DOWNIE v LOCKWOOD - [1965] VR 257SUPREME COURT OF VICTORIASMITH, J25, 28, 29 October, 19 December 1963Landlord and tenant — Rectification — Equitable interest of tenant in possession as against purchaser from landlord — "Interest...of a tenant in possession of the land" — "Dwelling-house" — Transfer of Land Act 1958 (No. 6399), s42(2)(e).

T, as lessor of the demised premises, and the plaintiff, as lessee, executed an original and counterpart of a lease, being a printed form, the counterpart having deleted from a printed list of lessee's obligations therein the payment of rates and insurances, but these items were not deleted from the original. Upon T's death his executrix sold the demised premises to the defendants who became registered as the proprietors in fee simple. The Court, finding that the plaintiff, as against T and his executrix, would have been entitled to the rectification of the lease by the deletion of references to rates and insurances, and therefore to specific performance of the real bargain by the execution of a registrable lease omitting those references,

Held: the plaintiff, immediately before the registration, had an equitable leasehold interest entitling him to occupy without obligation to pay the rates or premiums in question; and this interest was an "interest...of a tenant in possession of the land" within the meaning of s42(2)(e) of the Transfer of Land Act 1958, subject to which the defendants took the demised premises.

Smith v Jones, [1954] 2 All ER 823, distinguished.

By the lease the plaintiff agreed to use the demised premises "only as a dwelling-house". For some years prior to the execution of the lease, and subsequently, the plaintiff, with the knowledge of T, had boarders occupying a number of rooms in the premises. Plaintiff's wife serviced the rooms occupied by the boarders who dined in a common dining room where the plaintiff's family, who resided in the premises, sometimes dined. The wife also prepared meals and cut lunches for the boarders. The boarders had keys to the front door and to their own rooms, but none of them had exclusive occupation of any part of the premises.

Held: on the facts, the boarders and the plaintiff's family constituted one household, and the taking in of boarders did not constitute a use of the premises otherwise than as a dwelling-house. As to the use of surrounding circumstances to construe the lease, City and Westminster Properties (1934) Ltd v Mudd, [1959] Ch 129; [1958] 2 All ER 733, distinguished.

Trial of Action

The plaintiff's action was for rectification of a written tenancy agreement dated 31 May 1961 made between himself and the lessor, now deceased. The defendants were the present registered proprietors of the leased premises, having purchased the premises in August 1962 from the executrix of the deceased lessor. The defendants counter-claimed, alleging certain breaches of the agreement by the plaintiff. The relevant facts appear fully in the judgment.IJ Greenwood, for the plaintiff.RH Searby, for the defendants.Smith, J, delivered the following written judgment:

This is an action brought by the tenant in occupation of a house known as No. 15 Ranfurlie Crescent, Glen Iris, claiming rectification of an unregistered tenancy agreement made on a printed form and dated 31 May 1961 under which one Tovell, the then registered proprietor of the fee simple in the premises, agreed to let them to the plaintiff for a term of five years from 1 June 1961 with an option of renewal for a further five years. Tovell died on 25 September 1961; and the defendants are the present registered proprietors of the fee simple, having purchased the house in August 1962 from the executrix of Tovell.

[1965] VR 257 at 258

The rectification sought consists, first, of the deletion of references to municipal and Board of Works rates and to certain insurance premiums from a list printed as part of CL3 specifying the outgoings which the tenant undertakes to pay. In addition the plaintiff seeks the deletion of the word"dwelling-house" which is typewritten in a blank space in CL7 following the printed words, "The tenant agrees to use the premises only as a...".

The defence denies or refuses to admit the material allegations in the statement of claim. And by a counter-claim the defendants seek possession of the premises, alleging that the plaintiff has committed breaches of the said tenancy agreement by failing to pay the rates and by using the premises as a boarding house, and that he has failed to comply with a notice of 9 January 1963 requiring him to remedy those breaches. The counter-claim also alleges breaches by failing to pay charges for excess water and by subletting or parting with possession, but these were not sought to be supported by evidence and may therefore be disregarded.

The defence to counter-claim does not admit the alleged failure to pay rates, and though it admits using the premises as a boarding house it denies that this use was a contravention of CL7. It also alleges acquiescence and waiver by Tovell and his executrix and the defendants. In addition it was agreed between the parties that without this pleading being amended it should be treated as having alleged that the said tenancy agreement of 31 May 1961 is one which should be rectified by reason of the facts alleged in the statement of claim.

