ZIKI INVESTMENTS (PROPERTIES) LIMITED V MCDONALD HC AK CIV 2008-404-0038

ZIKI INVESTMENTS (PROPERTIES) LIMITED V MCDONALD HC AK CIV 2008-404-0038 23 July 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-0038BETWEEN ZIKI INVESTMENTS (PROPERTIES) LIMITED Plaintiff AND JAMES MCDONALD Defendant Hearing: 28 April 2008 Appearances: B Molloy for Plaintiff G Jenkin for Defendant Judgment: 23 July 2008 at 4:00 pmJUDGMENT OF ASHER JThis judgment was delivered by me on 23 July 2008 at 4:00 pm pursuant to Rule 540(4) of the High Court Rules .. Registrar/Deputy Registrar .. DateSolicitors: Haigh Lyon, PO Box 119, Auckland Brannigans, PO Box 75948, Manurewa, Auckland Copy: GC Jenkin, Barrister, PO Box 2256 Shortland Street, AucklandTable of ContentsParagraph NumberIntroduction [1]Brief history [3]The decisions [10]Tenancy Tribunal [10]District Court [13]Issues on appeal [16]Was a legal tenancy created? [17]The Residential Tenancies Act 1986 [24]Section 58 of the Residential Tenancies Act 1986 [38]Was Ziki "bound" under s 58(1)(e)? [46]Application of s 58 to the facts [63]The Tribunal's discretion under s 85(2) [67]Conclusion [73]Result [76]Costs [77]Introduction[1] This is an appeal on a question of law under s 119 of the Residential Tenancies Act 1986 ("the Act") from a District Court decision dismissing an appeal from the Tenancy Tribunal ("the Tribunal"). [2] The appellant, Ziki Investments (Properties) Limited ("Ziki"), purchased a property occupied by the respondent, James George McDonald, and his wife, Diane Carol McDonald. The McDonalds occupied the property pursuant to an agreement with the previous owner for the period of the McDonalds' lives. Ziki argues that the Tribunal erred in making orders giving Mr McDonald the right to remain in the property for the rest of his life and directing that no development work was to be carried out on the property during that time. In essence, the question of law the subject of this appeal is whether the remedial powers of the Tribunal under the Act can be invoked against Ziki to enforce the occupancy agreement.Brief history[3] In 1985 Mr McDonald and his wife, Diane, purchased a property at 15 Rimu Road, Manurewa, Auckland ("the property"). By 2005 they wished to raise some cash to pay off debts and make some purchases as by then they were an elderly couple and in poor health. Mr McDonald was then 78 years old. The McDonalds were introduced to a financier called Mr Deo Narayan. Mr Narayan and Mr McDonald signed a sale and purchase agreement dated 18 August 2005 ("the McDonald agreement"). The agreement recorded that the property was sold to Mr Narayan for $150,000. This figure was considerably less than its true market value, which appears to have been at least $222,000. The agreement also provided in a handwritten clause ("the McDonald tenancy") inserted under the "Other terms of sale" heading:1. The purchaser agrees that upon settlement of the property the vendors, JG and DC McDonald, will remain in the house as tenants at a fixed rental of $80 pw until the death of both Mr McDonald and Mrs McDonald, at which time the tenancy will come to an end.2. The purchaser agrees that no development work will be undertaken on the property until the death of both Mr and Mrs McDonald. This includes work to the existing house or any development on the rear section.Clause 1 had originally provided for the tenancy to come to an end on the death of whichever of Mr McDonald or Mrs McDonald died first, but that part of the clause had been crossed out and altered. [4] The settlement date of the sale was 26 August 2005, but this was extended to 31 August 2005. Unbeknown to the McDonalds, Mr Narayan proceeded to on-sell the property to Ziki prior to settling with the McDonalds. The agreement for sale and purchase ("the Ziki agreement") was dated 22 August 2005. The price was $220,000, giving Mr Narayan a profit of $70,000. [5] On its front page under the heading "Tenancies (if any)", the Ziki agreement stated: "Subject to existing tenancy. See special clause 14". Special clauses 14 and 15 read:14. The purchaser acknowledges that the property is sold subject to a tenancy of the house to JG & DC McDonald who are tenants paying an agreed fixed rental of $80 per week until the death of either Mr McDonald or Mrs McDonald whoever dies first, at which time the tenancy will come to the [sic] end. 15. The vendor shall warrant. 1. That the existing caveat on the property being sold in this agreement shall be removed prior to settlement. 2. That the tenants shall be aware that the purchaser intends to start developing the rear section of the property within the 30 days of purchase. Furthermore the tenants shall in no way hinder the purchaser with this development. 3. That the purchaser be allowed to set up a power connection from the house and that the agreement between the tenants and the purchaser for the payment of the power used be established at the time of the connection being set up. 4. That the tenants allow access to the property at all times prior to the development commencing for the purchaser's surveyors and engineers to complete whatever work they have to do in order for the purchasers to start erection of a dwelling on the rear section.5. That the tenants be aware that the wheelchair access at the backdoor of the existing dwelling may be altered and that the existing garage may be relocated.It can be seen that the terms of the tenancy set out in clauses 14 and 15 of the Ziki agreement and the actual terms of the McDonald tenancy in the McDonald agreement do not correspond. Indeed, clauses 14 and 15 substantially misstate the terms of the McDonalds' tenancy. That discrepancy lies at the heart of the present dispute. [6] The McDonalds did not