenant, there is no need to provide for a jointly owned property in a will, as it will pass by survivorship. In contrast, the share of a tenant in common passes by will. If someone does not know they are now a tenant in common and has not provided for the property in their will, they will die intestate in relation to that share. It will pass via the default statutory formula for intestacy, but it is always better for property to be expressly provided for in a will.

Before moving to the next section, it should be noted that the principle that 'equity will only enforce a gift if the donor has done everything necessary to be done by the donor' is a general principle of equity that applies to the gift of any property, not simply a share of co-owned property and not just land. We will do it again in Equity and Trusts, but it makes sense to learn it here because the leading High Court case happens to be about the severance of a joint tenancy. However, now that we use eConveyancing, the paper steps will no longer be applicable. If someone wants to make a gift of land to another, they will need to engage a lawyer or conveyancer to perform the PEXA transfer. What if they die before the transfer is registered? (These cases always arise when the donor has died; if they were alive, they would just complete the gift by ensuring the transfer was registered). At what point might the gift be effective in equity in eConveyancing? Applying the principle to the process, the things thatonly the donor can doare authorise the lawyer or conveyancer to act on their behalf in the transfer and be identified by their lawyer/conveyancer. Presumably once these two things are done, the gift would be effective in equity, but as there is no case law on this point to date, it remains uncertain.

Severance by agreement

Joint tenants can mutually (as opposed to unilaterally) sever a joint tenancy by agreement between themselves. Despite being an agreement in relation to land, courts have accepted that the agreement does not need to be in writing in accordance with s54A of theConveyancing Act 1919:Abela v Public Trustee[1983] 1 NSWLR 308. Logically, if the parties have only agreed between themselves, and not registered a transfer from themselves as joint tenants to themselves as tenants in common, they will remain joint tenants at law but hold on trust for themselves as tenants in common in equity.

The most common circumstance in which severance by agreement arises is when the parties have begun the process of divorce and making provision for their property. If one joint tenant dies before the process is finalised, the surviving joint tenant might claim they are entitled to the whole property through survivorship. The beneficiaries of the deceased joint tenant may argue that the process of applying for a property settlement under theFamily Law Actevidenced an agreement by the parties to sever the joint tenancy, and that the deceased's share as a tenant in common in equity then passed to them via will or the rules of intestacy.

Severance following a course of dealing

Severance by a course of dealing occurs when rather than havingagreedto be tenants in common, the parties have behaved as though they are tenants in common. It is difficult to establish that this has occurred, but inAbela v Public Trustee, Rath J held that the agreement by a divorcing couple to sell a matrimonial home owned as joint tenants, and pay the proceeds into separate bank accounts, severed the joint tenancy by agreement, but that the process the parties had gone through would also constitute severance by a course of dealing.

Severance by homicide

Like the rule for determining the order in which joint tenants have died in an accident, the rules about severance by homicide are sadly not fanciful or rarely used. If a woman is a victim of homicide, she is most likely to be killed by the person with whom she owns property: her domestic partner. In these and other circumstances, the 'forfeiture rule' applies. This is an unwritten rule of public policy that prevents a person who has unlawfully killed another from benefiting from the killing. So, a man who kills his domestic partner cannot benefit from the survivorship rule if he is a joint tenant. At law, he will be entitled to be the sole owner of the property, but he must hold that legal title on trust for himself and his deceased partner's estate as tenants in common.

However, courts have sought to modify the rule in certain circumstances such as mental illness, negligent driving and self defence or provocation in the face of domestic violence. TheForfeiture Act 1995(NSW) has formalised this practice by allowing applications by 'any interested person' to the Supreme Court to modify the forfeiture rule if 'justice requires the effect of the rule to be modified': s5(2). The Court may take into account the conduct of the offender and the deceased, the effect of the rule on the offender and any other person, as well as any other matters the Court considers material: s5(3). However, the Act does not apply if the unlawful killing constitutes murder: s4(2).

Severance by declaration of bankruptcy

We learned that one of the advantages of joint tenancies is that they protect jointly owned property being used to pay the deceased's debts. The deceased's share does not form part of their estate, passing to the other joint tenant via will or intestacy; it simply ceases to exist, and the other joint tenant's share correspondingly enlarges. To prevent this happening in relation to a bankrupt person's share of property, a court order declaring a person bankrupt will sever their joint tenancies. In the event they die, their share as a tenant in common will then form part of their estate and be available to pay creditors.

Easements

1. Easement Fundamentals

An easement is a limited right to use someone elses land, for example, to walk across it (a right of footway), to drive across it (a right of carriage way), to run a pipe across it (an easement to drain water or sewage) or to run wires across it (an easement for services). While the right to use someone elses land could be granted by a contract e.g., a contractual licence (permission) to drive across someone elses land, because of the rule of privity, this will only be enforceable against the person who granted the right. If they sell their land, the contract will not be enforceable against the new owner. For example, in this diagram:

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Diagram%201%20%281%29.jpg" * MERGEFORMATINET

if A, the owner of the green lot on the street grants B, the owner of the blue lot, behind, the right to drive over As land to reach Bs garage, and A sells his land to C that right will not be enforceable against C.

B needs a property right, not a contractual right, because a property right will be enforceable against the whole world, including any successive owners of As land. A property right would also be transferrable so that it is enforceable by any successive owners of Bs land, increasing the lands value.

Easements are such a property right. They are rights that attach to land that is benefited (thedominant tenement) and they also attach to land that is burdened (theservient tenement). Because easements are enforceable by and against whoever owns the dominant and servient tenements, they are said to run with the land.

Although limited rights, easements are enormously significant in land use and property practice. For example, the easement that we will look at inWestfield Management Ltd v Perpetual Trustee Co Ltd[2007] HCA 45 ran off King St in the CBD, under a shopping centre and into the basement of what became a huge Westfield redevelopment. It would be hard to overestimate the commercial value of access to off-street parking and loading docks in Sydneys main retail precinct, particularly when that precinct is situated on a blocked off street (the Pitt St Mall), largely inaccessible for delivery of stock.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Westfield%20easement.jpg" * MERGEFORMATINET

The entry to the site of the easement in theWestfieldcase,King St, Sydney CBD.

TheWestfieldeasement is an illustration of the increasing importance in easements in cities. The denser a city becomes (i.e., the more people living in limited space), the more likely people are to need access other peoples land to properly use their own. For example, look atthis title searchfor the common property of one of the strata schemes inCentral Park,the plant-covered development near Central Station:

Title Search CP SP87881There are 49 notifications in the Second Schedule and most of them are easements. They are easements which give the owners of apartments inside the strata scheme the legal right to walk across land owned by other people in the development, to run pipes and wires across others land, to use lifts, facilities, loading docks etc. It not possible to use someone elses land just because you want or even need to, so the lawyers who structured this development had to ensure that they created all of the necessary easements for commercial and residential owners and tenants to be able to access other peoples land when necessary.

Creating easements

Easements are created in a number of different ways described below.Section 88(1)of theConveyancing Act 1919requires all instruments creating easements to identify the dominant and the servient tenements so that it is clear exactly what land is affected by the easement (please click on the hyperlink and reads88(1) for yourself). In the past, owing to more erratic drafting and registration practices, easements were not always reliably recorded on both the dominant and servient tenement's titles as they are now. Naturally it would be a problem if a person purchased a servient tenement, but the easement was only recorded on the dominant tenement's title. If the easement was recorded on the servient tenement's title but it did not clearly and accurately identify the dominant tenement, this would also be a problem as the servient owner would not know who to approach if they wanted to remove the easement. This might prevent them from putting their land to its highest economic or social use.

Section 88BAof theConveyancing Act 1919allows easements to include positive obligations to repair the site of an easement, overcoming the general prohibition on positive obligations on freehold land. Positive obligations force someone to do something, and the litmus test is usually whether a person will be required to pay money; if so, the obligation is positive. We will consider this prohibition in more detail in the classes on freehold covenants, but for now, it should be noted that under boththe common law and equity it was not possible to impose obligations on the fee simple owner of either a dominant or servient tenement to maintain or repair the site of an easement because this would require the expenditure of money. This caused practical difficulties because sooner or later a driveway or a pipe will need to be replaced. Under the common law, the dominant owner had ancillary rights (rights that support the primary right) to do work on the site of the easement to make it useable. However, this did not address the problem of how to apportion costs between multiple owners of dominant tenements or the servient and dominant tenement, if they all used the driveway, pipes etc. Section 88BA now allows the easement instrument to expressly allocate the costs of the maintenance and repair of the site of the easement. You will see such an allocation in the registered easement for theWestfieldcase. Section 88BA only refers to costs for 'maintenance and repair' which does not allow the inclusion of indemnities in easements. This is a problem because owners of servient tenements might quite reasonably want to be indemnified by the owner of the dominant tenement for any liability the servient ownerincurs as a result of the dominant tenement owner using their land.

1. Express grant or reservation

The simplest example of the creation of an easement is when a servient owner expressly grants an easement over their land. The diagram above is an illustration of express grant. B needs to drive over As land to reach their own, and so B needs to persuade A to grant them that right. Like the creation or transfer of all property rights, the parties will start with negotiating in order to agree the terms of the grant. Where will the easement run across the servient tenement? How wide will it be? What will it allow? Walking (a right of footway) or driving (a right of carriageway)? How much will the dominant tenement owner pay the servient tenement owner for the easement? Once the parties have reached agreement, they will put that agreement in writing to satisfy s54A of theConveyancing Act 1919, which you will remember requires all contracts for the sale of an interest in land to be in writing, signed by the parties. Because equity regards as done what ought to be done, this specifically enforceable contract will create an equitable easement, but neither the contract nor equitable easement will be enforceable against a new owner of the servient tenement if it is transferred before the transaction is completed. The easement needs to be registered.

Section 46(1)of theReal Property Actsays that when any easementaffecting land under the provisions of this Act is intended to be created, the proprietor shall execute a transfer in the approved form.The approved form used to look like this.This form has been drafted to create the easement of carriageway shown in the diagram above. Whatever words were written in the box Description of the easement defined the rights that the dominant tenement had been given. You will notice that there is an annexure to the form which uses the existing deposited plan to show exactly where the easement will be on the servient tenement (older easements sometimes do not have diagrams like this). Easements are now created electronically in a PEXA workspace, but the substantive matters remain the same.The workspace requires the subscriber to provide the same information as the old form - identify the land title for the dominant and servient tenements, select Transfer Granting Easement, describe the easement and the rights it grants, identify the DP or SP of which it is part, attach a copy of the plan, digitally sign and then lodge for registration.

To make lawyers lives easier when drafting standard easements,s181Aof theConveyancing Actstates that if the words right of footway, right of carriage way, easement to drain water, easement to drain sewage etc. are used in an instrument, the fuller description of these rights inSchedule 8of the Act is taken to be inserted into the instrument. So, right of carriage way becomes:

Full and free right for every person who is at any time entitled to an estate or interest in possession in the land herein indicated as the dominant tenement or any part thereof with which the right shall be capable of enjoyment, and every person authorised by that person, to go, pass and repass at all times and for all purposes with or without animals or vehicles or both to and from the said dominant tenement or any such part thereof.

However, even when drafting standard easements like a right of carriage way or novel easements considered in the next chapter, lawyers need to make sure that the words they choseaccuratelyreflect what the parties agreed. When you read theWestfieldcase you will see that it was the omission of two words that resulted in the very expensive and ultimately unsuccessful litigation. Remember, when you are in practice, draft carefully and draft accurately. In land law, your clients rights will be determined by what ends up on the Torrens register.

Because easements affect two parcels of land the benefited land and the burdened land the common law did not allow people to have easements over their own land. If in the example above A owned both parcels of land and drove over the lot fronting the street to reach his second house and garage on the lot behind, he would not be exercising an easement right; he would just be driving over his own land. However, the common law rule no longer has any application. It is possible to create an easement by express grant when one person owns both the dominant and servient tenement (s46A of theReal Property Act). Also, easements do not disappear from the Torrens register when the same person becomes the registered proprietor of the dominant and servient tenements.

Easements may also be created by express reservation when someone is selling part of their land and needs to keep a right to access the part they are retaining. In the diagram below, if A owns a large lot of land that she subdivides, selling the front portion to C, it makes sense for A to reserve to herself an easement so that she can drive over Cs land to reach her own.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Diagram%202%20Easement.jpg" * MERGEFORMATINET

2. Section 88B Instruments

For many decades now, the vast majority of easements in New South Wales have been created by s88B instruments.Section 88B of theConveyancing Actsays that plans of subdivision (deposited plans and strata plans) cannot be lodged for registration unless they indicate the easements, freehold covenants and profits a prendre that are intended to be created for the subdivision. All this means is that when a developer is subdividing land and/or airspace to create new Torrens titles for new houses, parcels of land or apartments, they must to create the easements, covenants and profits that will be needed or desired at the same time. Instead of creating easements sequentially on the sale of each separate lot, easements are all created in one fell swoop by attaching to the plan of subdivision an instrument describing the easements.

The easiest way to understand s88B instruments is to read one. Here is thes88B instrumentfor part of Harrington Park in southwest Sydney. The easement is on the first page (the rest of the instrument are freehold covenants which we will look at in a later class). What does the easement to drain water tell you about the physical lie of the land in relation to lots 1, 3 and 6? Why would it have been obvious to the surveyor drawing the deposited plan than an easement to drain water would be needed? Can you see why it makes sense to create easements at the point of subdivision when a larger Torrens lot is being divided into multiple smaller lots?

It is unusual to see any modern subdivision that does not have a registered s88B instrument and in complex, high rise developments the s88B instrument will be substantial. Here is thes88B instrument for Central Park.Somewhat terrifyingly, it is 93 pages long, presenting considerable challenges for lawyers advising clients on the purchase of property inside the development.

3. Section 88K of the Conveyancing Act 1919

You will notice that all of the methods of creating easements above either relate to

land owned by a single person who is subdividing it or

servient tenement land owned by someone who has voluntarily agreed to the easement (usually in return for money).

However, what if a person needs an easement over someone elses land but the other person will not agree, no matter how much money they are offered? You cannot run a pipe across someone elses land or walk across it just because it is desirable or even necessary for you to do so.

Section 88Kof theConveyancing Actallows a person who needs an easement to apply to the Supreme Court for an order creating an easement. Read the section for yourself. You will see that this is not an easy section to succeed under and the Court can only make the order if the easement is reasonably necessary for the effective use or development of the dominant tenement. The Court also has to be satisfied that

a) use of the dominant tenement will not be inconsistent with the public interest;

b) the owner of the servient tenement can be adequately compensated for any loss or other disadvantage that will arise from imposition of the easement; and

c) all reasonable attempts have been made by the applicant for the order to obtain the easement or an easement having the same effect but have been unsuccessful.

Woodland v Manly Municipal Council[2003] NSWSC 392 illustrates the difficulty of obtaining an order under s88K. Hamilton J referred to the confiscatory nature of the statute, as it involuntarily takes property rights from the potential servient tenement owner. He held that an easement togravitydrain water was not reasonably necessary for the use or development of the applicants land because storm water could be pumped into a retention pit and drained through an alternate route. Hamilton J acknowledged that the electric pump drainage system would cost $10,000-$20,000 more than the gravity drainage, but refused the order nonetheless.

Easements in gross

We have seen that it is a basic principle of easement law that easements must have a dominant and servient tenement. They cannot be in gross, that is, an easement that benefits a person and not a parcel of land. The objection to easements in gross is the same as that stated above in relation to the s88(1) requirement that instruments creating easements clearly identify the dominant and servient tenement. If a servient owner wants to remove an easement the starting point is offering to pay the dominant owner to release the easement. An easement is an interest in land; if you want someone elses land, you have to pay for it. The risk with easements in gross is that the person benefiting from the easement may not be able to be found; they might have moved interstate or overseas, died with unknown or untraceable beneficiaries etc. They may not have used the easement for decades. In contrast, land is immovable. A servient owner wanting to remove or alter an easement will always be able to identify the dominant tenement, either because it is obvious from the nature of the land (e.g., the diagrams above) or because the dominant tenement and its owners name are recorded on the Torrens register. Like most principles of land law, the prohibition against easements in gross is a rule of social and economic efficiency.

However, the common laws prohibition on easements in gross is inefficient for government and public utilities which routinely need to access other peoples land or run pipes and wires across it. It is artificial for those entities to have to identify a parcel of land that is benefited by the easement; it is simply the entity itself that needs to access the land. Further, governments and public utilities are not going to disappear, so the servient tenement owner will always know who to deal with in relation to an easement in gross in favour of government or a public utility.Section 88Aof theConveyancing Actnow permits

the Crown,

a public or local authority or

prescribed corporations

to have easements in gross for the supply of a utility service to the public (including but not limited to)

a) the supply of gas, water or electricity

b) or the supply of drainage or sewerage services.

Corporations are prescribed under theConveyancing (General) Regulation 2013(NSW) and include Water NSW, Australian Rail Track Corporation, Telstra, Vodaphone, Optus, Energy Australia and Snowy Hydro. If you think about modern cities, with their dense land use and dependence on utilities, you will appreciate the importance of s88A of theConveyancing Act.

Implied easements at common law

Comprehensive planning law only dates from the late 19thcentury. Prior to that, land could be developed with little or no public oversight with the result that land was frequently subdivided without necessary easements for pipes and access being created. In the 18thand early 19thcentury, developers could build a row of terraces and fail to install any pipes for the passage of clean water or sewage. Sewage was dumped into cesspits in backyards, seeping into the water table and then rivers and streams.from which drinking water was subsequently pumped. The medical profession had some idea that disease might be water or airborne (miasma theory) but it was not until the mid to late 19th that it was definitively proved that disease was spread by microorganisms, frequently carried by water.

This medical discovery, along with the rapid growth of British cities during the Industrial Revolution, provided the impetus for comprehensive public planning law. While a mans home might be his castle, if what he did in it could kill his neighbour, it was justifiable to regulate his activity and make the construction of pipes for the passage of clean drinking water and sewage a condition of development consent. Planning legislation could mandate the construction of necessary infrastructure for new developments, but the common law was needed to facilitate the retrofitting of existing development. It did this byimplyingthe existence of an easement where none had been expressly granted. This allowed for the legal passage of pipes, as well as people and vehicles, over developments that had not been properly planned. There was a sharp rise in implied easement cases in the mid to late 19thcentury, includingWheeldon v Burrowseasements and easements of necessity (you do not need to know the detail of these doctrines). Some implied easements were negative; that is, theystoppedthe servient tenement doing something on their own land, rather than allowing the dominant tenement to do something on the servient tenement land (e.g., cross it or run a pipe over it). The most common activity stopped by negative easements was building on the servient tenement in a way that would block light or air reaching the dominant tenement. Like implied easements for the passage of water or sewage, these easements were also a response to rapid urbanisation and a growing realisation that development in cities needed to be planned and constrained if populations were going to live happily and healthily. The connection between private property development, planning law and public health was largely forgotten in the latter half of the 20th century with the development of broad spectrum antibiotics that could cure many diseases. However, the COVID-19 pandemic has necessitated the reconsideration of the health effects of building and city form, in particular the importance of good ventilation and social distancing.

In addition to implied easements, the common law had long recognised prescriptive easements. These were easements based on long use. For example, if someone had been walking over their neighbours field for over twenty years, without secrecy, force or permission, the common law would find that a legal easement existed. Like adverse possession, in societies with low literacy and no public recordation of land ownership, it makes sense for the law to sometimes give formal recognition to peoples actions, in the absence of written documents.

Implied and prescriptive easements have little or no application in New South Wales today for two reasons. First, we have had a comprehensive planning system for the best part of a century and as a result, developers will be required to create necessary easements for the passage of water, sewage, people and vehicles during the process of development. Section 88B of theConveyancing Act(above) is an illustration of this phenomenon. There is little need to rely on the common law to imply easements because they will invariably have been expressly created. Negative easements are also not needed because planning law mandates building set-backs and height restrictions to maintain the flow of air and light, as well as privacy, for neighbouring properties.

Second, for easements to bind new registered proprietors of the servient tenement, they must be on the register:s42 of theReal Property Act. There is a narrow exception from indefeasibility for easements in s42(1)(a1), which provides an exception:

(a1) in the case of the omission or misdescription of an easement subsisting immediately before the land was brought under the provisions of this Act or validly created at or after that time under this or any other Act or a Commonwealth Act.

The two sections of this subsection are:

i. easements that were left off the register in the process of conversion from Old System title and

ii. easements that were validly created under theReal Property Actor another Act (e.g., theConveyancing Act) but have been omitted from the Register or misdescribed on the Register.

While (i) can include implied and prescriptive easements, almost all land has long been converted to Torrens title and any outstanding claims have been resolved. (ii) does not include implied and prescriptive easements because they are created under the common law, notunder an Act. However, if you ever practise in another state, be aware that not all states have the same Torrens provision for easements. For example, in Victoria, all easements howsoever acquired are an exception to indefeasibility:Transfer of Land Act1958, s42(2)(d).

2. Novel easements

In the first section we dealt with the basic rules that apply to all easements, as well as standard easements such as a right of footway, a right of carriage way, and easements to drain water or sewage. These are generic rights that the law readily accepts as easements because they will almost always benefit a parcel of land, irrespective of who owns it. However, sometimes owners of land (usually developers) dream up rights that might be financially or socially beneficial to them but may not be beneficial in the future, either for successors in title or the wider community. This is potentially a problem because if the rights are easements attaching to freehold fees simple, they will last forever, limiting the use of the servient tenement land with no benefit for the dominant tenement. That is an inefficient use of land and as land is a limited resource, the law tries to prevent this occurring.

This section sets out three examples from cases that illustrate the problem of novel easements. Example 3 then contains an extract from Bryson Js judgment inClos Farming Estates P/L (Rec. and Man. Appt.) v Easton and Anor[2001] NSWSC 525 (28 June 2001)which explains the laws response to the creation of these novel rights.

Example 1:Hill v Tupper[1863] EngR 493; (1863) 2 H. & C. 121.

Facts: A company owned a canal and the land next to it. The company leased the land to the plaintiff, including in the lease a right to put pleasure boats on the canal. The defendant owned neighbouring land and he also put recreational boats on the canal for his customers to use for fishing. The plaintiff, believing he had been granted a monopoly to put boats on the canal, sued the defendant.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Hill%20v%20Tupper.JPG" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Canal%20boat.JPG" * MERGEFORMATINET

Canals were vital transport routes in the early IndustrialRevolution but were superseded

by railways. Repurposing canalsfor recreation allowed canal owners to gain some financial

benefitfrom this substantial, defunct infrastructure. Image: R Haworth

Issue: Having no contractual relationship with the defendant, the plaintiff had to prove that his right to put boats on the canal constituted anin remproperty right, enforceable against the world, including the defendant. The question was:

could a right to put boats on a canal be an easement?

(Note: dont be confused by the fact that the canal was a waterway; it was simply private land and the potential servient tenement).

The question posed inHill v Tupperwill be answered in the extract fromClos Farming Estatesbelow, but in the meantime, think about these questions: if the right could be an easement, what would happen if the plaintiff ceased to own/lease the green land and the new owner/lessee of the green land was not in the business of renting canal boats because s/he was a farmer or ran a school from the land? Would the company, who owned the canal, be able to give anyone else the right to run boats on the canal? Is there any kind of right to the canal that could be granted to the owner of the green land that might be useful for anyone who owned that land, irrespective of what they might do on the land itself?

Example 2:Re Ellenborough Park[1956] 1 Ch 131

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Ellenborough%20Park.JPG" * MERGEFORMATINET

Developers are the land owners most likely to want to create novel easements. This is because:

developers often want to increase sale prices by coupling land titles with amenities but,

purchasers must be given enforceable property rights to those amenities, for their own use and to transfer to successors in title.

Re Ellenborough Park is the leading easement case and illustrates this point. The developer had built houses around a central garden which he wanted to make exclusively accessible by the residents of the houses. (Note: when advising clients on land purchases, be aware that the word exclusive in marketing material means you own it; you pay for it.) The original grants of fee simple titles were expressed to include:

the full enjoyment ... at all times hereafter in common with the other persons to whom such easements may be granted of the pleasure ground set out and made in front of the said plot of land ... in the centre of the Square called Ellenborough Park which said pleasure ground is divided by the said Walliscote Road but subject to the payment of a fair and just proportion of the costs charges and expenses of keeping in good order and condition the said pleasure ground.

When Ellenborough Park was built in the mid-19thcentury, developers had been building houses around central squares for centuries. Not providing individual gardens increased the number of houses on the site, while a shared green space provided the same amenity and marketability of a private garden. The challenge was to create secure legal titles to sell to purchasers. Traditionally, English developers would have used leases a ground landlord would retain the freehold ownership of the entire site, granting long-term leases for individual houses. The leases would include a covenant entitling lessees to use the shared garden, as well as a covenant imposing obligations to pay for its maintenance (see for example,The Bedford Estatein Bloomsbury, London). However, with the demise of the landed aristocracy and the rise of democracy and market capitalism, the sale of freehold titles became more common. How could purchasers offreehold fees simplebe given a secure, enduring right to use a central shared garden?

The developer inRe Ellenborough Parkattempted to solve this dilemma by making each house a dominant tenement with easement rights over the servient tenement park/garden; purchasers bought a freehold fee simple benefited by an easement. During World War II many squares, including Ellenborough Park, were requisitioned for the war effort. They were used to grow food, to make ammunition from their iron railings etc. and the War Office compensated the owners of the squares. InRe Ellenborough Park,the question arose, 'who was entitled to the compensation for the use of Ellenborough Park? The owners of the dominant tenement houses or the owners of the servient tenement garden, the developers descendants?'. In order to decide who was entitled to the compensation, the Court of Appeal had to first decide:

could a right to use a park or garden be a valid easement?

Were these the kind of rights that the law should recognise as a property right that would burden the servient tenement land in perpetuity? Like the question inHill v Tupper, the answer to this question is in Bryson Js judgment inClos Farming Estates.

Example 3: Clos Farming Estates P/L (Rec. and Man. Appt.) v Easton and Anor [2001] NSWSC 525 (28 June 2001)

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Clos%20Farming.JPG" * MERGEFORMATINET

Clos Farming Estatesconcerned a failed viticulture venture on the banks of the Hastings River in northern New South Wales. The development, Le Clos Verdun, was created by Gerard Cassegrain & Co Pty Ltd, (the company we met previously in the fraud case,Cassegrain v Gerard Cassegrain & Co Pty Ltd[2015] HCA 2), and was presumably planned to increase the sale price of otherwise unremarkable rural land (see picture above). The idea was for a purchaser to buy a lot which included a section on which to build a house (Part A) and a section of a working vineyard (Part B). Part A and Part B of a purchasers lot were not contiguous, Part B being very much a portion of working farmland elsewhere on the Estate. There were 80 lots in the subdivision and the First Defendant had purchased Lot 27. Lot 86 was retained by Clos Farming Estates Pty Ltd, from which to manage the viticulture and other cropping. Clos Farming Estates would plant, cultivate and harvest the grapes, selling the grapes and deducting costs from the sale price before passing on any profit to the residential lot owners. Presumably the development would have been attractive to people wanting to own a vineyard, but not wanting the responsibility of running one. Further, there are substantial tax exemptions for rural land that it is used predominantly for primary production.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Aerial%20view%20clos%20farming.JPG" * MERGEFORMATINET

This is an aerial view of Clos Farming Estates today fromSix Maps. I think it is correct to say that the little triangular lots were the Parts A and the larger lots were the Parts B. You can see Lot 86 in the middle. (CS)

Lawyers structuring developments like this only have existing legal tools at their disposal contracts and property rights. This development made full use of contractual rights between the vendor, Clos Farming Estates Pty Ltd, and the purchasers, including a Grape Sale and Purchase Agreement, (to buy the residential lot owners grapes - what property doctrine tells you that the grapes belonged to the residential lot owners?), a Farm Development Agreement (to plant vines etc.) and a Farm Maintenance Agreement (to cultivate vines etc.), but these contracts had only lasted for a limited time and had not been renewed. Further, the contracts would never have been enforceable against subsequent owners of any of the lots because of the rule of privity. As a result, the lawyers had drafted a s88B instrument attempting to create easement rights that enshrined the business model for the development; that is, apropertyright that entitled the owner of Lot 86 (the dominant tenement) to go on to Part B of the residential lots (the servient tenements), to plant, cultivate and harvest grapes. Unlike contractual rights, an easement would be enforceable by whoever owned the dominant tenement, Lot 86, against whoever owned the servient tenement residential lots. Here is thes88B instrumentfor the development. Scan the instrument and find the section that purports to create the easement right to plant, cultivate, harvest and sell the grapes.

The development did not prosper, and a dispute arose over the whether the right to deduct the costs of harvesting, maintenance etc. was cumulative; that is, if costs were not met from the proceeds of sale of a harvest, could they be deducted from the costs of a later harvest? Reading the s88B instrument, do you think they can be? In any event, presumably dissatisfied with the entire development, the defendants struck at its heart, arguing that the easement was invalid for failing to match the laws description of an easement.

Note, it does not matter that the easement was registered registration does not cure this kind of invalidity. If the rights granted by a registered easement do not create what the law recognises as an easement, registration is neither here nor there. This is an example of operation of thenumerus claususprinciple. Land and Property Information does not check the validity of easements, covenants, leases etc. in relation to thenumerus claususprinciple, so it is possible for partially or wholly invalid instruments to end up on the register, where they will remain until challenged in litigation likeClos Farming Estates.

Bryson J was the judge at first instance and his decision was confirmed on appeal. When you have finished reading this extract, you will be asked to define the 'second and fourth criteria inRe Ellenborough Park',so pay close attention to what courts have said about those criteria. Along with the requirement to have a dominant and servient tenement, these are the criteria that need to be satisfied for a purported easement to be a valid easement.

Bryson J referred to the various contractual agreements between the plaintiff and defendant, including the Farm Maintenance Agreement, the prospectus for the development and the terms of the defendants contracts of sale which acknowledged that they bought with full knowledge of the (at the time unregistered) s88B easements and covenants. His Honour continued at [14]:

14 These documents show the commercial context in which the defendants purchased Lot 27 subject to restrictions including the Easement for Vineyard. They are however commercial arrangements which were to operate for stated periods which have expired and their operation is now spent. In my view they do not and cannot add to or qualify the meaning and the legal effect of the restrictions. The operation of the Easement for Vineyard is not limited to any period of time or to any particular persons, and is to bind the land in the ownership of the defendants and all their successors in title perpetually, in favour of the land in the ownership of the plaintiff and all its successors in title perpetually. The Easement for Vineyard if effective is an incorporeal hereditament, a title to an interest in the land in Lot 27, and is altogether different in its nature and operation to a contractual obligation in which one identified party has given a binding covenant to another. Its meaning and its effect will be the same when all concerned now are dead and forgotten and their contracts have turned to dust. Its meaning and effect arise from what it says in its own terms, and are not affected by the operation of agreementsinter parteswhich have now expired and appear to have covered, in different terms, somewhat the same ground as the Fourteenth Restriction.15 The issues require consideration of the limits on the kinds of rights which may be created by easements and which may exist perpetually. The Common Law and its judges have for centuries favoured land being fully available for its owner to use and sell, and restricted the creation and operation of interests, including new classes of interests, which might have different effects. The enormous complexity of land law from medieval times onwards obscures this policy, but resistance to restrictions on use and alienation of land and on the wishes of property owners to limit the rights of their successors, to restrict alienation and to devise new forms by which to do so is of very long standing, and has included readiness to tolerate conveyancing devices and contrived litigation with the object of defeating medieval statutes which authorised conditional alienations. Relatively simple forms of easements relating to rights of way, the flow of water and natural light have long been known to the law. When in the Nineteenth Century more complex easements began to appear they were received with the same disposition against permitting the creation of new forms of landholding and new restrictions on ownership. Rules of law relating to easements and limits on the rights which can exist under them do not seem to have required or received much judicial attention before the Nineteenth Century. Attempts were made to embody relatively complex rights and restrictions in easements in the same era as restrictive covenants claimed attention. The judgments of Danckwerts J and the Court of Appeal of EnglandInre Ellenborough Park[1956] 1 Ch 131 examined the development of the English law and stated the position reached, but not as an attempt to be exhaustive. The Court of Appeals observations were carefully limited to the case before then, but they have had considerable influence by furnishing a starting point for later consideration. Counsel appearing were eminent and their arguments as reported were comprehensive.16 At 163-164 Evershed MR speaking for the Court of Appeal [inIn Re Ellenborough Park] said:

For the purposes of the argument before us Mr. Cross and Mr. Goff were content to adopt, as correct, the four characteristics formulated in Dr. Cheshires Modern Real Property, 7th ed., pp. 456 et seq. They are (1) there must be a dominant and a servient tenement: (2) an easement must accommodate the dominant tenement: (3) dominant and servient owners must be different persons,[iLearn note: this third rule hasno operationin the Torrens system; easements do not disappear from the register just because the same person owns the dominant and servient tenement, and s88B expressly allows a land owner to create easements in a subdivision while that owner is the registered proprietor of the dominantandservient tenements]and (4) a right over land cannot amount to an easement, unless it is capable of forming the subject-matter of a grant

The argument in the case is found, accordingly, to turn upon the meaning and application to the circumstances of the present case of the second and fourth conditions; that is, first, whether the alleged easement can be said in truth to accommodate the dominant tenement - in other words, whether there exists the required connexion between the one and the other: and, secondly, whether the right alleged is capable of forming the subject-matter of a grant. The exact significance of this fourth and last condition is, at first sight perhaps, not entirely clear. As between the original parties to the grant, it is not in doubt that rights of this kind would be capable of taking effect by way of contract or licence. But for the purposes of the present case, as the arguments made clear, the cognate questions involved under this condition are: whether the rights purported to be given are expressed in terms of too wide and vague a character; whether, if and so far as effective, such rights would amount to rights of joint occupation or would substantially deprive the park owners of proprietorship or legal possession; whether, if and so far as effective, such rights constitute mere rights of recreation, possessing no quality of utility or benefit; and on such grounds cannot qualify as easements.

17 The second and fourth characteristics referred to in this passage are also the subjects of the present case. What they involve is not fully expounded in the passage, and must be understood from review of case law. Their Lordships views are further to be understood from passages in which they applied these characteristics. The characteristics or conditions in the brief formulation at 163 are not altogether easy to understand, or to distinguish from each other. Accommodation - the second of Dr Cheshires conditions (though spoken of by Evershed MR as the first at 169) - was addressed at pp169 to 175, and the opening passage at 169-170 illustrates the concept of accommodation:

For it was one of the main submissions by Mr. Cross on behalf of the appellant that the right of full enjoyment of the park, granted to the purchaser by the conveyance of December 23, 1864, was insufficiently connected with the enjoyment of the property conveyed, in that it did not subserve some use which was to be made of that property; and that such a right accordingly could not exist in law as an easement. In this part of his argument Mr. Cross was invoking a principle which is, in our judgment, of unchallengeable authority, expounded, in somewhat varying language, in many judicial utterances, of which the judgments inAckroyd v. Smith[1850] EngR 1;(1850) 10 C.B. 164are, perhaps, most commonly cited. We think it unnecessary to review the authorities in which the principle has been applied; for the effect of the decisions is stated with accuracy in Dr. Cheshires Modern Real Property, 7th ed., at p. 457. After pointing out that one of the fundamental principles concerning easements is that they must be not only appurtenant to a dominant tenement, but also connected with the normal enjoyment of the dominant tenement and referring to certain citations in support of that proposition the author proceeded: We may expand the statement of the principle thus: a right enjoyed by one over the land of another does not possess the status of an easement unless it accommodates and serves the dominant tenement, and is reasonably necessary for the better enjoyment of that tenement, for if it has no necessary connexion therewith, although it confers an advantage upon the owner and renders his ownership of the land more valuable, it is not an easement at all, but a mere contractual right personal to and only enforceable between the two contracting parties.

18 The easement was created when a residential estate was laid out in 1864, roads and a park or garden or pleasure ground were created and the conveyances to each purchaser of a residential lot created rights of way over the roadways and footpaths and rights to use drains

... And also the full enjoyment ... at all times hereafter in common with the other persons to whom such easements may be granted of the pleasure ground set out and made in front of the said plot of land ... in the centre of the square called Ellenborough Park which said pleasure ground is divided by the said Walliscote Road but subject to the payment of a fair and just proportion of the costs charges and expenses of keeping in good order and conditions the said pleasure ground And all the estate right title etc. (at 165)

19 Their Lordships decision on accommodation at pages 173-175 commences

Can it be said, then, of the right of full enjoyment of the park in question, which was granted by the conveyance of December 23, 1864, and which, for reasons already given, was, in our view, intended to be annexed to the property conveyed to Mr Porter, that it accommodated and served that property?

After dealing with enhancement of value, which their Lordships said was relevant but not decisive, they went on at 173: It appears to us that the question whether or not this connection exists is primarily one of fact, and depends largely on the nature of the alleged dominant tenement and the nature of the right granted.Their Lordships went on to review the facts and the arguments of counsel on the connection between the use of the dominant tenement as a house and the nature of the right to enjoy the garden which had been granted by the easement. In the course of stating their conclusion their Lordships said at 174-175:

It is the collective garden of the neighbouring houses, to whose use it was dedicated by the owners of the estate and as such amply satisfied, in our judgment, the requirement of connexion with the dominant tenements to which it is appurtenant.

Their Lordships went on:

The result is not affected by the circumstance that the right to the park is in this case enjoyed by some few houses which are not immediately fronting on the park. The test for present purposes, no doubt, is that the park should constitute a real and intelligible sense the garden (albeit the communal garden) of the houses to which its enjoyment is annexed. But we think that the test is satisfied as regards these few neighbouring, though not adjacent, houses. We think that the extension of the right of enjoyment to these few houses does not negative the presence of the necessary nexus between the subject-matter enjoyed and the premises to which the enjoyment is expressed to belong.

20 That is to say, their Lordships regarded it as necessary that in a real and intelligible sense there be a nexus between the subject matter of the easement and the dominant tenement.21 Their Lordships went on to deal withHill v. Tupper(1863) 2 Hurlstone & Coltman 121[1863] EngR 493; ,159 ER 51, and this passage is presently important.

Mr. Cross referred us to, and to some extent relied upon,Hill v. Tupper[1863] EngR 493; ,(1863) 2 H. & C. 121but in our opinion there is nothing in that case contrary to the view which we have expressed. In that case, the owner of land adjoining a canal was granted the exclusive right to let boats out for hire on the canal. He did so and then sought to restrain a similar activity by a neighbouring landowner. He sought to establish that his grant constituted an easement but failed. Pollock C.B. said in his judgment Ibid. 127: It is not competent to create rights unconnected with the use and enjoyment of land, and annex them to it so as to constitute a property in the grantee. It is clear that what the plaintiff was trying to do was to set up, under the guise of an easement, a monopoly which had no normal connexion with the ordinary use of his land, but which was merely an independent business enterprise. So far from the right claimed sub-serving or accommodating the land, the land was but a convenient incident to the exercise of the right.

22 In summary then their Lordships view was that the question whether the right granted accommodated and served the dominant tenement was a question which required it to be shown that the right granted was connected with the normal enjoyment of the dominant tenement, and the question whether the connection existed was primarily one of fact and depended largely on the nature of the alleged dominant tenement and the nature of the right granted. The necessary nexus must exist in a real and intelligible sense. It is not enough that the land should be a convenient incident to the exercise of the right.23 Evershed M.R. addressed the fourth condition at 175 to 187. Satisfaction of that condition was seen to depend on consideration of the three questions (the cognate questions) referred to at 164. As with other parts of the subject the considerations raised by these questions are not sharply defined and it is not always easy to see them as aspects of the fourth condition, or as wholly distinguished from each other. Their Lordships saw the first question, whether the right conferred was too wide and vague, as one question and decided it on the interpretation of the deed by which the easement was created. In the present case the Fourteenth Restriction appears to me to be extremely wide, in a way which calls for consideration under the second question relating to inconsistency with the proprietorship or possession of the servient owners, but what is involved in it is reasonably clear and in my opinion it should not be said to be too wide and vague. There are elements of uncertainty in its meaning with respect to the right to deduct and retain costs, but these can be resolved as a matter of construction, as I do elsewhere in this judgment.

24 Their Lordships dealt with the second question at pp176-177 on the interpretation of the deed and on whether the right conferred amounted to a joint occupation of the park with its owners or an exclusion of the proprietorship or possession of the owners. Their Lordships pointed to acts of possession which remained open to the owners and said (at 176) We see nothing repugnant to a mans proprietorship or possession of a piece of land that he should decide to make it and maintain it as an ornamental garden, and should grant rights to a limited number of other persons to come into it for the enjoyment of its amenities. Their Lordships considered and distinguishedCopeland v. Greenhalf[1952] Ch 488.In that case Upjohn J had decided that the claimed easement really amounted to a claim to a joint user of the land and that that was not a claim which could be established as an easement. In the view of the Court of Appeal those facts bore no real relation to the case before them. In my view this question of inconsistency with proprietorship is of central importance in the present case. I will return to it.25 The third question whether the right conferred is a mere right of recreation without utility or benefit required and received attention by the Court of Appeal at 177 to 187.[iLearn NOTE: The Court of Appeal in Re Ellenborough Park said that the rights granted were not mere jus spatiandi (a licence to wander over someone's land) but constituted 'abeneficial attribute of residence in a house as ordinarily understood. Its use for the purposes, not only of exercise and rest but also for such normal domestic purposes as were suggested in argument - for example, for taking out small children in prams or otherwise - is not fairly to be described as one of mere recreation or amusement, and is clearly beneficial to the premises to which it is attached.]The right purportedly conferred by the Fourteenth Restriction has no analogies to a mere right of recreation, and if effective its utility and benefit are clear.26 As far as I am aware, easements which entitled the dominant owner to go on to the servient owners land, cultivate it and take the grapes or crops so produced have never been subject of any judicial opinion favouring their validity; it would of course have been quite important for counsel to point out any such authority and I was not referred to any. This is a field where analogies in case law can be as illuminative as statements of principle, and close analogies would be particularly helpful. I asked counsel for references to judicial decisions which illustrate the concepts of accommodation and of exclusion of proprietorship. I was given many references, which I have considered, although not all of them call for observations in this judgment. On neither question were counsel able to refer to any decision which could be regarded as a close analogy.27 Although the authorities precedingIn re Ellenborough Parkare a much trodden path, there are some to which I should refer.33 InHill v. Tupper[1863] 2 Hurlstone & Coltman 121[1863] EngR 493; ,159 ER 51(cited inEllenborough Park:see my para.[21]) the Court of Exchequer decided against the validity of an easement granting the sole and exclusive right of putting and using pleasure boats for hire on a canal. The servient tenement was the canal. The plaintiff held a lease for seven years from the canal proprietor of a parcel of land adjoining the canal wharf containing 19 poles, a little under one-eighth of an acre or about 480 square metres, with a wooden cottage, boat house and other structures, and the lease also gave him sole and exclusive rights to put boats on the canal and let them for hire for pleasure. The defendant, an innkeeper, kept pleasure boats, used them on the canal and allowed inn customers to use them for fishing and bathing, to his pecuniary advantage. The plaintiff sued the defendant, it would seem for trespass; the canal proprietors were not parties. The Court of Exchequer held that the lease did not create such an estate or interest in the plaintiff as to enable him to maintain an action. Pollock C.B. at 127-128 said: ...I do not think it necessary to assign any other reason for our decision, than that the case ofAckroyd v. Smith[1850] EngR 1;10 CB 164expressly decided that it is not competent to create rights unconnected with the use and enjoyment of land, and annex them to it so as to constitute a property in the grantee .... A new species of incorporeal hereditaments cannot be created at the will and pleasure of the owner of property; but he must be content to accept the estate and a right to dispose of it subject to the law as settled by decisions or controlled by act of Parliament.Martin B said at 128: To admit the right would lead to the creation of an infinite variety of interests in land, and an indefinite increase of possible estates and referred toAckroyd v. SmithandKeppell v. Bailey. InEllenboroughParkthis decision was treated as a decision under the second condition: see 175, and the words of Pollock C.B. which were referred to seem to show the view that the rights to let out pleasure boats on the canal were unconnected with the use and enjoyment of the land leased. Pollock C.B. and Martin B also referred to novelty and the inadmissibility of new interests in land, which seem to direct attention to the fourth condition.38 Observations of Pollock CB inHill v. Tupperappear to show that new classes of easements cannot be created. This is not the law; it was not the law whenHill v. Tupperwas decided. InAttorney General of Southern Nigeria v. John Holt & Co. (Liverpool) Ltd[1915] AC 599at 617 Lord Shaw for the Privy Council said The law must adapt itself to the conditions of modern society and trade, and there is nothing in the purposes for which the easement is claimed inconsistent in principle with a right of easement as such. This principle is of general application, and was so treated in the House of Lords inDyce v. Hay(1852) Macqueen 305 by Lord St Leonards LC who observed:The category of servitudes and easements must alter and expand with the changes that take place in the circumstances of mankind. Lord Shaw spoke in relation to an easement to store goods involved in sea carriage on waterfront land; not a change in the circumstances of mankind, but a continuation of thousands of years of practice.40..An easement may be novel in that it accommodates the dominant land in a way which only became possible or useful because of some relatively recent invention; and the easements for electricity supply and telecommunications services furnish ready examples. Easements for services of kinds which arise from new technology are novel in the sense that technology is new and until it was invented land was not accommodated by it, but if the dominant land is accommodated and the servient land is burdened in ways analogous to the operation of easements which were earlier known novelty could not be an obstacle to the validity of the easement. Another aspect of novelty is novelty in respect of the manner and degree of intervention in the rights of the servient owner. Evaluation of the degree of intervention will be required. Novelty presents difficulty for the validity of an easement when the intervention with the servient tenement differs from interventions which are already known, and does so markedly as to bring under consideration the question whether it creates an interest of a new kind outside the known concept of an easement. What cannot be done is to create new kinds of interests in land. This cannot be done because it conflicts with the principle referred to by Lord Brougham LC inKeppel v. Baileyin the passages I have cited at para[29].41 In appraising the degree of intervention in the servient owners opportunity to use the land attention must be directed to restrictions other than the Fourteenth Restriction, including the easement for recreation and maintenance which entitles the dominant owner to enter Part B, cut and remove timber, landscape the land and build riding trails and picnic areas, structures, works and facilities for recreation. In terms of reality the servient owner has no opportunity to do anything which is related to farming, except in a way which is altogether subordinated to and does not interfere with the rights of the dominant owner. The servient owners opportunity for recreational activity, whether it is enjoyment of rustic tranquillity or anything more active, is merely nominal having regard to the dominant owners entitlement to carry out vineyard establishment works, plant and replant grapevines and crops, plant harvest slash and spray crops, and carry out vineyard maintenance and harvesting. It is true that the owner will not be a trespasser provided that he keeps out of the dominant owners way, but his rights are no more than a shadow of ownership and possession of a freehold and do not have any reality beyond the opportunity to experience a sense of proprietorship and the opportunity to receive and pay bills for municipal rates.43 It will be seen how little it was contended that servient owners actually could do on their Part B. They can enter on and enjoy Part B for recreational purposes; but that is not an opportunity which appears to me to have any realistic utility, as the land is not recreational land. Part B is farming land, available to use for production of crops in addition to grapevines, and subject to the exercise by the dominant owner when and as the dominant owner thinks right of all the rights referred to in the Fourteenth Restriction, not only in relation to grape vines but also any summer crops or other crops which may be sown between the vines or elsewhere on Part B. Material in Exhibit E illustrates the prospect that cropping in addition to viticulture will be carried out. Opportunities for recreation are severely limited by the primacy of viticulture and cropping, and the need to refrain from any acts which interfere with them. The defendants as owners of Lot 27 do not in reality have any opportunity to carry out viticulture or other cropping activities on Part B, because they would have to desist from anything they were doing if it conflicted with any activity under the Fourteenth Restriction, and the plaintiff would be entitled to override anything the defendants did while exercising those rights.44 InEllenborough Parkpassages in the judgment of the Court of Appeal at 175-176 clearly show the view of the Court that a right is incapable of forming the subject matter of an easement, and is invalid as an easement, if it is inconsistent with the proprietorship or possession of the servient owners, and that if the right conferred amounted to a joint occupation with the owners, or excluded the proprietorship or possession of the owners it would be so inconsistent.47 In my opinion there is no reality in the perception that the Easement for Vineyard created by the Fourteenth Restriction accommodates Lot 86. This is so whether or not some structures associated with viticulture and cropping stand on Lot 86. There is nothing in the Agreed Facts which ties the activities under the Fourteenth Restriction to the ownership of Lot 86 or to any activity which takes place there, or which shows any accommodation, advantage or enhancement in respect of Lot 86. If Lot 86 is considered as a piece of land, the use of Lot 86 is not enhanced and Lot 86 is not accommodated in any way by the fact that the owner of Lot 86 has a right to take vehicles, implements and machinery onto Lot 27 and carry out works there, or to take the harvest, still less by the right to sell the produce of the harvest and deduct some costs therefrom. Lot 86 could be a convenient incident to action under the Fourteenth Restriction: but that is not enough. The fact that the owner of Lot 86 is also the owner of the rights over Lot 27 is not an accommodation of Lot 86; it is only a coincidence that both sets of rights have the same owner. There is no analogy with the accommodation of the site of the inn inMoody v. Stegglesby the sign board at the end of the alley[iLearn note: In Moody v Steggles the right for a pub (the dominant tenement) to put a sign advertising the pub on the side of another building (the servient tenement) was held to be a valid easement].Lot 86 is a peg on which to hang dominant ownership and steer theSection 88BInstrument through the registration process.50 On an overall view the Fourteenth Restriction is the keystone of a structure of restrictions which creates an estate in which lots are nominally held under freehold title but actually held subject to seigneurial rights which put all opportunities to carry out viticultural and agricultural activities in the hands of the dominant owner, for all the farming land in the estate, and leave the freehold owners in a servile powerless condition. This is a novel scheme of ownership with rights of ownership not known to the law. It is a re-invention, and an imposition on freehold title, of the substance of the scheme of manorial and copyhold title which existed in England centuries ago and has been abolished there, but was never introduced into Australia. In my opinion the law of easements cannot be used to change the nature of freehold ownership in this way and to create a substantially different kind of land title. The freeholders are neutralised and powerless, unable to control or in truth to influence what is to happen on their agricultural land. Putting the land to its highest and best use is impeded, to the detriment of the public interest as well as the interests of the freeholders. The scheme including the Fourteenth Restriction is radically novel and, goes beyond what the law of easements can achieve. The Fourteenth Restriction is invalid because it fails both the second condition and the fourth condition and second question referred to inEllenborough Park.

Bryson J's judgment was confirmed on appeal.

From this extract from Bryson J's judgment you can see that there are two critical criteria for novel rights granted to constitute a valid easement:

the rights granted must accommodate the dominant tenement, (the second condition inRe Ellenborough Park) and

the rights granted must be capable of forming the subject matter of a grant (the fourth condition inRe Ellenborough Park).

Write a definition of both of these criteria in your own words.

3. Interpretation of easements

At the risk of stating the obvious, the dominant tenement's rights to use the servient tenement land depend on the rights the dominant has been given by the easement, and those rights are contained in the words used in the registered dealing. In practice, it is essential to draft easements accurately, and to read existing easements carefully. For example, an easement 'to discharge water' through pipes does not permit the dominant owner to discharge water contaminated with sewerage. Courts apply "the ordinary rules for interpreting instruments. The key principle is that the instrument is construed according to the natural meaning of its words, read in the light of circumstances known to the parties and existing at the time of the grant", (Edgeworth,Butt's Land Law, p 563). But this principle must also be read in light of the High Court's decision inWestfield Management Ltd v Perpetual Trustee Co Ltd(2007) 233 CLR 528, (below), and by the fact that logically, the older an easement is, the harder it is to know what was existing and known to the parties at the time of the grant.

In addition to the rights expressly granted by the easement, dominant tenement owners are considered to have whatever 'ancillary rights' are reasonably necessary for the exercise and enjoyment of their rights. For example, if they have a right of carriageway, they will have an ancillary right to ensure the surface of the easement is trafficable (e.g., by paving a driveway, grading a dirt road or even installing a turning circle:Berryman v Sonnenschein[2008] NSWSC 213). Ancillary rights depend on the facts of each case. Some cases have found that a right of carriageway includes the right to stop and unload goods and people, while others have found the converse (seeButt's Land Law, pp 573-4). The servient tenement has no obligation to maintain the site of an easement, and so as a matter of necessity, the dominant tenement may need to do so to ensure the easement can continue to be used. In the past, the prohibition on positive obligations on freehold land made it impossible to include obligations to repair in the grant of the easement (on either the servient or dominant tenement title), buts88BAof theConveyancing Act 1919now expressly allows positive covenants for repair to be registered in relation to either the dominant or servient tenement, a sensible development in the law.

The leading case on the interpretation of easements is theWestfieldcase. The case illustrates the importance and value of easements in increasingly dense cities. No doubt you will be familiar with the site, if not the buildings as they existed at the time of the case. There used to be four separate shopping centres on the eastern side of the Pitt St Mall. They were Glasshouse (on the corner of King St and the Pitt St Mall (Country Road is still on the ground floor)), Skygarden, the Imperial Arcade and then Centrepoint. The Mall was created in the 1980s when Pitt St was blocked off, creating a pleasant shopping precinct, but creating challenges for trucks with goods to access retail premises. The streets bounding the mall - King, Castlereagh and Market - are all busy thoroughfares, which are difficult if not impossible to stop on. As a result, access to the basement of the shopping centres is extremely valuable, and physical access to the basements of Skygarden, the Imperial Arcade and Centrepoint, which became the large Westfield development in 2010, was via an easement over Glasshouse. The easement was created in 1988 when Glasshouse was developed. The development consent for Glasshouse contained a condition that the owner of Glasshouse, (with the co-operation of the owners of Skygarden, the Imperial Arcade and Centrepoint), would extend the easement to allow access to the basements ofthe Imperial Arcade and Centrepoint when it became necessary. The Court of Appeal had found that this condition was enforceable against the currentowner of Glasshouse, Perpetual,but that the condition had only just become operable at the time of the litigation. Further,Westfield was yet to make a sufficiently clear offer to Perpetual in relation to insurance and maintenance of the easement.

The High Court dealt with the matter quite differently. They limited their deliberations to the registered dealings, namely thedeposited planandthe s88Bregistered easement.

Westfield Management Limited v Perpetual Trustee Company Limited[2007] HCA 45Fact diagram:

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wfrAQUi7TanggAAAABJRU5ErkJggg==" * MERGEFORMATINET

1 GLEESON CJ, GUMMOW, KIRBY, HAYNE AND HEYDON JJ. This litigation concerns the terms of an easement conferring a right of way by means of a vehicular ramp under the servient tenement. What is at stake is access to, from and over several parcels of land in the central business district of the City of Sydney. All of these parcels are registered under the provisions of theReal Property Act1900 (NSW) ("the RP Act"). The appellant ("Westfield") is the present registered proprietor of the dominant tenement HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn1" o "" [1]upon which is erected the multi-storey commercial premises known as "Skygarden". The respondent ("Perpetual") is the registered proprietor of the servient tenement HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn2" o "" [2]upon which is erected the multi-storey commercial premises known as "Glasshouse".

2 Glasshouse fronts both King Street and a pedestrian precinct known as the Pitt Street Mall which runs at a right angle to King Street. Skygarden abuts the Pitt Street Mall. This pedestrian precinct lacks ordinary vehicular access. Hence the importance for Skygarden of access across the Glasshouse site to King Street.

The legislation

3 Section88B(2) of theConveyancing Act1919 (NSW) ("the Conveyancing Act") specifies requirements for the registration of plans which provide for the creation of easements. Upon registration of such plans the easements are created without any further assurance and by virtue of that registration (s88B(3)(c)). Section47 of the RPAct provides for the recording of a dealing creating an easement, with entries on the folios of the Register for the land benefited and the land burdened. This was done with respect to the Skygarden land and the Glasshouse land.

4 Section 31B of the RPAct requires the Registrar-General to maintain the Register. The Register comprises, among other instruments and records, both folios and dealings registered therein under the RPAct (s31B(2)). A "dealing" includes any instrument registrable under the provisions of the RPAct (s3(1)). Section96B classifies the Register as a public record and provides for its inspection.

5 Together with the information appearing on the relevant folio, the registration of dealings manifests the scheme of the Torrens system to provide third parties with the information necessary to comprehend the extent or state of the registered title to the land in question. This important element in the Torrens system is discussed by BarwickCJ inBursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn3" o "" [3]. It will be necessary later in these reasons to refer further to the significance of this for the present appeal.

6 The easement with which this litigation is concerned ("the Easement") was created upon registration ofDP641047("the DP") on 26April1988. The DP included an instrument ("the Instrument") headed:

"Instrument Setting Out Terms of Right of Way Intended to Be Created Pursuant to Section 88B, Conveyancing Act, 1919".

7 The terms of the Easement identify it as:

"Right of Way 6.6 wide and variable limited in height to the strata delineated on the plan."

The attached plan shows entry from King Street and thence by subterranean passage or driveway across and beneath the Glasshouse land to the boundary of the Skygarden land.

8 At the time of creation of the Easement, the registered proprietor of the Glasshouse site was Jamino Pty Ltd ("Jamino") and the registered proprietor of the Skygarden site was Mastwood Pty Ltd ("Mastwood"). Perpetual and Westfield are respectively the present successors in title to Jamino and Mastwood.

The Pitt Street Mall

9 The Pitt Street Mall was created in 1987. This implemented a plan adopted in 1983 by the Council of the City of Sydney ("the Council") for the closure of Pitt Street between King Street and Market Street to traffic. Construction on the Glasshouse site commenced in about 1987. A vehicular ramp under Glasshouse was completed in about 1988, substantially in accordance with the plan in the DP. The Skygarden building opened in 1990.

10 The Council had adopted a building code which at the time of construction of Glasshouse provided for the award of bonus floor space to encourage developers to supply elements of the pedestrian network favoured by the Council. The terms of a condition imposed by the development approval by the Council for Glasshouse have been the subject of separate litigation between Perpetual, Westfield and the Council. An application by Perpetual for special leave to appeal to this Court against the decision of the New South Wales Court of Appeal in that litigation HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn4" o "" [4]was heard with the present appeal, but was dismissed HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn5" o "" [5].

11 At the time of the creation of the Easement in 1988, all four parcels of land had been in separate ownership. In recent years Westfield has acquired, in addition to the Skygarden site, the land upon which stand the commercial developments known as "Imperial Arcade" and "Centrepoint". Imperial Arcade adjoins Skygarden, and Centrepoint adjoins Imperial Arcade. Both Imperial Arcade and Centrepoint front the Pitt Street Mall. Westfield proposes to redevelop together all three sites. It wishes to utilise for that redevelopment the right of way under Glasshouse so as to enable vehicular access from King Street.

The litigation

12 By summons filed in the Equity Division of the Supreme Court of New South Wales, Westfield sought against Perpetual a declaration that the Easement permitted Westfield, as owner of Skygarden, to allow persons or vehicles to use the driveway to continue over (or more accurately, under) Skygarden to access driveways, parking spaces and loading docks to be built on the Imperial Arcade or Centrepoint sites.

13 BreretonJ granted declaratory relief to the effect of that sought by Westfield HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn6" o "" [6]. The Court of Appeal (Beazley, Hodgson and Tobias JJA) allowed an appeal by Perpetual HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn7" o "" [7]and set aside the orders of BreretonJ. The principal reasons of the Court were delivered by HodgsonJA.

14 Westfield appeals to this Court, seeking to reinstate the decision of the primary judge. For the reasons that follow the appeal should be dismissed.

The terms of the Easement

15 It is appropriate to begin with the terms of the Easement as they appear in the Instrument. What are identified as eleven conditions of the "right of carriageway" are set out. It will be necessary to refer to some of these conditions later in these reasons. It is the terms of the opening words of the Instrument which are of immediate importance. They state:

"Full and free right of carriageway forthe grantee its successors in title and registered proprietors for the time being of an estate or interest in possession ofthe land herein indicated as the lots benefited or any part thereofwith which the rights shall be capable of enjoyment and every person authorised by it,to go,pass and repassat all times andfor all purposeswith vehiclesto and from the said lots benefitedor any such part thereofacross the lots burdened". (emphasis added)

16 This form of words has an affinity to that which, since the commencement in 1931 of theConveyancing (Amendment) Act1930 (NSW) ("the 1930 Act"), has been the effect given by s181A of the Conveyancing Act HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn8" o "" [8]to the creation of a right of way using the expression "right of carriageway". Section181A extends to dealings under the RP Act (s181A(4)). The meaning given to the expression "right of carriageway" by the statute may be varied by the instrument in which it is used (s181A(3)). The words otherwise read in by the statute are as follows:

"Full and free right for every person who is at any time entitled to an estate or interest in possession in the land herein indicated as the dominant tenement or any part thereof with which the right shall be capable of enjoyment, and every person authorised by that person, to go, pass and repass at all times and for all purposes with or without animals or vehicles or both to and from the said dominant tenement or any such part thereof."

17 The phrases "to go, pass and repass at all times and for all purposes ... to and from the said dominant tenement ['lots benefited'] or any such part thereof" appear in both the statute and the Instrument. However, for the Easement the activities permitted with respect to the servient tenement (Glasshouse) are "across the lots burdened", an expression not found in the statutory formulation. This expression is apt to describe entry from King Street, and passage across the Glasshouse site of the servient tenement to reach Skygarden as the destination. What is significant for the present dispute is that the Easement does not also speak of activities "across" rather than "to and from" the dominant tenement (Skygarden).

18 In that regard, HodgsonJA, who gave the leading reasons for judgment in the Court of Appeal, remarked HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn9" o "" [9]:

"Although the words 'to and from [the dominant tenement] or any such part thereof' do not exclude the possibility that the right should extend to goingtothe dominant tenement and then going across it to further land, and then returning across the dominant tenement and then goingfromit across the servient tenement, the words tend to suggest that it is access to and from the dominant tenement that is the purpose of the [E]asement, and not access to further land reached only by going across the dominant tenement. Certainly, if it had been intended that the grant extend to the authorisation of others to go across the dominant tenement to further properties, the words 'and across' could readily have been added." (emphasis in original)

We agree.

"[F]or all purposes"

19 In its submissions, Westfield stressed the significance for the construction of the Instrument of the phrase therein "for all purposes". This was said to be plainly apt to encompass the purpose of accessing Skygarden, the dominant tenement, and from there travelling to some further property.

20 The phrase "for all purposes" appears also in the statutory formulation which has been included in the Conveyancing Act since the commencement of the 1930 Act. Before 1930 it had appeared in easements the construction of whose terms had come before the courts.

21 One such case wasThorpe v Brumfitt HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn10" o "" [10]. There, a grant of a right of way "for all purposes" across the servient tenement did not plainly identify any dominant tenement. Did the grant fail as being an attempt to create an easement in gross HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn11" o "" [11]? As a matter of construction JamesLJ and MellishLJ avoided that result. MellishLJ HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn12" o "" [12]construed the phrase "for all purposes" as identifying all purposes which made it necessary to pass between the servient tenement and a triangular parcel of land indicated in the conveyance creating the easement HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn13" o "" [13]. This decision is significant in two respects. First, it illustrates the importance of the legislative requirement imposed in New South Wales by s88 of the Conveyancing Act (also introduced by the 1930 Act) for identification of the lands comprising the dominant and servient tenements. Secondly, it emphasises that the "purposes", extensive as they may be, must confer what the law regards as a benefit on the dominant tenement, by making it "a better and more convenient property"; this is something more than a "personal advantage" to the owner of the tenement for the time being HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn14" o "" [14].

22 More recently, inPeacock v Custins HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn15" o "" [15]the English Court of Appeal considered the phrase "a right of way at all times and for all purposes" in favour of the dominant tenement ("the red land") the owners of which also owned adjacent land ("the blue land"). After reviewing many authorities, includingHarris v Flower HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn16" o "" [16], SchiemannLJ (delivering the judgment of the Court also comprising ManceLJ and SmithJ) concluded that the terms of the grant did not permit the extended user in favour of the blue land and, further, that this user could not reasonably be described as "ancillary" to the use of the red land HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn17" o "" [17].

23 The reference inPeacock v Custins HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn18" o "" [18]to user which could be described as "ancillary" to the grant appears to have identified the line of cases holding that, on general principles of conveyancing, the grant of an easement carries with it those ancillary rights which are necessary for the enjoyment of the rights expressly granted HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn19" o "" [19]. For example, WarnerJ held inNational Trust for Places of Historic Interest or Natural Beauty v White HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn20" o "" [20]that use by visitors of a car park adjacent to an Iron Age hill fort in Wiltshire known as the Figsbury Ring was an "ancillary" user in the required sense. However, it is not necessary for the enjoyment of the rights granted for access to the Skygarden land that those using that access be at liberty to pass beyond Skygarden to other land.

24 It should be added that if the construction of the Instrument urged by Westfield were accepted, and the grant extended to permit use of Glasshouse to pass across Skygarden to other parcels of land, then a further question would arise. This would be whether a grant in those terms would be appurtenant to Skygarden in the sense of the authorities, or be but a personal advantage accruing to Westfield as the present owner of Skygarden. It is unnecessary to determine such a question. This is because the Easement, upon the proper construction of the terms of the grant, does not extend to user of the type for which Westfield contends.

25 The most recent edition ofGale on Easements HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn21" o "" [21]states:

"The general rule is that a right of way may only be used for gaining access to the land identified as the dominant tenement in the grant."

There follows a detailed analysis of the English authorities, which begins with remarks to that effect by RomerLJ inHarris v Flower HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn22" o "" [22].

26 The decision in that case has been much discussed in later authorities both in England and Australia, a number of which were reviewed by BreretonJ at first instance. His Honour concluded thatHarris v Flowerstands for the proposition that:

"use of an easement cannot be extended, beyond the scope of the grant, to impose a burden greater than that which the servient owner agreed to accept".

