Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Loretta Suiwen Shen, Sarah Bonita, Joshua Lie, Timothy Go [2015] NSWCATCD 49 Hearing dates: 24 February 2015 Decision date: 25 June 2015 Jurisdiction: Consumer and Commercial Division Before: D Bluth, Senior Member Decision: 1 Sarah Bonita and Joshua Lie each are jointly and severally liable to pay to Loretta Shen the sum of $27,166.69 plus interest at 12% per annum from 11 July 2013 from the date of the publication of these Reasons. 2 Subject to written submissions no order as to costs. Catchwords: Leases and tenancies, destruction of unregistered lease on registration of transfer, guarantors liability, duty to mitigate loss Legislation Cited: Conveyancing Act 1919 NSW Retail Property Act 1900 NSW Retail Leases Act 1994 NSW Transfer of Land Act 1958, VIC Cases Cited: Blandino & Ors v Giardini & Ors [2008] NSW ADP 5 Daily Pty Ltd v Wallis [2013] NSW ADT 152 Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 244ALR1 Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312 Kemp v Lumeah Investments Pty Limited (1983) 3BPR 9203 Leros Pty Ltd v Terara Pty Ltd (1992) 174CLR407 Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd (2007) WASC 88 Lighting by Design v Cannington Nominees Pty Limited (2008) WASCA 23 Mercantile Credits Ltd v Shell Company of Australia Limited (1971) 136 CLR 326 Pickard v Sears (1837) 112 ER 179 Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd (2014) WASCA 28 Vale v Rosychamp [2008] NSWSC 1373 Yan Gu v Panetta [2014] CATCD 247 Texts Cited: Fox Annotated Transfer of Land Act, 2nd Ed. Law Book Co, 1989 Land Law, Peter Butt, 5th Ed, Law Book Co, 2006 Westlaw, Thompson Reuters Category: Principal judgment Parties: Loretta Suiwen Shen (applicant) Sarah Bonita (first respondent) Joshua lie (second respondent) Representation: Counsel: Serge Galitsky (applicant) Ralped Notely (first respondent) Self (second respondent) Solicitors: Websters (applicant) Nicholas George (first respondent) File Number(s): COM 14/45276 Publication restriction: Nil REASONS FOR DECISION 1. The facts in this case raise some interesting questions that go to the fundamental philosophy of Torrens title in Australia. 2. The parties are the lessor, Loretta Suiwen Shen (Shen) and the lessee, Sarah Bonita (Bonita) and the guarantors, Joshua Lie (Mr Lie) and Timothy Go (Go). Basic facts 1. A company, Abou Ghaida Company Pty Limited (Abou‑Ghaida) owned Shop No. 155 in a complex called the Quadrant Broadway, Ultimo (the premises). Abou‑Ghaida entered into a lease of the premises with Bonita for a term of five years terminating on 10 June 2009. The business of the lessee was a restaurant called Shalom. The lease was registered under Dealing No. AB247090Q (the registered lease). Mr Lie and Go were named as guarantors in the registered lease. The registered lease contained an option for a further term of five (5) years. 2. A new lease was entered into between Abou-Ghaida and Bonita for a term of five (5) years from 11 June 2009 to 10 June 2014. The commencing rent was close to $84,000.00 per annum plus GST. The rent was to be increased annually by 4%. The default interest rate was set at 12%. The lease only named Mr Lie as a guarantor (not Mr Go). All parties signed the lease which was never registered (the Unregistered Lease). Both leases were in the standard form of the Law Society Commercial Lease. 3. On or about 7 July 2011, Abou-Ghaida sold the premises to Shen and the transfer of the premises to Shen was registered at the Land and Property Information (Registrar General Department). By letter dated 7 July 2011 Shen's then lawyers directed Bonita to attorn Shen as the new lessor and pay her the rent under the Unregistered Lease. 4. As it transpired from the evidence, Bonita, whilst the named lessee on the Unregistered Lease, allowed the business to be conducted by Mr Lie, her father. Either Bonita herself or her father Mr Lie continued to pay rent and perform all the obligations under the Unregistered Lease. 5. Bonita's business experienced financial difficulties in the latter part of 2012 and Bonita fell into arrears of rent. Mr Lie discussed with the agent for Shen, Mr Joe Menggolo (from Elanda Partners (Mr Menggolo)) that he, Mr Lie, wished to break the lease term and return the premises to Shen. The monthly rent at that time was $8,304.30 inclusive of GST. 6. Mr Lie then sent an email to Mr Menggolo on 25 January 2013 advising that 'we have no choice other than to close the business'. Keys were handed to Mr Menggolo on 11 March 2013. Subsequently, the premises were re‑let in July 2014 for $81,400 per annum inclusive of GST. 7. Shen, as applicant, filed an Application for Original Decision seeking damages from Bonita and Mr Lie for breach of the Unregistered Lease comprising loss of rent up to the re‑letting of the premises. However, as pointed out by the Tribunal, Shen could only claim loss of rent from vacation of the premises on 11 March 2013 to the terminating date of the Unregistered Lease on 10 June 2014 notwithstanding that the premises wasn't re‑let until July 2014. 8. In response to the claim from Shen, Bonita and Mr Lie assert that Shen is not entitled to the damages claimed because: 1. the Unregistered Lease is void or of no effect; and 2. Shen failed to mitigate her loss. The Unregistered Lease 1. The challenge by Bonita and Mr Lie to the claim for damages by Shen is that there was no valid lease, or at the minimum there was a monthly lease terminated by the lessee on notice. Mr Galitsky of Counsel represented Shen, Mr Notley of Counsel represented Bonita, and Mr Lie was self-represented. Go did not participate in the proceedings. Upon conclusion of the hearing I allowed the parties five weeks to file written submissions. 2. The proposition is put by Mr Notley that the effect of registration of the transfer of the premises to Shen destroyed the Unregistered Lease. If the lessee remained in possession of the premises, then it must be under a new lease, the terms of which need to be established and the onus is on Shen to establish the terms of such tenancy. Mr Notley also raised an issue as to who exactly was the lessee occupying the premises, was it Bonita or Mr Lie? 3. If a lease exceeds three years and is unregistered, it does not enjoy protection under section 42(1)(d) of the Real Property Act 1900. If the land is transferred then that purchaser becomes the registered proprietor and takes free of any unregistered lease if the term of the lease is more than three years (see Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312). 