Understanding real property law 9780409340631, 0409340634

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Understanding Real Property Law

Karena Viglianti-Northway LLB (Hons)

LexisNexis Butterworths Australia 2015

AUSTRALIA

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Viglianti-Northway, Karena. Understanding Real Property Law. 9780409340624 (pbk). 9780409340631 (ebk). Includes index. Real Property — Australia. 346.94043.

© 2015 Reed International Books Australia Pty Limited trading as LexisNexis. This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers. Typeset in Archer and Gotham. Printed in China. Visit LexisNexis Butterworths at www.lexisnexis.com.au

Preface The development of this book reflects that the law of real property is no longer the domain of only the legal professional. Land law is now taught as a core subject in many degrees outside of traditional law degrees. The issues and law relating to land affect all of us to some extent and are relevant to the day-to-day work of many. It is hoped that this book will assist readers to navigate their way through what are by no means simple concepts to the first-time student of land law. I would like to acknowledge the work of the authors of Introduction to Property Law. Some of the chapters are based upon their substantial efforts. I would also like to acknowledge the works of Professor Brendan Edgeworth, Professor Shaunnagh Dorsett, Dr Lyria Bennett-Moses and Cathy Sherry, all of whom have examined many of the more recent and taxing issues in the law of real property and to whose work you will see references in this book. I would like to acknowledge the teaching and mentorship of Mr Geoff Moore, who encouraged both my interest in land law and in academia generally, and the support and encouragement of Roger Gyles QC, AO, Professor Dorsett, Dr Bennett-Moses, Dr Wayne Courtney and Lesley Townsley. Their combined advice has been invaluable. I am grateful to the staff at LexisNexis Butterworths, particularly Pamela O’Neill and Georgia O’Neill, for bringing this work to fruition. Finally, I would like to acknowledge the support of my family and my mother in particular, without whom no career in law would have been possible for me. Karena Viglianti-Northway July 2015

Table of Cases References are to paragraph numbers

A Abela v Public Trustee [1983] 1 NSWLR 308; 8 Fam LR 951 …. 8.50, 8.51 Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58 …. 6.82, 7.33, 11.31 Ackroyd v Smith (1850) 10 CB 164; 138 ER 68 …. 12.13 Adderly v Dixon (1824) 1 Sim & St 607 …. 7.63 AF Textile Printers Pty Ltd v Thalut Nominees Pty Ltd (2007) 17 VR 334; [2007] VSC 73 …. 11.40 Aitkien v Bates (1870) 1 VR (L) 211 …. 12.28 Aldin v Latimer, Clark, Muirhead & Co [1894] 2 Ch 437 …. 11.43 Allen v Roughley (1955) 94 CLR 98; [1955] ALR 1017 …. 4.27 Antar v Fairchild Developments Pty Ltd [2008] NSWSC 1425 …. 6.85 Anthony v Commonwealth (1973) 29 LGRA 61; [1972–73] ALR 769; 47 ALJR 83 …. 12.57 ANZ Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; 19 ALR 519 …. 10.74, 10.85, 10.92 Apple Computer Australia Pty Ltd v Mekrizis (2003) 44 ACSR 518; [2003] NSWSC 126 …. 10.46 Application of Poltava Pty Ltd, Re [1982] 2 NSWLR 161 …. 13.31 Ashmore Developments Pty Ltd v Eaton [1992] 2 Qd R 1 …. 11.76 Assets Co Ltd v Mere Roihi [1905] AC 176 …. 4.29, 6.35, 6.36, 6.38 Attorney-General v Chambers (1854) 4 De CM&G 206; 43 ER 486 …. 5.22 — v Earl of Lonsdale (1868) LR 7 Eq 377 …. 5.22 — v Emerson [1891] AC 649 …. 5.22 Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 …. 11.43, 11.46 Australia and New Zealand Banking Group Ltd, Re [1993] 2 Qd R 477 ….

10.28 Australian Competition and Consumer Commission (ACCC) v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 …. 10.48 Australian Guarantee Corp v De Jager [1984] VR 483 …. 6.41 Avco Financial Services Ltd v Fishman [1993] 1 VR 90 …. 7.39, 7.41 — v White [1977] VR 561 …. 6.85

B Bahr v Nicolay (No 2) (1988) 164 CLR 604; 78 ALR 1 …. 4.29, 6.35, 6.37, 6.47, 6.52, 6.53 Bailey v Barnes [1894] 1 Ch 25 …. 7.12 Bain v Brand (1876) 1 App Cas 762 …. 5.10 Ballard’s Conveyance, Re [1937] Ch 473 …. 13.20 Bank of South Australia v Ferguson (1998) 192 CLR 248; 151 ALR 729; [1998] HCA 12 …. 6.41 Barba v Gas & Fuel Corp of Victoria (1976) 136 CLR 120; 41 LGRA 19; 12 ALR 649 …. 12.28 Barnes v Addy (1873) LR 9 Ch App 244 …. 6.56, 6.57 Barry v Heider (1914) 19 CLR 197; 21 ALR 93 …. 6.55, 10.18 Bartlett v Ryan (2000) 10 BPR 18,077; [2000] NSWSC 807 …. 4.11 Baumgartner v Baumgartner (1987) 164 CLR 137; 76 ALR 75 …. 8.27 Baxter v Four Oaks Properties Ltd [1965] Ch 816 …. 13.31 Bayley v Great Western Railway Co (1884) 26 Ch D 434 …. 12.39 Bayport Industries Pty Ltd v Watson (2006) V ConvR 54-709; [2002] VSC 206 …. 4.14 Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 …. 6.88 Bendal Pty Ltd v Mirvac Projects Pty Ltd (1991) 23 NSWLR 464 …. 5.19 Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479 …. 5.12, 5.13, 5.18 Biggs v Hoddinott [1898] 2 Ch 307 …. 10.32

Billson v Residential Apartments Ltd [1992] 1 AC 494 …. 11.87 Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402 …. 11.14 Black v Garnock (2007) 230 CLR 438; 237 ALR 1; [2007] HCA 31 …. 6.82, 6.85, 7.36, 7.50, 7.59 Blacks Ltd v Rix [1962] SASR 161 …. 13.9 Bodney v Bennell (2008) 167 FCR 84; 249 ALR 300; [2008] FCAFC 63 …. 3.23, 3.26 Bogdanovic v Koteff (1988) 12 NSWLR 472 …. 6.72, 6.73 Bolton v Clutterbuck [1955] SASR 253 …. 12.39 Booker Industrial Developments Pty Ltd v Trustees of the Christian Bros [1977] 2 NSWLR 109 …. 7.55 Bookville Pty Ltd v O’Loghlen (2007) V ConvR 54-734; [2007] VSC 67 …. 12.11 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363 …. 11.12 Brand v Chris Building Co Pty Ltd [1957] VR 625 …. 5.26 Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] 20 VR 311; [2007] VSCA 311 …. 5.19 Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205 …. 4.30, 6.1, 6.19, 7.22, 7.28 British Bakeries (Midlands) v Michael Testler & Co Ltd [1986] 1 EGLR 64 …. 11.59 British Railways Board v Glass [1965] Ch 538 …. 12.63 Bromley v Ryan (1956) 99 CLR 362 …. 10.43 Brookfield Multiplex v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408; [2014] HCA 36 …. 9.41, 9.43 Brownsea v National Trustees, Executors & Agency Co of Australasia Ltd [1959] VR 243; [1959] ALR 650 …. 11.28 Brunner v Greenslade [1971] Ch 993 …. 13.23 Bryan v Maloney (1995) 182 CLR 609; 128 ALR 163 …. 9.38, 9.41 Buchanan v Byrnes (1906) 3 CLR 704; 12 ALR 341 …. 11.80

Buchanan Borehole Collieries Pty Ltd v NSW Coal Compensation Review Tribunal (1997) 9 BPR 16,253 …. 11.82 Buckinghamshire County Council v Moran [1989] 2 All ER 225 …. 4.14 Burgess v Rawnsley [1975] Ch 429 …. 8.50, 8.52 Burke v Yurilla SA Pty Ltd [1991] SASR 382 …. 13.9 Burnham v Carroll Musgrove Theatres Ltd (1928) 41 CLR 540 …. 11.27 Burns v National Coal Board [1957] SC 239 at 245 …. 9.24 Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73; [1971] ALR 551 …. 6.63, 12.6 Butcher v Bowen [1964] NSWR 36 …. 11.22 Butler v Fairclough (1917) 23 CLR 78; 23 ALR 62 …. 6.35, 7.32

C Callow v Rupchev (2009) 14 BPR 27,533; [2009] NSWCA 148 …. 8.62, 8.63 Calverley v Green (1984) 155 CLR 242; 56 ALR 483 …. 8.26, 8.27 Campbell v Holland (1877) 7 Ch D 166 …. 10.62 Case of Mines (1568) 1 Plow 310; 75 ER 472 …. 5.21 Cash Resources Australia Pty Ltd v BT Securities Ltd [1990] VR 576 …. 7.17 Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd (2013) 247 CLR 149; 296 ALR 394; [2013] HCA 11 …. 12.52 Cetojevic v Cetojevic [2006] NSWSC 431; BC200603290 …. 8.27 Chan v Cresdon Pty Ltd (1989) 168 CLR 242; 89 ALR 522 …. 11.34, 11.35 Chandra v Perpetual Trustees Victoria (2007) 13 BPR 24,675; [2007] NSWSC 694 …. 6.27 Chinese Cultural Club Ltd v Auswealth Pty Ltd (No 2) (NSWSC (Eq), Young J, No 6056/92, 11 December 1992, unreported) …. 11.26 City and Metropolitan Properties Ltd v Greycroft Ltd [1987] 1 WLR 1085 …. 11.74 City of Canada Bay v Bonaccorso Pty Ltd (2007) 71 NSWLR 424; [2007] NSWCA 351 …. 6.62

City of Subiaco v Heytesbury Properties Pty Ltd (2001) 24 WAR 146; [2001] WASCA 140 …. 11.83 Clarke v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790 …. 7.42 Clements v Ellis (1934) 51 CLR 217; [1934] ALR 225 …. 6.17 Climie v Wood (1869) LR3Ex 328 …. 5.7 Clos Farming Estates Pty Ltd v Easton (2001) 10 BPR 18,845; [2001] NSWSC 525 …. 12.21, 12.24 — v — (2002) 11 BPR 20,605; [2002] NSWCA 389 …. 12.15, 12.18, 12.24 Clyne v Lowe (1968) 69 SR (NSW) 433 …. 11.37 Colegrave v Dias Santos (1823) 2 B & C 76; 107 ER 311 …. 5.7 Coles Supermarkets Australia Pty Ltd v State Land Developments Pty Ltd [2008] NSWSC 1425 …. 6.85 Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225 …. 10.80, 10.83, 10.85, 10.91 Commonwealth v Registrar of Titles (Victoria) (1918) 24 CLR 348; 24 ALR 106 …. 12.20, 12.21 — v Verwayen (1990) 170 CLR 394 …. 5.26 — v Yarmirr (2001) 208 CLR 1; 184 ALR 113; [2001] HCA 56 …. 3.2, 3.20, 3.27 Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447; 46 ALR 402; 57 ALJR 358 …. 10.42 — v Kyriackou (2003) V ConvR 54-674; [2003] VSC 175 …. 10.98 — v Tugvale (1993) NSW ConvR 55-687 …. 10.72 Conlan v Registrar of Titles [2001] 24 WAR 299; [2001] WASC 201 …. 6.73 Connell v Bond Corp Pty Ltd (1992) 8 WAR 352 …. 6.85 Cook v Shoesmith [1951] 1 KB 752 …. 11.58 Cooper v Stuart (1889) 14 App Cas 286 …. 3.8 Copeland v Greenhalf [1952] Ch 488 …. 12.23 Corin v Patton (1990) 169 CLR 540; 92 ALR 1 …. 7.53, 7.55, 8.35, 8.39, 8.45, 8.52 Costin v Costin (SC(NSW), Santow J, No 3319/91, 13 September 1994,

BC9402989, unreported) …. 8.42 — v — (1997) 7 BPR 15,167; [1997] ANZ ConvR 400 …. 8.42, 8.43 Council of the City of Gold Coast v Council of the City of Logan [2007] QSC 357; BC200710520 …. 11.83 Crabb v Arun District Council [1976] Ch 179; [1975] 3 All ER 865 …. 12.28 Creer v P & O Lines of Australia (1971) 125 CLR 84; [1972] ALR 226 …. 11.59 Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 …. 10.84 Cummins v Cummins (2006) 227 CLR 278; 224 ALR 280; [2006] HCA 6 …. 8.5, 8.27 Custom Credit Corp Ltd v Gray [1992] 1 VR 540; (1991) ASC ¶56-096 …. 10.48 — v Lupi [1992] 1 VR 99; (1991) ASC ¶56-024 …. 10.48 — v Lynch [1993] 2 VR 469; (1993) ASC ¶56-201 …. 10.46

D Dalton v Angus (1881) 6 App Cas 740 …. 5.28 Darby v Harris (1841) 1 QB 895; 113 ER 1374 …. 5.7 D’Arcy v Burrelli Investments Pty Ltd (1987) 8 NSWLR 317 …. 5.10 Davey v Durrant (1857) 44 ER 830 …. 10.74 Davies v Bennison (1927) 22 Tas LR 52 …. 5.13 De Rose v South Australia (No 2) (2005) 145 FCR 290; [2005] FCAFC 110 …. 3.23, 3.26 Deanshaw v Marshall (1978) 20 SASR 146 …. 12.28 Delehunt v Carmody (1986) 161 CLR 464; 68 ALR 253 …. 8.20, 8.25 Delohery v Permanent Trustee Co of New South Wales (1904) 1 CLR 283; 10 ALR (CN) 37 …. 12.47 Dennerstein, Re [1963] VR 688 …. 13.30, 13.33 Dewhirst v Edwards [1983] 1 NSWLR 34 …. 12.57 Di Masi v Piromalli [1980] WAR 57 …. 12.57 Dimmick v Pearce investments Pty Ltd (1980) 43 FLR 235 …. 10.89

Dobbie v Davidson (1991) 23 NSWLR 625 …. 12.54 Dockrill v Cavanagh (1944) 45 SR (NSW) 78 …. 11.23, 11.24, 11.79 Dolphin’s Conveyance, Re [1970] Ch 654 …. 13.30 Dorset Council v Resource Management and Planning Appeal Tribunal (2011) 20 Tas R 416; [2011] TASSC 7 …. 12.57 Duncliffe v Caerfelin Properties Ltd [1989] 2 EGLR 38 …. 11.73

E Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210 …. 7.43 Ellenborough Park, Re [1956] Ch 131 …. 12.7, 12.14, 12.19, 12.20, 12.22 Elliott, Re (1886) 7 LR (NSW) 271 …. 6.85 Elliston v Reacher [1908] 2 Ch 374 …. 13.29, 13.31 Elwes v Maw (1802) 2 East 38; 102 ER 510 …. 5.9 English, Scottish & Australian Bank Ltd v Phillips (1937) 57 CLR 302; [1937] ALR 104 …. 10.15 Eon Minerals NL v Commissioner of State Taxation (WA) (1991) 22 ATR 601 …. 5.5 Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (in liq) (1998) 71 SASR 161 …. 10.33 Esanda Finance Corp Ltd v Murphy (1989) ASC ¶55-703 …. 10.46 Eyre v McDowall (1861) 9 HL Cas 619; 11 ER 871 …. 10.18

F Fairclough v Swan Brewery Co Ltd [1912] AC 565 …. 10.30 Fairweather v St Marylebone Property Co Ltd [1963] AC 510 …. 4.40 Farah Constructions Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; 236 ALR 209; [2007] HCA 22 …. 6.56, 6.57, 6.73 Farrar v Farrars Ltd (1888) 40 Ch D 395 …. 10.74 Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58 …. 3.11, 3.30, 3.33

Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd (1999) 196 CLR 245; 162 ALR 382; [1999] HCA 20 …. 10.26 Finlay v R & I Bank of Western Australia Ltd (1993) 6 BPR 97,449 …. 7.41, 7.43 Fitt v Luxury Developments Pty Ltd [2000] VSC 258 …. 13.30 Fligg v Owners of Strata Plan 53457 [2012] NSWSC 230 …. 9.21 FNCB-Waltons Finance Ltd v Crest Realty Pty Ltd (1977) 10 NSWLR 621 …. 7.39 Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281 …. 8.59, 8.60, 8.64, 8.65, 8.67, 8.68 Forston Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162; [2008] SASC 49 …. 10.86 Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68 …. 10.83, 10.85, 10.90, 10.98 409 Lonsdale Pty Ltd v Carra [1974] VR 887 …. 11.8 Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 318 …. 10.52 Frazer v Walker [1967] 1 AC 569 …. 6.18, 6.90 Frieze v Unger [1960] VR 230 …. 8.49, 11.11 Fyfe v Smith [1975] 2 NSWLR 408 …. 10.54

G Gallagher v Rainbow (1994) 179 CLR 624; 121 ALR 129 …. 12.17, 12.62 Gambotto v WCP Ltd (1995) 182 CLR 432; 127 ALR 417; [1995] HCA 12 …. 9.34 Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR 614; [1998] HCA 48 …. 10.44 Gibbs v Messer [1981] AC 248 …. 6.13, 6.17 Goldcel Nominees Pty Ltd v Network Finance Ltd [1983] 2 VR 257 …. 10.79 Golding v Tanner (1991) 56 SASR 482 …. 12.49, 12.57 Gordon v Lidcombe Developments Pty Ltd [1966] 2 NSWR 9 …. 11.40 Graham v KD Morris & Sons Pty Ltd [1974] Qd R 1 …. 5.18

Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] Ch 592 …. 11.71 Green v Commonwealth Bank of Australia (No 2) (1994) 29 ATR 599 …. 7.39 Grescot v Green (1700) 1 Salk 199 …. 11.71 Grigic v Australia & New Zealand Banking Group Ltd (1994) 33 NSWLR 202 …. 6.40 Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237; 244 ALR 1; [2008] HCA 10 …. 11.76, 11.94

H Harada v Registrar of Titles [1981] VR 743 …. 12.8, 12.16 Hardchrome Engineering Pty Ltd v Kambrook Distributing Pty Ltd [2000] VSC 359; BC200005642 …. 11.52 Harrison v ANZ Banking Group (1999) V ConvR 54-600 …. 10.78, 10.79 Harvey v McWatters (1948) 49 SR(NSW) 173 …. 10.96 Heid v Reliance Finance Corp Pty Ltd (1983) 154 CLR 326; 49 ALR 229 …. 7.16, 7.18, 7.26, 7.30, 7.38, 7.41 Henderson v Squire (1869) LR 4 QB 170 …. 11.53 Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 …. 10.79 Hill v AWJ Moore & Co Pty Ltd (1990) 5 BPR 11,359 …. 12.28 Hillpalm Pty Ltd v Heaven’s Door Pty Ltd (2004) 220 CLR 472; 211 ALR 588; [2004] HCA 59 …. 6.61, 6.62 Hitchins v Hitchins (1998) 47 NSWLR 35; 9 BPR 16,659 …. 8.65 Holland, Re [1985] Aust Conv R 158 …. 8.55 Hounslow London Borough Council v Pilling [1993] 1 WLR 1242 …. 11.24 Hudson v Cripps [1896] 1 Ch 265 …. 11.40 Hunt v Luck [1902] 1 Ch 428 …. 7.14 Hurlfite Pty Ltd v Coles Myer Ltd (1990) NSW ConvR 55-515 …. 11.67

Hyde Management Services Pty Ltd v FAI Insurances Ltd (1979) 144 CLR 541; 24 ALR 435 …. 10.27 Hyde v Pearce [1982] 1 All ER 1029 …. 4.13 — v Pimley [1952] 2 QB 506 …. 11.58 IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550; [1964] ALR 971 …. 6.78 Indian Taj v Gilany [2005] ANZ ConvR 310; [2004] NSWSC 1193 …. 11.80 Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 …. 10.97 Inkhorn Pty Ltd v Herbert [2000] WASCA 333 …. 10.59 Inwards v Baker [1965] 2 QB 29 …. 5.26

J J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1969) 90 WN (Pt 1) (NSW) 803 …. 6.78 — v Bank of New South Wales (1971) 125 CLR 546; [1972] ALR 323 …. 6.78, 7.34–7.38, 7.41, 10.18 JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419 …. 1.25, 4.10, 4.14 Jacobs v Platt Nominees Pty Ltd [1990] VR 146 …. 7.17, 7.39, 7.42, 7.43 Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584 …. 11.90 James v Registrar-General (1967) 69 SR (NSW) 361 …. 12.52 — v Stevenson [1893] AC 162 …. 12.52 JC Williams Ltd v Lukey & Mulholland (1931) 45 CLR 282; [1931] ALR 157 …. 7.58 JEA Holdings (Aust) Pty Ltd v Registrar-General (NSW) (2013) 16 BPR 31,745; [2013] NSWSC 587 …. 12.24, 12.52, 13.9 Jelbert v Davis [1968] 1 WLR 589 …. 12.60, 12.69 Johnson, Re [2000] 2 Qd R 502 …. 4.14 Jones v Bartlett (2000) 205 CLR 166; 176 ALR 137; [2000] HCA 56 …. 11.47, 11.49

Jonray (Sydney) v Partridge Bros Pty Ltd (1969) 89 WN (Pt 1) (NSW) 568 …. 6.78 Jovanovic v Commonwealth Bank (2004) 87 SASR 570; [2004] SASC 61 …. 10.86

K Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313 …. 6.23, 11.18, 11.75, 11.76, 11.95 Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381 …. 11.38, 11.54 Kelson v Imperial Tobacco Co Ltd [1957] 2 QB 334 …. 5.13 Kennedy v De Trafford [1897] AC 180 …. 10.82 Kerridge v Foley (1964) 82 WN (NSW) …. 13.20 Kierford Ridge Pty Ltd v Ward [2005] VSC 215 …. 4.14 King v Smail [1958] VR 273 …. 6.70–6.72 Kogarah Municipal Council v Golden Paradise Corp (2005) 12 BPR 23,651; [2005] NSWCA 230 …. 6.62 Koompahtoo Local Aboriginal Land Council v KLALC Property Investment Pty Ltd [2008] NSWCA 6 …. 6.62 Kowalczuk v Accom Finance Pty Ltd [2007] NSWCA 225 …. 10.96 Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 …. 10.32

L Lake v Craddock (1733) 3 P Wms 158; 24 ER 1011 …. 8.29 Landale v Menzies (1909) 9 CLR 89; 16 ALR 217 …. 11.24, 11.26 Lang v Asemo Pty Ltd [1989] VR 773 …. 11.62 Lanyon Pty Ltd v Canberra Washed Sands Pty Ltd (1996) 115 CLR 342; [1967] ALR 283 …. 5.23 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1966] ALR 775 …. 7.21, 7.22, 10.93, 10.98 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166

CLR 623; 85 ALR 183; 63 ALJR 372 …. 11.83, 11.94 Lawrom Nominees Pty Ltd v Kingsmede Pty Ltd (2000) 10 BPR 18,417; [2000] NSWSC 1048 …. 11.67 Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57; 4 ALR 482 …. 6.85 Leach v Thomas (1835) 7 C & P 327; 173 ER 145 …. 5.7 Legione v Hateley (1983) 152 CLR 406; 46 ALR 1 …. 10.35 Lehrer and the Real Property Act 1900, Re (1961) 61 SR(NSW) 365 …. 11.18 Leigh v Dickeson (1884) 15 QBD 60 …. 8.60, 11.27 — v Jacks (1879) 5 Ex D 264 …. 4.14 Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407; 106 ALR 595 …. 6.33, 6.34, 6.82 Lewis v Bell (1985) 1 NSWLR 731 …. 11.12, 11.13 Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 404; 253 ALR 482; [2009] NSWSC 7 …. 10.33, 10.34 Lin v Owners — Strata Plan No 50276 (2004) 11 BPR 21,463; [2004] NSWSC 88 …. 9.23, 9.24, 9.26, 9.27, 9.34 Liverpool CC v Irwin [1977] AC 239 …. 11.38 LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490 …. 5.14, 5.19 Lloyds Bank v Bullock [1896] 2 Ch 192 …. 7.27 Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491 …. 6.35 London & Blenheim Estates Ltd v Ladbroke Retail Parks Ltd [1992] 1 WLR 1278 …. 12.23 Lord Advocate v Lord Lovat (1880) 5 AC 273; 5 App Cas 273 …. 1.28 Louis and the Conveyancing Act, Re [1971] 1 NSWLR 164 …. 13.33, 13.34 Lubrano v Proprietors of Strata Plan No 4038 (1993) 6 BPR 13,308 …. 9.22 Lukacs v Wood (1978) 19 SASR 520 …. 6.58 Lukass Investments Pty Ltd v Markaroff (1964) 82 WN (NSW) (Pt 2) 226 …. 10.98 Luke v Luke (1936) 36 SR (NSW) 310 …. 8.59

Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254; [2007] WASCA 209 …. 11.95 Lyons v Lyons [1967] VR 169 …. 8.47, 8.50 Lysaght v Edwards (1876) 2 Ch D 499 …. 7.59

M Mabo v Queensland (No 1) (1988) 166 CLR 186 …. 3.34 Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 …. 1.26, 2.3, 2.4, 3.3–3.5, 3.10–3.13, 3.15, 3.17–3.20, 3.24, 3.25, 3.30–3.33, 3.35 McBride v Sandland (1918) 25 CLR 69 …. 11.34 McCoy v Caelli (2010) 15 BPR 28,735; [2010] NSWSC 1233 …. 8.44 McDonough v Owners Strata Plan No 57504 (2014) 17 BPR 33,573; [2014] NSWSC 1708 …. 9.36 McGrath v Campbell (2006) 68 NSWLR 229; NSW ConvR 56-159 …. 12.54, 12.56 McIntosh v Goulburn City Council (1985) 3 BPR 9367 …. 5.5 Mack and the Conveyancing Act, Re [1975] 2 NSWLR 623 …. 13.31 McKean’s Caveat, Re [1988] 1 Qd R 524 …. 6.85, 6.86 McKenzie v Smith; Lenehan v Smith (1998) ASC ¶155-025 …. 10.48 McLernon v Connor (1907) 9 WALR 141 …. 12.39 McMahon v Ambrose [1987] VR 817 …. 11.63 McManus v Cooke (1887) 35 Ch D 681 …. 12.28 Mahoney v Hoskin (1912) 14 CLR 379; 18 ALR 205 …. 13.9 Maio v Sacco (2009) 14 BPR 27,591; [2009] NSWSC 413 …. 8.70 Majik Markets Pty Ltd v S & M Motor Repairs Pty Ltd (No 1) (1987) 10 NSWLR 49 …. 11.95 Mancetter Developments Ltd v Garmanson Ltd [1986] QB 1212 …. 5.8 Maniaty v Fenedisto Pty Ltd [2004] VSC 177; BC200403057 …. 11.25 Maridakis v Kouvaris (1975) 5 ALR 197 …. 11.80

Marks v Warren [1979] 1 All ER 29 …. 11.58 Martin’s Camera Corner v Hotel Mayfair [1976] 2 NSWLR 15 …. 11.40 Matthews v Smallwood [1901] 1 Ch 777 …. 11.88 Maurice Toltz Pty Ltd v Macy’s Emporium Pty Ltd [1970] 1 NSWR 474 …. 12.9 Measures v McFadyen (1910) 11 CLR 723; 17 ALR 391 …. 11.76 Members of the Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422; 194 ALR 538; [2002] HCA 58 …. 3.20, 3.21, 3.23–3.26, 3.28 Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326; 9 ALR 39 …. 6.21, 6.22, 11.32 Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 …. 6.54 Midland Bank Trust Co Ltd v Green [1981] AC 513 …. 7.8 Mihalic v Mihalic (1987) 73 ALR 304 …. 6.85 Milirrpum v Nabalco Pty Ltd & Commonwealth [1972–73] ALR 65 …. 3.6, 3.7, 3.11 Milmo v Carreras [1946] KB 306 …. 11.8 Milne v James (1910) 13 CLR 168 …. 12.28 Milroy v Lord (1862) 45 ER 1185 …. 8.40 Modular Design Group Pty Ltd v CDG (Canberra) Pty Ltd (1994) 35 NSWLR 96 …. 10.33 Moffet v Dillon [1999] 2 VR 480 …. 7.17 Monash City Council v Melville (2000) V ConvR 54-621; [2000] VSC 55 …. 4.14 Moore v Dimond (1929) 43 CLR 105; [1930] ALR 341 …. 11.22 — v Ulcoats Mining Co Ltd [1908] 1 Ch 575 …. 11.85 Morgan v Jones [2001] EWCA Civ 995 …. 10.33 Moule v Garrett (1872) LR 7 Ex 101 …. 11.69, 11.71 Mulcahy v Curramore Pty Ltd [1974] 2 NSWLR 464 …. 4.11, 4.27 Muschinksi v Dodds (1985) 160 CLR 583; 62 ALR 429 …. 8.27

N National Australia Bank Ltd v Jenkins (1999) V ConvR 54-601 …. 10.79 — v Blacker (2000) 104 FCR 288; 179 ALR 97; [2000] FCA 1458 …. 5.5 National Bank of Tasmania Ltd (in liq) v McKenzie [1920] VLR 411 …. 4.35 National Trustees, Executors & Agency Co of Australasia Ltd v Long [1939] VLR 33 …. 12.57 Nelson v Hughes [1947] VLR 227 …. 12.57 Netherby Properties Pty Ltd v Tower Trust Ltd (1999) 76 SASR 9 …. 13.33 New Zealand Government Corp v HM & S Ltd [1982] QB 1161 …. 5.10 NH Dunn Pty Ltd v LM Ericcson Pty Ltd (1979) 2 BPR 9241 …. 5.5 Noakes & Co Ltd v Rice [1902] AC 24 …. 10.32 Norden v Blueport Enterprises [1996] 3 NZLR 450 …. 11.44, 11.45 Northern Counties of England Fire Insurance Co v Whipp (1884) 26 Ch D 482 …. 7.25 Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313; 146 ALR 572 …. 11.47 Northern Territory v Alyawarr, Kaytetye, Warumingu, Wakaya Native Title Claim Group (2005) 145 FCR 442; 220 ALR 431; [2005] FCAFC 135 …. 3.25

O Ocean Estates v Pinder [1969] 2 AC 19 …. 4.12 Osmanoski v Rose [1974] VR 523 …. 7.42 Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712 …. 9.38 Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 …. 9.38 Owners of SP69567 v Landson Alliance Australia [2014] NSWSC 1592 …. 9.43 Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 …. 9.12, 9.23, 9.26,

9.33–9.36 Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479; [2013] NSWCA 317 …. 9.39

P P & A Swift Investments v Combined English Stores Group Plc [1989] AC 632 …. 13.20 Palumberi v Palumberi (1986) 4 BPR 9106 …. 5.5 Patmore v Upton (2004) 13 Tas R 95; [2004] TASSC 77 …. 6.86 Paul, Re (1902) 19 WN (NSW) 114 …. 6.85 Paul v Nurse (1828) 8 B & C 486 …. 11.71 Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; 18 ALR 124 …. 10.82, 10.85, 10.92, 10.93 Perera v Vandiyar [1953] 1 All ER 1109 …. 11.40 Performance Capital Mortgage Pty Ltd v Motive Finance & Leasing Pty Ltd (2010) 15 BPR 29,267; [2010] NSWSC 429 …. 7.44 Perpetual Trustees Victoria Ltd v English (2009) 14 BPR 26,675; [2009] NSWSC 478 …. 6.28 — v English (2010) 14 BPR 27,339; [2010] NSWCA 32 …. 6.28, 6.29 — v Tsai [2004] NSWSC 745 …. 6.27 Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745 …. 7.41–7.43 Phillips-Higgins v Harper [1954] 1 QB 411 …. 4.30 Piling v Prynew [2008] NSWSC 118 …. 5.28 Pinhorn v Souster (1853) 8 Exch 763 …. 11.56 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 …. 11.90 Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266 …. 7.17 Post Investments Pty Ltd v Wilson (1990) 26 NSWLR 598 …. 12.9–12.11 Powell v McFarlane (1977) 38 P & CR 452 …. 1.26, 4.12, 4.14

— v Whyte [1968] Qd R 255 …. 12.28 Pratten v Warringah Shire Council (1969) 90 WN (Pt 1) (NSW) 134 …. 6.62 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373 …. 11.14, 11.90, 11.92–11.94 Proprietors of Strata Plan No 159 v Blake [1986] NSW Titles Cases 50,650 …. 9.22 Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412 …. 9.20, 9.24, 9.25 Proprietors of Strata Plan No 30234 v Margiz Pty Ltd (1993) 32 NSWLR 294 …. 9.24, 9.31 Provident Capital Pty Ltd v Printy (2008) 13 BPR 25,199; [2008] NSWCA 131 …. 6.26, 6.27 Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386 …. 11.17 PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643 …. 6.25 Public Trustee v Evans (1985) 2 NSWLR 188 …. 8.57 — v Fraser (1987) 9 NSWLR 433 …. 8.57 Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 …. 6.36

Q Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; 240 ALR 234; [2007] HCA 53 …. 11.76

R Radaich v Smith (1959) 101 CLR 209; [1959] ALR 1253 …. 11.11–11.13 Ramsden v Dyson (1886) LR 1 HL 129 …. 5.26 Rasmussen v Rasmussen [1995] 1 VR 613 …. 6.71 Raymond Pemberton v Milivoj Dimitrijevic [2001] NSWSC 54 …. 11.17 Registrar-General (NSW) v JEA Holdings (Aust) Pty Ltd [2015] NSWCA 74 …. 12.52

Reid v Bickerstaff [1909] 2 Ch 305 …. 13.23, 13.30 Rice v Rice (1853) 2 Drew 73; 61 ER 646 …. 7.17 Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246 …. 9.22–9.24, 9.31, 9.35 Riley v Penttila [1974] VR 547 …. 12.22 Ripka Pty Ltd v Maggiore Bakeries Pty Ltd [1984] VR 629 …. 11.63, 11.94 Risk v Northern Territory [2006] FCA 404 …. 3.23 Roberts; Ex p Brook, Re (1878) 10 Ch D 100 …. 5.10 Rowston v Sydney County Council (1954) 92 CLR 605 …. 11.79 RPC Holdings Ltd v Rogers [1953] 1 All ER 1029 …. 12.63 Russell v Pennings (2001) 113 LGERA 216 …. 12.39 — v Watts (1883) 25 Ch D 559 …. 12.28 Russo v Bendigo Bank Ltd [1999] 3 VR 376 …. 6.42 Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3 …. 8.60, 8.64, 8.65, 8.69, 8.70, 8.73 — v Nothelfer (1983) NSW ConvR ¶55-119 …. 7.41 — v Starr (2005) 12 BPR 22,803; [2005] NSWSC 170 …. 12.55

S Sakoua v Williams (2005) 64 NSWLR 588; [2005] NSWCA 405 …. 11.49 Saleeba v Wilke (2007) ANZ ConvR 664; [2007] QSC 298 …. 8.53 Sampi v Western Australia [2005] FCA 777 …. 3.26 Samuel v Jarrah Timber and Wood Paving Corp Ltd [1904] AC 323 …. 10.30 Sanders v Sanders (1881) 19 Ch D 373 …. 4.35 Sanwa Australia Leasing Ltd v National Westminster Finance Australia (1988) 4 BPR 9514; BC8801368 …. 5.5 Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447; [2006] VSC 343 …. 6.86 Schultz v Corwill Properties Pty Ltd [1969] 2 NSWLR 576 …. 6.43, 6.44

Seden v Proprietors ‘Tyala Court’ [1978] Qd R 53 3 …. 9.20 Seiwa Pty Ltd v Owners Strata Plan 35042 (2006) 12 BPR 23,673; [2006] NSWSC 1157 …. 9.22, 9.23 Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104 …. 10.74 Shanly v Ward (1913) 29 TLR 714 …. 11.59 Shell Co of Australia Ltd v Zanelli [1973] 1 NSWLR 216 …. 11.82 Shelmerdine v Ringen Pty Ltd [1993] 1 VR 315 …. 4.27 Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305 …. 11.86, 11.91, 11.92, 11.94 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 …. 11.63 Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2005] ANZ ConvR 108; [2004] VSCA 242 …. 11.14 Simons v Body Corporate Strata Plan No 5181 [1980] VR 103 …. 9.20 Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870 …. 6.86, 10.98 Smith v City Petroleum Co Ltd [1940] 1 All ER 260 …. 5.7 South-Eastern Drainage Board (SA) v Savings Bank of South Australia (1939) 62 CLR 603; [1940] ALR 1 …. 6.62 Southern Centre of Theosophy Inc v South Australia [1982] AC 706 …. 5.24 Southwark London Council v Mills (1999) 3 WLR 939 …. 11.41, 11.45 Spencer’s Case (1583) 5 Co Rep 16a; 77 ER 72 …. 11.62, 11.66 Spooner v Sandilands (1842) 1 Y & C Ch Cas 390; 62 ER 939 …. 10.18 Spyer v Phillipson [1931] 2 Ch 183 …. 5.7, 5.8 Squire v Rogers (1979) 27 ALR 330 …. 8.66 Steindlberger v Mistroni (1992) 5 BPR 11,529; 29 NSWLR 351 …. 10.37 Stern v McArthur (1988) 165 CLR 489; 81 ALR 463 …. 7.59, 10.29 Strata Plan No 30234, Proprietors v Margiz Pty Ltd (1993) 32 NSWLR 294 …. 9.25

Street v Mountford [1985] AC 809 …. 11.11 Sunlea Investments Pty Ltd v NSW (1998) 9 BPR 16,707 …. 5.22, 5.23 Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 …. 6.86, 10.98 Symes v Pitt [1952] VLR 412 …. 4.33

T Talga Investments Pty Ltd v Tweed Canal Estates Pty Ltd (1974) 1 BPR 9675 …. 12.28 Taylors Fashion Ltd v Liverpool Trustees Co [1982] QB 133 …. 5.26 Teller Home Furnishers Pty Ltd, Re [1967] VR 313 …. 11.68 Thirsty Mack’s Pty Ltd v Hasbeen Pty Ltd [2008] FCA 32; BC200800177 …. 11.32 Thoo v Owners — Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657 …. 9.26, 9.28, 9.29, 9.34 Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24 …. 6.23 Trevallyn-Jones v Owners Strata Plan No 50358 (2009) 14 BPR 27,113; [2009] NSWSC 694 …. 9.23, 9.24 Treweke v 36 Wolseley Road Pty Ltd (1973) 128 CLR 274; 1 ALR 104 …. 12.68 Troja v Troja (1994) 33 NSWLR 269 …. 8.57 Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143 …. 4.39, 13.17, 13.18 Turner v York Motors Pty Ltd (1951) 85 CLR 55; 58 ALR (CN) 1054 …. 11.25 Tutt v Doyle [1997] 42 NSWLR 10 …. 6.58

U Union Lighterage Co v London Graving Dock Co [1902] 2 Ch 557 …. 12.39 Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118; 242 ALR 422; [2007] FCAFC 57 …. 10.79

V

Van den Heuvel v Perpetual Trustees of Victoria Ltd (2010) 15 BPR 28,647; [2010] NSWCA 171 …. 6.29 Vasile v Perpetual Trustees WA Ltd (1987) NSW ConvR 55-345 …. 11.43 Vasiliou v Westpac Banking Corp (2007) 19 VR 229; [2007] VSCA 113 …. 6.86, 10.78, 10.79 Verral v Nott (1939) 39 SR (NSW) 89 …. 5.24 Vickers v Stichtenoth Investments Pty Ltd (1989) 52 SASR 90 …. 11.95 Vrakas v Mills (2007) V ConvR 54-733; [2006] VSC 463 …. 13.32

W Waimiha Sawmilling Co v Waione Timber Co [1923] NZLR 1137 …. 6.36 — v Waione Timber Co [1926] AC 101 …. 6.12 Walker v Linom [1907] 2 Ch 104 …. 7.24 Wallis’ Cayton Bay Holiday Camp Ltd v Shell-Mex and BP Ltd [1975] QB 94 …. 4.13 Walsh v Lonsdale (1882) 21 Ch D 9; [1881–85] All ER Rep Ext 1690; (1882) 46 LT 858 …. 7.61, 10.18, 11.23, 11.33, 12.28, 13.7 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513 …. 5.26, 6.53, 7.59 Wanner v Caruana [1974] 2 NSWLR 301 …. 10.38 Wardell v Usher (1841) 3 Scott NR 508 …. 5.7 Warnborough v Garmite Ltd [2003] EWCA Civ 1544 …. 10.33 Warren v Keen [1954] 1 QB 15 …. 11.52 Waterhouse v Waugh [2003] NSWCA 139 …. 11.53 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 …. 10.48 Western Australia v Brown (2014) 306 ALR 168; [2014] HCA 8 …. 3.27 — v Ward (2000) 99 FCR 316; [2000] FCA 191 …. 3.29, 3.33 — v — (2002) 213 CLR 1; 191 ALR 1; [2002] HCA 28 …. 3.20, 3.25, 3.27–3.29, 3.33 Westfield Holdings v Australian Capital Television Ltd (1992) 32 NSWLR

194; 5 BPR 11,615 …. 10.33, 10.34 Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528; 239 ALR 75; [2007] HCA 45 …. 12.61, 12.62 Wheeldon v Burrows (1879) 12 Ch D 31; [1874–80] All ER 669 …. 12.36, 12.56 White v Betalli (2007) 71 NSWLR 381; [2007] NSWCA 243 …. 6.63 — v Kenny [1920] VLR 290 …. 11.8 Wicks v Bennett (1921) 30 CLR 80; 28 ALR 30 …. 6.35 Wik Peoples v State of Queensland (1996) 187 CLR 1; 141 ALR 129; [1996] HCA 40 …. 3.15, 3.16, 3.30 Wilcox v Richardson (1997) 43 NSWLR 4; 8 BPR 15,491 …. 12.56 Williams v State Transit Authority of New South Wales (2004) 60 NSWLR 286; 11 BPR 21,517 …. 12.57 Wily v Endeavour Healthcare Services Pty Ltd (2003) 12 BPR 22,447; [2003] NSWCA 321 …. 10.33 Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105 …. 11.80 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; 205 ALR 522; [2004] HCA 16 …. 9.38 Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 All ER 483; [1970] 1 WLR 411 …. 5.17, 5.18 Woolley v Attorney-General of Victoria (1877) 2 App Cas 163 …. 5.21 Wright v Gibbons (1949) 78 CLR 313; [1949] ALR 287 …. 8.5, 8.36

X Xenos v National Australia Bank Ltd [2007] NSWSC 973 …. 10.99

Y Yanner v Eaton (1999) 201 CLR 351; 166 ALR 258; [1999] HCA 53 …. 3.29 Yazgi v Permanent Custodians Ltd (2007) 13 BPR 24,567; [2007] NSWCA 240 …. 6.27, 6.29 Yerkey v Jones (1939) 63 CLR 649; [1939] ALR 62 …. 10.44

Young v Owners — Strata Plan No 3529 (2001) 54 NSWLR 60; 10 BPR 19,153 …. 9.34

Table of Statutes References are to paragraph numbers

Commonwealth Australian Consumer Law …. 10.45, 10.48 s 18 …. 9.43, 10.96 Australian Securities and Investments Commission Act 2001 s 12CA(1) …. 10.45 s 12CB …. 10.45 Bankruptcy Act 1966 s 58 …. 8.55 Commonwealth Constitution s 51(xxxix) …. 3.34 s 109 …. 3.13 Competition and Consumer Act 2010 Sch 2 …. 10.45 s 87 …. 10.96 Consumer Credit Code …. 10.73 Corporations Act 2001 s 127 …. 7.54 s 420A …. 10.86 Corporations Law …. 10.45, 10.48 Family Law Act 1975 …. 8.27 National Consumer Credit Protection Act 2009 Sch 1 …. 10.45

National Credit Code …. 10.48 s 75 …. 10.47 ss 76–78 …. 10.46 s 76(5) …. 10.46 s 76(8) …. 10.46 s 77 …. 10.45 s 88 …. 10.73 Native Title Act 1993 …. 3.2, 3.14, 3.16, 3.17, 3.29, 3.33 Div 3, Pt 2 …. 3.37 ss 23A–23E …. 3.36 s 23A …. 3.36 s 24AA …. 3.36, 3.37 ss 25–44 …. 3.38 s 38 …. 3.38 s 223 …. 3.20, 3.37 s 223(1) …. 3.18 s 223(1)(a) …. 3.21, 3.23, 3.25, 3.28 s 223(1)(b) …. 3.25, 3.26 s 223(1)(c) …. 3.27 s 223(2) …. 3.27 ss 228–232 …. 3.36 Racial Discrimination Act 1975 …. 3.13, 3.34, 3.36 Trade Practices Act 1974 s 52 …. 9.43

Australian Capital Territory Civil Law (Property) Act 2006 s 201 …. 7.46, 7.52, 10.14, 11.30, 12.28

s 201(1) …. 11.33 s 201(4) …. 7.62 s 203 …. 11.30 s 203(1) …. 11.33 s 203(2) …. 11.33 s 204 …. 11.34 s 206 …. 11.82 ss 210–211 …. 8.19 s 213 …. 8.11 s 219 …. 7.54 s 243 …. 8.58 s 301 …. 10.61 ss 301–304 …. 10.68 s 304 …. 10.100 s 309 …. 10.58 s 400 …. 11.76 ss 425–426 …. 11.86 Community Title Act 2001 …. 9.55 Contracts Review Act 1980 …. 10.45 Conveyancing Act 1919 s 400 …. 11.66 s 401 …. 11.67 Forfeiture Act 1991 …. 8.57 Land Titles Act 1925 s 14(1)(d) …. 6.90 s 48(8) …. 12.29 s 57(1) …. 10.17

s 58 …. 6.10, 6.30 s 58(1)(a) …. 6.65 s 58(1)(c) …. 6.67 s 58(1)(d) …. 11.37 s 58(6) …. 12.54 s 69 …. 4.3 s 82 …. 11.31 s 83 …. 6.22 s 84 …. 10.102 s 86(5) …. 11.81 s 86(6) …. 11.81 s 93(1) …. 10.15 s 94 …. 10.69 s 95 …. 10.102 s 96 …. 10.26, 10.27, 10.55 s 97 …. 10.63 s 103B …. 12.51 s 103DA …. 12.33 s 103E …. 12.66 s 109 …. 13.36, 13.38 s 112 …. 11.84 s 119 …. 11.55, 11.84 s 119(1) …. 11.55 s 120 …. 11.84 s 120(1) …. 11.55 s 120(1)(d) …. 11.55 s 180 …. 6.74 s 181 …. 6.74

Land Titles (Unit Titles) Act 1970 s 10(1)(c) …. 9.11 Limitation Act 1985 s 5A …. 4.3 s 24 …. 4.3 Unit Titles Act 2001 …. 9.1 s 7(1)(c) …. 9.7 s 9 …. 9.9 s 13 …. 9.10 s 17(1) …. 9.5 s 33 …. 9.9 s 38 …. 9.5 Unit Titles (Management) Act 2011 …. 9.1 Sch 2, Pt 2.1 …. 9.15 Sch 4 …. 9.17 Pt 4, Div 4.2 …. 9.16 s 3 …. 9.4 s 7 …. 9.4, 9.5 s 8 …. 9.5 s 8(1) …. 9.4 s 9(2)(a) …. 9.14 s 10 …. 9.4 s 16(b) …. 9.14 s 19 …. 9.4, 9.12 s 24(1) …. 9.20 ss 34–36 …. 9.15 s 50 …. 9.16 s 78 …. 9.45

s 100 …. 9.46 s 102 …. 9.46 s 106 …. 9.17 s 108 …. 9.17 s 119(3) …. 9.47

New South Wales Community Land Development Act 1989 …. 9.55 Conveyancing Act 1919 s 10 …. 11.82 s 19 …. 2.12 s 19A …. 2.12 s 23B …. 12.27 s 23B(1) …. 10.14, 11.30, 12.65 s 23C(1) …. 11.33 s 23C(2) …. 7.62 s 23D(1) …. 11.33 s 23D(2) …. 11.30, 11.33 s 26 …. 8.19 s 26(1) …. 8.19 s 35 …. 8.11 s 38(1) …. 7.54 s 47 …. 2.8 s 53 …. 7.15 s 54A …. 7.46, 12.28 s 54A(1) …. 11.34 s 66G …. 8.58 s 70 …. 13.36 s 70A …. 13.38

s 74 …. 11.84 s 84 …. 11.84 s 84(1) …. 11.55 s 84(1)(a) …. 11.55 s 85 …. 11.84 s 85(1) …. 11.55 s 85(1)(d) …. 11.55, 11.86 s 88(1) …. 12.34, 13.8, 13.34, 13.39 s 88A(1) …. 12.8 s 88B …. 12.33, 13.10 s 88B(3) …. 12.11, 13.34 s 88B(3)(c)(ii) …. 13.34 s 88K …. 5.20, 12.40 s 89(1) …. 12.71 s 93 …. 10.27 s 96 …. 10.23 s 100 …. 10.51, 10.60 s 103(2) …. 10.61 s 109(3) …. 10.67 s 111(2)(a) …. 10.68 s 111A …. 10.75, 10.76 s 112(3) …. 10.100 s 115(2) …. 10.58 s 116 …. 11.76 s 117 …. 11.66, 11.76 s 118 …. 11.67, 11.76 s 122 …. 11.82 s 127 …. 11.20, 11.29 s 127(1) …. 11.20, 11.79

ss 128–131 …. 11.89 s 129 …. 11.86 s 133B …. 11.59 s 164 …. 7.10 s 177 …. 5.28 Crown Lands Act 1989 …. 5.21 s 170 …. 4.24 s 172(4) …. 5.24 s 172(7) …. 5.23 Encroachment of Buildings Act 1922 …. 5.27 Environment Planning and Assessment Act 1979 s 28(2) …. 12.72 Forfeiture Act 1995 …. 8.57 Home Building Act 1989 s 18B …. 9.38 Landlord and Tenant Act 1899 ss 8–10 …. 11.89 Limitation Act 1969 s 4(1) …. 4.10 s 27 …. 4.2 s 27(1) …. 4.24 s 31 …. 4.17 s 33 …. 4.21 s 34 …. 11.26 s 38(1) …. 4.10 s 38(5) …. 4.23

s 47 …. 4.25 s 52 …. 4.30 s 55 …. 4.30 s 56 …. 4.30 Local Government Act 1919 …. 6.61 Mining Act 1992 …. 5.21 Real Property Act 1900 …. 6.61 s 12(1)(d) …. 6.90 s 36(8) …. 6.74 s 36(11) …. 12.29 s 38 …. 6.5 s 41 …. 6.10 s 41(1) …. 10.17, 10.18 s 42 …. 6.10, 6.30 s 42(1)(a) …. 6.65 s 42(1)(a1) …. 12.37, 12.51, 12.54 s 42(1)(c) …. 6.67 s 42(1)(d) …. 11.16, 11.37 s 43 …. 6.10 s 43A …. 6.77, 6.78, 6.79 s 45D(3) …. 4.24 s 45D(4) …. 4.42 s 46 …. 12.51 s 47(1) …. 13.9 ss 47(1)–(6A) …. 12.51 s 47(6) …. 12.66 s 47(7) …. 12.11 s 51 …. 11.75, 11.76

s 53 …. 6.22 s 53(1) …. 11.31 s 53(4) …. 10.102 s 54(1) …. 11.81 s 54(5) …. 11.81 s 57 …. 10.73 s 57(1) …. 10.15 s 57(2)(a) …. 10.69 s 58 …. 10.69 s 58(2) …. 10.102 s 60 …. 10.26, 10.27, 10.55 ss 61–62 …. 10.63 s 74F(2) …. 6.86 s 97 …. 8.44, 8.45 s 97(1) …. 8.44 Strata Schemes (Freehold Development) Act 1973 …. 9.1 s 5(1) …. 9.9, 9.10 s 6(1) …. 9.5 s 7(1) …. 9.5 s 18 …. 9.4 s 18(2) …. 9.11 s 20 …. 9.12 s 23 …. 9.11 s 23(2)(c) …. 9.7 Strata Schemes (Leasehold Development) Act 1986 …. 9.1 s 4(1) …. 9.9, 9.10 s 5(1) …. 9.5 s 6(1) …. 9.5

s 7(1) …. 9.5 s 23 …. 9.4, 9.12 s 27 …. 9.11 s 27(2)(c) …. 9.7 Strata Schemes Management Act 1996 …. 9.1 Sch 1 …. 9.17 Ch 2, Pt 4 …. 9.16 s 8 …. 9.5, 9.14 s 8(2) …. 9.14 s 9 …. 9.14 s 9(b) …. 9.15 s 16 …. 9.15 s 47 …. 9.17 s 48 …. 9.17 s 62 …. 9.20, 9.22, 9.23, 9.27, 9.28, 9.35, 9.36 s 62(1) …. 9.21, 9.22, 9.31 s 62(2) …. 9.22, 9.28, 9.31, 9.32 s 62(3) …. 9.30, 9.33 s 67 …. 9.45 s 69 …. 9.45 s 83 …. 9.46 s 87 …. 9.46 s 108(3) …. 9.47

Northern Territory Administration and Probate Act s 64 …. 8.11 Encroachment of Buildings Act …. 5.27

s 13 …. 5.25 Land Title Act s 17(1)(a) …. 6.90 s 38 …. 6.10 s 39 …. 6.10 s 40 …. 6.10 s 59 …. 8.44 s 65 …. 11.31 s 68 …. 6.22 s 69 …. 6.22 s 71(2) …. 11.81 s 71(4) …. 11.81 s 76 …. 10.15 s 80 …. 10.26, 10.27, 10.55, 10.69, 10.102 s 81 …. 10.102 s 85 …. 10.63 s 91 …. 12.51 s 92 …. 12.33, 13.10 s 138(1)(c) …. 6.86 s 142 …. 6.84 s 179 …. 12.29 s 180 …. 6.74 s 181 …. 6.74 s 183 …. 6.69 s 184 …. 10.17 s 185 …. 12.51 s 188 …. 6.10, 6.30 s 189 …. 6.10

s 189(1)(b) …. 11.37 s 189(1)(c)(3) …. 12.54 s 189(1)(d) …. 6.65 s 189(1)(f) …. 6.67 s 189(2)(b) …. 11.37 s 198 …. 4.2 Law of Property Act Pt 7 …. 10.26, 10.27, 10.55, 10.69 s 9(1) …. 7.52, 10.14, 11.30 s 10 …. 7.62, 11.33 s 11(1) …. 11.33 s 11(2) …. 11.30, 11.33 s 16 …. 11.82 s 22 …. 2.12 s 28 …. 2.8 s 35 …. 8.19 s 40 …. 8.58 s 45 …. 7.54, 8.65 s 62 …. 7.46, 11.34, 12.28 s 82 …. 10.23 ss 86–88 …. 10.68 s 90 …. 10.73 s 90(1) …. 10.77 s 92 …. 10.100 s 96(2) …. 10.58 s 99 …. 10.61 s 111(1) …. 11.55 ss 117–119 …. 11.84

s 117 …. 11.55 s 119(a) …. 11.55 s 119(d) …. 11.55 s 121 …. 11.84 s 128(1) …. 11.82 s 130 …. 11.66, 11.76 s 131 …. 11.67, 11.76 s 134(1)(a) …. 11.59 ss 136–143 …. 11.89 ss 137–138 …. 11.86 s 144 …. 11.20, 11.79 s 162 …. 5.28 s 170 …. 13.36 s 171 …. 13.38 s 216(2)(d) …. 8.11 Limitation Act s 27 …. 4.3 Mining Act …. 5.21 Property Law Act s 163 …. 5.20 s 164 …. 5.20 Unit Titles Act 1976 …. 9.1, 9.55 Sch 1 …. 9.17 s 4(1) …. 9.5, 9.9 s 10(1) …. 9.5 s 23 …. 9.10 s 23(1)(a) …. 9.9

s 23(1)(b) …. 9.4, 9.11 s 23(1B) …. 9.7, 9.11 s 24 …. 9.10, 9.12 s 27 …. 9.5 s 30(1)(a) …. 9.14 s 32(1) …. 9.15 s 34 …. 9.14 s 34(b) …. 9.20 s 34(c) …. 9.20 s 36 …. 9.45 ss 76–78 …. 9.17 s 78 …. 9.17 s 80 …. 9.46 s 81 …. 9.46 Unit Title Schemes Act 2009 …. 9.1 Water Act s 12 …. 5.23

Queensland Body Corporate and Community Management Act 1997 …. 9.1, 9.55 Sch 4 …. 9.17 Sch 6 …. 9.9 s 8(f) …. 9.9 s 10(2)(a) …. 9.5 s 10(5) …. 9.5 s 13 …. 9.9 s 24 …. 9.5 s 30 …. 9.4, 9.5, 9.10, 9.14

s 31 …. 9.10 s 33(2) …. 9.14 s 34 …. 9.14 s 35(1) …. 9.10, 9.12 s 36(1) …. 9.14 s 46(1) …. 9.7 s 54 …. 9.17 s 59 …. 9.17 s 94 …. 9.20 s 94(1) …. 9.14 s 99 …. 9.15 s 119 …. 9.16 s 150(1) …. 9.45 s 150(2) …. 9.45 s 151 …. 9.45 s 152 …. 9.20 s 152(1) …. 9.14 s 168 …. 9.17 s 169 …. 9.17 s 189 …. 9.46 s 204 …. 9.47 s 205 …. 9.47 Land Title Act 1994 s 4 …. 11.37 s 15 …. 6.90 s 37 …. 6.10 s 38 …. 6.10 s 41BA(1) …. 9.7

s 41C(3) …. 9.11 s 49 …. 12.33, 13.10 s 49A …. 9.5 s 59 …. 8.44 s 62 …. 11.75 s 64 …. 11.31 s 66 …. 10.102 s 67 …. 6.22 s 69 …. 11.81 s 74 …. 10.15 s 78 …. 10.73 s 78(1) …. 10.69 s 78(2) …. 10.26, 10.27, 10.55 s 78(2)(c) …. 10.63 s 79 …. 10.102 s 82 …. 12.51 s 83 …. 12.51 s 86 …. 12.11 ss 103–107 …. 4.42 s 122(1)(c) …. 6.86 s 126 …. 6.84 ss 138–152 …. 6.80 s 176 …. 12.29 s 177 …. 6.74 s 178 …. 6.74 s 180 …. 6.69 s 181 …. 10.17 s 184 …. 6.10, 12.57 s 185 …. 6.10, 6.30

s 185(1)(b) …. 11.37 s 185(1)(c)(3) …. 12.54 s 185(1)(d) …. 4.42 s 185(1)(e) …. 6.65 s 185(1)(g) …. 6.67 s 185(2) …. 11.337 Law of Property Act 1974 Pt 7 …. 10.26, 10.27 s 17 …. 11.82 s 115(1) …. 11.82 Limitation of Actions Act 1974 Pt 3 …. 4.42 s 5(2) …. 4.30 s 5(3) …. 4.30 s 6(4) …. 4.24 s 13 …. 4.2 s 15(1) …. 4.17 s 15(3) …. 4.17 s 16(3) …. 4.21 s 17 …. 4.22 s 18(1) …. 11.26 s 18(2A) …. 4.36 s 19(1) …. 4.10 s 22 …. 4.23 s 27(1) …. 4.25 s 29 …. 4.30 s 38 …. 4.30 Mineral Resources Act 1989 …. 5.21

Mixed Use Development Act 1993 …. 9.55 Property Law Act 1974 s 5 …. 11.33 s 9 …. 11.33 s 10(1) …. 10.14, 11.30, 12.27, 12.65 s 11(1) …. 12.28 s 11(2) …. 7.62 s 12(1) …. 11.33 s 12(2) …. 11.30, 11.33 s 19(1) …. 7.52 s 22 …. 2.12 s 29 …. 2.8 s 35 …. 8.19 s 38 …. 8.58 s 43 …. 8.65 s 47 …. 7.54 s 53 …. 13.38 s 53(1) …. 13.36 s 59 …. 7.46, 11.34 s 80 …. 10.23 s 84 …. 10.73 ss 84–89 …. 10.68 s 85 …. 10.80 s 87(1) …. 10.100 s 92(2) …. 10.58 s 99(2) …. 10.61 ss 105–107 …. 11.84 s 105(1) …. 11.55

s 105(1)(a) …. 11.55 s 107 …. 11.55 s 107(d) …. 11.55 s 117 …. 11.66, 11.76 s 118 …. 11.67, 11.76 s 121(1)(a)(i) …. 11.59 ss 123–128 …. 11.89 s 124 …. 11.86 s 129(1) …. 11.20, 11.79 s 179 …. 5.28 s 180 …. 5.20 s 181 …. 12.66 ss 182–194 …. 5.27 s 196 …. 5.25 s 197 …. 5.25 s 237 …. 7.15 s 346 …. 7.10 Succession Act 1981 s 65 …. 8.11 Water Act 2000 s 21(1) …. 5.23

South Australia Administration and Probate Act 1919 s 72E …. 8.11 Community Titles Act 1996 …. 9.55 Encroachment Act 1944 …. 5.27 Landlord and Tenant Act 1936

s 4 …. 11.89 s 5 …. 11.89 s 7 …. 11.89 s 9 …. 11.89 s 10 …. 11.86 s 12 …. 11.86 Law of Property Act 1936 s 9 …. 7.54 s 13 …. 11.82 s 26 …. 7.46, 11.34, 12.28 s 28(1) …. 10.14, 11.30, 12.27, 12.65 s 29 …. 11.33 s 29(2) …. 7.62 s 30(1) …. 11.33 s 30(2) …. 11.30, 11.33 s 42(6) …. 13.38 s 44(2) …. 10.61 ss 49–50 …. 10.68 s 49(2) …. 10.100 s 53(2) …. 10.58 s 69 …. 8.58 s 117 …. 7.10 Limitation of Actions Act 1936 s 3(1) …. 4.30 s 4 …. 4.2 s 9 …. 4.17 s 10 …. 4.22 s 15 …. 11.26

s 16 …. 4.36 s 17 …. 4.21 s 20 …. 4.23 s 31 …. 4.25 s 32 …. 4.25 s 45 …. 4.30 Mining Act 1971 …. 5.21 Real Property Act 1878 ss 154–154I …. 6.80 Real Property Act 1886 Pt 7A …. 4.42 s 45 …. 6.84 s 46 …. 11.82 ss 47–51A …. 9.11 s 56 …. 6.74 s 57 …. 12.29 s 67 …. 10.17 s 69 …. 6.10, 6.30 s 69(c) …. 6.67 s 69(d) …. 12.54 s 69(e) …. 6.65 s 69(h) …. 11.37 s 81 …. 12.51 s 90 …. 12.33, 13.10 s 90B(1)(c) …. 12.66 s 96 …. 12.51 s 116 …. 11.31 s 117 …. 6.22, 11.32

s 118 …. 10.102 s 120 …. 11.81 s 123 …. 11.81 s 124 …. 11.84 s 124(1) …. 11.55 s 125 …. 11.84 s 125(a) …. 11.55 s 125(b) …. 11.55 s 132 …. 10.15 s 133 …. 10.69 s 136 …. 10.102 s 137 …. 10.26, 10.27, 10.55 s 140 …. 10.63 s 152 …. 11.64 s 220(f) …. 6.90 s 262 …. 11.84 Strata Titles Act 1988 …. 9.1 Sch 3 …. 9.17 s 3(1) …. 9.9 s 4 …. 9.11 s 5 …. 9.5 s 5(1) …. 9.10 s 5(3)(c) …. 9.7 s 5(6) …. 9.10 s 8(2)(c) …. 9.5 s 10(1) …. 9.4, 9.12 s 18(3) …. 9.14 s 19 …. 9.17

s 20 …. 9.17 s 20(1) …. 9.14 s 23(6) …. 9.16 s 24(a) …. 9.14 s 25 …. 9.14 s 25(a) …. 9.20 s 27 …. 9.45 s 30 …. 9.46 s 31 …. 9.46 s 35 …. 9.15 s 35(1) …. 9.15 s 41(1) …. 9.47

Tasmania Conveyancing and Law of Property Act 1884 s 5 …. 7.10 s 10 …. 11.66, 11.76 s 11 …. 11.67, 11.76 s 15 …. 11.86 s 18 …. 10.23 s 21(1)(c) …. 10.55 ss 22–24 …. 10.68 s 26(2) …. 10.58 s 27(2) …. 10.61 s 35 …. 7.15 s 36 …. 7.46, 11.34, 12.28 s 60(1) …. 10.14, 11.30, 12.27, 12.65 s 60(2) …. 7.62, 11.33 s 60(3) …. 11.33

s 60(4) …. 11.30, 11.33 s 61(2) …. 2.8 s 71 …. 13.36 s 71A …. 13.38 s 81(2) …. 10.100 s 84 …. 5.20 s 90B …. 12.33, 13.10 s 91A …. 13.36 Land Titles Act 1980 s 40 …. 6.10, 6.30 s 40(3)(b) …. 6.65 s 40(3)(d) …. 11.37 s 40(3)(e) …. 12.54 s 40(3)(f) …. 6.67 s 48 …. 6.74 s 48(7) …. 12.29 s 49(1) …. 10.17 s 52 …. 6.80 s 57 …. 11.84 s 60 …. 11.75 s 63 …. 8.44 s 64 …. 10.102 s 64(1) …. 11.31 s 65 …. 11.81 s 65(3) …. 11.81 s 66 …. 11.55, 11.84 s 67 …. 11.84 s 67(a) …. 11.55

s 67(b) …. 11.55 s 70 …. 6.22 s 73 …. 10.15 s 77 …. 10.73 s 77(4) …. 10.102 s 78 …. 10.69 s 78(1) …. 10.78 s 82 …. 10.26, 10.27, 10.55 s 85 …. 10.63 s 102(7) …. 13.9 s 102(9) …. 13.9 s 105 …. 12.51 s 106 …. 12.51 s 108(1) …. 12.66 s 113 …. 2.12 ss 117–124 …. 4.42 s 138I …. 12.50 s 138J …. 12.50 s 139 …. 6.90 Land Titles Amendment (Law Reform) Act 2001 Div 5 …. 4.42 Limitation Act 1974 s 10 …. 4.2 s 10(4) …. 4.24 s 10(5) …. 4.24 s 15(1) …. 11.26 s 24(1) …. 4.25 ss 26–28 …. 4.30

Mineral Resources Development Act 1995 …. 5.21 Partition Act 1869 …. 8.58 Prescription Act 1934 …. 12.49 Strata Titles Act 1998 …. 9.1, 9.55 Sch 1 …. 9.17 s 3 …. 9.9 s 4(1) …. 9.5 s 5 …. 9.5 s 5(1)(g) …. 9.7 s 8 …. 9.5 ss 8(2)–(4) …. 9.11 s 10 …. 9.10 s 10(1) …. 9.4, 9.12 s 10(2) …. 9.12 s 11(1) …. 9.14 s 73(1) …. 9.14 s 79(1) …. 9.15 s 80 …. 9.16 s 81(1)(c) …. 9.20 s 81(1)(e) …. 9.14 s 83 …. 9.45 s 90 …. 9.17 s 91 …. 9.17 s 93 …. 9.17 s 99 …. 9.46

Victoria Instruments Act 1958

s 126 …. 11.34, 12.28 Land Act 1958 s 385 …. 5.23 Limitation of Actions Act 1958 s 3(3) …. 4.30 s 7 …. 4.24 s 8 …. 4.2 s 10(2) …. 4.17 s 12 …. 4.22 s 13(1) …. 11.26 s 13(2) …. 4.36 s 13(3) …. 4.21 s 14 …. 4.10 s 14(4) …. 4.23 s 21(1) …. 4.25 s 23 …. 4.30 s 27 …. 4.30 Mining Resources Development Act 1990 …. 5.21 Owners Corporations Act 2006 Pt 3, Div 6 …. 9.46 Pt 5 …. 9.15 s 23 …. 9.45 s 46 …. 9.14, 9.20 s 100 …. 9.15 s 119 …. 9.16 s 138 …. 9.17 s 139 …. 9.17

Owners Corporations Regulations 2007 Sch 2 …. 9.17 Presumption of Survivorship Act 1958 s 184 …. 8.11 Property Law Act 1958 s 28A …. 8.65 s 44 …. 7.15 s 52(1) …. 7.46, 10.14, 11.30, 12.27, 12.65 s 53 …. 10.18 s 53(1)(a) …. 11.33 s 53(2) …. 7.62 s 54(1) …. 11.33 s 54(2) …. 11.30, 11.33 s 60(1) …. 2.8 s 73 …. 7.54 s 73A …. 7.54 s 77(1)(c) …. 11.64 s 78 …. 13.36 s 79 …. 10.63, 13.38 s 87 …. 10.60 s 87(1) …. 10.51 s 91(2) …. 10.61 s 96 …. 10.23 s 101(1)(c) …. 10.55 ss 103–106 …. 10.68 s 104(2) …. 10.100 s 109(2) …. 10.58 s 139(1) …. 11.82

s 141 …. 11.76 s 141(1) …. 11.66 s 142 …. 11.76 s 142(1) …. 11.67 s 144(1) …. 11.59 s 146 …. 11.86 ss 146–147 …. 11.89 s 185 …. 11.82 s 199 …. 7.10 s 225 …. 8.58 s 249 …. 2.12 Subdivision Act 1988 …. 9.1 s 3(1) …. 9.9, 9.45 s 5(3)(b) …. 9.5 s 27 …. 9.5 s 27(4) …. 9.7 s 27E …. 9.17 s 28 …. 9.5 s 28(1) …. 9.4 s 28(2) …. 9.14 s 30(1) …. 9.4 s 30(1)(a) …. 9.12 s 31(1) …. 9.11 s 33 …. 9.45 s 43 …. 9.17 Supreme Court Act 1958 s 79 …. 11.89 s 80 …. 11.89

s 85 …. 11.89 Transfer of Land Act 1958 s 34 …. 6.74 s 40(1) …. 10.17 s 40(2) …. 12.29 s 42 …. 6.10, 6.30 s 42(1)(a) …. 6.65 s 42(1)(b) …. 6.67 s 42(2)(b) …. 4.42 s 42(2)(d) …. 12.54 s 42(2)(e) …. 11.37 s 54(2) …. 11.75 s 66(1) …. 11.31 s 66(2) …. 10.102 s 67 …. 11.84 s 67(i) …. 11.55 s 67(l)(d) …. 11.55 s 67(1) …. 11.55 s 67(1)(a) …. 11.55 s 68(1A) …. 11.37 s 68(3)(f) …. 11.37 s 69(1) …. 11.81 s 72(1) …. 12.51 s 73 …. 12.11 s 73(2) …. 12.66 s 74(2) …. 10.15 ss 76–77 …. 10.69 s 77(1) …. 10.78

s 78 …. 10.26, 10.27, 10.55 s 81 …. 10.55, 10.102 s 81(1) …. 10.26 s 88 …. 13.9 ss 91C–91J …. 6.80 s 98 …. 12.33, 13.10 s 103(2) …. 6.90 s 112 …. 11.84

Western Australia 6 Will IV c 4 …. 12.49 Law Reform (Statute of Frauds) Act 1962 …. 12.28 s 2 …. 7.46 Limitation Act 2005 s 19 …. 4.2 s 19(2) …. 4.24 ss 30–37 …. 4.30 s 72(2) …. 11.26 s 76 …. 4.24 Mining Act 1978 …. 5.21 Property Law Act 1969 s 7 …. 7.10 s 18 …. 11.82 s 23 …. 2.12 s 33(1) …. 10.14, 11.30, 12.27, 12.65 s 34 …. 11.33, 12.28 s 34(2) …. 7.62 s 35(1) …. 11.33

s 35(2) …. 11.30, 11.33, 11.34 s 37(1) …. 2.8 s 37(2) …. 2.8 s 41 …. 7.54 s 47 …. 13.36 s 48 …. 13.38 s 53 …. 10.51, 10.60 s 55(2) …. 10.61 s 57(1)(c) …. 10.55 ss 60–62 …. 10.68 s 60(2) …. 10.100 s 65(2) …. 10.58 ss 71–72 …. 11.20, 11.79 s 75(1) …. 11.82 s 77 …. 11.66, 11.76 s 78 …. 11.67, 11.76 s 80(1) …. 11.59 s 81 …. 11.86 s 120(d) …. 8.11 s 122 …. 5.27 s 123 …. 5.25 s 126 …. 8.58 Rights in Water and Irrigation Act 1914 s 15(1) …. 5.23 Sale of Land Act 1970 s 22 …. 7.15 Strata Titles Act 1985 …. 9.1 Sch 1 …. 9.17

Sch 1, cl 8(2)(b) …. 9.16 Sch 2 …. 9.17 Sch 2A …. 9.17 s 3(1) …. 9.5, 9.9, 9.10 s 5(1)(c) …. 9.7 s 17 …. 9.4 s 17(1) …. 9.12 s 17(2) …. 9.7 s 32 …. 9.5 s 32(2) …. 9.14 s 35(1)(b) …. 9.14 s 35(1)(c) …. 9.14, 9.20 s 35(1)(j) …. 9.46 s 36 …. 9.45 s 42 …. 9.17 s 43(1)(b) …. 9.47 s 44 …. 9.15 ss 53–55A …. 9.46 s 58 …. 9.46 Transfer of Land Act 1893 s 53 …. 6.74 s 58 …. 10.17 s 63A …. 12.51 s 64 …. 12.51 s 65 …. 12.51 s 67 …. 12.51 s 68 …. 6.10, 6.30, 6.65, 6.67 s 68(1) …. 12.54

s 68(1A) …. 4.42 s 85 …. 12.29 s 91 …. 10.102, 11.31 s 92 …. 11.84 s 92(1) …. 11.55 s 93 …. 11.84 s 93(1) …. 11.55 s 93(2) …. 11.55 s 95 …. 11.64, 11.75 s 98 …. 11.81 s 105A …. 6.22 s 106(1) …. 10.15 s 108 …. 10.69 s 110 …. 10.102 s 111 …. 10.26, 10.27, 10.55 s 116 …. 10.26, 10.55 s 121 …. 10.63 s 129A(1) …. 13.9 s 129C(1)(b) …. 12.66 s 131 …. 11.84 ss 136A–136J …. 12.33, 13.10 s 167A …. 12.33, 13.10 s 188(ii) …. 6.90

INTERNATIONAL Imperial Crown Suits Act 1769 …. 4.24 Grantees of Reversions Act 1540 …. 11.66

Statute of Anne 1705 Statutes 4 and 5, c 16, s 27 …. 8.65 Statute of Frauds 1677 s 4 …. 12.28

United Kingdom Prescription Act 1832 …. 12.47, 12.49 Statute of Frauds …. 7.46

Contents Preface Table of Cases Table of Statutes

Chapter 1

Real Property — Basic Concepts The Concept of Real Property Possession, title and ownership

Chapter 2

Tenures and Estates Introduction Doctrine of tenure Doctrine of estates

Chapter 3

Native Title Introduction A brief history of native title in Australia Establishing native title in Australia Difficulties in proving native title Extinguishing native title Validation of past and intermediate acts under the Native Title Act Future acts under the Native Title Act

Chapter 4

Adverse Possession Introduction Matters to consider in applying the limitation statutes Date from which time runs for the purpose of the limitation periods Application of the doctrine of adverse possession to leases

Co-owners and time limitation periods Crown land and adverse possession Trustees and adverse possession Calculating the extent of adverse possession: successive adverse possessions and competing adverse possessors Extending the limitation period Effect of lapse of time Adverse possession and Torrens land Other matters affecting claims for adverse possession

Chapter 5

Fixtures, Trespass to Land and Other Rights in Land Introduction Doctrine of fixtures Trespass to land Rights below the land

Chapter 6

Torrens Title Introduction Terms and definitions The key concepts of the Register — title by registration and indefeasibility of title How does the principle of indefeasibility operate? What is protected by registration? — the extent of indefeasibility Competing priorities against registered interests in Torrens land — exceptions to the indefeasibility of title of the registered proprietor Competing interests in Torrens land — priorities scenarios (including unregistered interests)

Protection of unregistered interests in Torrens land — the system of caveats Claims under the Torrens insurance schemes How to approach a Torrens priorities question

Chapter 7

Priorities Disputes — Old System Title and Unregistered Interests in Torrens Title; Creation of Interests in Land Introduction Prior legal interest vs later legal interest Prior legal interest vs later equitable interest Prior equitable interest vs later legal interest Earlier equitable interest vs later equitable interest Creation of interests in land

Chapter 8

Co-Ownership Introduction What is co-ownership? Right of survivorship Creation of co-ownership interests in land Severing a joint tenancy Rights between co-owners

Chapter 9

Strata Title and Community Title Introduction Strata title Community title

Chapter 10

Mortgages Introduction What is a mortgage?

Types and creation of mortgages Rights of the mortgagor Rights of the mortgagee

Chapter 11

Leases Introduction Terminology Essential elements of a lease Classification of leases Creation of leases — formal requirements Rights and obligations of lessors and lessees Enforceability of lease covenants Privity of estate Assignment of the lease (lessee’s interest) Assignment of the reversion (lessor’s interest) Remaining liabilities of the original lessor and lessee Assignment and Torrens Title Ending a lease

Chapter 12

Easements Introduction Creation of easements Substantive requirements for the creation of easements Formal requirements for the creation of easements Easements and Torrens Title Changing the use of an easement Extinguishing easements Abandonment Suspension of easements Remedies

Chapter 13

Freehold Covenants Introduction Key terms and background Creation of freehold covenants Enforcement of covenants Checklists for enforcement of covenants

Index

[page 1]

CHAPTER 1

Real Property — Basic Concepts

Key Ideas By the end of this chapter you should be able to identify: the two main systems of land ownership in Australia the concept of title to land and why it is important the concept of possession of land the idea of rights existing in property: – at law – in equity how title to land can be obtained by possession of land

[page 2]

The Concept of Real Property Introduction [1.1]

This book is concerned with the major principles involved in the identification and regulation of real property in Australia. Real property has a specific meaning in law. The legal meaning of property does not just describe objects; it describes a relationship between an individual and an object and, in the case of real property, that object is land. For example, if a person says to a lawyer: ‘The land is mine’, she or he is describing a legal relationship between herself or himself and the land. The rough translation of that sentence to a lawyer is: ‘This person claims to be the current legal title holder of the land’. The claim tells a lawyer that the person is asserting ownership of the land. What matters to a lawyer is that the claim being made tells us about the relationship between the person claiming to be the owner of the land and the land itself.

[1.2]

This idea of relationship to land is important because a number of people can claim a legal relationship to the same land. For example, in the case of retail spaces in any of Australia’s major capital cities, for example, Pitt Street Mall, Bourke Street Mall, Rundle Mall, Queen Street Mall and so on, the physical spaces might be owned by a state government. That government may have granted a 99-year lease of the space to a major retail corporation such as Westfield. In turn, Westfield might create subleases for some of the space in favour of individual retailers. Above the retail spaces there may also be residential apartments and

commercial office spaces that are also leased. Those spaces might be leased to a head lessee, such as a major property trust (through companies such as Macquarie Bank, Lend Lease, AXA or AMP). Those companies might then create lease spaces to individual tenants. So, within one block of a major capital city there may be thousands of individuals and corporations entitled to occupy the same physical space or piece of land. It is the legal relationship of each person or corporation to the same land that is important, because it determines what rights and obligations each one has. The object itself — the land — does not tell us very much about why each person is occupying the space. What matters is the relationship between a person and the space, including: Is the person an owner of the land? Is the person a tenant and, if so, what sort of tenant — a residential tenant or a commercial tenant? What are the terms of any lease a tenant may have? What obligations does a tenant owe to other people occupying the same space? How much does a tenant have to pay under their lease? Who has to maintain safety in the areas used by the public? What obligations do the head tenants owe to the state government? Are the head tenants responsible for controlling any of the actions of their sublessees? [page 3] [1.3]

In other words, the law of real property tells us about what rights a person has in relation to land. The starting point to be able to answer any of these questions is to determine what property interest the law recognises the individual as

holding in respect of the land. Therefore, our legal system has developed a number of what we refer to as ‘estates’ as well as a number of other interests in land. Estates in land are discussed in Chapter 2. Other types of interests in land are discussed in Chapters 5, 10, 11, 12 and 13. If an interest in land cannot be classified as one of these interests, Australia’s legal system does not recognise it as real property. In other words, it does not fit within the current typologies of real property interests as far as the law is concerned. It may be personal property or it may be no interest at all. In some instances, it is critical to be able to classify interests as real property in order to obtain certain rights in relation to the land. For example, there is a substantial difference between having a mortgage over residential property and just having a loan to the owner of that property. If the owner of the property becomes a bankrupt, a mortgagee is a secured creditor. She or he is entitled to realise the full value of moneys lent under the mortgage (via loan) against the sale value of the property. If, on the other hand, the owner is only a lender of money under a loan contract, then she or he joins the queue with all other unsecured creditors for whatever moneys might be remaining in the bankrupt’s estate. That might well be nothing. Similarly, there is a great difference between being a lessee of land and a mere licensee of the space. A whole series of rights flow to a lessee that do not exist for a licensee, the most important of which may be the right of exclusive possession of the property, including the ability to exclude the lessor from the property. [1.4]

This book will discuss all of these different rights, and you will see why the classification of an interest as an interest in land (real property) is often something that a client regards as being critical in any given circumstance.

[1.5]

The following section will consider some of the important

concepts in understanding the Anglo-Australian legal system’s idea of what constitutes real property and some of the basic concepts in that system.

Important concepts in real property Title [1.6]

There are two meanings of ‘title’ in land law in Australia. The most common meaning is ownership of land; that is, the current owner of the land is regarded as having title to the land.

[1.7]

The second meaning refers to the chain of ownership rights in the land, which establishes that the current owner does have ownership or title to the land. This is referred to as establishing a ‘good chain of title’. For example, the original owner of land (in this hypothetical case, James Ruse) may have been granted a fee simple by the Crown in 1861. In 1871, James Ruse conveyed his interest in the land to his son, John Ruse. In 1910, John Ruse conveyed his interest in the land [page 4] to John McAdam. In 1963, John McAdam died, leaving the property to his wife, Jane (under his will). When we refer to the title of Jane McAdam, we are referring (in this sense) to the sequence of ownership interests that led to her interest as being the current owner in the land. That is, the chain of title that proves her current right to be the owner of the land: from James Ruse, to John Ruse, to John McAdam to Jane McAdam.

Two main systems of title to land in Australia [1.8]

The system of ownership and conveyancing of property interests described above was the main system of property interests in land from the 1850s in the Australian colonies. That original system of ownership is referred to as either the ‘general law system’, ‘common law system’ or ‘old system’ title. In this book, the system will be referred to as ‘Old System Title’. There are, to this day, parcels of land throughout Australia that are still Old System Title; however, most states have converted almost all Old System Title parcels to a title system that was introduced into Australia from the 1850s through to the 1870s: Torrens Title.

[1.9]

Torrens Title was introduced by the then Premier of South Australia, Sir Robert Torrens. It was introduced for a series of reasons, but one of the principal reasons was that the Torrens system creates a system of title by registration. We will examine what this means in Chapters 6 and 7. Generally, what this means is that the very act of registration of an interest in land on the Torrens Register (maintained in each state and territory) provides good title to the land. In other words, proof of ownership of the land is not dependent upon establishing a ‘good chain of title’ to land, as was the case with Old System Title. In Chapter 7 we will examine how this chain of title for Old System Title operated. In Chapter 6 we will examine how Torrens Title differs from Old System Title.

[1.10]

Briefly, Torrens Title enables proof of ownership of (and other interests in) land by mere registration of an interest on the Torrens Register. The Torrens system means that it is no longer necessary to go back through the history of interests in a parcel of land in order to establish what is now described (for Torrens land) as ‘an indefeasible title’ to, or interest in, the land. Upon registration of an interest as owner of the

land, a person is bound only by the interests notified on what we refer to as the ‘Certificate of Title’ or ‘Folio Identifier’ for the relevant land as it appears in the Torrens Register. What this means is that, as a matter of conveyancing practice, it is no longer necessary to investigate all previous dealings in the land in order to be able to establish a good title. All that a conveyancing solicitor needs to do is to check the current state of interests noted on the relevant Certificate of Title or Folio in the Register and see which interests are notified there. As noted, this book deals with the rules relating to the operation of the Torrens Title system, as well as the rules still applicable for all unregistered interests in land (whether Torrens Title or Old System Title land): see Chapters 6 and 7. In Chapters 2 and 3 we will also briefly discuss two other forms of land holding in Australia: native title and Crown leases. [page 5]

Law and equity [1.11]

Throughout this book you will see many different references to rights existing ‘at law’ and rights existing ‘in equity’. When we say that rights exist at law, we are referring to rights that are recognised by the common law of Australia. The common law refers to the general law that is made by or reflected in the judgments of judges of various state, territory and federal courts throughout Australia. These decisions often involve the interpretation of various pieces of legislation. In property law, when we refer to rights existing at law we are also potentially referring to rights created by legislation as well as by the common law. Either way, the important point is that we are referring to something that can be recognised as a legal right because it

is either conferred by legislation or by judge-made law. [1.12]

In contrast to this, you will often see references in this book to rights being created or recognised ‘in equity’. At its simplest, these can be described as rights or interests that are protected by the courts of equity in each jurisdiction in Australia.

[1.13]

Generally speaking, when we refer to a legal interest in land we are referring to an interest in the land that is recognised by legislation or common law. When we refer to an equitable interest in land, we are referring to an interest that a court of equity will protect through the operation of various orders of the court. In certain instances, it is critical to be able to recognise whether a legal or equitable right exists at all; for example, in Chapter 6 we will examine the system of caveats and see that only a person with either a legal or equitable interest in property is entitled to lodge a caveat.

[1.14]

There is, unfortunately, no easy way to understand what rights will fall into which category. As you read through this book, you will learn how rights at law and in equity are created or protected. You will have to be able to identify how a legal or an equitable interest can be created and will be protected. This makes knowing the requirements for the creation of interests in land applicable in each jurisdiction as well as understanding all of the principles of law and equity (equitable doctrines) that will operate in certain circumstances to protect an interest in land. This is not a simple task.

Law relating to real property not dealt with in this book [1.15]

This book deals with the areas of law that are typically covered in land law courses throughout law schools in

Australia. Those courses usually deal with matters that are largely concerned with what lawyers would classify as ‘private law’: that is, the relationships between private persons and entities and their interests in land. There is now a whole spectrum of regulation that affects the way in which land, and rights from land, are dealt with. These regulations fit within a category of law referred to most commonly by lawyers as ‘public law’; for example, environmental regulation, the regulation of the use and management of water, emissions trading schemes, rights in relation to coal seam gas, and rights in relation to the discovery and extraction of [page 6] minerals and oil all fit within this typology of public law. Local planning laws fit within this category as well. These highly-specialised areas are beyond the scope of this work. In practice, however, all of these areas of law commonly impact upon private rights in land, and any practitioner operating in the field of land law today is often proficient in advising on these rights. [1.16]

In this book we deal with the classification of what constitutes land. In the remainder of this chapter, we consider the primary ideas that operate across the rules of real property that we will consider throughout this book: these are possession, title and ownership. In the next chapter, we consider the fundamental doctrines that underlie the holding of all interests in land in Australia: the doctrines of tenure and estates. Understanding the basic concepts discussed in this chapter and in Chapter 2 will enable you to consider the interests in property covered in the remainder of this book.

Possession, title and ownership [1.17]

For the remainder of this chapter, we examine two basic concepts in real property law: title, or ownership; and possession.

[1.18]

These concepts play an important role in particular in understanding the doctrine of adverse possession and the rights associated with that doctrine: see Chapter 4. They are also important in being able to understand the doctrine of native title in Australia (see Chapter 3), as well as coownership (Chapter 8) and the law of easements (Chapter 12).

Ownership and title [1.19]

Ownership is the largest bundle of rights known to property law. An owner of property has rights which may be enforced against the whole world, including the right to alienate her or his rights in relation to that property. The doctrines of tenure and estates (discussed in Chapter 2) mean that the term ‘ownership’ is rarely used in relation to real property. In discussing ownership of land, we use the word ‘title’ instead of ‘ownership’.

[1.20]

A person with title to real property has, at the least, a claim to possession of it, either now or in the future. That person also has a series of rights, usually including the right to: possession (discussed below); alienability (the right of the person with title to transfer to anyone during her or his lifetime (by an inter vivos disposition) or on death (by a testamentary disposition); use the land;

manage the land; [page 7] any income derived from the property (for example, rent); the capital of the property; security (for example, non-interference); and enjoy possession indefinitely (the absence of term).1 [1.21]

In the case of the doctrine of adverse possession, possession itself can be a source of title: see Chapter 4. Therefore, we need to understand what the law means by ‘possession’, and how title by possession can be acquired, so that we can understand how this concept operates in various doctrines of real property law.

Possession Meaning of possession [1.22]

The term ‘possession’ plays a major role both in the law of torts and in the law of property. This is primarily because it is only the person with possession of an item of property who can sue for return of, or interference with, the item; for example, only the person in possession of land can sue in an action for trespass to land. Similarly, to succeed in an action for ejectment, a plaintiff must prove either that she or he has been dispossessed of land by another, or that she or he has a better right to possession of the land than another.

[1.23]

Possession involves two elements: the actual, or physical, control of the property; and a mental aspect, which involves both the actual control of

property together with an intention to use it as one’s own. This is referred to as the ‘jus possidendi’. [1.24]

As you will see in Chapter 4, the concept of intention is of particular importance in the doctrine of adverse possession. In JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419, Lord Browne-Wilkinson described the first requirement of establishing possession as being one which established ‘a sufficient degree of physical custody and control’ of the item in possession (at 40). The physical element of possession is constituted by acts characteristic of the ownership of land (discussed below). The second element (the mental element of possession) was described by Lord Browne-Wilkinson in the same case as ‘an intention to exercise such custody and control on one’s own behalf and for one’s own benefit’ (at 40).

