Posts Tagged Property law

VCAT loses jurisdiction to hear a dispute where a party is not resident in Victoria

Following last week’s High Court decision in Burns v Corbett [2018] HCA 15 the Victorian Victorian Civil and Administrative Tribunal has lost its jurisdiction to hear and determine a dispute where one of the parties is resident of a State other than Victoria.

This will pose significant problems for VCAT particularly concerning its exclusive jurisdiction to hear and determine a “retail tenancy dispute” under the Retail Leases Act 2003 (2003 Act)[1]. Proceedings in the Tribunal where a party is not resident in Victoria will be affected by the decision. Because VCAT never had jurisdiction to hear and determine a matter where a party was not resident in Victoria, Burns is also likely to have consequences for proceedings that have been heard and determined where one party was not a resident of Victoria.

Where a party is not resident in Victoria, disputes under the 2003 Act will have to be heard and determined in a Victorian court, the Federal Court or an interstate court. Where a “retail tenancy dispute” is heard in a court, a significant issue will be whether the cost regime in the 2003 Act applies or whether the awarding of costs will be governed by court rules. Except in limited circumstances, s.92 of the 2003 Act requires each party to bear its own costs.

In Burns the High Court held that provisions of the Civil and Administrative Tribunal Act 2013 (NSW) were invalid to the extent that they purported to confer jurisdiction upon the Civil and Administrative Tribunal of New South Wales (NCAT) concerning matters between residents of different States.

Chapter III of the Australian Constitution includes ss75 to 77. Section 75(iv) provides that the High Court has original jurisdiction in all matters between residents of different States. Section 76 enables the Commonwealth Parliament to confer additional original jurisdiction on the High Court. Except for the High Court, s.77 permits Parliament to defines the jurisdiction of any federal court including defining the extent to which the jurisdiction of any federal court is exclusive of the jurisdiction of a State court, and gives State courts federal jurisdiction. Section 39 of the Judiciary Act 1903 invests State courts with federal jurisdiction subject to certain conditions and restrictions.

In Burns, Mr Burns complained to the Anti-Discrimination Board of New South Wales about statements made by Ms Corbett and Mr Gaynor which he alleged vilified homosexuals contrary to the Anti-Discrimination Act 1977 (NSW)). Mr Burns was a resident of New South Wales, Ms Corbett was a resident of Victoria and Mr Gaynor was a resident of Queensland.

The complaint against Ms Corbett was referred to the Administrative Decisions Tribunal of New South Wales (predecessor to NCAT) which found that Ms Corbett had breached the Act and ordered her to make an apology. Ms Corbett refused to apologise and Mr Burns commenced a proceeding in the Supreme Court charging Ms Corbett with contempt. Ms Corbett contended that neither the ADT nor NCAT had jurisdiction because she was a resident of Victoria. The complaint against Mr Gaynor was dismissed by NCAT. However, Mr Gaynor obtained leave to appeal to the Court of Appeal in respect of an interlocutory costs order on the basis that NCAT had no jurisdiction to determine matters concerning residents of a State other than New South Wales.

The New South Wales Court of Appeal determined the jurisdiction disputes. The Court had to decide whether NCAT could hear and determine a dispute arising under the Act between a resident of New South Wales and a resident of another State. It was common ground that in determining Mr Burns’ complaints, NCAT was exercising the judicial power of the State despite it not being a “court of a State” within the meaning of Chapter III. The Court held that NCAT had no jurisdiction to hear and determine the complaints against Ms Corbett or Mr Gaynor.

The High Court unanimously dismissed the appeals with a majority deciding that Chapter III permitted adjudicative authority concerning the matters in ss 75 and 76 to be exercised only by a State court. Chapter III would be undermined were a State Parliament able to confer adjudicative authority concerning any of the matters referred to in ss 75 and 76 on a State tribunal that was not a State court.

Parties to current litigation in VCAT need to consider whether the proceeding can continue in the Tribunal.

 

 

 

 

[1]See s.89(4) of the Retail Leases Act2003.

