Accordent Pty Ltd & Anor v Bresimark Nominees Pty Ltd & Ors [2008] HCATrans 374 (13 November 2008)

Last Updated: 18 November 2008

[2008] HCATrans 374

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Adelaide No A18 of 2008

B e t w e e n -

ACCORDENT PTY LTD

First Applicant

SOTIRIOS PORTELLOS

Second Applicant

and

BRESIMARK NOMINEES PTY LTD

First Respondent

PANAGIOTIS GALANIS

Second Respondent

SOPHIA TAKMAKIS

Third Respondent

Application for special leave to appeal

FRENCH CJ
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON THURSDAY, 13 NOVEMBER 2008, AT 10.50 AM

Copyright in the High Court of Australia

__________________

MR A. LAZAREVICH: If the Court pleases, I appear for the applicants. (instructed by Scales & Partners)

MR P.A. McNAMARA, QC: May it please the Court, I appear with my learned friend, MR M.S. BLUMBERG, for the first respondent. (instructed by Minicozzi Solicitors)

FRENCH CJ: Yes, Mr Lazarevich.

MR LAZAREVICH: Your Honours, the applicants for special leave in this case contend that the Court should revisit the question as to whether a covenant in a guarantee touches and concerns the land and therefore runs with the land, notwithstanding the unanimous decision in the Gumland Case earlier this year, on the basis that the Court was not asked to address in Gumland the primary arguments that we seek to put forward on this appeal and, in particular, in the Gumland decision the Court was asked to consider only two arguments. The first argument was whether or not the test as set out in Swift’s Case was contrary to the High Court’s previous decision in the case of Naylor. The second argument was whether or not there was a distinction between a covenant in a guarantee that related to the obligation to pay rent as opposed to an obligation in respect of bargain damages. Our application for special leave does not rest upon either proposition

At paragraph 96 of Gumland the Court also noted that there was a concession made in that case that the fourfold test set out in Swift was the appropriate test. The arguments that the applicants for special leave seek to agitate before this Court is whether or not the fourfold test in Swift is actually the correct test and, in particular, to draw a distinction between covenants that touch and concern the land and those that do not is rooted fundamentally in the distinction between covenants of an agreement that are of a proprietary nature and covenants of an agreement that are of a personal nature. The fourfold test as set out in Swift is at tab 2 of the book of authorities that was provided yesterday and at the last page, at page 642 at points E through to point G.

FRENCH CJ: I am sorry. What page was that?

MR LAZAREVICH: At page 642 of the judgment and that is behind tab 2, the last page, and at point E of the page and following. The reference there is to a covenant that touches and concerns the land, but there is no identification of a covenant of what. The argument we seek to put forward is that the test that is set out in Swift only makes sense when one is considering a covenant of an agreement that is of itself of a proprietary nature. So, for example, if one is looking to ascertain which provisions of a lease touch and concern the land, the test makes sense, or which provisions of a restrictive covenant touch and concern the land or which provisions of a mortgage touch and concern the land. But when one is dealing with a contractual agreement that stands outside a proprietary agreement that is itself only of a personal nature, the rationale ceases to make sense.

In our respectful submission, then, the true distinction is between covenants in an agreement that itself is of a proprietary nature and those in an agreement which is of a personal nature. The covenant of a guarantee, in our respectful submission, is a covenant of a personal nature. In the particular case at bar the guarantee is contained in an entirely separate document between different parties and the guarantors do not enjoy any proprietary rights. So, for example, the guarantors have no rights to occupy the premises and would have no rights to seek relief against forfeiture.

At tab 11 of the book of authorities this Court in the decision of Sunbird Plaza at page 255, the bottom paragraph, sets out that, whilst as a matter of history, a guarantor might have an obligation to see to it that a debtor performs an obligation, that is not a view that conforms with the modern context, and rarely does a guarantor have any ability to ensure that a tenant sees to it that the obligations are complied with.

FRENCH CJ: Are you taking issue with what was decided in Gumland, particularly paragraphs [101] and [102]?