At the outset of the hearing there was some discussion as to whether the executrix of Tovell might not still have rights against the plaintiff under the tenancy agreement of 31 May 1961, and whether an actual rectification of it would be proper in the absence of the executrix. Counsel for the defendants stated, however, that if the Court were satisfied that as between the plaintiff and the defendants there is a right to a declaration that the plaintiff's obligations are limited to those under the tenancy agreement as sought to be rectified, the defendants would not take any objection to the addition of any parties necessary for the obtaining of an order for rectification, nor would they object to a modification of the claim for relief in such a way as to confine it to relief claimable as between the plaintiff and the defendants in the absence of the executrix. Upon this footing the hearing proceeded.

[His Honour then reviewed the facts, and continued:--] In the result the plaintiff, in my view, was entitled as against Tovell to have the tenancy agreement of 31 May 1961 rectified by deleting from CL3 thereof the references to rates and insurance premiums appearing therein, but was not entitled as against Tovell to the rectification sought in respect of CL7.

The next question is whether the plaintiff's right to rectification in respect of CL3 can now be enforced against the defendants. They contend that it cannot. They point out that by force of s42 of the Transfer of Land Act 1958 they, as the registered proprietors of an estate in fee simple in possession in the land, are entitled to hold it free from all claims and demands that may be set up in respect of it, subject only to the exceptions specified in that section. They point out further that the only relevant exception is that of"the interest...of a tenant in possession of the land": see s42(2)(e). And they say that the plaintiff's right to rectification was not itself an"interest" within the meaning of the exception, nor was it a part of the plaintiff's "interest", and that, accordingly, it is not

protected against the effects of the defendants' registration and has been thereby overridden.

[1965] VR 257 at 259

This argument is clearly one calling for a careful consideration, but in my view it is not well founded.

As appears from the cases the exception in s42(2)(e) is to be widely construed; and it is to be treated as producing the result that "any person in actual occupation of the land obtains as against any inconsistent registered dealing protection and priority for any equitable interest to which his occupation is incident, provided that at law his occupation is referable to a tenancy of some sort, whether at will or for years": Burke v Dawes (1938) 59 CLR 1, at p. 17; [1938] ALR 135.

Here it is clear that immediately before the defendants became registered the plaintiff's occupation was at law referable to a tenancy: cf Moore v Dimond (1929) 43 CLR 105; [1930] ALR 341; Dimond v Moore (1931) 45 CLR 159; [1931] ALR 177. It is also clear that he then had an equitable interest to which his occupation was incident. What is in debate is what his equitable interest then was; and in order to determine that issue it is necessary to consider, first, what his rights were immediately before the defendants contracted to buy the land, and then whether the making of that contract restricted his rights.

Two views are possible as to what the plaintiff's rights were immediately before the defendants contracted to buy the land. One is that there were two rights to which he was entitled, namely:--

(a) an equitable leasehold interest in the land, having among its incidents an obligation to pay rates and premiums and a power of re-entry for non-payment thereof, and

(b) a separate and distinct equity to have the agreement rectified by striking out the references therein to rates and premiums.

The other view is that what he was entitled to was an equitable leasehold interest in the land, not subject to any such obligation or power of re-entry as I have just referred to.

How matters would stand upon the first of these two views it is unnecessary for me to consider, for, in my opinion, the second of them is the true view. The plaintiff's equitable interest in the land had its existence by reason of the fact that the plaintiff was entitled, as against Tovell's executrix, to specific performance of the contract made between the plaintiff and Tovell: Lysaght v Edwards (1876) 2 Ch D 499; Coatsworth v Johnson (1885) 55 LJQB 220. The incidents of that interest were determined by the form in which specific performance would have been enforced: Walsh v Lonsdale (1882) 21 Ch D 9. And the cases of Craddock Bros Ltd v Hunt, [1923] 2 Ch 136; [1923] All ER Rep 394, and United States v Motor Trucks Ltd, [1924] AC 196, have made it clear that immediately before the defendants contracted to buy the land the plaintiff was entitled to specific performance in the form of a decree or order requiring Tovell's executrix to sign and deliver to the plaintiff a registrable lease of the land upon terms imposing no obligation on him to pay rates or premiums and giving no power of re-entry for non-payment thereof.

It might have been necessary for the plaintiff, in order to obtain such a decree or order, to include in his action for specific performance a claim for rectification of the agreement. But this would appear to be a mere matter of procedure, the point of substance being that the plaintiff was entitled in equity to specific performance of the real bargain between himself and Tovell.