27 That statement accords with the following analysis ofHarris v Flowerwhich is offered inGale on Easementsand which we would adopt HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn23" o "" [23]:

"InHarris v Flower & Sonsthe excessive user by which it was attempted to impose an additional burden on the servient tenement consisted in the use of a right of way for obtaining access to buildings erected partly on the land to which the right of way was appurtenant and partly on other land. A claim was put forward on behalf of the plaintiffs that the right of way had been abandoned, on the ground that, as it was practically impossible to separate the lawful from the excessive user, the right of way could not be used at all. This contention failed, however, the court holding that there had been no abandonment, but that the user of the way for access to the buildings so far as they were situate upon land to which the right of way was not appurtenant was in excess of the rights of the defendants, and a declaration was made accordingly, with liberty to apply." (footnote omitted)

28 However, BreretonJ went on to hold:

"It is not in excess of the grant to use a right of way to access the dominant tenement for those purposes that were contemplated at the time of the grant."

The difficulty is in the phrase "that were contemplated". Contemplated by whom? By what evidentiary means is this contemplation later to be revealed to the court? How do these steps accommodate the Torrens system? To these matters it will be necessary to return.

29 At this stage in the reasons it is important to remark that care certainly must be taken lest the statement inGale on Easementsset out above be elevated to the status of a "rule", whether of construction or substantive law. What the statement does provide is a starting point for consideration of the terms of any particular grant. The statement is consistent with an understanding that the broader the right of access to the dominant tenement granted by the easement, the greater the burden upon the proprietary rights in the servient tenement.

30 We return to the terms of the Easement. The access is to go, pass and repass to and from Skygarden and across Glasshouse. The terms do not speak of going, passing and repassing to and from and across Skygarden, and across Glasshouse. The term "for all purposes" encompasses all ends sought to be achieved by those utilising the Easement in accordance with its terms.

The conditions

31 Something more here should be said respecting the set of conditions set out in the Instrument. Clauses (3) and (4) of the conditions are in the following terms:

"(3) Subject to Clause (4) the cost of routine maintenance and repair to the site of the carriageway shall be borne equally between the grantor and grantee.

(4) The cost of repair of damage caused to the site of the carriageway (including all structures, equipment, fixtures and fittings erected or positioned on or over the boundaries of the carriageway which boundaries are shown in the above mentioned plan) by the grantor or grantee, their respective servants or agents shall be borne by such grantor or granteePROVIDED HOWEVERthat in any other case the cost of repair shall be borne equally between the grantor and grantee."

32 In the absence of further clear words it might be considered unduly burdensome upon the owner for the time being of Glasshouse that it meet one half of the costs associated with access to remoter lots. That no such further provision was made is consistent with the construction adopted in these reasons of the terms of the grant of the Easement. Further, cl (4) attributes responsibility to the respective parties for the costs of repair of damage caused to the site of the carriageway by the grantor or grantee, and otherwise provides for them to bear equally the costs of repair. No attention has been given to the costs of repairs occasioned by those utilising the Easement to pass across and beyond Skygarden.

33 Clauses (7) and (8) are as follows:

"(7) The grantor and grantee shall at their own cost separately insure and keep insured at all times during the life of the right of carriageway the structure of the carriageway and all associated fixtures and fittings (including but not limited to signage) for loss or damage thereto arising as a direct result of their respective use of the carriageway.

(8) The grantor and grantee shall at their own cost separately effect and maintain at all times during the life of the right of the carriageway public risk insurance covering their respective legal liability to third parties (including the other party) for property damage and bodily injury arising out of their respective use of the carriageway."

No provision is made for insurance against loss or damage arising as a result of use of Glasshouse by the owners for the time being of tenements beyond the boundary of Skygarden. Nor is the obligation to effect public risk insurance so drawn as to deal with the range of uses for which Westfield contends. The same may be said of the limited indemnity required by cl (9). This reads:

"(9) The grantee shall indemnify and keep indemnified the grantor against all actions, claims, suits, demands and losses arising from any default act or omission of the grantee its servants or agents in the use of the right of carriageway."

34 On this point, HodgsonJA remarked (and we agree) HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn24" o "" [24]:

"[I]f Skygarden could authorise Imperial Arcade and Centrepoint to use the right of way for access to their premises, it seems anomalous that Glasshouse should be required to submit to this where there is no requirement for Imperial Arcade and Centrepoint to maintain insurance, along the lines provided in cll (7) and (8) of the [E]asement. It would also be anomalous that there was no indemnity from Imperial Arcade and Centrepoint of the kind provided in cl (9) of the [E]asement."

Extrinsic material

35 In going on to allow the appeal, HodgsonJA (again correctly) remarked that the decision of the primary judge appeared to be the product of an error in preparedness to look for the intention or contemplation of the parties to the grant of the Easement outside what was manifested by the terms of the grant. Extensive evidence of that nature had been led by Westfield on affidavit with supporting documentation.

36 In this Court, counsel for Perpetual submitted that some but not all of the extrinsic evidence had been admissible; in particular, the evidence said to supply part of the "factual matrix" but which post-dated a deed dated 26February1988 containing a covenant to grant the Easement was inadmissible. So also was said to be evidence of the subjective intention of the then owner of Glasshouse which had not been communicated to the then owner of Skygarden. Perpetual accepted that what had been admissible was evidence of a preceding oral agreement between those parties: this had been to the effect that the Easement was to permit access to Skygarden via Glasshouse.

37 However, in the course of oral argument in this Court it became apparent that what was engaged by the submissions respecting the use of extrinsic evidence of any of those descriptions, as an aid in construction of the terms of the grant, were more fundamental considerations. These concern the operation of the Torrens system of title by registration, with the maintenance of a publicly accessible register containing the terms of the dealings with land under that system. To put the matter shortly, rules of evidence assisting the construction of contractsinter partes, of the nature explained by authorities such asCodelfa Construction Pty Ltd v State Rail Authority of NSW HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn25" o "" [25], did not apply to the construction of the Easement.

38 Recent decisions, includingHalloran v Minister Administering National Parks and Wildlife Act 1974 HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn26" o "" [26],Farah Constructions Pty Ltd v SayDee Pty Ltd HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn27" o "" [27], andBlack v Garnock HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn28" o "" [28], have stressed the importance in litigation respecting title to land under the Torrens system of the principle of indefeasibility expounded in particular by this Court inBreskvar v Wall HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn29" o "" [29].

39 The importance this has for the construction of the terms in which easements are granted has been remarked by GillardJ inRiley v Penttila HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn30" o "" [30]and by EverettJ inPearce v City of Hobart HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn31" o "" [31]. The statement by McHughJ inGallagher v Rainbow HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn32" o "" [32], that:

"[t]he principles of construction that have been adopted in respect of the grant of an easement at common law ... are equally applicable to the grant of an easement in respect of land under the Torrens system",

is too widely expressed. The third party who inspects the Register cannot be expected, consistently with the scheme of the Torrens system, to look further for extrinsic material which might establish facts or circumstances existing at the time of the creation of the registered dealing and placing the third party (or any court later seized of a dispute) in the situation of the grantee HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn33" o "" [33].

40 It is true that inOverland v Lenehan HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn34" o "" [34]GriffithCJ admitted extrinsic evidence to show a misdescription of the boundaries of the land comprised in a certificate of title. This is a matter now dealt with in the RP Act by the provisions in Pt15 (ss136138) for the cancellation and correction of instruments. Subsequently, inPowell v Langdon HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn35" o "" [35]RoperJ accepted as applicable to the construction of a particular grant of a right of way (apparently over land under the RP Act) a statement by Sir George JesselMR inCannon v Villars HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn36" o "" [36]. This was that the content of the bare grant of a right of wayper sewas to be ascertained by looking to the circumstances surrounding the execution of the instrument, including the nature of the surface over which the grant applied.

41 The situation with which the Australian courts were concerned in the above cases bore little resemblance to that in the present case, where the evidence goes to the intentions and expectations of the parties to the Instrument respecting the development of an area in the central business district of Sydney.

42 To some degree the attraction of "the common law approach to the construction of grants of easement" HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn37" o "" [37]has been to counter arguments that a right of way may be used only for the purposes for which the way was used at the time of the grant. But to accept the proposition that the user under a registered easement may change with the nature of the dominant tenement, so long as the terms of the grant are sufficiently broad HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn38" o "" [38], does no violence to the principles of the Torrens system.

43 Subsequent changes in circumstances may found an application under s89 of the Conveyancing Act for modification or extinguishment HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn39" o "" [39]. The conduct of the immediate parties to a dispute may found a personal equity of the kind considered inMayer v Coe HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn40" o "" [40]and accepted inBreskvar v Wall HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn41" o "" [41], and also may bear upon a claim for injunctive relief, as KearneyJ indicated inAndriopoulos v Marshall HYPERLINK "file:///C:/Users/cathl_000/Downloads/45.rtf" l "_ftn42" o "" [42]. But this was not what was involved in the significance attached by the primary judge to the evidence of what may or may not have been in the contemplation of Jamino and Mastwood, or their affiliates and advisors, at or before the grant of the Easement in 1988. These matters were used to guide, if not control, the construction of what appeared on the Register.

44 It may be accepted, in the absence of contrary argument, that evidence is admissible to make sense of that which the Register identifies by the terms or expressions found therein. An example would be the surveying terms and abbreviations which appear on the plan found in this case on the DP.

45 But none of the foregoing supports the admission in this case of evidence to establish the intention or contemplation of the parties to the grant of the Easement.

Conclusion and orders

46 The appeal fails and should be dismissed with costs.

4. Extinguishment of easements

As an easement is a property right that the dominant tenement has over the servient tenement land, logically that property right will only cease to exist if its owner, the dominant tenement, agrees.So, ifa servient owner wants to remove an easement from their land, they will approach the dominant tenement owner and ask them to 'release' the easement:Real Property Act,s47(6). The dominant owner may reasonably expect to the paid for the release of their rights.

At common law, an easement can cease to exist if itis 'abandoned' by the dominant tenement owner. Non-use of the easement alone is not sufficient for abandonment, although it will be relevant to the question of whether the dominant tenement owner has an intention never to assert their rights to the easement or transfer them to anyone else. The concept of common law abandonment has now been included ins89of theConveyancing Actwhich gives the Supreme Court the power to modify or topartly or wholly extinguish an easement (or covenant or profit a prendre) in a range of circumstances. Read s89 carefully so that you can understand its ambit, and then consider its application in the following case.

Treweeke v 36 Wolseley Road Pty Ltd[1973] HCA 27; (1973) 128 CLR 274

McTIERNAN J. This is an appeal from the judgment of the Supreme Court of of Mrs. Treweeke to which the appeal relates. The learned judge refused the application. This Court is asked to set aside the judgment and make an order granting the application. (at p277)

2. The application is brought in relation to a right of way created in 1927. It is a right to utilize a strip of land three feet wide along the north-west boundary - a side boundary - of Mrs. Treweeke's property as a means of access to the beach at Double Bay. She is registered proprietor. The right of way as granted is appurtenant to the allotment on which the premises, no. 36 Wolseley Road, Point Piper, are built. The respondent is the registered proprietor of this property. The existence is shown on Mrs. Treweeke's title to her property and on the respondent's title to its property. They hold an estate in fee simple in their respective properties. Mrs. Treweeke's estate is diminished to the extent of the right of way. The respondent's estate is amplified to that extent. Mrs. Treweeke asked the Supreme Court to grant her one of three orders the terms of which respectively are set out in the summons commencing the application. The orders sought are stated to be alternatives. The first is asked for in terms adopted from s. 89 (3) of the Conveyancing Act, 1919-1969 (N.S.W.). The second is asked for in different terms also adopted from s. 89 (3). The third is asked for in terms adopted from s. 89 (1). (at p278)

3. Section 89 (3) provides that the Supreme Court may on the application of any person interested make an order declaring whether or not in any particular case any land is affected by an easement, and the nature and extent thereof, and whether the same is enforceable, and if so by whom. The relief claimed pursuant to this sub-section is: (1) a declaration that Mrs. Treweeke's land, no. 34 Wolseley Road, is not affected by the easement the subject of the grant mentioned above; and (2) a declaration that the said easement is not enforceable by any person. No ground is prescribed by the Act on which an order may be sought pursuant to s. 89 (3). The summons does not state any ground on which either order is sought. Section 89 (1) provides that where land is subject to an easement the Supreme Court may from time to time, on the application of any person interested in the land, by order wholly extinguish the easement upon being satisfied that by their acts and omissions, the persons referred to in (b) may reasonably be considered to have abandoned the easement wholly. Such persons are the persons of full age and capacity for the time being entitled to the easement. This ground is not mentioned in the summons initiating the application. It seems that from the matters to which Mrs. Treweeke deposed in her affidavit that nothing in par. (a) or par. (c) of s. 89 (1) was relied upon. No oral evidence was given at the hearing. Section 89 applies to the right of way by virtue of sub-s. (6) of the section. The section applies to - "land under the provisions of theReal Property Act, 1900". This is expressly enacted by sub-s. (8). The expression, "land under the provisions of theReal Property Act, 1900" is defined by s. 7 of the Conveyancing Act, 1919-1969. The allotments of land, which are in relation to the right of way, the servient tenement and the dominant tenement, are within the expression first mentioned. (at p278)

4. The strip of land in respect of which the right of way was granted slopes downwards to the beach over ledges of rock. At these places the strip of land is impassable. During the period of Mrs. Treweeke's residence at no. 34 Wolseley Road, which began in 1928, she has made improvements within the vicinity of the north-western side boundary of the property, but not on a large scale. The improvements consisting of steps and paths were to facilitate walking along that side of the fence. These improvements do not reach as far as the precipitous part of the land. They included a low retaining wall to retain the soil where Mrs. Treweeke has made a garden. She also planted shrubs at other places. A comparatively low fence was placed across each of the two of the ledges of rock - it would seem for reasons of safety. Before Mrs. Treweeke resided there bamboo was planted in the vicinity of the north-western boundary, on Mrs. Treweeke's side. She increased this plantation of bamboo. The growth covers the strip of land established by the grant as the locus in quo of the right of way. Mrs. Treweeke deposes by her principal affidavit that the part of the strip of way over which the bamboo extends is impassable. Passage over the strip of land is obstructed by a swimming pool, the framework of which extends above and beyond high-water mark, the limit of Mrs. Treweeke's water frontage. The swimming pool was built by Mrs. Treweeke in 1956. The other works which have been mentioned were constructed later, at intervals. (at p279)

5. The case upon which Mrs. Treweeke's application rests is stated in par. 20 of her principal affidavit. The strip of land the part of the right of way is referred to in the paragraph as "the blue strip", an expression used in a plan. The paragraph reads:

"I am not aware of any person ever having passed orattempted or sought to pass along the blue strip or any partthereof from the property no. 36 Wolseley Road or in exerciseor purported exercise of any right of way along the blue stripor any part thereof, nor has any person ever complained to orcommunicated with me concerning any obstruction to passagealong the blue strip or any part thereof, until the receipt byme of a letter from Messrs. Freehill, Hollingdale & Page theSolicitors for the Respondent hereto in September 1968." (at p279)

6. No. 36 Wolseley Road is a building divided into home units, the owners of which are shareholders of the respondent company [note: this building was a company title block of apartments; company title was the precursor to strata title; the company is essentially the body corporate and to buy an apartment, people purchase shares in the company]. It acquired this property in 1959, shortly after the company was incorporated. Under the terms of the grant of the right of way the registered proprietor of the dominant tenement, his tenants, servants and persons authorized by the registered proprietor are entitled to pass and repass on the strip of ground between the place at which it is in contact with the dominant tenement and the place at the other end at which it is in contact with the high-water mark. The respondent, of course, is not capable of enjoying the right of way personally. There is no suggestion that it disclaimed the right of way. Mrs. Treweeke's statement is relevant in so far as it applies to owners or tenants of the home units and the respondent itself. The solicitor's letter includes the following:

"We are instructed that you have caused a swimming poolto be built on the boundary of your property at the edge ofDouble Bay in such a manner and position that it obstructsour client's right of way, so making it impossible for the rightof way to be used by our client.This obstruction to our client's right of way caused by theconstruction of your pool amounts to a wrongful interferencewith it, such as to entitle our client to various remedies,including the right of removal of the obstruction, or bringingan action for damages, or suit for an injunction against thecontinuance of the interference. We are instructed that ourclient has no desire at this stage to take legal action but wishesto settle the matter with you amicably. No doubt somearrangements can be made, acceptable to both parties, for thegranting of a new right of way which would enable theresidents of our client's building to reach the beach." (at p280)

7. The letter does not refer to the fences or the retaining wall or the plantation. No proceedings were brought before Mrs. Treweeke commenced her application, nor since that time. The summons commencing the application is dated 16th February 1971. (at p280)

8. It was always impossible to use the right of way at the place where each fence was put, by reason of the steepness of the place. In any case, neither fence is immovable. It would appear that at the place where the low retaining wall is built the strip of land was usable as a means of passage towards the beach. The wall is not immovable. As regards the obstruction caused by the growth of bamboo, this could be dealt with by removing some of the growth by a job of pruning. It is a curious feature of the case that the owner of the servient tenement is relying upon things done by herself which she says are obstructions to passage along the strip of land subject to the right of way. (at p280)

9. It is said in Gale on Easements, 14th ed. (1972), p. 351: "It is not every interference with the full enjoyment of an easement that amounts in law to a disturbance; there must be some sensible abridgment of the enjoyment of the tenement to which it is attached, although it is not necessary that there should be a total destruction of the easement". It is said at pp. 352, 353: "As regards the disturbance of private rights of way, it has been laid down that... in the case of a private right of way the obstruction is not actionable unless it is substantial": Pettey v. Parsons (1914) 2 Ch 653, at p 662 . The passage continues: "Again, it has been said that for the obstruction of a private way the dominant owner cannot complain unless he can prove injury; unlike the case of trespass, which gives a right of action though no damage be proved": Thorpe v. Brumfitt (1873) 8 Ch App 650, at p 656 . The passage further continues: "In Hutton v. Hamboro (1860) 2 F & F 218, at p 219;[1860] EngR 145; (175 ER 1031, at p 1032) , where the obstruction of a private way was alleged, Cockburn C.J. laid down that the question was whether practically and substantially the right of way could be exercised as conveniently as before. In Keefe v. Amor (1965) 1 QB 334, at p 347 Russell L.J. said that the grantee of a right of way could only object to such activities of the owner of the land, including retention of obstructions, as substantially interfered with the use of the land in such exercise of the defined right as for the time being was reasonably required." (at p281)

10. Presumably the complaint on behalf of the respondent company was made only in respect of the swimming pool because no other interference with the right of way appeared to the company's advisers to be actionable. A question which I think arises in respect of the extent of user of the right of way is whether, having regard to the difficulties of passage due to the physical features of servient tenement a right to deviate onto the land within the servient tenement adjoining the strip of land is implied in the grant and whether by reason of the construction of the swimming pool such a right arose. It is said in A Treatise on The Law of Easements, Goddard, 7th ed., at p. 425: "... it may happen, and frequently has happened that a way has become impassable from want of ordinary repair, or it may happen that it is impassable through the act, right or wrong, of the owner of the soil. In all these, and possibly in other cases, an important question is likely to arise whether a person entitled to use the way may pass over the adjoining land, or whether he must keep to the path, however inconvenient it may be, or give up his right altogether if the way is absolutely stopped; and it is clear that these questions may arise, both as to private and as to public ways"; and at p. 429: "If a way is rendered impassable by the act of the grantor, the authorities show that the owner of a right of way would be justified in passing over the adjoining ground, provided it belongs to the grantor of the easement, and provided the act of deviation was a reasonable thing in connection with the user of the right". The construction of the swimming pool is not the act of the grantor of the right of way now in question. It is Mrs. Treweeke's act. The persons entitled under the grant of the right would in my opinion be justified in passing over the ground within the servient tenement that adjoins the swimming pool (cases are cited at the foot of p. 429). In my opinion the absence of any complaint by any person entitled to the enjoyment of the right of way does not in the circumstances raise an equity upon which Mrs. Treweeke can obtain either declaration sought pursuant to s. 89 (3). Each declaration is sought in the face of the existing registered title of the respondent to the easement. As regards the request for an order under s. 89 (1) (b), there is no proof of extinguishment of the right of way by agreement, that is by express release. Mrs. Treweeke's case is that extinguishment was effected by acts and omissions amounting to abandonment of the right of way. "As a general rule a release, whether express or implied, must be made by a party whose estate or interest in the dominant tenement is, as regards duration, either greater than or at least co-extensive with the period for which the easement exists": Halsbury's Laws of England, 3rd ed. vol. 12, p. 562, par. 1222. On the subject of "Duration" this principle is enunciated at p. 530, par. 1151: "An easement may be created by express grant for interests analogous in their duration to an estate in fee simple, an estate for life, an estate for years, or even a smaller interest." It is clear from the express grant of the right of way that its duration is intended to be co-extensive with the duration of the estate in fee simple. The relevant "acts or omissions" would need to be things done or omitted by a dominant owner holding an estate in fee simple in the dominant tenement which would amount to abandonment of the right of way or from which abandonment could be reasonably presumed. "Extinguishment by release may be effected either by express release or by circumstances occurring from which a release must be presumed (Crossley & Sons, Ltd. v. Lightowler (1867) 2 Ch App 478 ). In all cases of release the competency of the releasing party is of the utmost importance... ": Halsbury's Laws of England 3rd ed., vol. 12, p. 563, par. 1221. "The extinguishment of an easement by implied release must be based upon the presumed intention of the dominant owner (Crossley & Sons, Ltd. v. Lightowler (1867) 2 Ch App 478 ). It is a question of fact whether an act amounts to an abandonment or was intended as such": Halsbury's Laws of England, 3rd ed., vol. 12, p. 564, par. 1226. There is no proof of any act or omission on the part of the respondent which has the character of abandonment in relation to the right of way. The same is true as regards previous dominant owners. Mrs. Treweeke's evidence in her affidavit is tendered presumably to prove lack of use of the right of way by the occupants of the premises on the dominant tenement, which, as already stated, are home units. It is not shown that any occupant was competent to extinguish the right of way by express or implied release. It is said in Gale on Easements, 14th ed. (1972), at p. 317: "... as an easement, when once created, is perpetual in its nature, being attached to the inheritance and passing with it, some acquiescence on the part of the absolute owner of the dominant tenement is necessary to give effect to any act of abandonment". There is no evidence of such acquiescence on the part of the respondent. It cannot reasonably be presumed that the intention of any occupant of the home units was to abandon the right of way. Residents of the home units gave evidence that they were informed by the agent of the respondent of the existence of the right of way. The evidence, which the learned judge acted upon to make his finding of some use of part of the right of way, prevents an inference from Mrs. Treweeke's evidence that no person from the home units ever went along any part of the strip of land in respect of which the right of way was granted. Mrs. Treweeke relied upon an incident as evidence of abandonment as to which the learned judge made this finding: "In 1933, following an incident in which an occupant of no. 36 Wolseley Road fell down the steep incline near the boundary between the two allotments and damaged a tree on the applicant's land, a fence was built between the two allotments, although it would appear that probably this fence stands on the respondent's land. This fence was a wire fence, and some of the wire in the fence was replaced in August or September, 1967. Half the cost of the original construction of the fence was paid by the owners for the time being of the respondent's land". Assuming the competency of the occupant to release the right of way, I do not think that it is a reasonable conclusion that the building of the fence amounted to an abandonment of the right of way or was intended as such. The evidence shows that it was not expensive; it is movable; and it is within the dominant tenement. A gate could be inserted in the fence to admit of egress from and access to the servient tenement. The evidence of this incident is not, in my opinion, so cogent that it is reasonable to find that the erection of the fence amounted to a renunciation or disclaimer of the right of way. In any case the last-mentioned finding as to user appears to relate to after 1933. (at p283)

11. The important element in the case is non-user of the total length of the strip of land as a way. Part of it was frequently used as far as an opening in the boundary fence to which the strip of land is adjacent. Residents of the home units went through that opening and proceeded from there over the neighbouring allotment to the beach. Their reason for turning aside from the boundary would appear to be that the strip of land was not passable further on. The grant by which the right of way was created imposes no obligation on either the servient owner or the dominant owner to make the strip of land passable. An obligation to do so does not arise at law or in equity. The case is one of mere non-user. It is established that a right will not be extinguished by non-user alone: Seaman v. Vawdrey (1810) 16 Ves 390 (33 ER 1032) . In Ward v. Ward[1852] EngR 654; (1852) 7 Ex 838 (155 ER 1189) , a right of way was held not to have been lost by mere non-user for a period much longer than twenty years, it being shown that the way was not used because the owner had a more convenient mode of access through his own land. (I quote the summary of the facts of the case in Gale on Easements, 14th ed. (1972), at p. 340.) In that case Alderson B. said:[1852] EngR 654; (1852) 7 Ex 838, at p 839[1852] EngR 654; (155 ER 1189, at p 1190) "The presumption of abandonment cannot be made from the mere fact of non-user. There must be other circumstances in the case to raise that presumption... The non-user, therefore, must be the consequence of something which is adverse to the user". Other decisions on the point are Crossley & Sons Ltd. v. Lightowler (1867) 2 Ch App 478, at p 482 and Bulstrode v. Lambert (1953) 2 All ER 728 . There is no proof of user of the right of way along the total length of the strip of land since the creation of the right of way, a period longer than forty years. "The duration of the period of non-user is only material as one element from which the dominant owner's intention to retain or abandon his easement may be inferred; and what period may be sufficient in any particular case must depend on the strength of the other indications of intention and all other accompanying circumstances. If, however, the period of suspension of user is of very long duration, it appears that the suspension alone may raise a prima facie presumption of abandonment to the extent of throwing upon the person seeking to uphold the right the burden of showing that some indication of his intention to preserve the right was manifested during the period of suspension": Halsbury's Laws of England, 3rd ed., vol. 12, p. 564, par. 1228. (For a review of cases, see Gale on Easements, 14th ed. (1972), pp. 339-343.) The non-user of the total length of the way can reasonably be put down to its precipitous condition at places. It is not reasonable to attribute non-user to renunciation of such a pleasant amenity as a path to the beach at Double Bay. There is ample evidence of the utilization of passable parts of the locus in quo of the right of way as the first stage of daily journeys to the beach by residents of no. 36 Wolseley Road, the dominant tenement. There is evidence of a survey being procured by the owner of one of the home units to determine the precise course of the right of way along the north-western boundary of the servient tenement. There is evidence that the respondent's agent informed some of the people residing at no. 36 Wolseley Road about the existence of the right of way when purchasing their home units. The correspondence which is in evidence proves that the respondent complained to Mrs. Treweeke about the swimming pool when the survey established that it obstructed the right of way. In my opinion, upon the whole of the evidence there is clear proof of the intention of the respondent to retain the right of way. I do not think it can be presumed that release of the right of way occurred at any time before or since the respondent acquired the property, no. 36 Wolseley Road. (at p285)

12. In my opinion the appeal should be dismissed. (at p285)

Section 89 of the Conveyancing Act can result in a property owner involuntarily losing their property rights, a conclusion that courts do not reach lightly. While the section is broadly drafted, it is difficult for applicants to succeed.

s89(1A), along withs49(2)of theReal Property Act 1900allow the Supreme Court and the Registrar General, respectively, to treat easements as abandoned if they have not been used for 20 years. How might these provisions be at odds with the principle of indefeasiblity?

Freehold covenants

1. Introduction

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Covenant%20picture.jpeg" * MERGEFORMATINET

Figure 1 Sydney Harbour, Butler-Bowden and Picket, "Homes in the Sky" (2007), 111

As the owner and/or occupier of land, we are affected by what others do on the land around us. If our land is our home, we might be disturbed by noise from commercial activity on land next door; if a three storey building is erected next to us, we might lose light, privacy or a view; if the land next door is subdivided and a single neighbour is replaced by many, the amenity of our land might be reduced. If the enjoyment of our land is reduced, so too will its monetary value. As a result, land owners, in particular initial developers, have sought ways to control future use of neighbouring land through freehold covenants, commonly referred to as restrictive covenants.

Freehold covenants are a difficult intersection of contract and property law. Imagine A owns a large block of harbour front land such as that in the picture above, (represented in diagram below). She decides to subdivide the land into four parcels, selling three parcels, (lots 2, 3 and 4), and retaining the land with the original Federation home, (lot 1). A could agree with the purchaser of lot 2, B, that B will never interfere with the harbour view by building above two storeys. This would be enforceable as a matter of contract law. However, if B then sells to B1, A will not be able to enforce the contractual agreement not to build above two storeys against B1, as B1 is not a party to the contract.

Lot 1: A A1

(current Federation home)

Lot 4:

Lot 2: B B1B2

(vacant land)

Lot 3: C C1

(apartment block)

A needs to turn the contractual agreement with B into a property right that is enforceable not only against B, but against anyone who subsequently owns the land; e.g., B1, B2 etc. To properly safeguard the monetary value of her own land A also needs to make sure that the agreement can be enforced not only by her, but by anyone who subsequently owns her land, such as A1. In other words,

the burden of the covenant (the promise not to build above two storeys) must run with burdened parcel (lot 2) and

the benefit of the covenant (not having a view blocked) must run with the benefited parcel, (lot 1).

In a subdivision such as the one above, you can probably see that more than one block of land could benefit from the restriction not to build above two storeys; Lot 4 would also benefit from not having its view blocked. When A sells lots 2 and 3, she could impose a restrictive covenant on them not build above two storeys for the benefit of lot 1andlot 4, the lots she still owns. If done correctly, this restriction could be enforced by whoever subsequently owns lot 4 against whoever owns lot 2 and 3. (Judging by the enormous apartment block on the harbour front, this did not occur!)

While in theory a neighbour might voluntarily agree to a covenant being imposed on their land for the benefit of their neighbours land, it is unlikely, so in practice freehold covenants only come into existence at the point when someone like A, or a professional developer, is subdividing a larger parcel of land and selling the new, smaller parcels. The covenants are usually imposed by the vendor on a take it or leave it basis; that is, if the purchaser wants to buy the lot, they must accept that it will be burdened by a covenant.

In large-scale residential developments, freehold covenants often burden all lots in the subdivision and they also benefit all lots. For example, brick and tile covenants were very common in the early twentieth century, burdening all lots with the restriction to only build in brick and tile (prohibiting the use of what cheaper materials?), and consequently giving all other lots the benefit of being in a subdivision in which only superior houses were constructed. Residential-only and minimum allotment size covenants were also common, preventing commercial land-use and further subdivision. If a covenant is imposed on all land in a subdivision, you can see that in effect it is implementing a private planning regime, regulating future development in the entire area.

Restrictive covenants played an important role in the development of modern cities, particularly in suburban Australia. Prior to the 20thcentury, there was very little public planning, i.e., government regulation of the development of land. A landowner could build whatever they pleased on their land, overshadowing neighbours, blocking out air and light with poorly constructed housing. The result could be slums, the scourge of 19thcentury English cities. By the turn of the 20thcentury, Sydney had developed its own slum in The Rocks, where unregulated development had begun the moment the convicts stepped off the First Fleet and built their own houses there (remember the quote from Karskens, in the chapter on Origins of Australian Land Law about people investing their labour in building their own homes and gardens, and thus wanting title to the land - she was referring to the construction of housing in the Rocks). In the early 20th century, bubonic plague broke out in the Rocks, leading the government to resume all houses in the area, and to invest heavily in the construction of healthy, spacious suburban development.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/The%20Rocks%20c.1900.jpg" * MERGEFORMATINET

Figure 2A rear view of Cumberland and Gloucester Streets, Rocks, Sydney, c1900, National Library of Australia

In the late 19th century, new understanding of germ theory dovetailed with the development of railways and trams, providing the incentive and means to build housing beyond the immediate environs of the overcrowded inner city. The Garden Suburb Movement, instigated by Ebenezer Howard's revolutionary bookGarden Cities of To-morrow(1902), which advocated for rational planning of cities, with housing separated from industry and the retention of 'green belts', was instrumental in NSW governments promoting suburban subdivision. Families could have their own freestanding home set on a spacious, green, (and ultimately iconic) quarter acre block. This is still the dominant form of housing in Sydney.Freehold covenants were the legal tool used to create and maintain this housing form, typically preventing building higher than one or two storeys and subdivision of existing lots into smaller lots. Haberfield, in Sydneys inner west, is a good example of a suburb created and maintained by restrictive covenants, as are older parts of the North Shore which were developed after the rail line was built from Milsons Point to Hornsby in the late 1890s.

As noted in the easements chapter, the connection between property and planning law and public health had been largely forgotten in the late 20th and early 21st centuries, until the COVID-19 pandemic. Stay-at-home orders during the pandemic were predicated on an assumption that most Australians live in freestanding suburban housing, and if confined to their homes, they would not come in to contact with other households, thus limiting the spread of the virus. This was true for the majority of Sydneysiders who live in low rise suburbs, but not the significant minority who live in strata schemes with shared common property lifts, corridors and stairwells. The result was public health orders that made little sense for a form of housing that had been intentionally avoided for the better part of a century. We will consider the specific characteristics of strata title and the complexities it creates in more detail later.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Haberfield.jpg" * MERGEFORMATINET

Figure 3, Haberfield house, brick and tile covenant,minimum allotment size;http://commons.wikimedia.org/wiki/File:57_Boomerang_Street_Haberfield_02-M.jpg

2. The Legal Technicality

Freehold covenants are a notoriously difficult area of land law. This is because judges have been extremely reluctant to allow restrictions or obligations to be imposed onfreehold landand have only allowed them in narrow circumstances, resulting in technical rules that determine a freehold covenants validity. However, like all land law, this technicality has an important economic and social purpose.

When we did leases we learned that a landowner can impose a huge range of obligations and restrictions on land (covenants) when they grant a lease to another person; these include obligations to pay rent, rates, not to use the land for particular purposes and to conduct repairs. Covenants will be enforceable not only between the original contracting parties, but by and against subsequent owners of the reversion and the lease, traditionally, as long as they touched and concerned the land. The touch and concern doctrine is an efficiency rule that prevents idiosyncratic restrictions and obligations agreed by predecessors in title affecting later owners.

Courts took a relatively relaxed approach to the validity of leasehold covenants because the covenants would only last as long as the lease itself. Even if this was as long as 99 years, the lease would eventually come to an end and the land would be freed of the covenants. In contrast, because they attach to a fee simple, freehold covenants theoretically go on forever. This is potentially extremely economically inefficient: what seems like a good idea today, might be a very bad idea in 50 or 100 years time. For example, while it might have been valuable to original developer of Rosebery, a suburb directly south of the CBD, to impose restrictive covenants on all of the houses limiting them to a single storey and residential-only use, today that covenant would radically reduce the value of land on busy thoroughfares like O'Riordan, Botany and Gardeners Rd; their value now lies in commercial use or multi-storey residential strata schemes. As Simpson says,

The effect of restrictive covenants is to sterilize the use of a parcel of land permanently; in principle it is not at all clear that a private landowner ought to be allowed to do this without public control of his activities. Whatever their merits, restrictive covenants can have a very detrimental effect on the free development of land, which is not in all cases in the public interest, (AWB Simpson,A History of the Land Law, 1986, 257).

Further, if the content of covenants is not limited, they can be socially, as well as economically destructive. As one American academic noted,

[p]rivate property is sanctioned by society not only to promote efficiency, but also to safeguard individual freedom. Servitudes [covenants] are a kind of private legislation affecting a line of future owners. Limiting such legislative powers to an objective purpose of land planning eliminates the possibility of creating modern variations of feudal serfdom. There might be nothing objectionable in personal agreements concerning personal labor, adherence to ideologically prescribed modes of behaviour, or promises to buy from a certain supplier. When such obligations, however, become permanently enforced against an ever-changing group of owners, the matter acquires different dimensions, (Uriel Reichman, 'Toward a Unified Concept of Servitudes' (1981) 55Southern California Law Review1177, 1233).

Perhaps the best illustration of the potential dangers of freehold covenants is the wide-spread creation of racially restrictive covenants in America in the 20thcentury; these limited large swathes of residential development to owners and residents of the Caucasian race. This practice was eventually declared unconstitutional, but not until lasting damage had been done to individual citizens and American society.

From this you can see that freehold covenants are a double-edged sword: while they might increase the value of land by ensuring that development antithetical to its current use does not occur around it, over the passage of time, they can become outdated, stultifying land use, and if not limited, they can amount to a quasi-legislative power in the hands of private citizens. It is this potentially harmful nature of freehold covenants that has led to a judicial reluctance to enforce them, and a consequent complexity in the law.

The common law

The common law had a particular aversion to freehold covenants and rarely facilitated their enforcement beyond the original covenantor (the person who promised that their land would be burdened, e.g., B in the example in the previous chapter). While the common law allowed the benefit of a covenant to be enforced by successors in title to the covenantee (the person to whom the promise had been made, e.g., A in the example in the previous chapter), that was not much use if the burdened land had been transferred. For freehold covenants to actually work as a system of private planning both the benefitand the burdenof covenants must run with the parcels of land; that is, their application must be consistent throughout an estate.

Equity

The burden of covenants

Although equity generally follows the law and does not create its own rules, there are exceptions to this general position. Judges with equitable jurisdiction have always used equity to mitigate the harshness of the common law when they believe it is appropriate to do so. Restrictive covenants are a good example. The common law would not enforce the burden of a covenant once the land had been transferred to a new owner, but as a result of the decision inTulk v Moxhay(1848) 41 ER 1143, equity will. However, there are four conditions that must be satisfied before equity is prepared to enforce the burden of a freehold covenant.

1) The owner of the burdened land must have notice of the covenant

Tulk v Moxhay(1848) 41 ER 1143

Fact diagram:

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/+9LxFRqxBmnAAAAAElFTkSuQmCC" * MERGEFORMATINET

In the year 1808 the Plaintiff, being then the owner in fee of the vacant piece of ground in Leicester Square, as well as of several of the houses forming the Square, sold the piece of ground by the description of "Leicester Square garden or pleasure ground, with the equestrian statue then standing in the centre thereof, and the iron railing and stone work round the same," to one Elms in fee: and the deed of conveyance contained a covenant by Elms, for himself, his heirs, and assigns, with the Plaintiff, his heirs, executors, and administrators, "that Elms, his heirs, and assigns should, and would from time to time, and at all times thereafter at his and their own costs and charges, keep and maintain the said piece of ground and square garden, and the iron railing round the same in its then form, and in sufficient and proper repair as a square garden and pleasure ground, in an open state, uncovered with any buildings, in neat and ornamental order; and that it should be lawful for the inhabitants of Leicester Square, tenants of the Plaintiff, on payment of a reasonable rent for the same, to have keys at their own expense and the privilege of admission therewith at any time or times into the said square garden and pleasure ground."

The piece of land so conveyed passed by divers mesne conveyances into the hands of the Defendant, whose purchase deed contained no similar covenant with his vendor: but he admitted that he had purchased with notice of the covenant in the deed of 1808.

The Defendant having manifested an intention to alter the-character of the square garden, and asserted a right, if he thought fit, to build upon it, the Plaintiff, who still remained owner of several houses in the square, filed this bill for an injunction; and an injunction was granted by the Master of the Rolls to restrain the Defendant from converting or using the piece of ground and square garden, and the iron railing round the same, to or for any other purpose than as a square garden and pleasure ground in an open state, and uncovered with buildings.

On a motion, now made, to discharge that order,

Mr. R. Palmer, for the Defendant, contended that the covenant did not run with the land, so as to be binding at law upon a purchaser from the covenantor, and he relied on the dictum of Lord Brougham C. inKeppell v. Bayley(2 M. & K. 547), to the effect that notice of such a covenant did not give a Court of Equity jurisdiction to enforce it by injunction against such purchaser, inasmuch as "the knowledge by an assignee of an estate, that his assignor had assumed to bind others than the law authorised him to affect by his contract-had attempted to create a burthen upon property which was inconsistent with the nature of that property, and unknown to the principles of the law-could not bind such assignee by affecting his conscience." In applying that doctrine to the present case, he drew a distinction between a formal covenant as this was, and a contract existing in mere agreement, and requiring some further act to carry it into effect; contending that executory contracts of the latter description were alone such as were binding in equity upon purchasers with notice; for that where the contract between the parties was executed in the form of a covenant, their mutual rights and liabilities were determined by the legal operation of that instrument, and that if a Court of Equity were to give a more extended operation to such covenant, it would be giving the party that for which he had never contracted. He admitted, indeed, that the decisions of the Vice-Chancellor of England inWhatman v. Gibson(9 Sim. 196) andSchreiber v. Creed(10 Sim. 35) were not reconcileable with that doctrine; but he referred to the present Lord Chancellor's order, on appeal, inMann v. Stephens(15 Sim. 379), as apparently sanctioning it by the liberty there given to the Plaintiff to bring an action, from which it was to be inferred that his Lordship thought that the right of the Plaintiff to relief in equity depended upon, and was commensurate with, his right of action upon the covenant at law.

THE LORD CHANCELLOR [Cottenham], (without calling upon the other side). That this Court has jurisdiction to enforce a contract between the owner of land and his neighbour purchasing a part of it, that the latter shall either use or abstain from using the land purchased in a particular way, is what I never knew disputed. Here there is no question about the contract: the owner of certain houses in the square sells the land adjoining, with a covenant from the purchaser not to use it for any other purpose than as a square garden. And it is now contended, not that the vendee could violate that contract, but that he might sell the piece of land, and that the purchaser from him may violate it without this Court having any power to interfere. If that were so, it would be impossible for an owner of land to sell part of it without incurring the risk of rendering what he retains worthless. It is said that, the covenant being one which does not run with the land, this Court cannot enforce it; but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased. Of course, the price would be affected by the covenant, and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price, in consideration of the assignee being allowed to escape from the liability which he had himself undertaken.

That the question does not depend upon whether the covenant runs with the land is evident from this, that if there was a mere agreement and no covenant, this Court would enforce it against a party purchasing with notice of it; for if an equity is attached to the property by the owner, no one purchasing with notice of that equity can stand in a different situation from the party from whom he purchased. There are not only cases before the Vice-Chancellor of England, in which he considered that doctrine as not in dispute; but looking at the ground on which Lord Eldon disposed of the case ofThe Duke of Bedford v. The Trustees of the British Museum(2 My. & K. 552), it is impossible to suppose that he entertained any doubt of it. In the case ofMann v. Stephensbefore me, I never intended to make the injunction depend upon the result of the action: nor does the order imply it. The motion was, to discharge an order for the commitment of the Defendant for an alleged breach of the injunction, and also to dissolve the injunction. I upheld the injunction, but discharged the order of commitment, on the ground that it was not clearly proved that any breach had been committed; but there being a doubt whether part of the premises on which the Defendant was proceeding to build was locally situated within what was called the Dell, on which alone he had under the covenant a right to build at all, and the Plaintiff insisting that it was not, I thought the pendency of the suit ought not to prejudice the Plaintiff in his right to bring an action if he thought he had such right, and, therefore, I give him liberty to do so[1].

With respect to the observations of Lord Brougham inKeppell v. Bailey, he never could have meant to lay down that this Court would not enforce an equity attached to land by the owner, unless under such circumstances as would maintain an action at law. If that be the result of his observations, I can only say that I cannot coincide with it.

I think the cases cited before the Vice-Chancellor and this decision of the Master of the Rolls perfectly right, and, therefore, that this motion must be refused, with costs.

Decided in 1848,Tulkwas a relatively new case and uncertain authority when Torrens legislation was being written in the late 19th century, and so initially, Registrars had no power to record freehold covenants on the Torrens register. Registrars began to do so with the development of suburban subdivision in Australia, but formal powers were not given to the Registrar General in NSW to note covenants until 1930. However, since then covenants have generally been noted clearly on the Torrens register giving purchasers of burdened lots notice of the covenant. This is an anomalous example of when notice matters in the Torrens system. This is because although recorded on the Torrens register, restrictive covenants remain equitable interests, enforceable only in accordance with the rules of equity. One of the key rules in equity is the notice requirement set out inTulk. A purchaser who has no notice of a restrictive covenant will not be bound by it.

2)The covenant must be restrictive (negative), not positive

Piriev Registrar-General[1962] HCA 58; (1962) 109 CLR 619, per Kitto J at [7]-[9]:

7. The substance of the covenant was contained in four sub-clauses, the first two negative in import and the last two positive. Sub-clause (a) stipulated that all main buildings thereafter erected on the land should be detached or semi-detached, that each main building should cost and be of the value of 250 pounds at the least, and that not more than one main building should be erected on the land. Sub-clause (b) stipulated that the land or any building to be erected on it should not be used for the purposes of a hotel, factory or store or for the sale or hire of goods or for any other purposes than those of a dwelling or boarding house. Sub-clause (c) required that the land be enclosed with a substantial fence within a year after commencement of any building operation. And sub-cl. (d) required that each main building should be to a complete design, and that one such building should be completed within a year after commencement of building operations on the land. (at p626)

8.Section 88(3)of theConveyancing Actfalls into four parts. It begins by makings. 88as a whole apply to land under the Real Property Act, and then adds, with respect to land under that Act, provisions which it divides into three paragraphs. Paragraph (a) contains the provision which is of chief importance in this case: it is that the Registrar-General shall have and be deemed always to have had power to enter in the appropriate folium of the register book relating to the land subject to the burden of a restriction a notification of the restriction. Paragraph (b) provides that a notification in the register book of any such restriction shall not give the restriction any further operation than it has under the instrument creating it. (Presumably this means that the making of the notification on the certificate of title shall not provide a ground of validity or enforceability for a restriction which otherwise is invalid or unenforceable: the provision is concerned only with the operation of the restriction itself, and not, I should suppose, with the question whether a particular person in particular circumstances is subject to its operation.) Finally, par.(c) provides that every such restriction notified on the appropriate folium of the register book shall be an interest within the meaning of s. 42 of the Real Property Act- that being the provision by which a registered proprietor holds (except in case of fraud) subject to such encumbrances, liens, estates or interests as are notified on the folium, but absolutely free from all others (with specified exceptions). (at p626)

9. It is obvious that neither sub-cl. (c) nor the second portion of sub-cl. (d) of the covenant in the present case purports to impose a restriction, in any sense of the word: each is positive in its obligation, requiring, both in form and in substance, the doing upon the land of acts involving expenditure of money. The Registrar-General's inclusion of these portions of the covenant in his notification, therefore, not only was unauthorized in 1919 but is plainly unsupported by the retrospective validation contained in s. 88(3): cf. Cator v. Newton (1940) 1 KB 415 . On the other hand, the ex facie operation of sub-cll. (a) and (b) and the first portion of sub-cl. (d) is undoubtedly to impose restrictions upon the user of lot 181; and the enforceability of the restrictions, if they are enforceable, is unaffected by the presence of the positive portions of the covenant: cf. Collins v. Castle (1887) 36 Ch D 243. The questions to be considered under s. 88(3), therefore, arise in relation to the restrictive portions of the covenant.

The rule that a landowner cannot impose a positive obligation on their land that will bind a subsequent owner of the land is an extremely significant rule of property law with far-reaching implications for the free use of land and for modern development. For example, if you want to build a high rise building and sell people individual freehold titles to apartments, you will not be able to impose a positive obligation to pay money for the inevitable upkeep of the building on individual owners. That is why we needed strata title legislation - to circumvent this rule of orthodox property law. Strata title legislation not only allows but requires owners to pay annual levies for the maintenance and repair of the building. However, if property law gives current landowners free reign to impose any positive obligations to pay money on land, this can seriously compromise the utility of land and create unfair and uneconomic burdens on landowners. For example, if all developers are allowed to impose an obligation on all land titles that they sell compelling all subsequent owners to pay $10 000 a year into a trust fund for the developer's children that will potentially compromise the utility of large amounts of freehold land. The same could be said for obligations to perpetually employ a window cleaning company or landscaping service owned by the developer's brother. One of the reasons that strata title can be prone to dispute is because the legislation and the existence of a separate body corporate facilitates the creation of on-going positive obligations (and almost unlimited restrictions) on freehold land, that are impermissible for non-strata properties. We will look at this again in the next topic.

3) Covenants must benefit the covenantee's land

Equity will not enforce a covenant that benefits a person or their business, rather than their land. Like the rule that easements must 'accommodate the dominant tenement', this is a rule of social and economic efficiency. If people want to obtain benefits for themselves or their businesses, they can do so through contract law in relation to the people with whom they directly contract. However, if they wish to avail themselves of the benefits of property law, namely the ability to create agreements that are enforceable against not only the original promisor, but their successors in title (the people to whom they have sold the land), they will need to demonstrate that the covenant has some objective social and economic utility. That is, that it does not simply benefit the covenantee personally or a business that they happen to currently run, it benefits land itself, so that the covenant (promise) might prove economicallyor socially useful to whoever owns the allegedly benefited land at any given point in time. InClem Smith Nominess Pty Ltd v Farelly(1978) 20 SASR 227a company owned a car racing track (start to draw yourself a diagram as you read this). They bought land about 35 km away and constructed a new racetrack on that land. They then sold the original racetrack to F, extracting a promise that F would never use the land as a racetrack. F then sold the land to S. S sought a declaration that the covenant was void and/or unenforceable. The Supreme Court of South Australia agreed. The Court held that although land did not have to be contiguous to be benefited by a covenant, 35 km was too far away for the land to be benefited. In reality, the covenant was benefiting the racetrack business on the allegedly benefited land. Like easement law, there is logic to this rule. Imagine the land on which the new racetrack had been constructed ceased to be used as a racetrack. That would mean that the original land was forever burdened by a restriction preventing it being used as a racetrack, although that restriction was providing no benefit to another person, business or land. That is a socially and economically inefficient restriction on land. Remember, while it may not matter whether a random piece of land in South Australia can be used as a racetrack, if one person can create such a restriction, a million people can, potentially compromising the economic and social utility of large swathes of land, which as we have learned, is a finite and essential resource. In contrast, a restriction in a residential subdivision preventing the house next door to Lot 5, or across the road or around the corner, from subdividing the land or using it for non-residential purposes will benefit Lot 5 no matter who owns Lot 5. It will mean that whoever owns Lot 5 will always be living in a low-rise residential neighbourhood.

4)The covenant must be intended to run with the covenantors land.

It must be clear that the covenantor made the promise, not simply for themselves, but intending that it would burden their land. That is, they did not mean, "I personally promise not to build above a storey while I own the land, but I don't intend my land to be permanently affected by the promise". The covenantor must make the promise intending it toattach to their land. It used to be necessary to use particular words in the covenant to show this intention, but the intention is now supplied bys70A(1)Conveyancing Act1919 which deems covenants to be made by the covenantor on behalf of themselves and their successors in title.

If all of the above conditions are satisfied, the burden a freehold covenant will run in equity.

The benefit of covenants

For the benefit to run as well, which is essential if a successor in title of the original covenantee wants to enforce the covenant (e.g., A1 in previous chapter), the benefit of the covenant has to be annexed to the land itself or directly assigned to the successor in title. The requirement that the benefit be annexed to the land itself has produced enormous difficulties, because the benefit of a covenant can only be annexed to land that a covenanteecurrently owns(logically one cannot go around annexing the benefit of covenants to other peoples land). Practically, this is impossible in sale of the large-scale residential subdivisions because developers sell land in stages. The diagram below will illustrate, (D = developer):

Lot 1

DA Lot 2

DB Lot 3

DC Lot 4

DE

Lot 5

DF Lot 6

DG Lot 7

DH Lot 8

DI

Lot 9

DJ Lot 10

DK Lot 11

DL Lot 12

DM

When the developer sells Lot 1, A will covenant (promise) never to build above two storeys, with both D and A entering the agreement with the intention that the promise will attach to the land, burdening Lot 1 and benefiting Lots 2-12. As the current owner of lots 2-12, D can annex the benefit of the covenant to those lots and all subsequent owners of Lots 2-12 can sue A, and As successors in title, should anyone attempt to build above two storeys on Lot 1.

When the developer then sells Lot 2 to B, B will covenant (promise) never to build above two storeys, with both D and B entering the agreement with the intention that the promise will attach to the land, burdening Lot 2 and benefiting Lots 3-12. However, the developer cannot annex the benefit of Bs promise (the covenant) to Lot 1, because he no longer owns Lot 1.

When the developer then sells Lot 3, the problem gets worse. He can annex the benefit of Cs promise (the covenant) to Lots 4-12, but not to Lots 1 or 2, because he now owns neither.

The result is that later purchasers get the benefit and burden of the covenant, but earlier purchasers only get the burden, e.g., an owner of Lot 12 can sue everyone to prevent them building above two storeys because the benefit of the covenant was annexed to Lot 12 every time the developer made an earlier sale. However, the earlier sold lots cannot sue the owner of Lot 12 because at the point the developer sold Lot 12 to M, he no longer owned any of the other lots and could not annex the benefit of the covenant to them.

If you feel confused, and like one of our past students want to exclaim, But that doesnt work! you are correct. It does not work. Restrictive covenants only work as a form of private planning ifeverylot is benefited andeverylot is burdened.

Equity developed a doctrine in relation to schemes of development which allowed covenants to be enforced by earlier sold lots on the principle of mutuality, but it requires an investigation of the circumstances in which the original development was created. This requires searches beyond the Torrens register,and it is unlikely that the doctrine is valid in relation to Torrens land, particularly after the High Court decision inWestfield Management Limited v Perpetual Trustee Company Limited[2007] HCA 45.

However, in 1960 theConveyancing Act1919 was amended to includes88B. This is a very useful section, frequently used in modern development. It allows a developer to attach a s88B instrument to a plan of subdivision when it is lodged for registration. The instrument can set out any easements and covenants that are intended to affect the various lots in the subdivision. Rather than being created one at a time on the sale of each housing lot, the easements and covenants are all simultaneously created by the registration of the plan of subdivision with the s88B instrument attached. This avoids all of the problems with developers not being able to annex the benefit of covenants to land when they (inevitably) sell the lots sequentially.

This is thes88B instrument for Harrington Parkin Sydneys southwest. Read it for yourself. We looked at one ofthedeposited plans for Harrington Parkin the initial Torrens class.

Pre-1960s subdivisions can raise enormously complex questions about enforceability of covenants. For example, in practice, the question of whether a client can get an injunction to restrain a neighbour building a colorbond shed in violation of an old brick and tile covenant may turn on the whether the neighbours land was validly burdened and whether the clients land could ever have been benefited. These issues can become more complex still as a result of the Registrars lack of formal authority to note restrictive covenants on the Register prior to 1930, noted above. Despite this lack of legislative power, the Registrar did note covenants, but the instruments creating them sometimes failed to clearly identify all of the benefited and burdened land. When theConveyancing Actwas enacted in 1920, it introduced requirements to clearly identify benefited and burdened land, initially in s89 and then re-enacted in the currents88in 1930. Rather than working our way through all of these complexities, it is more fruitful to simply flag the potential difficulties that can arise with oldercovenants, for further exploration when necessary, (see Bradbrook and Neave,Easements and Restrictive Covenants in Australia, 2000, 421-432). The reality is that the older a covenant is, the more likely it is to have become outdated, obsolete, or inconsistent with a modern planning instrument (discussed in the next chapter), and the less likely a client will be bothered or able to enforce it.

3. Enforceability of freehold covenants

Although freehold covenants can operate as a quasi-planning regime, they are private property rights that depend on private enforcement; that is, if a breach of covenant is threatened, it can only be restrained by someone who has the benefit of the covenant, the original covenantee and/or their successors in title. Remember that restrictive covenants are equitable interests and thus the remedies granted will be equitable. The court will either grant an injunction to restrain a breach of the covenant (for example, stopping someone building a second storey) or give equitable damages in lieu, particularly if the breach has already occurred. However, because equitable remedies are discretionary, if the damage sustained is negligible, a court may decline to grant a remedy. However, while equity does not generally like to grant remedies that order people to destroy property, it will grant mandatory injunctions compelling the demolition of structures if they have been built in flagrant breach of a covenant.

Because most people would rather not sue their neighbours, restrictive covenants can often be more honoured in the breach than observance, and as a result, they can become outdated or obsolete. You have already learned in the easement chapter thats 89of theConveyancing Act1919 gives the Court a power to modify or wholly or partially extinguish an easement, profit prendre or freehold covenant if satisfied of certain conditions. As s89 leads to the extinguishment of private property rights, courts do not readily grant s89 applications for modification or extinguishment.

Levi v Spicer[2001] NSWSC 924Facts: Mrs Levi owned a large Torrens lot at the foot of the Blue Mountains. She subdivided the land, and attached a s88B instrument to the plan of subdivision, creating a restrictive covenant containing the following terms:

1. That no more than one main building shall be erected or permitted to remain on any lot burdened.2. That no main building shall be erected or used on any lot burdened hereby otherwise than as a single private dwelling house provided that this restriction shall not prevent the use of part of any such building by a Medical Practitioner or Dentist or Solicitor in the practice of his profession, and provided such professional use is approved by Wollondilly Shire Council.3. No building shall be erected on the land hereby burdened with a roof other than tiles or with external walls or with walls of materials other than brick, stone, concrete glass, aluminium or timber or any combination of the same, provided that timber shall not be used in external walls except as infill panels in conjunction with any one or more of the other materials referred to and aluminium shall not be used except as frames for windows or doors and the proportion of materials other than brick was used and referred to the total external wall area shall not exceed 35% thereofPROVIDED THATnothing in this covenant contained shall preclude or prohibit a building having the inner framework of its external walls constructed of timber or other materials with an external brick face or veneer.4. No garage or outbuilding shall be erected or permitted to remain on the land burdened except until after or concurrently with the erection of any such main building.5. No building shall be erected on the land burdened having a roof of corrugated iron, corrugated tin or fibro cement with the exception of a free standing garden shed or lawn locker.PROVIDED HOWEVERsuch free standing garden shed or lawn locker shall be constructed of materials other than fibro and located at the rear of the main building.6. No main building erected or permitted to remain on the land burdened shall have a minimum living area including any attached garage or carport under the main roof of less than one hundred and twenty (120) square metres.13. No building shall be erected closer to the street alignment of Ridgehaven Road than (18) eighteen metres.14. No pig shall be brought onto, kept or allowed to remain on any lot and no piggery, commercial poultry sheds, commercial dog kennels, knackery or abattoirs shall be erected or conducted on any lot.15. No advertisements, signs or hoardings of any description shall be erected on the land hereby transferred.16. No noisy, noxious or harmful use shall be carried on or permitted to be carried on on any lot and without limiting the generality, no lot shall be used by motor bikes, mini bikes or persons using fire-arms explosives or bows and arrows.

Mr Spicer had purchased a lot in the subdivision. He wanted to build a double garage out of colorbond to house his model railway.Colorbondis a form of corrugated iron and was thus prohibited by the covenant, other than when used for a 'free standing [sic] garden shed or lawn locker'. Mr Spicer wanted to use colorbond because it is much less expensive than brick and tile (you just screw large sheets of it onto a wooden frame, rather than building a wall, brick by brick). Mr Spicer had asked Mrs Levi to consent to the modification of the covenant, but she refused. (In an obvious concession to developers,s 88(1)(c)of theConveyancing Actallows a covenant to name a person who is empowered to release, vary or modify the covenant even if they do not own land benefited by the covenant; Mrs Levi was so named.) Mr Spicer sought a court order for modificationof the covenant under s89(1)(c) of theConveyancing Act.The Courtcould make this order if it was satisfied that modification would 'not substantially injure the persons entitled to the benefit of the covenant'.You can see what the subdivision inLevi v Spicerlooks like (i.e., what the practical effect of the covenant is) on Google mapshere. Drag the little person to the red icon to see the street view.

Master:

8 InWebster v Bradac(1993) 5 BPR 12,032 at 12,035 His Honour McLelland CJ has said the following when discussing the injury referred to:-

The kind of injury contemplated in para (c) is injury to the relevant person in relation to his ownership of (or interest in) the land benefited. The injury may be of an economic kind, for example, reduction in the value of the land benefited, or of a physical kind, for example, subjection to noise or traffic, or of an intangible kind, for example, impairment of views, intrusion upon privacy, unsightliness, or alteration to the character or ambience of the neighbourhood. These arbitrary categories, whilst serving to illustrate the ambit of the concept of injury for the purposes of the paragraph, are neither mutually exclusive nor necessarily exhaustive, and what I have described as injuries of a physical or intangible kind could well also affect the value of the land in question. However, it is clear that a person may be substantially injured within the meaning of para (c) notwithstanding that the value of his land would be unaffected or even increased by the proposed modification. It is also clear, particularly in the case of injuries of what I have called an intangible kind, that the subjective tastes, preference or beliefs of particular individuals may, within limits of reasonableness, give rise to injury in the relevant sense to those individuals. If, however, particular persons do not after due notice assert any claim to injury to them on purely subjective grounds of this kind, then it may be open to the court to infer that there is no injury of that kind to those persons, although the absence of objection does not remove from applicants for relief under s 89(1) the onus of establishing their case.

9 This case has been substantially presented on the basis that the injury is one of an intangible kind, namely, the look and aesthetics of the proposal of the plaintiffs. The defendant also suggests in submissions that the actual activities which will be carried on may be productive of noise and thus there may be some invasion of their privacy.

10 One matter that occupied some time during the hearing of this case was the existence of other breaches of the covenant in the subdivision with which I am concerned and as well as other subdivisions nearby which were created by the Spicers or other developers who purchased from them. In the subdivision with which I am concerned there are breaches in numbers 37, 39 and 49 Ridgehaven Road. Outside the subdivision the only important breaches which impact on the visual appreciation of the area of the subdivision are those in lots 92 and 94 Ridgehaven Road almost opposite the Levis property 51 Ridgehaven Road. A question will arise as to whether those breaches should be taken into account in my consideration of the matter...

12 The Courts have on numerous occasions regarded as particularly important the views of those for whom the covenant has a benefit. InRe Callananand the Conveyancing ActMr Justice Helsham in dealing with a residential subdivision had this to say:-

"If what I have said were not sufficient I add to it the fact that 19 out of the 27 most closely affected owners having the benefit of the restrictions regard them as affording a current advantage and wish to preserve them - a fact which might not carry the same weight where there had been a more widespread change in the user of the land benefited or a change in the character of the neighbourhood. But that is not the case here; and I regard the residence of so many of those who are entitled to what they claim to be advantages stemming from the maintenance of the restrictions as an important consideration in determination of the matter of whether the restrictions should be deemed obsolete. I find that they should not be so deemed."

13 InRe Parimax (SA) Pty Ltd56 SR 130 His Honour Mr Justice Myers emphasised the actual benefit perceived by objectors as follows:-

"An impression seems to have got abroad that when an application is made to modify a restriction one considers the benefit of the person entitled to it wholly from a material point of view; that all one has to do is to say: 'Will he be any worse off financially; will his land be less readily saleable, or will it be depreciated in value?' Well, for my part I consider that the benefit which a person gets from a restriction cannot necessarily be measured only by material consideration. There are many of us who derive enjoyment from our surroundings, even though they do not add anything to the value of our homes. Indeed, there are many people who object, because it would be unpleasant to them, to alterations in their neighbourhood, even though it might actually increase the value of their properties.A person who as the benefit of a covenant not to erect flats is, in my view, entitled to say: 'I do not like flats near me, and that will diminish my enjoyment of my own home', and he if he believed and is sincere, and that is reasonable, I consider that that in itself is a sufficient reason for refusing to allow a modification of the restriction, even though the erection of the flats would not result in any material loss whatever, and in this case I would, if necessary, have proceeded on the same footing. I consider that the respondent is entitled to say: 'I have bought a property entitled to the benefit of the restriction. That restriction will ensure that this space will always remain vacant' - that is to say, vacant above the street level - and whether it causes any material loss to the respondent or not, if the respondent says: 'That in itself confers on me something which enables me to enjoy my home some more', however little more it may be, that would be sufficient to enable me to say that the restriction should not be modified."...

18 It is immediately apparent that the streetscape of the subdivision is one which has a neat and tidy appearance with all the homes complying with the appropriate setback and being built of the appropriate materials. Each lot is about one acre in size and so there is substantial room behind each of the houses in the subdivision. What is immediately apparent when one looks at the area behind the houses is that there is clearly noticeable the various colourbond structures which fall within the description of a garden shed. Accordingly views of the rear of the lots are of a different quality from the views which appear on the streetscape either in the front of the houses or travelling down Ridgehaven Road. The covenant itself acknowledges this difference by providing that such garden sheds must be located at the rear of the main building. An important consideration in the case is that the plaintiffs proposed garage will be clearly visible from the street although it is situated to the rear of their house. This is because of the gap between the houses on 51 and 53 Ridgehaven Road and the fact that the screening trees which are presently there are deciduous.

19 I now turn to the relevant persons who objected to the proposal and who have the benefit of the covenant. Mr Steven Blain, one of the owners of 53 Ridgehaven Road which adjoins the plaintiffs house to the north would be intimately affected because, apart from some screening trees, he would be able to see from his back yard the proposed garage. In his objection after reference to Mr Levis affidavit and the particular colourbond structures which he had identified as breaches outside the immediate area he referred to the fact that what was important to him was the appearance of his immediate neighbours residences. He bought in the particular estate in order to get away from the structures such as the ones to which he referred. Paragraph 7 of his statement in these terms.

I think the covenants are a good idea because I think that buildings in brick and tile look better and last longer than buildings not made with these materials. I also think that having the covenants on the land and ensuring that people build out of higher standard of materials gives the residents a sense of pride and enjoyment in their land.

[Objections were received from a number of other neighbours. Little weight was given by the Court to the objection of one particular neighbour who had himself breached the covenant by building a pergola with a colorbond roof. A number of neighbours supported Mr Spicer's application.]

26 I turn to the question of the breaches of the covenant. The plaintiff suggested that all breaches which occurred within the general area may be relevant. InPieper v Edwards(1982) 1 NSWLR 336at 340 His Honour Hutley JA discussed the factors concerned when exercising the discretion. At page 340 he said the following:

What are the factors which should be considered in exercising the discretion? It would appear that Mason J considered that the fact that the owner of the dominant tenement took on the faith of the register is such a factor, though this cannot be conclusive, for, as Walsh J, pointed out (at p 286):The provision clearly contemplates that orders will be made which affect rights which were vested in the registered proprietor, according to the state of the register, at and after the time when he acquired his title to the dominant tenement....

31 [The Master noted that there were a number of existing breaches throughout the subdivision]...A more important part of the covenant is the protection of the streetscape view of the subdivision at the front of the properties. The proposed construction would in my view be clearly visible for a substantial part of the year and would interfere with the present look. I am mindful that at 92 and 94 there are large colorbond structures at the rear of those properties which are also visible but there is no reason why what is left of the general attractive outlook should be destroyed. Accordingly, I think the application should be refused as the proposed modification will substantially injure the persons entitled to the benefit of the covenant.