Title by possession [1.25]

In the law of real property, title to land may be acquired through possession of the land. It is said that possession of land is prima facie evidence of what we call a ‘seisin in fee’; that is, a right to possession of title to the land. In other words, the act of possession of itself establishes a right to possession against anyone who cannot prove a superior title to the land. [page 8]

[1.26]

How do we establish possession of land? First, a person with a documentary title to land, or any other right to possession, is in a different position at law to a wrongdoer who claims possession of land.2 An owner of land (documentary or clear right to possession) may establish possession through the

slightest act in relation to the land. In the absence of evidence to the contrary, she or he is presumed to be in possession of the land because she or he enjoys the prima facie right to possession.3 By contrast, a wrongdoer must clearly prove that she or he has acquired possession of land through the performance of acts which are indicative of ownership of the land, together with the requisite intention of exercising custody and control of the property for her or his own benefit. [1.27]

What physical acts will be considered by a court to be indicative of ownership of the land (sufficient to establish possession) depends upon the particular circumstances in each case, including the nature of the land and the way in which land of that kind is commonly employed. This requirement was explained by Lord O’Hagan in Lord Advocate v Lord Lovat (1880) 5 AC 273; 5 App Cas 273 (at 288) in the following way: The acts implying possession in one case may be wholly inadequate to prove it in another. The character and value of the property, the suitable and natural mode of using it, the course of conduct which the proprietor might reasonably be expected to follow with due regard to his own interests — all these things, greatly varying as they must under various conditions, are to be taken into account.

[1.28]

A number of acts have been found by courts to constitute acts of possession; for example: constructing fences around land; ploughing and cultivating land; placing notices upon the land and warning intruders to keep out, coupled with actual enforcement of the notices; working a mine; and leasing land to another and paying rates.

[1.29]

At this point in time, these are considered to be the sorts of acts of ownership that an owner of land will typically engage

in. [1.30]

Why do we need to concern ourselves at all with these considerations about what amounts to possession? The basic answer is that possession may, in some circumstances, affect the answer to the legal question: ‘Who is the true owner of the land?’. This is because, at common law, possession is a source of both a right to possession as well as an interest in land. Possession of land retains its importance as a concept because possession: for any period of time, however short, is prima facie evidence of a right to possession of land; [page 9] at any time may itself confer a right to possession which is sustainable against anyone who cannot show a better right to possession; and whether past or present, confers an interest in land upon whoever holds possession.

[1.31]

The clearest example of the impact of possession of land is seen in the doctrine of adverse possession, which we will discuss in Chapter 4. First, however, we will consider some other fundamental doctrines relating to title and land in Australia. These include the doctrines of tenures and estates (Chapter 2) and the doctrine of native title: Chapter 3.

__________________________ 1 2

A M Honore, ‘Ownership’ in A C Guest (ed), Oxford Essays in Jurisprudence, Clarendon Press, Oxford, 1961.

See Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 at CLR 213. 3 Powell v McFarlane (1977) 38 P & CR 452.

[page 11]

CHAPTER 2

Tenures and Estates

Key Ideas By the end of this chapter you should be able to identify: the two key doctrines that underpin Australia’s system of landholding (the doctrines of tenures and estates) the main estates that exist in Australia (freehold and leasehold estates)

[page 12]

Introduction [2.1]

In Australia, only the Crown1 owns land. The most that an individual can own is what we call an ‘estate’ in land. In this chapter we consider the types of estates that it is possible to hold under Australia’s system of land ownership. In order to understand the doctrine of estates, we first need to understand a doctrine that was brought to Australia in 1788 with the arrival of the British: the doctrine of tenure.

Doctrine of tenure [2.2]

The doctrine of tenure is part of the inheritance in Australia of English common law, and was adopted in the new settlement of New South Wales with the arrival of the First Fleet in 1788. The doctrine was originally brought to England by William the Conqueror in 1066. With the arrival of William, it was no longer possible in England to hold land outright. All land had to be held ‘of the King’. Anyone who held an interest in land did so as a tenant of the King. This created what we call a ‘feudal’ structure of landholding. The idea of absolute or outright ownership of land ceased in 1066 in England upon the adoption of the system of feudal tenure. That system was brought to Australia in 1788 by the British.

[2.3]

In the leading High Court decision in Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23, it was accepted that the doctrine of tenure became part of the common law of Australia in 1788.2 The court in Mabo decided that, upon settlement in 1788, the Crown acquired

‘radical title’ to all of the land in Australia. This flowed as a consequence of having sovereignty over Australia. As we will see in Chapter 3, radical title did not mean that the Crown immediately acquired all beneficial ownership of land in Australia. Rather, having radical title gave the Crown the power to appropriate to itself any land required by it for its own purposes, including power to grant estates.

Doctrine of estates [2.4]

The acceptance of the doctrine of tenure’s application to Australia in Mabo paved the way for the adoption of the system of landholding that existed in England to be applied to Australia. This included the doctrine of tenure as well as the doctrine of estates. In Australia, it is not possible to own land outright — the Crown owns all land.3 But the Crown can create legal interests in the land by way of grant to an individual. Those grants are called ‘estates’. An estate gives certain rights of possession of that land, being a right to possession of the land for a period of time to a person. [page 13]

[2.5]

In Australia, there are a number of key estates that are granted by the Commonwealth Crown and various state Crowns to individuals. In addition to those common law grants, there are numerous statutory grants. It is beyond the scope of this book to consider every statute under which the respective Crowns throughout Australia may grant a person an estate in land. In this chapter, we will review the main forms of estates that are created in land by the Crown under the doctrine of estates.

Freehold vs leasehold estates [2.6]

Traditionally, estates are classified as either ‘freehold’ or ‘leasehold’ estates. The main difference between a freehold and leasehold estate is that a freehold estate is always of indefinite duration. On the other hand, leasehold estates must always be of a definite duration; for example, a lease granted for a fixed period of 12 months. We will first consider the freehold estates that can be created, and then consider leasehold estates.

Freehold estates: fee simple, fee tail and life estates Fee simple estate [2.7]

A fee simple estate is the estate with the most extensive rights that an individual can hold. It is the closest interest that an individual can have to absolute ownership of land in Australia. In theory, since the estate is of indefinite duration, it can go on forever. It can be fully alienated by the current holder of the interest; that is, it can be sold to another person or left by the current owner in her or his will to any person. If the current fee holder dies without leaving a will (dies intestate) the estate goes to the next of kin according to various rules of intestacy applicable in each jurisdiction. In the event that there is no next of kin, the estate reverts to the Crown (known as ‘bona vacantia’). The Crown can then grant the estate to another person.

[2.8]

In order for a fee simple to be created for Old System Title land, it was necessary that what we call ‘words of limitation’ were used in the grant from the Crown. The necessary words that had to be used to create a fee simple estate were ‘to X and her heirs’. In all jurisdictions in Australia (except South Australia, where the common law position still applies) there is now a statutory presumption that any grant4 by the Crown

will create a fee simple estate unless a contrary intention is shown in the grant.5 [2.9]

It is also possible to create what we call a ‘determinable’ or ‘conditional’ fee simple; for example, it is possible to grant an interest in land ‘To Ali and his heirs until the death of his aunt’. This is a determinable fee simple, because the interest determines (or ends) upon the happening of the specified event (the death of his Aunt). If the specified [page 14] event occurs, then the interest in land (the estate) reverts back to the original grantor. We call this interest a ‘reversionary estate’, since it reverts back to the original grantor upon the happening of the condition.

[2.10]

A conditional fee simple sets out the condition of grant in the grant itself. For example, a grant made ‘To Ali, provided that the property is not used for a commercial purpose’ is a conditional grant of a fee simple estate. Provided that Ali uses the property for a residential purpose, then he retains the estate in the land. In the event that he breaches this condition, the original grantor can bring the interest to an end and the fee simple returns to the original grantor. Again, we say that the estate ‘reverts’ to the grantor. This is therefore also an example of a reversionary estate.

[2.11]

Why do we care about interpreting a grant? Because the grant tells us a number of things, including whether the estate took effect in the first place (that is, whether any interest was ever granted, or ‘vested’) and who is presently entitled to the estate. These are critical factors in determining whether a person has an estate and usually, in turn, whether a person has a right to sue to protect that

interest.

Fee tail estate [2.12]

Fee tail has never been a common estate in Australia. It was and, to some extent, still remains, of importance in Britain. In New South Wales, Queensland, Victoria, Western Australia and the Northern Territory, the fee tail estate has been effectively abolished. In New South Wales, Queensland and Western Australia, all existing fee tail estates have been converted into fee simple estates.6 In Tasmania, a fee tail cannot be created for Torrens system land7 and, since almost all freehold land has now been converted to Torrens, the fee tail is also virtually obsolete in Tasmania. In South Australia it is still possible, theoretically at least, for a fee tail to be created.

Life estate [2.13]

A life estate is an estate which comes to an end when the life specified in the grant ends. Life estates fall into two categories: for the life of the person to whom the estate is granted: for example, ‘to Ashley for life’; or as an estate ‘pur autre vie’ (for the life of another); for example, ‘to Ashley, for the life of Ali’.

[2.14]

Under the common law, any grant that was made simply ‘to Ashley’ was interpreted as a grant of a life estate (since no words of limitation had been used: see [2.8]). The effect of legislation in all jurisdictions in Australia is that such a conveyance or gift will now create a fee simple estate without the use of words of limitation. As such, for the creation of a life estate it is now necessary to use specific words to create a

[page 15] life estate. This applies to grants during the life of the grantor (known as dispositions ‘inter vivos’) as well as testamentary dispositions (which only take effect upon the death of the grantor).

Leasehold estates [2.15]

Leasehold estates fall within one of the following four categories: fixed term lease (lease for a term of years); periodic lease; tenancy at will; or tenancy at sufferance.

[2.16]

These leasehold estates are discussed in more detail in Chapter 11. For now, a basic description of each type will suffice.

Fixed term lease [2.17]

A fixed term lease is a lease for a fixed period of time. The maximum period of the lease interest is certain; for example ‘to Ali for 10 years’. The lease automatically expires on the expiry of the fixed term.

Periodic lease [2.18]

A periodic tenancy does not come to an end automatically at the end of the initial lease period. This type of leasehold estate has to be ended by the giving of notice by one of the parties to the lease. The most common form of periodic lease in Australia is a residential lease (in which rent is usually

paid on either a weekly, fortnightly or monthly basis). The lease continues until notice is given. The length of notice is usually determined by reference to the payment period; for example, if rent is paid monthly, then a court will imply a term to the effect that the lease is terminable upon the provision of one month’s notice (by either party to the lease).

Tenancy at will [2.19]

A tenancy at will arises whenever a lessee (the person to whom the lease is granted) is allowed to occupy land of a lessor (the person who grants the lease to the lessee) on the basis that either party can determine the lease at any time. Unlike a fixed term lease, there is no definite duration to the lease and, unlike a periodic lease, a period of notice is not required for termination of the lease to take effect. Rather, the lease is ended immediately upon the provision of notice by either the lessor or the lessee. In most instances, where a fixed term lease has expired and there is no agreement as to the payment of rent, a lessee continues on in possession of the leased premises after the expiry of the initial period as a tenant at will. [page 16]

Tenancy at sufferance [2.20]

In a tenancy at sufferance, after the expiry of a fixed term or periodic lease, the lessee remains in possession without the consent of the lessor; that is, the lessee ‘holds over in possession’. The lessee can be ejected by the lessor at any time without notice.

Other proprietary interests in land

[2.21]

In addition to the interests discussed above, there are a number of other rights that are recognised as being ‘interests’ in land. These are not described as being ‘estates’ in land; rather, they constitute either legal or equitable interests that the law will recognise as being interests in land. Interests in land can include mortgages, easements and restrictive covenants; see further Chapters 10, 12 and 13.

Future interests in land Remainders, reversion and vested and contingent interests [2.22]

Each of the interests in land that we have discussed are what we describe as ‘present interests’ in land. In addition to present interests in land, it is also possible to create ‘future interests’ or estates in land. If we talk about future interests, we are simply talking about interests in land that will vest (take legal effect) at some future point in time.

[2.23]

For example, it is possible to create two interests of the same kind (say, two fee simple estates) in the same property under a will. Although the nature of the interest is the same, the point in time in which each person being given the interest is entitled to be in possession of the land can be divided up; for example, a grant of a fee simple could be ‘to Charlie for his life, thereafter to Coco’. In this instance, Charlie has a life estate which we say is ‘vested in possession’. This means that Charlie has a present right to immediate possession of the estate. Coco has a fee simple which we say is ‘vested in interest’. This means that Coco has a present right to future possession of the estate. Coco’s interest is also classified as a ‘remainder’ interest. This simply means that the original grantor has divested herself or himself of the estate (the fee simple to Charlie in possession) and the remaining interest (the remainder) is vested in Coco absolutely; it will not

revert to the original grantor. It remains in Coco as the final person who is entitled to possession under the grant. Alternatively, if we assume that the grantor just makes the grant ‘to Charlie for his life’ then we say that the original grantor has the reversionary interest in the fee simple. This is because, at the end of Charlie’s life, the estate in possession reverts back to the original grantor. This reversionary interest is also a future interest because possession is postponed until Charlie’s life comes to an end. [page 17] [2.24]

In the case of present rights to future possession (such as remainders and reversionary interests), lawyers also sometimes call these ‘vested interests’. This is because these rights are bound to take effect in possession in the future, but the rights have already vested. A remainder estate may also be classified as a vested or contingent interest. For example, if the grant is ‘to Charlie for his life, with a remainder to Coco in fee simple when she attains the age of 32’ then, unless that condition is met (Coco reaching the age of 32), the contingency for vesting of the interest to Coco never arises. Therefore, in this instance, we cannot say that Coco has a present right to future possession, since she will only obtain that right if she reaches the age of 32.

__________________________ 1

The Crown is the legal entity in which the Government of the Commonwealth (and its territories) and each state is carried out in Australia.

2

See, for example, per Brennan J at CLR 45; per Deane and Gaudron JJ at CLR 81. In Australia, land is owned either by the Commonwealth Crown or one of the state Crowns.

3 4

Including any disposition by will, referred to as a ‘testamentary disposition’. 5 Conveyancing Act 1919 (NSW) s 47; Law of Property Act (NT) s 28; Property Law Act 1974 (Qld) s 29; Conveyancing and Law of Property Act 1884 (Tas) s 61(2); Property Law Act 1958 (Vic) s 60(1); Property Law Act 1969 (WA) s 37(1), (2).

6

Conveyancing Act 1919 (NSW) ss 19, 19A; Law of Property Act (NT) s 22; Property Law Act 1974 (Qld) s 22; Property Law Act 1958 (Vic) s 249; Property Law Act 1969 (WA) s 23.

7

Land Titles Act 1980 (Tas) s 113.

[page 19]

CHAPTER 3

Native Title

Key Ideas By the end of this chapter you should be able to identify: the history of customary native title in Australia the difference between radical title and complete beneficial ownership of land by the Crown how native title is established in Australia how native title is extinguished in Australia

[page 20]

Introduction [3.1]

In Australia, there is a form of title which does not fit comfortably within the framework laid down by the doctrines of tenures and estates: it is a form of what is known as ‘allodial’ title. An allodial title holder does not hold her or his rights in property because of any permission to do so that has been granted to her or him by the Crown. Rather, she or he is entitled to the property independently of any rights granted to her or him from any superior title holder. In Australia, the only form of allodial title is native title.

[3.2]

The term ‘native title’ in Australia describes the rights or interests of the Indigenous peoples of Australia in relation to land or water. These rights or interests, which existed prior to the British settlement of Australia in 1788, are founded in the traditional laws and customs of Aboriginal and Torres Strait Islander peoples. These rights are not created by the common law. Nonetheless, we say that they are ‘recognised’ by the common law.1 Native title is described in this way because it derives from the traditional laws and customs of indigenous peoples, but is not created by or derived from the common law.2 This simply means that the common law does not define what constitutes a native title right; however, the common law still prescribes under what conditions native title rights will be recognised in the Australian legal system. Where those conditions (set by the common law) are satisfied, the Anglo-Australian legal system recognises native title, and Australian courts will protect native title through appropriate remedies in favour of native title holders. In addition to this form of native title known to the

common law (referred to as ‘customary native title’), native title is now also recognised and protected by the Native Title Act 1993 (Cth) (‘NTA’). [3.3]

The High Court has said that the rights conferred by native title depend primarily on the local laws and customs of the claimant community.3 In Australia, those rights vary between communities. According to Brennan J in Mabo v State of Queensland (No 2) (‘Mabo’) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 at CLR 58: … native title has its origin in and is given its content by the traditional laws acknowledged by and the traditional customs observed by the indigenous inhabitants of the territory. The nature and incidence of native title must be ascertained as a matter of fact by reference to those laws and customs.

[3.4]

Despite that statement, the High Court has laid out some of the indicia of native title in Australia. So, for example, native title cannot normally be disposed of outside of the claimant community (that is, it is not freely alienable as the concept of a common law estate in Anglo-Australian land law would be);4 native title is seen [page 21] as a personal right, not an interest in land per se;5 and native title in Australia is usually communal.6

[3.5]

The common law doctrine of native title in Australia was described by the High Court in its decision in Mabo. The case concerned a land claim made by the Meriam people of the Murray Islands. The High Court found that the traditional rights of the Meriam people to their lands survived the acquisition (‘annexation’) of the islands by the British Crown in the nineteenth century. Consequently, the Meriam people were entitled, as the traditional owners of

that region, to the possession, use and enjoyment of the lands as against the world at large; that is, they were entitled to the enjoyment of the land to the exclusion of all others.

A brief history of native title in Australia The first land rights case [3.6]

In the early 1960s, the Commonwealth Government sold part of what was then known as the Arnhem Land Aboriginal Reserve to a mining company. The traditional owners of the land, the Yolngu people, were excluded from the sale. They responded by presenting a bark petition to the Commonwealth Government in 1963, protesting against the sale. In 1968, the Commonwealth Government granted a 12year mining lease to a company called Nabalco Pty Ltd. In response, the Yolngu people sued the company and the Commonwealth Government in what became the first Australian land rights case: Milirrpum v Nabalco Pty Ltd & Commonwealth [1972–73] ALR 65 (‘Nabalco’).7

[3.7]

One argument in Nabalco was that, at the moment of annexation of the territory of Australia by the British in 1788, the British Crown acquired ultimate title (radical title) to all the lands of Australia and that, at the same moment, the common law of England applied to all inhabitants of the colony (which included all Indigenous inhabitants of Australia). It followed from this that the common law would protect any property rights that existed, and were derived from, the native title and custom of the inhabitants of Australia, provided that those rights could be recognised by that common law. Since the common law in 1788 did recognise such native title rights, then it followed that those rights survived beyond the date of annexation of Australia, unless and until the Crown extinguished them in accordance

with that common law. [page 22] [3.8]

One of the legal issues that Blackburn J had to decide in the case was whether the common law of England applied at the very moment of annexation of Australia by the British in 1788. To do this, his Honour had to classify8 whether Australia was acquired by the British as either a ‘conquered’ or ‘ceded’ territory, or whether it was properly classified as a ‘settled’ or ‘occupied’ territory (according to English common law at the time). The common law definition at the time of a ‘settled’ or ‘occupied’ territory was one that was either desert, or uncultivated and vacant land, that was simply settled upon by the British. If Australia could be classified as ‘settled’, then it followed that the colonists took so much with them of the English common law (and any relevant applicable legislation) as were relevant to the circumstances of the new colony. This would include the common law doctrine of native title that existed in 1788. This part of the decision was easy, because there had already been a binding decision made by the Privy Council that Australia was a settled colony.9

[3.9]

The next issue in the case became whether, according to the common law in 1788, there was a legal principle that, where native title could be proved to exist, it could be recognised by the common law. This was supported by a different legal principle in the common law: the doctrine of radical title. The idea of this form of radical title was that the only true owner of land is the Crown, and no one else owns land; all that they own is an estate or interest in land, which is held as a form of tenurial title from the Crown (as discussed in Chapter 2). What this means is that, upon British settlement

in 1788, radical title meant that all land in Australia became the property of the Crown, and that it remained with the Crown unless and until the Crown alienated (granted) it in some way to some person. What this meant for native title holders was that there was no room for the recognition of any native title unless and until the Crown specifically granted land to them as a tenurial title. This is because the legal fiction in this form of the doctrine of radical title was that the Crown acquired sovereignty as well as complete beneficial ownership of all of the land in Australia at the very moment of the annexation of Australia in 1788 (which we will return to at [3.11]–[3.12]). If the Crown acquired both sovereignty and complete beneficial ownership of all lands in Australia at the moment of annexation, then it was simply not possible for any other form of interest to exist at that point in time, including any pre-existing rights such as customary native title. It was certainly not possible for any native title, as a form of allodial title and which did not derive its status from the doctrine of tenure, to continue to exist beyond the moment of annexation of Australia. Thus, native title could not survive the annexation of Australia if this interpretation of the doctrine radical title was applied. On this point, his Honour said that he was bound by earlier authority to this effect. Accordingly, it was not possible to recognise any native title rights of the Yolngu people, since these had been extinguished in 1788 at the moment of annexation by the British. The Crown had not alienated any rights to the Yolngu people since then. Any native title rights which did exist had simply not survived the annexation of the lands of Australia. [page 23]

Mabo in 1992

[3.10]

In 1992, the High Court settled the question of whether or not native title existed in Australia in its decision in Mabo. There were two key aspects to the decision: the first was the determination, once and for all, that Australia was settled by the British in 1788; and the second was disagreement with earlier authority that, upon annexation, the British acquired both radical title and complete beneficial ownership of all the lands of Australia.

[3.11]

In contrast to earlier authority on the point, Mabo determined that radical title meant something different to the understanding of it which had previously been adopted by courts, including in Nabalco. Mabo said that, at the date of annexation of Australia, the British Crown acquired sovereignty of the lands of Australia, but that sovereignty only vested a bare interest (in the form of radical title) to the lands. What annexation did not do was take effect as an exercise of complete beneficial ownership of all the lands in Australia as well. As such, it was possible for native title holders to still beneficially use land (under the common law doctrine of native title) unless and until the Crown acted to extinguish that beneficial ownership.10 This can be contrasted with the decision in Nabalco, in which the starting point was that no rights could exist unless and until the Crown granted them. In Mabo, the court said that customary native title was a right that could exist after 1788 unless and until the Crown acted to extinguish it. It is this part of the decision in Mabo that is of particular importance, because it paved the way for recognition by the common law of Australia of native title (being property rights that predated British settlement).

Radical and beneficial title [3.12]

The decision in Mabo found that the English common law that was imported into Australia was adjusted to the

situation of the new colony.11 This meant that the operation of native title law and customs by the Indigenous inhabitants of Australia could still continue and could be recognised by the common law. The High Court found that the doctrine of tenure was part of the common law brought to Australia in 1788 by the British, since that doctrine was relevant to the circumstances of the new colony of New South Wales. Given that the doctrine of tenure states that the Crown is the ultimate owner of all land, the question in Mabo was whether different owners already in occupation (allodial title holders, being the Indigenous peoples of Australia) could continue to own land subsequent to the British annexation of Australia. As discussed above, for the court, this was possible because of the differentiation between a bare title to the land for the purpose of sovereignty and complete beneficial ownership of the land. What it meant, in practical terms, was that no specific act of recognition of existing native title by the Crown was needed for the common law to be able to recognise that existing native title. Native title already existing in Australia prior to [page 24] 1788 therefore survived British annexation, and burdened that Crown’s title unless and until the Crown chose to extinguish that native title. [3.13]

The legal effect of Mabo was the recognition that native title existed in Australia at the time of the British annexation of Australia, but had not been extinguished by the very act of annexation in 1788. The problem was that native title was still, seemingly, a very fragile right, precisely because the Crown could extinguish it whenever it chose to do so. In Mabo itself, legislation to extinguish the native title of the

Meriam people had been enacted by the Queensland Government: Mabo v State of Queensland (1988) 166 CLR 186; 83 ALR 14; [1988] HCA 69. The only reason that the legislation was not valid to extinguish the native title of the Meriam people was that it did not comply with the provisions of the Racial Discrimination Act 1975 (Cth) (‘RDA’). Since the legislation in question specifically targeted the Meriam people, it did not comply with the requirements of the RDA and was therefore invalid.12 For legislation passed by the Commonwealth Crown, however, the effect of Mabo was that the Commonwealth Crown could still extinguish native title if it chose to. While the decision was a successful result for the Meriam people, the result of Mabo was that any acts that had been taken by any of the state Crowns in Australia for nearly two centuries before the passage of the RDA in 1975 were valid, and native title had been validly extinguished by those acts.

Native Title Act in 1993 [3.14]

In 1993, the Federal Labor Government introduced the NTA, under which a right of native title could be made out, provided that the statutory requirements set out under the NTA were met by a claimant group.

Wik and pastoral leases in 1996 [3.15]

Following the court’s decision in Mabo, a number of native title claims were made. One of those claims was made by the Wik peoples of Queensland, to land that had been the subject of grants by the State of Queensland of pastoral leases. Since a vast amount of land in Australia is held under pastoral lease, the ramifications of the decision were seen as being potentially far-reaching. Until the decision of the High Court in Wik Peoples v State of Queensland (1996) 187 CLR 1; 141 ALR 129; [1996] HCA 40 (‘Wik’), it had been assumed that

the grant of a pastoral lease operated to extinguish native title, because the fundamental feature of a lease was the grant of exclusive possession to the lease holder. This was regarded as being necessarily inconsistent with rights of possession existing in any third party, including any native title group. However, a majority of the Court in Wik13 determined that it could not be assumed that a pastoral lease, which was a creature of statute, was necessarily [page 25] the equivalent of a common law lease; that is, it could not be assumed that a pastoral lease granted under statute necessarily granted rights of exclusive possession to the lease holder. Rather, the particular legislation under which the Crown made the grant had to be construed and, for any grant, it had to be shown that there had been a clear and plain intention by the Crown to extinguish native title in granting the pastoral lease. General words in a statute could not be presumed to demonstrate an intention to extinguish native title, since only clear and unambiguous words could do so.14 If it could be found that, by ‘necessary implication’, native title had been extinguished, then a court would find so. This had not occurred in the particular case in Wik, since the history of government documents in fact tended to show that the Indigenous inhabitants were allowed by the Queensland Crown to continue their access to lands over which the pastoral leases had been granted. As such, it could not be found that the Crown had intended to grant exclusive possession to the pastoral lease holder. Rather, what had been contemplated by the Crown was co-existence, and it was not a necessary incident of a pastoral lease that exclusive possession would be conferred upon the lease

holder.15 As such, native title had not been extinguished in this case. [3.16]

The decision in Wik resulted in widespread political pressure on the Federal Liberal Government to extinguish native title altogether. In particular, pastoralists and banks were concerned about the extent of security that could be provided to the holder of a pastoral lease on the basis of such a seemingly limited, and now uncertain, interest in land. In 1996 and 1998, the Howard Government announced that it would make amendments to the NTA to deal with the ramifications of the decision in Wik. It is beyond the scope of this book to consider the amendments to the NTA in detail. In summary, some of the most significant changes included validating previous acts of extinguishment, defining certain actions by a Crown to be valid acts of extinguishment of native title, and limiting the rights of native title holders to negotiate in respect of mining leases and rights to other third parties.

Establishing native title in Australia [3.17]

While the High Court’s decision in Mabo left open the possibility that native title could be established in Australia at common law, to date, determinations on such customary native title (apart from Mabo) have been by consent determinations.16 In Australia, most native title is established under the NTA; however, the common law on native title continues to be relevant to the interpretation of the NTA because of the approach that has been adopted by the High Court to interpreting the definition of native title under the NTA. Accordingly, we will examine some of the common law on native title by looking at it through the requirements of proof under the NTA.

[page 26]

Native Title Act Definition of native title under the Native Title Act [3.18]

Following Mabo, the NTA was enacted to provide, among other things, a mechanism for determining native title.17 The conditions for establishing native title are contained in s 223(1) of the NTA.18 That section provides: (1) The expression native title or native title rights and interests means the communal, group or individual rights and interests of Aboriginal peoples or Torres Strait Islanders in relation to land or waters, where: (a) the rights and interests are possessed under the traditional laws acknowledged, and the traditional customs observed, by the Aboriginal peoples or Torres Strait Islanders; and (b) the Aboriginal peoples or Torres Strait Islanders, by those laws and customs, have a connection with the land or waters; and (c) the rights and interests are recognised by the common law of Australia.

[3.19]

In Mabo, Brennan J stated that native title ‘has its origin in and is given its content by the traditional laws acknowledged by and the traditional customs observed by the indigenous inhabitants of a territory’: at 58. His Honour found that the conditions for the survival of native title after British sovereignty were that (at 63): a clan or group has continued to acknowledge and observe traditional laws and customs whereby their traditional connection with the land has been substantially maintained; and it has not been extinguished by the valid exercise of power by the Crown.19

[3.20]

The definition of native title under s 223 of the NTA requires that claimants show, as a matter of fact, that they possess

communal, group or individual rights and interests in relation to land or waters under traditional laws acknowledged and customs observed by them, and that, by those laws and customs, they have a connection with the land or waters. Additionally, the native title rights and interests must be able to be recognised by the common law. The High Court has emphasised on many occasions that the definition in s 223 of the NTA provides the starting point for considering a determination of native title.20 However, the interpretation of the section has been largely guided by the basis upon which native title was first recognised in Mabo; that is, how native title is defined under the common law.21 [page 27] [3.21]

Traditional laws and customs — s 223(1)(a) Section 223(1)(a) of the NTA requires that rights and interests are possessed under the traditional laws acknowledged, and the traditional customs observed, by the relevant claimant group. In their judgment in Members of the Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422; 194 ALR 538; [2002] HCA 58 (‘Yorta Yorta’), Gleeson CJ, Gummow and Hayne JJ found that the reference to ‘traditional’ laws and customs in the definition of native title under s 223(1)(a) must be understood in light of the idea that the native title rights and interests to which the NTA refers are rights and interests which find their origin in the presovereignty law and custom of the claimant group, not rights or interests which are a creature of the NTA itself: at [45]. As a result, the meaning of ‘traditional’ has been found to include a number of requirements: a ‘traditional’ law or custom is one which has been passed from generation to generation (at [46]);

the origins of the content of the law or custom concerned are to be found in the normative rules of the claimant group that existed before the annexation of Australia by the British in 1788 (at [46]; see also at [86]); the normative system of traditional laws and customs under which rights and interests are possessed must have had a continuous existence and vitality since 1788 (at [47]). [3.22]

Gleeson CJ, Gummow and Hayne JJ also said (at [86]) that the traditional laws and customs must have continued ‘substantially uninterrupted’ since sovereignty. If this were not the case, the laws and customs presently acknowledged and observed could not properly be described as ‘traditional’: at [87].

[3.23]

Much criticism has surrounded the Yorta Yorta decision. The criticism is largely based upon the meaning given by the court to the term ‘traditional’ in s 223(1)(a). The majority upheld the finding of the trial judge that members of the Community had not continued to observe traditional customs, on the basis that dispossession of the group from their traditional lands had swept away their continued observance of their traditional laws and customs. The majority found that the evidence was that the traditional society had broken down due to dispossession. The effect of the decision in Yorta Yorta is that most dispossessed Indigenous Australians find it almost impossible to prove native title, given the requirement that traditional laws and customs must have been observed ‘substantially uninterrupted’ since British colonisation. Despite the criticism, later cases have followed the High Court’s approach in Yorta Yorta.22 At present, the effect of colonisation upon Aboriginal and Torres Strait Islander communities is therefore not a matter that is taken into account in considering whether the laws and customs being observed are ‘traditional’. What is not so clear from the High

Court’s decisions is whether or not traditional laws and customs must be proven to have existed for each generation, or whether there can be any break in the observance of the practices which constitute the laws and customs of the claimant group.23 [page 28] [3.24]

In contrast to the decision in Yorta Yorta, an interesting aspect of the decision in Mabo was that the court accepted that it was possible for traditional laws and customs to have changed since the date of British annexation. Provided that the change did not reduce or extinguish the relationship with a particular area of land, then mere changes in customs and laws did not extinguish native title.24

[3.25]

Connection with land or waters — s 223(1)(b) Section 223(1)(b) of the NTA requires that the claimants, by ‘those laws and customs’25 have a connection with the land or waters. The basis for the section appears to have been Brennan J’s judgment in Mabo.26 In Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1; [2002] HCA 28 (‘Ward’), the High Court (at [18] and [43]) said that a separate inquiry is required under s 223(1)(b), even though the same evidence is used to establish the requirements of s 223(1)(a). Like s 223(1)(a), s 223(1)(b) is expressed in the present tense and requires inquiry into the present connection of claimants with land or waters. However, the connection must be shown to be by the claimants’ traditional laws and customs.27

[3.26]

In Bodney v Bennell (2008) 167 FCR 84; 249 ALR 300; [2008] FCAFC 63 (‘Bodney’) it was stated that the acknowledgment and observance of traditional laws and customs proving the required connection must have continued ‘substantially uninterrupted; since sovereignty,28 and the connection itself

must have been ‘substantially maintained’ since that time: at [168].29 In Sampi v Western Australia [2005] FCA 777, French J expressed the continuity aspect of connection as requiring ‘the continuing internal and external assertion by [a claimant community] of its traditional relationship to the country defined by its laws and customs’: at [1079]. In Bodney, it was said that establishing connection required ‘demonstration that, by their actions and acknowledgement, the claimants have asserted the reality of the connection to their land or waters so made by their laws and customs’: at [171]. Lack of physical presence did not necessarily mean a loss of connection: at [172]. It appears that a continuing connection with the land may be established in other ways if physical presence is impossible.30 Where physical [page 29] presence is no longer practicable, connection with the land may be maintained by observance of traditional laws and customs; for example, by performing traditional practices and ceremonies outside the land and by passing down, from generation to generation, the ritual knowledge that underlies the laws and customs of a community.31 [3.27]

Recognised by the common law — s 223(1)(c) In Ward, the High Court noted that the common law definition of native title is given a role in the statutory definition of native title by virtue of the operation of s 223(1)(c) of the NTA, since that section of the NTA requires that the rights and interests are ‘recognised’ by the common law.32 The NTA itself specifies that hunting, gathering and fishing rights are included in that definition.33 However, certain rights are not recognised by the NTA as native title rights at all. For example, in its decision in Commonwealth v Yarmirr (2001)

208 CLR 1; 184 ALR 113; [2001] HCA 56, the High Court did not allow a native title claim to include the right to exclude others from Australian coastal seas and offshore areas, on the basis that the common law already contained established public rights to fish and navigate along the coast. Since the native title claim of exclusive title to the waters conflicted with established common law rights, the native title could not be recognised by the common law. As such, the High Court disallowed any native title rights that conflicted with common law rights, even though it was prepared to allow rights as native title rights which were not exclusive.34

Difficulties in proving native title [3.28]

As noted, s 223(1)(a) of the NTA requires proof of the traditional laws and customs of the claimant group. One of the requirements of proof is that the laws or customs must have existed before the annexation of Australia by the British in 1788.35 Those laws and customs also have to have been handed down from generation to generation and still govern the behavior and relationships of the claimant group to this day.36 These requirements raise real problems of proof in native title claims in practice.

[3.29]

Apart from those evidentiary problems of establishing the requirements of native title under the NTA, in Western Australia v Ward (2000) 99 FCR 316; 170 ALR 159; [2000] FCA 191, the Full Federal Court (and then the High Court in Ward) arguably increased these difficulties of proof, and thereby restricted native title claims further. Ward said that it was not sufficient to merely establish occupation of a territory and then to presume that laws and customs were in existence from 1788 to the present day. Rather, each individual law and custom had to be specifically proven to exist separately since annexation. This approach reflects a

common law approach to the establishment of a proprietary interest. So, in native title claims, we now prove each right by setting [page 30] out the indicia of the proprietary right being claimed, and prove the native title as a ‘bundle of rights’.37 This is the approach that was endorsed in Ward, requiring each and every native title right to be established separately, clearly identified, and then broken down into a series of rights. The problem with this type of breakdown of native title rights is that it does not reflect the way that native title claimants in Australia view their relationship with country (interest in land). However, it does reflect the approach of the common law to establishing proprietary rights. Unfortunately, this common law approach to establishing native title rights has made proof of native title difficult.38 [3.30]

Further examples of common law methodology and concepts existing in the High Court’s decisions and analysis of native title can be found in its decisions after Mabo and Wik. For example, in Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58, the High Court used the common law concept of exclusive possession as the basis for determining whether native title had been extinguished. The presumption applied by the court was that, if a person has a grant of land that gives exclusive possession to the title holder, then all native title interests must necessarily be extinguished. This is referred to as the ‘inconsistency’ test. The test characterises the interests of the fee simple holder and then breaks down the rights of the native title holder, to see whether those rights can co-exist as a matter of law. In doing this, a court adopts the ‘bundle of

rights’ approach to native title. For example, a court might break the native title down into a right to hunt, a right to fish and a right to hold ceremony. It then compares and contrasts each of these rights individually against each right of the fee simple holder, in order to determine whether or not those rights can co-exist or whether each right is legally inconsistent with the rights of the fee simple holder.39 [3.31]

To a legal practitioner in Australia, brought up in the common law system, this approach is usually regarded as an attempt to preserve as many native title rights as possible, because it requires the Crown to have clearly extinguished each native title right separately. Unfortunately, in native title claims, this often results in the exact opposite result, because of the very fact that it does enable the Crown to extinguish native title rights one by one. If the test was whether or not native title as a whole had been extinguished (every right comprising the native title), it would be harder for the Crown to extinguish that native title, because nothing less than the clear extinguishment of the whole of the native title rights would be required in order to extinguish the native title. The most common criticism of the bundle of rights approach is that it has the effect of reading down the rights of the native title holders, as it attempts to classify those rights in the way that the Anglo-Australian legal system would classify typical common law proprietary rights; that is, by assuming that the rights can be separately determined. It does this despite indications in the judgments in Mabo that the High Court had previously not wished to treat native title in Australia in this way.40 [page 31]

Extinguishing native title

[3.32]

Native title may be extinguished by the Crown by: legislation or executive acts which simply extinguish native title; legislation or executive acts which create rights in third parties in respect of land that are legally inconsistent with any continued right to enjoy native title; and legislation or executive acts by which the Crown acquires full beneficial ownership of land.41

[3.33]

Thus, the Crown can extinguish native title by making a grant of the land that is legally inconsistent with the rights held under the particular native title. As we have seen, obtaining radical title to land gave the Crown the bare title needed to exert complete beneficial ownership over the land.42 When the Crown does exert its beneficial ownership, any prior rights which are inconsistent with that use (the grant) are extinguished unless preserved by the grant. In the case of native title and Crown grants under common law, Mabo recognised that there must be a clear and plain intention by the Crown to extinguish native title.43 In determining whether native title has been extinguished (either at common law or under the NTA), a court analyses the terms of the grant by the Crown, to see whether those terms make it impossible for any native title to co-exist with the common law interest that has been granted as a matter of legal inconsistency.44 Grants of fee simple or a common law lease are the most obvious examples of inconsistent grants, since they confer a legal right of exclusive possession of the land upon the grantee.45 This is legally inconsistent with any other person having a right to possession of the same land. The High Court therefore views a right of exclusive possession as being necessarily legally inconsistent with the right of any third party to continue to occupy or use the land without the permission of the grantee,46 including, of course, any native title holder.

[3.34]

In the case of extinguishment by direct legislation, the words of that legislation must be clear and unambiguous before the legislation will be interpreted by a court as having extinguished native title. However, as the decision in Mabo (No 1) v Queensland (1988) 166 CLR 186 makes clear, the provisions of the RDA and the Commonwealth [page 32] Constitution either mean that specific acts of extinction may be in breach of the RDA and/or (in the case of Commonwealth land) the Constitution.47

[3.35]

Apart from acts of extinguishment by the Crown, native title also expires if a claimant group abandons its traditional laws and customs or its connection with the land, where a claimant group has failed to maintain its connection with the land over time, or where a claimant group has not existed continuously as an identifiable community with traditional rights and interests since annexation in 1788.48

Validation of past and intermediate acts under the Native Title Act [3.36]

The NTA protects native title, and native title can only be extinguished or impaired as provided for by the Act. The legislation validates a series of past acts of extinguishment by the Commonwealth Crown that predate the commencement of the RDA in 1975.49 Amendments to the NTA in 1996 extended the operation of validation to acts of extinguishment taking place between 1 January 1994 and 23 December 1996, referred to as ‘intermediate period acts’.50 Therefore, past and intermediate period acts taking place

between 1 November 1975 and 23 December 1996 (that otherwise would have been invalid) are validated by the operation of the Act. In 1998, further amendments to the NTA validated acts of extinction of native title by reference to a list of ‘prescribed dealings’, irrespective of the date on which those acts took place.51 The NTA also validates certain future acts of extinguishment of native title; for example, compulsory acquisitions by the Commonwealth and grants of mining interests.52 It is this future acts regime under the NTA which is potentially the most significant part of the operation of the Act at present.

Future acts under the Native Title Act [3.37]

Under s 233 of the NTA, a future act is either a piece of legislation passed on or after 1 July 1993, or any other act done on or after 1 January 1994, that validly ‘affects’ native title. Future acts are dealt with under Div 3, Pt 2 of the NTA. Section 24AA validates certain future acts if the procedure set down in the division is followed; for example, a future act could be valid if it is consented to under an Indigenous [page 33] Land Use Agreement (‘ILUA’).53 In order to determine the conditions for validity, and whether any compensation is payable, a specific subsection for the future act must be considered. If a future act falls into more than one applicable subsection, it must be categorised under the highest subsection on the list.

[3.38]

In relation to the grant of mining interests and compulsory acquisitions (where the Commonwealth is acquiring the

property in order to grant it to a third party), a right to negotiate applies.54 In that instance, a notice of intention to do the future act must be given to any native title claimants to the land and to the Commonwealth Native Title Tribunal. The process then is that the parties can make submissions to government or request mediation by a state arbitral body or by the Native Title Tribunal. The body or the tribunal can then make a determination that the act must not be done, can be done, or can only be done subject to certain conditions.55 __________________________ 1

Commonwealth v Yarmirr (2001) 208 CLR 1; 184 ALR 113; [2001] HCA 56.

2

Commonwealth v Yarmirr (2001) 208 CLR 1; 184 ALR 113; [2001] HCA 56 per Gleeson CJ and Gaudron, Gummow and Hayne JJ at [42]. 3 Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 per Brennan J at CLR 58. 4

Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 at CLR 109–11 per Deane and Gaudron JJ. 5 Although Deane and Gaudron JJ recognised that, at times, this personal right does come close to the form of rightful ownership recognised by the English common law: Mabo at 110. See, however, the judgment of Brennan J in Mabo, where his Honour was happy to characterise native title as a proprietary right, even if rights of individual members of the community could only be characterised as rights to use and enjoy the land without actual ownership of the land: per Brennan J at 61–2. 6 7

Whereas common law estates are held by individuals: see Chapter 2. This case is also often referred to as the ‘Gove Land Rights Case’.

8

According to the common law that was applicable in 1788. 9 See Cooper v Stuart (1889) 14 App Cas 286. 10

For example, by granting a fee simple which granted exclusive possession to a third party. See Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58. 11 Being known as the colony of New South Wales at that point in time. 12

As being state legislation that was inconsistent with Commonwealth legislation under Commonwealth Constitution s 109. 13 Gaudron, Toohey, Gummow and Kirby JJ. 14

See further at [3.32]–[3.35] on extinguishment of native title. 15 Wik per Gaudron J at 155, 166; Toohey J at 123–4; Gummow J at 16–9, Kirby J at 241, 243, 249. 16

That is, the parties have agreed to recognise some rights without any determination by a court as to whether or not native title exists.

17

Australian Law Reform Commission, Review of the Native Title Act 1993, Discussion Paper 82, October 2014, at [4.6].

18

This relationship between the common law and the definition of native title under the Act is a matter of continuing debate: see Australian Law Reform Commission, above n 17. 19 See also Deane and Gaudron JJ at 110. 20

Commonwealth v Yarmirr (2001) 208 CLR 1; 184 ALR 113; [2001] HCA 56; Members of the Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422; 194 ALR 538; [2002] HCA 58; Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1; [2002] HCA 28. 21 Australian Law Reform Commission, above n 17, at [4.11]. 22 23

24 25

See, for example, Bodney v Bennell (2008) 167 FCR 84; 249 ALR 300; [2008] FCAFC 63. In Bodney v Bennell (2008) 167 FCR 84; 249 ALR 300; [2008] FCAFC 63, the Full Federal Court required this. Contrast this with the approaches of Wilcox J in his Honour’s decision at first instance in this case, as well as the approach of Mansfield J in Risk v Northern Territory [2006] FCA 404 and the approach taken by the court in De Rose v South Australia (No 2) (2005) 145 FCR 290; [2005] FCAFC 110. In each of these decisions, the effect of colonisation and other acts of disposition were taken into account in examining the effect on the continual observance of laws and customs of the claimant group. Mabo per Toohey J at 192. That is, the traditional laws and customs established under s 223(1)(a).

26

Northern Territory v Alyawarr, Kaytetye, Warumingu, Wakaya Native Title Claim Group (2005) 145 FCR 442; 220 ALR 431; [2005] FCAFC 135. 27 Members of the Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422; 194 ALR 538; [2002] HCA 58 at [86]. The Full Court of the Federal Court has also said that this means that connection involves an element of continuity, deriving from ‘the necessary character of the relevant laws and customs as “traditional”’: Northern Territory v Alyawarr, Kaytetye, Warumingu, Wakaya Native Title Claim Group (2005) 145 FCR 442; 220 ALR 431; [2005] FCAFC 135 at [88]. 28

Following the approach of the majority in Members of the Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422; 194 ALR 538; [2002] HCA 58. 29 In De Rose v South Australia (No 2) (2005) 145 FCR 290; [2005] FCAFC 110, the Federal Court examined the issue raised by s 223(1)(b), by first enquiring what rights and responsibilities traditional laws and customs imposed upon the claimants. The court then asked whether those laws and customs constituted a connection between the claimants and the land claimed. 30 31

De Rose v South Australia (No 2) (2005) 145 FCR 290; [2005] FCAFC 110. De Rose v South Australia (No 2) (2005) 145 FCR 290; [2005] FCAFC 110.

32

Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1; [2002] HCA 28 at [20]. 33 NTA s 223(2). 34

See Western Australia v Brown (2014) 306 ALR 168; [2014] HCA 8. 35 Members of the Yorta Yorta Aboriginal Community v Victoria (2002) 214 CLR 422; 194 ALR 538; [2002] HCA 58 per Gleeson CJ, Gummow and Hayne JJ. 36

Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1; [2002] HCA 28. 37 Yanner v Eaton (1999) 201 CLR 351; 166 ALR 258; [1999] HCA 53.

38 39 40

For a detailed discussion of the problems of proof, see Australian Law Reform Commission, above n 17. See [3.33]. See Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23.

41

Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 per Brennan J at CLR 84–5. 42 See [3.10]–[3.13]. 43

Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 per Brennan J at CLR 64. 44 Not factual inconsistency: see Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58. 45

It is also still not clear from the decided cases as to why a grant of a fee simple is to be automatically assumed to have extinguished native title, since each grant of a fee simple is not identical in its terms. In other words, even applying the inconsistency test described in Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58, why is it not possible for some native title rights to continue to exist in any given circumstance? Further, the question that has not yet been answered is why the grant of a fee simple acts as a once and for all act to extinguish native title. In other words, why does such a grant not merely suspend native title rights for a period of time? On this point, see the criticism by McHugh J in Western Australia v Ward (2002) 213 CLR 1; 191 ALR 1; [2002] HCA 28 at CLR 240; see also the dissenting judgment of North J in Western Australia v Ward (2000) 99 FCR 316; (2000) 170 ALR 159; [2000] FCA 191 at FCR 489. 46 Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23 per Brennan J at CLR 69–70, Deane and Gaudron JJ at CLR 110, Dawson J at CLR 158; Fejo v Northern Territory (1998) 195 CLR 96; 156 ALR 721; [1998] HCA 58. 47

Since acquisition of the native title may be subject to the payment of compensation ‘upon just terms’ under the Constitution: see Commonwealth Constitution s 51(xxxix). This depends, however, upon whether native title is classified as a proprietary right. 48 In Mabo v State of Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23, the High Court had found that native title was extinguished if there had been a complete abandonment of the land: per Brennan J at CLR 60, 70. Further, if there had been any loss of connection with the land because laws and customs were no longer acknowledged or observed, or the group had died out, the native title was lost forever and could not be revived: per Brennan J at CLR 70. 49 50

NTA ss 228–232. NTA ss 23A–23E.

51

NTA s 23A. 52 NTA s 24AA. Provided that the procedures laid down by the NTA are followed. 53

These agreements have the force of contracts and are enforceable once they are registered with the Commonwealth’s Native Title Tribunal. 54 NTA ss 25–44. 55

NTA s 38. For more detail on the operation of the NTA, see Gray, Edgeworth, Foster and Dorsett, Property Law in New South Wales, 3rd ed, 2012, LexisNexis Butterworths, Sydney, Ch 4.

[page 35]

CHAPTER 4

Adverse Possession

Key Ideas By the end of this chapter you should be able to identify: the meaning of adverse possession of land how adverse possession is established how long a true owner of land has to commence an action for recovery of the land from an adverse possessor (including when a court will extend the limitation period)

[page 36]

Introduction [4.1]

In its simplest terms, the doctrine of adverse possession means that a person in wrongful possession of land (an ‘adverse possessor’), for however short a period, has an interest in that land (a fee simple estate) which may be enforced against anyone who cannot show a better title to that land. The way that the doctrine of adverse possession works is that the ‘true owner’ of land may recover it from an adverse possessor provided that she or he commences an action for the recovery of land before the expiry of relevant limitation periods. After the expiry of a limitation period, both the true owner’s right of action for recovery of the land, and her or his title to the land, are extinguished. At that point in time, she or he ceases to own the land and cannot recover it from the adverse possessor. The adverse possessor then becomes the true owner of the land.

[4.2]

Some jurisdictions in Australia have limitations for the time in which actions to commence proceedings for the recovery of land must be taken by the true owner against an adverse possessor of land as follows: New South Wales, Tasmania, Queensland and Western Australia: 12 years;1 South Australia and Victoria: 15 years.2

[4.3]

The Australian Capital Territory and the Northern Territory: no limitation period applies. In these jurisdictions, there is no possibility for the operation of the doctrine of adverse possession.3

Matters to consider in applying the limitation statutes [4.4]

In order to determine whether a claim to adverse possession has been established (by applying the limitation period for an action for recovery of land) there are a number of principles that you need to understand. These are discussed in this chapter, and include: the date from which time starts to run for the purposes of determining when proceedings for the recovery of land must be commenced by the true owner; application of the doctrine to leasehold interests; adverse possession between co-owners of land; adverse possession of land owned by the Crown; adverse possession and trustees; suspension of the operation of time for the purposes of calculating the limitation period; [page 37] when a limitation period can be extended; and admissions of title by a registered proprietor in favour of an adverse possessor.

Date from which time runs for the purpose of the limitation periods [4.5]

In general, for the purpose of calculating the time limitation period, time commences to run from the date on which the true owner’s cause of action first accrues (the first date on which an action could be commenced to commence legal

proceedings for the recovery of land). This sounds tremendously circular! All it means is that we need to work out the date on which a cause of action for the recovery of land accrues to the true owner in order to be able to work out when time commences to run against the true owner of the land to commence proceedings against the adverse possessor to recover the land. [4.6]

A cause of action for the recovery of land first accrues when: the true owner (the person who is entitled to possession of the land) has discontinued her or his possession, either by abandoning possession or in some way deliberately relinquishing her or his interest in the land, or has otherwise been dispossessed of the land. In other words, the time at which she or he lost possession of the land to the adverse possessor; and adverse possession of the land has in fact been taken by the adverse possessor.

[4.7]

So, for the cause of action to arise against an adverse possessor of land there must be both: a loss of possession by the true owner; and possession taken by an adverse possessor.

[4.8]

Without both of these things having occurred, the true owner cannot sue to recover her or his land, since there is no person to sue for recovery of the land in the first place. Therefore, no cause of action can arise at that point in time. For example, where there is abandonment of land by the true owner, but no possession of land by an adverse possessor, there is no cause of action arising at that point in time. There is no-one whom the true owner of land can sue to recover the land because, as a matter of fact, nobody else has taken possession of the land.

[4.9]

As you can see, a key element of establishing when an action for recovery of land first accrued to the true owner of the land is to determine when the act of adverse possession commenced. To do this, we need to look for acts of possession by the adverse possessor. In Chapter 1 we discussed the two requirements of exercising possession of land.4 We also learnt that the true owner of land is always presumed to have either (1) possession of the land; or (2) the right to possession of the land. For the purposes of establishing a claim for adverse possession of land, the adverse [page 38] possessor has the burden of proving her or his possession of the land, and that such possession is adverse to the possession of the land held by the true owner.

[4.10]

We will now consider these two requirements of possession in the context of what must be established in an adverse possession claim. In summary,5 time does not start to run under the limitation legislation until an intruder (adverse possessor) has entered into adverse possession of the land to the exclusion of others, including the true owner.6 For an intruder to be in possession of land, she or he must gain physical control of it, performing acts that an occupying owner might be expected to perform, and with the intention of enjoying possession of the land (for the time being) to the exclusion of all other persons, including the true owner.7

Requirement of factual possession [4.11]

The legislation in each Australian jurisdiction does not define what ‘possession’ or ‘adverse possession’ actually

means, so we have to apply the common law meaning of these terms. At common law, adverse possession is possession by an adverse possessor which is ‘open, not secret; peaceful, not by force, and adverse, not by consent of the true owner’.8 This means that the adverse possessor cannot conceal her or his possession of the land, since the true owner has to be given the opportunity to discover the adverse possession and have an opportunity to take steps to remove the adverse possessor; for example, by commencing legal proceedings and taking action to regain possession of her or his land. At [4.30] we discuss how fraud or deceit by the adverse possessor can extend the limitation period in which to commence action to recover land.9 The idea that the possession has to be peaceful can arise in circumstances such as relationships involving domestic violence. For example, in Bartlett v Ryan (2000) 10 BPR 18,077; [2000] NSWSC 807, the plaintiff had been physically evicted from the property by her de facto husband. She was too afraid to return to the property, or to commence legal proceedings. The court found that it was at least arguable that, where the owner had been frightened to use her legal rights, the possession by the husband had not been peaceable. As such, his period of possession was not counted in his claim for adverse possession.

Requirement of intention [4.12]

As discussed, in addition to factual possession of the property, it is necessary for the adverse possessor to establish that she or he had the required intention to possess the land. Proving intention for the purposes of establishing adverse possession equates to proof that the adverse possessor is using the land in such a way that it is clear [page 39]

that she or he intends to have exclusive possession of the land.10 The intention that must be established is the intention to control the land and to exclude strangers. It is not necessary to demonstrate an intention to own the land. What is critical is the intention to possess the land.11 [4.13]

Persons who are not in adverse possession of land include a person in possession of land under a licence or a proprietary right granted by the true owner. Accordingly, time does not run in favour of a person using land pursuant to: a lease; a licence; an easement or other proprietary right.12

[4.14]

Previously, courts had asserted that a person’s occupation of land could not amount to adverse possession unless it was inconsistent with the use that the true owner intended to make of the land. Otherwise, the intruder’s occupation of the land was to be ascribed to an implied licence granted by the true owner. Thus, where an owner of land had no immediate use for it and held it for future development in a specific way, and the adverse possessor was aware of this intended future use, acts of the adverse possessor that were consistent with the intended future use did not amount to acts of adverse possession.13 This line of authority has been challenged in England.14 So now, for example, the fact that a squatter is aware of the purpose for which the true owner intends to use land in the future, and uses the land in a way consistent with that purpose, rarely justifies the conclusion that the squatter (adverse possessor) did not intend to assume possession of the land. Some courts in Australia have accepted this approach.15 The problem with this line of authority is, arguably, that it has opened the way for title to land to be lost through inadvertence on the part of the true owner. For example, in JA Pye (Oxford) Ltd v Graham [2003]

1 AC 419, Pye was the registered owner of agricultural land. It granted to Graham (the owner of adjoining land) a written licence to graze sheep, cattle and horses on the land and to cut grass. When the licence expired, Pye refused to renew it for commercial reasons. Graham continued to use the land without Pye’s permission. However, Graham was not evicted, since Pye intended to retain the land until it had obtained planning permission to develop the land. Pye did not commence legal proceedings against Graham until after the limitation period had expired. The House of Lords affirmed the decision of the trial [page 40] judge that Pye’s title had been extinguished by Graham’s possession and that Graham was entitled to the land. [4.15]

Although an owner’s plans for the future use of land may prevent the running of time, whether or not an owner is aware that an intruder has dispossessed her or him is, in general, irrelevant. Normally, time will run even against an owner who is unaware that an intruder has entered into possession of her or his land. Further, an owner’s transfer of title to a third party does not stop time from running in favour of an adverse possessor. Once time commences to run against an owner, it continues to run against her or his successor in title, whether the successor is a purchaser for value or not. Thus, if Xenos, who has been dispossessed of land by Zoe, sells and conveys the land to Jacob, time runs against Jacob from the date on which the predecessor in title (Xenos) was dispossessed (by Zoe).

What type of interest is being asserted?

[4.16]

In an action by the true owner for the recovery of land, the date upon which time commences to run under the limitation legislation can depend upon several factors, including whether the true owner is claiming that she or he has either a present or a future interest in the land. Therefore, it is necessary to determine what type of interest the true owner had in the land in order to determine when a cause of action first accrued to the owner.

[4.17]

As discussed in Chapter 1, a future interest in land (as a fee simple owner) is an interest that confers a right to possession of the land (or to its rents and profits) at some point in time in the future. If, for example, Xenos conveys Blackacre ‘to Armanda for life and, upon her death, to Belinda’, then, during Armanda’s lifetime, Belinda is said to have a future interest in Blackacre. Upon Armanda’s death, Belinda’s interest is said to ‘fall into possession’. It is not until that point in time that Belinda’s interest becomes a present interest in the land. These future interests in land raise special problems in regard to the calculation of the time limits for actions for the recovery of land. Further, the rules that govern future interests differ from jurisdiction to jurisdiction.16

[4.18]

The rules set out above apply only when an adverse possessor takes possession of land between the date on which future interest is created and the date on which the interest falls into possession. In other words, if an adverse possessor takes possession of land before the future interest is created, or after it falls into possession, then time runs from the date on which the adverse possessor entered into possession. In other words, for time to run, the true owner must have an interest in possession that the adverse possessor’s acts of possession can be counted against.

[page 41]

Application of the doctrine of adverse possession to leases [4.19]

Special rules relating to the doctrine of adverse possession apply to leases for the purposes of calculating the limitation period. As discussed in Chapters 2 and 11, a leasehold interest in land may take any one of four forms: a fixed term lease; a periodic lease; a tenancy at will; or a tenancy at sufferance.

[4.20]

It is important to be able to identify which leasehold interest applies, since different principles govern the limitation period applicable for recovery of land. The main distinction made by the limitation statutes is between fixed term leases and the other forms of leasehold interests. In this chapter, we will focus on the application of the doctrine to fixed term leases, since the ramifications of the doctrine of adverse possession have a greater impact on those leases because of the time that can be left to run under the term of the lease.

Fixed term leases [4.21]

In the case of fixed term leases,17 the limitation legislation distinguishes between a lessor’s right to re-enter upon the expiry of the lease term and other rights of re-entry under the lease. In general, time does not run against a lessor’s right to re-enter on the expiry of a lease until the date on which the lease expires. If, for example, a lessor grants a lease for 10 years to a tenant who is subsequently

dispossessed by an adverse possessor, then time will not commence to run against the lessor until the lease has expired. It does, however, run immediately against the lessee.18 [4.22]

In the case of a lessor’s right to re-enter for breach of a lease covenant, the situation is different. When, under the terms of a lease, a lessor is entitled to forfeit the lease for breach of its terms, time commences to run against the lessor for the purposes of the limitation period on the date of the breach of the lease by the lessee.19 [page 42]

Co-owners and time limitation periods [4.23]

If one of two or more co-owners is in possession of more than her or his share of the land (or its rents and profits), time normally runs against the other co-owners.20 So, if land owned by Armanda, Belinda and Camille is occupied exclusively by Armanda, time normally will run against Belinda and Camille from the date of the extra possession by Armanda.

Crown land and adverse possession [4.24]

In some jurisdictions in Australia, the Crown is subject to a time limitation period for actions for recovery of its land. Each jurisdiction has different rules. In New South Wales, the operation of s 45D(3) of the Real Property Act 1900 (NSW) makes it impossible to apply for adverse possession of Torrens land to be registered against the Crown.21 In South Australia, the Crown has 60 years to commence an

action for the recovery of land against an adverse possessor.22 Thus, in theory it is possible to establish adverse possession of Crown land in South Australia, but it is very difficult to imagine a successful case in practice given the time period (60 years of adverse possession) that must be established. In Tasmania, the Crown has 30 years to commence an action for the recovery of land.23 In Queensland, Victoria and Western Australia, there is no limitation period for the Crown to commence an action for recovery of land.24 It follows that there is no possibility for an adverse possessor to become the owner of the land, irrespective of for how long the adverse possessor has been in possession of the Crown land. There are no statutory limitation periods for Crown land in the Northern Territory or the Australian Capital Territory.

Trustees and adverse possession [4.25]

A trustee cannot adversely possess land against a beneficiary of the trust in nearly all jurisdictions in Australia.25 In New South Wales and Western Australia, there is a limitation period in cases where a beneficiary of a trust brings an action against a trustee for fraud or fraudulent breach of trust, or to recover trust property or its proceeds from the trustee.26 [page 43]

Calculating the extent of adverse possession: successive adverse possessions and competing adverse possessors

[4.26]

A person in adverse possession of land for less than the statutory period enjoys rights which she or he may sell, assign, devise by will or allow to pass on intestacy. A successor in title to the rights of an adverse possessor is not merely entitled to enforce them against third parties; she or he may add her or his own period of adverse possession to that of her or his predecessor. For example, if we assume that the relevant period of adverse possession must be 12 years and Armanda (who has been in adverse possession of land for 10 years) assigns her rights to Belinda (who enters into possession for the balance of the limitation period of 2 years), then the title of the former owner of the land would have become extinguished upon the expiry of the 12 years and Belinda will become the owner of the land (because a total of 12 years of adverse possession has passed).

[4.27]

A similar principle applies when one adverse possessor dispossesses another adverse possessor. However, in this case, time runs in favour of the first adverse possessor.

[4.28]

Assume that the relevant limitation period is 12 years. Assume also that the true owner of land is dispossessed by Xenos, who remains in adverse possession for 10 years until he, in turn, is dispossessed by Jacob. If Jacob remains in adverse possession for the balance of the limitation period (2 years), the title of the true owner will be extinguished.27 However, as between Xenos (the first adverse possessor) and Jacob (the second adverse possessor), Xenos has the earlier, and therefore better, title. Should Jacob remain in possession for a further 10 years, he will, at that stage, extinguish Xenos’s title (because by then he will have been in possession for the 12 years, independently of any period of adverse possession by Xenos).28

Extending the limitation period [4.29]

The date upon which a true owner’s cause of action accrues (the time to commence action for recovery of land) is not always necessarily the date from which time runs. It is possible, in some circumstances, to extend the limitation period to commence an action for the recovery of land. The time limitation period may be extended by a court where: the true owner of the land was under a relevant disability when her or his cause of action first accrued; or where the cause of action is founded on fraud or mistake. [page 44]

[4.30]

Legislation in all jurisdictions enables a party to apply for an extension of the limitation period where the true owner is under a relevant disability (legal disability) of some kind when the adverse possession otherwise begins.29 A limitation period can also be extended where a true owner’s cause of action is founded on fraud or mistake, or where the defendant has fraudulently concealed the true owner’s cause of action. In those circumstances, time does not run against the true owner until she or he has discovered the truth, or could have done so with reasonable diligence.30 Fraud implies personal dishonesty on the part of the adverse possessor. As fraud or mistake is seldom the basis of an action to recover land by the true owner, time is rarely extended by a court on these grounds. Examples of fraudulent concealment include destruction of title deeds or of a public register, or procuring a conveyance from a person of unsound mind.

[4.31]

Time limitation periods are also effectively extended if time

ceases to run (is suspended). Time ceases to run against the true owner when the intruder abandons her or his adverse possession. Time may also be stopped in any one of three other ways: where the true owner commences legal proceedings to recover the land; where the true owner re-takes possession of the land; or where the adverse possessor (expressly or by implication) admits (in one of the ways explained at [4.34]) that the true owner’s title is superior. [4.32]

In the case of commencement of legal proceedings, time ceases to run from the date on which the writ commencing legal proceedings is issued by the court (provided that the true owner is ultimately successful in her or his action). The other methods by which time may be stopped require more analysis.

[4.33]

Subject to certain rules of criminal law, a true owner of land (with an immediate right to possession of it) may, at any time before the limitation period has expired, enter the land and resume possession of it. Should she or he do so, the limitation period ceases to run. It is insufficient for a true owner merely to visit or enter the land. She or he must resume possession of it. What that requires in practice will depend upon the nature of the land and the nature of the intruder’s possession. If a true owner does resume possession, the length of her or his possession is irrelevant, since it is unnecessary for her or him to remain in possession of the land for any particular length of time.31 [page 45]

[4.34]

Time also ceases to run against a true owner when an

adverse possessor admits the superiority of the owner’s title in either of two ways: by an acknowledgment in writing to that effect;32 or in cases involving debts affecting the land, by partpayment of those debts. [4.35]

Although an acknowledgment of title by an adverse possessor stops time from running, if an adverse possessor remains in possession of the land, time will run in her or his favour again from the date of the acknowledgment. Further, the intruder’s acknowledgment affects not only her or his own rights, but also the rights of subsequent adverse possessors. For example, assume that Xenos, who has been in adverse possession of Jacob’s land for 10 years, acknowledges Jacob’s title but continues in adverse possession for a further 6 years and then sells his interest to Zeno. In these circumstances, Jacob’s title (as true owner) is not extinguished, for Zeno is in no better position than Xenos. Zeno cannot rely on Xenos’s possession during the period prior to the acknowledgment to establish his right; he can only rely on the period after it (in this instance, 6 years). An acknowledgment made after the limitation period has expired does not revive the rights of the former owner of the land, since both the former owner’s title and her or his remedy have already been extinguished and cannot be revived.33

[4.36]

Part-payment of a debt is tantamount to an acknowledgment not only of the debt, but also of any rights with respect to land which are the reason for the payment or its acceptance. Thus, part payment of arrears of rent due under an oral periodic tenancy postpones the date from which time is deemed to run against the lessor’s (true owner’s) right to recover the land.34

Effect of lapse of time [4.37]

When the limitation period to commence proceedings to recover land has expired, both the right of action to recover the land and the title of the former owner are extinguished. An adverse possessor’s title is derived from her or his own possession of the land. As an adverse possessor’s title is not derived from the former owner, certain consequences follow from this; for example, an adverse possessor may not be able to claim the benefit of easements to which the former owner was entitled; nor is she or he affected by positive covenants which otherwise burden land. However, adverse possessors are bound by legal interests burdening the land (such as easements) and by equitable interests (such as restrictive covenants which might be enforceable in equity). [page 46]

[4.38]

The principle that an adverse possessor is not a successor in title to the former owner of the land creates particular problems where the person whose title is extinguished by adverse possession is not the holder of the fee simple for the land but is the holder of a lesser interest, such as a leasehold interest. In this instance, three basic principles apply.

[4.39]

When an adverse possessor takes possession of land which has been leased to a lessee, time does not run against the lessor during the term of the lease, since the lessor has no right to possession of the land and no right to recover it from the adverse possessor. In such circumstances, time runs against the lessee, who will lose her or his right to recover the land from the adverse possessor unless she or he exercises that right within the limitation period. Should the lessee’s right to recover the land from the adverse possessor

become statute-barred, the lessor is also not entitled to possession of the land. Neither the lessee nor the lessor can recover the land from the adverse possessor while the lease still exists. Although the lease remains effective between the lessor and the lessee, the adverse possessor is free to retain possession of the land until the lease is terminated; that is usually not until the lease period expires. A statute-barred lessee remains liable to the lessor on many of the covenants contained in the lease. As the adverse possessor is not a successor in title to the lessee, she or he is not bound by positive covenants contained in the lease (such as covenants to pay rent or keep the property in repair). However, the adverse possessor is bound by negative (restrictive) covenants contained in the lease.35 [4.40]

Where an adverse possessor succeeds in taking title of a lease interest, a lessor may either recover damages from the original lessee or, if the lease authorises it, forfeit the lease for the lessee’s breach of covenant. A lessor who exercises a right of forfeiture is entitled to recover the land at once, and can evict the adverse possessor immediately. Alternatively, the lessor can only recover the land when the term of the lease expires. An adverse possessor who has extinguished the title of a lessee can be defeated in yet another way: through a surrender of the lease (where the lease is cancelled by the mutual agreement of the lessor and the lessee).36 The lessor can then immediately recover the land from the adverse possessor.

Adverse possession and Torrens land [4.41]

As we will discuss in Chapter 7, title to land under Old System Title is transferred by way of a deed. Title to land under the Torrens system is transferred by means of an entry into a public record, known as the Torrens Register.

For Old System Title land, the doctrine of adverse possession enables an owner of land to cure possible defects in that title by waiting for the limitation period to expire. This makes investigation of title by a potential purchaser easier and more certain for Old System Title [page 47] conveyancing practice. However, under the Torrens system, since title is derived from the act of registration itself, this historical investigation is unnecessary. In other words, the Torrens system has little need for the doctrine of adverse possession to achieve security of title of a registered proprietor. Further, the doctrine of adverse possession actually undermines the reliance that can be placed on the Torrens Register, since it introduces an element of uncertainty into the system. The extent to which the doctrine of adverse possession applies to Torrens land is therefore somewhat contentious. The various jurisdictions throughout Australia have adopted different approaches to the role of adverse possession for Torrens land. Despite the potential for the doctrine of adverse possession to undermine the certainty of the Torrens Register (which we discuss in Chapter 6), it is arguable that, in three circumstances, the doctrine of adverse possession might serve a vital role in the Torrens system: where a registered proprietor of land under the Torrens system has abandoned it and cannot be found; where Torrens land has been transferred informally from person to person over a number of years so that the Torrens Register no longer reflects the true ownership of the land; and where a building on one person’s land encroaches on the

land of another.

Other matters affecting claims for adverse possession [4.42]

In New South Wales, an adverse possessor can only claim an entire parcel of land, and cannot claim land of which the Crown is the registered proprietor. Further, the entirety of the limitation period must have been served against one registered proprietor in order to establish good title.37 In South Australia, once a limitation period has expired, the adverse possessor can apply to become the registered proprietor of the land following an advertisement of the application.38 The system is similar in Queensland, except that the adverse possessor can also apply to the Supreme Court following expiry of the limitation period.39 Further, adverse possession is specifically set up as an exception to indefeasibility of title as well.40 In Victoria, rights subsisting under adverse possession are also an exception to indefeasibility of title.41 It is not clear whether this refers to only those who have served the limitation period in full against one registered proprietor. The position in Western Australia is the same as that in Victoria.42 In Tasmania, rights granted to the adverse possessor (both before and after the limitation period has ended) override the indefeasibility of the registered proprietor of land.43

__________________________ 1

Limitation Act 1969 (NSW) s 27; Limitation of Actions Act 1974 (Qld) s 13; Limitation Act 1974 (Tas) s 10; Limitation Act 2005 (WA) s 19. 2 Limitation of Actions Act 1936 (SA) s 4; Limitation of Actions Act 1958 (Vic) s 8. 3

The exception is a mortgagee in adverse possession for a period of 12 years: Land Titles Act 1925 (ACT) s 69; Limitation Act 1985 (ACT) ss 5A, 24; Land Title Act (NT) s 198; Limitation Act (NT) s 27. 4 These include both actual taking of possession and an intention to possess the land.

5

In the case of a present interest in land held by the true owner. Relevant differences for future interests in land are discussed at [4.17]–[4.18].

6

Limitation Act 1969 (NSW) ss 4(1), 38(1); Limitation of Actions Act 1974 (Qld) s 19(1); Limitation of Actions Act 1958 (Vic) s 14. 7 JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419 per Lord Browne-Wilkinson at [40]. 8 9

Mulcahy v Curramore Pty Ltd [1974] 2 NSWLR 464. That is, extend the time by which the true owner of the land must commence proceedings for recovery of that land.

10

In this sense, exclusive possession has been described as the intention to exclude the world at large, including any owner of the land so far as is reasonably practicable: Powell v McFarlane (1979) 38 P & CR 452. 11 Ocean Estates v Pinder [1969] 2 AC 19. 12

For example, a purchaser of land who is allowed into possession of it before she or he has paid the full purchase price is regarded either as a lessee or licensee in whose favour time does not run: see Hyde v Pearce [1982] 1 All ER 1029. 13 Leigh v Jacks (1879) 5 Ex D 264; Wallis’ Cayton Bay Holiday Camp Ltd v Shell-Mex and BP Ltd [1975] QB 94. 14

Powell v McFarlane (1977) 38 P & Cr 452, distinguished in Buckinghamshire County Council v Moran [1989] 2 All ER 225. Powell and Moran were in turn followed by the House of Lords in JA Pye (Oxford) Ltd v Graham [2003] 1 AC 419 (Lord Browne-Wilkinson believed that only on few occasions could a court properly find that the true owner had impliedly licensed a squatter to use her or his land and so prevent time running). 15 Re Johnson [2000] 2 Qd R 502; Monash City Council v Melville (2000) V ConvR 54-621; [2000] VSC 55; Bayport Industries Pty Ltd v Watson (2006) V ConvR 54-709; [2002] VSC 206; Kierford Ridge Pty Ltd v Ward [2005] VSC 215. 16

See, for example, Limitation Act 1969 (NSW) s 31; Limitation of Actions Act (Qld) s 15(1), (3); Limitation of Actions Act 1936 (SA) s 9; Limitation of Actions Act 1958 (Vic) s 10(2). 17 For a detailed discussion of leases, including definitions of key terms, see Chapter 11. 18

Limitation of Actions Act 1974 (Qld) s 16(3); Limitation of Actions Act 1936 (SA) s 17; Limitation of Actions Act 1958 (Vic) s 13(3); cf Limitation Act 1969 (NSW) s 33. There is an exception to this principle; that is, when the lessee pays her or his rent to a third party who claims to be entitled to the land, time already runs against the lessor. 19 Limitation of Actions Act 1974 (Qld) s 17; Limitation of Actions Act 1936 (SA) s 10; Limitation of Actions Act 1958 (Vic) s 12. 20

Limitation Act 1969 (NSW) s 38(5); Limitation of Actions Act 1974 (Qld) s 22; Limitation of Actions Act 1936 (SA) s 20; Limitation of Actions Act 1958 (Vic) s 14(4). 21 Section 170 of the Crown Lands Act 1989 (NSW) also makes it impossible to claim against the Crown by adverse possession in many situations. It therefore appears that it is not possible to have adverse possession of Crown land, despite s 27(1) of the Limitation Act 1969 (NSW) stating that the Crown has 30 years to commence any action for the recovery of land. 22 23

Crown Suits Act 1769 (Imp). Limitation Act 1974 (Tas) s 10(4), (5).

24

Limitation of Actions Act 1974 (Qld) s 6(4); Limitation of Actions Act 1958 (Vic) s 7; Limitation

Act 2005 (WA) ss 19(2), 76. 25 Limitation of Actions Act 1974 (Qld) s 27(1); Limitation of Actions Act 1936 (SA) ss 31, 32; Limitation Act 1974 (Tas) s 24(1); Limitation of Actions Act 1958 (Vic) s 21(1). 26 Limitation Act 1969 (NSW) s 47: A beneficiary has 12 years from the time of discovery of the time that she or he could have discovered the cause of action if reasonable diligence had been used that she or he had a cause of action against the trustee to recover land. In Western Australia, there is no specific provision relating to trust in trustees. This means that the normal limitation period for the recovery of land applies. 27

Shelmerdine v Ringen Pty Ltd [1993] 1 VR 315 at 341; Mulcahy v Curramore Pty Ltd [1974] 2 NSWLR 464. 28 Allen v Roughley (1955) 94 CLR 98; [1955] ALR 1017 per Fullagar J at CLR 131–2. 29

Limitation Act 1969 (NSW) s 52; Limitation of Actions Act 1974 (Qld) ss 5(2), (3), 29; Limitation of Actions Act 1936 (SA) ss 3(1), 45; Limitation Act 1974 (Tas) ss 26–28; Limitation of Actions Act 1958 (Vic) ss 3(3), 23; Limitation Act 2005 (WA) ss 30–37. 30 Limitation Act 1969 (NSW) ss 55, 56; Limitation of Actions Act 1974 (Qld) s 38; Limitation of Actions Act 1958 (Vic) s 27. An action is not founded on fraud or mistake unless either one of these concepts is the basis of the true owner’s case against the adverse possessor; that is, an essential element of her or his cause of action: Phillips-Higgins v Harper [1954] 1 QB 411. 31 32

Symes v Pitt [1952] VLR 412 at 431. An acknowledgment is a document in writing signed by the adverse possessor (or, in Victoria, the adverse possessor’s agent) which, expressly or by implication, admits that the true owner has a better title than the adverse possessor. The admission can take a variety of forms, such as pleadings or evidence in court proceedings, recitals in a deed or statements in a will.

33

Sanders v Sanders (1881) 19 Ch D 373; National Bank of Tasmania Ltd (in liq) v McKenzie [1920] VLR 411. 34 Limitations of Actions Act 1974 (Qld) s 18(2A); Limitation of Actions Act 1936 (SA) s 16; Limitation of Actions Act 1958 (Vic) s 13(2). 35

Based on the principles in Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143. These are discussed in Chapter 13. 36 It has been found that a statute-barred lessee might surrender her or his lease to the lessor, thus terminating it: Fairweather v St Marylebone Property Co Ltd [1963] AC 510. 37 38

Real Property Act 1900 (NSW) s 45D(4). Real Property Act 1886 (SA) Pt 7A.

39

Limitation of Actions Act 1974 (Qld) Pt 3. 40 Land Title Act 1994 (Qld) ss 103–107, 185(1)(d). 41 42 43

Transfer of Land Act 1958 (Vic) s 42(2)(b). Transfer of Land Act 1893 (WA) s 68(1A). Governed previously by Land Titles Act 1980 (Tas) ss 117–124. The new law was introduced under Land Titles Amendment (Law Reform) Act 2001 (Tas) Div 5.

[page 49]

CHAPTER 5

Fixtures, Trespass to Land and Other Rights in Land

Key Ideas By the end of this chapter you should be able to identify: When is an item a fixture? When is an item a chattel? When is an item a tenant’s fixture? What is a trespass to land? When does a temporary interference of airspace amount to a trespass to land? What are some of the basic rules for determining the limits of land?

[page 50]

Introduction [5.1]

Deciding whether an item of property is a chattel (and therefore an item of personal property) or a fixture (and therefore an item of real property) can be important in a number of contexts. For example, in rating land for tax assessment purposes, it is necessary to work out what comprises the land to be included in the assessment. In that situation, knowing what constitutes a fixture is relevant. Where a lease comes to an end, it is important to be able to work out what is a chattel, which can be removed by the lessee, and what is a fixture, since anything that is a fixture belongs to the lessor and cannot be removed. Similarly, in the sale of property, only chattels can be removed by a vendor. If a mortgagor breaches her or his mortgage contract and the mortgagee enters into possession of the property, then the mortgagee is entitled to take possession of the land, which includes all fixtures. Finally, where a life tenancy comes to an end, the life tenant’s estate is entitled to remove all chattels so that they can be passed on to the beneficiaries of the life tenant’s estate, but fixtures cannot be removed since they form part of the land (which passes to the remainderman).

[5.2]

This chapter will discuss what the courts look at to work out whether an item is a chattel or a fixture. In the second part of this chapter, we examine when an interference with an owner’s (or lessee’s) exclusive possession of land will constitute a trespass to land. Finally, we look at what rights an owner has in land.

Doctrine of fixtures [5.3]

The doctrine of fixtures is used to determine whether an item is a chattel or a fixture. In determining whether an item is a chattel or a fixture, courts adopt the following process: first, apply the relevant presumption of law to the item in question (see [5.4]); and second, any person who wants to argue to the contrary of that presumption needs to apply the test to determine whether something is a chattel or a fixture (see [5.5]).

Presumptions of law [5.4]

There are two presumptions of law to determine whether an item is a chattel or a fixture. These presumptions are where we start in order to determine whether an item is a chattel or a fixture: anything that is attached to the land (no matter how slight the degree of attachment) belongs to the land; that is, anything attached to the land is, presumptively, a fixture; anything that rests on land by its own weight alone is, presumptively, a chattel. [page 51]

The test [5.5]

Recent cases in Australia have adopted an holistic approach to determining whether an item is a chattel or a fixture, by looking at all the facts and circumstances surrounding the annexation of the item to the land in order to objectively determine what the intention was of the person who affixed

the item. In Sanwa Australia Leasing Ltd v National Westminster Finance Australia (1988) 4 BPR 9514; BC8801368, Powell J provided the following summary of the law:1 (1) The question whether a chattel which has been placed on, or fixed to, land has become a ‘fixture’ is ultimately to be answered by reference to the intention with which it was placed on, or fixed to, the land. (2) The question is to be determined by … having regard to all the relevant circumstances, included among which circumstances are the following: (a) the nature of the chattel in question; (b) the manner in which it is usually, almost conveniently, utilised; (c) the degree of ‘annexation’ of the chattel to the land; (d) the time — whether finite and short, or indefinite — during which the chattel is intended to remain ‘annexed to the land’; (e) the purpose for which the channel has been ‘annexed’ to the land; (f)

any statements of intention made by, or agreements entered into between, the owner of the chattel and the owner of the realty. (3) None of these circumstances is to be regarded as conclusive.

Tenant’s fixtures [5.6]

Whenever a life tenant or a lessee affixes an item to land, there are three possibilities that can result. The presumptions of law (at [5.4]) and the test stated above (at [5.5]) are always applied. A court might then decide that: (1) the item remains a chattel and can be removed; or (2) the item became a fixture and cannot be removed. If the court decides that the item is a fixture, then the item is referred to as a ‘tenant’s fixture’. A tenant’s fixture can be removed, but subject to specific rules. Items that are classified as tenant’s fixtures generally fall into two classes: (1) trade, domestic and ornamental fixtures; and (2) agricultural fixtures. [page 52]

Trade, domestic and ornamental fixtures [5.7]

Items that have been found to fall within the category of trade fixtures include machinery (engines and boilers),2 petrol pumps,3 and shrubs planted by a market gardener.4 Domestic and ornamental fixtures in this category that could be removed as tenant’s fixtures have included kitchen stoves,5 ornamental chimney pieces,6 wood panelling7 and window blinds.8

[5.8]

These tenant’s fixtures can be removed, provided that their removal will not result in ‘substantial injury’ to the premises.9 Removal that does cause such damage is referred to as an act of ‘waste’ by the lessee, and the lessee is therefore liable to compensate the lessor unless the lessee reinstates the premises back to their original condition.10 Note that in Victoria this common law position does not apply.11

Agricultural fixtures [5.9]

At common law, a tenant had no right to remove agricultural fixtures.12 In New South Wales, Queensland, Tasmania and Victoria, the common law position has been changed by legislation.13 The general effect of the legislation in these jurisdictions is to allow an ‘agricultural tenant’ to remove fixtures upon the provision of notice to the landlord, and by providing the landlord an opportunity to purchase the fixtures. The tenant cannot cause damage by the removal of these fixtures. If she or he does, they must restore the property to its original condition.

Time for removal of tenant’s fixtures [5.10]

In all jurisdictions except Victoria,14 the position is that tenant’s fixtures must be removed prior to the expiry of the

lease. If the lease is a periodic lease, then the lessee has a reasonable time after expiry of the lease period to remove tenant’s fixtures.15 The same rule applies to life tenancies.16 [page 53]

Trespass to land [5.11]

Trespass to land is an action in tort for interference with an owner’s right of exclusive possession of her or his property, either on the surface of, or above, her or his land. The cases in this area focus on when temporary interferences into airspace constitute a trespass. A trespass to land gives rise to a right to damages against the trespasser. In Australia, the most common areas in which these considerations arise are in encroachments by cranes and scaffolding in the development of adjoining land, and it is these areas that we will focus upon in this section.

[5.12]

The basic principle is that an owner of land is regarded as owning everything ‘from the heavens above to the centre of the earth’.17 However, this principle has been heavily modified, both in practice and by legislation which allows interferences into air space.

[5.13]

In the case of permanent intrusions into air space, there is no doubt that the cause of action arose in tort to sue for trespass.18 However, when dealing with transient intrusions into air space, we need to ascertain when a transient intrusion will be sufficient to amount to a trespass. In Davies v Bennison (1927) 22 Tas LR 52, a neighbour had fired a bullet across the plaintiff’s land and killed the plaintiff’s cat, which was sitting on top of a shed on an adjoining property. The court found that the passage of the bullet across the

plaintiff’s land was a trespass. The test that the court applied was to assess whether the plaintiff’s ability to use his land was interfered with. Another case on transient interference into airspace is Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479. In that case, the plaintiff was the owner of a large country estate in England. The defendant had a business of taking aerial photographs of properties and selling them to the owners of the properties. They photographed the plaintiff’s land from a height of several hundred feet and offered the photos to him for sale. The plaintiff then demanded that the defendant hand over or destroy all negatives and prints of the photographs they had taken of his land. The defendant did not, and the plaintiff sued in trespass and sought an injunction to restrain the defendant from entering the airspace above his property again. Griffiths J found for the defendant, finding that a landowner’s right to airspace above property is not unrestricted. His Honour said that it was a matter of balancing the rights of the owner to use property and the rights of the general public, and that this balance was to be struck by (at 488): … restricting the rights of an owner in the airspace above his land to such height as is necessary for the ordinary use and enjoyment of his land and the structures on it …. [5.14]

Whether this is the current test in Australia for temporary interferences is not entirely clear. In LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490, Hodgson J said that he thought the test was not whether the incursion actually interfered with the occupier’s actual use of land at the time but, rather, that the [page 54]

interference was ‘of the nature and at a height which may interfere with any ordinary use of the land which the occupier may see fit to undertake’: at 495. [5.15]

The cases where these arguments often arise relate to encroachment by cranes and scaffolding. In these cases, the courts have regularly found that these encroachments constitute trespass. However, whether or not an injunction restraining the trespass will be ordered depends upon the conduct of both parties. The more unreasonable the conduct of the trespasser, the more likely it is that an injunction will be ordered. The more unreasonable the conduct of the owner of land that is subject to the trespass, the less likely it becomes that a court will order an injunction restraining the trespass. In either case, damages for the interference must be paid by the trespasser. The cases highlight that any person who wishes to build upon her or his land should do two things: minimise the extent of any interference, even if this increases the cost of the building works (within reason); and offer reasonable compensation to the owner of the land whose rights are being infringed.

[5.16]

In some jurisdictions, these considerations are also relevant to the court in deciding whether to grant orders under relevant legislation for the imposition of an easement to allow the building works to be carried out: see [5.20].

[5.17]

In Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 All ER 483; [1970] 1 WLR 411, the jib of a crane encroached upon the plaintiff’s premises at a height of 50 feet above roof level. The defendant had admitted that this was a trespass and had offered the plaintiff a substantial sum of money by way of compensation for the trespass. However, negotiations

between the parties broke down. The plaintiff then sought an injunction to stop the crane jib from passing across its land. The court granted the injunction but, in its discretion, decided to suspend the operation of the injunction until completion of the building works by the defendant, because of the unfavourable view that it took of the plaintiff’s conduct. The court found that the plaintiff’s conduct in the negotiations was unreasonable, whereas the defendant’s conduct had been reasonable and the defendant had not acted in ‘flagrant disregard’ of the plaintiff’s rights in committing the trespass: at 487. [5.18]

In Graham v KD Morris & Sons Pty Ltd [1974] Qd R 1, a different result was reached as to the relief granted to the plaintiff by the court on similar facts. In this case, the jib of the crane (when it was not in use) encroached upon the plaintiff’s land by 62 feet and at a height of 80 feet above the ground, when the wind blew it over the plaintiff’s land. In contrast to the result in Woollerton, the court granted an injunction restraining the trespass. This was based on the defendant’s ‘cavalier’ attitude to the plaintiff’s rights, as well as the fact that the defendant had offered a limited amount of compensation to the plaintiff for the trespass. In testing whether the encroachment constituted a trespass, the court adopted the test that had been stated by Griffiths J in Bernstein and looked at whether the crane interfered with the proper use and enjoyment of the plaintiff’s land.

[5.19]

In Bendal Pty Ltd v Mirvac Projects Pty Ltd (1991) 23 NSWLR 464, the defendants were constructing a high-rise building on land that adjoined land owned by the plaintiff. [page 55] The building that was being constructed was located right

on the boundary of the plaintiff’s land. The construction of the building involved the use of mesh screens, including for use as scaffolding. This scaffolding projected over the plaintiff’s property into its airspace, as did the jib of a crane used on the site on occasions. Bryson J found that a trespass had occurred and determined that he would grant an injunction in the circumstances of the case. Of relevance to his Honour’s decision was evidence to the effect that a more expensive technique of construction by the defendant would have meant that no trespass would have been committed, at least so far as the mesh screens were concerned. As the defendant had chosen not to avoid or minimise the trespass, his Honour granted an injunction restraining the trespass. A similar result was reached by Hodgson J in LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490.19

Easements and orders for temporary encroachments [5.20]

In New South Wales, the Northern Territory, Queensland and Tasmania, it is possible to approach a court for an order to grant an easement sufficient to cover the extent of an encroachment/trespass for the purposes of conducting building works. The legislation rests on the assumption that sufficient compensation can and will be paid to the owner whose rights are being interfered with.20 In this respect, the legislation generally reflects the approach taken by the courts to the cases on cranes and scaffolding discussed above.