MR LAZAREVICH: Yes, we are, your Honour. The reason for that distinction is that the proposition that was put which - - -

FRENCH CJ: I am sorry. You are saying it is a distinction. Are you saying that Gumland was wrong?

MR LAZAREVICH: On that particular point, that the Court was not asked to address the particular argument that we seek to advance. So in Swift’s decision, as in Kumar, the proposition was put, well, if there is a provision of a lease that itself touches and concerns the land, it is no great leap to therefore say that a provision of a guarantee also touches and concerns the land. We seek to challenge that aspect of the decision on the basis of the argument as being the distinction between an agreement that is of itself of a proprietary nature and looking at provisions of an agreement that are not of a proprietary nature.

Support for the thesis that we have just advanced is set out, we say, in the historical genesis of the doctrine of touch and concern the land. Much was made in the decision of Swift and also of Kumar of the decision of the court in Rogers v Hosegood and Justice Bayley’s decision in the Congleton Case. At tab 9 of the book of authorities is the decision of Rogers v Hosegood. Justice Farwell’s decision at page 395, at the top of the page, the sentence beginning:

Covenants which run with the land must have the following characteristics –

was the passage that was picked up in Swift’s decision. Further down the page his Honour set out the historical basis for the doctrine and, in particular, the reference to the statute of King Henry and the problems that that statute was intended to overcome, namely:

At common law the lessee’s covenants ran with the land, but the lessor’s did not run with the reversion –

and so the statute was enacted to give the reversioner the same benefit that the lessee had. Then the body of case law as to touch and concern the land developed in that particular context.

CRENNAN J: Were these arguments put to the Full Court?

MR LAZAREVICH: These arguments were put to the District Court, but when they came to the Full Court, we considered that the Full Court was bound to follow the decision in Gumland and, in particular, the paragraph at [101] that the learned Chief Justice took me to a moment ago. So, accordingly, our submissions to the Full Court were brief on this topic and said that the court is bound to follow the Gumland decision, but we seek to preserve our position to agitate the question more fully in the High Court.

CRENNAN J: There are concurrent findings against the applicant, are there not, by both the primary judge and the Full Court in relation to the assignment issue?

MR LAZAREVICH: Yes, your Honour, and I seek to address your Honour on that in a moment. Before addressing your Honour on the question of assignment, if I can then take your Honours to pages 404 and 405 of the decision and, in particular, at page 405 at around point 75 down the page the sentence that begins:

Whether the rule applies or not depends upon this as it appears to me, does or does not the covenant give an interest in the land? If it is a bare or mere personal contract it is of course not obnoxious to the rule, but in that case it is impossible to see how the present appellant can be bound . . . If it is a mere personal contract it cannot be enforced against the assignee. Therefore the company must admit that it somehow binds the land. But if it binds the land it creates an equitable interest in the land.

And the sentence then going on at the top of the next page. In our respectful submission, therefore, historically the cases that have looked at the question of touch and concern the land have done so in the context of agreements that themselves concerned an interest in land, for example, there are cases about restrictive covenants and cases about leases. But Kumar was the first case to apply that logic to the topic of a guarantee as well.

Accordingly, we say that the error that was made in Swift was to take the comments that were made in Hosegood and apply them out of context. So the context was an agreement that itself gave rise to proprietary interest and then apply it to a general contract. We would say that the reasoning in Gumland is otherwise supportable on other grounds; for example, the argument that was put in the District Court as to the question whether the deed operated as a deed poll or, alternatively, the arguments that were identified in the case at tab 10 of the book, that being Coastplace Ltd v Hartley, where the particular guarantee in that case was held to be able to be enforced by the signing of the reversion, notwithstanding that the provisions of the guarantee did not touch and concern the land.

That was on the true construction of the covenants – that argument appearing at page 961 of the decision – bearing in mind that the particular guarantee in the Gumland decision, which is set out at page 6 of the authority behind tab 1 at point 5 of the page – and in that case the guarantee was expressly stated to be:

for the benefit of not only the First Lessor but any person or company who may become the Lessor of the said premises.