4. The intersection of freehold covenants with public planning regimes

We have seen that freehold covenants can operate as a private planning regime, which raises the question, how do they interact with the public planning regime? In particular, we need to consider the question of whether private citizens, in particular initial developers of land, should have the power to engage in large-scale land planning, given the fact that those plans potentially affect hundreds of people, not only inside the area governed by the covenant, but outside as well. For example, if a developer imposes, and subsequent owners enforce, a minimum allotment size covenant, they will maintain and potentially increase the value of their land; this is beneficial to them. However, it is not beneficial to other citizens, who as a result of generous minimum allotment sizes cannot afford property in that area. Repeating the quote from Simpson above,

The effect of restrictive covenants is to sterilize the use of a parcel of land permanently; in principle it is not at all clear that a private landowner ought to be allowed to do this without public control of his activities. Whatever their merits, restrictive covenants can have a very detrimental effect on the free development of land, which is not in all cases in the public interest, (AWB Simpson,A History of the Land Law, 1986, 257).

The New South Wales legislature has decided that private landowners should be controlled in their attempts to implement private planning regimes. Section 3.16(2) (formerly s28(2)) of theEnvironmental Planning and Assessment Act1979 (NSW), states that,

For the purpose of enabling development to be carried out in accordance with an environmental planning instrument or in accordance with a consent granted under this Act, an environmental planning instrument may provide that, to the extent necessary to serve that purpose, a regulatory instrument specified in that environmental planning instrument shall not apply to any such development or shall apply subject to the modifications specified in that environmental planning instrument.

Regulatory instruments include freehold covenants, strata by-laws and community management statements, (Horizons Corporations Law Pty Limited v Rizons Pty Limited[1999] NSWSC 691). In other words, private planning regimes must yield to the planning regimes devised by elected representatives. This is most significant for the construction of high-density development. If a council or the state government rezones land for medium or high-density development, the planning instrument will override any private restrictive covenant that prohibits the subdivision of land. It does not matter that someone who owns land with the benefit of the covenant says,'I do not like flats near me, and that will diminish my enjoyment of my own home', (Re Parimax (SA) Pty Ltd56 SR 130, cited inLevi v Spicer), apartments can be constructed.

Two points should be noted about the ongoing operation of freehold covenants. First, if freehold covenants are successful in maintaining the character of an area for some time, that area may eventually be publicly protected by council or state heritage provisions. For example, suburbs like Haberfield, Rosebery, Roseville, Lindfield, Killara and Gordon all have a measure of heritage protection under their respective councils planning regulations, effectively giving public protection to some or all of the terms of the original, private restrictive covenants (but not actually enforcing the covenant). For example, inBrotherton v Sydney City Council[2004] NSWLEC 475, Commissioner Murrell dismissed an appeal against a refusal by the local council to allow a subdivision of an 854 sq m lot in Rippon Way, Rosebery, into two lots. In the eastern suburbs, an 854 sq m lot is substantial, the minimum allotment size in Rosebery, Centennial Park and Moore Park being 230 sq m. However, this particular area of Rosebery had been developed in accordance with the ideals of the Garden Suburb movement, using restrictive covenants. The Court made particular reference to the history of the area and the covenants, finding at [24] that,

the proposed subdivision does not warrant approval on the basis that the special character of the area is one that is demonstrated by the consistency in lot sizes. Whilst it is not a conservation area it is a special precinct and the history of the area must be taken into consideration in the assessment of this application. Furthermore, it is relatively intact, in fact the whole of Rippon Way is intact in terms of the presentation of the subdivision pattern which can be seen from the cadastral boundaries located on the aerial photograph.

Second, many of the technical limitations of freehold covenants, in particularly their limitation to restrictions and not positive obligations, have been overcome by strata and community title legislation. The statutory obligation to impose levies on lot owners for the upkeep of buildings and facilities (common property) avoids the general prohibition on positive (monetary) obligations on freehold land. Further, as we will learn, the content of by-laws and managements statements which regulate the use of private lot property and common property in schemes, can be much broader and more detailed than restrictive covenants, creating master planned and/or 'resort style' private development that it is not possible to create using orthodox freehold covenants.

Leases

1. Leasing fundamentals

Terminology

lessor = landlord

lessee= tenant

Either term is correct, but note that the word is LE-see, not LEE-see.

reversion = the landlord's interest (usually a fee simple, but sometimes a longer lease)

covenant = a promise made by the landlord or tenant under the lease; covenants are the terms of the lease

assignment of the lease= the tenant giving or selling the lease to another

assignment of the reversion = the landlord selling or giving their interest in land to another

sublease = a shorter lease carved out from a longer lease and given to the sublessee by the tenant

The difference between a sublease and an assignment is simply mathematical: if the period granted by a tenant to another is shorter than their own lease, they have created a sub-lease and not an assignment.

Introduction

Leases are a time-limited interest in land that are carved out of a longer interest in land, e.g., a fee simple which goes on forever, or a longer lease, e.g., a 99-year lease. To keep the following explanation clear, it will be assumed that the landlord's interest is a fee simple.

The fee simple owner may not want to use their own land for the next 10 years, but they don't want to dispose of the land altogether. So, if A, the fee simple owner, grants a 10-year lease to B (the lessee/tenant), B will get to use the land for the next 10 years (they will be "in possession" of the land). B will typically have to pay A (the lessor/landlord) money in return (rent). After 10 years, the lease comes to an end, B moves out and A gets possession of the land back. While the lease is running A, the landlord, still has the fee simple interest in land, but they have given possession to the lessee, so we refer to the landlord's interest as "a reversion" i.e., possession will eventually revert to the landlord.

Formal requirements to create a lease

Section 53(1) of theReal Property Actstates that leases for more than 3 years must be registered. Thislogically correlates with s42 RPAwhich states that registered proprietors are only bound by interests on the register, with the exception of leases which are less than 3 years (s42(1)(d)). Ergo, leases for more than3 years that are not registered wouldnot be enforceable against new registered proprietors, a serious problem for the tenant if their landlord sells the reversion and the new owner registers (which, as we have learned, they invariably do).

Leasesare generally created or acquired exactly the same way as any other interest in land: negotiation, contract and registration. We have already done this process for a fee simple interest, in the sale of land transaction earlier in the semester, but we will recap the process here in the context of leases.

a)The contract

For a commercial lease,the prospective landlord and tenant will begin by negotiating the terms of the lease, such as the length of the lease, the rent, rent review mechanisms, responsibility for maintenance and repair etc. The terms of a lease are called covenants. 'Covenant', as a verb, means to make a formal promise, and so the covenants of a lease are the formal promises that the parties make to each other to do or not do something in relation to the land.Leaseholdcovenants should not be confused withfreeholdcovenants, which are covenants that attach to a fee simple interest. We will do these in a later topic.

Bear in mind the basic logic of all leases: if you are going to give your land tosomeone else for 6 months, 5 years or 50 years, it makes sense to agree who will be responsible for what during that time, in particular what the landlord may want the tenant to do or not do on the land.Typically, the lion's share of promises or covenants in a lease are made by the tenant in favour of the landlord.However, this will depend on the relative bargaining power of the parties, which varies with the market in which the lease is being negotiated. In many markets, tenants have limited bargaining power, but there are exceptions to this rule. In the solar farm leases mentioned in the Fixtures chapter, almost all of the bargaining power rests with the solar operator tenant, not the landlord farmer. In large-scale retail and commercial developments, 'anchor tenants' who attract other tenants to a development, have real bargaining power. In shopping centres, anchor tenants used to be department stores, but online shopping has changed that, and now food outlets (supermarkets, restaurants etc.), gyms and other recreation providers are more likely to be anchor tenants. In commercial high rises, financial institutions and large law firms are often the anchor tenants.

At the other end of the spectrum, if the lease is of residential land, as you probably know all too well, tenants have little to no bargaining power. However, because state governments have long recognised the vulnerability of residential tenants (housing not being an optional consumer item, but a basic necessity for all people), the content ofresidential tenancies is not determined by 'freedom' ofcontract butis heavily regulated by legislation: theResidential Tenancies Act 2010(NSW). Landlordsare not free to create leases that are inconsistent with the Act. For example, s63 states that landlords must provide and maintain premises in a reasonable state of repair; as a result, a landlord cannot write a lease imposing all repair obligations on the tenant.Because of heavy statutory regulation, landlords will typically use astandard residential tenancy agreementwhich is written to comply with the Act.

Along with residential tenancies, retail leases are also regulated by legislation because, with the exception of anchor tenants, retail tenants often have limited bargaining power, particularly in shopping centres. In New South Wales, the relevant legislation is theRetail Leases Act1994. Section 7 of the Act states that any provision in a lease or an agreement for lease that is inconsistent with the Act is void. The Act provides tenants with protections that they may not be able to secure with their own limited bargaining power.We do not do residential or retail leases in this course, but in practice, you need to be aware of the extensive impact of legislation on these areas of lease law, particularly if you work for landlords.

Commercial leases are minimally affected by legislation. While commercial parties might have clear ideas about what they think the lease should include, it is the responsibility of their lawyers to anticipate things that might arise or go wrong in the course of a lease, and to set out what will happen in that event; e.g. if the tenant is going to do a 'fit out' (i.e., fit the premises out as a commercial office space or restaurant, for example), what will happen at the end of the lease? Will the tenantbe able to take workstation partitions or kitchen equipment away? If so, will they be required to fix or 'make good' the holes in the wall? Needless to say, the answer to these questions will determine which party bears substantial costs, and so it is important for leases to create clear, agreed rules; that is, well drafted covenants. Remember, if a party to a lease has not expressly (or sometimes impliedly) promised to do or not do something through a covenant, the other party cannot sue them for doing or not doing that thing. For example, a landlord cannot complain about the tenant not paying the water rates if the tenant has not expressly promised in a written term of the lease to pay the water rates. We will look at the kinds of covenants that are typically found in commercial leases in the covenants chapter.

Once the parties (ideally with the advice of their lawyers) have reached agreement on who has to do what, they must put their agreement in writing. Why? Because a lease is a contract in relation to land, ands54AConveyancing Act 1919requires it to be in writing, just like agreements to sell a fee simple, agreements to grant a mortgage, an easement etc.The formalities are the same for all interests in land.

The parties will sign identical copies of the lease (usually electronically) and then exchange them or otherwise indicate an intention to be bound. Just like the contracts for sale of fees simple that we learned about in the Fundamental Concepts in Land Law section, this will create alegallybinding contract, which in turn createsan equitable interest in land; that is, an equitable lease:Chan v Cresdon Pty Ltd(1989) 168 CLR 242.

b)Registration

In many circumstances, neither a contractual agreement nor an equitable lease is a sufficiently secure interest in land. Against whom is the contract enforceable? Against whom isthe equitable lease enforceable? (Hint: that will typically depend onthe length of the equitable lease). Onceyouhave answered these two questions, it should beclear that most leases, just like all other interests in land, need to be registered if they are going to be enforceable: s42Real Property Act.

Leases are registered through PEXA. The landlord's solicitor or conveyancer will enter the basic details of the leaseinto a PEXA workspace,(term, options to renew and/or purchase), upload a PDF copy of the lease with all of its covenants, and then sign on behalf of their landlord client. The lessee's solicitor or conveyancer will then sign for their client, and the landlord's solicitor/conveyancer will lodge the lease for registration by the state.The act of registration creates the new legal interest in land because Torrens is a system of title by registration, not registration of title, (which case said this? It starts with a B.....). The lessee is the registered proprietor of the lease, and the lessor remains the registered proprietor of the fee simple.If the landlord transfers their fee simple to someone else, will the new registered proprietor of the fee simple be bound by the lease?Why?Your residential tenancy is unlikely to be registered. You do not need to be concerned by this.Why?Implied leases at common law

There is a narrow class oflegalleases that are created without registration. They are leases that the common law implies if a tenant is:

in possession of premises and

paying rent on a regular basis, e.g., weekly, monthly, quarterly.

Like other implied interests in land law, they date from a time when written documents were less common, (illiteracy being widespread and paper and parchmentbeing very expensive), and the law had to give weight to people's actions.

Today, there are still circumstances in which a tenant may be in possession and paying regular rent but not have a registered lease or even a written agreement for lease. The parties may still be negotiating, but the tenant is keen to get into the premises to start their business; the parties may never have consulted a lawyer and concluded their agreement on a handshake; the parties have a written agreement for lease (a contract) but have never registered the lease, or the tenant's registered lease has expired, but they have stayed on in the premises (and there is no 'holding over' clause in the lease). In all of these circumstances, if the tenant is

in possession and

paying rent on a regular basis,

the common law will imply a lease in their favour. Because it is implied by the common law, it is a legal lease, although unregistered.

If the tenant pays rent on a weekly basis, they will have a lease from week to week, terminable by either party on one week's notice. If they pay on a monthly basis, they will have a lease from month to month, terminable by either partyon one month's notice. However, the common law had a distinct preference for tenancies from year to year. For example, even if the tenant paid renton a monthly basis, if the rent was expressed as an annual sum, the common law would imply a lease from year to year. The common law did this to protect agricultural tenants from unscrupulous landlords who might terminate a lease and harvest the tenant's crop. Yearly leases were terminable on 6 months' notice, with the notice period starting to run at the beginning of the next 6-month period, e.g., if the lease started in January and the landlord gave notice in April, the 6 months would start running from July. In effect, tenants always had at least a year long lease.

Because we no longer live in a predominantly agricultural society it no longer makes sense for the law to imply leases from year to year. As a result,s127of theConveyancing Act1919 now converts all common lawimplied tenancies from year to year to tenancies from month to month, terminable by either party with one month's notice (they are not particularly secure interests in land).

If the landlord sells the reversion, implied tenancies at common law bind the new registered proprietor. Why? Hint: it is not because they are legal -s42 RPAdoes not say that registered proprietors are bound by legal interests in land. Apply the plain words of the section. What is the key factor that makes an unregistered lease binding on a new registered proprietor?

2. Substantive requirements

There are two substantive requirements that all leases must have: certainty of duration and exclusive possession. If they do not have these, they are not leases at all, but merely licences. Failure to comply with these two requirements cannot be cured by registration as they go to the heart of whether the interest granted is an interest in land at all.

Certainty of duration

For centuries, the common law has insisted that leases must be of a duration that is certain or capable of being rendered certain. If they are not, they are invalid. Normally, this is not a particularly difficult requirement to satisfy. Most parties to a lease expressly agree a fixed term for the lease, for example, 6 months, 5 years with two options to renew, 99 years etc. However, there are some situations where this rule can be breached. For exampleLace v Chantler[1944] KB 368; [1944] 1 All ER 305 concerned a lease for the duration of the war, which probably made perfect sense to parties negotiating in the middle of WWII. However, the court held that the lease was invalid for uncertainty. The certaintyrule was applied by the NSW Court of Appeal inWilson v Meudon[2005] NSWCA 448, in the context of a company title apartment building. Company title is the precursor to strata title. A company owns the land and when people buy an apartment, they buy a parcel of shares in the company that equates to their apartment. The Articles of Association of the company usually give apartment owners the exclusive right to occupy their apartment. InWilson,the Court of Appeal held that the exclusive right to occupy could not be a lease because it did not have certainty of duration. The right to occupy would last as long as a person owned a parcel of shares. As no one knew when someone might decide to sell their apartment by transferring their shares, it was impossible to know how long their right to occupy would last. The right had to be a licence, not a lease.

Periodic tenancies are leases that continue for specific periods until terminated by a period of notice. For example, an implied tenancy at common law from week to week or a tenancy under s127 of theConveyancing Actwill carry on from week to week or month to month, respectively, until either party gives one week or one month's notice. Similarly, most written, fixed term leases have 'holding over' clauses, so that if the lease comes to an end and the tenant stays, they are treated as having a lease from month to month, terminable by either party with one month's notice. Although it is impossible say in advance when these leases will end, they do not offend the rule of certainty because they are treated as fixed terms for one week, one month etc., with the parties continually agreeing to a new fixed term until either one terminates by notice.

Exclusive possession

The other essential requirement for a lease is that the agreement between the parties must grant exclusive possession. That is, the tenant must have a right to exclude everyone else from the premises, including the landlord. As most leases are written, what rights the tenant has been given will be determined by reading the terms of the document. If the rights do not amount to exclusive possession, the document is a licence, if they do, it is a lease. It is clear from the case law that the label the parties give the agreement will not determine the matter. If they have called the document a licence, but it grants exclusive possession, it will nonetheless be a lease. Landlords are sometimes tempted to do this to avoid the operation of legislation that limits their rights, such as residential tenancy legislation. These were the facts ofRadaich v Smith(1959) 101 CLR 209; ALR 1253, in which a deed granting exclusive rights to a milk bar for 5 years repeatedly used the terms 'licence', 'licensee' and 'licensor'. The grantor was trying to avoid the operation of rent-capping legislation, which in the difficult post-WWII period capped the amount of rent that landlords could charge tenants. This extract from Windeyer J's judgment clarifies how courts will treat such acts of legal creativity:

WINDEYER J.

1. The distinction between a lease and a licence is clear. "A dispensation or licence properly passeth no interest, nor alters or transfers property in anything but only makes an action lawful which without it had been unlawful": Thomas v. Sorrell [1673] EWHC J85 (KB);(1673) Vaugh 330(124 ER 1098) . Whether when one man is allowed to enter upon the land of another pursuant to a contract he does so as licensee or as tenant must, it has been said, "be in the last resort a question of intention", per Lord Greene M.R. in Booker v. Palmer (1942) 2 All ER 674, at p 676 . But intention to do what? - Not to give the transaction one label rather than another. - Not to escape the legal consequences of one relationship by professing that it is another. Whether the transaction creates a lease or a licence depends upon intention, only in the sense that it depends upon the nature of the right which the parties intend the person entering upon the land shall have in relation to the land. When they have put their transaction in writing this intention is to be ascertained by seeing what, in accordance with ordinary principles of interpretation, are the rights that the instrument creates. If those rights be the rights of a tenant, it does not avail either party to say that a tenancy was not intended. And conversely if a man be given only the rights of a licensee, it does not matter that he be called a tenant; he is a licensee. What then is the fundamental right which a tenant has that distinguishes his position from that of a licensee? It is an interest in land as distinct from a personal permission to enter the land and use it for some stipulated purpose or purposes. And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise. To say that a man who has, by agreement with a landlord, a right of exclusive possession of land for a term is not a tenant is simply to contradict the first proposition by the second. A right of exclusive possession is secured by the right of a lessee to maintain ejectment and, after his entry, trespass. A reservation to the landlord, either by contract or statute, of a limited right of entry, as for example to view or repair, is, of course, not inconsistent with a grant of exclusive possession. Subject to such reservations, a tenant for a term or from year to year or for a life or lives can exclude his landlord as well as strangers from the demised premises. All this is long-established law: see Cole on Ejectment (1857) pp. 72, 73, 287, 458. (at p222)

2. Recently some transactions from which in the past tenancies at will would have been inferred have been somewhat readily treated as creating only licences. And it has been said - especially in connection with family relationships, charity or hospitality - that allowing a person to have the exclusive possession of premises does not necessarily indicate a tenancy as distinct from a licence. These decisions are largely a by-product of rent restriction statutes and other legislation here and in England. They are all explicable if they mean, as I think they all do, that persons who are allowed to enjoy sole occupation in fact are not necessarily to be taken to have been given a right of exclusive possession in law. If there be any decision which goes further and states positively that a person legally entitled to exclusive possession for a term is a licensee and not a tenant, it should be disregarded, for it is self-contradictory and meaningless. We are not here concerned with the way in which a court of equity would control the parties in the exercise of legal rights, but with the simple question whether at law this document created a lease or a licence. And the proper touchstone still is: did it give the so-called licensee a legal right to the exclusive possession of the premises during the term? The question must of course, be resolved by considering the terms of the deed. But they are to be read in relation to the relevant surrounding circumstances, in particular the nature of the premises; for this deed, like any other instrument, is to be interpreted having regard to its subject matter. Here the subject premises are in fact a lock-up shop at The Spit, Mosman. It was said that the stated case does not expressly state this to be so. This is true, and the learned judge who heard the appeal in the Supreme Court may have been somewhat hampered because the case stated by the magistrate did not fully describe the subject premises. But it is stated that they are No. 83 Parriwi Road, Mosman;[Note: if you know The Spit, Middle Harbour, that is the marina on the right hand side, just before you cross the Spit Bridge]and from the deed itself it appears that this is a separate part of a larger holding held by the respondents - the so-called licensors - under a special lease from the Crown, a form of tenure under the Crown Lands Acts of New South Wales. From the deed itself it is also a reasonable inference that the subject premises are a lock-up shop used as a refreshment room and milk bar and adjacent to another shop where fish foods are sold. And the notice of appeal to this court referred, as one of the grounds of appeal, to matter stated in the affidavit sworn on the application for special leave to appeal. So far as that affidavit sought to explain why the document took the form it does it must be entirely disregarded; for the parties have reduced their agreement to writing and cannot by parol evidence explain their deed. But the fact stated in the affidavit that the subject premises are a lock-up shop is clearly relevant; and so I think is the fact that the appellant had bought from the respondents the business carried on upon the premises and that it was in connection with this transaction that the deed in question was executed. Turning then to its terms: its opening operative clause is expressed to be a grant for a five-year term of "the sole and exclusive license and privilege to supply refreshment to the public admitted to premises situate at 81-83 Parriwi Road, The Spit, Mosman, and to carry on the business of a milk bar therein in such rooms as are shown in the sketch contained in Schedule one annexed hereto and the right to use of toilet at rear and passage thereto." These words, standing by themselves, would create only an exclusive licence to supply refreshments, which is essentially different from an exclusive right to possession. But these opening words are not at all appropriate to the actual circumstances - and they do not stand by themselves. To describe the lock-up shop as "such rooms as are shown in sketch" is inapt, for one room, the shop, is what is shown by the sketch. And it is inapt to speak of a right to supply refreshments "to the public admitted to premises 81-83". And several of the later provisions are not only not appropriate to a mere licence to sell refreshments on the landlord's premises, but clearly suppose a grant of possession of specific premises to the appellant so that she can carry on a business there. It was argued that the deed follows an accepted precedent for the grant of a licence, having been taken from the form given in Evatt and Beckenham's Conveyancing Precedents, 2nd ed. (1938) p. 542, which in turn is taken from a form in The Conveyancer vol. 10, p. 485. We have to decide what is the result of the words used by the parties, not what is the result which the draftsman of a form thought they would have. But what has happened is simply that the form has been used in circumstances for which it was never intended. In The Conveyancer it is described as a "License for the Exclusive Right of Supplying Refreshments within a Railway Station or Building"; and in Evatt and Beckenham's Precedents as "Licence for the Exclusive Right of Supplying Refreshments within a Building". Whether all its clauses are really appropriate to a licence to sell refreshments at a stall on a railway station or in the foyer of a theatre to persons admitted to such premises need not be considered. It is inapt to create a licence of a lock-up milk bar at The Spit. References in the deed to the licensee "giving up possession of the said building occupied by her", and to "that part of the premises occupied by her", are consistent with a tenancy, and in their setting are not really consistent with the supposed licence. The appellant is required to keep her business open during business hours. Clearly she could shut it at other times. I imagine all concerned would have been astounded if they had been told that the appellant had no right to exclude persons from her shop; that the respondent might, if he wished, license other people to carry on any activity there other than the sale of refreshments, provided their presence did not prevent her selling refreshments or conducting the milk bar; and that, although she might lock the shop up at night and on holidays, the respondents could not only enter it themselves whenever they wished but could admit as many persons as they chose, provide them with keys and license them to use the premises in the absence of the appellant for any purpose of pleasure or business they liked, provided only that they did not sell refreshments. If the matter is to be tested by the apparent intention of the parties arising from the circumstances, that clearly was not their intention. If it is to be tested, as I consider it is, by their intention as reflected in the words of their deed with knowledge of the nature of the subject premises, then, in the words of Blackburn J. (as he then was) in Roads v. Overseers of Trumpington (1870) LR 6 QB 56 "the whole nature of the agreement shews that the appellant was intended to have exclusive possession of the land" (1870) LR 6 QB, at p 63 . The use in what purports to be the principal provision of the deed of words taken from a precedent designed for another purpose cannot outweigh its total effect. (at p225)....

4. The magistrate was right. The deed created a lease of the part of the building shown in the sketch annexed to it, that is the shop.

A more recent application of the doctrine of exclusive possession can be found inSwan v Uecker[2016] VSC 313. In this case a landlord argued that the tenants had breached their lease by listing the apartment on Airbnb. The lease prohibited subletting. Airbnb has two options - a guest can take a whole house or apartment, or they can take a room in a house or apartment where the host is still living. Do you think either of those options creates a lease? Was the tenant in breach of their lease?

What case did we do earlier in the semester in which the High Court held that a lease didnotgrant exclusive possession? Why was this lease an exception to the general common law rule?

3. Covenants (note large case extracts - please allow yourself enough time to read)

As we have already learned, covenants are the promises that landlords and tenants make to each other about what they will and will not do. In the past, the common law wouldimplya limited number of covenants into all leases. These were an obligation on the part of the landlord to

give the tenant quiet enjoyment of the premises,

not to derogate from grant, and

ensure that furnished dwellings were fit for habitation.

On the part of the tenant, they were to

use the premises in a tenant-like manner,

use agricultural land in a husband-like manner, and

yield up possession at the end of the lease.

Most of these were minimal obligations. For example, the covenant to use premises in a tenant-like manner was not a covenant to repair the premises, but to do the most basic things like unblock the sink and close the windows if it was raining. The covenant on the part of a landlord to ensure furnished premises were fit for habitation excluded the vast majority of premises that were let unfurnished.

More recently, legislation has implied covenants into leases; for example, theResidential Tenancies Act 2010orRetail Leases Act 1994, mentioned in the last section. Sections84and85of theConveyancing Act 1919imply basic covenants into leases about rent, repair and inspection of the premises etc., but unlike the provisions in theResidential Tenancies Actand theRetail Leases Act, s84 and s85 of theConveyancing Act 1919can be specifically excluded by written leases, and usually are.

Today, in a society in which most of the population is literate and has access to easy typing and printing facilities, leasehold covenants, in particular commercial lease covenants, are not implied by the common law or statute, they are expressly agreed by the parties. They will be found in the written lease, and if the lease is for more than three years, the written lease will also be registered. When approaching a dispute between a landlord and tenant, the first thing you do as a lawyer is read the lease; it is the agreement that the parties have made between them and will frequently contain the complete answer to any dispute.

Lawyers do not typically draft leases from scratch; they use precedents, which are often tailored to particular kinds of property (e.g., commercial offices) or particular Acts (e.g., theRetail Leases Act). However, precedents should be amended to suit the specific needs of the client and the nature of the premises. If precedents are used without sufficient thought to the adequacy or appropriateness of their terms in relation to specific landlords and tenants, they will fail to protect the client's interests in the event that something goes wrong. That said, whilecovenants should vary between leases, there are covenants that are frequently found in leases, and as a result, have been judicially interpreted on multiple occasions. When drafting leases, it is essential to be aware of that judicial interpretation which may affect the meaning of the words chosen. The following are covenants that are typically found in leases, and which have often been the subject of litigation.

Quiet enjoyment

The covenant for quiet enjoyment was one of the few covenants implied by the common law and today, it is usually expressly included in leases.'Quiet' does not literally mean silent (although a landlord playing the trumpet on the tenant's lawn at 5 am would definitely be a breach); the covenant is apromise by the landlord to allow the tenant to use the premises free from disturbance by the landlord. It is a corollary to the tenant's exclusive possession. If the landlord has granted the tenant exclusive possession, that means that the landlord has no right to interfere with the land during the course of the lease. Landlords typically have a right to inspect the premises on a regular basis, but that has to be expressly agreed by the parties in the lease or implied by statute, otherwise the landlord entering the premises would potentially be a breach of the covenant for quiet enjoyment.

The covenant for quiet enjoyment sometimes overlaps with the covenant not to derogate from grant. This covenant was also implied by the common law, and it means that the landlord promises not to derogate (take away from) the grant that he or she made to the tenant (the lease) by doing things on the land or adjoining land that prevent the tenant from using their land in accordance with their lease. Emeritus Professor Brendan Edgeworth states that:

The scope of the covenant not to derogate is defined by the purpose for which the premises are leased.The covenant is breached where the premises are leased for a particular purpose, and the landlords activity or non-activity renders the premises unfit or materially less fit for that particular purpose.There need not be complete frustration of the intended purpose; the test is whether the premises for practical purposes are to be fairly regarded as having been rendered unfit.And so there is no breach where the premises remain reasonably fit for practical purposes for their intended use, even though less fit than before.The question is: are the premises unfit from a reasonable point of view for the purposes for which [they were] granted?(Butt's Land Law, p356, footnotes omitted).

Examples given by Edgeworth include the landlord stopping escalators and reducing the lift service so customers could not reach a 6th floor restaurant; the landlord stopping up one of two doors into the tenant's coffee shop, or even the landlord operating a competing business on the site making the tenant's premises less fit for the purpose for which they were let.

The most difficult cases on breach of the covenant for quite enjoyment or non-derogation from grant are those in which the offending activity is not done by the landlord or their agent, but by a third party for whom the landlord is in some way arguably responsible or has the power to control, most typically another of the landlord's tenants. In shopping centres, industrial estates or business parks with a single freehold owner, there will be many tenants with a common landlord. The following case demonstrates how landlords may be found to have breached the covenant for quiet enjoyment or non-derogation from grant as a result of actions of one of their other tenants.

Aussie Traveller P/L v Marklea P/L[1997] QCA 2 (11 February 1997)

Landlord

AT TF

McPherson JA:

The facts. The business of the plaintiffAussie Traveller Pty. Ltd. is the manufacture and sale of new and repaired canvas goods such as awnings and camping equipment. It commenced trading in 1988 in Fortitude Valley. On 8 March 1992 it signed an agreement for a lease of part (unit 5) of a building on land known as the Enoggera Industrial Centre at 51 Prospect Road, Enoggera. By cl. 4 of the agreement, the plaintiff undertook not to use the premises for any purpose other than the "manufacturing or sale of new/repaired canvas awnings/annexes and camping equipment". The lease, which was for a term of three years commencing on 1 April 1992 with an option for a further three years, was for a monthly rent of $2,200 payable in advance. At the date of the agreement the lessor was Shonafield Pty. Ltd., but on 1 April 1992 it sold and assigned its reversion in the land to the defendant Marklea Pty. Ltd. In April 1992 the plaintiff entered into possession of the premises, which was one of a number of leased premises in the "centre" or complex on the site, and it carried on its business there until March or April 1995, when it moved to other premises at Eagle Farm. It did so, or so it alleged, because of the condition of the leased premises at Enoggera, which it claimed was brought about by the activities of another tenant identified as Top Flight, which occupied adjoining premises (unit 15), of which it became the tenant in December 1992.

The business of Top Flight, a firm comprising Mr & Mrs F.B. Hyatt, was making timber staircases, for which it used power saws, sanders and one or more spindle planers. The cutting, planing and sanding of timber on the premises it occupied created dust, sawdust and noise which, according to the plaintiff, interfered with the conduct of its business. The two sets of premises were separated by a covered way some 3m to 3.5m. in width; but the partitions or walls between them, which were only 10 or 12 ft. high, did not reach to the common roof of the building, and there were roller doors in both premises that were kept open to facilitate ventilation during working hours. In consequence, particles of sawdust passed into or over and on to the plaintiff's premises and its canvas products, as well as blowing in under closed doors. A hopper bin outside Top Flight's premises was used to collect sawdust preparatory to its removal from the site. Until the base of the bin was covered with shade cloth in mid 1994, sawdust from that source was also blown into the plaintiff's premises; and, even after that precaution was taken, sawdust continued to emanate from the bin particularly on windy days, or when the hopper was being emptied into trucks.

The sawdust made working conditions difficult. It collected on the floor, on the machinery, and on raw or finished materials, where it tended to soil or stain the plaintiff's canvas products, with the consequence that, in selling its goods, the plaintiff found it necessary to discount its normal retail prices. In addition, the noise of the spindle planer was so loud as to make ordinary speech inaudible in the plaintiff's premises. The planer was operated, at a minimum, every second day, often from early morning until lunch time. It was impossible to conduct telephone conversations or speak to customers except in the office or outside the premises. To shut out the sound, employees wore earmuffs, and some customers who could not stand the noise left the premises without making purchases. The sawdust and the noise resulted in a high turnover in the workforce employed by the plaintiff, as well as increased absences from work through headaches and respiratory illnesses....

Lessor's implied obligation. The law governing the relevant obligations of a landlord to a tenant is less certain than might perhaps be hoped. It is, however, well settled that under a lease of land, whether it is a formal demise or a mere tenancy agreement, there is on the part of the lessor an implied covenant or agreement not to derogate from the grant, and a further such covenant or agreement for quiet enjoyment by the lessee. In some of the older decisions the liability of the landlord was treated as depending on the presence in the lease of words like "grant" or "demise"; but in Australia it was settled byO'Keefe v. Williams[1910] HCA 40;(1910) 11 C.L.R. 171, by which we are bound, that the matter is properly one of implication of terms in order to give business efficacy to the contract. Speaking in that case of a lease by the crown, Griffith C.J. said (at 191) that, where the lessor contracted to give exclusive occupation of land, "there is to be implied an obligation in the nature of a promise not to disturb him in that occupation"; and (at 192) that the obligation so implied was "that the lessor shall neither disturb the possession himself nor authorise its disturbance by others". See also the reasons of Barton J., in the report of that case at 199-200; and of Isaacs J., at 211, who said that granting an exclusive right of possession "connotes that the grantor will not attempt to interfere with it".

It is sometimes said that the agreement for quiet possession is directed primarily to acts of the lessor done on the leased premises, whereas the obligation not to derogate from the grant is directed to acts done off the premises on other land retained by the lessor. Having regard to the way in which the matter was approached inO'Keefe v. Williams, it is perhaps doubtful whether the distinction has much practical significance, the question always being whether the effect of the acts in question is such as to disturb or interfere with the lessee's occupation irrespective of the place where those acts originated. In the present case, the lessee's occupation was disturbed, or so the plaintiff claims, by the penetration or entry on and into the leased premises of particles of sawdust and waves of sound. Both were acts or effects for which the adjoining tenant was responsible and could have been sued in nuisance or, in the case of sawdust, in trespass; but the question here is not whether Top Flight itself was or might have been made liable, but whether those acts or their consequences were such as to disturb the plaintiff's occupation of the premises in a way that involved the defendant landlord in legal responsibility for the loss alleged to have ensued.

Extent of disturbance. Two inquiries are involved. The first is whether the extent of the disturbance or disruption suffered by the plaintiff was such as to amount to a breach of the lessor's implied obligation; the second is whether, although brought about by the actions of Top Flight, the defendant lessor can be held liable for it. As regards the first question, a frequent starting point is the statement of Parker J. inBrowne v. Flower[1911] 1 Ch. 219, at 226:

"... if the grant or demise be made for a particular purpose, the grantor or lessor comes under an obligation not to use the land retained by him in such a way as to render the land granted or demised unfit or materially less fit for the particular purpose for which the grant or demise was made."

In the present case the purpose of the lease to the plaintiff was evident from cl.4 of the agreement, which limited the use of the premises to the manufacture and sale of canvas goods...

InGordon v. Lidcombe Development Pty. Ltd.[1966] 2 N.S.W.R. 9, at 15, Street J.. held that Parker J. inBrowne v. Flowerhad used the expressions "unfit" and "materially less fit" as synonyms, adding that "if the degree to which the premises are rendered less fit is so extreme as in the practical sense to render them unfit" then the test was satisfied and the grantor's conduct was in breach of the implied obligation. So, in the case before him, the learned judge held that, although the erection of a wall by the defendant lessor had obscured the visibility of the lessees' coffee lounge to some of the persons entering or using the building in which the shop was situated and so reduced its profitability, it had nevertheless remained practicable to carry on the business profitably in the leased shop; the effect of the wall was, his Honour found, not so great as to render the business "uneconomic" ([1966] N.S.W.R. 9, at 13-15. Approached in that way, the plaintiff lessees were held in that case to have established no equity entitling them to relief by way of injunction to restrain the defendant lessor from continuing by means of the wall to obstruct the view of the shop.

The decision inGordon v. Lidcombe Developments Pty. Ltd., or some of what was said by Street J. in his judgment, is not easy to reconcile with the decision of the English Court of Appeal inOwen v. Gadd[1956] 2 Q.B. 99, where the erection of scaffolding in front of a "lock-up" retail shop was held to constitute a substantial interference with access to the shop amounting to a breach of the covenant for quiet enjoyment. The lease in that instance was for a term of 10 years, and, no special damage having been proved, the plaintiff lessee was awarded nominal damages of 40 shillings for a disturbance which lasted only 11 days. Owen v. Gaddwas applied inJ.C. Berndt Pty. Ltd. v. Walsh[1969] S.A.S.R. 34, where Walters J. awarded damages in the sum of $2,400 for interference caused by the erection by the lessor of a hoarding in front of the lessee's retail jeweller's shop in a city centre, which obstructed the view of the shop frontage and had an adverse effect on the plaintiff's business. The lease was for a term of five years and the disturbance lasted for four or five months. Likewise, inMartin's Camera Corner Pty. Ltd. v. Hotel Mayfair Ltd.[1976] 2 N.S.W.L.R. 14, at 27, Yeldham J. held a lessor liable in damages or breach of covenant for quiet enjoyment arising from the entry on to the demised premises of rainwater caused by the failure of the lessor to keep roof gratings and downpipes clear of rubbish. In none of these cases could it be said that the interference complained of had rendered it impracticable or uneconomic to carry on the lessee's business. Cf. alsoKalmac Property Consultants Ltd. v. Delicious Foods Ltd.[1974] 2 N.Z.L.R. 631.InGordon v. Lidcombe Investment Pty. Ltd., Street J. also placed reliance on statements in various English authorities that, for the lessor's obligation to be broken, there must be "substantial" disturbance or disruption, which his Honour tended to construe as requiring that the interference must have reached a level at which it practically frustrated the purpose for which the lease was granted ([1966]2 N.S.W.R. 9, at 14-16). The word "substantial" is unfortunately susceptible of more than one meaning, ranging from not ephemeral or not merely nominal, to considerable, weighty or big: cf.Tillmanns Butcheries Pty. Ltd. v. Australasian Meat Industry Employees' Union[1979] FCA 85;(1979) 42 F.L.R. 331, at 348; see alsoArnotts Limited v. Trade Practice Commission(1989) 24 F.C.R. 313, at 342-343. Nowadays it is more commonly given the latter meaning...

For my part, I do not consider that, in order to establish a breach of the lessor's implied obligation recognised inO'Keefe v. Williams[1910] HCA 40;(1910) 11 C.L.R. 171, the law insists on "practical frustration" of the purpose of the lease...The further proposition inBrowne v. Flower[1911] 1 Ch. 219, at 228, that to constitute a breach of the obligation there must be physical interference with enjoyment of the premises ceased to be tenable after the decision inHarmer v. Jumbil (Nigeria) Tin Areas Ltd.[1921] 1 C.A. 200. SeePort v. Griffith[1938] 1 All E.R. 295, at 298; and Megarry & Wade,Law of Real Property(4th ed.), at 679 n.1.Owen v. Gadd,J.C. Berndt Pty. Ltd. v. WalshandNewman v. Real Estate Debenture Corporation Ltd.are all cases in which there was no direct physical impact on the premises. See alsoHaig v. Chesney[1925] S.A.S.R. 82, which was an interference with light. In any event the penetration into the leased premises of sawdust, if not of the sound of the planer, was, on any view of it, a physical interference with the enjoyment of the premises.

Breach of obligation. The question remains whether, considered in the context of the law laid down inO'Keefe v. Williams, the learned judge was correct in finding that there had been a disturbance or interference with the plaintiff's occupation of the leased premises amounting to a breach of the defendant landlord's implied obligation not to derogate from its grant. The question is one of fact (Kelly v. Battershell[1949] 2 All E.R. 830, at 837), depending on inferences to be drawn by this Court from the evidence accepted in the court below, giving due respect and weight to the conclusion of the trial judge. As to that, her Honour found that there had been "a substantial interference" with the right of occupation granted by the defendant rendering the premises "substantially less fit" for the purpose for which they were let. In doing so, she accepted the evidence of Mr Freney that, by the end of 1993 when he discussed the problems with Mr Bendall on behalf of the defendant, the premises had become unsuitable, rather than simply "less than ideal". The learned judge based her conclusion primarily on the evidence of the plaintiff's witnesses, but particularly on that of the Departmental workplace health and safety adviser Mr B. Groothoff. In her reasons she said she accepted the results of the noise and dust tests he had conducted at the premises on 27 January 1995 and of further noise tests on 31 January and 8 February 1995. He measured the ambient noise level in the plaintiff's premises at 68.5dB(A). When Top Flight's spindle planer was operating on 27 January dressing softwood, the noise level was an average of 90dB(A); when it was dressing hardwood on 8 February 1995, it was an average of 93dB(A). The noise level when the planer was operating, but not dressing timber, was 71.8dB(A). As the difference between ambient noise levels and source levels was greater than 5dB(A), Top Flight was in breach of theNoise Abatement Act1979 in relation to industrial or commercial premises....

When all...matters are brought into account, they justify the conclusion of the trial judge that the plaintiff's occupation of the leased premises was substantially interfered with by the activities of Top Flight conducted on the adjoining premises.

The lessor's liability. It is another matter whether the defendant can in law be held liable for that interference or disturbance. The acts that produced it were not those of the lessor but of Top Flight, which was another tenant of the lessor. The older authorities suggest that in those circumstances the lessor is not liable for breach unless the acts in question were authorised by the lessor, or at least were reasonably foreseeable: seeHarrison Ainslie & Co. v. Muncaster[1891] 2 Q.B. 680, at 686, 689. InMalzy v. Eicholz[1916] 2 K.B. 308, the landlord was acquitted of liability because it was not foreseeable that the other tenant would engage in an activity that not only constituted a nuisance but was also illegal. On the other hand, the lessor inHaig v. Chesney[1925] S.A.S.R. 82, and, at least to some extent, the landlord inNewman v. Real Estate Debenture Corporation Ltd.[1940] 1 All E.R. 131, were held liable for disturbance that was the reasonably foreseeable consequence of the reasonable foreseeable actions of another tenant.

Some of the older decisions insist on proof of "authorisation" or "active participation" by the landlord in the act giving rise to the consequences complained of. The law, however, has moved some way since those decisions were given. A person may now be liable for acts done on his land creating a nuisance, even though they were done by the trespasser or resulted from natural causes, if he fails to take steps to eliminate or prevent them...The result is that although, apart from any provision in the lease, a lessor generally loses control over premises once they are let to a tenant, he may nevertheless remain legally responsible for tortious acts done on the land by a tenant at least if at the time he agreed to part with possession and control, it was reasonably foreseeable that the tenant was likely to do those acts.

In the lease (ex 30) of unit 15 from the defendant to Top Flight the permitted use of these premises was defined as "Manufacture of staircases and associated products". By cl.7.1, headedNuisance or Injurious Conduct,the lessee undertook not to do or permit any act or thing which might be a nuisance or cause damage or disturbance to any other tenant or to the lessor. By enforcing that provision of the lease, it would have been possible for the defendant to control the nuisance-making activities of Top Flight. In fact, repeated representations by the plaintiff to the defendant about Top Flight's activities or their consequences elicited little improvement in the state of affairs complained of, although it was through the efforts of Mr Boyle, who was the defendant's site manager, that Top Flight was prevailed on to cover the base of the hopper with shade cloth. Although there were letters of complaint from the plaintiff to the defendant about the sawdust from Top Flight's operations coming into the plaintiff's premises, Mr Boyle was never instructed by the defendant to conduct an inspection of the plaintiff's premises nor to persuade Top Flight to remedy the problem.

Mr Rebbechi, who is the defendant's development manager, had been employed by Shonafield, which assigned the reversion to the defendant. Through him, the defendant knew the nature of the business of Top Flight, which had previously occupied other premises in the complex on the same site before it moved into unit 15. The defendant was aware of the sawdust problem and knew that Top Flight intended to expand its production, which was the reason why it moved into unit 15. According to Mr Rebbechi, it was because of this that a dust extractor was required and a more detailed lease in registrable form containing the "nuisance" clause 7.1 was insisted upon by the defendant.

It is evident that the defendant was aware of the problem with dust or saw dust even before Top Flight moved into unit 15 in early December 1992, and it must or ought reasonably to have foreseen that, unless controlled, it was likely to affect the plaintiff's business of manufacturing and selling canvas goods....

In these circumstances, it seems to me that the defendant adopted the noise nuisance created by Top Flight, and that it did so at least after the time of the meeting in November 1993. The learned trial judge did not make any precise finding to that effect in her reasons; but she found that the plaintiff "gave the defendant many opportunities to remedy the situation but the defendant chose not to do so, not even conducting a thorough inspection of the problems"; and she went on to hold that the defendant was responsible for the acts of its tenant Top Flight, with the result that it was in breach of its implied obligation not to derogate from its grant.

Having regard to the control that was capable of being exercised by the defendant over its tenant through the medium of cl.7(a) of the lease, her Honour's conclusion on this point was justified and should not be disturbed...In the circumstances prevailing here the defendant was rightly held liable for the sawdust and noise nuisance created by Top Flight which, although not shown to have been authorised or encouraged by the defendant, was capable of being corrected or terminated by active intervention on its part.

Fitzgerald P and Thomas J agreed.

Covenant against assignment or subletting

When a landlord carves out an interest from their own land and grants it to a tenant, that interest in land, the lease, belongs to the tenant, not the landlord. As a result, the only person with the power to sell or give away that lease is the tenant. Because leases in Australia, at least in urban areas, tend to be relatively short-term, many Australians do not appreciate that a lease is ownership of land. Colloquially, Australians tend to think of fees simple as ownership and leases as mere contract rights. In countries like the United Kingdom, where buying a house commonly involves buying a 99-year lease with X number of years left to run, people have less difficulty understanding that a lease amounts to ownership of land, albeit for a more limited time than a fee simple. It is important for Australian lawyers to not fall into the colloquial trap of not recognising leases as ownership. A lease is an interest in land, owned by the tenant, that they can sell or give to another.

The most common reason a tenant might want to sell a lease is because they no longer want to run their business at all or they no longer want to run it from its current site. However, just because they do not need the land anymore does not mean that they can give up the lease (called a surrender of the lease) and stop paying rent. Having signed a 5 or 10 or 50 year lease, they have promised to pay rent for 5, 10 or 50 years. Sometimes landlords might accept a surrender of the lease if they want possession of the land back for their own purposes, but more typically, the only way that the tenant can moderate their obligation to pay rent is by assigning the lease or creating a sublease.

In the first section we saw that the difference between an assignment and sublease is simply mathematical: if the tenant gives their entire interest to another, this is an assignment, but if they give a shorter interest than their own, it is a sublease. We will learn about the further implications of assigning vs subleasing in the next section, but for now we are concerned with what the tenant's inherent power to assign or sublease means for a landlord.

Naturally, the landlord cares who is in possession of their land, and so logically, landlords invariably write express prohibitions on assignment and subletting into the lease. However, a blanket prohibition would put a tenant in a very vulnerable position if they cannot or do not want to continue to pay rent for the site. As a result, blanket prohibitions are uncommercial and rarely seen in commercial leases. Much more typical are prohibitions on assignment or subletting without landlord consent. This allows the landlord to vet and control who is in possession of their land.

In the past, landlords were sometimes concerned about the 'character' and reputation of assignees/sublessees, but in modern Australia, a landlord's primary concern will be the financial stability of the assignee/sublessee and the viability of their business. Before consenting to an assignment, the landlord will want to see financial records that indicate that the assignee is likely to be able to pay rent on an on-going basis, is generally going to be a good tenant and can provide personal or bank guarantees equal to those provided by the tenant. In New South Wales, there is an important section of theConveyancing Act 1919which protects tenants from capricious behaviour on the part of the landlord:s133B(1)implies into all leases a proviso that if the landlord's consent is required for an assignment or sublease, it cannot be 'unreasonably' withheld. The section prevents the landlord from putting the tenant in the invidious position of losing a potential assignee/subtenant because the landlord is refusing consent on unreasonable grounds. Section 133B cannot be excluded by the terms of the lease; although commercial leasing is largely a matter of freedom of contract, it is important to remember that there are some legislative provisions that cannot be contractually avoided.

One difficulty that tenants face is the landlord failing to respond to requests for consent to assignment/subletting in a timely manner. The tenant will have been negotiating with the assignee/subtenant who will need to move into the premises at a particular time. If the tenant does not get the landlord's consent in time, the assignee/subtenant may find other premises, leaving the tenant, who might be in financial difficulties, with continuing obligations to pay rent. As a result, tenants' lawyers should consider including a covenant in the lease that deems the landlord to have given consent after a particular period of time has passed, such as 6 weeks.

Boss & Ors v Hamilton Island Enterprises Ltd[2009] QCA 229

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/800px-Hamilton_Island_Marina_2012.jpg" * MERGEFORMATINET

Hamilton Island, Queensland

Source:https://en.wikipedia.org/wiki/Hamilton_Island_(Queensland)#/media/File:Hamilton_Island_Marina_2012.jpg

Boss & Ors v Hamilton Island Enterprises Ltdis an interesting example of when a landlord's withholding of consent might be considered unreasonable. Details of the facts are included so that you can better understand the kinds of contexts in which land law principles operate in contemporary Australia, particularly the context of complex, large-scale developments.

Fact diagram:

State of Queensland

perpetual lease

Hamilton Island Enterprises (HIE) Later sub-leases on the Island for apartments and houses to other purchasers; sub-leases contained 'Rules'

94 year sublease + 99 year option to renew

of 2.25 hectares in 1984

George Harrison

assignment of sub-lease in 2001

Trustees

intended assignment/transfer of sub-lease in 2008 -

consent of landlord (HIE) needed, could not be unreasonably withheld,

attempt to make consent conditional on assignee, Northaust, signing 'Rules'

Northaust (George Adams)

The freehold to almost all Queensland islands is retained by the State or the Commonwealth, and they are sold on long-term or perpetual leases, typically to developers and tourist operators. In 1984, a perpetual lease of Hamilton Island was granted to Hamilton Island Enterprises (HIE), the company of 'colourful' Queensland developer Keith Williams, (Williams also developed Sea World on the Gold Coast). HIE then granted a 94-year sublease of 2.26 hectares, with an option to renew for 99 years, to George Harrison. Yes,theGeorge Harrison, lead guitarist of the Beatles. Harrison built a luxury retreat (you can see ithere), and when he died in 2001, the sub-lease was assigned to his trustees, the first respondents. The sub-lease contained a covenant that it could be assigned with the consent of HIE, and consent could not be arbitrarily or capriciously withheld if the assignment was to a respectable person, acceptable to the Minister for Lands, entitled to hold the sub-lease, and financially sound. The Queensland equivalent of s133B(1) also applied so that consent to an assignment could not be unreasonably withheld.

The trustees contracted to sell the property to Northaust, the company of Melbourne property developer, George Adams, for $8.5 million in 2008. However, problems arose when Mr Adams refused to sign a deed agreeing to comply with HIE's "Building and Siting Guidelines", "Tree Preservation Policy", and "Hamilton Island Rules and Regulations" (collectively referred to here as 'the Rules'). If you have been to Hamilton Island (or seenMuriel's WeddingorFool's Gold, both filmed there), you might have noticed that the Island is a mix of privately-owned houses and apartments, shops, a marina and a resort. The Rules that HIE wanted the assignee to comply with are part of an overarching contractual and property structure that regulates the Island like a master planned estate. The Rules essentially function like strata title by-laws or a community title management statement, governing land use and behaviour on the Island. For example, the Building Guidelines and Tree Preservation Policy required HIE's permission for any building work and tree removal. However, there was no right of appeal to an independent arbitrator or requirement for the Rules to be consistent with public planning law. Further, parts of the Rules were extreme. For example, they allowed HIE to use 'reasonable force' to remove anyone from the Island who breached the Rules. No doubt the lawyers drafting these provisions were thinking of badly behaved holiday makers and were mindful of the fact that the nearest police station is on the mainland. However, Northaust realised that the provision would extend to their own employees. Clause 9.2 of the Rules said that 'the right to reside on Hamilton Island is a privilege granted by HIE as it sees fit and can be rescinded for whatsoever reason it sees fit" (they did not even have to vote people off the Island ;) ).The Rules also included extensive details and restrictions on the use of vehicles on the Island, including having to ask HIE's permission to have a vehicle any colour other than white, and a right for HIE to search any vehicle. Finally, the Rules gave HIE the power to unilaterally amend the rules from time to time. The Hamilton Island rules are a nice illustration of the way in which private property law can effectively create a system of government if used to regulate a large enough piece of land and multiple people. This is one of the reasons why we need to be attentive to the content and legitimacy of permissible property rights, an idea that we discussed in the first tutorial for the course.

Most other lessees had expressly 'agreed' to the Rules etc., because the Rules were incorporated into their leases. This effectively made agreement to the Rules a condition of purchase; like strata by-laws or restrictive covenants, the Rules were not genuinely negotiated, but offered as part of the property package on a take it or leave it basis. However, Mr Harrison and his trustees had not agreed to be bound by the Rules because the master plan of the Island was not finalised when Mr Harrison bought. Importantly, the restrictions in the Rules went far beyond those in the covenants of the sublease.

Northaust refused to sign the deed binding it to the Rules and as a result HIE, the landlord, refused consent to the assignment. At one point in the litigation, HIE said that it would "refuse to approve the assignment on the further grounds that Northaust is not 'respectable'. This word is defined to mean, inter alia, 'of fair social standing' and any person who deliberately refuses to abide by the rules which govern the conduct of the rest of the community, cannot be so regarded" - a disturbing argument! The trustees and Northaust argued that this refusal of consent to the assignment was unreasonable.

Fraser JA:

[144] In my respectful opinion the trial judges conclusion that HIEs withholding of consent was unreasonable was correct.

[145] HIEs submission on this topic was based in large part upon its other, numerous challenges to the trial judges conclusions which I have rejected. For that reason, and because I respectfully accept the correctness of the trial judges analysis of the authorities summarised in paragraphs [9] [15] above, I can state the remaining reasons for my conclusion quite briefly.

****

[9] The trial judge cited authorities HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn2" [2]for the principle expressed by Balcombe LJ in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd that: HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn3" [3]"a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease..."

[10] The trial judge held that in particular cases it may be reasonable for a landlord to consider the impact of a proposed assignment upon the landlord's proprietary or financial interest apart from the landlord's interest under the lease, HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn4" [4]and that in particular cases a landlord might withhold consent on the basis of a use which the proposed assignee intends to make of the premises even though that use is not forbidden by the lease or the law. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn5" [5]As an example, the trial judge cited HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn6" [6]Young CJ in Eqs conclusion in Tamsco Ltd v Franklins Ltd HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn7" [7]that the landlord was reasonable to consider the effect of the proposed assignee not being an "anchor tenant" upon "the good of the [landlord's] shopping centre and [its] tenants."

[11] The trial judge said: HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn8" [8]"In the present case there is a sufficient connection with the subject matter of the lease. HIEs concern is largely with the potential for the demised premises to be used in a way which it regards as disadvantageous to its interests. In particular, it is concerned that the land could be built upon or cleared in ways which could detract from the enjoyment of other land of which HIE is either a landlord or is in possession. To some extent the same applies to HIEs concern to have the lessee bound by the Rules. That connection exists although the landlords concern is with the impact of a use of the demised premises upon other property."

[12] The trial judge then observed, "But that, of course, is not the end of the matter. The reasonableness or otherwise of HIE's stance must be assessed." HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn9" [9]As the trial judge concluded, the reasonableness or otherwise of HIE's withholding of consent was a question of fact to be decided with reference to all the circumstances. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn10" [10]So much appears, for example, from the terms of Lord Bingham of Cornhills second principle in Ashworth Frazer Ltd v Gloucester City Council, that: HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn11" [11]"Secondly, in any case where the requirements of the first principle are met, the question whether the landlords conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact. There are many reported cases. In some the landlords withholding of consent has been held to be reasonable (as, for example, inPimms Ltd v Tallow Chandlers Company[1964] 2 QB 547andBickel v Duke of Westminster[1977] QB 517), in others unreasonable (as, for example, inBates v Donaldson[1896] 2 QB 241,Re Gibbs & Houlder Brothers & Co Ltds Lease[1925] Ch 575and theInternational Drillingcase[1986] Ch 513). These cases are of illustrative value. But in each the decision rested on the facts of the particular case and care must be taken not to elevate a decision made on the facts of a particular case into a principle of law."

[13] The trial judge accepted HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn12" [12]that, as Kelly SPJ said in JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd: HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn13" [13]"landlords were entitled to consider the effect which the transactions might have upon their ability in the future to let satisfactorily the different parts of their property."

[14] After accepting that HIE's regulations might be regarded by a person in its position as reasonable, HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn14" [14]the trial judge referred to authority for the propositions that a landlord was not entitled to refuse consent for the purpose of acquiring a commercial benefit by replacing the lease with alternative contractual arrangements more advantageous to the landlord, even though that would be in accordance with good estate management, HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn15" [15]and that a landlord was not entitled to insist upon further terms which would change "the character" of the lease. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn16" [16][15] In holding that HIEs withholding of consent was unreasonable the trial judge concluded that:

(a) HIEs Building Guidelines and Tree Preservation Policy would impose obligations upon the sub-lessee which had the potential to substantially affect what the sub-lessee could do with the land, including requiring any building or further development to be only as HIE permitted. Those obligations were well outside the contract in the sub-lease. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn17" [17](b) HIEs Rules were also well outside the terms of the sub-lease. They would permit HIE to very seriously erode the sub-lessee's right of quiet enjoyment, by permitting HIE to refuse entry to persons or to have them removed from the island." HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn18" [18](c) HIE did not seek to impose those new terms for reasons personal to Northaust, but in implementation of its general policy of requiring intended assignees to bind themselves to HIEs regulations whenever its consent to assignment was sought. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn19" [19](d) It might be that in a particular case a landlord might reasonably refuse consent except on such a condition; but in a case where the proposed new terms could affect the substance of the tenant's position, and where those new terms were not sought to be imposed for reasons personal to a particular assignee, the landlord's refusal to consent except upon those terms would rarely be reasonable. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn20" [20](e) HIE sought to deprive the sub-lease of its assignability by insisting that every intended assignee first agree to vary the terms in a way that substantially affected the enjoyment of the land. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn21" [21]******

[146]Section 121of theProperty Law Act 1974(Qld) requires that attention be focussed upon the reasonableness of the lessors refusal of consent to the particular assignment. As I earlier observed, that is ultimately a question of fact. HIE has failed to demonstrate any error in the trial judges finding adverse to HIE.

[147] This was a case in which, as the trial judge concluded, HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn79" [79]HIE sought to obtain a substantially more advantageous contractual position than that upon which it had insisted at the time of the grant. On the trial judges findings which I would affirm, HIE withheld its consent to the proposed assignment to Northaust by insisting upon the imposition of new terms which would substantially erode the rights conferred by the sub-lease; and HIE imposed the condition not because of any characteristic of Northaust but because HIE believed that it was in its own interests to impose the condition in all cases and regardless of any assignees personal characteristics.

[148] I have rejected HIEs arguments that HIE merely sought to uphold the status quo and to preserve the existing contractual arrangements. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn80" [80]Rather, HIE sought to put into effect an entirely new and very extensive contractual regime which was well outside the contemplation of the sub-lease. In those circumstances, what in substance would be assigned would not be the sub-lease, qualified only by covenants designed to overcome any potential disadvantage to HIE arising from the manner in which Northaust might exploit the rights granted by the sub-lease, but the sub-lease so heavily qualified as to alter the legal effect of essential rights of the sub-lessee granted by the sub-lease. I therefore agree with the trial judges conclusion that HIE sought to deprive the sub-lease of its assignability by insisting that every intended assignee first agree to vary the terms in a way that substantially affected the enjoyment of the land. HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn81" [81][149] In those circumstances, the authorities cited by the trial judge, and many other authorities, HYPERLINK "http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/qld/QCA/2009/229.html?context=1;query=2008%20QSC%20274%20or%20QSC%202008%20274;mask_path=" l "fn82" [82]plainly justified his Honours conclusion that HIEs withholding of consent to the proposed assignment was unreasonable even if the withholding of consent would be in accordance with good management by HIE of the island generally.

Proposed orders

[150] In view of my conclusion that the appeal should be dismissed, the question whether the court is empowered to order a reconveyance if the appeal should be allowed does not arise.

[151] I would dismiss the appeal and I would order the appellant to pay each respondents costs of the appeal.

[152] CHESTERMAN JA: I agree with Fraser JA.

[153] WILSON J: I have read the reasons for judgment of Fraser JA. I respectfully agree with the orders His Honour has proposed, and with his reasons.

Covenant to pay rent and rent review

Not surprisingly, the most obvious covenant that will be found in commercial leases is the covenant to pay rent. It will stipulate how much the tenant has to pay and when it must be paid. Rent is usually payable in advance. Leases will also typically contain an abatement clause; that is, a covenant that specifies that the tenant does not have to pay rent if the premises are destroyed or substantially damaged. This is necessary because without it, the obligation to pay rent remains even if the premises cannot be used.

Commercial leases have rent review clauses, allowing the rent to be reviewed on a periodic basis. This is essential in a lease that might last for years; without a rent review clause, the landlord cannot unilaterally raise the rent. There are a number of ways reviews can be done, for example a fixed price increase, a Consumer Price Index (CPI) review or a fixed percentage increase; these reviews operate automatically in accordance with their terms. Alternatively, the lease may contain a provision for market rent review on notice given ideally either by the landlord or by the tenant (if the review can only be triggered by the landlord, the landlord will never do so in a falling market). Market rent reviews can be done by the landlord or by an independent valuer, and they should be with reference to 'current market rent', rather than 'best rent' (which will work against the tenant). There is considerable case law on rent review clauses, and tenants' lawyers should be alert to provisions that excessively advantage the landlord, such as 'ratchet clauses', which prevent rent going down as a result of a rent review.

Sometimes leases do not charge any on-going rent or only charge minimal rent; instead, they will require an upfront premium or a 'fine'. For example, the initial grant of a long-term lease will usually require the tenant to pay a lump sum for the purchase of the lease.

Covenant to repair

As sure as the sun will rise, buildings will need to be repaired. Windows break, air-conditioning ceases to function, roof tiles crack.However, if there is no repair covenant in the lease, there is no obligation to repair on the part of either the landlord or tenant.If the air-conditioning breaks down in the middle of a lease term and there is no obligation on the landlord to repair the air-conditioning, the tenant will have to do so if they need it to work. Similarly, if there is a crack in a wall, that does not need immediate attention, a tenant can simply ignore it, knowing that ultimately, it will be the landlord's problem whenpossession reverts at the end of the lease.

This is an unsatisfactory state of affairs, and so leases should always expressly address both the landlord and tenant's obligations to repair. As general rule, the longer a lease, the more likely it is to impose obligations to repair on the tenant. For example, if the lease is 99 years, it would not be unreasonable for the tenant to bear the lion's share of responsibility for repair. Conversely, very short leases, like residential tenancies, impose no obligations to repair on the tenant.

One of the great challenges of drafting covenants to repair is that it impossible to predefine everything that a covenantor might need to do in relation to a building to keep it in repair. As a result, there is no alternative but to use phrases like 'good and tenantable repair', 'good condition and repair' or 'repair, fair wear and tear excepted'. Lawyers drafting leases should be mindful that the words chosen may have specific, judicially interpreted meanings. For example, a covenant 'to keep premises in repair', as opposed to a covenant 'to repair', includes the obligation to put premises into a state of repair at the beginning of the lease if they are in disrepair, including as a result of a breach by the previous tenant:Bailey v John Paynter (Mayfield) Pty Ltd[1966] 1 NSWR 596.

No matter what words are chosen, it will often still be challenging to determinewhether particular work falls within the scope of the words. Emeritus Professor Edgeworth says that,

The required standard of repair depends on many factors. They include the following: the nature of the building; the terms of the lease; the state of the building at the start of the lease; the nature and extent of the defect sought to be remedied; the nature, extent and cost of the proposed remedial works, and at whose expense they are to be undertaken; the value of the building and its expected life span, and the effect of the works on that value and life span; current building practices; the likelihood of a recurrence if one remedy rather than another is adopted; and the comparative cost of alternative remedial works and their impact on the occupantsuse and enjoyment of the building, (Edgeworth,Butt's Land Law, p 375).

A tenant's covenant to repair might require them to entirely replace an element of the building or to include an element that was not originally included but now would be in accordance with modern construction methods. However, a tenant who has promised to repair will not be required to give the landlord back premises that are substantially different to the premises the landlord gave them; that is, if a lease of an old industrial building includes a covenant to repair, the tenant will not be required to give the landlord back a pristine, state of the art industrial facility at the end of the lease.

Leases often impose obligations to repair on tenants with 'fair wear and tear' excepted. "Fair wear is deterioration caused by the reasonable use of the premises. Fair tear is deterioration caused by the ordinary operation of the forces of nature," (Edgeworth,Butt's Land Law, p 378). Fair wear and tear would include the rusting of an iron roof or tank and deterioration of paintwork, while the collapse of a floor due to overloading would not.

While discussion of the meaning of the word 'repair' might seem technical and pedantic, it can determine whether a repair bill of ten of thousands of dollars falls to a tenant or a landlord. Needless to say, these issues matter to clients and lawyers must draft and read repair covenants with care.

Covenant as to user

Logically, most leases expressly address what the tenant can use the property for. These covenants are known as 'covenants as to user'. They may authorise the tenant to use the premises for specific purposes or prohibit specific uses.An example of a covenant as to user can be seen inAussie Traveller, above, in which cl. 4 of the lease included a promise by the tenantnot to use the premises for any purpose other than the "manufacturing or sale of new/repaired canvas awnings/annexes and camping equipment".Covenants as to user do not amount to a promise on the part of the landlord that the tenant can use the premises for those purposes under local planning law or other regulations. Tenants, like any purchasers of interests of land, must ascertain for themselves whether land can legallybe used for a particular purpose.

