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Court of Appeal of Fiji |
IN THE COURT OF APPEAL, FIJI
ON APPEAL FROM THE HIGH COURT OF FIJI
CIVIL APPEAL NO. ABU 26 OF 2016
(High Court of Suva Civil Action No. HBC 234 of 2007)
BETWEEN:
TOTAL (FIJI) LIMITED
Appellant
AND :
AUTO WORLD TRADING (FIJI) LIMITED
Respondent
Coram : Calanchini P
Basnayake JA
Guneratne JA
Counsel: Mr. N. Gedye with Mr. H. Nagin for the Appellant
Mr. S. Singh for the Respondent
Date of Hearing: 18 September 2018
Date of Judgment: 30 November 2018
JUDGMENT
Calanchini P
[1] I agree that the appeal should be allowed and with the orders proposed by Basnayake JA.
Basnayake JA
[2] This is an appeal filed by the appellant (plaintiff) against the judgment of the learned High Court Judge dated 30 March 2016 dismissing the appellant’s statement of claim and partly allowing the counter claim of the respondent (defendant). By this judgment the learned Judge had ordered the appellant to vacate the premises within a period of 3 months of the judgment, to pay the respondent mesne profits in a sum of $953,600.00, to pay the respondent the market rental until it vacates the properties and costs in a sum of $8000.00. One part of the counter claim for a sum of $ 25,335,556.66 of the respondent was declined.
The appellant’s case
[3] The appellant was formerly known as “Shell (Fiji) Limited”. On 15 February 1984, the appellant entered into a lease (No. 209221) with Fiji Investment and Agency Company Limited (“FIACL”) in respect of properties comprised in the Certificates of Title Nos. 3157 & 3357 for a term of 20 years, from 1 January 1980, at an initial annual rental of $37,500.00.
[4] The lease provided an option to renew the lease (pgs. 90-95 of the Record of the High Court (RHC)) (clause 10) for another period of 20 years, which is as follows:-
“The Lessor will upon the written request of the Lessee made not less than six months before the expiration of this renewed term and provided the Lessee during the term shall have duly and promptly paid the rent payable during such term and observed and performed the covenants and conditions on the part of the Lessee in this Lease thereof (as the case shall require) contained or implied grant to the Lessee a Lease of the demised land for the further term of twenty years from the expiration of the term hereof reserving a rental to be assessed in accordance with the provisions of clause 12 hereof and containing the like covenants agreements and provisions as are contained in these presents excepting this present covenant for renewal”(emphasis added).
[5] The appellant states in its statement of claim (Pgs. 29 to 31 of the RHC) that in 1999 (the lease was to expire on 31 December 1999) the appellant had exercised its option to renew the lease for a further period of 20 years. The appellant states that it continued to occupy the property under the renewed term from 1 January 2000 with the extension of the lease done till 31 December 2019. The appellant states that it continued to pay rental in terms of the lease agreement and FIACL continued to accept it.
[6] The appellant states that on 2 May 2007 the property which is the subject of the lease was transferred to the respondent (defendant). The appellant claims that this transfer was subject to the existing lease. The appellant states that on 17 May 2007 the respondent gave notice (pg. 113 of the RHC) to the appellant to vacate the property by 30 June 2007. The appellant claims inter alia that the appellant has a lease over CT 3157 & 3357 till 31 December 2019. The appellant seeks from court to have the lease declared valid till 31 December 2019 and to have the notice to quit dated 17 May 2007 declared invalid.
The Defence
[7] The respondent took up the position that the lease No. 209221 expired on 1 January 2000 and there was no renewal of it. The respondent had entered into a sale & purchase agreement dated 4 April 2007 with FIACL (pgs. 119-123 of the RHC) and purchased the property and had served on the appellant notice dated 17 May 2007 to vacate the premises and terminated the occupation of the appellant. The respondent claims that the appellant’s occupation is on a monthly basis and the tenancy would be terminated with a months’ notice. The respondent moved inter alia for a dismissal of the appellant’s action and an order for the appellant to vacate the property and pay mesne profits.
Judgment
[8] The learned Judge on 30 March 2016 dismissed the appellant’s action and partly allowed the counter-claim of the respondent. The preliminary question the learned Judge thought fit to determine was whether the lease was renewed with effect from 1 January 2000. The learned Judge having reproduced clause 10 of the Lease which contained the option to renew held that the appellant had not exercised its option within the six months period, which lapsed on 1 July 1999.
Was the six months period waived?
[9] The appellant’s case is that the appellant had exercised the option to renew after FIACL waived the six months requirement by letter dated 6 October 1999 (Further Supplementary Record of the High Court Tab 2). The letter dated 6 October 1999 reads as follows:
Re: Fiji Investments and Agency Co. Ltd. Lease No. 209221 affecting Cs. T. 3157 and 3357
As you are no doubt aware that the current Lease term expires on the 31st December 1999 and we are instructed to ascertain your Company what its intentions are particularly whether it would wish to remain in occupation of the premises or alternatively relinquish possession at the end of the term.
We would appreciate your early response (emphasis added).
[10] On 12 October 1999 the appellant was forwarded a copy of Lease No. 209221 by FIACL. On the same day the appellant had forwarded its formal notification of intention to exercise (their) option to renew the lease for a further 20 years from 1. 1. 2000. The learned Judge held that the letter dated 6 October 1999 did not waive the condition precedent in clause 10 as to time. The learned Judge had placed his reliance on the judgment of United Scientific Holding Ltd v Burnley Borough Council [1978] AC 904 at 929 where Lord Diplock declared that, “It is well established that a stipulation as to the time at which notice to exercise the option must be given is of the essence of the option to renew...” The learned Judge had also relied on the judgment of Lord Denning MR in United Dominions Trust (Commercial) Ltd. V Eagle Aircraft Services Ltd. [1968] 1 WLR 74 at 81 cited by Lord Diplock in United Scientific (supra) that, “In order to exercise the option, the lessee must give notice in the specific time. In point of legal analysis, the grant of an option in such cases, is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract the offer must be accepted in exact compliance with its terms. The acceptance must correspond with the offer”. The learned Judge held that there was no written acceptance by FIACL of the appellant’s letter of 12 October 1999.