4. To further consider the issues raised by the facts of this case the Tribunal has to be mindful of Torrens Title legislation throughout Australia (on a State by State basis as there is no national Torrens Title legislation) and the recent series of cases on registration of transfers and unregistered leases emanating in the main from Western Australia namely Leros Pty Ltd v Terara Pty Ltd (1992) 174CLR407 (Leros) and Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd (2007) WASC 88 (Lighting by Design) and the most recent case Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd (2014) WASCA 28 (Primewest), a decision of Martin CJ and Pullin and Murphy JJA. 5. To better understand the problem before the Tribunal, the most recent decision of Primewest is noteworthy to consider. That case concerned the interpretation of a contract for the sale of land in Western Australia. The property was a commercial retail complex and was subject to two leases. One lease was unregistered (the first lease) and the other lease was registered (the second lease) but had been assigned and the assignment in fact was unregistered. Both leases required the tenants to pay substantial rent and the rental income was a key commercial aspect of the transaction for the purchaser. 6. As Professor Peter Butt states in the Australian Law Journal (2014) 88ALJ at 294-300: 'The problem lay in the duration of the leases. Each was for a term exceeding five years. In Western Australia, unregistered leases exceeding five years are not protected as exceptions to indefeasibility. The contract for sale required the vendor to provide at settlement 'a deed of affirmation or other documentation relating to the leases and their continuation after settlement as the buyer may reasonably require'. Purportedly acting under this provision, the purchaser required the vendor to provide: (1) a deed from the tenants of the first lease affirming the validity and enforceability of that lease by the purchaser after completion; and (2) proof of registration of the assignment of the second lease (the assignment was in registrable form, although there was an issue about the validity of its execution). The purchaser was concerned that it might be unable to enforce the first lease and the unregistered assignment of the second lease after completion. This concern was based on an earlier Western Australian decision of Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd (2007) WASC 88 where Master Sanderson had held that an unregistered lease exceeding five years was 'destroyed' on registration of a transfer of the reversion. The decision had been reversed on appeal, but on a different point. The case law on the 'destruction' of unregistered interests generally deals with the right of the incoming registered holder to take free of unregistered interests (in this case, unregistered leases exceeding five years)… . The purchaser's concern here was that the document of destruction logically works both ways. If an incoming registered purchaser can invoke it, so can an unregistered tenant, or an unregistered assignee of a registered tenant. In that way, these unregistered holders could free themselves of their leases. Hence, it seems the purchaser's insistent demand that the vendor provide the contractually - promised deed of affirmation or other documentation in relation to the leases. When the vendor failed to comply with these demands, the purchaser terminated the contract. Whether the termination was valid turned on whether the purchaser had been entitled to make the demand.' 1. Professor Butt further comments at page 300: 'Interestingly, the appeal was conducted on the assumption that the purchaser's concerns about the enforceability of the two leases were justified given that Master Sanderson's decision in Lighting by Design on the point about 'destruction' of an unregistered lease had not been overturned or disapproved in any later case. Martin CJ (with whom Murphy JA agreed) was careful to indicate that his decision should not be taken to endorse the destruction point - for it had not been the subject of 'contentious argument or detailed consideration' on the appeal (see Primewest at [53]). Actually, Martin CJ's statement on this point was, with respect, slightly equivocal: his reasons were not to be construed as 'necessarily endorsing the legal premise underpinning the purchaser's concerns'. Pullin JA seems to have been more ready to accept that legal premise: His Honour referred to the unregistered interest being 'extinguished' by registration of the transfer from seller to buyer at [97], [99]).' 1. Accordingly, the very problem that was the subject of discussion in Primewest is before this Tribunal now. Was the Unregistered Lease to Bonita destroyed upon registration of the transfer of the premises to Shen? If so what are the legal consequences or effect on the parties? History of Torrens Title in Australia 1. Professor Peter Butt, in his book Land Law, 5th Edition, Law Book Company 2006 at page 724 states. The Torrens legislation as it exists in New South Wales today retains the essential elements of Torrens' South Australian precedent, albeit embellished by amendments and linguistically contorted for computer compatibility. Its fundamental premise is the conclusiveness of the Register: 'The cardinal principle of the statute is that the Register is everything'. (Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd (1926) AC101 at 106). The Privy Council in an early appeal under the Torrens system described the legislation in these terms: The object is to save persons dealing with the registered proprietors from the trouble and expense of going behind the register, in order to investigate the history of their author's title, and to satisfy themselves of its validity. That end is accomplished by providing that everyone who is bona fide and for value, who takes from a registered proprietor and enters his deed of transfer or mortgage on the register, shall thereby require an indefeasible right, notwithstanding the infirmity of his author's title (Gibbs v Messer (1981)) AC248 at 254. More succinctly, the Torrens system is a system of 'title by registration' (Breskvar v Wall (1971) 126 CLR 376 at 381 per Barwick CJ), as distinct from the system of 'registration of title' under the old system. Under the Torrens system, title rests on the act of the Registrar-General in registering an instrument rather than on the act of the party executing that instrument. …it is not the parties who effectively transfer the land, but a state official acting under statutory authority, and in some circumstances more fully than the parties could.' Real Property Act 1900, NSW and Conveyancing Act 1919, NSW 1. The relevant sections of the Acts are as follows: Real Property Act 1900 (Real Property Act) Section 42(1)(d)) relevantly provides: 42(1) Estate of registered proprietor paramount Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interest that are not so recorded except … (d) a tenancy whereunder the tenant is in possession or entitled to immediate possession, and an agreement or option for the acquisition by such a tenant of a further term to commence at the expiration of such a tenancy, of which in either case the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected. Provided that: (i) the term for which the tenancy was created does not exceed 3 years, and (ii) in the case of such an agreement or option, the additional term for which it provides would not, when added to the original term, exceed 3 years. Section 53 relevantly provides: Land under the provisions of this Act – How leased 53(1) When any land under the provisions of this Act is intended to be leased or demised for a life or lives or for any term of years exceeding 3 years, the proprietor shall execute a lease in the approved form. Conveyancing Act 1919 (Conveyancing Act) Part 8 - Leases Application of Part 8 to land under Real Property Act 116 The provisions of this Part shall apply to leases and sub-leases of land under the provision of the Real Property Act 1900, notwithstanding anything in that Act contained. Division 1 - General Provisions Rent and benefit of Lessees' covenants to run with reversion 117(1) Rent reserved by a lease and the benefit of every covenant or provision therein contained having reference to the subject - matter thereof and on the lessee's part to be observed or performed, and every condition of re-entry and other condition therein contained shall be annexed and incident to, and shall go with the reversionary estate in the land or in any part thereof immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and shall be capable of being recovered, received, and enforced, and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part as the case may require of the land leased. … (2) The benefit of every condition of re-entry or forfeiture for a breach of any covenant or condition contained in a lease shall be capable of being enforced and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part, as the case may require, of the land leased, although that person became by conveyance or otherwise, so entitled after the condition of re‑entry or forfeiture had become enforceable. Section 127 Tenancy from year to year not to be implied 127(1) No tenancy from year to year shall, after the commencement of this Act, be implied by a payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time. 1. The issue usually arising between parties when looking at the registration of transfers and unregistered leases is the question of indefeasibility of title. Section 42(1) of the Real Property Act confers protection on the registered proprietor of any estate or interest in land. Proprietor is defined in s3(1)(a) to mean any person seized or possessed of any freehold or other estate or interest in land. Hence, s42(1) bestows indefeasibility of title not only on the registered holder of the fee simple, but also on the registered holder of any lesser or derivated interest in the land, such as a mortgagee, chargee, lessee, and so on; all are within the term 'registered proprietor'. 2. As noted, s42(1)(d) of the Real Property Act provides exceptions to indefeasibility and gives protection to leases of no more than three years. In South Australia the home of Torrens Title, section 119 of the Real Property Act 1886 only gives protection to an unregistered lease 'for a term not exceeding one year to a tenant in actual possession thereunder'. The concept of an exception to indefeasibility for unregistered leases is carried through in the Torrens Title legislation of other States and varies from State to State, for example from 5 years in Western Australia to 12 months in South Australia. However, in the State of Victoria the convention is that leases are not registered at all and in fact these factual circumstances now before the Tribunal would pose no problem in the State of Victoria as shall be discussed later in these Reasons. 3. The majority of cases as mentioned earlier in paragraph 14 of these Reasons relate to the question of indefeasibility of title, that is, where a new registered proprietor seeks to deny the interest of an existing lessee under an unregistered lease. Section 42(1)(d) of the Real Property Act is clear that the protection of leases not registered extends only to those leases with the term not exceeding 3 years. As Professor Butt states in Land Law at page 298 'Further, to obtain the benefits of indefeasibility under the Act, such a lease should be registered. Registration of the lease also gives a lease priority over all later registered interests. … if left unregistered, Torrens title leases, like other Torrens title interests, are accorded the status of equitable interests only. … What brings the equitable interest into existence is the agreement antecedent to the instrument of lease, not the instrument itself.' Submissions by the parties 1. The primary submission by Mr Notley on behalf of Bonita (and Mr Lie adopts the same submission) is that as a consequence of registration of the transfer to Shen, the effect of s42(1)(d) of the Real Property Act on the Unregistered Lease is that it is destroyed and that the occupation by the occupant of the premises becomes a tenancy at will under s127 of the Conveyancing Act. The second part of Mr Notley's submission is that because there was no sufficient evidence before the Tribunal as to the payment of rent being periodic, the Tribunal is not able to infer the duration of the tenancy and therefore the tenancy can be determined at any time by the lessee. 