[1965] VR 257 at 260

Upon this view of the case it follows, I consider, that the plaintiff's rights were not impaired by the contract of sale to the defendants. This conclusion may be rested upon

the short ground that the plaintiff's equitable interest, being first in time, was entitled, in case of conflict, to priority over that of the defendants.

It is true that, upon principles ordinarily accepted, a mere equity, as distinct from an equitable interest, is not binding upon a subsequent purchaser for value taking an equitable interest in the subject-matter of the earlier transaction, if he takes without notice of the equity: cf. Hanbury, Modern Equity, 8th ed., pp. 35 and 663. But here that doctrine has, in my opinion, no application. What the plaintiff was entitled to at the time the defendants' contract was made was not an equitable interest involving an obligation to pay rates and premiums, coupled with a mere equity to have the engrossment rectified. It was an equitable interest upon terms which, because equity would have specifically enforced the true bargain between the parties, did not impose an obligation to pay rates or premiums. And I may add, though in my view it is not material, that of this equitable interest the defendants had notice; for a tenant's possession gives notice of every interest that he has in the land, including even extensions of interest by subsequent agreements: see Allen v Anthony (1816) 1 Mer 282; Barnhart v Greenshields (1853) 9 Moo PC 18, at pp. 32-4; Hunt v Luck, [1901] 1 Ch 45; [1902] 1 Ch 428;[1900-3] All ER Rep 295; Green v Rheinberg (1911) 104 LT 149; Reeves v Pope,[1914] 2 KB 284; Goody v Baring, [1956] 2 All ER 11, at p. 15.

The case of Smith v Jones, [1954] 2 All ER 823, was relied upon by the defendants, but the right alleged in that case was a mere equity to rectification. There the plaintiff was in possession of land under a common law tenancy from year to year, and he sued for rectification of the instrument granting him that tenancy. The defendant was a purchaser of the reversion to whom the legal estate had been conveyed. It was held by Upjohn, J, that no such mistake had been proved as would found a claim for rectification; but he went on to state, by way of dictum, his opinion as to how matters would have stood if there had been proof of such a mistake. The tenant was contending that his possession gave notice of all his rights in respect of the land to the defendant, and that the defendant, in the words of the Privy Council in Barnhart v Greenshields (1853) 9 Moo PC 18, at p. 32, was "bound by all the equities which the tenant could enforce against the vendor". Upjohn, J, expressed the view that this language should not be regarded as extending to an equity to rectification; and it may be that in relation to a mere equity to rectify the instrument creating a legal tenancy this view is correct: cf Note by R E Megarry, 71 Law Quarterly Review 480; Reeves v Pope, [1914] 2 KB 284. But, in my opinion, his view can have no application to a case such as the present. Here the plaintiff's possession, I consider, gave notice to the defendants of his equitable interest with all its incidents, including those relating to rates and premiums, and the defendants, when they bought, took subject to that equitable interest.

Before leaving the case of Smith v Jones, supra, I may mention that the view there expressed as to the inquiries that a purchaser should make of a person in occupation seems unduly restricted. The cases already cited appear to me to show that the person in occupation should be asked to specify all the rights and interests claimed by him in the land; and that, leaving aside cases in which misleading answers are given, the purchaser is bound, according to the rules of the general law, by all the rights and interests to which the occupier is entitled in the land.

[1965] VR 257 at 261

In the present case there was a reason, additional to the priority in time of the plaintiff's equitable interest, why that interest was not affected by the making of the defendant's contract. What the defendants contracted to purchase was not an unencumbered fee simple in possession. It was merely the fee"subject to a lease to Cecil Norman Downie". And those words have reference, in my view, not to any instrument of lease, but to the leasehold interest, whatever its extent and incidents might be, that the plaintiff was then entitled to as against the vendor. The defendants, therefore, were not subsequent purchasers of the plaintiff's interest, nor of any interest which could include or conflict with the plaintiff's interest: and it follows, I consider that they were not assisted by the doctrine as to subsequent purchasers for value and were in no stronger position as

against the plaintiff than their vendor had been: cf Leuty v Hillas (1858) 2 De G and J 110; Craddock Bros Ltd v Hunt, [1923] 2 Ch 136; [1923] All ER Rep 394.

For these reasons, I consider that the plaintiff's interest, immediately before the defendants obtained registration, was an equitable leasehold interest upon terms which did not impose on him any obligation to pay rates or premiums nor confer any power of re-entry for non-payment thereof. And by virtue of s42(2)(e) the defendants, I consider, hold the land subject to this interest, so that, in effect, the plaintiff is entitled as against them to the benefits which would arise from an order for the rectification that he seeks.