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Real estate agents face claims for recovery of commissions

Vendors of properties who have paid commissions to real estate agents are gearing up to recover the commissions on the ground that they were paid by mistake following the Court of Appeal’s decision in Advisory Services Pty Ltd v Augustin [2018] VSCA 95. Agents are in turn likely to take action against the party that drafted the standard form real estate agent’s authority which was found not to comply with the Estate Agents Act 1980.

Advisory concerned an appeal from the County Court where the trial judge decided that a real estate agent’s authority from its client (the vendor of land) did not contain the precise wording of s.49A(4)(c) of the Act with the consequence that the authority was unenforceable pursuant to s.50.

Section 50(1) provides, among other things, that an estate agent is not entitled to sue for or recover or retain any commission or money in respect of any outgoings unless the agent has complied with s.49A(1) with respect to the engagement or appointment.

Section 49A(1) says:

(a) An estate agent must not obtain, or seek to obtain, any payment from a person in respect of work done by, or on behalf of, the agent or in respect of any outgoings incurred by the agent unless:the agent holds a written engagement or appointment that is signed by the person (or the person’s representative); and

…; and

(c) the engagement or appointment contains –

  (i) details of the commission and outgoings that have been agreed; and

         …; and

(iii) a rebate statement that complies with subsection (4).

(emphasis added)

Section 49A(4) says:

A rebate statement complies with this subsection if it is in a form approved by the Director and it contains-

(a)   a statement of whether or not the agent will be, or is likely to be, entitled to any rebate in respect of –

(i) any outgoings;

….; and

(c)        a statement that the agent is not entitled to retain any rebate and must not charge the client an amount for any expenses that is more than the cost of those expenses.

(emphasis added)

Section 48A(1) says that an estate agent is not entitled to retain any amount the agent receives from another person as a rebate in respect of –

(a) any outgoings; or

(b)  any prepayments made by the client in respect of any intended expenditure by the agent on the client’s behalf; or

(c) any payments made by the client to another person in respect of the work.

Section 48B(1) says:

An estate agent must not seek to obtain from the client an amount for any outgoings or proposed outgoings (the expenses) that is more than the amount paid, or payable, by the agent for those expenses.

The agent’s authority provided for the agent to be paid a commission but did not require the client to pay  outgoings. However,  the authority did not contain a statement in the exact words set out in in s.49A(4)(c). The language used in the authority was based on one of the two forms approved by the Director of Consumer Affairs Victoria and available for download by real estate agents. One of the forms contained the words used in s.49A(4)(c) and the other did not. In accordance with the latter form, the authority stated:

 Item 6: Rebate Statement – No Rebate will be received

“The Agent will not, or is not likely to be, entitled to any rebate. A rebate includes any discount, commission or other benefit, and includes non-monetary benefit, and includes non-monetary benefits.”

(*If entitled to a rebate, complete and attach the rebate statement approved by the Director of Consumer Affairs Victoria, at the time of signing this Authority. The statement can be downloaded at www.consumer.vic.gov.au)

Item 8 of the authority provided, under the heading “Agent’s role”, that the “Agent will advertise, market and endeavour to sell” the property.

In the Particulars of Appointment that formed the front page of the authority, there appeared a section headed “Marketing Expenses” which included spaces for “Advertising”, “Other Expenses” and “Total” which were filled in with a dashe that the parties agreed meant that there were no Marketing Expenses payable by the client.

The trial judge held that whether or not an agent was entitled to a rebate, s.49A(c) applied but that substantial compliance with the section would suffice. However, the judge held that the authority did not comply with s.49(4)(c) because it did not convey the information that the estate agent was not entitled to retain any rebate and must not charge the vendor an amount for any expenses that is more than the cost of those expenses. The judge also rejected an argument that a rebate statement would comply with s.49A(4) if it was in a form approved by the Director. The Authority did not make it clear that no rebate could arise.

