Buchanan v Byrnes [1906] HCA 21; (1906) 3 CLR 704 (23 April 1906)

This is an action brought by the appellant against the respondent for damages for breach of covenants contained in a lease dated 1st February 1899, by which the appellant let to the respondent for a term of 15 years from that date a hotel property in the city of Townsville at a rental of £480 per annum. By the lease the defendant covenanted, as alleged in the statement of claim, to pay the rent at the times mentioned, to pay the rates and taxes, to keep the property in repair, and during the currency of the lease, that is, 15 years, to use exercise and carry on in and upon the premises the trade or business of a licensed victualler or publican and retailer of spirits, &c., and keep open and use the said hotel as a public house for the reception accommodation and entertainment of travellers &c.; and that he would not do, or permit or suffer to be done or committed, any act matter or thing whatsoever, whereby any licence should or might be forfeited or become void and liable to be taken away suppressed or suspended, but would from time to time during the continuance of the term at proper times endeavour to obtain at his own expense such licences as might be necessary to keep it up as an inn or public house.

The covenant to carry on business and not to do anything whereby the licence might be forfeited covered the whole period of 15 years.

The statement of claim alleges that the respondent entered upon the premises, took possession, and paid rent up to 30th June 1904, but that he has not since that date paid rent or rates or taxes, or kept the property in repair, or carried on the business of a licensed victualler, or kept open or used the hotel as an inn or public house, briefly alleging breaches of each stipulation of the covenants, and that on that day the respondent abandoned the demised premises, and has ever since absented himself without the permission in writing of the Police Magistrate and justices, whereby the licence might be forfeited, &c. It goes on to allege that, by reason of the abandonment by the respondent, the appellant was obliged, in order to prevent the licence from becoming forfeited and to keep up the hotel, to put in an agent to occupy it and keep it open at great loss to the appellant, and was also obliged to pay rates and taxes and expend money in repairs, and lost money in carrying on the business. Particulars were given of the claim for damages under the heads of rent, money paid for rates and taxes, money paid for repairs, money lost in keeping the place going, money paid for the licence, and for painting, &c. The defence puts in issue the lease and the breaches (which were proved), and sets up that before the alleged breaches the premises and all the unexpired residue of the term were duly surrendered by the defendant to the plaintiff by operation of law. Particulars are given of that defence, to which I do not think it necessary to refer. The defence properly alleges that the surrender by operation of law took place before the alleged breaches, for it is manifest that, after a breach had been committed, and a cause of action had already accrued in respect of it, a subsequent surrender could not, unless it operated by way of accord and satisfaction, have any effect on the plaintiff's right to recover damages for the breach already committed. The respondent has not pleaded by way of accord and satisfaction, so it is not necessary to say anything more on that point.

