Landlord and tenant — Claim against surety under guarantee in lease — Plaintiffs were assignees of the freehold reversion on the lease — There was, however, no express assignment to the plaintiffs of the benefit of the defendant surety’s guarantee — Defendants contended that the benefit had not vested in the plaintiffs — The issue was, therefore, whether the benefit of the guarantee given to the original lessor by the surety company, which was a party to the lease, passed to the assignees of the reversion despite the absence of any express assignment of the benefit — A number of arguments were put forward by the plaintiffs to support their entitlement to the benefit of the guarantee, but all were rejected by the judge — Section 62(1) of the Law of Property Act 1925 was held to apply only to rights which touched and concerned the land and the covenant of a surety did not come within that description; this view was supported by a recent Australian decision — Section 56(1) of the 1925 Act was likewise of no assistance to the plaintiffs as it did not enable the benefit of a covenant to be claimed by a person who was not identifiable when the covenant was made — A mass of judicial authority was cited to the judge on the various submissions put before him, but in the end he decided that the plaintiffs had failed to show that the benefit of the guarantee given to the original lessor had vested in them as assignees of the reversion, either in consequence of anything in the assignment or any statutory provision — As the present proceedings were under Order 14, being an appeal from the master’s order in favour of the plaintiffs’ claim, the result of allowing the appeal was that the master’s order would be set aside and the defendants given unconditional leave to defend
This was an
appeal by the defendants, Welbeck International Ltd, from the order of Master
Barratt, on an Order 14 summons, that the defendants should pay the plaintiffs
£8,530.92, being the amount of their claim against the defendants as the surety
under a lease of which the reversion was now vested in the plaintiffs, Pinemain
Ltd, the present respondents.
Nicholas
Dowding (instructed by Sylvester Amiel) appeared on behalf of the appellants; R
Ham (instructed by Stringer Saul & Justice) represented the respondents.
Giving
judgment, Mr E G NUGEE QC said: This is an appeal from an order of Master
Barratt whereby, on a summons under Order 14, he ordered the defendant to pay
to the plaintiff the sum of £8,530.92 claimed in the action. The plaintiff’s
claim is based on a guarantee contained in a lease dated May 9 1975 of premises
forming part of the London Road Trading Estate at Sittingbourne, Kent, for a
term of 25 years from March 25 1975. There were three parties to the lease: UDT
Properties Ltd, which was described as ‘ ‘the Lessor’ which expression shall
wherever the context so admits be deemed to include the person or persons for
the time being deriving title under the Lessor’; Westiss Products Ltd, which
was described as ”the Lessee’ which expression shall wherever the context so
admits be deemed to include its successors in title and assigns’, and the
defendant, Welbeck International Ltd, which was described as ‘the Surety’. The
lease contained a covenant by the lessee with the lessor to pay the rent,
together with interest in the event that any part of the rent should remain
unpaid for seven days after it should have become due, a covenant to reimburse
to the lessor certain insurance premiums, and a number of other covenants of a
kind commonly found in leases of property of this nature; covenants by the
lessor with the lessee including a covenant for quiet enjoyment to which I will
return later; provisions for the rent to be reviewed every five years; and a guarantee
by the surety the material part of which for present purposes is as follows:
The Surety
hereby guarantees to the Lessor that the Lessee will pay the rent reserved by
and perform and observe all the covenants and stipulations on the Lessee’s part
contained in this Lease throughout the term . . .
Since 1975
both the lease and the freehold reversion have become vested in other persons.
As to the freehold, the only evidence before me is an affidavit verifying the
particulars set out in the statement of claim, para 5 of which states that by a
transfer dated December 14 1978 the lessor transferred and assigned to the
plaintiff, Pinemain Ltd, the freehold reversion immediately expectant upon the
determination of the term created by the lease. The freehold title is
registered, and the case has been argued before me on the footing that the
transfer was duly registered at the Land Registry, and that it contained no
express assignment of the benefit of the defendant’s guarantee. As to the
lease, this was assigned to Proudmills Engineering Co Ltd, by an assignment
dated February 6 1978 to which the defendant was a party and which, it seems,
contained a covenant by three individuals as sureties for the assignee company
to indemnify the defendant against all liabilities arising from the defendant’s
obligations as surety under the terms of the lease. Subsequently by an
assignment dated May 24 1982 the lease became vested in Invicta Hose Clips Ltd.