Option to renew

Many leases, particularly commercial leases, contain options to renew. These are attractive to tenants because rather than committing to a 15 year lease, for example, a tenant can commit to a 5 year lease, with an option to renew for a further 5 years, and then a further 5. If their business does not go well, rather than having to assign the lease or grant a sublease, they can simply not exercise the option to renew.

The option is the tenant's not the landlord's. Once a landlord has granted an option to renew to a tenant, they cannot change their mind; the option is a contractual right of the tenant and if specifically enforceable, it creates an equitable interest in land. Renewed leases are on the same terms as the original lease; however landlords typically include a provision to review the rent before the grant of the option.

Because the option to renew is the tenant's, landlords protect themselves from having to continue a tenancy that has turned out to be less than ideal by making options dependent on the tenant not being in breach of the lease. If you look at clause 2.2 of the Oporto lease you will see a typical option to renew, which is subject to

the tenant notifying the landlord within 3-6 months of the end of the lease that they want to exercise the option (this gives the landlord time to find another tenant if the tenant decides not to exercise the option to renew);

the tenant not being in breach of the lease.

Because a tenant might be vulnerable to losing their option, a very valuable interest in land on which their business will be dependent,s133Eof the Conveyancing Act 1919 requires landlords to notify tenants in writing they are in breach of their lease and that the landlord intends to rely on this in refusing to grant the option. Unders133F,a court has a wide discretion to grant relief against the loss of the option; that is, the court will allow the tenant to exercise their option to renew.

s133E and s133F also apply to options to purchase in leases, although these are less common than options to renew.

Covenants by necessary implication

If a lease does not expressly provide for a particular issue and this is causing difficulties for the parties, it might be possible to convince a court that it is necessary to imply a covenant into a lease in accordance with the ordinary contractual principles for implication of terms into contracts. The leading case isCodelfa Construction v State Rail Authority of NSW[1982] HCA 24; (1982) 149 CLR 337, which you will remember from Contracts. It is difficult to imply terms into any contract, including a lease, because courts will assume that if the parties have reduced their agreement to writing, the written document represents the totality of the parties' agreement. If the covenant is not in the lease, it is because the parties did not agree to it. Examples of covenants by implication include the implication of a covenant to access the sole toilet on the premises, via the landlord's land, for the benefit of the tenant, their employees and customers:Dillon v Nash[1950] VLR 293.

Now, rather than simply reading descriptions of covenants leases typically contain, read some of the real leases that are provided in the next section. These are the kinds of documents you will routinely see in practice (feel free to skim the 1 Bligh St lease....it is over 800 pages long!)

4. Sample leases

The best way to understand leases is to read current contemporary leases that are regulating land that you might know. There are three leases for you to browse through. As you do so, think about whether they are well drafted - are the provisions clear or are they ambiguous; do they seem fair to both the landlord and tenant; do they anticipate likely difficulties?

Oporto lease

Hereis the Oporto lease again. It regulated the land of the local Oporto take-away in Kingsford in eastern Sydney. Can you see any covenants that surprise you? Do any of the covenants seem strange for a two-storey terrace building? Why might there be covenants that do not seem applicable to the nature of the building?

As you read the lease, find answers to the following questions:

1.The burglar alarm is broken. Who is responsible for fixing it?

2.The tenant no longer wants to run the business and so they contract to sell it to BFG Pty Ltd. The tenant asks the landlords consent to assign the lease but have still not heard from the landlord three months later. They are worried that the sale of the business will fall through. What should the tenant do?

3.The tenant would like to sublet the upstairs room to university students to live in. Will they be able to?

4.The rent is 21 days late. What rights does this give the landlord?

5.The plate glass window at the front of the shop is smashed late one night. Who is responsible for fixing it?

6.Does the tenant have an option to purchase?

Coogee Pavilion

Lease 1Lease 2These are the leases for the Coogee Pavilion, which you may have visited on Coogee Beach. There was some dispute between the landlord and tenant in relation to the lease that wasreported in the media.Do you think the leases look like they would provide answers to the dispute or might there be other agreements that supplement the relationship of the landlord and current tenant?

1 Bligh St, Sydney

1 Bligh St is a new, 'premium grade' office building in the CBD.This is the building, if you are not familiar with it.And this is one of the leases. It is over 800 pages long. Please don't feel obliged to read it all, but it will give you some idea of how complex some leases can be, particularly in large, physically complex, modern high rise buildings.

5. Assignment

The nature of interests in land is that they can be transferred to others; this applies in relation to both the landlord and the tenant's interests in land. The landlord may sell their interest in land (which is typically a fee simple) to a purchaser, who becomes the registered proprietor of the fee simple.In the landlord/tenant context, this is referred to as'an assignment of the reversion'.The tenant may also sell their interest in the lease to another who becomes the registered proprietor of the lease; this is referred to as an 'assignment of the lease'. Alternatively, the tenant may carve out a shorter interest from their lease and grant that to another; this is called a sublease. Land law has been dealing with the assignment of reversions and leases for centuries and has well-established rules relating to their effects.

Don't be confused by the word 'assign'. It is the traditional word that is used in relation to leases (and equitable interests) but all it means is to transfer property rights from one person to another. In contemporary practice, lawyers are just as likely to use the word 'transfer'.

Remember that when a landlord sells their reversion or the tenant sells their lease, all the usual formalities apply:

any contract promising to sell an interest in land must be in writing in accordance with s54A of theConveyancing Act;

if this contract is specifically enforceable it will give the purchaser of the landlord's interest an equitable fee simple and the purchaser of the tenant's interest an equitable lease; and

to acquire a legal fee simple or legal lease registration must occur: s42 of theReal Property Act.

Remember that we learned in the covenant section that the only person who has the power to transfer a lease is the person who owns it: that is, the current tenant, not the landlord. The landlord will invariably have extracted a promise from the tenant that they will not assign without the landlord's consent, but that does not alter the fact that with or without consent, the tenant has the power to assign/transfer the interest in land that belongs to them. If they assign/transfer without consent, they will have breached the lease, but the transfer to the assignee will still be effective (although the landlord can forfeit (end) the lease against the assignee, the assignee will then sue the tenant for breach of contract ... so it is best to always ask for consent!).

If we look at the computerised search of the folio of the register for the Oporto landagain, we can see that the Oporto lease has been transferred by Oporto Leasing, the original tenant, to another company called Geekarni.Hereis the search and here is the transfer:

transferred ("assigned") to Geekarni Pty LtdThe lease has also beenvaried, ie the lessor and lessee agreed to new terms which the variation records on the register so that any subsequent purchaser of the lease is aware of all of its terms.

Who can enforce the lease against whom post assignment or subleasing?

The formalities for the creation of interests in land will determine whether a party has acquired a fee simple or a leasehold interest, at law oronly in equity,but we then need to consider

a) against whom those interests are enforceable (e.g., an unregistered 5-year lease will be an equitable lease, but is not going to be enforceable against someone who has acquired the landlord's interest and is registered: s42 of theReal Property Act);

b) whether the entire lease negotiated by the original landlord and tenant or only parts of it are enforceable.

In this context, the concepts of privity of contract and privity of estate are fundamental. You are already familiar with privity of contract.Privity of contractwill exist between

the original landlord and tenant,

a tenant and their sub-tenant,

but it will not exist between

an assignee of the landlord and the original tenant or assignee of the original tenant, (R and T/A, below)

the original landlord and an assignee of the tenant; (LL and A, below)

a head landlord and a subtenant, (LL/R and S, below)

because none of these parties will have negotiated the lease contract with each other.

However, if parties stand in a landlord tenant relationship because one has acquired the interest of theoriginal landlord and/or one has acquired the interest of theoriginal tenant, they will haveprivity of estate. Parties who have privity of estate are prima facie able to sue each other on the covenants in the lease:

an assignee of the landlord can have privity of estate with the original tenant and the tenant's assignees (R and T/A, below), and

the assignee of tenant can have privity of estate with the original landlord and the landlord's assignees, (A and LL/R, below), but

a head landlord and subtenant (LL/R and S)do nothave privity of estate because the subtenant has not acquired the tenant's interest; they have a smaller interest carved out of the tenant's;

nor does a head landlord have privity of contract with a subtenant (LL and S)because the head landlord contracted with the tenant, not the subtenant.

LL assignment of the reversionR

10-year lease

PRIVITY OF

CONTRACT PRIVITY OF

ESTATE

Tassignment of the leaseA

PRIVITY OF CONTRACT

5-year sublease

S

Hint: keep looking at this diagram so that you are clearaboutwho the original parties and assignees are in the following discussion.

Privity of estate isdestroyed when parties transfer their interests in land. So, while the original landlord and tenant will have privity of contract and privity of estate initially, if either transfers their interest, their privity of estate will be destroyed. Privity of estate will now exist with the assignee. The same principle applies if the assignee in turn assigns. For example, if the firstassignee of the tenant assignsthe lease to a second assignee, the firstassignee ceases to have privity of estate with the landlord (and they never had privity of contract).

However,the privity of contract that the originallandlord and tenant have is not always destroyed by assignment. This will be a question ofwhat the parties have contractually agreed. Landlordstypically have enough bargaining power to only agree to beingcontractually liable while they are still the owner of the reversion; once they assign, they cease to be liable under the lease. For example, if you look at 10.9(b) of theOporto leaseyou will see that it states that if the landlord transfers their interest in the land, they are released from their obligations under the lease. In contrast, original tenants often have no choice but to agree tobe liable 'onbehalf of themselvesand their assignees', because of insufficiency of bargaining power and standard commercial expectations of tenants. This means that originaltenants typicallyagree to be liablefor the full term of the lease, even once they have assigned the lease.If they do notexpressly agree to this,s70A of theConveyancing Act 1919suppliesan implied promise by the tenant in this regard;it is implied that they covenant (promise) to be bound by the leaseonbehalf of themselves and their assignees (although s70A can be specifically excluded if the tenant has enough bargaining power). The Oporto lease does not provide an equivalent covenant to 10.9(b) for the tenant's benefit, nor does it provide an express promise by the tenant that they will continue to be liable after they assign. However, because s70A is not specifically excluded by the lease, any covenants made by the tenant are deemed by s70A to be made on behalf of the tenant and their assignees.

Section 70Adoes notmake the tenant'sassignees liable; it is not possible to make a promise that binds another person (the assignee will be liable as a result of privity of estate). Section 70A simply operates as a promise by the tenant to be liable for the full time that either the tenantor their assigneesare in possession of the land. Asyou are probably thinking, this is quite a significant obligation for the tenant; they are promisingto be liable for a potentially long period of time, and while people other than themselves are in possession of the premises. Landlords can and do sue original tenants for breaches committed by subsequent assignees. For example, inKaracominakis v Big Country Developments Pty Ltd[2000] NSWCA 313, the landlord sued the original tenant for thethirdassignee's failure to pay rent. This often makes commercial sense for the landlord because the assignee who has failed to pay rent has usually done so because they are insolvent; the landlord cannot get any money from the assignee, but may be able to recover from the original tenant. Landlords cannot double recover of course; if they successfully obtain money from one party they cannot recover the same money from another.

Unlike the original tenant, assignees do not continue to be liable once they have assigned the lease to another. This is because they never had privity of contract with the landlord and they cease to have privity of estate once they legally transfer the lease. Without either privity of contract or estate the landlord has no basis on which to enforce the lease against the former assignee. For this reason, landlords often insist on 'tripartite deeds' when they consent to an assignment. This is a deed to which the landlord, tenant and assignee are party, and the assignee makes a direct promise to the landlord to comply with the lease, and to remain liable for breaches even after they assign. This changes the ordinary operation of landlord tenant law, making assignees continuously liable in the way original tenants are as a result of the original lease contract.

Indemnity

It is clear that original tenants are particular vulnerable to being sued for other people's breaches of the lease. They can protect themselves from this by expressly extracting an indemnity from their own assignee when they assign the lease, but they can also sue any other assignees with whom they do not have a direct contractual relationship under the principle stated inMoule v Garrett(1872) LR Ex 101; (1861-73 All ER Rep 135. In this case, the original tenant was sued for a breach of the covenant to repair committed by the second assignee. The original tenant then successfully sued the second assignee for the money he had had to pay to the landlord. In dismissing an appeal against that decision, Cockburn CJ said that, 'the general proposition applicable to such a case as the present is, that where one person is compelled to pay damages by the legal default of another, he is entitled to recover from the person by whose default the damage was occasioned, the sum so paid.'

Covenants that 'touch and concern' the land

We have learned that assignees of either the original tenant or the original landlord can sue and be sued under the lease when privity of estate exists. However, not all of the covenants of a lease are enforceable 'down the line'; only covenants that 'touch and concern the land' run with the lease and the reversion. This is a rule of economic efficiency. It means that if the original landlord and tenant included any covenants in the lease that don't relate to the land, the lease or the landlord-tenant relationship, but which rather are personal to them, the law will not bother to enforce them against subsequent parties. An example here will help. Imagine the original landlord and tenant are both in the toy business. The tenant manufactures toys and the landlord is a toy wholesaler. As a result, it might make sense to these parties to write into the original lease, "The tenant covenants to sell all of its excess stock to the landlord at a 50% discount at the end of the financial year and the landlord covenants to buy such excess stock". However, imagine the tenant then assigns and the new tenant manufactures lawnmowers. The toy wholesaler landlord is unlikely to want to buy lawnmowers. Alternatively, imagine the landlord assigns the reversion to a property investment trust. The trust has no interest in buying any stock, toys or otherwise. Because the covenant is personal to the original parties, and does not touch and concern the land, it will not be enforceable by or against assignees of the lease or the reversion.

Here is another strange, but in fact real example of a covenant that would not touch and concern the land:

16. BIRTHDAY CAKE: Lessor shall provide birthday cake for Lessee(s) on the weekend closestto their birthdays, which are June 7th and February 17th. Vanilla cake is not acceptable.

Somecheeky tenants inserted this into their leaseand the landlord then signed. While the covenant may have been enforceable against the original landlord according to contract law, it would not be enforceable against any new landlord with whom the tenants had privity of estate because the covenant does not touch and concern the land.

Examples of covenants thatdotouch and concern the land, and will be enforceable against assignees are the covenant to pay rent, to repair, to pay outgoings, covenants as to user, covenants against subletting and assignment etc. In reality, most leasehold covenants touch and concern the land becausemost of the things landlords and tenants agree with each other relate to the lease and the land. Options to renew touch and concern the land because they determine the length of the lease. However, options to purchase do not touch and concern the land. This is perfectly logical because it is not an inherent part of the landlord tenant relationship that a tenant would be able to buy the land from the landlord; that is a separate, personal agreement. However,s53(3)of theReal Property Actalters the common law rule by stating that if there is an option to purchase in a registered lease, the landlord is bound to transfer the land to the lessee. The effect is to make the option to purchase binding on assignees of the original landlord, and enforceable by assignees of the original tenant, (seeWe Are Here Pty Ltd v Zandata Pty Ltd[2010] NSWSC 262for an example of an option to purchase in a registered lease which was enforceable by an assignee of the lease).

The rule that the benefit and burden of covenants that touch and concern the land pass to the assignee of an original tenant is one of very long standing, coming fromSpencer's Case(1583) 5 Co Rep 16a: 77 ER 72. The corresponding rule that covenants that touch and concern the land run with the reversion - that is, these covenants are enforceable by and against someone who has acquired the landlord's interest - comes from statute.The rule that the benefit of covenants passes to the assignees of the original landlord is ins117of theConveyancing Actand the rule that the burden of covenants passes to assignees of the landlord is ins118. (Covenants that benefit a landlord are obviously things like the covenant to pay rent, while covenants that burden a landlord would include a landlord's covenant to repair.) You will have noticed that s117 and s118 do not mention 'touch and concern the land'; they use the term covenants 'with reference to the subject-matter of the lease'. This has been interpreted to mean touch and concern the land. The result is that the landlord's assignees can sue and be sued in accordance with the covenants in the lease that touch and concern the land.

Lest you are left with the impression that we dreamed up this terrible technicality to make your lives as students miserable, rest assured that these principles matter in practice. They will determine whether clients can successfully sue when a party breaches a lease, and the landlord and/or tenant are not the original parties. For example, if your client purchases a shopping centre, they will need to know exactly what covenants in the lease they can enforce against the existing shopping centre tenants.

6. Remedies for breach of lease

When a tenant or landlord breaches a lease, as a matter of practicality, the first thing the wronged party will do is notify the wrongdoer. The breach might simply be an oversight, and being notified of its occurrence, the party at fault will rectify the situation. If it is a potential breach of a landlord's covenant to repair, having given up possession, the landlord cannot know that they are potentially in breach unless the tenant informs them of the disrepair. It is in no one's interest to go straight to litigation or to end the lease.

However, if the wronged party refuses to rectify the breach or denies a breach has occurred, litigation might be necessary. If there is a breach of the covenant for quiet enjoyment or the obligation not to derogate from grant, the tenant may sue for monetary loss, such as loss of profits as a result of their business being disturbed (rememberAussie Traveller). In relation to breaches of the covenant to repair, courts can grant a mandatory injunction compelling a party who has promised to repair the premises to do so, but as courts do not generally like to order acts that require supervision (that is, checking the work has actually been done), they are more likely to make an order for the payment of damages. If the tenant has breached the covenant to pay rent, the landlord can simply sue for the rent owning.

It is rarely a good idea for a tenant to stop paying rent if they think their landlord has breached the lease. Covenants in leases are independent of each other, and the fact that the landlord has breached a lease does not affect the tenant's obligation to keep paying rent. There are some exceptions to this rule, but we do not cover them in the course.

Forfeiture

There will be circumstances in which the breaches by the tenant are so severe or repeated that the landlord wants to end the lease. They can do this by 'forfeiting' the lease and exercising a 'right of re-entry'. There is no inherent right of a landlord to forfeit for a tenant's breach, and so the right is invariably expressly written into the lease. Only landlords have the right to forfeit leases, not tenants. You can see a typical forfeiture covenant at 13.1 of theOporto lease. The covenant uses the more modern contractual term 'termination' rather than forfeiture, but you will see that it entitles the landlord to 'enter and take possession of the premises' if, amongst other things, the rent is 7 days late or the tenant has failed to comply with any other covenant in the lease within 7 days of being given notice by the landlord to comply.

The process of forfeiting a lease could be described thus:

the right to forfeit arises very easily (usually for breach of any covenant in a lease), but

forfeiture is very hard to carry through to fruition; there are a range of hurdles that the landlord must overcome before they can actually remove the tenant.

It always helps to think about the English roots of our lease law rather than the short-term residential tenancies with which you might be most familiar. So, if the right that a tenant is going to lose is a 99-year lease with 86 years left to run, a court is not going to allow a tenant to lose this lightly. The same rationale applies to a commercial lease in Australia with multiple options to renew (look at the Coogee Pavilion leases; the options stretch to 2034), and/or in relation to a site on which a tenant's business and livelihood is dependent, and/or in relation to a site that the tenant has expended considerable money doing a fit out. What the tenant stands to lose is not an ephemeral contractual right, but a substantial interest in land. (In the residential context, courts and tribunals also recognise the severity of a tenant losing their home, but in Australia, residential leases are typically only six months or a year long, and as a result, the fixed term of the lease ends quickly, with many tenants occupying pursuant to holding over clauses.)

The hurdles that the landlord must overcome to forfeit a lease are:

waiver

statutory notice

acquiring a court order for possession, and

relief against forfeiture.

We will look at each in turn.

Waiver

As noted above, just because a tenant has breached a lease, does not mean a landlord will want to end the lease. Often, the landlord will 'waive the breach', that is, elect not to exercise their right to forfeit because of the breach. This may be done expressly, but it can also be done impliedly, most typically when the landlord accepts a payment of rent after their right to forfeit has arisen. If the landlord takes rent, they are treating the tenant as though they are still their tenant. Students always ask, "What if the tenant has an automatic payment into the landlord's bank account?". As long as the landlord pays the money back as soon as possible, they will not be treated as having waived the breach. Landlords will be entitled to receive money in relation to the period between the landlord forfeiting the lease and the tenant actually moving out, but it is not rent. The money is referred to as 'mesne profits' (pronounced 'mean'), which is money that landowners can generally recover from people who have been using their land, e.g., trespassers and adverse possessors. Mesne profits are calculated as the equivalent of market rent.

Notice

Logically, if the tenant is at risk of losing a valuable interest in land because they have breached the lease, they should be told that they have breached the lease and be given an opportunity to remedy the breach. Section 129(1) of theConveyancing Act 1919states that:

(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for abreachof any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particularbreachcomplained of, and

(b) if thebreachis capable of remedy, requiring the lessee to remedy thebreach, and

(c) in case the lessor claims compensation in money for thebreach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy thebreach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for thebreach.

If a landlord does not comply with this section, they cannot forfeit the lease. It applies to registered and equitable leases, and it cannot be excluded by the lease contract: s129(10). However, the section does not apply to breach of the covenant to pay rent: s129(8).

The section is strictly construed in that the notice sent must specify the exact nature of the breach (e.g., breach of the covenant to repair would not be sufficient; the details of what constituted the breach must be stated) and it must require the tenant to remedy the breach, if it is capable of being remedied. A breach that isnotcapable of remedy is breach of the covenant against assignment or subletting. Having assigned the lease or sublet, the tenant cannot take the interest in land they have given away back; it is no longer theirs.Schedule 6of the Conveyancing Act sets out a standard form to give s129 notice. There is no obligation to use this form, but if you look at it, you will see that it prompts a landlord (or their lawyer) to provide the necessary detail.

The notice must give the tenant reasonable time to remedy the breach. This is usually three months, but it will depend on the nature of the breach. A tenant would not need three months to fix a broken window, but they might need longer for substantial building work.

Section 129 notices are not a technical formality; they are designed to make tenants aware of the exact nature of a breach and give them a genuine chance to remedy. If the tenant complies with the s129 notice, the landlord will no longer have a right to forfeit the lease for that breach. While a landlord is going through the process of serving notice and giving the tenant reasonable time to comply, they will not waive their right to forfeit the lease by accepting rent. A landlord can only waive a right to forfeit a lease when they have that right, and they do not have that right until the s129 notice has been served and not complied with.

How does a landlord actually forfeit a lease?

There are two ways to forfeit a commercial lease:

physical re-entry or

the issue and service of a writ for possession.

Landlords are generally unlikely to use physical re-entry because they do not want to run any risk of ending up in an altercation with a tenant and being criminally or civilly liable. However, if the tenant has moved out knowing the landlord has elected to forfeit the lease, the landlord could simply retake possession by changing the locks without much risk. (Landlords are never permitted to use physical re-entry to forfeit a residential lease).

The more common way to forfeit a lease is to make a claim for possession of land pursuant to s20 of theCivil Procedure Act2005, and have the judgment enforced by a writ for possession issued by the court under s104 of theCivil Procedure Act,and served on the tenant. Service does not have to be in person, (not like American movies where people are tapped on the shoulder and told, "You are hereby served!"); service can be by post (Uniform Civil Procedure Rules 2005reg 10.5) or less commonly, by affixing a copy of the service document to a 'conspicuous part of the land' (UCPR 2005reg 10.15). The lease will be forfeited at the time the writ is served.

Relief against forfeiture

If a landlord has or is about to forfeit a lease, the tenant can apply for relief against forfeiture under s129(2) of theConveyancing Act. Relief against forfeiture is a court allowing the tenant to keep their lease. Relief can be granted even after the landlord has retaken possession, and in exceptional circumstances, even when a third party has been given rights to the land.

If the lease was forfeited for failure to pay rent, so long as the tenant pays all of the rent owing and compensates the landlord for their costs and any loss, they are likely to be granted relief. This is because equity, which prior to statutory provisions like s129(2) was the source of jurisdiction to grant relief, always treated the right to forfeit as security for rent. That is, the threat of forfeiture was an effective way of extracting rent from a tenant, but once they had paid that rent, the landlord should not be able to forfeit. As Brereton J said inIn the matter of Hi-Fi Sydney Pty Ltd (Administrator Appointed)[2015] NSWSC 1312 at [28]

forfeiture is seen in equity, like other forms of security, as a means of securing the bargain, and not of providing to the secured party benefits over and above what are necessary to achieve that end, nor to impose on the party giving security a penalty or sanction over and above the primary purpose of the bargain. That notion underlies much of the approach of equity to the law of penalties and forfeiture.

However, the grant of relief is no longer an exercise of a court's equitable jurisdiction; it is a discretionary power based in statute. Although a tenant might pay all money owing, courts exercising their statutory jurisdiction do not tend to force problematic tenants back on landlords. For example, if the tenant is using the premises for an illegal purpose or storing dangerous material and jeopardising the landlords insurance, (Stieper v Deviot(1977) 2 BPR 9602) a court will not give them relief. Relief will not be granted if it is clear that the tenants financial situation is so precarious, they will not realistically be able to pay rent in the future:Batiste v Lenin[2002] NSWCA 316.Subtenants can be vulnerable to forfeiture if their immediate landlord has breached the head lease. The head landlord may be able to forfeit and will do so against the subtenant, even though the subtenant has not breached their own lease. Unders130 of theConveyancing Acta subtenant can seek relief against forfeiture if they can prove that they have acted reasonably and did not participate in the breach.

Mortgages

1. Mortgage Fundamentals

Remember: mortgagor = landowner(debtor) mortgagee = lender (creditor)

Advanced capitalist societies are heavily dependent on the availability of credit. Rather than having to save money to purchase land or goods or fund a new business or venture, people borrow money for immediate use, and pay it back over a period of time. Credit fuels capitalist economies and communities. It is so fundamental to our way of life that most of us barely notice or question its existence.When people borrow money, they invariably make a contractual promise to repay the loan in full. However, if they lose their job or their business goes badly, they may not be able to repay. When a person or a company cannot repay their debts, they are considered to be insolvent. A person can be declared bankrupt and a company can be put into liquidation. In both cases their assets can be sold and creditors will be paid from the proceeds of sale. However, there may not be enough money to cover all of the borrower's debts, and as a result, creditors may only be able to recover part of what they are owed, for example, 10 cents in every dollar lent.

As a result of the risk of not being repaid, lenders prefer to be given 'security' by the borrower. Security is a specific asset, owned by the borrower (or a third party, such as a guarantor), which can be sold to repay the loan. Instead of lining up with 'unsecured creditors' who hope to recover their money from the debtor's potentially insufficient pool of assets, a 'secured creditor' has access to a specific asset. If they have valued the asset properly, its sale should cover the loan.Security can be personal property or land. In pre-capitalist economies, land was the most significant asset in communities, and thus the most likely asset to be offered as security. In modern capitalist economies, the value of personal property (vehicles, plant and equipment, shares etc.) has greatly increased and thus is likely to be security offered for a loan. We are going to deal with mortgages of personal property at the end of the course when we do personal property. Of course, land remains an important form of security, the most obvious example being people's homes.

When reading mortgages cases, it helps to have a basic understanding of how mortgages operated in Old System. The landowner (mortgagor) would convey legal title to the lender (mortgagee) in return for the loan. The mortgagor was entitled to recover their legal title if they repaid the loan within a specific time period, but if they did not, the mortgagee, as owner of the legal title, was already in a position to keep or sell the land.

deed of conveyance

Mortgagor Mortgagee

$$$$

equity of redemption legal fee simple

The common law enforced contractual dates for repayment strictly. However, equity recognised that in some circumstances it was unfair to allow the mortgagee to keep or sell the land, particularly if the land was worth more than the mortgage debt. As a result, equity considered the mortgagor to have an 'equity of redemption'. This was both a right to redeem (get back) the legal title to the land on payment of the debt (even after the contractual date for repayment), and an estate in land. That is, an interest that could be sold, left by will or mortgaged again. Although called an equity, it is a fully fledged equitable interest, not a mere equity. As you can probably work out, an Old System mortgage was legal if it was in a deed that was signed, sealed and delivered to the mortgagee (Conveyancing Act 1919, s23B). While the land could be mortgaged again, any subsequent mortgages would necessarily be equitable because the only interest in land the mortgagor retained was equitable (logically, you cannot create a legal interest out of an equitable interest because the common law does not recognise that you have an interest in land).

In the Torrens system, mortgagors do not transfer their legal fee simple to the mortgagee.Section 56of theReal Property Act 1900requires mortgagors to execute the approved Torrens form, now theNational Mortgage Form, ands57(1)states that this creates a charge over the land. The power to sell Torrens land on default does not come from the fact that the mortgagee is the owner of the fee simple, because they are not. It comes from theReal Property Act,s58of which states that a mortgagee who has complied with the notice provisions in s57(2) (discussed in the next chapter) can sell the mortgagor's estate or interest in the land and execute any necessary instruments, which will be as valid as they would be if executed by the mortgagor themselves. As a result, although not the owner of the fee simple, the mortgagee can transfer the fee simple to a purchaser at a mortgagee sale.

Although a Torrens mortgagor remains the registered proprietor of the fee simple, their interest is still sometimes referred to by courts as an equity of redemption. This is because theReal Property Actdid not attempt to rewrite over 1000 years of English land law. It operates over the top of pre-existing common law and equity and repeals them to the extent that this is express or implied (remember the iceberg in the first chapter of Fundamental Concepts in Land Law). TheReal Property Actprimarily deals with the transfer of legal title; it replaces the deeds system with a registration system. So, the mortgage provisions repeal the requirement to create legal mortgages by a deed of conveyance and replace them with a requirement to register an approved mortgage form. They also create a statutory power of sale because Torrens mortgages operate as a charge, rather than a transfer of the mortgagor's title. However, they make no attempt to replace the vast body of mortgage law that has developed over the centuries, for example rules about impermissible restrictions on the mortgagor's ability to redeem ('clogs on the equity of redemption') or rules about how mortgagees must exercise the power of sale. Much of this case law was developed during the time the mortgagor's interest was an equity of redemption, and so courts continue to use that term.

Sometimes you might hear people referring to the term 'foreclosure' in relation to mortgages. This is the mortgagee's remedy of being able to keep the land if the mortgage debt is not paid. In the past, when land was a primary source of income, keeping land was attractive to many mortgagees. Today it is not. Quite simply, Westpac does not want to keep someone's semi in Campsie; they want to sell it. As a result, foreclosure is rare. It is only permissible with an order of the Registrar General under s62 of theReal Property Act, and only after the land has been put up for public auction and failed to sell for less than the mortgage debt plus costs.

There is no legal limit on the number of mortgages that a mortgagor can grant. The limit is economic. If land is worth $1 million, 8 people could lend the owner $100,000, all be granted mortgages, and a sale of the land would cover all of the debts. A further 4 people could lend the owner $100,000 each and be granted valid mortgages, but the final 3 mortgagees might be unlikely to recover their money in the event the mortgagor defaulted, and the property had to be sold. Unlike Old System, in which all mortgages after a legal mortgage had to be equitable, in the Torrens system, it is possible to have multiple legal mortgages because more than one mortgage can be registered.

Consumer protection law

As you are no doubt aware, one of the most common kinds of mortgage in Australia today is the mortgage of a family home. Mortgagors of these assets can be vulnerable in a number of ways. First, they are not necessarily people who are experienced with complex contracts or financial arrangements, because they may not deal with those things in their day to day lives. Second, the asset that they are offering as security, and which they risk losing, is their home, the site of their personal and family life, their source of comfort, material and emotional security. Finally, unlike other consumer items, such as cars, shares or boats, homes are not an optional consumer item. Everyone needs a home; without a roof over our heads, we struggle to survive. As a result of the importance of homes and the profoundly unequal bargaining power of individual citizens and large financial institutions, mortgages of residential properties come within the ambit of a number of consumer protection statutes. We do not cover the detail of these statutes in the Property course, partly because this area of practice is the site of so much abuse that the Acts are regularly updated. For example, significant changes were recommended by the 2018Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. For now, just be aware that if your client is lending or borrowing money for domestic purposes, as opposed to trade or business (with the exception of farms), their transaction is likely to be covered by the National Credit Code under theNational Consumer Credit Protection Act 2009(Cth) or theContracts Review Act 1980(NSW) (note that these statutes also cover mortgages of personal property for domestic purposes). This means that clients are not 'free' to negotiate any mortgage contract they please. Their mortgage contract will be heavily regulated by legislation. While there is more freedom to negotiate the terms of mortgages for business or trade, these mortgages are also regulated by theContracts Review Act 1980(NSW), as well as theAustralian Consumer Lawwhich prohibits misleading, deceptive and unconscionable conduct.A large part of consumer protection law relies on 'disclosure', that is, consumers being given all of the information that relates to the mortgage in writing, before they commit, but as documents are sometimes long and complex, consumers may not fully understand what is being disclosed. Further, just because something is disclosed, does not make it legitimate or fair. As a result, 'disclosure' can be an inadequate method of protection.

Finally, although we do not have time to cover the considerable body of common law and equity that has traditionally protected mortgagors, you should be aware that it exists. It is a long-standing source of consumer protection, (albeit possibly motivated by a conscious or unconscious desire by the law to keep land concentrated in the hands of the English landed classes). Equity protected the mortgagor's right to redeem a mortgage on repayment of the debt, and this led to the development of rules that would invalidate 'clogs' (impediments) on the equity of redemption. An example of a 'clog' would be a covenant in a mortgage that prohibited the mortgagor from redeeming the mortgage until a date years into the future. Equity considered that such a provision effectively made redemption illusory. Equity's traditional dislike of 'penalties' (a contractual entitlement to money that goes well beyond a party's genuine, pre-estimated loss) resulted in the invalidation of provisions that significantly increased interest rates on default; for example, a covenant in a mortgage stating that on default, the interest rate would quadruple. The application of these traditional rules has been relaxed over the years by modern courts, which are more likely to respect parties' bargains. However, the enactment of modern consumer protection legislation has created a new set of protections for mortgagors. As a result, this area is a complex mix of old case law, modern case law and modern statutory provisions. We do not require you to know this law for the course, but if you work in mortgage practice, you will need to master its details.

2. Remedies of the mortgagee

Mortgages are both a contract and the grant of an interest in land. The contractual agreement is

a promise by the mortgagee to give the mortgagor an agreed sum of money and

promises by the mortgagor to

give the mortgagee a charge over their land which will entitle the mortgagee to sell the property in the event of default;

repay the full sum of money lent (this is referred to as the 'personal covenant' because it is a contractual (i.e., personal) promise to pay);

pay all interest agreed;

not reduce the value of the land e.g., insure it, maintain it, not grant leases or other interests over it without the mortgagee's consent etc.

Like all contracts in relation to land, the mortgage contract must be in writing signed by the parties (s54AConveyancing Act, as well as various consumer protection statutes). The parties will execute identical PDF copies and exchange them, or sign using DocuSign, showing an intention to be bound. This creates abinding contract atlaw.Once the money is advanced, the contract will be specifically enforceable, giving the mortgagee anequitable mortgagebecause equity regards as done what ought to be done. The equitable mortgage is an interest in land. By now you should be well on top of these principles, which apply to all interests in land, (if you are still unsure of these principles, go back to the Fundamental Concepts in Land Law and read the Contracts for the Sale of Land chapter).

In order to create a legal mortgage, registration must occur:Real Property Act, s42. You will remember from the Torrens fraud section, s56C of theReal Property Actstates that"Before presenting a mortgage for lodgment under this Act, the mortgagee must take reasonable steps to ensure that the person who executed the mortgage, or on whose behalf the mortgage was executed, as mortgagor is the same person who is, or is to become, the registered proprietor of the land that is security for the payment of the debt to which the mortgage relates". In the context of eConveyancing, a mortgage presented for registration will never be executed by the mortgagor themselves; it will always be executed on their behalf by their lawyer or licenced conveyancer using theNational Mortgage Form. When executing this form on PEXA, a lawyer or conveyancer representing the mortgagee must certify that they, or the mortgagee they represent, has taken reasonable steps to verify the identity of the mortgagor and holds a mortgagor on the same terms as the Registry Instrument (i.e., a mortgage contract):

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/jIsUqZnYHSoAAAAASUVORK5CYII=" * MERGEFORMATINET

Source: 'How to Create a Mortgage Document',Property Exchange Australia Community - Create a Mortgage Document - The e-conveyancing Community (pexa.com.au)Once the mortgage is lodged and registered by the state, the mortgagee will be the registered proprietor of the mortgage with all of the protections that come from indefeasibility under s42 of theReal Property Act.

Lease contracts, in their entirety, end up on the Torrens register as registered dealings (which we will see in the Leases chapter). Mortgage contracts do not. One copy of the mortgage contract is saved in the mortgagee's files and the other in the mortgagor's. This is the document that contains all of the details about repayment dates, interest rates etc. and is a substantial document. In contrast, theregistered mortgage dealingis brief. It is just the National Mortgage Form. Here is a completedmock example. Because individual mortgages are so brief, many lending institutions register a Memorandum pursuant tos80Aof theReal Property Act. This is a standard document containing mortgage covenants that are suitable for a large number of mortgages. This document sits on the register and can be incorporated into individual mortgages. Here is a sampleMemorandum. You can see that its dealing number is AF645292H. If you look back at the mock mortgage, you will see that under "Terms and Conditions of this Mortgage" it says a) Document Reference AF645292H. That means that the standard Memorandum is incorporated into the individual registered mortgage. (Although the Memorandum is written in 'plain language' you can probably see that its drafting is not as clear as it might be. It is relatively clunky language.)

Because a mortgage is both a contract and the grant of an interest in land, the mortgagee has both contractual and proprietary remedies. The main remedies of a mortgagee are the right to sell the land on default and the right to 'sue on the personal covenant'. The personal covenant is the contractual promise to repay all of the money borrowed. A mortgagee will only need to sue on the personal covenant if the land is not sold for as much as the mortgage debt. If the mortgagee has valued the property accurately and not lent too much money, this should not occur, but in falling property markets or if the mortgage is an 'all monies' mortgage which securesanymoney owning to the mortgagee (which could be from a range of other transactions in addition to the original loan) or if the mortgagee has simply been rash and lent too much, land can sell for less than the debt (this is referred to as 'negative equity'). The mortgagee will sue the mortgagor for the shortfall, and if the mortgagor cannot pay, they will be bankrupted, and their other assets will be sold to cover the debt. However, if they have no other assets or insufficient assets, the mortgagee will be left out of pocket.

Mortgagee power of sale

As you have no doubt gathered, the real value of a mortgage, and why they are so ubiquitous in our society, is that they allow mortgagees to quickly and easily recover their money by selling the land and taking the mortgage debt, plus costs, from the proceeds of sale. First registered mortgagees are able to do this without court assistance, but they must comply with the notice provisions ins57 of theReal Property Act. If the mortgage is covered by theNational Credit Codemortgagees must also give notice in accordance with the Code. If the mortgage is of a farm, the mortgagee must mediate with the mortgagor farmer in accordance with theFarm Debt Mediation Act1994 (NSW) before taking possession or exercising the power of sale. Farming is an inherently risky activity, with farmers being at the mercy of drought and flood, as well as global commodity prices, making consistent repayment of mortgage debts more challenging than for mortgagors earning wages or incomes from a non-farming business.

The notice provisions under s57 of theReal Property Act, as well as other Acts, are designed to:

alert the mortgagor to the default and

give them a genuine chance to remedy.

If a person is going to lose a valuable interest in land as a result of doing something wrong, the least their counterpart can do is tell them what they have done wrong and give them a chance to fix it. Notice is not a meaningless technicality. Read s57 for yourself and work out what it requires a mortgagee to do. Make a list. This is a good exercise in being able to follow the requirements of legislation (which are not negotiable as a lawyer), and as an exercise in how not to draft! Section 57 is not a particularly clear piece of writing.

If no default has actually occurred or the process in s57 is not complied with, the mortgagee has no power of sale under s58 of the Act. Sometimes there are mistakes in s57 notices, but courts take a substantive approach to this: if there are minor mistakes in the notice, for example in relation to the amount of interest owing, the notice will still be valid, but if there is a major defect, for example demanding a sum be paid that is not owning at all, the notice will be invalid. An example of a sum that is not owing at all would be a demand for payment of the entire principal. This is because s57(5) states that a demand cannot be made for the principal until the power of sale has arisen, and the power of sale does not arise until a valid s57 notice has been sent and not complied with. This circumstance arose inWebsdale Investments v S&JD Investments(1991) 24 NSWLR 573.

If the mortgagor complies with the s57 notice in time, the mortgagee also has no power of sale: s57(4).

How a mortgagee must sell

If a default has occurred under the mortgage, a valid s57 notice has been sent, and it has not been complied with in time, the power of sale will arise under s58 of theReal Property Act. As noted in the previous chapter, s58 expressly gives registered mortgagees the power to transfer the mortgagor's interest in the land to a purchaser.

When a mortgagee exercises a power of sale, according to s58(3) they must use the proceeds to pay out in this order:

the costs of the sale

all money due under their own mortgage

any money due under other mortgages or charges in order of priority,

any remaining money to the mortgagor.

As a result, there are inherent tensions in mortgagee sales:

a first mortgagee's interest is to sell the property for enough to cover the costs of the sale and their own debt;

subsequent mortgagees, chargees and lienees have an interest in the property selling for enough to cover their debts as well;

the mortgagor's guarantor will have an interest in the property selling for enough to cover all of the mortgagor's debts, because if it does not, the mortgagor will be sued for the shortfall and if they cannot pay, the guarantor will have to pay; and

the mortgagor has an interest in the property selling foras much as possible, because they get any money that is left over after all of their debts have been paid.

As a result of these tensions, the law has always imposed an obligation on mortgagees to exercise the power of sale to a particular standard.

The equitable duty

Traditionally, the standard was set by equity, because it was equity that always protected the mortgagor, recognising that the mortgagor had an interest in the land (the equity of redemption) even when the common law did not. The equitable duty original comes from the House of Lords' decision inKennedy v De Trafford[1897] but the Australian authority is the High Court decision inPendlebury v Colonial Mutual Life Assurance Society Ltd[1912] HCA 9; (1912) 13 CLR 676. The case involved a mortgagee's sale of rural land in Victoria.

Griffith CJ (footnotes omitted)

The obligations of a mortgagee who sells the mortgaged property were considered by this Court in the case ofBarns v. Queensland National Bank[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN1" 1], in which the rule laid down by LordHerschellL.C., in the case ofKennedy v. De Trafford[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN2" 2] was stated and applied. The learned Lord Chancellor said, in the course of his speech[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN3" 3]: "My Lords, I am myself disposed to think that if a mortgagee in exercising his power of sale exercises it in good faith, without any intention of dealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breach of duty towards the mortgagor. Lindley L.J., in the Court below, says that it is not right or proper or legal for him either fraudulently or wilfully or recklessly to sacrifice the property of the mortgagor. Well, I think that is all covered really by his exercising the power committed to him in good faith. It is very difficult to define exhaustively all that would be included in the words good faith, but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in that fashion. Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor are sacrificed, I should say that he had not been exercising his power of sale in good faith."

I understand LordHerschellto mean that the mortgagee must not recklessly or wilfully sacrifice the interests of the mortgagor, and that if he does he is to be regarded as not having acted in good faith. A good deal of discussion took place as to the meaning in which the terms "recklessly" and "good faith" were used by the learned Lord Chancellor. Mr.Starkesuggested that the word "reckless" is used in a sense analogous to that in which it is used inDerry v. Peek[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN4" 4]. If a man makes a material statement which is false in fact, careless whether it be true or false, he is as much guilty of fraud as if he knew it to be false. That is a case of an act of commission. So, he suggests, in the case of a sale by a mortgagee, if he omits to take obvious precautions to ensure a fair price, and the facts show that he was absolutely careless whether a fair price was obtained or not, his conduct is reckless, and he does not act in good faith. I am disposed to accept this analogy as sound. In the case ofKennedy v. De Trafford[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN5" 5]LindleyL.J., had said in the Court of Appeal, immediately before the words quoted by LordHerschellL.C.:"A mortgagee ... is not at liberty to look after his own interests alone, and it is not right, or proper, or legal, for him, either fraudulently, or wilfully, or recklessly, to sacrifice the property of the mortgagor: that is all."

The question therefore to be determined in this case is, in my judgment, whether the facts establish that on the sale complained of the defendants by their agent, Gill, "looked after their own interests alone," and absolutely disregarded the interests of the mortgagor.

The land in question is a square block of 640 acres situated about 235 miles from Melbourne in what is called the "Mallee Country," which is a large tract of many thousands of square miles lying in the north western part of Victoria, originally covered with a dense wood-growth called "mallee," and for a long time considered practically valueless. The soil is, for the most part, of a sandy nature, with few if any watercourses, and the annual rainfall is comparatively small. The quality of the soil naturally varies. Some parts of the tract have a red loamy soil, and are much more valuable than others. Of late years the land has been found to be adapted, when cleared, for the cultivation of cereals and also for grazing....

The first advertisement was published in theArgus, a Melbourne daily paper of large circulation, on 26th May. The advertisement was repeated in theArgusof 28th May and 4th and 14th June. The sale was also advertised in theAge, another Melbourne daily paper of large circulation, on 27th and 28th May and 14th June, which was the day appointed for the sale. The advertisement in each paper was in these terms:

Tuesday 14th June.

At half-past 2 o'clock.

AUCTION SALE.

By order of the Mortgagees.

At the Rooms 432 Collins Melbourne.

J. T. Brown and Co. Auctioneers Wangaratta and 432 Collins Street Melbourne are instructed by the Mortgagees to offer for sale by Public Auction as above at half-past 2 o'clock in the afternoon All That piece or parcel of land being Allotment 21 in the Parish of Curyo County of Karkarooc and containing 640 acres and being more particularly described in Agricultural Lease Volume 853 Folio 170439.

This property is about seven miles from Curyo Railway Station is well fenced and watered, with useful buildings.

Terms at sale.

No advertisements were published in local newspapers nor in any other paper, and no other notice was given. The total sum spent in advertising was 2 17s. 6d.

The plaintiff contends that this notice of sale was wholly inadequate and indicates a total disregard of his interests.

It is not disputed that some advertisement was necessary. In my opinion, the object of a sale by auction is to secure a fair price for the property offered by means of competition between probable purchasers. And the object of giving public notice of a sale by auction, whether by advertisement, bellman, posters or otherwise, is to bring the subject of the sale to the notice of such probable purchasers, and so to induce such competition as will be likely to secure a fair price.

The notice ought, therefore, so far as the circumstances will admit, to be of such a nature, both as to particulars given and as to the places in which and the modes by which it is given, as to be likely to secure this result. It is not disputed that if a mortgagee sells by private contract he is bound to take reasonable means to ascertain the value before selling, and the same rule applies, in my opinion, to a sale by auction.

If on a sale by auction there is in the description which he gives of the property a material misstatement by which the price realized is reduced, the mortgagee is responsible to the mortgagor for the loss. In the case ofTomlin v. Luce[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN6" 6],KekewichJ. speaking of the liability of a mortgagee under such circumstances, said:"So long, however as he selects agents presumably competent he cannot be made liable for their errors in judgment or in matters of detail not seriously affecting the success of the sale or the price realized. On the other hand, I think that if the mortgagee is guilty, directly or indirectly, of a serious blunder inducing a failure to sell, or a large diminution of the price realized, the mortgagor can hold him responsible for that, and it is no answer for him to say that the blunder was no fault of his own, but was that of an agent in whom he properly placed implicit confidence."

The Court of Appeal (Cotton, BowenandFryL.JJ.)[ HYPERLINK "http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1912/9.html?context=1;query=Pendlebury%20v%20Colonial%20Mutual%20Life%20Assurance%20Society%20Ltd;mask_path=" l "CLR-FN7" 7], held that the mortgagee was liable for any loss occasioned by the mistake which had in fact been made, but dissented from the measure of damages adopted byKekewichJ.

In my opinion, the same principles apply to material omissions as to material misstatements. I mean the omission of such statements as are plainly and obviously necessary in order that the readers or hearers of the notice may know what the thing is that they are invited to buy.

The plaintiff contends that the advertisement was inadequate in itself, since it gave no information by which the subject of the sale could be identified without a search in the Titles Office and that the manner and extent of the publication were also inadequate. Amongst other defects in the advertisement itself he points out that the only definite statement of the locality, besides the number of the allotment, is that it is about seven miles from Curyo Railway Station, and that a person reading the advertisement would not, unless he was already acquainted with the land itself or with the locality, know in what direction it lay from that station. It appeared in evidence that the land to the north-west of Curyo (where the land in question is situated) is very good, while the land to the east of that township is very poor. Nor would a reader know whether the soil was good, bad or indifferentred and loamy, or sandy. He would not know that the land was all cleared and had all been under crop, or that about 250 acres were actually sown with wheat (as the defendants say they knew), or that it was subdivided (as it was) into paddocks, or that it was within a mile of the Trust Water Channel, or the amount of the balance due to the Crown, which was a most important matter to a purchaser. These are the more important of the omissions complained of.Prima facie, I think the contention is well founded. Nevertheless, such an advertisement might be adequate if it appeared that it was in fact likely to come under the notice of persons so familiar with the locality as to be able to identify the land from the description as land which they knew.

The description of a piece of land as No. 200 in a city street, contained in an advertisement published in the city, is substantially very different from a similar description of a block of country lands hundreds of miles away published only in city newspapers. For instance, the description in a notice of a sale by auction of a mining property as "A gold mine known as Gold Mining Lease No. 200 at Smithville" might be quite adequate if published by notice affixed to the property itself or in its neighbourhood, or, perhaps, if published in local papers, but would be absurdly inadequate if only published in a place where in all probability there would be no readers who would be able to identify it by that description. It would be no better than advertising for sale "a gold bracelet contained in a sealed box to be opened by the purchaser."

Several auctioneers were called by the plaintiff, who said that according to their experience the advertisement in question was inadequate, not only in its form but also in the extent of its publication. According to their testimony the usual mode of advertising country land for sale by auction is to publish advertisements in local papers as well as in the metropolitan papers, daily or weekly, with posters in addition, and sometimes by other means as well. One of them, who lives in the district in which this land is situated, said that, if the land had been advertised locally, there would have been buyers at a price of 3 or 3 5s. an acre.

Against all this it was suggested that, as theArgusand theAgecirculate all over Victoria, it is sufficient to advertise in them. That they do so circulate is a notorious fact, but it is equally notorious that a person desiring information as to purely local matters does not look to the great city dailies for it. We cannot pretend to be ignorant of notorious facts. A witness named Edwin Forrester, a farmer at Curyo, who lived alongside the land in question for many years and knew it well, and whose wife bought it in July 1910 from a purchaser from the purchaser at the auction, did not know that it was for sale.

The only evidence offered in support of the sufficiency of the notice was that of the Melbourne auctioneer, Brown, and Mr. J. C. Standford, an auctioneer who actually conducted the sale for him. Brown deposed that he prepared the advertisement from the information given to him by Gill, and that for the last five years he had not advertised mortgagees' sales locally. He said in cross-examination that he did not know that a great part of the land was under crop, that this would have been an important matter to tell purchasers, as also that it was fenced all round and sub-divided and that the soil was rich. He added: "These would not be stated in a mortgagees' sale." He also said "I don't think we endeavour to get the best price in a mortgagees' sale." The learned Judge seems to have thought this last statement ironical, but it seems to me the natural inference from his previous statements, which were serious enough. Standford said in cross-examination that, if land was brought to him for sale, he would make inquiries, but that usually the owner gives full information. He added "but I would not make inquiries if selling for the mortgagee," and in re-examination said, "I wouldn't consider it necessary to advertise locally. It would depend on the mortgagee. The advertisement in the present case is the usual one in such cases."

On this evidence it was contended that the defendants did all that mortgagees generally do in Melbourne, and that therefore they cannot be accused of recklessness. To my mind this evidence proves, if it proves anything, that it is usual for mortgagees selling in Melbourne to disregard the interest of the mortgagors. This may be done in too many instances, but I should be sorry to think that it is a general practice. If it is, the sooner the attention of mortgagees is recalled to their dutywhich, after all, is only to act with common fair play towards a man whom misfortune has placed in their powerthe better.

Upon these facts alone I have no hesitation in coming to the conclusion that Gill, so far, absolutely disregarded the interests of the mortgagor.

Isaacs J said in the same case:

To say that so long as [the mortgagee] exercises his power with the real object of getting his debt paid he is absolved, is too low a standard of responsibility, because that loses sight of his obligation to deal fairly with the mortgagor's residual property. On the other hand, to make him answerable for mere carelessness in realization, however anxious to act fairly by the mortgagor, is placing the standard too high, and would not only be cutting across principles, but would become a serious impediment to, and, by recoil, impose a heavy burden upon, needy borrowers. The mortgagee, when the permitted time arrives, is not bound to wait for his money, merely because the mortgagor might profit by delay. And asex hypothesihe is engaged in a lawful endeavour to get back money which is overdue, he cannot be expected to further increase the advances of the mortgagor by expending further sums for his sole possible benefit, in the shape of a higher surplus price. A prudent owner might well risk considerable outlay in order to secure a possibly enhanced return. But the mortgagee is not called upon to do this, without express stipulation to that effect. He would get no advantage from the outlay beyond the amount of his debt, and he might end in increasing that.

As you can see from the Chief Justice's reasoning, the facts matter in mortgagee power of sale cases. The crucial question is 'what did the mortgageedoto sell the property?'. Those actions must then be judged with reference to the equitable standard, and inevitably they are being judged by reference to the normal process that would be used to sell the kind of property being sold, for example, rural property would be expected to be advertised locally.

Modern courts have struggled to apply a test that simply requires mortgagees to be honest butexcuses them from being careless (cf Isaacs J above). This is probably because most modern mortgagees are professional financial institutions and lenders,and it would seem strange to allow them to act honestly but carelessly. As a result, courts have sometimes stated the test to be that the mortgagee must act in good faithand 'take obvious precautions to obtain a proper/fair price': per Griffth CJ inPendleburyabove, or 'reasonable' precautions, per Menzies J inForsyth v Blundell(1973) 129 CLR 477, 481 and per Franklyn J inSouthern Goldfields v General Credits Ltd(1991) 4 WAR 138. This incorporates a basic standard of competence in selling property, in addition to a requirement to be honest.

Statutory duties

In recent years a number of statutes have begun to impose duties on mortgagees when exercising the power of sale, which may or may not raise the obligations of the mortgagee. If the mortgaged land is owned by a corporation,s420Aof theCorporations Act 2001(Cth) states that:

(1) In exercising a power ofsalein respect ofpropertyof a corporation, acontrollermust take all reasonable care to sell thepropertyfor:

(a) if, when it is sold, it has a market value--not less than that market value; or

(b) otherwise--the best price that is reasonably obtainable, having regard to the circumstances existing when thepropertyis sold.

Also,s111Aof theConveyancing Act 1919(NSW) now states that

(1) Amortgageeorchargee, in exercising a power ofsalein respect ofmortgagedorchargedland, must take reasonable care to ensure that thelandis sold for:

(a) if thelandhas an ascertainable market value when it is sold--not less than its market value, or

(b) in any other case--the best price that may reasonably be obtained in the circumstances.

This has general application to all mortgagees selling land after the commencement of the section on 11/11/11.

What is the actual duty in both of those sections? Pinpoint it accurately. Hint, it is not to obtain the market value or best price for the property.

The statutory duty does not replace the equitable duty. Both apply and older cases on the equitable duty will inform newer cases on the statutory duty. This is particularly clear in relation to the necessity to rely on an equitable account to obtain compensation for breach of the duty in s420A and s111A. This is discussed in more detail in the next chapter.

Although both s420A and s111A refer to land that has a market value and land that does not, it is rare for land to not have a market value. As Black J said inIn the matter of Australasian Barrister Chambers Ptd Ltd (in liquidation)[2017] NSWSC 597at [39] 'there is no seriously arguable case that a commercial strata title unit in the central business district of Sydney does not have a readily ascertainable market value, with the result thats 420A(1)(a)applies to the exclusion ofs 420A(1)(b)in respect of the sale of such a unit'.

'Market value' was defined by Griffith CJ inSpencer v Commonwealthof Australia[1907] HCA 82; (1907) 5 CLR 418 at 432:

In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell? It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural.

Although courts routinely apply this definition in the context of mortgagee sales it is arguably problematic because a mortgageeisdesirous to sell. Unlike an ordinary vendor who may choose to wait for a better offer, a mortgagee is not obliged to do so. The case law makes that clear, (e.g., Isaacs J, inPendlebury, above).A mortgagee can sell as soon as the power of sale has validly arisen and does not have to wait for the market to rise. Courts know from long experience that it is impossible for anyone to know if a market is going to rise, and that the adage that 'if things are bad now, it does not mean they cannot get worse' is true of property markets. If a mortgagee has advertised a property properly, they are entitled to take the highest bid at a properly conducted auction, irrespective of the fact that an ordinary vendor may 'pass the property in' (decide not to proceed with the auction sale). Courts know that passing property in does not necessarily result in a higher price; it can result in a lower price at a later date and greater costs for the mortgagee, mortgagor and guarantors. For the sake of completeness, it should also be noted that just as a mortgagor cannot prevent a mortgagee from selling at a particular time, they cannot force the mortgagee to sell if the mortgagee wants to wait. In exceptional circumstances a mortgagor may be able to get a court order for the property to be sold against the wishes of the mortgagee, but this would be rare. Having mortgaged their land, the mortgagor has taken the risk that on default, they will lose the ability to control the land and its sale.

Emeritus Professor Edgeworth provides the following useful summary of the findings courts have made in relation to mortgagees' actions, (footnotes omitted):

First, the mortgagee should normally ensure that the proposed sale is adequately advertised. In limited circumstances it may be appropriate to dispense with advertising where, for example, there is already at hand a buyer who is prepared to pay the market price or above, and who may be lost if entry into a contract is delayed to allow time for an advertising campaign. But such circumstances will be rare. The purpose of advertising is to bring the property to the attention of those who might be interested in buying, so as to engender competitive tendering. The advertising need not be extravagantly expensive: the test is whether it is of the kind that would be carried out by a person acting in good faith and taking reasonable precautions to obtain a proper price. The advertisements should correctly describe the propertys nature and beneficialaspects, although inadvertent errors will not be a cause for complaint unless they deflate the price. There is no principle that advertising the sale as a mortgagee sale is, of itself, a breach of the mortgagees duty. Rather, it is a question of fact: in some situations, advertising a sale as a mortgagee sale may dampen buyer-interest; in others, it may heighten buyer-interest. If the property is to be sold by auction, the advertised auction date should be one that will not unduly dampen buyer-interest, although this is subject to the mortgagees right to choose when to sell.

Second, a prudent mortgagee will engage a competent valuer or experienced real estate agent to assess the value of the property before it is offered for sale. But this is not to say that such a valuation is a precondition to a valid sale. In particular, where the mortgagee has taken proper steps to advertise and sell the property, the price actually obtained is strong evidence of the propertys true value. The essential issue is whether the mortgagee has complied with its duty on sale, not what valuers may consider the property is worth. Where the mortgagee has obtained a valuation, but it is no longer current, the mortgagee should obtain an updated valuation or estimate of value, particularly if the mortgagee personally has no experience of current values in the area.

Third, sale by auction is not necessarily the only permissible method of sale. It may be, for example, that a private purchaser is ready to pay the full market value, and to hold an auction would cause delay (during which time the mortgagors liability is accumulating), and would incur advertising expenses and estate agents commission. Indeed, in some market conditions it can reasonably be foreseen that sale by auction will not bring a realistic price, in which case the mortgagee should proceed by private sale. In exceptional circumstances it may be sufficient to negotiatewith one potential buyer only, although normally the mortgagee should follow up all prospective purchasers who appear to be genuinely interested and able to finance the purchase. But there is no breach merely by accepting a reasonable offer without pursuing the remote possibility of a higher offer, particularly where there are reasons to suspect the bona fides of the higher offeror. Also, where there is more than one property, market conditions at the place and time of the sale will determine whether the mortgagees duty requires them to be sold individually, or in combination, or in one line.

Fourth, the mortgagee will almost certainly need to employ competent agents to handle the sale, and the agents will need knowledge of local market conditions. Nevertheless, the mortgagee does not discharge his or her duty in exercising the power of sale merely by employing reputable agents to handle the advertising and sale. The duty is personal to the mortgagee.

Fifth, the mortgagee is not generally required to outlay money on the property to secure a better price. The mortgagee can sell the property as is, with no obligation to improve it or to increase its value. Equally, the mortgagee can (if he or she wishes) unlock the propertys potential by, for example, seeking planning permission or granting a lease; but there is no obligation to do so. Against this, it has been said in Australia that if expenditure is reasonable, apparently necessary and prudent to prevent the property from being sacrificed, and if the expenditure is manifestly safe (that is, it will be recovered in the sale), then the mortgagee is not justified in refusing to make it merely because the property can fetch the amount owing under the mortgage without making the expenditure; but this situation would be very much the exception, not the norm.

Edgeworth,Butt's Land Law, 7th ed, pp 761-3

It should be noted that a mortgagee cannot sell to themselves, but they can sell to an associate or a company in which they hold shares or are a director. Courts will scrutinise sales to associates more carefully:ANZ Banking Group v Bangadilly Pastoral Co Pty Ltd(1978) 139 CLR 195.

Finally, the law in relation to a mortgagee power of sale can only be understood with a realistic understanding of property markets. The starting point is that purchasers, not vendors, ultimately determine the price of property. An owner can claim their home is worth $1 million but if no one is willing or able to pay that price, the house will not be sold for $1 million. Of course, vendors can refuse to sell unless they are given the price they desire, and a purchaser might have to agree if they want the home, but the fact still remains that if no purchaser has the amount a vendor is asking, the property will not be sold. This point matters in the context of mortgagee sales. Mortgagees cannot create purchasers with a willingness or ability to pay a particular price for property. All they can do is bring the property to the attention of the widest pool of possiblepurchasers. They can controlthe processof the sale, but they cannot control the ultimate price. The duty imposed on mortgagees, whether by equity or statute, reflects this market reality.

3. Remedies of the mortgagor

If a mortgagor believes that their mortgagee has or is going to exercise a power of sale improperly they can take a number of actions.

First, they (or their solicitor) should check

whether the mortgagor was actually in default under the mortgage

whether a valid s57 notice was served and

whether the mortgagor failed to comply with it on time.

If any of the above are absent, the mortgagee has no power of sale under s58, and an injunction can be sought to retrain any attempted sale.

However, if 1-3 are present, the power of sale has validly arisen and the only way a mortgagor can stop this occurring is if the mortgagee is threatening to carry out the sale improperly, that is, not in accordance with the equitable or statutory standard. This is harder to prove than mortgagors sometimes realise, and a number of cases demonstrate that some mortgagors have unrealistic ideas about the value of their own property and inaccurate ideas about the standard to which the law holds mortgagees (see for exampleACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia[2014] NSWCA 402; Stone v Farrow Mortgage[1999] NSWCA 435). The standard imposed on mortgagees by courts and by legislation is intentionally not stringent, and as noted in the previous chapter, is rooted in a realistic understanding of property markets. Mortgagees are entitled to recover their money efficiently, when it is due. If courts made this difficult, mortgagees would simply cover their increased risk by raising interest rates which would not be good for borrowers generally.

Courts are cautious not to assist impecunious mortgagors interfering with mortgagee sales. If a sale is restrained, a mortgagee may struggle to find another buyer, incurring more costs for themselves and the mortgagor. Before granting an injunction to restrain a sale on the grounds that the mortgagee is exercising the sale improperly, the court will generally require the mortgagor to pay all of the money owing under the mortgage into court (which many mortgagors will not be able to do) or make the usual undertakings as to damages (that is, agree to compensate anyone who suffers a loss if it transpires that the injunction should not have been made e.g., the sale was not in fact being improperly exercised, and the mortgagee and anyone else suffers a loss as a result of the injunction).

However, if the mortgagor is able to prove that the sale is indeed improper, an injunction can be granted even if a contract has been signed with an innocent third party purchaser. The Court inForsyth v Blundell[1973] HCA 20;129 CLR 477analysed such a dispute as a competition between an earlier equitable interest (the mortgagor's equity of redemption, even though the mortgagor's interest was technically a registered, legal fee simple) and a later equitable interest (the purchaser's interest under a contract of sale). The mortgagor was not guilty of any postponing conduct. While a mortgagor agrees to a potential mortgagee sale when they mortgage their land, they only agree to apropersale, not an improper one. InForsyth, the sale was improper because there was clear evidence of a higher offer from another party, which the mortgagee had not accepted. The court retrained the sale.

If the sale has already occurred and the purchaser is now the registered proprietor, their title cannot be upset unless they fall within one of the exceptions to indefeasibility, such as fraud. If the purchaser was in cahoots with the mortgagee in relation to the improper sale, their title will be defeasible under ordinary s42 principles (Loke Yew v Port Swettenham Rubber Company).

If the purchaser at a mortgagee sale is innocent of the impropriety, the mortgagor will not be able to get the land back but they can ask for an 'equitable account'. This is the remedy for the breach of the equitable duty owed by the mortgagee and is equivalent tothe difference between what the property sold for and the price it should have sold for had the sale been conducted properly. For example, if the property sold for $800,000 at an improperly conducted mortgagee sale but it would have sold for $1 million at a properly conducted one, the mortgagor is entitled to $200,000. An equitable account is also the remedy for breach of the statutory duties in s420A of theCorporations Act 2001(Cth) and s111A of theConveyancing Act.This is because s420A, as you may have noticed, does not provide any remedy. It simply states the duty of the mortgagee/controller to the mortgagor, but does not stipulate that the mortgagor (or their guarantor or subsequent mortgagees) may sue for damages under statute if the duty is breached. Bryson J inGE Capital Australia v Davis[2002] NSWSC 1146noted the clear absence of statutory right to sue for damages, and concluded that the statute just changed the duty from an equitable one to a statutory one, but left the remedy untouched. Mortgagors, guarantors and subsequent mortgagees were still expected to ask for an equitable account. Bryson J's reasoningwas confirmed by the Court of Appeal inJames v Australia and New Zealand Banking Group Ltd[2018] NSWCA 41.

The remedy for breach of s111A of theConveyancing Act 1919is arguably slightly more complex. There is no doubt that an equitable account is still available to the mortgagor, guarantor and subsequent mortgagees if the s111A duty is breached. This is because s111A(6) states that 'Nothing in this section affects the operation of any rule of law relating to the duty of themortgageeorchargeeto account to themortgagoror chargor'. However, s111A(4) says 'a person who suffers loss ordamageas a result of the breach of the duty has a remedy indamagesagainst themortgageeorchargeeexercising the power ofsaleor selling theland.' The distinction is potentially significant: an equitable account is a relatively simply calculation; damages, including damages under a statute, can be more complex, covering all loss a mortgagor or their guarantor has suffered as a result of the mortgagee's breach.

