Kevroy Pty Ltd v Keswick Developments Pty Ltd
[2009] QSC 49
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- Notable Unreported Decision
- Kevroy Pty Ltd v Keswick Developments Pty Ltd[2009] QSC 49
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Kevroy Pty Ltd v Keswick Developments Pty Ltd[2009] QSC 49
Kevroy Pty Ltd v Keswick Developments Pty Ltd[2009] QSC 49
SUPREME COURT OF QUEENSLAND
CITATION: | Kevroy P/L v Keswick Developments P/L; Keswick Developments P/L v Kevroy P/L & Ors [2009] QSC 49 |
PARTIES: | KEVROY PTY LTD KESWICK DEVELOPMENTS PTY LTD |
FILE NO/S: | 12861/08 12924/08 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court, Queensland |
DELIVERED ON: | 11 March 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 24 February 2009 |
JUDGE: | A Lyons J |
ORDER: | In matter 12924/08:
In matter 12861/08:
|
CATCHWORDS: | EQUITY – GENERAL PRINCIPLES – PRIORITY AND NOTICE – PRIORITY GENERALLY – NOTICE – EXPRESS AND IMPLIED NOTICE – where competing equitable interests – where Plaintiff had express notice of Applicants agreement – where first in time has priority REAL PROPERTY – LEASES – SUBLEASES – EFFECT OF REGISTRATION – OPTION TO PURCHASE – OPTION TO RENEW – where sublease was registered in time prior to the head lease – where order for summary judgement sought under r 293 of the Uniform Civil procedure Rules 1999 (Qld) – where the Plaintiff in 12924/08 has no real prospects of success – where there is no need for a trial of the claim CORPORATIONS – FORMATION – PRE-REGISTRATION CONTRACTS – ADOPTION OR RATIFICTION – where no interest in the land could be created by the contract expect in accordance with s 131 of the Corporations Act 2001 (Cth) Corporations Act 2001 (Cth) ss 131,133 Land Act 1994 (Qld) ss 298,, 301, 302, 323, 325, 336 Property Law Act 1974 (Qld) s 102 Uniform Civil Procedure Rule 1999 (Qld) r 293 Deputy Commissioner for Taxation v Broadbeach Properties Pty Ltd (2008)82 ALJR 1411, considered Deputy Commissioner for Taxation v Salcedo [2005] QCA 227, followed Elsafty Enterprises Pty Ltd v Mermaids Café and Bar Pty Ltd [2007] QSC 394, considered Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326, considered WWW Dot Wizards Pty Ltd v Globe Valley Pty Ltd. [2006] WASC, followed |
COUNSEL: | S Couper QC with G Handran for the applicant/respondent FL Harrison QC with C Wilson for the respondent/applicant |
SOLICITORS: | McKays Solicitors for the applicant/1st defendant Kelly Legal for the Respondent/plaintiff Michael Drummond Solicitor for the 2nd & 3rd defendant |
A LYONS J:
Factual background
- Keswick Island Pty Ltd (“Keswick Island”) had, from 16 February 1996, been registered as lessee from the State of Queensland of a Crown lease of land on Keswick Island for a term of 100 years, ending on 15 February 2096.
- From 27 June 2003, Kevroy (Pty Ltd) (“Kevroy”) was registered as a sub-lessee of part of the leased land from Keswick Island for a seven year term starting on 23 June 2003 and ending on 22 June 2010.
- On 22 November 2007, “Keswick Developments Pty Ltd as trustee for the Keswick Property Trust (to be incorporated)” (“Keswick Developments”) entered into a contract with Keswick Island to buy the lease. Keswick Developments was a yet to be registered development company and Keswick Developments Pty Ltd was not incorporated until 14 January 2008. The contract was signed by Mr Gregory Chappell as “Director” on 22 November 2007.
- On 20 December 2007, litigation between Kevroy and Keswick Island about previous dealings between them was settled with Keswick Island agreeing to terms whereby Keswick Island granted to Kevroy “a residential sublease for the balance of the term of the head lease” (i.e. 94 years) on terms similar to other residential leases.
- The affidavit of Stephen Byrne, sworn 15 December 2008, states that on or about 8 January 2008, Kevroy became aware of the Chappell contract and initially lodged an application on 9 January 2008 for the amendment of the existing sublease at the Department of Natural Resources (DNR).