2. In response, Mr Galitsky on behalf of Shen relies on a decision of the High Court in Mercantile Credits Ltd v Shell Company of Australia Limited (1971) 136 CLR 326. That case concerned the protection of an option to lease in a registered lease where the reversionary interest was transferred subject to the registered lease but the option was unexercised by the lessee and the new registered proprietor sought to defeat the exercise of the option on the basis of indefeasibility of title under the South Australian Torrens Legislation. Unfortunately that case is not helpful on these proceedings. The issue before the Tribunal is not the preservation of an option. In fact the registered lease on title expired on 1 June 2009 and presumably the Unregistered Lease arose between Abou‑Ghaida and Bonita as a consequence of the exercise of the option in the registered lease. However, there is no evidence before the Tribunal that in fact the option was exercised. It is only an assumption and on close examination of the two leases there are some significant differences. In any event, it is not relevant, because the Unregistered Lease was entered into well before the transfer of the premises by Abou-Ghaida to Shen was registered. It is the consequence of the registration of that transfer on the Unregistered Lease that is the subject of the dispute between the parties. 3. In respect of the submission by Mr Notley regarding s127 of the Conveyancing Act, the Tribunal notes that the decision in Kemp v Lumeah Investments Pty Limited 1983 3BPR 9203 held that where there is an agreement for a lease for a term but such agreement does not take the effect at law because of some informality (or the fact that it is not registered) then the lessee may have two estates at law: a tenancy at law pursuant to s127 of the Conveyancing Act and in equity or if the agreement is specifically enforceable, then a lease for the term. The tenancy at will will be subject to such of the terms of the fixed term as are applicable to or not inconsistent with the tenancy at will terminable on a month's notice. Interaction between s117 of the Conveyancing Act and the s42(1)(d) of the Real Property Act, NSW 1. The history of ss117 and 118 of the Conveyancing Act is steeped in time out of the dissolution of the monasteries and transfer of their lands to the nobility under King Henry VIII in the 16th century. The law was examined later in what is known as Spencer's case (1588-1774) All ER 68. Essentially, covenants in leases are enforceable by or against an assignee of the lease or assignee of the reversion, notwithstanding the lack of privity of contract, by a doctrine called 'Privity of Estate'. 2. The interaction between these two Acts is best expressed in the decision of Austin J in Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312 at [79] p334. 'According to the High Court, s42 overrides s118 (and s117) to the extent that s118 would produce a different outcome. But that does not mean that s118 is irrelevant. For example, it would be open to a tenant in occupation under a one year lease in writing to enforce the provision of the lease for an option to renew for two years, against the transferee who became registered as proprietor with a notice of the lease and option on the basis that: 1. a tenant has a priority over the registered proprietor under s42(1)(d), and 2. s118 permits the tenant to enforce the lessor's obligations against the registered proprietor, by obtaining an order for specific performance. In Snowlong Pty Ltd v Choe (1991) 23 NSWLR 198 at 204, Wood J put forward a different analysis. He expressed the opinion that s118 should be read as confined to registered leases, and to have the same effect as s40(3) of the Real Property Act has for such leases. His Honour observed that s118 "cannot have the effect of displacing the indefeasibility provisions of the Real Property Act, or of elevating an unregistered lease taking effect as a tenancy at will, terminable on one month's notice, to a lease for a term of years, with an option for renewal, which registration would have secured." Wood J's judgment was delivered before the High Court decided Leros. In light of the High Court's decision, I respectfully disagree with Wood J's analysis of the scope of s118, although not with his Honour's conclusion that s118 did not apply to the facts before him. There is nothing in s118, or any other provision of the Conveyancing Act, to suggest that s118 should be confined to registered leases. Section 116 states that the provisions of Part 8 which includes s118, applies to leases and sub-leases of land under the provisions of the Real Property Act, without suggesting any such limited construction. … His concern about elevating a tenancy at will to a lease for a term of years does not seem to take into account than an unregistered lease or agreement for a lease may be enforceable in equity.' 1. Mr Notley's submission, in effect, follows Snowlong in a strict legal sense that s117 (and s118) of the Conveyancing Act cannot have the effect of displacing the indefeasible provisions of the Real Property Act, in particular s42(1)(d). Austin J in the Heggies Bulkhaul case clearly refutes that proposition. 2. Section 116 of the Conveyancing Act makes it abundantly clear that the benefit of ss117 and 118 of the Conveyancing Act apply notwithstanding the provisions of the Real Property Act and in particular s42(1)(d) regarding indefeasibility of title. The series of Western Australian cases concentrate in particular on the effect of registration of the transfer of the reversionary estate on unregistered leases resulting in the lessee having no estate or interest in the land transferred. (Two exceptions to these cases are Primewest and the second Lighting by Design case to be discussed later.) 