know of the on-sale. After settlement on 31 August 2005, they stayed on the property as before, paying $80 a week in rent as agreed. Nine months later on 22 May 2006 Mrs McDonald went into a rest home. The following day, Mr Doug Yates, who describes himself as being employed by Ziki, visited Mr McDonald and told him that Ziki Investments Limited had purchased the property. Mr McDonald was shocked and went to see his lawyer, who placed a caveat against the title. This caveat lapsed some months later after Mr McDonald's solicitor received a notice under s 145A of the Land Transfer Act 1952, presumably initiated by Ziki. [7] Mrs McDonald died on 28 July 2006. After her death, Mr Yates visited Mr McDonald and advised that Ziki required a full market rental rather than $80 per week. He further advised that Mr McDonald would have to move out in due course. At later meetings Ziki repeated its requests that Mr McDonald move out. Ziki then sent him two letters, the first of which was dated 24 January 2007 and purported to set the rent at $280 per week. The second was dated 31 January 2007 and purported to give 42 days' notice of "termination of the tenancy." Ziki also sought arrears of rent dating from the death of Mrs McDonald based on a rental of $280 per week, the total of which was in excess of $7,000. On about 7 March 2007, Ziki put workers and contractors onto the site who cleared the back of the section in readiness for the building of a second dwelling. It was at this point that Mr McDonald went to the Tribunal to seek orders protecting his position. [8] Mr Yates, who negotiated the Ziki agreement, gave evidence before the Tribunal. His exact connection with Ziki is unclear, but in his evidence before theTribunal he denied having any interest in the property. The principal of Ziki, Mr Aklesh Ram, attended the Tribunal hearing but did not give evidence. [9] Mr Yates gave evidence that at the time the Ziki agreement was negotiated Mr Narayan explained that the McDonalds were both very ill and had less than three months to live. Mr Yates claimed that he was told that when one died the other would move into a rest home because of their inability to look after themselves. Mr Yates claimed that he made it clear to Mr Narayan that Ziki would only purchase the property on the basis that it could be developed without hindrance or delay. Mr Yates said that Mr Narayan told him that by the time a resource consent and building consent were obtained Mrs McDonald would have died. Mr Yates said that Mr Narayan stressed to him that he would be allowed to go on the property, but that Mr Yates was not to say anything at all to the tenants.The decisionsTenancy Tribunal[10] The Tenancy Tribunal delivered a decision on 27 April 2007 in which it held that Mr McDonald was entitled to possession of the premises and that Ziki and its agents were to vacate and yield possession to him. The Tribunal held that the terms of the tenancy were (as amended by the Tribunal):(a) (i) The tenant will remain in the premises at a fixed rental of $80.00 per week until the tenant dies at which time the tenancy will terminate; or (as amended by the Tribunal) (ii) For 30 years if the tenant shall so long live. (b) The landlord agrees that no development work will be undertaken on the premises until the tenant is deceased. This includes work to the existing house or developments to the rear section of the land.[11] The Tribunal was critical of Ziki's conduct, describing as "astonishing" the fact that Mr Yates appeared to have accepted what he was told by Mr Narayan about the terms of the tenancy without question, and without instructing his solicitor to make any inquiries. The Tribunal noted that Ziki's submission that it was not boundby the tenancy amounted to a submission that Ziki should be able to take advantage of its own failure to make inquiries, and that through Mr Yates Ziki knew that it was purchasing a property subject to a tenancy for life. The Tribunal pointed out that Ziki knew that the tenancy was not registered on the title. The Tribunal found that Ziki did not "take proper care to safeguard [its] own rights and entitlements and seemed to be in a somewhat unseemly rush to purchase the property". [12] The Tribunal noted the submission by Ziki that recognising the tenancy created an exception to the concept of indefeasibility. The Tribunal did not express any conclusion in relation to that submission, but was clearly prepared to proceed to make orders protecting the tenancy in any event. The Tribunal was not asked to determine whether the conduct on the part of Mr Yates and Ziki could be regarded as fraudulent, and understandably did not reach a conclusion on this issue.District Court[13] Ziki appealed against the Tenancy Tribunal decision to the District Court. In a judgment delivered on 10 December 2007, the learned Judge held that the McDonald agreement created a tenancy which was subject to the jurisdiction of the Tribunal and that the "merits and justice of the case" allowed for the preservation of Mr McDonald's rights under s 85(2). [14] The Judge accepted that the common law recognised that a tenancy for the life of a tenant can be an enforceable tenancy even though the agreement might also create a freehold interest in the land. At [21] he considered that a tenancy subject to the Act could include something that was neither a "fixed term" or "periodic" tenancy within the meaning of the Act. He concluded that a "fixed term" tenancy could be fixed by reference to a future event as well as the termination of a particular period of time. The Judge went on to conclude, however, that it was unlikely that the Legislature intended to create by omission a class of tenancy that could defeat a later