At the trial the plaintiff's case was proved. The defendant, in endeavouring to prove the defence of surrender, established facts which may be briefly stated thus:—Shortly before the end of June 1904, the defendant informed the plaintiff that he did not intend to carry on the premises, and intimated in the plainest language that he would not do so after that date. Negotiations then took place between defendant and plaintiff for a surrender of the lease, but they did not result in any agreement. Two or three days before 30th June the defendant gave the plaintiff formal notice that he would not carry on the premises any longer, and advised the plaintiff to do whatever he thought fit to protect his own interest. On the 29th and 30th the defendant had a sale by auction of all the furniture in the hotel—a plain intimation, if anything further were wanted, of his intention not to carry on. Plaintiff, under these circumstances, and for his own protection, bought the furniture, partly at auction and partly from the auctioneer, and the defendant in pursuance of his threat left the premises on 30th June. Plaintiff then went in and made arrangements for carrying on the premises, so that the licence might not be forfeited. The licence was held in the name of a nominee of the defendant, and shortly afterwards it was transferred to a nominee of the plaintiff, and subsequently to another nominee of the plaintiff. Plaintiff then tried to let the premises, but did not succeed in doing so for nearly 12 months. Certain questions were left to the jury, which were answered specifically thus:—They negatived any agreement between the plaintiff and defendant for a surrender; they found that on 30th June defendant relinquished possession of the premises with the intention that plaintiff should resume possession of the premises—I suppose that means having no objection to his resuming possession, or expecting that he would do so—that on 30th June or 1st July plaintiff did resume possession, but not with any intention of determining the unexpired term of the lease; and they assessed damages under the several heads I have mentioned amounting to £899 odd. Upon these findings both parties moved for judgment. The subject particularly discussed before the learned Judge from whom this appeal is brought was whether, under these circumstances, there was a surrender of the lease by operation of law. The learned Judge pointed out, and quite correctly in my opinion, that in every such case it is a question of fact whether there was an agreement, express or to be implied from the facts, to put an end to the term. If there is an agreement between the lessor and the tenant to put an end to the term, followed by resumption of possession by the lessor, that operates as a surrender by operation of law; but in all the cases that were cited to us, and in all that I am aware of, an agreement between the landlord and the tenant was an essential element of the surrender. A mere agreement is not sufficient, because of the Statute of Frauds; but an agreement followed by resumption of possession is sufficient to take the case out of the Statute. The learned Judge was of opinion that, under the circumstances, the plaintiff was estopped from saying that he had not agreed to the surrender of the premises; he thought that the acts which the plaintiff had done in entering on 1st July, immediately after the lessee had gone out, the making of the arrangements for carrying on business, the trying to let, and the final succeeding in letting, operated in point of law as an estoppel, that he could not be allowed to say that he had not agreed to the lessee putting an end to the term. The jury negatived any intention on his part on 30th June to determine the term; but so soon as he succeeded in letting the premises to a new tenant, there is no doubt that his doing so was conclusive evidence that he had then assented to the proposal of the lessee that the lease should be determined. Whether, under the circumstances of this case, what he did in the meantime, at the request of the lessee, to protect his own interests in the best way he could, operated necessarily as an estoppel, is a question that appears to me one of considerable difficulty. The learned Judge was of opinion that when the plaintiff had taken such complete possession the matter was so far concluded that he could not be heard to say that the lease was not then terminated. I apprehend that it is quite clear that mere abandonment by the lessee does not operate as a surrender of the term of a lease, because the concurrence of both parties is required in order to put an end to a contract; but if, after the lessee has abandoned the premises, the lessor re-enters, it will generally be presumed that he has by that act shown his intention to accept the proposal which is implied in the abandonment by the lessee. Where this re-entry is accompanied by an express protest that he is doing nothing of the kind, but is only going in to do the best that he can to prevent the destruction of the subject matter of the contract for the benefit of both parties, it is a question, I think, of considerable difficulty. In Oastler v. Henderson[1], the landlord had tried to let the house, but had not succeeded at the time when he resumed possession; and the Court held that his acts did not amount to an estoppel, as the landlord had done nothing but what he might reasonably be expected to do under the circumstances for the benefit of all parties. Cockburn C.J., having referred to the fact that the plaintiff's workmen used two of the rooms, said[2] "I do not think that any jury ought to hold that to be equivalent to a taking of possession, for it is, under the circumstances, quite consistent with an intention to hold the defendant to his lease." In the present case the plaintiff did not formally give notice to the defendant, when he took possession, that he was doing so for the joint benefit of both parties: but he had been invited by the defendant to do so to protect his own interests, and it is not contested that he did any more than was absolutely necessary to keep the goodwill of the premises intact. It is suggested that he might have put in a caretaker as nominal holder of the licence, and not have carried on business at all. Whether that would have been a reasonable thing to do under the circumstances is a matter I do not think it necessary to determine. I have referred to these matters because they were the principal matters that were discussed before the learned Judge in the Court below. I reserve my opinion as to whether, under such circumstances, the conduct of a landlord, the lessor of an hotel, in taking possession, when not taking possession might destroy the licence, or the continuity of the licence, and perhaps destroy the goodwill of the business—necessarily implies an acceptance of a proposal for the surrender of the lease, or whether it is even evidence from which a jury might properly find such an acceptance. I do so because, in the view I take of the case, it is not necessary to determine this question, for it is quite clear that all this took place after the defendant had abandoned the hotel. In this case he covenanted to carry it on for fifteen years, and on 30th June he not only left the place, but he did so under such circumstances that he could not carry it on, and he sold the furniture. That was as complete a breach of the covenant to carry on the business as it was possible for him to commit, and under these circumstances the plaintiff had at once a complete cause of action against him. He was entitled to bring an action forthwith for the breach of that covenant, and he was entitled to such damages as would properly flow from such a breach of covenant. The surrender, therefore, if accepted at all, took place after breach, and the defence is not proved. There is no other defence set up, and the plaintiff is therefore entitled to judgment, because the only defence set up has failed.