Personal Property

1. Introduction

'Property' is divided into two categories - real property, which is land, and personal property or 'chattels', which is everything else. Up until now, we have just been dealing with land, but we are going to finish the course with a short introduction to personal property. Striking the right balance between real and personal property can be difficult in introductory law courses. Traditionally, land was the greatest source of wealth in any community, and it remains the most significant asset for most Australians. Land has an importance that personal property lacks, (with the exception of food and water): we all need access to some land for our survival, and we are all physically present on land at all times. In particularly, homes are not an optional consumer item; they are essential if we are going to enjoy the privacy, autonomy, security and freedom that is necessary for a decent life.

However, in modern economies, personal property is now the largest source of wealth, if not for individuals, at least for institutions. Personal property is divided into two categories:

choses in possession or tangible personal property - these are things that can be physically possessed, e.g., books, TVs, diamonds, yachts etc.

choses in action or intangible property - things that cannot be physically possessed, e.g., debts, dividends, bonds, debentures, bills of exchange, bills of lading, promissory notes, shares, intellectual property, trust funds, claims for unliquidated damages, insurance policies etc.

It is the latter category that makes of up the lion's share of commercial wealth in modern society, but as you can probably tell from some of the items in that category, whose names you may not understand, we are moving into the sphere of complex commercial law. We are not going to attempt to teach you the complexity of many commercial transactions, but rather simply lay the foundations for later compulsory subjects like Equity and Trusts and Business Organisations/Company Law, as well as electives like Foundations of Commercial Law and Insolvency Law. An important consequence of the increased wealth in personal property is the rise of security interests in personal property, that is, people using their personal property as security for loans. Australia now has a uniformPersonal Properties and Securities Act 2009(Cth) (PPSA) governing the creation, legal effect and enforcement of security interests in personal property, which you will learn about if you study commercial law.

Personal property terminology

'Chose' is old law French for 'thing', so chose in possession means a thing you can physically possess and chose in action means a thing you need to enforce by legal action. Although choses in action might sometimes just look like a right to sue someone, they are property. For example, while a debt gives the person owed money a contractual right to sue the person who owes them, the debt itself is property that can be assigned (transferred, for value or as a gift) to someone else. So, if A lends B $10,0000 A can sue B for that money. Alternatively, A might decide they want C to have that $10,000 (as part of a business deal, payment for services, to reduce A's taxable income etc.). A can assign the debt to C so that C becomes the owner of the debt and entitled to sue B for the money. C now owns the thing (chose) that can be enforced by action.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wN+tDElVw7q3wAAAABJRU5ErkJggg==" * MERGEFORMATINET

Unlike land,there is no concept of owning personal property 'of the Crown' andit is possible for people to own it absolutely. In the example above, A is initially the absolute owner of the debt, and if properly assigned, (the requirements for which we will learn in the next chapter), C will become the absolute owner. However, in relation to choses in possession - tangible personal property - the situation is slightly different. This is because it is possible for one person to own goods, while another can be in possession of them. Possession then creates rights to the goods, enforceable against the whole world, (with the exception of the true owner). For example, if someone finds a ring on the ground, the finder will be entitled to keep the ring, as against the rest of the world; their possession gives rise to a presumption of title. However, if the true owner comes forward, they will have a better claim to the ring, which trumps the finder's rights based on possession.

Possession is most likely to be relevant when the title holder has voluntarily given possession of the goods to another, without intending to transfer title, for example, when you drop your coat off at the dry cleaners. The dry cleaner will be in possession, but you will remain the title holder. A split between title and possession is called bailment. The title holder is the bailor, and they have 'bailed' (given possession of) the goods to the bailee. Bailments can be gratuitous (e.g., lending a friend a book for a month) or for reward (e.g., giving a dry cleaner your coat or a car hire company giving a customer a car). Bailments for reward are typically the result of contractual agreements, and so there will be terms for the bailment, e.g., how long the bailee can keep the goods, how much payment must be made to the bailor or bailee. However, irrespective of whatever rights are enforceable between the bailor and bailee, as against the rest of the world, the bailee's possession of goods will be good title.

For completeness you should understand that like possession in relation to land, possession in relation to goods is a question of factual possession andanimus possidendi,or intention to possess. If you ask people to your house for dinner, just as they will not be in possession of your land, they will not be in possession of your knives and forks when they eat. They will havecustodyof the cutlery when it is in their hands, but they will not be in legal possession of it. Conversely, you can be in possession of goods even when they are not in your immediate physical control, for example, when you leave your car in a car park, cutlery in guests' hands or when your cat is roaming the neighbourhood. You will still be inde factoor actual possession of all of those goods (yes, animals are currently chattels), even though you are not holding them in your hands.

Finally, someone who is not in possession of goods, but is entitled to be in possession, is said to have an 'immediate right to possession'. If you lend a book to a friend or a car hire agreement has ended, you and the car hire company will have an immediate right to possession, (also sometimes called constructive possession). Both possession and the immediate right to possession are legally protected interests in goods so that if a third party interferes with possession or an immediate right to possession, for example by stealing the loaned book or crashing into a hired car, the person in possession, or even with the immediate right to possession, will be able to sue, even though they may not be the ultimate owner of the goods. They sue using the tortious actions of trespass, conversion and detinue, which you will learn about in Torts.

2. Transferring title to choses in action

Just like the transfer of interests in land, the law sets down requirements for the title or ownership of personal property to pass from one person to another; the formalities vary depending on the kind of property in question. For example, the formalities for the transfer of shares are set down in theCorporations Act 2001(Cth), while the transfer of copyright is covered in theCopyright Act 1968(Cth). We will not be learning these specific forms of personal property here, but rather will focus on the transfer of debts, which we will pick up again in Equity and Trusts, and the sale of goods.

Assignment of Debts

Debts can arise in a number of ways - the loan of money, the provision of goods and services for reward, a right to royalties or dividends etc. As noted in the previous chapter, a debt is not simply a contractual entitlement to money, it is a form of intangible personal property or chose in action. There is then a whole range of reasons that a person who owns that debt might want to assign (sell or give) the debt to another. They may need money immediately, which can be obtained by the discounted sale of a debt which would only entitle them to money in future (this is called 'factoring'); they may want to reduce their own wealth or taxable income; or they may simply wish to make a gift to a family member or friend. A person who owes a debt is a debtor; the person to whom it is owed is a creditor, but if they choose to assign it, they will be referred to as the 'assignor'. The person to whom the debt is transferred, and becomes entitled to the money, is the 'assignee'.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/lUBFDRVh33sAAAAASUVORK5CYII=" * MERGEFORMATINET

The legal requirements for the valid assignment (transfer) of a debt are ins12 of theConveyancing Act 1919(NSW):12 Assignments of debts and choses in action

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way ofchargeonly) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same intocourtunder and in conformity with the provisions of the Acts for the relief of trustees.

Like a lot of legislation, the drafting of this section is less than optimal, but we can break it down into its constituent parts to work out what it is telling us we must do as lawyers to ensure that ownership of a debt passes from one person to another. This is good practice for reading any legislation, in all areas of law.

'Any absolute assignment' - this means the whole of the debt, not part of the debt. So, although a client might wish to only assign half of a debt, for example, $5000 of a $10,000 debt, it is not possible to do this validly at law (it is otherwise in equity, which we will learn in Equity and Trusts). One of the functions of s12 is to allow the assignee of the debt to sue for the money on their own, without having to join the creditor/assignor in the proceedings. However, if the assignee is only entitled to part of the debt, there may still be questions about the assignor's entitlement to the other part of the debt, and they would need to be joined in the proceedings. s12 simplifies this issue by stipulating that only the whole debt can be assigned at law.

'by writing under the hand of the assignor (not purporting to be by way of charge only)' - this means that the assignment must be in writing and signed by the assignor, which is not very difficult to satisfy in a community in which almost everyone is literate, and we are awash with paper or its digital equivalent. There are no special words that need to be used, it just needs to be clear that the assignor intended to assign the debt to the assignee, and not for example, that they only intended to charge the debt, i.e., use it as security for a loan. Remember, any property of value can be used as security. A debt is property which could be offered as security for the immediate loan of money, and if the loan is not repaid, the creditor can take the debt instead of the repayment of the loan. If a debt is just charged as security for a loan and the loan is repaid, then the original owner of the debt is still entitled to the debt. In other words, just like a mortgage of land, the owner of the debt never intended to sell the debt to another, they just intended to give the other person a charge (a small interest in the property) which would entitle them to keep the debt, but only if the loan is not repaid. A charge is thus not an assignment.

'of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would be entitled to receive or claim such a debt or chose in action' - logically, the debtor who owes the money needs to know who they are meant to be paying and who might now be entitled to sue them, so the section requires the assignor, who would otherwise be entitled to the money, to tell the debtor, 'Don't pay me, pay X to whom I have assigned the debt'.Section 170of the Conveyancing Act specifies how notice is to be served under the Act, for example, by leaving the notice at the last known residential or business address of the person being given notice. This is often done by simply sending the debtor a copy of the assignment.

'and be deemed to have been effectual in law...to pass and transfer the legal right to such debt or chose in action from the date of such notice' - legal ownership of the debt or chose in action passes to the assignee at the date notice is given to the debtor (not, for example, the date the assignor signs the assignment). Thelegalrequirements for the transfer of property are found in the law, which is either in the decisions of common law judges, or more typically, in legislation. Ownership of property can pass in equity in accordance with the decisions of judges with equitable jurisdiction. The most obvious example we have done so far is that ownership of land passes in equity on the signing of a specifically enforceable contract of sale, although legal title will not pass until the purchaser's name is recorded on the Torrens register. Like s42 of theReal Property Act 1900, s12 of theConveyancing Act 1919stipulates the requirements forlegalownership of property, in this case a debt, to pass to another.In Equity andTrusts,we will look at the circumstances in which legal title has not passed in accordance with s12, but equity nonetheless thinks equitable ownership has passed. (RememberCorin v Patten: equity is what we resort to when transactions have been mucked up at law).

'and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor' - this means that the assignee receives all the rights to sue that the assignor had in relation to the debt or chose in action, as well as the power to give a complete discharge of the debt without needing to join the assignor in proceedings. In other words, if the assignee gives the debtor a receipt acknowledging that they have been paid the debt, that is a complete discharge, and the assignor does not need to be joined in the proceedings to acknowledge that they are no longer owed any money.

'Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same intocourtunder and in conformity with the provisions of the Acts for the relief of trustees' - this is not about the legal assignment of the debt, but simply makes it clear that if there is any dispute about who is entitled to the debt and the debtor has been told about that, they can join anyone who claims to be entitled to the debt in proceedings or pay the money into court for a court to sort out who is entitled. This is to protect debtors. The last thing they want is to find they have paid money to a purported assignee (who has spent the money or is now bankrupt) and it turns out someone else was entitled to the money and as a result, the debtor still has to pay that person.

In practice, s12 is relatively easy to satisfy. So, in the diagram above, all A needs to do to legally assign to C the $10,000 debt that B owes her is:

write on a piece of paper, "I, A, immediately assign to you C, my entitlement to $10,000 from B', signed A, and

write on another piece of paper, 'Dear B, I have assigned the $10,000 debt you owe me to C. Please pay C the money, not me', signed A and dated. Alternatively, A could simply send B a copy of 1.

The assignment will be effective when 2. occurs, so that from then C will be the owner of the debt.

In practice, the kinds of debts and transactions to which s12 will apply are much more complicated than the simple debt above. By way of example,Goodridge v Macquarie Bank[2010] FCA 67, appealed successfully inLeveraged Equities v Goodridge[2011] FCAFC 3,concerned a margin loan between a barrister, Goodridge, and Macquarie Bank. Margin loans are secured by existing share holdings and are made for the borrower to invest in more shares. Margin lending is risky for borrowers because the value of the security - shares - can fluctuate over time. If the security falls below a particular value, this will trigger a 'margin call' which will require the borrower to reduce their loan or increase their security, neither of which they may be in a financial position to do. In that event, the lender will sell their security, for whatever its current market value happens to be. InGoodridge,Macquarie Bank sold 18,500 margin loans to BYN Trust Company of Australia for $1.5 billion. BYN then sold the loans to Leveraged Equities who later issued a margin call to Mr Goodridge. When he did not meet the call, Leveraged Equities sold Mr Goodridge's security at a low point in the market. Mr Goodridge disputed his obligation to repay, amongst other things, on the grounds that the loans had not been validly assigned because he had never received notice of the assignment under s12. The decision ultimately turned on the construction of the margin lending contract (the drafting of which elicited scathing comments from the judges, a reminder to always draft legal documents clearly, accurately and logically), but the Full Federal Court found that the loans had been validly assigned because Mr Goodridge had been given notice in accordance with s170(1)(b) of theConveyancing Act,the notice having been sent to his last known home address.

3. Sale of Goods

We are now moving to choses in possession or tangible personal property. There are a number of Acts that regulate goods, including the Australian Consumer Law and theCompetition and Consumer Act 2010(Cth) but we are going to focus on the New South WalesSale of Goods Act 1923(SGA), because it is the Act that deals with the transfer of property in goods.

When looking at any legislation, the first thing we need to do is work out its ambit: what does it apply to and what does it not? As is obvious from its name, the SGA is concerned with commercial transactions; it applies to contracts, not to voluntary transactions (gifts) or barter. The contracts to which the SGA applies can be contracts to immediately transfer title to goods or contracts to transfer title at a later date; the latter is called an agreement to sell. The fact that contracts for the sale of goods transfer legal title, immediately or in the future, stands in sharp contrast to contracts for the sale of land, which never transfer legal title; that requires registration under the Torrens System. Also unlike land, contracts for the sale of goods do not need to be in writing: s8. They can be wholly or partly oral, as well as in writing.

The SGA defines 'goods' ins5(1)as 'all chattels personal other than things in action and money', i.e., not the choses in action and debts we were looking at in relation to s12 of theConveyancing Act.Goods include 'things attached to or forming part of land which are agreed to be severed before sale or under the contract of sale', in other words fixtures that the landowner has agreed to being severed from the land, turning them back into chattels. Under the SGA, goods can be existing or future goods (s10), that is, they might be yet to be manufactured or grown. It is often commercially advantageous for parties to lock in a contract price now for goods that will be come into existence later. Goods can also be specific or 'ascertained' goods, or they can be 'unascertained' goods. Specific goods are those that are identifiable at the time of contracting, e.g., a yacht, while unascertained goods are not yet identifiable. For example, a contract for the sale of 100 tons of chickpeas is unascertained because we do not know which chickpeas will make up that 100 tons.

All of the principles that you learned in Contracts will be applicable to contracts in relations to goods, for example, whether the contract is complete, whether the parties intended to be bound, whether they have the capacity to contract etc., but again, as this is a property course, we are interested in the parts of the SGA that tell us who is the owner of the property in question, that is, at what point does property pass from the seller and the buyer. Knowing when this occurs is important for a number of reasons, including ascertaining who bears the risk; that is, if the property is destroyed, who has to bear that loss because they are the owner of the property? It is important in the event that either the seller or buyer becomes bankrupt - do the goods form part of the assets of that person and thus are available to their creditors? It is important if the goods are interfered with or damaged by a third party - is the seller or buyer entitled to sue? Finally, sellers usually cannot sue buyers for the price until property has passed.

Passing of Property

The first basic rule for the passing of property is that it cannot occur unless and until goods are ascertained:s21.Then, if the contract is for ascertained or specific goods, propertypasses when the parties intend it to pass; they get to stipulate this in their contract:s22(1). Regard can be had to the terms of the contract, the conduct of the parties and the circumstances of the case (s22(2)), but if the contract is properly and clearly drafted, regard should only need to be had to the terms of the contract. Some contracts for the sale of goods will stipulate that property does not pass until the contract price has been paid, even if the goods have been delivered to the buyer. This is called a retention of title or 'Romalpa' clause and is expressly provided for in SGA,s24.If the contract has not made it clear when property is meant to pass, the SGA has a number of 'rules' ins23to help ascertain the parties' intentions. The first rule is that if the contract is unconditional, and the goods are in a deliverable state, property passes on the making of the contract, and it does not matter if payment or delivery are postponed. Under Rule 2, if the goods are not in a deliverable state, and something needs to be done to make them so, (for example, remove a 30 ton engine from the concrete to which has been bolted and embedded:Underwood Ltd v Burgh Castle Brick and Cement Syndicate[1922] 1 KB 343; see s5(4) definition of 'deliverable state'), then property passes when that thing is done and the buyer is notified. Rule 3 contains a similar stipulation in relation to any requirement for the seller to weigh, measure or test the goods to ascertain the price. Under Rule 4, if the goods have been delivered to the buyer on the basis that they have to approve them or they have a choice between keeping or returning them, then property passes to the buyer only when they indicate to the seller that they approve or accept the goods; or if they do nothing and a time stipulated by the contract has passed or if no time is stipulated, and a reasonable time has passed, then property will pass to the buyer. The following case is a good illustration of how courts determine when property has passed and why this might be important.

DFS Australia Pty Limited v The Comptroller-General of Customs[2017] FCA 547 (22 May 2017)

Burley J:

THE FACTS

3. There was no dispute as to the factual background to the present controversy.

The applicant operates off-airport outwards duty free shops, one in Sydney and the other in Cairns. It has two broad categories of customers, locals and travellers, the latter of whom are generally foreign travellers. Locals are charged a price for goods that includes import duty and, where applicable, GST, and travellers are charged a price that does not include those amounts. The present case concerns sales to travellers...

The applicants claim for a drawback of duty arises from the sale of category 1 [watches, sunglasses, clothing etc] goods to travellers. Those goods are displayed for sale in its stores with two prices, the duty and GST paid price payable by locals, and the duty and GST free price payable by travellers. When these goods are sold to a traveller, the goods are placed in a tamper proof transparent sealed bag as a part of what has been called the sealed bag regime. The outside of the sealed bag contains a warning sticker (Warning Sticker) in bold type which reads:

DUTY FREE GOODS UNDER CUSTOMS CONTROLDO NOT OPEN until proper export out of AustraliaMaximum fine of $50,000

The traveller is provided with two documents at the point of sale. The first is entitled Export Non-LAGS (Docket) and is printed in triplicate, one copy for the traveller which is placed in the sealed bag, one for Customs, which is stapled on the outside of the sealed bag and one which is retained by the applicant.

The Docket includes details of the name, departure date, destination and carrier details of the customer. It also includes information as to the items purchased and their price. In addition, the Docket contains a statement (Customs Debit Statement) to the following effect:

I AGREE TO COMPLY WITH THE CARD HOLDER AGREEMENT AUTHORITY TO DEBIT MY CREDIT CARD ACCOUNTIn consideration of [the applicant] not charging me any Customs Duty or GST on goods I have purchased from them, I authorize [the applicant] to debit my credit card account specified below with the amount of any Customs Duty and Excise/GST and WET [Wine Equalisation Tax] that [the applicant] is required to pay to the Australian Customs Service and/or the Australian Taxation Office as a result of my failure to export these goods in the prescribed manner.I further authorize the recording of my credit card details below.[There follows details of the credit card and a signature of the cardholder]....

The terms and conditions information sheet referred to in the Declaration is provided to the traveller at the time of purchase (Terms and Conditions). It is also stapled to the outside of the sealed bag. The Terms and Conditions are entitled Duty/Goods and Services Tax (GST) & W.E.T. Free Sealed Bag Declaration and relevantly provide as follows (emphasis in original):

I will take these goods with me within thirty days of purchase when I depart from Australia on a journey to a foreign country.If I do not take the goods out of Australia on the flight/voyage specified above, I will notify the proprietor of the store where the goods were purchased by noon the next working day that the goods were not exported; and

If the goods are to be exported on a subsequent flight/voyage within 48 hours of these flight/voyage specified above, I will notify the proprietor of that intention and the next flight/voyage details; but

If not so exported within 48 hours, I will return the sealed bag containing the unused goods to the store.

I am aware that if I bring the goods back with me on my return to Australia I will declare the goods to Customs if the total value of the declarable goods in my possession exceeds the passenger concessional limits.If the goods are packed in a sealed bag for carriage as cabin or hold luggage on an aircraft or cruise vessel:I will carry them in full view at the airport or wharf departure area and not pack them in my luggage....I will surrender the sealed bag for examination and for invoice detachment to an authorised collection officer after passing through Customs.Where the sealed package is to be stored in the hold of an aircraft or cruise vessel, I will remove the Duty or Tax Free invoice and hand it to the authorised collection officer after the immigration point. ... Furthermore, I will not interfere with or break the seals of the bag or other package until I depart Australia; andI will not give a sealed bag or other sealed package to any other person to carry onto the aircraft or cruise vessel for me....

Travellers who have purchased goods under this regime are obliged to present the sealed bag to personnel of Duty-Free Security Company, located between immigration and security at the international airport (or after Customs at the dock if the traveller is departing Australia by ship), who inspect it to ensure that it has not been tampered with and remove the Docket attached to the outside of the bag. The Dockets removed are provided to the Applicant and used by it as proof of export to claim a drawback of duty. If the traveller has not complied with the terms of the sale by taking the goods with him or her within 30 days of purchase, then the applicant attempts to recoup the duty and GST on the goods from the traveller.

The sealed bag regime does not relate to obligations that the traveller owes to Customs pursuant to any statutory regime. This is because under the present regime the applicant has already paid duty on the category 1 goods and upon export no duty is owed upon them. The only relevant question is whether or not, pursuant to the contractual arrangements set out above, the applicant falls within the description of legal owner as a result of these arrangements....

[Burley J examined Customs Regulation 134(6) and concluded that it clearly meant to restrict claims for drawback to the 'legal owner' of goods at the time of export.]

Is the applicant a legal owner?

On the basis of the conclusion that I have reached above, it is necessary to consider whether or not the applicant is the legal owner for the purpose of its drawback claims.

There is no dispute that during the relevant period (August 2013 to October 2014), property in the goods the subject of the drawback claims was governed by theSale of Goods Actapplicable in the relevant jurisdiction (specifically,Sale of Goods Acts 1923(NSW) s 22andSale of Goods Act 1896(Qld)s 20 there is no material difference in the terms).

According to theSale of Goods Act 1923(NSW), where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intended it to be transferred(s 22(1)).For the purpose of ascertaining the intention, regard is to be had to the terms of the contract, the conduct of the parties and the circumstances of the case(s 22(2)).Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made and it is immaterial whether the time of payment, or the time of delivery, or both, is postponed(s 23,Rule 1).Where goods are delivered to the buyer on approval or on sale or return or other similar terms, the property therein passes to the buyer when the buyer signifies approval or acceptance to the seller, or does any other act adopting the transaction(s 23,Rule 4(a)).If the buyer does not signify approval or acceptance to the seller, but retains the goods without giving notice of rejection, then either upon expiration of any time that has been fixed for the return of the goods or upon expiration of a reasonable time, the property passes(s 23,Rule 4(b)).Subsection 24(1) of theSale of Goods Act 1923(NSW) provides:

Where there is a contract for the sale of specific goods, or where goods are subsequently appropriated to the contract, the seller may by the terms of the contract or appropriation reserve the right of disposal of the goods until certain conditions are fulfilled. In such case, notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled.

The applicant submits that in the present case the features of the sealed bag regime, which were reflected in the Declaration and Terms and Conditions, evidence an objective intention on the part of the applicant and each traveller that property in the goods did not pass until export. It submits that this conclusion is consistent with the default rules for the ascertainment of intention under the Sale of Goods Acts. Of the categories of contract there identified, it submits that the agreement most closely resembles a contract on a sale or return or other similar terms basis because the contract here both contemplated and required that the goods be returned to the vendors in certain prescribed circumstances. While the traveller had possession of the goods upon purchase, he or she did not have property in the goods until such time as the obligation to return the goods expired after their export from Australia.

The respondent submits that a proper analysis of the intention of the parties, having regard to the term of the contract, yields the conclusion that the applicant did not hold property in the goods at the point of export because property passes in the store when the goods are handed over by the applicants staff to the traveller.

In my view the sales terms set out in the relevant documentation and the circumstances of the case reflect the fact that property is intended to be transferred to the traveller at the point of sale.

I first consider the parties intention having regard to the terms of the contract. At the point of sale the traveller receives, in the form of the Docket, a receipt for the purchase of the goods, signs an agreement authorising the applicant to debit his or her credit card with the amount of any duty, excise, GST or Wine Equalisation Tax that the applicant is required to pay as a result of his or her failure to export the goods in the prescribed manner (that is, the Customs Debit Statement) and signs the Declaration to the effect that that he or she will comply with the conditions set out in the Terms and Conditions.

The receipt contained in the Docket is in a conventional form, and records the price of the goods, the quantity purchased and that the total amount paid. It concludes with a conventional statement thanking the traveller for shopping with the applicant, inviting her or him to retain the receipt for refunds/exchanges and providing an after sales service number. The Customs Debit Statement also reflects a suggestion that a sale of the goods has taken place. It provides an acknowledgement on the part of the traveller that I have purchased the goods and indicates that if there is failure to export those goods the traveller will be required to pay an additional amount, being any additional duty that the applicant is required itself to pay.

The Declaration also tends to confirm an understanding and indeed mutual intention that property is transferred to the traveller at the time of sale in the store. The Declaration is to the effect that the information provided is true and correct and that the purchaser will comply with the terms and conditions provided to me at the time of purchase, being in the store at the point of sale.

The Macquarie Dictionary (5thed, 2009) defines purchase as:

1. to acquire by the payment of money or its equivalent; buy... 5.Lawto acquire, as an estate in lands, otherwise than by inheritance

Subject to the contents of the Terms and Conditions, the Docket explicitly indicates that property is transferred at the time of sale. One would expect that most people who understand English would understand the references to purchased and purchase to reflect a mutual intention, both on the part of the applicant and the traveller, that property is transferred at the point of sale in the applicants store.

The applicant, however, places emphasis on several conditions set out in the Terms and Conditions to suggest that the legal and practical ability of the traveller to exercise ownership of the goods was severely constrained and that the applicant enjoyed legal rights of control and disposition in respect of the goods which render the applicant a legal owner.

The Terms and Conditions provide a promise that the traveller will take the goods with him or her within 30 days of purchase when they depart from Australia. If the traveller does not do so, he or she promises to notify the applicant by noon the next working day that the goods were not exported and, if the goods are not exported within two days the traveller will return the sealed bag containing the unused goods to the store. The applicant submits that the effect of the sealed bag regime is that travellers are prohibited from accessing the goods prior to their export, prohibited from packaging the goods in their hold luggage (save in limited circumstances) and prohibited from giving the goods to any other person to carry on to an aircraft or vessel. Furthermore, the traveller is required to keep the applicant informed of the location of the goods and as was noted, under an obligation to return them if the goods are not exported within four days of the original intended export date. By implication, the traveller was also prohibited from selling or otherwise disposing of the goods to any other person until after export.

Despite the care with which the applicants submissions were put, in my view the preferable analysis of the transaction is that the traveller has entered into an unconditional contract in the store for the sale of specific goods, and that the property passes to the traveller when the contract is made.

The contractual conditions identified by the applicant in the Terms and Conditions are not to be understood as a reservation of the right of disposal until certain conditions are fulfilled (in which case the property would not pass until the conditions were met) but rather as an obligation to return the goods upon the happening of the specified condition. I accept the respondents submission that the position is somewhat analogous to that considered by Schutt J inMcPherson, Thom, Kettle & Co v Dench Bros[1921] ArgusLawRp 72;[1921] VLR 437;(1921) 27 ALR 272(McPherson), where a provision in conditions of sale at an auction permitted a resale by the seller in the event that the purchaser made default in payment. The Court there concluded that the provision in question was not a reservation of the right of disposal until certain conditions were fulfilled (in which case the property would not pass until the condition was fulfilled) but a right of resale upon the occurrence of a certain event, notwithstanding that the property had passed (at VLR 444). Unlike inMcPherson, in the present case the Terms and Conditions do not specify the consequence of a return. It may be implied that upon such return the traveller will receive a full refund of the amount that he or she has paid, upon which time title may return to the applicant. Alternatively, the traveller may pay any additional duty outstanding and retain the goods, although this prospect seems remote given that the traveller has already signed an authorisation to the applicant to levy any additional amount that it is liable to pay. Neither alternative supports the applicants position....

I now turn to consider the conduct of the parties and the circumstances of the case, as required bys 22(2)of theSale of Goods Act 1923(NSW). One relevant factor is that the evidence indicates that the applicant does not attempt to recover the goods from the traveller if the traveller fails to comply with the Terms and Conditions the only action that it takes is to debit the travellers credit card for the additional amount of the duty, and only where the amount of duty is $50 or more. In my view this reflects an understanding on the part of the applicant that it holds no title to property in the goods after they have been sold to the traveller...

Ultimately my view, having regard to the matters for consideration within the Sales of Goods Acts, is that property passes to the traveller at the point of sale and that to the extent that the Terms and Conditions reflect any ongoing rights on the part of the applicant,those rights do not rise above entitlements to enforce the terms of the contract, and do not affect the transfer of legal ownership in the property when the contract is made in the store.

Nemo dat quod non habet

Unlike land under the Torrens system, thenemo dat quod non habetrule, that a person cannot give what they do not have, still applies to goods:s26(1).The result is that a person cannot give any better title to goods than they have themselves. So, if you lend your bike to a friend and they wrongly sell it to a purchaser, that person cannot get any better title than your friend. All your friend had was possession, which would be title against the whole world, but not against you, as you are the true owner of the bike. The arrangement you had with your friend is a voluntary bailment and you are entitled to ask for the bike back at any time. You had an immediate right to possession of the bike and remained the ultimate owner. The result is that while the purchaser of the bike has acquired your friend's title based on possession, and this title is enforceable against the whole world, it is not enforceable against you. Just as you could recover the bike from your friend, you can recover it from their purchaser.

However, the SGA contains a number of exceptions to thenemo datrule to give people who have purchased in good faith some security of title. The first is in s26(1) itself. Having stated that a buyer acquires no better title than their seller, the sections then states 'unless the owner of the goods is by the owner's conduct precluded from denying the seller's authority to sell'.The following case considered this exception.

Haines Bros Earthmoving Pty Ltd v Rosecell Pty Ltd[2016] NSWCA 112 (16 May 2016)

BARRETT AJA:

The primary judge found (and it is not disputed on appeal) that Abboud had taken control of the affairs and assets of Rosecell and GT Haulage by force and threats. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn2" [2]At the time of the relevant transactions in April 2008, Trent Doughty was the sole shareholder of Rosecell and his wife, Annette Doughty, was the sole director. Mr Doughty was the sole director and sole shareholder of GT Haulage.

Abboud and Mr Doughty had been friends and business associates. They were both members of Finks motorcycle gang. Their business interests were complementary. Mr Doughtys activities were in excavation and earthmoving. Abboud was engaged in haulage and transport. The respective businesses were operated through several companies controlled by each individual at shared premises at Fermoy Road, Marsden Park.

A rift developed between the two men. Financial difficulties suffered by two of Mr Doughtys companies in the excavation business caused those companies to go into liquidation. This adversely affected Abbouds haulage business. The relationship ended abruptly on 2 February 2008 when Mr Doughty became the victim of a vicious physical attack at the hands of a group of men and received severe injuries, including full thickness (or third-degree) burns to both arms and the right buttock (caused by the removal of the motorcycle club tattoos), a broken arm and damage to his legs that left him unable to walk for a time. Abboud was present and watched as Mr Doughty was attacked.

Immediately after the attack, Abboud threatened Mr Doughty and Mrs Doughty with further dire consequences (including the killing of Mrs Doughty, her children and her brother) unless they got out of town and surrendered to Abboud all records and assets of Rosecell, GT Haulage and certain other companies.

Mr Doughty and Mrs Doughty complied with Abbouds demand, including by giving him the passwords of the companies bank accounts and computers and explaining to Abbouds wife the companies bookkeeping and office procedures. Mrs Doughty attended the office over a period of three days immediately after the attack for this purpose. Mr Doughty, Mrs Doughty and their children then left their home and went to stay with relatives. A few months later they moved to Queensland. The companies equipment and business records remained at the Fermoy Road premises.

In early March 2008, Mr Doughty was attended by a psychologist at Concord Hospital. According to the psychologists notes, Mr Doughty did not appear to be emotionally distressed by the events of early February but was relieved to have broken with the motorcycle gang and was taking his financial losses in his stride. His concern was for his wife.

The proceedings were conducted on the footing that Mr Doughty and Mrs Doughty remained at all material times the rightful controllers of the respondents, Rosecell and GT Haulage; that they had been coerced by Abbouds force and threats into surrenderingde factocontrol of the companies affairs and assets to him; and that they played no part in, and had no knowledge of, the transactions entered into with the appellants.

The primary judges summation of the events of early February 2008 was as follows: HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn3" [3]In this way Mr Abboud simply took control of Rosecells and GT Haulage Groups assets by force and threats. The force was severe and the threats were real. Mr and Mrs Doughty did not know whether Mr Abboud would continue to operate the business or, if so, for how long. They must have known that there was a real risk that he would dispose of some or all of the equipment and keep the proceeds of sale.

The primary judge also made findings about failure by Mr Doughty and Mrs Doughty to report the matter to the police and their delay in making any attempt to recover control of the companies: HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn4" [4]Mr and Mrs Doughty did not report the attack and loss of their business to the police because of fear of reprisals. In February 2009 Mr Doughty learned that Mr Abboud was no longer affiliated with the group of men who had carried out the attack. After he learned this he no longer had a fear of reprisals. He attempted to ascertain what had happened to the assets of which Mr Abboud had taken control. The assets with which these proceedings are concerned had by then all been disposed of.

[Mr Abboud had sold expensive equipment (excavators, rollers etc.) belonging to Rosecell and GT Haulage to the JP Haines and Right Price. It was not disputed that Mr Abboud was not the owner of the goods, but the appellants argued that transactions fell within the exception in s26(1) and the respondent owner of the goods was 'by the owner's conduct precluded from denying the seller's authority to sell'.]

It was accepted both at trial and on appeal that, in order for JP Haines and Right Price to make good the s 26(1) defence, they were required to identify particular conduct of Rosecell and GT Haulage and to establish that that conduct was such as to preclude denial by them of the sellers authority to sell....

The appellants contend on appeal that the primary judge erred in failing to find that the respondents owed the appellants a duty to take reasonable steps to make known their claim to the relevant property (Ground 1). They also contend that his Honour erred in finding that the conduct of the respondents in not making Abbouds actions and intentions known to the police was not conduct in breach of such a duty owed by them to the respondents (Ground 2).

Ground 3, advanced by way of alternative, is that the primary judge erred in finding that the s 26(1) defence depended on principles analogous to those required to give rise to an estoppel by omission at general law. The appellants submit that his Honour should have found that the conduct of the respondents, including not reporting Abbouds actions and intentions to the police, HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn18" [18]was conduct within the concluding words of s 26(1)....In advancing Grounds 1 and 2 in the notice of appeal, the appellants submit that the primary judge should have held that Rosecell and GT Haulage owed them a duty, of the kind relevant to the particular species of estoppel, to take reasonable steps to make known their claim to the equipment and that there was a breach of that duty.

The parties accept that the matter must be approached as one of estoppel by omission or, as it is sometimes inaptly called, estoppel by negligence. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn48" [48]The gist of the case on appeal is that the primary judge should have found that each of Rosecell and GT Haulage breached a duty owed by it to the buyer of its goods by failing to take steps to assert its title and that it was the breach of duty which was the real and proximate cause of the appellants being induced to buy the goods and to part with the purchase price to the Abboud interests. The essence of the relevant estoppel is described in the current edition of Benjamins work in this way: HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn49" [49]The true owner of goods may by his conduct be precluded from denying the sellers authority to sell within [s 26(1) of the New South Wales Act] where he has been negligent in allowing the seller to create an appearance of ownership of the goods. But the circumstances in which negligence on the part of the true owner can raise such an estoppel are narrowly circumscribed. It is necessary for the buyer to show, first, that the true owner owed him a duty to be careful; secondly, that in breach of that duty the true owner was negligent; and, thirdly, that this negligence was the proximate or real cause of the buyer being induced to buy the goods and part with the purchase price to the seller.

In approaching the first of these elements (regarding duty), the course prescribed by Lord Wilberforce in the passage inMoorgate Mercantile Co Ltd v Twitchingsset out at [35] above must be followed. Regard must be had to the situation in which the transaction occurred as known to both parties and two questions must be asked: first, whether, in that situation, a reasonable person in the position of the buyer would expect the owner, acting honestly, to make the owners claim of ownership known to and discoverable by the buyer; and, secondly, whether, in that situation and in the face of the owners omission to take any such step, the buyer could reasonably assume that no such claim of ownership existed.

The primary judge proceeded, clearly enough, on the basis that it was necessary to find that a duty towards the buyers had arisen. His Honour said that failure to notify authorities of dispossession can give rise to an estoppel where there is a duty to speak or act. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn50" [50]He also said that a buyer who relied on the owners omission to act to prevent sale had to demonstrate that the owner owed a duty to take such action. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn51" [51]An element of reservation as to the existence of a duty in the present case emerged in the passage quoted at [36] above where, after referring to the owners knowledge of Abbouds dishonesty in relation to the equipment, his Honour used the words, [b]ut even ifthis be sufficient to give rise to a duty of care.... HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn52" [52][Emphasis added.]

The appellants complain that the primary judge did not make a clear and unequivocal finding that the respondents had incurred a relevant duty towards the appellants. They rely on a number of factual matters in support of the proposition that such a duty arose: Mrs Doughty spent three days immediately after Abbouds forcible appropriation of control tutoring Mrs Abboud in the companies bookkeeping and business methods; Abboud and Mrs Abboud were given all relevant passwords so that they could access all assets; Mr Doughty told the hospital psychologist a month after the forcible appropriation that he was taking his financial losses in his stride; Mr Doughty gave some evidence of having mentioned the dispossession to friends and of having raised the financial implications of it with the companies bank; and, importantly, Mr Doughty and Mrs Doughty made no attempt for more than a year to recover the equipment or even to ascertain what had happened to it. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn53" [53]The appellants say that Rosecell and GT Haulage lost control of their assets in circumstances where their controllers knew that:

a) the Abbouds had been instructed on the workings of the business;

b) the assets were in the hands of an extortionist and thief who was in a position to represent to the world that the equipment was available for purchase;

c) Abboud had the means to generate fraudulent invoices and signatures apparently consistent with genuine sale;

d) as a result of the combination of those facts, there existed a real likelihood that there would be an illegitimate disposal of the equipment to an unsuspecting purchaser.

65. These factors, coupled with the statutory obligation upon the world at large to report serious crime to the police, HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn54" [54]are said by the appellants to have compelled a conclusion that Rosecell and GT Haulage had become subject to a duty to take positive steps calculated to put potential buyers of the equipment from Abboud on notice of their rights as owners. On this footing, the test for the imposition of such a duty enunciated in the passage in the speech of Lord Wilberforce inMoorgate Mercantile Co Ltd v Twitchingsset out at [35] above is, they say, satisfied. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn55" [55]66. The respondents point to an immediate difficulty faced by the appellants in establishing the duty for which they contend, namely, the primary judges findings that, by leaving Abboud in possession of the equipment and giving Abboud and Mrs Abboud sole control of the business premises, records and assets, the respondents did not, by conduct, represent that Abboud had general authority to sell the equipment on behalf of the respondent companies. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn56" [56]At most, his Honour said, this might convey that Abboud had authority to act for each company in the ordinary course of its business and therefore to sell its assets in the ordinary course of business only.

67. It may be that Mr Doughty and Mrs Doughty caused Rosecell and GT Haulage to be negligent as regards [themselves] HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn57" [57]because the companies did not act through the individuals to counter Abbouds forcible taking of control which foreshadowed further wrongdoing by him. But the question for the primary judge was not as to negligence in that sense. It was, in the first instance, whether the taking of control by Abboud caused the companies to become subject to a duty towards others to correct or counter some misapprehension of fact. Given the primary judges findings as to the effect of the inaction of Mr Doughty and Mrs Doughty and the representation thereby implied, any conceivable duty towards others to which the companies became subject was a duty related to the possibility of unauthorised transactions in the ordinary course of business. While carelessness, of itself, is insufficient to give rise to a relevant duty, any duty that does arise can only be a duty to counter a factual misapprehension operating upon the party seeking to set up an estoppel. Any such misapprehension can only be commensurate with assumptions reasonably grounded in the state of affairs actually or impliedly represented by the conduct of the person sought to be estopped here, on the primary judges findings, a state of affairs in which Abboud had authority to act for the companies in the ordinary course of business and to sell their assets in the ordinary course of business.

68. This is not a case of a stolen motor vehicle, misappropriated securities or other property taken by a wrongdoer. Abboud, by his actions, put himself into a position from which he could control the whole of the companies assets and affairs. His actions did not target the earthmoving equipment as such. Given that he and his own companies carried on a complementary business, the apprehension that could reasonably be assumed is that he would exercise the misappropriated corporate control by carrying on business rather than destroying the capacity to conduct it.

69. There is the added point, emphasised by the respondents, that, according to Lord Wilberforces formulation inMoorgate Mercantile Co Ltd v Twitchings, the situation in which the relevant transaction occurred must be known to both parties. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn58" [58]InThomas Australia Wholesale Vehicle Trading Co Pty Ltd v Marac Finance Australia Ltd, McHugh JA described the words as known to both parties as of critical importance, noting that it is the situation in which the transaction occurred which must be known to both parties, not their actual interests or existence". HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn59" [59]Glass JA also referred to requirement of knowledge on the part of both parties, observing that in the absence of any relevant transaction known both to [the] owner and the defendant as acquirer there are no circumstances which would raise a duty of care. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn60" [60]70. The critical importance of the words as known to both parties is, the respondents correctly submit, a reflection of the fact that the issue is one of estoppel which, of its nature, precludes denial of a particular state of facts. As Dixon J said inGrundt v Great Boulder Proprietary Gold Mines Ltd, HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn61" [61]estoppelin paisis founded on the principle that the law should not permit an unjust departure by a party froman assumption of factwhich he has caused another party to adopt or acceptfor the purposes of their legal relations. HYPERLINK "http://classic.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/2016/112.html?stem=0&synonyms=0&query=nsw%20consol_act%20soga1923128%20s26" l "fn62" [62]Precise identification of the factual circumstances known to the party seeking to set up an estoppel is essential to an evaluation of what it is that a reasonable man in that partys position would expect. Likewise, precise identification of the factual circumstances known to the owner sought to be estopped is essential to an evaluation of what an honest and responsible owner would do to defend his title. Only if both parties are working, as to essential matters, on the same set of facts is it possible to judge whether there exists the reasonable expectation of alerting or disabusing action by the owner central to the existence of the duty on which estoppel is based. A necessary element, therefore, is shared knowledge that the owners silence has caused the acquirer to believe that a particular state of affairs exists regarding the relevant property and to rely on that belief....

In the present case, a centrally important fact of which the owner companies were unaware was that Abboud had engaged in dishonestly misleading conduct towards the buyers of the equipment indeed, that he was even treating with buyers or intended doing so. The companies knowledge that Abboud had the practical ability to act in those ways (as well as any expectation they may have had that he would do so), even when coupled with knowledge of the gross dishonesty that had attended his taking of control of the companies assets and affairs, did not involve any implied representation to anyone that he was entitled to sell the companies earthmoving equipment in the way he did.

In another way too, there was a lack of correspondence between the state of facts known to the acquirers and that known to the owner companies. The owner companies knew, but the acquirers did not, that some two months before the sales, Abboud had subjected Mr Doughty and Mrs Doughty to extreme duress and had threatened further dire consequences if he were not left in sole control of the owner companies. That threat was of its nature a continuing threat. Had a reasonable person in the position of the buyers been aware of that circumstance, he or she may well not have expected action by the owner companies to assert title when such action was likely to produce those dire consequences for their controllers. Against this, it might be said that it is not open to a company seeking to defend its own interests to be concerned about physical threats to its controllers. While that may be so in the abstract, we are here concerned with postulated conduct of an owner company that was the alter ego of one or both of the relevant individuals, and the hypothesis as to the way it would act has to be formed according to practical considerations in real-world circumstances.

In my opinion, the requirement of equivalence of factual knowledge that is central to Lord Wilberforces formulation is not met on the facts of this case as found by the primary judge. It follows that those facts did not give rise to any duty of the respondents towards the appellants of the kind relevant to the establishment of the estoppel the appellants assert. Ground 1 in the notice of appeal therefore cannot be upheld and Ground 2 (the issue of breach of duty) does not arise.

End of extract

There are other exceptions to thenemo datrule in the SGA, including that if a seller has a voidable title (for example, because of misrepresentation, undue influence, unconscionability in the transaction through which they acquired the goods), but that title has not been avoided and the seller on-sells the goods, the buyer will acquire a good title, (most notably against the original owner), as long as the buyer has bought in good faith, with no notice of the seller's defect in title:s27.Further, if a person has sold goods but remains in possession of them and then proceeds to sell the goods to a third party, that third party will obtain title, as long as they acted in good faith and had no notice of the previous sale. Finally, if a buyer has possession of goods, even though property has not yet passed to them, and they sell those goods, the second buyer will obtain good title, as long as they acted in good faith and have no notice of the rights of the original seller:s28.You might like that think about how much more complex title to goods seems to be that title to land, and whether that complexity might be a good or bad thing for original owners, new owners and the community at large.

Strata and Community Title

1. Introduction

Strata and community title are the fastest growing forms of property title in Australia today. As a result, it is essential that you obtain some basic understanding of the legislation that creates and regulates strata schemes. We considered strata and community title briefly at the beginning of the course when we learned about plans of subdivision. Strata plans subdivide land - which we know is a column of space - into individually owned lots (apartments) and collectively owned common property. These plans are created and registered in accordance with theStrata Schemes Development Act 2015(NSW) (SSDA). The on-going operation of strata schemes - the land, building, community of people, their financial and other obligations etc. - is regulated by theStrata Schemes Management Act 2015(NSW) (SSMA).

Community title developments are created and regulated by theCommunity Land Development Act 2021(NSW) (CLDA) and theCommunity Land Management Act 2021(NSW) (CLDA), respectively, and could be described as flattened out strata title. Individual lots might be vacant land, a house or townhouse, and common property could be parks, roads, pavements and recreational facilities. However, community schemes are not always low rise. They can be tiered, with subsidiary schemes within a larger scheme. Those subsidiary schemes can be low rise neigbourhood schemes or high rise strata schemes. For example,Jackson's Landingon the Pyrmont peninsular is made up of over 20 high rise strata schemes (each created and regulated by theSSDAandSSMA), within an overarching community scheme (created and regulated by theCLDAand theCLMA).

To a large degree strata and community title legislation was enacted to overcome the limitations in traditional easement and covenant law that we learned about in the previous topics. As we saw, easement law is well adapted to give people the right to walk or drive over someone else's land or to run pipes or wires across it. It is less able to give people novel rights to use facilities, particularly if they include modern, mechanical or other fixtures that need to be maintained. Freehold covenant law is good at preventing people from doing particular things on their land, such as building above two storeys or subdividing, but by definition, it cannot compel people to do things on their land, particularly anything that will require the payment of money. As we know, freehold covenants can only be negative, not positive. This is the single greatest impediment to the construction of multistorey buildings subdivided into individual freehold fees simple. If those fees simple are sold, it would be impossible to use orthodox property law to impose positive obligations on them to pay money for the inevitable upkeep of the building.

Strata and community title legislation overcomes this. It not only allows but mandates the imposition of annual levies on all lot owners for the maintenance and repair of the building (SSMA,s83). Further, legislation requires the registration of a set of by-laws that can regulate the use of both individually owned lots and common property (SSDA,s10(1)(b)). There is no requirement that by-laws only contain restrictions, not positive obligations (SSMA,s136). The ability to compel people to pay for the maintenance of facilities, and to control people's use of them, now allows developers to construct residential, commercial, industrial and tourist properties with extensive, sophisticated facilities (for example,Sanctuary Cove, Australia's first resort-style master planned estate). Developers can also effectively impose positive obligations to pay money for services by causing the owners corporation to enter into service contracts at the inception of the scheme, when the developer still owns all of the lots. As the owner of all of the lots, the developer controls the body corporate. However, the obligation to pay for on-going contracts of the body corporate formed by the developer will be borne by the ultimate purchasers, when they become members of the body corporate, and obliged to pay levies. Developer-made contracts with strata and building managers have caused considerable dispute and are now regulated (albeit not very effectively) by the SSMA (Part 4, divisions 1 and 4). However, other developer-made contracts are not.

The cherry on the cake of strata and community title is that unlike easements and covenants that require enforcement by an individual owner of benefited land, often in a superior court, enforcement of obligations and restrictions in strata and community schemes is done by the separate body corporate, often assisted by a professional strata and/or building manager. If resort has to be made to legal enforcement, this is usually done in a tribunal such as the NSW Civil and Administrative Tribunal (NCAT), at considerably less expense than litigation in a superior court.

The following introduction to the basics of strata title is from Sherry,Strata Title Property Rights: Private governance of multi-owned properties(Routledge, 2017) (footnotes omitted, and you can disregard any references to other states' legislation). Some of this extract was included in the chapter on Deposited Plans in the Torrens Title Book.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wBYG7M2ZzR7dwAAAABJRU5ErkJggg==" * MERGEFORMATINET

*****

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/AIAwXsCbscqIAAAAAElFTkSuQmCC" * MERGEFORMATINET

p10

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/BdhknQGBgYGBgYGBgaG7wxmTToDAwMDAwMDAwPDdwXwf4UYP9Xx3y9tAAAAAElFTkSuQmCC" * MERGEFORMATINET

*****

p 29

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/HXuFIJyzoWjijTdee6Neirnx7ahgqD5nBeHDJDe6PvBCRLgZb1xzObbvi5wEtUJvpTAYGhkpIJUjaGRgYGBgYGBgYGBhKg7mxwsDAwMDAwMDAwFDJYZJ2BgYGBgYGBgYGhkoOk7QzMDAwMDAwMDAwVHKYpJ2BgYGBgYGBgYGhksMk7QwMDAwMDAwMDAyVHCZpZ2BgYGBgYGBgYKjkMEk7AwMDAwMDAwMDQyWHSdoZGBgYGBgYGBgYKjlM0s7AwMDAwMDAwMBQyWGSdgYGBgYGBgYGBoZKDpO0MzAwMDAwMDAwMFRymKSdgYGBgYGBgYGBoZLDJO0MDAwMDAwMDAwMlRwmaWdgYGBgYGBgYGCo5DBJOwMDAwMDAwMDA0Mlh0naGRgYGBgYGBgYGCo5TNLOwMDAwMDAwMDAUMlhknYGBgYGBgYGBgaGSg6TtDMwMDAwMDAwMDBUcpiknYGBgYGBgYGBgaGSwyTtDAwMDAwMDAwMDJUcJmlnYGBgYGBgYGBgqOQwSTsDAwMDAwMDAwNDJYdJ2hkYGBgYGBgYGBgqOUzSzsDAwMDAwMDAwFDJYZJ2BgYGBgYGBgYGhkoOk7QzMDAwMDAwMDAwVHKYpJ2BgYGBgYGBgYGhUgP8D0EhcyZ74QKDAAAAAElFTkSuQmCC" * MERGEFORMATINET

p 30

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/WLk6NAAAAAElFTkSuQmCC" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wHCt6v43oEP7QAAAABJRU5ErkJggg==" * MERGEFORMATINET

p31

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/+44PbbbKga2uC7MZMxoEXV35zMwMDA8DXzDazRZ2BgYGBgYGBgYGAoCzPJwcDAwMDAwMDAwPANwiT6DAwMDAwMDAwMDN8cwP8AJgkXowrmdDkAAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/OA4egbG2Xf72vWiMdwcLvhkMBoPBYDAYjPcEy+MZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wQLvhkMBoPBYDAYjPcEC74ZDAaDwWAwGIz3BAu+GQwGg8FgMBiM9wLwf6572ywGbTr0AAAAAElFTkSuQmCC" * MERGEFORMATINET

p32

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/MKbpBUPnkeAAAAAElFTkSuQmCC" * MERGEFORMATINET

****

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/A+QmDd8btq3TAAAAAElFTkSuQmCC" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/l7bGK5CIAAAAAElFTkSuQmCC" * MERGEFORMATINET

The strata and community title legislation is long and detailed. It covers the creation of complex land titles and separate bodies corporate; it mandates obligations to maintain and repair common property, to pay levies, to maintain administrative and capital works funds, to insurance the property, to keep financial records, to hold properly convened and conducted meetings and to enforce by-laws. Many of the provisions are consumer protection oriented because individual owners and tenants are financially and personally vulnerable to poor decisions by the collective. Just because a majority of people agree to something, does not make it financially or practically sound, or morally right. Rather than attempt to cover a broad range of issues in strata and community title, we are going to focus on a single issue: the by-law making power.

2. The by-law making power

All states' strata and community title legislation requires schemes to have by-laws. Somewhat confusingly, they are called 'management statements' in NSW community schemes, but these are just by-laws. By-laws were considered necessary to create rules for the use of common property by multiple residents, and to ensure that people do not use their individual properties, particularly apartments, in ways that disturbed other people. As a result, by-laws often contain mundane housekeeping matters, like garbage disposal and gym hours, as well as obvious issues like noise. The model by-laws in theStrata Schemes Management Regulation 2016, Schedule 3, are a good example of these kinds of by-laws. However, by-laws are not necessarily limited to housekeeping matters and there is no requirement to use the model by-laws on the registration of a strata plan. Developers' lawyers often write bespoke by-laws for schemes. Further, whether model or bespoke, all by-laws are able to be altered by the owners corporation. New by-laws simply have to relate to 'the management, administration, control, use or enjoyment of the lots or the common property', (SSMA,s136), an extremely broad definition. A by-law banning people eating meat in their own apartment relates to 'the use or enjoyment' of a lot and is prima facie valid. Some things cannot be regulated by by-laws, as you will see from SSMA,s139, which is set out and discussed in the case below.

By-laws can only be changed through special majority vote (SSMA, s141). This is often referred to as 75%, but it is in fact a vote against which not more than 25% of votes are cast (SSMA, s5), at a properly convened meeting (the quorum for which is only 25% of people eligible to vote:SSMA, Sch 1, cl 17). As a result, in a 16 lot strata scheme, quorum is four people, and a special resolution can be passed if only three people vote in favour of it or abstain, and only one person votes against it. In other words, it is relatively easy to pass special resolutions if people are disengaged in governance (as they frequently are), but if people are engaged in a specific issue and object, special resolutions can be hard to obtain. There are specific provisions relating to special resolutions for 'sustainability infrastructure' (e.g., solar panels, EV charging stations). These resolutions will pass if fewer than 50% of people vote against them, reflecting the fact that these decisions do not simply affect the members of a strata scheme; climate change affects us all.

The best way to understand by-laws is to read some. Look at the model strata by-laws, above, and then skim the following bespoke by-laws to get a sense of what they are regulating. You don't need to read every word; skim through the document efficiently, picking out the provisions that catch your eye. The ability to skim long documents is a key skill for any lawyer.

Jindibah Neighbourhood Management Statement- Jindibah is an intentional eco-community in northern New South Wales

Liberty Grove Management Statement- the development atLiberty Groveis on Homebush Bay. It was part of the Sydney Olympic site and was redeveloped for housing after the Games. It is a mix of high rise and low rise housing.

Think about what it might mean to buy an apartment, house or land in one of these developments. What would you need to advise clients about? How do these developments differ from non-strata or community title housing? Do by-laws and management statements facilitate development and infrastructure, including green infrastructure, that is hard to create using orthodox property law?

Now read the leading New South Wales case on the power to create by-laws and their ambit, the decision of the Court of Appeal inCooper v Owners of Strata Plan No 58068(2020) 103 NSWLR 160.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/R.3a93f3eb4afe3ae4277c85257e575915?rik=e1O9EfuiZ0ylkw&riu=http%3a%2f%2fwww.publicdomainpictures.net%2fpictures%2f40000%2fvelka%2fdog-schnauzer-portrait.jpg&ehk=TFK2CUELZdYtoYVujycKAr1QeoKVggwPi%2fBj2ASFai0%3d&risl=&pid=ImgRaw&r=0" * MERGEFORMATINET

Cooper v Owners of Strata Plan No 58068(2020) 103 NSWLR 160

Facts: The Coopers owned a miniature schnauzer, Angus, who they kept in their apartment in the Horizon building in Darlinghurst, in contravention of the following by-law:

Bylaw 14 Animals

14.1 Subject tosection 139(5)of the Act, an owner or occupier of a Lot must not keep or permit any animal to be on a Lot or on the Common Property.

14.2 Should an owner or occupier of a Lot keep an assistance animal on the Lot or on the Common property, they must, upon request of the Strata Committee provide evidence that the animal is an assistance animal as referred to insection 9 of the Disability Discrimination Act 1992 (Cth)within a reasonable period of time following that request.

The Coopers had tried to have the by-law amended by special majority vote of the owners corporation, but to no avail. They then successfully argued before NCAT that the by-law was invalid because it contravened a prohibition on by-laws that were 'harsh, unconscionable or oppressive'. This provision, ins 139(1), had been introduced when theStrata Schemes Management Actwas reenacted in 2015. The owners corporation successfully appealed to the Appeal Panel and the Coopers then appealed to the Court of Appeal.

BASTEN JA.

10The possible subject matter of bylaws is identified ins 136of the Strata Management Act in the following terms:

136Matters bylaws can provide for

(1)Bylaws may be made in relation to the management, administration, control, use or enjoyment of the lots or the common property and lots of a strata scheme.

(2)A bylaw has no force or effect to the extent that it is inconsistent with this or any other Act or law.

11The language ofs 136(1)is awkward. The subject matter of the bylaws appears to be three functions (management, administration and control) operating in relation to specified subject matter (lots, or common property and lots, within a strata scheme). The terms management, administration and control refer to functions exercised by the owners corporation. They reflect the language ofs 9of the Strata Management Act...

12It follows that bylaws may (i) confer specific functions on the owners corporation with respect to the use and enjoyment of the lots and the common property, (ii) make provision directly in relation to the use and enjoyment of the lots and the common property, but for the purpose of managing, administering or controlling the strata scheme. That reading is consistent with the terms of the model bylaws, which may be found in Sch 3 to the Strata Schemes Management Regulation 2016 (NSW)....

16 Relevantly for present purposes there are restrictions placed on bylaws:

139Restrictions on bylaws

(1)Bylaw cannot be unjustA bylaw must not be harsh, unconscionable or oppressive.

Note

Any such bylaw may be invalidated by the Tribunal (seesection 150).

(2)Bylaw cannot prevent dealing relating to lotNo bylaw is capable of operating to prohibit or restrict the devolution of a lot or a transfer, lease, mortgage or other dealing relating to a lot.

(3)Bylaw resulting from order cannot be changedIf an order made by the Tribunal under this Act has effect as if its terms were a bylaw, that bylaw is not capable of being amended or repealed except by a bylaw made in accordance with a unanimous resolution of the owners corporation and, in the case of a leasehold strata scheme, with the consent of the lessor of the scheme.

(4)Bylaw cannot restrict childrenA bylaw for a residential strata scheme has no force or effect to the extent to which it purports to prohibit or restrict persons under 18 years of age occupying a lot. This subsection does not apply to a bylaw for a strata scheme for a retirement village or housing exclusively for aged persons.

(5)Bylaw cannot prevent keeping of assistance animalA bylaw has no force or effect to the extent to which it purports to prohibit or restrict the keeping on a lot of an assistance animal (as referred to insection 9 of theDisability Discrimination Act 1992of the Commonwealth) used by an owner or occupier of the lot as an assistance animal or the use of an assistance animal for that purpose by a person on a lot or common property.

(6)A bylaw may require a person who keeps an assistance animal on a lot to produce evidence to the owners corporation that the animal is an assistance animal as referred to insection 9 of theDisability Discrimination Act 1992of the Commonwealth....

Contravention ofs 139(1)20Bylaw 14, set out at [3] above, and drafted with little regard for syntax, is in the form of a qualified prohibition on keeping an animal, or permitting any animal to be, on a lot or common property. The exception, required bys 139(5)of the Strata Management Act, permits the presence of an animal used in animal assisted therapies and aids for persons with disabilities, a category which may cover a significant and expanding range of conditions.21The applicants primary case was that the blanket ban on animals contraveneds 139(1)and provided grounds for NCAT to declare the bylaw invalid unders 150. This submission required an understanding of how the phrase harsh, unconscionable or oppressive was intended to operate with respect to bylaws....

24First, it should be accepted that a correct understanding of the phrase harsh, unconscionable or oppressive is fraught with difficulty. Although attention should be paid to each word, it is far from clear that significant guidance is obtained from that exercise.

25Secondly, the statutory context casts doubt upon whether the individual words are used in their ordinary meaning. For example, as Gageler J explained inAustralian Securities and Investments Commission v Kobelt[81] Unconscionable is an obscure English word which centuries of use by courts administering equity have transformed into a legal term of art. In Australia, the central concern of a court administering equity in identifying conduct as unconscionable has long been understood to be to relieve against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interests.(Footnote supplied)

26Thirdly, the phrase is better understood as a triune, three words conveying a single criterion.It is towards the other end of a scale from the hendiadys just**167and equitable.It invokes the application of values, the content of which derives no elucidation from reference to synonyms, nor from a supposed differentiation from other similar words such as unjust.

27Fourthly, as Edelman J noted inKobelt, [l]ike other open-textured criteria, such as unfair or unjust, there is no clear baseline moral standard for what constitutes unconscionable conduct being the term used in the relevant provision of theAustralian Securities and Investments Commission Act 2001 (Cth)there under consideration.28Similar language is found in other New South Wales statutes.TheContracts Review Act 1980 (NSW)empowers a court to declare void, or not enforce, an unjust contract,and definesunjustto include unconscionable, harsh or oppressive:s 4(1). InPerpetual Trustee Co Ltd v KhoshabaSpigelman CJ stated:

[64] When the Parliament adopts so general, and inherently variable, a standard as that of justness, Parliament intends for courts to apply contemporary community standards about what is just. Such standards may vary over time, particularly over a period of two decades....

32 The respondent submitted that, to the extent that community standards were relevant, the Act demonstrated that the relevant community was that created by the strata scheme, which was entitled to regulate its own affairs through bylaws and decisions of the owners corporation. In that sense, the unamended bylaw constituted a relevant expression of the expectations of that community. The applicants responded that the very purpose of a requirement such as that encapsulated in s 139(1) was to ensure that minority rights as to the use of residential property should not be overridden by a contrary majority view if such conduct was oppressive. Before the Appeal Panel, the applicants submitted:In other words, the underlying purpose of by-laws is to facilitate and protect the interests of lot owners in the use and enjoyment of their own lots and common property. Bylaws ought not be used simply to impose rules and enforce philosophies about how other lot owners should use and enjoy their lots....

34The applicants submissions before the Appeal Panel sought to adopt a test of adverse affection as a criterion for imposing limits on the use and enjoyment of individual lots and common property.

35A similar criterion was adopted by the applicants in this court. The criterion was, the submission noted, consistent with obligations imposed on owners and occupiers of lots under Pt 8 of the Strata Management Act. Such provisions were to be found in the following sections:

153Owners, occupiers and other persons not to create nuisance

(1)An owner, mortgagee or covenant chargee in possession, tenant or occupier of a lot in a strata scheme must not

(a)use or enjoy the lot, or permit the lot to be used or enjoyed,in a manner or for a purpose that causes a nuisance or hazard to the occupier of any other lot(whether that person is an owner or not), or

(b)use or enjoy the common propertyin a manner or for a purpose that interferes unreasonably with the use or enjoyment of the common property by the occupier of any other lot(whether that person is an owner or not) or by any other person entitled to the use and enjoyment of the common property, or**169

(c)use or enjoy the common propertyin a manner or for a purpose that interferes unreasonably with the use or enjoyment of any other lotby the occupier of the lot (whether that person is an owner or not) or by any other person entitled to the use and enjoyment of the lot.

Note

Depending on the circumstances in which it occurs, the penetration of smoke from smoking into a lot or common property maycause a nuisance or hazard and may interfere unreasonably with the use or enjoyment of the common property or another lot.

[His Honour then referred to SSMA, 158, which permits the tribunal to order the removal of an animal causing a nuisance, hazzard or unreasonably interfering with the use or enjoyment of another lot or common property. He also referred to the model by-laws that prohibit noise, smoke penetration and the external appearance of lots.]

37 Each of these provisions is expressly designed to deal with activities which may adversely affect the amenity of other lots, including the use of common property and the external appearance of the building...

43 The fourth reason [of the Appeal Panel] was expressed as follows:

[130] As was pointed out in theRoden appeal reasons, bylaws for a strata scheme are registered and the rights and limitations of ownership in the particular strata scheme are, in part, recorded in the bylaws. Lot owners acquire their interest in a strata scheme in the knowledge of existing bylaws and the limitations thereby imposed. Strata schemes provide the means by which a community with**171particular rules might be created, whether residential, commercial or mixed-use. As with other aspects of community living, this inevitably involves a choice of how people wish to live, including with or without animals.

44This passage approached the issue from a different direction: it appears to be saying that a bylaw of which a lot owner has notice when purchasing his or her lot is one about which no complaint can be made on the basis that it is harsh, unconscionable or oppressive. Perhaps echoing a similar concern, inCasuarina Rec Club Pty Ltd v The Owners Strata Plan77971Young JA proposed that if an original bylaw is to be declared invalid, a very strong case must be made out as people make their purchases on the basis of the original bylaws as filed: at [90].

45However, this reasoning disregards the nature of s 139, which focuses on the character of the particular bylaw, rather than the state of knowledge, whether actual or constructive, of any particular lot owner. Acceptance of this reasoning would seem to render all bylaws immune from challenge, except those added by special resolution after a particular lot owner purchased his or her interest in the strata scheme, and then only at the behest of such a lot owner and not by a challenge raised by a subsequent purchaser. As the applicants submitted in reply, even a purchaser with constructive knowledge of a particular bylaw might not be prevented from challenging the bylaw, because he or she would also have actual or constructive knowledge of the ability to challenge it unders 150of the Strata Management Act....