Rights below the land Minerals [5.21]

At common law, the Crown always owned any gold and

silver found in land.21 This formed part of the Crown’s prerogative rights. The position in Australia was that this right could only be excluded by express words in the Crown grant, or by necessary implication in a statute.22 In respect of other minerals, in the absence of legislation it was possible for a fee simple owner to own and exploit materials found in subsoil unless the original Crown grant of the land reserved to the Crown rights to any minerals. The position has since been amended by legislation, and the general position in all jurisdictions now is that all minerals are vested in the Crown, irrespective of what is contained in the Crown grant.23 [page 56]

Surface boundaries Tidal boundaries [5.22]

Where a Crown grant describes land as being bounded by either a sea or a tidal river, then the boundary of the land is known as the ‘mean high-water mark’. At common law, the mean high-water mark is the ordinary high tide taken at a point of the line of the medium high tide between the spring and neap tides, ascertained over an average during a year.24 Below this mark is the foreshore, which belongs to the Crown in most cases.25 The tidal bed of a river which borders land is also vested in the Crown as far as the mean highwater mark.26

Non-tidal boundaries for rivers and lakes [5.23]

The river bed of a non-tidal river flowing through private land belongs to the person who owns the land.27 Where the river divides two blocks of land which are described as being

bounded by the river, then there is a rebuttable presumption that the landowners each own the land to the middle of the river.28 However, this common law rule has been amended by legislation in the Northern Territory, Queensland, Victoria and Western Australia, where a river or lake bed is vested in the Crown.29 In New South Wales, the practical effect of the legislation is to the same effect.30

Accretion and erosion of land [5.24]

If land is added to, then the addition becomes the property of the owner. Similarly, if land is removed by erosion, then the owner loses the land.31 However, the rule is that any change must be ‘gradual and imperceptible’.32 Sudden and substantial changes cannot change a boundary; for example, erosion or accretion caused by floods. Further, any changes must occur by means of natural forces. However, a boundary can change by accretion if the addition to the land is unintentionally assisted by an artificial means, provided the purpose was not to acquire more land.33 [page 57]

Building on another’s land [5.25]

In the Northern Territory, Queensland and Western Australia, legislation establishes a basic scheme where, if a person makes a lasting improvement on land owned by another in the mistaken belief that she or he owns the land improved, then an application can be made to a court for orders to deal with the mistake.34 In all other jurisdictions in Australia, the common law applies.

[5.26]

At common law, there was no relief available to an owner

who built on another’s land in the mistaken belief that it was hers or his.35 In equity, however, relief could be granted provided that the following criteria were met: the landowner acted under a mistaken belief that the land was hers or his; and the landowner expended money or performed acts on the basis of that mistaken belief; and the other party knew of that landowner’s mistaken belief and either encouraged the acts or acquiesced in them, so that the landowner relied on the mistaken belief; and the landowner thereby acted to her or his detriment.36

Encroaching buildings [5.27]

Where a partial encroachment onto another’s land has taken place then, in most jurisdictions, there is legislation that specifically deals with this problem. The effect of the legislation is to allow either party affected to make an application to a court and seek a range of orders, depending on what is appropriate in the circumstances. These might include orders for compensation or a transfer of the interest to the encroaching owner, or the removal of the encroachment.37 In the Australian Capital Territory, Tasmania and Victoria, there is no such legislation, so the position at law and in equity discussed at [5.25]–[5.26] applies. [page 58]

Natural rights Rights of support

[5.28]

An owner of land is entitled to support from adjoining lands.38 Any subsidence caused to adjoining property by reason of acts, such as excavation, is a tort.39 Further, land might contain specific rights of support known as ‘easements of support’. Such easements are commonplace in buildings. For example, in semi-detached houses, easements of support exist for the common walls of the building. In the Northern Territory, New South Wales and Queensland, the common law right of support has now been replaced by a statutory right.40

__________________________ 1

Similar statements can be found in a number of cases: see NH Dunn Pty Ltd v LM Ericcson Pty Ltd (1979) 2 BPR 9241; National Australia Bank Ltd v Blacker (2000) 104 FCR 288; 179 ALR 97; [2000] FCA 1458; Palumberi v Palumberi (1986) 4 BPR 9106; Eon Minerals NL v Commissioner of State Taxation (WA) (1991) 22 ATR 601; McIntosh v Goulburn City Council (1985) 3 BPR 9367.

2

Climie v Wood (1869) LR3Ex 328. Smith v City Petroleum Co Ltd [1940] 1 All ER 260.

3 4

Wardell v Usher (1841) 3 Scott NR 508. 5 Darby v Harris (1841) 1 QB 895; 113 ER 1374. 6 7

Leach v Thomas (1835) 7 C & P 327; 173 ER 145. Spyer v Phillipson [1931] 2 Ch 183.

8

Colegrave v Dias Santos (1823) 2 B & C 76; 107 ER 311. 9 Spyer v Phillipson [1931] 2 Ch 183. 10 11

Mancetter Developments Ltd v Garmanson Ltd [1986] QB 1212. Under s 154A of the Property Law Act 1958 (Vic), a tenant can remove tenant’s fixtures before the ‘relevant agreement terminates or during any extended period of possession of the premises’, provided that she or he restores the premises or pays the landlord an ‘amount equal to the reasonable cost of restoring the premises’.

12

Elwes v Maw (1802) 2 East 38; 102 ER 510. 13 For details of what is required, see the specific requirements of each piece of legislation: Agricultural Tenancies Act 1990 (NSW) ss 5, 7, 14; Property Law Act 1974 (Qld) s 155; Landlord and Tenant Act 1935 (Tas) s 26; Landlord and Tenant Act 1954 (Vic) s 28(1). 14

As noted, this is governed by the operation of Property Law Act 1958 (Vic) s 154A. 15 New Zealand Government Corp v HM & S Ltd [1982] QB 1161; D’Arcy v Burrelli Investments Pty Ltd (1987) 8 NSWLR 317; Bain v Brand (1876) 1 App Cas 762. 16

Re Roberts; ex parte Brook (1878) 10 Ch D 100. 17 Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479. 18

Kelson v Imperial Tobacco Co Ltd [1957] 2 QB 334.

19

See also Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] 20 VR 311; [2007] VSCA 311.

20

For more detail, see Conveyancing Act 1919 (NSW) s 88K; Property Law Act (NT) ss 163, 164; Property Law Act 1974 (Qld) s 180; Conveyancing and Law of Property Act 1884 (Tas) s 84. 21 Case of Mines (1568) 1 Plow 310; 75 ER 472. 22 23

Woolley v Attorney-General of Victoria (1877) 2 App Cas 163. Crown Lands Act 1989 (NSW); Mining Act 1992 (NSW); Mining Act (NT); Mineral Resources Act 1989 (Qld); Mining Act 1971 (SA); Mineral Resources Development Act 1995 (Tas); Mineral Resources Development Act 1990 (Vic); Mining Act 1978 (WA).

24

Attorney-General v Chambers (1854) 4 De CM&G 206; 43 ER 486; Sunlea Investments Pty Ltd v NSW (1998) 9 BPR 16,707. 25 Attorney-General v Emerson [1891] AC 649; Sunlea Investments Pty Ltd v NSW (1998) 9 BPR 16,707. 26

Attorney-General v Earl of Lonsdale (1868) LR 7 Eq 377; Sunlea Investments Pty Ltd v NSW (1998) 9 BPR 16,707. 27 Sunlea Investments Pty Ltd v NSW (1998) 9 BPR 16,707. 28

Lanyon Pty Ltd v Canberra Washed Sands Pty Ltd (1966) 115 CLR 342; [1967] ALR 283. 29 Water Act (NT) s 12; Water Act 2000 (Qld) s 21(1); Land Act 1958 (Vic) s 385; Rights in Water and Irrigation Act 1914 (WA) s 15(1). 30

Crown Land Act 1989 (NSW) s 172(7), which denies access over or to the use of any part of the river bed. 31 Southern Centre of Theosophy Inc v South Australia [1982] AC 706. However, in New South Wales the result in this case has no application, since Crown Lands Act 1989 (NSW) s 172(4) states that the doctrine of accretion has no application to a non-tidal lake in New South Wales. 32

Verral v Nott (1939) 39 SR (NSW) 89. 33 Verral v Nott (1939) 39 SR (NSW) 89. 34

Encroachment of Buildings Act (NT) s 13; Property Law Act 1974 (Qld) ss 196, 197; Property Law Act 1969 (WA) s 123. 35 Brand v Chris Building Co Pty Ltd [1957] VR 625; see [5.26]. 36

Ramsden v Dyson (1886) LR 1 HL 129; Taylors Fashion Ltd v Liverpool Trustees Co [1982] QB 133. It appears that the rule can apply even if there is no mistake by the landowner but where she or he acts in reliance on assurances from the adjoining property owner that some future interest would be acquired: see Inwards v Baker [1965] 2 QB 29. This accords with the doctrine of equitable estoppel in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513 and Commonwealth v Verwayen (1990) 170 CLR 394; 95 ALR 321 which seems to form the basis for the imposition of relief in these cases. 37 See Encroachment of Buildings Act (NT); Encroachment of Buildings Act 1922 (NSW); Property Law Act 1974 (Qld) ss 182–194; Encroachment Act 1944 (SA); Property Law Act 1969 (WA) s 122. 38. 39.

Dalton v Angus (1881) 6 App Cas 740. Tort of nuisance.

40. Conveyancing

Act 1919 (NSW) s 177; Law of Property Act (NT) s 162; Property Law Act 1974 (Qld) s 179. Conveyancing Act 1919 (NSW) s 177 replaces the common law action with a

negligence test, meaning that it must have been ‘reasonably foreseeable’ that the actions of the landowner would involve the loss of support to the adjoining land: see Piling v Prynew [2008] NSWSC 118.

[page 59]

CHAPTER 6

Torrens Title

Key Ideas By the end of this chapter you should be able to identify: how the Torrens Title system works and how it is different to the Old Title System of land ownership the types of interests which can be registered in Torrens land what is meant by ‘title by registration’ the concept of indefeasibility of title the difference between deferred and immediate indefeasibility of title the extent of protection offered to a registered proprietor by registration of an interest the basic rules applying to competing interests in Torrens land, including disputes between: – competing registered interests – registered interests competing against

unregistered interests exceptions to indefeasibility of a registered proprietor’s title what is the purpose of a caveat and how does the caveat system work

[page 60]

Introduction [6.1]

Prior to the introduction of the Torrens Title system in each jurisdiction in Australia, the system for ownership and dealing with land was Old System Title. The problems with that system included uncertainty and unreliability, as well as the complexity and cost caused by conveyancing practice that relied upon establishing a good chain of title (see Chapter 7). In South Australia these problems were rife, and led the then Registrar-General of South Australia, Sir Robert Torrens, to introduce a new system for the creation and conveyancing of land in that state.1 Each state throughout Australia (and later each territory) introduced the Torrens system of land registration based upon the original South Australian model. The key feature of the Torrens system is that it is a system of title by registration, not registration of title.2 In this chapter, we will discuss what this means and the impacts of the difference in these two concepts.

[6.2]

Before we examine the operation of the Torrens system, we will consider a few basic terms that will be used in this chapter and which represent some of the key features of the Torrens system.

Terms and definitions Torrens Register [6.3]

In each jurisdiction in Australia, a register of interests in Torrens land is administered by the relevant Registrar-

General (the Registrar).3 The Registrar has the responsibility of establishing and maintaining the Torrens Register (the Register). The Register is comprised of individual folios of land on which the Registrar records interests affecting each particular parcel of Torrens land. The identity of the land is described by reference to a survey of the land that is lodged at the time at which the parcel of Torrens land is created; that is, at the time it is entered into the Register. Without a survey, land cannot be registered as Torrens Title land.

Folios [6.4]

The Registrar creates a distinct folio (with its own reference number) in the Register for each parcel of Torrens land, by recording a description of the land, a description of the owner and any estates or interests that burden the land. Land is considered to be included in the Register upon the creation of a folio. In each jurisdiction, the Registrar creates a distinctive reference to each folio. [page 61]

Certificate of Title [6.5]

The Certificate of Title for a Torrens folio is now a copy of all of the current interests recorded on the relevant folio. The Certificate of Title is evidence of an interest in land having been registered. As such, the Certificate of Title is of vital importance to any person dealing with the relevant folio, since it details all interests affecting that land. In order for a dealing to be registered, it is usual for the Certificate of Title to be produced to the Registrar in order to enable registration of a dealing to occur.4 The following diagram is a representation of what a Certificate of Title or folio extract

may look like. Diagram 6.1: Example of certificate of title/folio extract Lot 69 in Deposited Plan 4203 County of Cumberland in the Parish of Bankstown

Folio Identifier 69/4203

First Schedule Sam and Nour Jaider as tenants in common in equal shares (T 43563) Second Schedule Mortgage to the ANZ Banking Corporation (M 546565) Right of way (T 5765) Easement for drainage in favour of Sydney Water Subject to the reservations contained in the Crown Grant Deed of Convenant

Registered proprietor [6.6]

A registered proprietor of an interest in Torrens land is the person who holds an interest in the land. For example, for an ownership interest, the registered proprietor is the person who is recorded as the current transferee of the property and current owner of the land. However, owners of the property are not the only registered proprietors for the purposes of the Torrens legislation. A registered proprietor of a mortgage is the mortgagee whose interest is recorded in the Register as holding a mortgage interest that burdens the folio. Another example of a registered proprietor is the holder of a registered leasehold interest, referred to as the registered proprietor of a leasehold estate in the land. [page 62]

Dealings and instruments [6.7]

All registered interests in Torrens land have to be created by way of instrument. As you will see in Chapter 7, an instrument takes effect as a deed upon registration. This means that only upon registration of the instrument does the legal estate or interest being conveyed pass to the registered proprietor. These dealings must be in the current form provided for under the Torrens legislation in force from time to time in the relevant jurisdiction in which the interest is being created. Just like each folio, each one of these dealings is also given a distinctive reference number by the Registrar in the Register.

Registrable interests [6.8]

In most jurisdictions in Australia, the following interests are dealings which can be included in the Register: fee simple estates; life estates; long-term leases; mortgages; and easements.

[6.9]

Further, other types of dealings can be recorded on the Register. These include freehold covenants and transmissions; for example, where a joint tenant dies and the surviving joint tenant submits a notice of the death to the Registrar, to enable a transfer into her or his name as the sole surviving joint tenant. The Registrar then simply records the transmission in the surviving joint tenant’s name.

Indefeasibility of registered proprietor

[6.10]

Indefeasibility of a registered proprietor’s title is one of the core concepts of the Torrens system. In each jurisdiction throughout Australia, the Torrens legislation provides that a registered proprietor is subject only to such estates and interests as are recorded (notified) on the Register. With the exception of some of the statutory exceptions that we will look at in this chapter, a registered proprietor takes her or his estate in Torrens land free of (not subject to) any interest or estate that is not recorded on the Register.5 [page 63]

The key concepts of the Register — title by registration and indefeasibility of title [6.11]

As noted, the key feature of the Torrens system is that it is not a system of registration of title but a system of title by registration. The system is said to reflect three principles: the mirror principle; the curtain principle; and the insurance principle.6

[6.12]

The mirror principle is that the Register reflects all interests that currently exist in a parcel of Torrens land. There is no need to go behind the Register to determine whether any other interest exists for that parcel. This has also been referred to as the concept that ‘the Register is everything’.7

[6.13]

The curtain principle is simply that persons dealing with registered proprietors do not have to go to the trouble and expense of going behind the Register in order to investigate the history of any registered proprietor’s title to satisfy themselves of its validity.8 This is in direct contrast to the

conveyancing procedure which exists for Old System Title land (see [7.15]). [6.14]

The insurance principle operates so that no innocent party whose interest is defeated because of the operation of the mirror and curtain principles has to suffer loss. This occurs because the Torrens legislation itself provides for compensation to be payable to any person who has lost an interest in Torrens land in this way.9

[6.15]

Each of these principles establishes the foundations of the idea of indefeasibility of title. Indefeasibility of title simply means that a registered interest is not able to be defeated by a claim of defectiveness of a registered proprietor’s title; that is, an indefeasible title is unimpeachable in the face of preregistration defects of that interest.10

How does the principle of indefeasibility operate? Deferred vs immediate indefeasibility [6.16]

Two principles emerge from the decided cases on how to interpret the key sections of the Torrens legislation in each jurisdiction on indefeasibility of title for Torrens land. These two principles are known as ‘deferred indefeasibility’ and ‘immediate indefeasibility’.

[6.17]

Deferred indefeasibility means that, if the instrument of the person attempting to take an interest is void, then that person is not able to defeat a claim by the true owner of [page 64]

the land.11 This is because indefeasibility of title is deferred to the next person that is to be registered as the registered proprietor. This is illustrated in the following diagram. Diagram 6.2: Deferred indefeasibility of title

[6.18]

The principle of deferred indefeasibility received judicial support in Australia until 1967 and the decision of the Privy Council in Frazer v Walker [1967] 1 AC 569. In that case, Mrs Frazer had forged her husband’s signature to obtain a new mortgage on their jointly-owned property. The new mortgagees registered their mortgage. There was a default by the mortgagor. The mortgagees exercised their power of sale and sold the property to Mr Walker. Mr Frazer, the innocent victim, sought to be re-instated to the Register as the owner of the property. Even if the principle of deferred indefeasibility was applied to the facts, Mr Frazer was bound to lose, because the mortgagees had on-sold the property to Mr Walker; even though the mortgagees had taken their interest on the basis of void instruments (a forged mortgage), they had already passed their interest in the land to an innocent person in the chain of dealings on the property (Walker). The court made it clear that the principle of deferred indefeasibility did not apply, finding instead that the principle of immediate indefeasibility applied to registered interests under Torrens land. The court said that, upon registration of the mortgage, the mortgagees had obtained an immediately indefeasible title. The operation of

the concept of immediate indefeasibility in Frazer v Walker is represented in the following diagram. Diagram 6.3: Immediate indefeasibility of title

[page 65] [6.19]

The principle of immediate indefeasibility was affirmed by the High Court in its decision in Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205. In that case, the Breskvars had wanted to borrow money from Mr Petrie. Instead of entering into a mortgage to secure the loan, the Breskvars executed a memorandum of transfer of their ownership interest in the land. They did not complete the section in the memorandum of transfer which provided for the name of the transferee. The Breskvars gave evidence at the hearing that their intention was that the transfer was to act only as a security for Mr Petrie to hold until the discharge of the loan. It was not a transfer of the land; that is, the land would be transferred to Mr Petrie in the event that the Breskvars did not discharge the loan. Instead, Mr Petrie fraudulently inserted the name of his grandson, Mr Wall, into the transferee section of the executed transfer, which was then registered. Mr Wall then sold the land to Alban Pty Ltd. Before the transfer to Alban was registered, the Breskvars found out what had occurred and lodged a caveat to prevent any further dealings on the title. The High Court found in favour of Mr Wall, employing the principle of immediate indefeasibility. It found that the conclusiveness of the Certificate of Title (and therefore the Register) ‘is definitive

of the title of the registered proprietor’ (at 385); therefore, any registration that resulted from a void instrument was effective according to the terms of the registration, and it did not matter what was the cause or reason for the ineffectiveness of the instrument.

What is protected by registration? — the extent of indefeasibility [6.20]

While it is simple enough to state that, upon registration, a registered proprietor obtains immediate indefeasibility of title/interest, more recent decisions have made it clear that the extent of indefeasibility, that is, what exactly is protected by registration, is often a critical question in any Torrens dispute. In this section, we examine some of the cases dealing with the extent, or ‘umbrella’, of indefeasibility under the Torrens legislation and the limitations of indefeasibility of title.

Leases and the extent of indefeasibility Options to renew in registered leases [6.21]

In the area of leases, not every provision in a registered lease necessarily receives the benefit of indefeasibility of title. In Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326; 9 ALR 39, the High Court had to deal with the question of the extent of indefeasibility of covenants in a lease relating to the renewal of the lease. The registered lease contained a covenant that provided for an option to renew the lease. According to Gibbs J, whether or not the option was protected depended upon whether or not the covenant was viewed as being a personal right only or whether it formed part of the estate: it would be protected by

operation of the principle of indefeasibility if the covenant ‘touched and concerned’ the land. His Honour found that the right of renewal of the lease was so intimately connected with the term [page 66] granted to the lessee (which was registered) that it was regarded as part of the estate or interest being created and, upon registration, the option was entitled to the same priority as the original term of the lease: at 345. In other words, his Honour found that the option received the benefit of indefeasibility of title because of its intimate connection with the registered leasehold estate. Barwick CJ added an additional requirement to the requirement that the covenant touch and concern the land. His Honour said that, to be protected by indefeasibility of title, the covenant needed to be specifically enforceable. Therefore, it was not just a matter of whether the covenant was intimately connected to the land, but also whether the covenant would have been enforceable under the general law.12

Leases and options to purchase [6.22]

The approach taken by the courts to protecting options to renew in registered leases has not been replicated for options to purchase. In Mercantile Credits, the High Court found that an option to purchase the land was not protected by indefeasibility of title because it did not directly affect or concern the land, and was not a provision to the continuance of the lease term. In this respect, the court said that the covenant to purchase was a collateral covenant. Statutory intervention has taken place which provides that, if the covenant for purchase has been included in a registered

lease and the option to purchase is exercised, then the lessor is bound to execute a transfer of the land. The effect of the legislation is therefore to make options to purchase indefeasible.13

Void clauses and indefeasibility in leases [6.23]

Some cases have dealt with the question of whether or not covenants that would have been void under the general law can be protected by registration. In Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313, the New South Wales Court of Appeal had to deal with covenants that would have been made void under the general law by application of the rule in Pigot’s Case.14 In Big Country, a land developer acquired property and entered into a lease. The lease was not registered before it was subsequently assigned. The original assignees then assigned the lease to Karacominakis (who registered the assignment), who in turn assigned the lease. The third assignment was not registered. The third assignees then defaulted on the payment of the rent. The lessor sued the original lessee and each of the three assignees of the lease. The original lessee and all the assignees sought to rely on the fact that a material and unauthorised alteration to the lease had been made (in this case, by the addition of a mortgage as a prior encumbrance) [page 67] which therefore rendered the lease void under the general law. Accordingly, they argued that, since the covenant was void under the general law, it could not be enforced, despite its registration. The court found that the lessors were entitled to enforce the covenant even though, under the

general law, the lease would have been void. Giles JA found that, upon registration, entitlements beyond those recognised at general law were protected because of the act of registration; however, only those covenants that could be considered to be ‘essential elements’ of the lease could be protected, and therefore enforceable against the assignees. In this case, the covenant for rent was such an essential part of the transaction.15

Mortgages, all moneys clauses and indefeasibility [6.24]

Mortgages can be drafted in a number of ways. The old form of mortgage is expressed to secure a lump-sum amount that is stated in the memorandum of mortgage itself. The old form of mortgage records the amount of money that was actually lent by the mortgagee. Today, it is very common for mortgagees to include in any registered memorandum of mortgage a provision to secure ‘all moneys lent under the mortgage’. These ‘all moneys mortgages’ attempt to secure not just the borrowers indebtedness under a specific loan contract with the lender, but also any and all money that is advanced at any time to the borrower (usually under a number of separate loan contracts). These mortgages also usually state that the mortgage will secure the repayment of any advances made by the lender to the borrower made from time to time under any loan agreement. When you read an all moneys mortgage, it is not possible to ascertain from documents contained in the Register all the specifics relating to the mortgage, including the amount of total indebtedness of the mortagor, because these details are contained (potentially) in a series of other documents which are never part of the Register. Specifically, the details of any loans are usually contained in separate loan agreements which are not registered. In these cases, the question that arises is, if the mortgage is registered, does the indefeasibility obtained under the mortgage attach to the

individual loan agreements, since those loan agreements are not registered? The cases in this area make it clear that the answer to this question turns upon a court’s construction of the registered mortgage. [6.25]

In PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643, the court found that, even though a debt in an all moneys clause is not created by the mortgage (because it is created by the loan agreement), a registered mortgagee may still receive the benefits of indefeasibility of title, including for amounts lent to the borrower under separate loan agreements that are not recorded on the Register. However, problems arise when either a registered mortgage containing an all moneys clause, or a loan agreement under which moneys have been lent, are void; for example, where a fraudulent party creates a fraudulent mortgage or forges a signature on the mortgage and the [page 68] loan agreement. In those circumstances, although the mortgage is registered (and registration usually cures void instruments) the indebtedness may, in fact, be created under the loan agreement, not the mortgage. This means that a debt never arose, because the loan agreement was always a nullity: there is nothing which the registered mortgage can secure; in other words, indefeasibility of the mortgage does not fix the problem of the void loan agreement. The loan agreement remains unregistered, but it is in the loan agreement that the personal covenant as to the indebtedness of the borrower (mortgagor) is found. Since this document does not, technically, exist at all (because it is void) there is simply no debt for the mortgage to secure.

[6.26]

The only exception to this problem is where, as a matter of

construction of the mortgage, it can be argued that the loan agreement has been incorporated into the terms of the registered mortgage.16 In that circumstance, the loan agreement will also receive the benefits of indefeasibility of title. As a matter of construction, the mortgage needs to contain words that effectively incorporate the loan agreement/s or facilities, under which the amount sought to be recovered arise, into the registered mortgage. Theoretically, this is possible; however, as the cases suggest, in practice such incorporation is difficult to achieve. These issues of construction are often very complicated, because it is now common practice for major lenders throughout Australia to attempt to incorporate the provisions of other registered documents into a mortgage as well as separate loan agreements and loan facilities. All of these documents need to be construed together. As the personal covenant to repay any indebtedness may, as a matter of construction, exist anywhere in any of these documents, establishing exactly how much of any debt is actually secured by the registered mortgage is often a very complicated issue of construction of a series of different and, often, conflicting documents.

Joint mortgagors and indefeasibility [6.27]

In cases where there are two mortgagors of the property, disputes about the extent of indefeasibility of mortgages often arise. For example, in Yazgi v Permanent Custodians Ltd (2007) 13 BPR 24,567; [2007] NSWCA 240, Mrs Yazgi was jointly registered with her husband as a proprietor of her home. The registered mortgage specified that they were joint mortgagors; however, Mrs Yazgi had never executed either the mortgage or any loan agreement with Permanent Custodians (the mortgagee). Mr Yazgi had forged her signature on both documents. The loan agreement was described as a ‘secured agreement’. The question in this case

was whether the void instruments (the registered mortgage and the loan agreement) secured Mrs Yazgi’s indebtedness of her interest in the property. As a matter of construction, the court found that the indefeasibility enjoyed by the mortgagee was only limited to securing Mr Yazgi’s interest in the mortgaged property. The mortgage could not be construed in such a way that it incorporated the loan agreement. Any indebtedness arose under the loan agreement, not the mortgage. [page 69] As the loan agreement was void, no indebtedness arose on which the registered mortgage could operate. The decision makes it clear that, if a loan agreement is not properly incorporated into the registered mortgage, then the personal covenant by the mortgagor to repay cannot be relied upon by the mortgagee to recover moneys advanced under the loan agreement.17 [6.28]

A similar issue arose in Perpetual Trustees Victoria Ltd v English (2010) 14 BPR 27,339; [2010] NSWCA 32. In that case, a husband and wife were separated but had not altered the title of their property, which was still owned by them as joint tenants. The husband forged his wife’s signature on a loan application made to the mortgagee of the property. The loan stated that it was offered to ‘you’, which was defined as including both the husband and the wife. The loan offer required that it be signed by both parties. The husband also forged his wife’s signature on the mortgage. The mortgage incorporated another memorandum, but not one that specified the extent of the wife’s liability. Default then occurred under the mortgage. The New South Wales Court of Appeal found that the wife was not liable for any moneys

advanced to the husband. The court found that, in order to attract the benefits of indefeasibility of title, a loan agreement which sets out a debt has to be incorporated into the mortgage. Alternatively, the debt must be specifically mentioned in that mortgage in order to obtain the benefits of indefeasibility of title. The proper construction of the mortgage in this case was that it only secured moneys that were already secured under the loan agreement. As the loan agreement secured nothing, nothing in turn was secured under the registered mortgage.18

Joint and several liability under joint mortgages and indefeasibility [6.29]

Cases like Yazgi and English highlight that whether or not a mortgage is expressed to be ‘joint and several’ may prove critical. For example, in Van den Heuvel v Perpetual Trustees of Victoria Ltd (2010) 15 BPR 28,647; [2010] NSWCA 171, a husband had forged his wife’s signature on a mortgage which was then registered. The mortgage was expressed to secure ‘any present or future agreement between me or us, or any one of us’. In other words, the mortgage expressed the liability of the mortgagers to be joint and several. Where liability of mortgagors is joint and several liability, a mortgagee can make a choice as to whom she or he sues for default under the mortgage (and thereby realises the value of the security against). If liability is joint, then the mortgage must be realised against both mortgagors. The problems with [page 70] attempting this are highlighted in Yazgi and English, where the court construed liability to be only enforceable against

both of the joint mortgagors. Since, as a matter of construction in those cases, liability could not be enforced against both as mortgagors, the security failed. However, if liability under the mortgage is expressed to be both joint and several (or even just several), then a mortgagee can enforce the mortgage to realise the value of the security against one of the mortgagors (chosen by the mortgagee). The New South Wales Court of Appeal19 affirmed the decision of the trial judge that the moneys lent to the husband were enforceable under the mortgage. The critical factor was that there was nothing in the mortgage agreement that required both mortgagors to the mortgage to sign any loan offer.20 Accordingly, the mortgage secured the moneys lent.21

Competing priorities against registered interests in Torrens land — exceptions to the indefeasibility of title of the registered proprietor [6.30]

In each jurisdiction in Australia, a series of exceptions to the otherwise indefeasible title of a registered proprietor are contained within the Torrens legislation.22 Although the precise terms vary from one jurisdiction to another, they fall within the following categories: fraud by the registered proprietor (including by her or his agents); rights existing against the registered proprietor of the interest ‘in personam’; omitted or misdescribed easements; short-term leases; adverse possession; overriding statutes;

whether or not the person who is seeking to protect an interest took their interest as a volunteer (some jurisdictions only); other provisions of the Torrens legislation; wrong description of parcels; prior folios; any estates or interests already recorded on the folio of the relevant land; grants and reservations contained in the original grant for the land; and powers of the Registrar to correct the Register. [page 71] [6.31]

In the next section, we will examine when each of these exceptions to the indefeasibility of a registered proprietor operates. Each of these exceptions, like the matters dealt with regarding the extent of indefeasibility, has the potential to reduce the indefeasibility of title of the registered proprietor or to defeat any such title completely.

Fraud by the registered proprietor [6.32]

The Torrens legislation provides an exception to a registered proprietor’s indefeasible title if she or he has engaged in fraud in obtaining her or his interest. The scenarios in which fraud as an exception to indefeasibility is usually argued include: where the current registered proprietor has become registered as a result of an earlier registered proprietor being defrauded; where the present registered proprietor is fraudulently

seeking to rely upon registration to defeat an earlier interest; and where the registered proprietor is attempting to perpetrate fraud on the Registrar by presenting a false document for registration.

Fraud and ‘mere notice’ [6.33]

It is not every type of fraud that is known to common law that is relevant for the purposes of the fraud exception to indefeasibility under the Torrens legislation. The High Court has interpreted what constitutes fraud within the meaning of the Torrens legislation, which contemplates a type of statutory fraud. This statutory fraud goes beyond the common law concept of fraud23 but does not necessarily go as far as what is categorised as ‘equitable fraud’. The term ‘fraud’ is not defined by the Torrens legislation; as such, its meaning has had to be interpreted by courts in order to understand what types of actions by a registered proprietor are included in this exception to indefeasibility. The following conduct has been found by the courts not to amount to fraud under the fraud exception to indefeasibility: mere notice of a prior unregistered interest; followed by registration of that interest; and relying upon immediate indefeasibility of title to defeat the unregistered interest.24

[6.34]

The High Court’s decision in Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407; 106 ALR 595 provides a good example of this concept of fraud in operation. In that case, the High Court had to determine whether a purchaser was bound by an unregistered lease interest of which it had actual notice prior to registration of its later purchase interest. Mason CJ, Dawson and McHugh JJ found that actual notice by the purchaser of the earlier leasehold interest did not amount to

fraud: at 418–21. Accordingly, the purchaser was not bound to recognise the lease. [page 72]

Actual fraud [6.35]

For the purposes of the Torrens legislation, fraud has been interpreted to mean ‘actual fraud’,25 ‘personal dishonesty’26 or ‘moral turpitude’.27 However, the question arises: ‘What is the difference between mere notice and conduct that is sufficient to amount to fraud’? In Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491, 322 acres of land had been granted to Eusope. Loke Yew became the owner of 58 acres of that land, but he did not register his interest. In the intervening period, Port Swettenham negotiated the purchase of the whole 322 acres from Eusope. Eusope agreed to sell the land to Port Swettenham provided that Loke Yew’s interest was not touched. Port Swettenham agreed, signing a document to that effect. After the sale was complete, Port Swettenham then registered the whole 322 acres to itself and refused to recognise that Loke Yew had any rights. The court found that the actions of Port Swettenham went beyond ‘mere notice’ of Loke Yew’s interest. The representations that it made to Eusope in order to have him execute the transfer were false and fraudulently made, since they were made for the purpose of inducing Eusope to execute the conveyance on a false premise. Assurances had been given by Port Swettenham to preserve and acknowledge the unregistered interest and those assurances were the inducement to have Eusope execute the documents to sell the land to Port Swettenham. The intention of Port Swettenham was dishonest from the start and, therefore, the conduct of Port Swettenham was found to be fraudulent.

Fraud and wilful blindness [6.36]

In some cases, the conduct of the registered proprietor amounts to what is described as ‘wilful blindness’. However, the question is whether wilful blindness amounts to fraud under the fraud exception to indefeasibility. In Assets Co Ltd v Mere Roihi [1905] AC 176 and Waimiha Sawmilling Co v Waione Timber Co [1923] NZLR 1137, statements were made by each court to the effect that, where a registered proprietor might have discovered that fraud existed if she or he had made further inquiries, that does not, of itself, establish fraud under the legislation. However, if the evidence suggests that there was a basis to arouse suspicion from what she or he knew, and then she or he abstained from making inquiries for fear of learning the truth, fraud might be established.28 This approach has been followed in Australia in Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188, where the court refused to find that fraud existed in circumstances in which a mortgage had not been properly attested (signature witnessed). The court found that the mortgagee had no knowledge of any facts that would have given rise to a suspicion that there was anything improper with the attestation of signatures on the mortgage or that the mortgage had not been authorised. [page 73]

Equitable fraud [6.37]

In Bahr v Nicolay (No 2) (1988) 164 CLR 604; 78 ALR 1, Mason CJ and Dawson J said that ‘not … all species of equitable fraud stand outside the concept of statutory fraud’: at 615. The case involved a purchase of land in Western Australia. Mr and Mrs Bahr were the original owners of the

property. They sold their interest to Mr Nicolay. Mr Nicolay agreed to lease the property back to the Bahrs for a term of 3 years, with an option to purchase the land at the expiry of the lease term. However, during the 3-year lease term, Mr Nicolay sold the property to Mr and Mrs Thompson. A condition of that contract of sale was that the Thompsons acknowledged the arrangement made between the Bahrs and Nicolay. After registration of the transfer from Nicolay to the Thompsons, the Thompsons confirmed that they intended to sell the property to the Bahrs if the option to purchase was exercised. The Thompsons later received legal advice that they were not obliged to sell the property to the Bahrs. The High Court unanimously decided that the Thompsons were subject to the interest of the Bahrs which they had acknowledged; however the basis for reaching that conclusion differed between the justices sitting in the case. [6.38]

Mason CJ and Dawson J relied upon the fraud exception, and affirmed that notice of itself was not fraud and that, under the Torrens legislation, fraud requires personal dishonesty or moral turpitude. Their Honours said that fraud under the legislation was not confined to actual fraud.29 For their Honours, fraud was not confined to fraudulent conduct which enabled a registered proprietor to obtain registration (actual fraud), but extended to the subsequent dishonest repudiation or a prior interest which the registered proprietor has acknowledged, or agreed to recognise, as a basis for obtaining title: at 615. For their Honours, such a repudiation was fraudulent within the meaning of the legislation because it had the objective of destroying the unregistered interest despite the fact that it was the undertaking to recognise the unregistered interest that led to the obtaining of the registered proprietor’s interest: at 615–16.

[6.39]

Wilson and Toohey JJ decided in favour of the Bahrs on a

different basis. Neither was prepared to extend the concept of fraud under the legislation in the same way as Mason CJ and Dawson J. Their Honours affirmed that fraud under the Torrens legislation meant actual fraud: at 630–1. The practical effect of their Honours’ decision is that only fraudulent acts taking place prior to the date of registration of the interest under challenge are relevant to the fraud exception on the views of Wilson and Toohey JJ: at 630–1.30 Each of their Honours preferred to determine the matter on the basis of an in personam exception to the Thompsons’ title: see [6.52]. [6.40]

In Grigic v Australia & New Zealand Banking Group Ltd (1994) 33 NSWLR 202, the New South Wales Court of Appeal found that, if equitable fraud were to be included as part of the concept of fraud under the Torrens legislation, then it would still be necessary to demonstrate personal dishonesty or moral turpitude in order to [page 74] establish the exception in any event: at 514 per Powell JA (with whom Meagher and Handley JJA agreed).

Fraud on the Registrar [6.41]

As noted, one of the categories in which the fraud exception arises occurs where there has been a fraud committed on the Registrar; that is, a document is presented for registration as being true and correct but the document is, in fact, false. For example, in Australian Guarantee Corp v De Jager [1984] VR 483, employees of the mortgagee signed a declaration that they had witnessed the signature on the mortgage when they had not done so. This was found to constitute a fraud on the

Registrar because, in presenting the document for registration, this conduct was representing that the matters contained within it were correct to the Registrar when, in fact, they were not.31 [6.42]

However, in Russo v Bendigo Bank Ltd [1999] 3 VR 376, a false attestation made by a law clerk was found not to amount to fraud, because the clerk did not understand the nature of the attestation she had made32 or that to make a false attestation was dishonest. Since dishonesty is required to establish fraud, the exception was not made out. Ormiston J said that, although the clerk knew that what she signed was false, she did not understand that it was dishonest: at [42].

Fraud — actions by agents [6.43]

In order to establish fraud on the part of the registered proprietor where the acts of another individual are the actions that are alleged to be fraudulent, it is necessary to determine on whose behalf that person was acting: was it on her or his own behalf, on behalf of another person, or on behalf of the registered proprietor? It is only if the agent can be regarded as acting on behalf of the registered proprietor that her or his actions can be imputed to the registered proprietor. For example, in Schultz v Corwill Properties Pty Ltd [1969] 2 NSWLR 576, a solicitor had forged the signature of the owner of the property to a mortgage in favour of a mortgagee for whom the solicitor was also acting. The mortgagee, however, had no knowledge of the fraudulent actions of the solicitor. The court found that the solicitor’s fraud could not be imputed to the mortgagee, because the solicitor had not been acting within the scope of his actual or apparent authority at the time at which he created the forgery. Instead, he was acting on a frolic of his own.

[6.44]

In Schultz, Street J discussed the principles applicable to

determining agency in these circumstances. His Honour noted that these questions on agency are relevant in two circumstances: to determine whether fraud has actually been committed by the registered proprietor because of the actions of her or his agent; and to determine whether an agent has knowledge that a fraud has been committed by someone else. [page 75] [6.45]

In the first scenario, the ordinary principles of the law of agency (responsibility of principal for agent, referred to as ‘respondeat superior’) are applied. This means that if the act of the agent is within the scope of the agent’s actual or apparent authority, then the principal is bound by the actions of her or his agent, whether or not the agent was acting fraudulently and in pursuit of her or his own purposes and not those of the principal. However, in the second scenario, the ordinary rules of agency do not apply. If the agent has knowledge that a fraud has been committed, that knowledge has the potential to impeach the registered proprietor’s title (because that knowledge is to be imputed to the principle/registered proprietor). The knowledge of the agent will be imputed where there is a duty on the agent to communicate the information to the principal. The presumption in this circumstance is regarded as being an irrebuttable presumption, meaning that evidence cannot be admitted to prove, in fact, that knowledge of the fraud was not communicated to the principal. Despite this presumption, there is an exception: if the matter which is alleged to affect the principal with notice is the agent’s own fraud, then the principal is permitted to give evidence

showing that she or he was ignorant of the true facts (so that the fraud is not imputed to the registered proprietor). [6.46]

In summary, the rules on agency and fraud are as follows: if a registered proprietor becomes registered through an agent’s fraudulent activity, then the question is whether that activity was conduct within actual or apparent authority of the agent; if an agent has knowledge of a fraud, then the question is whether her or his knowledge can be imputed to the registered proprietor. That can be done where: –

the agent had a duty to communicate any matter to the principal; and – the agent was not herself or himself a party to the fraud. If the fraud includes the agent committing a fraud on her or his principal, then the principal is permitted to give evidence to rebut the presumption that she or he had any knowledge of the fraud. In those circumstances, knowledge of fraud by the agent is not necessarily imputed to the principal.

Personal equities/in personam exception to indefeasibility [6.47]

In practice, the in personam exception is one of the most common exceptions to indefeasibility. It is often pleaded and run as an exception to indefeasibility in cases in which fraud is also alleged. This is based, in part, on the reasoning of the High Court in Bahr v Nicolay (No 2) (1988) 164 CLR 604; 78 ALR 1. It is also based upon the reality that fraud is often very difficult to establish from available evidence. Further, the rules applicable to legal practitioners include strict rules about making allegations of fraud against any person, with penalties applying when allegations of fraud are made by a legal practitioner without sufficient evidence. In addition,

rules on pleading require detailed particulars of such allegations. For all of these reasons, it is usually only in very clear-cut cases that most responsible practitioners allege fraud. In each case, there is often little to be gained in practical terms in alleging fraud that [page 76] cannot already be achieved by establishing an exception to indefeasibility under the in personam exception, because of the ability to use the judgments of Wilson and Toohey JJ and Brennan J in Bahr v Nicolay: see [6.52]–[6.53]. [6.48]

The possibilities of categories of conduct that can fall within this exception have recently been discussed by Professor Brendan Edgeworth and Associate Professor Lyria BennettMoses.33 In this book, we will examine the most traditional causes of action that fall within the in personam exception. For those interested in a more detailed study, the analysis by Edgeworth and Bennett-Moses is highly recommended, particularly in respect of the more recent use being made by legal practitioners of the in personam exception to indefeasibility of a registered proprietor’s title.

What do we mean by a right ‘in personam’? [6.49]

A right ‘in personam’, also referred to as a ‘personal equity’, arises because of an obligation of conscience created by the registered proprietor whose title is being impeached. The obligation arises out of conduct of the registered proprietor, where that conduct gives rise to either a legal or an equitable obligation by the registered proprietor in favour of another person. An in personam right allows the person that has the benefit of that right to enforce a claim that is personal to her

or him against the registered proprietor’s title. The basis of an exception to the indefeasibility of the registered proprietor’s title is created because the registered proprietor is not permitted to avoid fulfilling legal or equitable obligations that have been created by her or his actions. In order to be able to protect a right, the person alleging that she or he has such a right must be able to point to a cause of action known either to the law or to equity. Although we use the phrase ‘personal equity’, rights which arise under this exception to indefeasibility are not limited to equitable causes of action, and also include legal causes of action. [6.50]

The following is a broad list of the types of conduct that can be committed by a registered proprietor giving rise (either at law or in equity) to an in personam exception to a registered proprietor’s title: where the registered proprietor has become registered as a result of an estoppel which binds her or him to uphold an interest that does not appear on the title; or where the conduct of the registered proprietor has resulted in the loss or misuse of the Certificate of Title or where the conduct of the registered proprietor does not reflect the true course of dealings with the property and leads to the creation of another interest in the property; or where the registered proprietor has breached a fiduciary duty or has acted in breach of trust; where the conduct of the registered proprietor leads to a dealing being regarded as voidable or capable of being set aside for mistake; or [page 77] where a dealing has become registered as a result of the

registered proprietor’s unconscionable or unconscientious conduct. [6.51]

We will consider some examples under each of these categories in order to get an idea of the type of conduct that can give rise to a claim made under the in personam exception.

Taking an interest by agreeing to recognise an earlier unregistered interest [6.52]

The leading decision in this category of conduct is Bahr v Nicolay (No 2) (1988) 164 CLR 604; 78 ALR 1. As we have noted, the different Justices determined the case on different bases. Mason CJ and Dawson J determined the case on the basis that the fraud exception to indefeasibility of title applied in the circumstances. Wilson and Toohey JJ found that no fraud existed, since there was no design at the time at which the transfer was executed that was intended to cheat the Bahrs of any known existing right in the property. However, their Honours did find that an in personam exception had been made out on the facts, because the registered proprietor (Thompson) had taken his interest in the land on the basis that he would recognise the Bahr’s interest in the land. Their Honours found that this gave rise to either the existence of a constructive trust (of which Thompson was the trustee, who was duty-bound to act in the best interests of the beneficiaries, the Bahrs) or because the conduct gave rise to a personal equity by the Bahrs against Thompson’s title. Their Honours found that the impugned conduct of the registered proprietor for this exception to indefeasibility could pre-date or post-date registration.

[6.53]

Brennan J found that, if a registered proprietor purchases her or his interest in land on terms that she or he would be bound by that interest, then the registered proprietor will

take her or his interest in the land subject to the prior interest that she or he agreed to recognise. His Honour said that the indefeasibility of title provided to a registered proprietor under the Torrens legislation was designed to protect a transferee from defects in the title of the transferor. It was not designed to free the registered proprietor from interests with which she or he has burdened her or his own title. Despite finding that he would not deal with the argument as to whether the subsequent denial of a previously recognised interest amounted to fraud,34 his Honour found that it was fraudulent to deny an unregistered interest to which one has undertaken to be subject. Like Wilson and Toohey JJ, his Honour imposed a constructive trust on Thompson in the circumstances.35 On the opinions of these justices, Bahr v Nicolay is also then authority for the proposition that taking an interest in property by agreeing to be [page 78] subject to a prior interest can amount to an in personam exception to indefeasibility.36 At the very least, the joint judgment of Wilson and Toohey JJ and the judgment of Brennan J indicate that a court will be prepared to impose a constructive trust in such circumstances, which would bind the current registered proprietor (as trustee) in favour of the prior interest (as beneficiaries of the trust).37 [6.54]

Another example of the type of conduct that might give rise to an in personam exception in this category appears in Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32. In that case, Mrs Gosper was the registered proprietor of land which she had used as security for a mortgage with the mortgagee. Unknown to her, her husband

fraudulently arranged for further moneys to be advanced from the mortgagee. The mortgagee understood that security for that loan was to be provided by way of Mrs Gosper’s property. The mortgagee thus prepared a variation of mortgage and lodged it with the Registrar. In order to obtain registration of the variation, the mortgagee produced the Certificate of Title, which it still held as first registered mortgagee of Mrs Gosper’s original mortgage. The mortgagee later sought to enforce the variation of the mortgage against Mrs Gosper, arguing that it had an indefeasible interest for the entirety of the mortgage sum (including the fraudulent loan) since it had not been party to Mr Gosper’s fraud. Mrs Gosper argued that she had a personal equity which was enforceable against the mortgagee that would entitle her to be put back in the position she was in before the registration of the fraudulent mortgage variation. In the New South Wales Court of Appeal, Mahoney JA found38 that it was only because the mortgagee had used the Certificate of Title that it already held for the purpose of the original mortgage that it had been able to obtain registration of the variation of the mortgage. His Honour found that, since the mortgagee had no entitlement to use the Certificate of Title in the way in which it had (that is, without Mrs Gosper’s personal approval), a personal equity had been created which was enforceable against the mortgagee by Mrs Gosper. Accordingly, the mortgagee’s title for the variation of the mortgage was unenforceable against Mrs Gosper.

Loss/misuse of the Certificate of Title or dealings with the property not reflecting the true position [6.55]

Barry v Heider (1914) 19 CLR 197; 21 ALR 93 is a good illustration of the type of conduct that falls within this category. In that case, a registered proprietor (Barry) had

executed a transfer when mortgaging his property to the mortgagee, Mr Schmidt. He also gave Schmidt the Certificate of Title to the property. Schmidt then represented to Heider that he had purchased the property from Barry. Based on that, Heider lent [page 79] money to Schmidt and took a mortgage to secure the loan. Before Heider’s mortgage could be registered, Barry became aware of what had happened and commenced legal proceedings to prevent registration of Heider’s mortgage. The High Court found that Barry was subject to Heider’s mortgage by reason of an in personam exception to Barry’s title, because Barry had engaged in conduct that contributed to the creation of Heider’s interest in the property. By executing a document that did not reflect the true transaction between Barry and Schmidt, and by giving Schmidt the Certificate of Title, Barry had placed Schmidt in a position to represent that he was the true owner of the property and to thereby create other interests, such as the mortgage interest in favour of Heider.

Breach of trust [6.56]

The law in this area centres upon an application of what is referred to as the ‘doctrine in Barnes v Addy’ ((1873) LR 9 Ch App 244). The decision in this case has two limbs. The first limb (often referred to as the ‘knowing receipt’ limb of the doctrine in Barnes v Addy) is that if a person takes a transfer of property knowing that the transfer has been obtained or given in breach of trust, that person takes her or his interest in the property subject to the trust; that is, the recipient of the property holds her or his interest in the property as a

constructive trustee of the property. This means that that person holds her or his interest in the property on trust in favour of the beneficiaries of the trust. In Farah Constructions Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; 236 ALR 209; [2007] HCA 22, the High Court found that a registered proprietor who has acquired trust property cannot be characterised (by operation of the Torrens legislation) as having ‘received’ trust property from a trustee under the first limb in Barnes v Addy. This is because the title acquired by a registered proprietor under the Torrens system does not derive from the trustee but from the act of registration of the interest. The High Court found that the protection provided by the Torrens legislation is sufficient to defeat any preexisting unregistered equitable claim (such as a claim that a beneficiary of a trust may have against a trustee for breach of that trustee’s fiduciary duty) where it cannot be established that the registered proprietor engaged in any act of fraud. [6.57]

The second limb (referred to as the ‘accessory liability’ limb of Barnes v Addy) is applied to circumstances in which a party has knowingly assisted a trustee to breach the terms of a trust and misapplied (or misappropriated) trust property. Here, the registered proprietor is not regarded as having only received trust property; she or he has actually assisted (with knowledge) a trustee in a fraudulent and dishonest design on the part of the trustee/fiduciary. Therefore, she or he will be regarded as having taken her or his interest as a trustee, and a constructive trust will be imposed by the court to achieve that result. According to the High Court in Farah, this limb of Barnes v Addy coincides with the fraud exception to indefeasibility of title under the Torrens legislation. Thus, the result of the decision in Farah is that a right in personam cannot arise by virtue of the first limb of Barnes v Addy unless the registered proprietor whose title is impeached has engaged in an act of actual fraud (which

would fall [page 80] under the fraud exception to indefeasibility of title). However, under the second limb of Barnes v Addy, a transfer that has been created in breach of trust can be set aside, since the transferee will be regarded as having participated in the breach of trust. The decision in Farah has since been followed in a number of cases.39

Mistake [6.58]

The Torrens legislation does not specifically recognise mistake as an exception to a registered proprietor’s indefeasible title. However, if a personal equity can be established against a registered proprietor who has acted unconscionably in taking advantage of a transferor’s unilateral mistake, or where there has been a mutual mistake, then another basis for an exception to indefeasibility is made out, since a cause of action known to the law can be made out.40 For example, in Lukacs v Wood (1978) 19 SASR 520, the plaintiff had mistakenly transferred the wrong lot to the defendant. The court ordered the parties to transfer to each other lots, so as to recreate the intended position (which had not occurred only as a result of common mistake). In Tutt v Doyle [1997] 42 NSWLR 10, a mistake in the transfer meant that Tutt had knowingly received a larger block than was intended. The court found that it was unconscionable for Tutt to knowingly take advantage of Doyle’s mistake, and ordered that Tutt transfer back to Doyle the additional land.

[6.59]

As Bennett-Moses and Edgeworth have noted, this is a

difficult and controversial category within the in personam exception, but courts have consistently allowed a registered proprietor’s title to be subject to alteration based upon the doctrine.41 For the authors, the cases are consistent with the Torrens legislation, because when courts order rescission as a result of mistake they are effectively undoing a transaction; that is, the plaintiff is not arguing that it has a current estate or interest in land contrary to the Register. Rather, what the plaintiff is arguing is that, due to the circumstances in which a mistake was made (which takes into account the state of knowledge of a defendant), the court ought to order rescission of the relevant transaction. The orders that a court can make for such rescission include orders that the defendant transfer to the plaintiff an estate or interest in land (which will then have the effect of amending the Register).42

Overriding statutes [6.60]

Under the ordinary rules applicable to statutes, later legislation of a parliament will override any former inconsistent statute. This means that provisions of the Torrens legislation have, potentially, been either expressly or impliedly repealed by later legislation; for example, later statutes have the potential to create interests in property without requiring registration of such interests. [page 81]

[6.61]

The leading decision in this area is the High Court’s decision in Hillpalm Pty Ltd v Heaven’s Door Pty Ltd (2004) 220 CLR 472; 211 ALR 588; [2004] HCA 59. In that case, land had been subdivided and a subdivision plan had been lodged with the Registrar that contained a diagram that

showed what was described as a ‘proposed right of way 10 wide’. Some years after the subdivision had been approved, the appellant purchased land that adjoined the respondent’s land. The respondent argued that it was entitled to a declaration that the appellant was in breach of conditions in the original subdivision plan, and argued that the appellant was obliged to create a 10 m wide carriageway burdening the appellant’s land. The provisions of the Local Government Act 1919 (NSW) permitted a party to enforce conditions of approval in subdivisions. Both the trial judge and the New South Wales Court of Appeal had found that this provision in the Local Government Act overrode what were considered to be the earlier inconsistent provisions on indefeasibility of title contained in the Real Property Act 1900 (NSW). However, the High Court by majority43 found that, in sealing the subdivision plan, the council had abandoned any insistence upon compliance with any conditions that had been imposed on the subdivision consent. This meant that there was no question of inconsistency in the circumstances between the two statutes. The subdivision plan merely indicated that the original developer had begun the subdivision with an intention to create an easement at some point in time in the future. The majority in the High Court found that this intention alone could not be binding upon the appellant; therefore, when the appellant registered its interest in its property it obtained an indefeasible title free from any encumbrance of the nature argued for by the respondent. [6.62]

As Hillpalm demonstrates, the cases in this area involve complex questions of statutory construction which are beyond the scope of this book to consider in detail. The decision in Hillpalm does, however, highlight that there must be a true inconsistency in the statutory provisions being compared in order to override the indefeasibility provisions of the Torrens legislation.44

Other estates or interests in land [6.63]

The Torrens legislation in each jurisdiction also provides that the interest of a registered proprietor is subject to such other estates and interests as may be recorded in the Register.45 In Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73; [1971] ALR 551, there were two adjoining blocks of land. The Certificate [page 82] of Title for each block referred to a right of way. The Register contained a transfer which included the terms ‘right of way as created and more fully set out in … Transfer No 7922 affecting parcels [A] and [B]’. The Registrar had interpreted this as creating an easement burdening Bursill’s land. The High Court did not agree with the Registrar’s interpretation of the rights created in the transfer, finding instead that the transfer contained not only a right of way but also a conveyance (transfer) of the airspace above the right of way (easement). Bursill argued that Berger could only hold such interests as had been recorded in the Register (recorded on the Certificate of Title of Bursill’s land). In this case, Bursill argued that this only included the easement, since the Certificate of Title for Bursill’s land did not actually record any conveyance of the airspace of its land. Bursill argued that its title should not be encumbered by that interest. The High Court had to determine whether a registered proprietor’s title was only burdened by the interpretation of rights that had been given by the Registrar and recorded on the Certificate of Title. In reaching its decision on this point, the High Court had to consider whether the rights (now argued for by Berger as including the conveyance) as affecting Bursill’s land had, in fact, been notified upon the

Certificate of Title of Bursill’s land. The court by majority found that they had been, because it was possible to conduct an investigation of the Register in order to find the conveyance of the land, even though it had not been recorded by the Registrar on the relevant Certificate of Title.46 A careful and prudent purchaser would be expected to inspect the instrument creating the easement, including the transfer that created the easement and, by doing so, would have discovered that the Registrar’s notification on Bursill’s land was not complete because it did not record the conveyance. The case makes clear that it is not possible to rely upon the Registrar’s interpretation of rights recorded on the Certificate of Title for a parcel.47

Omitted easements [6.64]

The law on when unregistered easements will be recognised as exceptions to the indefeasible title is discussed at [12.51]–[12.57]. It is also possible that an easement is enforceable against the current registered proprietor as an in personam exception to indefeasibility: see [12.55]–[12.56].

Prior folios [6.65]

An exception to indefeasibility exists in all jurisdictions for prior folios. Thus, if a person claims the same land under a prior Certificate of Title, the earlier Certificate prevails over the later one48 — rights recorded on the earlier Certificate of Title prevail [page 83] over rights recorded in a later Certificate of Title. This usually occurs because of surveying mistakes which record

land as belonging to one parcel when, in fact, the land belongs to another (earlier) parcel.

Prior leases [6.66]

As discussed later in Chapter 11, all jurisdictions provide for unregistered leases to be recognised as an exception to indefeasibility. The restrictions on which leases will be regarded as exceptions to the registered proprietor differ between jurisdictions, and are discussed in detail at [11.36]–[11.37].

Wrong description of parcels [6.67]

This exception applies in all jurisdictions throughout Australia.49 In the Northern Territory, Queensland and Tasmania, it does not apply where a registered proprietor is a bona fide purchaser for value, or has taken her or his interest through such a purchaser.50

Adverse possession [6.68]

As discussed in Chapter 4, an adverse possessor of property is able to submit an application to be recorded as the registered proprietor of the property under the Torrens legislation in each jurisdiction. The requirements which must be met in order to establish adverse possession are discussed in detail in Chapter 4.

Volunteers and indefeasibility [6.69]

There is a degree of uncertainty as to whether or not a volunteer51 obtains indefeasibility of title upon registration. In the Northern Territory and Queensland, the Torrens legislation specifically provides that a volunteer obtains indefeasibility of title upon registration;52 however, in the

other jurisdictions there is some dispute. [6.70]

Three decisions clearly illustrate the problem. Two are decisions of the Victorian Supreme Court; the other is a decision of the New South Wales Court of Appeal. In King v Smail [1958] VR 273, a husband, who had been declared bankrupt, transferred his interest in a parcel of land to his wife for no consideration (value). His wife became the registered proprietor of the land. Creditors of the husband argued that the wife had not obtained indefeasibility of title; the court agreed, on the basis that a [page 84] registered proprietor who had acquired title without value could not gain a better title than that of her or his predecessor. In part, the reasoning of the court was based upon the Torrens legislation in Victoria, which the court found drew a clear distinction between volunteers and purchasers for value. As such, it is not clear whether this reasoning applies in the same way to the operation of the Torrens legislation in other jurisdictions.

[6.71]

In Rasmussen v Rasmussen [1995] 1 VR 613, the registered proprietor had made a will leaving his property to his widow for life and thereafter to his grandson. His grandson became the registered proprietor of the land. One of his sons was later able to successfully challenge the will and argue that his prior unregistered equitable interest in the land should obtain priority over the grandson’s registered title, based upon an agreement between the testator and the son to the effect that the son would work the farm property for little remuneration but on the expectation that his father would leave the property to him. The court found that a volunteer was not protected under the indefeasibility provisions of the

Torrens legislation, since such indefeasibility of title could only apply to a purchaser for value. The court specifically approved of the reasoning of the earlier Victorian decision in King in reaching its decision. [6.72]

In Bogdanovic v Koteff (1988) 12 NSWLR 472, a registered proprietor had entered into a specifically enforceable contract to transfer any interest in the land to the defendant, on the condition that the defendant looked after him for the rest of his life. However, the registered proprietor instead willed the land to his son, who then became the registered proprietor of the land. The son had not had any notice of the defendant’s prior equitable interest in the land. The New South Wales Court of Appeal found that the son had obtained an indefeasible title upon registration of his interest as a beneficiary under his father’s will, despite the fact that this meant he was the recipient of a gift (volunteer).53 The court’s reasoning was that this result followed from the application of the principle of immediate indefeasibility of title under the Torrens legislation. The court specifically disapproved of the reasoning in King.

[6.73]

In Conlan v Registrar of Titles [2001] 24 WAR 299; [2001] WASC 201, Owen J (Supreme Court of Western Australia) preferred the approach taken by the New South Wales Court of Appeal in Bogdanovic. In Farah Constructions Ltd v SayDee Pty Ltd (2007) 230 CLR 89; 236 ALR 209; [2007] HCA 22, the High Court also found that the registered proprietor’s interest prevailed over an earlier unregistered interest, even where the registered proprietor was a volunteer: at [198].54 [page 85]

Competing interests in Torrens land —

priorities scenarios (including unregistered interests) [6.74]

The basic rule of priority in a competition between two inconsistent registered interests in Torrens land is: Prior registered interest vs later registered interest — that is, priority is by order of registration date unless an exception to the registered proprietor’s indefeasible title applies.55

[6.75]

As courts have found that unregistered interests in land can exist in Torrens land, then, in addition to this basic rule, the following two priorities scenarios can also occur in disputes between competing interests in Torrens land: Registered interest vs unregistered interest — the registered interest prevails (whether it is created first in time or later in time) unless an exception to the registered proprietor’s indefeasible title applies (including any of the exceptions discussed above). Prior unregistered interest vs later unregistered interest — apply ordinary rules for competing interests under Old System Title (discussed in Chapter 7).

[6.76]

As we have already considered the priorities rules applicable to disputes between registered and unregistered interests in Torrens land, that only leaves for consideration the rules applicable to competing unregistered interests in Torrens land. These competing interests are dealt with by applying the same rules applicable to priorities disputes for Old System Title land, and are considered in detail in Chapter 7. In summary, the applicable priorities rules are as follows: Legal vs legal — the interest created first in time prevails under the nemo dat rule, unless there has been postponing

conduct; the equitable interest holder must be a bona fide purchaser for value at time of taking her or his interest. Legal vs equitable — the legal interest prevails unless there has been postponing conduct; the equitable interest holder must be a bona fide purchaser for value at time of taking her or his interest. Equitable vs legal — the legal interest prevails provided she or he is a bona fide purchaser for value at time of taking her or his interest. Equitable vs equitable — the equitable interest created first in time prevails unless there has been postponing conduct; the second equitable interest holder must be a bona fide purchaser for value at time of taking her or his interest. [6.77]

As the Torrens system does not use a conceptual equivalent of legal interests in land,56 most competing priorities scenarios between unregistered interests in Torrens land fall into the last category of competing priorities; that is, prior equitable interest [page 86] vs later equitable interest. However, in two circumstances, the Torrens legislation (or other relevant statutes) effectively deems a person to hold a legal interest in Torrens land. These include persons who have an interest that is protected by the Torrens legislation between settlement and prior to registration,57 as well as unregistered interest holders of a deemed legal lease. We consider when the legal lease exception applies at [11.31]. Below, we consider the ‘protection against notice’ exception that exists in New South Wales. Along similar lines, we also consider the effect of the system of priority notices provided for in the Torrens legislation in Queensland, South Australia, Tasmania and

Victoria. If the principles in New South Wales apply, it is possible that what would have ordinarily been regarded as a dispute between two equitable interests is in fact a dispute falling within one of the first three categories of priorities disputes set out at [6.76]. In that case, there is no need to deal with the arguments which we will examine in the remainder of this section which apply to competing equitable interests; it simply becomes a matter of applying the ordinary rules of priorities discussed in one of the first three scenarios at [6.76]. In the case of the system of priority notices, while the effect of these is not to claim the interest in the notice to be a legal interest, the practical effect of these notices is to provide a similar form of protection to that attached to a s 43A interest under the New South Wales legislation (except that the protection can apply from the time of exchange, not just after settlement).

New South Wales, Queensland, South Australia, Tasmania and Victoria — form of protection from notice New South Wales [6.78]

As title to Torrens land does not pass until registration of an interest, there is a period of time between the settlement of a dealing and the time it takes for registration of a dealing to occur. Throughout this period of time, the person who has obtained an interest is vulnerable to obtaining notice of prior equitable interests. In New South Wales, s 43A of the Real Property Act 1900 protects a person who has a ‘dealing registrable’ from such notice of a prior unregistered interest in the same land between the date of settlement and the date of registration of her or his interest in the land, provided that certain conditions are met. The effect of the provision is to deem what would otherwise be a later equitable

(unregistered) interest in Torrens land to be a later legal (unregistered) interest in the land. If s 43A did not exist, then the ordinary priorities scenario would be as follows: prior equitable interest vs later equitable interest in which case the later equitable interest does not prevail in the priorities dispute unless the prior equitable interest had engaged in postponing conduct: see [7.23]–[7.44]. The effect of s 43A is to place a bona fide purchaser for value without [page 87] notice of any prior equitable interest in the same position that she or he would have been in under Old System Title principles. The effect of the deeming provision in s 43A is to convert the ordinary priorities scenario set out above to the following scenario: prior equitable interest vs later legal interest in which case the later legal interest will prevail. There are several conditions, however, which must be met in order to obtain the benefit of s 43A protection, including: that the person seeking to rely upon s 43A is a bona fide purchaser for value58 of her or his interest59 and that she or he took her or his interest at settlement without actual or constructive notice of the earlier unregistered equitable interest; that the person seeking protection must have a ‘dealing registrable’. This includes that she or he must: – be the next dealing registrable on the title;60 – be holding a valid dealing (not a forged or fraudulent

–

–

[6.79]

instrument);61 have the Certificate of Title in her or his possession (or the ability to compel production of the Certificate of Title) to enable the dealing to be registered; and have an instrument that has been properly executed by the current person who is registered as the owner of the land.

It is only where all of these requirements are met that the interest will obtain the protection afforded by s 43A.

Queensland, South Australia, Tasmania and Victoria [6.80]

In Queensland, South Australia, Tasmania and Victoria, some protection is also provided to purchasers under the system of priority notices provided for in those jurisdictions. The effect of the legislation is to enable a purchaser to lodge a ‘priority notice’, which provides priority to the person who lodged notice of the dealing specified in the notice for a specified period. The notice operates to prevent registration of any dealing lodged after the lodgment of the priority notice. The notice can be lodged after exchange.62 [page 88]

Competing unregistered equitable interests in Torrens land [6.81]

The competing priorities scenarios for unregistered equitable interests in Torrens land are considered in Chapter 7. There is one additional category of conduct by a prior unregistered equitable interest in Torrens land which does not exist for Old System Title land — ‘failure to caveat’. This category exists for Torrens land because the Torrens

legislation specifically provides for the existence of the caveat system. The caveat system does not exist for Old System Title land. Conveyancing practice for Torrens title land has developed around the Torrens system, including the system of caveats provided for by the Torrens legislation; therefore, the failure to abide by the Torrens legislation and the ordinary rules of conveyancing practice can give rise to situations in which a court will find that an earlier unregistered equitable interest should be ‘postponed’ to (defeated by) a later unregistered equitable interest. However, before we consider postponing conduct in Torrens priorities disputes (see [7.23]–[7.44]), we need to understand the system of caveats set up by the Torrens legislation.

Protection of unregistered interests in Torrens land — the system of caveats [6.82]

The Torrens legislation in each jurisdiction provides for the use of caveats. In Black v Garnock (2007) 230 CLR 438; 237 ALR 1; [2007] HCA 31, the High Court considered the purpose of caveats in the Torrens system. The majority found that a caveat is similar to a statutory injunction; it obstructs any dealings with a registered interest by preventing the Registrar from altering the title. The High Court acknowledged the dual role of caveats in the Torrens system as being both protective (in the sense of providing a statutory injunction) and providing notice to the world at large of the interest protected by the caveat: see Callinan J at [76]. In Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407; 106 ALR 595, it was also said that a caveat acts as ‘an injunction against the registration of an inconsistent dealing otherwise than in accordance with the caveat so as to enable, in the ultimate analysis, a determination of the conflicting

claims’: at 422 per Mason CJ, McHugh and Dawson JJ. In Abigail v Lapin [1934] AC 491, the Privy Council noted that the effect of a caveat was that no instrument could be registered while the caveat was in force affecting the land, estate or interest until after notice of a competing interest seeking registration (in accordance with the Torrens legislation) was provided to the person who had lodged the caveat. This means that the Register records, on its face, notice of equitable interests (or at least claims to such interests existing) in a parcel of Torrens land. This has the effect of warning persons dealing with that land, and also enables any person asserting an interest in the caveat a chance to protect her or his claim (by enabling her or him to bring an action in the event that her or his claim is disputed): at 500. [6.83]

The limitations of the statutory injunction (and thus the extent of protection afforded by the caveat) are that the Registrar is prohibited from registering dealings on the [page 89] affected title to the extent to which they impact upon the interest that has been claimed in the caveat. Therefore, the Registrar can record dealings that lie outside the ambit of the interest claimed in the caveat. It is for this reason that the correct drafting of the interest being protected by the caveat is often critical, since it is the nature of that interest that determines whether or not the Registrar can record any later interest on the title. Caveats cannot block the registration of a dealing that is in registrable form where that dealing was lodged before the caveat itself had been lodged. One practical restriction placed upon caveats is that, in order to be protected in the long term, the interest sought to be

protected by the caveat must be one that is capable of being a caveatable interest. If the caveat is lodged by a person to protect something that is not a caveatable interest, there are a series of consequences that follow. These consequences are examined at [6.88]. Thus, one of the most important considerations is whether or not the caveator has a caveatable interest.

Operation of the caveat system in the Northern Territory and Queensland [6.84]

The operation of the caveat system in the Northern Territory, Queensland and South Australia is different to the procedure under the Torrens legislation in the other Australian jurisdictions. Unlike the other jurisdictions, in which notice is provided to the caveator of a lodged dealing for registration that is inconsistent with the caveat (the caveator then has a period of time in which to either consent to a proposed registration or to take proceedings to show cause as to why the dealing should not be registered),63 in the Northern Territory and Queensland a caveat does not remain on the title until an inconsistent dealing is lodged. In those states, the caveator must commence legal proceedings to establish a claim within three months of lodgment of her or his caveat; otherwise, the caveat will lapse and cannot be renewed.64 In South Australia, the caveator is required to commence proceedings within 1 month.65

What is a caveatable interest? [6.85]

A caveatable interest is an interest that can constitute an interest or an estate in land. In this sense, courts only regard those interests that are considered to be interests in land as being ‘caveatable interests’. It is therefore not possible to lodge a caveat to protect a contractual right or a ‘mere equity’: see [7.18]–[7.22]. The following are interests that

have been found to be caveatable interests in land: an easement;66 the interest of a purchaser under an agreement for the purchase of land;67 [page 90] a mortgage by way of deposit of title deeds;68 the interest of a transferee under an unregistered transfer;69 a right of a person to set aside a transaction that has been procured through fraud or misrepresentation;70 the interest of a partner in partnership assets;71 a call option to purchase land;72 the interest of a lessee under a lease or under an agreement for a lease;73 and the interests of a mortgagee under an unregistered mortgage or under an agreement to grant a mortgage.74

Can a registered proprietor lodge a caveat to protect her or his registered interest in Torrens land? [6.86]

There are inconsistencies in the decided cases as to whether or not a registered proprietor can lodge a caveat against her or his own title. In New South Wales, the Northern Territory and Queensland, the Torrens legislation specifically allows a registered proprietor to lodge a caveat in circumstances where the Certificate of Title has been either lost or stolen and the registered proprietor fears that it may be improperly used to deal with the land.75 In other jurisdictions, the position is not entirely clear. In Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672, a mortgagor had sought to set aside a sale by a mortgagee in circumstances

in which the mortgagee was alleged to have used its power of sale in bad faith. The Victorian Supreme Court found that the mortgagor had no right to lodge a caveat to prevent the sale. The court found that the mortgagor had no separate and distinct interest for which it could lodge a caveat. In other jurisdictions, an opposite result has been reached by the courts.76 [page 91]

Removing a caveat [6.87]

In all jurisdictions except the Northern Territory, Queensland and South Australia,77 a caveat can be removed by serving a lapsing notice upon the caveator in accordance with the Torrens legislation applicable in that jurisdiction. The time period after which a caveat lapses is different between the jurisdictions. A caveator must then commence legal proceedings prior to the expiry of the caveat to show cause as to why the pending dealing should not be registered. If the caveator fails to take action within the time allowed by the legislation, the caveat lapses and the dealing becomes registered. Once the caveat has lapsed, it cannot be renewed, since it is an abuse of process to lodge a caveat protecting the same interest once a caveat has lapsed in this manner. The caveator can also consent to the pending dealing becoming registered, in which case it is usual for the caveat not to be removed but for an agreement to be reached between the caveator and the person who seeks to obtain registration, to allow registration of that particular interest. Apart from issuing a lapsing notice, a person can apply directly to a superior court to have a caveat removed. This is usually the preferred course if there is any urgency regarding removal of a caveat.

Wrongful lodgment of a caveat [6.88]

If a person wrongfully lodges a caveat, the Torrens legislation in each jurisdiction provides that the caveator is liable to pay compensation to any person who has suffered loss as a result of the lodgment. The caveat will have been lodged wrongfully if the caveator did not have an honest belief based on reasonable grounds that she or he had a caveatable interest at the time of lodgement of the caveat.78

Failure to lodge a caveat as postponing conduct [6.89]

In Chapter 7 we consider when the failure of a person holding an unregistered interest in Torrens land will constitute postponing conduct.

Correction of the Register [6.90]

The Torrens legislation in each jurisdiction gives power to the Registrar to correct the Register.79 The powers of the Registrar include the power to correct errors and to add omitted entries, so long as the correction is without prejudice to any rights of a registered proprietor acquired before the correction.80 The Registrar also has a power to cancel an entry or document that has been procured by fraud.81 [page 92]

Claims under the Torrens insurance schemes [6.91]

In each jurisdiction, the Torrens legislation sets up a fund to pay compensation to persons who have been deprived of a registered interest in Torrens land. Today, these claims are

made generally either because a person has lost her or his registered interest because of (1) the fraud of another; or (2) errors, misdescriptions or omissions from the Register by the Registrar. The law with respect to when a claim can be made against a Torrens fund is complex and beyond the scope of this book.82

How to approach a Torrens priorities question [6.92]

In the next chapter we will examine how to determine a priorities dispute between: competing unregistered interests in Torrens land; and competing interests in Old System Title land.

[6.93]

Before we consider these priorities scenarios, the following is a suggested way to approach solving a priorities problem question for Torrens land. How to approach a Torrens priorities question (1) Identify who owns what registered interest and what date it was registered on (order of priority by date of registration of interest) (identify the nature of the registered interest held Registered interest prevails over unregistered interest unless exception to indefeasibility applies. (2) Consider the extent of indefeasibility (umbrella of indefeasibility) obtained by any registered proprietor. (3) Identify whether any exception to indefeasibility applies against the registered proprietor of the interest (for example, purchaser, mortgagee, lessee, covenantee or owner of dominant tenement) including: (a) fraud; (b) in personam exception; (c) omitted or misdescribed easements; (d) short-term leases; (e) adverse possession; (f) overriding statutes; (g) whether or not the person who is seeking to protect an interest took their interest as a volunteer (Victoria only);

(h) other provisions of the Torrens legislation; (i) wrong description of parcels; (j) prior folios; (k) any estates or interests already recorded on the folio of the relevant land; (l) grants and reservations contained in the original grant for the land; and (m) powers of the Registrar to correct the Register.

(4) Once any exceptions to indefeasibility are dealt with, identify again: (a) who now holds a registered interest; and (b) who now holds an unregistered interest. (5) For all registered interests, apply steps 1–4 again. Once you are certain that no further changes can be made to the Certificate of Title (registered interests), go to step 6. (6) For all remaining unregistered interests, determine who holds what interest: (a) What is the nature of the interest? (Purchase of land, mortgage, lease or easement? — determine priorities between purchase interests first.) (b) Is it a legal or an equitable interest? (c) On what date was it acquired and by whom? (d) Where applicable (New South Wales, Queensland, South Australia and Tasmania), is any unregistered interest holder entitled to the benefit of protection of unregistered interests? If anyone obtains this protection, go back and apply steps 1–5 again. For all jurisdictions, is anyone deemed to be the holder of a legal lease? If so, then ensure that you deal with this on the basis of a competing legal interest scenario in step 7. (7) Apply determination of priorities under Old System Title rules to identified interests (discussed in Chapter 7), being: (a) Legal vs legal (first in time prevails — nemo dat rule — unless postponing conduct and equitable interest is BFPVWN at time of taking interest). (b) Legal vs equitable (first in time prevails unless postponing conduct and interest is BFPVWN at time of taking interest). (c) Equitable vs legal (legal prevails provided purchaser is a BFPVWN at time of taking interest). (d) Equitable vs equitable (first in time prevails unless postponing conduct and second equitable interest holder is a BFPVWN at time of taking interest). Note: Consider all examples of postponing conduct categories (see [7.23]–[7.44] failure to caveat by a prior interest holder. Consider (for any later interest holder) whether she or he had notice of the prior interest (actual, constructive or imputed) and determine where the better equity lies. [6.94]

In Chapter 7, we consider the priorities rules for Old System

Title priorities (Step 7 onwards). Remember that these priorities rules will also apply to all unregistered interests for Torrens priorities disputes. __________________________ 1

For a short summary of the history of Torrens title and the role of Sir Robert Torrens, see Gray, Edgeworth, Foster and Dorsett, Property Law in New South Wales, 3rd ed, LexisNexis Butterworths, Sydney, 2012, pp 301–4.

2

Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205. 3 In Tasmania, the office is referred to as the ‘Recorder of Titles’. 4

See, for example, Real Property Act 1900 (NSW) s 38, which enables the Registrar to refuse to register any dealing unless the Certificate of Title is produced. 5 Land Titles Act 1925 (ACT) s 58; Real Property Act 1900 (NSW) ss 41, 42, 43; Land Title Act (NT) ss 38, 39, 40, 188, 189; Land Title Act 1994 (Qld) s 37, 38, 184, 185; Real Property Act 1886 (SA) s 69; Land Titles Act 1980 (Tas) s 40; Transfer of Land Act 1958 (Vic) s 42; Transfer of Land Act 1893 (WA) s 68. 6

T Ruoff, An Englishman Looks at the Torrens System, Law Book Company, Sydney, 1957. 7 Waimiha Sawmilling Co v Waione Timber Co [1926] AC 101 at 106. 8 9

Gibbs v Messer [1981] AC 248 at 254. To claim that loss from the relevant Torrens fund: see [6.91].

10

See Gray et al, above n 1, p 314. 11 Gibbs v Messer [1891] AC 248; Clements v Ellis (1934) 51 CLR 217; [1934] ALR 225. 12

Rossiter has questioned the correctness of his Honour’s view in this respect: see C Rossiter, ‘Options to Acquire Interests in Land — Freehold and Leasehold’ (1982) 56 ALJ 576. 13 Land Titles Act 1925 (ACT) s 83; Real Property Act 1900 (NSW) s 53; Land Title Act (NT) ss 68, 69; Land Title Act 1994 (Qld) s 67; Real Property Act 1886 (SA) s 117; in Tasmania, provision is made for the extension of a lease only: Land Titles Act 1980 (Tas) s 70. In Western Australia, a similar provision exists: Transfer of Land Act 1893 (WA) s 105A. There is no equivalent provision in Victoria. 14

This is to the effect that if a deed or written contract are, after execution, materially altered by the promisor without the consent of the promise, it becomes void. 15 Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313 at [59]–[60]. See also the decision of Mason JA in Travinto Nominees Pty Ltd v Vlattas [1972] 1 NSWLR 24, which appears to support the view that if the covenant is intimately connected with the lessee’s interest, then the covenant will be indefeasible upon registration. 16

Provident Capital Pty Ltd v Printy (2008) 13 BPR 25,199; [2008] NSWCA 131. 17 The decision affirmed earlier authority on the point: see Perpetual Trustees Victoria Ltd v Tsai [2004] NSWSC 745; Chandra v Perpetual Trustees Victoria (2007) 13 BPR 24,675; [2007] NSWSC 694; Provident Capital Pty Ltd v Printy (2008) 13 BPR 25,199; [2008] NSWCA 131. 18

See also the decision of Simpson J at first instance in Perpetual Trustees Victoria Ltd v English (2009) 14 BPR 26,675; [2009] NSWSC 478. For further discussion on indefeasibility on all

moneys clauses, see S Schroeder and P Lewis, ‘Indefeasibility of Title and Invalid All Moneys Mortgages: Determining Whether Invalid Personal Covenants to Pay Are Protected Under the Indefeasibility Umbrella’ (2010) 18 Australian Property Law Journal 185; P Butt, ‘How Extensive is an All Monies Clause Mortgage?’ (2009) 83 (11) Australian Law Journal 11; J Stoljar, ‘Mortgagors, Indefeasibility and Personal Covenants to Pay’ (2008) 82 Australian Law Journal 28. 19 By majority; Basten JA dissented. 20 Which was said by the majority to distinguish the case from the facts in English. 21

See also L Aitken, ‘The Forged Mortgage: Further Developments in Van den Heuvel v Perpetual Trustees Victoria Ltd’ (2010) Sept–Nov Commercial Law Quarterly 28. 22 Land Titles Act 1925 (ACT) s 58; Real Property Act 1900 (NSW) s 42; Land Title Act (NT) s 188; Land Title Act 1994 (Qld) s 185; Real Property Act 1886 (SA) s 69; Land Titles Act 1980 (Tas) s 40; Transfer of Land Act 1958 (Vic) s 42; Transfer of Land Act 1893 (WA) s 68. 23

Which includes fraud for the purpose of deceit or fraudulent misrepresentation. 24 Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407; 106 ALR 595. 25

Assets Co Ltd v Mere Roihi [1905] AC 176; Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 630; 78 ALR 1. 26 Above, n 25. 27 28

29 30

Butler v Fairclough (1917) 23 CLR 78; 23 ALR 62; Wicks v Bennett (1921) 30 CLR 80; 28 ALR 30. Assets Co Ltd v Mere Roihi [1905] AC 176 at 210. In Waimiha Sawmilling Co v Waione Timber Co [1923] NZLR 1137, Salmond J described this as a form of ‘designed or calculated ignorance’: at 1175. As it had been in Assets Co Ltd v Mere Roihi [1905] AC 176. Contrary to the views of Mason CJ and Dawson J.

31

See also Bank of South Australia v Ferguson (1998) 192 CLR 248; 151 ALR 729; [1998] HCA 12. 32 She had not witnessed the signature of the mortgagor. 33

L Bennett-Moses and B Edgeworth, ‘Taking it Personally: Ebb and Flow in the Torrens System’s In Personam Exception to Indefeasibility’ (2013) 35 Sydney Law Review 107. 34 Brennan J did not deal with the argument that providing an undertaking to recognise an interest and then, later on, seeking to deny recognition of that interest, amounted to fraud. His Honour agreed that mere notice of prior interest is not enough to constitute fraud and that fraud required personal dishonesty or moral turpitude on the part of the registered proprietor. 35

It is not entirely clear from his Honour’s judgment as to whether or not his finding was based upon the fraud exception to indefeasibility or the in personam exception. 36 At least based on the judgment of Wilson and Toohey JJ and, potentially, the judgment of Brennan J. 37

Also of interest, in none of the judgments in this case is the criteria of estoppel mentioned, although the effect of the each decision was to ‘estop’ Thompson from resiling from a previously represented position, on which the Bahrs had acted to their detriment. Arguably, the estoppel under the principles set out in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513 may not have been made out, because it was the conduct of Nicolay, not Thompson, on which the Bahrs had acted in executing the transfer and handing over the Certificate of Title to their property.

38

With Kirby P agreeing.

39

For a more detailed discussion, see Bennett-Moses and Edgeworth, above n 33, at 121–3. For examples and discussion, see Bennett-Moses and Edgeworth, above n 33, at 128–30.

40 41

Bennett-Moses and Edgeworth, above n 33, at 129. 42 Bennett-Moses and Edgeworth, above n 33, at 107, 129. 43 44

45 46

McHugh ACJ, Hayne and Heydon JJ. For further examples and consideration, see Koompahtoo Local Aboriginal Land Council v KLALC Property Investment Pty Ltd [2008] NSWCA 6; South-Eastern Drainage Board (SA) v Savings Bank of South Australia (1939) 62 CLR 603; [1940] ALR 1; Pratten v Warringah Shire Council (1969) 90 WN (Pt 1) (NSW) 134; Kogarah Municipal Council v Golden Paradise Corp (2005) 12 BPR 23,651; [2005] NSWCA 230; City of Canada Bay v Bonaccorso Pty Ltd (2007) 71 NSWLR 424; [2007] NSWCA 351; B Edgeworth, ‘Planning Law v Property Law: Overriding Statutes and the Torrens System after Hill Palm v Heaven’s Door and Kogarah v Golden Paradise’ (2008) 25 Environmental and Planning Law Journal 82; S Hepburn, ‘Interpretive Strategies in the Overriding Legislation Exception to Indefeasibility’ (2009) 21 (2) Bond Law Review 86; B Edgeworth, ‘Indefeasibility and Overriding Statutes: An Attempted Solution’ (2009) 83 Australian Law Journal 655. For a more detailed discussion, see Bennett-Moses and Edgeworth, above n 33, at 130–1. This was done by obtaining the transfer that gave rise to both the easement and the conveyance.

47

A similar approach has more recently been applied to by-laws in strata schemes: see White v Betalli (2007) 71 NSWLR 381; [2007] NSWCA 243. 48 Land Titles Act 1925 (ACT) s 58(1)(a); Real Property Act 1900 (NSW) s 42(1)(a); Land Title Act (NT) s 189(1)(d); Land Title Act 1994 (Qld) s 185(1)(e); Real Property Act 1886 (SA) s 69(e); Land Titles Act 1980 (Tas) s 40(3)(b); Transfer of Land Act 1958 (Vic) s 42(1)(a); Transfer of Land Act 1893 (WA) s 68. 49

Land Titles Act 1925 (ACT) s 58(1)(c); Real Property Act 1900 (NSW) s 42(1)(c); Land Title Act (NT) s 189(1)(f); Land Title Act 1994 (Qld) s 185(1)(g); Real Property Act 1886 (SA) s 69(c); Land Titles Act 1980 (Tas) s 40(3)(f); Transfer of Land Act 1958 (Vic) s 42(1)(b); Transfer of Land Act 1893 (WA) s 68. 50 Land Title Act (NT) s 189(1)(f); Land Title Act 1994 (Qld) s 185(1)(g); Land Titles Act 1980 (Tas) s 40(3)(f). 51

A volunteer is a person who does not provide valuable consideration for their interest. 52 Land Title Act (NT) s 183; Land Title Act 1994 (Qld) s 180. 53 54

As a beneficiary under the will, he had not provided any consideration for his interest. However, the registered proprietor on the facts of the case had provided value for the registered interest. As such, the reasons given by the court in this respect are obiter dicta only.

55

For priority by date of registration, see Land Titles Act 1925 (ACT) ss 180, 181; Real Property Act 1900 (NSW) s 36(8); Land Title Act (NT) ss 180, 181; Land Title Act 1994 (Qld) ss 177, 178; Real Property Act 1886 (SA) s 56; Land Titles Act 1980 (Tas) s 48; Transfer of Land Act 1958 (Vic) s 34; Transfer of Land Act 1893 (WA) s 53. 56 Registration instead being the way to perfect title to land under the Torrens legislation. 57

In Queensland, South Australia, Tasmania and Victoria some form of protection is effectively

afforded in certain circumstances because of the operation of priority notices in those jurisdictions. 58 The section does not assist a volunteer. 59 This includes purchasers and mortgagees. It potentially includes other interests, such as leases, but these are not common in priorities disputes involving s 43A protection. 60

IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550; [1964] ALR 971; J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1969) 90 WN (Pt 1) (NSW) 803 and on appeal at (1971) 125 CLR 546; [1972] ALR 323; Jonray (Sydney) v Partridge Bros Pty Ltd (1969) 89 WN (Pt 1) (NSW) 568. 61 Above n 60, although none of these leading authorities had to determine this issue. 62

Referred to as ‘settlement notices’: Land Title Act 1994 (Qld) ss 138–152; Real Property Act 1878 (SA) ss 154–154I; Land Titles Act 1980 (Tas) s 52; Transfer of Land Act 1958 (Vic) ss 91C–91J. 63 After which the caveat lapses (expires) and cannot be renewed: see [6.85]. 64

Land Title Act (NT) s 142; Land Title Act 1994 (Qld) s 126. 65 Real Property Act 1886 (SA) s 45. 66

Re Paul (1902) 19 WN (NSW) 114. 67 Black v Garnock (2007) 230 CLR 438; 237 ALR 1; (2007) HCA 31. 68 69

Re Elliott (1886) 7 LR (NSW) 271. Mihalic v Mihalic (1987) 73 ALR 304.