3. Significantly none of these cases touch on the subject of equitable estates and interests. In particular Master Sanderson in the first Lighting by Design case at [32] concluded that: In my view, s68 (of the Transfer of Land Act WA, s42(1)(d) equivalent) prevails in this case and the lease, being the lease for more than 5 years, was destroyed upon the defendant becoming the registered proprietor of the land. That conclusion is based upon my understanding of the decision of the High Court in the Leros case; I accept the argument put by the defendant. I have also followed the decision of Austin J, in Heggies. In doing so, I am mindful that although the provisions for the Transfer of Land Act and the Property Law Act are not statutes of national application, there was sufficient identity between the regimes and body to warrant a consistent national approach. 1. Notwithstanding the conclusion of Master Sanderson above, in my view it is inconsistent with the passage that I quoted earlier in paragraph 28 of these Reasons from the decision of Austin J in Heggies Bulkhaul. Further, the Court of Appeal in the second Lighting by Design case (Lighting by Design v Cannington Nominees Pty Limited (2008) WASCA 23) determined that the concept of indefeasibility of title does not prevent a claim in personam by the sitting tenant, namely one founded in law or equity. The Court of Appeal held that an agreement for lease between the sitting tenant and the new owner existed based on the equitable concept of part performance of a contract. The court concluded that objectively viewed, an agreement to lease can be inferred from the conduct of the parties and the various correspondence would have led a reasonable person in the position of Lighting by Design to understand there was an agreement to lease between Lighting by Design and Cannington Nominees on the same terms as the original lease with any necessary modifications, including that the lease would terminate at a later date. Pullin JA, in the minority, held that no agreement to lease could be inferred between the parties and any actions by the parties were consistent only with a tenancy at law or a periodic tenancy. 2. Clearly, in accordance with the decision of Austin J in Heggies Bulkhaul and the Court of Appeal in the second Lighting by Design case and notwithstanding that, in the words of Master Sanderson (and Pullin JA in Primewest), registration of a transfer 'destroys' the unregistered lease, an equitable lease can still survive and determine the relationship between the parties. (As an aside, Pullin JA as Senior Counsel as he then was, appeared on the appeal to the High Court in Leros. That appeal was successful and the option was extinguished. The case was about priorities). 3. The Unregistered Lease, originally between Abou-Ghaida and Bonita, is such an equitable lease and continued to exist post registration of the transfer of the premises to Shen. The legal estate and the priority over any competing interest on the register relates to indefeasibility and that was destroyed because the lease was not registered (s42(1)(d)) of the Real Property Act). However, the underlying effect of the obligations under the lease continued and pursuant to ss 117 and 118 of the Conveyancing Act was clearly the subject of the benefits and burdens to the relevant parties. 4. The use of the word 'destroyed' when discussing leases and the effect of registration of a transfer within the Torrens Titles system is unfortunate. The legal estate if any, may have been cancelled, but if the lease was not registered, there was in fact no extant legal estate equating to a registered legal estate, under Torrens Title, unless, as in the various States other than Victoria, the lease is protected by being, for example, less than 3 years in New South Wales. Reference to destruction of the lease does not appear to recognise the subsisting equitable rights of the parties preserved by ss 117 and 118 of the Conveyancing Act nor its equivalent in the other States. As noted by Professor Peter Butt at paragraph 17 of these Reasons, Martin CJ in Primewest was careful not to endorse the destruction point at [53]: However, it follows that those reasons should not be construed as necessarily endorsing the legal premise underpinning the purchaser's concerns, which has not been the subject of contentious argument or detailed consideration. Logically, this follows because in NSW, the Real Property Act deals with the Register, and the Conveyancing Act deals with property and parties. There is no registered interest on the Register of a lessee under an unregistered lease, but from a conveyancing aspect there still is a lease, 1. The position in the State of Victoria is different to the rest of the States in Australia. Section 42(2)(e) of the Transfer of Land Act 1958 states: (2) Notwithstanding anything in the foregoing the land which is included in any Crown grant certificate of title and registered instrument shall be subject to - (a)… (e) the interest (but excluding any option to purchase) of a tenant in possession of the land. 1. The authors in Fox, Annotated Transfer of Land Act, 2nd Edition, the Law Book Company Limited 1989 states at paragraph 42/10: Tenants in possession who do not register leases are given greater protection in Victoria than in other States. There is no incentive or need to register leases in Victoria as a result of this exception to indefeasibility …people in occupation as tenants obtain priority for their equitable interest as against any inconsistent registered dealing. Burke v Dawes (1938) 59 CLR 1 at 17. 1. Consequently it cannot be the case that in the State of Victoria the Register is everything, which is the fundamental philosophy of Torrens Title in the State of New South Wales as stated in paragraph 19 of these Reasons and historically throughout Australia. Who are the parties to the Unregistered Lease now protected by s117 of the Conveyancing Act? 1. The submission by Mr Notley on behalf of Bonita is that Shen bears the onus to prove the existence of the lease or the tenancy at will under s127 of the Conveyancing Act and the relevant parties and terms which she is seeking to rely upon for the purpose of recovering damages. Mr Notley submits that on the evidence available to the Tribunal, the Tribunal is simply unable to determine who was in occupation of the premises at the time that Shen became the registered proprietor. 