The Court of Appeal held that ss48A and 48B were explicit prohibitions on certain conduct by estate agents and viewed in that light, the requirement in s.49A(1)(c) that the statement be contained in the engagement or appointment could be seen as ensuring that the client was advised as to the existence of the prohibitions. The Court said that the relevant question was whether the Act required notice to the client in circumstances where the prohibitions could not, by virtue of the arrangement between the estate agent and the client, be breached in any event? The Court answered this question “yes”. The Court  said that that it was apparent that Parliament intended the client be aware of the prohibitions in the context of being able to negotiate the terms of commission and payments in respect of outgoings. The Court held that the correct construction of s.49A(4)(c) was that the statement it describes must be contained in the rebate statement required by s.49A(1) irrespective of whether the agent would be, or likely to be, entitled to any rebate or charge any amount by way of expenses.

 

 

 

 

 

 

 

 

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‘Ultimate consumer test” remains one of the indicia of the retail provision of services

The CB Cold Storage and IMCC Group saga has ended. This morning the High Court of Australia refused the landlord’s application for special leave to appeal. The consequence is that the Court of Appeal’s decision in IMCC Group (Australia) Pty Ltd v CB Cold Storage Pty Ltd [2017] VSCA 178 stands and practitioners can draft leases and give advice confident that the so-called “the ultimate consumer test” remains one of the main indicia in determining whether premises are “retail premises” and therefore governed by the Retail Leases Act 2003. The saga began as a preliminary question in VCAT – the question being whether the Act applied to the premises. The lease permitted CB Cold Storage to operate the premises as “Cold and cool storage warehouse and transport facility” and also contained a clause that precluded CB Cold Storage from operating the premises as “retail premises”. The prohibition on the tenant operating the premises as “retail premises” was irrelevant because the landlord agreed that that the tenant’s actual use of the premises accorded with the permitted use; this meant that  the only question was the premises should be characterised as “retail premises” under the Act. Premises are “retail premises’ where:

“under the terms of the lease…the premises are used, or are to be used, wholly or predominantly for –

(a)   the sale or hire of goods by retail or the retail provision of services” (s.4(1))

In Wellington v Norwich Union Life Insurance Society Ltd [1991] 1 VR 333 Nathan J said that:

“The essential feature of retailing, is to my mind, the provision of an item or service to the ultimate consumer for fee or reward. The end user may be a member of the public, but not necessarily so.”

His Honour’s statement has been applied many times. Where a service is provided there will be few instances where the service is not “consumed” or used in the leased premises. In CB Cold Storage the service was “consumed” or used in the premises by the ultimate consumer, being the tenant’s customers. While the tenant’s customers ranged from large primary production enterprises to very small owner operated businesses, any person could store goods in the premises. VCAT held that the premises were not ‘retail premises’ on the basis that the tenant’s customers were using the tenant’s service for business purposes rather than for personal use. In CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 Justice Croft held that the premises were “retail premises” and the Court of Appeal agreed with His Honour. The Court of Appeal held that the “ultimate consumer test” was one of the indicia of the retail provision of services. In all cases it is necessary to consider whether the premises are “open to the public”  – that is there are no restrictions on access to the service and who can use it. The characteristics of the user – that is whether the use is an individual or a business is not relevant. At [50] the Court of Appeal said:

“In summary, the services were used by the Tenant’s customers who paid a fee. Any person could purchase the services if the fee was paid. The Tenant’s business was open during normal business hours. The Tenant’s customers have not passed on the services to anyone else. They were the ultimate consumers of the Tenant’s services. In isolation, none of these features would suffice to constitute the premises as retail premises. Conversely, the absence of one or more of them, would not necessarily result in a finding that the premises were not retail premises. However, in the circumstances of this case, when all of those features are taken together, the conclusion must be that the premises are retail premises.”

Where the parties intend that premises not be governed by the Act the permitted use should make that clear. A good example is Sofos v Coburn [1994] 2 VR 505 where the permitted use was “wholesale and export fish supply”. The tenant was undertaking retail sales. Nathan J held that the tenant could not rely on what it was actually doing when that contradicted the express terms of the lease.

 

 

 

 

 

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When does a deposit become a penalty?