70

Re McKean’s Caveat [1988] 1 Qd R 524. 71 Connell v Bond Corp Pty Ltd (1992) 8 WAR 352. 72 73 74 75

Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57; 4 ALR 482. Coles Supermarkets Australia Pty Ltd v State Land Developments Pty Ltd [2008] NSWSC 1425; Antar v Fairchild Developments Pty Ltd [2008] NSWSC 1425. Avco Financial Services Ltd v White [1977] VR 561. Real Property Act 1900 (NSW) s 74F(2); Land Title Act (NT) s 138(1)(c); Land Title Act 1994 (Qld) s 122(1)(c).

76

See Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870; Re McKean’s Caveat [1988] 1 Qd R 524; Patmore v Upton (2004) 13 Tas R 95; [2004] TASSC 77 (which criticised the reasoning in Swanston Mortgage). In Vasiliou v Westpac Banking Corp (2007) 19 VR 229; [2007] VSCA 113, the Victorian Court of Appeal acknowledged the divisions of opinion on the matter but refused to overrule the decision in Swanston Mortgage. The decision in Swanston Mortgage had previously been distinguished in Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447; [2006] VSC 343. 77 The procedure for caveats in these jurisdictions is discussed at [6.84]. 78

Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106. 79 Land Titles Act 1925 (ACT) s 14(1)(d); Real Property Act 1900 (NSW) s 12(1)(d); Land Title Act (NT) s 17(1)(a); Land Title Act 1994 (Qld) s 15; Real Property Act 1886 (SA) s 220(f); Land Titles Act 1980 (Tas) s 139; Transfer of Land Act 1958 (Vic) s 103(2); Transfer of Land Act 1893 (WA) s 188(ii). 80 81

Frazer v Walker [1967] 1 AC 569. This power is not included in the Victorian legislation. This does not include cancelling a registration where the registered proprietor had not engaged

in any act of fraud: Frazer v Walker [1967] 1 AC 569. 82

For further discussion, see P Butt, Land Law, 6th ed, LexisNexis Butterworths, Sydney, 2010, pp 835–43.

[page 95]

CHAPTER 7

Priorities Disputes — Old System Title and Unregistered Interests in Torrens Title; Creation of Interests in Land

Key Ideas By the end of this chapter you should be able to identify: the rules of priority applying to competing interests in Old System Title land the rules of priority applying to competing unregistered interests in Torrens Title land what type of conduct by an earlier interest holder constitutes postponing conduct what is the common law doctrine notice (bona fide purchaser for value without notice) the basics of how interests in land are created

the basics of how conveyancing works for both Old System Title land and Torrens Title land when equity will recognise an interest in land

[page 96]

Introduction [7.1]

As noted in Chapter 6, the rules of priorities discussed in this chapter remain relevant to disputes between competing unregistered interests in Torrens land. The rules also apply to disputes between competing interests in Old System Title Land. The rules discussed in this chapter apply to steps 6 and 7 of the guide to answering a priorities dispute which was set out at [6.93]. If the priorities dispute you are determining is a dispute over Old System Title land, then you start at step 6.

[7.2]

In order to determine a priorities dispute between unregistered interests in Torrens land or any priorities disputer for Old System Title, it is critical that you first determine: who holds the interest; what type of interest it is (registered or unregistered/legal or equitable); and on what date the interest was created.

[7.3]

Understanding each of these matters is critical to being able to work out which of the four priorities rules that we discuss in this chapter will apply to the priorities dispute that you are determining. From [7.45] you will find a basic summary of how interests in land are created. You will also find a discussion of the types of interest in land and how they are created in Chapter 10 (Mortgages), Chapter 11 (Leases) and Chapter 12 (Easements).

[7.4]

As noted in Chapter 6, the four basic priorities scenarios for competing unregistered interests in Torrens land/Old System Title land are: Legal vs legal: The interest created first in time prevails under the nemo dat rule unless there has been postponing conduct; the equitable interest holder must be a bona fide purchaser for value at the time of taking her or his interest. Legal vs equitable: The legal interest prevails unless there has been postponing conduct; the equitable interest holder must be a bona fide purchaser for value at time of taking her or his interest Equitable vs legal: The legal interest prevails, provided the holder of the legal interest is a bona fide purchaser for value at time of taking her or his interest Equitable vs equitable: The equitable interest created first in time prevails unless there has been postponing conduct; the second equitable interest holder must be a bona fide purchaser for value at time of taking her or his interest

Prior legal interest vs later legal interest [7.5]

In a priorities competition between a prior legal interest against a later legal interest, priority is determined by an application of the nemo dat rule.1 This rule simply reflects that a person who has an interest in land and wants to give that interest to another person [page 97] can only provide to that person whatever interest she or he currently hold in the land. For example, imagine that Adrian first transfers his interest in property to Frank. If Adrian then

attempts to transfer the same property to Gemma, Gemma cannot acquire any better interest in the property than the interest that Adrian held at the date of the transfer to her. In the example, since Adrian had already transferred his interest in the property to Frank, he had nothing to give to Gemma, and Gemma cannot acquire a better title to the land than Adrian held at the date of transfer (in this example, no interest at all). How this rule applies depends upon the nature of the competing legal interests. For example, if Adrian creates a lease in favour of Frank and then purports to transfer his interest in the property to Gemma, it is possible for both Frank and Gemma’s interests to be recognised: the transfer to Gemma will grant Gemma an interest as an owner of the land at settlement, but it can be subject to Frank’s earlier leasehold interest in the property.

Prior legal interest vs later equitable interest [7.6]

In a priorities competition between a prior legal interest against a later equitable interest, the prior legal interest will prevail against the later equitable right. In some instances, the prior legal interest can be postponed to the later equitable right: see [7.23]–[7.44].

Prior equitable interest vs later legal interest [7.7]

In a priorities competition between a prior equitable interest against a later legal interest, the priorities rule applicable is that a bona fide purchaser of the legal estate who takes their interest in the land for value and without notice of the prior equitable interest takes their interest in the land free of the prior equitable interest. In other words, the later legal interest in that instance obtains priority. The key idea in this rule relates to the notice that the later interest holder had of

the earlier interest. The principle is referred to as the common law ‘doctrine of notice’. It has a number of key components which must be established in order for the later interest to obtain priority, including: that the holder of the legal interest acted in good faith (bona fide) in entering into the transaction that created her or his interest in the land; that she or he took that interest for value (that is, she or he was not a volunteer); that she or he took that interest without actual or constructive (including imputed) notice of the prior equitable interest.

Bona fide/good faith [7.8]

‘Bona fide’ means ‘good faith’. Under the doctrine of notice, good faith requires that the purchaser cannot have had any notice (actual or constructive) of the prior equitable interest at the time at which she or he took her or his interest in the land. Despite notice and good faith being tantamount to the same thing in practice, in Midland Bank [page 98] Trust Co Ltd v Green [1981] AC 513 Lord Wilberforce maintained that this is a separate requirement (good faith going to the state of mind of the person taking the later interest). Despite this distinction, it is difficult to imagine a circumstance in which proof of notice would not effectively establish that the purchaser lacked good faith.

Legal estate

[7.9]

The first requirement is that the person is taking a legal interest in the land, not another equitable estate.

Without notice [7.10]

In most jurisdictions the requirement of no prior notice (actual or constructive) has been included in legislation.2

Actual notice [7.11]

Actual notice is where a purchaser has actual knowledge of the existence of the prior interest. This must be determined on a case-by-case basis and requires evidence of the actual knowledge that the later interest holder had or the prior interest.

Constructive notice [7.12]

Constructive notice is an equitable concept which provides that purchasers are deemed to have notice of everything which they would have discovered about the land if they had made the usual and proper inspections and enquiries about the land that a reasonably prudent person would have made in the same circumstances.3 See further [7.14] and [7.15]. It includes that a reasonable purchaser is expected to inspect the land and documents of title to the land before taking her or his interest. This includes searching any general register of deeds to see what instruments have been registered. The legislation in each jurisdiction provides that, whether or not the purchaser actually inspects the register of deeds, they will be deemed to have had constructive notice of whatever relevant documents are registered.

Imputed notice [7.13]

Imputed notice refers to where agents of the purchaser

obtain actual or constructive notice of the prior interest. [page 99]

Inspection of land [7.14]

Inspections of land can reveal interests already existing in the property. For example, where a purchaser finds another person (other than the person represented as the current owner) in possession of land, a failure to enquire as to the basis upon which that third party is in possession will mean that the purchaser is placed on constructive notice of whatever right the possessor has to the land. If a purchaser fails to inspect land at all, she or he also has constructive notice of any right of any person who is in possession of the land. For example, in Hunt v Luck [1902] 1 Ch 428, a purchaser was found to have constructive notice of the rights of a tenant who was in possession of the property. A purchaser also has constructive notice of users of the property where usage rights can be discovered from an inspection of the land; for example, where there is an overt use of an easement by the owner or occupier of the dominant tenement.

Inspection of title documents [7.15]

In most jurisdictions legislation fixes a purchaser with notice of any interest which is recorded in the register of deeds. The interests by which a purchaser can be bound depends upon the legislation in each jurisdiction; that is, legislative provisions in relation to how far back in the records for the land a purchaser must search in order to obtain a free and clear title to the property (that is, not be fixed with any constructive notice of a prior interest). In New South Wales,

Queensland, Victoria and Western Australia, the purchaser has to search back 30 years on the title.4 In Tasmania, the time period is 20 years.5 In South Australia there is no limitation period in the statute: this appears to indicate that the 60 years that would be applicable under the common law is applicable in South Australia. Purchasers are not fixed with notice of matters that go beyond the date set by the legislation.

Earlier equitable interest vs later equitable interest The basic principle — balancing competing equitable rights [7.16]

In Heid v Reliance Finance Corp Pty Ltd (1983) 154 CLR 326; 49 ALR 229, Mason and Deane JJ stated (at 339): Where the merits are equal, the general principle applicable to competing equitable interests is summed up in the maxim qui prior est tempore potior est jure — priority in time of creation gives the better equity. But where the merits are unequal and favour the later interest, as for instance where the owner of the later equitable interest is led by conduct on the part of the

[page 100] owner of the earlier interest to acquire the later interest in the belief or on the supposition that the earlier interest did not then exist, priority will be accorded to the later interest …. [7.17]

This is the starting point and the basic principle from which to consider any priorities scenario between competing equitable interests. It reflects the approach that was taken in the United Kingdom, which was to consider the nature and condition of the respective equitable interests, the

circumstances and manner of their acquisition and the conduct of the parties as a whole to determine where the better entitlement lay.6 The easiest way to understand how this principle works is to consider the following six broad categories of conduct in which the courts have postponed an earlier equitable interest to a later equitable interest: failure by a purchaser or first mortgagee at settlement to take possession of the title deeds; failure of a purchaser or first mortgagee to retain possession of title deeds because of an act of gross negligence by that person (or her or his agents); premature release by a purchaser or first mortgagee of title deeds; inclusion of a receipt clause stating that payment has been received when this is not the case; execution of a dealing which does not truly reflect the transaction; and failure to caveat in certain circumstances (Torrens land only).

Difference between an ‘equitable interest’ and a ‘mere equity’ [7.18]

There is one other distinction you need to be aware of before you will be able to determine a priorities scenario between competing equitable interests. The principle in Heid v Reliance Finance Corp Pty Ltd (1983) 154 CLR 326; 49 ALR 229 only applies to competing equitable interests, not to ‘mere equities’. In other words, if the priorities dispute is between an equitable interest and a mere equity, the equitable interest will prevail.

[7.19]

An equitable interest is classified as a proprietary interest, which means that it has certain characteristics such as

protection of the legal owner of the land, including protection against third parties taking the interest in the land. In addition, the interest held by the holder of the equitable interest is transferable/alienable. This is distinguished from a right which a person might have to approach a court of equity to ask for an equitable remedy/order from the court. To do so does not necessarily require the party approaching the court to have an equitable interest in property; that is, not all rights available to a person in equity relate to an interest in property. [page 101] An ‘equity’ is therefore not considered to be an interest in land. Rather, it is considered to be a personal right to approach a court of equity for an equitable remedy/equitable relief. This equity cannot be transferred to another person; that is what is meant when it is described as a ‘personal equity’ or a personal right. Thus, a mere equity is not a proprietary interest in land at all, since it lacks the key characteristics of a proprietary interest. [7.20]

The difference between equitable interests and mere equities is made even more complex by the fact that, sometimes, equitable remedies are sought in order to give a person a right to, or in, land. For example, an argument that the owner of land has engaged in conduct that amounts to an equitable estoppel (such as a promise to sell the land to a particular person in return for consideration) may, eventually, create a right in the representee to that land. However, this will only occur where a court makes a determination (and an order) to that effect. There is no right in the land unless and until the court recognises such an interest existing. Further, since the grant of the remedy is entirely discretionary, there is no

interest in the land conferred upon that person unless a court makes an order to that effect. [7.21]

In Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1966] ALR 775, the fine distinctions between equitable interests and mere equities was in issue. Hotel Terrigal had mortgaged its land to Latec and had fallen into arrears in its payments under the mortgage. Latec exercised its power to sell the land but did so fraudulently — including setting a high reserve, not allowing a reasonable advertising period and selling to its own subsidiary (which also acted fraudulently) at a price below the reserve. There was no doubt that the mortgagor had the right to set aside the sale. The subsidiary had created an equitable interest in the property (in the form of an equitable charge) in favour of an innocent third party — MLC Nominees. The priorities dispute was therefore between the mortgagor (Hotel Terrigal — and its right to have the sale set aside due to the fraud of the mortgagee (Latec)) and the later equitable interest of MLC. The case raised the issue of whether the competition was between a mere equity and an equitable interest. Kitto J refused to set aside the fraudulent sale, because his Honour found that Hotel Terrigal’s right was a mere equity, which was competing against an equitable interest. His Honour said that, had there already been a court order setting the sale aside, then the interest of Hotel Terrigal would have been turned into a full equitable interest. This would have then been a prior equitable interest competing against a later equitable interest. In that event, Hotel Terrigal’s prior equitable interest would have prevailed. However, since it was only a mere equity it could not prevail over the later equitable interest it was competing against. Taylor J found that Hotel Terrigal’s interest was already an equitable interest because Hotel Terrigal could not have lost its interest in the land where its title to the land had only been transferred because of the fraud of Latec. However, his

Honour then said that the merits of the two interests were not equal, because Hotel Terrigal needed the help of a court to remove an impediment to its title, and a court would not remove that impediment if a later bona fide purchaser for value without notice had taken an equitable interest (as MLC was in this case). The judgment of Menzies J is perhaps the most confusing. His Honour attempted to [page 102] reconcile whether or not the court was dealing with an equitable interest or a mere equity, by saying that the nature of an interest depended upon the purpose of the enquiry that was being made by the court: in this case, the right to have a property transaction set aside for fraud was an equitable interest for the purpose of assigning it to another person or devising it in a will. However, if the issue before the court was a priority dispute (which it was), the interest being argued for by Hotel Terrigal turned into a mere equity and therefore lost its priority to a full equitable interest (MLC’s interest). [7.22]

The problems with classifications are exemplified in the High Court’s later decision in Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205, where it was held that a right to have a mortgagee sale set aside was an equitable interest, not a mere equity.7 The complexities in the judgments in Latec have not yet been reconciled by any later decision of the High Court. As such, it remains the position that a distinction can be drawn between the scenario in which a mere equity is competing against a later equitable interest (in which case the mere equity will lose) and a priorities dispute between competing equitable interests. Unfortunately, in precisely what circumstances something

will be regarded as a ‘mere equity’ by a court is not entirely clear from the judgments in Latec. As a general rule, if a party requires the assistance of a court of equity in order to obtain an interest in the land (which is the subject of the priorities dispute) then it is likely that this will be regarded as a mere equity. In that event, the mere equity will lose if it is competing against a later equitable interest acquired for value and without notice.

Categories of postponing conduct Failure by purchaser or first mortgagee at settlement to take possession of the title deeds [7.23]

A failure by a purchaser or a first mortgagee at settlement to take possession of title deeds (Certificate of Title for Torrens land) to the land will result in the earlier equitable interest being postponed to a later equitable interest. This is because the standard conveyancing practice is for such an interest holder to take possession of the title deeds at settlement. Accordingly, anything different to the ordinary practice suggests that no earlier interest exists.

[7.24]

An example of this type of postponing conduct can be seen in Walker v Linom [1907] 2 Ch 104. In that case, Walker had conveyed land to trustees to hold in trust for himself and his wife as part of a marriage settlement. The same solicitors acted for all parties. The solicitors had in their possession a bundle of deeds which purported to be all of the title deeds to the relevant land; however, the trustees were not aware that Walker still retained the deed by which the property land was conveyed to him. Some years later, Walker mortgaged the property, handing over the earlier conveyance to

[page 103] the mortgagee as proof of his ownership of the land. The mortgagee then sold the property at a later date. Neither the mortgagee nor the purchaser from the mortgagee had any notice of the earlier settlement. Walker absconded and his wife commenced legal proceedings, seeking a declaration that that the purchaser’s interest in the property was subject to her interest under the settlement. The court found that the trustees had been guilty of negligence in failing to take possession of all of the title deeds to the land. As such, their interest was postponed to the subsequent equitable interest of the purchaser from the mortgagee and the plaintiff could be in no better position than her trustees: her interest was therefore postponed to interest of the later purchaser of the property.

Failure of purchaser or first mortgagee to retain possession of title deeds as an act of gross negligence [7.25]

Because the failure of a purchaser or first mortgagee to retain possession of title deeds represents a difference to normal conveyancing practice, a failure by a purchaser of a first mortgagee8 to retain possession of title deeds will result in the earlier interest being postponed where that person has, by reason of an act of gross negligence on her or his part, lost possession of the title deeds. This includes insufficient efforts to ensure that title deeds are securely kept. If, however, appropriate steps are taken to ensure retention of the title deeds, then a court may consider that the purchaser or first mortgagee has not lost possession of the title deeds by her or his own negligence. In that case, the earlier interest may not be postponed to the later equitable interest. This is illustrated in Northern Counties of England Fire Insurance Co v Whipp (1884) 26 Ch D 482, in which case

an insurance company lent money to an employee and took a mortgage over his property as security for the loan. The title deeds to the property were kept in the mortgagee’s safe. The employee later stole the title deeds and fraudulently entered into a sale of the property with an innocent third party. The court found that the mortgagee’s equitable mortgage interest was not postponed, because it had not committed any act of gross negligence in losing possession of the title deeds.

Premature release by purchaser or first mortgagee of title deeds or inclusion of receipt clause stating proceeds have been received when this is not the case [7.26]

The premature release by a purchaser or a first mortgagee of title deeds, or the inclusion of a receipt clause when funds have not in fact been received, also represents a departure from ordinary conveyancing practice, which can lead a later interest holder to not have notice of earlier interests in the land. In Heid v Reliance Finance (1983) 154 CLR 326; 49 ALR 229, a vendor of Torrens land executed a contract of sale [page 104] and a memorandum of transfer containing an untrue acknowledgment by him that he had received full payment for the purchase of the land. The vendor handed over the documents to a solicitor who purported to act for both parties to the sale. In fact, the solicitor was the employee of the purchaser. The purchaser then mortgaged the land to mortgagees. The issue for the court was whether the vendor’s equitable lien took priority ahead of later equitable interests in the land. The High Court found that the vendor, in putting the purchaser in a position to represent himself as

absolutely entitled to the land, had resulted in the creation of the mortgages. As such, the vendor’s interest was postponed to the interest of the mortgagees. [7.27]

This result can be contrasted to the circumstances in which a party has handed documents to her or his own agent. In Lloyds Bank v Bullock [1896] 2 Ch 192, the owner of land had created a mortgage in favour of a building society. The land was then sold to a solicitor who acted for the building society. The solicitor also persuaded the building society to execute a discharge of the mortgage, as well as an acknowledgment of receipt of payment of the mortgage moneys. The solicitor then fraudulently obtained a loan from the bank using those documents. The court found that the building society had not handed over the documentation to a third party; rather, in handing the documents to the solicitor, they were handing documents to their own agent in anticipation of a valid discharge of the mortgage, referred to as handing over documents ‘in escrow’.9 As the building society was not regarded as having handed documents to a third party, the court found that it had not engaged in postponing conduct.

Execution of a dealing which does not truly reflect the transaction [7.28]

The execution of a dealing which does not reflect the actual transaction being entered into by the prior interest holder simply reflects the position that a prior interest holder will be bound by her or his own representations where they result in the creation of a later interest. In Breskvar v Wall (1971) 126 CLR 376; [1972] ALR 205, the Breskvars wanted to borrow money from Mr Petrie. Instead of entering into a mortgage to secure the loan, the Breskvars executed a memorandum of transfer of their ownership interest in the land. They did not complete the section in the memorandum

of transfer which provided for the name of the transferee. The Breskvars gave evidence at the hearing that their intention was that the transfer was to act as a security that Mr Petrie would hold onto, rather than as a genuine transfer of the land; that is, the land would be transferred to Mr Petrie in the event that the Breskvars did not discharge the loan. Instead, Mr Petrie fraudulently inserted the name of his grandson, Mr Wall, into the transferee section of the executed transfer. The transfer was then registered. Mr Wall then sold the land to Alban Pty Ltd. Before the transfer to Alban was registered, the Breskvars discovered what had occurred and lodged a caveat to prevent any further dealings on the title. The High Court found that the earlier interest of the Breskvars [page 105] should be postponed to the later interest held by Alban, since it was the conduct of the Breskvars than enabled Petrie to represent that his grandson was the true owner of the property at the time at which Alban took its interest in the property.

Failure to caveat (Torrens land only) [7.29]

For Torrens Title land, in some instances a failure to caveat plays a direct role in postponing an earlier equitable interest to a later one. Although nothing in the Torrens legislation requires the lodgment of a caveat,10 the decided cases make it clear that failure to lodge a caveat or, in some instances, the removal of a caveat, may be considered to be postponing conduct by the holder of the prior equitable interest. According to Professor Butt:11 [F]ailure to lodge a caveat to protect and interest … results in postponement

where the failure, considered in light of all the circumstances, allows another person to acquire a later unregistered interest in the land on the mistaken assumption that interests such as the earlier interest do not exist. [7.30]

This accords with the view taken by Mason and Deane JJ in Heid v Reliance Finance Corp Pty Ltd (1983) 154 CLR 326; 49 ALR 229, where their Honours regarded a failure to caveat as one circumstance to be taken into account in determining where the better equity lies. The cases discussed at [7.32]–[7.43] are the leading examples of where a failure to caveat could result in an earlier equitable interest being postponed.

[7.31]

In summary, the authorities support several conclusions concerning competition between inconsistent unregistered interests and the role of caveats, including: a registered proprietor of land who arms another person with the duplicate certificate of title and a registrable instrument of transfer, and who also then fails to lodge a caveat, will be postponed if the other makes use of the documents to induce a third party to acquire an interest in the land; where a registered proprietor creates several inconsistent interests in land, a holder of a prior interest who fails to lodge a caveat, and fails to take other proper steps to protect her or his interest, either by lodging a dealing for registration or by at least taking possession of the duplicate certificate of title, may possibly be postponed to a subsequent purchaser of an unregistered interest. This will not occur unless, according to accepted conveyancing practice, the holder of the earlier interest would be expected to lodge a caveat. In this regard, several authorities referred to below show that a second mortgagee might be expected to lodge a caveat; a change in ordinary priorities will occur if the holder of the

earlier interest has misled the subsequent purchaser as to its existence. [7.32]

In Butler v Fairclough (1917) 23 CLR 78; 23 ALR 62, a dispute arose between a purchaser of property (Fairclough) and a person who had obtained an earlier equitable charge [page 106] over the land (Butler). Fairclough had searched the Torrens Register and had not found any record of the equitable charge in favour of Butler, since Butler had not lodged any caveat in respect of that interest. A few days later, Butler lodged a caveat to protect that interest. The court found that, because the caveat had not been lodged before Fairclough took his interest in the land, it could not protect Butler against the later purchase interest. The High Court found that, since the purpose of a caveat is to provide notice to the world of an interest in the property, and that Butler had not done so, Butler’s interest should be postponed to Fairclough’s later purchase interest: at 589–90.

[7.33]

In Abigail v Lapin [1934] AC 491; (1934) 51 CLR 58, the Lapins executed a transfer to Heavener as security for a loan. Heavener instead treated the land as her own and mortgaged it to Abigail. Abigail was not aware of the interest that the Lapins held in the property, and the Lapins had not lodged a caveat. The court found that Abigail’s interest prevailed because the Lapins had armed Heavener with the ability to represent herself as the true owner of the property and had also failed to protect their interest by lodging a caveat.

[7.34]

There is no universal rule that the holder of an unregistered interest who fails to lodge a caveat will be postponed to a

subsequent unregistered interest. In J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; [1972] ALR 323, Barwick CJ (with whom McTiernan and Owen JJ agreed) stated (at 554): To hold that a failure by a person entitled to an equitable estate or interest in land … to lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of creation of the equitable interest would otherwise give is not merely … unwarranted by general principle or by any statutory provision but would … be subversive of the well recognised ability of parties to create or to maintain equitable interest in … land. [7.35]

In J & H Just (Holdings)12 a bank had not registered its mortgage or lodged a caveat to protect its interest; however, it did take possession of the Certificate of Title for the property. Another mortgage interest was later created in the property. That mortgagee did not sight the Certificate of Title for the property before taking the mortgage. The court found that the interest of the bank would not be postponed because, although it had not registered or caveated to protect its mortgage interest, it had retained possession of the Certificate of Title. As a matter of conveyancing practice, the court found that a prudent person taking the later mortgage interest would have demanded to see the Certificate of Title before taking its interest. In failing to do so, the competing equitable interest holder was effectively placed on constructive notice that another potentially competing and prior interest already existed over the property. The result of the decision is that a mere failure to caveat does not result in a loss of priority of the earlier interest. However, if a mortgagee fails to take or retain possession of title deeds and fails to register her or his interests and/or caveat, then the earlier interest will be postponed. [page 107]

[7.36]

In Black v Garnock (2007) 230 CLR 438; 237 ALR 1; [2007] HCA 31, Callinan J (at [76] and [80]) strongly disagreed with the approach of Barwick CJ in J & H Just (Holdings), finding that, since a caveat gave notice to anybody who searched the Torrens Register of the interest in the land of the caveator, the approach taken by Barwick CJ was ‘likely to be subversive of the whole scheme of the Torrens system’ because it allowed a person who acquired an interest to be ‘suddenly and unexpectedly … saddled with, or postponed to, an equitable estate or interest in land which could have been, but was not made the subject of protection by prompt lodgment of an instrument or the filing of a caveat pending lodgment’: at [80]. Gleeson CJ, however, endorsed the earlier remarks of Barwick CJ (at [7]) and, apart from Callinan J, no member of the High Court supported a change to the role of caveats.

[7.37]

As Barwick CJ stated in J & H Just (Holdings) (at 554): [T]here may be situations in which such a failure [to caveat] may combine with other circumstances to justify the conclusion that ‘the act or omission proved against’ the possession of the prior equity ‘has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it that the prior equity was not in existence’ cf per Knox CJ in Lapin v Abigail. This is the relevant principle to apply if it is claimed that the priority of a prior equitable interest has been lost in competition with a subsequent interest.

[7.38]

In situations such as that in Heid v Reliance Finance, where the owner of an interest in land has armed a third party ‘with the power of going into the world under false colours’, a failure on the part of the owner of the earlier interest to lodge a caveat may amount to a failure to dispel the false appearance/s she or he has created. J & H Just (Holdings) establishes, at least, that a holder of a prior unregistered interest who fails to lodge a caveat will not be postponed if she or he takes proper steps to protect her or his interest (for example, by obtaining possession of the duplicate certificate of title or by lodging the instrument which created her or his

interest for registration) or if the person who acquires the subsequent unregistered interest does so with notice of the prior interest. [7.39]

As to when a failure to caveat will constitute postponing conduct can also depend on the conveyancing practice in the particular jurisdiction. Professor Butt commented that there was a ‘clear divergence on the authorities of the approaches taken by different State courts to the question of a “mere failure to caveat”’ and that problem arose because of ‘apparently conflicting decisions of the High Court, and the fact that the relevant High Court authorities, on one view, do not reflect modern conveyancing practice’.13 For example, in Avco Financial Services Ltd v Fishman [1993] 1 VR 90, Tadgell J in the Supreme Court of Victoria found that the failure of a mortgagee to caveat to protect its second mortgage did not result in a loss of priority of that mortgage to a later mortgage. In Avco, a registered proprietor of land gave a registered mortgage to a bank. The bank then obtained a second mortgage, but that mortgage was not registered. Later, the registered proprietor granted a mortgage to a third party. [page 108] The bank had not lodged a caveat in respect of its second mortgage. The third party had made searches of the Torrens register and also wrote to and made telephone inquiries of the bank regarding the extent of the mortgagor’s liability with the bank. His Honour cited a decision of the Victorian Court of Appeal in Jacobs v Platt Nominees Pty Ltd [1990] VR 146 which was based on the concept that the ‘essential purpose of a caveat is protective, it is not to give notice’: at 94. Tadgell J found that the bank had obtained sufficient

protection against registration of a later interest by reason of its registered first mortgage. Accordingly, there was no utility in the bank lodging a caveat while its first mortgage remained registered.14 His Honour stressed that the bank held the duplicate title deed to the property, stating (at 93): Even without temporal priority, an equity which is supported by possession regularly obtained of title deeds, or their equivalent, will generally enjoy priority over a competing equity not supported by such possession: Rice v Rice. A claimant of an equitable security who is not only first in time but who relies in competition with another such claimant also on possession of title deeds, or the equivalent, is likely to be in a very strong position as against the other; and the position must be yet stronger if the equitable claimant second in time knew, when he obtained his equity, that the legal proprietor through whom he claims it was not in possession of the title deeds or an equivalent.15 [7.40]

This line of authority may become obsolete as duplicate Certificates of Title have practically been abolished through the adoption of computer records of title throughout Australia’s Torrens Registers.

[7.41]

In Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745, McLelland J reached a contrary conclusion to that taken in Avco,16 finding that the priority of the first unregistered mortgagee was postponed to that of the second unregistered mortgagee by reason of the first mortgagee’s failure to lodge a caveat. The holder of an unregistered second mortgage who had failed to lodge a caveat was postponed to the interest of a third unregistered mortgagee who had searched the title and advanced money in the belief that no earlier unregistered mortgage had been created. McLelland J thought that J & H Just (Holdings) and Heid v Reliance Finance were authority for the proposition that, generally, a failure to lodge a caveat did not necessarily lead to the postponement of an earlier interest. In Sharari, however, expert evidence demonstrated that the settled conveyancing practice of legal practitioners acting for second mortgagees in New South Wales was to lodge a

caveat. Accordingly, failure to do so would lead those who later searched title to conclude that there was no outstanding second mortgage. In those circumstances, the earlier interest would be postponed.17 [page 109] [7.42]

The decision in Sharari followed a decision of the Full Court of the Queensland Supreme Court in Clarke v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790. Both Sharari and Clarke v Raymor were cited with approval in Osmanoski v Rose [1974] VR 523. However, in Jacobs v Platt Nominees, the Victorian Court of Appeal doubted the authority of Osmanoski v Rose.

[7.43]

Despite the decision in Jacobs v Platt Nominees, the generally accepted conveyancing practice in a number of Australian states may require the holder of an unregistered interest to lodge a caveat, at least where the unregistered interest is a mortgage.18 In Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210 (at 227), Debelle J had regard to ‘the practice of reasonably competent solicitors and landbrokers to lodge caveats as soon as reasonably possible to protect an equitable [unregistered] mortgage’. His Honour found that, in South Australia, the accepted practice was to search the original Certificate of Title (the folio) before dealing with a registered proprietor of land or with any other person claiming an interest in it. Accordingly, several unregistered mortgagees who had failed to lodge caveats were postponed to a subsequent purchaser of the land.

[7.44]

Withdrawal of caveat Withdrawal of a caveat can also amount to postponing conduct in some circumstances. In Performance Capital Mortgage Pty Ltd v Motive Finance &

Leasing Pty Ltd (2010) 15 BPR 29,267; [2010] NSWSC 429, the first unregistered mortgagee (Performance Capital Mortgage Pty Ltd (PCM)) withdrew a caveat it had previously lodged protecting its unregistered mortgage interest. A second mortgage was then created in favour of the defendant and it lodged a caveat of its mortgage interest. The court found that PCM was postponed to the later mortgage interest because, by withdrawing its caveat, it had created a representation that it no longer had an interest in the land to protect, or that it no longer wished to protect it. In the circumstances, the interest holder was entitled to assume that the earlier mortgage had been discharged.

Creation of interests in land [7.45]

As we saw in Chapter 2, it is possible to create a range of estates and interests in land. In each jurisdiction in Australia, rules exist under general conveyancing statutes, as well as the Torrens legislation, that prescribe how various estates and interests in land must be created. In this section we will examine some of the key requirements for the creation of interests in land. As discussed in Chapter 6, you must be able to understand these requirements in order to be able to determine the competing priorities scenario you are being asked to work out; that is, you need to be able to determine what interests are in competition to identify your starting point for any priorities dispute; it is this starting point that will tell you which rules to apply. This includes working out not just whether an interest is a legal or an equitable interest, [page 110]

but whether an interest in land has come into existence at all. In the case of caveats, these rules also affect the determination of whether or not a caveatable interest has been created. The rules that we will examine in this section apply to the creation of all interests in Old System Title land and unregistered interests in Torrens land. These rules represent the formal requirements for the creation of interests in land only. In Chapters 10–12 we also examine the requirements for the creation of mortgages, leases and easements.

Requirement that interests in land be created in writing [7.46]

In England in 1667 the Statute of Frauds was enacted in order to address widespread fraud that was occurring in the practice of conveyancing of land. The legislation meant that no legal proceedings could be commenced for the breach of any agreement for the sale or disposition of any interest in land unless that transaction had been evidenced in writing between the parties. In Australia, this requirement has also been enacted in most jurisdictions.19 The basic rule is that no interest in land will be recognised or protected by a court unless it is evidenced in writing. However, the form that the writing takes differs depending upon what form of interest the parties are attempting to create, including, in the case of Torrens land, whether or not the parties are attempting to create a registerable interest in Torrens land. For example, if the parties are intending to create a registerable mortgage, then they will comply with the requirements in the relevant jurisdiction under the Torrens legislation to create such a mortgage. In New South Wales, that would mean executing a memorandum of mortgage in the form prescribed by the Torrens regulations in place at the time of creation of the mortgage. On the other hand, if the parties only ever

intended to create an unregistered, equitable mortgage of Torrens land, they could do this by executing a ‘deed of mortgage’ or even by creating a specifically enforceable agreement for a mortgage. These documents can never obtain registration. Nevertheless, they create a valid, unregistered mortgage interest in Torrens land. So, the question of what forms to use is, in any given case, a question that begins with: ‘What form of interest do the parties wish to create’? If they wish to create an interest that can be registered, then it is necessary to comply with the provisions of the Torrens legislation in order to create an interest that is capable of registration. If the interest is to remain unregistered, then the rules applicable to the creation of unregistered interests apply. [7.47]

In order to understand how interests in Torrens or Old System Title land are created, we need to understand a bit about the basics of the systems of conveyancing in [page 111] each jurisdiction in Australia. The following diagram shows how the conveyance of interests in land for Old System Title land generally occurs. Diagram 7.1: Conveyancing of Old System Title land

[7.48]

At exchange of contracts, an equitable interest is created in

the land. As we discussed at [7.18]–[7.22], this is different to a mere equity. Generally, we say that an equitable interest has been created because a court of equity will protect the interest that has been created under the contract by orders available from the court. These usually include orders for specific performance of the contract against the person who created the interest. For example, if Jolie enters into a Contract for the Sale of Land (as vendor) to George and she then refuses to complete the sale at the settlement, then George can seek an order which compels Jolie to complete the sale (order for specific performance of the sale contract). [7.49]

The diagram below depicts the additional requirement for conveyancing of Torrens land. Diagram 7.2: Additional requirement for conveyancing of Torrens land

[7.50]

As shown in the diagram above, the basic conveyancing practice remains the same as in Old System Title, except that Torrens land requires one extra step if a registered interest is to be created; that is, registration. If parties do not wish to create an [page 112] interest capable of registration in Torrens land, then they simply follow the ordinary conveyancing practice for all

interests in land up to settlement for Old System Title land. In some instances, the date of exchange of contracts and the date of settlement can take place on the same day. What matters is that there has been formal compliance with any requirements for the creation of the relevant interest, not the time that has elapsed between exchange and settlement of contracts. However, if there is to be any delay between the date of exchange and the date of settlement, then it is usual and prudent for a legal practitioner to do one of the following things to protect their client’s interest from being postponed to a later interest: in the case of Torrens land: lodge a caveat notifying of/protecting the equitable interest that has been created at exchange of contracts;20 in the case of Old System Title land: register the contract creating the equitable interest in the general register of deeds. [7.51]

At exchange, the parties exchange counterpart copies (identical contracts containing the other party’s signature) of the agreement. This means that each party walks away with identical terms of agreement, signed by the other party to the agreement.21 For Torrens land, this practice is for documents enabling registration of the interest to be handed over by the vendor/mortgagor/lessor to the purchaser/mortgagee/lessee in return for payment of the moneys due under the relevant agreement. The person creating the interest also obtains the Certificate of Title as well, to enable the interest to obtain registration.

What is the difference between a deed and an agreement? [7.52]

As noted, the creation of a legal interest in Old System Title land generally must be by way of deed. However, in the

Australian Capital Territory, the Northern Territory and Queensland, execution of a written instrument is sufficient to create a legal estate in land.22 In the other jurisdictions, no legal interest in land is created unless a deed has been executed by the person creating the interest. [7.53]

Apart from any formal requirements that apply (other than in the Australian Capital Territory, the Northern Territory and Queensland), there is one significant advantage of creating interests in land by way of deed: a deed does not require the payment of consideration by the person taking the interest in order for a court to recognise and enforce the interest created. It is common, therefore, particularly in cases where exchange and settlement are to take place on the same day, to simply create the [page 113] interest in land by way of a deed. In the case of gifts, the only way in which a gift of an interest in land can be protected by a court against a later interest is if it is created by way of deed.23 The deed can then be registered in the general register of deeds and will provide notice of that interest in land to the ‘world at large’. This means that, if a person taking a later interest in the land fails to check the general register of deeds, she or he will be deemed to have had constructive notice of the existence of the earlier interest prior to taking her or his interest in the land.24 As we have seen, this can have major ramifications in any priorities dispute, largely because that person will not be able to claim that she or he is a bona fide purchaser for value without notice of the prior interest.

[7.54]

The general requirements for a deed are that it is ‘signed, sealed and delivered’. The signing is the most obvious: it

simply refers to proper execution by the party to the agreement. Where the person is an individual, this usually requires their signature and compliance with the requirements in the relevant jurisdiction for the creation of deeds.25 [7.55]

The requirement of delivery of the deed remains — this basically means that the person who is taking the interest in the land (purchaser/mortgagee/lessee/owner of the dominant tenement) has to be given possession of the deed by the person creating (granting) the interest. At this point in time, the person who has created the interest in land in favour of that person puts it beyond her, his or its power to recall the interest in land.26 In modern terms, it is sufficient today if the deed is constructively delivered to the other party; that is, courts will look at whether or not the person executing the deed demonstrated an intention to be legally bound by executing the instrument as a deed.27 Because the requirements for the creation of deeds differ from jurisdiction to jurisdiction and over time, it is necessary before a party executes a deed to check the current legislation and requirements for the execution of a valid deed within the particular jurisdiction. [page 114]

Creation of equitable interests in land [7.56]

In addition to the creation of legal interests in land, in a number of circumstances equity will recognise and protect interests in land. In this section we will consider some of the circumstances in which equitable interests in land are recognised.

The doctrine of part-performance [7.57]

In each jurisdiction in Australia there are exceptions to the requirement that interests in land must be evidenced in writing in order to be enforceable. One of the ways in which this occurs is under the doctrine of part-performance. This is equity’s exception to the requirement for writing where there are sufficient acts of part-performance by the parties which evidence an agreement.28 A simple example of an agreement between the parties that is enforceable because of the operation of the doctrine of part-performance are mortgages created by way of deposit of title deeds. These mortgages are not evidenced in writing; however, a court will recognise the mortgage interest (and protect it) because a court interprets the actions of the owner of the property giving possession of the title deeds to the lender of money as the creation of a mortgage.29 Where the doctrine of part-performance applies, the interest will be protected as an equitable interest in the land. Again, this is because a court of equity will impose orders which protect the interest.

[7.58]

One thing that can be difficult to establish under the doctrine is that there is no other explanation for the actions of the parties. In JC Williams Ltd v Lukey & Mulholland (1931) 45 CLR 282; [1931] ALR 157, Dixon J expressed this as that the actions giving rise to the agreement (which is to be specifically enforced) have to be unequivocally referable to the agreement as alleged and ‘consistent only with some such contract subsisting’: at 297.30 In other words, if there is some other explanation for the actions of the parties, the doctrine will not apply and the agreement will not be specifically enforced.

Creation of other equitable interests in land [7.59]

In each jurisdiction, the rules of equity apply to recognise

the creation of equitable interests in land. Equitable interests in land are created whenever a court of equity recognises the creation of the interest in land through the protection of an order for specific performance of an agreement.31 The most common example of this is [page 115] the interest acquired by a purchaser of land at exchange of contracts.32 In this case, the remedy of specific performance means that the purchaser acquires an equitable interest in the property which is co-extensive with the legal interest promised by the agreement.33 Other examples include the interest attained by a mortgagee at exchange, a lessee at exchange or the owner of a dominant tenement at exchange (in the case of easements). In each instance, there is writing between the parties (usually the contracts that have been swapped at exchange) as well as acts of part-performance of the agreement — at exchange, this occurs by the payment of the deposit by the purchaser to the vendor. As we have already discussed in Chapter 6, for Torrens land, all of these interests remain equitable interests at settlement. [7.60]

Another example is where there has been a ‘failure of writing’. For example, if the parties attempt to create a mortgage in registerable form but the Registrar will not accept the form because it has not complied with the current legislation for such mortgages in some respect, a court of equity will recognise the creation of an equitable mortgage.

[7.61]

Yet further examples of equitable interests in land include circumstances in which parties have reached an agreement to enter into an agreement for the creation of an interest in land; for example, an agreement between parties to create a lease will be enforced by a court of equity when the

requirements for specific performance have been met.34 Similarly, an agreement to grant a mortgage can constitute an equitable interest in land. [7.62]

Apart from these equitable interests, in each jurisdiction an exception is also created to the requirement that all interests in land must be in writing for any interests that arise under a trust.35 These can include interests arising under an express trust or interests that arise as a result of implied, resulting or constructive trusts.36

Specific performance [7.63]

As specific performance is an equitable remedy, it is subject to the discretion of the court: there is no automatic right to an order for specific performance. The order will only be made by a court of equity where the court considers that the common law remedy for breach of contract is not an adequate remedy. In the creation of interests in land, establishing this requirement in order to obtain relief is usually not problematic, because it is generally assumed that damages are not an adequate remedy.37 However, in order to obtain the remedy, the person seeking it must not have [page 116] engaged in unconscionable conduct, and there are instances in which something which might otherwise have been protected is not because of the conduct of the person seeking the order.

Creation of registerable interests in Torrens land [7.64]

The legislation in each jurisdiction prescribes the formalities for the creation of registerable interests in Torrens land.38

These interests remain as unregistered, equitable interests in land until registration, but they are capable of registration because they are in registerable form. For example, if an owner of land executes a mortgage in registerable form (by complying with the requirements under the Torrens legislation for a registered mortgage) and hands over the Certificate of Title to the lender (and, in return, takes moneys from the lender) then a court will protect the unregistered equitable interest as an unregistered equitable mortgage. There are sufficient acts of part-performance in such an instance for a court of equity to be able to recognise and protect the lender’s interest in the borrower’s property as a mortgage. Orders that might be sought include orders that enable the mortgage to be registered. For example, if the mortgagor executes the mortgage and takes the money but refuses to hand over the Certificate of Title in order for the mortgagee to register her or his mortgage, then a court might order the mortgagor to deliver up the Certificate of Title to the mortgagee, to enable registration of the mortgage to take place. __________________________ 1

Nemo dat quod non habet — no one gives what she or he does not have.

2

Conveyancing Act 1919 (NSW) s 164; Property Law Act 1974 (Qld) s 346; Law of Property Act 1936 (SA) s 117; Conveyancing and Law of Property Act 1884 (Tas) s 5; Property Law Act 1958 (Vic) s 199. There are no equivalent provisions in Western Australia; the position at common law and in equity applies. Note, however, that the Property Law Act 1969 (WA) s 7 provides that ‘notice’ includes constructive notice. There is no Old System Title land in the Australian Capital Territory or the Northern Territory. 3 Bailey v Barnes [1894] 1 Ch 25. 4

Conveyancing Act 1919 (NSW) s 53; Property Law Act 1974 (Qld) s 237; Property Law Act 1958 (Vic) s 44; Sale of Land Act 1970 (WA) s 22. 5 Conveyancing and Law of Property Act 1884 (Tas) s 35. 6

As to which see Rice v Rice (1853) 2 Drew 73; 61 ER 646. This approach was also approved in Jacobs v Platt Nominees Pty Ltd [1990] VR 146; Cash Resources Australia Pty Ltd v BT Securities Ltd [1990] VR 576; Platzer v Commonwealth Bank of Australia [1997] 1 Qd R 266. However, see the approach by the Court of Appeal of the Supreme Court of Victoria in Moffet v Dillon [1999] 2 VR 480, which appeared to prefer giving weight to the first interest in time and then looking to see whether there was any reason that interest should be postponed. However,

the argument may be more academic than real if, in the end, all the considerations referred to in Rice v Rice are taken into account before a court reaches any final determination as to who has the better equity. 7 Although there was no review of the prior authorities on this point. 8 In the case of Old System Title land, only the first mortgagee should ever be in possession of title deeds (or a purchaser where no mortgage exists). If she or he gives away possession of the title deeds to some third party (including losing possession by an act of gross negligence) then her or his interest may be postponed. 9 10

To your agent and for a limited and specific purpose. The nature and purpose of caveats is discussed in Chapter 6.

11

P Butt, Land Law, 6th ed, LexisNexis Butterworths, Sydney, 2010, p 787. 12 Findings affirmed on appeal in J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; [1972] ALR 323. 13

P Butt, ‘Caveats and Priorities: The “Mere Failure to Caveat”’ (1994) 68 Australian Law Journal 143. 14 See also FNCB-Waltons Finance Ltd v Crest Realty Pty Ltd (1977) 10 NSWLR 621. 15

Possession of the duplicate Certificate of Title was also regarded as significant by Young J in the New South Wales Supreme Court in Green v Commonwealth Bank of Australia (No 2) (1994) 29 ATR 599 (a case involving competition between an unregistered first mortgage and a subsequent mortgage). 16 Declining to follow an earlier decision of Needham J in Ryan v Nothelfer (1983) NSW ConvR ¶55-119. 17

The continuing relevance of Sharari was demonstrated in Finlay v R & I Bank of Western Australia Ltd (1993) 6 BPR 97,449 where, on similar facts and similar evidence as to the general conveyancing practice in New South Wales, the interest of a second mortgagee was again postponed to that of a third mortgagee. 18 See, for example, Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745; Finlay v R & I Bank of Western Australia Ltd (1993) 6 BPR 97,449. 19

Civil Law (Property) Act 2006 (ACT) s 201; Conveyancing Act 1919 (NSW) s 54A; Law of Property Act (NT) s 62; Property Law Act 1974 (Qld) s 59; Law of Property Act 1936 (SA) s 26; Conveyancing and Law of Property Act 1884 (Tas) s 36; Property Law Act 1958 (Vic) s 52(1); Law Reform (Statute of Frauds) Act 1962 (WA) s 2. In the Australian Capital Territory, the Northern Territory and Queensland, the use of a deed is required to create a legal estate or interest in land. In the Australian Capital Territory the document may be signed by an agent; in the Northern Territory and Queensland, a deed or any written document signed by the person making the assurance can create the legal interest. In the Australian Capital Territory, the document may be signed by an agent. 20 In Black v Garnock (2007) 230 CLR 438; 237 ALR 1; [2007] HCA 31, the High Court said that a caveat should be done whether or not any delay is expected. In Queensland, South Australia, Tasmania and Victoria, you could have lodged a settlement notice after the date of exchange. 21

For Old System Title land, at settlement this agreement is converted into, and then executed as, a deed where the interest being created is to be a legal interest in the land. Remember that, in the case of Torrens land, any unregistered interest remains an equitable interest in land unless one of the rules discussed earlier in this chapter applies. Also, as noted, this requirement does

not exist in the Australian Capital Territory, the Northern Territory or Queensland: see [7.52]. 22 Civil Law (Property) Act 2006 (ACT) s 201; Law of Property Act (NT) s 9(1); Property Law Act 1974 (Qld) s 19(1). 23 See Corin v Patton (1990) 169 CLR 540; 92 ALR 1. Discussed in Chapter 8. 24

See above n 2. 25 In New South Wales, the requirement is that the deed must be signed and sealed and has to be attested by at least one witness not a party to the deed. Sealing is deemed to include signing and attestation, provided that the instrument is expressed to be a deed: Conveyancing Act 1919 (NSW) s 38(1). The Australian Capital Territory has similar requirements: Civil Law (Property) Act 2006 (ACT) s 219. In the Northern Territory, sealing and delivery are statutory requirements and the deed is deemed to be executed if attested by at least one witness who was not a party to the deed: Law of Property Act (NT) s 45. Queensland has a similar provision: Property Law Act 1974 (Qld) s 47. In South Australia and Western Australia, signing and attestation by at least one witness is required, but sealing is not a statutory requirement and delivery is not necessary: Law of Property Act 1936 (SA) s 9; Property Law Act 1969 (WA) s 41. In Victoria, the deed must be signed and sealed and there is no requirement for attestation: Property Law Act 1958 (Vic) ss 73, 73A. In the case of corporations, the Corporations Act 2001 (Cth) also provides for when third parties can rely upon the execution of a deed by the company: see Corporations Act 2001 (Cth) s 127. 26 27

See Corin v Patton (1990) 169 CLR 540; 92 ALR 1. Booker Industrial Developments Pty Ltd v Trustees of the Christian Bros [1977] 2 NSWLR 109.

28

The doctrine is also discussed in Chapters 10 and 11 in relation to the creation of mortgages and leases. 29 For a more detailed discussion of the doctrine, see Radan, Stewart and Lynch, Butterworths Tutorial Series Equity and Trusts, 2nd ed, LexisNexis Butterworths, Sydney, 2005, Chs 12 and 13. 30

For a more detailed discussion on this point, see Gray, Edgeworth, Foster and Dorsett, Property Law in New South Wales, 3rd ed, LexisNexis Butterworths, Sydney, 2012, pp 256–8. 31 Stern v McArthur (1988) 165 CLR 489; 81 ALR 463. For a more detailed discussion of the remedy of specific performance, see Radan, Stewart and Lynch, above n 29, Chs 12 and 13. Interests in land might also be protected under the doctrine of estoppels as that doctrine was described by the High Court in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513: as to which see Gray, Edgeworth, Foster and Dorsett, above n 30, pp 267–72. 32 33

Black v Garnock (2007) 230 CLR 438; 237 ALR 1; [2007] HCA 31. Lysaght v Edwards (1876) 2 Ch D 499.

34

Walsh v Lonsdale (1882) 21 Ch D 9. 35 Civil Law (Property) Act 2006 (ACT) s 201(4); Conveyancing Act 1919 (NSW) s 23C(2); Law of Property Act (NT) s 10; Property Law Act 1974 (Qld) s 11(2); Law of Property Act 1936 (SA) s 29(2); Conveyancing and Law of Property Act 1884 (Tas) s 60(2); Property Law Act 1958 (Vic) s 53(2); Property Law Act 1969 (WA) s 34(2). 36

For a detailed discussion of trusts and the creation of interests in land, see Gray, Edgeworth, Foster and Dorsett, above n 30, pp 258–67. 37 Adderly v Dixon (1824) 1 Sim & St 607. 38

It is beyond the scope of this book to set out all of the different formalities for the creation of the

different interests in Torrens land in each jurisdiction.

[page 117]

CHAPTER 8

Co-Ownership

Key Ideas By the end of this chapter you should be able to identify: the two forms of co-ownership that exist for land: joint tenancy and tenancy in common the four unities: possession, title, time and interest when a joint tenancy at law arises when a joint tenancy in equity arises when a tenancy in common at law arises when a tenancy in common in equity arises the operation of the right of survivorship how and when a joint tenancy is converted into a tenancy in common the rules applicable to the taking of accounts between co-owners of property

[page 118]

Introduction [8.1]

Not all land is held by individuals. In Australia, it is possible to become the owner of land with other people under what is referred to as a ‘co-ownership’. Disputes in this area arise most commonly in the following contexts: where a co-owner has died, and the executor or administrator of her or his estate is arguing that the property which was co-owned by the deceased became part of the deceased’s estate upon her or his death; in disputes between parties who currently co-own property and wish to bring the co-ownership to an end. As part of this process, the co-owners wish to settle sums of money owed to one another, to sell off the land and cease to remain in the co-ownership; and where parties who wish to enter into the purchase of land seek advice from a lawyer as to the best way of owning land together. This might involve a number of considerations by the lawyer to advise her or his client.

[8.2]

This chapter covers three key areas dealing with coownership: the creation of co-ownership interests in land; severing a joint tenancy; and rights between co-owners.

What is co-ownership?

[8.3]

Co-ownership of land refers to a situation in which two or more persons are simultaneously entitled to possession of the same land: see Chapter 1 on possession of property.

[8.4]

In Australia, there are two types of co-ownership: joint tenancy; and tenancy in common.

What is a joint tenancy? [8.5]

The theory underlying a joint tenancy is that each joint tenant holds her, his or its co-ownership interest in the land ‘per my et per tout’, which roughly translates as ‘by the half and by the whole’. It represents the idea that no joint tenant holds what is referred to as an ‘aliquot’ share of the property; that is, no one joint tenant holds a notionally divisible interest in the property.1 The High Court has said that, although joint tenants have no allocated share in the property, they are regarded as having a potential share in the land commensurate with that of the other joint tenants.2 [page 119]

[8.6]

Each joint tenant is entitled to the entirety of the land and the ownership rights attached to it. Although the division of interests at the termination of the joint tenancy will be prorated by the number of co-owners left in the joint tenancy, the point is that each joint tenant is entitled to the whole of the property. For example, it is not possible under a joint tenancy to specifically allocate a 50:50 ownership interest if there are only two joint tenants in the property. The law treats both joint tenants as being equally entitled to a 100% ownership interest in the property. However, as an

accounting exercise, dividing up the value of the property into a 50:50 share is precisely what a court appears to do as a practical matter in order to pay out any equity in the property to each joint tenant: see [8.58]–[8.73] on the taking of accounts between co-owners. [8.7]

The important point is that it is not notionally possible to allocate a particular share to any joint tenant; there is no individual right to any particular share of the land for a joint tenant. This means that it is assumed that no one joint tenant has the lawful power to deal with the joint tenancy without the approval of the other joint tenants.

[8.8]

The way in which we identify a joint tenancy is that it possesses what are referred to as ‘the four unities’. Unless all of these unities are present, there is no joint tenancy: unity of possession: each joint tenant is entitled to possession of any part of the land and all of the land; unity of title: each joint tenant must have derived her or his interest from the same instrument creating the coownership; for example, under the same transfer for Torrens Title land; unity of time: each joint tenant must have taken their legal interest in the land at the same moment in time; and unity of interest: the interest of each joint tenant must be of the same extent, nature and duration; for example, each interest must be held as a fee simple estate.

What is a tenancy in common? [8.9]

The easiest way to understand a tenancy in common is to compare and contrast it with a joint tenancy. The key difference is that, in a tenancy in common, each owner has a distinct share of the property. This notional interest is separate from the other co-owners’ interests in the property,

even though the property has not been divided in any physical manner. Only one unity of the four unities needs to exist for a tenancy in common to exist: the unity of possession.

Right of survivorship [8.10]

One of the key features of a joint tenancy is the ‘right of survivorship’. This is the ‘jus accrescendi’, and it is sometimes referred to this way in legal texts. This is a specific legal right that does not exist in a tenancy in common. The right of survivorship simply refers to the right that a surviving joint tenant has to become entitled to the property of a joint tenant who has died. Upon the death of the joint tenant, that [page 120] deceased joint tenant’s interest in the property is automatically extinguished. Any interest that she or he had automatically passes at law to the surviving joint tenant/s. The interest of the surviving joint tenant/s is therefore correspondingly enlarged. In practical terms, this means that the interest of the deceased joint tenant in the property is automatically extinguished upon her or his death and cannot pass to her or his estate; it simply never becomes part of the deceased’s property for distribution under her or his estate because it has already passed to the surviving joint tenant/s.

Determining the order of death of joint tenants [8.11]

The issue of determining the order of death of joint tenants arises in circumstances in which we need to determine

whether the right of survivorship operates in favour of a particular joint tenant where joint tenants have died at apparently the same time. In most cases, the date and time of death of a joint tenant will be clear and will not give rise to any issues as to which joint tenant is entitled to the right of survivorship. In cases where it is impossible to ascertain the order of time of death, then the common law position was that there could be no right of survivorship. However, that common law rule has been altered in most jurisdictions by statute.3 The effect of these provisions is to provide that, in such cases, the younger joint tenant is presumed to have survived the older joint tenant. This is a presumption of law and, as such, it can be rebutted by evidence that the deaths occurred other than in that order. These rules apply except in Western Australia and the Northern Territory. In those jurisdictions, where there is any uncertainty as to which joint tenant died first, the property devolves as though the joint tenants held the property as tenants in common in equal shares.4

Creation of co-ownership interests in land [8.12]

In this section, we will look at how co-ownership interests in land are created. It is important to understand this for two reasons. The first is that we need to be able to establish when an interest was created (time), what form of interest it is (interest), who has possession (possession) and what sort of title was created (title); that is, whether the fours unities are present. These matters need to be established in order to determine whether or not a joint tenancy exists. The second reason we need to understand these matters is in order to be able to determine whether a co-ownership interest, which may have started out as a joint tenancy, has later been converted to a tenancy in common (known as ‘severance’ of a joint tenancy): see [8.32]–[8.57]. This is because this has

ramifications for establishing whether or not the right of survivorship was in operation at the date of death of one of the co-owners. [page 121]

Different interests in co-owned property: law vs equity [8.13]

Before we consider how co-ownership interests are created, there is something else that we need to understand: that it is possible to hold interests as co-owners differently at law and in equity for the same piece of land and by the same coowners. In other words, joint tenancies and tenancies in common can exist at both law and in equity simultaneously. For example, Nour and Nassima can be joint tenants at law, but hold as tenants in common in equity; or Guillemo might hold the legal interest (at law) on trust for himself and Harriet, who are both tenants in common in equity.

[8.14]

What is the relationship between law and equity here? We say that equity is engrafted onto the law. Equity simply imposes its limits onto the rights and interests of the legal owner/s.

Creation of co-ownership interests at law Creation of a joint tenancy at law [8.15]

As discussed above, in order to establish a joint tenancy at law, the four unities must be present (time, interest, title and possession). At law, provided the four unities were present (no words of severance had been used), the presumption was that a joint tenancy was created. Note that if unity of

possession is not present, then no co-ownership interest (whether joint tenancy or tenancy in common) exists at all. [8.16]

Words of severance One way of establishing that no joint tenancy has been created is to establish that a co-owner is not entitled to the whole of the property, but (as is the case in a tenancy in common) only entitled to a notional or divided share of the property. This is done by using ‘words of severance’ in the document which created the co-ownership. Any words which indicate the allocation of a notional share mean that the necessary pre-requisite of a joint tenancy does not exist. This is because one of the key features of a joint tenancy, unity of interest, does not exist, as the co-owners are being granted separate and distinct interests in the property. For example, the following phrases have been found to constitute words of severance, precisely because they allocate a notional interest in the co-owned property: a one-half interest to each of A and B; to be divided amongst A, B, C and D in equal shares; to be divided between A and B; to be distributed amongst A and B in joint and equal proportions; to my 10 children equally.

Creation of a tenancy in common at law [8.17]

The creation of a tenancy in common requires words of severance to be present in the instrument that creates the interest in the land. This means that one of the key features of a joint tenancy is not present. Thus, a tenancy in common exists at law whenever words of severance are present. [page 122]

[8.18]

Before we move on to consider when equity will presume that a tenancy in common exists (even though the co-owners hold their interest as joint tenants at law), we need to consider the operation of some statutory presumptions about the creation of tenancies in common in New South Wales, Queensland, the Australian Capital Territory and the Northern Territory. In each of these jurisdictions, the presumptions at law we discussed above (about when a joint tenancy will arise) have been reversed by statute. Legislation in those jurisdictions creates a presumption to the effect that a tenancy in common will arise at law unless that presumption has been rebutted in the specific words of the instrument that creates the co-ownership. In other words, in those jurisdictions, the common law presumption has been reversed by statute.

[8.19]

Presumption of tenancy in common at law — New South Wales, Queensland, the Australian Capital Territory and the Northern Territory As noted, in each of these jurisdictions, the presumption at law for the creation of joint tenancies and tenancies in common has been reversed by legislation.5 For example, in New South Wales, s 26(1) of the Conveyancing Act 1919 (NSW) provides: In the construction of any instrument coming into operation after the commencement of this Act a disposition of the beneficial interest in any property whether with or without the legal estate to or for two or more persons together beneficially shall be deemed to be made to or for them as tenants in common, and not as joint tenants.

[8.20]

The effect of this legislation is that, if there is conveyance to two or more persons and there are no words severance used in the instrument, then the statutory presumption will apply and the co-owners will take their interests as tenants in common at law. As equity follows the law, in this instance the co-owners also hold as tenants in common in equity. This means that, in these jurisdictions, if a joint tenancy is to

be created at law that must be clearly stated in the words used in the instrument.6 [8.21]

The presumptions as to when a tenancy in common in equity (see [8.23]–[8.29]) arises continues to apply in these jurisdictions.

[8.22]

Presumption of tenancy in common at law — South Australia, Tasmania, Victoria and Western Australia The presumptions of the common law continue to apply in these jurisdictions. In other words, if the four unities are present and no words of severance have been used, coowners are presumed at law to hold their interest as joint tenants. [page 123]

Creation of co-ownership interests in equity Legal and equitable interests in land [8.23]

In order to understand how co-ownership interests work in practice, it is also necessary to understand the concept of legal and equitable interests and how they can exist at the same time in the same piece of land. The reason for this is that it is possible for these interests in land to exist simultaneously in the same piece of land, based on whether the interest is a legal interest (created by the law) or an equitable interest (recognised by the law of equity). Each interest can give rise to different rights for the co-owners, because co-owners might hold their interests as joint tenants at law but, in equity, hold their interest as tenants in common. We will now discuss the circumstances in which equity will imply a tenancy in common, even though the co-

owners hold as joint tenants at law. Where this happens, we say that the co-owners hold as ‘joint tenants at law in trust for themselves as tenants in common in equity’. In effect, this means that whatever the formal legal position (position at law), equity will intervene to ameliorate the effect of the law and establish that the beneficial (or equitable) interests of the co-owners in the land are held in a different way — which will include different rights in the land to the coowners. The practical result is that the rules of equity prevail and the rights of a tenancy in common will apply in those instances. Importantly, this can mean that the right of survivorship will not apply where the co-owners held as tenants in common in equity.

Creation of a tenancy in common in equity [8.24]

Equity will presume that a tenancy in common exists in the following three circumstances:7 where there have been unequal contributions to the purchase price of property by the co-owners; or where one co-owner advances moneys on a mortgage; or where the land is held in partnership and therefore constitutes an asset of the partnership.

[8.25]

If property is held as tenants in common at law, then the coowners hold as tenants in common in equity as well.8 These three scenarios deal with where the co-owners hold as joint tenants at law but hold their interests as tenants in common in equity. Each of the three scenarios is a presumption made by the law of equity. This means that, unless the presumption is rebutted by evidence, equity will presume that the co-owners hold their interests as tenants in common in equity. Practically, what this means is that it will be up to the party who opposes the presumption to both plead and produce evidence to the court to rebut the presumption. If it

fails to do so, then the presumption will apply. [page 124] [8.26]

Unequal contributions to purchase price The first circumstance in which equity presumes that co-owners hold as tenants in common is in cases where co-owners have contributed unequally to the purchase price of the co-owned property. This is often referred to as the rule in Calverley v Green (1984) 155 CLR 242; 56 ALR 483. In this instance, equity presumes that the property is held by the purchasers in trust for themselves as tenants in common in the proportions in which they contributed to the purchase price. For example, assume that a property has a purchase price of $1 million. Charlie contributes $700,000 towards the purchase price. Coco contributes the remaining $300,000. In this instance, equity will presume that they hold the property as tenants in common in the following portions: 70% to Charlie, 30% to Coco, even though they may own the property as joint tenants at law. This means that, if the coownership is being brought to an end at a period in time in which the property is worth $2 million, the respective percentages of 70:30 remain the same and the respective values which are allocated to each are $1.4 million to Charlie and $600,000 to Coco. If a tenancy in common was not presumed in those portions and the co-owners held as joint tenants at law, then the respective allocations would initially be $500,000 each at the date of purchase and $1 million each at the date of sale. This would clearly not reflect the respective contributions that Charlie and Coco had in fact made to the purchase price. It is for this reason that equity sees fit to intervene to presume that the parties hold their interests as tenants in common in a 70:30 apportionment of the value of the property at the date of the end of the co-

ownership. We say that Charlie and Coco hold as joint tenants at law on trust for themselves on a 70:30 apportionment as tenants in common in equity. [8.27]

The rule in Calverley v Green presumes that co-owners who make unequal contributions to the purchase price hold as tenants in common in equity unless there is clear evidence of a contrary intention; that is, unless there is evidence to the effect that they intend to hold as joint tenants, despite unequal contributions to the purchase price. This can happen in domestic relationships, where it is more likely that a wife or husband, or even children and their parents, intended that their co-owner was to have an equal share in the property despite having made less of a contribution to the purchase price.9 In this context, we need to consider whether this ‘presumption of advancement’ applies. This presumption of law comes from the decision in Calverley v Green (1984) 155 CLR 242; 56 ALR 483 and applies whenever a gift is made from a parent to her or his child and from a husband to his wife. It does not apply to gifts from a wife to her husband and not to de facto relationships.10 [page 125] This presumption must be rebutted by evidence to the contrary if a tenancy in common in equity is to be found to exist.

[8.28]

Moneys advanced on a mortgage If two or more persons advance money on a mortgage (in whatever shares), equity also presumes the existence of a tenancy in common. As in the case of unequal contributions to the purchase price, the shares are proportionate to the money each co-owner advanced. This reflects a policy decision by equity that the right of survivorship has no place in business — in this

instance, the business of the mortgagee in lending moneys to the co-owners. [8.29]

Partnership and business assets Equity presumes that, where partners in a business acquire land as part of the partnership, any assets held by the partnership (including any land) are held as a tenancy in common.11 In this instance, equity regards the joint tenants as tenants in common, as it would be unfair to permit the right of survivorship to operate in an undertaking designed to produce a profit.

Summary New South Wales, Queensland, the Australian Capital Territory and the Northern Territory [8.30]

To determine which type of co-ownership applies in New South Wales, Queensland, the Australian Capital Territory and the Northern Territory, you need to consider the following: (1) Work out how the co-owned property is held at law — is it a joint tenancy or a tenancy in common? (2) There is a statutory presumption of tenancy in common unless expressly stated to take as joint tenants. (3) If the parties are joint tenants at law, then equity follows the law unless one of the three exceptions applies in which equity diverges from law. (4) If the parties are tenants in common at law, then equity follows the law and they also hold as tenants in common in equity.

South Australia, Tasmania, Victoria and Western Australia

[8.31]

To determine which type of co-ownership applies in South Australia, Tasmania, Victoria and Western Australia, you need to consider the following: (1) Work out how the co-owned property is held at law — is it a joint tenancy or a tenancy in common? (2) There is a presumption at law of joint tenancy (unless all four unities are not present or words of severance are used). [page 126] (3) If the parties are joint tenants at law, then equity follows the law unless one of the three exceptions applies in which equity diverges from law. (4) If the parties are tenants in common at law, then equity follows the law and they also hold as tenants in common in equity.

Severing a joint tenancy [8.32]

In some cases, a co-ownership that starts off as a joint tenancy is, at some stage, converted to a tenancy in common by one or more of the joint tenants. This is referred to as ‘severance’ of the joint tenancy. It becomes important to work out whether severance of a joint tenancy has taken place in order to determine whether the right of survivorship applies at the date of death of one of the co-owners.

[8.33]

Severance of a joint tenancy occurs where there is an act by one of the joint tenants that destroys any one of the four unities (title, time, interest or possession). To be effective, severance needs to occur during the life of the joint tenant who effects the severance, otherwise the right of

survivorship will apply and the remaining joint tenant/s becomes automatically entitled to the entirety of the property: see [8.10].

How does severance occur? [8.34]

Severance can take place at law or in equity, and can occur in the following ways: by a unilateral act by one of the joint tenants disposing of her or his interest to a third party to the co-ownership; by compliance with statutes for unilateral severance; by creation of a mortgage for Old System Title land by one of the joint tenants; by the creation of a lease by one of the joint tenants; by mutual agreement of the joint tenants; by a course of mutual dealing between the joint tenants that indicates that the interests of all had been mutually treated as constituting a tenancy in common; or by operation of law (by an act of bankruptcy by of one of the joint tenants or by the unlawful killing of one joint tenant by the other).

Unilateral acts — severance at law and in equity [8.35]

For Torrens Title land, a unilateral act by one of the joint tenants disposing of her or his interest to a third party has the effect of severing the joint tenancy. It takes the form of a transfer by the joint tenant as transferor to a third party (which could include another co-owner) and registration of the transfer (or, at the least, a properly executed transfer in registrable form together with the relevant Certificate of Title to the property or the ability to compel production of the Certificate of Title to effect registration).12

[page 127] [8.36]

In Wright v Gibbons (1949) 78 CLR 313; [1949] ALR 287, two sisters and their sister-in-law held property as joint tenants. The two sisters transferred their interests to each other by one instrument. Two years later, both sisters died. The sisterin-law claimed to be entitled to the entire property by operation of the right of survivorship. This right could only apply if a joint tenancy existed at the date of death of the two sisters; that is, the right of survivorship only continued to exist if there had been no severance of the joint tenancy prior to the two sisters’ deaths. The plaintiff claimed that the joint tenancy had been severed by the mutual transfers executed by the two sisters prior to their deaths and that, accordingly, their respective interests had passed to their estates for distribution (because a tenancy in common existed prior to their deaths). The argument was that, under the mutual transfer, each of the sisters got something different from that which they mutually conveyed to the other; that is, each acquired an interest in the property as a tenant in common, whereas previously they had held their interests in the property as joint tenants. The court found that the transfers had the effect of passing the legal estate of each sister upon registration of the transfers. Accordingly, upon registration, the joint tenancy was severed and the respective interests of the two sisters and the sister-in-law were converted to a tenancy in common as between the three parties.13 As such, the right of survivorship did not apply.

[8.37]

In addition to these acts of severance which take place at law, severance can also take place in equity by a sufficient act of alienation of one of the joint tenant’s interest in the coowned property.

[8.38]

In equity, severance of a joint tenancy generally takes effect where there is a specifically enforceable contract to transfer one of the joint tenant’s interests in the property to the other joint tenant or to a third party to the co-ownership. This generally requires compliance with any requirements in each jurisdiction that dealings with land be in writing (considered in Chapter 7), as well as consideration sufficient to support the contract. If the transfer is a gift, then there needs to be compliance with the rules on gifts.

[8.39]

The leading case that deals with the requirements of alienation sufficient to sever a joint tenancy of Torrens land is the High Court’s decision in Corin v Patton (1990) 169 CLR 540; 92 ALR 1. In that case, Mr and Mrs Patton were joint tenants of Torrens land. Mrs Patton was terminally ill, and instructed her solicitor that she wanted to sever the joint tenancy. The solicitor had Mrs Patton execute a memorandum of transfer and declaration of trust of the property, and took those documents to finalise the transactions. The Certificate of Title for the property was with the mortgagee bank and no steps were taken by Mrs Patton (through her solicitor) to procure it. The transfer purported to give her potential share of the property to her brother, Mr Corin, to hold on trust for himself and Mrs Patton. Mr Corin did not provide any consideration for the transfer. Prior to Mrs Patton’s death, the transfer was not able to be registered, because Mr Corin was not in possession of the Certificate of Title to the property and also had no means of compelling its production. The question for the High Court was [page 128] whether Mrs Patton’s actions prior to her death had been

sufficient to alienate her interest in the property to her brother and thereby to sever the joint tenancy. [8.40]

The court made it clear that unilateral statements by a joint tenant cannot sever a joint tenancy, but a course of dealing by one of the joint tenants can. The problem is that a course of dealing must have been obvious to the other joint tenant. That was not the case on the facts before the court. Since registration of the transfer had not taken place, there had been no alienation of Mrs Patton’s interest at law. This left open the question for the court of whether there had been an effective transfer of her interest in equity. Since Mr Corin had not provided any valuable consideration for the transfer (and therefore no basis for an order for specific performance), the rules that had to be applied to determine whether severance had taken place in equity were the rules relating to perfecting an imperfect gift.14

[8.41]

In relation to the other argument on severance (by the establishment of a trust), the court found that not everything that had to be done had been done in order to constitute the trust, because Mrs Patton had not done everything that needed to be done to effect a transfer of the property to Mr Corin so that Mr Corin could hold the property as trustee. This would have required either: (1) providing Mr Corin with the Certificate of Title; or (2) placing him in a position where he could compel production of the Certificate of Title in order to transfer the property to himself as trustee (which would vest the trust property in him and settle the trust). The trust had not been constituted because the property had never vested in the trustee (Mr Corin). Instead, Mrs Patton should have had herself declared trustee of the property for her brother. If she had done so, this would have been effective to settle the trust and give an interest in Mr Corin as a beneficiary of the trust. On the words of the document that Mrs Patton had executed, she did not intend to

constitute herself as a trustee for Mr Corin; instead, she made him the trustee. Therefore, she had to properly constitute the trust in order to alienate her interest under the joint tenancy. As noted, this involved properly vesting the property in the trustee, requiring either: (1) registration of her share of the property in the trustee on the Torrens Register; or (2) placing the trustee in a position where he could go on to complete the transfer and obtain such registration. Neither had occurred. Accordingly, Mrs Patton had not done everything that needed to be done to enable Mr Corin to perfect the gift or properly constitute the trust. For these reasons, the court found that no act of severance had occurred at law or in equity. The decision of the High Court tells us that, for severance of joint tenancy to have occurred in equity, one of the following needs to have taken place: the joint tenant must execute a written memorandum of transfer, which must be supported by consideration from the transferee (so that an order for specific performance might be obtained); or there need to be sufficient acts of part performance of a contract for the sale of the joint tenant’s interest in the property (also being a contract which is specifically enforceable); or [page 129] if the transfer is to be by way of gift, then the donor (joint tenant) needs to have done everything that she or he can do to enable the transferee to perfect the gift (either registration to donee or placing it beyond her or his ability to recall the gift); or if a trust is to be constituted over the joint tenant’s share in

the property, then the joint tenant needs to have properly constituted the trust by vesting the trust property in the trustee prior to her or his death (by one of the three methods set out in the points above). [8.42]

Where a joint tenant has delivered an executed memorandum of transfer of the donor’s (joint tenant’s) interest in the land to the donee, equity will not complete the gift if the donor’s interest is subject to a mortgage and no steps have been taken to require the mortgagee to produce the Certificate of Title to enable the transfer to be registered. However, if the joint tenant has provided a written request to produce the Certificate of Title to the mortgagee (or other person holding the Certificate of Title), then the gift will be complete and the joint tenancy severed, even if production of the Certificate of Title is denied.15 In this limited instance, the non-assigning joint tenant is not entitled to frustrate the gift by refusing to authorise the production of the Certificate of Title.

[8.43]

It can be difficult to know when a court will find that the donor has done everything to put the gift beyond her or his recall. For example, in Costin v Costin (1997) 7 BPR 15,167; [1997] ANZ ConvR 400 the New South Wales Court of Appeal found that the donor had not done everything required to perfect the gift and place it beyond his recall, despite having given the donee an authority to obtain the Certificate of Title.16

Unilateral severance under statute (at law) [8.44]

In New South Wales, the Northern Territory, Queensland and Tasmania it is now possible to effect severance of a joint tenancy by executing and registering a transfer to oneself.17 However, it appears that, in order for severance of the joint tenancy to take place, the transfer must have obtained

registration prior to the death of the joint tenant. For example, in McCoy v Caelli (2010) 15 BPR 28,735; [2010] NSWSC 1233, a mother and son held property as joint tenants of land. The son wanted to sever the joint tenancy so that he could leave his interests to his own son. He asked his solicitor to prepare a transfer in order to sever the joint tenancy pursuant to s 97(1) of the Real Property Act 1900 (NSW), which provides: Registration of a transfer by a joint tenant of the joint tenant’s interest in the land that is the subject of a joint tenancy to himself or herself severs the joint tenancy.

[page 130] [8.45]

The solicitor prepared the transfer and the son executed it and sent it back to the solicitor for lodgment and registration. The son died before lodgment of the transfer. The mother was able to obtain an injunction to prevent registration of the transfer, arguing that she was entitled to the whole of the property because there had been no act of severance of the joint tenancy prior to her son’s death. The court agreed, finding that there had been no severance at law because registration of the transfer had not occurred prior to the son’s death. There had also been no severance in equity because it was not possible to bind one’s own conscience in equity (to compel a transfer to oneself). The court also found that a person cannot hold on trust for themselves for the same reason.18 The result of the decision is that, until registration, s 97 of the Real Property Act 1900 (NSW) and its counterparts are not effective to sever a joint tenancy, either at law or in equity.

Severance by mortgage [8.46]

Severance by mortgage also constitutes a unilateral act of

severance by a joint tenant. It is important to note that there is a distinction as to whether the grant of a mortgage constitutes an act of severance depending upon whether the land which is the subject of the joint tenancy is Torrens Title or Old System Title land. [8.47]

For Old System Title land, the creation of a mortgage by one of the joint tenants constitutes an act of severance of the joint tenancy. This is because a mortgage operates by way of a conveyance of the legal title of the joint tenant’s interest in the property to the mortgagee for Old System Title land. On re-conveyance of the legal estate back to the joint tenant, the co-owners remain as tenants in common.19

[8.48]

For Torrens Title land, a mortgage is not a conveyance of the legal title to the property, but operates only as a statutory charge over that title. This means that there is no destruction of any of the four unities. If a mortgagee grants a mortgage over the interest of one joint tenant, and that joint tenant dies before repayment, the mortgagee’s security interest automatically extinguishes upon the death of that joint tenant/mortgagor. This is because, at the moment of that joint tenant’s death, that person’s estate or interest in the land automatically expires (since the right of survivorship takes effect). With it goes any statutory charge that was attached to that interest. In other words, the grant of a mortgage by one joint tenant of Torrens land does not operate to sever the joint tenancy.

Severance by grant of a lease [8.49]

The grant of a lease by one joint tenant does not sever a joint tenancy, since it does not destroy the four unities (although possession does pass under the lease for a time to the lessee). In Frieze v Unger [1960] VR 230, the court found that a lease suspended the joint tenancy for a period of time. So,

at most, a lease effects a severance for a [page 131] period of time. This merely defers the right of survivorship until the end of the lease if the lessor (joint tenant) dies during the lease period.

Severance by agreement [8.50]

It appears that, so long as there is either an express or implied agreement between the joint tenants, an agreement between joint tenants to sever the joint tenancy need not comply with the formalities that would normally be necessary for dealings in land; that is, the agreement need not be specifically enforceable or in writing. The explanation for this difference in requirements for these agreements is not that the agreement binds the parties but rather that it serves as an indication of a common intention of the joint tenants to sever the joint tenancy.20 This approach has been doubted in Australia.21

[8.51]

Provided that there is an express or implied concluded agreement between the parties, it does not matter that the co-owners had not worked out the exact shares they would hold as tenants in common. However, it is necessary to show that the co-owners had provided a mechanism by which those shares could be determined. For example, in Abela v Public Trustee [1983] 1 NSWLR 308; 8 Fam LR 951, the parties were an estranged husband and wife. After inconclusive negotiations and applications for distributions of the marital property, they agreed upon the terms of a consent order that they join in the sale of their former home at a price not less than a specified minimum and for the

deposit of the net proceeds of sale to be deposited into a bank account. The proceeds would remain there until the parties agreed upon their respective shares or the court fixed/ordered respective proportions for distribution. The husband died before the order was executed. The court found that the consent order manifested the parties’ agreement to sever the joint tenancy, proving that they no longer intended the co-ownership to operate as a joint tenancy. Accordingly, the agreement automatically effected a severance of the joint tenancy, whether or not the agreement was binding. The court found that the proper inference to be drawn was that the parties had agreed upon an immediate severance of their joint tenancy, leaving to the future only a decision as to their respective shares.

Severance by a course of conduct indicating a common intention to sever the joint tenancy [8.52]

There is doubt as to whether severance by a course of conduct indicating a common intention to sever the joint tenancy is a separate category of severance, or merely a means by which the mutual agreement of the joint tenants to sever the joint tenancy may be established. In the United Kingdom, there is authority that a unilateral declaration by a joint tenant of an intention to sever a joint tenancy (which declaration is communicated clearly to the other joint tenant) is a course of dealing sufficient to [page 132] sever a joint tenancy.22 In Australia, this method was rejected by the High Court in Corin v Patton (1990) 169 CLR 540; 92 ALR 1. There are few decisions in Australia in which arguments that there has been a course of dealing between

the joint tenants sufficient to sever the joint tenancy have been successful. [8.53]

The current weight of authority in Australia favours the view that negotiations which come to nothing (for the purchase of one co-owner’s interest, or its partition, or sale to a third party and the division of proceeds) do not amount to a course of dealing sufficient to sever the joint tenancy. In Saleeba v Wilke (2007) ANZ ConvR 664; [2007] QSC 298, the approach taken by the court was to determine whether there was an agreement between the co-owners for a sale of the property and a division of the proceeds. If the answer is yes, then the court goes on to ask whether the terms of the agreement evinced an intention, common to both owners, that the tenancy be severed on the making of the agreement. If it did, then the joint tenancy will be treated as having been severed.

Severance by operation of law [8.54]

In severance by operation of law, there are two ways that a joint tenancy can be severed (regardless of the intention of the joint tenants): if one of the joint tenant’s is declared bankrupt; or under the forfeiture rule.

[8.55]

If a joint tenant is bankrupted, this has the effect of severing the joint tenancy. The property of the joint tenant is automatically vested in the trustee in bankruptcy.23

[8.56]

Under the forfeiture rule, a joint tenant cannot benefit from killing her or his joint tenant. However, the cases indicate different approaches to what will be considered a ‘killing’ to which the forfeiture rule applies (and thus whether or not a severance takes place at law or in equity). There are three

possibilities that courts have considered: that there has been no severance at all (if there is a finding of diminished responsibility); that severance takes place automatically at law; that is, the very act of killing effects a severance of the joint tenancy; or that severance takes place in equity only. Here, the right of survivorship takes effect to vest the entire legal ownership of the co-owned property in the killer, but equity finds that she or he holds the property on trust for herself or himself as well, as the estate of the victim, as tenants in common. [8.57]

In Troja v Troja (1994) 33 NSWLR 269, the New South Wales Court of Appeal (by majority) stated that the forfeiture rule was one of public policy and was completely [page 133] inflexible.24 In New South Wales and the Australian Capital Territory, legislation is in force that overturns the forfeiture rule in cases not involving murder. The legislation provides a court with a discretion and power to modify the forfeiture rule.25

Rights between co-owners [8.58]

The last part of this chapter discusses the rights of coowners between one another. These rules apply to both joint tenancy and tenancy in common. They are most commonly applied when co-owners wish to bring their co-ownership to an end. At that stage, co-owners either work these accounting matters out between themselves using these

rules or, if they cannot reach agreement, they may approach a court to make orders for an account to be taken between them. These are referred to as actions for ‘partition’ or ‘sale’ of co-owned property. In each jurisdiction there are also statutory rights to approach a court for a court-ordered sale of co-owned property (usually by a court-appointed trustee for sale) and the taking of accounts between co-owners.26 These accounting exercises proceed on the rules considered below.

Rights of occupation and use [8.59]

The right to unity of possession entitles all co-owners to use and occupy the entirety of co-owned property. As each coowner is entitled to possession, a co-owner who remains in possession is not liable to pay an occupation fee/rent to absent co-owners.27 An occupation rent is only payable to a non-occupying co-owner in the following circumstances: where the co-owners agree to an arrangement on the payment of a fee; or where one co-owner has ‘ousted’ the other co-owner from enjoying possession; or where there is a claim by the remaining co-owner for the value of any improvements paid for by her or him against the absent co-owner/s.

Agreement between co-owners on occupation rent [8.60]

If a co-owner agrees to pay an occupation rent to another coowner, then that rent is payable.28 It is enforceable as a contract between the parties. [page 134]

Ouster [8.61]

If a co-owner can show that the co-owner who has remained in occupation of the property ousted her or him from enjoying possession of the property, an occupation fee is claimable. Each case must be determined on its own particular set of facts to decide whether an ouster has occurred.

[8.62]

Under traditional principles, ouster exists where the remaining co-owner had actually excluded the other coowner, thereby committing a civil wrong, such as an assault or battery, trespass to the person or through a physical obstruction (for example, changing the locks to the premises) which prevents the absent co-owner from exercising her or his right to occupy the property.29

[8.63]

Ouster often occurs in co-owned property held by couples in which there is a history of domestic violence and abuse. For example, in Callow v Rupchev (2009) 14 BPR 27,533; [2009] NSWCA 148, a wife had been involuntarily excluded from the property by violence and threats of violence from her husband. This is referred to as a ‘constructive’ ouster because, although the remaining co-owner has not expressly denied the other co-owner’s title or right to possession, nonetheless she or he has effectively excluded them from using the property. In Callow, the court described these situations of ‘constructive ouster’ as existing where the coownership was created out of a domestic relationship ‘which has broken down, rendering departure of one party reasonable in the circumstances’: at [30]. As such, constructive ouster represents a category of ouster.

Where a claim is made for the cost of improvements [8.64]

Where a co-owner in sole occupation of land has made a

claim against the other co-owner for the costs of improvements that she or he has made to the property, then an occupation fee is payable. This is based on the equitable principle that any person who ‘seeks equity must do equity’. In this situation, in order to be granted an order for any moneys expended in making improvements, the claiming co-owner must fairly pay moneys for her or his greater use of the property (possession of the property) through her or his greater occupation of it.30

Rents and profits [8.65]

At law, there was no duty of one co-owner to collect rents or to account to her or his other co-owners for sums collected as rent unless there had been an ouster or the parties had reached agreement that one co-owner would not occupy the property but would collect rents on behalf of the other coowner/s. In the Northern Territory, Queensland, South Australia, Tasmania, Victoria and Western Australia, legislation now enables a co-owner to commence an action to have the co-owner who collected [page 135] rent account for the proportionate share of any moneys collected.31 In New South Wales, the current position is that there is no duty at law for a co-owner to account for rent collected by her or him.32 However, it is possible for a coowner to maintain an action in equity (for an account) for rents collected by another co-owner.33 An account for rents or profits is claimable whenever a co-ownership is brought to an end by partition or sale of the property.

[8.66]

However, a distinction has to be drawn between income

derived from the property as property and income derived from use of the property by the remaining co-owner working the property to her or his advantage. For example, in Squire v Rogers (1979) 27 ALR 330, the co-owners were jointly entitled to a lease of land in the Northern Territory. Squire had developed the land by establishing a holiday resort, which included a caravan park that he rented out. Rogers had not lived on the land for around 16 years and had taken no part in developing, establishing or running the business. Rogers went to court seeking orders for sale of the property and the taking of an account, which included moneys that had been collected by Squire from the resort and the caravan park. The court drew a distinction between moneys that had been collected by Squire in the form of rent (from letting the land) and income that he had derived in the form of profits from the business that had been created from his own entrepreneurial skill and exertions run off the land. The latter amounts were not claimable because they were not derived from the property as property but from a business Squire had run from the property.

Repairs and maintenance [8.67]

Money spent on items that are able to be characterised as either repairs or maintenance are not claimable; for example, costs incurred for insurance premiums or pest control.34 If a co-owner wishes to be able to be reimbursed the money spent on such items or projects, then she or he should enter into an agreement with her or his co-owner/s for those sums to be reimbursed.

Improvements [8.68]

At law, a co-owner who had improved co-owned property without the consent of her or his co-owner/s could not force the co-owner/s to contribute to the costs of making those

improvements. However, improvements are claimable in equity on the partition or sale of the property. During the coownership, improvements do not, at present, appear to be claimable.35 [page 136] [8.69]

In some instances, something which was carried out as a repair in fact renders a permanent improvement to the property. In such a case, the correct classification of the work is not that of ‘repair’ or ‘maintenance’ but is in the nature of an ‘improvement’. In other words, it is a lasting repair. As such, certain moneys expended by the co-owner will be claimable as improvements.36

[8.70]

Where moneys have been expended on improvements to the property, the rule is that the amount which can be recovered is limited to either: the actual cost of the improvements (pro-rated to the relevant shares of co-owners); or the present value of the improvements (pro-rated to the relevant shares of co-owners); whichever sum represents the lesser value of the two amounts.37

[8.71]

For example, assume that Helen owns a property with David as a 50:50 owner. If Helen spends $100,000 in constructing a granny flat on the property, and this adds $200,000 worth of value to the property, Helen will be entitled to $50,000 from David. This amount represents David’s share of the actual cost of constructing the granny flat. If Helen spends $200,000 in constructing a granny flat and this only adds $100,000 worth of value to the property, Helen will be

entitled to $50,000 from David. This figure represents the improvement value that her $200,000 expenditure created for David’s share. She will not be entitled to $100,000 from David. Effectively then, in the second scenario, taking into account the 50:50 split, Helen will be $100,000 out-of-pocket. This is because she will already receive her share of the $100,000’ worth of value added to the capital value of the property ($50,000) as well as $50,000 back from David (which represents his share of the value added). Since Helen has spent $200,000 and has only received a total of $100,000 back, she will remain $100,000 out-of-pocket. The policy of equity here is to not reward co-owners who choose to incur costs in making improvements that are not then reflected in the improvement value of the property. If a co-owner wishes to do that, she or he should agree with her or his co-owner beforehand as to how such expenses should be shared. In that instance, it is a simple matter of enforcing the contract between the parties and there is no need to seek equity’s assistance.