[11] The learned Judge had thereafter considered the question of estoppel. In paragraph 19 the learned Judge states that, “estoppel arises where there is an unequivocal representation by words or conduct to a party who has acted to his detriment by reliance on that representation. The learned Judge had then considered the exchange of correspondence between Real Estate Agents (Rolle Associates) engaged by FIACL and the appellant on the renewal. Referring to a letter dated 24 March 2004 (By Rolle Associates to Shell Fiji Hibiscus Service Station-CL 3157 & 3357) the learned Judge states that, “the letter dated 24 March 2004 clearly states that the option to renew the lease was not accepted by FIACL, as there was disagreement over the rental and the plaintiff (appellant) was occupying the properties on a monthly basis, since the expiry of the lease agreement.
[12] The learned Judge states that section 54 (1) of the Land Transfer Act requires any land demised for a term exceeding one year to be executed and registered in accordance with the Act. The learned Judge had also observed the closing submissions of the respondent which state that the appellant took no steps to enforce its claim to a new lease until titles were transferred to the defendant (respondent) in May 2007.
Indefeasibility of Title
[13] The learned Judge had considered sections 39 and 40 of the Land Transfer Act with regard to the indefeasibility of title acquired by the respondent. The learned Judge states in paragraphs 34 to 37 of the judgment (pg. 14 of the RHC), that “Counsel for the defendant cites the oft quoted cases of Waimiha Sawmilling Co v Waione Timber Co, [1926] AC 101 (PC) and Asset Co v Mere Rohi, [1905] UKLawRpAC 11; [1905] AC 176 (PC) for the proposition that even if the defendant had purchased with notice of an unregistered leasehold interest, in the absence of fraud the defendant acquires paramount title. There is no allegation of fraud pleaded. Reference is also made to Mills v Stokman, [1967] HCA 15; 116 CLR 61, Fraser v Walker, (1967) 1 AC 569 and Star Amusement Ltd v Prasad & Registrar of titles, (CBV 0005 of 2012). Kitto J in Mills v Stokman at page 78 states: ...the appellant...having become the registered proprietor, is unaffected by an interest not on the register, even though she took with notice of it. If the case was one of fraud it would be otherwise; In Fraser v Walker, the Privy Council at page 580 said that “fraud” where used in a similar provision meant actual fraud, in other words dishonesty”.
Failure to Register
[14] The learned Judge found that there is no evidence that the respondent purchased with notice of an unregistered leasehold interest (para 40). Referring to the evidence of the appellant’s witness No. 1 the learned Judge admits that a purchaser of the properties on examination of title would know nothing about a lease after the year 2000, all they would see would be a reference to the expired lease. Reference was made to Pathik J in Satna Wati & Ambika Prasad (Civil Action No. 44 0f 1992L with regard to insufficiency of the mere knowledge of the occupancy to constitute fraud.
[15] The learned Judge after perusing authorities held that the respondent had a paramount title in terms of sections 39 and 40 of the Land Transfer Act and concluded that the appellant was in possession from 1 January 2000 as a monthly tenant. The learned Judge held that upon the notice to quit of 17 May 2007 the appellant’s occupation from 1 July 2007 was as a trespasser, (section 89 (1) of the Property Law Act (Cap 130)). Thus the learned Judge declared the respondent entitled to obtain vacant possession. In view of the above findings the respondent’s claim for sub-letting had not been dealt with. The appellant had not pursued its alternative relief against forfeiture and no evidence was lead on improvements made to the properties.
Counter-claim
[16] The counter-claim was twofold.
1. Damages claimed. That is for loss suffered in consequence of the plaintiff’s trespass (mesne profits). 2. Loss suffered as a result of rising development costs and loss of rental from multistory structure the respondent claims that it was unable to build on the properties. Of these, the 1st claim was allowed and the 2nd declined.
Grounds of Appeal
[17] There are four grounds of appeal which are as follows:-
a). In finding that FICAL did not waive the six month notice period and that FIACL was not estopped from denying that renewal had validly occurred.
b). In relying on the 2004 correspondence from Rolle Associates and from Munro Leys as establishing the status of events preceding renewal in 1999.
c). In not properly considering correspondence and documents which clearly established that the renewal of the lease was accepted by FIACL.
d). In finding that it was beyond doubt that FIACL had considered the plaintiff to be a monthly tenant from 1 January 2000.
e). In accepting in effect that the respondent had any standing or right to challenge the question of renewal in 1999.
a). In not finding the appellant’s renewal right was indefeasible as a result of being embodied in a registered lease, and that it could not be avoided due to any alleged defect in the renewal process.
b). In holding that the appellant contended for an oral agreement to renew.
c). In finding that the indefeasibility provisions in sections 39 and 40 of the Land Transfer Act had the effect of negating the appellant’s renewal rights as embodied in the registered lease.
d). In not determining that no extension of lease required to be registered in order for the renewal to be effective and indefeasible.
e). In holding that clauses 2, 4 and 5 of the 19 April 2007(it should be 4 April 2007) Sale Agreement between FIACL and the respondent were irrelevant and ineffectual.
f). In not holding that clauses 2, 4 and 5 of the 19 April 2007 sale agreement estopped the respondent from denying that it acquired title subject to the lease in favour of the appellant.
g). In failing to mention, or attach weight to, contemporaneous evidence that the respondent did not rely on an assumption the lease had expired when it bought the land in 2007, being a letter from Munro Leys to Maharaj Chandra dated 19 April 2007.
