Australian Provincial Assurance Association Ltd v Roddy [1956] HCA 33; (1956) 95 CLR 478 (26 June 1956)

HIGH COURT OF AUSTRALIA

AUSTRALIAN PROVINCIAL ASSURANCE ASSOCIATION LTD. v. RODDY [1956] HCA 33; (1956) 95 CLR 478

Landlord and Tenant

High Court of Australia
Dixon C.J.(1), McTiernan(1), Williams(1), Webb(1) and Fullagar(2) JJ.

CATCHWORDS

Landlord and Tenant - Justices - Statutory prohibition - Rule nisi - Fair rent - Excess payment - Conviction - Landlord and Tenant (Amendment) Act 1948- 1952 (N.S.W.), ss. 8, 15, 35 - Justices Act 1902-1951 (N.S.W.), s. 112.

HEARING

Sydney, 1956, March 22, 23;
Melbourne, 1956, June 26. 26:6:1956
APPEAL from the Supreme Court of New South Wales.

DECISION

June 26.
The following written judgments were delivered by: -
DIXON C.J., McTIERNAN, WILLIAMS AND WEBB JJ. Special leave to appeal was importance concerning the operation of s. 15 of the Landlord and Tenant (Amendment) Act 1948-1952. That question is, how does s. 15 (1) apply in the case of prescribed premises which at 1st March 1949 were governed by a lease reserving a rent consisting of a percentage of the receipts of a business carried on by the tenant upon the demised premises? (at p485)

2. The premises to which the appeal relates were in existence and were subject to a lease on 1st March 1949. They therefore do not fall within sub-s. (2) of s. 15 or within the excepting words with which sub-s. (1) opens and it is upon the operation of the general words of sub-s. (1) that the matter depends. Those words provide that the rent payable by the lessee shall not, in respect of any period after the commencement of the Landlord and Tenant (Amendment) Act 1951, that is to say after 28th December 1951, and notwithstanding any term or covenant in any lease in force at any time after such commencement, exceed the rent payable in respect of the prescribed premises at 1st March 1949. There is a qualification that does not affect this appeal with reference to cases where the rent has been altered by a determination made before 28th December 1951; indeed sub-s. (3) provides that nothing in the section shall affect the operation of a determination. By sub-s. (4) the rent "fixed by sub-s. (1)" is made the "fair rent", that is until it is increased or decreased by a determination. The "rent fixed by sub-s. (1)" is a phrase obviously referring to the rent which sub-s. (1) says must not be exceeded. Section 35 (1) (b) provides, among other things, that a person shall not receive any sum as rent exceeding the fair rent of the premises. The appellant was convicted of an offence against this provision. The offence consisted in receiving on or about 4th June 1953 as rent for certain premises at the corner of Martin Place and Elizabeth Street, Sydney, the sum of 606 pounds 13s. 4d. for a period of one month at the rate of 140 pounds per week which exceeded the fair rent of the premises, namely 109 pounds 13s. 1d. (at p486)

3. On or about 4th June 1953 rent was in fact received by the appellant from its tenant amounting to 606 pounds 13s. 4d. It was in fact due on 1st June 1953 and represented a payment of rent for that month. The sum was due under a lease made on 10th December 1950 between the appellant as lessor and Cahills Sea Products Pty. Ltd. as lessee. The premises are a sub-ground floor and basement occupied by the lessee for the purpose of a restaurant. The lease was for a term of five years commencing on 1st August 1950 and the rent reserved was 7,280 pounds per annum payable by equal monthly payments of 606 pounds 13s. 4d., the first of which was to be made on 1st August 1950. Thus in effect, although not in form, the rent was payable monthly in advance. When he came to frame a charge against the appellant based upon the receipt of the payment for June 1953, the informant appears to have considered that he must reduce the expression of the rent to a weekly basis. He reduced it to a weekly basis because he relied upon what he took to be a weekly rent as the fair rent payable at 1st March 1949 which had been exceeded by the payment received on 4th June 1953. Accordingly the information alleged that the appellant received 606 pounds 13s. 4d. for a period of one month at the rate of 140 pounds per week, a description which is not altogether accurate in point of either law or arithmetic. The inaccuracy, however, is of no importance. For it is upon the previous lease that the appeal turns, or rather upon the application to it of s. 15 (1). (at p486)

