Figgins Holdings Pty Ltd v Seaa Enterprises Pty Ltd M73/1997 [1998] HCATrans 24 (13 February 1998)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M73 of 1997

B e t w e e n -

FIGGINS HOLDINGS PTY LTD

Applicant

and

SEAA ENTERPRISES PTY LTD

Respondent

Application for special leave to appeal

GAUDRON J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 FEBRUARY 1998, AT 12.33 PM

Copyright in the High Court of Australia

MR A.R. CASTAN, QC: May it please the Court, I appear with my learned friends, MR G.H. GOLVAN, QC and MR A.I. STRUM, for the applicant. (instructed by Feingold Partners Pty Ltd)

MR G.A.A. NETTLE, QC: May it please the Court, I appear with my learned friend, MR M.R. PEARCE, for the respondent. (instructed by Phillips Fox)

GAUDRON J: Mr Nettle, we feel we might be assisted by hearing from you first.

MR NETTLE: Your Honours, it is submitted that there are three reasons to refuse leave in this case. The first is that the principles are well established. They are set out in the judgment of Mr Justice Brooking at the application book, page 198 through to page 205. Might we go briefly to them? Beginning at page 198, at line 15, his Honour concludes after reference to authority that:

The result of s.81(3) of the -

Transfer of Land Act -

is that after default a mortgagor may not sue for the rent without the written consent of the mortgagee.

And he makes reference to Sykes - - -

GAUDRON J: That does not determine this matter.

MR NETTLE: Certainly not. I wanted to go a little further, if I may. If I may direct your Honours' attention then to page 199 of the application book, to line 10. His Honour begins upon travel through all the authorities which bear upon the subject and notes at lines 10 and 11 that, under the Transfer of Land Act, as opposed to some of the authorities upon which reliance had been placed by the applicant, the case is not to be decided by reference to the principle in Hunt v Luck but rather by reference to section 42(2)(e) of the Transfer of Land Act.

The third point which his Honour makes in this analysis appears at page 200 of the application book where, after reference in the inset paragraph to section 138 of the Property Law Act, his Honour makes reference to the decision in Cook v Guerra and concludes over the page at 201, in the last four lines that:

The Statute of Anne prevented recovery of rent falling due -

after or -

before the notice.

Now, it is in the next paragraph with the decision of Lord Ashburton v Nocton that his Honour, based upon the analysis which has gone before, turns to the question of what is it that may be taken to constitute good payment or payment sufficient to discharge an obligation to pay rent.

GAUDRON J: Where are the principles that are well established on that issue?

MR NETTLE: His Honour goes on, over the page, at page 204, line 4:

The result of the authorities is that if there is an arrangement whereby rent is paid in advance or future rent is to be set off against money.....this arrangement will, whether it was made before or after the mortgage, have the result that the tenant must be taken.....to have paid the rent in respect -

and then the important part:

As regards amounts of rent which fall due after the mortgagee gives notice to the tenant to pay rent to him, the effect of the arrangement will depend on when it was made.

Now, can I go to 17?

GAUDRON J: Neither of those matters are principles - - -

MR NETTLE: No, no, I appreciate - this is covering the field. He comes to the point at line 17:

If the arrangement is made after the mortgage, then, whether or not the mortgage is a registered mortgage of land under the Act, the arrangement does not bind the mortgagee, since neither the principle in Hunt v Luck nor s.42(2)(e) is on any view applicable, and the tenant cannot set up a defence that he paid the mortgagor before receiving -

the money. Lastly, to line 25, if your Honours will:

the question here being considered is whether an arrangement preceding the mortgage is binding upon the mortgagee.

GAUDRON J: No, that is not the question in this case, is it?

MR NETTLE: Yes, it is.

GAUDRON J: The question is, is it not, whether the mortgagor could give a good release before notice?

MR NETTLE: No, it is not. What had been decided in the first round, as it were, of these proceedings by his Honour Justice Hayne of the Supreme Court, as he then was, was that the deed which purported to vary the lease which had been entered into between mortgagor and tenant after the mortgage had been registered did not, could not, bind the mortgagee. Now, that was decided and it was never appealed from and there is therefore in respect of that issue an issue estoppel as between the parties.

GAUDRON J: And it is not the question in this case.