a). The Court did not have any or any adequate evidence before it as to market rentals for the bare land for the relevant periods and the Judge erred in not holding that the respondent had failed to discharge the onus of proof upon it to establish market rental rates for all relevant periods.
b). In assuming, without evidence, that the Fairview Valuations indication of rental value dated August 2004 needed to be increased after 5 years.
c). In assuming, without evidence, that a formula of 6% of land value represented correct market rental value from 8 February 2010.
d). In failing to mention or take into account evidence from the appellant’s witness Rajesh Patel on market rentals for service station lands.
e). In relying on the PVL valuation of $3,000,000 dated 8 February 2010 to fix mesne profits when that valuation was not addressing market rental for bare land, and despite serious deficiencies in that report’s methodology and content in relation to market rental for bare land.
f). In not deducting rates paid by the appellant between the 1 July 2007 and 30 October 2014 from any mesne profits sum.
g). In not directing that the question of market rentals be determined on the basis of further evidence specifically directed to that issue from valuers.
Submissions of the learned counsel for the appellant
[18] The grounds of appeal are concerning the validity of the renewal of the lease, indefeasibility of title, mesne profits and costs.
The validity of the renewal of the lease
[19] The lease provided for an option of renewal for a further period of 20 years in terms of clause 10 of the lease (pgs. 90 to 95 at 91 of the RHC). The learned counsel submitted that the appellant had on 12 October 1999 exercised its option to renew the lease for a further period of 20 years from 1 January 2000. The appellant thereafter continued to occupy the premises and pay the rental as before. FIACL continued to accept it. The appellant also continued to pay the rates as stipulated in clause 2 of the lease. The learned counsel submitted that the conduct of FIACL and the appellant was in accordance with the exercise of the option by the appellant. If merely a monthly tenant, the appellant would not have had an obligation to pay rates. It would have been either FIACL or the respondent as owner that would have been liable to pay rates. The payment of rates by the appellant is part performance evidencing the renewed lease contract.
Sale and Purchase Agreement
[20] On 4 April 2007, FIACL had entered into a sale and purchase agreement with the respondent (Pg. 119 of the RHC). In terms of this agreement after fulfilling the condition regarding payment, FIACL agreed to transfer the property within a period of 60 days of the agreement. However the sale was done subject to the lease that FIACL had with the appellant. Paragraphs 2, 4, 5 and 6 of the agreement are as follows:-
2. The Lands are sold on an “as is where basis” free from all mortgages, charges, liens and other encumbrances whatsoever excepting the Lease NO. 209221 made between the Vendor as Lessor and Shell Fiji Limited as Lessee.
4. The Purchaser acknowledges that vacant possession of the Lands will not be given by the Vendor to the purchaser on the date of settlement as Shell Fiji Limited is presently occupying under Lease No. 209221.
5. The Lands are sold free from all Mortgages charges and other Encumbrances excepting the Lease No. 209221 made between the Vendor and Shell Fiji Limited as Lessee.
6. All rates and other outgoings shall be paid or borne by the Vendor up to the date of settlement where after the Purchaser shall pay or bear the same respectively..
[21] In terms of clause 6 although the rates were to be paid by the respondent as purchaser after 27 April 2007 (the date of execution of transfer) the appellant continued to pay the same as before. The lands were sold free from all encumbrances excepting the lease of the appellant. The agreement does not make any mention of an expiration of the lease. The appellant had not been considered in the sale and purchase agreement as over holding lessee. The appellant claims that the transfer to the respondent on 27 April 2007 (registered on 2 May 2007) was subject to the lease by which the appellant was in occupation. The learned counsel submitted that substantial improvements were done to the property in March and April 2007 without any objection either by FIACL or the respondent.
[22] The learned counsel submitted that the care with which FIACL drafted the sale and purchase agreement in 2007 negates any suggestion that the position in 2004 correspondence is determinative of the substantive 1999 issue. It was a formal legal document produced by Munro Leys on behalf of FIACL as owner and bearing directly on the question of whether there was a current lease in place in 2007. The learned counsel asked the question that, if it was selling the freehold with only a monthly tenant in possession, FIACL would have had no need of these clauses especially clauses 2, 3 and 5. The respondent had formally accepted its terms. The learned counsel urged that the respondent should not have been permitted to resile from its own formal document.
[23] The learned counsel submitted that the learned Judge erred in trifling the sale and purchase agreement even after considering the letter dated 19 April 2007 of Munro Leys in response to the letter dated 4 April 2007 of Maharaj Chandra Associates in paragraph 49 of the judgment (pg. 16 of the RHC). These two letters are at pages 130 and 133 of the RHC. The letter dated 4 April 2007 is of the solicitors of the respondent (as purchaser) to Munro Leys, solicitors of FIACL the vendor. It states that “The said agreement had been executed subject to lease No. 209221, which apparently expired on 1 January 2000...When our client executed the agreement it relied on the basis that the lease had expired on 1 January 2000 and there was no renewal. However in terms of clauses 10 and 12 of the said lease it could have been removed naturally by the lessor and the lessee, our client is very much concerned if there is any such agreement to extend the lessor’s lease”....
[24] In reply, Munro Leys states thus, “You say that when Autoworld (respondent) entered into the sale agreement it relied on the basis that the lease had expired on 1 January 2000 and there was no renewal. That is not correct. We enclose a copy of Mr. Lal’s letter dated 1 August 2006 which is self-explanatory”. Referring to this document, the learned counsel states in the written submissions (in paragraph 28 at page 12) that, “Munro Leys letter refers to a letter which was tellingly not produced to court below: Mr. Lal’s letter dated 1 August 2006. On the face of it, this letter would have been of critical importance to the issue of what the respondent knew and believed when it purchased the property, and the respondent’s failure to provide discovery of it (despite repeated requests for the respondent’s own director’s document) is notable....the Court should be alert to the respondent’s failure to produce this letter because, on its face, it was a document referred to support the contention that the property was sold subject to a current lease. Assuming it did provide that support, the respondent’s case would have been untenable if the document had been produced”.