The latter company went into receivership in November 1982, and in April 1983
the receiver wrote to the plaintiff’s agents stating that he was not proposing
to make any further payment in respect of rent. On December 6 1983 the
plaintiff issued the writ in this action against the defendant, claiming
payment from it as surety of the amounts due under the lease in respect of
rent, insurance premiums and interest. A summons under Order 14 followed
shortly afterwards.
On this
summons the defendant has not sought to dispute that the amounts claimed are
owing under the lease; but it contends that the benefit of the guarantee
contained in the lease has not become vested in the plaintiff. Before the
learned master this contention was based on an argument that the guarantee was
expressed to be made with ‘the Lessor’, that ‘the Lessor’ was defined to mean
UDT Properties Ltd and the person or persons for the time being deriving title under
the lessor, and that the plaintiff did not derive title under the
lessor, since this phrase did not include persons who were successors in title
to the freehold estate in the land but only persons having interests derived
out of the freehold estate, such as a concurrent lessee or a mortgagee of the
freehold. Before me Mr Dowding, counsel for the defendant, renewed this
argument. He pointed to the contrast between the description of the lessor,
which was defined to include persons deriving title under the lessor, and the
description of the lessee, which was defined to include its successors in title
and assigns; and he drew attention to the lessor’s covenant for quiet
enjoyment, which was expressed to extend to any lawful interruption ‘by the
Lessor or by any person lawfully claiming through under or in trust for the
Lessor’. This form of words, he submitted, showed that the draftsman of the
lease recognised two classes of persons who might disturb the lessee’s quiet
enjoyment of the demised premises, namely successors in title to the freehold
reversion, whom the draftsman described as claiming through the lessor,
and concurrent lessees, mortgagees or others entitled to an interest less than
the freehold, whom he described as claiming under the lessor; and it was
only persons deriving title under the lessor in this way who were
included in the definition of ‘the Lessor’ in whose favour the guarantee was
made. At all events there was an ambiguity; and in the event of an ambiguity a
guarantee should be construed in favour of the surety: Eastern Counties
Building Society v Russell [1947] 2 All ER 734. In support of his
argument he referred to sections 78 and 79 of the Law of Property Act 1925,
which contain a similar verbal contrast between the successors in title of a
covenantee or covenantor as the case may be and the persons deriving title
under him.
Attractively
though Mr Dowding presented the argument, I have no doubt that the learned
master was right to reject it. The reason for a definition of this kind is
explained in Key & Elphinstone’s Precedents in Conveyancing, 15th ed
vol 1 at p 982:
. . . the
provisions of ss 78 and 79 of the Law of Property Act 1925 enable the formal
parts of any covenant contained in the deed to be framed without the assistance
of an interpretation clause; but this clause is required in order that the
terms of the covenant may bear their proper construction.
The lease
contains numerous references to the lessor, and to give the expression the
narrow meaning for which Mr Dowding contends
just one example, clause 5(a) of the lease provides that ‘The Lessor may
require the rent payable hereunder to be revised’, and continues with elaborate
provisions governing the five-yearly rent review, including a provision for an
arbitrator to be appointed by the president of the Royal Institution of
Chartered Surveyors on the application either of the lessor or of the lessee.