Deposits hold a special place in contracts for the sale of land and do not fall within the general rules about penalties. Where a purchaser defaults the deposit (customarily 10 per cent) can be forfeited even though the amount of the deposit bears no reference to the anticipated loss to the vendor flowing from the breach of contract[1]. The vendor can forfeit the deposit as a minimum sum even if it makes a profit on the resale. On the purchaser’s breach, a vendor is also not limited to recovering the amount of the deposit; but may recover any deficiency on resale (after taking into account the forfeited deposit).

The special treatment afforded to deposits “derives from the ancient custom of providing an earnest for the performance of a contract in the form of giving either some physical token of earnest (such as a ring) or earnest money…”[2].

Where the principles governing deposits and the law governing penalties interact is where the contract provides, for example, for a deposit of less than 10 per cent to be paid and, in the event of a default, for the whole of the 10 per cent deposit to be paid. In such cases the requirement to pay the additional amount on default has been held to be a penalty[3].

In Simcevski v Dixon (No 2) [2017] VSC 531 Riordan J considered a contract for the sale of land that provided for the payment of a deposit equivalent to 5 per cent of the purchase price. Upon default by the purchaser, the vendor sought payment of a further 5 per cent of the purchase price relying on clause 28.4 of the contract which provided that:

‘If the contract ends by a default notice given by the vendor:

(a) the deposit up to 10% of the price is forfeited as the vendor’s absolute property, whether the deposit has been paid or not; and”

While His Honour accepted that the anomalous position of deposits in the law of penalties protected them in most circumstances, he held that the obligation in cl 28.4 to pay further sum of 5% of the price was void as a penalty because:

  • the obligation to pay a further sum of 5% of the purchase price did not purport to be by way of a deposit because the words in cl 28.4, being ‘the deposit up to’, had been deleted; and
  • the further sum of 5% was only payable ‘[i]f the contract ends by a default notice given by the vendor’.

His Honour said:

“In my opinion, the circumstances of this case lead to the position, described by the Court of Appeal, in Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd[4], as:

[t]he irresistible inference that arises from [the] evidence and the inherent circumstances of the … transaction is that the [payment is to be made] in order to punish the [breaching party] for the inconvenience its conduct caused to the [innocent party] … rather than to protect any legitimate commercial interest of the [innocent party] arising from a breach … by the [breaching party].

His Honour also held that cl 28.4 was not a penalty simply because it was not a liquidated damages clause (ie a clause that refers to a sum fixed by the contract as a genuine pre-estimate of damage in the event of breach), but rather because it imposed an obligation to pay without any limit on the vendor’s right to claim damages to the extent that they exceed that payment.

Drafters of contracts must make it clear what is and what is not a deposit and provide for that sum to be paid without any reference to a breach. The case contains an extensive discussion of all the relevant caselaw.

[1] See: Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573; Kazacos v Shuangling International Development Pty Ltd (2016) 18 BPR 36,353.

[2] Workers Trust, 578-9.

[3] See, among others: Luu v Sovereign Developments Pty Ltd (2006) 12 BPR 23,629; Iannello v Sharpe (2007) 69 NSWLR 452.

[4] [2017] VSCA 161.

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Content of default notices under s27 of Retail Leases Act

At general law the question of whether a tenant has validly exercised an option for a further term depends upon whether the tenant has met the conditions contained in the lease for the exercise of the option. The general law has been altered by the Retail Leases Act 2003. Section 27(2) provides that:

” If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term the only circumstances in which the option is not exercisable is if –

(a)the tenant has not remedied any default about which the tenant has been given written notice; or

(b)the tenant has persistently defaulted under the lease throughout is term and the landlord has given the tenant written notice of the defaults.

Section 27 raises a number of questions: what does a notice need to say to be be a “notice” of default (ss.27(2)(a) and (b)) and how many defaults must there be for the defaults to be “persistent” and when in the term of the lease do they need to occur to be defaults “throughout the term”  (s.27(2)(b)).