Notice to Quit
[25] On 17 April 2007 a notice to quit was served on the appellant by the respondent to quit the premises which compelled the appellant to file this action. The learned counsel submitted that the conduct of the appellant and FIACL proved a valid extension of the lease for another 20 years and FIACL is estopped from denying the same. The respondent too is estopped from denying the validity of the renewed lease. The learned counsel submitted that the learned Judge had erred in stating that there should be an acceptance of the communication of the definite intention expressed by the appellant on 12 October 1999.
[26] The learned counsel submitted that the finding of the learned Judge that there was no renewal is based on some hearsay evidence. By letter dated 22 March 2004 (pg. 244 of the RHC) the appellant’s solicitor wrote to Rolle Associates, who were the Real Estate Agents for FIACL stating that the appellant had a valid lease agreement which was renewed for 20 years from 1 January 2000. Further it stated that the appellant will not vacate the property. In response to this letter on 24 March 2004 Rolle Associates had stated that, “Shell (the appellant) did express its desire to renew the lease for a further term of 2x10 years but this never eventuated due to disagreement over the lease amount”. The learned counsel for the appellant submitted that there is no evidence of FIACL demanding an increase of rent. Any increase of rent is governed by clause 12 of the lease document. There is no evidence of FIACL moving for such increase in terms of Clause 12 of the lease. Furthermore there was no reference to a “2x10” years term. Clause 10 of the lease document and the letter dated 12 October 1999 made reference to a 20 year lease and not a “2x10” lease. Although the letter dated 24 March 2004 makes reference to “research made” the respondent did not produce any admissible evidence in proof of denial of renual.
Unilateral extension of lease
[27] The learned counsel submitted that the learned Judge had erred in finding that the renewal must be exercised precisely in accordance with its terms. The learned Judge fixed the last date of renewal as 1 July 1999. The intention of renewal was made on 12 October 1999. This was outside the six months period. The test for determining whether a lessee has exercised an option to renew the term of the lease is whether the purported exercise clearly and unequivocally manifested an election to enter into a lease for the renewed term in accordance with the option (Hinde Mc Morland & Sim in Land Law in New Zealand Vol. 2 under the heading, “Rights of Renewal” in 11.158 (pg. 66,156). It further states that, “A lessee who wishes to exercise a right of renewal must proceed in conformity with the condition in the renewal clause in the lease and must indicate clearly and unequivocally his or her intention to exercise the right”.
[28] In this appeal the issue with regard to the renewal is that it was made out of time. There is no question raised with regard to the ambiguity of the intention. “When either a lessor or a lessee has led the other party to believe that a renewal of a lease will be granted or taken up..., the ordinary principles of estoppel may.. be applied to prevent the party who gave the assurance from resiling from it” (at 66156& 66157) quoting Dowell v Tower Corporation [1991] ANZ Con v R 177 at 179-180; Young v New Bay Holding Ltd., (1998) 3 NZ Con v R 192,808 (the lessor estopped from relying on statutory time limit because of the lessor’s assurance to the lessee that the time limit would not be enforced).
[29] In Mahoe Building Ltd. V Fair Investments Ltd [1994] 1 NZLR 281 at 284-288, (1993) NZ Con v R (191,687 at 191, 690-691,693 (CA) Per Robertson J for the Court approving the approach of Tipping J in T. A. Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 at 109; Para 11,039; The Court took the view that the lessor’s conduct in permitting the lessee to remain in occupation, in not seeking another long term lease, in obtaining a valuation following a telephone communication with the lessee, and in accepting the new increased rent, constituted sufficient acts of part performance. In this case Fair Investments Ltd leased premises to Mahoe Building for a term of four years with a right of renewal for a further period of four years. At the end of the initial term Mahoe Buildings remained in occupation for a further 16 months before vacating the premises after giving one month’s notice in reliance of section 105 of the repealed Property Law Act 1952. The parties having accepted that there was an oral agreement to renew the second four year term, the question for the Court of Appeal was whether the agreement was enforceable notwithstanding noncompliance with S. 2 of the repealed Contracts Enforcement Act 1956. It was decided that the agreement was enforceable (pg. 66157 of Vol 2 Land Law by Hinde Mc Morland & Sim.
[30] The learned counsel for the appellant submitted that after the letter dated 12 October 1999, the court did not have any evidence from the lessor. No evidence was called by the respondent to its existence. Therefore on a balance of probabilities there was a solid basis for finding that FIACL waived the requirement of six months notice. Another notable fact is that the absence of renewal was raised for the first time only after seven years of the leased originally lapsing. The learned counsel submitted that the letter dated 6 October 1999 made no mention of six months notice. It was further submitted that the contents of this letter were inconsistent with the idea that it was now too late to exercise the right to renew.
[31] The learned counsel submitted that the learned Judge had erred in assessing the waiver issue solely on the basis of Munro Leys letter dated 6 October 1999. The letter dated 6 October 1999 (Further Supplementary Record of the High Court Tab 2) should be read with Munro Leys next letter dated 12 October 1999 (pg. 240 Vol 1 of the RHC). With this letter the appellant was sent a copy of the lease No. 209221 stating that they “await further communication from the appellant”. On the same day the appellant replied to the Solicitors Munro Leys, acknowledging receipt of the said letter with the following sentence, namely, “Please accept this letter as our formal notification of our intention to exercise our option under the lease to renew for a further twenty (20) years from 1st January 2000. It further states, “Please don’t hesitate to call me on 313933, if you would like to discuss any aspect of this further”. However there is no evidence of any such communication thereafter, excepting the continuation of payments of rentals and rates by the appellant and their acceptance by FIACL. The first time a question of renewal arose after 7 years; that is in 2007. There was no question of monthly tenancy all these years, the reason being that the appellant and FIACL considered that the renewal was done on the original lease.