registered interest: at [31]. He concluded that the principle of indefeasibility of registered interests under the Land Transfer Act was so fundamental to dealings in land in New Zealand that the Act could not be interpreted as giving protection tosuch tenancies in a way that undermined or created an exception to the indefeasibility principle: at [31]-[32]. [15] The Judge then went on to consider the Tribunal's discretion under s 85(2) of the Act to determine disputes in accordance with general principles of law and "the substantial merits and justice of the case". The Judge considered that Mr Yates' failure to make inquiries meant that in accordance with the merits and justice of the case, that Mr McDonald's right of occupation should be preserved.Issues on appeal[16] Ziki submits that the District Court Judge was not able to use s 85(2) in the way he did, which was effectively to give the Court a substantive jurisdiction to do whatever it thought just, whatever the legal position. Mr McDonald cross-appealed, challenging the conclusions of the District Court Judge, and in particular his conclusion that indefeasibility of registered interests prevented the general application of the Residential Tenancies Act. However, Mr McDonald supported the Judge's invocation of s 85(2). These issues all bear on the question of law the subject of this appeal, namely whether the remedial powers of the Tribunal under the Residential Tenancies Act can be invoked against Ziki to enforce the McDonald tenancy.Was a legal tenancy created?[17] Before considering whether the Residential Tenancies Act applies to the McDonald tenancy, it is necessary as a preliminary issue to consider whether in fact a valid tenancy or a life estate was created. Mr Molloy for Ziki submitted that a tenancy for life of the sort created by the McDonald agreement could not be a tenancy that falls under the Act. He submitted that while a right to occupy a premises for life could be validly created as a life estate registered under s 115 of the Land Transfer Act, that had not occurred in this case. While not arguing that there was no tenancy, he strongly argued that it could have no enforceability other than between the original parties. While Mr McDonald may have had personal rightsagainst Mr Narayan, he submitted that any interest was defeated by Ziki's purchase and subsequent transfer into Ziki's name as registered proprietor. [18] The handwritten agreement that is part of the McDonald agreement creates on its face a valid contract between the McDonalds and Mr Narayan. The subject matter is clear, as is the amount of rent to be paid. The duration of the tenancy, being for the life of Mr McDonald, is certain in the sense of being easily understood and applied. It is uncertain, however, in the sense that its duration is not for a fixed term of years, months or days, but rather until the occurrence of a stated event. [19] Mr Molloy is correct in submitting that no life estate was created as no document in registerable form was created and registered. There appears to have been an intention between the McDonalds and Mr Narayan to create a tenancy only. [20] In Lace v Chantler [1944] KB 368, the English Court of Appeal took the view that a lease expressed to be "for the duration of the war" was invalid as being insufficiently certain, although it was valid as a periodic tenancy. This approach to tenancies of an uncertain length of time is accepted in England: Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386. These cases did not relate to tenancies for the life of a person, however. [21] An agreement to grant a lease that is not in the form of a deed and not registered can nevertheless be validly created and enforced under the doctrine ofWalsh v Lonsdale (1882) 21 Ch D 9: see Hinde, McMorland and Sim Land Law in New Zealand at para 11.025. In Sinclair v Connell [1968] NZLR 1186 at 1189- 1190, Tompkins J accepted that there was nothing invalid in an informally created tenancy for the life of the tenant. He referred to an earlier English case, Zimbler v Abrahams [1903] 1 KB 577, where an informal agreement to lease for life for rent was held to be valid, and specific performance was granted to the tenant. Justice Tompkins found that an agreement which enabled the defendant to occupy a house rent-free for the rest of her life was enforceable. He stated at 1189:I do not think that the documents are precluded from operating as an agreement to lease by the fact that the term specified is for the life of the tenant. Nor is it invalidated by the provision that she may terminate the tenancy at any time by vacating the property.[22] I note that s 212(1) of the Property Law Act 2007 now provides that a lease is not invalid simply because its termination relates to the occurrence of a future event, providing it is sufficiently defined. That section only applies to leases coming into operation after 1 January 2008. [23] I have no doubt that a valid tenancy inter partes was created by the handwritten clause at the end of the McDonald agreement. For the purposes of this appeal the critical question is whether that tenancy falls under the Residential Tenancies Act.The Residential Tenancies Act 1986[24] Section 10 of the Act provides that where in any proceedings before the Tribunal any party contends that the Act does not apply, it is for that party to establish the facts upon which it so contends. The burden is on Ziki, therefore, to establish the facts it relies on to show that the McDonald tenancy does not fall under the Act. [25] The term "life tenancy" or a similar term or concept is not defined in the definitions in s 2 of the Act, or referred to anywhere else in the Act. The term "tenancy" is defined in s 2 as follows:tenancy, in relation to any residential premises, means the right to occupy the premises (whether exclusively or otherwise) in consideration for rent; and includes any tenancy of residential premises implied or created by any enactment; and, where appropriate, also includes a former tenancy:The definition does not refer to the body of concepts and definitions relating to tenancies and leases developed by the common law and equity. Those traditional concepts are therefore not controlling when assessing whether there is a tenancy to which the Act applies. [26] The McDonald tenancy relates to residential premises and gives the right to occupy those premises in consideration for the payment of rent. It therefore falls within this definition.