- On 10 January 2008, Kevroy advised Mr Chappell by letter, of the details of the terms of the 20 December 2007 settlement agreement which had given Kevroy a sublease for the balance of the term of the head lease.
- When Keswick Developments was incorporated on 14 January 2008, it ratified the contract entered into by Mr Chappell in November 2007 for the transfer of the head lease.
- Kevroy was subsequently advised by DNR that the existing sublease could not be amended in the way sought and on 23 January 2008 Kevroy surrendered the existing sublease, which was due to expire on 22 June 2010. On that same day, Keswick Island executed a new sublease to Kevroy, which would not expire until 14 February 2096. The Minister consented to this sublease on 24 January 2008 and it was registered on 1 February 2008.
- The Minister consented to the transfer of the head lease from Keswick Island to Keswick Developments on 14 March 2008 and the transfer was registered on 26 March 2008.
- Clearly then, the sublease was registered on 1 February 2008 and the head lease was registered on 26 March 2008. However, as Counsel for Keswick Developments states:[1]
“We contracted in November 2007 to buy the island subject to a number of subleases including a sublease to Kevroy that expired in 2010. When it came to settlement we found that in the meantime the vendor to us had granted a new sublease that extended to 2096 …”
The two proceedings
- This application relates to two current proceedings. In proceeding 12861/08, which is an originating application filed on 11 December 2008, the applicant, Kevroy seeks a declaration that it held its interest in the sublease in priority to the interest held by the respondent, Keswick Developments, under the transfer of the lease and an order that the respondent perform its obligations pursuant to covenants in the sublease.
- In proceeding 12924/08 filed on 12 December 2008, the plaintiff, Keswick Developments, seeks a declaration that it is not bound to give effect to the registered sublease and a declaration that Kevroy holds the sublease on trust for Keswick Developments. They also seek consequential orders against the first and second defendants, requiring them to do all such things as may be necessary to remove the sublease number 711391989 from the register and to restore the previously registered sublease 706746464 to the register. Alternatively, Keswick Developments seeks a declaration that the grant of the new sublease by Keswick Island to Kevroy constituted conduct by Keswick Island in breach of an agreement in writing, dated 22 November 2007. Keswick Developments seeks damages against Keswick Island as well as equitable compensation against Keswick Island, Kevroy and the third defendant.
- Keswick Developments, the plaintiff in 12924/08 and the respondent in 12861/08 seeks orders based upon the asserted priority of its head lease over the applicant Kevroy’s sublease, which was in fact registered prior in time to Keswick’s registration of the head lease.
- The issue between the parties essentially relates to the question of the priority of the head lease and the sublease.
The current application
- Kevroy, the applicant in 12861/08 and the first defendant in 12924/08 now applies to the Court for an order for summary judgment, pursuant to r 293 of the Uniform Civil Procedure Rules 1999, against Keswick Developments on the basis that it holds its interest in sublease number 711391989 (the sublease) in priority to the interest held by Keswick Developments as lessee of Crown leasehold land, (the head lease).
- In order for the applicant Kevroy to succeed on its summary judgment application, it must show that the plaintiff in the action, that is Keswick Developments, has no real prospect of succeeding on its claim and there is no need for a trial of the claim. As Williams JA stated in Deputy Commissioner of Taxation v Salcedo [2005] QCA 227:
“Rule 292 and r 293 brought about significant changes in the law and procedure relating to summary judgment. The wording of r 292 and r 293 is clearly based on the drafting used in Part 24 of the Civil Procedure Rules (UK) which came into force in the United Kingdom in 1999. In Swain v Hillman [2001] 1 All ER 91 the Court of Appeal had to consider rule 24.2, the equivalent of rule 292. Lord Woolf M.R said at 92:
‘The words “no real prospect of succeeding” do not need any amplification, they speak for themselves. The word “real” distinguishes fanciful prospects of success or . . . they direct the court to the need to see whether there is a “realistic” as opposed to a “fanciful” prospect of success.’
Later, again speaking of the rule, he said at 94:
‘It saves expense; it achieves expedition; it avoids the court's resources being used up on cases where this serves no purpose, and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant's interests to know as soon as possible that that is the position. Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible.’”
The applicant’s argument for summary judgment
- The applicant Kevroy, argues that their sublease was lodged and registered before the respondent’s transfer of the head lease and that the effect of ss 298 and 302 of the Land Act 1994 (the Act) is that the applicant’s sublease has priority. Those sections provide:
“298Priority of registered documents
(1)Registered documents have priority according to when each of them was lodged and not according to when each of them was executed.
