Bank of Queensland Limited v Y & L Promising Pty Ltd

This case concerned a claim brought by a lessee for the costs of removing asbestos. By the time of these proceedings, the landowner/lessor had changed. The key issue was whether liability had passed to that new landowner/lessor, by reason of s 62 Land Title Act 1994 or because of a Deed Poll. The Court of Appeal found that liability had not passed on either of these bases. However, the Court set aside the summary judgment that had been granted below, because the plaintiff could have improved its position by amending its pleading to claim an entitlement to set-off.

Morrison JA and Williams and Cooper JJ

8 November 2022

Background

The appellant, Bank of Queensland (“BOQ”), is the lessee of commercial premises in Coolangatta. [5]. That land is now owned by the respondent, Y&L, but at the time the lease was entered in 2016 the owner was another company. [6]. The lease relevantly provided that if any asbestos was found in the premises during the term of the lease, “the Landlord will remove it at the Landlord’s cost”. [7]. In 2017 a consultant engaged by BOQ detected asbestos in the premises. [8]. BOQ issued a notice to remedy breach, but the prior owner / Landlord failed to remove the asbestos. [8]. BOQ undertook the remediation works itself and then sought payment of a liquidated debt under the lease. [8]. The prior owner / Landlord did not pay that debt. [8].

At first instance, BOQ sought payment of the debt from Y&L (the new owner / Landlord). [3]. However, BOQ’s claim was summarily dismissed. [3]. It appealed against that dismissal. [30]. The key issues considered were: (1) whether the primary judge erred in finding that liability for BOQ’s debt had not passed to Y&L; and (2) whether the primary judge had erred in dismissing BOQ’s claim without a trial. The reasons of the court were given by Cooper J (with whom Morrison JA and Williams J agreed). [1]–[2].

Whether liability for the debt had passed to Y&L

The key issue at first instance, and on appeal, was whether liability to pay the debt (for the removal of the asbestos) had passed to Y&L, either by reason of s 62 Land Title Act 1994 (“LTA”) or by reason of a Deed Poll. [31], [33].

Section 62(1) of the LTA provides that:

“On registration of an instrument of transfer for a lot or an interest in a lot, all the rights privileges and liabilities of the transferor in relation to the lot vest in the transferee”.

BOQ contended that the liabilities transferred under this provision included liability for the debt. The primary judge had rejected that argument. [21].

The Court of Appeal considered that the primary judge had been correct to conclude that liability for the debt did not pass to Y&L under s 62 LTA. [74]. This was because the liabilities vested by s 62 LTA, being “in relation to the lot”, requires “some connection between the … liabilities and the transferor’s interest in the lot”. [42]. In other words, the key issue was whether the liability for debt could be characterised as being “in relation to the lot” for the purposes of s 62. [45]. Bradley J observed that case law interpreting analogous provisions to s 62 (including the High Court’s judgment in Measures v McFadyen (1910) 11 CLR 723) confirmed that a personal liability or obligation would only be transferred when it was “intimately connected with the rights of property arising out of the transfer or normally incident to the interest in land which is transferred”. [60]. However, an accrued liability to pay damages for a completed breach of a lease covenant (as in issue here), “exists independently of the lease obligations”. [62]. Accordingly, the liability for the debt was not “in relation to the lot” for the purposes of s 62. [62]. His Honour further reviewed the legislative history, concluding that s 62 had not “intended to depart from the previously understood construction” of its legislative predecessors (such as those considered in Masters). [71].

The Court of Appeal also considered that the primary judge had been correct to conclude that liability for the debt had not passed to Y&L by reason of the Deed Poll. [80]. The relevant clauses of the Deed Poll provided only that Y&L promised to abide by the terms of the lease “on or after the Settlement Date” or “on and from the Settlement Date”. [78]–[79]. In other words, “the Deed Poll operates prospectively and not retrospectively”. [81]. Accordingly, there was nothing in the language of the Deed Poll which suggested that Y&L had assumed liability for the debt in issue, which had accrued prior to the transfer of the land to Y&L. [80].

Whether the primary judge erred in summarily dismissing BOQ’s claim

Despite upholding the primary judge’s conclusions in respect of BOQ’s principal claims, the Court of Appeal nonetheless concluded that the appeal should be allowed. [109]. That was because the jurisdiction to summarily dismiss (which had been exercised here) “should only be exercised where the plaintiff cannot improve its position by a proper amendment of its pleading” (citing Chen v ANZ [2001] QSC 43). [107]. Here, BOQ could improve its position by amendment to plead another argument – that it was entitled to a set-off. [108].

The potential relevance of a right of set-off was adverted to by the primary judge, but the point was not pleaded or argued on the application before him. [84]. His Honour had also expressed the view that the BOQ “had to elect” under the lease whether to pursue a claim in debt or set off – and that it “had elected to crystallise its right to sue in debt”. [84]. However, the Court of Appeal considered that, on its proper construction, the lease did not require such an election. [96]. Further, it was “at least reasonably arguable” that the right to set-off conferred by the lease was “incidental to the present and future ownership of the land”; it was “intimately connected with, or normally incident to, the right of ownership being transferred”. Accordingly, it could be described as a liability “in relation to the lot” for the purposes of s 62 LTA, such that it could continue to qualify the right of Y&H to obtain rent under the lease. [101].

In summary, BOQ could improve its position by amendment to plead this argument in relation to set-off. There was “no reason why BOQ should not be afforded the opportunity to reformulate its claim” in that way – which, had it been raised before the primary judge, “would have defeated Y&L’s application for summary judgment”. [108].

Accordingly, the appeal was allowed, and summary judgment set aside. [112].

W Isdale