In Leonard Joel Pty Ltd v Australian Technological Approvals Pty Ltd [2017] VCAT 1781 VCAT had to consider s.27(2)(a). The dispute concerned whether the tenant was in default by not furnishing the landlord with “as built” plans following alterations to the premises and whether the purported notices of default constituted “notice” of the default.  After deciding that the tenant had not been in default at the time it exercised the option, the Tribunal went on to consider whether the purported default notices given by the landlord constituted “notice” of the default. The landlord’s letters requesting “as built” plans made no mention of a “default” under the lease or a “breach” of the lease.

In determining that the landlord’s letters were not “notices” of a default, Member Josephs said [140]:

“….the potential consquences to the tenant of the landlord not being required to grant the option to renew are significant and serious and as such I find that a more narrow interpretation has to be applied to the sufficiency of the notice any default under the lease “about” which the landlord has given. It is necessary therefor that the landlord applies some rigour in its giving of notice which should make it expressly clear that a breach by the tenant is alleged and should be clear and consistent in its description of the nature of the breach, all of which is alleged to constitute the default.”

And at [142]:

“..the landlord’s letters do not in any way refer to the possible consequence of the landlord not granting the renewal option if the alleged default is not remedied.”

While the latter statement could be interpreted as requiring that a notice refer to a possible consequence of the breach as being that any option might not be exercisable, the Member does not appear to have intended that outcome because he refers to the notice given in Computer & Parts Land Pty Ltd v Property Sunrise Pt Ltd [2012] VCAT 1522 as being an example of “a very appropriate example of a notice”; the notice in that case did not refer to the possibility that an option might be exercisable.

What the decision does highlight is that for a notice to constitute “notice” of  a default under s.27 it must communicate with “obvious clarity and sufficiency” that there is a default or a breach which must be rectified. The default or breach should be identified clearly,  the relevant lease provision referred to and a request made to rectify the default. The notice should be given as soon as possible after the landlord becomes aware of the default.

 

 

 

 

 

 

 

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Real estate agent not authorised to accept termination notice given under s.31 of Sale of Land Act 1962

A purchaser of land in Victoria may terminate the contract “at any time before the expiration of three clear business days” after signing the contract. See: s.31(2) of the Sale of Land Act 1962 (Vic). The termination notice must be “given to the vendor or his agent” or left at an address specified in the contract. See: s.31(3). Termination entitles the purchaser to the return of most of the moneys paid under the contract. See: s.31(4).

In Eng Kiat Tan and Cheng Lo v Thomas Russell [2016] VSC 93 the Supreme Court of Victoria had to decide whether the vendor’s real estate agent was an “agent” for the purpose of being given a termination notice.

The High Court has said that the employment of a real estate agent to find a buyer of property does not necessarily create any authority to do anything which will affect the legal position of the employer; an agent does not even have implied authority to receive the purchaser money. See: Peterson v Maloney (1951) 84 CLR 91. In Brien v Dwyer (1978) 141 CLR 378 Gibbs J said that the expression “agent”, when used in relation to a real estate agent, was misleading because “Such so-called agents do not have a general authority to act on behalf of a vendor in relation to a contract.”

In Eng Kiat Tan the purchasers gave the termination notice to the real estate before the expiration of three clear business days after signing the contract. The vendor refused to accept that the contract had been terminated pursuant to the Act. The sale price was $4,480,000. The vendor resold the land to another purchaser for $4,070,000. The purchasers commenced a proceeding seeking recovery of the deposit and the vendor counterclaimed seeking the balance of the deposit and the loss suffered on the resale of the property. The purchasers claim failed and the vendor’s claim succeeded.

The purchaser argued that s.31 was remedial legislation and that the expression “agent”in s.31 must extend to the vendor’s real estate because, among other things, the purchaser had only three days to make inquiries as whether a person was or was not an “agent” with authority to accept the termination notice. The purchaser also referred to Lloyd and Rimmer’s Sale of Land Act Victoria where the authors say that for the purpose of s.31 “agent” includes but is not limited to the estate agent engaged by the vendor in connection with the sale.

The vendor argued that s 31 did not create a statutory authority to receive a termination notice: the purchaser had to establish that the vendor’s real estate had actual or ostensible authority to accept the termination notice and there were no facts which established any authority in the vendor’s real estate agent beyond that usually granted to real estate agent.