(2)A document is taken to be lodged on the day and at the time endorsed on the document by the chief executive as the day and time of the lodgement unless the contrary is proved.
(3)Subsection (1) is not affected by actual, implied or constructive notice.
…
302Effect of registration on interest
(1)On registration of a document expressed to transfer or create an interest in land, the interest—
(a)is transferred or created in accordance with the document; and
(b)is registered; and
(c)vests in the person identified in the document as the person entitled to the interest.
(2)The person holds the interest subject to—
(a)all other interests in the land previously registered; and
(b)all rights and interests of the State in the land, other than interests subsequently registered.”
- Kevroy argues that, because the interests of Keswick Developments and Kevroy were in fact both registered, the Act determined priority as between the two interests. Kevroy argues that the provisions of s 298(1) of the Act are clear and unambiguous and should be read literally and strictly in accordance with its terms. Accordingly, Counsel submits, because the sublease was lodged for registration before the transfer of the head lease, the sublease has clear priority and there is no reason to read down the words of the section. In particular, the wording of s 298(3) provides that subsection (1) is not affected by actual, implied or constructive notice.
- It is on this basis that Kevroy claims that Keswick Developments’ action must fail and that they should, therefore, obtain summary judgment.
- The issue for determination, therefore, is whether the claim filed by Keswick Developments on 12 December 2008 has any real prospects of success. Counsel for Keswick Developments also seeks to have some of the preliminary points determined in the present application, particularly the declarations, and a determination as to whether the original sublease expiring in 2010 should be restored.
Respondent’s argument
- Keswick Developments argues that the application for summary judgment should fail on three grounds.
- First, Keswick Developments argues that its interest was prior in time to Kevroy’s interest on a number of bases and that, on the proper application of equitable rules of priority, its interest takes priority over the sublease, even though it is a legal interest, because Kevroy did not acquire its interest as a bona fide purchaser for value without notice of Keswick Developments’ interest. In particular, it is argued that Keswick Developments’ contract was made on behalf of a company to be formed and that company became entitled to the benefit of the contract on ratification of that contract when the company was formed on 14 January 2008. That ratification then operated back to the time of the ratified act, that is, 22 November 2007, at which time the only sublease to Kevroy expired in 2010.
- The second submission is that the provisions of s 298 of the Land Act do not displace the ordinary operation of the equitable rules of priority and that registration under the Land Act does not override equitable interests. The essential argument is that Keswick Developments acquired an equitable interest in the leased land effective from 22 November 2007, which was first in time to the new sublease that was granted on 23 January 2008.
- The third basis is that the agreement under which Kevroy acquired its sublease offended the prohibition on the extension of subleases in s 336 of the Act and is therefore void. That is, that the settlement contract on 20 December 2007, between Kevroy and Keswick Island, was illegal and therefore void from its inception because the new agreement substituted an arrangement, by which the original sublease expiring in 2010 was surrendered and a new sublease granted, expiring in 2096. Such an agreement, Keswick Developments argues, is illegal because the intention of the legislature is to prevent the extension of subleases.
Is the sublease dated 23 January 2008 void?
- The terms of the settlement of the litigation between Keswick Island and Kevroy on 20 December 2007 included a term at paragraph [2], “Your client grant to our client a residential sublease for the balance of the term of the Head Lease (ie 94 years) on terms similar to other residential leases,…”. Initially Kevroy tried to amend the sublease but it became clear that a surrender and new lease was required.
- Keswick Developments argues, that there is no reference in the terms of a settlement to surrender the sublease by Kevroy and the granting of a new lease by Keswick Island. They further argue, that a “sublease for the balance of the term” means a sublease from 2010 to 2096, which amounts to an extension of the term of the sublease. Counsel submits that this is illegal because, although it is generally permissible by s 102 of the Property Law Act 1974, the effect of registration would be a merger between the two subleases such that the effect of the new sublease would be to extend the original sublease contrary to s 336(2) of the Land Act. It is argued that the intention of the legislature is to prevent the extension of subleases and that the policy would be defeated if the parties could achieve the same result as an extension, by granting a fresh lease at the termination of the existing sublease before it had come to an end.