2. In light of the Tribunal's holding that s117 of the Conveyancing Act allows Shen to rely on the covenants in the Unregistered Lease, the submission by Mr Notley must go to the lessee of the Unregistered Lease, in that there is uncertainty as to who is the true lessee and consequently, the Unregistered Lease is void. 3. Mr Galitsky on behalf of Shen submitted that she is entitled to regard the signed Unregistered Lease as representing the true nature of the relationship between the parties. Bonita acted throughout the tenancy as if she were bound by the Unregistered Lease. Mr Lie acted as her agent but neither Shen nor Mr Lie suggested that he was the principal. The parties are bound by estoppel by convention in that they allowed Shen to proceed on the basis that there was a lease with Bonita, notwithstanding that in fact Mr Lie may have been the principal and the occupant of the premises. 4. Mr Lie made a written submission and gave evidence to the Tribunal. He stated that he is a business owner and Pastor for Australian Christian Churches Indonesian Service. He further stated that he was running the small family restaurant business from its opening in 2004 until it closed on 11 March 2013 and all activities that happened in the premises were under his full responsibility and control. His daughter, Bonita, did not take any active role in the business and Bonita gave evidence that she did not attend the premises at all and took no role in the running of the restaurant. 5. The evidence before the Tribunal was that Bonita was the person who signed the registered lease and again signed the Unregistered Lease. She allowed the situation to arise where the business within the premises, the subject of the Unregistered Lease, was conducted not by herself but by her father, Mr Lie. It is not unusual for a lessee to allow others to run a business from the leased premises, with or without formal approval from a landlord. Franchises come to mind as well as other relationships by way of informal sublease or licence. Estoppel 1. Estoppel is a substantive rule of law that operates to preclude a party to legal proceedings from asserting against another party a factual or legal state of affairs which is inconsistent with another assumed state of affairs (the assumption). This occurs where: 1. the first party has played some part in the assumption being held or maintained by the other party; 2. the assumption has been reasonably relied upon by the other party; and 3. a departure from the assumption would cause that other party to suffer detriment. The object of estoppel is the prevention of conduct by one party that would be unconscionable, if left to result in the suffering of a detriment by another party (Westlaw AU, Thomson Reuters para 35.6.10 citing Waltons Stores (Interstate) Ltd v Maher 1998) 164 CLR 387). 1. Estoppel by representation is a form of estoppel that originated in equity, but came to be recognised also at common law. The principle was defined in Pickard v Sears (1837) 112 ER 179 as being: 'That, where one by his words or conduct wilfully causes another to believe the existence of a certain state of things, and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the same time.' (Lord Denman CJ at 183). 1. In Heggies Bulkhaul, Austin J accepted on the facts before him at [157‑158]: 157. In my opinion the evidence brings the present case within the doctrine of estoppel by convention both with respect to the arrangements for variation of the payment obligations and with respect to the arrangements for the new lease. Therefore Global is estopped against Heggies from questioning the truth of that assumed state of affairs. 158. Consequently estoppel by convention provides a basis additional to s118 for Heggies to require Global to adhere to the variation of payment arrangements. 1. Consequently, it is the Tribunal's view that it is inappropriate to allow Bonita and Mr Lie at this stage to raise the issue regarding the true status of the lessee. It was clear at the time that the Unregistered Lease was executed that Bonita propounded herself as the lessee notwithstanding that she may not have actively partaken in the running of the business operated from the premises. Bonita did not raise that she was not the actual lessee at the time that she received the attornment notice from Shen's lawyers following the transfer of the premises to Shen. She in effect allowed matters to run without altering that position or alerting Shen or her lawyers or agent. In these circumstances, the Tribunal is of the view that Bonita is the true lessee under the Unregistered Lease of which Shen has the benefit pursuant to s117 of the Conveyancing Act. 2. Even if Mr Notley was correct and the effect of registration of the transfer to Shen was the destruction of the Unregistered Lease and Bonita occupied the premises as a tenant at will pursuant to s127 of the Conveyancing Act, the terms of that occupation would be in accordance with the terms of the Unregistered Lease in any event (per Lumeah) and those terms ultimately govern the relationship between the parties. Pursuant to the Unregistered Lease, the terminating date was 10 June 2014 and Bonita breached the lease by terminating early and returning the keys through her agent Mr Lie. Claim for damages 1. Clause 12.6 of the Unregistered Lease states: If there is a breach of an essential term the landlord can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms. 1. As the premises remained unlet for the balance of the term, Shen claims the full amount of rental payable under the Unregistered Lease. Mr Notley on behalf of Bonita (and Mr Lie is in support) submits that there is an obligation on Shen to mitigate her loss. It is common between the parties that the onus of demonstrating absence of mitigation lies on the party in breach. 2. Mr Galitsky on behalf of Shen drew the Tribunal's attention to a decision of White J in Vale v Rosychamp (2008) NSWSC 1373 being an appeal brought by the tenant Vale against a decision in the Administrative Decisions Tribunal. Part of the dispute turned on whether the landlord had discharged the obligation to mitigate. White J adopted the view that the duty to mitigate is simply a principle of the quantification of damages where the onus lay on the tenant to demonstrate that the landlord had failed to take reasonable steps. White J at [184 - 185] stated: 184. However my finding on the issue of mitigation does not depend upon that. Rosychamp did not have a duty to mitigate its damage. Rather, it is not entitled to recover damages for loss it could reasonably have avoided. The onus lies on Mr Vale to show that Rosychamp's loss of rent to the end of the lease could have been reasonably avoided by re‑letting the premises to somebody else. Even if Rosychamp had adduced no evidence of dealings with Mr Leung and Kepa, Mr Vale would still need to have shown that Rosychamp failed to take reasonable steps to attempt to mitigate its loss, and that if such depth be taken, it is probable that its loss, or part of its loss, would have been avoided. 