4. That lease was made between the same parties with respect to the same premises on 28th February 1944. It was for a term of ten years commencing on 1st May 1940 and was current on 1st March 1949. The reddendum, part of the printed form, was expressed in the words "at the yearly rent as hereinafter provided". The effect of the provisions relating to rent occurring later in the lease was to require the lessee to pay to the lessor a rental equal to a percentage of the gross receipts of the restaurant business carried on by the lessee upon the demised premises. The percentage was calculated at different rates for two separate parts of the takings, viz. ten per cent in the case of the ordinary restaurant business and eight and one-half per cent in the case of wedding receptions and special functions. The lessee was required to furnish on every Wednesday a statement of the receipts for the preceding week ending on Saturday. The rent was made payable "weekly on or before the Friday of each and every week following the week in respect of which the payment is to be made". In January of every year the lessee was required to furnish a statement, certified by the auditors, of the total receipts made up to 31st December of the prior year. (at p487)

5. The decision of the Supreme Court of New South Wales may perhaps be reduced to the simple statement that, for the purpose of ascertaining what under these covenants was "the rent payable in respect of the prescribed premises at 1st March 1949", you applied the percentage to the gross receipts for the week in which 1st March occurred, namely the week ended Saturday 5th March, a process producing the sum of 109 pounds 13s. 1d. as the fair rent. McLelland J. expressed the conclusion in a sentence - " . . . there was a rent payable for the relevant period current at 1st March 1949 and, in my opinion, the fact that the amount was calculated on ten per cent of the gross takings of the lessee does not alter the fact that the amount so calculated was the rent payable". (at p487)

6. The amount of 109 pounds 13s. 1d. which was the percentage due to the lessor in respect of the receipts for the week ended Saturday, 5th March 1949, was in fact paid by the lessee on Thursday, 17th March. The last payment before that was made on Monday, 7th March 1949. It was an amount of 109 pounds 18s. 9d. calculated upon the receipts for the week ended Saturday, 26th February 1949. The difference between the amounts of the two payments (5s. 8d.) is of no importance in the case, but there is a significance in the choice of the payment calculated upon the receipts for the week in which 1st March 1949 occurred rather than the payment which had accrued in respect of the period ended Saturday, 26th February, for which returns had been due on Wednesday, 2nd March. It is the amount that became payable on Friday, 4th March, and was actually paid on Monday, 7th March. The significance is that to choose the former implies that the expression in s. 15 (1) "payable in respect of the prescribed premises at 1st March 1949" does not refer to that date as a point of time as at which the rent forming the standard of fair rent must become due and payable, but is seeking to take a point of time for the purpose of identifying the periodical rent then representing the consideration for the enjoyment of the land, so that it might provide the criterion of the fair rent. (at p488)

7. This indeed seems the better view of the provision. The statute is dealing with rent as the consideration to the lessor for the lessee's enjoyment of his tenancy of the demised premises and, in selecting a date for the purpose of establishing the consideration then payable as a standard for the future, it is more reasonable to suppose that the legislature was concerned with the measure by which the enjoyment of that land was valued at that time than with adopting, as a standard, whatever rent fell due for payment on the specified date regardless of the period of enjoyment in respect of which the rent was payable. No doubt the distinction would not present itself to the draftsman with great clearness or as a problem of great practical importance. For prepayment of rent for any considerable period or deferred payment of rent is not a common case. But s. 15 (1) has a wide operation over multitudinous transactions and the very general words in question must cover cases in which it is essential to understand and apply the distinction. Both the policy and the language of the provision point to the conclusion that what is to be taken is the rent payable in respect of the enjoyment at 1st March 1949 of the tenancy by the lessee. But that conclusion answers only a subsidiary question arising upon s. 15 (1) and it contributes very little towards solving the difficulty in applying that sub-section to the facts of the present case. (at p488)

8. It is reasonably certain that s. 15 was drawn upon the assumption that rents reserved would be expressed in money sums. Even if leases might, as in the case of City of Geelong v. Tait (No. 2) (1950) VLR 504 , reserve progressive rents, the rate applicable as at 1st March 1949, so apparently it was assumed, would be ascertained by reference to a figure fixed by agreement of the parties or otherwise pursuant to law. But when a rent consists of a percentage of gross or net profits, there is no sum certain fixed by agreement of parties or otherwise. It is dependent upon uncertain events. The guidance as to the value of the use or occupation of the premises which a rent named by the parties or determined by authority may give is lacking. The accidents of trading or of external events may determine the figure. This consideration is used by the appellant in support of an argument that the comparison which s. 15 (1) seeks to institute simply cannot be made. It may also be used to support an argument, in a case such as the present, that the earlier limb of the comparison is supplied by answering the question, what is the rent payable at 1st March 1949, simply by saying that it is the specified percentage of gross receipts. The result of such an answer would be that the "fair rent" would be nothing but a named percentage of the gross proceeds, a formula not a figure. It would, of course produce an ever-fluctuating money sum as rent. (at p489)