Can an occupation fee be claimed against the coowner who has remained in possession? [8.72]

As noted, where a co-owner in occupation has made a claim for improvements, equity will only order an allowance for those improvements where that co-owner also accounts to her or his co-owner/s for an occupation fee for her or his greater use of the property. However, this occupation fee will be limited to the figure ordered for the improvements (this is referred to as a ‘set-off’). This is because such a claim is run as a ‘defensive equity’; that is, it is pleaded and run by way of defence only where there has been a claim for improvements made — it cannot be made independently of such [page 137]

a claim. In other words, if no claim for improvements is made, then no claim for an occupation fee can be run by way of defence. This is sometimes also referred to as a ‘passive equity’ and simply means that it will not arise in legal proceedings unless and until a claim for improvements is made.

Are mortgage payments improvements? [8.73]

In Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3, the New South Wales Court of Appeal needed to decide whether payments made by one joint mortgagor on behalf of the other joint mortgagor for a mortgage over the co-owned property were claimable. A majority decided that such a claim could be maintained in equity during the taking of accounts between co-owners on the basis that the payment of amounts due under a mortgage by one co-owner on behalf of the other co-owner had the effect of improving the overall value (amount left) in the property for both co-owners after discharge of the mortgage debt. This was irrespective of whether the money paid to the mortgagee represented amounts paid on capital account or on revenue account; that is, whether they represented payments of the original loan amount or of interest due and payable under the mortgage. In the minority, Giles JA said that a joint mortgagor who had not made mortgage payments would be liable in any event under the doctrine of contribution at law on the basis that the other co-owner had paid her of his share of the mortgage debt on her or his behalf. His Honour said that, in that instance, there was no need to have recourse to equity for an adjustment to be made between the co-owners’ respective entitlements to the net proceeds of sale of the co-owned property. The co-owner who had paid the other debtors obligation was already entitled to be reimbursed for any sums he had made on her behalf at law under the legal doctrine of contribution. In that event, there was no claim for

improvements being made at all and, accordingly, no claim for an occupation fee would be allowed by his Honour. __________________________ 1

Wright v Gibbons (1949) 78 CLR 313; [1949] ALR 287.

2

Cummins v Cummins (2006) 227 CLR 278; 224 ALR 280; [2006] HCA 6. Civil Law (Property Act) 2006 (ACT) s 213; Conveyancing Act 1919 (NSW) s 35; Succession Act 1981 (Qld) s 65; Presumption of Survivorship Act 1958 (Vic) s 184. In South Australia and the Northern Territory, there is no presumption of survivorship for spouses taking their interest on an intestacy: Administration and Probate Act (NT) s 64; Administration and Probate Act 1919 (SA) s 72E.

3

4 5 6 7

Law of Property Act (NT) s 216(2)(d); Property Law Act 1969 (WA) s 120(d). Civil Law (Property) Act (2006) ACT ss 210–211; Conveyancing Act 1919 (NSW) s 26; Law of Property Act (NT) s 35; Property Law Act 1974 (Qld) s 35. Delehunt v Carmody (1986) 161 CLR 464; 68 ALR 253. This applies even where a joint tenancy exists at law.

8

Delehunt v Carmody (1986) 161 CLR 464; 68 ALR 253. 9 Cetojevic v Cetojevic [2006] NSWSC 431; BC200603290; Cummins v Cummins (2006) 227 CLR 278; 224 ALR 280; [2006] HCA 6. 10

It is important to note that the rules in this area have been affected by the Family Law Act 1975 (Cth). This legislation has a statutory scheme for the alteration of assets of a marriage. For de facto relationships, there is legislation in each jurisdiction in Australia that also deals with the allocation of the property of a de facto marriage. Also of relevance in this area are the rules on constructive trusts (as set out in the High Court’s decisions in Muschinksi v Dodds (1985) 160 CLR 583; 62 ALR 429 and Baumgartner v Baumgartner (1987) 164 CLR 137; 76 ALR 75). It is beyond the scope of this book to consider these areas of law in detail and their impact on coownership interests in property in such specific contexts. 11 This is often referred to as the rule in Lake v Craddock (1733) 3 P Wms 158; 24 ER 1011. 12 13 14 15

Corin v Patton (1990) 169 CLR 540; 92 ALR 1. For Old System Title land, severance takes place at law at settlement of a Deed of Conveyance. See discussion on creation of interests in land in Chapter 7. This is referred to as the rule in Milroy v Lord (1862) 45 ER 1185. Costin v Costin (SC(NSW), Santow J, No 3319/91, 13 September 1994, BC9402989, unreported). See on appeal Costin v Costin (1997) 7 BPR 15,167; [1997] ANZ Conv R 400.

16

The court found that the authority could have been recalled by the donor at any time and, therefore, the gift could have been recalled. 17 Real Property Act 1900 (NSW) s 97; Land Title Act (NT) s 59; Land Title Act 1994 (Qld) s 59; Land Titles Act 1980 (Tas) s 63. 18

As such, the rationale in Corin v Patton for the perfected gift test could not apply to a co-owner’s transfer to themselves. The rule could only apply if there was a third party who was the beneficiary of the transfer or the declaration of trust. 19 Lyons v Lyons [1967] VR 169.

20

Burgess v Rawnsley [1975] Ch 429; Abela v Public Trustee [1983] 1 NSWLR 308; 8 Fam LR 951.

21

See Lyons v Lyons [1967] VR 169. Burgess v Rawnsley [1975] Ch 429.

22 23

Bankruptcy Act 1966 (Cth) s 58; Re Holland [1985] Aust Conv R 158. 24 However, in prior decisions, courts in New South Wales had found that the right of survivorship could continue to operate in favour of the killer: see Public Trustee v Evans (1985) 2 NSWLR 188; Public Trustee v Fraser (1987) 9 NSWLR 433. 25

Forfeiture Act 1991 (ACT); Forfeiture Act 1995 (NSW). 26 Civil Law (Property) Act 2006 (ACT) s 243; Conveyancing Act 1919 (NSW) s 66G; Law of Property Act (NT) s 40; Property Law Act 1974 (Qld) s 38; Law of Property Act 1936 (SA) s 69; Partition Act 1869 (Tas); Property Law Act 1958 (Vic) s 225; Property Law Act 1969 (WA) s 126. 27

Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281; Luke v Luke (1936) 36 SR (NSW) 310. 28 Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3; Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281; Leigh v Dickeson (1884) 15 QBD 60. 29 30

Callow v Rupchev (2009) 14 BPR 27,533; [2009] NSWCA 148. Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281; Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3.

31

Law of Property Act (NT) s 45; Property Law Act 1974 (Qld) s 43; Property Law Act 1958 (Vic) s 28A; Statute of Anne 1705 (Statutes 4 and 5 Anne c 16, s 27) in South Australia, Western Australia and Tasmania. 32 Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281 per Kirby P (in dissent). 33

Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3; Hitchins v Hitchins (1998) 47 NSWLR 35; 9 BPR 16,659. 34 Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281. 35

Forgeard v Shanahan (1994) 35 NSWLR 206; 18 Fam LR 281. 36 Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3. 37

Ryan v Dries (2002) 10 BPR 19,497; [2002] NSWCA 3; Maio v Sacco (2009) 14 BPR 27,591; [2009] NSWSC 413.

[page 139]

CHAPTER 9

Strata Title and Community Title

Key Ideas By the end of this chapter you should be able to identify: the basic structure of strata title schemes the key responsibilities of an owners corporation the basic structure of community title schemes

[page 140]

Introduction [9.1]

Legislation exists across Australia which enables the creation of strata titles. This legislation was introduced to allow governments to meet the demand for high-density housing and inner-city living in Australia’s major cities in particular. Similar demands have prompted the introduction of community title. Legislation exists in each jurisdiction in Australia to accommodate these subdivisions of land.1

[9.2]

Much strata title is high-density housing, which usually brings with it a number of other issues, including disputes between neighbours, partly due to the close proximity in which people are living, as well as issues that arise from the management of community and strata schemes themselves. These can include issues relating to non-compliance with applicable legislation by strata administrators, or noncompliance with the rules of community and strata management schemes by lot owners or by the scheme itself, as well as poor management by managers of the schemes. In recent years, there has also been a degree of litigation relating to poor building work for strata buildings, bringing with it a string of practical and legal issues that need to be determined, such as who pays for what kind of building problems in a scheme. There are also many provisions of strata and community title legislation that have not yet been interpreted by the courts, leading to some uncertainty as to its operation.

[9.3]

This chapter will examine some of the key features of strata titles legislation in each jurisdiction throughout Australia.

We will consider some of the contentious issues that have arisen in relation to this form of property ownership in recent years. We will also consider very briefly some of the ideas underpinning community title. The chapter will look at: some of the basic rules relating to strata schemes; a few of the contentious issues surrounding the liability of strata schemes for repairs and defects; and some of the basic structures surrounding community title. [page 141]

Strata title Basic structure of strata schemes Ownership of strata land [9.4]

In most jurisdictions, title to a strata scheme is held by a specially constituted corporation (owners corporation).2 In Western Australia, title to strata land is held by the owners of the lots in the scheme as tenants in common.3

Creation of a strata scheme [9.5]

A strata scheme is created by the registration of a ‘strata plan’ (or appropriate ‘plan of subdivision’) for Torrens land.4 The body corporate of the scheme is then created upon registration of the strata plan or plan of subdivision.5

The strata plan [9.6]

Each strata scheme has a strata plan/plan of subdivision.6

The requirements for the contents of a strata plan differ from jurisdiction to jurisdiction, but the basic idea is that the strata plan sets out the boundaries of the lots in the strata scheme and their relationship to the common property of the scheme: see [9.10].

Unit entitlements [9.7]

Apart from any plans that must be lodged to create a strata scheme, one of the key requirements of strata legislation is that a document setting out the ‘unit entitlements’ of each lot owner in the scheme must be lodged. In Queensland and Western Australia, the Certificate of Title of each lot certifies the proprietor’s share in the common property.7 In New South Wales, the Certificate of Title to the common [page 142] property records the unit entitlement of each lot owner and other relevant details.8 In other jurisdictions, these details are recorded on the strata plan itself.9

[9.8]

The division of unit entitlements determines the entitlements and liabilities of each owner of each lot in relation to the scheme as a whole. Unit entitlements determine each owner’s voting rights (at meetings of the scheme) as well as the proportionate beneficial interest that a lot owner has in any common property of the scheme. In turn, the unit entitlement of a lot owner determines what proportion of expenses that lot owner needs to pay for the maintenance of any common property of the scheme. The unit entitlements in a scheme therefore determine what contribution a lot owner must make to the owners corporation: see [9.45]. The unit entitlement breakdown also

determines the value of each lot for rating (tax) purposes. As we will discuss later in the chapter, in the case of major remedial work to a strata building, those costs can be substantial: see [9.20]–[9.42].

What is a ‘lot’? [9.9]

A lot is the cubic space designated by the strata plan for the exclusive ownership of a particular registered proprietor. A lot owner has a registered title to her or his lot.10 The term ‘lot’ (or its equivalent) is defined in the strata legislation in each jurisdiction.11 Parts of the scheme which do not form part of any lot are referred to as ‘common property’.

Common property of a strata scheme [9.10]

The common property of a strata scheme is that part of the scheme that is not part of any lot. The legal title to common property is vested in the body corporate and includes all areas of the land (including the building or buildings) that are not part of any lot.12 Upon registration of the scheme’s plan, the common property vests in the owners corporation. The common property is held by the owners corporation for all of the proprietors in the strata scheme. At [9.20]–[9.36] we examine some of the obligations of an owners corporation to maintain the common property of a strata scheme. [page 143]

[9.11]

In the Australian Capital Territory, the Northern Territory and South Australia, a Certificate of Title for the common property is issued in the name of the body corporate/strata corporation.13 In New South Wales, a folio is created in the

Torrens Register for the estate or interest of the body corporate in the common property.14 In Tasmania and Victoria, the Registrar15 must create folios for any common property in the name of the body corporate as nominee for the owners, but must not issue a Certificate of Title for those folios.16 In other jurisdictions, the Certificate of Title of each lot certifies the proprietor’s share in the common property: see [9.4]. [9.12]

In the Australian Capital Territory and New South Wales, ownership of common property is vested in the body corporate, as agent for the owners;17 in the Northern Territory, South Australia and Tasmania, it vests in the body corporate as trustee.18 In other jurisdictions, the common property is vested in the lot owners as tenants in common in shares proportional to their unit entitlements.19

The owners corporation [9.13]

The owners corporation for a strata plan is the body corporate that manages the strata scheme. Strata management legislation in each jurisdiction governs the responsibilities and powers of an owners corporation. At [9.20]–[9.47] we will return to some of the key features of the relevant legislation.

[9.14]

The body corporate is created upon registration of the strata plan, and is a legal entity separate from its members (being the owners of the individual lots in the scheme).20 The owners corporation must administer the strata scheme and maintain the common property for the benefit of members of the strata scheme.21 [page 144]

[9.15]

Executive committee The owners corporation can act through an ‘executive committee’ (through delegation of some of its functions).22 This is usually referred to as the ‘strata committee’ or ‘strata council’. The committee is appointed in accordance with the strata management legislation and, as a general rule, decisions of the committee are treated as decisions of the owners corporation. Some of the notable exceptions to this rule are that strata committees usually have no power to make decisions which require a unanimous or special resolution of the owners corporation, or decisions that can only be decided in a general meeting of the owners corporation.

[9.16]

Managing agents A managing agent may be appointed by the owners corporation to carry out the administrative and management functions of a scheme.23 Most owners corporations appoint a managing agent (through the committee) to whom the owners corporation delegates some or all of its functions. These managing agents deal with most of the day-to-day issues that arise in the administration of a strata scheme. For example, if water begins leaking into the strata building, the managing agent is usually notified by an owner or occupier of a lot, and is authorised by the owners corporation to engage a plumber to stop the leak. It is a matter of the significance of the issue, how many lots are affected, whether it is an individual lot or common property that is affected as well as the extent and nature of works required that determines which parties need to be involved in any decision-making. Most minor incidents are dealt with by the managing agent on behalf of the scheme, in the same way that a real estate agent is often appointed by a lessor to take care of day-to-day issues such as blocked toilets, broken windows and minor repairs.

Strata by-laws

[9.17]

One of the most important functions of the strata scheme (usually acting through its executive committee) is to make and enforce the by-laws of the scheme.24 The by-laws are basically the governing laws of the scheme, and regulate most of the day-to-day aspects of living in the scheme. Each jurisdiction has a set of model by-laws (also referred to as ‘articles’ in some jurisdictions) which apply in the absence of the amendment or replacement of the model by-laws. The by-laws bind owners, [page 145] mortgagees in possession, lessees and occupiers of the strata lots.25 The by-laws of the scheme are normally required to be lodged with the relevant land titles office and kept up to date (by the owners corporation). Along with the strata titles legislation, the by-laws regulate the behaviour of the owners in the scheme, as well as the behaviour of any occupier of a lot. They also regulate the uses that can be made of the common property of the scheme.

[9.18]

Strata legislation generally provides that by-laws can be made for a wide range of matters, including: safety and security; keeping pets; restrictions on the use of any common property; parking; cleaning and maintenance and garbage disposal; and behaviour in the scheme (for example, no-smoking rules).

[9.19]

In the next section, we consider some of the issues that arise from the management of strata schemes. As noted, this is where disputes often arise between lot owners within the

scheme, as well as disputes between the owners corporation and its managing agent and/or the owners corporation and third parties.26

Management of the strata scheme Maintenance and repair of common property [9.20]

Strata management legislation in each jurisdiction provides for duties owed by the owners corporation to maintain and repair common property and any property belonging to the body corporate.27 The legislation varies from jurisdiction to jurisdiction, but most jurisdictions require the renewal and replacement of fixtures and fittings.28

[9.21]

There has been debate regarding the nature of the duty owed by an owners corporation under strata legislation. Litigation has arisen in respect of faulty building work of strata [page 146] title buildings. In Fligg v Owners of Strata Plan 53457 [2012] NSWSC 230, Slattery J considered the duty owed by an owners corporation under the New South Wales strata management legislation in a case involving an intractable water penetration problem. Section 62(1) of the Strata Schemes Management Act 1996 (NSW) provides: An owners corporation must properly maintain and keep in a state of good and serviceable repair the common property and any personal property vested in the owners corporation.

[9.22]

Slattery J summarised the law on the duty owed by an owners corporation under the legislation as follows:

each of the duties imposed under s 62(1) and (2) is an absolute duty and compliance with it is mandatory; the strict nature of s 62(1) and (2) duties makes irrelevant any issues of whether or not an owners corporation took all reasonable steps to comply with those duties if, ultimately, the owners corporation failed to meet the strict requirement of the duty under the legislation; the obligation imposed on an owners corporation under s 62 extends to oblige the owners corporation to do things which could not be for the benefit of the proprietors as a whole, or even a majority of them; under both s 62(1) and (2), breach of the absolute duty occurs as soon as something in the common property is no longer operating effectively or at all, or has fallen into disrepair.29 [9.23]

Previously, the statutory duty under the legislation was found to give rise to a private cause of action for damages by a lot owner against the strata scheme.30 More recently, the New South Wales Court of Appeal in Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 found that breach of the duty under the relevant legislation does not give rise to a private cause of action to a lot owner for damages against the owners corporation.31 This may come as a welcome relief to strata schemes and owners within strata schemes because, previously, an individual lot owner could take advantage of the ability to sue the strata scheme for damage caused to her or his lot. The effect of claiming such compensation was to make her or his co-owners contribute to repairs to items of common property that primarily affected her or his lot.32 The New South Wales Court of Appeal’s decision in Thoo has ended this possibility to some extent. [page 147]

[9.24]

The obligations of maintenance and repair are directed to keeping the common property of the scheme operational, and to restoring something which is defective.33 The primary meaning of ‘repair’ is to ‘restore to sound condition that which has previously been sound, to make good, and the operation of making an article good, irrespective of whether the article has been good or sound before’.34 The duty of repair can include making additions to the common property of necessary articles, even if they were not originally included in the building when it was initially constructed, provided that they fall within the requirements of ‘repair’ or ‘maintenance’.35

[9.25]

Repair vs upgrade of common property One area of dispute surrounding an owners corporation’s duties is whether or not an item of the common property that is alleged to be deficient in some way would constitute a repair or whether it is, in fact, an upgrade to an existing system. For example, in the case of air-conditioning and ventilation systems, the issue has been a source of some controversy. In Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412, Needham J said that the power and duty of the body corporate (under the legislation then in force) extended to the addition of such things as draught resistors and waterproof flashings in order to make common property waterproof. His Honour also found the term ‘repair’ clearly included ‘renewal’ and ‘making good’ common property which was not initially sound. In Strata Plan No 30234, Proprietors v Margiz Pty Ltd (1993) 32 NSWLR 294, McLelland CJ applied this meaning of repair to exclude replacement of a discrete system forming part of the common property.36

[9.26]

More recently, a series of cases involving the same strata scheme in Sydney reached different results when dealing with the same ventilation system. In Lin v Owners — Strata

Plan No 50276 (2004) 11 BPR 21,463; [2004] NSWSC 88, Thoo v Owners — Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657 and Owners Strata Plan 50276 v Thoo [2013] NSWCA 270, the New South Wales Supreme Court and the Court of Appeal dealt with the supply of exhaust ventilation services to a lot owner in the Hunter Connection, an arcade in Sydney connecting Hunter and George Streets and Wynyard Station. The strata scheme includes commercial offices, as well as a ground floor and basement area that contain a number of retail shops, restaurants and fast food outlets. [9.27]

In Lin v Owners — Strata Plan No 50276 (2004) 11 BPR 21,463; [2004] NSWSC 88, the exhaust ventilation system (which was housed in the common property of the strata [page 148] scheme) in 2003 was already at the limit of its capacity. The evidence was that to connect further shops to the system would have been very expensive. Accordingly, after considering its options, the owners corporation resolved to decline to connect to the ventilation system shops that were on three lots in the building owned by Mr Lin. Gzell J found that the owners corporation was in breach of its duty under s 62 of the Strata Schemes Management Act 1996 (NSW) in refusing to connect Mr Lin’s lots to the ventilation system, and ordered a mandatory injunction for an upgrade of the system to take place. In reaching this decision, his Honour said (at [52]): The plaintiffs, in common with other lot owners, have a right to use and enjoy the exhaust ventilation system. The only way in which that can be done in all but one of the shops in the lots owned by the plaintiffs is to install a hood in or below the ceiling of the lots and to install ducting in the common property connected to the existing ducting of the system. That is the way in which the defendant has

provided access to the exhaust ventilation system to other lot owners. To suggest that the defendant is under no duty to provide such access because it involves additions to the common property is specious. [9.28]

His Honour found that, when s 62(2) of the Act was applied to a discrete system within the common property which has the function of providing services to lot owners within the scheme, and which does not have the capability to serve the reasonable needs of those lot owners, a breach of the section occurs. His Honour noted that this was limited to the provision of adequate services to those lot owners ‘who might seek reasonable access to the system’37 and concluded that, to the extent that the owners corporation contended that the exhaust ventilation system was incapable of servicing the plaintiff’s lots, the owners corporation was in breach of its duties to maintain and replace the system and could not argue its own default as a defence to the claim. In accordance with the decision, the owners corporation installed and expanded the ventilation system.

[9.29]

In Thoo v Owners — Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657, a similar issue dealing with ventilation in the same strata scheme arose. Dr Thoo was an owner of a lot in the scheme. He obtained approval to divide his lot into three shops. The ventilation system did not have enough capacity to accommodate the necessary ventilation for those shops at the level requested by Dr Thoo (which was necessary to comply with health regulations of the City of Sydney Council). The owners corporation accepted that, in accordance with the earlier decision in the Lin case, the lot might be connected to the existing ventilation system, but it declined to give any guarantee that the lot would receive any particular level of ventilation from the system. It estimated that the ventilation capacity available to Dr Thoo (as the lot owner) would be well below the level required by the Council.

[9.30]

The strata management legislation in New South Wales also contains a section that enables a strata scheme to determine when works do not need to be carried out to the [page 149] common property. Under s 62(3) of the Strata Schemes Management Act 1996 (NSW), an owners corporation can determine (by special resolution) that it is inappropriate to maintain, renew, replace or repair the common property, provided that its decision would not affect the safety of any building, structure or common property in the strata scheme, or detract from the appearance of any property in the strata scheme. The owners corporation used the power in s 62(3) of the Act to exempt the ventilation system by passing a special resolution determining that it was inappropriate to maintain, renew, replace or repair the system. It argued that not upgrading the system would not affect the safety of any building structure or common property or detract from the appearance of any property in the strata scheme.

[9.31]

At trial, Slattery J found that the owners corporation had breached its duty under s 62(2) of the legislation by failing to provide sufficient exhaust ventilation capacity to Dr Thoo’s lot.38 For Slattery J, the complete replacement of a discrete system forming part of the common property (such as an air conditioning system) did not fall within the duty under s 62(1) of the Act to ‘properly maintain and keep in a state of good and serviceable repair … of the common property’. However, it did fall within the obligation under s 62(2) of the Act to ‘renew or replace any fixtures or fittings comprised in the common property’.39 In reaching that conclusion, his Honour noted that attempts by owners corporations in the past to confine the operation of s 62(2) only to circumstances

where s 62(1) would be operable (where parts of the existing common property were no longer in a state of good and serviceable repair) had been rejected both in the Lin case and by the New South Wales Court of Appeal.40 His Honour said (at [58]): An important element of the content of the duty to ‘renew or replace’ emerges when section 62(2) is applied to a discrete system within common property, which has the function of providing services to lot owners in the strata scheme. If the scheme is not operating efficiently/effectively/adequately or it does not have the capacity to serve the (reasonable) needs of lot owners who wish to make use of the system, then the Courts have consistently found a breach of section 62(2). [9.32]

Accordingly, his Honour found that for the owners corporation to deny Dr Thoo access to adequate exhaust ventilation capacity from the system was a breach of s 62(2), and that the owners corporation must modify or add to the system to remedy the breach.

[9.33]

On appeal, these conclusions were overturned. In Owners Strata Plan 50276 v Thoo [2013] NSWCA 270, the New South Wales Court of Appeal found that the ventilation system was functioning in accordance with its ‘design capacity’ and that, as a result, there was no obligation on the owners corporation to upgrade it from time to time [page 150] to meet the needs, however reasonable, of a lot owner. The court also found that the special resolution of the owners corporation under s 62(3) was sufficient to relieve it of any obligation to upgrade the system.

[9.34]

Fraud on the minority One of the issues in both the Lin and Thoo cases was whether or not an owners corporation committed a ‘fraud on the minority’ if it determined not to

carry out an upgrade to an item of common property. In Lin, Gzell J found that the resolution of the owners corporation to refuse Mr Lin’s request to allow access to the system constituted a fraud on the minority in accordance with the principles set out on this doctrine by the High Court in Gambotto v WCP Ltd (1995) 182 CLR 432; 127 ALR 417; [1995] HCA 12. His Honour found that these principles were applicable to an owners corporation.41 Slattery J followed that approach in his decision in Thoo at first instance.42 On appeal, the New South Wales Court of Appeal said that it could not see any grounds for the operation of the doctrine of fraud on the minority to apply, in view of the fact that the strata legislation itself implied that a special resolution could be passed by the owners corporation in circumstances where a minority of lot owners were to be disadvantaged.43 [9.35]

General law duty on an owners corporation to maintain and repair common property One of the questions that arises following the decisions of the New South Wales Court of Appeal in Ridis v Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246 and Owners Strata Plan 50276 v Thoo [2013] NSWCA 270 is whether an action in tort (negligence) can be brought against an owners corporation for damage caused to any person that resulted from an injury caused by the common property of the strata scheme. In Ridis, the owners corporation was sued by an occupier of one of the units in the scheme. The occupier had sustained an injury to his right arm when entering the building through the front door; he had put out his hand to prevent the door from closing and locking on him and, as he did so, the glass pane in the door had shattered and lacerated his right forearm. The glass pane was made from ordinary annealed glass which had been installed when the building was constructed in around 1939. By the time of his injury, contemporary safety standards required safety glass to be in place in such doors. The plaintiff alleged that, by not replacing the

annealed glass pane with safety glass, the owners corporation had breached a duty of care owed to him as an occupier using the common property.44 [9.36]

The New South Wales Court of Appeal had to consider whether s 62 of the Strata Schemes Management Act 1996 (NSW) imposed a duty of care on an owners corporation beyond that which would otherwise be required of an occupier under the [page 151] general law. Tobias JA (in dissent) and McColl JA considered that it did; Hodgson JA took an intermediate position. Ultimately, the appeal failed because both McColl and Hodgson JJA considered that any duty was not breached on the particular facts of the case, since the obligation did not extend to replacing glass that did not present an obvious risk of injury. For McColl JA, s 62 of the Act indicated that the legislature intended to impose on an owners corporation a standard of care higher than that imposed by the general law of negligence on an occupier of property.45 However, it is not entirely clear as to what circumstances must exist for a claim in negligence to be brought against an owners corporation to succeed. The matter will hopefully be clarified by the eventual outcome of some present litigation.46

Building defects and claims for purely economic loss by lot owners [9.37]

A very common area of dispute and litigation for strata schemes concerns claims by the scheme and lot owners against the builder who originally built the strata property. It

is beyond the scope of this book to consider in detail the legislation applicable for the building of residential strata lots. However, it is useful to consider a recent decision of the High Court which highlights some of the very real problems that owners of strata title lots face when they buy into a strata building in which there are substantial defects, many of which might be latent defects. In particular, two recent decisions involving the Brookfield Group of construction companies have thrown some light on the rights of an owners corporation to sue a builder for economic loss caused by defects in a strata building. [9.38]

In Owners Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712, a claim was brought against the builder of a strata title development known as the ‘Star of the Sea’ at Terrigal on the Central Coast of New South Wales. The scheme consisted of 52 residential lots and a manger’s residence.47 The owners corporation sued for a breach of warranty implied by s 18B of the Home Building Act 1989 (NSW),48 for alleged defective building work on residential property, as well as a breach of a common law duty of care in respect of that work. It was agreed by the parties that the building work contained latent defects which could not be discovered on reasonable inspection of the property. Later, in Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219, McDougall J, the trial judge, again needed to consider the issue, and relied upon the same reasoning he had used in the earlier decision, to find that there was no common law duty of care owed by the builder to the owners corporation as a [page 152] subsequent owner of the property (who was not a party to the

construction contract) to avoid causing economic loss. McDougall J distinguished a previous decision of the High Court in Bryan v Maloney (1995) 182 CLR 609; 128 ALR 163. In that case, a builder was found to owe a duty of care to a subsequent owner of residential property for economic loss caused by latent building defects. His Honour declined to follow the decision in Bryan v Maloney for a number of reasons, including that the New South Wales legislature had considered and made provision for the extent to which a builder was to be liable to a subsequent owner, by enacting the Home Building Act 1989 (NSW).49 McDougall J also recognised that the decision in Bryan v Maloney depended on the ‘proximity’ of the relationship between the original builder and the ultimate owner of the property,50 and that Bryan v Maloney was based on the premise that the builder owed a duty of care to the original owner only (which in this case would be the developer of the strata property),51 not the subsequent owner of the property (being the owners corporation, who purchased from the developer). Further, his Honour found that there was no ground for concluding that the construction company/builder (Brookfield) owed any duty of care to the developer (Hiltan Pty Ltd), since both the builder and the developer had bargained on an equal footing for a detailed contract, and there was therefore no basis upon which the court should usurp the parties agreement. [9.39]

On appeal, in Owners — Strata Plan No 61288 v Brookfield Australia Investments Ltd (2013) 85 NSWLR 479; [2013] NSWCA 317, the New South Wales Court of Appeal reversed the decision of McDougall J, finding that the builder owed a duty of care to the owners corporation. Basten JA,52 acknowledging that the concept of proximity may have been discarded by the High Court in claims for purely economic loss, said that the concept of ‘vulnerability’ had, to some extent, replaced it. For his Honour, this vulnerability had three aspects, including:

an inability to control or influence the physical events which gave rise to the loss; an inability to negotiate a contractual arrangement imposing liability on the defendant (builder), or an inability to obtain insurance against the economic loss suffered. [9.40]

In this case, the Court of Appeal found that the owners corporation satisfied the test of vulnerability for a common law duty of care to be owed by the builder to the owners corporation: at [35] per Basten JA. For the court, the critical issue in determining whether a duty of care is owed is to focus the court’s inquiry on the vulnerability of the owners corporation, which can include the fact that successive owners can be vulnerable in circumstances where an original owner is not. [page 153]

[9.41]

The matter then went on appeal to the High Court.53 The High Court overturned the decision of the New South Wales Court of Appeal,54 effectively re-instating the findings of McDougall J. In a judgment which best encapsulates the findings of the court, Gageler J stated: 55 The continuing authority of Bryan v Maloney should be confined to a category of case in which the building is a dwelling house and in which the subsequent owner can be shown by evidence to fall within a class of persons incapable of protecting themselves from the consequences of the builder’s want of reasonable care.

[9.42]

The result of the High Court’s decision is that there is likely to be no common law duty of care owed by a builder to a subsequent owner of property to avoid purely economic loss. As most strata corporations (including their individual lot owners) are subsequent owners of property, this means that

neither would be able to sue the builder for economic loss caused by building defects for breach of a common law duty of care. [9.43]

Possible developments following the litigation in Brookfield In Owners of SP69567 v Landson Alliance Australia [2014] NSWSC 1592 the defendant sought to have the plaintiff’s claim summarily dismissed because it was based on a claim for breach of a common law duty of care.56 The judge declined to strike out the claim because, in addition to the claim of breach of duty of care at common law, the owners corporation had included a second claim based on misleading or deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth).57 The question remains as to whether a builder might be able to be sued pursuant to the Commonwealth legislation for misleading and deceptive conduct, including in relation to any express or implied warranties regarding the state of repair of a strata building. This may be a way to make a builder liable for defects, although there are still a series of potential hurdles in any claim for misleading and deceptive conduct that would have to be overcome. The decision of the High Court in Brookfield does not, of course, alter the duty owed by a builder to the original owner, nor does it affect any rights that purchasers might have to sue the original owner of the strata building.

Managing finances of the scheme [9.44]

Levying contributions, insurance and record-keeping An owners corporation establishes and manages funds for the strata scheme. Funds can be used to meet different types of expenditure. Moneys for administration are to deal with expenses of a recurrent nature, such as gardening, cleaning and general repairs. Sinking, or capital, contributions are set up to meet expenses of a capital nature for the scheme. These could include moneys required for major works, and,

depending upon the nature of defects in the building, the amounts levied for such a fund can be substantial. [page 154] [9.45]

The strata legislation provides mechanisms to levy contributions so that each lot owner contributes their fair share towards the maintenance of the strata scheme. 58 Estimates of expenditure are usually prepared and moneys required to meet those expenses are voted at a meeting of the scheme. As noted, contributions are normally payable by each lot owner in shares proportionate to their unit entitlement. Interest is also payable on any unpaid contributions.

[9.46]

The owners corporation is also responsible for taking out insurance for the owners corporation.59 That insurance usually includes insurance of the building (which includes cover for individual lots, damage to those lots and damage to the common property), as well as public liability insurance for the scheme. The owners corporation must usually also take out insurance for workers’ compensation (for injury to any contractors working on the common property).

[9.47]

The owners corporation is responsible for keeping certain records of the scheme, including the strata roll.60 The records to be kept by the owners corporation normally include the minutes of any meetings and any motions put at the meetings, as well as the financial statements of the owners corporation. In most jurisdictions, the records must be made available for inspection by lot owners or by any person authorised to inspect the records on their behalf.61

Responsibilities of lot owners and occupiers

[9.48]

In addition to the by-laws of a scheme, each lot owner or occupier of a lot has responsibilities under relevant legislation. These can include a duty not to cause a nuisance or hazard to any occupier of any other lot, not to misuse the common property in a way that interferes unreasonably with the use and enjoyment of the common property by anyone else entitled to use it, or not to interfere with the enjoyment of any a lot. There are also usually duties not to interfere with any right of support or shelter provided by a lot for another lot or for the common property, or to interfere with the passage of water, sewage, drainage, gas, electricity and other services. [page 155]

Dispute resolution [9.49]

When a dispute arises in relation to a strata scheme, the legislation in each jurisdiction provides mechanisms for resolution of the dispute. The mechanisms vary from jurisdiction to jurisdiction, but can include: mediation (either through the relevant state or territory department responsible for administering the strata legislation or through an approved mediation service); by submissions to an adjudicator; through a tribunal vested with jurisdiction to hear and determine strata disputes; or through a court.62

Adjudication [9.50]

An adjudicator receives submissions from the parties on strata issues. Adjudicators are usually granted powers by

strata legislation to make orders to settle any dispute about the exercise, or failure to exercise, a function conferred or imposed by strata legislation or by-laws of the owners corporation. Adjudicators generally also have powers to deal with the operation, administration or management of any strata scheme. The jurisdiction of adjudicators is extensive, and can include the power to make orders: allowing an owner to repair common property directly affecting that owners lot if the owners corporation has unreasonably refused to consent to the work; requiring the owners corporation to acquire personal property or to dispose of personal property; allowing an owner a licence to use common property if her or his lot is otherwise incapable of reasonable use and enjoyment; granting access to the owners corporation to a lot to carry out repairs to common property; relating to insurance and levies for contributions to the scheme’s finances; relating to the keeping of animals in breach of by-laws; relating to the procedure to be adopted at meetings and decisions of any records kept by the owners corporation; appointing a managing agent; revoking an amendment to a by-law; reviving or repealing by-laws; and referring any matter to a tribunal that deals with strata issues.

Tribunals [9.51]

Tribunals throughout Australia also generally have extensive jurisdiction granted under strata legislation to deal with matters relating to strata schemes. In addition to all the

powers of an adjudicator, tribunals can usually order the payment of fines [page 156] by lot owners or by the scheme. In each jurisdiction, appeals on points of law are generally available from a tribunal’s decisions to a court.

Community title [9.52]

Perhaps one of the most important forms of new subdivision in Australia’s major capital cities is community title. This form of subdivision is usually adopted for the development of major estates. A community title scheme is registered and, within that scheme, there are normally various strata corporations which exist as part of the community title scheme. A good example of a community title scheme is the development of the ‘athletes’ village’ for the Sydney Olympic Games in 2000. The land is in the suburb of Newington, which is close to Sydney’s Olympic Park. The community association runs the community title scheme. It has four precincts to administer in accordance with the Community Management Statement (CMS). The CMS is the equivalent of by-laws for a strata scheme. Within the four precincts there are also neighbourhood associations responsible for a particular neighbourhood. Within this framework, individual strata schemes are responsible for administering each separate strata scheme. The benefits of this form of subdivision are seen to be the creation of a large area that is unique and complies with design and architectural plans for the entire area on an ongoing basis. So, for example, only certain plants can be planted, only certain colours can be

used to paint the houses, only certain types of housing are allowed and the owner is generally limited to residential use of premises only. The following diagram gives you an idea of the community scheme. Diagram 9.1: Neighbourhood association community scheme

[page 157] [9.53]

Community title is therefore a means of subdividing land which combines subdivision with strata subdivision. It is effected by the implementation of a ‘community scheme’. The community scheme includes a ‘community plan’, any development contracts relating to the land subject to subdivision, and the rules that will govern the subdivision and conduct of the community scheme. The community scheme is the scheme under which a variety of subsidiary schemes can be developed, including neighbourhood schemes, precinct schemes and strata schemes.

[9.54]

Generally, much of the operation and management of a community title scheme reflects the management of strata schemes. For example, an executive committee (community

association) is normally established to administer the community title scheme and, as with a strata title scheme, the community title scheme has common property. Just like an owners corporation for a strata scheme, the community association has power to impose levies on owners (usually strata corporations within the scheme). Legislation also sets out the duties of the community association with respect to community property, the appointment of managing agents, taking out appropriate insurances, record-keeping, procedures for meetings of the association and the procedure for dealing with disputes in the community scheme. As with disputes in strata title, there are different levels of dispute resolution, including mediation, adjudication and, ultimately, application to the relevant tribunal to settle disputes. By-laws for strata schemes which are part of a community scheme must comply with the rules applicable to the community title scheme. For example, if the community title scheme sets up a residential area, then it is usually not possible for the strata scheme to allow a commercial business to operate out of one of the lots in the strata scheme unless specific approvals are granted by the community title scheme. [9.55]

In the Australian Capital Territory, New South Wales, the Northern Territory, Queensland, South Australia and Tasmania, specific legislation exists for the development of land as community title land.63 There is much variation in the requirements relating to the set-up and administration of a community title scheme in each jurisdiction. It is beyond the scope of this book to consider the different requirements or all of the issues that have arisen in relation to the complex legal relationships created within community title schemes, and between community title and strata title. Many sections of relevant legislation in each jurisdiction are yet to be litigated and clarified by the courts, including the interaction of community title legislation and strata titles legislation in

many instances. This may prove to be a source of debate in the future, as more land in Australia’s major capital cities becomes subject to more community title developments __________________________ 1

Unit Titles Act 2001 (ACT); Unit Titles (Management) Act 2011 (ACT); Strata Schemes (Freehold Development) Act 1973 (NSW); Strata Schemes (Leasehold Development) Act 1986 (NSW); Strata Schemes Management Act 1996 (NSW); Unit Titles Act 1976 (NT); Unit Title Schemes Act 2009 (NT); Body Corporate and Community Management Act 1997 (Qld); Strata Titles Act 1988 (SA); Strata Titles Act 1998 (Tas); Subdivision Act 1988 (Vic); Strata Titles Act 1985 (WA).

2

Unit Titles (Management) Act 2011 (ACT) ss 3, 7, 8(1), 10, 19; Strata Schemes (Freehold Development) Act 1973 (NSW) s 18; Unit Titles Act 1976 (NT) s 23(1)(b). Under a leasehold scheme, the common property is held by the body corporate as agent for the lessees: Strata Schemes (Leasehold Development) Act 1986 (NSW) s 23; Body Corporate and Community Management Act 1997 (Qld) s 30; Strata Titles Act 1988 (SA) s 10(1); Strata Titles Act 1998 (Tas) s 10(1); Subdivision Act 1988 (Vic) ss 28(1), 30(1). 3 Strata Titles Act 1985 (WA) s 17. See Chapter 8 for a discussion of tenancy in common. 4

Strata Schemes (Freehold Development) Act 1973 (NSW) ss 6(1), 7(1); Strata Schemes (Leasehold Development) Act 1986 (NSW) ss 5(1), 6(1), 7(1); Unit Titles Act 1976 (NT) ss 4(1), 10(1); Body Corporate and Community Management Act 1997 (Qld) s 10(2)(a), 10(5); Strata Titles Act 1988 (SA) s 5; Strata Titles Act 1998 (Tas) s 4(1); Subdivision Act 1988 (Vic) s 5(3)(b); Strata Titles Act 1985 (WA) s 3(1). In the Australian Capital Territory, the legislation sets out the persons who may apply for approval of a subdivision of a parcel of land: since only those who hold interests in Torrens land are specified, the effect is that only Torrens land may be subject to a strata scheme: Unit Titles Act 2001 (ACT) s 17(1). 5 Unit Titles (Management) Act 2011 (ACT) ss 7, 8; Unit Titles Act 2001 (ACT) s 38; Strata Schemes Management Act 1996 (NSW) s 8; Unit Titles Act 1976 (NT) s 27; Body Corporate and Community Management Act 1997 (Qld) ss 24, 30; Land Title Act 1994 (Qld) s 49A; Strata Titles Act 1988 (SA) s 8(2)(c); Strata Titles Act 1998 (Tas) ss 5, 8; Subdivision Act 1988 (Vic) ss 27, 28; Strata Titles Act 1985 (WA) s 32. 6

The term ‘units plan’ is used in the Australian Capital Territory, ‘proposal’ in the Northern Territory and ‘plan of subdivision’ in Queensland. 7 Land Title Act 1994 (Qld) s 41BA(1); Strata Titles Act 1985 (WA) s 17(2). 8

Strata Schemes (Freehold Development) Act 1973 (NSW) s 23(2)(c); Strata Schemes (Leasehold Development) Act 1986 (NSW) s 27(2)(c). 9 Unit Titles Act 2001 (ACT) s 7(1)(c); Unit Titles Act 1976 (NT) s 23(1B); Body Corporate and Community Management Act 1997 (Qld) s 46(1); Strata Titles Act 1988 (SA) s 5(3)(c); Strata Titles Act 1998 (Tas) s 5(1)(g); Subdivision Act 1988 (Vic) s 27(4); Strata Titles Act 1985 (WA) s 5(1)(c). 10

Unit Titles Act 2001 (ACT) s 33; Strata Schemes (Freehold Development) Act 1973 (NSW) s 5(1); Strata Schemes (Leasehold Development) Act 1986 (NSW) s 4(1); Unit Titles Act 1976 (NT) s 23(1)(a); Body Corporate and Community Management Act 1997 (Qld) ss 8(f), 13, Sch 6; Strata

Titles Act 1988 (SA) s 3(1); Strata Titles Act 1998 (Tas) s 3; Subdivision Act 1988 (Vic) s 3(1); Strata Titles Act 1985 (WA) s 3(1). 11 Unit Titles Act 2001 (ACT) s 9; Strata Schemes (Freehold Development) Act 1973 (NSW) s 5(1); Strata Schemes (Leasehold Development) Act 1986 (NSW) s 4(1); Unit Titles Act 1976 (NT) s 4(1); Body Corporate and Community Management Act 1997 (Qld) Sch 6; Strata Titles Act 1988 (SA) s 3(1); Strata Titles Act 1998 (Tas) s 3; Subdivision Act 1988 (Vic) s 3(1); Strata Titles Act 1985 (WA) s 3(1). 12 Unit Titles Act 2001 (ACT) s 13; Strata Schemes (Freehold Development) Act 1973 (NSW) s 5(1); Strata Schemes (Leasehold Development) Act 1986 (NSW) s 4(1); Unit Titles Act 1976 (NT) ss 23, 24; Body Corporate and Community Management Act 1997 (Qld) ss 30, 31, 35(1); Strata Titles Act 1988 (SA) s 5(1), (6); Strata Titles Act 1998 (Tas) s 10; Strata Titles Act 1985 (WA) s 3(1); there is no definition of common property in the Victorian legislation. 13

Land Titles (Unit Titles) Act 1970 (ACT) s 10(1)(c); Unit Titles Act 1976 (NT) ss 23(1)(b), 23(1B); Strata Titles Act 1988 (SA) s 4; Real Property Act 1886 (SA) ss 47–51A. In Queensland, the issue of a Certificate of Title for common property is prohibited: Land Title Act 1994 (Qld) s 41C(3). 14 Strata Schemes (Freehold Development) Act 1973 (NSW) ss 18(2), 23; Strata Schemes (Leasehold Development) Act 1986 (NSW) s 27. 15 16

In Tasmania, the Recorder of Titles. Strata Titles Act 1998 (Tas) s 8(2)–(4); Subdivision Act 1988 (Vic) s 31(1).

17

Unit Titles (Management) Act 2011 (ACT) s 19; Strata Schemes (Freehold Development) Act 1973 (NSW) s 20; Strata Schemes (Leasehold Development) Act 1986 (NSW) s 23. In New South Wales, this has been interpreted as being held as giving an entitlement to each lot owner to the common property as a tenant in common with each other owner in the scheme: see Owners Strata Plan 50276 v Thoo [2013] NSWCA 270. 18 Unit Titles Act 1976 (NT) s 24; Strata Titles Act 1988 (SA) s 10(1); Strata Titles Act 1998 (Tas) s 10(1). 19

Body Corporate and Community Management Act 1997 (Qld) s 35(1); Strata Titles Act 1998 (Tas) s 10(2); Subdivision Act 1988 (Vic) s 30(1)(a); Strata Titles Act 1985 (WA) s 17(1). 20 Unit Titles (Management) Act 2011 (ACT) s 9(2)(a); Strata Schemes Management Act 1996 (NSW) s 8; Unit Titles Act 1976 (NT) s 30(1)(a); Body Corporate and Community Management Act 1997 (Qld) ss 30, 33(2), 34, 36(1); Strata Titles Act 1988 (SA) ss 18(3), 20(1), 24(a); Strata Titles Act 1998 (Tas) ss 11(1), 73(1); Subdivision Act 1988 (Vic) s 28(2); Strata Titles Act 1985 (WA) s 32(2). 21

Unit Titles (Management) Act 2011 (ACT) s 16(b); Unit Titles Act 1976 (NT) s 34; Strata Schemes Management Act 1996 (NSW) ss 8(2), 9; Body Corporate and Community Management Act 1997 (Qld) ss 94(1), 152(1); Strata Titles Act 1988 (SA) s 25; Strata Titles Act 1998 (Tas) s 81(1)(e); Owners Corporations Act 2006 (Vic) s 46; Strata Titles Act 1985 (WA) s 35(1)(b), (1)(c). 22 The legislation in most jurisdictions allows for the election of a committee or council from among the members of the body corporate, for the purpose of overseeing everyday management of the scheme: Unit Titles (Management) Act 2011 (ACT) ss 34–36, Sch 2 Pt 2.1; Strata Schemes Management Act 1996 (NSW) s 16; Unit Titles Act 1976 (NT) s 32(1); Body Corporate and Community Management Act 1997 (Qld) s 99; Strata Titles Act 1988 (SA) s 35; Strata Titles Act 1998 (Tas) s 79(1); Owners Corporations Act 2006 (Vic) Pt 5; Strata Titles Act 1985 (WA) s 44. The formation of a committee is compulsory except in South Australia: Strata

Titles Act 1988 (SA) s 35(1). In Victoria, a committee does not have to be formed unless there are more than 13 members in the body corporate: Owners Corporations Act 2006 (Vic) s 100. 23

Power is given to do this under the legislation: Unit Titles (Management) Act 2011 (ACT) s 50, Pt 4 Div 4.2; Strata Schemes Management Act 1996 (NSW) s 9(b), Ch 2 Pt 4; Body Corporate and Community Management Act 1997 (Qld) s 119; Strata Titles Act 1988 (SA) s 23(6); Strata Titles Act 1998 (Tas) s 80; Owners Corporations Act 2006 (Vic) s 119; Strata Titles Act 1985 (WA) Sch 1 cl 8(2)(b). 24 Unit Titles (Management) Act 2011 (ACT) s 108; Strata Schemes Management Act 1996 (NSW) ss 47, 48; Unit Titles Act 1976 (NT) s 78; Body Corporate and Community Management Act 1997 (Qld) ss 54, 59, 168, 169, Sch 4; Strata Titles Act 1988 (SA) s 19, Sch 3; Strata Titles Act 1998 (Tas) s 90; Subdivision Act 1988 (Vic) s 27E; Owners Corporations Act 2006 (Vic) s 138; Strata Titles Act 1985 (WA) s 42, Schs 1, 2, 2A. 25

Unit Titles (Management) Act 2011 (ACT) ss 106, 108, Sch 4; Strata Schemes Management Act 1996 (NSW) Sch 1; Unit Titles Act 1976 (NT) ss 76–78, Sch 1; Body Corporate and Community Management Act 1997 (Qld) ss 168, 169, Sch 4; Strata Titles Act 1988 (SA) ss 19, 20, Sch 3; Strata Titles Act 1998 (Tas) ss 90, 91, 93, Sch 1; Subdivision Act 1988 (Vic) s 43; Owners Corporations Act 2006 (Vic) s 139; Owners Corporations Regulations 2007 (Vic) Sch 2; Strata Titles Act 1985 (WA) s 42, Sch 1. 26 Such as the original builder of the strata buildings and work carried out on behalf of the owners corporation by agents engaged by strata manager (such as cleaners and maintenance contractors). 27

Unit Titles (Management) Act 2011 (ACT) s 24(1); Strata Schemes Management Act 1996 (NSW) s 62; Unit Titles Act 1976 (NT) s 34(b), (c); Body Corporate and Community Management Act 1997 (Qld) ss 94, 152; Strata Titles Act 1988 (SA) s 25(a); Strata Titles Act 1998 (Tas) s 81(1)(c); Owners Corporations Act 2006 (Vic) s 46; Strata Titles Act 1985 (WA) s 35(1)(c). 28 See above n 28. The word ‘repair’ has been found to include renewal and replacement of common property: see Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412; Simons v Body Corporate Strata Plan No 5181 [1980] VR 103; Seden v Proprietors ‘Tyala Court’ [1978] Qd R 53; and [9.25]. 29

Referring to Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246; Seiwa Pty Ltd v Owners Strata Plan 35042 (2006) 12 BPR 23,673; [2006] NSWSC 1157; Lubrano v Proprietors of Strata Plan No 4038 (1993) 6 BPR 13,308; The Proprietors of Strata Plan No 159 v Blake [1986] NSW Titles Cases 50,650. 30 See Seiwa Pty Ltd v Owners Strata Plan 35042 (2006) 12 BPR 23,673; [2006] NSWSC 1157; Trevallyn-Jones v Owners Strata Plan No 50358 (2009) 14 BPR 27,113; [2009] NSWSC 694. 31

Following the approach of McColl JA in Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246, that a breach of s 62 by an owners corporation did not give rise to an action for damages on the part of a disadvantaged lot owner for breach of statutory duty. See discussion of Ridis at [9.35]–[9.36]. 32 See, for example, Seiwa Pty Ltd v Owners Strata Plan 35042 (2006) 12 BPR 23,673; [2006] NSWSC 1157; Lin v Owners — Strata Plan No 50276 (2004) 11 BPR 21,463; [2004] NSWSC 88; Trevallyn-Jones v Owners Strata Plan No 50358 (2009) 14 BPR 27,113; [2009] NSWSC 694. 33

Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246 per McColl JA at [158]. 34 The Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412 at 416, citing Lord Patrick

in Burns v National Coal Board [1957] SC 239 at 245; Proprietors of Strata Plan No 30234 v Margiz Pty Ltd (1993) 32 NSWLR 294 at 297–8 per McLelland CJ in Eq; and Lin v Owners — Strata Plan No 50276 (2004) 11 BPR 21,463; [2004] NSWSC 88 at [48] per Gzell J. See also Trevallyn-Jones v Owners Strata Plan No 50358 (2009) 14 BPR 27,113; [2009] NSWSC 694. 35 36

Proprietors of Strata Plan No 6522 v Furney [1976] 1 NSWLR 412 at 416 per Needham J. In Strata Plan No 30234, Proprietors v Margiz Pty Ltd (1993) 32 NSWLR 294, an air conditioning unit which had been installed in a ten-storey building in 1982 failed to provide the necessary ventilation to the lower ground floor of the building, which was owned by the respondent. Although the owners corporation had spent over $50,000 on repairing and maintaining the air conditioning unit between 1990 and 1991, the air flow to the lower ground floor remained inadequate.

37

Slattery J in Thoo v Owners — Strata Plan No 50276 (2011) 15 BPR 29,309; [2011] NSWSC 657 (at first instance) had interpreted this as meaning that s 62 did not accommodate ‘capricious or unreasonable requests for service’. 38 Slattery J pointed out that it was now clear law that each of the duties under s 62(1) and (2) of the Act was mandatory. As a result, even the taking of reasonable efforts by the owners corporation to fulfil the duty was regarded as being no excuse. 39

As his Honour noted, this distinction had been made in Proprietors of Strata Plan No 30234 v Margiz Pty Ltd (1993) 32 NSWLR 294 and subsequently reaffirmed in many other cases. 40 Ridis v Proprietors of Strata Plan 10308 (2005) 63 NSWLR 449; [2005] NSWCA 246. 41 42

Citing Young v Owners — Strata Plan No 3529 (2001) 54 NSWLR 60; 10 BPR 19,153. His Honour had found, for other reasons, that the resolution was not valid.

43

Cathy Sherry has pointed out some of the problems associated with the administration of strata schemes, including the protection of lot owners who are in a minority of owners in a scheme: see C Sherry, ‘How Indefeasible is your Strata Title? Unresolved Problems in Strata and Community Title’ (2009) 21 Bond Law Review 159. 44 As well as its statutory duty under Strata Schemes Management Act 1996 (NSW) s 62. One of the issues for the Court of Appeal was whether s 62 imposed a duty of care on an owners corporation beyond that which would otherwise be required of an occupier under the general law. 45

As noted, her Honour also concluded that a breach of s 62 by an owners corporation does not give rise to an action for damages for breach of statutory duty. This is the position that was followed by the New South Wales Court of Appeal in Owners Strata Plan 50276 v Thoo [2013] NSWCA 270. 46 See McDonough v Owners Strata Plan No 57504 (2014) 17 BPR 33,573; [2014] NSWSC 1708. This litigation involves claims by the plaintiff for a breach of an alleged duty of care owed by the owners corporation to her, in that the owners corporation had failed to properly repair defects in the common property, which rendered her unit uninhabitable. 47

Which formed part of common property. 48 At first instance, McDougall J held that the warranties under s 18B of the Home Building Act 1989 (NSW) applied to the complex. 49

And that a court should not substitute their own judgment for that of the legislature. 50 Even though, in a subsequent decision of the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; 205 ALR 522; [2004] HCA 16, the ‘concept of proximity’

was discarded. 51

In this case that would have been a duty owed to the developer who commissioned the strata building, Hiltan Pty Ltd, if it was owed at all. 52 Giving the principal judgment. 53

Brookfield Multiplex v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408; [2014] HCA 36. 54 Effectively re-instating the findings of McDougall J at first instance. 55

Brookfield Multiplex v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408; [2014] HCA 36 at [185]. 56 The argument that had failed in the Brookfield litigation. 57 58

This is the equivalent to Australian Consumer Law s 18. Unit Titles (Management) Act 2011 (ACT) s 78; Strata Schemes Management Act 1996 (NSW) ss 67, 69; Unit Titles Act 1976 (NT) s 36; Body Corporate and Community Management Act 1997 (Qld) ss 150(1), (2), 151; Strata Titles Act 1988 (SA) s 27; Strata Titles Act 1998 (Tas) s 83; Subdivision Act 1988 (Vic) ss 3(1), 33; Owners Corporations Act 2006 (Vic) s 23; Strata Titles Act 1985 (WA) s 36.

59

Unit Titles (Management) Act 2011 (ACT) ss 100, 102; Strata Schemes Management Act 1996 (NSW) ss 83, 87; Unit Titles Act 1976 (NT) ss 80, 81; Body Corporate and Community Management Act 1997 (Qld) s 189; Strata Titles Act 1988 (SA) ss 30, 31; Strata Titles Act 1998 (Tas) s 99; Owners Corporations Act 2006 (Vic) Pt 3 Div 6; Strata Titles Act 1985 (WA) ss 35(1) (j), 53–55A, 58. 60 This is a record of the current owners of the lots in the scheme. The record-keeping requirements vary from jurisdiction to jurisdiction. 61

Unit Titles (Management) Act 2011 (ACT) s 119(3); Strata Schemes Management Act 1996 (NSW) s 108(3); Body Corporate and Community Management Act 1997 (Qld) ss 204, 205; Strata Titles Act 1988 (SA) s 41(1); Strata Titles Act 1985 (WA) s 43(1)(b). 62 Usually only on appeal on a point of law from the decision of the adjudicator or a tribunal. 63

Community Title Act 2001 (ACT); Community Land Development Act 1989 (NSW); Unit Titles Act 1976 (NT); Mixed Use Development Act 1993 (Qld); Body Corporate and Community Management Act 1997 (Qld); Community Titles Act 1996 (SA); Strata Titles Act 1998 (Tas). There is no equivalent legislation in Victoria or Western Australia.

[page 159]

CHAPTER 10

Mortgages

Key Ideas By the end of this chapter you should be able to identify: What is a mortgage? How and when is a mortgage created? What are the main rights of a mortgagor? How and when can the main rights of a mortgagor be exercised? What are the main rights of a mortgagee? What is the doctrine of penalties? When does the doctrine of penalties apply? What other conduct by a mortgagee can vitiate a mortgage?

[page 160]

Introduction [10.1]

Most of us cannot avoid becoming mortgagors of property at some stage in our lives. With the increasing cost of home ownership in Australia, it is becoming less likely that each generation will have enough money to buy a residential home without obtaining finance from a lender. In Australia, the four major banks are the main lenders of money for the purchase and development of property, particularly residential property. The average person in Australia will take out a mortgage with a bank and will be committed to that mortgage for a period of 15–25 years. Others will have a surplus of money; for them, one of the best returns on investment is to lend that money to someone else for a period of time and earn interest on that loan as a secured creditor; that is, as a mortgagee of property.

[10.2]

The law dealing with the provision of credit (including mortgages) is complex and heavily regulated by various statutes. Banks and other credit providers have a wide range of statutory compliance obligations that they must meet in order to offer mortgages and other forms of credit. This chapter is not intended to deal with all of the forms of regulation that currently govern mortgage lenders and mortgages in Australia. It also does not deal with transactions that are usually related to mortgages.1 This chapter sets out the basic concepts of the law of mortgages that you will need to understand before you can begin to grasp how statutory and regulatory intervention works in relation to mortgages. Although mortgages can play a significant role in small and large-scale commercial and

industrial contexts (sometimes involving multiple third parties as debtors and guarantors at different levels), the concept of mortgage finance and the legal relationships created by a mortgage are unaltered: there is a contract of debt to repay a loan and there is another contract granting the lender an interest in property so as to secure repayment of that loan.

What is a mortgage? [10.3]

A mortgage is an agreement under which a person borrows money (the mortgagor) and, in return, grants the lender (the mortgagee) an interest in property by way of, or as security for, the promise that the moneys lent by the mortgagee will be repaid by the mortgagor. In other words, a mortgage is a secured debt. The value of the loan is specifically secured by the mortgaged property. A mortgage creates legal or equitable interests in the mortgaged property in favour of the mortgagee. It also provides specific rights, remedies and duties to the parties to the mortgage agreement.

[10.4]

It is, of course, also possible to lend moneys without creating a mortgage. In that case, the agreement creating the debt is simply known as a loan. The main differences between a loan and a mortgage are: a loan is not secured by any property; it creates no rights to, or in, real property. However, it does create a form of personal property. It is a debt enforceable between the parties to the loan contract, who are referred to as the ‘borrower’ and the ‘lender’; [page 161]

a loan is a simple contract. It is created by the law of contract and does not involve the law of real property; and a loan contract is always created for a mortgage to exist, but a mortgage contract does not need to be created for a loan contract to exist. A mortgage is simply a loan contract secured over specific and identifiable property.2 [10.5]

In some instances, mortgagees have found themselves as unsecured creditors because the mortgage has not been properly drafted to secure moneys lent by the lender under the loan agreement/s (see [6.23]–[6.29]). These drafting problems have emerged in recent years as one of the key issues facing mortgagees and their advisers.

[10.6]

The typical mortgage of residential land in Australia involves the owner of land using her, his or its (in the case of a corporation) land as security for a loan from a major retail bank, the loan being repayable by instalments over a period. The security interest held by the mortgagee in that person’s property is not discharged until the loan, together with all interest and any costs associated with the discharge of the mortgage, have been repaid by the mortgagor to the mortgagee.

Types and creation of mortgages [10.7]

Mortgages are created in different ways. You need to understand whether or not a mortgage exists and what type of mortgage it is, in order to be able to understand whether or not an interest in land has been created. This becomes critical in a number of circumstances: in determining whether or not someone is a secured creditor (in proceedings to enforce an alleged mortgage, in bankruptcy or insolvency proceedings or in any dispute

involving ownership or interests in the land alleged to be subject to a mortgage interest); in determining whether or not someone has a caveatable interest in property; and in determining priority disputes (see Chapters 6 and 7). [10.8]

Apart from the importance of understanding whether or not a mortgage exists for the purpose of these types of legal proceedings, you also will need to understand how to create a mortgage if you are going to be involved in any kind of transactional work, since you will be the person taking instructions from your client to create these interests. If you are the client, you will need to be able to give clear instructions to your lawyer/s and communicate with the other party to the transaction as to the type of interest you are creating. If you cannot work out whether or not a valid mortgage has been created, or how to create one, then you cannot begin to work out a whole range of related rights and liabilities which might flow from being able to answer these basic legal questions or create these legal rights. [page 162]

[10.9]

The creation of mortgages in Australia can be roughly divided into the following categories: creation of a mortgage at law for Old System Title land; creation of a Torrens mortgage; and creation of a mortgage in equity for both Old System Title and Torrens Title land.

[10.10]

When a mortgage concerns land, the nature and form of the mortgage will depend on whether the land is Old System Title land (referred to as a ‘general law mortgage’) or Torrens

Title land, as well as whether the mortgagee’s interest in the land is a legal or equitable interest; that is, whether it was created at law or in equity.

Creation of a mortgage at law for Old System Title land [10.11]

For Old System Title land, a mortgage at law (a legal mortgage) is created by creating a conveyance which vests the legal estate (held originally by the mortgagor) and a right to possession in the mortgagee, together with a provision for re-entry by the mortgagor and a right to a reconveyance of the land to the mortgagor upon full payment of the principal debt and interest to the mortgagee. The legal title to the mortgaged property is conveyed from the mortgagor to the mortgagee, and the mortgagor retains what we call the ‘equity of redemption’. This is simply a right given to the mortgagor (in equity) to redeem the legal title to the property during the mortgage term. We will discuss this in more detail at [10.27]–[10.34]. Mortgages for Old System Title land are created by the execution of a Deed: see [10.14].

[10.12]

The creation of a legal mortgage over Old System Title land assumes that the mortgagor had a good legal title to give to the mortgagee to begin with. If, for whatever reason, the mortgagor did not have a good legal title at the date of creation of the mortgage, then the mortgagor can only ever vest an equitable title to the next mortgagee. For this reason, only a first mortgagee of Old System Title property can hold a legal mortgage. Any second or subsequent mortgage of Old System Title property can only vest an equitable interest in such property, since the mortgagor, at the point in time at which the second or subsequent mortgage is created, only holds an equitable interest in her or his property, not the legal title to the property. As such, she or he cannot give better title to the property than she or he held at the time of

the creation of the second or subsequent mortgage. For example, if George creates a mortgage of his Old System Title land to the Commonwealth Bank then, at settlement of the mortgage, the legal interest in the land is held by the bank, with George retaining only an equity to redeem the mortgage. If George creates a subsequent mortgage in favour of Lucy, then he can only create an equitable mortgage, since the legal interest is already held by the bank. Since he has nothing more than an equitable interest in the property at the time that he creates Lucy’s mortgage, the greatest interest that he can confer upon her is the one that he holds himself: an equitable interest. Lucy, as second mortgagee, can only ever be an equitable mortgagee of the property. [page 163] [10.13]

Apart from the case of second or subsequent mortgages, a mortgagee might only hold a right in equity in the property that she or he is mortgaging to begin with. For example, a beneficiary under a trust is not the legal owner of the property, but she or he holds an equitable right in the property as a beneficiary of the trust. As such, she or he can only ever transfer the interest they hold to the mortgagee; that is, an equitable interest in the property.

[10.14]

A mortgage or a mortgagee create a legal mortgage by complying with the statutory requirements applicable for the creation of a mortgage in each jurisdiction. In most jurisdictions, a legal mortgage of Old System Title land must be created by the execution of a deed of conveyance.3 In Queensland, the Australian Capital Territory and the Northern Territory, a written instrument is sufficient.4

Creation of a mortgage under Torrens legislation [10.15]

The form and nature of a registered mortgage of Torrens land is different from a mortgage of Old System Title land. The mortgagor of Torrens land does not transfer (convey) any estate or interest in land to the mortgagee. Rather, she or he remains on the title (the conceptual equivalent of legal owner of the property for Old System Title land) as the registered proprietor of the fee simple estate subject to the registered mortgage.5 The interest of the registered mortgagee operates as a separate interest, in the nature of a statutory charge over the land.6 As observed by the majority of the High Court in English, Scottish & Australian Bank Ltd v Phillips (1937) 57 CLR 302; [1937] ALR 104 at CLR 321–4: Under the system of registration governing the present case, the statutory charge described as a mortgage is a distinct interest. It involves no ownership of the land the subject of the security. Like a lease, it is a separate interest in the land, which may be dealt with apart altogether from the fee simple or other estate or interest mortgaged. … A mortgage under the system is the creature of statute and its incidents depend upon the provisions of the statute and so much of the general law as is availed of by or under those provisions.

[10.16]

In order to create a mortgage of Torrens Title land, it is necessary for the parties to comply with the applicable Torrens legislation in the relevant jurisdiction in which the mortgage is being created. A failure to create a mortgage in ‘registrable form’ means that the mortgagee cannot obtain registration of her or his mortgage interest. For Torrens Title land, we do not refer to ‘legal’ and ‘equitable’ mortgages; rather, we refer to ‘registered’ and ‘unregistered’ mortgages. A registered mortgage is not a legal interest per se, but an interest created in accordance with the requirements of the Torrens legislation, and it [page 164]

takes effect under that legislation as a statutory charge. You can find examples of what the form of a registered mortgage of Torrens land should look like by looking at the forms made available by various Land Titles Departments throughout Australia. [10.17]

Under the Torrens system, the conceptual equivalent of a legal interest does not pass to the mortgagee until registration of the mortgage has occurred.7 It is still possible in the case of unregistered interests in Torrens land to have an equitable mortgage. For example, even if a mortgagee does not create a mortgage in registrable form (and thus cannot obtain registration of the mortgage), the dealings between the parties might still be capable of creating an equitable mortgage.

Creation of a mortgage in equity (Old System Title and Torrens Title) [10.18]

There are a number of situations where a mortgage of Old System Title land will confer an equitable interest on the mortgagee (create an equitable mortgage). These situations also create an equitable interest in Torrens land. For example, despite the wording of provisions such as s 41(1) of the Real Property Act 1900 (NSW),8 the High Court has recognised that an unregistered instrument may give rise to an equitable interest in land.9 All unregistered mortgages of Torrens land are equitable interests, regardless of whether they have been created by deed or otherwise. The following are scenarios in which equity will recognise the creation of a mortgage: a mortgage by the holder of an equitable interest in land; for example, a mortgage given by the beneficiary of a trust; an executory agreement to grant a legal mortgage which takes effect as an equitable mortgage;10 and

an unsuccessful attempt to grant a legal mortgage. This is an attempt by the parties to create a legal (and, in the case of Torrens land, registrable) mortgage where, due to any number of reasons, the mortgage is never created in the manner required at law.11 So long as there is evidence of a binding intention by the mortgagor to grant a mortgage to the mortgagee, equity gives all the rights that would have arisen if a legal mortgage had been completed to the mortgagee; for example, an executory agreement, including an agreement to grant a mortgage, in consideration of a debt or an advance having been made by the mortgagor.12 The agreement need not [page 165] necessarily be in writing if it is evidenced by sufficient acts of part performance which provide evidence of the agreement to grant a mortgage. The most common example of this is a mortgage by way of deposit of title deeds.13 An example of an incomplete legal mortgage includes a mortgage of Torrens Title land prior to it having been registered. [10.19]

The following table presents a summary of how mortgages can be created: Table 10.1: Creation of mortgages At law In equity

Old System Title

Torrens Title

Deed of Conveyance

Transfer (in registerable form)

Agreement to grant a mortgage (either evidenced in writing or through sufficient acts of part performance) Unsuccessful attempt to grant a mortgage (failure of writing)

Agreement to grant a mortgage (either evidenced in writing or through sufficient acts of part performance) Unsuccessful attempt to grant a mortgage (failure of writing)

Mortgage by deposit of title deeds

[10.20]

Mortgage by deposit of title deeds

We will now consider the most common rights of mortgagors and mortgagees under mortgage contracts.

Rights of the mortgagor Equity of redemption [10.21]

The form and nature of an Old System Title first mortgage existed long before the introduction of the Torrens system. The common law rules applicable to such mortgages often produced harsh results for the mortgagor. Mortgage contracts commonly set a short time for repayment of the loan (for example, six months) and the failure to repay by the due date entitled the mortgagee to disregard the contractual right to redeem (re-convey) the property to the mortgagor. Thus, at law, a mortgagor who did not repay the loan by the contractual date suffered an extreme penalty of forfeiture of all of her or his interest in the mortgaged property. The value of the security also often outweighed the outstanding amount due under the mortgage.

[10.22]

Equity developed its own set of rules to ameliorate the effects of these common law principles, to provide relief to a mortgagor to redeem the secured property. Equity regarded the legal position as repugnant to basic concepts of fairness and treated the mortgagor as having a continuing ‘equity to redeem’ the property if [page 166] the mortgagor paid the outstanding amount due even after

the contractual date for redemption under the mortgage contract had passed. The mortgagee was the owner of the property as far as the common law courts were concerned, but courts of equity regarded the mortgagor as the owner of the property. That ownership interest was referred to as the ‘equity of redemption’. This means that Old System Title land that is subject to a first mortgage grants to a mortgagee both a legal and equitable interest as owner of the mortgaged property at the date of creation of the mortgage. However, this is subject to the mortgagor’s equitable interest that also arises upon execution of the mortgage: the equity of redemption. That right is not extinguished until either repayment of the loan or until a ‘decree of foreclosure’ is granted by the relevant Registrar of Land Titles or a court to the mortgagee;14 or where a mortgagee sale of the property has been concluded. The equity of redemption is an equitable interest in the property held by the mortgagor and is a caveatable interest in Torrens land.

Title documents [10.23]

In a number of Australian jurisdictions there are statutory provisions that allow a mortgagor to request to inspect or make copies of title documents held by the mortgagee, ‘as long as the right to redeem subsists’ and upon payment of the mortgagee’s costs.15

[10.24]

As discussed at [10.15], in the case of Torrens land, the mortgagor remains as both the registered (the conceptual equivalent in Torrens of a legal interest) and equitable owner of the land, despite the mortgage. As such, the mortgagor can sell, lease or otherwise alienate the land (subject to any conditions in the mortgage). This usually includes using the land to create further registered and unregistered (equitable) mortgages.

Right to possession of the mortgaged property [10.25]

For Old System Title land, a first mortgagee (as legal owner of the property) becomes entitled to possession of it. In practice, the mortgagor usually remains in possession. The mortgagor’s right to remain in possession is based on an arrangement provided for in the mortgage whereby the mortgagor ‘attorns tenant’ of the property to the mortgagee.16 The ‘rent’ payable for immediate possession by the mortgagor to the mortgagee is usually treated as being the equivalent of the interest payments under the mortgage. We say that those payments are accepted by the mortgagee [page 167] ‘in lieu of rent’. The period of the tenancy is for the duration of the mortgage, subject to earlier termination of the contract by the mortgagee.17

[10.26]

As discussed, for Torrens land, the mortgagor of a registered mortgage retains a notional legal estate and is therefore inherently entitled to possession of the secured property. There are statutory provisions that stipulate that the mortgagee is not entitled to the income or possession of the mortgaged property until the mortgagor’s default. However, it is normal for a mortgage agreement to contain a clause to the effect that that the mortgagor ‘attorns tenant’ to the mortgagee for the duration of the mortgage as well. The tenancy ends upon the default of the mortgagor, and the mortgagee is then able to exercise a statutory right to possession or bring proceedings to recover possession of the property from the mortgagor.18 In Victoria and Western Australia, the situation is somewhat different; the legislation specifically provides that, during the continuation of the

mortgage, the mortgagee enjoys the same rights as if the mortgagee possessed a legal estate in the property.19

Unenforceable clauses Redemption of mortgage and clogs on the equity of redemption [10.27]

Where a mortgagor has failed to redeem the mortgage by the agreed date of the contract, redemption of the mortgage by the mortgagor must be preceded by six months’ notice given to the mortgagee of the mortgagor’s intention to redeem the mortgage.20 The contractual right to redeem the mortgage merely means that a mortgagor who receives an unexpected windfall is not able to redeem the mortgage before the agreed redemption date (provided it is reasonable).21 In practice, most redemptions of mortgages are conducted by negotiations between the mortgagor and the mortgagee. However, if no agreement can be reached, early repayment of the mortgage constitutes a breach of the mortgage contract by the mortgagor. That entitles the mortgagee to damages for breach of contract. In some jurisdictions, legislation provides a statutory right of redemption of a mortgage which can exist [page 168] separately to any agreement of the parties.22 In such instances, the mortgagor will be required to comply with any requirements set down by the statute for redemption to take place.

[10.28]

In the case of a Torrens mortgage, there is no true ‘equity of redemption’ existing, since no transfer of the legal title to the

property has taken place from the mortgagor to the mortgagee (only a statutory charge is created that burdens the title of the mortgagor). Rather, the mortgagor has a statutory right to a discharge of mortgage.23 However, the expression ‘the equity of redemption’ is still used by lawyers generally to refer to a registered mortgagor’s right to a discharge of the mortgage affecting her or his registered title. [10.29]

Equity treated a mortgage as a security device against the possible default of mortgagors. Regardless of the form the transaction might take, equity looks to the substance of the transaction to determine whether a transaction is really a mortgage.24 Equity attempts to preserve a mortgagor’s equitable right to regain the property free of the mortgage. As a necessary part of that process, equity also requires that a mortgagor’s right to redeem the mortgage be genuine and unfettered. Therefore, equity invalidates any provision in a mortgage that may effectively operate as a ‘clog on the equity of redemption’. A court of equity must therefore construe the operation of any clause in the mortgage contract and determine whether a clause operates, either in form or in effect, as an impediment on the mortgagor’s right to redeem the mortgage. These impediments usually take the following forms: clauses which exclude the right of the mortgagor to redeem the mortgage altogether; or clauses which attempt to postpone the right of the mortgagor to redeem the mortgage.

[10.30]

Postponement or exclusion of the right to redeem the mortgage The equity of redemption may be regarded by a court as irredeemable where the mortgagee attempts to postpone or exclude the right to redeem. For example, a condition in the mortgage giving the mortgagee an option to

purchase the property would be a clog on the equity of redemption and unenforceable as such because such a clause operates, in effect, to allow the mortgagee to elect to exercise the option to purchase and thereby preclude the mortgagor from redeeming the mortgage.25 A mortgage may also be regarded by equity as irredeemable where the stipulated date for redemption under the mortgage contract prolongs the mortgage to such an extent that the mortgagor’s right to redeem the property is rendered ‘illusory or valueless’.26 For example, in Fairclough v [page 169] Swan Brewery Co Ltd [1912] AC 565, the mortgaged property was a leasehold interest with around 17 years to run and monthly loan repayments extending up to the last six weeks before the expiry of the lease. The redemption clause in the mortgage was rendered useless, since the leasehold interest in the property would terminate at around the same time that the mortgagor would be allowed to redeem the mortgage interest. The Privy Council held that the clause was unenforceable and the mortgagor was allowed to redeem upon repayment of the loan moneys due under the mortgage.

Collateral advantages [10.31]

Collateral advantages in mortgage contracts might also be found by courts to be void and unenforceable on a policy basis similar to that applied generally to clogs on the equity of redemption. A collateral advantage is any advantage obtained by a mortgagee that is not related to the mortgage contract, but which the mortgagee extracts from the mortgagor. For example, a food company may finance the

establishment of a supermarket but also require, as a condition of the finance, that the mortgagor buy and sell only the mortgagee’s brands in the supermarket. Such a collateral advantage was usually regarded as void and unenforceable because it acted as a clog on the equity of redemption. [10.32]

Courts now allow a mortgagee to obtain a collateral advantage provided it is not: (1) unfair and unconscionable; (2) in the nature of a penalty which has the effect of clogging the equity of redemption; or (3) inconsistent with or repugnant to the contractual and equitable right to redeem the mortgage.27 For example, in Noakes & Co Ltd v Rice [1902] AC 24 the mortgagor had a leasehold interest in a public house. There was a period of 26 years left to run on the lease as at the date of dispute. As part of the mortgage, the mortgagor agreed with the mortgagee to sell only the mortgagee’s malt liquors for the duration of the lease. This meant that the period extended beyond the time for redemption of the mortgage. The House of Lords found the clause to be void, as it operated as a clog on the equity of redemption. The collateral advantage was regarded as inconsistent with the nature of the equitable right to redeem. In contrast, in Biggs v Hoddinott [1898] 2 Ch 307, a fee simple owner of a public house mortgaged it to a brewery. The loan was not redeemable in less than five years. As part of the arrangement, the mortgagor covenanted to buy beer from the mortgagee for the period of the mortgage. The English Court of Appeal held that the collateral advantage did not fetter the mortgagor’s equity of redemption and the clause was enforceable.

[10.33]

Later decisions have been critical of the operation of this doctrine.28 In Westfield Holdings v Australian Capital Television Ltd (1992) 32 NSWLR 194; 5 BPR 11,615 Young J stated at 202:

[page 170] There does not appear to be any commercial reason why, in 1992, the court should invalidate any transaction merely because a mortgagee obtains a collateral advantage or seeks to purchase the mortgage property … In my view … the rule only applies where the mortgagee obtains a collateral advantage which in all the circumstances is either unfair or unconscionable. It may be that the court presumes from the mere fact of the collateral advantage that the transaction is unconscionable unless there is evidence to the contrary, that the principle does not extend to invalidate automatically cases in which the mortgagee has obtained the right to purchase the whole or part of the mortgaged property in certain circumstances or has obtained a collateral advantage where the circumstances show there has been no unfairness or unconscionable conduct.29 [10.34]

In Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 404; 253 ALR 482; [2009] NSWSC 7, Barrett J followed Young J’s reasoning in Westfield Holdings, finding that the fact that the equity of redemption is denied or overborne by contract is, of itself, insufficient to cause equity to grant relief from the operation of that contract. There must also be some relevant unconscionability. It could also not be said today that a contractual provision, freely assented to by a mortgagor, is void or unenforceable simply because it allows the mortgagee to acquire the mortgaged property or to resist that mortgagor’s attempt to redeem the mortgage.30 In any given case, Young J found that equity will prevent reliance on a provision by the mortgagee if that reliance is unconscientious because of some factor associated with the formation of the contract or because of something distinct from mere changed circumstances, or a supervening event

operative at the time of reliance: at [136].

Penalties [10.35]

A clause in a mortgage contract which is regarded as a penalty might be regarded by a court of equity as a clog on the equity of redemption. In Legione v Hateley (1983) 152 CLR 406; 46 ALR 1 at 445 Mason and Deane JJ described a penalty as: [A] punishment for non-observance of a contractual stipulation [that consists of] the imposition of an additional or different liability upon the breach of the contractual stipulation.

[10.36]

It is important to be able to recognise when a clause will constitute a penalty. Broadly, such clauses fit into two categories: late payment clauses; and acceleration clauses.

[10.37]

Late payment clauses In Steindlberger v Mistroni (1992) 5 BPR 11,529; 29 NSWLR 351, Needham J considered the operation of a clause in a mortgage contract which [page 171] reduced the amount of interest payable by the mortgagor if the mortgagor paid the interest due prior to or on the due date of the instalment. His Honour held that such a clause did not constitute a penalty. However, a clause which attempted to increase the amount of interest payable by a mortgagor in the event of non-payment by the due date could constitute a penalty because it penalised the mortgagor for late payment. As such, it was unenforceable.

[10.38]

Acceleration clauses The most common form of clause in a mortgage contract that may constitute a penalty is an ‘acceleration clause’. Such a clause accelerates the time at which interest would ordinarily be due and payable under the mortgage in the event that the mortgagor defaults in payment of any instalment of capital or interest due. For example, a typical residential mortgage of property will provide for the payment of interest fortnightly for the duration of the loan period (say a period of 25 years). The mortgage will also provide that, in the event of default of any payment due under the mortgage, then all interest due and payable for the remainder of the loan period will automatically become due and payable. In other words, upon the default of the mortgage or of one payment due now under the mortgage, any interest that otherwise would have only become due and payable at some future point in time becomes due and payable immediately. This is usually referred to as a ‘crystallisation clause’, because it crystallises now the debt that would otherwise not fall due until some future point in time; that is, it brings forward the due date for payment of amounts due under the mortgage. It operates as a clause that deems a debt (payment of future interest), which otherwise would not have been due until some future point in time, to be due immediately. This has important ramifications in other areas of law31 and is usually why such crystallisation clauses are included in mortgage contracts. However, in the law of mortgages, what we are concerned with is that moneys which otherwise would not have fallen due until some future point in time become immediately due and payable because of the mortgagor’s default of an interest payment now. On its face, a court of equity regards this form of clause as being in the nature of an acceleration clause, because it accelerates the time at which payments would otherwise have fallen due under the mortgage. Such a clause is regarded as being, on its face, a penalty clause and unenforceable. However, whether or not an acceleration

cause in fact constitutes a penalty is left to be determined by reference to whether or not it constitutes a genuine preestimate of the mortgagee’s loss.32 [10.39]

In addition to being relevant for crystallisation of a debt, these types of clauses are also liquidated damages clauses. It is therefore the duty of the court to examine whether or not the clause (as a liquidated damages clause) represents a genuine pre-estimate of the type of damages that the mortgagee would ordinarily be entitled to for the mortgagor’s breach of contract.33 If the clause does, then notwithstanding that it accelerates the time for payment, it will still not be regarded as a penalty clause. However, if the mortgagee does not provide evidence to the court as to why it says the acceleration clause does represent [page 172] such a genuine pre-estimate of its loss, the clause will be void and unenforceable. This is because the burden of proving that the acceleration clause is not a penalty clause falls upon the person trying to enforce it (the mortgagee). Even where the mortgagee does adduce evidence, the court can, of course, still determine that the clause is not a genuine pre-estimate of the mortgagee’s loss and therefore void and unenforceable as a penalty. A recent example of the debate about penalty clauses took place in respect of late payment fees imposed by Australia’s banks on consumers who held credit cards. The burden of proving that these late payment fees were not in the nature of penalties fell to each bank as the party seeking to enforce the fees against its customers.

[10.40]

It is now common for acceleration clauses to provide for ‘discount formulas’. These formulas provide for a reduction of the total moneys that otherwise would form the interest

due under the mortgage (future interest) by reference to considerations such as the benefit being obtained by the mortgagee receiving the total amounts due under the mortgage (on capital account, being the remainder of the loan moneys due) at an earlier date (since the capital is being repaid early to discharge the mortgage) as well as further formulas based upon the benefits of receiving some interest under the mortgage agreement earlier (on revenue account).

Unconscionable clauses and unconscionable conduct [10.41]

A mortgage (or clauses within a mortgage) may be set aside or rendered unenforceable because they are regarded by a court as being ‘unconscionable’. Courts of equity have various doctrines under which they may intervene to render unconscionable clauses void where the mortgagee has engaged in unconscionable conduct, including in obtaining the contract or clause. For example, a court of equity may intervene where there is a relationship of inequality between the mortgagor and the mortgagee. This relationship may arise because of a number of factors, such as ignorance, language difficulties, infirmity or inexperience of the mortgagor, or because of duress or undue influence exercised by the mortgagee because of an unequal bargaining relationship between the mortgagee and the mortgagor.

[10.42]

It is not possible in this text to provide a detailed description of all of the circumstances in which a court of equity may regard a contract, clause or the conduct of a mortgagee as being unconscionable.34 However, a brief description of the equitable doctrine set out by the High Court of Australia in the leading decision of Commonwealth Bank of Australia v Amadio (1983) 151 CLR 447; 46 ALR 402; 57 ALJR 358 will give you some idea of the types of mortgagee behaviour that

a court of equity regards as unconscionable. In Amadio, the mortgagors had executed a mortgage of their property to the bank by way of guarantee in return for the bank providing a loan to their son. The mortgage was set aside by the High Court, which found that the parents had a poor understanding of English and had not properly [page 173] understood the nature of their son’s poor financial position at the time they gave the guarantee to the bank, and that both of those factors were known to the bank at the time it granted the loan and obtained the guarantee. Mason J stated the doctrine of unconscionability as follows (at 363): Relief on the grounds of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party, who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest. [10.43]

So, a mortgagee’s awareness of a mortgagor’s relevant disadvantage, together with knowledge that the mortgagor has had no opportunity to seek independent advice, may constitute unconscionable conduct. A relevant disadvantage is one that fits within the test of ‘special disadvantage’ defined by Fullager J in Bromley v Ryan (1956) 99 CLR 362 at 405 as follows: The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, literacy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they had the effect of placing one party at a serious disadvantage vis-à-vis the other.

Undue influence [10.44]

The doctrine of undue influence applies to mortgage transactions. Equity presumes that a number of relationships involve undue influence. The most notable of these in Australia is referred to as the ‘rule in Yerkey v Jones’.35 Under that rule, a wife’s guarantee of her husband’s mortgage debt can be rendered void. In Yerkey v Jones (1939) 63 CLR 649; [1939] ALR 62, a husband had purchased a house and acreage but had little money to finance the purchase. He signed a document in which he promised to obtain a second mortgage over a property owned by his wife. The husband had told his wife that he would get into trouble if she did not grant the mortgage. The wife gave evidence that, in guaranteeing her husband’s debt by the grant of a second mortgage over property owned by her, she did not understand that it meant that she could be called upon personally to pay his debt in the event of his default. The High Court found that, in circumstances in which a husband exerts undue influence over his wife in executing a mortgage, it is up to the mortgagee to establish that the wife has received independent legal advice which properly explained to her the consequences of entering into that agreement. In addition, a guarantee will be set aside by a court if the mortgagee does not deal directly with a wife and the wife does not understand ‘the effect in essential respects’ of the guarantee.36 [page 174]

Unfair and unjust contracts and other statutory protection [10.45]

Apart from the doctrines of unconscionability and undue

influence in equity, mortgagee conduct is now heavily regulated and subject to statutory intervention. For example, the National Credit Code (‘the Code’),37 statutes granting relief for unfair contracts,38 the Australian Consumer Law39 and the Corporations Law40 provide courts with powers to set aside mortgages and guarantees (or clauses within mortgages and guarantees) on the basis of misleading and deceptive conduct and unconscionable and unfair conduct by a mortgagee.41 [10.46]

Under the Code (which applies to all financial products sold in Australia), an application can be made by a mortgagor to have a court reopen any transaction giving rise to a mortgage if the court is satisfied that, in the circumstances at the time the mortgage was entered into or amended, the mortgage was ‘unjust’.42 The Code defines ‘unjust’ as including ‘unconscionable, harsh or oppressive’.43 Further, injustice can arise from the terms themselves or from their operation in the particular circumstances, or because unfair practices or methods were used to make the contract, or all of these things.44 A court can consider injustice arising from circumstances that were not reasonably foreseeable when the mortgage was entered into or varied.45 If a court finds the mortgage or guarantee to be unjust then, in determining whether or not to grant relied, a court can consider the conduct of the parties in relation to the mortgage or guarantee since it was entered into or varied as well.46

[10.47]

A court has power to determine whether a mortgage or guarantee is unjust both at the time it was entered into and when it was varied. The Code also mandates that a court is to have regard to the ‘public interest’ and to all the circumstances of the case, and may have regard to the following (s 75): (a) the consequences of compliance, or noncompliance, with all or any of the provisions of the contract, mortgage or guarantee;

(b) the relative bargaining power of the parties; (c) whether or not, at the time the contract, mortgage or guarantee was entered into or changed, its provisions were the subject of negotiation; (d) whether or not it was reasonably practicable for the applicant to negotiate for the alteration of, or to reject, any of the provisions of the contract, mortgage or guarantee or the change;

[page 175] (e) whether or not any of the provisions of the contract, mortgage or guarantee impose conditions that are unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of a party to the contract, mortgage or guarantee; (f)

whether or not the debtor, mortgagor or guarantor, or a person who represented the debtor, mortgagor or guarantor, was reasonably able to protect the interests of the debtor, mortgagor or guarantor because of his or her age or physical or mental condition; (g) the form of the contract, mortgage or guarantee and the intelligibility of the language in which it is expressed; (h) whether or not, and if so when, independent legal or other expert advice was obtained by the debtor, mortgagor or guarantor; (i) the extent to which the provisions of the contract, mortgage or guarantee or change and their legal and practical effect were accurately explained to the debtor, mortgagor or guarantor and whether or not the debtor, mortgagor or guarantor understood those provisions and their effect; (j)

whether the credit provider or any other person exerted or used unfair pressure, undue influence or unfair tactics on the debtor, mortgagor or guarantor and, if so, the nature and extent of that unfair pressure, undue influence or unfair tactics; (k) whether the credit provider took measures to ensure that the debtor, mortgagor or guarantor understood the nature and implications of the transaction and, if so, the adequacy of those measures; (l)

whether at the time the contract, mortgage or guarantee was entered into or changed, the credit provider knew, or could have ascertained by reasonable inquiry at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship; (m) whether the terms of the transaction or the conduct of the credit provider is justified in the light of the risks undertaken by the credit provider; (n) for a mortgage--any relevant purported provision of the mortgage that is void under section 50; (o) the terms of other comparable transactions involving other credit providers and, if the injustice is alleged to result from excessive interest charges, the

annual percentage rate or rates payable in comparable cases; (p) any other relevant factor. [10.48]

The doctrine of unconscionability adopted by the Code, the relevant provisions of the Corporations Law and the Australian Consumer Law, in the area of unconscionable conduct and unfair contracts, goes further than the general law doctrine of unconscionability,47 meaning that more contracts (and clauses within contracts) [page 176] can be set aside or amended under these laws than under the general law doctrines discussed earlier.