185. Rosychamp's loss was a loss of rent to 30 April 2007. The only way in which it is suggested that loss could have been avoided is by securing a replacement tenant. But in determining what steps were reasonable to obtain an alternative tenant, regard must be had to Rosychamp's legitimate commercial interest in redeveloping or selling the building. In its negotiations in 2002 with Mr Vale, Rosychamp had secured favourable lease terms which prevented Woodfire Pizza Consultancy from objecting to the redevelopment. To show that the loss could have been avoided had Rosychamp taken reasonable steps, Mr Vale would need to establish that there was an alternative tenant who would have been prepared to lease the building on similar terms. The evidence 1. Mr Steven Cheung gave evidence as the letting agent appointed by Shen. He stated that he posted signs on the premises, advertised in the Chinese language press and advertised on the Internet. He gave evidence of conducting inspections and receiving only one enquiry where Shen was willing to negotiate. He asked the enquirer to put that offer in writing. He heard no more from that person. Mr Cheung also gave evidence that he advised Shen to consider any reasonable offer. Apparently there were none. Mr Galitsky submits that this demonstrates sufficient activity to represent reasonable endeavours on the part of Shen. 2. Mr Cheung gave evidence on affidavit and then oral evidence and confirmed that the premises was advertised at a rent of $100,000.00 per annum inclusive of GST being the amount payable by Bonita prior to the default. The premises was advertised at this rent from March 2013 until it was ultimately tenanted in September 2014 at a rent of $81,400.00 per annum inclusive of GST. Further evidence was deduced that during the period 4 April 2013 to 15 September 2013 the premises was advertised on realcommercial.com.au every week. During this 160 day period there were 443 views of the advertisement. The premises was not advertised for some inexplicable reason between 16 September 2013 and 13 January 2014. During the period 14 January 2014 to 7 July 2014 the premises was again advertised on realcommercial.com.au every week. There were a further 590 views of the advertisement. Further, Mr Cheung confirmed there were a number of inspections of the premises between March 2013 and July 2014. 3. Mr Notley submits that from this evidence it can be inferred that the premises were clearly desirable for a tenant to rent and there were many prospective tenants that were interested in leasing it. Notwithstanding this, the evidence from Shen did not explain why the property was not ultimately leased until September 2014. Mr Notley asked the Tribunal to infer that the premises were not able to be tenanted until September 2014 because the asking rent was too high. The inference is supported by the fact that the premises were ultimately tenanted for $81,400.00 per annum inclusive of GST and outgoings, the sum of approximately 20% less than what was being advertised. 4. As I observed in Daily Pty Ltd v Wallis (2013) NSW ADT 152, the decision of the Appeal Panel of the Administrative Decisions Tribunal (as it then was) in Blandino & Ors v Giardini & Ors (2008) NSWADT 55 provides 'an excellent summary of the principles relating to a lessor's duty to mitigate.' The Appeal Panel commented on the Tribunal's decision below, which referred to and quoted from relevant authorities such as a judgment of Giles JA inKaracominakis v Big Country Development Pty Limited & Anor (2000) NSWCA 313 at (187) and the judgment of Austin J in Young v Lam (No. 2) (2011) NSWSC 1014 at (31). From these decisions the following propositions can be established: 1. where it is alleged that a plaintiff has acted unreasonably in failing to minimise his or her loss from the defendant's breach of contract, the onus lies of the defendant, who was a wrongdoer to establish this; 2. a high standard of conduct is not required; 3. the plaintiff will not be held to have acted unreasonably in failing to minimise his or her loss from the defendant's breach of contract, so long as it was reasonable for the plaintiff to do what he or she did; and 4. where the assessment of damages relates to a commercial operation, the question to be determined is what a person in the plaintiff's situation would do 'in the ordinary course of business'. 1. Mr Notley submits, and I agree, that to advertise a premises for rent of $100,000.00 per annum for approximately 16 months was not acting reasonably. Shen was obliged to try and lease the premises to another tenant 'on reasonable terms'. This means on terms to meet the market and not to hold out for the maximum rent. 2. In Blandino & Ors v Giardini & Ors (2008 NSWADP 55 the Appeal Panel held at [79]: Instead, the question that the Tribunal should have considered was, in our opinion, as follows: if the lessors have advertised the premises is available for lease approximating the rent that they ultimately obtain, what loss would they have probably suffered? An appropriate answer is, as Mr Reimer effectively conceded about three months' worth or rent. This was the rent during what might be called a 'turnover period'. It is lost rent for which the lessees, having terminated the lease prematurely without due course, must compensate the lessors. 1. Mr Notley then makes a further submission that rather than three months' rent, the most Bonita should be required to compensate Shen is one months' rent because the premises was tenanted almost immediately after the rent was reduced. That amount is $6,783.33 being the equivalent of one month's rent at the annual rent obtained on the re-letting. 