It is in my view plain that the parties intended that references to the lessor
in this and other clauses in the lease should include the person for the time
being entitled to the reversion expectant on the determination of the term
granted by the lease, whether that person was a successor in title to the
freehold owned by the original lessor or was entitled to some lesser interest
derived from the freehold. In the context of this lease, the expression ‘persons
deriving title under the Lessor’ is in my view apt to include both those who
succeed to the freehold estate vested in the original lessor and those who may
become entitled to some lesser interest which for the time being constitutes
the reversion. Whether or not the draftsman had the point in mind, the contrast
with the definition of ‘the Lessee’ is in fact quite appropriate, because
whereas the benefit of the lessee’s covenants and the burden of the lessor’s
covenants run with the reversion whether it comprises for the time being the
freehold or some lesser interest, the benefit of the lessor’s covenants and the
burden of the lessee’s covenants for the most part run only with the lease to
successors in title of the original lessee, and do not affect or concern
persons having some lesser interest derived from the lease, such as a sublease
or a mortgage of the lease.
On this appeal
Mr Dowding raised a more formidable argument. Assuming, he said, that on the
true construction of the lease the guarantee was expressed to be made with the
original lessor and its successors in title, nevertheless a successor in title
cannot enforce the guarantee unless the benefit of it has been expressly
assigned to him; and there was no express assignment in the present case, or at
any rate no evidence has been produced of any express assignment. The
guarantee, he submitted, was a purely personal covenant, collateral to the
lease, which did not relate to or touch and concern any land of the lessor, and
therefore none of the provisions contained in the Law of Property Act 1925
under which persons other than the original covenantee can enforce a covenant
applied to it.
Mr Ham,
counsel for the plaintiff, accepted that section 141 of the Law of Property Act
1925 did not assist him, since it relates only to rent reserved by a lease,
covenants or provisions on the lessee’s part to be observed or performed, and
conditions contained in a lease, and not to a covenant by a surety. He
submitted first that the benefit of the guarantee passed on the transfer of the
reversion by virtue of section 62(1) of the Law of Property Act 1925, which is
incorporated in transfers of registered land by section 19(3) of the Land
Registration Act 1925. Section 62(1) is as follows:
A conveyance
of land shall be deemed to include and shall by virtue of this Act operate to
convey, with the land, all buildings, erections, fixtures, commons, hedges,
ditches, fences, ways, waters, watercourses, liberties, privileges, casements,
rights, and advantages whatsoever, appertaining or reputed to appertain to the
land, or any part thereof, or, at the time of conveyance, demised, occupied, or
enjoyed with, or reputed or known as part or parcel of or appurtenant to the
land or any part thereof.
Mr Ham
submitted that the benefit of the guarantee was a ‘right or advantage . . .
appertaining to the land . . . enjoyed or with the land’. He referred me to Federated
Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594, in which it
appears that Mr John Mills QC, sitting as a deputy judge of the Chancery
Division, held that where the benefit of a restrictive covenant was not annexed
to land of the covenantee by the terms of the covenant, it nevertheless passed
on a transfer of the land intended to be benefited, in the absence of a
contrary intention expressed in the transfer, by virtue of the general words
implied into the transfer by section 62: see pp 597B and 601C.
On appeal the
Court of Appeal reached the same conclusion, but in part by a different route,
holding that the effect of section 78 of the Law of Property Act 1925 was to
annex the benefit of the covenant to the land intended to be benefited. On this
view of the matter the benefit of the covenant passed automatically with the
land to which it was annexed, and there was no need for the plaintiff to rely
on section 62: see Megarry & Wade’s Law of Real Property, 4th ed, p
836.
One can pick
out of section 62(1) words that are capable of applying to the benefit of a
guarantee in circumstances such as exist in the present case, since it was
clearly in one sense a ‘right enjoyed with the land’ which was the subject of
the transfer dated December 14 1978. In my judgment, however, section 62(1) is
not referring to purely personal rights but only to rights which relate to or,
to use the old-fashioned expression, touch and concern the land which is being
transferred or are capable of doing so. Mr Ham submitted that a guarantee that
the lessee will pay the rent and perform and observe the covenants contained in
the lease is a covenant which touches and concerns the lessor’s land. It is a
security for the obligation to pay the rent and perform the covenants, and it
is only meaningful and of benefit to the reversioner for the time being, since
he is the person who is entitled to recover the rent and to enforce the
lessee’s covenants. Mr Ham referred me to Rogers v Hosegood [1900]
2 Ch 388 at p 395, where Farwell J, in a judgment that was subsequently
approved by the Court of Appeal, said in relation to certain restrictive
covenants:
Covenants
which run with the land must have the following characteristics: (1) They must
be made with a covenantee who has an interest in the land to which they refer.
