Lee v Simmons[1998] QCA 1

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2616 of 1997

Brisbane

[Lee v. Simmons]

BETWEEN:

WALTER LEE and KARITA BUSHELL-LEE

(Defendants) Appellants

AND:

MARK BRADNEY SIMMONS and ALISON JANE SIMMONS

(Plaintiffs) Respondents

McPherson J.A.

Thomas J.

Dowsett J.

Judgment delivered 6 February 1998

Separate reasons for judgment of McPherson J.A. and Dowsett J., Thomas J. concurring as to the orders made.

APPEAL DISMISSED WITH COSTS.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2616 of 1997

Brisbane

Before McPherson J.A.

Thomas J.

Dowsett J.

[Lee v. Simmons]

BETWEEN :

WALTER LEE and KARITA BUSHELL-LEE

(Defendants) Appellants

AND:

MARK BRADNEY SIMMONS and ALISON JANE SIMMONS

(Plaintiffs) Respondents

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered 6 February 1998

This appeal comes to the Court of Appeal from a summary determination of questions raised by originating summons in the District Court in an action on a guarantee to recover, with interest, the amount of rent due pursuant to a written lease of premises at 49 Douglas Street, Milton.  The lease, which was in registrable form but not registered, was for a term commencing on 1 November 1990 and ending on 30 June 1993 at a specified annual rental payable monthly at the rate of $3,208.34.  It was granted by the registered proprietor Hewchester Pty. Ltd. as lessor to Walter Lee Design Pty. Ltd., whose covenants as lessee were guaranteed by Mr and Mrs Lee, who are the defendants in the action and are now the appellants in this Court.

Shortly after the lease was executed on 7 November 1990, the fee simple reversion in the land was transferred to a Mr and Mrs Simmons, who are the plaintiffs in the action and the respondents to the appeal.  The date on which transfer of the land was registered does not precisely appear; but the transfer is said to have been dated 17 November 1990 and to have taken place subject to the lease in favour of the defendants, which as a short tenancy would have gained the protection of s. 11 of the Real Property Act of 1877.  The guarantee, which is in writing and was executed by the defendants on 2 November 1990, recites as consideration the lessor’s having, at the request of the defendants as guarantors, agreed to grant to the lessee a lease of the premises at 49 Douglas Street, Milton.  It records that the guarantors:

“... hereby jointly and severally guarantee ... to the Lessor the due and punctual payment of the rent reserved by and all other monies payable under the said Lease ... and the performance and observance by the Lessee of the covenants and agreements terms and conditions of the said Lease.”

The principal question for determination, which Wolfe D.C.J. decided in favour of the plaintiffs, was whether the benefit of the guarantee passed from the original lessor Hewchester Pty. Ltd. to the plaintiffs when the reversion was assigned and transferred to them.  The question is one that has been answered affirmatively in no fewer than five recent decisions of authority in England and Australia, four of which were followed by the learned judge of District Courts in the matter from which this appeal comes.  They are, in England, Kumar v. Dunning [1989] 1 Q.B. 193, approved in P & A. Swift Investments v. Combined English Stores Group Plc [1989] A.C. 632, which was in turn applied in Coronation Street Industrial Properties Ltd. v. Ingall Industries Plc [1989] 1 W.L.R. 304, H.L.  Before the last of those decisions was given, the Full Court of Victoria had already followed the first two English decisions in Lang v. Asemo Pty. Ltd. [1989] V.R. 773.  Not long after the decision of the primary judge in this action, the Court of Appeal in New South Wales in Ryde Joinery Pty. Ltd. v. Zisti [1997] N.S.W. Conv.R. 55-812 also applied the English and Victorian decisions.

The appellants are therefore confronted by a considerable array of weighty authority in jurisdictions having legal systems not differing in material respects from our own.  In a property or conveyancing matter like this, the  advantage of certainty and conformity is a reason for following those decisions in Queensland: see Creer v. P. & O. Lines of Australia Pty. Ltd. (1971) 125 C.L.R. 84, 91; and Bocardo S.A. v. S. & M. Hotels Ltd. [1980] 1 W.L.R. 17, 24.  Another is the general desirability of uniformity of decision among intermediate appellate courts in Australia.  Although Australian Securities Commission v. Marlborough Gold Mines Ltd. (1993) 177 C.L.R. 485, 494, dealt specifically with decisions under national legislation, the legislative structure on which the decision here depends is also shared by the other jurisdictions in which it has arisen.  Unless, therefore there is some compelling reason of principle or policy for not doing so, this Court should incline to follow the decisions given in those other jurisdictions.