[32] The learned counsel for the appellant further submitted that the Solicitors Munro Leys would not have forwarded a copy of the lease document to the appellant on 12 October 1999, if FIACL was prepared only to permit a holding over monthly tenancy from 1 January 2000. In that event the formal lease document would have been redundant or irrelevant. The only logical purpose of sending the appellant the lease document was to enable the appellant to renew and possible action of its renewal terms. Renewal was the only issue which arose in that context.
[33] The learned counsel points to the complete absence of any words in the 1999 correspondence indicating an intention to terminate the leasing relationship and to avoid or decline the renewal. On the appellant’s unequivocal expression of intention to exercise the option to renew the lease for a further 20 years, the grant of renewed term (as per clause 10 of the lease) takes place and no further acceptance from FIACL was required for the renewal to be effective. The learned counsel submitted that the learned Judge erred in relying on the absence of an acceptance letter. The learned counsel strongly urged that there was a heavy onus on FIACL to speak up if it wished to dispute the renewal. Its silence was, in the particular circumstances a representation that it accepted the renewal. The fact that there was a paucity of evidence of dealings between the parties after 12 October 1999, the appellant’s staying on and paying rents and rates as before, no protest by FIACL, the sale and purchase agreement entered into being subject to the lease and the transfer being pursuant to the sale and purchase agreement provide strong circumstantial evidence in favour of the waiver of the 6 month notice.
Rights of renewal are an integral part of the estate
[34] The learned counsel for the appellant submitted that the rights of renewal contained within a registered lease are an integral part of the estate shown by the register as vested in the lessee. A covenant for renewal runs with the reversion and with the leasehold interest so that both the lessor’s and the lessee’s successors are bound. The learned counsel relied on the case of Re Eastdoro Pty Ltd (No. 2) 1990 1 QD R 424. It was held in this case that the exercise of a right of renewal is an incident of the estate vested in the lessee, and upon registration of the lease, it is entitled to the indefeasibility and priority of the lease itself (430). Relied on Gibbs J in Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; (1976) 136 CLR 326 at 344 that, “the right of renewal was an incident of the lease and directly affected the nature of the term itself....A right of renewal is something which affects and is in a sense definitive of the term of the lease”. The court also relied on Barwick CJ in Mercantile Credit Ltd (supra) (pg. 330) where the question for determination was whether by dint of the registration of a memorandum of lease containing the rights of renewal, the mortgagee under the subsequently registered memorandum of mortgage was bound by the unregistered extension of the lease effected in pursuance of the exercise of the rights in the registered memorandum of lease. The learned counsel submitted that the above authorities demonstrate that the right of renewal is indefeasible. Submissions with regard to mesne profits have not been summarized for the reason that it does not arise in this appeal.
Submissions of the learned counsel for the respondent on the renewal of the lease
[35] The learned counsel for the respondent in paragraph 8 of the written submissions states that waiver does not apply in cases where the lessee seeks to exercise an option for renewal out of time. The learned counsel submitted that it is the respondent’s position that the appellant was a monthly tenant of FIACL at the time the respondent purchased the property. After the quit notice (pg. 113 of the RHC) had been served on the appellant, it became a trespasser. The learned counsel submitted that the term of the lease expired on 31 December 1999 and a request for renewal was not made by the appellant less than six months before the lease expired. The learned counsel submitted that by 1 January 2000 the appellant became a monthly tenant.
[36] The learned counsel submitted that the appellant is relying on a waiver by FIACL. He further submitted that waiver does not apply in a case where the lessee seeks to exercise an option for renewal out of time. He relied on JV Pub Group Pty Ltd v Red Carpet Real estate Pty Ltd & Ors. [2014] QSC 232 where Mullins J stated, that, “An option for renewal may be accepted only where the lessee performs the conditions prescribed for acceptance: Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd [1959] SR (NSW) 122, 123-124. The effect of the failure of the applicant to exercise the time period specified in clause 2.3 (a) of the lease resulted in the option lapsing completely with the consequence that there was no room for the operation of the doctrine of option during waiver: Duncan Properties Pty Ltd v Hunter [1991] 1 Qd R 101, 103.
[37] It was further held that, “Where an option to renew a lease has lapsed, if the parties thereafter agree to the lessee exercising the option, as if it were still available to be exercised, the correct characterization of that further agreement (despite the parties’ description of what they have done) is that the parties have agreed to a new lease, rather than a renewed term arising from the exercise of the option: Duncan Properties at 104”.
[38] The learned counsel submitted that the appellant incorrectly submits that its letter of 12 October 1999 constituted a valid exercise of the option to renew the lease. By 1 July 1999 there was no option to renew the lease in existence and the letter of 12 October 1999 amounted to nothing in law. The learned counsel further submitted that the appellant has not pleaded or alleged any alternative relief that a new lease was agreed upon. Had that been the case section 6 of the Lands Sales Act would have been a complete answer. The learned counsel submitted that the appellant has not given any consideration to the letter dated 29 September 2004 where Munro Leys denies any renewal of the lease. Letters dated 6 October 1999 and 12 October 1999 do not say anything about renewal. The learned counsel submitted that the letters of Munro Leys of 1999 are mere desperate attempts by the appellant to make a case it does not have. The learned counsel does not deny the payments of rent or rates after 1 January 2000 the date the lease is said to have expired.