The trial judge held that s.31 did not create a statutory authority in a real estate agent to accept a termination notice.

Purchasers need to ensure that the sale contract identifies the person or persons upon whom a termination notice under s. 31 can be given or the place where a notice can be left.

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Vendor not entitled to interest on unpaid contract price where contract terminated

Vendors who terminate contracts for the sale of land on the ground of a default by the purchaser often claim interest on moneys that have not been paid calculated from the date of the breach to the date of termination. Clause 25 of the general conditions of the standard form of contract concerning the sale of land prescribed by the Estate Agents (Contracts) Regulations 2008 (Vic)  provides that:

“A party who breaches this contract must pay to the other party on demand:

…… ; and

(b)       any interest due under this contract as a result of the breach.”

Does clause 25(b) entitle a vendor to interest on the contract price from the date of a breach by a purchaser to the date the vendor terminates the contract?

Two cases in the Supreme Court of Victoria suggest that the answer to this question is “yes”. In Portbury Development Co Pty Ltd v Mackali [2011] VSC 69 the plaintiff sold a property for $1,600,000 with a deposit of $60,000, with the balance of purchase price payable on a nominated date. The defendant failed to complete and the plaintiff terminated the contract. The court accepted that the plaintiff’s termination was valid. The plaintiff’s claim included damages being, among other things, the difference between the contract price and the value of the property at the time of termination and “interest between default and rescission” based on a clause similar to clause 25. The court awarded the amount of interest claimed to the plaintiff, noting that such interest was under the terms of the condition payable on demand and remarking at [27]:

“By the notice of rescission the plaintiff made an appropriate demand for that interest. Accordingly, the plaintiff is entitled to judgment against the defendant for the sum of interest claimed by it.”

In Pettiona v Whitbourne [2013] VSC 205  the facts were similar to those in Portbury. The price of the property was $5,850,000. The purchaser failed to pay the balance of purchase price on the date nominated for settlement. A notice of default was served and the contract was terminated. The plaintiff claimed, amongst other things, interest on the unpaid balance for the period of default. The claim for interest, which was made under the terms of the contract, was not disputed by the defendant.

A recent case in the County Court of Victoria suggests that the answer to the question posed is “no”. In Yvonne Maria Van Der Peet Bill v Allan James Clarke [2015] VCC 1721 Judge Macnamara declined to follow Portbury and Pettiona in deciding that a vendor of land was not entitled to interest from the date of the breach to the date of the termination of the contract. At [77] His Honour analysed the issue as follows:

“To put it in a nutshell, how can interest be awarded upon an alleged principal sum that ultimately was never payable?”

In answering that question His Honour said it was necessary to go to “some fundamental principles of the law of vendor and purchaser” and “one of Sir Owen Dixon’s most celebrated judgments” in McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 477-479. In McDonald the guarantors of a purchaser’s obligations under a terms contract contended that upon termination by the vendor the contract was cancelled as to the future and, because there would be no transfer of the property, the purchaser’s obligation to pay an outstanding instalment of the purchaser price came to an end. The High Court accepted the guarantors’ contention. Because the guarantors’ obligation was a secondary one their obligation was also terminated.

His Honour also considered the decision of the New South Wales Court of Appeal in Carpenter v McGrath (1996) 40 NSWLR 39 which he said accorded with the general principles that emerged from McDonald. In Carpenter the purchaser failed to complete a contract to buy land and the trial judge awarded damages to the vendor which included a claim for interest from default until termination. On appeal the Court of Appeal disallowed the claim for interest from default until termination. The Court’s reasoning was in effect that once the contract ended the vendor could not have sued for the purchase price and was relegated to a claim for the loss of the bargain. The interest operated to increase the amount payable on completion and because the purchase moneys were not payable interest could not be claimed.

Judge Macnamara said that while Portbury and Pettiona supported the award of interest, general principle flowing from the analysis in McDonald pointed away from an award being made and therefore the claim for interest failed.