Rights of the mortgagee [10.49]

There are several remedies available to a mortgagee when a mortgagor defaults on repayment of the loan moneys or breaches any other covenant of the mortgage. The most common of these are: the right to sue on the mortgage covenants; the right to take possession of the mortgaged property; the right to improve the mortgaged property; the right to appoint a receiver; the right to foreclose; and the power to sell the mortgaged property.

[10.50]

With the exception of foreclosure, the remedies are cumulative in the sense that the mortgagee is entitled to resort to them concurrently. The relevant statutory position reflects the common law remedies noted above. These apply

whenever a mortgage is by deed or the mortgage is registered.

Right to sue on the personal covenant [10.51]

Independently of the security interest that a mortgagee holds in the mortgaged property, the mortgagee may sue on the ‘personal covenant’; that is, to the right under the loan contract to recover any money due, or for any other default by the mortgagor. This right continues even where the security has been discharged.48 This simply reflects the dual nature of a mortgage as both a contract and an interest in land. Thus, a mortgagee can sue to recover money owed under the mortgage if the proceeds of a mortgagee sale are insufficient to cover the mortgagee’s loss. [page 177]

Right to possession Old System Title land [10.52]

As discussed, a mortgagee’s right to possession is an incident of the legal title obtained by the legal mortgagee. So, a first mortgagee of Old System Title land has a right to enter and retake possession of the property unless precluded by some term in the mortgage contract to the contrary. The right to possession is not dependent on default by the mortgagor but arises upon the execution of the mortgage deed.49 An equitable mortgagee of Old System Title land has no incidental right to possession. The rights of a first mortgagee take priority.

[10.53]

In practice, a mortgagor is usually allowed to remain in

possession, with provision being made in standard mortgage deeds to recover possession from the mortgagor in the event of default by the mortgagor. As discussed above, the mortgage deed usually includes an ‘attornment clause’50 in which the mortgagor declares herself or himself to be a tenant to the mortgagee for the duration of the mortgage. [10.54]

Even in the case of default, it is rare for a legal mortgagee to take possession of the property. The appointment of a receiver is usually a better option. There are several practical reasons for this, including: the responsibility for running and maintenance of the property is not something that most mortgagees are in a position to take; the right to possession is exercisable only for the purposes of protecting the security and a mortgagee must account to the mortgagor for any benefit obtained beyond what is due.51 The duty to account is far stricter for a mortgagee in possession than for an appointed receiver; and a mortgagee in possession is liable for any profit lost due to wilful default. This imposes an onerous duty on the mortgagee to assume reasonable care and responsibility for the physical state of the premises.

Torrens land [10.55]

As discussed, the nature of a registered Torrens mortgage means that a mortgagee of Torrens land has no inherent right to possession.52 However, the mortgage instrument generally provides that the mortgagee is entitled to take possession upon the mortgagor’s default or breach of the agreement. This is also the statutory position;53 however, the statutory remedy is only available where there has been a failure to

[page 178] meet repayments of money owed under the mortgage and not for other defaults. The mortgagee may recover possession from either the mortgagor or, where the property has been leased, from the mortgagor’s tenant.

Right to improve the property [10.56]

A first mortgagee of Old System Title land is entitled, as legal owner, to protect and maintain the security interest, and may spend money improving the mortgaged property. Expenses required to put the security into a saleable condition can be claimed back from the mortgagor. However, expenses which do not go to enhance the value of the property may not be claimed.54 A mortgagee’s interest is primarily that of a creditor, which limits the mortgagee’s right to improve the property. A mortgagee must not change the character of the property, since the mortgagor is entitled (upon redemption of the mortgage) to have the property back substantially as it was when it was mortgaged. Nor is the mortgagee permitted to burden the property with a debt which effectively acts as a restriction on the mortgagor’s ability to redeem the property, because an increase in the mortgagor’s financial burden could be regarded as a clog on the equity to redeem.

Right to appoint a receiver [10.57]

In all jurisdictions in Australia, whenever a power of sale is exercisable the legal mortgagee also has an implied statutory power to appoint a receiver to manage the mortgaged property and generate income to repay the mortgage debt.

[10.58]

The mortgagee’s power to appoint a receiver must be justified in the circumstances and should only be exercised in order to recover the secured debt or to realise the security. The function of a receiver is to manage the property as agent for the mortgagor. It is sometimes the preferred option for a mortgagee when a sale of the mortgaged property would not return sufficient funds to discharge the mortgage debt, or when the mortgagee has no interest in taking possession. This is especially relevant where the secured property is income-producing, such as a farm. The remedy is attractive to the mortgagee because the receiver is regarded as an agent of the mortgagor and, as such, the mortgagor is responsible for any default or neglect of the receiver.55 However, if the mortgagee directs or intervenes unduly with the receiver’s activities, the receiver will be regarded as the mortgagee’s agent and the mortgagee is then liable for actions of the receiver carried out on the mortgagee’s behalf. [page 179]

[10.59]

One benefit to a mortgagor that follows from the agency arrangement between the receiver and the mortgagor is that the receiver must not sacrifice the mortgagor’s interests. In Inkhorn Pty Ltd v Herbert [2000] WASCA 333 the court at [21] set out the duties of a receiver as follows: (1) A receiver managing mortgaged property owes duties to the mortgagor and anyone else with an interest in the equity of redemption. (2) The duties of a receiver include, but are not necessarily confined to, a duty of good faith. (3) The extent and scope of any duty additional to that of good faith will depend on the facts and circumstances of the particular case. (4) In exercising the powers of management the primary duty of the receiver is to try and bring about a situation in which interest on the secured debt can be paid and the debt itself repaid. (5) Subject to that primary duty, the receiver owes a duty to manage the

property with due diligence. (6) Due diligence does not oblige the receiver to continue to carry on a business on the mortgaged premises previously carried on by the mortgagor. (7) If the receiver does carry on a business on the mortgaged premises, due diligence requires reasonable steps to be taken in order to try to do so profitably.

Power to foreclose [10.60]

Foreclosure is the mortgagee’s power to extinguish the mortgagor’s equity of redemption and become the full legal and equitable owner of the secured property. In practical terms, it is an alternative to the power of sale. It operates as if the mortgagee becomes the unencumbered owner of the property by buying the mortgagor’s interest for the precise amount of the outstanding mortgage debt. The problem with this remedy is that, if the mortgagee chooses to foreclose, the mortgagee is not entitled to recover any shortfall from the mortgagor if the value of the property is not sufficient to cover the debt owed by the mortgagor under the mortgage.56 In Australia, this consideration makes it unlikely that a mortgagee will foreclose other than in circumstances in which it is clear that the value of the property is such that a mortgagee sale is likely to recover the amount of mortgage debt.

Old System Title land [10.61]

In respect of Old System Title land, foreclosure begins as an application to the relevant court for an interim order directing an account of what is due by the mortgagor and directing payment within a stipulated time (usually within six months). After expiry of [page 180]

that time, if the mortgagor has not paid, the mortgage will be foreclosed. The interim order becomes an order absolute if the mortgagor fails to make the necessary payment by the stipulated time. Such a procedure is also available to equitable mortgagees.57 [10.62]

Foreclosure orders may be re-opened by a court in very limited situations. In some jurisdictions, a court may re-open a foreclosure order at the suit of a mortgagor claiming that she or he was prevented from redeeming the mortgage before the order absolute because of illness, accident, mistake or fraud.58 If a foreclosure order is re-opened, the mortgagee is entitled to sue the mortgagor for the mortgage debt.

Torrens land [10.63]

Foreclosure for Torrens property is unusual in the case of a registered mortgage. Nevertheless, legislation permits it subject to several restrictions on the mortgagee.59 In most jurisdictions, it is the Registrar administering the Torrens Register, rather than a court, who has the power to make the order for foreclosure in favour of a registered mortgagee (upon application), after being satisfied that: the mortgagor has failed to repay principal or interest on the loan for six months in spite of a month’s notice by the mortgagee; and the property was offered for sale by auction and the highest bid obtainable was insufficient to satisfy the mortgage debt and costs.

[10.64]

The effect of the foreclosure order is to vest title of the property in the mortgagee free of the mortgagor’s equity of redemption.

Power of sale [10.65]

When a mortgagor defaults, generally a mortgagee chooses to sell the property and apply the proceeds to recover the debt due. The mortgagee’s power to sell the mortgaged property is the most common remedy for several reasons: the procedure is expeditious and relatively simple compared to other remedies (such as foreclosure or taking possession); the sale of the property to the third party purchaser vests an unconditional fee simple estate in the purchaser (which means free of the mortgagor’s equity of redemption); and unlike foreclosure, the mortgagor is still liable to the mortgagee for any shortfall between the proceeds obtained from the sale of the property and the outstanding mortgage debt and may be sued by the mortgagee for the balance of moneys owing. [page 181]

[10.66]

Most mortgages provide for a power of sale to be exercised by the mortgagee. If the mortgage document contains an express power of sale, it usually provides that breach of any covenant in the mortgage will permit the mortgagee to exercise the power of sale. If the power of sale is implied by statute, then only certain types of default by the mortgagor enable the mortgagee to exercise the statutory power of sale. This basis for the implied statutory power of sale varies from jurisdiction to jurisdiction throughout Australia (see [10.68]–[10.73]).

Implied power of sale

[10.67]

[10.68]

For Old System Title land, and for any unregistered mortgage of Torrens land, if the mortgage agreement does not provide for a power of sale, then a clause permitting such a sale arises by implication.60 Old System Title land Most jurisdictions provide a wide statutory basis for the exercise of the power of sale. For example, s 111(2)(a) of the Conveyancing Act 1919 (NSW) provides that a mortgagee shall not exercise a power to sell the secured property unless default has been made in any of the following:61 the observance of a covenant, agreement or condition expressed or implied in the mortgage; the payment, in accordance with the terms of the mortgage, of the principal, interest or other money the payment of which is secured by the mortgage; or the payment, in accordance with the terms of the mortgage, of any part of that principal, interest or other money.

[10.69]

Torrens land A registered mortgagee of Torrens land has an implied statutory power to sell the property upon default by the mortgagor.62 The exercise of the registered mortgagee’s power of sale is subject to a number of restrictions, which are dealt with at [10.74]–[10.98]. The Torrens statutes in each jurisdiction generally permit the exercise of the power of sale following default in payment of any part of the mortgage moneys, the payment of which is secured by the mortgage.63

[10.70]

One key requirement of the legislation (to exercise a power of sale) is the need for the mortgagee to comply with providing statutory notice of the default to the mortgagor. This is the act of default that the mortgagee relies upon in order to exercise the power of sale. As such, it forms the basis to exercise a power of sale. The relevant legislation

provides that the power of sale cannot be exercised until certain prerequisites are met [page 182] by the mortgagee. The prerequisites vary in each jurisdiction but, generally, written notice to the mortgagor is required after a specified period of default.

When can a power of sale be exercised? [10.71]

Old System Title land For Old System Title land, the situation changes depending upon whether the default by the mortgagor is a default in payment or another type of default. Basically, if the default is monetary in nature, the mortgagee cannot validly exercise the power of sale, even though the mortgagor may have defaulted on the payment of the whole or part of the principal, interest or any other money secured by the mortgage, unless the mortgagee has served written notice in accordance with the relevant legislation, requiring the mortgagor to repay the money within a period of one month. The notice basically informs the mortgagor that default has occurred and demands that it be remedied within a certain time, otherwise the mortgagee will sell the property. The written notice must fulfil this purpose (notwithstanding any inaccuracy in the sum stated to be outstanding). This provides a period of time to the mortgagor to remedy the default.

[10.72]

In the case of a non-monetary breach of covenant, notice must also be served in accordance with the legislation. However, if the breach is non-monetary, a court has a discretion to reduce or dispense with the notice requirements if the provisions of the mortgage permit it.64

[10.73]

Torrens land In the case of Torrens land, the source of the power of sale is found in the Torrens legislation.65 Written notice is always required in the case of a monetary default, but can be dispensed by agreement between the mortgagor and the mortgagee.66 In the case of mortgages governed by the National Credit Code, the mortgagee must also comply with the Code in providing notice of default and exercising any power of sale.67

Transaction must be a sale [10.74]

A power to sell means that the mortgagee must sell the property and not deal with it in any other way. So, a mortgagee is not entitled to make a gift of the property.68 Part of this requirement of the power of sale is that the sale must be a sale to someone other than the mortgagee, even though it is honestly made and for market value.69 However, the courts have allowed a sale from a mortgagee (in the capacity as an individual) to a corporation of which the mortgagee was a member/shareholder. [page 183] In that instance, the mortgagee has the onus of proving that the sale was a ‘truly independent bargain’.70

Duty imposed on mortgagee — standard of care [10.75]

Historically, there has been judicial and academic debate about the applicable standard of care owed by a mortgagee to the mortgagor at common law. This debate centred upon whether a mortgagee owed a duty to take reasonable care in affecting sale (usually referred to as the ‘negligence standard’) or whether the mortgagee owed a duty to act in

good faith (usually referred to as the ‘good faith standard’) (see [10.82]–[10.83]). In some jurisdictions, this question has been resolved by the introduction of specific sections of legislation which make it clear that the test is now the negligence standard.71 [10.76]

New South Wales In New South Wales, s 111A of the Conveyancing Act 1919 (NSW) requires a mortgagor to take reasonable care in exercising a power of sale to ensure that the land is sold at not less than its market value or, where the market value is not ascertainable, the best price that may reasonably be obtained in the circumstances.

[10.77]

Northern Territory Section 90(1) of the Law of Property Act (NT) provides that it is the duty of a mortgagee, in exercising the power of sale, to take reasonable care to ensure that the property is sold at its market value.

[10.78]

Tasmania and Victoria The legislation in these jurisdictions provides that the exercise of the power of sale must be in good faith, having regard to the interests of the mortgagor.72 The provision has been construed as imposing a duty on the mortgagee to take reasonable care to get a proper price for the land in the interests of the mortgagor. This generally requires appropriately advertising the proposed sale in order to sell the property at market price.73

[10.79]

In Goldcel Nominees Pty Ltd v Network Finance Ltd [1983] 2 VR 257, the ‘interests of the mortgagor’ included the mortgagor’s interest to see that the mortgagee take reasonable steps to sell at the best possible price available for the property. The court determines whether or not the requisite subjective element of good faith is satisfied, as well as the objective standard of reasonableness of conduct having regard to the mortgagor’s interest. However, in Upton v Tasmanian Perpetual Trustees Ltd (2007) 158 FCR 118; 242

ALR 422; [2007] FCAFC 57, the Full Federal Court found that the statutory language under the Tasmanian legislation added nothing to the ‘traditional equitable duty of good faith test’, and that this was the relevant test to be applied. [page 184] Yet, in the same year, the Victorian Court of Appeal in Vasiliou v Westpac Banking Corp (2007) 19 VR 229; [2007] VSCA 113 endorsed and applied the test set out by Lush J in Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 31374 to the effect that the statutory requirement brings together the concepts of an obligation to act in good faith and an obligation ‘akin to an obligation to exercise care’: at [23].75 Thus, in Victoria and Tasmania, the relevant test or standard to be applied to a mortgagee is still somewhat uncertain. [10.80]

Queensland Section 85 of the Property Act 1974 (Qld) provides that a mortgagee must take reasonable care to ensure that the property is sold at the market value. This has been seen as being more like the negligence test than the good faith test.76

[10.81]

Other jurisdictions All other jurisdictions in Australia are still subject to the High Court’s decisions regarding the applicable standard of care. These decided cases (which we will now examine) are still of some interest in those jurisdictions that have a statutory standard, since the cases that have been determined on the good faith standard are still relevant in understanding when a mortgagee will have acted in breach of both that standard and the negligence standard, simply because they provide examples of the sort of conduct by a mortgagee that a court regards as impermissible. It also follows that, in most cases in which

conduct would have amounted to a breach of a duty to act in good faith, such conduct usually falls short of the negligence standard. As noted, in Tasmania and Victoria, as well as the jurisdictions in which the common law supplies the relevant standard of conduct expected of a mortgagee, the prior judicial decisions remain relevant because the good faith test appears to be the applicable standard. [10.82]

Good faith standard This standard of care is traditionally associated with the judgment of Lord Herschell LC in Kennedy v De Trafford [1897] AC 180 to the effect that the mortgagee must exercise its power of sale in good faith, without any intention of dealing unfairly by the mortgagor and not dealing ‘wilfully or recklessly’ with the property in such a manner that the interests of the mortgagor are ‘sacrificed’ by the mortgagee. As long as there has been no corruption, bad faith or fraud by the mortgagee, the mortgagee sale will be upheld. This test was applied by the High Court of Australia in Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; 18 ALR 124.

[10.83]

The mortgagee is entitled to exercise the power of sale for the mortgagee’s own benefit and, in so doing, is not a trustee for the mortgagor, and is not exercising a fiduciary power.77 As a minimum requirement, the mortgagee must act honestly and in good faith. For example, in Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68, the mortgagee knew of another party interested in buying the property at a much [page 185] higher price, but nevertheless sold the property without notifying the competing purchaser. Such conduct was regarded as lacking good faith in the circumstances and breaching the required standard of care.

[10.84]

Reasonable care/negligence standard This standard of care evolved from the duty of care used in the tort of negligence. It is thought that the reasonable care/negligence standard is more objective, and imposes a higher standard of care upon a mortgagee, than a good faith test. The test also means that there is a positive duty on the mortgagee to ensure that the best price is obtained. It comes from a decision of the English Court of Appeal in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949. In that case, the mortgaged land had development permission for the erection of 35 houses and, potentially, a further 100 flats. In the advertising for the sale, the mortgagee failed to refer to the planning permission. The court found that had the advertising included the planning permission then the property would have sold for approximately £20,000 more than it did. Salmon LJ stated the test as being that a mortgagee ‘exercising the power of sale owes a duty to take reasonable precautions to obtain the true market value’ of the mortgaged property (which the mortgagee had breached in this case): at 968–9.

[10.85]

Current test at common law Since the High Court’s decision in Pendlebury, no High Court decision has dealt with the applicable test in any binding manner. In Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68, the mortgagee had not acted in such a way as to meet the good faith standard, so there was no need to consider the application of the negligence standard in the case. This was also the case in the High Court’s decision in ANZ Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; 19 ALR 519. The decision of the court in Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225 concerned the application of the statutory test in Queensland and, although the Justices expressed varying opinions as to the obligation at common law, none is

binding.78 As such, the position on the relevant standard at common law remains unclear. [10.86]

Corporations Act 2001 (Cth) s 420A If the mortgagor of property is a corporation, then s 420A of the Corporations Act 2001 (Cth) applies to the mortgagee sale. This section sets up a negligence-style standard of care and requires a ‘controller’ (mortgagee) to take all reasonable care to sell the property for ‘not less than its market value or, where no market value exists, for the best price that is reasonably obtainable having regard to the circumstances’ existing at the time that the property is sold. In Jovanovic v Commonwealth Bank (2004) 87 SASR 570; [2004] SASC 61, the court found that s 420A involved both an equitable duty to act in good faith and a statutory duty to maximise the sale price.79

[10.87]

As a practical matter, most mortgagees attempt to meet the reasonable care standard, particularly in the case of corporations that are operating nationally and are bound by that [page 186] higher standard in some jurisdictions. In this instance, it reflects good risk management and compliance to meet the higher standard across the business, irrespective of the standard that may be applicable within a particular jurisdiction. In other words, if a mortgagee meets a high standard in the jurisdictions which impose the reasonable care standard, it should, by default, meet the good faith standard in any event.

[10.88]

The debate about the relevant standard of care is probably of more interest to lawyers and legal academics than it is to

anyone operating in the day-to-day world of mortgage contracts. Most mortgagees are more interested in the practical application of these tests; that is, what the day-today requirements of carrying out a mortgagee sale are. Accordingly, we will now turn to what we can deduce from the applicable legislation and the decided cases as to what a mortgagee must do as a matter of practice in exercising a power of sale.

Practical aspects of exercising a power of sale [10.89]

Timing of sale A mortgagee can usually sell at a time that suits the mortgagee, even if waiting longer might have resulted in a greater sale price. This is because the main object of a mortgage is to enable the mortgagee to realise the debt against the security and recoup as much of the debt as possible. As such, the power of sale exists to secure the rights of the mortgagee and the mortgagee is entitled to think of its interests first. However, there are cases in which evidence was available that a market was improving in which mortgagees who failed to wait short periods of time before selling were found to have acted in breach of their duty.80

[10.90]

Appointment of an agent A mortgagee is liable for the acts of any agent appointed by it.81 In most instances, mortgagees will appoint real estate agents to conduct the sale, given that such agents have expertise in the marketing and sale of properties. Most mortgagees in Australia, particularly major corporations, appoint agents with sufficient expertise to conduct the sale on their behalf. In such instances, the mortgagee must still exercise some supervision of the agent to ensure that the mortgagee meets its duty of care (since the duty is non-delegable). In cases involving unique property, considerations such as the real estate agent’s particular expertise in the sale of such

properties is usually what a mortgagee is looking for in the appointment of any agent. For example, in the sale of rural properties it is usual for banks to appoint a real estate agent specifically experienced in the sale of rural properties, rather than metropolitan-based agencies which only have expertise in the sale of residential, metropolitan properties. Similarly, agents with expertise in the sale of commercial premises are often appointed for the sale of commercial properties. Even within the commercial arena, some agents specialise in particular sales, such as retail, office or industrial property. [10.91]

Advertising of the sale and setting reserves Normally, most of the practical concerns of a mortgagee in affecting sufficient advertising of the sale are dealt with [page 187] by the appointment of a suitably experienced agent. However, as the mortgagee cannot delegate the duty it owes to the mortgagor,82 most mortgagees conduct their own review of advertising created by a real estate agent to ensure that the salient features of the mortgage property are properly referred to. In particular, development potential of the mortgage property is often a relevant feature that can impact on the property’s value. As a practical matter, most mortgagees appoint a valuer prior to the appointment of any real estate agent or the conduct of any sale, to ensure that they have a sufficient, independent, expert opinion that gives them a guide as to the true value of the property and its relevant features. This enables the mortgagee to appropriately instruct its agents, to set a reserve price for the property and to ensure that advertising refers to any relevant features that add value to the mortgaged property. Someone needs to properly instruct both the valuer and any real estate

agent to ascertain these matters. In jurisdictions in which the reasonable care standard is imposed, obtaining a valuation is almost a matter of course by mortgagees that are major corporations. The cost of these valuations, and the cost of using a real estate agent, is normally added to the mortgagee’s costs of sale, which can be recouped out of the proceeds of any sale. In those circumstances, most mortgagees are usually as interested as the mortgagor in obtaining a good price for the property to ensure that both the mortgage debt and all costs are sufficiently met out of the proceeds of sale. [10.92]

In many instances of residential and commercial property in Australia, it is in the mortgagee’s best interest to obtain the best price they can for the property, as many mortgagor’s will not have sufficient assets (apart from the mortgaged property) to pay off any debt to the mortgagee. In that circumstance, the mortgagee would find itself in the position of an unsecured creditor for the remainder of the debt and would have to stand in line with every other unsecured creditor for whatever assets (or portion of assets) of the mortgagee as may be available. For that reason, irrespective of the legal requirements imposed on a mortgagee, a mortgagee is usually keen to maximise the sale price of the security. As such, there is little to be gained by not ensuring that advertising of the property is sufficient. Usually, apart from reference to the relevant features of the property, a mortgagee will ensure a sufficient period of advertising (on advice from the appointed real estate agent) as well as sufficient advertising in relevant locations. For example, there may be no point advertising the sale of property located in Western Sydney in New South Wales in a metropolitan newspaper in Melbourne. There are examples in which the insufficiency of advertising, either in terms of references to features of the property, the time period of the advertising campaign and/or the location of advertising has

been found to breach a mortgagee’s duty of care.83 However, it is a question of degree, and it is for this reason that most mortgagees take expert advice from valuers and sufficiently qualified real estate agents. [10.93]

In terms of setting a reserve for sale, most mortgagees are able to do this after having obtained a valuation. It is important that the reserve is not set so low that the property [page 188] sells at such a price that a court may regard the sale as one in which the interests of the mortgagor have been ‘wilfully or recklessly sacrificed’84 by the mortgagee. Similarly, setting a reserve too high, so that a property is passed in and sold later by private treaty (at a substantially decreased price), is also something that might breach the mortgagee’s duty.85

[10.94]

Expenditure on the property As part of realising a good price for the property, most mortgagees do ensure that property is presented in such a way that it is not ‘sacrificed’ at any sale. If a small outlay of funds would improve the sale price obtainable, and the expenditure can be recouped in the sale itself, courts have found that it is not justifiable for a mortgagee to avoid the expenditure. Again, this is a matter of degree, as a mortgagee is not expected to carry out substantial repairs merely because it would improve the value of the property and money could ultimately be recouped in a sale. However, if minor repairs and/or decoration can be carried out simply and cheaply, then a mortgagee may be expected to do so. Most mortgagee’s take advice from the appointed real estate agent (who may be associated with a range of tradespeople and interior decorators who can simply and cheaply improve the look and potential sale price of the property) in determining

whether to undertake the expenditure.

Orders to restrain a mortgagee from exercising the power of sale [10.95]

Mortgagor’s right to restrain an invalid or improper sale A mortgagor is entitled to restrain a sale where the mortgagee is invalidly or improperly exercising her or his power of sale.

[10.96]

Invalid exercise of the power of sale This refers to the circumstance in which the mortgagee never had a power of sale vested in the mortgagee in the first place, such as where there has, in fact, been no default by the mortgagor, or where the mortgagee has failed to comply with the statutory notice requirements. In these instances, the existence of a power of sale itself is under attack, and a court will not necessarily require the mortgagor to pay all the principal and interest claimed by the mortgagee as a condition of the grant of injunctive relief.86 Similarly, if a mortgagor seeks to rewrite the mortgage pursuant to a provision, such as s 87 of the Competition and Consumer Act 2010 (Cth) and s 18 of the Australian Consumer Law, a court may view the power of sale as being under challenge in the same way.87

[10.97]

Improper exercise of the power of sale This does not contest the power of the mortgagee to sell. Rather, the mortgagor argues that the mortgagee is doing so in an improper/inappropriate manner. In those instances, the mortgagor is generally required to pay to the mortgagee all the principal and interest that the mortgagee [page 189]

claims or pay the relevant amount into court as a condition of the grant of an injunction to restrain the mortgagee sale.88 [10.98]

If a mortgagee has already entered into a contract to sell the property, then whether or not a mortgagor can obtain an injunction will depend upon whether the purchaser from the mortgagee had notice of the impropriety of the exercise of the power of sale. If the third-party purchaser was in any way involved in the mortgagee’s breach of duty or had notice of that breach, such knowledge normally entitles the mortgagor to an injunction to prevent the completion of the transaction.89 In the case of Torrens land, where the purchaser has already obtained registration of the purchase, then the argument is to have the transaction set aside as an exception to indefeasibility.90 If the transaction has not yet reached settlement, then the mortgagor is usually entitled to an injunction to prevent the completion of a sale to a tainted purchaser.91

Distribution of proceeds of sale [10.99]

Generally, in the case of Old System Title land, the proceeds of the sale by a mortgagee must be held in trust by the mortgagee to pay the costs of the sale. The balance is then to be used to recoup the mortgagee’s loan, plus any interest and costs. Any money left over is to be paid to the person entitled to the mortgaged property. Subsequent mortgagees are then paid in order of priority. In the absence of other claims, the remaining sum must be handed over to the mortgagor or, where appropriate, paid into court pending final determination of any legal proceedings. In the case of Torrens land, the general principle regarding the application of proceeds follows the Old System Title position. Where there is a dispute as to what payments should be made, a mortgagee should pay the money into court pending the court’s decision.92

Protection of the mortgagee’s purchaser [10.100]

Legislation protects a bona fide purchaser from claims by the mortgagor when buying from a mortgagee who sells land in exercise of a power of sale. There are two limbs to the protection. First, the purchaser is not required to enquire whether a case has arisen to authorise the sale; that due notice has been given; or that the power of sale is otherwise regularly exercised. Second, the purchaser’s title to the property acquired [page 190] is unimpeachable where: (a) the mortgagor claims that the power of sale has been improperly exercised; (b) no case had arisen to authorise the sale; (c) due notice was not given; (d) leave of the court, if required, was not obtained; or (e) the power was otherwise improperly or irregularly exercised.93 Subject to the recognised exceptions, the registered purchaser from a mortgagee exercising a power of sale obtains the benefits that indefeasibility confers on the registered owner, and the purchaser will thereby take free from any interest of the mortgagor. The position regarding unregistered transfers is governed by the ordinary rules of priority (see Chapter 7).

Possession of title deeds by mortgagee [10.101]

Although equity regards a mortgagor as the owner of the mortgaged property, the mortgagee takes possession of the title deeds as owner at law (or as registered mortgagee of Torrens land). Similarly, where there is an equitable mortgage by way of deposit of title deeds, the equitable mortgagee is entitled to retain possession of the title deeds

until the outstanding debt is repaid.

Other rights of mortgagee [10.102]

The rights of the mortgagor are usually severely restricted by the mortgage contract. It is common practice for a mortgage deed to contain a clause requiring the mortgagee’s consent to be obtained before the mortgagor may deal with the land in any way. This covers the mortgagor’s right to sell, renovate or lease the property after the commencement of the mortgage. The position is similar for both Old System Title and Torrens land. In addition to statutory provisions, the terms of the mortgage generally require the mortgagee’s consent to the mortgagor leasing the secured property. The subsequent lease would generally be subject to the mortgage and would not bind the mortgagee unless the mortgagee had consented to the lease.94 Where such consent is not obtained, the mortgagor is in default and the balance of the money owing under the mortgage may become immediately due and payable following the mortgagor’s unauthorised dealing with the land.

__________________________ 1

Such as guarantees, in which payment of the debt of the mortgagor is guaranteed by a third party. 2 This can include personal property as well as real property. For the purposes of this text, we are only concerned with mortgages over real property. 3

Conveyancing Act 1919 (NSW) s 23B(1); Law of Property Act 1936 (SA) s 28(1); Conveyancing and Law of Property Act 1884 (Tas) s 60(1); Property Law Act 1958 (Vic) s 52(1); Property Law Act 1969 (WA) s 33(1). 4 Civil Law (Property) Act 2006 (ACT) s 201; Law of Property Act (NT) s 9(1); Property Law Act 1974 (Qld) s 10(1). 5

Land Titles Act 1925 (ACT) s 93(1); Real Property Act 1900 (NSW) s 57(1); Land Title Act (NT) s 76; Land Title Act 1994 (Qld) s 74; Real Property Act 1886 (SA) s 132; Land Titles Act 1980 (Tas) s 73; Transfer of Land Act 1958 (Vic) s 74(2); Transfer of Land Act 1893 (WA) s 106(1). 6 English, Scottish & Australian Bank Ltd v Phillips (1937) 57 CLR 302; [1937] ALR 104. 7

Land Titles Act 1925 (ACT) s 57(1); Real Property Act 1900 (NSW) s 41(1); Land Title Act (NT) s 184; Land Title Act 1994 (Qld) s 181; Real Property Act 1886 (SA) s 67; Land Titles Act 1980 (Tas)

s 49(1); Transfer of Land Act 1958 (Vic) s 40(1); Transfer of Land Act 1893 (WA) s 58. 8 Which provides that ‘[n]o dealing, until registered in the manner provided … shall be effectual to pass any estate or interest in land …’. 9 Barry v Heider (1914) 19 CLR 197; 21 ALR 93. 10

This is an agreement which is yet to be performed by the parties. 11 That is, in the manner required by applicable statutes or the common law as the case may be. 12

See Spooner v Sandilands (1842) 1 Y & C Ch Cas 390; 62 ER 939; Eyre v McDowall (1861) 9 HL Cas 619; 11 ER 871. This is usually referred to as an application of the rule in Walsh v Lonsdale (1882) 21 Ch D 9; that is, where a court of equity would grant the remedy of specific performance of the contract to the mortgagee. 13 J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546; [1972] ALR 323. 14

This remedy is an order that prevents the mortgagor from redeeming the mortgage. 15 Conveyancing Act 1919 (NSW) s 96; Law of Property Act (NT) s 82; Property Law Act 1974 (Qld) s 80; Conveyancing and Law of Property Act 1884 (Tas) s 18; Property Law Act 1958 (Vic) s 96. 16

This refers to the creation of a landlord and tenant relationship between the mortgagor and the mortgagee. It means that the mortgagee is being treated as a landlord who is giving possession of the property to the mortgagor for the duration of the mortgage. 17 Such an arrangement ensures that the mortgagee’s inherent right to possession (in the event of default) remains unaffected by the mortgagor’s contractual right to occupy the mortgaged property. In order to take possession of the property upon the mortgagor’s default, the mortgagee still needs to exercise rights of re-entry. 18

Land Titles Act 1925 (ACT) s 96; Real Property Act 1900 (NSW) s 60; Land Title Act (NT) s 80; Law of Property Act (NT) Pt 7; Land Title Act 1994 (Qld) s 78(2); Law of Property Act 1974 (Qld) Pt 7; Real Property Act 1886 (SA) s 137; Land Titles Act 1980 (Tas) s 82; Transfer of Land Act 1958 (Vic) s 78; Transfer of Land Act 1893 (WA) s 111. 19 Transfer of Land Act 1958 (Vic) s 81(1); Transfer of Land Act 1893 (WA) s 116. However, these rights come to an end upon registration of a transfer of sale: Figgins Holdings Pty Ltd v SEAA Enterprises Pty Ltd (1999) 196 CLR 245; 162 ALR 382; [1999] HCA 20. 20

Land Titles Act 1925 (ACT) s 96; Real Property Act 1900 (NSW) s 60; Land Title Act (NT) s 80; Law of Property Act (NT) Pt 7; Land Title Act 1994 (Qld) s 78(2); Law of Property Act 1974 (Qld) Pt 7; Real Property Act 1886 (SA) s 137; Land Titles Act 1980 (Tas) s 82; Transfer of Land Act 1958 (Vic) s 78; Transfer of Land Act 1893 (WA) s 111. 21 Hyde Management Services Pty Ltd v FAI Insurances Ltd (1979) 144 CLR 541; 24 ALR 435. 22

For example, Conveyancing Act 1919 (NSW) s 93. 23 It is not always clear whether the registered fee simple owner of Torrens land who grants a registered mortgage should be properly described as having an equity of redemption in addition to the registered fee simple. The mortgagor’s right to a discharge of mortgage upon the payment of the due sum under the mortgage has been referred to as ‘a personal right to redeem’: Re Australia and New Zealand Banking Group Ltd [1993] 2 Qd R 477 at 481. 24

Stern v McArthur (1988) 165 CLR 489; 81 ALR 463 at CLR 527. 25 Samuel v Jarrah Timber and Wood Paving Corp Ltd [1904] AC 323 at 327 per Lord Macnaghten. 26 27

Fairclough v Swan Brewery Co Ltd [1912] AC 565. Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 at 61 per Lord Parker.

28

See Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 404; [2009] NSWSC 7; Morgan v Jones [2001] EWCA Civ 995; Warnborough v Garmite Ltd [2003] EWCA Civ 1544; Re Modular Design Group Pty Ltd v CDG (Canberra) Pty Ltd (1994) 35 NSWLR 96; Wily v Endeavour Healthcare Services Pty Ltd (2003) 12 BPR 22,447; [2003] NSWCA 321. But see Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (in liq) (1998) 71 SASR 161. 29 See also Modular Design Group Pty Ltd v CDG (Canberra) Pty Ltd (1994) 35 NSWLR 96; Epic Feast Pty Ltd v Mawson KCM Holdings Pty Ltd (in liq) (1998) 71 SASR 161; Lift Capital Partners Pty Ltd v Merrill Lynch International (2009) 73 NSWLR 404; 253 ALR 482; [2009] NSWSC 7. 30

Although the susceptibility of such a provision to equitable intervention was, however, well established: at [136]. 31 Such as issuing bankruptcy notices or commencing legal proceedings for an action for recovery of a debt. 32

Wanner v Caruana [1974] 2 NSWLR 301. 33 See [10.38]. 34

For a good, simple summary of relevant equitable principles in this area, see Radan, Stewart and Lynch, Butterworths Tutorial Series: Equity and Trusts, 2nd ed, LexisNexis Butterworths, Sydney, 2004, Chs 12, 13. For a more detailed text, see M W Bryan and V J Vann, Equity and Trusts in Australia, Cambridge University Press, Port Melbourne, Vic, 2012, Ch 7. 35 Approved by a majority in Garcia v National Australia Bank Ltd (1998) 194 CLR 395; 155 ALR 614; [1998] HCA 48. 36

Yerkey v Jones (1939) 63 CLR 649; [1939] ALR 62 at CLR 685. 37 National Consumer Credit Protection Act 2009 (Cth) Sch 1. 38 39

For example, Contracts Review Act 1980 (NSW). Competition and Consumer Act 2010 (Cth) Sch 2.

40

Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA(1), 12CB. 41 See, for example, National Credit Code s 77. 42 43

National Credit Code ss 76–78. National Credit Code s 76(8).

44

Esanda Finance Corp Ltd v Murphy (1989) ASC ¶55-703 (interpreting the previous equivalent section of the Consumer Credit Code); Apple Computer Australia Pty Ltd v Mekrizis (2003) 44 ACSR 518; [2003] NSWSC 126. 45 Custom Credit Corp Ltd v Lynch [1993] 2 VR 469; (1993) ASC ¶56-201. 46

National Credit Code s 76(5). 47 See Australian Competition and Consumer Commission (ACCC) v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; 197 ALR 153; [2003] HCA 18; West v AGC (Advances) Ltd (1986) 5 NSWLR 610; Custom Credit Corp Ltd v Lupi [1992] 1 VR 99; (1991) ASC ¶56-024; Custom Credit Corp Ltd v Gray [1992] 1 VR 540; (1991) ASC ¶56-096; McKenzie v Smith; Lenehan v Smith (1998) ASC ¶155-025. 48

The position is different if the mortgagee has foreclosed on the mortgage. The nature of foreclosure is such that the mortgagee is deemed to have taken the property in full satisfaction of the debt and outstanding costs. Unless the mortgagee agrees to re-open the foreclosure, there is no right to sue on the personal debt where the mortgagee has foreclosed. In some states,

foreclosure is deemed to have discharged the mortgage debt and extinguished the equity of redemption: see Conveyancing Act 1919 (NSW) s 100; Property Law Act 1958 (Vic) s 87(1); Property Law Act 1969 (WA) s 53. 49 Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 318 at 320. 50 See above n 17. 51 52

Fyfe v Smith [1975] 2 NSWLR 408. Since the mortgage operates as a statutory charge, the mortgagor retains the legal estate and possession as an incident of the legal estate.

53

Land Titles Act 1925 (ACT) s 96; Real Property Act 1900 (NSW) s 60; Land Title Act (NT) s 80; Law of Property Act (NT) Pt 7; Land Title Act 1994 (Qld) s 78(2); Real Property Act 1886 (SA) s 137; Land Titles Act 1980 (Tas) s 82; Transfer of Land Act 1958 (Vic) ss 78, 81; Transfer of Land Act 1893 (WA) ss 111, 116. 54 Land Titles Act 1925 (ACT) s 96; Real Property Act 1900 (NSW) s 60; Land Title Act (NT) s 80; Law of Property Act (NT) Pt 7; Land Title Act 1994 (Qld) s 78(2); Real Property Act 1886 (SA) s 137; Conveyancing and Law of Property Act 1884 (Tas) s 21(1)(c); Land Titles Act 1980 (Tas) s 82; Property Law Act 1958 (Vic) s 101(1)(c); Transfer of Land Act 1958 (Vic) ss 78, 81; Transfer of Land Act 1893 (WA) ss 111, 116; Property Law Act 1969 (WA) s 57(1)(c). 55

Civil Law (Property) Act 2006 (ACT) s 309; Conveyancing Act 1919 (NSW) s 115(2); Law of Property Act (NT) s 96(2); Property Law Act 1974 (Qld) s 92(2); Law of Property Act 1936 (SA) s 53(2); Conveyancing and Law of Property Act 1884 (Tas) s 26(2); Property Law Act 1958 (Vic) s 109(2); Property Law Act 1969 (WA) s 65(2). 56 In New South Wales, Victoria and Western Australia, upon foreclosure, the mortgage debt is discharged: Conveyancing Act 1919 (NSW) s 100; Property Law Act 1958 (Vic) s 87; Property Law Act 1969 (WA) s 53. In these jurisdictions, a foreclosure order seems to be final, whether the secured property is Old System Title or Torrens Title land. 57

Civil Law (Property) Act 2006 (ACT) s 301; Conveyancing Act 1919 (NSW) s 103(2); Law of Property Act (NT) s 99; Property Law Act 1974 (Qld) s 99(2); Law of Property Act 1936 (SA) s 44(2); Conveyancing and Law of Property Act 1884 (Tas) s 27(2); Property Law Act 1958 (Vic) s 91(2); Property Law Act 1969 (WA) s 55(2). A court, in its discretion, may order a judicial sale of the property instead of foreclosure upon the application of either the mortgagor or mortgagee. 58 Campbell v Holland (1877) 7 Ch D 166. 59

Land Titles Act 1925 (ACT) s 97; Real Property Act 1900 (NSW) ss 61–62; Land Title Act (NT) s 85; Land Title Act 1994 (Qld) s 78(2)(c); Real Property Act 1886 (SA) s 140; Land Titles Act 1980 (Tas) s 85; Transfer of Land Act 1958 (Vic) s 79; Transfer of Land Act 1893 (WA) s 121. 60 Provided there is no contrary intention in the contract. See, for example, Conveyancing Act 1919 (NSW) s 109(3). 61

See also Civil Law (Property) Act 2006 (ACT) ss 301–304; Law of Property Act (NT) ss 86–88; Property Law Act 1974 (Qld) ss 84–89; Law of Property Act 1936 (SA) ss 49–50; Conveyancing and Law of Property Act 1884 (Tas) ss 22–24; Property Law Act 1958 (Vic) ss 103–106; Property Law Act 1969 (WA) ss 60–62. 62 Land Titles Act 1925 (ACT) s 94; Real Property Act 1900 (NSW) s 58; Land Title Act (NT) s 80; Law of Property Act (NT) Pt 7; Land Title Act 1994 (Qld) s 78(1); Real Property Act 1886 (SA) s 133; Land Titles Act 1980 (Tas) s 78; Transfer of Land Act 1958 (Vic) ss 76–77; Transfer of Land Act 1893 (WA) s 108.

63

For example, see Real Property Act 1900 (NSW) s 57(2)(a). Upon default, the mortgagee is required to serve a notice on the defaulting mortgagor.

64

Commonwealth Bank of Australia v Tugvale (1993) NSW ConvR 55-687. This legislation operates in conjunction with the provisions for Old System Title mortgages for any unregistered Torrens mortgage.

65 66

Real Property Act 1900 (NSW) s 57; Law of Property Act (NT) s 90; Land Title Act 1994 (Qld) s 78; Property Law Act 1974 (Qld) s 84; Land Titles Act 1980 (Tas) s 77. 67 National Credit Code s 88. 68

Davey v Durrant (1857) 44 ER 830. 69 Farrar v Farrars Ltd (1888) 40 Ch D 395 at 409. 70

ANZ Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 19 ALR 519 at 544. The High Court has refused to set aside a sale to a clerk of the mortgagee bank following a genuine but unsuccessful auction: see Sewell v Agricultural Bank of Western Australia (1930) 44 CLR 104. The relevant statutes usually give the mortgagee the flexibility to sell by public auction or private sale. 71 For example, Conveyancing Act 1919 (NSW) s 111A. 72 73 74 75

Land Titles Act 1980 (Tas) s 78(1); Transfer of Land Act 1958 (Vic) s 77(1). Harrison v ANZ Banking Group (1999) V ConvR 54-600; Vasiliou v Westpac Banking Corp (2007) 19 VR 229; [2007] VSCA 113. Approved in Goldcel Nominees Pty Ltd v Network Finance Ltd [1983] 2 VR 257. See also Harrison v ANZ Banking Group (1999) V ConvR 54-600; National Australia Bank Ltd v Jenkins (1999) V ConvR 54-601.

76

Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225. 77 Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225. 78 79

As the case was determined on the application of the statutory test in the legislation. The statutory duty was at least as extensive as the equitable duty to act in good faith. Gray J stated that the duty may be to take all reasonable care. Approved in Forston Pty Ltd v Commonwealth Bank of Australia (2008) 100 SASR 162; [2008] SASC 49.

80

See, for example, Dimmick v Pearce investments Pty Ltd (1980) 43 FLR 235. 81 Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68. 82 83

84 85

86

Commercial and General Acceptance Ltd v Nixon (1981) 152 CLR 491; 38 ALR 225. For example, Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; 18 ALR 124; Australia and New Zealand Banking Group v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195; 19 ALR 519. Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676; 18 ALR 124. Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1966] ALR 775. It should be noted, however, that in Latec the sale was to a wholly-owned subsidiary of the mortgagee.

87

Harvey v McWatters (1948) 49 SR(NSW) 173. Kowalczuk v Accom Finance Pty Ltd [2007] NSWCA 225.

88

Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161 at 164.

89

Lukass Investments Pty Ltd v Markaroff (1964) 82 WN (NSW) (Pt 2) 226.

90

Under either the fraud or the in personam exceptions to indefeasibility of title. Forsyth v Blundell (1973) 129 CLR 477; 1 ALR 68. It is not clear whether a registered proprietor may lodge a caveat against its own title: see Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870. Whether a mortgagor who claims to have grounds to set aside a sale has an interest in the land sufficient to support a caveat depends on whether the alleged right (being the equity to set aside the transaction) is classified by a court as being an equitable interest or a ‘mere equity’: as to which, see Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1966] ALR 775 at CLR 284, 289 (discussed at [7.18 to 7.22]). The Supreme Court of Victoria has held that such a claim by the mortgagor is a personal equity which does not support the lodgment of a caveat: Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672. For a recent application of this decision, see Commonwealth Bank of Australia v Kyriackou (2003) V ConvR 54-674; [2003] VSC 175.

91

92 93

94

Xenos v National Australia Bank Ltd [2007] NSWSC 973. Civil Law (Property) Act 2006 (ACT) s 304; Conveyancing Act 1919 (NSW) s 112(3); Law of Property Act (NT) s 92; Property Law Act 1974 (Qld) s 87(1); Law of Property Act 1936 (SA) s 49(2); Conveyancing and Law of Property Act 1884 (Tas) s 81(2); Property Law Act 1958 (Vic) s 104(2); Property Law Act 1969 (WA) s 60(2). Land Titles Act 1925 (ACT) s 84; Real Property Act 1900 (NSW) s 53(4); Land Title Act (NT) s 80; Land Title Act 1994 (Qld) s 66; Real Property Act 1886 (SA) s 118; Land Titles Act 1980 (Tas) s 64; Transfer of Land Act 1958 (Vic) s 66(2); Transfer of Land Act 1893 (WA) s 91. In most jurisdictions, similar safeguards are also provided to the purchaser of Torrens land: see Land Titles Act 1925 (ACT) s 95; Real Property Act 1900 (NSW) s 58(2); Land Title Act (NT) s 81; Land Title Act 1994 (Qld) s 79; Real Property Act 1886 (SA) s 136; Land Titles Act 1980 (Tas) s 77(4); Transfer of Land Act 1958 (Vic) s 81; Transfer of Land Act 1893 (WA) s 110.

[page 191]

CHAPTER 11

Leases

Key Ideas By the end of this chapter you should be able to identify: the difference between a lease and a licence the essential elements of a lease the types of leases that can be created and how formal requirements for the creation of leases key rights and obligations of lessors and lessees under a lease when certain types of leases can be enforced under the Torrens legislation how assignments and subleasing work remedies available to both lessors and lessees for breach of a lease retail leases residential leases

[page 192]

Introduction [11.1]

A lease or tenancy describes a lessee’s right to occupy and enjoy the use of land for a period of time.1 The lessee is the person to whom the lease is granted. The lessor is the person who grants the interest to the lessee; she or he is usually the fee simple holder of the leased premises. The main right conferred by a lease is the right of the lessee to enjoy exclusive possession of the leased property, including the right to exclude the lessor from possession of the leased property. This is the key feature that differentiates a lease from a licence. In this respect, a lease confers more than a right to access a property pursuant to a contract; it confers an interest in the property itself in the lessee. Courts allow both lessors and lessees access to a series of remedies that are available only to persons who hold a leasehold interest in land. In this sense, a lease is a proprietary interest. The interest in the land arises out of the contractual arrangement between the lessor and lessee. A lease maintains the duality of both its proprietary and contractual characteristics. Today, how leases are classified may be of little interest to many since, for all intents and purposes, courts treat leases as interests in land and make proprietary remedies available to any party who is in the position of lessor or lessee.

[11.2]

Just like the law of mortgages, many leases are now subject to statutory intervention. For around the past 40 years in particular, many legislative reforms have taken place which affect the operation of leases, including reforms in the area of retail and residential leasing, unfair contract terms and misleading and deceptive conduct under consumer

protection legislation. This chapter will deal primarily with basic common law concepts relating to leaseholds. It does not attempt to review the specialised law in relation to residential and retail leasing. This chapter is divided into the following sections: terminology; essential elements of a lease; types of leases; formal requirements for the creation of leases; standard rights and obligations under lease contracts; assignments and subleasing; and remedies. [page 193]

Terminology [11.3]

Before we consider leases in any detail, we need to examine some of the basic terminology used in this area.

Leasehold interest or estate [11.4]

A ‘leasehold interest’ is the estate taking effect in possession that a lessor grants to a lessee. ‘In possession’ simply means that the right to possession of the property has been granted to the lessee to take effect immediately.

Lease [11.5]

The agreement under which the grant of a leasehold interest is made is referred to as a ‘demise’, ‘lease’ or ‘tenancy’. ‘Demise’ is generally found in judicial statements and rarely

appears today in legal or ordinary use. ‘Lease’ and ‘tenancy’ are referred to interchangeably, although ‘lease’ is usually used by lawyers. ‘Tenancy’ is an older term, often used to mean the same thing as ‘lease’.

Terms of the lease [11.6]

The rights and duties, or obligations, of lessors and lessees are found in the lease agreement in contractual clauses. When a clause applies to land, it is referred to as a ‘covenant’. A lease may contain both proprietary covenants (which can be assigned, as they relate to the land) and personal covenants (clauses of the lease that only apply to the original parties to the lease — so cannot be assigned).

Assignments of the reversion, assignments of the lease and subleases [11.7]

The proprietary interest retained by the lessor in the leased land is referred to as a ‘leasehold reversion’ or ‘reversionary estate or interest’ or, simply, ‘the reversion’. A lessor may assign her or his reversionary interest in the leased property. If a lessor does so during the term of the lease, the lessor’s successor in title is known as the ‘assignee of the reversion’.

[11.8]

A lessee may also assign her or his lease interest. A lessee may deal with her or his leasehold interest either by ‘assignment’ or by creating a ‘sublease’. An assignment is a disposition of the lessee’s whole interest in the premises, being the remaining term of the lease. In an assignment, the assignee of the lease effectively steps into the position that was once occupied by the original lessee. In contrast, a sublease is created when a lessee retains a reversionary interest in the lease. She or he does this by not disposing of the entire leasehold estate that was granted to her or him under the lease; that is, by not disposing of the entirety of

the remaining lease term, but only [page 194] a part of it.2 It is an objective question as to whether or not a lessee has created an assignment or a sublease. For example, even if parties intended to create a sublease, an assignment will be created if the lessee transfers the whole of the remaining term of the lease.3 However, an assignment of part of the term of the lease only creates a sublease, precisely because it does not dispose of the entirety of the lessee’s interest in the lease.4 A sublease itself operates as a new lease, creating a new lessor/lessee relationship between the lessee (known now as the ‘sublessor’) and the ‘sublessee’. These classifications will be examined in more detail at [11.65].

Essential elements of a lease [11.9]

In Chapter 2 we learned that leases are estates and that they are classified into four main categories: fixed-term lease (term of years); periodic lease; tenancy at will; and tenancy at sufferance.

[11.10]

Later in this chapter, we will examine how each of these leases are created. We first need to consider the fundamental elements that must exist for any lease to be created. Because leases are interests in land, they are said to lie ‘in grant’. In other words, even though a lease is created by a contract, the lease contract must evidence an intention by the parties to

create an interest in the land (a grant), not just a right to access property ‘on terms’; the former is a lease, the latter is a licence. For a lease to exist, two things must be present: the grantor of the leasehold interest (the lessor) must have given to the grantee (the lessee) the right of exclusive possession of the leased premises to the lessee; and that right must have been granted to the lessee for a defined period, or for a period that is capable of being defined (the ‘term’).

Right of exclusive possession [11.11]

A lease does not exist unless the lessee has been granted the right of exclusive possession of the leased premises by the lessor.5 Courts will imply the existence of a lease whenever an agreement confers a right to exclusive possession to the lessee, for a term, and where the rent6 is determinable.7 Exclusive possession is more than just the sole or exclusive occupation of the premises. The right gives the lessee control of [page 195] the premises together with a right to exclude all others from the property, including the lessor. This right is subject only to any (limited) rights of entry by the lessor that are set out in the lease agreement.8

[11.12]

In working out whether the parties have created a lease or a licence, courts examine the terms of the lease agreement, to determine whether that agreement grants the occupant the right to exclusive possession of the premises.9 The terms of the agreement are considered in order to ascertain the intention of the parties. For example, if the terms of the

agreement make it clear that rights of exclusive possession can only be enjoyed by the lessee, then a court will find that a grant of exclusive possession has been made and that a lease has come into existence.10 Courts determine whether the parties have created a lease on an objective basis. For example, in Radaich v Smith (1959) 101 CLR 209; [1959] ALR 1253, the agreement between the parties was referred to as a ‘licence’. It described the parties as ‘licensor’ and ‘licensee’. It also purported to confer on the licensee the ‘sole and exclusive licence and privilege’ to supply refreshments from a defined portion of the premises and to carry on the business of a milk bar. The High Court examined all the circumstances surrounding the creation of the agreement between the parties, including the nature of the premises, the nature of the business conducted on the premises and the nature of the lessee’s responsibilities as occupier of the premises, and found that, despite the use of the terms ‘licence’, ‘licensor’ and ‘licensee’ in the agreement, the parties had in fact intended to confer a right of exclusive possession. Accordingly, a lease had come into existence.

Rights of re-entry [11.13]

In Radaich v Smith (1959) 101 CLR 209; [1959] ALR 1253, Windeyer J noted that a reservation within an agreement to the lessor of a limited right of entry to the premises11 was not necessarily inconsistent with a grant of exclusive possession: at 222. Whether or not a lease has been created is a question of the extent of interference created by those rights with any right that is argued to create a right of exclusive possession. For example, if an alleged lessor is granted a broad right to re-enter the premises ‘without notice and at any time and for any purpose’, then the right conferred upon her or him might be regarded as being so extensive as to indicate that she or he never granted a right of exclusive possession to any other person. In these

circumstances, a court would find that no lease has been created. [page 196]

Lease vs licence: does it matter? [11.14]

As we have seen, it is the right to exclusive possession of property that distinguishes a lease from a licence. The lease gives the lessee a proprietary interest in the premises occupied, whereas a contractual licence gives a licensee a personal right to occupy the premises. Sometimes, this right can be a right of exclusive or sole occupation. Both agreements may involve the payment of money in exchange for the right to occupy premises for a fixed period of time. In the case of a lease, those payments are referred to as ‘rent’. In the case of a licence, they are referred to as the ‘licence fee’. Does it matter how we classify these interests, given that both are dealt with under ordinary rules of contract12 and appear to confer similar rights to occupy premises? In the calculation of damages, the remedies available to parties to either a lease or a licence are identical. Further, courts have the power to grant injunctions to prevent licensors from revoking or acting upon the revocation of the licence.13 Does this suggest that the significance of the distinction between a lease and a licence is of limited relevance?

[11.15]

The answer to the importance of the continued distinction between leases and licences may be that it is a matter of: (1) what remedies may be ordered by a court; and (2) what context the question of whether something is a lease or a licence is raised in. It is still important to determine whether an occupier of land has a lease or a licence, because a lessee is entitled to the ‘incidental rights’ of a lessee, which include

the right to sublet or assign the lease. In practice, and particularly in the case of commercial leases, these can be extremely valuable rights. In addition, a licensee is not entitled to sue a licensor in trespass for entering the land in breach of the licence. A lessee, on the other hand, can, because she or he has a right to exclusive possession (including the right to exclude the lessor), and can also sue in damages and to obtain an injunction whenever that right has been (or is threatened to be) interfered with. Further, certain proprietary remedies, such as the remedy of re-entry and forfeiture, are usually contained in a lease, which remedies do not necessarily exist in the case of a licence.14 For leases, rights of re-entry and forfeiture apply to any lease relationship, generally because they are implied under legislation. This does not necessarily occur if a licence has been created. [11.16]

Apart from available remedies, whether or not an agreement creates a lease or a licence remains relevant in the determination of priorities disputes for both Old System Title and Torrens Title land. For example, in New South Wales, only a leasehold relationship is protected by s 42(1) (d) of the Real Property Act 1900 (NSW). Further, when we consider the types of interest that can be protected by the lodgment of a caveat, only a lessee has the right to lodge a caveat, since she or he holds an interest in the land. A licensee only holds a right in relation to the land, which is not [page 197] a caveatable interest. So, the question of whether a relationship is a lease or a licence remains relevant, depending on the context in which the question arises.

Certainty of duration [11.17]

Certainty of duration refers to the requirement that the exact date of commencement of the lease, as well as the date of its intended end (the term), must: be known; or be reasonably capable of being ascertained, before the commencement of the lease. For example, a clause that provides that the lease is to be ‘for such term as Leonnie might specify’ is valid as long as Leonnie does specify the term prior to the commencement of the lease. In contrast, a lease that is expressed to be for a period ‘until the land is required by the Council for road widening purposes’ is invalid, because it is not an agreement of ‘determinate occupation’.15 In Raymond Pemberton v Milivoj Dimitrijevic [2001] NSWSC 54, Bergin J found that a termination date set in an agreement ‘at fourteen days after registration of the proposed plan of subdivision’ was too uncertain, because the registration of any plan was dependent upon advice or consent of the Minister and subsequent approval by the Council: at [35]. Since the dates of those events were unascertainable, and uncertain prior to commencement of the lease, the lease was void for uncertainty of duration. The important factor in these types of decisions is that the maximum period of the lease must be known, or be capable of becoming known, prior to the date of commencement of the lease. The fact that a lease can be cut short by the occurrence of uncertain events (for example, by breach of the lease by one of the parties that leads the other to terminate the agreement) does not mean the lease is void for uncertainty of duration.

[11.18]

Even for Torrens land, registration of the lease does not cure the problem of uncertainty.16 Registration of the lease only

confers such indefeasibility as is conferred by the interest that is being registered. If that interest is not, in fact, a lease, then the act of registration does not make it so.

Classification of leases [11.19]

Now that we have considered some of the basic requirements for a lease, let’s examine in more detail the different types of leases that can be created. As we have noted, there are four categories of leasehold estates: fixed-term lease (term of years); periodic lease; tenancy at will; and tenancy at sufferance. [page 198]

[11.20]

The four categories of leases and their key features can be summarised as follows. Table 11.1: Categories and key features of leases Lease type Arises when Fixed-term lease

Expressly created (orally or in writing. Maximum duration of lease ascertainable.

Key features Automatically expires at end of term. Might convert to one of the other three forms of lease at the end of the lease term. Can be terminated prior to end of lease period only if lease provides or where there is a fundamental breach. Is an interest in land — is assignable.

Periodic lease

Expressly created and pursuant to agreement lessee enters into possession and pays rent by reference to a period; or by implication where a lessee enters into possession and pays rent by reference to a period; or where a lessee holds over following expiry of a fixed-term lease.

Does not end until one of the parties provides notice. Notice required corresponds to the length of the period of the lease. At common law, 6 months’ notice is required to terminate a yearly periodic lease.17 Is an interest in land — is assignable.

Tenancy at will

Lessee remains in possession at end of fixed-term lease. Lessee enters into possession of premises with lessor’s consent but without paying rent. In New South Wales, under Conveyancing Act 1919 (NSW) s 127.

Indefinite period until either party ends lease (without notice). Exception under legislation when 1 month’s notice must be provided. Not an interest in land — not assignable. Lessee not obliged to pay rent but must compensate lessor for use of premises.

Tenancy at sufferance

Occupier in possession without the consent of the owner.

Not really a lease at all. Person in possession is a trespasser/adverse possessor. Not an interest in land — not assignable. Lessee not obliged to pay rent but must compensate owner for use of premises.

Fixed-term lease [11.21]

A fixed-term lease is a lease that is created expressly (either in writing or orally) for any fixed period of time. The key feature of a fixed-term lease is that its maximum duration is certain or ascertainable. Sometimes, a fixed-term lease is referred to as a lease ‘for a term of years’. A fixed-term lease can be terminated by the lessor prior to the end of the fixed term if the lessee breaches the lease or if the lease contains a clause

[page 199] for earlier determination of the lease. Otherwise, at common law, a fixed-term lease automatically ends at the expiration of the fixed period. At that point in time, the lessor can deal with the property unless the lessee has also secured and exercised an option to renew the lease. Options to renew the lease are fairly common in commercial leases.

Periodic lease [11.22]

A periodic lease is a lease that continues indefinitely, from one period to another, until determined by proper notice by the parties. For example, a periodic lease may run from year to year, month to month, fortnight to fortnight, week to week, or even from day to day.19 The intention of the parties usually determines the period of the lease. In the absence of an express intention, a court will imply the period of the lease by reference to the period by which rental payments are calculated. Thus, rent calculated at a monthly rate, even if it is payable in weekly instalments, would create a monthly periodic lease (determinable upon provision of one month’s notice). Rent calculated at a weekly rate, but payable monthly, would create a weekly lease. Where a lessee ‘holds over’ (that is, remains in possession of the leased premises as a lessee) at the end of a fixed-term lease of one year and pays rent, then a yearly lease is presumed to arise by the fact that rent is paid ‘by reference to a year, or aliquot part of a year’.20

[11.23]

A periodic lease can be created by express agreement of the parties or by implication. Creation by express agreement may be oral (by a verbal agreement) or by way of deed. It is more common for periodic leases to be created by a verbal agreement. A periodic lease arises by implication in two

situations: when the lessee has entered into possession of the premises and pays the rent to the owner when negotiating a fixed-term lease or enters into the premises and pays rent pursuant to a fixed-term lease which is defective or otherwise invalid at common law.21 The act of possession by the lessee, together with payment of rent to the lessor, gives rise to a periodic lease at common law. An equitable lease is also created in this instance by the existence of a specifically enforceable contract for a fixed-term lease;22 and where a lessee under a fixed-term lease remains in possession (that is, ‘holds over’ in possession) after the expiration of the fixed-term lease. In this case, the lessee is bound by the terms of the original fixed-term lease. [11.24]

Unlike a lessee under a fixed-term lease, a periodic lessee is not required to vacate the rented premises at the end of each period, since the lease continues from period to period unless and until either party gives appropriate notice. Except in the case of a yearly lease, the period of notice that must be provided by either [page 200] party to end the lease usually corresponds with the length of the period of the lease. The termination of a periodic lease therefore coincides with the end of a complete period.23 For example, if Anne has a monthly lease, the notice she must give is 1 month, so as to expire at the last day of the current period of the lease.24 At common law, for a yearly periodic tenancy, 6 months’ notice is required to terminate the lease.25

Tenancy at will [11.25]

A tenancy at will is created when a lessee remains in possession at the end of a fixed-term lease, or when a prospective lessee takes possession during a negotiation period of a lease, provided that she or he has entered into possession of the premises with the lessor’s consent but without paying rent. Once the lessor accepts rent, the tenancy becomes a periodic lease. A tenancy at will may also arise where a purchaser of property goes into possession under such an arrangement prior to settlement of the purchase.26 Since no rental is agreed between the parties, the relationship carries with it an obligation to pay a fair and reasonable rental.27 Although rent is not payable under a tenancy at will, the lessee is liable to compensate the lessor for use and occupation of the premises.

[11.26]

In a tenancy at will, the lessee, without payment of rent and with the lessor’s consent, enjoys exclusive possession of the land for an indefinite period. Either the lessor or the lessee may terminate the arrangement without prior notice (as would be required under a periodic tenancy).28 A tenancy at will is terminated by any relevant indication by either party that it is their will that the lease comes to an end. The notice may be given expressly or by an external event (for example, the death of a party or the conveyance by a party of the leased premises). Once a lessor gives notice, the lessee is allowed a reasonable time to vacate the premises.29 A tenancy at will confers no interest in the land. It is merely a personal right, or a relationship between the owner and the occupier of land under which the occupier may remain in possession during the will of the owner. A tenancy at will is therefore inalienable (not capable of being assigned). It terminates automatically at the death of either the lessor or the lessee. Unless previously determined, a tenancy at will is deemed to expire 12 months after its commencement.30

[page 201]

Tenancy at sufferance [11.27]

A tenant at sufferance is an adverse possessor of land, whose original entry onto the premises was lawful. A tenancy at sufferance describes the situation in which a lessee wrongly continues in exclusive possession of premises, without the lessor’s consent, following the expiration of a previous lease. It differs from a tenancy at will because the lessor does not consent to the continued presence of the lessee.31 A tenant at sufferance is not obliged to pay rent, but the lessor is entitled to compensation for the lessee’s use and occupation of the premises.32

Creation of leases — formal requirements [11.28]

The creation of leases is subject to a range of different formalities. Unfortunately, there is no easy way to group these requirements and, like mortgages, you will need to learn the different rules in order to understand when a lease has been created and what type of lease it is. Generally, the formalities for the creation of leases differ, depending on various matters, including: the nature of the lease created;33 whether the leased premises are of Old System Title or Torrens Title land; and whether the lease is a legal lease or an equitable lease.

[11.29]

The key requirements for creating legal leases and equitable leases under Torrens Title or Old System Title land can be generally summarised as follows.

Table 11.2: Key requirements for creation of legal and equitable leases Old System Title

Torrens Title

At law

Deed of Conveyance (except in the Australian Capital Territory, Northern Territory and Queensland, where a written instrument is sufficient). In New South Wales under Conveyancing Act 1919 (NSW) s 127. Under legislation where market rent paid, lease takes effect in possession and lease is for a term of 3 years or less.

Lease in registrable form. In the Australian Capital Territory, the Northern Territory and Queensland, a lease for any term can be granted and registered. In New South Wales, South Australia, Tasmania, Victoria and Western Australia, only leases for a minimum term of over 3 years can be granted and registered.

In equity

Agreement to grant a lease (either evidenced in writing or through sufficient acts of part performance). Unsuccessful attempt to grant a lease (failure of writing).

Agreement to grant a lease (either evidenced in writing or through sufficient acts of part performance). Unsuccessful attempt to grant a lease (failure of writing).

[page 202]

Legal leases Old System Title [11.30]

Generally, a legal lease of Old System Title land must be created by deed. In the Australian Capital Territory, the Northern Territory and Queensland, a written instrument is sufficient.34 In New South Wales, the Northern Territory, Queensland, South Australia, Victoria and Western Australia, a legal lease is also created where a lessee pays market rent under an oral lease which ‘takes effect in possession’ and is for a fixed term of three years or less.35 These rules apply to both fixed-term and periodic leases.

Torrens title [11.31]

Registered leases In the Torrens system, it is registration of a lease that passes the equivalent of legal title to the leasehold estate.36 Leases created in approved form may be registered in all Australian jurisdictions under the Torrens legislation, although there are differences between jurisdictions as to the minimum length of the term of a lease which may be granted and registered. The legislation in the Australian Capital Territory, the Northern Territory and Queensland does not stipulate a minimum term of the lease that may be either granted or registered. In the other jurisdictions, the minimum term of the lease that may be granted must exceed 3 years, and a lease for a term of 3 years or less is not registrable.37

[11.32]

The extent of indefeasibility afforded to a registered lessee does not cover all of the covenants contained in the lease; it only covers those that are regarded as an ‘incident’ of the lease, or ‘integral to the subject matter’ of the lease. For example, an option to renew a registered lease has been held to be such a covenant, and the renewed lease derives indefeasibility from the registered lease containing the option to renew.38 However, an option to purchase the property that is contained in a registered lease may not be an incident of the lease, but treated by a court as a separate and independent interest conferred under the lease (which therefore does not derive indefeasibility by reason of registration of the lease).39 [page 203]

Equitable leases

[11.33]

Under both Old System Title and Torrens Title, an equitable lease may be created in writing.40 If the requirement for writing has not been met, the interests in land created orally have the effect of interests at will only. This means that any oral lease is determinable in the same way as a periodic lease.41 Although the legislation throughout Australia is not identical, it effectively operates to enforce an oral agreement where the lease ‘takes effect in possession … for a term not exceeding three years … at the best rent which can be reasonably obtained without taking a fine’.42

[11.34]

If a lease fails to satisfy the formal requirements for the creation of a legal lease, it may nevertheless take effect as an equitable lease where a specifically enforceable agreement for a lease exists.43 The formal requirements for a specifically enforceable agreement for a lease require ‘some memorandum or note … in writing’.44 Alternatively, an oral agreement supported by sufficient acts of part performance might also suffice.45 The rationale for the equitable doctrine which recognises the existence of an equitable lease is that equity ‘looks on that as done which ought to have been done’ and also looks to the intent of the parties rather than the form.46

Unregistered equitable leases in Torrens land [11.35]

In the case of Torrens land, an unregistered instrument will generally give rise to an equitable lease, in accordance with the general principles relating to the creation of equitable interests just discussed.47

Unregistered legal leases in Torrens land [11.36]

Entry into occupation of leased premises, followed by payment of rent under an agreement for a future lease, brings into existence a common law tenancy from year to

year, so long as the payment of rent is referable to a yearly tenancy. Such leases would probably retain the same status as they would under general law. This means that some unregistered leases in Torrens land may be classified as legal leases. [page 204] [11.37]

In some jurisdictions, this classification of a lease appears to have little practical significance, particularly where such leases are enforceable against a current owner of the property despite not having been registered. For example, in Victoria, the interest of any lessee in possession takes priority over any subsequently registered interest.48 However, the protection afforded against registered proprietors is not necessarily effective against a subsequent unregistered interest. In such a case, priority goes to the party who is regarded as having the better equity in the circumstances. The breadth of the Victorian provision is not replicated in any other Australian jurisdiction, and there is no uniformity to the extent to which an unregistered tenant in possession is protected.49 In New South Wales, only a lease of up to three years, where the lessee is in possession or has a right to immediate possession,50 is protected, but only where the subsequently registered proprietor had actual or constructive notice prior to the time at which she or he took her or his purchase interest in the property.51 In Queensland, it is the interest of a lessee under a ‘short lease’ that is protected; that is, a fixed-term lease for less than three years or ‘from year to year or a shorter period’.52 In the Northern Territory, protection is offered to a lessee of a short lease who is in actual possession.53 In South Australia, protection extends to a lessee in possession under a lease for a term not exceeding 1 year.54 In Western Australia, the

protection relates to any prior unregistered lease, or agreement for lease, for a term not exceeding 5 years to a lessee in actual possession.55

Rights and obligations of lessors and lessees [11.38]

The rights and obligations of lessors and lessees can come from a range of sources. They may be contained in the contract itself (express covenants), implied by the common law, or implied by legislation into the leasehold relationship. In the next section, we examine the main covenants that are implied into a lease by the common law and by key statutes.56 Where the covenant is implied under legislation, it usually cannot be contracted out of by the parties. Covenants implied by the common law can be contracted out of by the parties, but it is common for these covenants not to be so, or for such contracts to be expressly incorporated by the parties into the express terms of the lease. The following table summarises the common covenants in leases and how they are implied. [page 205] Table 11.3: Implication of common lease covenants Covenants by lessor Covenants by lessee Implied by common law

Quiet enjoyment Non-derogation from grant Business efficacy

Use in a tenant-like manner Deliver up possession at end of lease Pay rent Business efficacy

Implied by statute

To repair To maintain in a state fit for habitation

To repair To allow lessor to inspect and repair To re-enter and forfeit upon non-

payment of rent Express covenants

To repair Against assignment of reversion

Other obligations

Duty of repair in tort

To repair Against assignment of lease or against subleasing

Covenants implied by the common law Lessor’s obligations [11.39]

Certain rights and duties of lessors and lessees are implied by the common law. As with all contracts, the covenants can only be implied if: (1) no statute covers the area to which the covenant relates; or (2) there is an express covenant in the lease agreement that deals with the same subject matter. The two main obligations of a lessor are not to interfere with the lessee’s possession and enjoyment of the leased premises and not to derogate from the grant.

[11.40]

Covenant for quiet enjoyment The covenant for quiet enjoyment requires a lessor to give the lessee ‘peaceful and uninterrupted possession’ of the leased premises.57 This covenant covers a range of disturbances, including direct and physical interruptions by the lessor or her or his agents,58 as well as any conduct that constitutes harassment of a lessee. For example, if a lessor cuts the heat or water supply to the leased premises, then she or he may be in breach of the covenant.59 If the lessee’s ordinary and lawful enjoyment of the leased premises is ‘substantially interfered with’ by the acts of the lessor or her or his agents, the covenant is breached.60 For example, in Martin’s Camera Corner v Hotel Mayfair [1976] 2 NSWLR 15, damage was caused to goods owned by the lessee situated in the leased premises by water which overflowed from blocked down pipes. The cause of the overflow was poor maintenance of

the down pipes. The court found that the extent of interference with the lessee’s use of the premises by the lessor (including the ability to store their trading stock) meant that there was a breach of the covenant of quiet enjoyment. [page 206] [11.41]

The covenant does not protect the lessee against interferences that were known to the lessee at the time of creation of the lease. In this sense, the covenant for quiet enjoyment is prospective in nature: it protects against future interference with the lessee’s peaceful possession of the premises, not factors that were known to her or him at the time she or he entered into the lease. For example, in Southwark London Council v Mills (1999) 3 WLR 939, the lessees alleged that there had been a breach of the covenant of quiet enjoyment, in circumstances where the lessees had moved into flats owned by a local council. The flats were older buildings, contained no insulation and the dividing walls were flimsy. The lessees complained about the noise levels from adjoining neighbours, such as doors opening and toilets flushing. The House of Lords found that the common law does not imply a warranty that premises are fit to live in, or fit for the purpose for which they are let. Rather, lessees take premises as they find them. Since the covenant for quiet enjoyment is prospective in nature, possession was not interfered with, since it could not apply to things done before the grant of the lease, even if those actions have consequences for lessees after the commencement date of the lease. The court found that conditions in a lease must be construed against the background of facts ‘reasonably known’ to lessees at the time of entering into the lease. Here, the lessees could have reasonably contemplated that there

would be other lessees in the flats, and that they needed to take the flats in the condition that they found them in, including the thin walls and the noise levels, which were known. This meant that they could not later complain of the reasonable use made by other lessees of their own flats. [11.42]

The result of the decision is that whether or not the covenant for quiet enjoyment is breached depends upon what the lessee could reasonably have contemplated as likely interference at the time of entering into the lease of the premises. It means that a lessee takes their interest subject to both the physical condition they find the leased premises in and subject to the uses which the parties must have contemplated would be made of other parts of the premises.61

[11.43]

Covenant not to derogate from the grant The covenant not to derogate from the grant means that a lessor must not do anything that renders the leased premises less fit for the purpose for which they were granted. This is a specific application of the general legal principle that a grantor must not derogate from the grant. The traditional view was that the covenant only applied to prevent a lessor from conducting adverse operations on adjoining premises.62 More recently, the principle has been applied where conduct on the leased premises itself derogates from the grant.63 In certain circumstances, a lessor may be held liable for breach by a third party of the lessee’s right to quiet enjoyment.64

[11.44]

There is substantial overlap in the cases in this area, between the covenant for quiet enjoyment and the covenant for non-derogation from the grant. Generally, acts that [page 207]

prejudice the fulfilment of the purposes of the lease will also constitute a breach of the covenant for quiet enjoyment. However, the covenant for non-derogation is, arguably, a broader covenant than the covenant for quiet enjoyment. The covenant is particularly relevant where the lessor retains adjoining premises, since a lessor may not do or permit on land not included in the lease any activity which will substantially interfere with the use of the leased premises or which frustrates the purpose for which the lessor knows the lessee is taking the premises (or is likely to use them). A lessor’s knowledge of the lessee’s purpose is determined in light of all the circumstances of which the lessor was aware at the time of the grant of the lease. For example, in Norden v Blueport Enterprises [1996] 3 NZLR 450, the lessors had leased the third floor of a premises to a lessee who operated a computer business. The lessors consented to an assignment of the lease of the fourth floor to an escort agency. The lessees of the third floor complained to the lessors about the use being made by the lessee on the fourth floor of the premises, including interference from unsavoury smells, showers running constantly, the use of whips and ‘occasional moaning’: at 450. There was also evidence that the lobby to the building could not be locked, and that this resulted in vomit and urine constantly being found in the lobby. The lessees argued that the lessors had breached the covenants for quiet enjoyment and nonderogation from the grant. The court found that the covenant not to derogate from the grant applied where leased premises would be rendered ‘unfit, or materially less fit by use’ by the lessor or another lessee of the lessor. Whether there was a derogation was a question of fact and degree, but the derogation must be ‘substantial’, not a ‘mere inconvenience’, although it need not amount to impossibility of use. A breach was made out on the facts, since there was a stigma associated with the use of the premises as a brothel and this interrupted the ability of the lessees to conduct their

business out of the premises.65 The court said that a breach of the covenant for non-derogation from the grant will often also constitute a breach of the covenant of quiet enjoyment, as a substantial interruption that prevents the lessee’s peaceful possession is also likely to amount to a breach of the covenant for quiet enjoyment. [11.45]

Liability for the acts of third parties As the facts in Norden suggest, an issue that often arises in disputes between lessors and lessees is the extent of a lessor’s liability for the actions of third parties, including the actions of other lessees of the same lessor. While there is no doubt that both the covenant for quiet enjoyment and the covenant for nonderogation of grant apply to actions of the lessor and her or his agents, the liability of a lessor for the actions of third parties is dealt with by the application of specific rules. In Norden, the lessors had argued that they were not liable for activities of another one of their lessees,66 and that to find otherwise would have the effect of making the lessors tortiously liable for a third party’s actions. The court found that if the lessor had in any way authorised, consented to or allowed the offending activities of the co-lessee, then they could be found to have breached the covenants of quiet enjoyment and non-derogation from the grant. The court also said that, since the lessors had consented to an assignment of the lease to the escort agency, [page 208] they had engaged in an act of endorsement of that lessee’s actions. In Southwark London Council v Mills (1999) 3 WLR 939, Lord Millett found that lessors could be found liable for nuisances committed by their lessees, so long as they participated in, or otherwise authorised, the offending

behaviour. Mere knowledge of a lessee’s offending behaviour was not sufficient to make a lessor liable. [11.46]

In Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1, a lessee argued that there had been a breach of the covenant of non-derogation from the grant in circumstances in which the lessor’s other lessee had created noise and dust from the manufacture of timber staircases. The evidence was that a wall on the level on which the co-lessee’s business was conducted did not go all the way to the ceiling. This meant that both sawdust and noise travelled to the upstairs premises, which were leased to a travel agency (by the same lessor). The court determined that a lessor could be liable for acts done on her or his land that create a nuisance (even though they may be done by a trespasser or result from natural causes) if she or he fails to take steps to eliminate or prevent them. The result is that, although a lessor generally loses control over premises once they are let to a lessee, she or he may nevertheless remain legally responsible for tortious acts done on the land by the lessee if, at least at the time at which she or he agreed to part with possession and control of those premises, it was reasonably foreseeable that the lessee was likely to commit the acts complained of. In this case, there was also a clause in the lease between the lessor and the stair manufacturer which provided that the lessee was ‘obliged not to do or permit any act or thing which might be a nuisance or cause damage or disturbance’ to any other lessee of the lessor. Accordingly, the court found that it had been open to the lessor to put a stop to the noise by the lessee for a breach of that condition. Instead, the lessor had declined, or failed, to do anything about the breach and, in those circumstances, was found to have adopted the nuisance created by the lessee and breached the covenant it owed to its other lessee (the travel agency). The lessor was therefore liable for the actions of the third party.

[11.47]

Other duties of a lessor — a duty to take reasonable care A lessor has a duty to take reasonable care to avoid a foreseeable risk of injury to lessees and members of a lessee’s household.67 In Jones v Bartlett (2000) 205 CLR 166; 176 ALR 137; [2000] HCA 56, the High Court found that a lessor owes a duty of care to lessees and visitors coming to the leased premises. The case involved injury caused to an occupant on the premises from glass. The glass complied with safety standards at the time at which the premises was built, but not later standards for new or replacement glass. However, the judgments of the members of the court differed and, as a result, it is not entirely clear what the scope of the duty owed by a lessor is. In Jones, the duty of care was discussed with respect to the condition of the premises at the date of commencement of the lease. It was not clear, however, whether there was a wider duty imposed on a lessor, being a duty to take reasonable care to avoid risk of harm altogether, or whether the duty was narrower in [page 209] scope, such as a duty to put and keep the leased premises in a condition of safe repair, or a duty to take reasonable care to avoid a foreseeable risk of harm where there was a defect of which the lessor had notice. In Jones, Gaudron J found that a lessor has a duty to take reasonable care to put and keep premises in a safe state of repair. This duty applied at the date of commencement of the lease, and extended to fixing existing defects that gave rise to a foreseeable risk of injury. After the date of commencement of the lease, a lessor only had to remedy defects of which the lessor was, or ought to have been, aware. In this case, her Honour found that there was no suggestion that the glass door was defective, so there was no need for the lessor to repair it at the commencement

of the lease. Gummow and Hayne JJ found that a lessor owes a duty to make premises ‘reasonably fit’ for the purposes for which they are let. For their Honours, the test was whether an ordinary use for that purpose would, as a matter of reasonable forseeability, cause injury to any person using the premises. That duty required a lessor not to let premises that suffer defects which the lessor knows of, or ought to have known of, be left unfixed. In other words, the lessor must make the premises safe for the use to which they will be put. Their Honours said the duty could be tested by adopting the following approach: (1) Was there a dangerous defect present when the premises were let? (2) Was reasonable care taken by the lessor to ascertain what defects existed before the premises were let? (3) Was reasonable care taken by the lessor to remove the defect or otherwise make the premises safe? [11.48]

Their Honours stated that this duty was owed to a lessee and other entrants onto the leased premises, but only dangerous defects of which lessor knew of, or ought to have known of, could be within the scope of the duty after commencement of the lease.

[11.49]

The New South Wales Court of Appeal applied the reasoning in Jones in Sakoua v Williams (2005) 64 NSWLR 588; [2005] NSWCA 405. In Sakoua, the respondent brought proceedings against the appellants, who were the owners of a residential property that she had rented. The lessee had fallen down some stairs on the property when closing a screen door. There was no handrail on the stairs and she had fallen onto the stump of a tree that lay at the bottom of the stairs. The respondent alleged that the appellants had been negligent in failing to provide safe access to the premises, and that the absence of a handrail or landing on the stairs,

and the presence of a tree stump in the vicinity of the stairs, made them unsafe. She also argued that the stairs were uneven and that shrubs had encroached upon them and impeded safe access to the leased premises. [11.50]

The three members of the court did not agree as to what the appropriate standard of care imposed upon a lessor should be. Mason P and Brownie AJA decided that a lessor of residential premises owes a duty of care to an incoming lessee, which included a duty to repair, but that duty does not go beyond addressing defects of which the lessor is aware, or ought to have been aware, at the commencement of the lease. For their Honours, changes in building standards did not themselves impose a duty to upgrade leased premises. The issue was whether there were visible defects at the date of commencement of the lease. Their Honours found that, in this case, the [page 210] stairs were built in accordance with building practices in the 1950s (when the stairs were originally built). Although their Honours agreed that the relevant date to assess the safety of the stairs was at the date of commencement of the lease, the lessor was entitled to take into account the history of safe usage of the stairs, including that there was no suggestion in this case that the stairs were unsafe prior to the commencement of the respondent’s lease. Further, any deficiencies in the stairs were sufficiently obvious such that any user of the stairs ought to have seen them and taken due care.

[11.51]

Beazley JA decided that the duty was slightly broader, finding that a lessor is under an obligation at the commencement of the lease to ensure that the premises are

reasonably safe for the purposes for which they are let; that is, a lessor has a duty to take reasonable care to avoid foreseeable risk of injury. This means that a lessor owes a duty to keep premises in safe repair beyond the date of construction of the premises. It did not matter that there was no breach of building standards at the time the stairs were originally built, since the question was whether they were reasonably safe at the time of the commencement of the lease. The trial judge had found that they were unsafe and her Honour could not find any error in the trial judge’s reasoning on this point. Her Honour found that the design of the stairs was contrary to good building practice for the previous two decades, and that there ought to have been a landing and a hand rail for the stairs. Further, there was evidence of the unsafe condition of the stairs as a matter of ‘ordinary observation’: at [65]. The fact that there had been no known accidents did not matter in that assessment, which should have been undertaken by the lessor at the date at which the premises were leased.

Lessee’s obligations [11.52]

The key implied covenant that applies to a lessee is to use the leased premises in a ‘tenant-like manner’. This requires a lessee to take proper and reasonable care of the premises so as not to damage leased premises, either wilfully or negligently.68 The covenant is often said to contain both positive and negative duties. Positive duties include carrying out minor repairs; negative duties include not intentionally or negligently causing damage to the premises.69

[11.53]

A lessee also has an implied duty to yield up possession of the leased premises at the termination of the lease. This requires the tenant to restore possession to the lessor, not merely to vacate the premises. For example, if a sublessee

refuses to give up possession, the head lessee will be liable to the lessor in damages for any loss of rent and the legal expenses connected with eviction.70 In Waterhouse v Waugh [2003] NSWCA 139 it was found that the presence of a substantial quantity of rubbish on the premises, which substantially interfered with the enjoyment of the right to possession of a substantial part of the premises, was capable of being a breach of the lessee’s obligation to deliver up vacant possession: at [52]. [page 211] [11.54]

Covenants implied by necessary implication Covenants are also implied into leases at common law in order to give ‘business efficacy’ to the agreement. This accords with the usual principles for the construction of contracts. For example, in Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381, the court found that a covenant was implied into the lease agreement between the parties to the effect that the lessor had an obligation to keep lifts and escalators to the leased premises working in the same manner and to the same extent as they were working at the commencement date of the lease. The lessee ran a restaurant on the top floor of the building and had provided evidence of a severe downturn in custom as a result of the lifts and escalators not working properly. The court said that the covenant imposed on the lessor was necessary to give business efficacy to the lease, since the covenant was needed to achieve the bargain struck by the lease; that is, the operation of a commercial premises in circumstances in which easy access to the premises was a key factor in the business operated out of the premises.