Sale Agreement Terms
[39] The learned counsel having referred to section 40 of the Land Transfer Act and Waimiha Sawmilling Co v Waione Timber Co [1926] AC 101 (PC); Assets Co v Mere Rohi [1905] UKLawRpAC 11; [1905] AC 176 (PC), submitted that the sale terms do not say that the lease is renewed. The learned counsel submitted that even if the respondent had purchased with notice of an unregistered leasehold interest, neither of which are supported by the evidence, the registration of the transfer to the respondent would still defeat that unregistered interest absent of actual fraud. No such evidence of fraud was adduced.
Legal Matrix
[40] One of the basic questions that need to be answered is whether the letter dated 6 October 1999 waived the six months requirement stipulated by clause 10 of lease No. 209221. The appellant’s argument is that FIACL waived the six months period which enabled the appellant to renew the lease up to 31 December 2019. The learned Judge held that the letter dated 6 October 1999 did not waive the option to renew.
[41] The lease would have expired on 31 December 1999 (20 years from 1 January 1980). The written request was made on 12 October 1999. The six month period ended on 1 July 1999. Therefore the request was out of time. In this case the request for renewal was done at the instance of the lessor (FIACL). On 6 October 1999, Munro Leys wrote to the appellant on behalf of FIACL regarding lease No. 209221, inquiring, “Whether it would wish to remain in occupation....or relinquish possession at the end of the term”. There was no mention of the required six month notice. By this time more than 3 months had elapsed. The appellant was not in possession of even a copy of the lease and had to obtain one from the lessor. The lessor promptly forwarded a copy of the lease with an invitation for the lessee to respond stating, “We await your further communication”. The appellant’s unequivocal request was forwarded on the same day. That request was as required by Cl 10 of the lease No. 209221.
[42] The learned Judge also held that there was no acceptance by FIACL to renew the lease. The learned Judge based his opinion on the judgments of United Scientific Holding Ltd (supra) and United Dominion Trust (Commercial) Ltd (supra).
United Scientific Holding Ltd v Burnley Borough Council (supra)
[43] Lord Diplock stated (pg. 928) that, “The Court of Chancery had introduced a refinement in the way it dealt with stipulations as to time in contract for the sale of land, which had no close counterpart in the rules that had by 1873 been adopted in the courts of common law. Once the time had elapsed that was specifies for the performance of an act in a stipulation as to time which was not of the essence of the contract, the party entitled to performance could give to the other party notice calling for performance within a specified period; and provided that the period was considered by the court to be reasonable, the notice had the effect of making it of the essence of the contract that performance should take place within that period. Hence the reference in the statutory provisions that have cited to time being deemed to “have become” of the essence of the contract”.
[44] At page 929, “A more practical business explanation why stipulation as to the time by which an option to acquire an interest in property should be exercised by the grantee must be punctually observed, is that the grantor, so long as the option remains open, thereby submits to be being disabled from disposing of his proprietary interest to anyone other than the grantee, and this without the guarantee that it will be disposed of to the grantee. In accepting such a fetter upon his power of disposition of his property, the grantor needs to know with certainty the moment when it has come to an end. Although a lease is a synallagmatic contract it may also contain a clause granting to the tenant an option to obtain a renewal of the lease upon the expiration of the term thereby granted. Such a clause provides a classic instance of an option to acquire a leasehold interest in future, and it is well established that a stipulation as to time at which notice to exercise the option must be given is of the essence of the option to renew....There is a practical business reason for treating time as of the essence of such a clause, which is similar to that applicable to an option to acquire property. The exercise of this option by the tenant will have the effect of depriving the landlord of the existing source of income from his property and the evident purpose of the stipulation as to notice is to leave him free thereafter to enter into a contract with a new tenant for a tenancy commencing at the date of surrender provided for in the break clause” (emphasis added).
[45] The option which was the subject matter in United Scientific Holdings Ltd (supra) relates to rental and not renewal of a lease. It was held by the House of Lords that the new rents should be determined in accordance with the procedures specified in the respective leases (There were two leases. One of them was for 99 years and the other for 21 years). It was held that there was nothing in either of the leases in question to displace the presumption that strict adherence to the time tables specified in their rent review clauses was not the essence of the contract. The learned Judge in the appeal under review appears to have strongly relied on the statement of Lord Diplock that, “It is well established that a stipulation as to the time at which notice to exercise the option must be given is the essence of the option to renew”.
[46] Thus the time given to exercise the option was considered as of the essence by considering to benefit the landlord or the owner. Lord Diplock was influenced by the judgment of Denning MR in United Dominion Trust (Commercial) Ltd. V Eagle Aircraft Services Ltd. (supra). This is a case involving the repurchasing of an aircraft that was given on hire purchase. Referring to the agreement to repurchase, Lord Denning states that, “It was a unilateral contract of a kind which does not become binding on both sides until a condition precedent has been performed. It is like a lease in which the lessee is given an option to renew the lease for a further term. Such a lessee usually covenants to keep the premises in repair during the term: and he is given an option to renew if he gives notice six months before the end of the term and duly performs all the covenants to repair. In order to exercise the option, the lessee must give the notice in the specified time and he must fulfil the covenants to repair according to their terms....In point of legal analysis, the grant of an option in such cases, is an irrevocable offer (being supported by consideration so that it cannot be revoked). In order to be turned into a binding contract, the offer must be accepted in exact compliance with its terms. The acceptance must correspond with the offer”.
[47] I am of the view that the facts in the case under review are different for the reason that it is the landlord who reminded and persuaded the tenant to use the option. When the tenant used the option as per the terms of the lease, that is by making a request for another term of twenty years and both parties conducted themselves thereafter as if the option was exercised, that is by making payments and acceptance of such for more than a period of seven years, could one say that the parties acted not on the same terms? Not as lessor and lessee but as monthly tenant and landlord. The terms (as per clause 10 of the lease No. 209221) of the lease are that, “upon the written request (by the lessee)...the lessor grant to the lessee a lease of the demised land for the further term of twenty years from the expiration of the term....” It does not speak of an acceptance. It does not speak of granting a new lease. It could be the continuation of the lease for another term. The request was made. It was made out of time. However that was done at the request of the landlord (FIACL).