Then the question arises—to what damages is he entitled? There is a covenant the performance of which will extend over a term of 15 years, and it is unequivocally broken. The natural damage is the loss likely to be sustained by the plaintiff during the period for which the covenant ought to be kept; just as in the case of a contract to engage a servant for a term of years, paying him monthly wages. If the contract is unequivocally broken by the employer, the servant can bring an action at once. He cannot, of course, recover anything in the form of wages; he recovers damages, which are assessed usually upon the basis of the wages that he would have received; but he must on the other hand give credit, and the jury must give the employer credit, for whatever the servant might reasonably be expected to have earned during the period for which the contract would have been in existence. Primá facie, the damages, therefore, would be the value of the term to the lessor, that is, the difference between the benefit which he would have derived from the premises being kept as a going hotel for 15 years at the agreed rent, being kept in repair, and so on, and the value of the premises as they were thrown on his hands. The plaintiff found the premises thrown on his hands—it is not suggested that what he did was unreasonable, and it must be taken that it was reasonable—he carried on the premises, incurred necessary expenses, and he lost the rent for 12 months. In any direction that might have been given to the jury in reference to the breach of covenant, it would be necessary also to tell them that these were proper matters for them to take into consideration. They have found a specific sum, made up of proper items of damage, and I think it represents the loss which might be reasonably expected to flow from such a breach of covenant. I am, therefore, of opinion that the action must be treated as undefended, the only defence having failed; and, as to the damages found by the jury, I think they are such as naturally and reasonably followed from such a breach of covenant. I am of opinion, therefore, that the plaintiff is entitled to judgment, and that the appeal should be allowed with costs of the action and of the appeal.

The plaintiff appellant, owner of the Imperial Hotel, Townsville, which had been kept as a licensed hotel for many years, let it to the defendant respondent for 15 years from 1st February 1899, at a yearly rent of £480, payable at £40 per month. The lease contained covenants by the defendant that during the term he would pay rent, rates and taxes, keep and yield up in repair, carry on in the hotel throughout the term the business of a licensed victualler, and keep open and use the premises as an inn or public house for the reception accommodation and entertainment of travellers, guests or other persons resorting thereto or frequenting the same, that he would not do or suffer to be done anything whereby the licence might be or become liable to be forfeited or suspended, and that he would apply at the proper times for all licences necessary for carrying on the trade of the hotel, and paint the inside of the house once in every 3 years. All these covenants appellant alleged to have been broken. The defendant put the plaintiff to proof of the breaches, and set up that, before the alleged breaches, the premises and the unexpired residue of the term were surrendered by him to the plaintiff by act and operation of law, alleging by way of particulars that the surrender was made on 30th June 1904, by the defendant giving up and the plaintiff accepting possession, with the intention on both sides of putting an end to the term. It is well to observe at this point that if the defendant fails to prove affirmatively that the lease was surrendered, as an inference of law from the facts, and that such surrender happened before breach, then there is no defence if a breach is once proved. There is no question of express agreement arising in this case. The defendant held possession of the hotel premises from the beginning of the term until 30th June 1904, when, having sold at auction all the furniture, which was purchased by the plaintiff after the defendant had distinctly announced his intention to leave the hotel, he carried out that intention. The defendant had on 20th June verbally informed the plaintiff that he had lost money by the hotel and intended to give it up at the end of the month, and the plaintiff thereupon consulted his solicitor. A correspondence ensued; on the 25th June the defendant wrote to the plaintiff referring to that intention, and proceeded: "I now again give you notice that I intend to leave the Imperial Hotel on the 30th inst., and for your own protection I now request you to make the necessary arrangements for the transfer of the licence and otherwise take any other steps you may consider desirable for the protection of your interests." To this the plaintiff replied on the 27th through his solicitors, that he could not acquiesce in the defendant's expressed intention to leave the hotel on the 30th; that the notice given of defendant's desire to cancel the lease was totally inadequate to enable the plaintiff to obtain a fresh tenant; and that he must hold the defendant to the terms of his contract. An offer of a rebate of rent for 12 months was made in this letter, but the defendant rejected it. The next day the plaintiff's solicitors offered on his behalf to accept a surrender and to release the defendant from the covenants on certain terms, failing the acceptance of which the plaintiff would institute proceedings for damages. The defendant declined this proposal by letter of the same day, 28th June, and from that point nothing was said or done before 30th June to alter the relationship of the parties. On 30th June the premises were abandoned by the defendant as already stated. At this time the liquor licence was in the name of McManus, a stepson of the defendant. On 30th June or the following day the plaintiff, in order as he alleges to prevent the licence from being forfeited, and to comply with the Licensing Act, and to take care of the hotel, put in an agent to occupy the hotel and keep it open. He took as soon as practicable a transfer of the licence to his agent from McManus, and afterwards put his daughter in occupation as licensee, and the hotel was kept open by the plaintiff under these circumstances till 30th June, 1905, when the plaintiff, who, having all this time a licensed house of his own, had been trying to relet the place, succeeded in doing so. It is for this period of 12 months that he claims his damages. At the trial before Chubb J., the jury found the following facts in answer to questions put to them by the Judge:—That there was no agreement between the plaintiff and defendant that the defendant should relinquish and the plaintiff should resume possession of the premises; that the defendant did not relinquish and the plaintiff resume possession of the premises in pursuance of any such agreement; that on 30th June 1904, the defendant relinquished possession of the premises; that the defendant did so with intent that the plaintiff should resume possession of the premises; that on 30th June the plaintiff resumed possession of the premises; and that the plaintiff did not do so with intent to determine the unexpired term of the lease; and then they assessed the damages. Each party moved for judgment on the findings, and after argument His Honor gave judgment for the defendant, holding that there had been a surrender accepted by operation of law. From that judgment the present appeal has been brought directly to this Court.