[27] Mr McDonald similarly falls within the definition of "tenant" in s 2 as he is a "grantee":tenant, in relation to any residential premises that are the subject of a tenancy agreement, means the grantee of a tenancy of the premises under the agreement; and, where appropriate, includes – (a) a prospective tenant; and (b) a former tenant; and (c) a lawful successor in title of a tenant to the premises; and (d) the personal representative of a deceased tenant; and (e) an agent of a tenant. [emphasis added][28] Section 5 sets out a number of specific instances where the Act will not apply but, notably, does not exclude tenancies for the life of the tenant. It has not been suggested that any of the specified exclusions apply to the McDonald tenancy. [29] The Act divides tenancies into "fixed-term" tenancies and "periodic" tenancies. A fixed-term tenancy is defined in s 2 as:Fixed-term tenancy means a tenancy for a fixed term, but, except as provided in section 7(3) of this Act, does not include such a tenancy that is terminable by notice.[30] A periodic tenancy is defined as follows:Periodic tenancy means a residential tenancy other than a fixed-term tenancy.[31] The circular definition of "fixed-term tenancy" gives no indication of what constitutes a "fixed term". Nor does the definition of a "periodic tenancy" give any indication of what might be meant by a "fixed term". [32] The natural meaning of a "fixed term" in the context of a tenancy is a tenancy that will terminate at a specified and therefore fixed point. Under the Act, there is no right to terminate a fixed-term tenancy by notice until that specified period expires. In s 6 (now repealed) and s 7, fixed-term tenancies are referred to as tenancies forspecific periods of years or days, but the meaning of "fixed term" is not further defined. [33] The natural or dictionary meaning of "periodic" is "being or occurring at regular intervals": New Zealand Oxford Dictionary. Thus weekly, monthly or yearly tenancies, being divided by regular intervals and enduring for the duration of those intervals, appear to be periodic tenancies. They are indefinite in the sense that they will endure until terminated and no time for their termination is defined. In this sense they are very different from fixed term tenancies, which have a defined end point and cannot be terminated until that point is reached. Section 51 contemplates the termination of a periodic tenancy by a minimum period of notice. [34] How, then, should a tenancy for the life of the tenant be characterised? Mr Molloy argues that the fact that a tenancy of this type does not fall naturally into either category indicates that a life tenancy is not a tenancy under the Act. However, that is not a reasonable interpretation given the broad definition of "tenancy" and the references throughout the Act to a "tenancy" generally. The intention appears to be for the Act to apply to all agreements which fall under the definition of a tenancy and then to make specific provision for fixed-term tenancies and for periodic tenancies. Moreover, the definitions in s 2 indicate that all tenancies that are not fixed-term are periodic. Section 2 does not permit any other sort of tenancy. All "tenancies" as defined must be placed in one of the two categories, although they may later be excluded from the Act's ambit under s 5. [35] A tenancy for the life of the tenant does not run for a determinate period of time. While it has in the tenant's death a fixed end point, the period of time is uncertain as it is uncertain when the death will occur. This sort of tenancy is for a fixed term in that the term is fixed by a terminating event, namely the death of both tenants, rather than a term of months or years. It is certainly fixed in the sense that it cannot on its terms be determined by notice on either side before the determining event, and is for a defined term, albeit of uncertain length. The duration is not fixed, but the end point is fixed. This sort of tenancy is more naturally conceptualised as a "fixed-term tenancy" than as a "periodic tenancy", which characterisation would do violence to the natural meaning of "periodic". There cannot be a third type oftenancy, which is neither fixed or periodic. Section 2 does not permit it, and under s 50 there would be no provision whereby such a tenancy could be terminated. [36] I conclude that for the purposes of the Residential Tenancies Act the McDonald tenancy is a "fixed-term tenancy". This was indeed the conclusion of the Tribunal and the learned District Court Judge. The Tribunal considered that a tenancy for the life of the tenant must logically be regarded as a fixed-term tenancy as there is no specific provision made in the Act for a tenancy ending on a future event. The District Court observed that the expression "fixed-term tenancy" was capable of including a term that was fixed by reference to a future event. [37] The fact that the McDonald tenancy comes under the Act does not determine whether