As regards policy considerations, the starting point is that, as a general rule, the benefit of a contract of guarantee is, unless a contrary intention appears, capable of being assigned in the same way and to the same extent as the benefit of any other contract: see Kumar v. Dunning [1989] Q.B. 193, 197.  It follows that the outcome here might equally have been achieved by a statutory assignment under the Judicature Act, now s. 199 of the Property Law Act 1974.  See O'Donovan & Phillips, The Modern Contract of Guarantee, (3rd ed., 1996), at 506.  Had that been done, the appellants would not have been any better placed than they now are to repel the action against them under their guarantee of the rent.  The question raised by the appeal is therefore one of legal principle rather than of broad justice of the claim in the particular case before us.

So far as principle is concerned, the question is whether the benefit of a guarantee of  rent in a lease passes automatically with an assignment of the reversion and so is enforceable by the transferee of the land.  The effect of assigning the freehold or fee simple reversion on a lease is, of course, that the lessee remains bound to the assignor by privity of contract but becomes liable to the assignee by privity of estate.  The assignee becomes entitled to enforce in his favour the benefit of the lessee’s covenants in the lease, provided that they “touch and concern” the land.  That was the effect of the Grantees of Reversions Act 1540; 32 Hen. 8, c.34, which is now embodied in s. 117 of the Property Law Act 1974.  Those provisions would, however, not be effective to transfer the benefit of the defendants’ guarantees to the plaintiffs in this case because they are not lessees and their guarantees do not form part of the lease.  See Kumar v. Dunning [1989] Q.B. 193, 200.

To achieve that result, the plaintiffs rely on the common law laid down in Spencer’s Case (1583) 5 Co.Rep.16(a) (and see notes in Smith’s Leading Cases, vol.1, 16th ed., at 87), supported, if need be, by s. 53(1) of the Property Law Act 1974, which corresponds in material respects to s. 78 of the Law of Property Act 1925 (Eng.).  Section 53(1) of the Queensland enactment provides that a covenant relating to any land of the covenantee is deemed to be made with the covenantee and his successors in title, and is to have effect as if those successors were expressed. The expression used in s. 53(1) is “relating to” and not, as in s. 117 of the Act, “touching and concerning” the land; but, although the verbiage of s. 53(1) differs in that respect, it has always been treated as requiring that the covenant sought to be enforced be one that in law touches and concerns land: see Federated Homes Ltd. v. Mill Lodge Properties Ltd. [1980] 1 W.L.R. 594, 604.

The question, then, is whether a guarantee of payment of rent under a lease is a covenant that answers that description.  It was this question that was answered in the affirmative in the recent authorities in England and Australia referred to.  It is a truism of this branch of the law that decisions on the matter of which covenants touch and concern the land disclose no identifiable single principle capable of explaining all the cases on the subject: cf. Kumar v. Dunning [1989] Q.B. 193, 200.  An attempt to arrive at a satisfactory working test was undertaken by Lord Oliver in Swift Investments v. Combined English Stores Group Plc [1989] A.C. 632, 642, and adopted in Lang v. Asemo Pty. Ltd. [1989] V.R. 773, 776, and again in Ryde Joinery Pty. Ltd. v. Zisti [1997] N.S.W. Conv.R. 55-812 at 50, 379.  For my part, however, I find persuasive what was, with the concurrence of Lord Roskill and Lord Ackner, said by Lord Templeman in his speech in that case ([1989] A.C. 632, 637):

“A covenant by a surety that a tenant’s covenant which touches and concerns the land shall be performed and observed must itself be a covenant which touches and concerns the land; the benefit of that surety’s covenant will run with the reversion, and the covenant is therefore enforceable without express assignment”.

There is, of course, no doubt that a tenant’s covenant to pay rent under a lease touches and concerns the land leased. That has long been the law: Parker v. Webb (1700) 3 Salk. 5; 91 E.R. 656. Indeed, if a covenant to pay rent does not run with the land, it is difficult to imagine a covenant that does.  Rent, in the language of the old books, issues out of the land and is incident to the reversion: see Co.Litt. 142a, 143a.  If rent runs with the land, it is not a long step to say that a guarantee of that rent also does so.