Turning to the counter-claim, it is clear that in so far as it is based upon the allegation of non-payment of rates it must fail, for what I have already said regarding rectification involves that the plaintiff has an equitable defence to any claim so based. Moreover, even if the plaintiff had been under an obligation to pay rates the evidence here would have been insufficient, I consider, to show that he failed to perform that obligation within a reasonable time after the notice of 9 January 1963. But in so far as the counter-claim rests on the contention that the taking of boarders constituted a breach of CL7 of the tenancy agreement the position is less clear.

By that clause the plaintiff undertook to use the premises "only as a dwelling-house". The evidence showed that at all material times the premises were the home of the plaintiff and his wife and son. Usually they had six boarders, but at the time of the hearing there were seven. Two of the boarders shared a bedroom but each of the other five had a separate bedroom. Each boarder had a key to the front door and, it would seem, to his own room but none of them had exclusive occupation of any part of the premises. Each paid 6 pounds per week as board. The plaintiff's wife had a key to all their rooms and used to enter each of them every day. No domestic help was employed. She made the beds and tidied, dusted and vacuum-cleaned the rooms. She provided all the blankets, bed linen and towels " and things of that kind". She did the boarders' washing and ironing and cooked and served their meals. She cut lunches for them to take to work. There was a dining-room in the house and the boarders had their meals in it. Usually there were insufficient places in the dining-room for the plaintiff and his wife and son, and they used either to make a second sitting in the dining-room or else to eat in the kitchen. When some of the boarders were absent, however, the other boarders and the plaintiff and his wife and son ate together in the dining-room. When boarders left they were replaced sometimes by taking in persons recommended by local business people, and sometimes by advertising in the daily press.

[1965] VR 257 at 262

The proper conclusion upon these facts is, I consider, that the boarders and the plaintiff and his wife and son lived in one household, that of the plaintiff; and that the presence of the boarders did not give the house a public character. The question, then, is whether this use went beyond a use of the premises "only as a dwelling-house".

The word "dwelling-house" is capable of a wide meaning in which it extends to any building or part of a building used as the place of abode of one or more persons.

It has been used in this sense in the criminal law and in relation to parliamentary franchise: cf Thompson v Ward (1871) LR 6 CP 327, at pp. 358-9; Hollyhomes v Hind, [1944] KB 571; [1944] 2 All ER 8. It has been so used in bankruptcy law: see Re Hecquard (1889) 24 QBD 71, at pp. 75-6. It has been held to apply to buildings not of a private character. Thus in South-West Suburban Water Co v St. Marylebone Guardians, [1904] 2 KB 174, it was held to cover residential workhouse schools occupied by children and by those in control of them. And in London County Council v Davis (1897) 77 LT 693, it was held to cover a hotel for poor men which was a public building. It has also been held applicable to a building comprising a number of separate dwellings: see Kilpatrick v Maxwelltown Town Council, [1912] SC 228; Hollyhomes v Hind,[1944] KB 571; [1944] 2 All ER 8. The use of the word in its wide sense is illustrated by Lord Atkinson's statement in Lewin v End, [1906] AC 299, at p. 304, that by the term "dwelling-house" he

understood "a house in which people actually live or which is physically capable of being used for human habitation".

In popular speech the term is commonly used in a narrower sense derived, perhaps, from an abbreviating of the expression "private dwelling-house". In this narrower sense it covers, I think, only those places of abode which are either separate structures or else divided from other buildings by vertical walls, and which, in addition are occupied, or adapted for occupation, by persons living in one household. But for premises to be used "only as a dwelling-house", in this narrow sense of the word, it is not necessary that the persons residing therein should be members of the one family, or related to each other. For example, if half a dozen students rented a house such as I have described and made it their place of abode, living in it in one household, they would be using it as a "dwelling-house" even in this narrower sense.

Where a family is living in a house such as I have described, and they take in boarders who have no exclusive occupation of any part of the premises and who live there with the family as members of the one household, the premises, I consider, are still being used "only as a dwelling-house", in the narrower sense of the word: cf Brown v Ocean Accident and Guarantee Corporation Ltd,[1916] NZLR 377; Mahomed v Anchor Fire and Marine Insurance Co (1913) 48 SCR 546. And this situation, in my view, is not altered merely because the boarders outnumber the family, so long, as least, as a single private household is maintained of which the boarders and the family are all members. It does not follow, of course, that the word "dwelling-house", in its narrower sense, would cover an unlicensed hotel or a large scale boarding-house run by a staff and catering for all comers. In such a case the public element becomes so prominent that the boarders can no longer be regarded as members of a household, still less of a private household.