Ziki is bound to uphold it unless there is a provision in the Act which affects priority of interests. In the usual course of things, in the absence of fraud, under ss 62 and 182 of the Land Transfer Act the registered purchaser from the registered prior owner has good title against any prior unregistered interests. Ziki claims to be in that category. The District Court agreed. It is in this regard that s 58 of the Act is relevant.Section 58 of the Residential Tenancies Act 1986[38] Section 58 provides:58 Mortgagee or other person becoming entitled to possession(1) Where a mortgagee or other person becomes entitled (as against the landlord) to possession of the premises, the following provisions shall apply: (a) The tenancy shall continue notwithstanding that the mortgagee or other person has become entitled (as against the landlord) to possession of the premises: (b) For the purposes of sections 15, 21A, and 43 of this Act, the mortgagee or other person shall be deemed to have acquired the landlord's interest in the premises, and the provisions of those sections, with any necessary modifications, shall apply accordingly: (c) The mortgagee or other person shall have the same rights (if any) as the landlord had under the tenancy agreement or this Act to give notice terminating the tenancy or to apply to theTribunal for an order terminating the tenancy or for an order for possession of the premises: (d) Without limiting paragraph (c) of this section, but subject to paragraph (e) of this section, in the case of a fixed-term tenancy, the mortgagee or other person shall have the same right to give notice terminating the tenancy as the landlord would have had if the tenancy had been a periodic tenancy:(e) Paragraph (d) of this section shall not apply where the mortgagee or other person is bound by the tenancy or consented in writing to its creation. (2) Subsection (1) of this section shall apply notwithstanding anything to the contrary in the [Property Law Act 2007] or the Land Transfer Act 1952 or any other enactment. [emphasis added][39] The Tribunal concluded that by virtue of s 58(1)(a) and (e), Ziki as the "other person" became bound by McDonald tenancy. The District Court Judge disagreed, placing weight on s 58(1)(d), which gave to the "other person" a right to terminate as if the fixed term tenancy were a periodic tenancy. He found that s 58 did not affect the doctrine of indefeasibility of title under s 182 of the Land Transfer Act. [40] Section 58(1)(a) provides that the tenancy shall continue notwithstanding that an "other person" has become entitled to possession of the premises. I accept the assumption of both counsel in their submissions that a reference to "or other person" can include a subsequent purchaser of the property. I note that this is the view of Hinde, McMorland & Sim Land Law in New Zealand at para 12.020. [41] Section 58(1)(a) needs to be read with s 58(2), which states that subsection (1) "shall apply notwithstanding anything to the contrary in the Property Law Act, the Land Transfer Act or any other enactment". The doctrine of indefeasibility of title is created by ss 62 and 182 of the Land Transfer Act. While under the doctrine of indefeasibility of title Ziki may have obtained a right to possession of the premises and the right to exclude any occupiers of the premises, the tenancy nevertheless continues prima facie under s 58(1)(a). [42] Under s 58(1)(b) the "other person" is deemed to have acquired the landlord's interest in the premises. Under s 58(1)(c) the "other person" has the samerights (if any) as the landlord had under the tenancy agreement to give notice terminating the tenancy or to apply to the Tribunal for an order. [43] Thus far, pursuant to s 58, Ziki's interests in the land can be no better than those of Mr Narayan. As the McDonald tenancy was a fixed-term tenancy, Mr Narayan had no right to terminate the tenancy by notice: s 50(a). [44] However, s 58(1)(d) provides that without limiting the right of the other person to exercise the former landlord's rights under the tenancy agreement, the other person has the same right to give notice terminating the tenancy that the landlord would have had if the tenancy had been a periodic tenancy. This gives a new purchaser, if s 58(1)(d) applies, the right to give notice to a tenant to terminate the tenancy even if the tenancy has not expired. Under s 50(b) a periodic tenancy can be terminated by giving notice of a period no shorter than that required by s 51. Thus the tenant's right to have the tenancy continue against the "other person" that is created in the first three sub-sections of s 58(1) is substantially modified by s 58(1)(d). [45] However, s 58(1)(e), at least to some extent, counterbalances s 58(1)(d). It provides that subsection (d) does not apply where the "other person" is "bound by the tenancy or consented in writing to its creation". As it is accepted that Ziki did not consent to the tenancy in writing, the key question is whether the application s 58(1)(d) is precluded because Ziki is "bound" by the tenancy.Was Ziki "bound" under s 58(1)(e)?