It is in that respect that a guarantee of rent differs from a guarantee of a mortgage debt, which in Australia has been held not to pass automatically on the transfer of a mortgage under the Torrens system.  See Consolidated Trust Co. v. Naylor (1936) 55 C.L.R. 423, 434, which, depending as it did on the effect of ss. 51 and 52 of the Real Property Act 1900 (N.S.W.), was described by Dixon and Evatt JJ. as “a statute concerned with dealings in land”, and it was, they said, because a mortgage involved such a dealing that the statute prescribed how mortgages might be transferred and with what consequences.  In the same passage of their joint judgment, their Honours went on to explain that the Torrens system legislation:

“... is concerned with the mortgage transaction in its entirety as it affects the land, and, therefore, extends to the personal liability of the mortgagor for the mortgage debt because that liability is intimately connected with the rights of property arising out of the mortgage transaction.  A surety’s obligation stands in a different relation to the dealing.  His liability is introduced by way of additional security.  It is personal and, except as a result of subrogation, does not directly or indirectly affect the land ... A guarantee is thus collateral to the mortgage transaction ...”.

The decision in Naylor’s case was referred to and distinguished in Kumar v. Dunning [1989] Q.B. 193, 206‑207, and also in the subsequent Australian authorities which have followed it.  The grounds on which it was so distinguished were challenged on this appeal.  But the underlying distinction between a guarantee of a mortgage debt and a guarantee of rent under a lease is, if I may respectfully venture to suggest it, that, although the mortgage debt is, as Dixon and Evatt JJ. said in Naylor’s case, “intimately connected with a right of property arising out of the mortgage transaction”, it is the debt which, in the case of a mortgage, is considered “the principal thing”, while the mortgagee’s interest in the land is regarded as “accessory only”.  See Haque v. Haque [No. 2] (1965) 114 C.L.R. 98, 127, where Kitto J. described that conception of a mortgage as an “ingrained principle”, which had been “absolutely settled and determined centuries ago”.  Unlike rent, a mortgage debt is not something that issues out of, or is an incident of, the mortgagee’s interest in the land; and a guarantee of such a debt cannot in that particular be in a stronger position than the debt itself.  The defendants’ reliance on what was said in Consolidated Trust Co. v. Naylor (1936) 55 C.L.R. 423, 434 as an argument against the assignment of their liability as guarantors, although perhaps superficially plausible, is on closer analysis seen to be  not well founded.

Finally, it was submitted by the appellants that the guarantee was one which, on its proper construction, was personal to Hewchester Pty. Ltd. as original lessor, and so was not capable of assignment with the reversion.  The basis of this submission was that the instrument of guarantee is addressed to Hewchester Pty. Ltd., where it is described simply as Lessor, and not as Lessor “and its assigns” or assignees.  In consequence, or so it was said, it cannot have been intended by the parties that the guarantee should run with the land.

The argument derives some force from the fact that, by contrast, Walter Lee Design Pty. Ltd. is parenthetically but specifically identified in the guarantee as being “hereinafter with its successor and permitted assigns called ‘the Lessee’”.  At the same time, it is perhaps weakened a little by the fact that in the lease itself both the lessor and the lessee are defined to include their assigns; that cll. 5.27 and 5.31 of the lease plainly contemplate the possibility of transfer by the lessor of the reversion; and that in terms of those clauses the obligations of Hewchester Pty. Ltd. are thereupon to pass to the transferee.

For my part, however, I cannot see that any of these considerations are of much assistance in arriving at a conclusion that references in the guarantee to the lessor are to be read as including assignees of the original lessor Hewchester Pty. Ltd.  It is true that in Kumar v. Dunning [1989] Q.B. 193, 197, where a similar submission was advanced by the guarantors, it was rejected primarily on the ground that the  obligations or covenants of the lessee were intended to endure throughout the full term of the lease, and that it was to those obligations that the guarantee was directed.  That is an authority in favour of the respondent plaintiffs’ argument where, as is the case here, the lessee’s obligations are of similar duration; but again it is, to my mind, not a consideration to which much weight can attach.  There must in practice be few leases in which the lessee’s covenants are not intended to continue throughout the duration of the lease, and to do so irrespective of any assignment of the reversion.  Indeed, it was a principal function of the Grantees of Reversions Act 1540 and now of s. 117(1) of the Property Law Act 1974 to ensure that those covenants do survive transfer of the fee simple and continue to enure for the benefit of an assignee of the reversion.  It does not, however, serve to throw much light on the proper interpretation of the instrument of guarantee in this instance.