- I find no merit in this argument because I do not consider that there has been an amendment of a sublease in the circumstances which have been outlined. Section 336(2) does contain a prohibition on amendments to subleases, which increase the term of the sublease as follows:
“336 Amending a sublease
(1) A registered sublease may be amended by registering an amendment of the sublease.
(2) However, the document of amendment must not—
(a) increase or decrease the area subleased; and
(b)add or remove a party to the sublease; and
(c) increase the term of the sublease.”
- However, I consider that the terms of settlement agreement, clearly indicate this was not an amendment to an existing sublease. The terms of the settlement in December 2007, in my view, clearly indicated a new sublease was to be entered into. Whilst Kevroy initially tried to fulfil the agreement by means of an amendment to the existing lease, this was not in fact what was agreed to be done and Departmental officers indicated that this could not in fact be done, under the Act. I do not consider that an attempt to fulfil the terms of the settlement by means of an amendment to the lease means that this was what was agreed to. The terms of the settlement were clear and in any event, a new sublease was indeed granted on 23 January 2008.
- I can find no prohibition in the legislation, to the granting of a new sublease to an existing lessee for a new term, which is longer than the term of the initial sublease. If Keswick Developments is correct, no existing sublessee could ever obtain a new sublease for a longer term, after surrender of an existing sublease.
- I do not consider therefore, that there is any real prospect that Keswick Developments would succeed on this ground.
The ratification by Keswick Developments
- Keswick Developments also argues that the correspondence indicates that there was no agreement in relation to the surrender by Kevroy and the grant of a new lease by Keswick Island until the actual surrender on 23 January 2008. They argue this was after the ratification of the November 2007 contract by Keswick Developments on 14 January 2008. Keswick Developments therefore, essentially argues, that the word “ratification” should be given its true meaning and once ratified a contract can operate retrospectively. Accordingly, they submit, the contract was in existence from 22 November 2007, which was before both the settlement agreement on 20 December 2007 and the surrender of the lease on 23 January 2008.
- Furthermore, it is argued that the grant of the new sublease is essentially a second agreement and was entered into after Kevroy became aware of the Keswick Developments’ contract. Therefore, Kevroy was not a bona fide purchaser for value of the new sublease without notice of Keswick Developments’ prior rights under the contract. Accordingly, Keswick Developments submits it takes priority unless registration under the Land Act establishes indefeasibility of title.
- As Keswick Developments was not as yet registered, the purchaser on the contract dated 22 November 2007, was described as “Keswick Developments Pty Ltd as Trustee for the Keswick Property Trust (to be incorporated)” The reference “to be incorporated” being a reference back to Keswick Developments.
- In my view, the contract entered into on 22 November 2007 was a pre-incorporation contract. Such a contract is governed by s 131(1) of the Corporations Act 2001 which provides:
“Contracts before registration
131 (1)[Ratification after registration] If a person enters into, or purports to enter into, a contract on behalf of, or for the benefit of, a company before it is registered, the company becomes bound by the contract and entitled to its benefit if the company, or a company that is reasonably identifiable with it, is registered and ratifies the contract:
(a)within the time agreed to by the parties to the contract; or
(b)if there is no agreed time- within a reasonable time after the contract is entered into.”
- The effect of that section is that the company must ratify a contract made on behalf of or for the benefit of a company within a reasonable time after the contract was entered into. Accordingly, if the company is to be bound by the contract and to take its benefit, the company must both come into existence by registration and ratify the agreement.
- Keswick Developments submits that the legislature in s 131 used the term “ratifies”, which is well known to law and that the incidents of that term should therefore attach to the word, except to the extent that the legislature indicates otherwise. It is submitted that the legislature has not attached any special incidents to it. Reliance is placed on the decision of Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd.[2] Accordingly, it is submitted that ratification is retroactive and relates back, in time, to the ratified act.
- However, the existing case law indicates that such ratification is not retrospective and Ford’s Principles of Corporations Law provides a commentary on s 131 as follows:[3]
“From the time the company ratifies the contract the other party to the contract is able to hold the company to the contract and is liable to the company to perform the contract. This assumes that when the contract was entered into the only missing element which prevented it from being an effective or ratifiable contract was the non existence of the company. It is conceived that ratification does not have any retrospective effect so as to constitute a contract between the company and the other party before the time of the ratification. In the absence of a clear legislative statement there could hardly be retrospective formation of a contract from the time the agent or trustee purported to make it, given the non existence of the company. Nor is there any indication of legislative intention to make the ratified contract operative from the time the company was registered: WWW Dot Wizards Pty Ltd v Globe Valley Pty Ltd. [2006] WASC 128 at 25.”