[46] Mr Molloy for Ziki submitted that "bound" means bound in terms of ss 62 and 182 of the Land Transfer Act. Section 182 provides:182 Purchaser from registered proprietor not affected by noticeExcept in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, director constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.Section 182 states that there is no duty of inquiry on a purchaser and that knowledge of any unregistered interest "shall not of itself be imputed as fraud". [47] Mr Molloy therefore submitted that a subsequent purchaser will not be bound by an unregistered interest in the absence of actual fraud. That submission was implicitly rejected by the Tribunal but explicitly accepted by the learned District Court Judge. The Judge rejected an argument that "is bound" could mean anything less than bound in terms of s 182 of the Land Transfer Act, which would require actual fraud on the part of the purchaser before he or she could be bound by an unregistered tenancy. He accepted the submission, made forcefully by Mr Molloy in this Court, that any other interpretation would undermine the doctrine of indefeasibility of title and make s 58(1)(d) redundant. [48] Mr Jenkin on the other hand argued that the Tribunal was right in assuming that purchasers were bound in terms of s 58(1)(a) by all tenancies in existence at the time of the purchase. It is necessary then to consider these two different interpretations. [49] The phrase "is bound by the tenancy" is enigmatic. As there was no equivalent to s 58 in the Residential Tenancies Act 1998 (SA) on which the New Zealand legislation was bound, no assistance in interpretation can be obtained from that source. Alston in Residential Tenancies (3 rd ed 1998) states at para 7.9 in relation to s 58(1)(e):The mortgagee will be bound by the tenancy if the tenancy had been in existence at the time that the original landlord entered into the mortgage, (borrowed the money on the security of the premises).[50] This statement appears to presuppose that the mortgagee (or "other person") is bound if the tenancy was in existence at the time of the creation of that person's interest. This view therefore supports Mr Jenkin's submission and the interpretation of the Tribunal.[51] However, to accept as suggested in the quoted text that Ziki will be bound by the tenancy simply because it was in existence at the time Ziki entered into the agreement would create by a sidewind of s 58(1) a significant exception to the principle of indefeasibility of title and indeed general principles of land law. It would mean that an entirely bona fide purchaser for value without notice of the tenancy would be bound by an existing prior tenancy. This would fly in the face of not only the principle of indefeasibility of title but also accepted equitable principles by giving the tenant priority over a bona fide purchaser for value without notice of the tenancy. [52] It is useful to consider the purpose of the Act to better understand the meaning of "bound". The long title to the Act states that it is an Act "to reform and restate the law relating to residential tenancies [and] to define the rights and obligations of landlords and tenants of residential properties". This statement reflects the intention expressed by the Minister of Housing when introducing the Bill that it would replace the "law of the jungle in tenancy relations with firm, fair, and readily enforceable rules governing the behaviour of both parties. It clearly defines the rights and responsibilities both of landlords and of tenants.": (1985) New Zealand Parliamentary Debates 6896 (Hon PB Goff). [53] The purpose of the Act was also considered in Anquetil v North Canterbury Nassella Tussock Board HC CHCH AP93/89 30 October 1989, where Holland J stated:There cannot be the slightest doubt that the Residential Tenancies Act was designed substantially to protect tenants and any cases of ambiguity should be interpreted in that light.With respect to that view, I consider it is clear that the drafters of the Act sought to protect both the landlord and the tenant by fair and readily enforceable rules, and not just the tenant. The Court should strive to find a solution that is fair to both a reasonable landlord and a reasonable tenant, rather than to the tenant alone.[54] Such a view is further supported by s 85(1) of the Act, which provides:85 Manner in which jurisdiction is to be exercised(1) Subject to the provisions of this Act and of any regulations made under this Act, the Tribunal shall exercise its jurisdiction in a manner that is most likely to ensure the fair and expeditiousresolution of disputes between landlords and tenants of residential premises to which this Act applies. (2) The Tribunal shall determine each dispute according to the general principles of the law relating to the matter and the substantial merits and justice of the case, but shall not be bound to give effect to strict legal rights or obligations or to legal forms or technicalities. [emphasis added]Both a landlord and a tenant can claim to have justice and the merits of the case on their side. [55] The word "bound" in s 58(1)(e) can be given meaning without reference to s 182. Section 58(2) provides that s 58(1) applies notwithstanding anything to the contrary in the Property Law Act and the Land Transfer Act. Section 58(2) means that the doctrine of indefeasibility of title in the Land Transfer Act need not be applied if it conflicts with anything in subsection (1). [56] On this interpretation, "bound" therefore means "bound" under law or equity, putting to one side the doctrine of indefeasiblity of title contained in the Land Transfer Act. [57] What rules of law and equity will determine when someone is "bound"? The general rule is that the order in time of the equitable interest is prima faciedeterminative of priority: Butler v Fairclough (1917) 23 CLR 78 at 91; Australian Guarantee Corporation (NZ) Ltd v CFC Commercial Finance Ltd [1995] 1 NZLR 129 (CA) at 137. However, being first in time is not conclusive, and the courts will look at all relevant circumstances to determine equitable priority: Australian Guarantee Corporation (NZ) Ltd v CFC Commercial Finance Ltd at 137. The onus of reversing temporal priority lies on the equity holder later in time: Australian Guarantee Corporation (NZ) Ltd v CFC Commercial Finance Ltd at 137. A later