48There are further problems with relying on democratic governance principles. First, bylaws are not formulated by an owners corporation, but are registered prior to the existence of an owners corporation, and are not variable by a simple majority vote. Secondly, a liberal democracy is not a majoritarian dictatorship; it operates under legal constraints designed to protect minorities from oppression. The Strata Management Act contains such restraints, both ins 136ands 139, enforceable by NCAT unders 150.**172

49It follows that none of the reasoning of the Appeal Panel came to terms with the submission that a bylaw which limited the property rights of lot owners was only lawful (valid) if it protected from adverse affection the use and enjoyment by other occupants of their own lots, or the common property....

51It is inevitable that the regulation of activities and behaviour of persons living in close proximity under a strata scheme will require a degree of regulation which must involve evaluative judgment. [His Honour referred to an existing by-law in the scheme that required people to be 'adequately and appropriately' clothed on common property.]...

Purposive limits tos 136...56If, in accordance with the applicants primary submission, a criterion for concluding that a bylaw may be harsh, unconscionable or oppressive is that it interferes with the property rights of a lot owner by controlling or prohibiting a particular use in circumstances where that use does not materially and adversely affect the enjoyment of any other lot, such a criterion may be implied from the language, context and purpose ofs 136(1). Attention seems to have focused on the constraint under s 139(1) because of an assumption that the language ofs 136(1), conferring the power to make bylaws, is uncon strained. However, few, if any, statutory conferrals of power can be so characterised....

61 ...there is no sound basis to construe the bylaw making power as permitting a bylaw which isnotfor the benefit of the owners of lots in the strata scheme. To adopt the language of senior counsel for the applicants, a bylaw which restricts the lawful use of each lot, but on a basis which lacks a rational**175connection with the enjoyment of other lots and the common property, is beyond the power to make bylaws conferred bys 136....

66 The proper principles to be applied in determining the validity of bylaws made under the Strata Management Act is a matter of some importance. Associate Professor Sherry has noted that by 2011, over one-quarter of Sydneys population, just over 1 million people, lived in strata title apart ments. She continued:The New South Wales government predicts that within 20 years, half of the states population will live or work in a strata or community scheme.

67There can be little doubt that the issue raised is one of general public importance. As the foregoing analysis indicates, the error asserted was more than reasonably arguable, indeed it was correct. It follows that there is no reason to refuse an application for leave to appeal. Indeed, it was not opposed. [End of extract].

Basten JA granted the appeal, with MacFarlan JA and Fagan JA agreeing in separate judgments. However, Fagan JA did not agree that 'harsh,unconscionableor oppressive' was a triune. His Honour held at [90] that 'the words "harsh, unconscionable or oppressive"...are grouped disjunctively...and that sub-section is breached if any one of them is applicable to the bylaw in question. None of the three words is to bedisregarded".

*****

The regulation of pets in apartments was radically simplified after the decision inCooperby the insertion ofs137Binto the SSMA. It states that:

137B KEEPING OF ANIMALS

(1) Each of the following has no force or effect to the extent that it would unreasonably prohibit the keeping of an animal on a lot--

(a) a by-law,

(b) a decision by anowners corporationunder a by-law.

(2) It is taken to be reasonable to keep an animal on a lot unless the keeping of the animal unreasonably interferes with another occupant's use and enjoyment of the occupant's lot or thecommon property.

(3) The regulations may specify circumstances in which the keeping of an animal unreasonably interferes with another occupant's use and enjoyment of the occupant's lot or thecommon property.

(4) A by-law that prohibits the keeping of an animal on a lot is not harsh, unconscionable or oppressive if it does not unreasonably prohibit the keeping of an animal on a lot.

Note :Section 150(1)provides that theTribunalmay declare a by-law to be invalid if it is harsh, unconscionable or oppressive.

(5) Anowners corporationis taken to have given permission for the keeping of an animal on a lot if--

(a) it made a decision about the keeping of the animal in contravention of subsection (1)(b), or

(b) a decision of theowners corporationis required before the animal may be kept on the lot and theowners corporationfailed to make a decision within a reasonable time.

This section was then supplemented by the insertion ofreg 36Ainto theStrata Schemes Management Regulation 2016, which states:

36A KEEPING OF ANIMALS--CIRCUMSTANCES OF UNREASONABLE INTERFERENCE

For the purposes of the Act, section 137B(3), the circumstances in which the keeping of an animal unreasonably interferes with another occupant's use and enjoyment of the occupant's lot or the common property are--

(a) the animal makes a noise that persistently occurs to the degree that the noise unreasonably interferes with the peace, comfort or convenience of another occupant, or

(b) the animal repeatedly runs at or chases another occupant, a visitor of another occupant or an animal kept by another occupant, or

(c) the animal attacks or otherwise menaces another occupant, a visitor of another occupant or an animal kept by another occupant, or

(d) the animal repeatedly causes damage to the common property or another lot, or

(e) the animal endangers the health of another occupant through infection or infestation, or

(f) the animal causes a persistent offensive odour that penetrates another lot or the common property, or

(g) for a cat kept on a lot--the owner of the animal fails to comply with an order that is in force under theCompanion Animals Act 1998,section 31, or

(h) for a dog kept on a lot--

(i) the owner of the animal fails to comply with an order that is in force under theCompanion Animals Act 1998, section 32A, or

(ii) the animal is declared to be a menacing dog or a dangerous dog under theCompanion Animals Act 1998, section 34, or

(iii) the animal is a restricted dog within the meaning of theCompanion Animals Act 1998,section 55(1).Read these two legislative provisions carefully and work out what kind of pet by-laws you think owners corporations are now allowed to make. Remember that when you act as a lawyer, it is your job to provide objective advice on the current state of the law. Your personal opinion of animals or what you think is sensible or desirable should not inform the legal conclusion you come to. What does the law now say?

TheCooperdecision remains the leading NSW decision on by-laws with implications well-beyond pet regulation. The broader significance of the decision is discussed in the final chapter.

3. The public effect of private law: using property law to regulate cities and homes

This chapter is the final reading for the land law section of the course and brings us back to some of the questions we discussed in the first tutorial, 'Why Property Matters'. You will remember that we discussed questions like,'Should everyone be able to own property or only some people?','Do you think people who own land should be able to do whatever they want on it?', and'Who should be able to control someone else's use of land?'. We also read Alexander et al"A Statement of Progressive Property"(2009) 94(4)Cornell Law Review743-4. You might like to read it again to see if it means more to you now that you know a lot of property law content.

A core dilemma in all private law (contracts, property, equity and trusts, and company law) is to determine the extent to which the law should give people the power to order their own lives, properties, businesses and wealth, and at what point the law should place limits that power. Legal systems in democratic, capitalist states go to great lengths to assist people to order their own affairs - companies, trusts, contracts and even property are not naturally occurring phenomena; they only exist because the legal system creates them. The legal system does this so that we can live productive, autonomous lives, consistent with our own values and desires. However, as we have been learning throughout the course, private law, particularly property law, is not a free for all or a matter of 'what I want, I can have or do'. Private law draws the line at rights that are exploitative or damaging to individuals (e.g., people cannot be property) or rights, when exerciseden masse, aresocially, economically or politicallydamaging to the community (e.g., enduring easements or covenants that benefit businesses that will inevitably cease to exist). Courts and legislatures are not always explicit that this the balancing act they are engaged in when deciding what are and are not valid rights in private law, but it is important for you to think about this tension as you move through the private law curriculum in the course of your degree.

The following extract takes the technical, legal decision inCooperv The Owners Strata Plan No 5806andteases out the bigger issues that were at stake in the litigation.It was not simply a decision about a small dog. Don't worry if you find some of the concepts a bit challenging. It is all part of the learning process and starting to think more critically and wholistically about law. You will be expected to do more of this next semester in Equity and Trusts, in later year electives and in yourresearch thesis, should you choose to do one.

Sherry, 'Judicially Identified Limits on the Body Corporate By-law Making Power Cooperv The Owners Strata Plan No 5806' (2022) 96Australian Law Journal125, 133-8.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/xP8FC6Wz0Jds1XwAAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/g+Ydl2QoRRRkAAAAABJRU5ErkJggg==" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/2eUI5cKbxf6cPy27uRCUiVa9uxPG4e3fXcuB334ebbv8COpciu692uLg7I7p1BKdFHXOX3cnwdhMaSKctjVaUHHTs2pYa7cfymEnMDDi9cIy48mqsamThvcqinbZgoKCgoKbzeKQ6egoKCgoKCgoKCgoPCWoizhKigoKCgoKCgoKCgovKUoDp2CgoKCgoKCgoKCgsJbiuLQKSgoKCgoKCgoKCgovKUoDp2CgoKCgoKCgoKCgsJbyv8DgAK0X9GadrUAAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/PglCubWPxTFl4jPqW7BHfVggR4QgghhBBCPDYNzv1DGd7yGPFJWTzE5o5PkYGz8es43T6YiW87PdVpk+LJkSmaQgghhBBCCFFNSAZPCCGEEEIIIaoJCfCEEEIIIYQQopqQAE8IIYQQQgghqgkJ8IQQQgghhBCimpAATwghhBBCCCGqCQnwhBBCCCGEEKKakABPCCGEEEIIIaoJCfCEEEIIIYQQopqQAE8IIYQQQgghqgkJ8IQQQgghhBCimvgfcrXWLrTWGp4AAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/KvNZye6zCs8AAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/kRwAAAABJRU5ErkJggg==" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/3lHOVtZhlocQM+5m7rx7GqOCvu+9gIIgCD9M4sJOEARBEARBEARhgBO30QRBEARBEARBEAY4cWEnCIIgCIIgCIIwwIkLO0EQBEEQBEEQhAFOXNgJgiAIgiAIgiAMcOLCThAEQRAEQRAEYYATF3aCIAiCIAiCIAgD3P8Ac2e4wge6+QcAAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wAfesr5yOeHDgAAAABJRU5ErkJggg==" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/HGnncm+QsVASh6JQt3YVlTOGrxW4wZmj39F+qZfQWAhTUVDq1lJXWbgxXowYQgghhCgMeeVS5C6hE4rZWKlUZPlg9eJK6CHitpVUVzzIrRRiLjMaQjemK8OVLCvFrlTevSbTjBLSjelPSJQso9SuUFnIVfjFiCGEEEKIgpAJnRBCCCGEEEIsUbKGTgghhBBCCCGWKJnQCSGEEEIIIcQS9R8T28gMjA6DeQAAAABJRU5ErkJggg==" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/AzwnYIIXJQaTAAAAAElFTkSuQmCC" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/933oQQQgghhBBCXBb+ByFBnwDnyTidAAAAAElFTkSuQmCC" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/ISOhWf663GMunL7r8o9MgxZMlUy6FEEIIIYQQooKSETohhBBCCCGEqKAkoBNCCCGEEEKICkoCOiGEEEIIIYSooCSgE0IIIYQQQogKSgI6IYQQQgghhKigJKATQgghhBBCiApKAjohhBBCCCGEqKAkoBNCCCGEEEKICkoCOiGEEEIIIYSooP4PwHJ9euZtnP4AAAAASUVORK5CYII=" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wNmKOm50xEUygAAAABJRU5ErkJggg==" * MERGEFORMATINET

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/twAAAAASUVORK5CYII=" * MERGEFORMATINET

The Torrens System

1. Introduction

The Torrens system is the system of land registration that is used in all Australian states. As we learned in the Introduction to Australian Land Law, the Torrens system was created in 1863 to address the uncertainty of titles and conveyancing confusion that was in part caused by the chaotic nature of land management and grants in the late 18th and early 19th century. We saw that settlers, soldiers and emancipists took land as they pleased and the Imperial and colonial governments played catch up, making land grants in response to demand andde factocontrol. Despite the uncertainty of titles, people still readily traded land, treating it as a fungible commodity rather than a long-term capital or social asset, creating further confusion about ownership.

The Torrens system was designed to address these problems, along with the inherent problems of any land system that relies on physical documents (deeds) that can be lost or destroyed. The Torrens system has a central government register that records who owns every piece of land in the state, and who might have a lesser interest in it, such as a lease, mortgage or easement. However, the register is not simply a record of who owns land, the recording of someone's name on the register actually vests (gives) them title.

Certainty in relation to land titles is essential for anyone buying land.No one wants to pay $800,000 for a house only to discover it has a 2 metre wide easement running across the backyard that will prevent them building the pool they wanted, or that there is a tenant with an enforceable5-yearlease over the land, preventing them from moving into their new home for another 5 years.

The current Torrens legislation is theReal Property Act1900(NSW). Along with theConveyancing Act 1919(NSW), this is the singlemost important source of land law in New SouthWales.Sometimes students are confused about whether a provision is in theReal Property Actor theConveyancing Act. As a rule of thumb, theConveyancing Actincludes provisions that relate to land generally, while theReal Property Actdeals specifically with matters that relate to registration of title. For example, we have already seen that the provision requiring contracts for land to be in writing - s54A - is in theConveyancing Act. This is because contractsare not registered. It would make no sense for the provision requiring land contracts to be in writing to be in the statute that creates and regulates the Torrenssystem of registration.

Before we get to the key sections on Torrens registration we are going to look briefly at Old System title. Old System is the system of land ownership and conveyancing that pre-dated Torrens.

2. Old System title

The Torrens system was not introduced in NSW until 1 January 1863 and as you know, there were thousands of land grants made before that date, starting with the first land grant to James Ruse in 1792. This land is known as Old System land. However, almost all Old System land has now been converted to Torrens title, and as a result, it is extremely rare to see Old System title in practice and we do not require you have any detailed understanding of it. However, some understanding is necessary to appreciate the problems with Old System title that the Torrens system was attempting to solve. You will misinterpret Torrens doctrines if you do not think about them with reference to their intended function. Also, most countries do not have Torrens systems. If you ever practise in another jurisdiction e.g., the United States, it will help if you understand that Torrens title principles are not the only basis for a system of land ownership.

Conveying Old System title - deeds

Land is a unique resource, and is extremely economically and socially valuable. As a result, the law has always required a serious, formal process for its ownership to move (convey) from one person to another. For example, in centuries past, when few people were literate, land was sometimes transferred by the transferor and transferee meeting on the land and the transferor placing a clod of earth, a twig or even knife or door ring in the hand of the transferee. In addition to a ritual formality, this process was publicly visible, preventing secret transactions in relation to land thereby reducing dispute over ownership. As we learned in the Introduction to Australian Land Law chapter, this ceremony was known as feoffment with livery of seisin.

As the population became increasingly literate, English and then NSW land law stipulated that a legal interest in land could only be transferred during someones lifetime by the execution of a formal document calleda deed.s23B of theConveyancing Act1919, and its precursors, stated that "Noassuranceoflandshall be valid to pass an interest at law unless made bydeed". 'Assurance' means to covey or dispose of land other than by will. (In the past, there were a whole range of words that referred to different ways of disposing of land or different interests in it, e.g., convey, demise, devise, assign, assure etc. Today, we tend to simply refer to the transfer of land or its transmission by will).A deed was usually written on parchment or vellum (durable paper made out of very thinly stretched animal skin), and it recorded the intention of the owner of land to convey or carve out an interest in land, and give it to another, e.g., convey the fee simple or create a lease, mortgage or an easement. In keeping with the seriousness of its function, a deed had to besigned(by the parties),sealed(with a blob of wax), anddelivered(given to the person acquiring the interest).This is an olddeed of conveyanceofthe legal fee simpleof a property in Newcastle. You can see the signatures and the red blob of wax used to seal the deed.

A deed is not a contract. This is adeed(granting a legal mortgage)and this is acontract. Remember in the previous section we talked about the fact that a contract wasa promise to do something,and in relation to land, it was invariably a promise to convey legal title? In Old System title, it was the execution of a deed that conveyed the legal title, carrying out the vendors contractual promise. If someone wanted to sell their land, they would start with a written contract (s54A), promising to sell the land to the purchaser on a particular date, and then on that date, on payment of the full purchase price, they would execute a deed to convey the legal title to the purchaser. This was (and still is) called'settlement of the sale'or'completion of the contract'. Keep that distinction between a contractual promise to sell land, and the actual conveyance or transfer of title clear in your mind. If someone (a donor) wanted to make a gift of land in their lifetime (as opposed to after their death via a will), naturally they would not execute a contract, they would only need to execute a deed to convey the legal title to the recipient of the gift (the donee).

Sadly, practice as a lawyer in NSW no longer involves anything as romantic as red wax seals on parchment. If a word processor printed document says, Executed as a deed and has the appropriate signatures, it is deemed to be sealed, (s38(3)Conveyancing Act1919). Further, while deeds are still used in legal practice, they are NOT used to convey legal title to land. The Torrens registration systemhas entirely replacedthe system of conveying interests in land by deed. As noted above, you are required to read the following information so that you can understand the problems the Torrens system was designed to fix, not so you can perform Old System conveyances by drawing up deeds, which you will never be required to do.

The chain of title

(Hint: at this point, get out your pen and paper and start making your own diagrams of As, Bs and Cs, so you can follow the examples.)

If someone wanted to buy Old System land, they needed to know that the person they were dealing with was the owner and genuinely had a legal title they could convey. In early colonial Australia, this proof of title might have been a Crown grant (freehold or leasehold), a Governor's promise of a grant or a permit to occupy, but as time passed, land would have changed hands multiple times since the original Crown grant. (In England it could have been centuries since the original Crown grant, if there even was an actual grant). As a result, vendors were more likely to prove their title by producing the document whereby they had acquired title, such as a will (if they had inherited the land) or a deed of conveyance (if they had purchased their land). Ideally, a vendor would also produce the document which demonstrated how the person from whom they had acquired the land (their predecessor in title) had acquired their own title, and so on back down the line. The multiple deeds and/or wills were known as a chain of title. Balancing security and transaction costs, legislation stipulated that vendors only had to produce title deeds dating back 30 years.

Example 1

If P (purchaser) were purchasing land from V (vendor) in 1890, P would be given by V:

The deed which conveyed the fee simple from A to B in 1850.

The deed which conveyed the fee simple from B to C in 1860.

The deed which conveyed the fee simple from C to V in 1880.

AND

4. Anewdeed, drawn up by V's lawyer, conveying the fee simple from V to P in 1890.

This is because:

1-3 showed that V had a valid legal title and

4 conveyed that legal title from V to P.

V would have given 1-3 (the title deeds) to P, because they indicated that V owned the land. Having paid for the land, it would be foolish for P to let V keep those documents which indicated V was the owner. Also, should P want to sell the land at a later date, she would need those deeds to demonstrate to a new purchaser that she had good title. However, it was not 1-3 that conveyed legal title, it was 4, the new deed executed by V (the current owner) in favour of P. Students sometimes get confused about the distinction between of 1-3 and 4.Think about it logically - the only person who has the power to sell land or give it away is the person who owns it. It is the deed executed by the current owner that conveys title to the purchaser, not the deeds executed by previous owners.

A weak link in the chain

Not surprisingly, a deed could only transfer a legal title if the person executing it actually had legal title. So:

Example 2: if A forged Bs signature on a deed purporting to convey the legal fee simple to Bs land to C, C would get nothing. The deed had not been executed by the true owner, B, and the forged signature was completely ineffective (a forgery is a nullity); if C had paid 1000 for the land, this was a major problem;

Example 3: if A, a solicitor, forged their client Bs signature on a deed of mortgage, purportedly over land owned by B, the mortgagee, C, would acquire nothing. C might have handed over 500, thinking they were getting an interest in land as security for the loan. A would promptly disappear and the loan would never be repaid. If C attempted to exercise the power of sale as mortgagee, B could successfully prevent this. No matter what C thought they were getting, the signature on the deed of mortgage was a forgery and thus the deed was ineffective to convey any interest in land. Like the situation above, this was a major problem for C.

Of course, in both situations C would have rights against A...if only C and the police could find him. However, theright to the land(what we are concerned about in this course), stayed with the original owner B.

These problems were exacerbated in a land transfer system that depended on a chain of title. In Example 1 above, if the deed purportedly executed by A had been forged, B would have acquired nothing. When B executed the deed in favour of C, C would acquire nothing and so on down the line. Although each purchaser had paid for their title, if their vendor had nothing to convey, the purchaser got nothing. This was called the nemo dat quod non habet rule (nemo dat for short), meaning you cannot give what you havent got. It created a system of derivative title; that is, your title derived from the person you acquired it from and could be no better than theirs. Realistically, it was impossible for P to know if A, or any other predecessors signature had been forged and thus the system made land purchase risky. (Forgers were also often very talented, making their work hard to detect. Many convicts transported to Australia had been convicted of forgery, includingthe famous colonial artist Joseph Lycett and architect Francis Greenway.)

One protection for subsequent purchasers was the limitation period, which we learned about in the Possession chapter. If other people were in possession of As land as a result of the forgery, A would have the right to get the land back. However, this right would only last for a limited time: 20 years in the past or 12 today. Once that time had passed, A would not be able to bring an action to recover the land and subsequent purchasers would be able to keep it.

The examples you have been given, as well as earlier chapters, should alert you to the fact that more than one person might claim an interest in the same piece of land. Most of the time this is intentional, consensual and unproblematic. For example, a landlord and a tenant both have interests in the same land, but as the lease was consensually created, it is clear who has what rights: the tenant has the right to possession during the lease and the landlord has the right to possession thereafter. Similarly, someone who has intentionally granted a mortgage over their land, has the right to possession, but if they fail to repay the loan, the mortgagee will be entitled to take possession and sell the land. However, there are times when people have not consented to there being more than one interest in land, which results in the question, "who is entitled to the land, and might they be bound by someone else's interest?" Sometimes these situations arise accidentally, because someone has mistakenly created conflicting interests in land, but sometimes they arise because a fraudster has attempted to extract money from multiple parties by giving or purporting to give them all interests in the same land which conflict. In these circumstances, the law creates rules that adjudicate between the innocent parties, (the person who made the mistake or the fraudster will be getting nothing). These rules are called 'priorities rules'. They depend on two things:

what kind of interest a person has - legal or equitable - and

whether it was created earlier or later than the interest with which it is competing.

To apply priority rules you:

determine 1. and 2.,

pick the correct category, and

apply the rule.

Priority rules are rigid - they do not operate via 'the vibe'. Do not mix the rules together; apply them like a mathematical formula.

The following are the original priority rules that applied for all property, not just land. The Torrens system creates new rules for the first two categories that deal with legal interests, but the rules remain valid for property that is not land, subject to thePersonal Property and Securities Act 2009(Cth). We will cover goods at the end of the semester, so put them out of your mind for now.

Priority rules for Old System land

(i)Earlier legal interests vs later legal interests - nemo dat rule

If there were conflicting interests in land, both of which were legal, the nemo dat rule applied, as it did in the case of forgeries. Remember, legal interests in land were created by a deed, so the existence of a deed, not simply writing, was essential for a party to have a legal interest. So, if

C X deed of lease for 25 years executed in 1870 = a legal lease owned by X

deed conveying legal fee simple in 1880

V

deed conveying legal fee simple in 1890

P

In these circumstances, all C had to convey to V in 1880 was a legal fee simple burdened by a 25-year lease, thus, this is all V had to convey to P in 1890, regardless of what the deed of conveyance between V and P said. Of course, Cshouldhave told V about the lease. While wrongdoers are never entitled to get away with their actions (for example, V would have rights against C for breach of contract for not selling what C promised to sell, as would P against V), as this is a Property course, we need to work outwho is entitled to the land. This will often mean having tochoose between two innocent parties,like X, the lessee and P, the ultimate purchaser; neither has done anything wrong. Applying the nemo dat rule, C could not convey what he did not have:

Cs title = a legal fee simple burdened by Xs 25-year lease, this was what was conveyed to V and then to P, no matter what V and P might have thought they were buying.

In the inevitable dispute between X and P over who is entitled to possession of the land, X will 'take priority'. That means that he will be able to stay in possession of the land for the full length of his lease; only at the end of the lease will P be entitled to possession. P will only be able to sue V for breach of contract because they did not receive the unencumbered fee simple they were promised.

(ii)Earlier equitable interests vs later legal interests - bona fide purchaser rule

In order to encourage people to comply with the formality of the law, less protection was (and still is) given to equitable interests in priority disputes, and so a different rule applies. There are a range of ways that equitable interests can arise in land, most of which you will learn about in Equity and Trusts. However, having learned about contracts for the sale of land, you already know that a specifically enforceable agreement to sell someone an interest in land will give that person an equitable interest in land.So, if in (i) above, C did not executea deedof lease in favour of X, but onlycontractuallypromised to grant a lease to X in writing (or enforceable because of part performance), this would have created an equitable lease in X. Alternatively, C might have contractually promised to grant X a mortgage in return for a loan. This mortgage contract would have given X an equitable mortgage over the land. Of course, if C has formed either of these contractual agreements in relation to the land, heshouldtell V.... but he dishonestly may not.

In these circumstances, the bona fide purchaser for value without notice rule applies. This rule states that if P was:

bona fide (honest, genuine) AND

a purchaser for value of the legal interest (it was not a gift) AND

did not have notice of the earlier equitable interest,

he or she would take free of the equitable interest (not be bound by it).

So, in the 25-year equitable lease example:

CXcontractto grant a 25-year lease = equitable lease for X

deed conveying the legal fee simple

V

deed conveying the legal fee simple

P now owns the legal fee simple

Because the fee simple has been conveyed by deed, P is a bona fide purchaser for value of the legal estate. He will be bound by the lease if he had notice (knowledge) of it. If P has been told about the lease, he will have 'actual notice'. If he has not been told but the tenant is in possession, P will have 'constructive notice'. Constructive notice is notice of what youshouldhave known about if you had done the searches you were expected to do. The law assumes that if a tenant is in possession, everyone has notice of their rights, because any remotely sensible purchaser will physically inspect land and thus see that someone other than the vendor is in possession and inquire about their rights. Usually, whether someone has constructive notice of an equitable interest depends on the specific facts in question, but if a tenant is in possession, constructive notice is automatically assumed.

The result is that P is not a bona fide purchaser without notice of the earlier equitable interest, and thus he is bound by X's lease. P must allow X to stay on the land for the full length of the lease.

Let's contrast the lease example with an equitable mortgage example:

CX contract to grant a mortgage = equitable mortgage owned by X

deed conveying the legal fee simple

V

deed conveying the legal fee simple

P now owns the legal fee simple

P is a bona fide purchaser of the legal fee simple because it was conveyed to him by deed. Does he have notice of the equitable mortgage? A mortgage is not a visible interest in land. It exists by virtue of two copies of a mortgage contract, exchanged between the parties. One copy will be in Cs filing cabinet and an identical copy in Xs filing cabinet. The only way V, and then P, could know about the mortgage is if C tells V (which he does not because he is being dishonest) or if X told V (which he cannot because X does not know V exists because the sale is being conducted intentionally behind Xs back).

As a result, P will take priorityover X because he is a bona fide purchaser of the legal estate without notice of the earlier equitable mortgage. This means that X cannot enforce his interest in the land and insist that it is sold if he is not repaid the mortgage debt.Of course, X can still sue C in contract for the money lent, but as C is dishonest and no doubt financially desperate (hence the improper dealing), it is likely that he has no money. The interest that is of real value, the mortgage over land, has been lost.

All three elements of the rule had to be satisfied for someone to 'take free' of an earlier equitable interest. So, in the mortgage example, if P were given the fee simple as a gift, and was not a purchaser, he would be bound by the mortgage even if he did not have notice of it.

(iii)Earlier legal interest vs later equitable interest

Because legal rights are the primary source of rights, and equity generally follows the law, an earlier legal owner would only lose to a later equitable interest if they had been negligent or reckless, most obviously with possession of the title deeds. For example, if in Example 1, above, P failed to demand the bundles of title deeds from V when they bought the land, this would be reckless because those documents indicated that V was the owner of the land. V could use them to borrow money, showing them to a lender, X, to dishonestly claim he was still the owner of the land. Any mortgage created by V would necessarily be equitable, because V no longer has a legal interest in the land. As between X and P, the law would prefer X, because his mortgage only came into existence because P was foolish enough to leave the title deeds with V. P would end up with an equitable mortgage over his land, and if he did not pay this, X could sell the land to recover his money.

These first three rules no longer apply to land because registration, not deeds, is now the method for acquiring a legal interest in land, and the Torrens system has its own priority rules that we will do in the next chapter. The final two rules only involve equitable interests, and they continue to operate as before, including in relation to Torrens land. Because we will do them in more detail when we do the Torrens system, and because your heads are undoubtedly spinning at this point, they will only be stated briefly here.

(iv)Earlier equitable interest v later equitable interest: the earlier prevails unless there was postponing conduct.

In a competition between an earlier equitable interest and a later equitable interest, the earlier will win, (first in best dressed), unless the earlier equitable interest holder has done something that justifies them being 'postponed' (losing to the later interest). Essentially, if the earlier equitable interest holder has behaved in a way that led the later equitable interest holder to not realise the earlier existed when they decided to acquire their own interest, the earlier interest will rank after the later. One of the most common scenarios in which this arises is between competing equitable mortgagees. If the land is sold for less than the two mortgages combined, only the first ranking mortgage will be paid in full, so both mortgages will have an incentive to argue that they rank first.

(v)Earlier mere equity v later equitable interest: the later equitable interest will prevail if taken for value and without notice of the earlier mere equity.

Some equitable interests are not as big and strong as others. These are called 'mere equities' rather than fully-fledged equitable interests. An important example of a mere equity is a right to have a transaction set aside for fraud. For example, if A conveys/transfers their land to B, but only because B promised that they will develop the land and share the profit with A, A will have a right to set the transaction aside for fraud if B lied, never intending to develop the land. This is not simply anin personamright enforceable against B, it constitutes an interest in the land itself, and is thus enforceablein rem. As a result, if B sells the land to C, the mere equity to have the transaction set aside for fraud will be enforceable against C, allowing A to reacquire the land, unless C can prove that they are a bona fide purchaser of their equitable interest and had no notice of A's earlier mere equity.

Conclusion

As you can see, there were inherent risks in Old System conveyancing. While a purchaser of land could insist on the vendor demonstrating good title by the production of title deeds, these did not conclusively prove that there were no outstanding interests in land. A purchaser could still assess the value of land, pay a purchase price accordingly, and then find that the land was affected by a mortgage, lease or easement that might bind them, radically reduced the lands worth. Worse still, they could pay for land, and as a result of a forgery, end up with no interest at all.

Adeeds registration systemwas introduced in the early 19thcentury in an attempt to make conveyancing more secure. The deeds registration system was a precursor to the Torrens system and had limited success. The government set up a register on which people could record deeds of conveyance. This provided some record of who owned land and made searching a chain of title easier. However, while there were priority benefits to be gained from registration (an earlier registered deed would take priority over a later registered deed regardless of date of execution of the deed, modifying the nemo dat rule), registration was not compulsory. Registration of a deed also did not cure problems with forgeries. A forged deed was ineffective even if registered. Remember, this was not the Torrens system of registration, which is the subject of the next chapter.

Having read this section you should understand that:

The law has always required a formal process to convey or transfer title to land: in Old System, it was an appropriately signed, sealed and delivered deed.

Old System title was derivative: acquisition of interests in land depended on the validity of the documents executed and the grantor actually having the title that he or she was purporting to give; if there was a problem with either of these, a purchaser would not acquire the interest in land, no matter what they thought they were getting or what they had paid for.

Before moving to the next section, think about the following. While we can change the law, re-writing rules to produce what we believe are more optimal outcomes, human nature does not change. There will always be people who are either innately or through desperation dishonest; there will always be people who are sloppy or make mistakes. In land law, this can result in two innocent parties acquiring conflicting interests in land, created by the third-party wrongdoer, who is not involved in the litigation. We have seen in this section that for Old System land, the law used priority rules (i)-(v) to determine those conflicts. In the next section, we will see the new rules created for the Torrens system. However, whichever set of rules we apply,one innocent party will always lose. Innocent people losing is a source of discomfort to both judges and competent lawyers, creating tension and debate about those rules. Old System conveyancing tended to preferearlierinnocent parties, keeping land in the hands of existing owners; it was a system that developed in the context of a landed aristocracy that sought to retain large land holdings within specific family bloodlines (think back to our discussion of fees tail in the Origins of English Land Law chapter). At the end of the chapter on the Introduction to Australian Land Law, we learned that one of the motivations for the introduction of the Torrens system was to facilitate the easy transfer of land and as a result, the Torrens system gives preference to the new owner. It is a system of land dealing that serves the needs of capitalist economies in which land is just one of many tradeable commodities. This should help you to see that all technical rules of law are the result of policy decisions that seek to further the political, social and economic values of a particular society. It is never sufficient to simply learn the rules; you must understand the justification for their existence.

3. Torrens Deposited Plans

We are now moving on to current system of land ownership in all Australian states, including NSW: the Torrens System.The Torrens system is based on a central register that records who owns land and who has a lesser interest in it. There is a page in the register - called a 'folio' - for every parcel of Torrens land in NSW. The register was maintained by Land and Property Information (LPI), a State government department, but was leased to a private company in 2017. It is now called Land Registry Services. We will look at the register and folios in more detail in the next section, but first, we need to understand how those individual folios and land titles come into existence.

1. Deposited plans

Every parcel ofTorrens titleland - called a 'lot' - is based on a plan of survey that draws its boundaries. The process of drawing surveys is highly skilled; it involves practical and legal knowledge, as well as professional judgment to determine where to draw the boundariesof land. Surveyors work in accordance with detailed state legislation, as well as land registry practice guidelines. A surveyensures that when we deal with a lot, we know how big it is, where it ends, and where the neighbours' land begins. This general accuracy in relation to physical boundariesis one of the great benefits of the Torrens system. It might sound obvious that when we buy land, we should know exactly how much land we are buying, but in many other land systems, the boundaries of land are not easy to determine. For example, in England and Wales, the land registry has no record of legal boundaries of land and works with a system of 'general boundaries' which uses physical features such as a wall or a hedge marked on Ordinance Survey maps. If you looked at the determination of theWiklitigation at the end of the Native Title chapter, you would have seen that the boundaries of native title claims are descriptive. In some of the original colonies in the United States, boundaries were defined by 'metes and bounds', which were discursive descriptions of land boundaries with reference to trees, rocks, buildings and other people's land; for example, 'from the old Chestnut tree, down to the river, across to Porter's field and then to the place where Smith's hut used to stand'. In order to remember boundaries, communities would "beat the bounds" each year, meaning that people would walk the boundaries of land, literally beating the boundary markers - stones, walls, trees, streams - with sticks. Children were taken along and sometimes beaten as well or thrown into streams to impress on them the importance of remembering land boundaries.

Thankfully for modern Australian children and lawyers, in the Torrens system, individual lots are invariably included on adeposited plan, (a DP) which is essentially a 'map' of an area defining the boundaries of multiple parcels of land, as well as roads, parks, drainage easements etc. New deposited plans will be drawn up when:

new Crown grants are made to citizens;

Old System land is converted to Torrens title; or

an existing Torrens title is subdivided into multiple new Torrens titles.

After the mass granting of land titles in the 19th and 20th centuries, that we learned about in the Introduction to Australian Property Law, most arable and urban land in Australia has been granted by the government, andCrown land sales are now rare. The last significant sales of Crown land in the Sydney metropolitan area occurred in the 20th century. The poster below is a nice illustration of a sale by auction:

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/Subdivision%20sale%20Maroubra.jpg" * MERGEFORMATINET

Almost all Old System land has beenconverted Torrens title, and so now, the most likely way a new Torrens title will come into existence is the third dot point above: through the subdivision of an existing Torrens title. For example, if the government rezones a 50-acre chicken farm on the outskirts of Sydney for residential development, it will be snapped up (or already owned) by a developer, who will want to subdivide it into 500 housing lots. To divide the existing 50-acre Torrens lot into 500 housing lots, with roads, parks and easements, the developer will employ a surveyor to draw up a plan of survey. This will then be registered at Land Registry Services, NSW, and become a deposited plan. It is the registration of the plan of subdivision that brings the500 new individual Torrenstitles into existence.

The plan will be given a number (e.g., DP76543), as will each lot on the plan (e.g., lot1, 2, 3 etc.). The lot and deposited plan numbers are used to identify the land. As lawyers we don't talk about 54 Pleasant Way, Happyville, we talk about Lot31 in DP 76543 (31/76543). This is known as the 'folio identifier'. If you want to learn more about deposited plans, visit the Land Registry Services sitehere.

The easiest way to understand DPs is to look at one. These DPs subdivided existing large Torrens title lots in south and southwest Sydney. The DP for Harrington Park subdivides land in the Cowpastures area, where the six cattle from the First Fleet escaped to. TheTharawal and Gundungurra landwas initially granted to Captain William Douglass Campbell in 1815 by Governor Macquarie as compensation for the loss of his ship, the Harrington, which was seized by escaped convicts in 1809 and destroyed by those pursuing her. The land passed through multiple generations of pastoralists until it was bought by the Fairfax family, owners of theSydney Morning Herald,in 1944, ("Harrington Park", NSW State Heritage Register, Department of Planning and Environment).You can see Lady (Mary) Fairfax's signature on the DP approving the subdivision, which createda new housing estate in thesouthwestgrowth sector of Sydney.

DP10487DP Harrington Park

Can you see thatthe plans have divided land into multiple individual lots, as well as roads and public reserves? Can you see that both indicate that they are subdivisions of existing lots in earlier DPs? Can you see the easements for drainage, underground cables, overhead wires and carriageway, all of which a qualified surveyor will know are needed? Can you see the surveyor's declaration that the boundaries and measurements in the plan are accurate? DPs are a very important element in a functional land market. By requiring surveyors to be trained and licenced and by stipulating specific methods for surveying, the government creates public confidence in the purchase of land.

2. Strata and community plans of subdivision

In addition to ordinary plans of subdivision there are also strata and community plans of subdivision. Strata plans primarily subdivide air. The principle of land law 'cuius est solum, eius est usque ad coelum et ad inferos' ('whoever's is the soil, it is theirs all the way to Heaven and all the way to hell') means that when we own land, we actually own a column of space extending above and below the surface of the earth. In the past, owning well into the sky was largely of theoretical significance. This was because walls were load bearing, and it is not possible to build more than 12 storeys high before walls start to collapse under their own weight. However, modern engineering now allows the walls of high rise buildings tonotbear weight; walls are made of glass that 'hang' from load-bearing steel frames. This means that buildings can now be over 100 storeys high, so that subject to planning approval, landownerscan exploit much more of their (airspace)land. Once it was physically possible to build tens or even hundreds of homes or offices in a single building, the law had to respond and create valid, individual legal titles for those homes and offices so that they could be easily traded. That is what strata plans do. When registered underStrata Schemes Development Act 2015(NSW), (SSDA) s9strata planssubdivide an existing Torrens housing or industrial lot into 4, 50, 150 or more new individually owned Torrens title strata lots and collectively owned common property.

It is also possible to subdivide low-rise residential land into individual Torrens lots and common property, creating private master planned estates. In some states, like Queensland, the same legislation is used to create high rise and low rise subdivisions (theBody Corporate and Community Management Act 1997(Qld)), but NSW decided to enact separate legislation, theCommunity Land Development Act 2021(NSW). This has been used to subdivide large rural, peri-urban or disused industrial or hospital sites into individual Torrens lots (vacant land, houses or townhouses) and common property (designated as Lot 1 on community plans of subdivision). The easiest way to understand these is to look at community websites, such asBreakfast Point(formerly the Mortlakegasworks), andJacksons Landing, Pyrmont(formerly the CSR sugar refinery). In community title subdivisions, the privately-owned common property is generally extensive, including traditionally publicly owned infrastructure such as roads, parks, water and sewerage. Strata and community title are complex forms of property ownership, and strata title is one of the most dominant titles in Australia today. As a result, it is important that you understand its basic features:

'First, with the exception of a small number of leasehold strata schemes, all strata and community titles are freehold Torrens titles, and like all Torrens titles, they are dependent on surveys to define the boundaries of the lot created by registration. In the strata scheme, once a building is almost complete, a surveyor draws up a strata plan of subdivision, which includes a location plan and a floor plan [see linked sample strata plan below]. The location plan shows the building in relationto the boundaries of the land and the floor plan shows the boundaries of the individual strata lots within the building. Low-rise community schemes do not need buildings to be complete before subdivision plans are drawn. Space that falls outside a lot is common property; for example, stairs, foyers, halls, lifts, driveways, gyms, pools, roads, parks, infrastructure, bushlandand increasingly complex green utilities. Common property is owned by all lot owners as tenants in common, in proportion to their lot or unit entitlements. Unit entitlements are generally based on the unimproved market value of a lot...

The body corporate is made up of all lot owners, not tenants, and is automaticallycreated on the registration of the plan of subdivision [in NSW, strata bodies corporate are called 'owners corporations']. Significantly, a body corporate does not have the powers of a natural person, but only those expressly or impliedly given to it by legislation, primarily the strata and community title Acts. A body corporate must manage, control, repair and maintain the common property, as well as manage the finances of the scheme, take out insurance, and keep records and accounts. In order to carry out these tasks, the body corporate must levy owners each year in accordance with their unit entitlements, to extract the necessary money for administrative and sinking funds to maintain and run the scheme.

Large schemes can be tiered and have multiple bodies corporate. For example, a large site might have an overarching body corporate, two subsidiary bodies corporate, which in turn have further subsidiary bodies corporate. This allows the site to be physically subdivided into discrete sections and most importantly, to allocate costs appropriately. In the diagram below, which uses the New South Wales community title Acts terminology, each neighbourhood associationmay be a group of townhouses around a communal pool. The pool will be the individual neighbourhood associations common property. The owners in that association have exclusive use of the pool, and it is their responsibility to maintain it. The roads, pavements, parks and infrastructure that are used by all residents of the scheme (and might otherwise be public assets), would form part of the over-arching community association common property. Individual owners are members of their own body corporate (the strata owners corporation orneighbourhood association), and those bodies corporate are then members of the body corporate above them.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.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" * MERGEFORMATINET

While rational from a planning and financial perspective, tiered schemes create substantial amounts of private governance', (Sherry, C.,Strata Title Property Rights: Private governance of multi-owned properties, Routledge, 2017, 29-30.)

The architect's drawing of the Breakfast Point master plan might help you understand the tiered legal structure described above. Can you see that there are sections of the estate where there are townhouses built around their own pool, as well as a large oval, tennis courts and clubhouse that are accessible by the entire estate?

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/bp-map.jpg?format=750w" * MERGEFORMATINET

Masterplan, Breakfast Point, Credit:Giles Tribe.Registered plans of subdivision are extremely important in strata and community title because they define the boundaries ofprivately owned lot property and common property. Individual owners are responsible for their own lots, and the body corporate or owners corporation (all owners)is responsible for common property:Strata Schemes Management Act 2015(NSW) (SSMA), s9 and s106. Strata plans must conform with the requirements in SSDA, s10 and have a location plan, floor plan, and administration sheet which includes a schedule of 'unit entitlements' in accordance with SSFDA, schedule 2, cl.2. Every strata scheme has an 'aggregated unit entitlement', which isa random number, such as 1000. Each individual lot is then allocated a smaller proportionate number that represents the relative market value of the unimproved lot (i.e., the apartment without any gold taps an owner might decide to install). Larger apartments and penthouses will have higher unit entitlements. The individual unit entitlement determines the amount of levies that the owner must pay each year for the maintenance and repair of the building (SSMA, s83(2)), as well as their proportionate share of the land in the event that the scheme is ever terminated because it is being sold in its entirety or the building is being demolished (SSDA, s146(b)).Explore thisstrata planforBalmain Cove. Can you see that page 2, the 'location plan', shows the location of the building with reference to the boundaries of the land and the street? Can you see that the floor plans show the lot and common property on different levels of the building? Page 4 is a map of the basement level and includes notations such as pt 67 and pt 79 etc. This means part of lot 67 and part of lot 79. These are the garages for the apartments; it is their notation on the strata plan of subdivision and the plans subsequent registration which makes that garage space fall within the apartments boundaries and legally part of the apartment title. If you look at page 5 of the plan, you can see the boundaries of the individual lots marked in heavy black lines. What do you think the area marked CP means? Does anyone know what the vinculum~means? On the third page of the strata plan you will see a table of 'unit entitlements'.

It is common for apartments and houses in strata and community schemes to be sold 'off the plan'. This means that the developer has signed a contract with a purchaser before the building is built and the strata plan is not yet drawn (a plan cannot be drawn with reference to air; it is drawn with reference to walls, floors and ceilings). This practice can be risky for purchasers because the final apartment may not be identical to the one proposed by the developer's concept plans, but it is driven by financing. Lenders will typically not fully finance a development until a developer can prove that it will be a success by demonstrating a proportion of apartments have already been sold off the plan. Once a building is nearing completion, the strata plan will be finalised and registered, and purchasers will be given notice to complete their contracts, i.e., pay the balance of the purchase price.

Strata and community plans do not simply subdivide land, they create on-going regulation of land, and communities of owners and tenants, along with associated businesses (strata and building managers, green utility operators etc.). Those people's rights and relationships are complex and are governed by separate legislation, theStrata Schemes Management Act 2015 (NSW)and theCommunity Land Management Act 2021(NSW). We will learn about these later in the course.

3. Stratum plans

There is one final form of subdivision that must be explained in order to paint a complete picture of land titles in NSW. This is stratum or volumetric subdivision. In New South Wales, stratum subdivisions are created under a relatively brief section of theConveyancing Act 1919 (NSW), Pt 23, Div 3B, s196B-196L.Blink and you would miss it, but it is used for some of the largest, most significant developments in Sydney, including The Toaster (east Circular Quay),Central ParkandBarangaroo. Developers favour stratum subdivision because it facilitates the shared ownership of buildings or land, (multiple potential purchasers), without the owners being part of a single body corporate. Commercial owners do not like having to negotiate with residential owners or being subject to the consumer protection provisions that have increasingly been included in the strata schemes management legislation. This extract explains the fundamentals of stratum subdivision:

'In New South Wales, theConveyancing Act 1919 (NSW)was amended to allow the subdivision of a building [as opposed to land] by deposited plan into separate stratum lots, limited by height or depth by reference to the Australian Height Datum.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/xoKOMlnToAEvwDkm1vCtIoHcj4WcUowHmQ0gmUrbbqySQgh5D+NAk5CCCGEEFKn6MILIYQQQgipUxRwEkIIIYSQOkUBJyGEEEIIqVMUcBJCCCGEkDpFASchhBBCCKlTFHASQgghhJA6RQEnIYQQQgipUxRwEkIIIYSQOkUBJyGEEEIIqVMUcBJCCCGEkDpFASchhBBCCKlTFHASQgghhJA6BPwPHokEg5bYFIgAAAAASUVORK5CYII=" * MERGEFORMATINET

For example, the retail podium of a building might be stratum lot 1, floors 15 stratum lot 2, floors 611 stratum lot 3, and floors 1236 stratum lot 4. Those stratum lots are in effect like four adjoining land lots, turned on their side and stacked on top of each other. Stratum lots can be further subdivided by a strata plan, creating a residential or commercial strata scheme within that stratum lot, which becomes a stratum parcel. For example:

Stratum lot 1 might be retained by a single registered proprietor of the podium retail section (which is then subdivided by leases);

Lot 2 might be subdivided by a strata plan creating commercial office space;

Lot 3 might be bought by a single registered proprietor who runs a motel; and

Lot 4 subdivided by another strata plan to create a residential scheme.

Although multiple stratum lot/parcel owners do not necessarily want or need to be part of a common community like a strata scheme, they still share a building and thus rights and obligations between stratum lot/parcel owners, in particular maintenance obligations and insurance, need to be addressed.

Easements are used to grant separate stratum owners access to shared property, which will of necessity be partly or wholly contained in another stratum owners lot/parcel (for example, lifts, foyer, car parks). However, maintenance costs for the entire building, in particular for the kind of complex plant and equipment that is found in a modern high-rise, need to be imposed on successive owners and as has been noted repeatedly in this chapter, the ban on positive covenants on freehold land means that orthodox property law is not adequate for such a task. The solution was found in registered Building Management Statements (BMSs) and Strata Management Statements (SMSs)...BMSs must contain provisions on insurance, damage and disputes, and they may also contain provisions on garbage, safety and security measures, the appointment of a managing agent, noise levels, trading activities, service contracts, and an architectural code to preserve the appearance of the building. However, at least in New South Wales, the content of a BMS is specifically not limited to this list. In addition to maintenance provisions, BMSs must establish a building management committee, made up of all stratum lot owners and any owners corporations, although owners can be excluded with their consent. [Unlike a strata or community body corporate, a building management committee is not a separate legal entity.]

BMSs and SMSs are typically drafted by the original owner(s) lawyer and are recorded on the Torrens register. Registration turns what began as a contractnegotiated by the original parties involved in the development into a statutory property right that will bind all subsequent owners', ((Sherry, C.,Strata Title Property Rights: Private governance of multi-owned properties, Routledge, 2017, 34-36.)

Stratum subdivision will be explained in the lecture, but if you think you might like to work in property development or urban planning, you can see a more detailed Youtube video explanation with a lightboard diagram here (ignore the UNSW logo and references to Moodle - that is just the generic name for iLearn. Also, restrictive covenants are mentioned, which we will do later in the course). You need to know what stratum subdivision is for Property, but the level of detail in this video will not be examined..

4. Six Maps

Six Maps is the government data base that shows aerial images of land in New South Wales, along with streets, deposited plan numbers, boundaries etc. It does not determine title to land in any way, but it is a nice way to see land boundaries, DPs and SPs in the landscape. Developers' lawyers often use it as part of their research when a client wants to acquire a significant site of land. Standing on the site, the client might assume that particular parts are included in the sale, when in fact they are separate Torrens lots that do not belong to the vendor and are not being offered. Have a look atSix Maps.It is fun to explore and it will help you understand lots and deposited plans better. You can do street address searches, (look up your house ora significant site in your neighbourhood). If you click on 'Map Layers' in the top right-hand corner, click 'Lot boundaries' and 'Lot labels', the boundaries, deposited plan (DP), strata plan (SP),and lot numbers of land you know well will come up on the screen. Search for Macquarie University. Can you see the red flag? Now click on Base Maps in the top right corner. Click on 'Looking for 1943 imagery?' and then click on 'Sydney 1943 Imagery'. What happens to the University? What obvious fact does this tell you about land that land law must acknowledge and facilitate?

4. The Torrens register

Now that we have learned where Torrens titles come from (direct grants from the Crown, Old System conversions or more commonly, subdivision of existing Torrens lots), we will look at the significance of a Torrens title and the Torrens register. As has been mentioned, the Torrens system aims to create a government register that definitively records the name of every person who has an interest in a parcel (lot) of land and what kind of interest they have (the kinds of interests recorded on alandregister will of necessity be limited by what principle we have already learnt?).

The easiest way to understand the Torrens register is to think about it in its original form. The register was originally made up of volumes (big books), and each page in a volume related to a single parcel of land (a lot). The page was called a folio and it recorded all information about ownership of that particular parcel of land. It recorded the current owner of the fee simple (or lease if it was a leasehold grant from the Crown), as well as any encumbrances that affected the land (e.g., mortgage, lease, easement). When the land was sold or a new interest was created in it, this was written on the folio; that way, the register was always an up-to-date record of who owned the land and who else owned an interest in it.There is still a single 'page' or folio that relates to every Torrens lot in NSW, but of course folios are now digital.

Until 2021, a paper certificate of title (CT) was created and given to all landowners as evidence of their ownership of land, completely replacing Old System title deeds. The CT was a duplicate of the folio of the register.Every time land was transferred, the register was altered electronically (from 1983 onwards), removing the vendor's name and replacing it with the purchaser's name. The existing paper CT with the vendor's name as owner was destroyed and a new paper CT was issued that was a duplicate of the altered register, with the purchaser's name as owner. This is an example of a CT, as they looked immediately prior to their abolition in 2021:mock CT.

Although paper certificates of title are no longer issued, you need to understand the function that they performed in order to understand many of the cases that are still good law in NSW. Also, no matter what technological changes are made to land transactions, the substantive concepts remain the same. The CT was significant in traditional paper conveyancing because it demonstrated the 'right to deal' with the land. A 'right to deal' is the right to transfer land, mortgage it, grant an easement or lease over it etc., (those things are all 'dealings'). It is an inherent right of any owner. However, if an owner mortgages their land, control of the right to deal passes to the mortgagee. This is because the land is the mortgagee's 'security'; that is, if the mortgagee is not repaid, they can sell the land and take the money they are owed. As a result, they have a vested interest in what happens to the land. The mortgagee does not want the mortgagor transferring the land, mortgaging it further or granting other rights over it without them approving of the dealing, because those dealings might reduce the value of the land and/or make it more difficult for the mortgagee to sell and recover the money they lent. First mortgagees used to prevent the mortgagor dealing with the land without their consent by taking possession of the CT. Land Registry Services knew that the person in possession of the CT was the person with the right to deal with the land, and so Land Registry Services would not register any Torrens dealing (a transfer, lease, mortgage etc.) unless they were given the certificate of title, along with the appropriately executed Torrens dealing form. Today, mortgagees still control some of the right to deal with the property through the eConveyancing system. For example, is not possible to transfer land or create an easement without the mortgagee's authorisation.

The register is made up of more than just the folios; it is also made up of registered dealings and other documents, such as DPs. Registered dealings are the most important; these are leases, easements, mortgages etc. The register is publicly accessible, and it is possible for anyone to obtainan electronic copy of a folio, which includes a list of all dealings that affect the land. This will be the first step any lawyer takes when they are engaged to do a land transaction for a client. Let's look at the electronic folio search of the register forland of anOporto in Kingsford, Sydney.Notice the following things:

1) The land: on this folio the land is identified by a lot letter 'A' and a DP number, 394221.This is the folio identifier. This is an old subdivision and modern subdivisions always use lot numbers, not letters.

2) First Schedule: this records the name of the fee simple owner(s), in this case, Bibepo Pty Ltd.

3) Second Schedule: this records any interests that affect the land:

The first notation will invariably say something about Reservations and conditions in the Crown grant. We saw in the Origins of Australian Land Law that imposing conditions on Crown grants was common in the past, for example, to work the land or construct improvements. In relation to freehold land, this is now rare. However, reservations are standard; not the reservation of timber for maritime purposes, as was the case with the first grant to James Ruse, but the reservation of minerals. Since 1861, all land grants have reserved minerals to the Crown with the result that the government can grant rights to minerals to third parties. This is an example of land law facilitating the sharing of land and its resources between fee simple or leasehold occupiers, the government and third-party mining businesses. Obviously, no mining is occurring in Kingsford, but in rural areas (and even sometimes in cities), reservations of minerals to the Crown have real impact on land titles. For example, in recent years, farmers have protested the granting of coal seam gas licences and leases on their land because of its damaging environmental effects on land used for food production. However, they have no legal right to prevent coal seam gas mining occurring because they do not own the coal seam gas under their land; the Crown does.

G400698 Cross easements. These are standard for terraces and semi-detached properties. If your neighbour does renovations on their side of the wall, it could damage your side. To protect owners, they are given easements over each other's walls, entitling them to support from their neighbour's property.

G400698: Right of footway - this is an easement entitling the owner of the land to walk - not drive - over neighbouring land. 'Appurtenant' means belonging to, so this is the land that is benefited, not burdened, by the easement.

G400698: Covenant - this is a restriction on the land title, prohibiting the owner from doing certain things.

AD902837: Lease - this tells us that the owner of the fee simple, Bibepo, has leased the land to Oporto Pty Ltd, which is now entitled to possession.

AG969022 Transfer of lease - this tells us that Oporto has transferred their lease to Geekani Pty Ltd, who is now the tenant entitled to possession.

AH25039 Variation of lease - this tells us that the landlord and tenant have agreed to change the terms of the lease, and those changes have been recorded on the register.

As you can see, that is a lot of important information that someone wanting to purchase the land or lend money to the owner, taking a mortgage over the land as security for the loan, would want to know. But it is not enough that someone knows there is an easement or a lease; they would want to know the details of those property rights. What does the lease oblige the landlord and tenant to do? How much is the rent? How wide is the easement, where does it cross the neighbour's land and where does it go to? Using the dealing number'G400698', above, we can obtain a copy of the easement dealing from LRS.Here it is.That is an old dealing.This is thecurrent formthat must be used to create a registrable dealing granting an easement. We will look at the lease later in the course. As a lawyer, you need to read these dealings to advise your client of their rights and obligations.

This land title in Kingsford is straightforward, but many modern land titles, particularly in strata and community title developments, are much more complex. Here is thecomputer folio search of the lot that is the retail sectioninsideCentral Park at Broadway, (the plant-covered building opposite UTS). The Second Schedule is 8 pages long.

A publicly accessible land registeris crucial for two reasons. First, when people are buying land or acquiring an interest in it, they can only calculate the land's economic and practical value if they know exactly who else might have rights over the land. By doing an electronic search of a title, a potential purchaser can inform themselves about the land without having to rely on the vendor's word(which may not be candid or it might even be dishonest). Access to clear, reliable information makes the purchase of land less risky, which in turn encourages the transfer of land and its development, both of which are valued in capitalist democracies.

Second, a publicly accessible land register (like a publicly accessible company register) helps to maintain a functional, uncorrupt land market. Land is a vital resource for the whole community and transactions in relation to it should be open to public scrutiny (e.g.,so we can find out who owns land that has been made the subject of a new coal exploration licence). In a liberal democracy, it is essential that we know who owns land.

Listen to this short, 9-minute podcast on the political and economic significance of land registers. It is part of the series,"50 Things that Made the Modern Economy".

5. Becoming registered

Hopefully you are starting to see that the Torrens register is significant and that anyone wanting to buy land is going to want to get their name on the register.So how do they do that? Here is a dot point explanation of the standard process of sale. We learned the contract section in Fundamental Concepts in Land Law.

1. Vendor advertises the property; purchaser makes an offer;negotiation between the vendor and purchaser, thenfinaloffer and acceptance.

2. The vendor and purchaser's contractual agreement will be recorded in writing (s54AConveyancing Act 1919) e.g., the standardcontract. This is a promise by the vendor to transfer legal title and a promise by the purchaser to pay the full purchase price.

3. Identical copies of thecontract are signed, (either in scanned PDF form or on Docusign), and then exchanged. This creates a binding contract at law.

4. 42 days later (for a typical residential sale) the contract will be 'completed'; that is, the parties will complete (carry out) their contractual promises.This is referred to as 'settlement' of the sale.

This used to happen physically. The purchaser and vendor would meet (or more accurately, their solicitors or mortgagees' solicitors would) and

the purchaser (transferee) would hand over the cheques (completing their contractual promise to pay), and

the vendor ('transferor') would hand over a signedtransferand thecertificate of title(completing their contractual promise to transfer legal title).

5. The purchaser (transferee) or their mortgagee (who had most at stake, having provided most of the money) would then take the signed transfer and certificate of title and 'lodge' them for registration at Land Registry Services.

6. Usually within a few hours, Land Registry Services would register the transfer. Again, it is the State registering the document that transfers legal title, not the signed transfer document itself.

7. Land Registry Services would produce a new CT which recorded the purchaser's name in the First Schedule as the registered proprietor of the fee simple, and their mortgagee's name in the Second Schedule. (Easements and covenants will remain unchanged in the Second Schedule). The new CT would be sent to the first registered mortgagee.

Steps 4-6 are now done electronically, through eConveyancing and step 7 does not occur at all. However, eConveyancing is just an electronic version of the same legal steps; that is, the vendor and purchaser are carrying out their contractual promises to convey legal title and to pay the balance of the purchase price.

How does eConveyancing work?

eConveyancing is overseen by ARNECC, the Australian Registrars National Electronic Conveyancing Council. All state land registrars are members, and ARNECC sets the rules and procedures for 'subscribers' - law firms, licenced conveyancers and banks - to use online conveyancing, along with the Electronic Lodgement Network Operators (ELNOs), which are the eConveyancing companies. The rules are contained in the Appendix to theElectronic Conveyancing (Adoption of National Law) Act 2012(NSW), and theNSW Participation Rules for Electronic Conveyancingmade pursuant to that Act. The two most important rules for lawyers are that:

lawyers must beproperly authorisedby their client to act on their behalf in relation to a land transaction, and

lawyers must verify the client's identity to ensure that the client really is the landowner, and not a fraudster.

The initial ELNO for NSW wasPEXA (Property Exchange Australiahttps://www.pexa.com.au/), a company whose main shareholders are the Victorian, NSW, Qld and WA state governments, the four major banks, and Macquarie Capital. In theory, there will be multiple ELNOs in future providing market competition, but to date there is only one other, Simpli. Most lawyers are using PEXA. The platform is connected to state land registries and the Office of State Revenue, as well as large lending institutions and subscribers (law firms and licenced conveyancers). In late 2022, NSW passed theElectronic Conveyancing Enforcement Act 2022, so that the Registrar General has proper powers to deal with ENLO breaches. Proper enforcement powers were necessary, because as there is effectively only one ELNO in NSW - PEXA - suspension or termination of its platform is not possible (raising obvious questions about the way in which the theory of privatisation (cheaper, more efficient and competent etc.) often does not match the reality (the emergence of monopolies and duopolies, which are not necessarily cheaper or more efficient, and are difficult for governments to regulate)).

eConveyancing relates to the settlement, not contract, stage of the sale of land. Preparation for settlement and settlement itself occur in PEXA 'workspaces' to which vendors' and purchasers' lawyers and mortgagees have access. Vendors' and purchasers' solicitors click through a workflow that allows them the authorise the necessary steps for the parties to complete the contract of sale, i.e., carry out their contractual promises. These are:

the creation of a transfer document - this is initiated and digitally signed by the purchaser's lawyer, then digitally signed by the vendor'slawyer. The vendor's lawyer is signing to authorise the transfer of title; the purchaser's lawyer signs to authorise the transfer into the purchaser's name (people have to consent to becoming a landowner);

the payment of the balance of the purchase price - the purchaser's lawyer will authorise the release of the funds, and PEXA then communicates with the Reserve Bank of Australia, which confirms that the funds are available. PEXA then distributes those funds to the vendor (and typically the vendor's mortgagee) once the transfer document has been lodged with LRS;

lodgement of documents - PEXA communicates directly with LRS and lodges the documents electronically when the parties authorise settlement to occur. The state then registers that transfer, altering the Torrens register so that the purchaser is recorded as the registered proprietor of the fee simple. PEXA will alert all parties when registration has occurred.

You can see that this is just an electronic version of what used to happen with physical documents. The one key difference is that parties can no longer sign their own transfer documents; this can only be done by their lawyer orlicensedconveyancer using a digital certificate. When doing an eConveyance as a lawyer, it is essential that you understand the legal significance of the buttons you are clicking. When you digitally sign and lodge a transfer for a client, for example, you must be absolutely certain that you are authorised by the client to transfer land, and that the person authorising you is actually the owner of the land. You neverwant to discover that you have inadvertently assisted fraud.

As Dr Michael Nancarrow has argued,

...technology carries with it risks of various kinds. Some of these are both straightforward and evident, while some are more insidious and malicious. Risks are becoming subtle and sophisticated. Unscrupulous human behavior combined with more sophisticated technology ultimately put the electronic systems and its uses at enhanced risk of fraud and deception. This can compromise and corrupt documents, processes and transactions. While there is nothing new in this, through electronic technology the speed and efficiency of transactions, transfers of interests in property and the accompanying financial payments can benefit both fraudsters and legitimate users, (Nancarrow et al,Australian Property Law: Principles to Practice, 2022, Cambridge Uni Press, 41).

The PEXA workspace also allows theparties to make any 'adjustments' to the final purchase price being paid to the vendor. Money may have been paid or is still owning for council rates, water rates, body corporate levies etc. The vendor is typically obliged to pay these up until settlement and the purchaser thereafter. To ensure this occurs, any money owing can be paid directly to those parties via PEXA.

If you would like to see how PEXA transactions work, you can dotheir interactive tutorialswhich are located on the Support page for their site.

6. What is the effect of registration?

Now that we have learned what the Torrens register is and how to get on it, we need to think about the legal effect of registration. The most important point to understand about the Torrens register is that it isthe recordation on the register that transfers or createslegaltitle to land. The Torrens system is not a system of derivative title; that is, purchasers do not derive their title from their vendor executing deeds in their favour, and then have that title noted on a government register (many countries have this system of land ownership e.g., the United States). Torrens purchasers actually acquire their titleby the State act of registration; the documents their vendor gives them just allow them to be recorded on the register. The seminal statement of the law is found in Barwick CJ's judgment inBreskvar v Wall[1971] HCA 70; (1971) 126 CLR 376 at [15]:

The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor.

In NSW, this system of registration is created by theReal Property Act 1900and it iss42that enacts the rule that title is created by registration. Section 42is the single most important section of legislation in Land Law and it completely replaced s23B of theConveyancing Act1919 (NSW) which required people to execute deeds if they wanted to convey legal title.Please readsection 42carefully. Ideally, click on the hyperlink to read the section in the RPA. It is important to get used to reading legislation in its original form, not just extracted in textbooks. In practice, you cannot cite textbooks; you need to cite the Act.

However, for ease of further discussion, here is the section.

s42 Estate of registered proprietor paramount

(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recordedexcept ... (we will do the exceptions in later classes).

Section 42, like a lot of legislation, can be difficult to understand, but it is essential that you master the skill of understanding legislation. Legislation is the highest source of law and the primary guide in modern legal practice. Legislation requires lawyers and their clients to act in particular ways; if you don't understand the legislation, you will not be doing the right thing. Let's break s42 down so that you understand it, and so that you can practise your legislation comprehension skills.

Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority- this means, despite that fact that under the common law a person's interest in land had priority, it may not under theReal Property Act,e.g., in Old System, if Yhad a 10 year equitable lease (equitable because it was only in writing and not in a deed), and Z subsequently purchased the legal fee simple, Z would be bound by the lease (have to let Y stay for 10 years) because Z was a bona fide purchaser WITH notice of the lease (the tenant being in possession = constructive notice); the first phrase in s42 is telling you that just because this was the case in Old System, it is not necessarily the case in Torrens;

the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall ... hold the same- if your name is recorded on the register as owning a fee simple, a lease, an easement, a mortgage etc., then you are the owner of that fee simple, lease, easement, mortgage etc.; you are thelegal(not equitable) owner because this is a statute, i.e., it is law, not equity;

except in the case of fraud- this means the fraud of the person whose name is on the register, e.g., you forge your elderly Mum's signature and transfer the land into your name; this is fraud and even though your name is on the register, not surprisingly, you don't get to keep the land;

subject to such other estates and interests and such entries, if any, as are recorded in that folio- if someone else's name is already on the register, you are bound by that interest, e.g., you buy land that has a 10 year registered lease, you are bound by the lease and have to let the tenant stay in the land for 10 years. You are NOT bound because you have notice of it; you are bound because s42 says you are bound by interests already on the register. When applying legislation, you must apply its plain words and not assume it means something it does not say. Section 42 plainly says registered proprietors are bound by interests that are already on the register; it does not say anything about having notice of those interests and so notice is not relevant;

but absolutely free from all other estates and interests that are not so recorded- if someone has an interest in land that is not on the register, you are not bound by it; e.g. there is a tenant and they have a 10 year lease in writing but it is not registered; you are not bound, because it is not on the register; that you know about it, because they are in possession, is irrelevant.

Section 42 completely replaces theOld Systemnemo datrule. This will become clearer when you read some fact scenarios in cases. Because title comes from the State and is not derived from the vendor, it does not matter that the vendor's title or capacity to transfer title was flawed in some way. If the State records your name on the register, as long asyouare not fraudulent, you will have that title.

A registered title is called an 'indefeasible' title. The RPA itself does not use the term 'indefeasible' or 'indefeasibility', but those terms are used by judges and legal writers to describe registered title. 'Indefeasible' simply means undefeatable.

Section 42 is supplemented bys43, which makes it 100% clear that notice is no longer relevant in the Torrens system and that the bona fide purchaser rule no longer has any application (so please do not mention it in the exam). Section 43 states that:

Except in the case of fraud no person contracting or dealingwith or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.

Breaking that down, s43 means that:

if you are taking a transfer from a registered proprietor (i.e., you are a purchaser dealing with the current owner), you do not have to worry about how they got on the register, e.g., if they acquired the land by forging their mum's signature on a transfer form, that is fraud and in Old System, they would have no title to land. Because of the nemo dat rule, even though you were not implicated in that fraud or even knew about it, you would get no title to land either. In contrast, in Torrens, s42 says you get a title and s43 says you don't even need to check to see if there is something wrong with your vendor's title;

further, you are not 'affected by notice direct of constructive of any trust or unregistered interest' and knowledge of those is not fraud. This means that even if you know about an unregistered interest, e.g., a 10 year unregistered lease, that knowledge has no effect on your title and you are not considered to be fraudulent in defeating it, i.e., making the tenant move out. In Old System, it was considered 'equitable fraud' to attempt to defeat an equitable interest in land if you knew about it when you acquired your own legal interest, and the bona fide purchase rule prevented people from doing this. Section 43 makes it clear that the concept of equitable fraud does not apply in relation to s42 registered title.

Here's an example to summarise the fundamental changes that s42 and s43 of the RPA made to land law:

X grants a 10 year lease to Y. The lease is in a written contract, but no more. It is a 10 year equitable lease.

X then conveys the legal fee simple to Z and 'accidentally' forgets to tell Z there is a tenant in the property.

1. In Old System, the bona fide purchaser rule would mean the earlier equitable lease would take priority and the tenant could stay for 10 years.

2. In Torrens,

Section 42 says that Z is only bound by what is on the register - the lease is not on the register;

Section 43 says that even if Z knew about the lease, Z is not bound.

Z can make the tenant leave.

What very clear incentive do s42 and s43 create for people who want to have an interest in land?

6.1. Flowchart for determining legal and equitable interests in land

Here is the flowchart that you were given in the previous iLearn book Fundamental Concepts in Land Law. More parts of it will now make sense to you. You will do the green sections inEquity and TrustsandRemedies, and the final box on gifts in the next book, Co-ownership.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/wNRE+k8sPUTVwAAAABJRU5ErkJggg==" * MERGEFORMATINET

7. Foundational Torrens cases: Frazer v Walker and Breskvar v Wall

The following two cases are the foundational cases that clarify how s42 and 43 of the RPA operate.

Frazer v Walker[1966] NZPC 2; [1966] UKPC 27; [1967] 1 AC 569; [1967] NZLR 1069; [1967] 2 WLR 411; [1967] 1 All ER 649 (7 December 1966)

Mr and Mrs F Radomski (registered mortgage) Walker (registered fee simple)

Facts: Mr and Mrs Frazer owned a farm. Mrs Frazer forged her husband's signature on a mortgage form in favour of Radomski. She took the mortgage to her own solicitors, and the clerk witnessed Mrs Frazer signing the mortgage and 'witnessed' Mr Frazer's signature as well. (Note:neverdo this as a solicitor. Witnessing a signature means that you have seen someone sign. If you have not seen them sign, then you are lying by witnessing the signature. It is serious professional misconduct and will result in disciplinary proceedings, adverse findings and fines:The Law Society of New South Wales v Gathercole[2016] NSWCATOD 27. If a fellow lawyer, including a superior, asks you to witness a document that has already been signed, your answer must always be 'no'.)

The completed mortgage was registered but repayments were not made. Radmomski exercised the power of sale and Walker bought the property, becoming the registered proprietor. Walker then commended proceedings to try to gain possession of the farm from Mr Frazer. The NZ Supreme Court held that Walker had an indefeasible title. They made no decision on the position of the mortgagee, Radomski.

Mr Frazer appealed to the Privy Council, arguing that various provisions of the New Zealand Torrens Act meant that a forged mortgage could not be received for registration or validly registered. As a result, the mortgagee never got the benefit of registration.

The Privy Council said:

Their Lordships cannot accept this argument which would be destructive of the whole system of registration. Even if non-compliance with the Act's requirements as to registration may involve the possibility of cancellation or correction of the entry the provisions as to this will be referred to later registration once effected must attract the consequences which the Act attaches to registration whether that was regular or otherwise. As will appear from the following paragraphs, the inhibiting effect of certain sections (e.g., ss. 62 and 63) and the probative effect of others (e.g., s. 75) in no way depend on any fact other than actual registration as proprietor. It is in fact the registration and not its antecedents which vests and divests title.

Their Lordships referred to s62 and s63 of the NZ Act, which were the equivalent ofs42ands118(which we will meet again inCassegrain v Cassegrain) of the current NSW Act. They said:

It is these sections which, together with those next referred to, confer upon the registered proprietor what has come to be called "indefeasibility of title". The expression, not used in the Act itself, is a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration.

****

[T]heir Lordships have accepted the general principle, that registration under the Land Transfer Act 1952 confers upon a registered proprietor a title to the interest in respect of which he is registered which is (under section 62 and 63) immune from adverse claims, other than those specifically excepted.In doing so they wish to make clear that this principle in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a Court acting in personam may grant.[Italics added: take note for up-coming section on thein personamexception]

****

The failure of the appeal against the [the mortgagee, Radomski] entails (and it was not contended otherwise) that it must equally fail against [the purchaser, Walker].

Strictly speaking the Privy Council did not need to consider the position of the mortgagee as the owner of farm was now the purchaser, Walker. However, the Privy Council expressly found in favour of the mortgagee, makingFrazer v Walkerauthority for the principle ofimmediateindefeasibility.

This theoriginal mortgage and certificateof title fromFrazer v Walker. Can you tell that Mr Frazer's signature is forged?

Immediate v Deferred Indefeasibility

There are two possible ways that indefeasibility can operate: immediate indefeasibility, in which a person acquires an indefeasible title in relation to all other parties as soon as they register, and deferred indefeasibility, in which a person acquires an indefeasible title in relation to all parties prior to their own transaction, but they do not acquire an indefeasible title in relation to the transaction through which they acquired the land. If that transaction was affected by fraud, for example, it can be set aside.

Some Torrens jurisdictions, like Ontario, have a system of deferred indefeasibility, while all Australian states use immediate indefeasibility. The question of which should apply is just a question of policy, just like the policy questions we saw in the difference between Old System and Torrens. These are simply priority rules that apply between twoinnocentparties (Mrs Frazer, the guilty party, is not getting anything). Which innocent party should win? The original owner of the land (Mr Frazer) or person who has just registered (the mortgagee)?

Using the facts ofFrazer v Walkerto illustrate the difference:

Deferred indefeasibilitywould mean:

Mr and Mrs Frazer Radomski's registered mortgage = defeasible

If the only thing that had happened was the registration of the forged mortgage, the forged part of the mortgage would have been defeasible, and Mr Frazer could have the mortgage removed from the register in relation to his share of the land. (Mrs Frazer's signature on the mortgage was not forged and so in relation to her share of the land, the mortgage would be enforceable no matter what kind of indefeasibility was being used).

BUT if

Mr and Mrs F Radomski's registered m'ge Walker's registered fee simple = indefeasible

If a second registration has occurred, Mr Frazer cannot get his share of the land back from Walker.

The theory behind deferred indefeasibility is that someone in the position of Radomski, who is actively involved in the mortgage transaction, has an opportunity to check if the documents have been validly executed; he dealt with Mrs Frazer. He had an opportunity to detect the fraud and not go ahead with the transaction. If he didn't detect it and went ahead and registered, then in many circumstances, it may be fair that his title is defeated. In contrast, a third party, like Walker, did not deal with Mrs Frazer. He has just relied on the faith of the register, which showed a valid mortgage, and he purchased land at a mortgagee sale. He is entitled to the benefit of indefeasibility.

An added factor in favour of deferred indefeasibility is that the easiest transactions to complete fraudulently are mortgages, and mortgagees typically do not want the land, they simply want to sell the land to recover the money they lent. Mortgages are the easiest transactions to complete fraudulently because mortgagees do not usually physically inspect property to value it; the entire transaction can happen through paper dealings of which an innocent co-owner can be completely unaware. (In contrast, purchasers always inspect property. If a wife is attempting tosella house fraudulently, her husband is likely to ask, "Dear, why are there people wandering through the house, inspecting the bathrooms, bedrooms and kitchen?") The fact that mortgages can be relatively easy to create fraudulently, combined with the fact that mortgagees do not actually want the land, makes deferred indefeasibility an attractive doctrine. It allows defrauded homeowners, with emotional ties to land, to keep their homes.

immediate indefeasibility, in contrast,means:

Mr and Mrs Frazer Radomski's registered mortgage = indefeasible

The theory behind immediate indefeasibility is that as long as someone like Radomski is not involved in the fraud and did not know about it, he is entitled to an indefeasible title on registration. He can confidently transact in relation to land without having to worry if he is dealing with a fraudster or a rouge spouse. He does not have to do extensive identity or probity checks before acquiring an interest in land. This will reduce his transaction costs and risks, in turn creating incentives to transact in relation to land. Immediate indefeasibility is the principle that the Privy Council applied, and which continues to applyin relation to all registered proprietors in NSW, except mortgagees after 1/11/11. We will come back to what happened on 1/11/11 when we do the fraud exception to indefeasibility, but in the meantime, what 'moral hazard' do you think immediate indefeasibility might create?

Breskvar v Wall[1971] HCA 70; (1971) 126 CLR 376 (13 December 1971)

Mr and Mrs B Petrie (RP) Wall (RP) Alban (contract of sale)

App. 2nd Res. 1st Res. 3rd Res.

The Breskvars borrowed money from Petrie. They should have executed an ordinary Torrens mortgage form which, in New South Wales, used to look likethis, (this happens to be the real mortgage from a forgery case calledYazgi v Permanent Custodians Limited[2007] NSWCA 204 (12 September 2007); Mrs Yazgi's signature was forged; can you tell?). However, instead,the Breskvars executed ablank transfer of the fee simpleand gave it and the CT to Petrie. They did this despite the fact that s53(5) of theStamp Act 1894(Qld) expressly stated that a transfer executed without the name of the transferee in ink was 'absolutely invalid and inoperative' at law or in equity.

The Breskvars' actions couldbe described as a 'pseudo Old System mortgage'. In Old System, mortgagors conveyed the legal fee simple to their mortgagee in return for money. That way, if the mortgagor defaulted on the loan, the mortgagee was already the legal owner of the land and able to sell the land to recover the debt. However, equity looked to the true nature of the transaction - a conveyance only as security for a loan - and treated the mortgagor as having a fully-fledged equitable interest, called an 'equity of redemption'. This entitled the mortgagor to 'redeem' the legal fee simple from the mortgagee when the mortgagor repaid the loan in full.

The transaction that the Breskvars entered mirrored an Old System mortgage; that is, they were borrowing money from Petrie and putting him in a position to become the registered proprietor of the fee simple should they fail to repay the debt. That way Petrie could either keep the land ('foreclosure') or sell it (mortgagee power of sale).

However, Petrie dishonestly inserted his grandson, Wall's name on the blank transfer and registered the transfer (dishonest, because there did not seem to be any evidence in the case that the Breskvars had defaulted on their loan). Wall, as registered proprietor, then signed a contract to sell the land to Alban Pty Ltd.

In the meantime, the Breskvars had decided to sell the land. Their agent searched the register and discovered that Wall was now the registered proprietor. The Breskvars lodged a caveat (a caveat prevents any further registrations occurring; we will do caveats in more detail later). Alban then settled the sale with Wall and tried to register their transfer, only to be prevented by the Breskvars' caveat.

The Breskvars sought a declaration that they were entitled to the land. Alban argued that their equitable interest under the contract of sale took priority over any interest of the Breskvars. Had the case only involved the Breskvars and Petrie/Wall, the matter would have been relatively simple - Petrie and Wall were fraudulent, so the Breskvars would be entitled to get their fee simple back. However, an innocent third party, Alban, was now involved. That made the case more complex, because it was a dispute between twoprima facieinnocent parties, Alban and the Breskvars.

The High Court had to address two questions in the case:

1. Did Wall acquire any title to land at all? (If not, Alban would have no interest in the land and there could be no dispute between the Breskvars and Alban).

2. If Wall did have some title, and created a further interest in Alban, whose interest should prevail - the Breskvars' or Alban's?

Read the following extract and find the answer to these two questions. Those answers established two fundamental principles of Australian land law. What are they? Come to class prepared to explain them.

Barwick CJ:

15. The Torrens system of registered title of which the Act is a form is not a system of registration of title but a system of title by registration. That which the certificate of title describes is not the title which the registered proprietor formerly had, or which but for registration would have had. The title it certifies is not historical or derivative. It is the title which registration itself has vested in the proprietor. Consequently, a registration which results from a void instrument is effective according to the terms of the registration. It matters not what the cause or reason for which the instrument is void. The affirmation by the Privy Council in Frazer v. Walker (1967) 1 AC 569 of the decision of the Supreme Court of New Zealand in Boyd v. Mayor, &c., of Wellington (1924) NZLR 1174, at p 1223 , now places that conclusion beyond question. Thus the effect of theStamp Actupon the memorandum of transfer in this case is irrelevant to the question whether the certificate of title is conclusive of its particulars. (at p386) ...

18. The situation therefore immediately after the registration of the memorandum of transfer of 5th March 1968 by the endorsement of a memorial on the certificate of title was that the fee simple in the land was vested in the first respondent. It follows that it was not and still is not vested in the appellants. But according to the findings of the trial judge that registration was procured by the first respondent by his own actual fraud. Consequently, although the registered proprietor in whom the fee simple was vested, the first respondent did hold his estate subject to the rights of the appellants. He did not hold it on trust for the appellants but as between themselves and the first respondent they had a right to sue to recover the land and to have the register rectified, their ability to make such a claim being within s. 124 (d). But, as the trial judge correctly points out, such a claim is an equitable claim enforceable by reason of the principles of the Court of Chancery. The appellants require the assistance of a court having equitable jurisdiction. (at p387)

19. If there had been no transaction by the first respondent with the third respondent, the appellants would have been entitled to succeed against the first respondent. Whether or not the Supreme Court could have amended the register need not be decided. Clearly an order for the execution by the first respondent of a memorandum of transfer to the appellants and for delivery to them of the duplicate certificate of title could have been ordered: and that order appropriately enforced. (at p387)

20. But the purchase by the third respondent bona fide for value and without notice intervened before that equitable right of the appellants was fulfilled. The third respondent thus acquired an equitable interest in the land. The ability to create and the validity of an equitable estate in land, the title to which is under the Torrens system were fully established in Barry v. Heider[1914] HCA 79; (1914) 19 CLR 197 . See also Great West Permanent Loan Co. v. Friesen (1925) AC 208 . The interest of the third respondent in the land was competitive with that of the appellants as persons deprived of their land by fraud. Their claim to the assistance of a court of equity whether regarded as a mere equity or an equitable interest in the land was not in its nature paramount or superior to that of the third respondent: nor in my opinion was that of the third respondent over that of the appellants which I think was an equitable interest in the land.....There is thus a competition between the respective interests of the appellants and of the third respondent to be resolved on equitable principles. (at p388)

21. Those principles are well established: see Rice v. Rice[1853] EngR 1102; (1854) 2 Drew 73 (61 ER 646) ; Shropshire Union Railways & Canal Co. v. The Queen (1875) LR 7 HL 496 ; Lapin v. Abigail[1930] HCA 6; (1930) 44 CLR 166 ; Abigail v. Lapin[1934] UKPCHCA 1; (1934) AC 491; (1934) 51 CLR 58 . The creation of the appellants' interest is prior in point of time. It arose at the time the first respondent became the registered proprietor. The circumstance that the memorandum of transfer by virtue of which the registration was obtained was executed in breach of TheStamp Actand void did not, in my opinion, prevent the appellants' right to sue the respondent arising. The priority of the creation of that right will only be lost by some conduct on the part of the appellants which must have contributed to the assumption, false as the event proved, upon which the holder of the competing equity acted when that equity was created. Here the appellants armed the second respondent with the means of placing himself or his nominee on the register. They executed a memorandum of transfer, without inserting therein the name of a purchaser; they handed over the relevant duplicate certificate of title and they authorised the second respondent, if occasion arose for the exercise of his powers as a mortgagee, to complete and register the memorandum of transfer. It seems to me that the actual decision of their Lordships in Abigail v. Lapin[1934] UKPCHCA 1; (1934) AC 491; (1934) 51 CLR 58 governs this case. Here, as there, it can properly be said that "the case . . . becomes one of an agent exceeding the limits of his authority but acting within its apparent indicia": see (1934) AC 491, at p 508;[1934] UKPCHCA 1; (1934) 51 CLR 58, at p 72 and the cases there cited. The appellants therefore lose the priority to which the prior creation of their interest in the land would otherwise have entitled them. (at p389)

In this final paragraph, Barwick CJ is setting out the fourth priority rule that was noted briefly in the chapter Old System land.This is a rule of the general law that still applies in the Torrens system. The general law rules that related to legal interests in land no longer apply because the rules for legal interests are now in s42 and 43 of theReal Property Act; priority is determined by registration and notice is irrelevant. However, theReal Property Actdoes not say anything about priority betweenunregisteredinterests and so the general law still applies. As his Honour notes, the rule comes fromRice v Rice(1854) 61 ER 646, and holds that in a competition between equitable interests, the first in time prevails unless the earlier is guilty of postponing conduct. We will consider this rule in more detail at the end of the Torrens chapter.

Note, immediately prior to the extract above, Barwick CJ said at [14]: "Proceedings may of course be brought against the registered proprietor by the persons and for the causes described in the quoted sections of the Act or by persons setting up mattersdepending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title: or in default of his compliance with such an order on his part, perhaps vesting orders may be made to effect the proper interest of the claimants in the land" (emphasis added). You will need to remember this finding when we consider thein personamexception to indefeasibility later in this chapter.

8. Exceptions to indefeasibility

While the ordinary indefeasibility rules in s42 and s43 will apply to the vast majority of transactions, there are a small number of exceptions which may upset or modify the registered title. We will cover the main exceptions - fraud, thein personamexception and short-term leases - but be aware that there are others we do not have time to explore. These are the exception for overriding statutes that may create an interest in land or divest someone of an interest in land irrespective of the registered title, omitted or misdescribed easements and profits a prendre, and land included in misdescribed boundaries. Also remember that the Torrens register only recordsinterests and estates in land. It is not a complete record of everything that affects land. There are a number of things that you will need to check for clients, the most obvious being zoning, which will tell you the legal uses of the land, e.g., residential, commercial, industrial etc. Other legislation that may affect the land includes heritage, resumption, mine subsidence and biodiversity legislation. Most planning matters are brought to purchasers' attention through a Planning Certificate, issued in accordance with s10.7 of theEnvironmental Planning and Assessment Act 1979(NSW), andwhich must be attached to contracts of sale by the vendor.

8.1. Fraud

The opening words of s42 of theReal Property Actare 'Except in the case of fraud....' and as a result, the primary exception to indefeasibility is fraud. This isfraud of the person claiming the benefit of registration. We have already dealt with fraud in the Torrens system:Frazer v Walkerinvolved fraud, but not fraud of the person registering. In that case, the person registering (the mortgagee, Radomksi) was completely oblivious to the fraud, and one of the central purposes of the Torrens system is to cure the problem of people unwittingly acquiring no title to land because ofsomeone else'sfraud. That is not the fact scenario we are dealing with here.

The fraud exception applies when the person who registers is fraudulent. Here's a simple example: in the past, if you forged your mother's signature on a transfer form, stole her certificate of title, and registered the property in your name, logically, s42 of theReal Property Actwould not assist you to keep it. You would have obtained a title (like the grandson inBreskvar v Wall), but it would have beendefeasible. Your mother would have been able to get her land back from you.

The question of whether someone has been fraudulent isa question of fact. Forgery is always fraud, but not all fraud cases involve forgery. When analysing fraud cases, courts (and students) need to look at what the registered proprietor said and did to determine if they were dishonest. The fraud exception is first and foremost about actual dishonesty on the part of the registered proprietor.

The kind of fraud that comes within s42 is often referred to as 'statutory fraud' simply because we are dealing the meaning of the word fraud in a particular statute. This is in contrast to equitable fraud which is now often known by its more modern name 'unconscionability'. In general law, attempting to take free of an earlier equitable interest if you were aware of its existence when youacquired your own interest in the land was considered 'equitable fraud'; not outright dishonesty but not morally acceptable. The concept of equitable fraud is embedded in the bona fide purchaser rule - if you know about an equitable interest, you are bound by it. But what do ss 42 and 43 say about notice of equitable interests? Is knowing about them and attempting to defeat them fraud in terms of theReal Property Act?

The leading case on fraud isLoke Yew v Port Swettenham Rubber Co Ltd[1913] AC 491. Eusope was granted 323 acres under the Selangor Land Code, and he became the registered proprietor. He sold 58 acres to Loke Yew using Malay documents (in this you can see that in other British colonies pre-existing land law continued to exist andwas recognised by the colonial government; compare this to Australia, as a 'settled colony', prior to the decision inMabo). Eusope then negotiated to sell his land to the Port Swettenham Rubber Company (PSRC), but he did not attempt to sell Loke Yew's land. AlthoughEusope was still the registered proprietor of Loke Yew's 58 acres and transferred title to the whole 323 acres to the PSRC, he made it clear that they had to negotiate separately with Loke Yew to buy his land.Onbecoming registered proprietor, thePSRC made a less than genuine offer tobuy Loke Yew's land, and when he refused, they commenced an action for ejectment relying on their registered title. Loke Yew argued that the PSRC's title to the 58 acres was defeasible for fraud. (Apologies for the poor quality of the extract - iLearn has limited capacity to deal with one hundred-year-old judgments).

Judicial Committee of the Privy Council:

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/597077046_1610484271..png" * MERGEFORMATINET

_______________________________________________________________________________________________________________________________________

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/622510652_1238540497..png" * MERGEFORMATINET

8.2. Legislative reform to combat fraud

eConveyancing and s56C RPA

Although eConveyancing has not changed any of the underlying principles that operate in relation to land, it has radically reduced thepossibility of individual instances of fraud in land transactions. This is because private citizens can no long transfer or mortgage land at law without the assistance of a professional (lawyer,licensed conveyancer, bank) who is a 'subscriber' to an ELNO. In contrast, when conveyancing was done with paper documents, anyone could print out andexecute a LRS transfer or mortgage form, and if they could get access to the certificate of title, thetransfer or mortgage could be lodged for registration.The state would register the dealings, and so long as the new registered proprietor was innocent ofthe fraud, their title would be secure. The defrauded previous owner might be entitled to compensation from the Torrens Assurance Fund, a fund of money created at the inception of the Torrens system, in acknowledgement of the factthat owners could lose their land through fraud in ways that would notoccur in Old System: (Real Property Act, s129(1)(e)). Remember that in Old System, if documents were forged they were completely ineffective to convey title. That is one of the problems that Torrens wasdesigned to fix.

Here are two examples of the way in which fraud could be perpetrated with paper documents:

1. Bert owned a holiday house in Terrigal. His son, Jake, looked after his father's affairs. Jake told a business associate, Suzie, that his father had a great waterfront property that Bert wanted to sell. Suzie liked the property and offered $1.5 million, which Jake accepted, purportedly on his father's behalf. Jake forged his father's signature on a contract of sale, and 42 days later, he forged his father's signature on a LRS transfer form. Jake took the CT from his father's safe and gave it and the forged transfer to Suzie. She lodged the documents with LRS and became the registered proprietor. While theforged contractwas (and remains) completely unenforceable, theforged transferform became effective on registration. Suzie's title would have been secure by virtue of s42 because she was not involved in the fraud. She also had no idea Jake was forging his father's signature, and it is routine for purchasers not to meet their vendors in person. Vendors are usually represented by agents, typically real estate agents, but also possibly an employee or a family member.

This could no longer occur with eConveyancing because the lawyer or licensed conveyancer performing the transaction must verify their client, who in this case is the landowner, Bert. Jake could not perform the transaction without a professional's assistance.

2. The most common way fraud occurred was via mortgages. This is because, unlike purchasers, mortgagees do not physically inspect properties, which would alert the (other) owner that something untoward was occurring. There were many cases that were similar toFrazer v Walker: a spouse, relative or lawyer, someone close enough to have access to the CT, forged the owner or co-owner's signature on a mortgage. The forged mortgage and CT were given to a bank, which advanced mortgage money to the person with whom they were dealing. That person was a fraudster, but banks were under no obligation and had no incentive to check that the person they were dealing with was the owner of the property or entitled to act on the owner's behalf. The fraudster would not repay the mortgage and the bank would exercise the power of sale. The homeowner might be entitled to compensation from the Assurance fund, but that was a poor substitute for a family home. Banks had no incentive to check the identity of the person with whom they were dealing because of strict judicialinterpretation of s42. Even if the mortgagee had been careless or even reckless in the mortgage transaction, for example by ignoring facts that suggested the person they were dealing with was not the landowner or authorised to act on their behalf, if the mortgagee was not involved in the fraud, had no knowledge of the fraud and had no fraudulent intent themselves, their title was secure in accordance with the principle of immediate indefeasibility inFrazer v Walker(see for example,Macquarie Bank v Sixty-Four Throne[1988] 3 VR 133).

During the longest property boom in Australian history, from the mid-1990s onwards (it is not clear yet whether this boom is now over), there were disturbing levels of fraud in Australian property markets. This was in part a consequence of the security provided to lenders by s42; the less they knew about a transaction, the safer their mortgage would be. After the GFC, governments took steps to impose obligations on mortgagees to check the transactions they were negotiating, specifically, the RPA was amended to stipulate that a mortgagee would not have an indefeasible mortgage unless they took reasonable steps to identify that the person executing the mortgage documents was the owner of the land:s56C of theReal Property Act. This sectioncame into force on 1/11/11 (an easy date to remember!) and applies to all mortgages created after that date.

Please click on the hyperlink and read s56C for yourself, paying particular attention to ss (1), (2) and (6).

As you will see s56C requires mortgagees to takereasonable steps toverify the identity of the person who is executing the mortgage documents;that is, mortgagees must work out if the person signing the mortgage is in fact the landowner or a personauthorisedto sign for the landowner. Mortgagees can no longer rely on their own ignorance.There is no limit to the way in which a mortgagee might verify the identity of the mortgagor, but if they use the steps set out in theConveyancing Rulesmade by the Registrar General pursuant to s12E of theReal Property Act, they will be considered to have taken reasonable steps. If the mortgage is affected by fraud, failure to comply with s56C(1) can result in the mortgage being removed from the register but note that even if proper steps are taken to verify the identity of the mortgagor, if the Registrar General concludes that the mortgagee had actual or constructive notice of fraud, the mortgage can be cancelled. That means the mortgagee cannot sell the land and recover the money that they lent. In effect, s56C applies the principle of deferred indefeasibility to mortgagees (but no other registered proprietors).

The Conveyancing Rules deal with the verification of identity for the purposes of s56Candelectronic conveyancing. In the brief section on eConveyancing, we learned that a lawyer or conveyancer must verify the identity of the client to ensure that the person instructing them is actually the owner of the land. Rather than double-up and create separate rules for lawyers to identify their clients, and for banks to identify mortgagors, the same verification of identity (VOI) standard (process) is used. This standard is found in Schedule 8 of theNSW Participation Rules for Electronic Conveyancingmade pursuant to s23 of theElectronic Conveyancing(Adoption of National Law) Act 2012.Please read Schedule 8.

These are the kinds of processes that are hard to follow in theory, but easy in practice once you have donethem a few times. The crux of the rule in relation to s56Cis that mortgagees must now:

conduct a face-to-face interview with the mortgagor;

require the mortgagor to produce a passport and a driver's licence or multiple forms of lesser identification (e.g., a birth certificate, Centrelink, Medicareor Veterans Affairs card); and

be satisfied that the person being identified is a 'reasonable' likeness to the person in the identification photos.

In other words, mortgagees cannot accept mortgage documents from a mortgagor they have not identified. The mortgagee must see the mortgagor sign the loan agreement and they must verify that the person signing is in fact the mortgagor and not an imposter. Before signing a mortgage for registration in PEXA, lawyers representing a mortgagee must check a box certifying that they are reasonably satisfied that they or the mortgagee they represent has taken reasonable steps to verify the identity of the mortgagor. Lawyers representing purchasers with an in-coming mortgagee must check a similar box.

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.Word/HzN4qUGcQyyCAAAAAElFTkSuQmCC" * MERGEFORMATINET

To a large degree, the success of these provisions depends on the people using them. If banks and lawyers do not understand the significance of VOI and engage in the process as though it is a tick a box exercise, fraudsters may be able to register fraudulent mortgages still. An example of this can be seen inWassell v Ken Carr Bobcat & Tipper Hire Pty Ltd[2021] NSWSC 1415 at[180]-[188] in which a solicitor purporting to act for the mortgagor certified that she had verified the identity of directors of the mortgagor company in aface-to-faceinterview. In fact, all she had seen were photographs of the directors holding up their driver licences, given to her by a fraudster. Somewhat inexplicably, the judgment does not deal withthe mortgagee's obligation to verify the identity of the mortgagor. For the purposes of s56C and the validity of mortgages, the statutory obligation is imposed on the mortgagee, not the mortgagor's solicitor. It is important that you understand why you are required to verify clients or mortgagors in practice. It is also crucial that as a lawyer with access to PEXA you never compromise the security of your PEXA Digital Certificate and pin which allow you to sign documents on behalf of clients.

One possible continuing vulnerability of landowners to fraudulent mortgages is the use of forged powers of attorney. If a person is too busy to act for themselves, they can appoint someone to be their attorney to act on their behalf:Powers of Attorney Act 2003(NSW),s9. If an attorney is authorised to engage in property transactions the power of attorney must be registered on the old deeds register and will be given a registration number:Powers of Attorney Act 2003,s52. InCEG Direct Securities Pty Ltd v Wang[2021] NSWCA 76, the Court of Appeal had to consider the validity of mortgages over a properties owned by Mr and Mrs Wang. The mortgages had been created by their son, Mengnan, using a power of attorney on which he forged his parents' signatures. The Court of Appeal held that as the mortgage documents stated they secured money lent "toyou or at your request", and no money was in fact lent to Mr and Mrs Wang or at their request, the mortgage secured nothing. As a result, the mortgagee had no right to sell the properties to recover the loan. However, this finding turned on the chance wording of the mortgage document; there are many other cases in which courts have found that mortgage documents secured loans when all of the money was actually received by a fraudster and not the landowner. There was no discussion of s56C in the primary or appeal judgments, presumably because the lender had complied with s56C and VOI standard for powers of attorney. In the Participation Rules for Electronic Conveyancing, Clause 6 of Schedule 8 -Verification Standard requires the IdentityVerifierto:

(a) confirm from the [registered] power of attorney the details of the attorney and the donor; and

(b) take reasonable steps to establish that the Conveyancing Transaction(s) is authorised by the power of attorney; and

(c)verify the identity of the attorneyin accordance with the Verification of Identity Standard [emphasis added].

From this you can see that it was the son, who was perpetrating the fraud, who needed to be identified, not the parent landowners. The lender is entitled to take the power of attorney at face value and to rely on its registration number. If it seems in order, they are not required to check that the power was validly executed and is not a forgery. Further, either the principal or the attorney can register the power, and LRS does not check their authority to do so.

8.3. Volunteers

A volunteer or donee is someone who has been given a gift. One of the questions that does not seem to have a consistent answer in the Torrens statutes in Australia is, 'should a volunteer get the benefit of indefeasibility or was indefeasibility only intended for purchasers who have relied on the faith of the register and paid for land?'.

In general land law (i.e., not Torrens), a volunteer could get no better title than their donor; if their donor was bound by an equitable interest in land, the donee would be bound too. Remember the bona fide purchaser rule? That a bona fide purchaser who acquired a legal title without notice of an earlier equitable interest was not bound by it? As the rule makes clear, it only applied to purchasers. If a person was a volunteer, they were bound by an earlier equitable interest, even when they had no notice of it.

Putting this dilemma in context, imagine Allen owned the legal fee simple of land in Botany and borrowed $100,000 from his friend Boris. Allen offers his land as security for the loan, but they only record this on a signed piece of paper; they do not register a mortgage. Boris would have an equitable mortgage. Allen then died, leaving his land to his daughter Carol. In the ordinary administration of a will all debts are paid before anyone is distributed property or money in the estate, and if the debts are equal to or exceed the assets of the estate, no one will inherit anything. However, imagine no one realises that Allen borrowed money, the will is administered, and Carol is registered as the new owner of the land before Boris can alert anyone to his interest.

A (legal fee simple)B (equitable mortgage) and then A died

C (legal fee simple) registered volunteer

Should Carol be able to keep the land free of the equitable mortgage or is she bound by it? That is, should Carol have to pay back Boris? Should she inherit the interest in land that Allen had - a fee simple, burdened by an equitable mortgage - or is she entitled to an unencumbered fee simple if that is what has been recorded on the register? Imagine the same fact scenario, but Allen did not die, he just realised he would never be able to pay Boris back. He gives the property to Carol, and she registers. Carol has no idea about the mortgage and is not colluding with Allen. Should she be able to keep the land free of the mortgage or should she just receive what Allen had, a fee simple burdened by a mortgage? (If Allen were declared bankrupt, legislation would allow his trustee in bankruptcy to 'claw back' the property but put that to one side for the moment).

The starting point for answering this question is theReal Property Act 1900because Carol's title derives from s42. Read s42 and s43 again and see what you think they are saying about volunteers, if anything:

s42 Estate of registered proprietor paramount

(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except ...

s43 Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or any part thereof, or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.

Now, search theReal Property Act(top right corner of the Austlii page) to see if there are any other sections that might refer to purchasers or 'valuable consideration'. What does a search tell you? Are there any sections that seem to distinguish between purchasers and volunteers?

Bogdanovic v Koteff(1988) 12 NSWLR 472

Mr S Koteff senior(RP) Mr Nick Koteff junior RP = s42, not bound by unregistered interests, s43 = even if he had notice of them

contract to stay for life

Mr andMrs Bogdanovic

equitable interest under contract

Mr and Mrs Bogdanovic lived with their friend Mr S Koteff in a house in Annandale, owned by Mr SKoteff. When Mr Bogdanovic died in 1977, Mrs Bogdanovic considered moving out, but Mr SKoteff promised that if she looked after him for the rest of his life she could stay in the house for the rest of her life. Mr S Koteff died in 1982, leaving the house to his son, Mr N Koteff. The will was administered and Mr N Koteff was registered as the owner of the land. He commenced proceedings to recover possession of the house from Mrs Bogdanovic and she resisted. The evidence suggested that Mr N Koteff did not know about the agreement between his father and Mrs Bogdanovic.

Priestley JA (Hope JA and Samuel JA agreeing), held that there was an agreement between Mr S Koteff and Mrs Bogdanovic to transfer Mrs Bogdanovic an interest in land (the specific nature of which it was not necessary to define), and as counsel had not raised the lack of writing, the agreement was specifically enforceable (remember s54A!). As a result, Mrs Bogdanovic had an equitable interest in land. However, because Mr N Koteff was now registered as the owner of land, the Court needed to decide if s42 indefeasibility applied to a volunteer or whether, as in general law, Mr N Koteff's title would be the same as his father's, that is, a fee simple burdened by an equitable interest.

Priestley JA referred to ss 42, 43, 124 (which is nows118) and s135.His Honour continued at[478]:

The argument for the appellant recognised that on the face of s 42 and s 43 the respondent would hold his registered interest in fee simple free of any equitable rights of the appellant. It was submitted however that it appeared from other sections in the Act, and from various decisions, that s 42 and s 43 cannot be given the absolute force that in their isolation they appear to have. For this propositionFrazer v Walker[1967] AC 569andKing v Smail[1958] VR 273were particularly relied on. It was then submitted that it had for many years been accepted by text writers of authority that although s 42 (and its equivalents in other jurisdictions which have Torrens System statutes) makes no express distinction between the measure of indefeasibility afforded to a volunteer and to a purchaser for value, the section was not intended (this being arrived at as a matter of construction) to give indefeasibility to the volunteer. A number of text writers, including Baalman in hisCommentary [479]on the Torrens System in New South Wales(1951) at 149-150, have expressed that view, which is retained in the current descendant of Baalman,The Torrens System in New South Walesby Woodman & Nettle (1985) (looseleaf) at 347-348. Woodman & Nettle also retains (at those pages) Baalman's comment (at 150):

The general result is that, on registration of a voluntary transfer, the transferee (as is the case of a volunteer under the general law) occupies no better position than did his transferor. But once registered, he occupies a position quite as good; his title is indefeasible against all claims except such as would have prevailed against his immediate predecessor.

There are certainly authorities to support the appellant's assertion.Kingdecided in terms that the Victorian Torrens System Act, theTransfer of Land Act1954, did not confer upon a registered proprietor, being a mere volunteer, a title free from prior equities.Frazeralso supports the appellant's submission that there is some limitation upon the absoluteness of s 42 and s 43, but only in the sense that a person having rights in equity against a registered proprietor may procure orders against that registered proprietor which will bring about the result that the proprietor's registered interest may be altered, as a result of equity, in acting upon his conscience, forcing him to submit to what in practical terms amounts to a correction of the register in favour of the person having the rights in equity against him.

If, however,Kingrepresented the law in New South Wales at the times relevant to the present case, the appellant would be entitled to succeed. The reasoning inKing, in summary, was that when the Victorian counterparts of ss 42, 43, 96, 124 and 135 were read together, the references in them to a purchaser for value (taking the New South Wales sections as examples, in ss 42(1)(c), 124(d), 124(e) and 135) showed a general intention not to confer the benefit of indefeasibility upon volunteers.Kingis the latest of the cases cited by Woodman & Nettle (at 347-348) in support of the view stated in the text.Frazerhowever, took the more limited view that the sections from which the general proposition was derived by those who said volunteers were not within the meaning of s 42, did not support such a general proposition, but created only such exceptions to the general operative part of s 42 as were specifically stated in the sections themselves. Speaking for the Privy Council, Lord Wilberforce said (at 580-581) that the indefeasibility of title concept:

is central in the system of registration. It does not involve that the registered proprietor is protected against any claim whatsoever; there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him.

In New South Wales, at least two decisions at first instance have held the reasoning inFrazerapplicable to theReal Property Act: seeMayer v Coe(1968) 88 WN (Pt 1) (NSW) 549;[1968] 2 NSWR 747andRatcliffe v Watters(1969) 89 WN (Pt 1) (NSW) 497;[1969] 2 NSWR 146.

InBreskvar v Wall(1971) 126 CLR 376the High Court acceptedFrazeras applicable to the Queensland Torrens System statute, theReal Property Act [480]of 1877. Further, Barwick CJ, with whom Windeyer and Owen JJ both agreed, said that bothMayerandRatcliffecorrectly appliedFrazer. None of the other four judges expressly mentioned the two New South Wales decisions, but it seems implicit in their discussion of the authorities that they were proceeding on the footing that the principles inFrazerwould be likewise applicable to Torrens System statutes in other Australian States unless a particular statute happened to contain some special provision requiring a different conclusion. So far as I have been able to see there is no such significantly distinguishing provision in theReal Property Act. Thus, it seems to me, the central ideas ofFrazerare required by the High Court's decision inBreskvarto be applied by this Court in dealing with the present case. The broad proposition arrived at by Adam J inKing, that a registered proprietor, being a mere volunteer does not obtain a title free from prior equities, must, followingBreskvar, be replaced by a formulation based on what the High Court said in that case. There is such a formulation in Windeyer J's reasons. After referring to what Torrens himself said in his 1862 handbook on theReal Property Actof South Australia to the effect that his system left each freeholder in the same position as a grantee direct from the Crown, Windeyer J went on (at 400):

This is an assertion that the title of each registered proprietor comes from the fact of registration, that it is made the source of the title, rather than a retrospective approbation of it as a derivative right.

I say that only to emphasize that the doctrine of an indefeasible title arising by registration was seen as the very essence of the Torrens system from its beginning. In the present case, the decision of the Privy Council inFrazer v Walker[1967] 1 AC 569recognizes that the registered proprietor has the legal property in the land, subject only to equities and such interests as the Act expressly preserves.

Similar statements were made by other members of the court, see Barwick CJ (at 385), Menzies J (at 397), Walsh J (at 405) and Gibbs J (indirectly) (at 413).

In the present appeal the appellant has not been able to point to anything in the New South Wales Act preserving the rights she had in regard to the land against the registered proprietor. She could have enforced those rights against Mr S Koteff and, I would assume, against his executor. But if knowledge of the appellant's interest by Mr N Koteff before he became registered proprietor would enable her to assert her rights against him (a matter upon which it is unnecessary in this case to express any opinion) the materials earlier referred to show there is no basis for holding Mr N Koteff knew anything which would put him on notice of those rights. Thus there was no material upon which the appellant could attempt to found an argument of any personal right against Mr N Koteff, nor was there any provision in theReal Property Acton which she could rely to prevent s 42 so operating that Mr N Koteff held his interest in the land as registered proprietor of an estate in fee simple absolutely free from any estate or interest in her.

It seems to me that the provisions of theReal Property Actand the interpretations put on equivalent legislation by decisions which this Court should follow, lead to the result that the appellant's appeal must be dismissed with costs.

[481]

Appeal dismissed.

As you can see from Priestley JA's judgment, the law in other states like Victoria is not the same as NSW. However,Bogdanovicis the current NSW authority.Do you think thatFrazer v WalkerandBreskvar v Wallwere specifically on point, or were they distinguishable?

Volunteers who receive their title from a fraudster

There is one situation in which theReal Property Actmakes it clear that a volunteer does not have an indefeasible title. This is set out ins118:118 Registered proprietor protected except in certain cases

(1) Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows--

(a) proceedings brought by a mortgagee against a mortgagor in default,

(b) proceedings brought by a chargee or covenant chargee against a charger or covenant charger in default,

(c) proceedings brought by a lessor against a lessee in default,

(d) proceedings brought by a person deprived of land by fraud against--

(i) a person who has been registered as proprietor of the land through fraud, or

(ii) a person deriving (otherwise than as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud,

(e) proceedings brought by a person deprived of, or claiming, land that (by reason of the misdescription of other land or its boundaries) has been included in a folio of the Register for the other land against a person who has been registered as proprietor of the other land (otherwise than as a transferee bona fide for valuable consideration),

(f) proceedings brought by a registered proprietor under an earlier folio of the Register against a registered proprietor under a later folio of the Register where the two folios have been created for the same land.

This section was always treated as a procedural section, simply re-enforcing the main provisions of the Act. You can see that many of the sub-sections are self-evident, e.g., ss(1)(a) and (c) - of course a mortgagee or lessor can bring an action to recover land from a mortgagor or lessee who is in default. However, inCassegrain v Cassegrain, the High Court applied ss(1)(d)(ii) to find that a registered volunteer's title was defeasible because of fraud in a transaction. In that case, Claude Cassegrain claimed that a Cassegrain family company owed him money. To pay the debt, he arranged for a farm owed by the family company to be transferred to him and his wife, Felicity, as joint tenants. In reality, the company did not owe Claude money and so the transfer was fraudulent. Claude then transferred his share to his wife for $1 so that she become the sole owner of the farm. The High Court had to decide whether either of the transfers to Felicity were affected by fraud.

Company 1. Claude and Felicity as joint tenants registered

1/2 1/2

2. Felicity registered

1/2

The High Court held that the first transfer to Felicity was not affected by fraud for the purposes of s42. This was because Felicity was not fraudulent, and she had no knowledge of Claude's fraud. Somewhat inexplicably, the High Court also found that Claude was not acting as Felicity's agent. If Claude were her agent, then she should have been affected by his fraud, in accordance with the general rule of agency, that if an agent is fraudulent, their principal (the person who engaged them) is fraudulent too, unless it can be proved that what the agent did was completely outside the scope of the agency. The High Court did not think that agency had been proved. As a result, Felicity was entitled to keep the share transferred to her by the company in accordance with s42.

However, in relation to the share transferred to Felicity by Claude, the High Court held that s118(1)(d)(ii) applied. Reading it above, you will see that this section says that an action can be brought against a registered proprietor (Felicity) to recover land, if the proceedings are brought by someone deprived of land through fraud (the company) against 'a person deriving [title] (otherwise than as a transferee bona fide for valuable consideration) [a volunteer - Felicity] from or through a person registered as proprietor of the land through fraud [Claude]'. Despite its terrible drafting, the meaning of s118(1)(c) is clear - if a fraudster attempts to off-load property they have acquired through fraud on a volunteer (typically a family member, so the fraudster will still benefit from the land), the volunteer will not be able to keep the land; their title will be defeasible. Arguably, this section suggests that the RPA always intended to treat volunteers' titles differently from purchasers for value. It is important to realise that the phrase 'from or through a person registered as proprietor of the land through fraud' means that person's own fraud. It does not mean a person who became the registered proprietor when there was fraud in the transaction for which they were not responsible. For example, imagine a solicitor fraudulently transferred their client's land to A, who knows nothing of the fraud. A then made a gift of the land to B, who is registered. Both A and B's registered titles would be secure in accordance with s42, and s118(1)(d)(ii) would have no application to B's title.

8.4. Short-term leases

In NSW, leases for less than 3 years are an exception to indefeasibility. This is in s42(1)(d) of the Real Property Act.

s42

(1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except:

****

(d) a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected:Provided that:

(i) The term for which the tenancy was created does not exceed three years, and

(ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed three years.

This section is a workable, compromise position. While it is essential to encourage people to register interests in land, registration takes time and money. Short-term leases obviously come up for renewal frequently, and so landlords and tenants would often face the costs of registering leases. If the landlord sells the fee simple, a new registered proprietor is likely to know about the unregistered short-term lease because:

the landlord told them (failing to reveal a lease would be breach of the contract of sale) or

the new RP would inspect the property and would be likely to see that there was a tenant in possession or

even if neither 1 or 2 occurred, the new RP is only prevented from moving into the property for a relatively short period of time.

The section applies if a tenant is:

already in possession or is entitled to possession (e.g., the lease has begun but the tenant has not moved in yet), and

the lease term + the option does not exceed 3 years.

So, a lease for a year with an option to renew for 2 years is an exception; a lease for 2 years with an option to renew for 2 years is not (and no, the tenant cannot just stay for the initial 2 years).

Unregistered short-term leases are extremely common, most obviously residential tenancies which are typically 6 months or a year long.

8.5. In personam exception

The in personam exception to indefeasibility has its genesis in the judgment of Lord Wilberforce inFrazer v Walker.His Honour said that the application of the doctrine of immediate indefeasibility and a finding in favour of the registered mortgagee

in no way denies the right of a plaintiff to bring against a registered proprietor a claimin personam, founded in law or in equity, for such relief as a court actingin personammay grant.

The exception was also highlighted by Barwick CJ inBreskvar v Wallat [14]where his Honour said,

Proceedings may of course be brought against the registered proprietor ... by persons setting up mattersdepending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title: or in default of his compliance with such an order on his part, perhaps vesting orders may be made to effect the proper interest of the claimants in the land, (emphasis added).

'In personam' means against a specific person, and so a claimin personamis a claim that can only be made against a specific person, as opposed to a claim in relation to land (in rem), which is enforceable against the world.

In its simplest form, thein personamexception is not really an exception at all. It is simply the ordinary operation of law and equity against a registered proprietor. So, by way of example, think about a contract of sale. If a registered proprietor signs a binding contract of sale with a purchaser, the contract is obviously enforceable against the registered proprietor. Their registered status is neither here nor there. They have bound themselves to the contract and must live with the consequences. They most certainly cannot argue that as the registered proprietor they are not bound by the purchaser's equitable interest. The contract is legally enforceable, and equity will grant specific performance, forcing the registered proprietor to execute a transfer of the land in favour of the purchaser. Exactly the same analysis applies if a registered proprietor contractually agrees to grant a mortgage, a lease, an easement or any other property right or if they expressly or implied create a trust. Their registered status is immaterial.

There are many other circumstances, in addition to their own contracts, in which rights will be enforceable against an existing registered proprietor either in law or in equity. Just because you are the registered owner of land does not mean you are above the law. For example, common law easements by prescription arise when someone has been crossing their neighbour's land without force, secrecy or permission, for more than 20 years. So long as the servient tenement (the land being crossed) has had the same registered proprietor for that whole period, there is no reason why the easement by prescription should not be enforced against them. There is no issue of indefeasibility: the servient tenement owner is not being bound by a pre-existing easement that they did not know about when they relied on the register and acquired their land. The servient tenement owner is being bound by an easement that arose in the course of their ownership by virtue of existing common law (Golding v Tanner(1991) 56 SASR 482; cfWilliams v State Transit Authority of NSW(2004) 60 NSLR 286). We do not study prescriptive easements in Property, so you do not need to understand their detail; they are just mentioned to illustrate a point about thein personamexception.

Prescriptive easements are an example of a registered proprietor being bound by a right 'founded in law'. You might remember from Contracts a wife's 'special equity' established by the High Court inYerkey v Jones(1940) 63 CLR 649 and applied inGarcia v National Australia Bank Ltd[1998] HCA 48; these are both examples of rights against a registered proprietor, founded in equity.

To refresh your memory, a wife's special equity arises in these circumstances: when banks lend money, they often require a guarantor for the debt. A guarantor is someone who promises to repay the loan in the event that the primary debtor cannot. Because a promise to repay is not worth anything if the promisor has no money, banks typically require guarantors to also provide security, that is, property that can be sold to repaid the loan. Sometimes when husbands want to borrow money for their businesses, wives act as guarantors for their loans, and the security for the guarantee is a registered mortgage over land owned by the wife. This will frequently be the family home or the wife's share of the family home. In the event that the husband cannot repay the loan, the guarantee and mortgage will be enforced, and the family home will be sold. If the wife has obtained a benefit from the loan (e.g., she was financially supported by her husband's business), this is perfectly just.

However, if the wife obtained no benefit from the loan, the matter is different. In these circumstances, if either

a) she understood the transaction, but the husband unduly influenced her to enter it or

b) the husband did not unduly influence her, but she did not understand the transaction, and despite knowing that a wife might have trust and confidence in her husband, the bank made no effort to explain the transaction or to ensure that she received independent advice,

a court will not enforce the guarantee or mortgage because to do so would be 'unconscionable'. This is a wife's special equity. It is similar to the circumstances inCommercial Bank of Australia v Amadio(1983) 151 CLR 447 in which the High Court refused to enforce a registered mortgage against elderly, Italian parents, with limited English, who had offered their home as security for their son's debts. It was clear that they did not understand the full nature of the transaction, that they were vulnerable, and that the bank's employee had closed his eyes to this. The High Court held that it would be unconscionable to allow the bank to enforce its mortgage.

AlthoughYerkey, GarciaorAmadiowere all challenges to a registered title, there is no mention of 'indefeasibility' in the judgments. The banks' registered statuses were simply not relevant. As registered proprietors of mortgages they are still subject to the law, including equitable doctrines that arise against them because of their own actions.

However, there are some causes of action from which registered proprietors are clearly protected. Most obviously, the enforcement of earlier equitable interests which outside the Torrens system would bind them. For example, if a tenant has an equitable lease of more than three years, despite the fact that this is an equitable property right enforceable against the world, it isnotenforceable against a new registered proprietor (s42), irrespective of whether he or she has notice of the lease (s43). This is a fundamental part of the Torrens system - freeinglandownersfrom earlier interests in land which have not been registered, (thereby also creating an incentive to register). But, in what is arguably the true definition of thein personamexception (in contrast to the examples above, which are simply a registered proprietor being bound by the law), there are some circumstances in which a registered proprietor will be bound by an earlier equitable interest because of what theypersonallyhave said and done; that is, this is an exception to the general rule that registered proprietors are not bound by earlier equitable interests even if they knew about them. The leading case,Bahr v Nicolay,illustrates this principle clearly.

Bahr v Nicolay(1988) 164 CLR 604

The appellants, Mr and Mrs Bahr, contracted to sell land, Lot 340, to the first respondent, Nicolay. Cl.6 of the contract contained an option for the Bahrs to repurchase the land on payment of an agreed price. Nicolay then sold the land to the second respondents, the Thompsons. Cl.4 of the Nicolay-Thompsons contract 'acknowledged' the existence of cl.6 in the earlier contract between the Bahrs and Nicolay. After settlement of the Thompsons' purchase, the Thompsons wrote to the Bahrs' solicitors saying that "the clause relating to thepurchase of Lot 340 by W. & J.M. Bahr is reconised(sic) by us and providing 3 months notice oftheir intention to purchase is given on July 1st1983 with 10% of the purchase money then we willagree to sign an offer for $45,000 plus anyimprovement at cost from this date". The Thompsons later wrote to the Bahrs offering to buy another lot the Bahrs owned, the business on it, and the business on Lot 340, "subject to the vendors relinquishing all rightsto repurchase the freehold of Lot 340". The Bahrs refused this offer.

TheBahrs later attempted to exercise their option to repurchase Lot 340, but the Thompsons refused to sell. The evidence suggested that the Thompsons had taken a calculated risk that the Bahrs would not be in a financial position repurchase the land. The Thompsons relied on the Western Australian equivalents of s42 and s43 of theReal Property Act,claiming that as registered proprietors they were not bound by earlier unregistered interests, even if they had notice of them.

Cl. 6 Cl.4

Bahrs Nicolay Thompson

Appellant First respondent Second respondent

Option to purchase = equitable interest Registered proprietor =

s42, not bound by unregistered interests,

s43, even with notice of them

MASON C.J. AND DAWSON J:

2. Clause 6 of the undated contract, stamped 25 June 1980, between the appellants and the first respondent created in the appellants an equitable estate or interest in Lot 340, enforceable against the first respondent and, in the events that happened, against the second respondents, provided that relief by way of specific performance was available at the relevant time...

****

7. The outcome of the present case does not turn on the precise nature of the appellants' equitable interest. The outcome turns initially on the question whetherss.68and134of theTransfer of Land Act 1893(W.A.) ("theAct") defeat that interest by reason of the second respondents having become registered proprietors of the land. And if this question be answered in the negative, there is the question whether the courts below were correct in holding that the appellants were not entitled to an order for specific performance against the second respondents, specific performance being unobtainable as against the first respondent.

8. By cl.4 of the agreement between the first respondent and the second respondents, the second respondents "acknowledge() that an agreement exists" between the appellants and the first respondent, that agreement being the undated 1980 agreement. The clause does not purport to create in favour of the appellants new rights over and above those previously existing. In terms it acknowledges the existence of the earlier agreement. Although the precise effect of the clause must be left for later consideration, it necessarily involves an acknowledgment of such rights as the appellants may have had under the earlier agreement.

9. This characterization of cl.4 lies at the heart of the second respondents' case: namely that mere notice of a prior unregistered interest does not amount to fraud within the meaning ofs.68.That section provides that, except in the case of fraud, the registered proprietor holds the land subject only to encumbrances notified on the certificate of title, save for exceptions not material to this case.Section 134provides that, except in the case of fraud, no person taking a transfer of land shall be affected by actual or constructive notice of any trust or unregistered interest and that knowledge of any trust or unregistered interest "shall not of itself be imputed as fraud".

10.Sections 68and134give expression to, and at the same time qualify, the principle of indefeasibility of title which is the foundation of the Torrens system of title. As the Judicial Committee observed in Gibbs v. Messer (1891) AC 248, at p 254:

"The object is to save persons dealing with registered proprietors from the trouble and expense of going behind the register, in order to investigate the history of their author's title, and to satisfy themselves of its validity."

Neither the two sections nor the principle of indefeasibility preclude a claim to an estate or interest in land against a registered proprietor arising out of the acts of the registered proprietor himself: Breskvar v. Wall (1971) 126 CLR 376, at pp 384-385. Thus, an equity against a registered proprietor arising out of a transaction taking place after he became registered as proprietor may be enforced against him: Barry v. Heider[1914] HCA 79; (1914) 19 CLR 197. So also with an equity arising from conduct of the registered proprietor before registration (Logue v. Shoalhaven Shire Council (1979) 1 NSWLR 537, at p 563), so long as the recognition and enforcement of that equity involves no conflict withss.68and134. Provided that this qualification is observed, the recognition and enforcement of such an equity is consistent with the principle of indefeasibility and the protection which it gives to those who deal with the registered proprietor on the faith of the register.

11. There is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest or in taking a transfer with knowledge that its registration will defeat such an interest: Mills v. Stokman[1967] HCA 15; (1967) 116 CLR 61, at p 78; Waimiha Sawmilling Co v. Waione Timber Co (1926) AC 101...

****

13. According to the decisions of this Court actual fraud, personal dishonesty or moral turpitude lie at the heart of the two sections and their counterparts: see Butler v. Fairclough[1917] HCA 9; (1917) 23 CLR 78, at pp 90, 97; Stuart v. Kingston, at pp 329, 356. However, from the appellants' point of view the examples may not travel quite far enough because the dishonesty which they exhibit is dishonesty on the part of the registered proprietor in securing his registration as proprietor.

14. This point, on which the second respondents heavily relied, emerges from the comments made by Lord Moulton for the Judicial Committee in Loke Yew. The appellant was the equitable owner of 58 acres of a parcel of 322 acres of land, his interest being unregistered. The registered proprietor of the entire parcel, who was the beneficial owner of 264 acres, transferred the entire parcel to the respondents who became registered as proprietors on their undertaking that they would purchase the appellant's interest. Their Lordships described (at p 502) a contemporaneous document, which was designed to record the undertaking, as "false and fraudulently made for the purpose of inducing" the transferor to execute a conveyance of the entire parcel. Lord Moulton expressed the Judicial Committee's conclusion on the fraud issue by saying (at p 504) that, as the transfer had been obtained by fraud, the case fell within the statutory exception to the principle of indefeasibility.

15. For our part we do not see the illustrations given and the statements made in the cases as amounting to definitive pronouncements that fraud is confined to fraud in the obtaining of a transfer or in securing registration? The statements, viewed in their context, merely express the reasons why particular circumstances fall within the statutory exception. Nor do we see anything in the language or the purpose ofs.68which warrants such a restrictive interpretation. Indeed, we agree with Higgins J. in Stuart v. Kingston when his Honour said (at p 345) that there was much to be said for the view, expressed by Stawell C.J. on the equivalent Victorian provision, that the section should be "construed strictly" and the exception "liberally". The section restricts, in the interests of indefeasibility of title, rights which would exist otherwise at law or in equity. And granted that an exception is to be made for fraud why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognize as a basis for obtaining title, as well as fraudulent conduct which enables him to obtain title or registration. In the context ofs.68there is no difference between the false undertaking which induced the execution of the transfer in Loke Yew and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the prior interest. The repudiation is fraudulent because it has as its object the destruction of the unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer. For the same reason the subsequent repudiation by a transferee of property of a limited beneficial interest in that property is fraudulent, when the transferee took the property on terms that the limited beneficial interest would be retained by the transferor. It is immaterial that the transferee "may have been innocent of any fraudulent intent in taking the conveyance in absolute form": Bannister v. Bannister (1948) 2 All ER 133, at p 136.

16. What then was the purpose and effect of cl.4 of the agreement between the first and the second respondents? The matrix of circumstances in which the agreement was made throws up three significant factors. First, the making of an agreement between the first and second respondents which would result in the destruction of the appellants' existing rights, or allow the destruction of those rights, by registration of a transfer in favour of the second respondents in circumstances whereby the rights became unenforceable would expose the first respondent to liability for breach of contract: see the discussion by Jordan C.J. in Queensland Insurance v. A.M.F. Insurance (1941) 41 SR (NSW) 195, at pp 200-201. Secondly, as we have seen, upon registration of such a transfer, the combined effect ofss.68and134would, in the absence of fraud, bring about the destruction of the appellants' rights. Thirdly, at least until registration of such a transfer, the appellants' equitable interest under the 1980 agreement, being first in time, had priority over the interest of the second respondents as purchasers under their agreement with the first respondent.

17. Viewed in this setting, cl.4 of the later agreement was designed to do more than merely evidence the fact that the second respondents had notice of the appellants' rights. If that were the only purpose to be served by the acknowledgment it would achieve nothing. It would enable the second respondents to destroy the appellants' interest and would leave the first respondent exposed to potential liability for breach of contract at the suit of the appellants. In the circumstances outlined it is evident that the purpose of cl.4 was to provide that the transfer of title to Lot 340 was to be subject to the appellants' rights under cl.6 of the 1980 agreement in the sense that those rights were to be enforceable against the second respondents.

18. At first glance it might seem that the words of cl.4 are inadequate to achieve this purpose. But an acknowledgment of an antecedent agreement in an appropriate context may amount to an agreement or undertaking to recognize rights arising under that antecedent agreement. And here the inferences to be drawn from the matrix of circumstances are so strong that they necessarily influence the interpretation of cl.4. These inferences provide a secure foundation for imputing an intention to the parties and reading cl.4 as a reflection of that intention: see Hope v. R.C.A. Photophone of Australia Pty Ltd[1937] HCA 90; (1937) 59 CLR 348, at p 362; Thomas National Transport (Melbourne) Pty Ltd v. May & Baker (Australia) Pty Ltd[1966] HCA 46; (1966) 115 CLR 353, at p 376; Reardon Smith Line v. Hansen-Tangen (1976) 3 All ER 570, at pp 574-575; Khoury v. G.I.O. (N.S.W.)[1984] HCA 55; (1984) 58 ALJR 502, at p 507;[1984] HCA 55; 54 ALR 639, at p 648...

****

21. Granted that the purpose of cl.4 is as we have explained it, what is its legal effect? Is it simply an undertaking to perform the 1980 agreement if called upon so to do by the appellants? Contract scarcely seems to give sufficient effect to what the parties had in mind. A trust relationship is a more accurate and appropriate reflection of the parties' intention.

22. The appellants submitted that cl.4 creates a trust in favour of them as third parties, in accordance with the principles enunciated in cases such as In re Schebsman; The Official Receiver v. Cargo Superintendents (London), Ltd and Schebsman (1944) Ch 83 and Green v. Russell. McCarthy (Third Party) (1959) 2 QB 226. However, in the absence of the manifestation of a clear intention to create a trust, the courts have been reluctant to hold that a trust exists...

23. ...[However, if]... the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred. The present is just such a case. The trust is an express, not a constructive, trust. The effect of the trust is that the second respondents hold Lot 340 subject to such rights as were created in favour of the appellants by the 1980 agreement.

24. Even if we had not reached this conclusion, we would not have regarded the registration of the transfer in favour of the second respondents as destroying the appellants' rights. Having regard to the intention of the parties expressed in cl.4 of the later agreement, the subsequent repudiation of cl.6 of the 1980 agreement constituted fraud. The case therefore fell within the statutory exception with the result that the appellants' prior equitable interest prevails over the second respondents' title, the second respondents taking with notice of that interest.

BRENNAN J:

12. ...the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest. Equity will compel him to perform his obligation. In Barry v. Heider[1914] HCA 79; (1914) 19 CLR 197, Isaacs J. said of the Land Transfer Acts (at p 213):

"They have long, and in every State, been regarded as in the main conveyancing enactments, and as giving greater certainty to titles of registered proprietors, but not in any way destroying the fundamental doctrines by which Courts of Equity have enforced, as against registered proprietors, conscientious obligations entered into by them."

In Frazer v. Walker (1967) 1 AC 569, at p 585, the Privy Council said that the principle of indefeasibility -

"in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant."

13. Barwick C.J., who was a member of the Judicial Committee in Frazer v. Walker, commented in Breskvar v. Wall (1971) 126 CLR 376, at pp 384-385:"Proceedings may of course be brought against the registered proprietor by the persons and for the causes described in the quoted sections of the Act or by persons setting up matters depending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title".

Orders of that kind do not infringe the indefeasibility provisions of the T.L.A. Those provisions are designed to protect a transferee from defects in the title of the transferor, not to free him from interests with which he has burdened his own title ...

14. A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity's eye, acting fraudulently and he may be compelled to honour the unregistered interest. A means by which equity prevents the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. That is not to say that the registration of the transfer to such a proprietor is affected by such fraud as may defeat the registered title: the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title....

15. Therefore, although a purchaser who secures registration of a transfer of the fee simple merely with notice of a third party's right to purchase acquires on registration of his transfer a title freed of any obligation to the third party which equity would otherwise impose, a purchaser who has undertaken - whether by contract or by collateral undertaking - to hold his title subject to a third party's right to purchase remains bound by his undertaking after registration of his transfer. If he should repudiate the third party's right to purchase, equity imposes a constructive trust so that the registered proprietor holds his title on trust for the third party to the extent of the third party's interest...