There is a difficulty in dealing with this case at this late stage, arising from the circumstances under which it was conducted. The real question, though necessary to a correct decision, was not fully developed until the case was argued before this Court. This is not an action for rent as reserved in the lease, but its gravamen is really in the breach of the covenant binding the defendant to carry on during the term upon these premises the trade for which they were let. It seems to have been assumed by the defendant that in such an action facts, which happen after a complete breach has been committed, can be relied on as facts from which a surrender before breach, and with it an abrogation of every covenant, would be implied by law. The plaintiff was not really under any obligation to meet the defendant's arguments on this assumption. The defendant, affirming a surrender in law before breach, was bound to prove it, and the consequence of failure to do so would be that, unless he could rebut the plaintiff's proof of a breach of the covenant, his defence would fail entirely. He did not set up surrender by express agreement, and consequently, the first and second findings of the jury are irrelevant. But in attempting to prove surrender by operation of law before breach, he relied on facts which were not available to him for that defence. On such facts as were shown, a jury should be directed that, occurring as they did after a complete breach, they go to the damages only, and are no bar to a verdict for the plaintiff upon the proved breach. Moreover, the personal covenants would in any case have held good: Attorney-General v. Cox[3]. A breach gives a title to such damages as in the ordinary course of events might reasonably be expected as to its consequences, unless the legal effect of the breach can be shown to have been done away with by release under seal or by an agreement between the parties, as by accord and satisfaction, or by waiver upon consideration. There is no attempt here to show any of these things. It must not be forgotten that a right of action had arisen on the termination of the correspondence on the 28th June, as the defendant had given distinct notice of his intention not to perform his covenant. There was at that time a renunciation which, at the plaintiff's option, amounted to a breach of the covenants that throughout the term he would carry on a licensed victualler's business upon the premises and keep them open and in use as an inn, &c., and of the covenant not to do anything which might entail forfeiture of the licence (Licensing Act 1885, sec. 101), as well as of the subsidiary covenants. The plaintiff was then entitled to claim in an immediate action, prospectively, such damages as would be caused by a breach at the appointed time, subject to any circumstances which might operate in mitigation of damages: Leake on Contracts, 4th ed., 617-618, and cases there cited, especially Hochster v. Delatour[4], and Johnstone v. Milling[5]. But it is said that the conduct of the plaintiff in resuming possession under the circumstances estops him from suing upon the covenants. I must not be taken to hold that it has that effect as to the covenant to pay rent. But, however that may be, can it estop him as to the other covenants which relate to the keeping the premises as an inn throughout the term, and the doing of the other things necessary for that purpose? Conduct, to constitute an estoppel, must have caused another to believe in the existence of a certain state of things, and have induced him to act on that belief so as to alter his own position. How can that be said to be the effect of the plaintiff's conduct, when the act of the defendant, so far from having been induced by it, has preceded it? In my judgment the doctrine of estoppel cannot be applied against the plaintiff, and I am driven to the conclusion that the learned Judge who tried the case, and who held that the plaintiff was bound by estoppel, has based his judgment on facts which do not entitle a Court to apply that doctrine. As to damages, I am of opinion, with the Chief Justice, that for the year from 1st July 1904, to 30th June 1905, the damages found by the jury on the assumption that plaintiff was entitled to recover rent, are such as might reasonably be expected to flow from the abandonment in clear breach of the covenants as to the keeping and maintenance of the premises as an inn. It would be waste of time and money to send the case down for re-assessment of damages on the issues so arising, and I understand the defendant has no desire for any such unnecessary formality. In the result I am of opinion that the verdict should stand for the plaintiff (the appellant) for the whole amount of the damages assessed by the jury.