[48] The appellant’s position is that the lessor waived the six month notice requirement. In Traywinds Pty Ltd v Cooper (1989) 1 QD R 222 (Full Court (Kelly S.P.J., Macrossan J., Derrington J.)) where Kelly SPJ held that (at 228), “In my opinion, on any view of the matter, whether by the exercise of option or by coming into existence of a fresh agreement by the acceptance of a counter-offer, the position is that at the date on which they vacated the premises the appellants held them from the respondents under a lease for a term of three years commencing on 14 January 1985”.
[49] In this case the appellants were lessees of premises pursuant to a lease for 3 years from 14 January 1982 with an option of renewal for a further term of three years if notice of intention to renew was given in writing not more than 90 days and not less than 60 days before the expiration of the original term. By letter dated 20 December 1984 the appellant said that he would like to take on the three year option as written in the lease agreement and requested for all matters concerning the aforementioned. The lessors’ solicitors prepared a deed of extension of the lease and made no point about the late notice of exercise of the option. The appellants paid three months following the expiration of the original term but then vacated the premises and stopped paying rent. They had not signed the deed of extension. They were sued successfully by the respondent for loss of rental. The Court held dismissing the appeal, 1. That no particular form of words were necessary for the purpose of exercising an option provided that the statement by the option holder was unqualified. (Ballas v Theophilos [1958] VicRp 91; [1958] VR 576 at 581; [1957] HCA 90; [1957] 98 CLR 193, 204-5). 2. That the stipulation for the giving of notice of the option of renewal could be waived or alternatively varied by requiring some lesser period of notice than that originally stipulated. (Hill & Hill v [1947] 1 Ch 231.
[50] The learned counsel for the respondent relied heavily on the Judgment of de Jesey J in Duncan Properties Pty Ltd v Hunter, Supreme Court of Brisbane [1989-91] No. 2960. In this case lessees of certain warehouse premises purported to exercise an option for the renewal of their lease by letter forwarded after the time limit for giving notice of exercise of the option. The lessor agreed to accept the purported exercise of option. Subsequently the lessee obtained other premises and refused to take a renewal of the lease. Upon the lessor claiming specific performance the lessee sought a declaration that the purported notice of exercise of option was ineffectual. It was held by de Jesey J that the due exercise of the option of renewal in Cl. 56 depended on exact compliance with its notice requirement...When notice was not given by 1 May 1989, the option lapsed completely, that result conforming with views expressed in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, 928-9 Per Lord Diplock. The Court held that there is a new lease agreement between the plaintiff as lessor and the defendant as lessee for a term of five years on the terms referred to in Cl. 56 of registered lease at a rental of $84,000 for the 1st year.
[51] It has to be noted that the renewal of rent is not the same as renewal of lease. The option relating to Renewal of Rent is always exercised by the lessor and when it is not done as per the time table set out the lessee is bound to be prejudiced. The lessee could say that as the renewal did not come on time he expected the rent to be the same as before and had made plans accordingly. The option of renewal of lease is normally exercised by the lessee. If the option is not exercised on time, the lessor could always turn it down and refuse an extension. However if the lessor is in favour of granting an extension in spite of the delay in the exercise of the option, would that not be a bonus for the lessee? In both these cases, namely, Trayinds (supra) and Duncan (supra) the Court held in favour of the lessor. In both these cases it was the lessor who accepted the delayed exercise of the option by the lessee for a renewal period of the lease.
[52] In the case under review too it was the lessor who volunteered to grant the renewal to the lessee although the option of renewal was out of time. If the appellant refused to accept the renewal, could not the lessor (FIACL) sue the appellant successfully either on the basis of waving the option or on the acceptance of an unequivocal request by the appellant? With a finding that there was no renewal as the option was not used on time, the learned Judge held that estoppel had no application. By considering the correspondence between the appellant and Rolle Associates engaged by FIACL, particularly the letter dated 24 March 2004, the learned Judge concluded that there was disagreement over the rental and the option to renew the lease was not accepted by FIACL. In response to a letter from Rolle Associates, the Real Estate Agents of FIACL, on 22 March 2004 (pg. 244 of the RHC) the appellant’s solicitors wrote stating that the appellant has a valid lease agreement which was renewed for 20 years from 1 January 2000. The letter further stated that if the property was sold, that would be in breach of the lease agreement. It further stated that the appellant will not vacate the property. The letter relied on by the learned Judge dated 24 March 2004 of Rolle Associates is in response to the letter dated 22 march 2004. The learned Judge states in paragraph 24 of the judgment, “The letter of 24 March 2004 clearly states that the option to renew the lease was no accepted by FIACL as there was disagreement over the rental and the plaintiff (appellant) was occupying the premises on a monthly basis since the expiry of the lease agreement”. The learned counsel for the appellant submitted that the learned Judge based his decision of FIACL’s rejection of the renewal on hearsay material.
[53] The learned Judge in paragraph 25 of the judgment (pg. 12 of the RHC) referring to a letter dated 29 September 2004 determined as follows: “It is beyond doubt that FIACL had considered the defendant (should be plaintiff/appellant) to be a monthly tenant. However I find no evidence of FIACL considering the appellant as monthly tenant at any time. As against this there is evidence of FIACL considering the appellant even in 2007 as lessee under lease No. 209221. The letter dated 19 April 2007 (supra) confirmed the appellant’s cause of action. The transfer of the property took place thereafter (on 27 April 2007 and registered on 2 May 2007). If there was any disagreement about the validity of the lease in dispute, the respondent would not have gone through with the transaction. It appears that the respondent was well aware that the transfer was subject to the lease of the appellant. I am of the view that the learned Judge erred in stating that the respondent purchased the property without notice of an unregistered lease. Not only that the respondent had notice of the lease; the respondent purchased the property subject to the lease. It is not a case of a bona fide purchaser, buying without notice.
