Tailim Tan and Helen Elizabeth Tan v Carmelo Spagnolo and Paul Grippi [1988] ACTSC 60 (20 October 1988)

SUPREME COURT OF THE ACT

TAILIM TAN and HELEN ELIZABETH TAN v. CARMELO SPAGNOLO and PAUL GRIPPI
S.C. No. 653 of 1988
Landlord and Tenant

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Landlord and Tenant - claims for rent rate increases and liquidated damages - claim for damages for failure to comply with covenant to reinstall shop fronts - whether covenant personal or runs with the land - practice and procedure - application for summary judgment pursuant to Order 15 Rule 1 - whether there is an arguable question to be tried.

Lang, Leases and Tenancies in New South Wales (Sydney) 1976 pp 188-189.

Grant v. Edmunson (1931) 1 Ch 1 at p 29.

HEARING

CANBERRA
20:10:1988

Counsel for the Plaintiffs: Mr. B. Meagher

Solicitors for the Plaintiffs: Higgins Solicitors

Counsel for the Defendants: Mr. P. Dodson

Solicitors for the Defendants: Messrs Gallens

DECISION

This is an application for an order for summary judgment under Order 15 of the Supreme Court Rules and other orders. The plaintiffs claim rent and other moneys alleged to be due pursuant to the covenants in a memorandum of sublease ("the sublease") of Unit 1 in Units Plan 356 being the land contained in Certificate of Title Volume 961 Folio 1 ("the premises"). The sublease was executed on 26 April 1985. It provided for a term of four years commencing 1 January 1984. The sublessor was S & T Nominees Pty. Limited. The sublessees were the defendants.

2. On the date of registration of the sublease, namely 14 May 1985, the plaintiffs became the registered proprietors of the premises pursuant to a transfer from S & T Nominees Pty. Limited.

3. During the term of the sublease the rental was adjusted in accordance with clauses 6 and 7 of the sublease. The rental so determined was $56,400 per annum or $4,700 per month. It is not disputed that the instalment due for the final month of the term, namely December 1987, remains due and unpaid.

4. Clause 3(u) of the sublease provided that if during the continuance of the tenancy there is an increase in the total amount payable by the sublessor for rates or other charges levied by the Commonwealth in respect of the Crown lease, the sublessee will, during the remainder of the tenancy pay to the sublessor as and when demanded that part of the amount of such increase as the area let is proportionate to the area of the whole of the building erected on the subject land. The plaintiffs claim an amount of $2,562.12 pursuant to clause 3(u) and, as I understand it, it is not disputed that the amount is correctly calculated and that it remains due and unpaid.

5. Clause 3(s) of the sublease provided that if the sublessee shall do any damage to the premises in taking down or removing fixtures, fittings or erections, the sublessee shall pay to the sublessor on demand the amount of such damage and such amount shall be recoverable from the sublessee as liquidated damages. There is affidavit evidence, and again I understand that it is undisputed, that there was damage to the premises within the terms of clause 3(s), and that the amount of such damage recoverable as liquidated damages is $313.70, which amount remains due and unpaid.

6. One of the issues raised in the affidavits filed in support of the application is whether the sums claimed for rent, increases in rates and damage to fittings and fixtures, although admittedly owing to the plaintiffs, are owed by the defendants and not somebody else.

7. The plaintiffs claim a further sum of $10,653 which is alleged to be owing pursuant to clause 10 of the sublease. That clause is in the following terms:
"10.The Sublessees hereby acknowledge that with

the consent of the Sublessors they have
removed the shop fronts that were
previously installed at the front of the
said premises and demolished a dividing
wall within the said premises and that
during the term hereof or any renewal or
extension of any term the Sublessees
covenant to store and hold the removed shop
fronts at the risk, cost and expense of the
Sublessees and on or prior to the surrender
or termination of this sublease or any
renewal or extension thereof to remove the
roller doors which have been installed by
the Sublessees and to reinstall the shop
fronts to the premises at the cost of the
Sublessees and to the satisfaction of the
Sublessors."

8. The defendants deny that clause 10 of the sublease is binding upon them or alternatively or in addition that the plaintiffs are not entitled to the benefit of clause 10.

9. It is necessary to say something about the events leading to the matters in dispute between the parties.

10. The premises are part of the Kambah Village Centre and during the term of the sublease were used for the purposes of a retail fruit and vegetable shop.

11. The premises were originally the subject of a sublease between Robert, Mary and Ian Hedley as sublessors and Tony Christofaro and Tony Iannelli as sublessee. The term of that sublease was from 1 November 1981 to 31 October 1984. Clauses 7 and 8 of that sublease which it is not necessary to set out in detail, provided that the sublessors should at their own expense demolish a dividing wall on the premises and also remove the existing shop fronts and in their place arrange for the installation of roller-doors. There was a further covenant in clause 8 that the sublessees would store and hold the existing shop fronts at their own expense and on or prior to the surrender or termination of the sublease remove the roller-doors and install the existing shop fronts to the premises.