In my opinion, the question falls to be determined by factors other than those so far mentioned.  If, as is conceded by the appellant defendants, the benefit of a guarantee is, unless a contrary intention appears, ordinarily capable of being assigned by using the statutory procedure prescribed in s. 199 of the Property Law Act, it becomes necessary, if that result is to be avoided here, to discover some indication that the guarantee was not intended to be assignable; or, in other words, that it was intended to be personal to the original lessor Hewchester Pty. Ltd.  The fact, which was relied on by the defendants, that the guarantee is not physically part of the lease itself, but is contained in a separate instrument, is to my mind of little significance.  The lease is dated, and presumably therefore was executed by the lessor, some days after the guarantee dated 2 November 1990, which is expressed to have been granted in consideration of the lessor having agreed, at the defendants’ request testified by their execution of the guarantee, to grant the lease to the lessee, its successor and permitted assigns.  In form, it is cast not as an indenture or contract which is complete in itself, but as an offer capable of acceptance by the granting of the lease which followed it on 7 November 1990.  The instrument of guarantee is, as one would naturally expect, plainly referable to the executed instrument of lease itself, without which it would have been largely meaningless if not altogether inoperative.  The fact that the two instruments are physically distinct is, in this context, therefore of no real consequence and cannot be used as a means of distinguishing the circumstances of this case from the authorities relied on by the plaintiffs.

In the end, the defendants’ submission on this aspect is reduced to saying that the guarantee is intended to be personal to the original lessor Hewchester Pty. Ltd. simply because it makes no express mention of assignees of the lessor.  However, while that omission is something that weighs in favour of the defendants,  it is precisely because of the absence of any reference to assignees that s. 53(1) of the Property Law Act is called into play.  On any view of s. 53(1), it functions at the very least as a “word‑saving” provision by “deeming” a covenant relating to land of the covenantee to be made with the covenantee and his successors in title, and so, in that way, it supplies the expression “assignee” or successors in title after the description of Hewchester Pty. Ltd. in the guarantee.  It is from this point that the defendants’ submission assumes an appearance of circularity.  Section 53(1), it is said, applies only if the covenant is one that relates to or touches and concerns land of the covenantee; and that, it is claimed, it cannot be seen to do unless the covenant itself is expressed to be made with the covenantee and assigns.  But to countenance such an argument is to deprive s. 53(1) of all effect.  Nor can it gain added force by referring to what was said by Lord Oliver in Swift Investments v. Combined English Stores Group Plc. [1989] A.C. 632, 642, where his Lordship enumerated as the third of four requirements for holding that a covenant touches and concerns land that:

“(3) the covenant is not expressed to be personal (that is to say neither being given only to a specific reversioner nor in respect of the obligations of a specific tenant)”.

In my respectful opinion, the emphasis in this passage must be regarded as falling on the word “only”.  The guarantee in the instrument in the present instance was given to a reversioner identified by name as the lessor.  From that, however, it does not follow that the guarantee is given “only” to that reversioner, or that it is therefore expressed to be personal to that individual or, in this case, corporation.  Something more than the mere use of a name is needed in order to displace or exclude the word-saving impact of s. 53(1).  If that were not so, it would be wiser for the instrument not to refer by name to the lessor at all, which would no doubt then prompt a further argument that the lessor was not sufficiently identified in the instrument itself.  Since, by s. 56(1) of the Property Law Act, a guarantee is required to be in writing, an instrument which, in order to gain the benefit of s. 53(1), altogether omitted the name of the party to whom it was given might well be rendered unenforceable.  Such an outcome is so absurd as to show that it cannot possibly be regarded as representing the legislative intention in enacting s. 53(1).  In the present case, the defendants’ guarantee of the rent is something that touches and concerns the leased land and s. 53(1) therefore deems it to have been made with the Lessor and its successors in title, which include the plaintiffs as assignees of the reversion.

In my opinion, therefore, the decision of Wolfe D.C.J. holding that Hewchester Pty. Ltd effectively assigned to the plaintiffs the benefit of the guarantee dated 2 November 1990 was correct.  The appeal must be dismissed with costs.

I am authorised by Thomas J. to say that he agrees that, for the reasons I have given, the appeal must be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2616 of 1997

Brisbane

Before McPherson  JA

Thomas J

Dowsett J

[Lee v Simmons]

BETWEEN :

WALTER LEE AND KARITA BUSHELL-LEE

Appellants

AND :

MARK BRADNEY SIMMONS AND ALISON JANE SIMMONS

Respondents

REASONS FOR JUDGMENT -  DOWSETT J

Judgment delivered 6 February 1997

I concur in the orders proposed by McPherson JA and agree with his Honour’s reasons.