- In the Dot Wizards decision referred to above, the commentary from Ford’s textbook was noted and Master Newnes (as his Honour was then) of the Western Australia Supreme Court, made it clear that he agreed with that view as follows:
“In any event, in my view ratification would not have such retrospective effect. The learned authors of “Ford’s Principles of Company Law” point out that in the absence of a clear legislative statement there could hardly be retrospective formation of a contract from the time the agent purported to make it, given the non existence of the company. There is no such legislative statement. Nor is there any indication of a legislative intention to make the ratified contract operative from the time the company was registered. I would respectfully agree.”
- Whilst the previous provisions of the Companies Act 1981 (s 81(3)) and the Corporations Act 1989 (s 183(3)) did explicitly provide for the ratification to operate retrospectively, the current provision does not contain such express words. It must be concluded therefore, particularly given the legislative history, that there was no legislative intention for the ratification to operate retrospectively.
- Accordingly, I consider that the date of the formation of the enforceable contract with the company was 14 January 2008, as this was not only the date the company was registered but it was also the date the contract was ratified. I do not consider that the contract was retrospective given the lack of clear legislative intention.
- Although that date is prior to the registration of Kevroy’s interest, it is subsequent to the date on which Kevroy entered into the agreement to acquire the current sublease on 20 December 2007.
- It is also clear that the position in relation to the law of agency is different and that analogies drawn from agency law are imperfect as there is no relationship of agency. As Master Newnes said at paragraph 26 in Dot Wizards:
“While the position under the law of agency in relation to ratification is different, as Bryson JA observed in Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd & Another (2005) NSWCA 319 at [29] in relation to section 131 analogies drawn from agency law are imperfect as there is no relationship of agency.”
Priority of equitable interests
- Turning to the final ground; Keswick Developments argues that their lease has priority over Kevroy’s sublease and this is really on two bases:
- Keswick Developments interest was prior in time to Kevroy’s interest and on the proper application of the equitable rules of priority takes priority over the new sublease, even though it is a legal interest, because Kevroy did not acquire its interest as a bona fide purchase of the value without notice of Keswick Development’s interest; and
- The provisions of s 298 of the Land Act do not displace the ordinary operation of the equitable rules of priority;
- Section 301 provides that a document does not transfer a lease or create a legal interest in a lease until it is registered and s 323 provides that a lease must be registered.
- Section 302 then provides that on registration the person holds the interest subject to all other interests previously registered and all rights and interest of the State other than those subsequently registered as follows:
“302 Effect of registration on interest
(1)On registration of a document expressed to transfer or create an interest in land, the interest—
(a)is transferred or created in accordance with the document; and
(b)is registered; and
(c) vests in the person identified in the document as the person entitled to the interest.
(2)The person holds the interest subject to—
(a)all other interests in the land previously registered; and
(b)all rights and interests of the State in the land, other than interests subsequently registered.”
- Keswick Developments’ argument is that Elsafty Enterprises Pty Ltd v Mermaids Café and Bar Pty Ltd[4] is authority for the proposition that, despite these sections, registration under the Land Act does not override equitable interests. In that decision, RJ Enterprises was the lessee of Crown land and had granted a sublease in May 2004 to Mermaids Café and Bar which was to expire in June 2008. There were, however, options to renew for three further terms of five years each. Elsafty, however, bought the lease under a contract dated 23 August 2005, which was completed on 15 November 2005. On 17 March 2006, Elsafty tried to forfeit the sublease. Elsafty claimed that the options were unenforceable because the Minister, acting under a mistake of law, had declined to consent to the inclusion of the options clause in the sublease, as a consequence of which the options were included in a separate instrument. McMurdo J held:
“[39]Subject to the operation of the Land Act … RJ Enterprises remained bound by the options to renew. The parties had agreed on the options in May 2004. They agreed to vary that in December 2004 only in that whilst the registered sublease was not to contain the options, the options would remain part of their contract.”
- Section 325 proscribes the effect of registration of a transfer of a lease as follows:
“325 Effect of registration of transfer
(1)On registration of a transfer—
(a)all the rights, powers, privileges and liabilities of the transferor vest in the transferee; and
(b)the transferee holds the interest in the land subject to the registered interests affecting the interest.”