MR NETTLE: I have submitted that it is albeit that it has been cleverly sought to cover it up as being a different issue. Subsequent to the conclusion of those proceedings, a new proceeding was instituted by the mortgagee to recover outstanding rent. The defence which was sought to be set up was not that the rent has been paid to the mortgagor which, of course, until the mortgagee came into possession would have been a good defence, by reference to the authorities through which Justice Brooking travelled, but rather that because of the arrangement which was made by way of the deed that purported to vary the lease there has been a good discharge. In other words, having lost the first round on the question of whether or not that deed bound the mortgagee, it was then sought again in this proceeding to say once more that the effect of that deed is to constitute a good discharge.

Now, as Mr Justice Brooking observes, payment by any means recognised by the law to the mortgagor will, by dint of sections 138 and 151 of the Property Law Act constitute a good discharge.

GAUDRON J: Is that saying any more than payment of rent constitutes a good discharge?

MR NETTLE: Payment of rent constitutes a good discharge.

GAUDRON J: But that, again, is not the question.

MR NETTLE: Yes, with respect, it is for this reason: the question ultimately - - -

GUMMOW J: It might be a good idea to think what the presiding Judge thinks the question might be so you can respond to it.

MR NETTLE: I do beg your pardon.

GAUDRON J: The question is, is that the only way in which discharge can be obtained prior to notice being given by the mortgagee?

MR NETTLE: That is to say, payment of rent?

GAUDRON J: Yes.

MR NETTLE: There is no question otherwise. It has not been suggested or argued otherwise than that there was here payment constituted by performance under the deed of variation. Thus, the question was revealed: was payment pursuant to the terms of deed of variation a means of payment which the law recognises as payment of the rent under the lease. That, if I may say so with respect, is the question and the answer given by the courts below to that question is that payment in accordance with a deed which purports to vary the lease, not as rent under the lease but in satisfaction of a different obligation substituted for those contained within the lease, is not payment of the rent under the lease. Obviously, to the contrary, it is payment pursuant to a different and varied obligation which is not the obligation which is sought to say it is discharged.

It is as simple as that at the end of the day. Can one, by performing a different obligation to that which contends it is discharged, say that that obligation has been discharged? The answer, we would submit with respect, is clearly no. If, as has been found to be the case, the variation of the terms of the lease is not effective against the mortgagee, then it cannot be said as against the mortgagee that I, the tenant, have discharged the unvaried obligations by performing varied obligations. All that can be said by the tenant is either tenant have discharged the unvaried obligations by discharging them in accordance with the mechanism which the law recognises, namely payment or something equivalent to payment of those obligations.

What this tenant seeks to do is to say, not that "I have paid those obligations which arise under the lease", nor does it seek to say that "I have given consideration, the equivalent in the eyes of the law, to payment of those obligations under the lease", what the tenant seeks instead to say, again, is that, "I have performed a new and different set of obligations which do not bind you, the mortgagee, and therefore I should be taken as having been relieved of the obligations which do bind in your favour against me, the tenant." Now, that is why it is - I say second - probably third or fourth go at the same cherry - this battle was fought and lost a long time ago. Cleverly, it has been contrived to have the appearance of - - -

GUMMOW J: There is nothing wrong with being clever, Mr Nettle.

MR NETTLE: Not at all. I am full of admiration, if I may say so, your Honour, for the ingenuity which has resulted in the matter coming this far.

GUMMOW J: Nothing wrong with being ingenious, either.

MR NETTLE: Again, I do not disagree, but I do urge your Honours to see that what is being sought to be said up here is the very same defence which failed at first instance and, again, which there was no appeal in the first round of proceedings.

GAUDRON J: That may be so but there may be another question, may there not? Is there any obligation to a mortgagee prior to notice being given?

MR NETTLE: Yes, there is. After default, which are the facts in this case, the mortgagor assumes the position of a tenant at sufferance. He no longer has the power to sue for the rent. The only thing which, as it were, continues to inure in favour of the tenant is the fact that if the tenant pays to that mortgagor the rent which is due under the lease, the tenant will, as against the mortgagee, be pro tanto discharged by reason of sections 138 and 151 of the Property Law Act. In other words, the ultimate tenant, the tenant from the mortgagor, has after default by the mortgagor an obligation to pay the rent to the registered mortgagee because the registered mortgagee is then in the position of the holder of the fee simple because of section 81 of the Transfer of Land Act.