(2) They must concern or touch the land. It is not contended that the covenants
in question in this case do not have the first characteristic, but it is said
that they fail in the second. I am of opinion that they possess both. Adopting
the definition of Bayley J in Congleton Corporation v Pattison (1808)
10 East 130, 135, the covenant must either affect the land as regards the mode
of occupation, or it must be such as per se, and not merely from collateral
circumstances, affects the value of the land.
The guarantee
in the present case clearly has the first characteristic referred to by Farwell
J. Mr Ham submitted that it has the second characteristic also, because the
guarantee, by providing additional security for the payment of the rent, per
se enhances the value of the lessor’s reversion.
Mr Dowding
submitted first that in order that a covenant should touch and concern the
land, the covenantor must have an interest in some relevant land. In my
judgment, however, that cannot be the correct test. To take an example, in
Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board
[1949] 2 KB 500, the board whose covenant was held enforceable had no land
which was of any relevance to the covenant. Mr Dowding then submitted that,
where a question arises between landlord and tenant, it is in almost all cases
necessary, in order that a covenant should be held to touch and concern the
land, that it should require some act or forbearance upon the demised land, and
that covenants between landlord and tenant have in general not been held to run
with the term and the reversion unless they touch and concern the land in this
direct manner, even if in one sense they affect the value of the land of the
covenantee: see, for example, Woodall v Clifton [1905] 2 Ch 257
and Bradbury v Grimble & Co [1920] 2 Ch 548, in which it was
held that an option to purchase the freehold reversion did not run; Dewar
v Goodman [1909] AC 72, in which a covenant by an underlessor of two
houses to repair the other 209 houses comprised in the headlease did not run,
notwithstanding that a breach might lead to a forfeiture of the headlease. The
fact that a covenant to pay rent runs with the land (as was decided as long ago
as 1703 in Parker v Webb (1703) 3 Salk 5) is explicable, he
submitted, by the view taken by the common law that rent issues from and is
part and parcel of the land, so that a covenant to pay rent is a covenant to
render to the landlord a part of the land itself.
So far I think
Mr Dowding is right; but in a case where the covenantor does not own any
relevant land, the covenantee cannot base a claim to enforce the covenant on
the fact that the covenant touches and concerns the land of the covenantor. Mr
Dowding referred me to a passage in Preston & Newsom’s Restrictive
Covenants Affecting Freehold Land, 7th ed, paras 2-29 et seq, in
which the meaning of the phrase ‘touching and concerning’ is discussed at some
length, both in relation to covenants between landlord and tenant and in
relation to covenants affecting freehold land. As the learned author points
out, in relation to restrictive covenants, it is clearly established by Rogers
v Hosegood, supra, that the land benefited by the covenant can be
touched and concerned by observance taking place upon the burdened land. It is
the fact that the observance of the covenant upon the burdened land is capable
of benefiting the benefited land that gives the owner of the benefited land an
interest in the burdened land which has been described as analogous to an
easement over it. Where the covenantor owns no land, it is in my judgment
necessary, in order that the covenant should be capable of running with the
land of the covenantee without express assignment, that the observance of it
should affect the land itself. This is in my view what is meant by saying that
the covenant
se affects the value of the land. For this purpose, a covenant by a third
person that the lessee will pay the rent does not in my judgment affect the
value of the land per se, within the meaning which the courts have given
to that expression. The sum which the surety is liable to pay under the
covenant, in default of the lessee paying the rent, cannot itself be rent in
the strict sense of a payment issuing out of the land, for the surety has no
interest in the land. On this view of the matter, the covenant to effect
drainage works in Smith v River Douglas Catchment Board was a