purchaser will still be protected by the equitable principle that a bona fide purchaserfor value without notice can have priority over an earlier equitable interest. Thus purchasers who buy without actual or constructive notice of the prior interest will not be "bound" by it: Lapin v Abigail (1930) 44 CLR 166 at 182; Secureland Mortgage Investments Nominees Ltd v Harman & Co Solicitor Nominee Co Ltd [1991] 2 NZLR 414 at 415. [58] In Westpac Banking Corporation v Russell HC TAU M43/98 13 August 1998, in an oral judgment on an application to remove a caveat Salmon J held that a mortgagee was not bound by a lease of which it had no knowledge at the time when it entered into the mortgage of the property. Mr Molloy relied on this decision in support of his argument that indefeasibility of title prevailed. However, I construe Salmon J's decision as accepting the possibility that if the mortgagee had knowledge of the lease, that mortgagee might well be bound. [59] This interpretation does not render s 58(1)(d) redundant because not all purchasers will be bound. A purchaser or mortgagee with no notice of the tenancy would not be bound in terms of s 58(1)(e) and would consequently benefit from the termination provisions of s 58(1)(d). Notice is the key to the landlord being "bound". [60] This interpretation of "bound" is also consistent with the use of the phrase "consented in writing" in s 58(1)(e). It involves the same element of knowledge of the tenancy, but exact knowledge of the terms is not a requirement. In both situations it would be inequitable for a mortgagee or other purchaser then to reject the tenancy. Interpreting "bound" in this way means that s 58(1)(e) meets the intention implicit in the subsection of protecting a tenant against an inequitable refusal by a landlord or mortgagee to honour a known tenancy. [61] This interpretation of s 58(1) can undoubtedly be seen as an exception to the doctrine of indefeasibility of title. However, that is expressly contemplated by s 58(2) of the Act when it states that s 58(1) shall apply notwithstanding the provisions of the Land Transfer Act. Further, it is in accord with the general tenor of the Act and the emphasis in s 85(2) of applying the general principles of law and considering "the substantial merits and justice of the case." It means, as Mr Molloyfor Ziki points out, that any prospective purchaser or mortgagee of a residential property knowing of a tenancy should check its conditions prior to entering into a mortgage or sale and purchase agreement. Such a requirement is not exceptional, and can be seen as in accord not only with ordinary notions of fairness and justice but with sound commercial practice. The standard ADLS agreement for sale and purchase form provides explicitly for the recording of the details of any tenancy of the property. A wise mortgagee will also check any known tenancies of the mortgaged property before entering into the mortgage. [62] I conclude that the word "bound" means "bound" in equity, putting to one side the indefeasibility provisions of the Land Transfer Act. In this respect I differ from the learned District Court Judge.Application of s 58 to the facts[63] Mr Yates on behalf of Ziki had express knowledge of the tenancy for the life of Mr McDonald. On the basis of what he says he was told by Mr Narayan, that knowledge was incorrect as to some terms of the tenancy. Nevertheless, a number of matters should have put him on alert to enquire further into the tenancy, in particular, Mr Narayan's request that he should not talk to the McDonalds and the presence of an elderly couple as tenants, as this was inconsistent with the extensive rights to work on the property and interfere with the premises afforded by clause 15 of the Ziki agreement. I agree with the Tribunal's observation that it is "astonishing" that Mr Yates did not enquire further. [64] Indeed, despite the District Court Judge's observations to the contrary, a finding of actual Land Transfer Act fraud may be a possibility against Ziki. Fraud involves some sort of dishonesty and moral turpitude: Assets Co Ltd v Mere Roihi[1905] AC 176 (PC) at 210. Wilful blindness or deliberate ignorance may amount to fraud. In Waimiha Sawmilling Co Ltd v Waioni Timber Co Ltd [1923] NZLR 1137 Salmon J stated at 1137:The true test of fraud is not whether the purchaser actually knew for a certainty of the existence of the adverse right, but whether he knew enough to make it his duty as an honest man to hold his hand, and either to make further inquiries before purchasing, or to abstain from the purchase, or topurchase subject to the claimant's rights rather than in defiance of them. If knowing as much as this, he proceeds without further inquiry or delay to purchase an unencumbered title with intent to disregard the claimants' rights, if they exist, he is guilty of that wilful blindness or voluntary ignorance which, according to the authorities, is equivalent to actual knowledge, and therefore amounts to fraud.[65] There are difficulties in reconciling this statement with the last words of s 182, which have been well traversed: Hinde, McMorland and Sim Land Law in New Zealand at para 9.021. Nevertheless, it may be arguable that what appears to have been wilful blindness on the part of Mr Yates and Ziki involved sufficient moral turpitude to amount to fraud. [66] However, I have found that it is not necessary for Mr McDonald to show Land Transfer Act fraud here. It is clear that Ziki was not a bona fide purchaser for value without notice of the tenancy as Ziki knew that a life tenancy existed and indeed knew some of its terms. That being so, Mr McDonald's equity, which was first in time, prevails so that Ziki is "bound" by the tenancy. The Tribunal's decision was therefore correct, and the District Court Judge was therefore wrong to conclude that Ziki was not "bound" by the tenancy.The Tribunal's discretion under s 85(2)[67] Section 85 governs the Tribunal's exercise of its jurisdiction when resolving tenancy disputes. It provides:85 Manner in which jurisdiction is to be exercised (2) The Tribunal shall determine each dispute according to the general principles of the law relating to the matter and the substantial merits and justice of the case, but shall not be bound to give effect to strict legal rights or obligations or to legal forms or technicalities.