A question that is unresolved is whether the position might have been different if the vendor had re-sold the land rather than retaining it because the vendor would, in determining the loss on any resale, arguably have been entitled to treat the purchase price as constituted both by the contract price and the interest payable under the contract.

 

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Wife’s title as joint proprietor with husband not defeasible by reason of husband’s fraud

In Cassegrain v Gerard [2015] HCA 2 the High Court of Australian had to decide whether a wife’s title as a joint proprietor with her husband was defeasible by reason of the husband’s fraud. The case contains an interesting discussion about when the fraudulent acts of an agent can be attributed to the principal and also the nature of a joint tenancy.

Section 42(1) of the Real Property Act 1900 (NSW) provides that the estate of a registered proprietor is paramount. It provides that, subject to some exceptions:

“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“. (emphasis added)

Section 118(1) provides that:

“Proceedings for the possession or recovery of land do not lie against the registered proprietor of the land, except as follows:

(d)       proceedings brought by a person deprived of land by fraud against:

(i)        a person who has been registered as proprietor of the land though fraud; or

(ii)       a person deriving (otherwise as a transferee bona fide for valuable consideration) from or through a person registered as proprietor of the land through fraud.”

The vendor transferred the land to the husband and wife as joint tenants for consideration to be satisfied by debiting the husband’s loan account with the vendor. The husband knew that the vendor did not owe him the amount recorded in the loan account. The husband then transferred his interest in the land to his wife for a nominal consideration. The questions were whether the wife’s title, first as joint proprietor with her husband, or second deriving from or through her husband under the subsequent transfer, was defeasible by the vendor.

Much attention was given in argument to whether the husband was the wife’s “agent”. In Assets Company Ltd v Mere Roihi [1905] AC 176 at 210 Lord Lindley that:

“the fraud which must be proved in order to invalidate the title of a registered purchaser for value … must be brought home to the person whose registered title is impeached or to his agents. Fraud by persons from whom he claims does not affect him unless knowledge of it is brought home to him or his agents.” (emphasis added)

The argument was about whether the fraud was “brought home” to the wife because the husband was fraudulent and was her “agent”. It was not disputed that the husband acted fraudulently in both the first and second transfers.

The court rejected the contention that the husband’s fraud could be sheeted home to the wife as a matter of agency. The court referred to the statement by Street J in Schultz v Corwill Properties Pty Ltd 1969] 2 NSWR 576 where his Honour said :

“It is not enough simply to have a principal, a man who is acting as his agent, and knowledge in that man of the presence of a fraud. There must be the additional circumstance that the agent’s knowledge of the fraud is to be imputed to his principal. This approach is necessary in order to give full recognition to (a) the requirement that there must be a real, as distinct from a hypothetical or constructive, involvement by the person whose title is impeached, in the fraud, and (b) the extension allowed by the Privy Council that the exception of fraud under s 42 can be made out if ‘knowledge of it is brought home to him or his agents’.”

There was no evidence that the wife was knowingly engaged in the husband’s scheme to deprive the vendor its land for nothing.

The majority (French CJ, Hayne, Bell and Gaegler JJ) held that the wife’s title as joint tenant was not defeasible by showing that the husband had acted fraudulently because the fraud had not been brought home to her.

Keane J dissented on this issue. His Honour decided that the land was acquired by the wife and the husband as joint tenants and as joint tenants they acquired a single estate. The title was acquired by fraud “sheeted home” to the wife, not because the wife claimed the title through her husband, but by virtue of the joint tenancy of the single estate to which they were entitled.

The vendor succeeded in recovering the land because the whole court  decided that s.118(1)(d)(ii) applied: the wife had acquired an interest as tenant in common as to half from the husband who had been registered as proprietor through fraud.

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Solak not followed in Victorian fraud case

There have been many cases about whether a mortgage procured by fraud secured any money in circumstances where the mortgagee is innocent of the fraud. The latest case is Perpetual Trustees Victoria Limited v Xiao Hui Ying [2015] VSC 21 (Ying) where Hargrave J refused to follow the Victorian decision of Solak v Bank of Western Australia [2009] VSC 82.