2. In my decision of Yan Gu v Panetta (2014) NSW CATCD 247 I referred in some detail to the issue regarding obligations on the part of the landlord to mitigate at [75-88]. At [85] I stated the following: 85 The Tribunal accepts that clause 12.6 places a positive obligation on the landlord to act reasonably and neutralises the considerations raised (by earlier decisions of this matter). The clause in effect raises the standard from low to a medium standard. The clause was not under consideration in Blandino. 1. It should be noted that clause 12.6 was not in the lease in Vale v Rosychaap. The primary position is that a landlord is entitled to recover damages for breach of lease including lost rental on vacation. The landlord is of course obliged to act reasonably in doing so and one of the yardsticks in acting reasonably is to meet the relevant market at the relevant time. It is clear in this case that Shen held out for a greater rental than the market was prepared to pay for a long period of time. Taking into account the evidence provided to the Tribunal and the principles discussed above and in particular clause 12.6 of the Unregistered Lease, the Tribunal has decided that four months' rent is the appropriate amount of compensation to be paid to Shen. The amount however is not based on the rent obtained on a re-letting but on the rent that Shen would have obtained had there been no default by Bonita, which is $8,304.30 inclusive of GST per month. Position of the guarantor Lie 1. Mr Galitsky submitted that as Mr Lie signed both leases he was liable as guarantor. Clauses 13.2 and 13.8 of both leases state as follow: 13.2 The Guarantor guarantees to the landlord the performance by the tenant of all of the tenants' obligations (including any obligations to pay rent, outgoings or damages) under this lease, under every extension of it or under any renewal of it or under any tenancy and including obligations that are later changed or created. 13.8 The terms of this guarantee apply even if the lease is not registered, even if any obligation of the tenant is only an equitable one, and even if this lease is extended by legislation. 1. As Mr Galitsky points out, the question for the Tribunal to determine is whether the guarantee enures for the benefit of Shen, notwithstanding there is no direct relationship between Shen and Mr Lie. He referred the Tribunal to the High Court decision in Gumland Property Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 which followed the House of Lords in P & A Swift Investments (A Firm) v Combined English Stores Group plc (1989) AC 635 that covenants that run with the land are for the benefit of the land owner. The High Court approved the speech by Lord Templeman in P & A Swift at [101]: A covenant by a surety that a tenant's covenant which touches and concerns the land shall be performed and observed must itself be a covenant which touches and concerns the land. With respect that is current. As McPherson JA has said "If rent runs with the land, it is not a long step to say that a guarantee of that rent also does so [Simmons v Lee (1998) 2001 R 671]. 1. Consequently, in Gumland, the High Court held at [92] that where the covenant of a guarantor to guarantee payment of rent by a lessee touched and concerned the land, it ran with the land and could be enforced by a transferee of the reversion following the decision of the NSW Supreme Court in [Ryde Joinery Pty Ltd v Zisti BC 9706504. 2. Clauses 13.2 and 13.8 of the Unregistered Lease are clear. The liability of a guarantor continues even if the lease was not registered. The High Court in Gumland held that the liability of a guarantor touched and concerned the land, and at [106] stated: The only Australian case reaching a conclusion adverse to the proposition that guarantees of a lessee's covenant to pay rent pass with the reversion is Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] NSWLR 5. It is not in truth an authority adverse to the applicant. The reasoning turned on the non-application of s117 of the Conveyancing Act. As has often been pointed out no argument appears to have been advanced in that case that the guarantors covenant could be enforced on the basis that it touched and concerned the land (Ryde Joinery). 1. Mr Lie made submissions on the basis that there was no written lease agreement since Shen took over ownership of the premises. For the reasons that I have explained earlier the Unregistered Lease governs the relationship between Bonita, Mr Lie and Shen. As noted Mr Go did not sign the Unregistered Lease and consequently any claim by Shen against Mr Go is dismissed. 2. Mr Lie is liable to Shen as guarantor of the lessee's liability under the Unregistered Lease. Calculations and Orders 1. As I determined, Bonita as lessee breached her obligations under the Unregistered Lease and is liable to pay to Shen four months' rent plus interest. From the affidavit of Steven Cheung, I note that rent from 11 March 2013 to 10 June 2013 is $8,304.20 inclusive of GST which amounts to $24,912.60. Then on 11 June 2013 the monthly rent was increased by 4% (pursuant to the terms of the Unregistered Lease), so the rent became $8,636.37 per month. The amount of damages payable is then $33,548.97 less a credit of $6,382.28 left over from the bank guarantee leaving a damages claim of $27,166.69. Interest at 12% per annum is payable on this amount from 11 July 2013. Costs 1. Shen in particular has sought costs. This was a difficult and complex matter. Whilst Bonita has not succeeded in the primary claim that the Unregistered Lease was void and therefore she had no liability, Bonita has succeeded in confining a claim for damages in respect of a breach of the Unregistered Lease. My provisional view is that there should be no order as to costs. I give the parties leave to make written submissions regarding costs within 28 days of the day of the publication of these Reasons, in which case the matter will be decided upon the papers. Otherwise, as noted there is no order as to costs. Orders 1. Sarah Bonita and Joshua Lie each are jointly and severally liable to pay to Loretta Shen the sum of $27,166.69 plus interest at 12% per annum from 11 July 2013 from the date of the publication of these Reasons. 2. Subject to written submissions no order as to costs. D Bluth Senior Member Civil and Administrative Tribunal of NSW 25 June 2015 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 July 2015