[68] Having found that Ziki's strict legal rights entitled it to possession as registered owner, the District Court Judge observed at [45] that:the merits and justice of the case allowed for the preservation of the right of an elderly tenant to possession for the term of his life as agreed with the original landlord. The appellant failed to make prudent inquiries and itwould have been fairly obvious to the appellant that the elderly tenants might not be diligent in protecting their legal interests.[69] Section 85(2) states specifically that each dispute shall be determined "according to the general principles of law relating to the matter". Significantly, the reference to determining in accordance with the substantial merits and justice comes after the reference to determining the dispute according to the general principles of law. The overarching application of those general principles is not undermined by the provision that the Tribunal is not bound to give effect to strict legal rights or obligations or to legal forms or technicalities. This simply means that technical requirements such as matters of form or time, may not be strictly applied. In this the subsection indicates that general principles of law should be interpreted or applied consistently with the merits and justice of the case where possible. [70] Section 85(2) must also be read with s 85(1), which provides that the Tribunal should exercise its jurisdiction in a manner that is most likely to ensure the fair and expeditious resolution of disputes. Section 85(2) does not therefore give the Tribunal a carte blanche to decide the case on its perception of merits and justice. However, it can be an aid to interpretation. To an extent, s 85(2) has been of assistance in assessing in this appeal how s 58 should be interpreted. [71] The ambit of s 85(2) was considered in Welsh v Housing New Zealand LtdHC WN AP35/2000 9 March 2001, Doogue and Goddard JJ, in which it was held that s 85 does not create a licence for the Tribunal to impose its views on the merits and justice of the case unless its determination is based on general principles of law: at [29]. It was stated at [30]:If a remedy is justified by the principles of law applicable to the matter, the Tenancy Tribunal will have to consider the merits and justice of the case and whether the strict application of the law gives rise to a fair result, but, if there is no remedy provided for by the law, it is not open to the Tenancy Tribunal to invent one.The Court distinguished between the provision in s 18(6) of the Disputes Tribunals Act 1988 available to the Disputes Tribunal, and that available to the Tenancy Tribunal. Unlike the Tenancy Tribunal, the Disputes Tribunal was not required to determine the dispute according to the general principles of law at all. In contrast, inthe Tenancy Tribunal the general principles of law must be applied. This case does not appear to have been referred to the District Court. [72] I conclude that the District Court Judge was in error in ultimately deciding the case on his perception of merits and justice. Such a completely merit-based approach is not authorised by the Act; the applicable principles of law must still be applied. Further, the application of an unfettered discretion to 'do justice' would create an even broader exception to existing principles of land law and indefeasibility of title than that which the Judge had strenuously sought to avoid earlier in his judgment.Conclusion[73] I conclude that the remedial powers of the Act can be applied to a tenancy for the life of the tenant. I conclude that they were properly applied to the McDonald agreement by the Tenancy Tribunal. I have reached that decision by a different route to that taken by the District Court and by an approach which is similar to that taken by the Tenancy Tribunal. [74] I conclude that the learned Judge made two errors of law. First, the Judge erred in concluding that Ziki was not "bound" by the McDonald tenancy by importing the meaning of s 182 of the Land Transfer Act. Ziki was "bound" under s 58(1). Secondly, the Judge incorrectly treated s 85(2) as entitling the Tribunal to put to one side general principles of law and to decide the case simply on its perception of the merits. Section 85(2) does not have this wide ambit. Further, the learned Judge may have erred in interpreting the Tribunal decision as a rejection of an allegation of fraud by Mr Yates and therefore Ziki. If I had agreed that s 182 of the Land Transfer Act should inform the interpretation of "bound" so that Ziki was not "bound" in terms of s 58(1)(e), I would have considered remitting the proceeding back to the Tenancy Tribunal for consideration of whether Ziki acted fraudulently in terms of s 182.[75] The effect of this decision is that the District Court Judge rightly dismissed the appeal, although for the wrong reason. I conclude, as he did, that the Tenancy Tribunal's decision to uphold the McDonald tenancy was correct.Result[76] The appeal is dismissed.Costs[77] The respondent is entitled to costs from the appellant, which are fixed on a 2B basis. Asher J