16. As the Thompsons not only had notice of the Bahrs' interest but had undertaken that their title would be subject to the Bahrs' interest, they cannot rely on theProperty Law Act, the Statute of Frauds or the T.L.A. to avoid honouring their undertaking. As a contractual undertaking, it can be enforced by Nicolay to whom it was given. As the Bahrs' interest was created by an antecedent agreement pursuant to which Nicolay was bound to enforce the Thompsons' undertaking to honour the Bahrs' interest, there can be no reason for denying the Bahrs' standing to enforce the undertaking against the Thompsons directly in a suit in which Nicolay is a party: Snelling v. John G. Snelling Ltd. (1973) QB 87, at p 99. Moreover, the constructive trust on which the Thompsons hold their title is a trust to give effect to the Bahrs' interest. As beneficiaries of that trust, the Bahrs may enforce their interest against their trustee directly: Neale v. Willis (1968) 19 P & CR 836, and cf. Hersey v. Giblett[1854] EngR 145; (1854) 18 Beav 174 (52 ER 69). The Bahrs are therefore entitled to enforce their right of purchase directly against the Thompsons. They do not thereby impeach the registration of the transfer to the Thompsons. Nor does the T.L.A. present a bar to the enforcement of the undertaking, though (to adopt what Barwick C.J. said in Breskvar v. Wall, at p 385) the terminal point of a decree enforcing the undertaking might be an order directing the Thompsons to divest themselves wholly of the estate vested in them by that registration.

Wilson and Toohey JJ wrote a joint judgment agreeing with Brennan J.

The line between notice of an earlier equitable interest and thein personamexception can be fine. For example, if a purchaser says that they are prepared to settle a sale with a tenant with a 5 year lease in possession, are they saying, 'I am agreeing to be bound by the terms of the lease, in particular its term', or are they just saying, 'I don't mind if the tenant is still there; I will get them to leave - as is my right - whenever I am ready to do so'? If the answer is the former, then thein personamexception will be applicable; if the answer is the latter, then it will not. Like fraud, the answer to these questions will always be foundin the facts; it depends on what the registered proprietor whose title is being challenged hassaid and done.

9. Caveats

By now you will have realised that unregistered interests in land are extremely vulnerable to defeat by later registered proprietors. This is because s42 states that registered proprietors are only bound by what is on the register, and s43 states that that rule applies even if the registered proprietor had notice of the earlier interest. As a result, the vast majority of transfers of land in the Torrens system are registered. It is extremely unusual to see a sale of a house that does not culminate in the registration of the purchaser's title or the grant of a first mortgage or lease for more than 3 years that does not result in a registered mortgage or registered lease.

However, there are circumstances in which things go awry and registration does not occur. One party may refuse to complete the transaction, leaving the other withonly an equitable interest in land.There are also some interests in land that cannot be registered. For example, an equitable interest under a trust cannot be registered (s82 of theReal Property Actstates that trusts cannot be recorded on the register). The equitable interest that the Bahrs had pursuant to an option to purchase cannot be registered. These are valuable interests in land that need to be protected.

The caveat system does this.Section 74Fof theReal Property Actstates:

(1) Any person who, by virtue of any unregistereddealingor by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of anydealingaffecting the estate or interest to which the person claims to be entitled.

The key feature of caveats is that they stop the registration of any dealing that will affect the interest in land that the caveator claims. For example, if Mrs Bogdanovic had lodged a caveat before or just after Mr Koteff Senior died, Mr Koteff Junior could never have become the registered proprietor thus defeating her interest in land pursuant to s42. If the Bahrs had lodged a caveat to protect their equitable interest under the contract of sale with Nicolay, the transfer to Thompson could not have been registered, and the Bahrs would not have had to argue the difficultin personamexception to s42 indefeasibility.

Caveats do not change the nature of the interest that the caveator claims, and they do not register it. They are simply a bar to any other registrations, which allows the caveator to compete with a later interest as an earlier equitable interest vs a later equitable interest. This is the fourth priority rule that was mentioned briefly in the Old System Title chapter. This is a rule of the general law that still applies in the Torrens system. The general law rules that related to legal interests in land no longer apply because the rules for legal interests are now in s42 and 43 of theReal Property Act; priority is determined by registration and notice is irrelevant. However, theReal Property Actdoes not say anything about priority betweenunregisteredinterests and so the general law still applies. The rule comes fromRice v Rice(1854) 61 ER 646, and holds that in a competition between equitable interests, the first in time prevails unless the earlier is guilty of postponing conduct. Sometimes this is stated as 'when the equities are equal, the first in time prevails'; the difference is purely semantic. We saw this rule in operation inBreskvar v Wall. The Breskvars had the earlier equitable interest, but it was because of their actions (executing a blank transfer) that the register was altered to record Wall's name, making it look like Wall was the sole owner of the property. When a third party like Alban Pty Ltd looked at the register, all it could see was Wall's name in the First Schedule. As between the Breskvars and Alban, the Breskvars were less meritorious and so the ordinary rule of priority based on time was reversed. However, if the holder of an earlier equitable interest has done nothing wrong, they will rank first. This is why caveating is so important. An earlier equitable interest is likely to win in a competition with a later equitable interest; in contrast, if that later equitable interest manages to register, the earlier equitable interest is very unlikely to win in a priority dispute because of the stringency of s42.

The vast majority of unregistered interests are equitable, but there are a tiny number of unregistered interests that are legal. These are interests that arise as a result of the common law. A good example are the possessory titles we learned about in the chapter Fundamental Concepts in Land Law. Possessory title is a creature of the common law, and so the titles that arise are legal, not equitable. Other examples are leases and easements implied by the common law. The fact that these interests are legal does not make them enforceable against a registered proprietor because s42 does not say the registered proprietor is bound by legal interests; it says that the registered proprietor is bound by registered interests. Whether legal or equitable, unregistered interests must operate within the s42 and 43 framework, and as a result, under s74F above, a person who 'claims to be entitled to alegal or equitableestate or interest in land' which is unregistered can lodge a caveat.

Under s74F(2), a registered proprietor may also lodge a caveat if they fear any improper dealing.

Caveats can now only be lodged electronically. As with all electronic land dealings, lawyers and licenced conveyancers must identify their clients properly and obtain an authorisation that they can act for the client. The PEXA workspace will ask you to specify the 'claim details', which is asking you to comply with s74F(5)(b)(v), which requires caveats to statethe 'particulars of the legal or equitable estate or interest...to which the caveator claims to be entitled'.This is the point at which you have to rely on your legal knowledge and judgement - does your client havean interest in land? If not, you must not lodge a caveat, because the only things that can be caveated are interests in land: s74F(1), above. You cannot caveat a contract or right deriving from a contract, unless that right creates an interest in land. People are often tempted to lodge caveats when they are owed money, but unless the debt is secured by an interest in land such as a charge or mortgage, it is not caveatable.

The PEXA workspace has some predetermined choices in drop-down boxes, including agreement/contract, charge, lease, mortgage, trust, settlement. There is also has a category for 'other' which will allow you describe more complex claims such as one pursuant to equitable estoppel. If you choose 'agreement/contract' there are a further set of choices that relate to a range of contracts that create equitable interests in land, including options to purchase, options to renew a lease and carbon covenants. The most common one you might choose is simply a purchaser's contract, which you will identify by the parties and the date. When you have competed these details, the PEXA screen will show this:

INCLUDEPICTURE "/Users/louiecao/Library/Group Containers/UBF8T346G9.ms/WebArchiveCopyPasteTempFiles/com.microsoft.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" * MERGEFORMATINET

Source: PEXA'How to create a caveat'.You can see that although you chose contract/agreement, it is not the contract that is being caveated but the equitable interest in land that arises by virtue of the contract. The caveat is forbidding the registration of any instrument (e.g., a transfer) that would affect the interest that your client is claiming. You will then be asked to review your documents and sign them with your Digital Certificate. You then lodge the caveat and PEXA sends it to Land Registry Services (LRS). PEXA suggests that LRS will check the caveat. This is only true to the extent that the caveat will be checked to see if it is in registrable form; LRS does not (and cannot) check the accuracy or veracity of the claim that someone has a caveatable interest. It is your responsibility as a lawyer to check this based on the information that your client provides you.

When a caveat is lodged, the registered proprietor will be notified. They might be content to allow the caveat to remain, for example if they know they have borrowed money from the caveator and granted them an equitable mortgage as security for the loan. Alternatively, they may disagree with the caveator's claim and want to have the caveat removed. They can do this by applying for a 'lapsing notice' under s74J(1), which will give the caveator 21 days to apply to the Supreme Court for an order allowing the caveat to remain or by directly seeking a court order for the removal of the caveat pursuant to s74MA(1). In deciding whether a caveat should remain, the Court will apply a two-pronged test:

"is there a serious question to be tried?" - for example, "One of my friends told me that they would sell me their house, but we haven't discussed any details' does not raise a serious question to be tried in relation to the existence of an equitable interest pursuant to a specifically enforceable contract of sale, and

"on the balance of convenience should the caveat remain?" - a second equitable mortgagee will clearly have a caveatable interest, overcoming the first test, but if their caveat is preventing the first mortgagee exercising the power of sale so that no one can be repaid their loans, the balance of convenience would not favour the maintenance of the caveat.

The case law on the maintenance of caveats is extensive reflecting the fact that in practice impediments to dealing with land are a serious matter.

Caveats "without reasonable cause"

Caveats can cause loss to registered proprietors.By way of example, if the landowner has contracted to sell their land, and the caveat prevents them completing the contract (transferring title), they may be liable for damages for breach of contract. If their purchaser terminates the contract and they cannot resell the land for period of time, they will be liable for mortgage repayments, rates and taxes in that time. They may only be able to resell the land for less than the original contract of sale. These are just some of the ways that a caveat can cause monetary loss.To protect landowners from the harmful effects of lodgment of caveats in circumstances in which a caveat should not have been lodged at all or should not have been maintained,s74P(1)of theReal Property Actsays that:

(1) Any person who, without reasonable cause:

(a) lodges a caveat with the Registrar-General under a provision of this Part,

(b) procures the lapsing of such a caveat, or

(c) being the caveator, refuses or fails to withdraw such a caveat after being requested to do so,

is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss.

The key question is whether the caveat was lodged 'without reasonable cause'. This does not mean that there was no caveatable interest. Sometimes people may think or hope they have a caveatable interest under a constructive trust or pursuant to equitable estoppel, for example, but a court does not ultimately agree. That does not make the lodgmentof their caveat 'without reasonable cause'. Wootten J said inBedford Properties Pty Ltd v Surgo Pty Ltd[1981] 1 NSWLR 106that"the foundation for reasonable cause must be, not the actual possession of a caveatable interest, but an honest belief based on reasonable grounds that the caveator has such an interest."

There is a subjective and objective element to this test. The caveator must hold an honest belief that they had a caveatable interest (subjective), but it must be on reasonable grounds (objective). For example, a person may honestly believe that they are entitled to lodge a caveat because someone owes them money, for example child support, but there are no reasonable grounds for that belief because the law is clear: caveats must relate to interests in land, not simply personal debts.

One of the most recent cases,New Galaxy Investments Pty Ltd v Thomson[2017] NSWCA 153concerned the role of a solicitor's advice in relation to a caveator's reasonable belief that they were entitled to lodge a caveat. The judges on the Court of Appeal could not agree on the extremely difficult question of whether there was an equitable, and thus caveatable interest pursuant to a complex, messy payment of $6 million by the caveator to vendors pursuant to an alleged right to have a contract of sale novated in the caveator's favour (i.e., the caveator would be named as the purchaser under the new, novated contract of sale). Sackville AJA and Gleeson J held that there was no equitable and thus caveatable interest, while Basten JA disagreed. However, the question still remained whether the caveator had an honest belief on reasonable grounds that they had a caveatable interest. Basten JA held that while it was not necessarily the case that in all circumstances in which a caveator has acted on legal advice, their belief would be reasonable but, in this case, because the caveator had relied on legal advice which had been given on the basis of adequate instructions, the caveator's belief was reasonable. Gleeson J agreed with Basten JA, holding that even though he had concluded that the legal advice to lodge a caveat was erroneous, the caveator acted on legal advice and their belief was thus reasonable. Sackville AJA dissented saying at [341] that:

the fact that a solicitor has given advice to a caveator does not necessarily absolve the caveator from responsibility or rebut an inference that the caveat was lodged without reasonable cause. In the present case the evidence supports a finding that [the director of the caveator company] did not give Mr Gutierrez [the solicitor] full or accurate instructions as to the reasons NGI [the caveator] paid $6 million to the Vendors. Accordingly, even if Mr Gutierrez gave advice about NGIS entitlement to lodge caveats forbidding dealings by GDI, he could not have done so on the basis of accurate instructions as to the circumstances in which the payment was made. Accordingly, the evidence establishes that NGI had no reasonable basis for any belief that it was entitled to lodge caveats claiming an interest in the Properties enforceable against GDI.

The question of whether monetary loss is "attributable" to the lodgment or maintenance of a caveat without reasonable cause is one of fact. Be aware that solicitors who lodge caveats for clients without reasonable cause can be liable.

eConveyancing has further increased the responsibility on lawyers to ensure that caveats are sound, because is now only possible for lawyers or licenced conveyancers to lodge caveats, and they must certify that to the best of their knowledge, the caveator has a good and valid claim. The following case is a good illustration of the perils of not taking that certification seriously. The case is extracted in full because his Honour's comments are pertinent to eConveyancing generally, but also to any automated system that allows lawyers to check boxes that indicate they have come to a legal or factual conclusion. Those automated systems will become more common. It is essential that you do not allow the tick-a-box nature of online systems to obscure the fact that you are required to make a considered judgement about a matter, using your professional knowledge and skills.

GuirgisvJEADevelopmentsPty Ltd[2019] NSWSC 164

Kunc J

Summary

1Lodging a caveat is not a trivial act to be undertaken lightly. It has immediate legal effect and can have significant commercial and financial consequences. Legal practitioners and licensed conveyancers who advise on, prepare and certify caveats that are lodged electronically have an important role to ensure that obviously unmeritorious caveats are not lodged. This judgment arises from a failure by a licensed conveyancer to perform that role properly.

2These proceedings were begun by the plaintiff (MrGuirgis) for orders underss 74MAand74P of the Real Property Act 1900 (NSW)(the Act) for the removal of a caveat (the Caveat) and for compensation against the defendant.The sole director, secretary and shareholder of the defendant is MrGuirgis' wife (MrsGuirgis).Mr and MrsGuirgisare currently involved in a matrimonial dispute before the Family Court of Australia.

3The Caveat had been prepared, certified and lodged electronically on behalf of the defendant over MrGuirgis' land (the Property) by a licenced conveyancer (the Conveyancer).When MrGuirgis' application came on for hearing, MrsGuirgisappeared in person.It quickly became apparent that the defendant (MrsGuirgis' corporate alter-ego) did not have a caveatable interest in the Property and that at all times MrsGuirgishad understood that to be the case. The defendant was ordered to remove the Caveat and pay MrGuirgis' costs of the application.

4During the course of the hearing, evidence was given which caused me to form a prima facie view that the Conveyancer had acted either with a reckless disregard for her obligations in relation to the Caveat or had failed to meet the standard of care to be expected of a reasonably competent conveyancer in the preparation of the Caveat. I made directions which had the effect of the Conveyancer appearing before the Court to explain why I should not refer the papers to NSW Fair Trading so that its Secretary, who has regulatory responsibility for licensed conveyancers, could consider whether or not the Conveyancer's conduct warranted disciplinary action.

5The Conveyancer appeared before the Court. The Conveyancer apologised without reservation and acknowledged to the Court that there had been a complete departure from appropriate standards. The Conveyancer undertook to do further study in relation to the electronic filing of caveats as part of her annual professionaldevelopment. On the basis of what the Conveyancer said to the Court, I was satisfied that it is highly unlikely that the Conveyancer would repeat such conduct in relation to a caveat and determined that it was unnecessary for the Court to take any further action in relation to the matter. Nevertheless, I consider it appropriate to publish these reasons to make clear how seriously the Court views the obligations of those who advise on, prepare and certify caveats.

The facts

6On 15 December 2018 MrGuirgisentered into a contract for the sale of the Property. Settlement of that contract was scheduled to occur on 25 February 2019.

7The Caveat was lodged on 11 February 2019.

8The Caveat was lodged electronically through PEXA (Property Exchange Australia), which is an electronic lodgment network, by the Conveyancer's company, which was described on the Caveat as the Responsible Subscriber. The Caveat was electronically signed by the Conveyancer in her name. The form describes the Conveyancer's signer capacity as practitioner certifier and notes that the Conveyancer signed for the subscriber, her conveyancing company. The subscriber capacity is recorded as representative subscriber.

9The Conveyancer's company was recorded on the Caveat as the address for service of notices on the Caveator.

10The relevant parts of the Caveat are:

ESTATE OR INTEREST CLAIMED

Charge

By virtue of: Agreement

BetweenJEADEVELOPMENTSPTY LTD

AndKIRROLOS GHABRIELGUIRGIS

Details Supporting The Claim: Outstanding loan

The Caveator, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, has a good and valid claim to the estate or interest claimed as specified in this Caveat.

This Caveat, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, does not require the leave of the Supreme Court.

This Caveat, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, does not require the written consent of the Registered Proprietor Of Estate or possessory applicant (as applicable) for the purposes ofsection 74O Real Property Act 1900.

The Caveator, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, has provided the correct address of the Registered Proprietor as specified in this Caveat.

SIGNING

Signing Party Role:Receiving

I certify that:

1.The Certifier has taken reasonable steps to ensure that this Registry Instrument or Document is correct and compliant with relevant legislation and any Prescribed Requirement.

2.The Certifier has retained the evidence supporting this Registry Instrument or Document.

3.The Certifier has taken reasonable steps to verify the identity of the caveator.

Party Represented by Subscriber:

JEADEVELOPMENTSPTY LTD

Signed By:[The Conveyancer]Signer Capacity:Practitioner Certifier

11MrGuirgis' solicitor gave evidence that, having been made aware of the Caveat, he telephoned the Conveyancer on 13 February 2019 and they had a conversation in words to this effect:

Solicitor: Can I please have a copy of the agreement that is referenced in the Caveat?

Conveyancer: You need to speak with [MrsGuirgis].

12MrGuirgis' solicitor also gave evidence that follow up letters which he sent on 13 and 14 February 2019 to the Conveyancer asking for evidence to substantiate the Caveat went unanswered.

13Because settlement of the sale of the Property was scheduled to occur on 25 February 2019, it was necessary for MrGuirgisto make an urgent application for the removal of the Caveat. The basis of MrGuirgis' application was his vehement assertion that he had never entered into any agreement of the kind alleged in the Caveat.

14On 15 February 2019 the proceedings first came before Henry J sitting as Duty Judge. Her Honour made orders for short service and appointed a further return date of 20 February 2019 before the Duty Judge. The matter came before me for hearing in the Duty List on that day.

15MrsGuirgisappeared at the hearing unrepresented.MrGuirgisdid not oppose MrsGuirgisbeing granted leave to appear for the defendant.She told me that there was no written loan agreement between the defendant and MrGuirgis. Insofar as she said there was any agreement at all between her or the defendant and MrGuirgis- what she described as a husband and wife agreement - she accepted there was nothing in that agreement by which MrGuirgishad given the defendant a mortgage, charge or any other interest in the Property.

16MrsGuirgisacknowledged that she had caused the Caveat to be placed on the title of the Property as a tactic for the purposes of negotiation in the lead up to a Family Court hearing also scheduled to take place on 25 February 2019.

17During the course of the hearing I had these exchanges with MrsGuirgis:

[T4:23-30]

HIS HONOUR: Did you go and see the conveyancer about issuing this caveat?

GUIRGIS: I called her over the phone and asked her to do that. She is settling the Caringbah property which he and his friend put a caveat on the property and I have agreed to put the funds in a trust and it is the same conveyancer, sorry your Honour, that I called and asked to please put a caveat on giving her the title to me.

T5:8-18

HIS HONOUR: Did the conveyancer give you any advice about this?

GUIRGIS: No.

HIS HONOUR: Did you just ask the conveyancer to put the caveat on?

GUIRGIS: The caveat, yes. So my understanding is that we have an agreement of any form I mean, it is kind of similar to the caveat that he and his friend put on my properties in my name and they put it on and the Judge, I was here two weeks ago, asked me to put the money into a trust based on no signed agreement, on a verbal understanding.

T9:40-46

HIS HONOUR: And I am very concerned about the fact that this conveyancer seems not to have given you that kind of advice.

What did you say to the conveyancer? Was it just one phone call?

GUIRGIS: Yes, and the loan thatJEAwent and obtained from Baccus on the direction of Kirrolos.

..

T10:15-36

GUIRGIS: You are asking me what sort of conversation I had with the conveyancer.

HIS HONOUR: Yes.

GUIRGIS: I let her know thatJEADevelopmentslent Kirrolos the money and to put a caveat on there until the matter is heard before a Judge that could either keep the funds into a trust until it is heard in the Family Court where it belongs, but either way I don't really see that there should be much of an objection.I said to this lovely barrister here (indicated) I am very happy to remove the caveat on the basis that the settlement is going to take place after we are before a Judge where we belong in the Family Court

HIS HONOUR: Did the conveyancer ask you about the terms of the loan agreement at all?

GUIRGIS: No. She just asked me Is there an agreement betweenJEADevelopmentsand KirrolosGuirgis? And I said Yes.

HIS HONOUR: Did she ask you whether it was in writing or oral?

GUIRGIS: No, we did not go into discussions.

18The Court resolved MrGuirgis' application by ordering the defendant to remove the Caveat and pay MrGuirgis' costs. The balance of his application (for compensation unders 74Pof the Act) was stood over to a later date. The Court also asked MrGuirgis' solicitor to write to the Conveyancer informing her that the matter would be listed on 22 February 2019 to give her an opportunity to make submissions as to why the Court should not refer the papers to NSW Fair Trading to consider whether or not disciplinary action should be taken against her.

The Court's concerns

19To appreciate the Court's concerns that arose from MrsGuirgis' evidence about the Conveyancer's conduct, it is necessary to set out the relevant statutory provisions. These have become somewhat complex with the introduction of electronic conveyancing.

20Section 74Fof the Act prescribes the persons who are permitted to lodge a caveat in respect of land.Subsection 74F(5)prescribes certain procedural requirements which must be satisfied before the Registrar-General will accept the lodgment of a caveat. In particular, it provides that a caveat must (emphasis added):

(a)be in the approved form,

(b)specify:

(v)the prescribed particulars of the legal or equitable estate or interest, or the right arising out of a restrictive covenant, to which the caveator claims to be entitled,

(c)be verified by statutory declaration or,in the case of a caveat lodged by means of an Electronic Lodgment Network, be verified in a way approved by the Registrar-General, and

(d)be signed by the caveator or by a solicitor or other agent of the caveator.

21The prescribed particulars referred to insubs 74F(5)(b)(v)of the Act are the subject ofcl 7andSch 3 to the Real Property Regulation 2014 (NSW). The matters that must be specified include (emphasis added):

1.Particulars of the nature of the estate or interest in land claimed by the caveator.

2.The facts on which the claim is founded,including (if appropriate) a statement as to the manner in which the estate or interest claimed is derived from the registered proprietor of the estate or interest or the primary or possessory applicant against which the caveat is to operate.

3.If the caveator's claim is based (wholly or in part) on the terms of a written agreement or other instrument,particulars of the nature and date of that agreement or instrument and the parties to it.

4.If the caveator claims as mortgagee, chargee or covenant chargee,a statement of the amount (if readily ascertainable) of the debt or other sum of money charged on the land(or, if the amount is not readily ascertainable, the nature of the debt, annuity, rent-charge or other charge secured on the land).

22The Electronic Conveyancing National Law (NSW) has been adopted in NSW by theElectronic Conveyancing (Adoption of National Law) Act 2012 (NSW)as the Electronic Conveyancing National Law (the National Law). Under r 8.6 of the Conveyancing Rules made by the Registrar General under s 12E of the Act, nearly all caveats signed on or after the 1 July 2018 must be lodged electronically using an electronic lodgment network. PEXA is such a network.

23Section 23 of the National Law provides in relation to the use of an electronic lodgment network:

23 Participation rules

(1)The Registrar may determine, in writing, rules relating to the use of an ELN (participation rules).

(2)The participation rules may (without limitation) include provisions relating to the following matters:

(a)the eligibility criteria for subscribers,

(b)the obligations of subscribers, including (without limitation) any representations or warranties they are required to give,

(f)the certification of registry instruments and other documents for use in connection with the ELN,

(h)the retention of documents created or obtained in connection with a subscriber's use of an ELN,

24In exercise of the power under s 23 of the National Law, the Registrar General has approved through the NSW Participation Rules for Electronic Conveyancing (Version 5 effective 25 February 2019) rules in relation to the electronic certification noted on electronically lodged caveats (the Participation Rules).

25Participation r 7.10.1 provides that the Subscriber must provide those of the Certifications set out in the Certification Rules as are required when Digitally Signing an electronic Registry Instrument or other Electronic Document.

26Schedule 3of the NSW Participation Rules sets out the Certification Rules. Clauses 1 - 4 ofSch 3are:

1.The Certifier has taken reasonable steps to verify the identity of the caveator or his, her or its administrator or attorney.

2.The Certifier holds a properly completed Client Authorisation for the Conveyancing Transaction including this Registry Instrument or Document.

3.The Certifier has retained the evidence supporting this Registry Instrument or Document.

4.The Certifier has taken reasonable steps to ensure that this Registry Instrument or Document is correct and compliant with relevant legislation and any Prescribed Requirement.

27Under r 2 of the Participation Rules, the Certifier is the Subscriber providing the certifications set out in the Certification Rules.

28There can be no doubt that the Conveyancer's company was the Subscriber as defined under the National Law and the Participation Rules, being a person who is authorised under a participation agreement to use an [electronic lodgement network] to complete conveyancing transactions on behalf of another person or on their own behalf. Under r 4.3 of the Participation Rules, a subscriber must be of good character and reputation, which requirement is in effect satisfied if the subscriber is a corporate entity whose director is a licensed conveyancer. In signing the Caveat the Conveyancer was acting on behalf of her company and making the representations and certifications set out in the Caveat.Those representations and certifications set out in the approved form of electronic caveat and mandated by the Participation Rules are, for the purpose ofs 74F(5)(c)of the Act, the way of verification approved by the Registrar General in the case of a caveat lodged by means of an electronic lodgment network.

29It was apparent from the terms of the Caveat and MrsGuirgis' evidence (which the Court had no reason other than to accept as prima facie truthful) that the Caveat and the Conveyancer's purported certification of it on behalf of her company were deficient in at least five respects by reference to the requirements of the prescribed particulars (see [21] above) and the Certification Rules (see [26] above):

(1)The facts on which the claim was based including, most importantly, whether the alleged agreement was oral or written and when it was said to have been entered into.

(2)There was no statement of the amount of the debt or its nature.

(3)For the Conveyancer to be able to state that to the best of the knowledge of the Conveyancer the caveator had a good and valid claim to the estate or interest claimed requires more than a casual or incomplete inquiry. There appeared to have been a complete failure to take proper steps to ascertain whether or not the defendant had a good and valid claim to the estate or interest claimed in the Caveat. I deal with this further in [30] to [33] below.

(4)The first certification that the Conveyancer had taken reasonable steps to ensure that the Caveat was correct and compliant with relevant legislation and any Prescribed Requirement could not, on the evidence before the Court, have been correct.

(5)The second certification was also, in this case, completely misleading because the Conveyancer had not retained anything. MrGuirgis' solicitor was acting entirely reasonably in contacting the Conveyancer to ask for a copy of the alleged agreement. The assertion of an agreement in this context when read together with the second certification would lead any reasonable reader to think that there was a written agreement.

30It is necessary to say something more about the Conveyancer's representation that The Caveator, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, has a good and valid claim to the estate or interest claimed as specified in this Caveat. The expression to the best of the knowledge of the Conveyancer conveys a representation that the Conveyancer has a suitable level of knowledge about how an interest in land can arise and has taken reasonable steps to inform himself or herself of the relevant facts so as to be able to express a properly informed opinion. The same is true of the other statements in the Caveat which are said to be to the best of the knowledge of the person or entity electronically signing the Caveat.

31In relation to such statements, I respectfully adopt what was said by Austin J inAustralian Securities and Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617:

[1448]I agree with ASIC (written submissions (Fox), para 225) that words such as to the best of my knowledge, information and belief, any other matter of which I am aware and I am not aware of any other matter, when used in a formal representation or sign-off document executed by a person with executive responsibility for the matters certified, contain an implied representation. The representation is that the signatory has taken appropriate steps to satisfy himself or herself, through inquiry, of the matters certified, so as to make the statements reliable and meaningful.If the signatory has not taken such steps, the document is misleading to that extent.

32His Honour's conclusion on this point was not disturbed in the subsequent appeal:Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451.

33None of this to suggest that such statements amount to an unqualified warranty of the existence of the relevant state of affairs. A statement that has properly been made to the best of someone's knowledge might ultimately be incorrect. As I observe in [41] below, whether a caveatable interest exists can sometimes be a matter of real legal complexity. The issue for present purposes is that the person without whose certification the caveat could not be electronically filed must have reasonable grounds to give the requisite representations and certifications.

34On the basis of MrsGuirgis' evidence and the matters I have set out in the preceding paragraphs, I formed the view that the Conveyancer appeared to have lodged the Caveat on behalf of the defendant with either a reckless disregard for the Conveyancer's obligations or the Conveyancer had failed to meet the standard of care to be expected of a reasonably competent conveyancer certifying a caveat. These failures had led to MrGuirgishaving to expend considerable legal fees and to the Court's time being wasted over a matter that ought never have come before it. No reasonably competent conveyancer who had bothered to take proper instructions from MrsGuirgiswould have co-operated in the lodgement of the Caveat. Had the Conveyancer acted with the requisite skill and diligence, a great deal of money and the parties' and Court's time would almost certainly have been saved because MrsGuirgiswould not have been able to lodge the Caveat herself.

The Conveyancer's contrite explanation

35The Conveyancer appeared before the Court on 22 February 2019. I explained the Court's concerns to the Conveyancer to the effect of the matters set out in [29] above and informed her that the Court wished to give the Conveyancer an opportunity to explain why the matter should not be referred to the Secretary of NSW Fair Trading to consider whether some form of disciplinary action should be taken. I gave the Conveyancer an opportunity to seek legal advice and to appear by a solicitor or counsel. The Conveyancer declined that opportunity and indicated that she wished to make her explanation there and then.

36The Conveyancer acknowledged that she understood that even if there was an agreement for a lender to advance funds to a borrower, without more that agreement did not give the lender an interest in the borrower's land. Her explanation continued (at T3:22-48):

CONVEYANCER: It is the first caveat I have ever put on. I understand that I did not actually obtain the correct documentation to prove that my client had a claim on the estate, on the property. With going through PEXA there are a lot of steps in trying to do it. I was informed of the urgency of the tasks and I understand that should not have taken any precedence ([sic]) in it. I totally understand that I erred and I have wasted the Court's time and caused problems.

HIS HONOUR: All right.

CONVEYANCER: And I have downloaded all the information from LRS NSW, about caveats and I am looking to do further education with PEXA in relation to lodging them.

HIS HONOUR: Very well.

How long have you been in practice as a conveyancer?

CONVEYANCER: Ten years but I have never, ever put a caveat on before, I always prefer people to do it because I just say, I don't do that work.It was just that my client rang me at 10 o'clock at night and then at 6:00am in the morning, because she tried to put it on herself and because she is not registered with PEXA she couldn't, and so that is the only reason why and she thought it was settling that day and she had an interest and needed the money. We needed to protect the money. So that is the only reason why I actually did it. I understand that I was, allowed my client's wishes to take precedence over what I should have done.

37At the conclusion of this explanation, the Conveyancer undertook to the Court to attend an appropriate course in the next 12 months in relation to the electronic lodging of caveats.

38On the basis of the Conveyancer's explanation and undertaking, I decided that it was not necessary for the Court to take the matter any further.

Conclusion

39As New South Wales' conveyancing system moves to a completely electronic platform, the role of conveyancers, solicitors and others as persons qualified to prepare and lodge caveats becomes all the more important. Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a Subscriber, who in many cases will be a solicitor or licensed conveyancer. The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate.

40Dealing with caveats takes up a considerable amount of time in the both the Equity Division's Duty List and Real Property List. Although the Act contains compensation provisions in respect of caveats that have been improperly lodged, that compensation can only go so far to compensate a registered proprietor for the delay, stress and expense caused by a caveat that should never have been filed. The community also suffers because the Court's time is taken up when it should not have been.

41I have no doubt that, in the present case, if the Conveyancer had made the proper inquiries, the Caveat would never have been lodged. This is probably one of the more egregious cases to have come to the Court's attention. The Court readily accepts that in some cases whether or not a caveator has a good and valid claim to the estate or interest claimed in the land can be a question of considerable legal difficulty. However, in many cases it is not. This is one such case.

42The legislative and regulatory scheme which I have set out above assumes that the person making the various representations and certifications in an electronically lodged caveat has the requisite degree of knowledge and has approached their task with appropriate diligence. The Court and the community expect nothing less. A party who has suffered loss as a result of circumstances such as those in this case may be able to seek compensation under the Act and, like any other consumer, can complain about the conduct of a licensed conveyancer to NSW Fair Trading.

43In my respectful opinion, the Court also has a role to ensure the integrity of the operation of the laws relating to conveyancing to which the Court must give effect. Where it appears to the Court to be necessary, and after affording the person concerned procedural fairness, I see no reason why the Court should not draw matters such as the present to the attention of the appropriate authority for it to take such action as it thinks fit. As a result of the Conveyancer's properly candid and contrite explanation, in the end that step was not required in this case.

End of judgment.

9.1. Competing Equitable interests in the Torrens System

We have already learned inBreskvar v Wallthat a competition between two unregistered interests in the Torrens system is governed by the rule inRice v Rice: the first in time prevails unless there is postponing conduct or if the merits are equal, the first in time prevails (the difference between these tests is purely semantic). We also saw inBreskvarwhat might make an earlier equitable interest less meritorious and result in its postponement. The Breskvars did something that substantially contributed to the legal mess that everyone ended up embroiled in; they signed a blank transfer form, and handed it and the certificate of title to Petrie, which enabled him to (admittedly fraudulently) write his grandson, Wall's name on the transfer and lodge it for registration. The register was then altered so that when Alban Pty Ltd checked the register, as all purchasers do, they saw that Wall was the owner of the property. They then signed a contract with Wall, believing they were simply dealing with the owner of the land. Alban acted in accordance with ordinary conveyancing procedures; the Breskvars, in contrast, did not, justifying their postponement to Alban.

However, what if the Breskvars had caveated their interest in the land? The Breskvars did in fact lodge a caveat but only once they discovered Wall was now the registered proprietor and after Alban had signed the contract. This was too late. If the Breskvars had lodged a caveatbeforeAlban negotiated with Wall, Alban would have checked the register, seen the caveat and known not to get involved in the property because their vendor, Wall, did not seem have an unencumbered title. They would not have signed the contract and paid a deposit. Alternatively, if they had gone ahead and signed a contract and paid a deposit, knowing the Breskvars had a claim to the land, they could not then have complained about it being enforced.

As you can see, while the general law rule inRice v Riceapplies to unregistered interests in Torrens land, the ability of a holder of an unregistered interest to lodge a caveat needs to be factored into that rule. The basis of all earlier equitable vs later equitable interest disputes is that the later equitable interest did not know about the earlier, and is frustrated by the fact that their right to the land is going to be compromised by an interest of which they were unaware. That frustration is going to be considerably greater if the earlier interest could have alerted others to its existence, for example by lodging a caveat, but failed to do so.

Consider this mortgage example:

Mortgagor Mortgage 1 = $500,000 registered

Mortgage 2 = $300,000 unregistered, no caveat

Mortgage 3 = $300,000 unregistered

The mortgagor defaults and the land is sold by the first mortgagee for $900,000.

All mortgagees value property before they lend money; there is no point lending someone $1 million and taking a mortgage over an apartment that is only worth $300,000, because you will not recover all of the money you have lent if you have to exercise the power of sale. The amount of a loan secured by a mortgage should be determined both by the mortgagor's ability to repay the loan and the value of the property.

In the above example:

the first mortgagee valued the property at $900,000; they knew they could safely lend $500,000 as a result;

the second mortgagee also valued the property at $900,000, and knew that they could safely lend $300,000 because once the first registered mortgage was paid (in accordance with s42 of theReal Property Act), there would be $400,000 left over;

the third mortgagee also valued the property at $900,000; the register told them there was a first registered mortgage and they ascertained the amount; they then lent $300,000, thinking that if the property was sold, there would be plenty of money to cover their own loan, after the first mortgage was paid.

However, if it transpires that there is in fact a second unregistered mortgage, that prima facie ranks ahead of the third mortgage in accordance withRice v Rice, the third mortgagee will very unhappy. They will only be able to recover $100,000, rather than the $300,000 that they lent. If the second mortgagee could have alerted the third to its existence, the third mortgagee is going to be even unhappier still. If they had known that the property already had $800,000 of encumbrances, they would not have lent money at all (or perhaps only lent $50,000 at a high interest rate to cover their risk). The second mortgagee could have alerted other people to its existence by lodging a caveat; failing to do so can result in harm to third parties who deal with the land. Consequently, caveating can be a significant factor in deciding whether an earlier equitable interest should be postponed.

However, it is hard to understand some caveat cases without understanding the ordinary processes of dealing with land. For example, while purchasers under contracts of sale clearly have caveatable equitable interests, it is not usual for purchases to caveat these interests. This is because equitable interests pursuant to ordinary contracts will only last 42 days (the period for completion of most contracts - see the standard contract of sale we have looked at before). Further, it is unusual for vendors to do the wrong thing and sell the property to someone else. As a result, it is not standard conveyancing practice to lodge caveats for ordinary contracts, and it is usually not postponing conduct for a purchaser to fail to do so. In contrast, a second mortgage, such as the one in the example above, will exist for as long as it takes the mortgagor to repay the loan; this could be many years. As a result, the risk of a third party acquiring an interest in the land unaware of the existence of the second mortgage is considerable, and failing to caveat in that circumstance is postponing conduct:Person-to-Person Financial Services v Sharari[1984] 1 NSWLR 745.

One of the leading cases on failure to caveat isJ&H Just (Holdings) Pty Ltd v Bank of New South Wales(1971) 125 CLR 546. This case turns on an understanding of ordinary property practice before certificates of title were abolished. What was the key factor that meant that failure to caveat an unregistered mortgage wasnotpostponing conduct in this case?

J&H Just (Holdings) Pty Ltd v Bank of New South Wales(1971) 125 CLR 546

Facts diagram:

Josephson Bank of NSW (unregistered mortgage) + CT

J&H Just (unregistered mortgage)

BARWICK C.J.

1. On 4th September 1961 Oscar Lewis Josephson was the registered comprised in certificate of title registered under the Real Property Act, 1900-1970 (N.S.W.) (the Act) vol. 6521 fol. 156. A house was erected thereon known as 27 Linden Way, Castlecrag, Sydney. On that date he executed in favour of the Bank of New South Wales a memorandum of mortgage in registrable form of the said land to secure overdraft accommodation then, and thereafter to be, granted to him by the Bank. At the same time he deposited with the Bank the duplicate certificate of title to the said land as security for that accommodation and to enable it to register the memorandum of mortgage should it choose to do so. However the Bank did not do so. According to the evidence given at the hearing of the suit out of which this appeal has arisen the Bank's practice in respect of the registration of securities taken by it for moneys advanced by way of overdraft has not been uniform. On occasions the memorandum of mortgage given to secure an overdraft is registered and on other occasions it is not. No indication was given in the evidence as to the basis on which it is decided to follow one course rather than the other. Nothing, however, in the evidence suggests that the non-registration of the memorandum of mortgage in the instant case was the result of any agreement between the Bank and the customer. But there was evidence that the reliance by lenders of money on an unregistered memorandum of mortgage accompanied by a deposit of the duplicate certificate of title was a not infrequent occurrence in Sydney. (at p549)

2. On 28th May 1964 the appellant lent Oscar Lewis Josephson $2,000 at interest. It took as security a memorandum of mortgage of the said land duly executed by Mr. Josephson which though in registrable form it did not intend to register. He represented to the appellant that the land was unencumbered. Upon inquiry by the appellant as to the whereabouts of the duplicate certificate of title he said that the certificate of title was with his bank, there held in safe custody. He said he did not want it removed from the bank's custody "as he might die whilst abroad". The money he borrowed from the appellant was for the purpose of paying his air fare to America on a business trip. The appellant's solicitor who prepared the memorandum of mortgage and secured its execution searched the Real Property Register and found that there were no encumbrances noted on the certificate of title nor any caveats. He did not inquire at the Bank as to the terms on which it held the certificate of title. He did not seek its production. He did not notify the Bank of the memorandum of mortgage which had been executed by Mr. Josephson in favour of the appellant. However on 5th June 1964 on behalf of the appellant he did lodge a caveat with the Registrar-General against dealings with the land without notice to the appellant. The lodgment of this caveat was noted by the Registrar-General on the folium of the register book containing the certificate of title on the said land. (at p550)

3. In August 1964 the Bank lodged with the Registrar-General for registration the memorandum of mortgage executed by Oscar Lewis Josephson in its favour and for that purpose also lodged with the Registrar-General the duplicate certificate of title to the said land. Thereupon, in compliance with the caveat lodged by the appellant, the Registrar-General notified the appellant of the lodgment of the dealing. The appellant thereafter on 2nd October 1964 commenced the present suit to which the Bank, Oscar Lewis Josephson and the Registrar-General were made defendant parties. The appellant claimed in the suit a declaration that its interest in the land derived from the memorandum of mortgage executed by Oscar Lewis Josephson in its favour has priority over the Bank's interest in the land derived from the memorandum of mortgage of the said land executed in the Bank's favour ; and that the memorandum of mortgage of the land in favour of the appellant ought to be registered by the Registrar-General in priority to that of the Bank. Injunctions to restrain the registration of the memorandum of mortgage in favour of the Bank were also sought. (at p550)...

****

5. By a decretal order of 10th November 1969 a judge of the Supreme Court sitting in Equity who heard the suit dismissed it (1969) 90 WN (Pt 1) (NSW) 571 The learned judge accepted that the appellant by reason of earlier inquiries at the Bank, unconnected with the instant transactions, had formed the opinion that Oscar Lewis Josephson was an honest and reliable man and "creditworthy". He said that the practice of not registering the memorandum of mortgage of land under theReal Property Actgiven to secure overdraft accommodation and of not lodging any caveat with the Registrar-General in respect of dealings with the land was not unusual. He had evidence of "a solicitor of very great experience" that ". . . anyone who advances money", i.e., to be a charge on land under theReal Property Act"relying simply on his searches on the register without getting the certificate of title produced to him so that he could if necessary or at any time he thought fit register the dealing in his favour, would be mad" "He would know", i.e., from the possession or production of the certificate of title, "having the certificate of title in his hands, he could get his dealing registered immediately ; and he would further know that no one had lent money on the security of the property and was holding the certificate of title in an unregistered mortgage in accordance with what is, as I say, a not infrequent practice." (at p551)...

****

7. Upon the appellant's appeal to the Court of Appeal Division of the Supreme Court (1970) 92 WN (NSW) 803, Jacobs J.A., with whose reasons Mason and Moffitt JJ.A. agreed, held that a failure to give notice by lodging a caveat should not be regarded as entitling any person subsequently dealing with the registered proprietor to regard the title as clear of any outstanding equitable interest. He thought it unheard of that one who proposes to become a first mortgagee should dispense with either production or delivery of the duplicate certificate of title upon the faith of a clear register. In this respect he accepted the evidence of the solicitor which I have quoted. He therefore found no ground for postponing the memorandum of mortgage given to the Bank. He further found that, because of its gross carelessness in not sighting or obtaining the duplicate certificate of title, the appellant could not claim any benefit from s. 43A. (at p552)

8. Much has been said in the course of this case about the failure of the Bank to lodge with the Registrar-General a caveat against dealings. It is important in this connexion to observe the nature and purpose of what is sometimes called an "unofficial caveat", distinguishing a caveat lodged by a private person from a caveat lodged by the Registrar-General, e.g. under ss. 12 (f) or 83 of the Act. Its form is scheduled to the Act. See 16th Schedule. It is directed to the Registrar-General and may properly be given by a person claiming an estate or interest in the land, against dealings with which it is lodged. It must describe the estate or interest claimed. But it is not a registrable instrument: nor is the Registrar-General required by the Act to enter a notation of it on the relevant certificate of title, though the form of the caveat provided in the schedule to the Act does make provision on its reverse side for a record to be made of the entry of its particulars in the register book. Now by s. 8 (1) (a) of Act No. 30 of 1938 however the Registrar-General is authorized to place "notifications" on the Register. In practice however the caveat is given a number: and a note of its lodgment and of the estate or interest claimed, is made on the relevant certificate of title, but not necessarily at the time of the lodgment of the caveat. Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator's estate or interest though if noted on the certificate of title, it may operate to give such notice. If the caveator does not take proceedings in due time against the person who has lodged a dealing for registration, and the dealing is registered, awareness of the existence of the caveat, and through it, that an estate or interest is claimed by the caveator, will be irrelevant except possibly as an element in establishing fraud in the procurement of the registration. But of itself such awareness will not vitiate the registration. (at p552)

9. In Abigail v. Lapin[1934] UKPCHCA 1; (1934) AC 491; 51 CLR 58[note: the facts of Abigail v Lapin are essentially the same as Breskvar v Wall]husband and wife, the respondents, each the registered proprietor of a separate parcel of land each executed a memorandum of transfer in favour of a nominee of a solicitor. The memoranda were executed as security for certain costs and for the payment of a sum due to a bank. As the matter was ultimately viewed, the respondents in executing and handing over the memoranda of transfer had authorized the solicitor to deal with the property but not for his own benefit or for that of his nominee otherwise than as mortgagee. The transfers were subsequently registered in breach of that authority. The transferee became the registered proprietor of the fee simple in each parcel of land. After other dealings, the appellant lent money on the security of registrable memoranda of mortgage of the land executed by the registered proprietor and of the deposit with him of the duplicate certificates of title. Caveats by the respondents prevented registration of these memoranda of mortgage. The respondents sued the appellant and others claiming that they were entitled to an order that the registered proprietor should transfer the land to them free of encumbrances. Thus the case was one in which the equitable interest of the appellant was derived from a registered proprietor who had come to that place on the register by the misuse of his authority from the respondents and possession of the duplicate certificate of title. That interest was in competition with the equitable interest of the respondents, as mortgagors. (at p553)

10. The lodgment of a caveat by the respondents even whilst they were still registered proprietors might well have been thought appropriate, once the duplicate certificates of title and executed memoranda of transfer had been given to the mortgagee. This would be a means of safeguarding themselves against an abuse of the authority which they had given their mortgagee. The respondents in this respect were in a very different situation to that of the Bank. The holder of the executed memoranda of transfer and the duplicate certificate of title was in a position to have the transferee registered as proprietor. Once that person was registered the legal estate in the land would vest in the transferee. But in the case of the Bank no change in the register could properly take place without its concurrence. The difference in the need of the parties for protection against the registration of dealings is thus quite clear. (at p553)

11. But it was the respondents' conduct in thus arming the mortgagee with the capacity to become the registered proprietor and able to deal with others as such and not any failure by them to lodge a caveat that was decisive in Abigail v. Lapin[1934] UKPCHCA 1; (1934) AC 491; 51 CLR 58 Their Lordships' decision was an application of Kindersley V.C.'s judgment in Rice v. Rice[1853] EngR 1102; (1854) 2 Drew 73 (61 ER 646) from which Lord Wright quotes a passage (1934) AC, at pp 503-504; 51 CLR, at p 68 A passage from the judgment of Knox C.J. in the case was adopted as setting out the relevant principles for resolving the competition of the parties' interest in the land. Ultimately "the case then becomes one of an agent exceeding the limits of his authority but acting within its apparent indicia" per Lord Wright (1934) AC, at p 508; 51 CLR, at p 72 I emphasize these aspects of the decision Abigail v. Lapin[1934] UKPCHCA 1; (1934) AC 491; 51 CLR 58 by the Privy Council because, once it is recognized that the respondents' conduct in handing over the memoranda of transfer and the duplicate certificates of title provided the ratio decidendi, much of what Lord Wright says about the consequences of a failure by a claimant to an equitable interest to lodge a caveat and particularly his comments on Butler v. Fairclough[1917] HCA 9; (1917) 23 CLR 78 became, in my opinion, obiter (at p554)

12. Whilst it may be true in some instances that "the register may bear on its face a notice of equitable claims", this is not necessarily so and whilst in some instances a caveat of which the lodgment is noted in the certificate of title may be "notice to all the world" that the registered proprietor's title is subject to the equitable interest alleged in the caveat this, in my opinion, is not necessarily universally the case. To hold that a failure by a person entitled to an equitable estate or interest in land under theReal Property Actto lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of the creation of the equitable interest would otherwise give, is not merely in my opinion unwarranted by general principles or by any statutory provision but would in my opinion be subversive of the well recognized ability of parties to create or to maintain equitable interests in such lands. Sir Owen Dixon's remarks in Lapin v. Abigail[1930] HCA 6; (1930) 44 CLR 166, at p 205 with which I respectfully agree, point in this direction. (at p554)

13. Of course, there may be situations in which such a failure may combine with other circumstances to justify the conclusion that "the act or omission proved against" the possessor of the prior equity "has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it that the prior equity was not in existence" cf. per Knox C.J. in Lapin v. Abigail (1930) 44 CLR, at pp 183-184 This is the relevant principle to apply if it is claimed that the priority of a prior equitable interest has been lost in competition with a subsequent equitable interest."In general an earlier equity is not to be postponed to alater one unless because of some act or neglect of the priorequitable owner. In order to take away any pre-existingadmitted title, that which is relied upon for such a purposemust be shown and proved by those upon whom the burdento show and prove it lies, and . . . it must amount tosomething tangible and distinct, something which can have thegrave and strong effect to accomplish the purpose for whichit is said to have been produced: per Lord Cairns L.C. inShropshire Union Railways and Canal Co. v. The Queen(1875) LR 7 HL 496, at p 507:

The Act or default of the prior equitable owner must besuch as to make it inequitable as between him and thesubsequent equitable owner that he should retain his initialpriority. This in effect means that his act or default mustin some way have contributed to the assumption upon whichthe subsequent legal owner acted when acquiring his equity":Lapin v. Abigailper Dixon J. (1930) 44 CLR, at p 204 (at p555)

14. In my opinion, the failure to lodge a protective caveat cannot properly be said necessarily to be such an act or default. It could not properly be said to be so in the present case. (at p555)

15. Mention should now be made of a second reason why in this case the failure to lodge a caveat could not be held to be privative of the Bank's priority. The Bank held the certificate of title and a memorandum of mortgage in registrable form. Whilst there is no express provision of the Act which forbids the registration of a dealing without the production of the duplicate certificate of title, it is the practice of the Registrar-General's office to refuse to accept an instrument of transfer or mortgage for registration without production of the duplicate certificate of title, unless the certificate is already in the Registrar-General's hands. See Baalman & Wells: Land Titles Office Practice (N.S.W.), 3rd ed. (1952), at pp. 225, 226. Thus a person in the situation of the Bank could reasonably rely upon this practice and his possession of the duplicate certificate of title as a reasonably sufficient protection. Of course, a provisional certificate of title may be issued by the Registrar-General if the duplicate is lost, mislaid or destroyed: s. 111. The stringency of proof required by the Registrar-General before issuing a provisional certificate may be gauged by a perusal of the departmental instructions set out in Baalman & Wells, at p. 280. A person in the situation of the Bank in this case does run the remote risk of a fraudulent claim being made to the Registrar-General by the borrower in order to obtain a provisional certificate. But, in my opinion, such a person is not to assume such criminal conduct on the part of the registered proprietor. (at p556)

16. In any case the failure by such a person to lodge a protective caveat cannot of itself properly be held to be an act fulfilling the requirements to which I have referred of conduct which will deprive a prior equity of its priority. As I have said, the purpose of the caveat is protective: it is not to give notice. The holder of the subsequent equity in my opinion could not properly rely upon the absence of any notification in the register book of the lodgment of a caveat as a representation or as the basis for a conclusion that no equitable interest in the land existed in any person. In my opinion the conclusion and the reasoning of the Court of Appeal Division were correct on this aspect of the case. (at p556)...

****

19. In my opinion, the appeal should be dismissed. (at p556).

McTiernan, Menzies and Owen JJ agreed.

There is no need to make heavy weather of caveat cases, and the question of whether caveats are 'notice to the world'. The underlying basis for the claim of any later interest to take priority over an earlier interest is that the later interest was unaware of the earlier. If they had been aware of the earlier interest, they would not have acquired their own; if they were aware and went ahead and acquired theirs anyway, they have no grounds for complaint. If the earlier interest could have made the later aware of its existence and failed to do so, that is a failing that courts will take into account when determining postponement. A caveat is one way to alert people of an interest, but asJ&H Justdemonstrates, it is not the only way.

The following case is another illustration of how a later equitable interest might be well aware of an earlier equitable interest, despite the absence of a caveat.Note, that this case was applying the Victorian Torrens legislation which makes all leases an exception to indefeasibility, not just short-term leases. However, they are not just a straightforward exception. A registered proprietor, like Perpetual, will be treated as though they only have an equitable interest, and they will compete with the earlier equitable lease on the basis of the rule inRice v Rice. If this fact scenario arose in New South Wales, what would be the result for the elderly people?This case is also another excellent opportunity for you to think about the context in which land law operates. What was the business model of Money for Living Australia Property Holdings Pty Ltd (MFLPH)? What current demographics and distribution of property ownership was it attempting to profit from?

Perpetual Trustee Company Limited (ACN 000 001 007) v Smith[2010] FCAFC 91Facts diagram:

Elderly homeowners MFLPH (registered f.s.) Perpetual Trustee (registered m'ge)

1. lease for life (unreg'd)

2. Lump sum

3. Annuity

Moore and Stone JJ:

1. It is now commonplace for elderly people to use the equity in their home to generate an income stream during retirement. This appeal concerns arrangements of this type. A scheme ostensibly for this purpose was operated by Money for Living (Australia) Pty Ltd and Money for Living Property Holdings Pty Ltd (MFLPH). The scheme involved elderly retirees selling their homes to MFLPH in return for a lump sum, an annuity for a fixed period and a life tenancy over the property. A number of these transactions occurred before MFLPH ceased trading in late 2005.

2. Representative proceedings were commenced on behalf of the retirees against 19 respondents seeking, amongst other things, to protect their leasehold interests in the properties they had sold. Mostly, the claims were settled. However Perpetual and some of the retirees have not resolved their differences. Perpetual made a number of loans to MFLPH entities to finance the purchase of properties and took first registered mortgages over them. The retirees have claimed that the registered mortgages held by Perpetual were subject to their interests as lessees. Perpetuals position was that it was an innocent third party mortgagee, and that upon registration of its mortgages it obtained indefeasible title...

****

41. On 18 November 2004 Mrs Gainsford [one of the appellants], entered into a contract for the sale of her property. On the same day she also executed the Deed of Agreement and, with her husband, Edward Gainsford, signed the Residential Tenancy Agreement. As noted above the contract for sale provided for the payment of the purchase price by way of a deposit and subsequent instalments. The deposit was to be paid within 21 days or as otherwise agreed. We accept that at contract MFLPH acquired a proprietary interest which would, for example, be capable of competing with the proprietary interest of a third party however, as between the contracting parties the contractual requirements are determinative of their obligations; Chang v Registrar of Titles[1976] HCA 1;(1976) 137 CLR 177at 190 per Jacobs J.

42. The contractual arrangements between MFLPH and Mr and Mrs Gainsford are clear. The Contract of Sale, the Deed of Agreement and the Residential Tenancy Agreement were all executed by the Gainsfords on the same day, 18 November 2004. These agreements establish that it was the intention of the parties that MFLPHs right as owner of the land was to be subject to the right of Mrs Gainsford and her husband to remain in possession as tenants for the duration of their lives or until they vacated the property for a period exceeding six months. Mrs Gainsfords evidence in her affidavit of 24 March 2007 was that the "Settlement Date was to be the date upon which the deposit of $30,000 was paid by MLFPH to me, and MLFPH subsequently accepts title". The settlement statement annexed to Mrs Gainsfords affidavit confirms that settlement occurred on 9 December 2004 and, although Mrs Gainsford stated that she did not insert the date of 9 December 2004 in the Residential Tenancy Agreement as the commencement date for the lease, it is clear that as between the Gainsfords and MLFPH the lease was to commence at the latest on that date.

43. In its submissions in the appeal Perpetual argued that MFLPH could not grant a tenancy in respect of land in respect of which, in this case, Mrs Gainsford was the registered proprietor. The primary judge rejected this submission saying that "the fact that the retirees were registered proprietors of the properties at the time of entering into the agreement for lease or at the time of the grant of lease is irrelevant". We also reject the submission.

44. As between vendor and purchaser the right to possession is governed by the terms of the contract between them. Whether the vendor is to provide vacant possession at settlement or is to be permitted to remain in possession, and if so under what terms, depends on the terms of the contract. In this case the contract specifically provided that the vendor was to remain in possession and, in conjunction with the Deed of Agreement and the Residential Tenancy Agreement, it provided that the lease was to commence at settlement. These provisions impliedly recognise that at settlement MFLPH obtained the right to possession subject only to the more limited right which it immediately granted to Mr and Mrs Gainsford. In other words, the capacity in which Mrs Gainsford occupied the property shifted from occupation as owner to occupation as tenant with Mr Gainsford.

45. From the time of entering into the contracts executed on 18 November 2004 Mrs Gainsford was entitled to specific enforcement of MFLPHs contractual obligations, including the obligation to grant her a lease. That obligation was, of course, subject to the performance of the contractual obligations that she owed to MFLPH. On her part those obligations were fully performed at settlement and she had a specifically enforceable right to a lease; Walsh v Lonsdale (1882) LR 21 ChD (CA). In addition to the lease in equity that arises under the specifically enforceable contract, the occupation under the agreement to lease also brings into existence an implied tenancy at common law; Chan v Cresdon Proprietary Limited[1989] HCA 63;(1989) 168 CLR 242at 248 per Mason CJ, Brennan, Deane and McHugh JJ. On settlement, MFLPH acquired an equitable interest in the fee simple estate in the land and, in equity, was able to carve out of that estate, an equitable lease in favour of the Gainsfords. The fact that Mrs Gainsford was the registered proprietor at the time was, as the learned primary judge held, irrelevant...

****

57. We have concluded that all the persons concerned were tenants in possession at the time the appellant acquired its interest as a mortgagee of the relevant properties. It follows that, as provided in s42(2)(e) of the TLA, the relevant land is subject to those tenancies. [On its face, s42(2)(e) of the Victorian Transfer of Land Act makes all leases, irrespective of length, an exception to indefeasibility]. While it might be thought from the plain meaning of the section that this means that those tenancies take priority over the subsequent mortgages, the decisions of the High Court indicate otherwise. In Burke v Dawes all members of the High Court other than Latham CJ proceeded on the basis that the effect of the statutory protection was to deprive the registered proprietor of the indefeasibility otherwise accorded to it, leaving the competition between the registered proprietor and the tenant in possession to be resolved by the application of common law principles as if between two unregistered interests. Burke v Dawes was followed in Barba v Gas & Fuel Corporation of Victoria[1976] HCA 60;(1976) 136 CLR 120....****

69. In the case of all the respondents, the equitable interest of the tenants preceded the interests of the mortgagees. If the equities between the retirees and Perpetual were equal then the retirees interest, being first in time would take priority. That principle does not apply where the merits as between the parties are not equal. In this case it might be argued, although Perpetual made no such argument, that by giving MFLPH a registrable transfer and certificate of title, the retirees had armed MFLPH with the ability to enter into the mortgages, without Perpetual having any knowledge of their interests. Thus, it might be argued, although Perpetual did not, that the retirees had an obligation to correct the impression so created by lodging caveats to protect their interest. While Perpetuals failure to raise the question of notice might be regarded as fatal to its claim (see Barclays Bank plc v Boulter[1998] 1 WLR 1)we propose to consider the question.

70. We disagree with the primary judges comment that the failure to caveat was "of no moment" because the only purpose of a caveat would have been to prevent registration. His Honours comment overlooks the capacity of a caveat to give notice "to all the world that the registered proprietors title is subject to the equitable interest alleged in the caveat"; Butler v Fairclough[1917] HCA 9;(1917) 23 CLR 78at 91 per Griffith CJ. This purpose is not inconsistent with the capacity of a caveat to give notice as the following comment of Barwick CJ in J & H Just (Holdings) Pty Limited v The Bank of New South Wales[1971] HCA 57;(1971) 125 CLR 546at 552, indicates:

Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator ... The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveators estate or interest though if noted on the certificate of title, it may operate to give such notice. [Emphasis added]

71. The conduct of the retirees in giving MFLPH the ability to create the subsequent mortgages to Perpetual would indicate that the merits would be with Perpetual unless Perpetual had, at the very least, constructive notice of the retirees interests. While a caveat may give notice of an unregistered interest there is no obligation to caveat. To hold otherwise would be to convert a facility that the TLA provides into an obligation. If the circumstances are such as to give notice in some other way, so that the later interest holder is, or ought to be, aware of the prior interest, the failure to caveat, in so far as notice is concerned, will be immaterial. In the absence of a caveat it is necessary to consider all the relevant circumstances in determining the issue of notice; Heid v Reliance Finance Corporation Proprietary Limited(1983) 154 CLR 342per Mason and Deane JJ.

72. In the present circumstances, it beggars belief that the appellant did not have notice, at the very least constructive notice, of the retirees interests. In the absence of clear evidence to the contrary (and there was none) the inescapable inference is that Perpetual did have notice. Perpetual entered into many mortgages with MFLPH and made extensive funds available to it. In the normal course of events a lender in Perpetuals position would approve a loan facility on which MFLPH could draw in respect of the individual mortgages. Whether or not this was the case here, it is inconceivable that Perpetual would have agreed to make extensive funds available to MFLPH without having any idea of the nature of their business. There were in the appeal book extracts from various affidavits which indicated that the personnel in charge of settlement of the mortgages were not aware of the retirees interests or even, as least in some cases, that they were in possession. This is hardly surprising given the comparatively mechanical nature of settlement procedures however no evidence was apparent or was drawn to our attention as to the arrangements pursuant to which the loan moneys were made available. The absence of evidence on the point suggests that there was no evidence that would have assisted Perpetual in this regard. In any event, the very name of the company granting the mortgages, Money for Living Property Holdings Pty Ltd, would or should have alerted the mortgagee to the need to make enquiries. Furthermore, the fact that the mortgaged properties were residential premises occupied by an elderly person or an elderly couple should have alerted a potential purchaser or mortgagee of the need to make enquiries.

73. The situation here is quite different from that pertaining in cases such as Caunce v Caunce[1969] 1 WLR 286and Williams and Glyns Bank Ltd v Boland[1980] UKHL 4;[1980] 2 All ER 408. In both these cases the prior unregistered interest in the matrimonial home being claimed was that of the wife whose husband had created the later interest. In Caunce v Caunce it was held that the wifes occupation was not notice of her unregistered interest (arising from her contributions to the purchase price) because it was consistent with the title offered to the bank by the husband. In Williams and Glyns Bank the issue was whether the wife was "in actual occupation" of the matrimonial home within the meaning of s70(1)(g) of the Land Registration Act 1925 (UK). The Court rejected the view that the wifes occupation should be regarded as a shadow of her husbands and held that because the wife was physically present on the land she should be regarded as being in actual occupation. Occupation by the retirees cannot be so explained in relation to title offered by a company such as MFLPH.

74. It was not necessary for the retirees to caveat their interests in order to alert any future purchaser or mortgagee to their interest in the property. The fact of their occupation was constructive notice of their interest which would thus prevail even against a bona fide purchaser of the legal interest; Barnhart v Greenshields[1853] EngR 1060;(1853) 9 Moo PCC 18, 14 ER 2004; Hunt v Luck[1902] 1 Ch 428. Irrespective of whether Perpetuals interest is regarded as legal or equitable the result is the same. In the absence of an obligation to caveat and in the light of their actual possession, there was no postponing conduct on the part of the retirees. As such the merits did not lie with Perpetual and therefore, in a competition between the two equitable interests the prior interest of the retirees would prevail; Rice v Rice[1853] EngR 1102;(1854) 2 Drew 73,61 ER 646; Lapin v Abigail[1930] HCA 6;(1930) 44 CLR 166at 204 per Dixon J, quoted with approval by Barwick CJ in J & H Just (Holdings) Pty Ltd v Bank of New South Wales[1971] HCA 57;(1971) 125 CLR 546at 555. The protection afforded by s42(2)(e) strips the registered mortgagee of the indefeasibility that would otherwise protect it. In the competition between Perpetual and the tenants in possession the interests of the tenants must take priority over those of Perpetual...

****

78. It is not in contention that a vendors lien is an equitable interest. More to the point in the present circumstances, it is an unregistered interest. In this case the unregistered interests are competing with Perpetuals registered mortgages. There is no suggestion that these mortgages were acquired and registered other than in good faith; there was no fraud. There is no suggestion that any other exception to indefeasibility applied. In the absence of any such exception (as for instance the exception that s42(2)(e) provides in favour of a tenant in possession) the registered interest must prevail.

79. Section 42(2)(e) does not apply to the vendors liens as it is independent of the retirees tenancies. As the primary judge observed:

A vendors lien does not grow out of, and is severable from, the retirees right to continue in occupation as a tenant; it is not an interest to which the retirees occupation as a tenant is incident.

80. In this regard the vendors lien may be contrasted with the claim for rectification considered in Downie v Lockwood[1965] VR 257.The plaintiffs unregistered lease included rates and insurance premiums as outgoings to be paid by the tenant. The court accepted that, as against the lessor, the tenant was entitled to have the lease rectified by deleting the reference to rates and premiums. The issue was whether the tenant could exercise this remedy against a purchaser for value of the lessors reversionary interest. The court held that although the tenants equity of rectification did not touch and concern the land and thus under general law principles would not be enforceable against a purchaser of the legal estate for value and without notice, the interest fell within the exception in s42(2)(e) of the TLA. It was an interest to which his occupation as a tenant in possession was incident; see Burke v Dawes at 17.