covenant which affected the covenantee’s land per se; for, as Tucker LJ
pointed out at p 506, the performance of the covenant converted the land from
flooded meadows to land suitable for agriculture. Similarly in The Prior’s
Case (1368) 1 Smith’s LC 13th ed 55, the covenant by the prior that he and
his convent would sing all the week in the chapel which was parcel of the manor
of which the covenantee was seised was a covenant the performance of which was
to take place on the land of the covenantee, and was regarded, in those days
when the observance of religious duties had a much higher place in the order of
priorities of the average landowner than it does today, as benefiting the land
itself on which the chapel stood. The guarantee in the present case fails to
meet this test; and in my judgment it is not a covenant the benefit of which
relates to or touches and concerns the land of the lessor so as to run with
that land without express assignment, nor is it a right of the kind to which
section 62(1) is referring so as to pass by virtue of the general words. The
covenant in Federated Homes Ltd v Mill Lodge Properties Ltd, on
the other hand, was admittedly a covenant which touched and concerned the land
of the covenantee, and the benefit of it was thus a right which was capable of
falling within the general words implied by section 62(1). Whether or not Mr
Mills QC was right in holding that, on the footing that it was not annexed to
the benefited land, it passed by virtue of section 62(1), it was in my judgment
a right of a different kind from the benefit of the guarantee in the present
case.
I am conscious
of the fact that in Grant v Edmondson [1931] 1 Ch 1 at p 28, Romer
LJ said:
In connection
with the subject of covenants running with the land, it is impossible to reason
by analogy. The established rules concerning it are purely arbitrary, and the
distinctions, for the most part, quite illogical.
Nevertheless,
despite this warning, I find some support for the conclusion to which I have
come in the decision in that case, which seems to me to have quite a close
analogy with the present case. In Grant v Edmondson the
plaintiffs were entitled to the benefit of a rent charge. The defendants were
the executors and trustees of the will of the original rentchargor, who in the
deed creating the rentcharge had covenanted with the rentchargee, his heirs and
assigns that he would pay the yearly rent thereby reserved to the person or persons
entitled thereto. The land subject to the rentcharge had been conveyed to a
third person who became bankrupt. In the action the plaintiffs, who were
successors in title of the original rentchargee, sued the defendants on the
covenant by the original rentchargor. The position of the original rentchargor
was thus not dissimilar to that of a surety, once he had parted with the land
upon which the rent was charged; for any payment that he made could not be rent
in the strict sense of a payment issuing out of the land. It was held by the
Court of Appeal that the benefit of the covenant to pay the rentcharge did not
run with the rentcharge, and that the plaintiffs were not entitled to recover.
Although the decision was expressed to be based on longstanding authority
rather than principle, it is consistent with the conclusion to which I have
come.
I find further
support in the decision of the High Court of Australia in Consolidated Trust
Co Ltd v Naylor [1936] 55 CLR 423. In that case the question was
whether the benefit of a covenant by a surety contained in a mortgage passed on
a transfer of the mortgage without express assignment by virtue of the general
words implied in the transfer of a registered mortgage by sections 51 and 52 of
the Real Property Act 1900 of New South Wales. The material parts of those two
sections are as follows:
51. Upon the
registration of any transfer, the estate or interest of the transferor as set
forth in such instrument, with all rights, powers and privileges thereto
belonging or appertaining, shall pass to the transferee . . . 52. (1) By virtue
of every such transfer, the right to sue upon any mortgage or other instrument
and to recover any debt, sum of money, annuity, or damages thereunder
(notwithstanding the same may be deemed or held to constitute a chose in
action), and all interest in any such debt, sum of money, annuity, or damages
shall be transferred so as to vest the same at law as well as in equity in the
transferee thereof.