Covenants implied by statute

[11.55]

Legislation throughout Australia implies covenants into lease relationships. Most of these implied covenants operate to the benefit of the lessor, except in the case of retail and residential leases, where most covenants operate to protect the lessee. Some of the key covenants implied by standard legislation on leasing in Australia include: the covenant to repair by the lessee: this is usually to the effect that the lessee will yield up possession of the premises in a state of good and tenantable repair;71 rights of entry: this is an implied covenant to enable the lessor to inspect the premises to ascertain its condition;72 rights of re-entry: these clauses can be significant, since they allow a lessor to exercise a right or re-entry and forfeit the lease upon the occurrence of certain events (usually the non-payment of rent after the provision of notice to the lessee of an intention to re-enter);73 and the covenant by the lessee to pay rent, taxes and rates for the premises.74 [page 212]

Covenants against assignment or subletting [11.56]

Fixed-term and periodic leases provide an inherent right to transfer either the lessor or the lessee’s interest in the lease. In the case of the lessee’s interest in the lease, the right of alienability is to assign her or his entire interest (assignment) or to transfer some of her or his rights to a third party (sublease).75 This means that, if parties to a fixedterm or periodic lease want to restrict the right of either party to assign their interest,76 an express term restricting assignment or subleasing needs to be contained in the lease agreement. These covenants against assignment fall into

two classes: absolute prohibitions on assignment or subletting; and qualified prohibitions on assignment or subletting. [11.57]

The most common covenants against assignment restrict the right of the lessee to assign (or sublet) her or his interest. It is less usual to find covenants against assignment of the lessor’s interest.

[11.58]

Absolute prohibitions on assignment An absolute prohibition (covenant) on assignment or subletting of the lessee’s interest prohibits the lessee from doing either of those things. Any assignment or sublease will constitute a breach of the lease. However, covenants against subletting are construed as being an assignment against parting with possession of the entirety of the leased premises. Courts have found that subletting part of premises does not breach that covenant unless the covenant expressly extends to not subletting any part of the premises.77 A covenant against parting with possession is breached if a lessee assigns the lease.78 Where a lessee breaches a covenant against assignment or subletting, the lease does not automatically come to an end. The lessor must still make an election as to what she or he wishes to do in light of the lessee’s breach. The concept of election is discussed at [11.85].79

[11.59]

Qualified covenants against assignment A qualified prohibition (covenant) on assignment or subletting limits how the lessee can deal with her or his interest. These clauses usually prevent assignment or subletting without the lessor’s prior consent to the assignment or sublease. In some jurisdictions, whenever a lessor’s consent is required, legislation provides that such consent cannot be unreasonably withheld by the lessor.80 These provisions cannot be contracted out of by the parties. Generally, a lessor

cannot withhold her or his consent to any assignee who is solvent81 and is otherwise a suitable lessee. This might involve considerations such as the proposed [page 213] assignee’s tenancy record82 and the use to be made of the premises. Sometimes, a lease provides for the lessee to surrender the lease before any assignment can take place.83 If this occurs, then the relationship between the original parties to the lease is brought to an end.

Enforceability of lease covenants [11.60]

As we have noted, both a lessor and a lessee can deal with their respective interests during the currency of the lease and create interests in the leased land in favour of a third party. The lease covenants we have examined are generally enforced on the basis of privity of contract; that is, they are enforced between the original parties to the lease agreement under the law of contract. Apart from the enforcement of covenants in a lease under those ordinary contractual principles, some lease covenants are enforceable by or against assignees of the reversion or assignees of the lease. The assignee of the lessor is referred to as the ‘assignee of the reversion’ — this refers to the lessor’s assignment of her or his reversionary interest in the lease. The assignee of the lessee is referred to as the ‘assignee of the lease’. The next part of this chapter examines the circumstances in which the enforcement of covenants against assignees of either the reversion or the lease can take place outside of ordinary contractual principles. These covenants are enforced against assignees of the reversion or the lease under the doctrine of

‘privity of estate’.

Privity of estate [11.61]

The doctrine of privity of estate is a doctrine of the common law that describes the relationship that exists between parties who are in a relationship of lessor and lessee. Privity of estate exists between the original lessor and lessee until either the lessor or the lessee assign their respective interests. The privity of estate that existed between the original lessor and lessee then ceases to exist. However, by virtue of the assignment, privity of estate exists between the assignee of the lessor or the lessee, to enable the enforcement of leasehold covenants. The next section will examine the different scenarios that might apply, depending on which party has assigned their interest in the lease. The following diagram is a basic summary of the legal relationships that are created under the doctrines of privity of contract and privity of estate for leases, the assignment of the reversion and assignment of the lease. [page 214]

Diagram 11.1: Legal relationships under doctrines of privity of contract and privity of estate

Assignment of the lease (lessee’s interest) Enforcement of covenants that ‘touch and concern’ the land [11.62]

Subject to any contrary intention expressed in the lease, only covenants in a lease which ‘touch and concern’ the leased premises are transferred upon assignment of the lease; that is, only covenants that touch and concern the lease are enforceable by the lessor (or her or his assignee) against the lessee’s assignee or enforceable against the lessor (or her or his assignee). This is referred to as the ‘rule in Spencer’s Case’.84 Covenants that ‘touch and concern’ the lease are covenants affecting the nature, quality, value or use of the leased premises.85

[11.63]

The guiding principle to determine whether or not a covenant touches and concerns the leased premises is whether there is a connection which is sufficiently close that the covenant ought to be transferred under the lease.86 For example, covenants for the payment of rent, for repair, for permitted or prohibited uses of the land and covenants to renew the lease are all covenants that touch and concern the lease. Covenants which are collateral to the lease are not

directly enforceable against an assignee; however, such covenants may still have an impact on the assignee, because a lessor’s contractual remedies against the original lessee may result in termination of the lease by the lessor,87 meaning that the assignee is also left with no interest, since her or his [page 215] interest is contingent upon the continued existence of the interest that was assigned to her or him (the lease). [11.64]

The enforceability of lease covenants between a lessor and the assignee of the lease also depends on whether the transaction results in a sublease or an assignment. This is because there is privity of estate between the lessor and the assignee of the lessee, but not between a lessor and a sublessee, therefore there is no basis upon which any covenant can be enforced. An original lessee who is sued by the lessor for a breach of the lease by her or his assignee may seek indemnity from the assignee.88

Subleases [11.65]

When a lessee (as the head lessee) sublets her or his interest to a sublessee, there is no privity of estate between the original lessor (the ‘head lessor’) and a sublessee. The sublessee is in a lessor–lessee relationship with the sublessor (also the ‘head lessee’). The sublease creates both privity of contract and privity of estate between those parties. The privity of estate and privity of contract between the original parties (that is, between the head lessor and head lessee) remain intact, but there is no privity of contract or privity of estate between the original lessor and a sublessee. Again,

this means that there is no basis for enforcement of a covenant against the sublessee, or by the sublessee against the lessor.

Assignment of the reversion (lessor’s interest) [11.66]

The position under the rule in Spencer’s Case applies to an assignment of the lease by the original lessee, but it does not apply to an assignment by the lessor of her or his reversionary interest in the lease. At common law, the benefit of the lessee’s covenants did not run with the reversion, except in the case of covenants for payment of rent or the rendering of services in the nature of rent. The position was changed by statute under the Grantees of Reversions Act 1540 (Imp). This Act introduced a statutory equivalent to the rule in Spencer’s Case. The effect of the statute was to give to the lessor’s assignee the same remedies against a lessee (or her or his assignee) in respect of other covenants in a lease that the original lessor had enjoyed, provided that the covenants ‘touched and concerned’ the land. This position is reflected in legislation in almost all Australian jurisdictions;89 therefore, an assignee of the reversion can enforce against the original lessee, or her or his assignee, the benefit of any lease covenant which the lessee must observe or perform ‘having reference to the subject matter’ of the lease. The term ‘having reference to the subject matter’ is regarded as equivalent to ‘touching and concerning’ the lease. [page 216]

[11.67]

Passing the burden of a covenant to the assignee of the

lessor is also governed by legislation in almost all Australian jurisdictions.90 The assignee of the reversion is subject to the burden of lease covenants which are capable of being classified as ‘having reference to the subject matter’ of the lease.91

Remaining liabilities of the original lessor and lessee [11.68]

The enforceability of covenants between the original lessor and the original lessee after an assignment of the reversion or assignment of the lease is still governed by the original contract between them. At common law, in the absence of contrary agreement, a lessee who has assigned her or his interest remains contractually liable for any breach of covenant on the part of her or his assignee.92 There is a continuing liability for all breaches of covenants throughout the term of the lease, even after assignment, because privity of contract remains between the original parties to the lease.

[11.69]

Where an assignment of the lease takes place by way of deed, the original lessee may rely on the implied right to indemnity from the assignee, or might otherwise include a compensation covenant or right of indemnity in the assignment itself.93 However, a right of indemnity is often of minimal use because of the risks of insolvency of the assignee. In practice, it is the insolvency of the assignee that usually leads the lessor to sue the original lessee in the first place.

[11.70]

The potential scenarios for enforcement of lease covenants where there has been an assignment of either the reversion or the lease include where: the lessee breaches, then assigns;

the lessee breaches, then the lessor assigns; the lessor breaches, then assigns; or the lessor breaches, then the lessee assigns.

Lessee breaches, then assigns [11.71]

If the lessee’s breaches are continuing breaches of the lease, then the assignee of the lease is liable for the breaches.94 If the breaches are complete before the date of the assignment, then the original lessee remains liable.95 A lessee continues to remain [page 217] liable for breaches committed by her or him prior to the assignment.96 She or he is also liable for breaches committed by the assignee.97

Lessee breaches, then lessor assigns [11.72]

If the lessee breaches the lease and then the lessor assigns the lease, the reversioner, not the original lessor, can sue the lessee.

Lessor breaches, then assigns [11.73]

The burden of any covenant by reference to the subject matter of the lease runs with the reversion. However, the assignee of the reversion is not liable for any breaches by the original lessor which were complete before the assignment.98 Where the breach is a continuing breach, then the assignee of the reversion is liable.

Lessor breaches, then lessee assigns

[11.74]

The lessee can sue for any breaches that occurred while she or he was the lessee. In the case of any continuing breaches by the lessor, it is the assignee, not the original lessee, who can sue.99

Assignment and Torrens Title [11.75]

It would appear that the rules applying to when covenants under a lease will be enforceable against an assignee of the lessee do not apply when the assignment is registered under the Torrens legislation. In the case of an assignment of the lease, the assignee becomes liable for covenants contained in the lease upon registration by operation of the Torrens legislation, whether or not those covenants touch and concern the lease.100 For example, the effect of s 51 of the Real Property Act 1900 (NSW) is that the transfer of a lease creates privity of estate and privity of contract between the lessor and the transferee of the lease.101 However, its effect is restricted to creating privity of contract only for so long as there is privity of estate; that is, as long as the transferee is registered as the registered proprietor of the lease.102 The section has therefore been found to subject the transferee of a lease (assignee) to the lessee’s obligations only while the transferee is registered as the registered proprietor of the lease. Following a further transfer, that transferee is no longer liable under the lease [page 218] to comply with obligations thereafter falling due.103 In Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313, the court noted that, at common law, on the grant of a lease there is co-existent

privity of estate and privity of contract between the lessor and the lessee; and that, on assignment of the lease, the coexistence ceases. However, under s 51, the position is to make the assignee liable for all covenants under the lease for the duration of her or his registration: at [132]. Since the covenants are enforceable as a matter of privity of contract, the requirement of ‘touch and concern’, which relates only to the enforcement of covenants under privity of estate, did not arise.104 The court in Karacominakis found that the fundamental common law requirement that covenants ‘touch and concern the land’ to be binding upon successors in title was not evident in the wording of the relevant sections of the Torrens legislation. However, only those covenants that represent the ‘essential elements’ of the lease were enforceable, which included the covenant to pay rent. The legislation in other jurisdictions contains provisions similar to s 51.105 [11.76]

In respect of enforcement of covenants against the assignee of the reversion, the restrictions present in, for example, ss 117 and 118 of the Conveyancing Act 1919 (NSW) and its equivalents in other jurisdictions106 (confining the obligations to those that relate to the subject matter of the lease) also do not apply where a transfer of the lessor’s interest has been registered under the Torrens legislation.107 Therefore, the assignee of the lessor will be liable to the lessee upon registration of the transfer of the reversion.108 One further question that has emerged in relation to assignment and Torrens land is whether, if the assignment in question is of the reversion, which of s 51 of the Real Property Act 1900 (NSW) or s 117 of the Conveyancing Act 1919 (NSW) would apply to the assignment?109 Under s 116 of the Conveyancing Act 1919 (NSW), ss 117 and 118 are expressed to apply to land held under the provisions of the Real Property Act 1900 (NSW).

[page 219] As a later piece of legislation, the Conveyancing Act provisions would normally take precedence over the earlier legislation; that is, ss 117 and 118 would impliedly repeal the earlier legislation. At present, however, this is not clear, as the wording of s 116 of the Conveyancing Act suggests that the provisions are in direct conflict.110 As Edgeworth has noted, this apparent conflict between the provisions has significance in two scenarios: (1) where the covenant in question does not touch and concern the land. The High Court’s decision in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237; 244 ALR 1; [2008] HCA 10 appears to confine the operation of s 117 of the Conveyancing Act 1919 (NSW) to cases where the covenant touches and concerns the land. However, s 51 of the Real Property Act 1900 (NSW) was found in Karacominakis not to be restricted in this way;111 (2) where the issue is who has the right to sue for preassignment breaches by a lessee. In Ashmore Developments Pty Ltd v Eaton [1992] 2 Qd R 1 the Full Court of the Queensland Supreme Court had concluded that, for s 117 of the Property Law Act 1974 (Qld), the assignee of the reversion, not the assignor, retained the right to sue for pre-assignment breaches.112 The reasoning in Karacominakis,113 and the result in that case, is that all breaches, whether pre or postassignment, are enforceable against assignees because of the effective ‘replication’ by the operation of the Torrens legislation of the contractual rights of the original parties whenever a registered assignment occurs.114

Ending a lease [11.77]

A lease can be brought to an end in a number of ways. In this part of the chapter, we examine the ways in which a lease can be brought to an end by the parties. Broadly, these include: by providing notice in accordance with the lease; by surrender of the lease; under the doctrine of merger; under the doctrine of frustration; [page 220] under the doctrine of forfeiture; or by termination for fundamental breach.

Provision of notice in accordance with the agreement Fixed-term lease [11.78]

A fixed-term lease automatically ends at the expiration of the fixed term; however, it cannot be ended by merely serving a notice to end the lease unless there is a clause in the lease to that effect. If there is, then compliance with the terms of the lease are required to bring it to an end. In the case of fixedterm leases, such a clause would be unusual, since the real value of the lease stems from the duration of the fixed term.

Periodic lease [11.79]

Periodic leases can be terminated at common law by either party by serving an appropriate notice to quit on the other party. The period of notice required varies with the type of

lease. As a general rule, the notice period corresponds with the period of the lease; for example, a monthly lease requires a month’s notice and terminates at the end of a complete month.115 There is legislation in New South Wales, the Northern Territory, Queensland and Western Australia to the effect that all yearly periodic tenancies must be construed as monthly tenancies.116 In the other jurisdictions, a yearly lease may be determined by a notice served six months before the end of the completed year: see [11.20] and [11.24].

Surrender of the lease [11.80]

Surrender of a lease occurs when the parties to the lease agree to terminate it. Surrender can be express or it can take place by operation of law. A lease is terminated by express surrender when the lessor accepts the lessee’s offer to terminate the lease in accordance with a surrender clause.117 Surrender by operation of law (implied surrender) is a form of estoppel, and arises when the conduct of the parties is not an express surrender, but is inconsistent with the continuation of the lease. Usually, one party to the lease does some act (for example, a lessee vacating the premises) which is unequivocally assented to by the other (lessor then reletting the premises). In this instance, the conduct of both parties is inconsistent with the continued existence of the lease. This precludes the parties from later denying that the lease was [page 221] surrendered.118 Difficulties arise in the classification of conduct of the parties in cases of implied surrender because, in some circumstances, the conduct of a lessee might be

regarded by a court as a repudiation of the lease, entitling the lessor to damages for fundamental breach. If so, it will be classified in this way and not as a surrender of the lease. Surrender effectively extinguishes the lessee’s liabilities under the lease.119 Once the surrender is accepted by the lessor, the lessor is not entitled to damages for loss of rent for any period that the premises has been left vacant.120

Torrens Title and surrender [11.81]

The doctrine of surrender applies to leases of Torrens land. Express surrender of a registered lease can be done, although there are some differences as to how this is to be done between the jurisdictions.121 Implied surrender (surrender by operation of law) of a lease remains possible in all Australian jurisdictions, although, in the absence of any reference to other forms of surrender in South Australia and Tasmania, the legislation creates some doubt as to whether implied surrender exists in those jurisdictions. No jurisdiction permits the surrender of a lease that is subject to a mortgage or charge without the written consent of the mortgagee or chargee.122

Merger [11.82]

At common law, a lease can be brought to an end under operation of the ‘doctrine of merger’. This occurs where the lessee also acquires the reversionary interest of the lessor in the lease. It can also occur where a third party acquires both the lease and the reversion. Where this happens, the interests of both parties to the lease ‘merge’, because they fall into the legal ownership of one person. A registered lease of Torrens land does not extinguish a lease under the doctrine of merger until the Registrar of Titles has removed the interest from the Torrens Register.123 This deals with the doctrine of merger at law. Merger can also take place in

equity. There is legislation in almost all Australian jurisdictions which recognises that merger in equity depends on the intention of the parties.124 [page 222]

Frustration [11.83]

Under the doctrine of frustration of contract, both parties to a lease can be released from their contractual obligations. Frustration occurs where the lease becomes incapable of performance due to unforeseen circumstances, such as whenever the law recognises that, without default (of either party), a contractual obligation has become incapable of being performed. This occurs because the circumstances in which performance is called for would render it a thing radically different from that which was originally undertaken by the contract.125 For example, if leased premises were destroyed by flood and could not be rebuilt for a substantial period of time, the lease might be found to have been frustrated.

Forfeiture [11.84]

Under the doctrine of forfeiture, a lessor can rely on the lessee’s breach of a fundamental term of the lease in order to forfeit the lease and re-enter the leased premises. Most leases contain express re-entry and forfeiture clauses (often referred to as a ‘proviso for re-entry’). The re-entry clause provides that the lessor has a right to re-enter and forfeit the lease if the lessee breaches or fails to observe covenants contained in the lease agreement (including any implied terms). In the absence of express provision for forfeiture and re-entry, a lessor is given a power to forfeit the lease for

breach of certain lease terms by legislation in all jurisdictions. The power is implied in leases affecting Torrens land in all jurisdictions, and in some jurisdictions in respect of Old System Title land.126 [11.85]

A lessee’s breach of a lease covenant does not automatically terminate the lease: a lessor must make an ‘election’ to end the lease. This means that the lessor makes a choice between two available rights she or he has because of the lessee’s breach. The lessor makes the election to forfeit the lease by exercising the right of re-entry (that is, by actually reentering the premises). Re-entry can also be effected by suing for possession.127 [page 223]

[11.86]

In the absence of an express term in the lease, the common law entitles a lessor to forfeit a lease for breach of a condition of the lease. In other words, the common law implies a right to forfeit in the event of a fundamental breach of the lease by the lessee. In accordance with ordinary contractual principles, a breach of a term of the lease which only amounts to a breach of warranty will entitle the lessor to damages (or an injunction).128 Notwithstanding any contrary intention expressed in the lease, legislation also requires a lessor to provide a defaulting lessee with notice of the breach and an opportunity to remedy the default before exercising any right of forfeiture.129 The situation is slightly different if the breach by the lessee involves non-payment of rent. In that instance, the lessor need not provide notice prior to exercising any right of forfeiture. However, before a right of forfeiture can be exercised for non-payment of rent, the common law still requires that the lessor make a formal demand for payment of rent.130 This rule is usually amended

by the lease agreement. In most jurisdictions, statutes have dispensed with the common law’s requirement for a formal demand where rent has been in arrears for a particular period of time. For example, s 85(1)(d) of the Conveyancing Act 1919 (NSW) gives a lessor power to re-enter and determine the lessee’s estate 1 month after rent is in arrears.

Waiver of right to forfeit by lessor/election [11.87]

Where a lessor has a right of re-entry and forfeiture, she or he can make an election to re-enter and forfeit the lease. She or he can also elect to waive her or his right to forfeit the lease,131 which means that the lessor makes an election to treat the lease as continuing, despite the lessee’s breach. In that instance, we say that the lessor has made an election and has ‘waived’ her or his right to forfeit and re-enter, and has ‘affirmed’ the lease. The lessor is not indicating that the lessee has not committed a wrong;132 rather, the lessor is making a choice between two available yet inconsistent rights that she or he has for the lessee’s breach: the right to re-enter or not to re-enter as she or he chooses.

[11.88]

A lessor’s election can be express, or it can be implied from her or his conduct. Once an election to affirm the lease has been made, a lessor cannot forfeit the lease in respect of the same breach by the lessee. Waiver takes place where the lessor, knowing of the lessee’s default, does some act which unequivocally recognises the continued existence of the lease; for example, demanding or accepting rent subsequent to a breach.133 Lessors are entitled to a reasonable time in which to assess their options in the period after they become aware of a breach by the lessee. However, the longer the period prior to any re-entry or issue of a notice to forfeit the lease, and the longer the period for which rent is accepted, the stronger the case a lessee will have to argue

[page 224] that the lessor had already made an election to affirm the lease and should therefore be estopped from resiling from that election.

Relief against forfeiture [11.89]

A lessee whose lease has been forfeited may be entitled to have the forfeiture set aside by a court, even though the lessor has properly exercised the right to forfeit. This is known as the remedy of ‘relief against forfeiture’. Relief against forfeiture can be granted by a court under its inherent equitable jurisdiction, or under statute, in most Australian jurisdictions.134

[11.90]

Relief against forfeiture is ordinarily given to a lessee whose sole breach of the lease is non-payment of rent, provided that the unpaid rent has been paid by the lessee by the date on which the order is sought. However, a court always has a discretion as to whether to grant the relief.135 For example, where a lessee has engaged in consistent or lengthy defaults in the payment of rent, a court may draw an inference that, even if relief against forfeiture were granted, there would be a reasonable likelihood that the rent would not be paid in the future, and thus decline to grant the relief.136 Or if a lessee has shown a disregard for the rented premises, the court might refuse to grant relief.137 A court examines all the circumstances, to determine whether or not it would be inequitable to grant the relief sought. As the remedy is an equitable remedy, the conduct of the lessee is taken into account. If she or he has not come to equity with ‘clean hands’, then the relief may be refused.

Damages for forfeiture

[11.91]

A lessor who exercises a right of forfeiture can only recover damages for loss suffered up to the time of re-entry under the lease.138 Damages for prospective loss (that is, loss of bargain damages/expectation loss) are not recoverable unless the lessee’s breach constituted a repudiation or a fundamental breach of the lease and the lease was terminated on this basis.139 By making an election to re-enter and forfeit the lease, the lessor has put it beyond the ability of the lessee to ensure future compliance with the lease, and the lease was terminated on that basis. A court will not compensate a lessor in those circumstances for losses that would be classified as ‘expectation losses’. Such losses are only available where the lessor has terminated the lease for fundamental breach of the lease, discussed below. [page 225]

Termination for fundamental breach [11.92]

In Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305, the High Court said that the ordinary principles of contract apply to leases. Thus, a lessor may choose to terminate a lease by accepting a lessee’s repudiation of the lease in accordance with the general contractual principles applicable to termination for fundamental breach of a contract.140 The contractual doctrine of repudiation/termination applies to leases, so that a lessor is able to terminate the lease, sue for unpaid rent and sue for prospective damages for loss of future rent (loss of bargain damages/expectation losses), provided that she or he has terminated the lease for a fundamental breach committed by the lessee.

[11.93]

In order to constitute a repudiation of the lease, the

defaulting party must evince an intention to no longer be bound by the lease, or have demonstrated that they intend to fulfil the lease agreement only in a manner substantially inconsistent with her or his obligations under the lease, and not in any other way.141 The contractual doctrine of repudiation provides an additional means by which a lease may be terminated by the innocent party. Therefore, if the law of contract only is being relied upon by the lessor to terminate the lease, then compliance with property law principles (requiring the service of notices or formal demands prior to re-entry and forfeiture by the lessor) are not necessary to exercise contractual rights and remedies. A lessor can therefore choose to terminate a lease under the contractual doctrine of repudiation alone, and not have to use proprietary remedies such as re-entry and forfeiture. [11.94]

Repudiation by a lessee can arise in a number of ways; for example, where a lessee abandons the premises,142 or where, even though the lessee wishes to continue renting the premises, the lessee continues to breach covenants of the lease, indicating that she or he has no intention to be bound by the terms of the lease.143 As noted, conduct showing an intention to be bound only in a manner substantially inconsistent with a party’s obligations can also constitute repudiation.144 Mere inability to pay rent is not, in itself, usually treated as a repudiation of the lease.145 However, if the breaches of the covenant to pay rent are so significant, so as to demonstrate the lessee’s intention to no longer be bound by the lease, then this may constitute a repudiation of the lease by the lessee, entitling the lessor to terminate the lease.146 It is a question of context, part of which involves construing the original intentions of the parties. In some instances, parties agree that non-payment of rent will constitute a fundamental breach of the lease. The High Court has said that, in that instance, the wishes of the parties are to be respected,

[page 226] meaning that breaches deemed to be fundamental breaches of the lease by the parties are likely to be treated as fundamental breaches by a court.147 [11.95]

A lessee’s repudiating conduct does not in itself terminate the lease; the lease is only terminated upon the lessor’s acceptance of the repudiation.148 Acceptance can be any conduct that communicates or evinces the lessor’s decision to terminate the lease; for example, advertising to re-let or actually re-letting the premises to a third party. A lessor’s claim for damages is also subject to the contractual doctrine of mitigation of damages.149 A lessor is entitled to claim damages for a lessee’s repudiation where the loss is due to the lessee’s conduct, but not for losses attributable to the lessor’s own neglect.150 If a lessor fails to mitigate her or his loss (for example, by re-letting the premises), the lessor’s damages for loss of future rent, outgoings and other amounts are reduced by the amount she or he would have otherwise received.151

__________________________ 1

In the 12th century in England, a lessee’s right to occupy and use land was regarded as a personal, contractual right only. This was because remedies that were available in relation to land from the courts were not available to enforce a lease. However, from the 15th century onwards, the right developed into a proprietary interest, because those proprietary remedies became available to lessors and lessees. As such, the lease came to be regarded as an ‘estate’ in land. See Gray. Edgeworth, Foster and Grattan, Property Law in New South Wales, 2nd ed, LexisNexis Butterworths, Sydney, 2007, pp 101–2.

2

White v Kenny [1920] VLR 290. Milmo v Carreras [1946] KB 306.

3 4

409 Lonsdale Pty Ltd v Carra [1974] VR 887. 5 Radaich v Smith (1959) 101 CLR 209; [1959] ALR 1253. 6 7

The price being paid by the lessee for the lease. Street v Mountford [1985] AC 809.

8

Frieze v Unger [1960] VR 230. These could be in express terms of the lease agreement, or they

may be implied rights of entry under applicable legislation. 9 Lewis v Bell (1985) 1 NSWLR 731; Radaich v Smith (1959) 101 CLR 209; [1959] ALR 1253 at CLR 217. 10 In accordance with ordinary rules for the interpretation of contracts and the implication of terms, the term must be necessary in order to ‘give business efficacy’ to the rights which otherwise have been granted by the agreement: see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363. In other words, the implication won’t be made if the parties have already directed their attention to the issue of exclusive possession and have otherwise provided for, or have stipulated in the terms of the lease, that no such implication is to be made: Lewis v Bell (1985) 1 NSWLR 731 at 735. 11 12

For example, a right to inspect or a right to repair the premises. Decisions dating back to cases like Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373 stressed the relevance and application of contractual principles to leases.

13

Bingham v 7-Eleven Stores Pty Ltd [2003] QCA 402; Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2005] ANZ ConvR 108; [2004] VSCA 242. 14 Usually, they are expressly stated to apply to the agreement. 15

Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386. 16 Re Lehrer and the Real Property Act 1900 (1961) 61 SR(NSW) 365; Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313. 17

Note that there is legislation in New South Wales, the Northern Territory, Queensland and Western Australia to the effect that all yearly periodic tenancies must be construed as monthly tenancies, in which case the 1 month’s written notice can expire at any time without the need for a complete calendar month to follow the period after which notice is given: Conveyancing Act 1919 (NSW) s 127(1); Law of Property Act (NT) s 144; Property Law Act 1974 (Qld) s 129(1); Property Law Act 1969 (WA) ss 71–72. In the other jurisdictions, a yearly lease may be determined by a notice served 6 months before the end of the completed year. 18 See above n 17. 19 20

Butcher v Bowen [1964] NSWR 36. Moore v Dimond (1929) 43 CLR 105; [1930] ALR 341.

21

Dockrill v Cavanagh (1944) 45 SR (NSW) 78. 22 The rule in Walsh v Lonsdale (1882) 21 Ch D 9, discussed in Chapter 10. 23 24

Hounslow London Borough Council v Pilling [1993] 1 WLR 1242. Dockrill v Cavanagh (1944) 45 SR (NSW) 78.

25

Landale v Menzies (1909) 9 CLR 89; 16 ALR 217 at CLR 101. Except in New South Wales, the Northern Territory, Queensland and Western Australia, which create a lease determinable at 1 month’s notice. See above n 17. 26 Turner v York Motors Pty Ltd (1951) 85 CLR 55; 58 ALR (CN) 1054. 27

Maniaty v Fenedisto Pty Ltd [2004] VSC 177; BC200403057. 28 Landale v Menzies (1909) 9 CLR 89; 16 ALR 217. Except in New South Wales, the Northern Territory, Queensland and Western Australia, which create a lease determinable at 1 month’s notice. See above n 17. 29

Chinese Cultural Club Ltd v Auswealth Pty Ltd (No 2) (NSWSC (Eq), Young J, No 6056/92, 11

December 1992, unreported). 30 Limitation Act 1969 (NSW) s 34; Limitation of Actions Act 1974 (Qld) s 18(1); Limitation of Actions Act 1936 (SA) s 15; Limitation Act 1974 (Tas) s 15(1); Limitation of Actions Act 1958 (Vic) s 13(1); Limitation Act 2005 (WA) s 72(2). Note that in New South Wales, the Northern Territory, Queensland and Western Australia, the lease is determinable on 1 month’s notice. 31 Burnham v Carroll Musgrove Theatres Ltd (1928) 41 CLR 540. 32

Leigh v Dickson (1884) 15 QB 60. 33 That is, whether it is fixed-term, periodic, at will or at sufferance. 34

Civil Law (Property) Act 2006 (ACT) s 201; Conveyancing Act 1919 (NSW) s 23B(1); Law of Property Act (NT) s 9(1); Property Law Act 1974 (Qld) s 10(1); Law of Property Act 1936 (SA) s 28(1); Conveyancing and Law of Property Act 1884 (Tas) s 60(1); Property Law Act 1958 (Vic) s 52(1); Property Law Act 1969 (WA) s 33(1). 35 Civil Law (Property) Act 2006 (ACT) s 203; Conveyancing Act 1919 (NSW) s 23D(2); Law of Property Act (NT) s 11(2); Property Law Act 1974 (Qld) s 12(2); Law of Property Act 1936 (SA) s 30(2); Conveyancing and Law of Property Act 1884 (Tas) s 60(4); Property Law Act 1958 (Vic) s 54(2); Property Law Act 1969 (WA) s 35(2). 36

Abigail v Lapin [1934] AC 491. 37 Land Titles Act 1925 (ACT) s 82; Real Property Act 1900 (NSW) s 53(1); Land Title Act (NT) s 65; Land Title Act 1994 (Qld) s 64; Real Property Act 1886 (SA) s 116; Land Titles Act 1980 (Tas) s 64(1); Transfer of Land Act 1958 (Vic) s 66(1); Transfer of Land Act 1893 (WA) s 91. 38

Mercantile Credits Ltd v Shell Co of Australia Ltd (1976) 136 CLR 326; 9 ALR 39. See also [6.21]–[6.22]. 39 However, s 117 of the Real Property Act 1886 (SA) specifically provides that an option to purchase may be included in a registered lease, with the implication that those covenants, too, will derive indefeasibility: see Thirsty Mack’s Pty Ltd v Hasbeen Pty Ltd [2008] FCA 32; BC200800177. 40

Civil Law (Property) Act 2006 (ACT) s 201(1); Conveyancing Act 1919 (NSW) s 23C(1); Law of Property Act (NT) s 10; Property Law Act 1974 (Qld) ss 5, 9; Law of Property Act 1936 (SA) s 29; Conveyancing and Law of Property Act 1884 (Tas) s 60(2); Property Law Act 1958 (Vic) s 53(1) (a); Property Law Act 1969 (WA) s 34. 41 Civil Law (Property) Act 2006 (ACT) s 203(1); Conveyancing Act 1919 (NSW) s 23D(1); Law of Property Act (NT) s 11(1); Property Law Act 1974 (Qld) s 12(1); Law of Property Act 1936 (SA) s 30(1); Conveyancing and Law of Property Act 1884 (Tas) s 60(3); Property Law Act 1958 (Vic) s 54(1); Property Law Act 1969 (WA) s 35(1). 42

Civil Law (Property) Act 2006 (ACT) s 203(2); Conveyancing Act 1919 (NSW) s 23D(2); Law of Property Act (NT) s 11(2); Property Law Act 1974 (Qld) s 12(2); Law of Property Act 1936 (SA) s 30(2); Conveyancing and Law of Property Act 1884 (Tas) s 60(4); Property Law Act 1958 (Vic) s 54(2); Property Law Act 1969 (WA) s 35(2). 43 Walsh v Lonsdale (1882) 21 Ch D 9. 44

Civil Law (Property) Act 2006 (ACT) s 204; Conveyancing Act 1919 (NSW) s 54A(1); Law of Property Act (NT) s 62; Property Law Act 1974 (Qld) s 59; Law of Property Act 1936 (SA) s 26; Conveyancing and Law of Property Act 1884 (Tas) s 36; Instruments Act 1958 (Vic) s 126; Property Law Act 1969 (WA) s 35(2). 45 McBride v Sandland (1918) 25 CLR 69.

46

Chan v Cresdon Pty Ltd (1989) 168 CLR 242; 89 ALR 522. 47 Chan v Cresdon Pty Ltd (1989) 168 CLR 242; 89 ALR 522. 48 49

50 51

Transfer of Land Act 1958 (Vic) s 42(2)(e). Land Titles Act 1925 (ACT) s 58(1)(d); Real Property Act 1900 (NSW) s 42(1)(d); Land Title Act (NT) s 189(1)(b); Land Title Act 1994 (Qld) s 185(1)(b); Real Property Act 1886 (SA) s 69(h); Land Titles Act 1980 (Tas) s 40(3)(d); Transfer of Land Act 1893 (WA) s 68(3)(f). And for the ‘best rent reasonably obtainable’. Clyne v Lowe (1968) 69 SR (NSW) 433.

52

Land Title Act 1994 (Qld) ss 4, 185(1)(b), 185(2). 53 Land Title Act (NT) ss 189(1)(b), 189(2)(b). 54 55

Real Property Act 1886 (SA) s 69(h). Transfer of Land Act 1893 (WA) s 68(1A).

56

Terms may sometimes be implied into a lease on various grounds. For example, a term ‘which was so obvious that it goes without saying’ may be implied in order to give the lease ‘business efficacy’: Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381 at 392. However, terms are not implied merely because it would be reasonable to do so: Liverpool CC v Irwin [1977] AC 239. 56 Hudson v Cripps [1896] 1 Ch 265. 56 56

Gordon v Lidcombe Developments Pty Ltd [1966] 2 NSWR 9. Perera v Vandiyar [1953] 1 All ER 1109.

56

AF Textile Printers Pty Ltd v Thalut Nominees Pty Ltd (2007) 17 VR 334; [2007] VSC 73. 61 The common law does not imply any warranty that the premises will be fit. However, this is often now subject to warranties implied by statute as to fitness for use. 62 63

Aldin v Latimer, Clark, Muirhead & Co [1894] 2 Ch 437. Vasile v Perpetual Trustees WA Ltd (1987) NSW ConvR 55-345.

64

Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1. 65 In other words, the lessors knew the purposes of the lessee’s use of the third floor as a computer business. 66

Since the lessee had a remedy in the tort of nuisance against the co-lessee. 67 Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313; 146 ALR 572; Jones v Bartlett (2000) 205 CLR 166; 176 ALR 137; [2000] HCA 56. 68

Warren v Keen [1954] 1 QB 15 at 20; Hardchrome Engineering Pty Ltd v Kambrook Distributing Pty Ltd [2000] VSC 359; BC200005642. 69 Warren v Keen [1954] 1 QB 15. 70 71

72

Henderson v Squire (1869) LR 4 QB 170. Land Title Act 1925 (ACT) s 119; Conveyancing Act 1919 (NSW) s 84(1); Law of Property Act (NT) s 117; Property Law Act 1974 (Qld) s 105(1); Real Property Act 1886 (SA) s 124(1); Land Titles Act 1980 (Tas) s 66; Transfer of Land Act 1958 (Vic) s 67(i); Transfer of Land Act 1893 (WA) s 92(1). Land Title Act 1925 (ACT) s 120(1); Conveyancing Act 1919 (NSW) s 85(1); Law of Property Act (NT) s 119(a); Property Law Act 1974 (Qld) s 107(d); Real Property Act 1886 (SA) s 125(b); Land Titles Act 1980 (Tas) s 67(a); Transfer of Land Act 1958 (Vic) s 67(1); Transfer of Land Act 1893

(WA) s 93(1). 73 Land Title Act 1925 (ACT) s 120(1)(d); Conveyancing Act 1919 (NSW) s 85(1)(d); Law of Property Act (NT) s 119(d); Property Law Act 1974 (Qld) s 107; Real Property Act 1886 (SA) s 125(c); Land Titles Act 1980 (Tas) s 67(b); Transfer of Land Act 1958 (Vic) s 67(l)(d); Transfer of Land Act 1893 (WA) s 93(2). 74 Land Title Act 1925 (ACT) s 119(1); Conveyancing Act 1919 (NSW) s 84(1)(a); Law of Property Act (NT) s 111(1); Property Law Act 1974 (Qld) s 105(1)(a); Real Property Act 1886 (SA) s 124(1); Land Titles Act 1980 (Tas) s 66; Transfer of Land Act 1958 (Vic) s 67(1)(a); Transfer of Land Act 1893 (WA) s 92(1). 75

Neither tenancies at sufferance or tenancies at will can be assigned: Pinhorn v Souster (1853) 8 Exch 763. 76 Or, in the case of the lessee, to assign or sublet their interest. 77

Cook v Shoesmith [1951] 1 KB 752. 78 Marks v Warren [1979] 1 All ER 29. 79

In summary, if a lessor accepts rent from an assignee or sublessee, then she or he will be treated as having made an election to accept the lessee’s breach and for the lease to continue: see Hyde v Pimley [1952] 2 QB 506. 80 See Conveyancing Act 1919 (NSW) s 133B; Law of Property Act (NT) s 134(1)(a); Property Law Act 1974 (Qld) s 121(1) (a)(i); Property Law Act 1958 (Vic) s 144(1); Property Law Act 1969 (WA) s 80(1). There are no equivalent provisions in the other jurisdictions. 81

British Bakeries (Midlands) v Michael Testler & Co Ltd [1986] 1 EGLR 64. 82 Shanly v Ward (1913) 29 TLR 714. 83

Creer v P & O Lines of Australia (1971) 125 CLR 84; [1972] ALR 226. Surrender of a lease is discussed at [11.80]. 84 Spencer’s Case (1583) 5 Co Rep 16a; 77 ER 72. 85 86

Lang v Asemo Pty Ltd [1989] VR 773. Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548.

87

McMahon v Ambrose [1987] VR 817. See also Ripka Pty Ltd v Maggiore Bakeries Pty Ltd [1984] VR 629, where Gray J held that the contractual doctrine of repudiation applies to leases of land. 88 In the absence of an express indemnity covenant in the deed of assignment, there are statutory provisions in South Australia, Victoria and Western Australia for an implied covenant of indemnity: Real Property Act 1886 (SA) s 152; Property Law Act 1958 (Vic) s 77(1)(c); Transfer of Land Act 1893 (WA) s 95. There does not appear to be equivalent provisions in the other jurisdictions. 89

Conveyancing Act 1919 (ACT) s 400; Conveyancing Act 1919 (NSW) s 117; Law of Property Act (NT) s 130; Property Law Act 1974 (Qld) s 117; Conveyancing and Law of Property Act 1884 (Tas) s 10; Property Law Act 1958 (Vic) s 141(1); Property Law Act 1969 (WA) s 77. 90 Conveyancing Act 1919 (ACT) s 401; Conveyancing Act 1919 (NSW) s 118; Law of Property Act (NT) s 131; Property Law Act 1974 (Qld) s 118; Conveyancing and Law of Property Act 1884 (Tas) s 11; Property Law Act 1958 (Vic) s 142(1); Property Law Act 1969 (WA) s 78. 91

Hurlfite Pty Ltd v Coles Myer Ltd (1990) NSW ConvR 55-515; applied in Lawrom Nominees Pty Ltd v Kingsmede Pty Ltd (2000) 10 BPR 18,417; [2000] NSWSC 1048. 92 Re Teller Home Furnishers Pty Ltd [1967] VR 313.

93

Moule v Garrett (1872) LR 7 Ex 101. 94 Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] Ch 592. 95 96

Grescot v Green (1700) 1 Salk 199. Paul v Nurse (1828) 8 B & C 486.

97

Moule v Garrett (1872) LR 7 Ex 101. 98 Duncliffe v Caerfelin Properties Ltd [1989] 2 EGLR 38. 99

City and Metropolitan Properties Ltd v Greycroft Ltd [1987] 1 WLR 1085. 100Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313. 101 Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313. 102 Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313 at

[135]. 103 Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313 at

[141]. Edgeworth has noted: ‘In his discussion of the liability of the assignees under this provision, Giles JA (with whom Handley and Stein JJA concurred) considered the ambit of s 51. His Honour’s interpretation is a very broad one, making no reference to any requirement that the obligations relate to the land in the sense of touching and concerning the land’ … ‘It follows from this interpretation that not only does s 51 secure a statutory privity of estate between assignee and original landlord or tenant, but it puts assignees in the shoes of the original contracting parties. This means that all of the obligations in the original contract, whether they touch and concern the land or not, are enforceable by and against the registered assignee, for as long as there is privity of estate between the assignee and the landlord’: B Edgeworth ‘The Rights and Liabilities of Assignees of Leases, Reversions and Mortgages under the Real Property Acts: Recent Developments’ (2009) 21(2) Bond Law Review 35–6. 104 Edgeworth has noted: ‘Significantly, s 51 contains no such phrase as “relating to land”, but rather is expressed in unqualified terms: “all rights, powers and privileges thereto belonging or appertaining, shall pass to the transferee”. Equally, the transferee is subject to “all and every the same requirements and liabilities to which the transferee would have been liable if named in such instrument originally …”’: Edgeworth, above n 103, at 36. 105 See

Land Title Act 1994 (Qld) s 62; Land Titles Act 1980 (Tas) s 60; Transfer of Land Act 1958 (Vic) s 54(2); Transfer of Land Act 1893 (WA) s 95. 106 Civil Law (Property) Act 2006 (ACT) ss 400, 401; Law of Property Act (NT) ss 130, 131; Property Law Act 1974 (Qld) ss 117, 118; Conveyancing and Law of Property Act 1884 (Tas) ss 10, 11; Property Law Act 1958 (Vic) ss 141, 142; Property Law Act 1969 (WA) ss 77, 78. 107 The

High Court has held that the provision applies equally to lessors and lessees: Measures v McFadyen (1910) 11 CLR 723; 17 ALR 391. 108 Edgeworth, above n 103, at 36. 109 Or their equivalents in the other jurisdictions. 110 The

High Court expressly declined to explore the interrelationship between the two statutes, though counsel for the appellant sought to demonstrate that s 51 covered the case.

111

Since Karacominakis is authority for the proposition that a replication of privity of contract between the original party and the assignee occurs where the assignment of the lease, or the reversion, is registered. 112 The High Court’s decision in Measures v McFadyen (1910) 11 CLR 723; 17 ALR 391 had reached

the opposite conclusion in interpreting the ambit of s 51 of the Real Property Act 1900 (NSW). The court in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237; 244 ALR 1; [2008] HCA 10 did not need to reconcile the two provisions, given that it held that appellants were successful under s 117 of the Conveyancing Act. For further discussion of this matter, see P Butt, Land Law, 4th ed, LawBook, Sydney, 2001, p 332; Edgeworth, Rossiter, Stone and O’Connor, Sackville and Neave: Australian Property Law, 8th ed, LexisNexis Butterworths, Sydney, 2008, pp 811–13. 113 Which had made no reference to Measures v McFadyen (1910) 11 CLR 723; 17 ALR 391. 114 Edgeworth

makes the point that, given the High Court’s strong endorsement of Measures v McFadyen in Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; 240 ALR 234; [2007] HCA 53, Karacominakis may no longer be seen to be good authority on this point: see Edgeworth, above n 103, at 41–2.

115 Dockrill

v Cavanagh (1944) 45 SR (NSW) 78 at 82; Rowston v Sydney County Council (1954) 92 CLR 605. Notice may be given at any time, provided it is given so as to expire on the last day of a period of the tenancy which follows the period after which notice is given. 116 In which case, the 1 month’s written notice can expire at any time without the need for a complete calendar month to follow the period after which notice is given: Conveyancing Act 1919 (NSW) s 127(1); Law of Property Act (NT) s 144; Property Law Act 1974 (Qld) s 129(1); Property Law Act 1969 (WA) ss 71–72. 117 The

surrender is a disposition of an interest in land and must therefore comply with the relevant formalities; for example, a legal surrender must be by deed or in writing. 118 Indian Taj v Gilany [2005] ANZ ConvR 310; [2004] NSWSC 1193. Another typical implied surrender occurs in circumstances where a lessor resumes possession of premises abandoned by the lessee or re-enters following a lessee’s breach of covenant: Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105. The lessor’s re-entry surrenders the lease by terminating the lease, as well as the lessee’s future obligations. 119 Buchanan v Byrnes (1906) 3 CLR 704; 12 ALR 341. 120 Maridakis v Kouvaris (1975) 5 ALR 197. 121 Land Titles Act

1925 (ACT) s 86(5); Real Property Act 1900 (NSW) s 54(1); Land Title Act (NT) s 71(4); Land Title Act 1994 (Qld) s 69; Real Property Act 1886 (SA) s 120; Land Titles Act 1980 (Tas) s 65; Transfer of Land Act 1958 (Vic) s 69(1); Transfer of Land Act 1893 (WA) s 98. 122 Land Titles Act 1925 (ACT) s 86(6); Real Property Act 1900 (NSW) s 54(5); Land Title Act (NT) s 71(2); Land Title Act 1994 (Qld) s 69; Real Property Act 1886 (SA) s 123; Land Titles Act 1980 (Tas) s 65(3); Transfer of Land Act 1958 (Vic) s 69(1); Transfer of Land Act 1893 (WA) s 98. 123 Shell Co of Australia Ltd v Zanelli [1973] 1 NSWLR 216. 124 Which

generally makes intention a relevant issue as to whether there has been an implied merger: Civil Act 1919 (ACT) s 206; Conveyancing Act 1919 (NSW) s 10; Law of Property Act (NT) s 16; Property Law Act 1974 (Qld) s 17; Law of Property Act 1936 (SA) s 13; Property Law Act 1958 (Vic) s 185; Property Law Act 1969 (WA) s 18. In Buchanan Borehole Collieries Pty Ltd v NSW Coal Compensation Review Tribunal (1997) 9 BPR 16,253, the New South Wales Court of Appeal said that the continuation of separate freehold and leasehold estates on the Torrens Register vested in the same person would not prevent a merger in equity if that was what was intended by the parties, and that it would be possible for an interested party to enforce the recording of that merger on the Register. There is also legislation in almost all jurisdictions which ensures that the rights and interests of a subtenant are unaffected where there is a

merger of the head lease and the leasehold reversion: Conveyancing Act 1919 (NSW) s 122; Law of Property Act (NT) s 128(1); Property Law Act 1974 (Qld) s 115(1); Real Property Act 1886 (SA) s 46; Property Law Act 1958 (Vic) s 139(1); Property Law Act 1969 (WA) s 75(1). 125 Council

of the City of Gold Coast v Council of the City of Logan [2007] QSC 357; BC200710520. The High Court has agreed with this position: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; 85 ALR 183; see also City of Subiaco v Heytesbury Properties Pty Ltd (2001) 24 WAR 146; [2001] WASCA 140. 126 Land Titles Act 1925 (ACT) ss 112, 119, 120; Conveyancing Act 1919 (NSW) ss 74, 84, 85; Law of Property Act (NT) ss 117–119, 121; Property Law Act 1974 (Qld) ss 105–107; Real Property Act 1886 (SA) ss 124, 125, 262; Land Titles Act 1980 (Tas) ss 57, 66, 67; Transfer of Land Act 1958 (Vic) ss 67, 112; Transfer of Land Act 1893 (WA) ss 92, 93, 131. 127 Moore v Ulcoats Mining Co Ltd [1908] 1 Ch 575. 128 Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305. 129 Civil

Law (Property) Act 2006 (ACT) ss 425–426; Conveyancing Act 1919 (NSW) s 129; Law of Property Act (NT) ss 137–138; Property Law Act 1974 (Qld) s 124; Landlord and Tenant Act 1936 (SA) ss 10, 12; Conveyancing and Law of Property Act 1884 (Tas) s 15; Property Law Act 1958 (Vic) s 146; Property Law Act 1969 (WA) s 81. 130 Although this requirement is often expressly excluded in the lease. 131 Billson v Residential Apartments Ltd [1992] 1 AC 494. 132 Which might still be actionable in damages. 133 Matthews v Smallwood [1901] 1 Ch 777. 134 Conveyancing Act 1919 (NSW) ss 128–131; Landlord and Tenant Act 1899 (NSW) ss 8–10; Law of

Property Act (NT) ss 136–143; Property Law Act 1974 (Qld) ss 123–128; Landlord and Tenant Act 1936 (SA) ss 4, 5, 7, 9; Supreme Court Act 1958 (Vic) ss 79, 80, 85; Property Law Act 1958 (Vic) ss 146–147. 135 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562. 136 Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584. 137 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373. 138 Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305. 139 A

claim for damages may also lie in contract if the forfeiture clause in the lease provides that damages are payable by the tenant upon a forfeiture of the lease: Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305 at CLR 623. 140 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373 at 379, 389. 141 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373 at 379. 142 Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305. 143 Ripka Pty Ltd v Maggiore Bakeries Pty Ltd [1984] VR 629. 144 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; 85 ALR 183. 145 Progressive

Mailing House Pty Ltd v Tabali Pty Ltd (1985) 59 ALJR 373; Shevill v Builders’ Licensing Board (1982) 149 CLR 620. 146 Shevill v Builders’ Licensing Board (1982) 149 CLR 620; 42 ALR 305. 147 Gumland

Property Holdings Pty Ltd v Duffy Bros (Campbelltown) Pty Ltd (2008) 234 CLR 237; 244 ALR 1; [2008] HCA 10.

148 Majik Markets Pty Ltd v S & M Motor Repairs Pty Ltd (No 1) (1987) 10 NSWLR 49. 149 Vickers v Stichtenoth Investments Pty Ltd (1989) 52 SASR 90. 150 Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254; [2007] WASCA 209 at [33]. 151 Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313.

[page 227]

CHAPTER 12

Easements

Key Ideas By the end of this chapter you should be able to identify: the key features of an easement the different types of easements that exist how each type of easement is created in what circumstances an easement is enforceable against the current owner of the servient tenement what remedies are available to the owner of a dominant tenement to prevent obstruction of an easement what remedies are available to the owner of a servient tenement to prevent misuse of an easement how an easement can be extinguished

[page 228]

Introduction [12.1]

An easement is a limited right held by someone other than the fee simple owner over that owner’s land. The land burdened by the easement is known as the ‘servient tenement’. The land benefitted by the easement is known as the ‘dominant tenement’. Together with restrictive covenants, easements act as planning instruments. They operate as a burden on a fee simple and restrict the full use of the fee simple land by the owner. Easements are a class of interest in land that were known historically as ‘incorporeal hereditaments’. This means that easements are intangible rights over land that are capable of forming part of the property that they benefit, since they are a form of property. The most obvious example of an easement is a right of way (see Diagram 12.1); however, the idea of what can constitute an easement has not remained frozen in time, and has expanded into ideas like easements to park vehicles. In addition to easements created at common law, a range of statutory easements exist that regulate what a fee simple owner can do with her or his land. For example, easements for utilities, such as telecommunications infrastructure, water and sewage pipes, electricity easements and other access easements are very common in. Australia. Diagram 12.1: Common form of easement — right of way

[12.2]

In this chapter, we examine the two main areas in which disputes about easements arise in practice: (1) whether an easement has been validly created; and (2) whether (assuming a valid easement exists) the current use being made of the easement is one that is permitted by the terms of the easement. [page 229]

[12.3]

As you read this chapter you will see that there are many rules about the creation of easements. Today, it is most common to create easements by way of express grant. However, you still need to understand some of the historical ways in which easements were created, because such easements do still arise in disputes from time to time. This chapter also considers how easements are extinguished and the types of remedies that can be sought from the court to either extinguish an easement and/or prevent the misuse of an easement.

Creation of easements

[12.4]

There are a series of formal and substantive requirements for the creation of a valid easement. Easements can be created in the following ways: by express grant; by express reservation; by the lodgment of an approved plan of subdivision; by implied grant or reservation; by acquisition by long use or prescription; or by a court, pursuant to legislation.

[12.5]

Some of the requirements for the creation of each one of these types of easements will be discussed below. Although the form of easements can change, their substantive requirements do not. If the four basic elements of an easement do not exist, then whether the creation of the easement purported to be by way of an express grant, an implied grant or otherwise will not matter; no easement will have come into existence. So, before we look at the different ways in which an easement can come into existence, we will consider the four elements that must be established in order for an easement to exist at all.

Substantive requirements for the creation of easements [12.6]

There are four substantive requirements for the creation of an easement, which apply to any easement (whether the easement is created on Old System Title or Torrens Title land). In the case of Torrens land, these requirements apply whether or not the easement has been registered. In other words, even if an instrument is registered pursuant to the Torrens legislation and purports to create an easement, it always remains a question of fact as to whether it did in fact

create an easement. As noted in Chapter 6, registration creates indefeasibility of title, but the question always remains as to exactly what is protected by the registration. Something that is never an easement does not become an easement merely by virtue of it becoming registered.1 It is either an easement or it is not an easement. If it is not an easement and there [page 230] is no reason for it to remain on a folio in the Torrens Register, then orders can be sought removing it from the Register. Unlike the position in respect of void or forged mortgages, mere registration does not turn something into an easement which was never an easement at common law. This is the position even if all the other formal requirements for the creation of an easement are met.

The four substantive requirements for a valid easement [12.7]

The four requirements of an easement are set out in the decision of Re Ellenborough Park [1956] Ch 131 and include that: there must be a dominant2 and servient3 tenement; the dominant and servient tenements must not be held or occupied by the same person; the easement must accommodate the dominant tenement; and the right must be capable of forming the subject matter of a grant of easement.

Dominant and servient tenement

[12.8]

There must always be a servient tenement (land burdened by the easement) because an easement is a privilege or a right over or burdening the servient tenement. This means that the easement in some way restricts what the owner of the servient tenement could otherwise do with her or his land. Apart from some statutory exceptions to this principle, there must also be a dominant tenement, because the privilege or right created by the easement must benefit a piece of land. If it does not, the easement is said to be an easement ‘in gross’. There must be land that is benefitted by the right created in order for it to be an easement. According to the common law, an easement ‘in gross’ cannot exist.4 The statutory exceptions to the common law principle that an easement cannot exist in gross are usually for statutory or public authorities involved in the provision of utilities or essential services. For example, under s 88A(1) of the Conveyancing Act 1919 (NSW), it is possible to create ‘in favour of the Crown or of any public or local authority an easement without a dominant tenement’.

Dominant and servient tenements not be held or occupied by the same person [12.9]

Since an easement is a right over somebody else’s land, the dominant and the servient land must always be either owned or occupied by different persons. For example, a lessee may acquire an easement over the adjoining property of the lessor, even though the lessor is the fee simple owner of both tenements.5 At common law, an easement [page 231] is extinguished if the dominant and servient tenements come into the ownership and occupation of the same person.

This is an application of the ‘doctrine of merger’. In order for merger to operate, both ‘unities’ (ownership and possession) must exist. Unity of possession by one person of both parcels of land without unity of ownership of the same land, is not enough for a merger to occur and the easement to be extinguished. Unity of ownership in this context involves the acquisition of both the dominant and servient tenements for a ‘fee simple absolute’.6 If there is only unity of possession, the right created by the easement is merely suspended until the unity of possession ceases. If there is only unity of ownership, the right continues until there is also unity of possession. [12.10]

If an easement has been extinguished by operation of the doctrine of merger, it does not revive automatically when the land is severed again into dominant and servient tenements; that is, when it comes into separate ownership again. In that circumstance, there must be a fresh grant of the easement.7

[12.11]

In New South Wales, the common law doctrine of extinguishment of interests in land by merger of title does not apply to a registered easement in respect of Torrens Title land.8 In Victoria, indefeasibility under Torrens Title means that an easement notified on the title continues to be effective as an ‘appurtenant easement’ to an estate, even if abandoned by a predecessor of the current registered owner of the servient tenement unless and until it is removed by the Registrar-General.9 There are also now a number of other statutory exceptions to this rule. For example, easements created on a plan of subdivision (for both Old System Title and Torrens land) usually have both benefited and burdened lots still in the same ownership. The easement is still validly created pursuant to the legislation.10

[12.12]

Despite the statutory changes, the doctrine of merger and the common law rules for extinguishment of easement are of

continued relevance and apply to Old System Title land and to unregistered easements of Torrens Title land.

Accommodation of the dominant tenement [12.13]

The right claimed as an easement must be reasonably necessary for the better enjoyment of the dominant tenement. It is a question of fact in each case as to whether the particular right granted does, in fact, benefit the land of the dominant tenement. This depends on the nature of the dominant tenement and on the right/s granted. For example, a grant that was made to pass and re-pass over a servient tenement ‘for all purposes’ was found to be incapable of creating an easement, because it permitted use of the road for purposes unconnected with the better enjoyment of dominant land.11 [page 232]

[12.14]

How do courts work out whether a right benefits land? One way is to look at the value of the right granted. For example, the fact that an alleged easement enhances the value of the dominant tenement might be a significant factor in determining whether the right accommodates the dominant tenement. However, courts have made it clear that value is not necessarily the determining factor of whether or not the right benefits the dominant tenement; it must still be shown that the right was connected with the normal and reasonable enjoyment of the land as land.12 Merely looking at the value of a right does not necessarily tell you whether the right is merely a contractual right (which benefits the person benefitted by the contract) or whether it is a right which becomes an easement because it benefits the land as land, and not just a person who happens to be occupying the land

for a period of time. Each right is capable of adding value to the land occupied by the owner of the dominant tenement. The critical factor is that the right that was granted by the owner of the servient tenement was meant to benefit the land of the dominant tenement as land, rather than just benefitting the fee simple holder of the land for the time being. [12.15]

This distinction is best illustrated by the decision of the New South Wales Court of Appeal in Clos Farming Estates Pty Ltd v Easton (2002) 11 BPR 20,605; [2002] NSWCA 389. In this case, the owner of the alleged servient tenement had granted an easement for a vineyard. The alleged dominant tenement (Lot 86) was a small parcel of land located in a winery. The owner of that land had constructed a shed to house farm machinery, and another to house chemicals as well as an office for the vineyard on the lot. The alleged easement was to allow the owner of that tenement the right to carry out acts associated with the operation of the vineyard (such as planting and maintaining vines and harvesting grapes) on 80 alleged servient tenements. Each of those tenements was in separate ownership. The New South Wales Court of Appeal found that a valid easement had not been created because the right granted did not benefit the land of the alleged dominant tenement as land. The alleged easement was not reasonably necessary for the normal use and enjoyment of Lot 86 (the alleged dominant tenement). Rather, the right was a personal right that benefited the owner for the time being of Lot 86 (it benefitted the business being operated off the land). The use being made of the alleged dominant tenement was merely a ‘convenient incident’ of the enjoyment of the right that had been granted, not a benefit to the land itself as land. The court characterised the right granted as being incidental to the business run out of Lot 86, rather than the business being incidental to the land.

[12.16]

Servient and dominant tenements need not be adjoining parcels of land, but must be reasonably physically close to one another to allow the dominant tenement to enjoy the practical benefit required from the servient tenement.13

[12.17]

In the case of easements and subdvisions, an easement may accommodate the subdivided parts of a dominant tenement. In Gallagher v Rainbow (1994) 179 CLR 624; 121 ALR 129, the High Court (by majority) held that an express grant of right [page 233] of way ‘for all purposes ordinarily incidental to or connected with domestic use and enjoyment of the dominant tenement or any part thereof’ was capable of benefiting each of the parts into which the dominant tenement was subdivided, on the basis that there was a presumption that an easement is attached to the dominant tenement and to each part of it. The reasoning of the court recognised that the words of the grant included ‘or any part thereof’.14 In other words, if each part of land is to be benefitted by an easement, including the land of a dominant tenement which is to be further subdivided in the future, then words should be used in the original grant that make it clear that it is not just the entire parcel of land that is to be benefitted but also each and every part into which it may later be divided.

Capable of forming the subject matter of a grant [12.18]

The requirement that the right must be capable of forming the subject matter of a grant of easement is often closely related to the reasoning as to whether or not the right accommodates the dominant tenement. However, the requirement is separate and distinct.15 In rough terms, what

the law is attempting to say is that the rights granted by the owner of the dominant tenement have to be rights that the law recognises as capable of forming an easement. If the rights do not fall within the categories which a court currently considers are capable of forming the grant of an easement, then all that will be created is a personal right between the parties. If this all sounds slightly circular there is good reason for that: it usually is! Despite this, it is possible to discern from the decided cases some current examples of what might constitute a right capable of forming the subject matter of a grant of an easement. Below we will consider some of the concepts that underlie the idea that, for a right to be an easement, the right must be capable of forming the subject matter of the grant. This is based on the theory that all easements are said to ‘lie in grant’; that is, that no right can exist as an easement unless it is capable of being granted. [12.19]

How do we work out whether a right is capable of forming the subject matter of the grant of an easement? The ultimate answer to this is based on the answer to three questions that were set out by the Court in Re Ellenborough Park (at 163–4): (1) whether the rights purported to be given are expressed in terms that are too wide and vague in character; (2) whether such rights would amount to rights of joint occupation or would substantially deprive the owners of the servient tenement of proprietorship or legal possession; and (3) whether such rights constitute mere rights of recreation, possessing no quality of utility or benefit.

[12.20]

In this section we will focus on the first two aspects of this test, examining what courts have regarded as relevant under each of these concepts. The third requirement [page 234]

was relevant to the court’s determination in Re Ellenborough Park,16 but today it is of somewhat limited use.17 The High Court has stated that the categories of permissible easements are not closed;18 however, courts use the limitations set out in Re Ellenborough Park to restrict how and when rights will be recognised as having created an easement. We will now look at some of those restrictions. [12.21]

Novelty of the right In Clos Farming Estates Pty Ltd v Easton (2001) 10 BPR 18,845; [2001] NSWSC 525 Bryson J elaborated on what may be meant by possible easements that are ‘novel in kind’.19 His Honour stated that the issue of novelty of rights for easements has several aspects: an easement can be novel in that it accommodates the dominant land in a way that only became possible or useful because of some relatively recent invention. An example might be an easement for electricity supply and telecommunications. Easements for services of kinds which arise from new technology are novel in the sense that technology is new and, until it was invented, land was not accommodated by it. However, if the dominant land is accommodated, and the servient land is burdened, in ways analogous to the operation of easements which were earlier known, novelty could not be an obstacle to the validity of the easement; there may be novelty in respect of the manner and degree of intervention in the rights of the servient owner which differ from interventions which are already known. Novelty presents difficulty in this sense because it raises the question as to whether it creates an interest of a new kind outside the known concept of an easement (according to the current grants recognised by the courts). However, his Honour distinguished between the concept of novelty in respect of categories of easements and the concept of creating new kinds of interests in land.

[12.22]

Rights too wide or vague to be capable of forming a grant A right claimed as an easement must be sufficiently precise and certain. In Riley v Penttila [1974] VR 547, it was argued that a grant to a number of adjoining owners of ‘the liberty to enjoy the reserve for the purpose of recreation or a garden or a park’ (at 557) was too indefinite, indeterminate and uncertain as to be unenforceable as an easement. This was similar to the argument over the rights of recreation in Re Ellenborough Park. The court rejected the argument, and found that the right was capable of forming the grant of an easement because the primary purpose of the grant was to enable the grantees to enjoy a clearly defined reserve as a large private garden, and there was a clear physical connection between the right over the reserve and the dominant tenements.

[12.23]

Joint occupation The type of rights traditionally recognised as easements exclude rights which amount to an exclusive or joint occupation of the servient land. [page 235] The conceptual basis for this requirement is that an easement is something which confers on the grantee ‘rights of user’ and enjoyment over the land of the servient tenement, whereas a grantee who acquires possession of land acquires relative ownership of the land itself, together with its buildings, trees, minerals and other items fixed to the land. It is not always easy to determine whether a use of land amounts to a joint occupation. For example, in Copeland v Greenhalf [1952] Ch 488, a right to use land for storing vehicles waiting for repairs was held not to be an easement, because the right amounted to a claim to the joint user of the land, as it required the whole beneficial use of the strip of

land in question. Upjohn J said that the right claimed went wholly outside any normal idea of an easement, being virtually a claim to possession of the servient tenement, if necessary, to the exclusion of the owner. The right was further described as being too wide and undefined to be the proper subject matter of an easement.20 Such descriptions, however, are not particularly helpful in determining whether a particular right is more akin to joint possession than mere joint use of the land. One test developed by the courts is to ask whether the use and enjoyment of the right claimed as an easement amounts to an invasion of the servient tenement such as is likely to ‘leave the servient owner without any reasonable use of his land’.21 [12.24]

In Clos Farming Estates (2001) 10 BPR 18,845; [2001] NSWSC 525, the alleged easement was described as ‘an easement for vineyard’ which permitted the owner of the dominant tenement to enter the servient tenement and carry out viticulture works, harvest grapes and sell them. Bryson J concluded that the restriction was not a valid easement. The New South Wales Court of Appeal upheld his Honour’s decision, agreeing that, in the light of the total restrictions imposed on the servient owner, ‘its rights are so attenuated as no longer to meet the description of exclusive possession’: at [46].22 It is, however, a question of fact in each case as to whether the permitted use involves a significant interference with the use and enjoyment of the servient tenement.23

Formal requirements for the creation of easements [12.25]

Apart from the four substantive requirements which must be met in order to create an easement which we have just discussed, it is also necessary to comply with the formal

requirements for the creation of an easement in the applicable jurisdiction. Those requirements depend in each case upon the way in which the easement is created; for example, whether it is created by express grant or implied grant, and whether or not the land is Old System Title or Torrens Title. [page 236]

Creation by express grant [12.26]

Creation by express grant occurs when the owner of the fee simple of the servient tenement expressly grants an easement to the owner of the fee simple of the dominant tenement. How this is created depends upon whether the land is Old System Title or Torrens Title.

Old System Title — creation at law [12.27]

The legislation in each jurisdiction in Australia usually requires a deed to be executed by the parties to create an easement by express grant.24

Old System Title — creation in equity [12.28]

Easements can be created in equity in a variety of ways; for example, an agreement to grant an easement that is specifically enforceable gives rise to an equitable easement.25 The agreement must satisfy the requirements of applicable legislation,26 or there must be sufficient acts of part-performance.27 An equitable easement might also be created by operation of the doctrine of estoppel or by acquiescence.28

Torrens Title [12.29]

To create an easement for Torrens land, the registered proprietor of the servient tenement must execute a transfer in the approved form.29 In some jurisdictions, certain easements are protected, even if unregistered. These ‘omitted’ easements will be dealt with at [12.51]–[12.54]. An expressly created, but unregistered, easement takes effect as an equitable interest. [page 237]

Creation by express reservation Old System Title — at law [12.30]

Creation of an easement by express reservation can be by way of a reservation of rights to the owner of what becomes the dominant tenement in the conveyance of the property of the servient tenement.

Old System Title — in equity [12.31]

Again, an enforceable agreement to grant an easement will give rise to an equitable easement (based on the same principles set out above).

Torrens title [12.32]

The principles which apply to expressly granted easements set out above also apply to expressly reserved easements.

Approved plan of subdivision [12.33]

Under legislation, a plan of subdivision can be lodged for

either Old System Title or Torrens land. This plan creates all easements referred to in the plan of subdivision and vests in the owner of the land benefited by the easement.30

Other formal requirements [12.34]

Legislation in New South Wales requires that both the land burdened and the land benefited by the easement are clearly identified in order for the easement to be enforced against a person (usually the owner of the servient tenement) who is not a party to its creation.31

Creation by implication [12.35]

Two forms of implied easements can be created by implication: easements by implied grant: – implied easements created under the rule in Wheeldon v Burrows; – implied easements under relevant legislation; – easements of necessity; [page 238] – –

easements of common intention; easements implied from description of the land; and

easements by reserved grant.

Implied grant [12.36]

Implied easements under the rule in Wheeldon v Burrows In the case of Wheeldon v Burrows (1879) 12 Ch D

31; [1874–80] All ER 669 it was held that an implied easement will be created if the following four conditions are satisfied: there is a severance or grant of the grantor’s land (the servient tenement); at the time of the severance, the exercise of the alleged easement was continuous and apparent; the alleged easement was necessary for the reasonable enjoyment of the land granted; and at the time of severance of the land, the alleged easement was used by the grantor (owner of the servient tenement) for the benefit of the land granted (owner of the dominant tenement). [12.37]

The reason for this rule is based on the legal principle ‘nonderogation from grant’, which simply means that a grantor is presumed not to do anything to lessen the rights implicit in the grant. This form of implied easement is usually enforceable under the in personam exception or a separate statutory exception to indefeasibility for Torrens title land.32

[12.38]

Implied easements under relevant legislation As a matter of statutory construction, legislation often provides that general words will be imported into a transfer, including rights that create any easements. These provisions have been interpreted as creating implied easements. This legislation does not usually apply to Torrens land. Accordingly, it is usually not possible to create easements in this manner for Torrens land.

[12.39]

Easements of necessity Easements can be granted impliedly if they qualify as ‘easements of necessity’. An easement of necessity is one which is necessary for the enjoyment of the land being conveyed to the grantee (dominant tenement). The most obvious example of this is where the land being granted would otherwise be

landlocked. In that instance, the grantor is held to have impliedly granted a right of way over her or his property to enable access to the land of the dominant tenement. Easements of necessity are not implied unless they are essential for the use of the alleged dominant land. Mere inconvenience in the use of that land will not suffice.33 [page 239] [12.40]

Legislation now provides power to courts to grant easements over land where the easement is reasonably necessary for the effective use or development of other land that will have the benefit of the easement.34 This requirement of reasonable necessity is thought to be less strict than the common law. Further, the reasonable necessity does not need to exist at the time severance of the two parcels of land as required under the common law.

[12.41]

Easements of common intention An easement will be implied if it is necessary to give effect to the common intentions of the parties to the transaction. For example, in Richards v Rose (1853) 9 Ex 218, upon the sale of one of two adjoining houses (which depended on each other for support) an implied right of support was granted to the purchaser.

[12.42]

Easements implied from description of the land If land is described in a conveyance with phrases such as ‘bounded by’ or ‘abutting on’ a road or street, then the grantor is deemed to have impliedly granted an easement over such part of the road as forms part of the grantor’s land. Further, the grantor is deemed to have impliedly granted an easement over the grantor’s land to get access to the road (if land belonging to the grantor lies between the land sold and the road). This principle applies to both Old System Title

and Torrens Title land.

Reserved grant [12.43]

There is a general rule that it is not possible to impliedly reserve easements. If the owner of the dominant tenement wishes to reserve an easement, then she or he should do so expressly. There are, however, two exceptions where the common law will find that an easement has been created by implied reservation: easements of necessity and easements implied from common intention.

[12.44]

Easements of necessity These arise on the same basis as where they are impliedly granted (see [12.36]–[12.39]).

[12.45]

Implied from common intention Here, the implied intention forms the basis of an implied reservation of an easement in the same manner discussed above for implied grants.

Acquisition by ‘long user’ or prescription [12.46]

In addition to express and implied grants, it is also possible to acquire an easement by a period of protracted and continuous use by the owner/s of the dominant tenement. This is known as the ‘doctrine of prescription’.35 An owner who is said to ‘sleep on’ her or his rights ends up forfeiting them in the face of a claim by someone who has used them for at least 20 years. In the case of an easement by prescription, the person asserting the easement asserts positive rights acquired by practice; that is, by use of the easement. [page 240]

[12.47]

In England, there were three modes of acquisition of an easement by prescription: at common law; by the doctrine of ‘lost modern grant’; and under the Prescription Act 1832 (UK).36

[12.48]

Courts have treated claims based on prescription in most jurisdictions in Australia as originating in the doctrine of lost modern grant, presuming that the grant of the easement had been made but was later lost and where 20 years of use as of right of the easement can be established by the owner of the dominant tenement.

Easements by prescription in Western Australia and South Australia [12.49]

Establishing prescriptive rights to easements under the Prescription Act 1832 (UK) appears to apply in South Australia37 (and was previously enacted in Tasmania)38 and has been adopted in Western Australia.39 The legislation means that users as of right and without interruption for 20 years can establish a valid claim.

Easements by prescription in Tasmania [12.50]

In Tasmania, the doctrine of lost modern grant has been abolished by legislation.40 Section 138J of the Land Titles Act 1980 (Tas) permits an application to be made to the Recorder of Titles for a vesting order after use of the easement for a period of 15 years.

Easements and Torrens Title [12.51]

The Torrens legislation in all Australian jurisdictions

provides for the registration of easements.41 Upon registration, the easement binds the owner of the servient tenement. However, there are a number of other categories for Torrens land that have to be considered: express easements that have been omitted from the title; equitable easements; easements created by implied grant or reservation; easements that fall within the in personam exception to indefeasibility of title; and easements created by prescription. [page 241]

Express easements omitted from the title [12.52]

In some circumstances, all the statutory formalities for the creation of an easement for Torrens land have been complied with but, due to an error on the part of the Registrar, the easement is either omitted from the title or misdescribed. In these instances, the easement is an exception to the general principles of indefeasibility. Therefore, although the easement is not recorded, it can still bind registered proprietors of the fee simple of the servient tenement.42 This principle appears to apply in every jurisdiction except New South Wales, where the exception only applies if the easement has in fact initially been recorded and is subsequently omitted or misdescribed.43 In all jurisdictions, if an easement is created prior to the time when the servient tenement was brought under the Torrens legislation but, due to the error, neglect or default of the Registrar the easement is omitted from the Register, then the easement also falls within the exception to indefeasibility.44

Equitable easements [12.53]

Equitable easements are created in much the same manner as equitable mortgages or equitable leases. Therefore, if sufficient writing and acts of part-performance exist on the part of the grantor and the grantee, the easement may be specifically enforceable.

Easements created by implied grant or reservation [12.54]

The legislation in each jurisdiction is different in respect of the recognition of implied grants. In New South Wales, implied easements cannot be recognised unless the easement was created prior to the servient tenement being brought under the Torrens legislation.45 Such implied easements fall within the omitted easements section of the Torrens legislation as an exception to indefeasibility of title.46 In Queensland and the Northern Territory, there is a statutory definition of ‘omission’, the effect of which is to narrow the recognition of easements to those not included on the Register when the land was converted to Torrens Title or, if they were included, later left off due to error.47 In South Australia and the Australian Capital Territory, there is an exception to indefeasibility for omitted or misdescribed easements.48 In Victoria, Tasmania and [page 242] Western Australia, most easements that are implied will be recognised and protected by the Torrens legislation.49

Easements that fall within the in personam exception to indefeasibility

[12.55]

An unregistered easement can be enforced against the registered proprietor of the servient tenement where the easement comes within the in personam exception to indefeasibility. For example, where the purchaser of the servient tenement contracts with the vendor of the servient tenement to be bound by the easement, then the in personam exception to indefeasibility can apply.50

[12.56]

In the case of implied easements, the situation is less clear. The New South Wales Court of Appeal appears to have substantially limited the availability of this exception to indefeasibility to protect implied and prescriptive easements. In McGrath v Campbell (2006) 68 NSWLR 229; NSW ConvR 56-159, the claim was for a Wheeldon v Burrowstype implied easement under the in personam exception. The purchasers of the servient tenement knew that while the parcels of land had been in common ownership the driveway on the servient tenement was used to gain access to the dominant tenement, and also knew that the lots had been sold in contemporaneous transactions. The New South Wales Court of Appeal said that, were the parcels Old System Title, a term could have been implied into the contracts of the purchase of the servient tenement that the land was subject to an easement in favour of the dominant tenement. However, since the land of the servient tenement was Torrens land, such an unregistered easement could only arise within the in personam exception if it was the actual (instead of the presumed or implied) intention of the purchaser of the servient tenement to take the land subject to the unregistered easement. There was no evidence of the purchasers’ conduct on this point, because the purchasers had no control over the terms on which the dominant tenement was sold. As such, there was no relevant conduct by the purchasers that led to the creation of the easement that would make it unconscionable for them to deny the

interest. Therefore, the in personam exception did not apply. However, the decision leaves open the possibility that, if relevant conduct does exist such that it could be shown that the servient tenement’s owner had an actual intention to take the land subject to an implied easement, then the in personam exception could apply. Further, it is possible that the decision in McGrath will be distinguished in future cases where the common grantor has retained the servient tenement. The question for the future will be whether the obligation of the grantor not to derogate from her or his grant is conduct sufficient to eliminate the need to prove actual (rather than presumed or imputed) intention to be bound by the easement in order to establish the in personam exception.51 [page 243]

Easements created by prescription [12.57]

Easements created by prescription are limited in respect of land under Torrens Title because prescription arises by operation of law from the acts of the parties, without formal documentation. Prescription has been held to be applicable to Torrens land in Victoria and Western Australia,52 and the Torrens legislation in Tasmania is phrased broadly enough to permit prescriptive easements.53 However, in New South Wales, Queensland and South Australia, easements created by prescription cannot exist for Torrens land,54 and courts have found that a prescriptive easement cannot fall within the in personam exception to indefeasibility of title where the servient tenement was always Torrens Title.55

Changing the use of an easement

[12.58]

Changing the use of an easement arises often in disputes between neighbours. Change of use of an easement deals with the scope of rights conferred by an easement. For example, a right of way may be limited to ‘pedestrian traffic’ and, if so, may impliedly exclude ‘vehicular traffic’. A right of way may include a mere right to pass (right of way), or it may include a right to park for the purposes of loading and unloading a vehicle (right of way and right to park). The disputes that occur in this area focus on whether a particular use being made of the easement by the owner of the dominant tenement is in excess of the purpose contemplated by the parties to the creation of the easement at the time of the original grant. In other words, do the rights conferred by the original owner of the servient tenement (original grantor) extend to the current use being made of the easement by the current owner of the dominant tenement? Whether or not the current use is one that is permitted is a matter of: construction of the terms of the easement; and the current use (in fact) being made of the easement by the owner of the dominant tenement. [page 244]

Change in use — express grants [12.59]

It is a matter of construction of the easement to determine whether or not a change in use is permitted. Easements which are drafted in very broad terms are still subject to restrictions on use. For example, a broad easement might say ‘a right of way for all purposes and at all times’. A more limited form of easement might say ‘a right of way for the purposes of allowing the owner of the dominant tenement

access to her or his lot by the use of a single private purpose vehicle and only between the hours of 9 am and 6 pm’. Whether or not a use is permitted depends on the terms of the easement and the current use being made of the easement. [12.60]

Where there is an alteration to the use of the dominant tenement, the grantee has no right to use the easement for any new and additional purpose of the dominant tenement. In Jelbert v Davis [1968] 1 WLR 589, the English Court of Appeal held that the conversion of the dominant tenement from agricultural use to a caravan and camping park with over 200 caravan spaces would result in an unreasonable increase in the volume of use and, consequently, impose an unreasonable burden on the servient tenement. According to Lord Denning MR (at 595), a grant of easement does not authorise an unlimited use of the easement. Some change in the degree of use is permissible, provided it does not go beyond what was contemplated by the parties at the time the easement was created. However, it is not a permissible use of the easement if the change in use substantially increases the burden upon the land of the servient tenement.

Construction of easements and the Torrens system [12.61]

In Westfield Management Ltd v Perpetual Trustee Co Ltd (2007) 233 CLR 528; 239 ALR 75; [2007] HCA 45, the High Court examined the issue of construction of an easement, including what use could be made of extrinsic evidence, for registered easements on Torrens land. In that case, Westfield had sought to use an existing registered easement (being a right of carriageway) in its favour to access other property it owned that was adjacent to its dominant tenement. The High Court construed the existing easement and found that its scope did not extend to include a right to enjoy the benefit ‘across’ the dominant tenement, but only ‘to

and from’ the dominant tenement. The court found that the scope of the easement depended upon the terms of the grant, construed in the light of surrounding circumstances at the date of the grant (that is, the date of creation of the easement). [12.62]

In Gallagher v Rainbow (1994) 179 CLR 624; 121 ALR 129, McHugh J had considered the construction of a grant conferring an easement and had acknowledged that, at common law, the meaning of an easement conferred by a deed of grant is determined by reference to the language of the grant construed in the light of the circumstances in which it was created. His Honour adopted the view that, whether at common law or under the Torrens system, in every case evidence is admissible of all material facts existing at the time of the execution of the deed creating the easement, so as to place the court in the same situation as that of the grantor at the time. This could [page 245] include material extrinsic to the Torrens Register. However, in Westfield Management, the High Court considered that this statement was too widely expressed: at [39]. The court stated that the rationale for its conclusion of restricting evidence to only matters recorded on the Torrens Register was that a third party which inspects the Torrens Register cannot be expected (consistently with the scheme set up by the Torrens system) to look further than the Register for material which might establish facts or circumstances existing at the time of the creation of easement: at [5]. The court commented that, in the absence of contrary argument, it may be accepted that evidence is admissible to make sense of matters which the Register identifies by the terms

or expressions found therein (such as surveying terms or other expressions in the documents on the Register). However, evidence as to the state of mind or intention of the parties to the creation of the easement is not inadmissible to construe registered easements for Torrens land: at [44]–[45].

Change in use — implied and prescriptive grants [12.63]

Implied and prescriptive easements do not enable a change in use of the easement.56 In this area, courts distinguish between a mere increase in the amount of use of the easement as opposed to the way in which the easement is used (change in use).57 For example, merely increasing the number of cars travelling over an easement from one to four people may amount to a mere increase in use.58 But if the dominant tenement was originally land used for rural purposes and is later converted to commercial purposes, and is used by more people as a consequence of that change, then the increase in volume may in fact amount to a change in the use of the easement.59 Whether or not there has been a change in use is a question of degree, and each case turns on its own facts.

Extinguishing easements [12.64]

Easements can be extinguished in a number of ways, including: by an express release of the easement given by the owner of the servient tenement; by abandonment of the use of the easement by the owner of the dominant tenement; where there has been an alteration to the dominant tenement;

where the dominant and servient tenements come into common ownership; and where the easement is extinguished under statute. [page 246]

Express release [12.65]

Express release is usually the most obvious and effective way of extinguishing an easement. In fact, if you ever act for the owner of a servient tenement who is seeking to be released from her or his obligations under an easement, then obtaining an express release in proper form is precisely how things should be done. For Old System Title land, easements can be extinguished by express release by the owner of the dominant tenement. For the release of an easement of Old System Title land to be effective at law, the legislation in each of the states except Queensland provides that the release must be by deed.60 In Queensland, the release may be by deed or in writing to be effective at law.61

[12.66]

Removal from the Torrens Register takes place in different ways depending on the jurisdiction. In New South Wales, Tasmania and Victoria, the Registrar is empowered to cancel any notification of an easement when it is released by agreement between the parties.62 In South Australia, the Registrar-General may, upon application in approved form by the proprietor of the dominant or servient tenement or on the Registrar-General’s own initiative, extinguish an easement.63 In Queensland and Western Australia, the parties must obtain a court order before any notification of an easement will be removed from the Register.64 In the Australian Capital Territory, a registered easement will be extinguished by the registration of a memorandum of

extinguishment of easement or by the surrender of the lease of the land benefited by an easement.65

Abandonment [12.67]

An easement can be extinguished if it is abandoned by the dominant tenement. Whether that has occurred is a question of fact to be determined in each case. The test applied to determine whether an easement has been abandoned has two components: the owner of the dominant tenement must have ceased to use the easement; and the owner of the dominant tenement must have positively intended to abandon the use of the easement.

[12.68]

It is not easy to establish that an easement has been abandoned.66 In particular, the second requirement relating to intention is often very difficult to establish in fact. [page 247] Where abandonment can be established, Torrens legislation allows the Registrar to remove the recording of an easement from the Register on the basis that it has been abandoned, provided that the issue of abandonment has been brought before a court.

Change of the dominant tenement [12.69]

If the dominant tenement changes significantly in its character, an easement may also come to an end. For example, in Jelbert v Davis [1968] 1 WLR 589, the dominant tenement had been converted from agricultural land to land

that was used for the purposes of a large camping park. This led to an unreasonable increase in the use of a right of way over the servient tenement. The rationale for this rule is that an excessive burden would not be within the intention of the original parties to the easement.

Common ownership [12.70]

As discussed above, ownership and possession of the dominant and servient tenements in one person extinguishers an easement. This is part of the idea that an easement cannot exist ‘in gross’.67

Extinguishment under statute [12.71]

Legislation in each jurisdiction allows courts to modify, or wholly or partially extinguish, an easement.68

Suspension of easements [12.72]

In addition to extinguishment of easements, it is also possible under various statutes to suspend the operation of an easement. This merely suspends certain rights of the owner of the dominant tenement for a period of time.69 It does not extinguish the easement. These orders are commonly sought to enable the development of the land of the servient tenement.

Remedies [12.73]

There are two remedies that are available to the owner of the dominant tenement where rights granted by an easement are infringed:

abatement; and action (commencing legal action). [page 248] [12.74]

Abatement describes the remedy of self-help to prevent infringement of the easement. Abatement is permissible provided that (1) no more force than is reasonably necessary to stop the infringement is used; (2) there is not likely to be a breach of the peace that results from the action taken; and (3) there is no injury to third parties or to the public by the actions taken. For example, if a servient tenement’s owner locks a gate and thereby prevents the use of a right of way in favour of the dominant tenement, the owner of the dominant tenement can break open the locked gate. However, courts do not usually favour the dominant tenement’s owner using rights of abatement, and actions of this sort often lead to a further deterioration of the relationship between the respective owners and a further escalation of the dispute between them.

[12.75]

The most common path taken is to approach the court for damages, or declaratory or injunctive relief. This is either to obtain compensation for any interference with rights that has already occurred, or to prevent further interference with those rights in the future.

__________________________ 1

Bursill Enterprises Pty Ltd v Berger Bros Trading Co Pty Ltd (1971) 124 CLR 73; [1971] ALR 551.

2

The land benefitted by the easement. The land burdened by the easement.

3 4

Harada v Registrar of Titles [1981] VR 743. 5 Maurice Toltz Pty Ltd v Macy’s Emporium Pty Ltd [1970] 1 NSWR 474. 6 7

Post Investments Pty Ltd v Wilson (1990) 26 NSWLR 598; 5 BPR 11,146. Post Investments Pty Ltd v Wilson (1990) 26 NSWLR 598; 5 BPR 11,146.

8

Real Property Act 1900 (NSW) s 47(7); Post Investments Pty Ltd v Wilson (1990) 26 NSWLR 598; 5 BPR 11,146.

9

Transfer of Land Act 1958 (Vic) s 73; Bookville Pty Ltd v O’Loghlen (2007) V ConvR 54-734; [2007] VSC 67 at [54] per Kaye J; affirmed on appeal: Bookville Pty Ltd v O’Loghlen [2007] VSCA 27. 10 For example, see Land Title Act 1994 (Qld) s 86; Conveyancing Act 1919 (NSW) s 88B(3). 11

See Ackroyd v Smith (1850) 10 CB 164; 138 ER 68. 12 In Re Ellenborough Park [1956] Ch 131. 13

Harada v Registrar of Titles [1981] VR 743. 14 Gallagher v Rainbow (1994) 179 CLR 624; 121 ALR 129 at CLR 632–4. 15 16

Clos Farming Estates Pty Ltd v Easton (2002) 11 BPR 20,605; [2002] NSWCA 389. The court determined that certain rights of recreation could be capable of forming the subject matter of the grant of an easement — in part because they were capable of accommodating the dominant tenements.

17

Given that recreational rights have frequently been accepted as being capable of forming the subject matter of a grant of an easement since that case. 18 Commonwealth v Registrar of Titles (Victoria) (1918) 24 CLR 348. 19

Which had been discussed by Griffiths CJ in Commonwealth v Registrar of Titles (Victoria) (1918) 24 CLR 348; 24 ALR 106. 20 Copeland v Greenhalf [1952] Ch 488 at 498. 21 22

London & Blenheim Estates Ltd v Ladbroke Retail Parks Ltd [1992] 1 WLR 1278 at 1288. Approved on appeal in Clos Farming Estates Pty Ltd v Easton (2002) 11 BPR 20,605; [2002] NSWCA 389 at [45]–[46], [68].