12. On 24 May 1984 this original sublease was terminated, presumably by agreement, and the then sublessors entered into a further memorandum of sublease, the sublessees being Tony Iannelli and the two present defendants. (Tony Iannelli later transferred his interests to the defendants.) The term of the new sublease was from 1 January 1984 to 31 December 1987. The sublease of 24 May 1984 was executed personally by both of the defendants. That sublease contained the following covenant (the number of the clause is illegible in the copy in evidence).

"The Sublessees hereby acknowledge that with the
consent of the Sublessors they have removed the
existing shop fronts in respect of Shops 1 & 2
and demolished the dividing wall existing between
Shops 1 & 2 and that during the term hereof on
any renewed or extension of any term, the Sublessees
covenant to store and hold the existing
shop fronts at the risk, cost and expense of the
Sublessees and on or prior to the surrender or
termination of this sublease or any renewal or
extension thereof to remove the said rollerdoors
which have been installed by the Sublessees
to reinstall the existing shop fronts at
the cost of the Sublessees to the premises to the
satisfaction of the Sublessor.

13. On 26 April 1985, as I have already indicated, this former sublease was replaced by the sublease granted by S & T Nominees Pty. Limited and accepted by the defendants, and on which the plaintiffs sue as transferees from S & T Nominees Pty. Limited.

14. The defendants rely on the affidavit of Carmelo Spagnolo, sworn 15 July 1988. In it she states that she did not read the sublease, that she was not aware of the provisions of clause 10 and it was not explained to her. She says that at that time she "had no knowledge of the original shop front or of its whereabouts or of the requirement of the sublessors that it should be replaced upon the termination or surrender of the sublease. She further states that she was "completely unaware that a shop front had been removed" and she asserts that neither she nor the second defendant "had removed the shop front nor did we have any control over it". She says nothing about her state of knowledge of the contents of the previous sublease of 24 May 1984 which contained the covenant set out above in similar terms to clause 10 of the sublease itself. However, she says that her knowledge and belief as to the facts relating to the shop fronts and the dividing wall was much the same then as it was on 26 April 1985.

15. Ms. Spagnolo further says in her affidavit that until 13 November 1986 she and the other defendant "duly performed the duties as required" under the sublease. She says that she did not become aware of the question of the shop fronts until she and the second defendant decided to sell the business in October 1986 and commenced negotiation with a Graeme Mason for sale of the business. Ms. Spagnolo says that she was told that the plaintiffs would not approve a transfer of the sublease unless the shop fronts were replaced or they were paid $10,000. She requested Graeme Mason to speak to the plaintiffs and was later told by him that Mrs. Tan "says that everything is okay and that she will approve the transfer of the lease". Ms. Spagnolo states that she was thereby led to believe that the defendants "were under no further obligation regarding the shop fronts" and that "the plaintiffs were at all times aware that it was proposed to transfer the benefit and burden of the sublease to Graeme Mason".

16. In the transactions with Graeme Mason the defendants were represented by a solicitor, Mr. Brian Tetlow. Ms. Spagnolo said that she instructed Mr. Tetlow to ensure that the sale of the business would leave the defendants free of any liabilities under the sublease. The transfer of the business was brought about by an agreement for sale between the defendants as vendor and Graeme Mason as purchaser entered into on 13 November 1986. Ms. Spagnolo says "the plaintiffs consented to such transfer". There was no evidence in the defendants' case to support that assertion.

17. The transactions between the defendants and Graeme Mason were not consummated by the execution of a document in the form of an assignment of the reversion of the lease, but by a memorandum of underlease (the underlease) between the defendants as "lessors" and Graeme Francis Mason as "lessee". The underlease fixed a term from 8 November 1986 to 30 December 1987 at a yearly rent of $56,400 payable by monthly payments of $4,700 on the first day of each month. The term corresponds with the remainder of the term of the sublease and the provisions for rent correspond with the provisions for rent in the sublease, with the exception that the rent is payable "direct to the Crown lessee". There is provision in clause 20 of the underlease for payment of the legal fees payable to the solicitors for the Crown lessee of the premises of and incidental to the Crown lessee granting consent to the underlease and of the negotiations leading up to the grant of the underlease. From 13 November 1986 until about the beginning of November 1987 payments of rent were made in accordance with the underlease.

18. The second defendant, Paul Grippi, swore an affidavit on 15 July 1988 in which he said that to the extent that the statements in the affidavit of Carmelo Spagnolo sworn 14 July 1988 were within his "knowledge and information" they were true. He went on to say that he did not read English very well, and "would have relied on someone else to explain" the document he was signing. The affidavit itself was in English with no sign of its contents having been translated.

19. The second plaintiff, Helen Elizabeth Tan was cross-examined. Under cross-examination she admitted that she had consented to the underlease. She added that she thought that the instalments of rent that fell due were being paid by Graeme Mason (and others). She still took the view that the defendants were responsible.