GAUDRON J: Without notice.

MR NETTLE: Without notice, save for this exception, that because of sections 138 and 151 of the Property Law Act, if the tenant pays to the mortgagor rent which is due then, pro tanto, the tenant is discharged of that obligation to pay the rent to the mortgagee.

Now, thus to bring it home to the facts of this case: in this case there was before default the deed entered into which purported to vary the lease which was held not to be binding against the mortgage. It may be put to one side. Subsequently, there was default under the mortgage. By reason of that default, the implied redemise of the reversion by the mortgagee to the mortgagor came to an end and the mortgagor henceforth was in the position of a tenant at sufferance. Because the mortgagor was then in a position of tenant at sufferance, he had no powers to sue for or recover the rent. They revested, as it were, in the mortgagee as nominally the holder of the fee simple.

The mortgagee could therefore, without further notice, move to recover rent which fell due after default, except for the one protection which results from the Statute of Anne and now finds expression in sections 138 and 151 of the Property Law Act, that if the tenant, without notice from the mortgagee, performs the obligation to pay rent by paying to the mortgagor, then, pro tanto, will the tenant be discharged? So much is well established and clear, as your Honours will understand. What comes then is the question of fact. Is payment of a $1 a year, in contradistinction to the $60,000 per month which was warranted under the lease, pursuant to the terms of the deed of variation, payment of the $60,000 a month rent due under the lease or is it something which the law does not recognise as constituting payment of $60,000 of rent under the lease?

What was held in the Court of Appeal below was that if one expressly and actually, in discharge or purported discharge of varied obligations, pays $1, he or she does not purportedly or actually pay rent due under the lease which was purportedly varied. Now, what is said against the mortgagee in this case is that because the tenant managed to get hold of a deed which varied the obligation of rent down from $60,000 per month to $1 a year, and paid $1 a year, the tenant is to be taken, under sections 138 and 151, of having discharged the obligation to pay rent of $60,000 a month and what the Court of Appeal has said, we would submit, clearly appropriately, is that that is not payment by a means which the law recognises as a discharge.

It is not like Spargo's Case, it is not like giving goods in kind to the value or approximately the value of the amount which is due, it is not anything which is done in purported and intended satisfaction of the convenants under the lease, it is something which is done purportedly and intendedly in discharge of an obligation, varied as against the mortgagee in a way which does not bind it. That, it is submitted, albeit a little complex because of the principles to which one must go, is clearly established by the authorities, clearly established by the legislation and the question which emerges ultimately is was the Court of Appeal wrong to say that payment under the deed of variation of $1 is not payment under the lease of $60,000.

That is not a question, it is submitted, which is one of general public importance; first, because it is obvious on the authorities through which the Court of Appeal travels that its decision is right; secondly, because it is not one - - -

GAUDRON J: The authorities really do not deal with the point as such though, do they?

MR NETTLE: The final point?

GAUDRON J: No.

MR NETTLE: I would have to say that is right, with respect. I would contend, with respect, that one is compelled to that conclusion by the authorities but there is not a decision which demands that it be reached. To go a little further, having given up that concession, what remains, a question about how can obligations be discharged at law?

GUMMOW J: I have always thought the law of discharge is very difficult. Maybe it is all simple. I always thought it was quite complex really, and there does not seem to be any authority directly on the point here.

MR NETTLE: There is authority on point in a sense - - -

GUMMOW J: Directly on point.

MR NETTLE: Directly on point. There is authority on point in the judgments where the instances and examples of what have been recognised already are travelled through. It is correct, as your Honour Justice Gummow and, indeed, the presiding Judge have said, that there is not authority that discharge of varied obligations held not to be varied as against the obligee is a discharge as against the obligee What I would submit, however, is that it follows as a matter of logical necessity that performance of varied obligations which, as against the obligee, are not varied cannot constitute a discharge of unvaried obligations as against the obligee. If the Court pleases.

GAUDRON J: Yes, thank you, Mr Nettle. We do not need to hear from you, Mr Castan.

There will be a grant of special leave in this matter.

AT 12.50 PM THE MATTER WAS CONCLUDED