[1965] VR 257 at 263

It was contended on behalf of the defendants that premises cannot be said to be used "only as a dwelling-house" if any business is carried on therein; and that where there is a settled practice of taking in boarders in the numbers and in the circumstances disclosed by the evidence in the present case this constitutes the carrying on of a business. In my view, however, if the premises do not assume a public character, and if the only business carried on is that of supplying for money the accommodation, meals, and domestic services the enjoyment of which renders the boarders members of the household, this will not involve that the premises are used otherwise than as a"dwelling-house" in the narrower sense.

In the present case, in my opinion, the use to which the premises have been put, as disclosed by the evidence, has not gone beyond use as a"dwelling-house" in the narrower sense.

If I were wrong on this point it would still be necessary for the defendants, before they could succeed on their counter-claim, to persuade me that in CL7 of the engrossment the word "dwelling-house" is not used in its wider-sense; and it appears to me that there is much to be said in favour of construing it in the wider sense.

In the first place the document in which it appears is not couched in popular speech but in lawyers' English. This is so both in the printed portions and in CL14 which was added in typewriting. It would, therefore, have been natural for the person who inserted the word "dwelling-house" in CL7 to have had in mind its wider meaning.

Then again the surrounding circumstances point to the wider meaning because it is the less restrictive of user. The plaintiff was already the tenant of the premises free from any restriction on user, and he had for years been using them for the purposes now said to be precluded by CL7. The transaction, in its general nature, was an extension of the duration of his tenancy, giving him security of tenure without alteration in the rent payable. And in such a transaction it would seem odd to find a provision precluding the tenant from continuing the existing long-established user. There is nothing in the evidence to suggest that it would have been of any advantage whatever to the grantor to

impose such a restriction, and obviously it would have been a serious disadvantage to the tenant, who was deriving an income from the existing user. The case of City and Westminster Properties (1934) Ltd v Mudd,[1959] Ch 129; [1958] 2 All ER 733, should not, in my view, be regarded as preventing the taking into account of these surrounding circumstances in determining which of its possible meanings the word "dwelling-house" bears in CL7: cf Hall v Lund (1863) 1 H and C 676; Hart v Hart (1881) 18 Ch D 670, at p. 692; Bank of New Zealand v Simpson, [1900] AC 182; Odgers, Construction of Deeds and Statutes, 4th ed., p. 83.

The wider, and therefore less restrictive, construction is supported also by the subsequent conduct of the parties under the instrument, bearing in mind that Tovell, it seems clear, having regard to his long and close association with the plaintiff, must have been aware at all times of the use to which the premises were being put: cf Watcham v Attorney-General of East Africa Protectorate, [1919] AC 533; [1918-19] All ER Rep 455; ET Fisher and Co v ESA Bank (1940) 64 CLR 84, at p. 102; (1941] ALR 1; Healy v Law Book Co of Australasia (1942) 66 CLR 252, at p. 260; [1942] ALR 310; Odgers, op. cit., pp. 59-60; 80-83. And if the ambiguity could not otherwise be resolved it would be proper, I am disposed to think, to resolve it in favour of the wider construction upon the grounds that CL7, though it is a lessee's covenant, is in substance an exception from the lessor's general grant of exclusive user, and that it is also a provision which exposes the lessee to a forfeiture: cf Dann v Spurrier (1803) 3 Bos and P 399, at pp. 403-5; Savill Bros v Bethell,[1902] 2 Ch 523; Odgers, op. cit., pp. 68-9; Woodfall, Landlord and Tenant, 26th ed., p. 217; Russell v Beecham, [1924] 1 KB 525; [1923] All ER Rep 318.

[1965] VR 257 at 264

For the reasons, I consider that the counter-claim must fail.

In the action there will be a declaration that the plaintiff, as tenant of the premises known as No. 15 Ranfurlie Crescent, Glen Iris, under the tenancy agreement dated 31 May 1961 made between him and Charles Hamilton Tovell now deceased is not under any obligation to the defendants by virtue of CL3 thereof to pay any of the outgoings therein referred to as "municipal rates", or "Melbourne and Metropolitan Board of Works rates (other than excess water)" or "plate glass insurance" or "any additional insurance premium caused by the use of the premises by the tenant". On the counter-claim there will be judgment for the plaintiff.Order

Judgment for plaintiff.Solicitors for the plaintiff: Melville and Melville.Solicitors for the defendants: Fenton and Dunn.