20. If I understood the arguments of counsel for the defendants, it was not submitted that there had been shown any defence on the merits to the claims for rent, rate increase or liquidated damages for the damage caused by removal of fixtures and fittings. The affidavit of Carmelo Spagnolo might be taken to be asserting in a very vague sort of way that the conduct of the plaintiffs somehow amounted to a waiver of their rights under the sublease and an acceptance of an obligation or obligations to them by Graeme Mason in lieu of the obligations of the defendants. It is notable that nothing of that nature was put to Mrs. Tan when she was cross-examined. I find that no defence on the merits has been established to the claims for rent, rate increases and liquidated damages for damage caused by removal of fittings and fixtures. If Mr. Grippi's affidavit was capable of raising a plea that the sublease was not his document, on the ground of failure to understand the contents and the like, that was not put on his behalf by counsel and I find that it does not establish any defence of that or any other nature.

21. Nevertheless, it is submitted by counsel for the defendants that the defendants have disclosed, within the terms of Order 15 Rule 2, such facts as should be deemed sufficient to entitle them to defend the action generally. It is submitted that if the action proceeds in relation to the claim for damages for failure to reinstall the shop fronts, then convenience demands that judgment on the other claims await the resolution of that issue. It is also submitted that it is likely that the defendants will join Graeme Mason and Mr. Tetlow as third parties, and possibly Tony Iannelli who, it is said, still has the shop fronts in his warehouse. In my view, those are not matters which are sufficient to defeat or delay the plaintiff's claims and they do not entitle the defendants to defend the action generally. The plaintiffs are entitled to summary judgment in respect of those claims.

22. The remaining claim is in respect of damages for failure to comply with the covenant to reinstall the shop fronts. As I understand it, there are two matters that go to furnish a defence on the merits to that claim. Firstly, it is submitted that the plaintiffs were never aware of the relevant provisions of the lease, with the result that those provisions should not be regarded as part of the document they executed. Secondly, it is submitted that the sublease was entered into between the defendants as sublessees and S & T Nominees Pty. Limited as sublessors. The plaintiffs acquired their interests in the premises by reason of a transfer from S & T Nominees Pty. Limited. That transfer is not in evidence. It is submitted on behalf of the defendants that the covenant relating to removal of the roller-doors and reinstallation of the shop fronts was a covenant which was personal and did not run with the land. It is not necessary for me to decide on an application for summary judgment whether such a defence would be successful or unsuccessful. It is necessary to decide only whether there is raised a defence on the merits to be decided in the ordinary way after pleadings, any necessary interlocutory proceedings and after the hearing of evidence. The question is whether the obligation to store the shop fronts and at the termination of the sublease to remove the roller-doors and reinstall the shop fronts is an obligation which existed only for the personal benefit of those who were the original parties to the covenant, or whether the obligations and benefits of the covenant endure to the successors in title. Reliance upon this argument by the defendants involves, I think, a concession that the covenant relating to the reinstallation of the shop fronts was enforceable against the defendants by S & T Nominees Pty. Limited.

23. The distinction between privity of contract and privity of estate is one which has been regarded over many years as a difficult one. Covenants which "touch and concern" the demised premises or have reference to the subject matter of the demise, are regarded as binding upon the successors in title during the currency of the lease of both landlord and tenant. According to Lang, Leases and Tenancies in New South Wales (Sydney) 1976 pp 188-189:

"The significance of a covenant touching and
concerning the demised premises, or to use the
more modern statutory expression, having
reference to the subject matter of the lease, is
that the benefit or burden of such covenants runs
with the lease and the reversion and binds
assigns, even if they are unaware of the
particular covenant at the time of the assignment
. . . . . However, where a covenant is intended to
be personal to the contracting parties, i.e. the
original lessor and lessee, without extending to
their successors and/assigns, these do not run
with the land . . . . ."

24. In Grant v. Edmunson (1931) 1 Ch 1 at p 29, Romer LJ. referred to the unsatisfactory nature of some of the rules which are claimed to have been established in this area and commented:

"All these and other cognate questions have been
argued and discussed for centuries by men learned
in the law and, so far as I have been able to
ascertain, without coming to any very satisfactory,
still less to any unanimous,
conclusion."

25. It is quite inappropriate for such questions to be decided in an application for summary judgment, particularly in the light of the factual background to which I have referred. There is an arguable question to be tried and the defendants should have leave to defend the plaintiffs' claim but only insofar as it relates to the claim for damages for breach of clause 10 of the sublease. The orders I make are as follows:

1. The plaintiffs are at liberty to enter judgment for
$7,575.82 being the amounts claimed in paragraphs 6, 8
and 11 of the statement of claim.
2. The defendants are given leave to defend the balance
of the plaintiffs' claim.

26. Unless the parties wish to be heard further on the question of costs, I propose to order that the defendants pay one half of the plaintiffs' costs of this application and that one half of the plaintiffs' costs or one half of the defendants' costs of the application, as the case may be, be costs in the cause.

27. The affidavits of Carmelo Spagnolo sworn 15 July 1988 and of Paul Grippi of the same date appear not to have been filed. I direct that they be filed in the ordinary way.

28. I shall also proceed now to give further directions as to the disposal of the case.