So the decision in Gumland, we say, would otherwise be supportable on different grounds. The second aspect of the application for special leave relates to the decision that the guarantee was otherwise assigned whether in law or in equity. We say the question in both circumstances is, properly seen, the same question, and that is, on the construction of the documents, where the documents sufficient to effect an assignment, there otherwise be no evidence of what the parties’ subjective intentions were and no evidence of any oral agreements or other collateral agreements.

The relevant provisions are set out at page 76 of the application book. The particular contract contained a clause 1.18, defining the definition of “the Property”; a provision at 1.14 defining the definition of “the Land” and at clause 4 of the contract, providing a definition of what was meant by “the assignments”. That is at page 77 of the application book. The purchaser was required to:

deliver the following documents . . . not less than seven (7) days before Settlement Date –

No 4.1.1 the transfer and No 4.1.2 –

any documents supplied by the Vendor to the Purchaser necessary to transfer to the Purchaser - - -

FRENCH CJ: It is put against you that the findings in respect of the assignment really just raise matters specific to the particular transaction and documents. How does it raise a question of general principle warranting a grant of special leave?

MR LAZAREVICH: It does on this basis, that the approach of the court involved a principle of construction and, in particular, what the court did, in our respectful submission, was look not at what the parties actually agreed in their words but to infer what they agreed and, in effect, to say, well, this is what the parties should have agreed and therefore rewrite the agreement for the parties. We say that that is an error that is one of principle. It was put by the Full Court on the basis that what the court was doing was considering the agreement in context, but, in our respectful submission, the court went further than that and, in effect, rewrote the agreement for the parties.

To complete the submission in that regard, clause 4.7 at page 78 set out:

Purchaser is Entitled to Vacant Possession –

subject to the tenancies. At page 80 your Honours will see that there were no relevant credit chattels or excluded chattels, and the tenancies referred to in annexure A. Then annexure A is at page 81. That provides that:

As from the date of settlement, the Vendor shall assign to the Purchaser and the Purchaser must accept an assignment from the Vendor of all the Vendor’s rights and obligations pursuant to any lease in respect of the tenancies referred to and as detailed hereunder—

The words “pursuant to any lease” on their plain and ordinary meaning must mean any rights and obligations that arise pursuant to the lease. The obligations of the guarantee are those in an entirely separate document and accordingly, it is, we say, not for the court to rewrite the parties’ agreement. It might have been that had they actually turned their minds to the question, they might have entered into a different agreement, but the court is concerned with interpreting what they have actually agreed.

The question of construction is one that applies both to the legal assignment issue and also the equivocal assignment issue. In respect of the equivocal assignment, another proposition was put and that was that at settlement there was the handing over of the guarantee. An inference was drawn from that as to an agreement between the parties and a reference was made to the case of Thomas v Harris and that was referred to at paragraph 60 of the Full Court decision.

We say that that case does not stand for the proposition that mere handing over of a document evidencing a chose in action amounts to an assignment because that case concerned the specific scenario of there being an oral agreement and the handing over of, in that case, the relevant insurance policies which were to be held as security until a debt was paid, was simply part of the overall transaction. But it was looking at the oral agreement, whereas here there was no evidence of any agreement other than that contained in the written documents.

In our respectful submission, there is in the context of personal property a doctrine where delivery of a chattel might be seen as giving rise to an intention to assign, but in relation to a chose in action, we are not aware of any authority that would support the proposition that a chose in action could be assigned merely by delivery of documents. If the Court pleases, those are our submissions.

FRENCH CJ: Thank you, Mr Lazarevich. Mr McNamara, we do not need to call on you.

In our opinion, the case does not raise any new question of general principle not already dealt with by this Court in Gumland decided in March of this year. No sufficient basis is disclosed to reopen consideration of that case. Special leave will be refused.

MR McNAMARA: May it please the Court, I seek an order for costs?

FRENCH CJ: Can you resist that, Mr Lazarevich?

MR LAZAREVICH: No, your Honour.

FRENCH CJ: All right. Special leave refused with costs. Thank you.

AT 11.08 AM THE MATTER WAS CONCLUDED