23

This issue is often raised in the context of whether the right to use the servient tenement for storage or as a car park can be an easement: as to which, see the discussion of the authorities by Windeyer J in JEA Holdings (Aust) Pty Ltd v Registrar-General (NSW) (2013) 16 BPR 31,745; [2013] NSWSC 587 at [17]–[38]. 24 Conveyancing Act 1919 (NSW) s 23B; Law of Property Act 1936 (SA) s 28(1); Conveyancing and Law of Property Act 1884 (Tas) s 60(1); Property Law Act 1958 (Vic) s 52(1); Property Law Act 1969 (WA) s 33(1). There are no equivalent provisions in the Australian Capital Territory and the Northern Territory. In Queensland, it is sufficient to pass a legal interest if the assurance of land is made by deed or in writing signed by the person making such assurance: Property Law Act 1974 (Qld) s 10(1). 25

Walsh v Lonsdale (1882) 21 Ch D 9; [1881–85] All ER Rep Ext 1690; (1882) 46 LT 858. The agreement will only be specifically enforceable if the terms are clear and defined, and adequate consideration exists: Brownsea v National Trustees, Executors & Agency Co of Australasia Ltd [1959] VR 243; [1959] ALR 650; Talga Investments Pty Ltd v Tweed Canal Estates Pty Ltd (1974) 1 BPR 9675; Milne v James (1910) 13 CLR 168. 26 Civil Law (Property) Act 2006 (ACT) s 201; Conveyancing Act 1919 (NSW) s 54A; Law of Property Act (NT) s 62; Property Law Act 1974 (Qld) s 11(1); Law of Property Act 1936 (SA) s 26; Conveyancing and Law of Property Act 1884 (Tas) s 36; Instruments Act 1958 (Vic) s 126; Property Law Act 1969 (WA) s 34. In Western Australia, the Statute of Frauds 1677 (IMP) s 4 still applies, amended by the Law Reform (Statute of Frauds) Act 1962 (WA).

27

McManus v Cooke (1887) 35 Ch D 681; Powell v Whyte [1968] Qd R 255; Barba v Gas & Fuel Corp of Victoria (1976) 136 CLR 120; 41 LGRA 19; 12 ALR 649; Deanshaw v Marshall (1978) 20 SASR 146.

28

Aitkien v Bates (1870) 1 VR (L) 211; Russell v Watts (1883) 25 Ch D 559; Crabb v Arun District Council [1976] Ch 179; [1975] 3 All ER 865; Hill v AWJ Moore & Co Pty Ltd (1990) 5 BPR 11,359. 29 Land Titles Act 1925 (ACT) s 48(8); Real Property Act 1900 (NSW) s 36(11); Land Title Act (NT) s 179; Land Title Act 1994 (Qld) s 176; Real Property Act 1886 (SA) s 57; Land Titles Act 1980 (Tas) s 48(7); Transfer of Land Act 1958 (Vic) s 40(2); Transfer of Land Act 1893 (WA) s 85. 30

Land Titles Act 1925 (ACT) s 103DA; Conveyancing Act 1919 (NSW) s 88B; Land Title Act (NT) s 92; Land Title Act 1994 (Qld) s 49; Real Property Act 1886 (SA) s 90; Conveyancing and Law of Property Act 1884 (Tas) s 90B; Transfer of Land Act 1958 (Vic) s 98; Transfer of Land Act 1893 (WA) ss 136A–136J, 167A. 31 Conveyancing Act 1919 (NSW) s 88(1). 32

For example, under Real Property Act 1900 (NSW) s 42(1)(a1). 33 McLernon v Connor (1907) 9 WALR 141; Bayley v Great Western Railway Co (1884) 26 Ch D 434; Russell v Pennings (2001) 113 LGERA 216; [2001] WASCA 115; Union Lighterage Co v London Graving Dock Co [1902] 2 Ch 557; Bolton v Clutterbuck [1955] SASR 253. 34 35

For example, Conveyancing Act 1919 (NSW) s 88K. This is analogous to the doctrine of adverse possession, which we discussed in Chapter 4.

36

Only the second of these has ever been applicable in New South Wales: Delohery v Permanent Trustee Co of New South Wales (1904) 1 CLR 283; 10 ALR (CN) 37. 37 Golding v Tanner (1991) 56 SASR 482. 38 39

Prescription Act 1934 (Tas) (now repealed). 6 Will IV c 4 (WA).

40

Land Titles Act 1980 (Tas) s 138I. 41 Land Titles Act 1925 (ACT) s 103B; Land Title Act (NT) ss 91, 185; Real Property Act 1900 (NSW) ss 46, 47(1)–(6A); Land Title Act 1994 (Qld) ss 82, 83; Real Property Act 1886 (SA) ss 81, 96; Land Titles Act 1980 (Tas) ss 105, 106; Transfer of Land Act 1958 (Vic) s 72(1); Transfer of Land Act 1893 (WA) ss 63A, 64, 65, 67. 42 43

44 45 46 47

James v Registrar-General (1967) 69 SR (NSW) 361. Castle Constructions Pty Ltd v Sahab Holdings Pty Ltd (2013) 247 CLR 149; 296 ALR 394; [2013] HCA 11; JEA Holdings (Aust) Pty Ltd v Registrar-General (NSW) (2013) 16 BPR 31,745; [2013] NSWSC 587. In New South Wales, the New South Wales Court of Appeal has recently interpreted s 42(1)(a1) of the Real Property Act 1900 (NSW) as only requiring that the RegistrarGeneral record the easement on the folio of the dominant tenement; the easement will be considered to be omitted from the servient tenement where the Registrar has not recorded it on the dominant tenement in that circumstance: see Registrar-General (NSW) v JEA Holdings (Aust) Pty Ltd [2015] NSWCA 74. James v Stevenson [1893] AC 162. Dobbie v Davidson (1991) 23 NSWLR 625; McGrath v Campbell (2006) 68 NSWLR 229; NSW ConvR 56-159. Real Property Act 1900 (NSW) s 42(1)(a1). Land Title Act (NT) s 189(1)(c)(3); Land Title Act 1994 (Qld) s 185(1)(c)(3).

48

Land Titles Act 1925 (ACT) s 58(6); Real Property Act 1886 (SA) s 69(d). However, there are no cases interpreting the meaning of ‘omission’ for this section. 49 Land Titles Act 1980 (Tas) s 40(3)(e); Transfer of Land Act 1958 (Vic) s 42(2)(d); Transfer of Land Act 1893 (WA) s 68(1). 50

Ryan v Starr (2005) 12 BPR 22,803; [2005] NSWSC 170. 51 This potentially reconciles the decision with an earlier decision in Wilcox v Richardson (1997) 43 NSWLR 4; 8 BPR 15,491. 52

Nelson v Hughes [1947] VLR 227; National Trustees, Executors & Agency Co of Australasia Ltd v Long [1939] VLR 33; Di Masi v Piromalli [1980] WAR 57. In other jurisdictions, the position does not necessarily appear to have followed the approach in New South Wales: see, for example, Golding v Tanner (1991) 56 SASR 482, where an easement was enforced in personam against the original registered proprietor. 53 Dorset Council v Resource Management and Planning Appeal Tribunal (2011) 20 Tas R 416; [2011] TASSC 7. 54

Land Title Act 1994 (Qld) s 184; Dewhirst v Edwards [1983] 1 NSWLR 34; Anthony v Commonwealth (1973) 29 LGRA 61; [1972–73] ALR 769; (1973) 47 ALJR 83; Golding v Tanner (1991) 56 SASR 482. 55 Williams v State Transit Authority of New South Wales (2004) 60 NSWLR 286; 11 BPR 21,517. See also B Edgeworth, ‘The Fate of Prescriptive Easements under the NSW Torrens system’ (2004) 42 Law Society Journal 66; M McGuire, ‘A New South Wales Perspective on Implied and Prescriptive Easements and the in personam Exception to Indefeasibility of Title’ (2006) 12 Australian Property Law Journal 228. 56

RPC Holdings Ltd v Rogers [1953] 1 All ER 1029. 57 RPC Holdings Ltd v Rogers [1953] 1 All ER 1029. 58 59

British Railways Board v Glass [1965] Ch 538. RPC Holdings Ltd v Rogers [1953] 1 All ER 1029.

60

Conveyancing Act 1919 (NSW) s 23B(1); Law of Property Act 1936 (SA) s 28(1); Conveyancing and Law of Property Act 1884 (Tas) s 60(1); Property Law Act 1958 (Vic) s 52(1); Property Law Act 1969 (WA) s 33(1). There is no equivalent provision in the Australian Capital Territory. There is no longer any general law land in the Northern Territory. 61 Property Law Act 1974 (Qld) s 10(1). 62

Real Property Act 1900 (NSW) s 47(6) (the release of an easement should be by registered transfer); Land Titles Act 1980 (Tas) s 108(1); Transfer of Land Act 1958 (Vic) s 73(2). 63 Real Property Act 1886 (SA) s 90B(1)(c). 64

Property Law Act 1974 (Qld) s 181; Transfer of Land Act 1893 (WA) s 129C(1)(b). 65 Land Titles Act 1925 (ACT) s 103E. 66

For a good example of how difficult it is to prove abandonment, see the decision in Treweke v 36 Wolseley Road Pty Ltd (1973) 128 CLR 274; 1 ALR 104. 67 In other words, the idea that an easement must accommodate the dominant tenement. 68 69

See, for example, Conveyancing Act 1919 (NSW) s 89(1). For example, pursuant to s 28(2) of the Environmental Planning and Assessment Act 1979 (NSW), easements can be overridden by a council’s local environment plan or a development

consent to the extent that it is necessary to allow the development of the servient tenement.

[page 249]

CHAPTER 13

Freehold Covenants

Key Ideas By the end of this chapter you should be able to identify: how freehold covenants are created when a freehold covenant will be enforceable: – at law – in equity the difference between a positive covenant and a restrictive covenant when a covenant will be regarded as ‘touching and concerning’ the land of the covenantee when a covenant will be enforceable as part of a scheme of development

[page 250]

Introduction [13.1]

Freehold covenants were some of the first private planning instruments used in Australia. As housing density becomes more prevalent, particularly in Australia’s capital cities, the use of covenants continues to play an important role in regulating how owners can use their land. Of course, the use of land is now heavily regulated by statute as well. Nevertheless, private agreements as to the use of land are still negotiated through the use of freehold covenants.

[13.2]

A covenant is simply an obligation that relates to land. Freehold covenants refer to covenants that create an obligation upon an owner of property to either do or refrain from doing a specified thing on her or his property. Covenants can be categorised in two ways: as (1) restrictive/negative; or (2) positive. A restrictive covenant obliges an owner of land burdened by the covenant not to do something on her or his land. In this sense, it operates as a restriction on what the owner of the fee simple can otherwise do with her or his land. For example, around waterfront land it is common to find properties on which a restrictive covenant prevents the owner of a waterfront property (the burdened land) from building on their land any structure that is above a certain height. These restrictions are intended to benefit the blocks of land that sit behind such properties, by ensuring that any water views are not built out. The block benefited by the covenant is referred to as the ‘land of the covenantee’. The land burdened by the restrictive covenant is known as the ‘land of the covenantor’. The original parties to the covenant are known as the

‘covenantor’ (the person who granted a right which burdens their land) and the ‘covenantee’ (the person who obtained the benefit of the restrictive covenant). The persons who now occupy the position of the original covenantor and the original covenantee to the covenant are known as the ‘successors in title’ to the original covenantor or the original covenantee, respectively. [13.3]

In addition to restrictive covenants, there are also ‘positive covenants’, which oblige the owner burdened by the covenant to do something. For example, a covenant might oblige the owner of the property to ensure that she or he keeps any building upon her or his land in ‘good repair’.

[13.4]

In this chapter, we examine how covenants are created and the circumstances in which a covenant is enforceable.

Key terms and background [13.5]

As noted, the covenantor is the person upon whom the burden of a covenant falls; that is, the person against whom the covenant is being enforced. The covenantee is the person whose land is benefited by the covenant; that is, the person who obtains the benefit of the covenant (and who is usually trying to enforce the covenant). These are the two parties to the agreement that created the covenant. In this chapter, they will be referred to as the ‘original covenantor’ and the ‘original covenantee’, respectively.

[13.6]

A ‘successor in title’ to the original covenantor is a subsequent owner of that covenantor’s land. A successor in title to the original covenantee is a subsequent [page 251]

owner of that covenantee’s land. When a person can enforce a covenant against a successor in title to the original covenantor, they are enforcing the burden of the covenant. This is possible because the burden of the covenant ‘runs with the land of the covenantor’. By enforcing the burden of the covenant, a benefit is also obtained for the original covenantee (or one of her or his successors in title). When a successor in title to the original covenantee is enforcing a covenant, this occurs because the ‘benefit of the covenant has attached’ to the land of the covenantee. This is referred to as the benefit of the covenant ‘running with the land of the covenantee’. The different enforcement scenarios for covenants are discussed in this chapter.

Creation of freehold covenants [13.7]

There is no requirement that a covenant be created by way of deed; however, as interests in land, covenants must comply with the requirement that they are evidenced in writing. The only exception to this is in circumstances where there are sufficient acts of part-performance.1 In practice, most covenants are contained in the original deed of conveyance (for Old System Title land) or the registered transfer (for Torrens Title land), or in the Contract for the Sale of Land (both Old System Title and Torrens Title).

[13.8]

New South Wales has a number of additional statutory requirements for the creation of enforceable restrictive covenants. Most importantly, this includes identifying the land benefited by the covenant, the land burdened by the covenant and the persons who have the right to release, vary or modify the covenant.2 Without compliance with these requirements, a covenant is not enforceable against a successor in title to the original covenantor. In the case where the land benefited by the covenant is not identified,

successors in title to the original covenantee cannot obtain the benefit of the covenant either.

Recording covenants in the Torrens Register [13.9]

The rules on recording covenants in the Torrens Register vary somewhat between each jurisdiction. In New South Wales, covenants are not ‘registered’ as such; rather, the Torrens legislation enables the Registrar-General to make a recording of a covenant in the Register.3 This has the practical effect of providing notice to subsequent purchasers of the land affected by the covenant.4 In Tasmania, a dealing in approved form can be used and lodged for registration.5 Currently, an approved form includes an instrument creating restrictive covenants. The recording is noted on the folio of the burdened land only.6 In Victoria, the Registrar can record a restrictive covenant in any folio [page 252] of the Torrens Register where all affected parties agree.7 In Western Australia, there is no general obligation to record restrictive covenants on the benefited land. The Registrar can record covenants contained in instruments in approved form, subject to the consent of any registered mortgagee.8 In the other jurisdictions, there is no authority that permits the recording of restrictive covenants in the Torrens Register; however, alternative means can be utilised to record the existence of covenants.9

Plans of subdivision [13.10]

In most jurisdictions, provision is made for covenants to be created by way of registered plans of subdivision.10

Enforcement of covenants [13.11]

Now that we have considered some of the basics of the creation of freehold covenants, we will turn to the area where disputes arise in practice: whether or not the benefit of a covenant is enforceable against the current owner of the land burdened by the covenant. This enforceability might be against either the original covenantor or her or his successors in title. The person trying to enforce the benefit of the covenant may be the original covenantee, or one of her or his successors in title. It is possible for a number of scenarios to exist when we are dealing with an attempt to enforce the burden of a covenant (positive or restrictive) to obtain the benefit of a covenant. Those scenarios include: the enforcement of a restrictive covenant or a positive covenant at law; and the enforcement of a restrictive covenant in equity.

Enforcing restrictive and positive covenants at law [13.12]

Both restrictive and positive covenants are enforceable at law between the original parties to the agreement or for the benefit of any person intended to be benefited by the covenant, because the original parties to the agreement can enforce that agreement under basic principles of contract law. This is simply a reflection of the operation of the principle of privity of contract. Therefore, the original covenantee who takes the benefit of either a restrictive or a positive covenant in favour of her or his land can always enforce that covenant at law against the original person who made that contractual promise (the original covenantor). It is possible for successors in title to the original covenantee to enforce the benefit of restrictive or positive covenants at law where the

[page 253] contract creating the covenant specifically contemplates benefiting that party. This, again, is merely a reflection of ordinary contractual principles in which the benefit of an agreement can be expressed to benefit third parties by the original contracting parties. Covenants in this form are usually expressed in the following terms:11 This covenant is made between the covenantor and the covenantee to burden the covenantor for the benefit of the covenantee and her or his heirs, assigns, or successors in title. [13.13]

This agreement is telling us that the original covenantor is burdening herself or himself to benefit both the original covenantee and that person’s heirs, assigns or successors in title. This enforcement scenario can be represented by the following diagram. Diagram 13.1: Enforcement of covenants at law

[13.14]

This form of enforcement is relatively straightforward, since it relies on ordinary principles of contract law. However, most issues surrounding the enforcement of covenants relate to the circumstance in which the original covenantee (or her or his successor in title) wishes to enforce the benefit of a covenant against a successor in title to the original

covenantor. Since the person who now owns the land of the original covenantor is a stranger to the original contract then, in accordance with the doctrine of privity of contract, that person cannot be bound by any promise made by the original covenantor. In other words, it is not possible to bind a third party to an obligation. This means that a covenant that is expressed in any of the following terms is not enforceable against a successor in title to the original covenantor at law: This covenant is made between the covenantor and her or his heirs, assigns, or successors in title and the covenantee to burden the covenantor and her or his heirs, assigns, or successors in title for the benefit of the covenantee.

[page 254] or This covenant is made between the covenantor and her or his heirs, assigns, or successors in title and the covenantee to burden the covenantor and her or his heirs, assigns, or successors in title for the benefit of the covenantee and her or his heirs, assigns, or successors in title. [13.15]

Although such covenants are not enforceable at law, equity has developed a series of criteria which, if met, will mean that such covenants will be enforceable against a successor in title to the original covenantor. This enforcement scenario can be represented by the following diagram. Diagram 13.2: Enforcement of covenants in equity

Enforcement of restrictive covenants in equity [13.16]

In order to enforce the benefit of a covenant against a successor in title to the original covenantor, all of the following requirements need to be met. These requirements apply whether or not the person trying to enforce the benefit of the restrictive covenant is the original covenantee or a successor in title to the original covenantee. The important point is that these rules apply whenever a person is trying to enforce the benefit of a restrictive covenant against a successor in title to the original covenantor. In summary, those requirements are: the covenant must be restrictive in substance; the person against whom the covenant is being enforced must have taken her or his interest with notice of the covenant; the covenant must touch and concern the land of the covenantee; the original parties to the creation of the covenant must have intended that the benefit of the covenant run with the land of the covenantee; and the original parties to the creation of the covenant must have intended that the burden of the covenant run with the land of the covenantor.

[page 255]

Covenant must be restrictive in substance [13.17]

Equity will not enforce the burden of a positive covenant. Equity will enforce the burden of a restrictive or negative covenant. Whether or not a covenant is restrictive is a matter of substance, not form. Even if a covenant is drafted in terms that appear to require a positive action to be taken by the owner of the burdened land, if those terms are negative in their effect, then a court of equity will enforce the covenant. One way to test whether a covenant is restrictive in substance is to ask whether the covenantor (or her or his successors in title) can comply with the covenant by doing nothing. If the answer to that question is yes, then it is most likely that the covenant is restrictive in substance. An example of a restrictive covenant appears in the leading decision in this area in Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143. In that case, the covenant required the owner of the covenantor’s land to keep a garden and pleasure ground ‘not covered by any buildings’. The covenant could be complied with by the owner of the land of the covenantor doing nothing; therefore, the covenant was restrictive in substance. Other examples of restrictive covenants include covenants that require buildings to be built only out of certain materials, covenants restraining any building from being used for anything other than residential purposes, or covenants restraining any building from being used for anything other than commercial purposes. Each of these covenants restricts the use that can be made of the land of the covenantor and are therefore restrictive in substance.

Requirement of notice [13.18]

In order to enforce the covenant against any person who now

owns the land of the original covenantor, it is necessary to establish that that person took their interest in the land with notice of the relevant covenant. In other words, in order for a covenant to be enforceable, the person against whom enforcement is sought must not be a ‘bona fide purchaser for value without notice’.12 This is because equity takes the view that it is unconscionable for the owner of land burdened by a restrictive covenant to either ignore or deny the operation of the restrictive covenant in circumstances where that person acquired the land with notice of the covenant. Actual, constructive or imputed notice will suffice for this purpose, but notice must be established.13 In the case of a volunteer, the covenant might still be enforced against the volunteer even if she or he had no notice of the covenant.14

Annexation of the covenant to the covenantee’s land — does the covenant ‘touch and concern’ the land of the covenantee? [13.19]

For a covenant to be enforceable by a successor in title of the original covenantee, the covenant needs to be expressed to benefit those people15 and must attach a benefit to the land of the covenantee. This requirement is referred to as the covenant [page 256] ‘touching and concerning’ the land of the covenantee, or the benefit of the covenant being ‘annexed to the land of the covenantee’. It is similar to the concept that we looked at in easements that requires the rights conferred by a grantor to be intended to attach to the land as land, rather than merely creating a personal right intended to be only enforceable between the original parties to the agreement. This is also

referred to as the benefit of the covenant ‘running with the land of the covenantee’. This requirement of benefiting the covenantee’s land has two aspects: the covenant must be one which can be reasonably capable of being regarded as a covenant that benefits the covenantee’s land as land; and the original covenantee must have owned the land benefited by the covenant at the date of creation of the covenant. [13.20]

Does the covenant benefit the land of the covenantee? In working out whether a covenant benefits the land of the covenantee, courts look at whether the covenant affects the ‘nature, quality, mode of use or value of that land’.16 Courts also look at whether or not breach of the covenant affects the benefited land.17 In some instances, the land to be benefited by the covenant is regarded as being too large to be able to benefit from the covenant in fact. For example, in Re Ballard’s Conveyance [1937] Ch 473, a restrictive covenant that purported to benefit 1700 acres of land was found to be incapable of doing so, because the covenant failed to benefit the entirety of the land in this case. The covenant could have benefited a smaller portion of the entire acreage. Today, it is common for covenants to be expressed to benefit the ‘whole of the land of the covenantee and each and every part of the land’ in order to deal with the problem of construction raised in this case.

[13.21]

Did the covenantee own the land benefited at the date of creation of the covenant? If the person attempting to benefit from the covenant did not in fact own the land to be benefited by the covenant, then the covenant does not annex to the covenantee’s land. The right granted only ever becomes a personal right, enforceable only by the original covenantee. It follows that no successor in title to the

original covenantee can enforce the covenant. The only exception to this requirement is where the person seeking to enforce the covenant can establish that the land benefited by the covenant was part of what is known as a ‘building scheme’ at the date of creation of the covenant. [13.22]

Building schemes When a common vendor of a land development sells different lots to various purchasers at different times, land benefited by any restrictive covenant/s comprises only the unsold lots in the development, since only those lots are still in the ownership of the original covenantee (the land developer) at the date of creation of the covenant burdening the lot that has just been sold. In order to address the problem, equity developed the doctrine of the building scheme, so that lot owners are reciprocally affected (bound and benefited) by the restrictions in covenants for such developments. As such, covenants in a building scheme operate without the [page 257] need for annexation of the covenant to land held by the covenantee at the date of the covenant’s original creation. The benefit of these restrictive covenants can be enforced in equity if the land owned by both the covenantor and the covenantee, or their respective successors in title, can be characterised as being part of a ‘building scheme’. These are also sometimes referred to as ‘schemes of development’.

[13.23]

Where the criteria for the existence of a building scheme are met, then the benefit of the restrictive covenant/s will be enforceable by every lot owner whose lot is covered by the building scheme against every other lot owner in the scheme, irrespective of when the lot was acquired and regardless of whether the owner is an original party to the

covenant or a successor in title.18 If the building scheme covers all lots in the subdivision, the covenants operate as ‘local law’ for that subdivision. The building scheme becomes effective from the date of sale of the first lot.19 [13.24]

Building schemes usually arise on the subdivision of land into estates comprised of many small lots. The vendor of the land sells each lot on the basis that the area will always have a particular character or quality because each of the lots will be subject to, and, in return, will benefit from, particular restrictive covenants. Restrictive covenants therefore allow a property developer a means by which to create a distinctive character or quality in the new neighbourhood. This is usually done with the intention of adding value to each of the lots. The restrictive covenants used in building schemes typically regulate things such as the type of building materials used for any buildings in the area and the use to be made of the land.20

[13.25]

For Old System Title land, the restrictive covenants are contained in either the contract for the sale of land or the deed of conveyance. For Torrens land, the restrictive covenants are usually contained in the transfer for the sale of each lot. This means that the original covenantee of a covenant benefiting a particular lot is the original vendor (owner of the subdivided land) and the original covenator is the original purchaser of a particular lot (when the land is first subdivided). The problem is that, for each subsequent sale, the original covenantee (vendor/developer of the subdivision) will not own the land to be benefited by the restrictive covenant at the date of its creation over each subsequently sold lot.

[13.26]

As an illustration of the problem, imagine that Mia owns Torrens land. She wants to subdivide the land into 10 lots. She also wants to create a restrictive covenant that will

burden, and benefit, each of the lots in the subdivision. The restrictive covenant is that: ‘No building erected shall be built of any materials other than brick and tile’. [13.27]

Mia sells Lot 1 to Shaidi. In the transfer for the sale of the lot being purchased by Shaidi, the covenant appears in, and is expressed to burden, Lot 1 and to benefit Lots 2, 3, 4, 5, 6, 7, 8, 9 and 10. Mia then sells Lot 2 to Ashley. In the transfer for the [page 258] sale of this lot, the covenant (covenant burdening Lot 2) also appears in the transfer for the sale of the lot and is expressed to burden Lot 2 and to benefit Lots 1, 3, 4, 5, 6, 7, 8, 9 and 10. The problem here is that Mia does not own Lot 1 at the date at which she creates a covenant (as the original covenantee) attempting to benefit Lot 1 (burdening Lot 2). This means that the requirement that the covenantee (Mia) own the land to be benefited (Lot 1) at the date of creation of the covenant has not been met. The covenant burdening Lot 2 to benefit Lot 1 is not enforceable by the current owner of Lot 1. The current owner of Lot 1 will never be in a position to obtain the benefit of that covenant against the owner of Lot 2.

[13.28]

This problem continues as each lot is sold by Mia. Ultimately, what it means (if we assume a sequential sale of lots 1 through to 10) is that the owner of Lot 10 will not be subject to any covenant restricting her or his lot, simply because Mia would not have been the owner of the lots to be benefited by the restrictive covenant (being Lots 1, 2, 3, 4, 5, 6, 7, 8 and 9) burdening Lot 10 at the date of creation of the covenant purporting to burden Lot 10. However, if a building scheme can be established, then equity will enforce the restrictive covenant against the owner of, in this example,

Lot 10, despite the problems of annexation of the covenant for Lots 1 through to 9 that would ordinarily be caused by Mia not having owned Lots 1 to 9 at the date of creation of the covenant burdening Lot 10. [13.29]

The requirements of a building scheme The original requirements for establishing a building scheme were set out by Parker J in Elliston v Reacher [1908] 2 Ch 374. Those requirements are that: both of the current owners (parties to the enforcement dispute) must have derived their respective titles from a common vendor; a plan of development must have existed, laying out the vendor’s estate (including the lots now owned by the parties). The plan must have imposed the restrictions on all the lots in the estate. Further, those restrictions must be consistent with some general scheme of development and must have been known to the original parties to the purchase of their respective interests; the restrictions imposed by the common vendor must have been intended for the benefit of all the lots within the scheme; and both of the current owners must have purchased their lots on the basis that the restrictions imposed were mutually enforceable by the owners of all the lots in the scheme.

[13.30]

The area of land to which the building scheme applies must be capable of being clearly defined.21 If not found in the sale documents, the intention can be gathered from extrinsic circumstances, such as circumstances surrounding the sales,22 or from evidence from the vendor’s solicitor at the time the scheme was established.23 For example, in Fitt v Luxury Developments Pty Ltd [2000] VSC 258, Gillard J said that a court could draw

[page 259] an inference from that documentation and would do so where it was proven that there was a large subdivision of lots which were sold over a relatively short period.24 [13.31]

Originally, the requirements in Elliston v Reacher were strictly enforced by the courts. However, in recent years, the courts have somewhat reconsidered this approach. Later decisions in this area have tended to focus on the original reasons for the doctrine.25 This has led to what is, arguably, a broader approach in which the four original requirements are regarded as a guide.26 The crucial prerequisite now to establishing the existence of a building scheme appears to be proving the existence of a common intention and common interest between the original vendor and purchasers in the subdivision to create a local law for the common benefit of all owners in a definable area.27 More recent decisions have found that it is no longer necessary that there should be a common vendor. If the land is owned by more than one vendor, a common intention by the vendors to create a building scheme will suffice.28 Further, a development plan laying out the estate for sale subject to common restrictions is not necessarily essential, so that different details in the covenants entered into by various purchasers, or the fact that some lots are not sold subject to a restrictive covenant, will not necessarily exclude the existence of a building scheme, as long as it can be shown that the vendor intended to create a scheme. For example, in Re Mack and the Conveyancing Act [1975] 2 NSWLR 623, a building scheme was enforceable despite the fact that approximately 80% of the blocks had been sold without covenants.

[13.32]

The relevant intention to create a scheme must exist at the

time the scheme was established. In Vrakas v Mills (2007) V ConvR 54-733; [2006] VSC 463, Hargrave J found that it was sufficient that 56 of 60 lots were sold subject to an identical form of restrictive covenant over a period of 20 years, even though the restrictions were not notified on the relevant plan of subdivision. His Honour found that such evidence established that the vendor had laid out the land in lots for sale with the clear intention of imposing a restriction in the form of the restrictive covenant on the sale of each lot, and that this was consistent only with a general scheme of development.29 [13.33]

Can a building scheme exist for Torrens land? Initially, there was a question as to whether or not building schemes could exist in respect of Torrens Title land. This debate occurred because building schemes seem to sit at odds with a system of ‘title by registration’, in which the Torrens Register is meant to contain a complete record of all interests affecting land. To establish a building scheme involves using materials extrinsic to the Torrens Register. Notwithstanding this theoretical objection, cases have found that building schemes exist in respect of Torrens land.30 However, building schemes are not enforceable for Torrens land unless the land affected by the [page 260] scheme (both as to the benefit and the burden of the restrictions) are indicated either in the instrument creating the covenant or in another document to which any person searching the Torrens Register has access.31

[13.34]

In New South Wales, s 88(1) of the Conveyancing Act 1919 (NSW) must also be complied with, even where all the other requirements of a building scheme have been met.32 Section

88(1) provides that the benefit of a restrictive covenant intended to be annexed to land is not enforceable against any party other than the original contracting parties unless the instrument creating the covenant clearly indicates the land to which the benefit of the covenant is annexed and, also, the land which is subject to the burden of the covenant.33 It is therefore fatal to the enforcement of a covenant in New South Wales if the land benefited cannot be properly identified in the instrument creating the covenant. For example, it may not be sufficient to say: ‘This covenant benefits the land of the covenantee’. Without a sufficient description of the land in the instrument creating the covenant itself, a court will not have regard to extrinsic evidence in order to identify the benefited land. The failure to properly identify the land benefited by the covenant means that the covenant is never enforceable, and this is so whether or not a building scheme can be established.34 A failure to clearly identify in the instrument creating the covenant the land burdened by the covenant will also render the covenant unenforceable for the same reason.

Intention that the benefit of the covenant run with the land of the covenantee [13.35]

The requirement that the benefit of the covenant run with the land of the covenantee is part of establishing the requirement that the covenant has annexed to the land of the covenantee. It simply means that it must be clear from the instrument creating the covenant that the covenant was intended to benefit not only the original covenantee, but also her or his successors in title. This is a matter of interpretation of the covenant. (We have discussed part of this requirement at [13.12]–[13.14].) In order to properly interpret a covenant, we therefore need to specifically consider some matters of construction of covenants which

are affected by statutory presumptions. [13.36]

In drafting any covenant there are a number of possibilities, and some statutory sections need to be considered in construing any instrument that creates a covenant. These sections create a statutory presumption that the benefit of any covenant is to benefit both the original covenantee and her or his successors in title.35 There are [page 261] three possible scenarios that can apply to the construction to passing the benefit of a covenant to a successor in title, including: the covenant clearly states that it is intended to benefit both the original covenantee and the original covenantee’s ‘heirs, assigns and successors in title’. In this instance, there is no work for any of the statutory sections to do, because the instrument is clear on its face; it already states what is intended by the parties; the covenant may not say anything about whether it is to benefit successors in title. In this case, the statutory sections will apply, and will supply the necessary intention (so that a court will construe the covenant as benefiting the original covenantee’s successors in title); the covenant might positively rebut the statutory presumption. To do this, it needs to expressly state that the covenant is made between the original covenantor and only the original covenantee. To do this, it would need to say, for example, ‘this covenant is made between the covenantor and the covenantee only and is not intended to benefit any heirs, assigns or successors in title of the covenantee’.

[13.37]

If the third scenario occurs, it is not possible for successors

in title of the original covenantee to enforce the covenant against either the original covenantor or her or his successors in title.36 This is because the covenant expressly excludes those parties from benefiting from the covenant.

Intention that the burden of the covenant run with the land of the covenantor [13.38]

If the covenant is to be enforceable against a successor in title to the original covenantor, then it is necessary to establish that this was the intention of the original parties to the covenant. As we have seen (at [13.12]–[13.15]), at law it is not possible for an original covenantor to bind third parties to the agreement (that is, her or his successors in title) in this way. However, equity will enforce the covenant against a successor in title to the original covenantor, provided that it was the intention of the original parties that the burden of the covenant would be enforceable against those parties.37 In all jurisdictions, a statutory presumption can apply.38 Again, there are three possible scenarios that can occur and need to be considered: the covenant may state clearly on its face that it is intended to burden both the original covenantor and her or his successors in title. In this instance, it is possible [page 262] for the burden of the covenant to run with the land of the covenantor in equity and the relevant statutory sections have no work to do; the instrument creating the covenant may be silent as to whether or not the covenant is intended to bind the covenantor’s successors in title. In this instance, the

relevant statutory sections supply the intention that this is to occur and the burden of the covenant can be enforced against the original covenantor’s successors in title; the instrument creating the covenant may specifically rebut the statutory presumption. To do this, it would say, for example, ‘this covenant is intended to burden the original covenantor only’. The original covenantor is making clear in the instrument that the covenant is only to bind her or him. If that occurs, the covenant is never enforceable against the original covenantor’s successors in title.

Other possible enforcement scenarios of covenants in equity [13.39]

It may be possible to enforce a covenant against a current owner of the covenantor’s land if the facts surrounding the purchase of that land are such to establish that the requirements of an in personam exception to indefeasibility of title apply.39

Checklists for enforcement of covenants Checklist 1: Enforcement scenarios Enforcement by original covenantee against original covenantor: Enforce under the contract (enforcement at law) — application of doctrine of privity of contract (see [13.12]–[13.15] Enforcement by successor in title of original covenantee against original covenantor: Check whether the covenant is intended to benefit third parties (successors in title). If so, covenant is enforced as a matter of contract (see [13.12]–[13.15] and [13.35]–[13.37]). Enforcement by original covenantee against successor in title to original covenantor: Can only enforce in equity — must be able to satisfy all the requirements for enforcement of covenants in equity (see [13.16]–[13.38]). Enforcement by successor in title to original covenantee against successor in title to original

covenantor: Can only enforce in equity — must be able to satisfy all the requirements for enforcement of covenants in equity (see [13.16]–[13.38]).

[page 263] Checklist 2: Enforcement of covenants in equity The covenant must be restrictive in substance. The person against whom the covenant is now being enforced must have taken her or his interest with notice of the covenant. The covenant must touch and concern the land of the covenantee (including owning the land benefitted at the date of creation of the covenant unless a building scheme can be established). The original parties to the creation of the covenant must have intended that the benefit of the covenant run with the land of the covenantee (construction of covenant — construe in light of applicable statutory presumptions (if any)). The original parties to the creation of the covenant must have intended that the burden of the covenant run with the land of the covenantor (construction of covenant — construe in light of applicable statutory presumptions (if any)). New South Wales only — compliance with Conveyancing Act 1919 (NSW) s 88(1).

__________________________ 1 2

As to which, see the rule in Walsh v Londsdale (1882) 21 Ch D 9: see discussion in Chapter 10. Conveyancing Act 1919 (NSW) s 88(1).

3

Real Property Act 1900 (NSW) s 47(1). 4 JEA Holdings (Aust) Pty Ltd v Registrar-General (NSW) (2013) 16 BPR 31,745; [2013] NSWSC 587. 5 6

Land Titles Act 1980 (Tas) s 102(7). Land Titles Act 1980 (Tas) s 102(9).

7

Transfer of Land Act 1958 (Vic) s 88. 8 Transfer of Land Act 1893 (WA) s 129A(1). 9

Decisions exist in which instruments that create interests in land have been recorded on the Register. See, for example, Mahoney v Hoskin (1912) 14 CLR 379; 18 ALR 205; Blacks Ltd v Rix

[1962] SASR 161; Burke v Yurilla SA Pty Ltd [1991] SASR 382. 10

Conveyancing Act 1919 (NSW) s 88B; Land Title Act (NT) s 92; Land Title Act 1994 (Qld) s 49; Real Property Act 1886 (SA) s 90; Conveyancing and Law of Property Act 1884 (Tas) s 90B; Transfer of Land Act 1958 (Vic) s 98; Transfer of Land Act 1893 (WA) ss 136A–136J, 167A. 11 Note that, in most jurisdictions, such an intention on the part of the covenantor to benefit not only the original covenantee but the covenantee’s successors in title or persons deriving from that covenantee is implied by statute: see [13.35]–[13.36]. This means that if the covenant is otherwise silent, such intention will be implied into the agreement of the parties. 12 13

See discussion of this doctrine in Chapter 7. Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143.

14

This is a reflection of the principle that equity will not assist a volunteer. 15 Discussed at [13.12]–[13.14]. This applies to covenants enforceable at law and in equity. 16 17

P & A Swift Investments v Combined English Stores Group Plc [1989] AC 632. Kerridge v Foley (1964) 82 WN (NSW).

18

Reid v Bickerstaff [1909] 2 Ch 305. 19 Brunner v Greenslade [1971] Ch 993. 20

For example, use only as private residential dwellings, prohibitions on the construction of front fences, imposing minimum floor areas for dwellings and restricting any dwellings to being single-storey dwellings. 21 Reid v Bickerstaff [1909] 2 Ch 305. 22 23

Re Dolphin’s Conveyance [1970] Ch 654. Re Dennerstein [1963] VR 688.

24

Fitt v Luxury Developments Pty Ltd [2000] VSC 258. 25 Founded on notions of conscience arising from the reciprocity of obligations undertaken by purchasers of land. 26

Re Application of Poltava Pty Ltd [1982] 2 NSWLR 161. 27 Baxter v Four Oaks Properties Ltd [1965] Ch 816. 28

Re Mack and the Conveyancing Act [1975] 2 NSWLR 623. 29 Vrakas v Mills (2007) V Conv R 54-733; [2006] VSC 463 at [32]. 30 31 32 33

34

Re Dennerstein [1963] VR 688; Re Louis and the Conveyancing Act [1971] 1 NSWLR 164. Re Dennerstein [1963] VR 688. This was followed in Netherby Properties Pty Ltd v Tower Trust Ltd (1999) 76 SASR 9. Re Louis and the Conveyancing Act [1971] 1 NSWLR 164. Among other requirements in the section. Developers of Torrens land in New South Wales may also use s 88B(3) of the Conveyancing Act 1919 (NSW), which enables the creation of mutually enforceable restrictive covenants on the registration or recording of a plan of subdivision. The covenants must be expressed as intending to be created for the benefit and burden of the various lots in the plan. The registration or recording of the plan has the effect of annexing all restrictions in the covenants to all land in the subdivision: Conveyancing Act 1919 (NSW) s 88B(3)(c)(ii). Re Louis and the Conveyancing Act [1971] 1 NSWLR 164.

35

See Land Titles Act 1925 (ACT) s 109; Conveyancing Act 1919 (NSW) s 70; Law of Property Act (NT) s 170; Property Law Act 1974 (Qld) s 53(1); Conveyancing and Law of Property Act 1884 (Tas) ss 71, 91A; Property Law Act 1958 (Vic) s 78; Property Law Act 1969 (WA) s 47. There are no equivalent provisions in South Australia, where the common law position applies.

36

In this instance, the covenant is not enforceable at law either, because the original agreement explicitly excludes third parties from benefiting from the covenant. 37 Assuming that all of the other requirements for the enforcement of a covenant in equity are met. 38

See Land Titles Act 1925 (ACT) s 109; Conveyancing Act 1919 (NSW) s 70A; Law of Property Act (NT) s 171; Property Law Act 1974 (Qld) s 53; Conveyancing and Law of Property Act 1884 (Tas) s 71A; Property Law Act 1958 (Vic) s 79; Property Law Act 1969 (WA) s 48. There are no equivalent provisions in South Australia, although Law of Property Act 1936 (SA) s 42(6) arguably has the same effect. 39 Discussed in Chapter 6.

Index References are to paragraph numbers

A Adverse possession, doctrine actions to commence proceedings …. 4.2 extension of limitation period …. 4.29–4.30 present or future interests in land …. 4.16–4.18 relevant principles …. 4.4 adverse possessor, rights …. 4.1 cause of action, accrual …. 4.6, 4.7, 4.9 elements …. 4.7, 4.8 co-owners time limitation period …. 4.23 competing adverse possessors …. 4.26 Crown ownership of land …. 4.24 Australian Capital Territory …. 4.24 New South Wales …. 4.24, 4.42 Northern Territory …. 4.24 Queensland …. 4.24, 4.42 South Australia …. 4.24, 4.42 Tasmania …. 4.24, 4.42 Victoria …. 4.24, 4.42 Western Australia …. 4.24, 4.42 extension of limitation period acknowledgement of true owner’s title …. 4.35 fraud by adverse possessor …. 4.30 intruder abandons adverse possession …. 4.31 legal proceedings, commencement …. 4.32 part-payment of debt …. 4.36 factual possession, requirement …. 4.11 fixed-term leases …. 4.21 lapse of time, effect …. 4.38–4.39 lessor’s right to re-enter …. 4.22 limitation period …. 4.20, 4.21

time begins to run …. 4.21 inadvertence of true owner …. 4.14 intention to control land and exclude strangers exceptions …. 4.13 proof of intention …. 4.12 lapse of time, effect …. 4.37 limitation period date from which time runs …. 4.5–4.10 expiry …. 4.1, 4.2 extension …. 4.29–4.30 occupation of land …. 4.14 planned future use of land, and …. 4.14–4.15 possession resumed by true owner …. 4.33 recovery by true owner …. 4.1 successive adverse possessions …. 4.26 successors in title …. 4.15 tenancy at sufferance …. 11.27 title to land, and …. 1.21, 1.31 Torrens land …. 4.41 trustees …. 4.25

C Caveats caveatable interest …. 6.83 ‘mere equities’, and …. 6.85 drafting …. 6.83 effect …. 6.82 failure to caveat …. 6.81, 7.29–7.43 inconsistent unregistered interests, and …. 7.30 injunction against registration, as …. 6.82 lodgement …. 6.83 registered proprietor, by …. 6.86 Northern Territory …. 6.84 postponing conduct …. 6.99 purpose …. 6.82 Queensland …. 6.84 removal …. 6.87

withdrawal …. 7.44 wrongful lodgement …. 6.88

Chattels degree of annexation …. 5.5 overview …. 5.1–5.2 personal property …. 5.1 presumptions of law …. 5.4 things resting on land by its own weight …. 5.4

Co-ownership cost of improvements …. 8.64 creation of interests in equity …. 8.23 death of co-owner …. 8.1 disputes …. 8.1 equitable interest …. 8.13, 8.23 improvements …. 8.68, 8.69 actual cost …. 8.70 claim in equity on partition or sale …. 8.68, 8.71 mortgage payments …. 8.73 occupation fee …. 8.72 present value …. 8.70 interests in land, creation …. 8.12 form of interest …. 8.12 four unities …. 8.12 possession …. 8.12 title …. 8.12 joint tenancy see Joint tenancy legal interest …. 8.13, 8.23 meaning …. 8.3 occupation and use, rights …. 8.59 occupation rent …. 8.60 ouster …. 8.61 constructive ouster …. 8.63 domestic violence or abuse …. 8.63 exclusion of other co-owner …. 8.62 occupation fee …. 8.61 overview …. 8.2 rent and profits …. 8.65–8.66

repairs and maintenance …. 8.67, 8.68, 8.69 rights of co-owners …. 8.58 severance of joint tenancy see Severance of joint tenancy tenancy in common see Tenancy in common type of co-ownership, determination …. 8.30

Common law doctrine of estates see Estates, doctrine doctrine of tenure see Estates, doctrine judge-made law …. 1.11 law and equity …. 1.11 legal interest in land …. 1.13 Old System Title see Old System Title land

Community title administration of scheme …. 9.54 by-laws …. 9.54 community association …. 9.54 duties …. 9.54 Community Management Statement (CMS) …. 9.52 community plan …. 9.53 community property …. 9.54 dispute resolution …. 9.54 individual strata schemes …. 9.52, 9.53 legislative framework …. 9.55 levies on owners …. 9.54 major estates …. 9.52 Newington Neighbourhood Association scheme …. 9.52 subdivision …. 9.52

Crown ownership of land adverse possession, and …. 4.24 Australian Capital Territory …. 4.24 New South Wales …. 4.24, 4.42 Northern Territory …. 4.24 Queensland …. 4.24, 4.42 South Australia …. 4.24, 4.42 Tasmania …. 4.24, 4.42 Victoria …. 4.24, 4.42 Western Australia …. 4.24, 4.42

doctrine of estates see Estates, doctrine doctrine of tenure see Estate, doctrine English common law, inheritance …. 2.2 fee simple estate see Fee simple estate leasehold estate see Leasehold estate minerals below land see Minerals native title, and see Native title ‘radical title’ of Crown …. 2.3

D Deeds conveyancing of Old System Title land …. 7.46 advantages of deed …. 7.53 delivery of deed …. 7.55 register of deeds …. 7.50 signed, sealed and delivered …. 7.54

E Easement of support …. 5.28 common walls of building …. 5.28

Easements accommodation of dominant tenement …. 12.13–12.17 benefiting the land …. 12.14 better enjoyment of dominant land …. 12.13 ‘appurtenant easement’ to an estate …. 12.11 burden on fee simple …. 12.1 change of use …. 12.58 disputes between neighbours …. 12.58 express grants …. 12.59 implied and prescriptive grants …. 12.63 in excess of the purpose contemplated …. 12.58 unreasonable burden on servient tenement …. 12.60 construction of easements extrinsic evidence …. 12.61 registered interests on Torrens title land …. 12.61, 12.62 scope of easement …. 12.61 state of mind or intention of parties …. 12.62

surrounding circumstances …. 12.61, 12.62 terms of grant …. 12.61, 12.62 creation of easements …. 12.4–12.5 dominant and servient tenement …. 12.7 implication …. 12.35 not to be held or occupied by the same person …. 12.9 Old System Title …. 12.6 rights granted must be capable of forming an easement …. 12.18 Torrens title land …. 12.6 dominant and servient tenement …. 12.8 land burdened by easement …. 12.8 necessary for normal use and enjoyment …. 12.15 proximity …. 12.16 subdivisions …. 12.17 electricity easements …. 12.1 essential services …. 12.8 express grant …. 12.25 Old System Title at law …. 12.27 Old System Title in equity …. 12.28 Torrens title …. 12.29 express reservation Old System Title at law …. 12.30 Old System Title in equity …. 12.31 Torrens title …. 12.32 extinguishment of easements …. 12.10, 12.64 abandonment …. 12.67–12.68 common ownership …. 12.70 dominant tenement changes significantly in character …. 12.69 express release …. 12.65 merger, doctrine …. 12.10 Old System Title land …. 12.12 statutory provisions …. 12.71 Torrens Register, removal …. 12.66 unregistered easements of Torrens title land …. 12.12 formal requirements …. 12.25–12.50 implied easements …. 12.36 common intention …. 12.41 description of land …. 12.42

necessity …. 12.39–12.40 non-derogation from grant …. 12.37 statutory provisions …. 12.38 Wheeldon v Burrows rule …. 12.36 ‘in gross’ …. 12.8 statutory and public authorities …. 12.8 incorporeal hereditments …. 12.1 indefeasibility of title, exception omitted easements …. 6.64 right of way …. 6.63 overview …. 12.1, 12.3 parking of vehicles …. 12.1 permitted use …. 12.3 prescription, doctrine ‘lost modern grant’ …. 12.47 modes of acquisition …. 12.47 protracted and continuous use …. 12.46 South Australia …. 12.49 Tasmania …. 12.50 Western Australia …. 12.49 remedies for infringement of rights abatement …. 12.73, 12.74 damages …. 12.75 declaratory relief …. 12.75 injunctions …. 12.75 self-help …. 12.74 reserved grant …. 12.43 common intention …. 12.45 easement of necessity …. 12.44 right of way …. 12.1 rights granted must be capable of forming an easement …. 12.18, 12.20 joint occupation …. 12.23 mere rights of recreation …. 12.19 novelty of right …. 12.21 significant interference with use and enjoyment of servient tenement …. 12.24 wide and vague terms …. 12.19, 12.22 subdivision of dominant tenement …. 12.17 approved plan …. 12.23

suspension of easements …. 12.72 telecommunications infrastructure …. 12.1 Torrens title land …. 12.51 easements created by implied grant or reservation …. 12.54 equitable easements …. 12.53 express easements omitted from the title …. 12.52 in personam exception to indefeasibility …. 12.55–12.56 indefeasibility of title …. 12.6, 12.12 prescriptive easements …. 12.57 registered easement …. 12.6 utilities …. 12.1, 12.8 validity …. 12.2

Encroaching buildings compensation orders …. 5.27 removal, orders …. 5.27

Equitable fraud indefeasibility exception …. 6.37 acts prior to date of registration …. 6.39 dishonest repudiation of prior interest …. 6.38 personal dishonesty or moral turpitude …. 6.40

Equitable interests in land agreement to create lease …. 7.61 agreement to grant mortgage …. 7.61 creation …. 7.56 failure of writing …. 7.60 lessee at exchange …. 7.59 mortgagee at exchange …. 7.59 owner of dominant tenement at exchange …. 7.59 part-performance, doctrine …. 7.57–7.58 specific performance …. 7.59 damages not adequate …. 7.63 trust, interests …. 7.62

Equitable rights identification …. 1.13, 1.14 legal rights, distinction …. 1.12

Estates, doctrine

common law grants …. 2.5 Crown ownership of land …. 2.4 English common law, reception …. 2.4 fee simple estate see Fee simple estate fee tail estate, abolition …. 2.12 grant of land …. 2.4 leasehold estate see Leasehold estate life estate see Life estate overview …. 2.1 rights of possession …. 2.4 statutory grants …. 2.5

F Fee simple estate alienation …. 2.7 ‘conditional’ fee simple …. 2.10 ‘determinable’ fee simple …. 2.9 grant, interpretation …. 2.11 intestacy …. 2.7 Old System Title land …. 2.8 reversionary interest …. 2.23 statutory presumption …. 2.8 testamentary disposition …. 2.7

Fixed-term lease adverse possession …. 4.21 lapse of time, effect …. 4.38–4.39 lessor’s right to re-enter …. 4.22 limitation period …. 4.20, 4.21 time begins to run …. 4.21 common law, at …. 11.21 covenants in lease see Lease covenants; Lessee; Lessor creation of lease expressed in writing …. 11.21 expressed orally …. 11.21 features …. 11.20 ‘for a term of years’ …. 11.21 leasehold estate …. 2.17

options to renew …. 11.21 possession after expiration …. 11.21 termination …. 11.21

Fixtures attachment to land …. 5.4 degree of annexation …. 5.5 facts and circumstances …. 5.5 objective determination …. 5.5 relevant considerations …. 5.5 doctrine …. 5.3 overview …. 5.1–5.2 presumptions of law …. 5.3 tenants, fixtures …. 5.6 act of waste by lessee …. 5.8 agricultural …. 5.6, 5.9 presumptions of law …. 5.3 removal …. 5.6–5.8 time for removal …. 5.10 trade, domestic and ornamental …. 5.6–5.8

Forfeiture of lease breach of fundamental term …. 11.84 condition of lease …. 11.86 damages for prospective loss …. 11.91 express re-entry clauses …. 11.84 lease covenants, breach …. 11.85 non-payment of rent …. 11.86 relief against …. 11.89–11.90 waiver of right to forfeit by lessor …. 11.87–11.88

Fraud by registered proprietor abstention from making inquiries …. 6.36 actual fraud …. 6.35 definition …. 6.33 indefeasibility of title, exception …. 6.32 mere notice of prior unregistered interests …. 6.33–6.35 moral turpitude …. 6.35, 6.38 personal dishonesty …. 6.35, 6.38 wilful blindness, and …. 6.36

Fraud on Registrar indefeasibility, exception …. 6.41 false attestation …. 6.42 false documents …. 6.41

Freehold covenants annexation of covenant to land …. 13.19 benefit of the covenant ‘running with the land’ of covenantee …. 13.19, 13.35–13.37 burden of covenant ‘runs with land of covenantor’ …. 13.6, 13.38 covenantee …. 13.5 covenantor …. 13.5 creation …. 13.7–13.8 enforcing burden of covenant …. 13.6, 13.11 checklist for enforcement …. 13.39 covenant must ‘touch and concern the land’ …. 13.19 evidenced in writing …. 13.7 New South Wales …. 13.8 statutory requirements …. 13.8 overview …. 13.1 positive covenant see Positive covenant restrictive/negative covenant see Restrictive covenant statutory presumptions …. 13.36, 13.38 successor in title …. 13.6 ‘benefit of covenant has attached’ …. 13.6, 13.19, 13.20 covenant runs with land …. 13.19 Torrens Register recording covenants …. 13.9 registered plans of subdivision …. 13.10

Freehold estate fee simple estate see Fee simple estate fee tail estate, abolition …. 2.12 indefinite duration …. 2.6 interest in land …. 2.6 leasehold estate, distinction …. 2.6 life estate see Life estate

Future interests in land adverse possession, and …. 4.16–4.18 legal effect …. 2.22

life estate …. 2.23 present right to future possession …. 2.23, 2.24 property under a will …. 2.23 remainder interest …. 2.23 vested or contingent interest …. 2.24 reversionary interest in fee simple …. 2.23 vested in interest …. 2.23, 2.24

I Improvements co-ownership …. 8.68, 8.69 actual cost …. 8.70 claim in equity on partition or sale …. 8.68, 8.71 mortgage payments …. 8.73 occupation fee …. 8.72 present value …. 8.70

In personam exception agreement to recognise prior unregistered interest …. 6.52–6.53 breach of trust …. 6.50, 6.56 accessory liability …. 6.57 knowing receipt …. 6.56 knowingly assisted …. 6.57 constructive trust …. 6.52, 6.57 enforcement of claim against registered proprietor …. 6.49 estoppel …. 6.50 fiduciary duty, breached …. 6.50 fraudulent mortgage variation …. 6.54 indefeasibility of title …. 6.47–6.48 loss or misuse of certificate of title …. 6.50, 6.55 mistake …. 6.58 state of knowledge of defendant …. 6.59 personal equities …. 6.49 unconscionable or unconscientious conduct …. 6.50 unilateral mistake …. 6.58

Indefeasibility of title agents and fraud …. 6.43–6.44 actual or apparent authority of agent …. 6.46

imputed to registered proprietor …. 6.43, 6.45, 6.46 ‘respondeat superior’ …. 6.45 all moneys mortgages …. 6.24–6.26 deferred indefeasibility …. 6.17–6.18 exceptions …. 6.30–6.46 adverse possession see Adverse possession, doctrine easements burdening land see Easements equitable fraud see Equitable fraud fraud on registered proprietor see Fraud on registered proprietor fraud on Registrar see Fraud on Registrar prior folios …. 6.65 prior leases …. 6.66 wrong description of parcels …. 6.67 extent …. 6.20 immediate indefeasibility …. 6.19 in personam exception see In personam exception interests recorded on register, and …. 6.10 joint and several liability under joint mortgages …. 6.29 joint mortgagors …. 6.27–6.28 leases and options to purchase …. 6.22 mistake …. 6.58 mortgages …. 6.24–6.26 mutual mistake …. 6.58 options to renew in registered leases …. 6.21 other estates or interests in land …. 6.63 registered proprietor subject to, overriding statutes …. 6.60 inconsistency of statutory provisions …. 6.63 local government legislation …. 6.61 pre-registration defects …. 6.15 registered proprietor …. 6.10 Torrens title land …. 1.10, 6.10, 6.16 void clauses and indefeasibility in leases …. 6.23 volunteers and indefeasibility …. 6.69–6.73 beneficiary under will …. 6.72 title acquired without value …. 6.70–6.71

Intestacy fee simple estate, and …. 2.7

J Joint tenancy beneficial equitable interests …. 8.23 ‘by the half and by the whole’ …. 8.5 co-ownership …. 8.3–8.4 creation at law …. 8.15 dealings, and …. 8.7 death of joint tenant …. 8.10 division of assets on termination …. 8.6 equity, intervention …. 8.23 four unities …. 8.8 implied tenancy in common …. 8.23 interest, unity …. 8.8 legal interest in land …. 8.23 ownership rights …. 8.6 possession, unity …. 8.8 severance of joint tenancy see Severance of joint tenancy survivorship, right …. 8.10, 8.32, 8.36 order of death of joint tenants …. 8.11 tenancy in common, distinguished …. 8.9 title, unity …. 8.8 underlying principle …. 8.5 unilateral acts of severance …. 8.35 registration of transfer …. 8.35 statutory provisions …. 8.44 transfer to third party …. 8.35 unity of time …. 8.8 words of severance …. 8.16

L Land building on another’s land …. 5.25 co-ownership see Co-ownership easement of support …. 5.28 common walls …. 5.28 encroaching buildings …. 5.27 minerals see Minerals

natural rights …. 5.28 subsidence …. 5.28 surface boundaries see Surface boundaries

Lease assignment of lease …. 11.7, 11.15 categories …. 11.9 caveat, lodgement …. 11.16 certainty of duration …. 11.17 capable of ascertainment …. 11.17 determinate occupation …. 11.17 classification …. 11.19 covenants see Lease covenants creation of …. 11.10 damages …. 11.14 elements …. 11.9–11.10 equitable leases …. 11.33 acts of part performance …. 11.34 formal requirements not satisfied for legal lease …. 11.34 intent of the parties …. 11.34 oral agreements, enforcement …. 11.34 unregistered lease in Torrens land …. 11.35 exclusive possession …. 11.1, 11.10, 11.11, 11.12, 11.13, 11.15 fixed-term lease see Fixed-term lease forfeiture …. 11.15 formal requirements …. 11.28, 11.29 indefeasibility of title leases and options to purchase …. 6.22 options to renew in registered leases …. 6.21 void clauses and indefeasibility in leases …. 6.23 intention of the parties …. 11.10, 11.12 interest in land …. 11.10 leasehold reversion …. 11.7 legislative reforms …. 11.2 lessee see Lessee lessor see Lessor limited right of re-entry …. 11.13 licence, distinction …. 11.1, 11.10–11.12, 11.14, 11.15 Old System Title

creation by deed …. 11.30 instrument in writing …. 11.30 payment of market rent under oral lease …. 11.30 overview …. 11.2 periodic lease see Periodic lease personal covenant …. 11.6 priorities, determination …. 11.16 statutory protection …. 11.16 proprietary covenant …. 11.6 proprietary interest …. 11.14 re-entry, rights …. 11.13, 11.15 remedies …. 11.14 rent …. 11.14 reversionary interest …. 11.7 assignee of reversion …. 11.7 sale of lease …. 11.7 subleases …. 11.8, 11.15 privity of contract …. 11.65 privity of estate, and …. 11.65 sublessee …. 11.8 sublessor …. 11.8 tenancy …. 11.5 tenancy at sufferance see Tenancy at sufferance tenancy at will see Tenancy at will term of lease …. 11.10 termination of lease see Termination of lease Torrens title land actual or constructive notice …. 11.37 certainty of duration …. 11.17 enforcement …. 11.37 indefeasibility …. 11.31–11.32 minimum term of lease …. 11.31 priority …. 11.37 purchase, option …. 11.32 registration …. 11.18, 11.31 renew, option …. 11.32 surrender of lease …. 11.81 unregistered equitable leases …. 11.35

unregistered legal leases …. 11.36–11.37 writing requirement …. 11.30 interest at will only, and …. 11.33

Lease covenants assignment of lease by lessee …. 11.57, 11.59, 11.62 absolute prohibition …. 11.56, 11.58 covenants that ‘touch and concern’ the land, enforcement …. 11.62–11.63 liability for breach of lease covenants …. 11.68–11.72 privity of contract …. 11.65 privity of estate …. 11.65 qualified prohibition …. 11.56, 11.59 assignment of reversion by lessor …. 11.66 burden of lease covenants …. 11.67 common law, at …. 11.66 covenants that ‘touch and concern’ the land, enforcement, 11.66 liability for breach of lease covenants …. 11.68–11.70, 11.73–11.74 common law lease covenants …. 11.38 dangerous defects …. 11.47, 11.48 duty to take reasonable care …. 11.47 enforceability …. 11.60 assignee of lease …. 11.60, 11.65 assignee of reversion …. 11.60, 11.66 covenants that ‘touch and concern’ the land …. 11.62–11.64 lessee, by …. 11.68–11.70, 11.73–11.74 lessor, by …. 11.68–11.72 implied by necessary implication …. 11.54 implied covenants …. 11.39 keeping premises in safe state of repair …. 11.47, 11.50 lessee’s rights and obligations …. 11.38, 11.52–11.53 lessor’s rights and obligations …. 11.38 liability for the acts of third parties …. 11.45, 11.46 not to derogate from grant …. 11.43 privity of estate …. 11.61 assignment of interests …. 11.61 common law doctrine …. 11.61 legal relationships …. 11.61 quiet enjoyment, covenant …. 11.40–11.41 re-entry and forfeit …. 11.55

repair, covenant …. 11.54 right of entry …. 11.55 state of good and tenantable repair …. 11.55 statutory provisions …. 11.55 subletting by lessees …. 11.56 absolute prohibition …. 11.56, 11.58 privity of estate …. 11.65 qualified prohibition …. 11.56, 11.59 Torrens title land …. 11.75 enforcement of covenants …. 11.75–11.76 privity of contract …. 11.75 privity of estate …. 11.75 registered assignment of lease …. 11.75 use of premises in ‘tenant-like manner’ …. 11.52 yield up possession at termination of lease …. 11.53

Leasehold estate see also Lease categories …. 2.15 definite duration …. 2.6 demise …. 11.5 fixed-term lease …. 2.17 freehold estate, distinction …. 2.6 leasehold interest …. 11.4 periodic lease …. 2.18 notice of termination …. 2.18 residential lease …. 2.18 tenancy at sufferance …. 2.20 tenancy at will …. 2.19 duration …. 2.19 expiration of fixed-term lease …. 2.19 notice of termination …. 2.19

Legal interest in land common law, under …. 1.11 equitable rights, distinction …. 1.12 estates see Estates freehold estate see Freehold estate future interests in land …. 2.22–2.24 identification …. 1.13, 1.14

statutory rights …. 1.11

Legal title holder real property …. 1.1 retail spaces …. 1.2

Lessee common law lease covenants …. 11.38 covenants implied by necessary implication …. 11.54 enforceability of lease covenants see Lease covenants quiet enjoyment …. 11.40–11.41 repair, covenant …. 11.54 rights and obligations …. 11.38, 11.52–11.53 state of good and tenantable repair …. 11.55 use of premises in ‘tenant-like manner’ …. 11.52 yield up possession at termination of lease …. 11.53

Lessor common law lease covenants …. 11.38 implied covenants …. 11.39 dangerous defects …. 11.47, 11.48 duty to take reasonable care …. 11.47 enforceability of lease covenants see Lease covenants keeping premises in safe state of repair …. 11.47, 11.50 liability for the acts of third parties …. 11.45, 11.46 not to derogate from grant, covenant …. 11.43 quiet enjoyment, covenant …. 11.40–11.41 re-entry and forfeit …. 11.55 right of entry …. 11.55 rights and obligations …. 11.38

Licence contractual licence …. 11.14 lease, distinction …. 11.1, 11.10–11.12, 11.14, 11.15 licence fee …. 11.14 licensee …. 11.12 licensor …. 11.12 personal right to occupy premises …. 11.14 remedies …. 11.14 revocation …. 11.14

Life estate

common law …. 2.14 dispositions ‘inter vivos’ …. 2.14 for the life of another (‘pur autre vie’) …. 2.13 future interests in land …. 2.23 grant of …. 2.13 legislation, effect …. 2.14 testamentary dispositions …. 2.14 vested in possession …. 2.23

M Minerals common law, at …. 5.21 gold and silver …. 5.21 prerogative rights of Crown …. 5.21 rights below the land …. 5.21

Mortgage acceleration clauses …. 10.36, 10.38, 10.40 discount formulas …. 10.40 Australian Consumer Law …. 10.45 caveatable interest in property …. 10.7 collateral advantages …. 10.31–10.34 discharge …. 10.6 drafting problems …. 10.5 equity of redemption …. 10.11, 10.21–10.22 late payment clauses …. 10.36, 10.37 legal or equitable interests …. 10.3 loan, distinguished …. 10.4 meaning …. 10.3 mortgagee see Mortgagee mortgagor see Mortgagor National Credit Code …. 10.45 Old System Title land …. 10.9 beneficiary under a trust …. 10.13 deed of conveyance, execution …. 10.14, 10.19 deposit of title deeds …. 10.19 equitable mortgage, creation …. 10.10, 10.13, 10.18 equity of redemption …. 10.11, 10.21–10.22

general law mortgage …. 10.10 good title …. 10.12 legal interest …. 10.12 mortgagee’s right to possession …. 10.11 re-entry by mortgagor …. 10.11 second or subsequent mortgagee …. 10.12 statutory requirements …. 10.14 overview …. 10.1–10.2 penalties …. 10.35 acceleration clauses …. 10.36, 10.38, 10.40 crystallisation of debt …. 10.38, 10.39 genuine pre-estimate of mortgagee’s loss, distinguished …. 10.39 late payment clauses …. 10.36, 10.37 priority disputes …. 10.7 residential land in Australia …. 10.6 rights, remedies and duties …. 10.3 secured debt …. 10.3, 10.7 setting aside …. 10.45–10.48 severance of joint tenancy …. 8.46–8.47 checklist for enforcement …. 13.39 Old System Title land …. 8.47 statutory compliance obligations …. 10.2 Torrens title land …. 8.48 Torrens mortgage …. 10.9 equitable mortgage, creation …. 10.17, 10.18 registrable form …. 10.16, 10.19 statutory charge …. 10.15 unregistered …. 10.16 unenforceable clauses …. 10.27 unsecured creditors …. 10.5

Mortgagee collateral advantages …. 10.31–10.34 foreclosure, powers …. 10.60 Old System Title land …. 10.61–10.62 Torrens land …. 10.63–10.64 legal or equitable interests …. 10.3 orders restraining power of sale improper exercise of power of sale …. 10.97–10.98

invalid exercise of power of sale …. 10.96 invalid or improper sale …. 10.95 postponement or exclusion of right to redeem mortgage …. 10.30 proceeds of sale, distribution …. 10.99 right to possession Old System Title land …. 10.11, 10.52–10.54 Torrens land …. 10.55 rights …. 10.49–10.102 improve the property …. 10.56 possession of title deeds …. 10.101 receiver, appointment …. 10.57–10.59 second or subsequent mortgagee …. 10.12 sue on personal covenant …. 10.51 sale, powers …. 10.65–10.66 advertising sale and setting reserves …. 10.91–10.93 appointment of agent …. 10.90 exercise of power …. 10.71–10.72 expenditure on property …. 10.94 implied power of sale …. 10.67 Old System Title land …. 10.68, 10.71–10.72 protection of purchaser, and …. 10.100 timing of sale …. 10.89 Torrens land …. 10.69–10.70, 10.73 transaction must be a sale …. 10.74 security interest …. 10.6 standard of care …. 10.75 common law test …. 10.85 corporations legislation …. 10.86–10.88 good faith standard …. 10.82–10.83 New South Wales …. 10.76 Northern Territory …. 10.77 other jurisdictions …. 10.81 Queensland …. 10.80 reasonable care/negligence standard …. 10.84 Tasmania …. 10.78 Victoria …. 10.78, 10.79 unsecured creditor …. 10.5

Mortgagor

Australian Consumer Law …. 10.45 clogs on equity of redemption …. 10.27–10.30 common law rules …. 10.21 copies of title documents …. 10.23 equity of redemption …. 10.21–10.22 guarantee …. 10.42–10.44 indefeasibility of title see Indefeasibility of title independent legal advice …. 10.44 penalties, and …. 10.35 acceleration clauses …. 10.36, 10.38, 10.40 crystallisation of debt …. 10.38, 10.39 genuine pre-estimate of mortgagee’s loss, distinguished …. 10.39 late payment clauses …. 10.36, 10.37 redemption of mortgage …. 10.27 postponement or exclusion …. 10.30 right to possession of mortgaged property …. 10.25 setting aside mortgage …. 10.45–10.48 title documents …. 10.23 unconscionability, and …. 10.41, 10.48 court of equity, intervention …. 10.41 duress or undue influence …. 10.41 guarantors …. 10.42–10.43 language difficulties …. 10.41 special disadvantage …. 10.42–10.43 undue influence …. 10.44 husband and wife …. 10.44 independent legal advice …. 10.44 unfair and unjust contracts …. 10.45–10.47 Australian Consumer Law …. 10.45 National Credit Code …. 10.45–10.47

N Native title alienation, and …. 3.4 ‘allodial’ title holders …. 3.1, 3.9, 3.12 beneficial ownership …. 3.11, 3.12 bundle of rights approach …. 3.29, 3.30, 3.31

coastal seas and offshore areas …. 3.27 common law, recognition …. 3.2, 3.11, 3.12 connection with land or waters …. 3.25 definition …. 3.18 dispossession from traditional lands …. 3.23 enforcement …. 3.2 exclusion of all others …. 3.5 exclusive possession …. 3.30 extinguishment …. 3.7, 3.9, 3.11, 3.30 abandonment of traditional laws and customs …. 3.35 clear and plain intention …. 3.33 common law lease …. 3.33 direct legislation …. 3.34 future acts, validation …. 3.37 grants of fee simple …. 3.33 inconsistency test …. 3.30, 3.33 past and intermediate acts, validation …. 3.36 prescribed dealings …. 3.36 historical background …. 3.6–3.7 indicia …. 3.4 meaning …. 3.2 nature and incidence …. 3.3 pastoral leases, and …. 3.15–3.16 co-existence with native title …. 3.15 common law lease, distinction …. 3.15 inconsistent rights of possession …. 3.15 personal right as …. 3.4 possession, use and enjoyment …. 3.5 proof, requirements …. 3.28 bundle of rights …. 3.29 common law methodology …. 3.30 radical title of Crown …. 3.7–3.9 annexation of Australia …. 3.10, 3.13 beneficial ownership, and …. 3.12 doctrine of tenure …. 3.12 extinguishment of native title …. 3.9, 3.13 pre-existing customary rights …. 3.9 sovereignty, acquisition …. 3.9–3.11

vesting of bare title …. 3.11, 3.12, 3.13 rights independent of Crown grant …. 3.1 statutory recognition …. 3.2, 3.18–3.27 common law, role …. 3.27 traditional laws and customs, observance …. 3.2, 3.3, 3.19, 3.21, 3.22, 3.26 dispossession from traditional lands, and …. 3.23 normative rules …. 3.21 substantially uninterrupted …. 3.22, 3.26

Natural rights easement of support …. 5.28 rights of support …. 5.28

Negative covenant see Restrictive covenant

O Old System Title land adverse possession see Adverse possession, doctrine deed of conveyance …. 1.8 advantages …. 7.53 delivery of deed …. 7.55 exchange of contracts …. 7.48, 7.50, 7.51 register of deeds …. 7.50, 7.53 signed, sealed and delivered …. 7.54 easements see Easement equitable interests in land see Equitable interests in land fee simple estate …. 2.8 words of limitation …. 2.8 interests in land created in writing, requirement …. 7.46 leases see Lease mortgage see Mortgage; Old System Title mortgage mortgagee see Mortgagee mortgagor see Mortgagor priority of interests see Priority of interests register of deeds …. 7.50, 7.52, 7.53 restrictive covenants see Restrictive covenant severance of joint tenancy by mortgage …. 8.46, 8.47 title to land …. 1.8 Torrens title, conversion …. 1.8, 1.9

written instrument of conveyance, execution …. 7.52

Old System Title mortgage see also Mortgage beneficiary under a trust …. 10.13 clogs on equity of redemption …. 10.27–10.30 collateral advantages …. 10.31–10.34 deed, execution …. 10.14 equitable mortgage …. 10.10, 10.13 equity of redemption …. 10.11 general law mortgage, 10.10 good title …. 10.12 legal interest …. 10.12 mortgagee’s right to possession …. 10.11 redemption of mortgage …. 10.27–10.29 postponement or exclusion …. 10.30 re-entry by mortgagor …. 10.11 second or subsequent mortgagee …. 10.12 statutory requirements …. 10.14

Ouster of co-ownership constructive ouster …. 8.63 domestic violence or abuse …. 8.63 exclusion of other co-owner …. 8.62 occupation fee …. 8.61

Ownership of land see Title to land

P Pastoral leases native title, and …. 3.15 co-existence …. 3.15 common law lease, distinction …. 3.15 inconsistent rights of possession …. 3.15

Periodic lease covenants in lease see Lease covenants express agreement …. 11.23 features …. 11.20 implication, by act of possession by lessee …. 11.23

payment of rent …. 11.23 implied by court …. 11.22 indefinite lease …. 11.22 intention of the parties …. 11.22 notice of termination …. 11.24 rent, calculation …. 11.22 termination …. 11.24 verbal agreement …. 11.23 yearly lease …. 11.22

Personal interest licence see Licence tenancy at will see Tenancy at will typology of interests …. 1.3

Positive covenants covenant to do something …. 13.3 enforcing burden of covenant …. 13.6, 13.11–13.13 original parties …. 13.12 privity of contract …. 13.12, 13.14 successors in title …. 13.12

Possession action for trespass to land …. 1.22 acts of …. 1.26 fencing of land …. 1.28 ploughing and cultivation of land …. 1.28 actual or physical …. 1.23 adverse possession …. 1.21, 1.31 see also Adverse possession, doctrine better right to …. 1.30 documentary title to land …. 1.26 ejectment, rights …. 1.22 elements …. 1.23, 1.24 indicia …. 1.27, 1.28 interference with …. 1.22 ‘jus possidendi’ …. 1.23 physical custody and control …. 1.24 intention, relevance …. 1.24 present or future right …. 1.20

right to …. 1.30 ‘seisin in fee’ …. 1.25 suing for return …. 1.22 title by possession …. 1.25

Power of sale — mortgage advertising sale and setting reserves …. 10.91–10.93 appointment of agent …. 10.90 exercise of power …. 10.71–10.72 expenditure on property …. 10.94 implied power of sale …. 10.67 Old System Title land …. 10.68, 10.71–10.72 orders restraining improper exercise of power of sale …. 10.97–10.98 invalid exercise of power of sale …. 10.96 invalid or improper sale …. 10.95 protection of purchaser, and …. 10.100 timing of sale …. 10.89 Torrens land …. 10.69–10.70, 10.73 transaction must be a sale …. 10.74

Priority of interests caveats see Caveats ‘dealing registrable’, protection …. 6.78–6.79 prior equitable interest vs later equitable interest …. 6.78 prior equitable interest vs later legal interest …. 6.78 mere equities …. 7.18–7.22 classification …. 7.22 equitable interest, distinguished …. 7.18–7.19 overview …. 7.1 postponing conduct …. 6.81, 7.17 execution of dealing which does not reflect actual transaction …. 7.28 failing to caveat …. 7.29–7.44 failure to retain possession of title deeds …. 7.25 failure to take possession of title deeds …. 7.23–7.24 premature release of title deeds …. 7.26–7.27 prior equitable interest vs later equitable interest …. 6.76, 6.77 conduct of the parties …. 7.17 merits are equal …. 7.16

priority in time of creation …. 7.16 unequal merits …. 7.16 prior equitable interest vs later legal interest …. 7.7, 7.9 bonafide purchaser for value without notice …. 7.8, 7.10 actual notice …. 7.11 constructive notice …. 7.12 imputed notice …. 7.13 inspection of land …. 7.14 inspection of title documents …. 7.15 prior legal interest vs later equitable interest …. 6.76, 7.6 prior legal interest vs later legal interest …. 6.76 nemo dat rule …. 7.5 prior registered interest vs later registered interest …. 6.74 prior unregistered interest vs later unregistered interest …. 6.75, 6.78 priority notice …. 6.80 registered interest vs unregistered interest …. 6.75 bona fide purchaser for value without notice …. 6.76 Torrens priorities question, approach …. 6.94 vendors equitable lien …. 7.26

Property interest co-ownership see Co-ownership fee simple estate see Fee simple estate future interests in land see Future interests in land leasehold estate see Leasehold estate legal interest see Legal interest in land lessees …. 1.3 mortgages …. 1.3 Native title see Native title title to land see Title to land typology of interests …. 1.3–1.5

R Real property estates see Estates individual and object, relationship …. 1.1, 1.2 legal interest in land …. 1.13 legal meaning …. 1.1

legal title holder …. 1.1 meaning …. 1.1 Old System Title see Old System Title land possession see Possession title to land see Title to land typology of interests …. 1.3

Repudiation of lease abandonment of premises …. 11.94 an intention to no longer be bound …. 11.93 breach of covenants …. 11.94 lessor, acceptance …. 11.95 mitigation of loss by lessor …. 11.95

Restrictive covenant benefit of the covenant ‘running with the land’ of covenantee …. 13.19, 13.35–13.37 building schemes …. 13.22 annexation of covenant …. 13.22 bound and benefited lot owners …. 13.22 common intention and common interest …. 13.31 criteria for existence …. 13.23, 13.30, 13.31 enforcement in equity …. 13.22 intention to create a scheme …. 13.32 land benefited …. 13.22 requirements …. 13.29 subdivision of land …. 13.24, 13.26–13.28 Torrens title land, and …. 13.33–13.34 unsold lots …. 13.22 burden of covenant ‘runs with land of covenantor’ …. 13.6, 13.38 enforcing burden of covenant …. 13.6, 13.11 equity, in …. 13.15, 13.16, 13.39 original parties …. 13.12 privity of contract …. 13.12, 13.14 successors in title …. 1.31, 13.12–13.13 ‘touching and concerning’ the land …. 13.19 equity, enforcement …. 13.15, 13.16 bona fide purchaser for value without notice …. 13.18 requirement of notice …. 13.18 restrictive in substance, requirement …. 13.17

volunteer, against …. 13.18 land of the covenantee …. 13.2 land of the covenantor …. 13.2 not to do something …. 1.31 Old System Title land …. 13.25 statutory presumptions …. 13.36, 13.38 Torrens land …. 13.25 volunteers, and …. 13.18 waterfront properties …. 13.2

Retail spaces head lessee …. 1.2 99-year lease …. 1.2 rights and obligations …. 1.2 subleases …. 1.2

S Severance of joint tenancy acts of severance …. 8.12, 8.32, 8.34, 8.36 agreement to sever …. 8.50 express or implied concluded agreement …. 8.51 alienation of interest …. 8.39–8.41 bankruptcy …. 8.55 common intention …. 8.52 consideration for transfer …. 8.39 course of dealing …. 8.40, 8.52 negotiations which come to nothing …. 8.53 enforceable contract to transfer …. 8.38 equity, in …. 8.37 executed memorandum of transfer …. 8.41, 8.42 forfeiture rule …. 8.54, 8.56 discretion to modify …. 8.57 four unities, destruction, 8.33 gift …. 8.38, 8.40, 8.41, 8.42–8.43 grant of lease …. 8.49 mortgage …. 8.46–8.48 mutual severance …. 8.36 Old System Title land …. 8.47

operation of law …. 8.34, 8.54 part-performance of a contract …. 8.41 Torrens title land …. 8.48 trust, by …. 8.39–8.41 unilateral acts …. 8.34, 8.35 unilateral statements …. 8.40

Strata title body corporate …. 9.10, 9.11, 9.13 creation …. 9.14 ownership of common property …. 9.12 scheme management …. 9.13 building defects and pure economic loss …. 9.37 common law duty of care …. 9.38–9.42 latent defects …. 9.38 lot owners, claims …. 9.37 subsequent owners …. 9.38–9.42 ‘vulnerability’, concept …. 9.39–9.40 by-laws …. 9.17 articles …. 9.17 binding nature …. 9.17 land titles office, lodgement …. 9.17 replacement …. 9.17 scope …. 9.18 common property …. 9.9, 9.10 certificate of title …. 9.11 legal title …. 9.10 Torrens Register …. 9.11 vesting …. 9.12 creation of strata scheme …. 9.5 dispute resolution mechanisms …. 9.49 adjudication …. 9.50 tribunals …. 9.51 finances of scheme financial statements …. 9.47 insurance …. 9.46 levying contributions …. 9.44, 9.45 records …. 9.47 strata roll …. 9.47

high-density housing …. 9.2 legislative framework …. 9.1, 9.17 lot owners and occupiers, responsibilities …. 9.48 duty not to cause a nuisance or hazard …. 9.48 misuse of common property …. 9.48 right of support or shelter …. 9.48 maintenance and repair of common property …. 9.20–9.24 duty of owners corporation …. 9.21, 9.22, 9.24 fraud on the minority …. 9.34 general law duty …. 9.35–9.36 litigation …. 9.21 misleading and deceptive conduct …. 9.43 repair vs upgrade of common property …. 9.25–9.34 owners corporation …. 9.13–9.16 Executive Committee …. 9.15 managing agents …. 9.16 minutes and motions put at meetings …. 9.47 ownership of strata land …. 9.4 purpose …. 9.1 strata plan boundaries of lots …. 9.6 contents …. 9.6 ‘lot’, meaning …. 9.9 registration …. 9.5, 9.14 Torrens Register …. 9.11 folios for common property …. 9.11 unit entitlements …. 9.7 certificate of title …. 9.7 rating (tax) purposes …. 9.8 strata legislation …. 9.7 voting rights …. 9.8

Surface boundaries accretion and erosion of land …. 5.24 non-tidal boundaries for rivers and lakes …. 5.23 rights below the land …. 5.22–5.24 tidal bed of rivers …. 5.22 tidal boundaries …. 5.22 mean high-water mark …. 5.22

T Tenancy at sufferance adverse possessor land …. 11.27 compensation for use and occupation …. 11.27 features …. 11.20 lessee wrongly continues in exclusive possession …. 11.27 payment of rent …. 11.27

Tenancy at will alienation …. 11.26 compensation for use and occupation …. 11.25 creation …. 11.25 exclusive possession …. 11.26 expiration …. 11.26 fair and reasonable rent …. 11.25 features …. 11.20 notice of termination …. 11.26 personal right …. 11.26 termination …. 11.26

Tenancy in common creation of interest at law …. 8.17 words of severance …. 8.17 creation of interest in equity …. 8.24–8.25 distinct share …. 8.9 joint tenancy, distinguished …. 8.9 moneys advanced on a mortgage …. 8.28 notional interest …. 8.9 partnership and assets …. 8.29 statutory presumptions …. 8.18–8.22 Australian Capital Territory …. 8.19 New South Wales …. 8.19 Northern Territory …. 8.19 Queensland …. 8.19 South Australia …. 8.22 Tasmania …. 8.22 Victoria …. 8.22 Western Australia …. 8.22 unequal contributions to purchase price …. 8.26–8.27

unity of possession …. 8.9

Tenant’s fixtures see also Fixtures act of waste by lessee …. 5.8 agricultural …. 5.6, 5.9 presumptions of law …. 5.3 removal …. 5.6–5.8 time for removal …. 5.10 trade, domestic and ornamental …. 5.6–5.8

Tenure, doctrine feudal system …. 2.2 historical background …. 2.2 native title, and see Native title ‘radical title’ of Crown …. 2.3

Termination of lease fixed-term lease …. 11.78 forfeiture …. 11.84–11.86 breach of fundamental term …. 11.84 condition of lease …. 11.86 damages for prospective loss …. 11.91 express re-entry clauses …. 11.84 lease covenants, breach …. 11.85 non-payment of rent …. 11.86 relief against …. 11.89–11.90 waiver of right to forfeit by lessor …. 11.87–11.88 frustration of contract …. 11.83 incapable of performance …. 11.83 fundamental breach lessee’s repudiation …. 11.91, 11.93 non-payment of rent …. 11.92, 11.94 prospective damage for loss …. 11.92 merger common law …. 11.82 equity …. 11.82 registered lease of Torrens land …. 11.82 overview …. 11.77 periodic lease …. 11.79 repudiation by lessee

abandonment of premises …. 11.94 acceptance by lessor …. 11.95 an intention to no longer be bound …. 11.93 breach of covenants …. 11.94 mitigation of loss by lessor …. 11.95 surrender clause …. 11.80 surrender of lease …. 11.80 implied …. 11.80 operation of law …. 11.80 terms of agreement …. 11.6 Torrens title land …. 11.81 doctrine of merger …. 11.82 express surrender of registered lease …. 11.81 implied surrender …. 11.81

Testamentary disposition title to land …. 1.20

Title to land action for trespass to land …. 1.22 adverse possession …. 1.21 see also Adverse possession alienation of rights …. 1.19 bundle of tights …. 1.19, 1.20 ejectment, rights …. 1.22 estate in land see Estates, doctrine ‘good chain of title’ …. 1.7 Old System Title see Old System Title land overriding statutes …. 6.60 ownership …. 1.6 physical acts of ownership …. 1.27, 1.28 possession …. 1.20, 1.25 see also Possession documentary title to land …. 1.26 interference with …. 1.22 present or future right …. 1.20 testamentary disposition …. 1.20 Torrens title see Torrens title

Torrens mortgage

caveats see Caveats see also Mortgage discharge of mortgage …. 10.28–10.29 equitable mortgage, creation …. 10.17, 10.18 equity of redemption …. 10.28 possession of secured property …. 10.26 redemption of mortgage …. 10.29 registrable form …. 10.16, 10.19 statutory charge …. 10.15 unenforceable clauses …. 10.27–10.29 unregistered …. 10.16

Torrens Register caveats see Caveats certificate of title …. 1.10, 6.5 interests affecting land …. 6.5 correction of the Register …. 6.90 errors and omitted entries …. 6.90 definition …. 6.3 folio identifier …. 1.10 folios …. 6.4 reference numbers …. 6.4 identity of land …. 6.3 indefeasibility of title see Indefeasibility of title notice of unregistered interests …. 6.82 notified interests …. 1.10 priority of interests see Priority of interests registered proprietor …. 6.6 mortgagees …. 6.6 property owner …. 6.6 registered leasehold interest …. 6.6 registrable instruments …. 6.8 restrictive covenants …. 6.9 Registrar-General, administration …. 6.3 strata title see Strata title survey …. 6.3 system of title by registration …. 6.1 curtain principle …. 6.13 insurance principle …. 6.14

mirror principle …. 6.12 Torrens insurance schemes …. 6.91

Torrens title land adverse possession, and …. 4.41 caveats see Caveats certificate of title …. 1.10, 6.5 interests affecting land …. 6.5 conveyancing of interest …. 7.49, 7.50 date of settlement …. 7.50 exchange of contracts …. 7.48, 7.51 lodgement of caveat …. 7.50 registration of interest …. 7.50 dealings and interests …. 6.7 deed upon registration …. 6.7 instrument, requirement …. 6.7 reference number …. 6.7 easements see Easements historical background …. 1.9 indefeasibility of title see Indefeasibility of title interests in land created in writing, requirement …. 7.46 lease covenants, enforcement …. 11.75–11.76 privity of contract …. 11.75 privity of estate …. 11.75 registered assignment of lease, and …. 11.75 leases actual or constructive notice …. 11.37 certainty of duration …. 11.17 enforcement …. 11.37 indefeasibility …. 11.31–11.32 minimum term of lease …. 11.31 priority …. 11.37 purchase, option …. 11.32 registration …. 11.18, 11.31 renew, option …. 11.32 unregistered equitable leases …. 11.35 unregistered legal leases …. 11.36–11.37 Old System Title, conversion …. 1.8, 1.9 overview …. 6.1–6.2

priority of interests see Priority of interests proof of ownership …. 1.10 register see Torrens Register registered proprietor …. 6.6 registrable interests, creation …. 7.64 formalities …. 7.64 part-performance …. 7.64 registrable form …. 7.64 unregistered equitable mortgage …. 7.64 registration of interest in land …. 1.9 restrictive covenant see Restrictive covenant severance of joint tenancy by mortgage …. 8.46, 8.48 Sir Robert Torrens …. 1.9

Trespass to land airspace …. 5.11, 5.12 aerial photography …. 5.13 balance of rights …. 5.13 interference with any ordinary use of the land …. 5.14 transient intrusions …. 5.13 building works …. 5.15 orders granting easement …. 5.16, 5.20 reasonable compensation …. 5.15, 5.17, 5.18, 5.20 temporary encroachment orders …. 5.20 cranes and scaffolding …. 5.11, 5.15, 5.17, 5.18 conduct of the parties, assessment …. 5.15, 5.17, 5.18 injunctions …. 5.13, 5.15, 5.17, 5.18, 5.19 interference with proper use and enjoyment of land …. 5.18 minimisation of trespass …. 5.19 relief granted …. 5.16 damages …. 5.11, 5.15 interference with right of exclusive possession …. 5.11 temporary interferences …. 5.11

Trust adverse possession, doctrine …. 4.25 constructive trust …. 6.52, 6.57 in personam exception to indefeasibility, and …. 6.50, 6.56 accessory liability …. 6.57

knowing receipt …. 6.56 knowingly assisted …. 6.57 Torrens title land joint tenancy, severance …. 8.39–8.41