It will be
seen that section 51, though not worded in quite the same way as the English
section 62(1), enabled the transferee to argue that the benefit of the surety’s
covenant passed as a right appertaining to the mortgagee’s interest. The High
Court rejected this argument. The leading judgment was given by Dixon and Evatt
JJ, whose judgments are entitled to the highest respect. At p 434, after
referring to the two sections, they said:
Such language
is not incapable of including among the rights which pass to the transferee the
benefit of covenant by a surety who joins as a party in the instrument of
mortgage for the purpose of giving the covenant. But in our judgment the
language should not be so interpreted. The statute is concerned with dealings
in land and it is because a mortgage involves such a dealing that the statute
prescribes how mortgages may be transferred and with what consequences. It is
concerned with the mortgage transaction in its entirety as it affects the land,
and, therefore, extends to the personal liability of the mortgagor for the
mortgage debt because that liability is intimately connected with the rights of
property arising out of the mortgage transaction. A surety’s obligation stands
in a different relation to the dealing. His liability is introduced by way of
additional security. It is personal and, except as a result of subrogation,
does not directly or indirectly affect the land. Rights of subrogation are not
of a kind falling within the scope of the Real Property Act. A guarantee is
thus collateral to the mortgage transaction and the circumstance that the
obligation is expressed in the mortgage instrument must be regarded as
incidental to the mortgage transaction and not as characteristic of the dealing
contemplated by the legislature. In relation to transfers of mortgages sections
51 and 52 should be understood as dealing only with rights, powers, privileges,
debts and sums of money affecting the mortgage transaction, as between
mortgagor and mortgagee.
That decision
was applied by the Supreme Court of New South Wales in Sacher Investments
Pty Ltd v Forma Stereo Consultants Pty Ltd and Others [1976] NSWLR
5, where the facts were for all material purposes identical to those of the
present case. Yeldham J said at p 10:
If the
benefit of the contract of guarantee was a legal chose in action, as the two
defendants allege, it is clear from the decision of the High Court in Consolidated
Trust Co Ltd v Naylor that ss 51 and 52 of the Real Property Act
would not have the consequence that the mere registration of a memorandum of
transfer to the present plaintiff would operate as an assignment to it of the
benefit of the guarantee in the memorandum of lease. Although in Naylor’s
case the court was concerned with a transfer of mortgage, the principle, in my
opinion, is precisely the same. No evidence of any express assignment of the
benefit of the guarantee was given, and the evidence was completely silent as
to what, if anything, was said or done between the former lessor and the
plaintiff in relation to it, either at the time of the transfer of the
reversion or at any other time.
Similarly, in
my judgment the plaintiff has failed to show on this summons that the benefit
of the guarantee given to the original lessor has become vested in it by virtue
of the transfer to it of the freehold reversion either in consequence of
anything in the transfer or in consequence of the provisions of section 62(1).
Mr Ham also
relied on section 78 of the Law of Property Act 1925, which provides that a
covenant relating to any land of the covenantee shall be deemed to be made with
the covenantee and his successors in title; but since the guarantee in the
present case is expressed to be given to the lessor and his successors in title
by virtue of the definition of ‘the lessor’, I do not think that section 78
would add anything to the effect of the guarantee, even if it did constitute a
covenant relating to the land of the lessor.
Finally, Mr
Ham submitted that the plaintiff was entitled to enforce the guarantee by
virtue of section 56(1) of the Law of Property Act 1925, which is in the
following terms:
A person may
take an immediate or other interest in land or other property, or the benefit
of any condition, right of entry, covenant or agreement over or respecting land
or other property, although he may not be named as a party to the conveyance or
other instrument.
The guarantee
was expressed to be made with the original lessor and the persons deriving
title under it; the plaintiff, as a person deriving title under the original
lessor, was thus one of the persons with whom the guarantee was expressed to be
made; and the plaintiff was therefore, Mr Ham submitted, a person who could
take the benefit of the guarantee without the necessity of showing that it was
expressly assigned to him.