[54] After seven years of the commencement of the renewed lease, FIACL entered into a sale and purchase agreement (supra) with the respondent. In that, FIACL as the vendor and the respondent as purchaser agreed to the fact that the sale is subject to lease No. 209221 given to the appellant. The appellant is not referred to as a monthly tenant in the sale and purchase agreement. FIACL does not refer to lease No. 209221 as an expired lease. Parties to this agreement agree not to take vacant possession due to the occupation of the appellant in the premises as lessee under lease No. 209221. If there was no renewal of the lease, why did the sale and purchase agreement covenant the sale to be subject to the lease No. 209221? The transfer was done on 27 April 2007. This transfer was “pursuant to the sale and purchase agreement”. The premises were sold subject to the lease No. 209221. If the respondent could determine the lease with one month notice, why did he agree to the sale subject to lease No. 209221?
[55] Was there a disagreement over rental? The learned Judge determined that the option to renew the lease was not accepted by FIACL as there was disagreement over the rental. I did not find any admissible evidence to support this finding. Clause 10 of the lease (pg. 91 of the RHC) states the manner of assessing the rental. The “rental to be assessed in accordance with the provisions of clause 12 hereof and contain the like covenants...” The rent was never an issue in this case. Clause 12 set out the procedure regarding rental. I am of the view that the learned Judge had erred in determining that there was no acceptance of the renewal of the option by FIACL without any admissible evidence.
The Quit Notice
[56] The basis of the quit notice is that if the appellant were a monthly tenant, after one months notice the appellant would become a trespasser. The appellant became a monthly tenant on the footing that there was no renewal of the lease. However I find that this lease has been renewed as per the terms of the lease No 209221. The renewal is for 20 years and the validity is until 31 December 2019. Therefore the appellant never became a monthly tenant. If the appellant is not a monthly tenant, the quit notice becomes bad.
Indefeasibility of title
[57] The Register of Title is absolute and conclusive except in a case of actual fraud which has to be brought home to the registered proprietor. This was held in Star Amusement Limited v Prasad and five others [2013] FJSC 8 (23 August 2013). The Supreme Court of Fiji held that, “The Land Transfer Act is based on the “Torrens System” which is a system of land title where a Register of land holdings maintained by the State guarantees an indefeasible title to those included in the Register”. Referring to sections 38, 39 (1), 40, 41, 42 (1) (c) and 42 (3) of the Act, the Court endorsed the majority of the Court of Appeal of New Zealand in Fels v Knowles [1906] NZGazLawRp 66; (1906) 26 NZLR 604 at 620 that “the cardinal principle of the statute is that the Register is everything and that except in cases of actual fraud on the part of the person dealing with the registered proprietor, such person, upon registration of the title under which he takes from the registered proprietor, has an indefeasible title against the whole world.....Everything which can be registered gives, in the absence of fraud, an indefeasible title to the estate or interest, or in the case in which registration of a right is authorized, as in the case of easements or incorporeal rights, to the right registered” (Subramani & Maria v Dharam Sheela and three others FCA Civil Appeal No. 56 of 1981, Frazer v Walker [1967] 1 AC 569, AG v Vijay Kumar & Evereft Riley (1985) FLR Vol 31 at 23.
[58] The appellant endorses the above cardinal principles and is not challenging the respondent’s title. The appellant’s case is that the respondent had purchased the property subject to the appellant’s lease No. 209221. I am of the view that the learned Judge had erred in finding (paragraph 40 at pg.14 of the RHC) that there is no evidence that the defendant (respondent) purchased with notice of an unregistered leasehold interest. It goes beyond that. It is not only that the respondent had notice of the unregistered leasehold interest. The sale was subject to the lease No. 209221 of the appellant. It is evident from the transfer document (pg. 275of the RHC) and the sale and purchase agreement document (pg. 119-123). For this reason the respondent undertook not to obtain vacant possession. The lease is secured by clauses 2, 4 and 5 (supra) of the sale and purchase agreement. Therefore, the defence taken up by the respondent that the appellant is not a lessee but only a monthly tenant does not hold water.
[59] I am of the view that the learned Judge had erred in not giving due consideration to the sale and purchase agreement, supra, and the submissions of the learned counsel for the appellant in respect to it. The learned Judge referring to the sale and purchase agreement stated (paragraph 49 at pg. 16 of the RHC) that, “My conclusion provides a complete answer to the arguments founded by counsel for the plaintiff (appellant) on clauses 2, 4 and 5 of the sale and purchase agreement between FIACL and the defendant and Munro Leys’ response of 19 April, 2007 to Maharaj Chandra Associates’ letter of 4 April 2007”. I am of the view that the sale and purchase agreement clauses 2, 4 and 5 and the transfer deed (pg. 275) provide the answer to this case. These clauses speaks of an existing lease.
[60] For the above reasons I am of the view that the appellant succeeds in this appeal. Therefore I set aside the judgment of the learned High Court Judge dated 30 March 2016 and allow the appellant’s writ of summons with costs. The appellant is also entitled to costs of this court in a sum of $5000.00 payable by the respondent within 28 days from the date of this Judgment.
Almeida Guneratne JA
[61] I agree with the reasoning and conclusions of Basnayake JA.
Orders of the Court are:
...................................................
Hon. Justice W. Calanchini
PRESIDENT, COURT OF APPEAL
.......................................
Hon. Justice E. Basnayake
JUSTICE OF APPEAL
..................................................
Hon. Justice Almeida Guneratne
JUSTICE OF APPEAL
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