- Clearly then, s 325 indicates that the transferee holds the interest in land subject to the registered interests affecting the interest. It would seem therefore that the effect of s 325(1)(b) is that Keswick Developments holds its interest subject to Kevroy’s previously registered interest.
- Keswick Developments however argues that the section does not say subject only to the registered interests affecting the interest and relies on the decision of Elsafty in the following respects:
“[61]The plaintiff has become registered as the holder of the head lease. The plaintiff holds that interest “subject to all other interests in the land previously registered” (s 302(2)(a)) or “the registered interests affecting the interest” (s 325). So clearly the plaintiff holds subject to any prior registered interest. But is the effect of the provisions which I have set out that the plaintiff holds free of any other interest, or in other words, that it holds subject only to previously registered interests?
…
[65]There is no equivalent of s 184(2) of the Land Title Act which provides that the registered proprietor is not affected by actual or constructive notice of an unregistered interest affecting the lot. There is no exception for fraud by the holder of a registered interest or by someone from whom that person derived that registered interest, as in s 184(3). There are not any of the exceptions to indefeasibility as found in s 185 and in particular that of an “equity arising from the act of the registered proprietor”. And as Mr Boge points out, the Land Act 1994 confers no right to compensation for the effects of incorrect registration comparable to s 188 of the Land Title Act, it confers no right to lodge a caveat and makes no provision for “settlement notices” as does Part 7A of the Land Title Act.
[66]Sections 302 and 325 are beneficial although they do not provide the indefeasibility of a Torrens statute. In particular, they benefit those already registered by protecting their interests against the holder of an interest registered subsequently. Section 298(3) provides that s 298(1) is not affected by notice, whether that be actual, implied or constructive notice. However, s 298(1) is concerned with the priority between registered documents. It operates with s 297 which provides that ‘documents must be registered in the order in which they are lodged’. Registered documents create legal interests in leases: s 301. Accordingly, s 298 affects the priority between two legal interests. It does not address the priority between an earlier equitable interest and a later registered interest. It might be considered unusual that it would make this provision for priority between legal interests but leave a legal interest to be exposed to a prior claim by the holder of an equitable interest. ” (my emphasis)
- Keswick Developments relies on the underlined words as being particularly important. They submit that the section does not therefore address the priority between Keswick Developments’ earlier equitable rights under the contract to a lease, subject only to a sublease expiring in 2010 and Kevroy’s later registered interest of the new sublease lasting to 2096.
- Keswick Developments also rely on the further passages in Elsafty where McMurdo J referred to Mercantile Credits Ltd v Shell Co of Australia Ltd[5] (which deals with the effect of registration under Torrens title legislation of a lease with an option to renew), and continued:
“But where that entitlement is not contained within a registered sublease, as it need not be according to the Act, the grant is susceptible to the claim of a subsequently registered transferee who takes for value and without notice. The question is whether the Act provides that in such a context, actual or constructive notice of the grantee’s entitlement is irrelevant. Section 298 does not deal with such a case and nor is there any other provision which has that effect. In summary, the plaintiff’s concession that the Land Act does not confer an indefeasible title is rightly made.”
His Honour concluded:
“[67]For these reasons, the plaintiff became the holder of the head lease subject not only to the defendant’s sublease but to the options to renew. It would not matter that the plaintiff was unaware of the precise facts and circumstances from which the defendant is entitled to those options. The plaintiff contracted to buy the head lease expressly subject to the subleases and the options (or at least two of them). Indeed, the plaintiff expressly agreed to be bound by the subleases (and thereby the options) specified in the contract. … The plaintiff had constructive notice that the defendant was entitled to the options and became bound by them. … [T]he options are enforceable. [I]t is appropriate that it be declared that the options are enforceable against the plaintiff.”
- Keswick Developments therefore relies on the reasoning of McMurdo J in Elsafty and submits that s 298 does not overturn the general proposition that registration alone does not affect personal equities and that the section does not create some special kind of statutory interest. Rather, the section creates a statutory priority for registration, under which, a competing interest remains a legal interest, acquired by a statutory conveyancing procedure provided for by the Act, but having, subject to the Act, the nature and incidents provided by the general law.