There has been
much discussion of the ambit of section 56(1) in reported cases, textbooks and
legal journals. I do not propose to add substantially to it. Mr Dowding’s
submission that section 56(1) did not apply in the present case was based
mainly on the contention that its operation was confined to covenants over or
respecting land and that the guarantee given by the defendant was not such a
covenant. Support for confining the scope of section 56(1) in this way is to be
found in the views expressed in Beswick v Beswick [1968] AC 58,
pp 76, 81 and 87 by Lord Reid, Lord Hodson and Lord Guest respectively; but the
opposite view is expressed by Lord Pearce and Lord Upjohn at pp 94 and 105, and
I am inclined to agree with the learned authors of Megarry & Wade’s Law
of Real Property, 4th ed at p 745, that this is the preferable view. I do
not, however, express any concluded opinion on the point, for there is in my
judgment a more fundamental reason why section 56(1) does not operate so as to
entitle the plaintiff to the benefit of the guarantee. Section 56(1) gets rid
of the objection that the person seeking to enforce the covenant is not named
as a party to the deed; but it does not enable the benefit of a covenant to be
taken by a person who is not in existence or is not identifiable at the time
when the covenant is made: see Kelsey v Dodd (1883) 52 LJ Ch 34
at p 39 per Sir George Jessel MR, which was approved by the Court of Appeal in Forster
v Elvet Colliery Co [1908] 1 KB 629 and in Grant v Edmondson,
supra, at p 27. Those cases were decided under section 5 of the Real
Property Act 1845, but in this respect there is in my view no difference
between that section and section 56(1). I agree with the statement in Megarry
& Wade’s Law of Real Property, 4th ed p 746, that ‘if a covenant is
expressed to be made with an owner of land and his successors in title, only
the present owner is an original covenantee; successors in title can claim the
benefit only as assignees’. Although the plaintiff is a person deriving title
under the original lessor, it is not in my judgment a covenantee within the
scope of section 56. I would add that Yeldham J reached the same conclusion in Sacher
Investments Pty Ltd v Forma Stereo Consultants Pty Ltd, saying at p
12:
In his
judgment in International Leasing Corporation (Vic) Ltd v Aiken Asprey
JA expressed a tentative view that there may be cases where the terms of the
guarantee itself were such that it operated in favour, not only of the original
creditor to whom it was addressed, but also of any person to whom the debt may
for the time being be owing. However, I have not been able to find, in any of
the cases which his Honour cited or in any which my own researches have
located, one where, merely by reason of the guarantee being expressed to be
made with the creditor ‘and his assigns’, a person who claimed to be such an
assign, and who was not a party to the contract has been held entitled to
enforce it. No support for the proposition advanced by the plaintiff is to be
found in section 36C of the Conveyancing Act, the effect of which was discussed
in Beswick v Beswick.
Section 36C of
the New South Wales Act is almost identical with section 56(1) of the English
Act.
The result is
that, on the evidence before me on this summons, the plaintiff’s claim against
the defendant must fail, and the defendant must therefore be given
unconditional leave to defend. Mr Dowding submitted that since the point of law
was a difficult one he should have been given leave to defend even if I was
against him, but since there are no facts in dispute at this stage and the
matter has been fully argued I should not have taken that course had I formed a
different view on the law. Whether the plaintiff can show at the trial, either
by reference to the terms of the transfer dated December 14 1978, or by
reference to some antecedent contract under which the original lessor is a
trustee for it of the benefit of the guarantee, or in some other way, that it
does in fact have a right to enforce the guarantee against the defendant, is a
matter which does not arise on this summons, and Mr Ham has not sought to argue
otherwise; and I cannot accede to Mr Ham’s submission that as a practical
matter there could be no prejudice to the defendant if I were to give judgment
against it because the plaintiff would clearly be entitled to succeed if the
transfer contained an express assignment of the benefit of the guarantee, and
if it did not the plaintiff will be so entitled if it obtains such an
assignment hereafter.
I will
therefore allow the appeal, set aside the master’s order and give the defendant
unconditional leave to defend.
The costs
were ordered to be costs in the cause. Leave was given to the plaintiff to
appeal to the Court of Appeal.