I am of the same opinion. It is unnecessary, after the full statements of the facts that have been made by both my learned brethren, to refer very much to the circumstances under which the action has arisen. I shall merely deal shortly with the rights of the parties. Under the lease the obligations of the defendant were to keep the hotel open as a licensed public house for 15 years, to pay rates and taxes for 15 years, to keep the place in proper repair for 15 years, and during the whole of that period to pay a certain rental to the plaintiff. It was possible to get rid of these obligations by rescission of the contract in proper form, or by surrender of the lease in such a way as to extinguish the lease by operation of law. That surrender by operation of law might take place without any express agreement, and merely from the relinquishing of possession by the tenant and the acceptance of possession by the landlord. In any of these ways, before any breach took place, the obligations of the defendant under this lease might have been got rid of. I am of opinion upon the findings of the jury, that the defendant did not before the breach of covenant for which the action has been brought, get rid of any of these obligations, and that therefore he has failed to establish the defence set up. The defence is that before breach the contract was determined by surrender by operation of law. It is clear, from the correspondence and the findings of the jury, that before the abandonment of possession by the defendant there was no agreement arrived at between the landlord and the tenant as to giving up possession by the latter and acceptance of possession by the former. In fact the whole of the correspondence shows that the landlord refused to accept possession, and refused to give up any of his rights under the lease, and that while things were in that position between them, the tenant gave up possession in such a way as to indicate plainly that he intended, regardless of the landlord's views, to abandon possession and put an end to the contract as far as he was concerned. Now, all that took place before the landlord, the plaintiff, entered into possession, and, therefore, before he had entered into possession the breach of the contract for which he is now suing, was complete. What was that breach? It was no less than a repudiation and abandonment of the whole contract. The landlord's rights upon that breach were to get such compensation and damages as the jury might think that he was entitled to for the loss of the benefit of the 15 years' contract. That claim, having once arisen, could only be put an end to in one of two ways; it might have been put an end to by release under seal, or it might have been put an end to by accord and satisfaction. Nothing which the landlord did after the breach could put an end to his right to recover under the contract, unless he released the cause of action under seal, or made and acted on an agreement that amounted to accord and satisfaction. It is manifest that there is no evidence of any such determination of the contract, and that the occurrences which took place after the abandonment of the contract by the defendant, and after the plaintiff's cause of action was thus complete, are absolutely immaterial as an answer. But it has been contended that there was some evidence before the jury that the landlord's taking possession was an acceptance of possession in pursuance of negotiations going on before the defendant abandoned possession. I am unable to see any evidence of any such agreement, and such an inference from the facts is entirely against the findings of the jury. The fact which the jury found, and upon which His Honor Mr. Justice Chubb based his judgment, is this: That after the defendant had abandoned possession the landlord resumed possession. Now, there is no doubt that the acceptance of possession in such a way as to bring about a surrender by operation of law may be evidenced by the mere relinquishment of possession on the part of the tenant and the acceptance of possession on the part of the landlord. Whether the inference can be drawn in any particular case is entirely a question of fact. There are cases, no doubt, in which it would be a very reasonable inference, from the acceptance of possession by the landlord after an abandonment by the tenant, that there was an acceptance of possession in such a way as to put an end to the contract. In the case of a dwelling-house, for instance, if the tenant goes out and the landlord takes possession or in any other way assumes rights of ownership over the property, it