- Keswick Developments submits that, such recognition of equitable interests is consistent with operation of s 302(2) as construed by Mc Murdo J in Elsafty and is consistent with the system of Torrens title registration. Under the Torrens system it is submitted that courts will recognize equitable estates and rights except in so far as they are precluded from doing so by legislation. The respondent contends that s 298 is concerned with ordering the priority of registration of instruments and not with ordering the priority of interests. The respondent submits that s 298 affects the priority of legal interests inter se – that is one’s legal interest can be placed ahead of the legal interests of another by getting lodged first, but it does not affect the priority between equitable interests or between legal and equitable interests.
- However, I consider that there is an important distinction between the decision in Elsafty and the circumstances of the current case. In the present case, the argument is as to the priorities between two registered legal interests and not an equitable interest and a legal interest as was the case in Elsafty. In that case it was clear that the Act had not required the registration of the grant of an option to take or renew a lease. Accordingly the discussion was not as to the priority between legal interests but priority between a legal interest which was registered and a prior claim by the holder of an equitable interest which was not registered or required to be registered. As McMurdo J stated:
“… the Act does not require the registration of a grant of an option to take or renew a sublease. If such an entitlement was expressed within an instrument of sublease which was itself registered, then at least arguably the entitlement of the grantee would prevail over the right of a subsequently registered transferee of the head lease.”
- In the present case it is clear that the interests were required to be registered by the Act. I consider that the clear effect of the wording of s 298 is that a party who has a registered interest in leasehold land will have priority over the interest of another party, whose document is registered later, even if the party first registered knew of the existence of the other interest.
- This is clearly endorsed by the provisions of s 302(2)(a) which indicates that the transferee of an interest holds the interest subject “to all other interests in the land previously registered”. Furthermore, s 325(1)(b) clearly states that the transferee holds the interest in the land subject to the registered interests affecting the interest. In addition, in Elsafty McMurdo J specifically stated that ss 302 and 325 were beneficial and “In particular, they benefit those already registered by protecting their interests against the holder of an interest registered subsequently.”
- I consider that the construction urged by Keswick Developments would have the effect of rendering s 298, s 302(2) and 325 meaningless because, on the respondent’s argument, the priority of the registered interests is not to be determined by reference to the dates of the lodgement for registration, as the Act specifies, but by reference to the dates when the pre-existing equitable interests were created.
The pre-incorporation contract and priorities
- If I am wrong in this regard, I consider that even if there were to be a competition between equitable interests, the applicant’s interest prevails as it was created earlier in time. In my view, the circumstances support the entering into a binding agreement for the sublease on 20 December 2007, when the terms of agreement were entered into in respect to the settlement of the existing litigation, which was before the contract to purchase the lease was ratified on 14 January 2008.
- Accordingly, the earliest date which the respondent company, Keswick Developments, could have obtained the benefit of the contract was 14 January 2008 and its equitable interest, therefore, would have arisen on 14 January 2008. There was also evidence that the Keswick Developments representatives actually had express notice of the applicant’s agreement for its new sublease and its terms by no later than 10 January 2008.
- The respondent in its statement of claim alleges that Mr Chappell, who is one of the directors of Keswick Developments, acquired an equitable interest in the leased land which he held on trust for the benefit of Keswick Developments before it was registered. However, Mr Chappell is not a party to the contract and the purchaser was described as Keswick Developments Pty Ltd, a company to be incorporated. Mr Chappell’s signature on the document occurs only as a director of the company. Furthermore, by s 133 of the Corporations Act, the rights and obligations created by s 131 of the Act are, by that section, a replacement of any rights or liabilities anyone would otherwise have on the pre-registration contract. Accordingly, no interest in the land could be created by the contract except in accordance with s 131 of the Act.
Conclusion
- In the circumstances, I consider that Keswick Developments has no real prospects of succeeding and that there is no need for a trial of the claim.
- Accordingly pursuant to UCPR 293, I give judgment for the defendant in 1294/08 and will hear submissions as to the form of the orders and as to costs.
Orders
- In matter 12924/08:
- the Plaintiff’s claim against the 1st Defendant be dismissed.
- the Plaintiff pay the 1st Defendant’s costs of and incidental to the action, assessed on a standard basis.
In matter 12861/08:
- the Respondent pay the applicant’s costs of and incidental to the application, including reserved costs, to be assessed on a standard basis.
- that costs otherwise be reserved.