There is no question that a lender mortgagee has an indefeasible mortgage when registered provided the mortgagee is not involved in the fraud. The question is whether any amount is secured?

In NSW and Victoria the issue has been resolved by determining whether the payment covenant in the forged collateral agreement is incorporated into the registered mortgage.

In Ying the mortgage incorporated a memorandum of common provisions which contained a covenant for payment by reference to any amounts owing under any other agreement between the mortgagor and the lender. The other agreements were also forged.

The thrust of the NSW decisions is that, where the loan agreement on which the lender relies is forged and therefore void, there is no “secured agreement” and therefore no “secured money” within the meaning of the payment covenant in the mortgage. See: Perpetual Trustees Victoria v English [2010] NSWCA 32. The same logic has been applied where the loan agreement (but not the mortgage) is forged. See: Perpetual Trustees Victoria Ltd v Cox [2014] NSWCA 328. In Solak Pagone J reached a contrary conclusion to the NSW courts. In Solak the mortgage and the loan agreement were forged. Pagone J distinguished the NSW cases on the basis that the mortgage, memorandum of common provisions and loan agreements all defined the mortgagor/borrower as ”You” and “You” was in each case the forger purporting to be Mr Solak. The mortgage was therefore effective as a security.

In Ying Hargrave J disagreed with Solak and followed the NSW decisions. His Honour said that Solak was “plainly wrong” and that there was nothing secured by the mortgage in Solak because there could be no amount owing under a forged loan agreement and there was also nothing secured by the mortgage in Ying. In Ying the plaintiff mortgagee was ultimately successful on the ground that the mortgagor held the mortgaged land on trust for the forger (the husband of the mortgagor) and that the mortgagee was entitled to have the value of the mortgaged land applied to partial repayment of its loans.

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Rent reviews – mandatory or at the landlord’s discretion?

The issue of whether a lease requires a rent review or whether the review is at the discretion of the landlord often arises. The problem can avoided by clear drafting. In Growthpoint Properties Australian Limited v Austalia Pacific Airports [2014] VSC 556 the court had to decide whether a rent review was mandatory under the lease or whether the review was at the discretion of the landlord.

Clause 4.2 of the lease provided that:

“On each Market Review Date, the Rent is to be adjusted by a market review in accordance with the Market Review Method….”

Part B of the Lease provided:

“On each Market Review Date, the Rent will be adjusted by a market review if:

(a) APAM gives written notice to the Tenant (“Rent Review Notice”) setting out APAM’s opinion of the market rent for the Premises as at the Market Review Date; and

(b) the Rent Review Notice is given to the Tenant in the period between 6 months before and 6 months after the Market Review Date.

New Rent applies unless a dispute notice is served.

The Rent stated in the Rent Review Notice applies from the Market Review Date unless the Tenant gives APAM a notice disputing the specified Rent (“Dispute Notice”) within 21 days after the Rent Review Notice is given.”

The controversy between the tenant and the landlord arose from the imperative language in clause 4.2 (“is to be adjusted”) and the use of the conditional language in Part B (“will be adjusted”).

The tenant contended that the clauses, when read together were ambiguous and that there was a conflict between the clauses. On the tenant’s construction of the lease the landlord was obliged to initiate a rent review.

The landlord submitted that the rent provisions gave the landlord an entitlement, but not an obligation, to give the lessee a rent review notice.

The court held that the rent provisions gave the landlord an entitlement, but not an obligation, to give the lessee a rent review notice.

The case is useful because it discusses in detail the principles governing the construction of leases and rent review clauses and highlights the need to examine the lease as a whole. Of particular interest is the discussion about the purpose of rent review clauses: the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 viewed the benefit of a rent review to the landlord as being the ability to adjust rent market with the benefit to the tenant being seen as the security of a long lease.

The lease in Growthpoint was a commercial lease. If the lease is a “retail premises lease” a tenant may initiate a rent review if the landlord fails to do so within 90 days after the period provided for in the lease for the review. See: s.35(5) of the Retail Leases Act 2003.

 

 

 

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