may be a very fair inference that he has accepted possession in such a way as to put an end to the contract. But where you are dealing with a property of this kind—where it is vital to the existence of the property that someone should be in possession, that it should be kept up as a public house, that certain duties under the Licensing Act should be continually performed by someone—where in short it is essential, when the house has been abandoned, that the landlord should take some action to preserve his property in its existing condition, it does not at all follow that a resumption of possession amounts to an acceptance such as would establish a surrender by operation of law. If it were not so the landlord would be put in this position, that he must either stand by and see the value of his property destroyed, or he must take possession in such a way as to put an end to his rights under the contract. The law does not put a party to a contract in that position. It will be a matter to be considered, whether he has done more in taking possession under the circumstances than was necessary. The jury have found, in answer to a question put by the learned Judge who tried the case, that the plaintiff resumed possession, but not with the intention of putting an end to the lease. The mere fact of resumption of possession is not of itself sufficient; on the other hand, the intention with which he resumes possession, so long as it remains in his own breast, is immaterial. In that I quite agree with the learned Judge. The real question for the jury on that part of the case was whether in resuming possession he had done anything more than was necessary for the purpose of preserving the subject matter of the contract for both parties. It was open to the landlord to take possession, to enter into the hotel, to do everything that was necessary for carrying on the business and conforming to the law so as to preserve his rights under the lease and his remedies, and to preserve the rights of the defendant also. The jury were not asked, and did not find, whether the landlord in taking possession did more than was necessary for their purposes. But, however they had found on the question, their finding would have been immaterial in this case because all these things had taken place after breach, and it is immaterial in what way you regard the taking of possession by the plaintiff. In my opinion it would be impossible that any more complete possession could be taken of the premises than was taken by the plaintiff, and you may regard his taking possession in either of two ways: Either that he elected to accept the abandonment of the contract, and to treat it as at an end; or that, having determined to rely upon his right to damages, he elected to treat the contract as existing only for the purposes of an action for damages. In either case he would, of course, resume possession. Assuming that he elected to preserve the contract for the purpose of suing on it, his damages would be any expense that he had been put to in having the place on his hands until he let it to another tenant. Those expenses would include his loss in carrying on the business. Because if he had made any profit in carrying on the business, it would have to come off his claim against the defendant; on the other hand, if he made a loss in carrying it on, that would be damages which the defendant would have to pay. In addition to those damages, during that year he was entitled to the rent of the premises, £480, which the jury have found for him. If he had let the premises before the expiration of the year, there would have been so much the less for the defendant to pay in the way of damages for rent. If he had not let it when he did defendant might have had to pay damages for two or three or four or five years' rent, according to the time during which the premises remained unoccupied. But, whichever way you regard the damages which the jury have found, they are properly recoverable for the defendant's breach of contract. I am therefore of opinion that the appeal must be allowed, and judgment entered for the plaintiff for the £899 4s. 11d.

Appeal allowed. Judgment appealed from reversed. Judgment to be entered for plaintiff for £899 4s. 11d. and costs of the action. Respondent to pay the costs of the appeal.

[1] 2 Q.B.D., 575.

[2] 2 Q.B.D., 575, at p. 578.

[3] [1850] EngR 73; 3 H.L.C., 240, at p. 275.

[4] [1853] EngR 760; 2 E. & B., 678; 22 L.J.Q.B., 455.

[5] 16 Q.B.D., 460.

High Court of Australia

Buchanan v Byrnes [1906] HCA 21; (1906) 3 CLR 704 (23 April 1906)

HIGH COURT OF AUSTRALIA