9. Of these two views the first would simply mean that there was no fair rent. Yet if sub-ss. (1), (2), (3) and (4) of s. 15 be considered together the one thing clear about them is that they were designed to ensure that always there would be a fair rent for prescribed premises. Section 35 forbids the letting of premises at a rent exceeding a fair rent or the demanding, receiving or paying of such a rent. If there be no fair rent, could any rent be reserved, demanded, received or paid until a fair rent was fixed? (at p489)

10. The second of the two views deprives s. 15 of its capacity to fulfil its obvious purpose. For it seems obvious enough that its purpose was to establish a fixed standard of rent which might not be exceeded in subsequent tenancies of the prescribed premises or otherwise after 28th December 1951. If you adopt it, how do you find whether the percentage of receipts has been exceeded in a subsequent letting? As this case illustrates the later lease may reserve a fixed rent. Further, it may not be the same business, or indeed any business, that is carried on at the demised premises. (at p489)

11. The truth is that s. 15 (1) and (2) look to the rent actually payable by the lessee to the lessor at 1st March 1949. That means the money figure. There is no reason why the money figure should, in order to fit the description, appear on the face of the lease. Indeed the very definition of "rent" in s. 8 shows that, to the "actual rent payable under the lease", there must be added the value of certain covenants and the amounts of certain taxes. The value of the covenants doubtless must be estimated but the estimate is expressed in money. (at p489)

12. To say that such a case as this was not present to the mind of the draftsman of s. 15 (1) is one thing. But it is quite another thing to say that he has expressed no intention which will cover it. He has adopted wide general words designed to cover all rents payable in respect of prescribed premises at the date he has selected. In the present case there was such a rent. It was ascertained from external facts in accordance with the covenant in the lease but that made it no less the rent payable at 1st March 1949. (at p489)

13. An additional but independent argument was advanced for the appellant. It is an argument one step of which depended upon an interpretation of s. 15 (1). It was contended that s. 15 (1) refers not to the rent which the tenant was liable to pay but to the rent which might lawfully be paid on 1st March 1949. That means the maximum rent which might at that date have been exacted from a tenant without infringement of the law. The next step in the argument was to maintain that what rent might lawfully have been paid upon that date depended upon the application of the prior legislation and regulations to the history of the premises. It was then said that no proof of the requisite facts on this head was adduced by the informant and that for this reason the prosecution must of necessity fail. (at p490)

14. The argument necessarily gives to the words in s. 15 (1) "the rent payable in respect of the prescribed premises at 1st March 1949" a meaning which looks not at the rent actually payable on that date by the then tenant to the then landlord but at the rent which as at that date a landlord might exact or a tenant might concede without any contravention of the law. This is not the natural meaning to place the words. In Ex parte Alcock; Re McConnell (1955) 55 SR (NSW) 259, at p 261; 72 WN 309, at p 310 , Roper C.J. in Eq. expressed the view that the phrase "the rent payable in respect of the prescribed premises at 1st March 1949" means the rent then lawfully payable and does not mean the amount then actually being paid as rent, whether it was the amount then lawfully payable or not. In Haugaard v. Rowlands, (1955) 72 WN (NSW) 460 , however, the Full Court of the Supreme Court (Street C.J., Roper C.J. in Eq. and Herron J.) decided that these words mean the actual rent paid on 1st March 1949 in respect of the premises and not the rent which was then lawfully payable. Roper C.J. in Eq. did not adhere to his earlier view and remarked (1955) 72 WN (NSW), at p 462 that the amendment in s. 15 made by Act No. 46 of 1954, among other things, showed that it was a more open question than his Honour had previously thought it to be. (at p490)

15. It is not necessary in the present case to express any opinion upon the question so decided by the Full Court. For the point raised on behalf of the appellant rests on still another construction of the words in question. It is a construction which goes away from the meaning which Roper C.J. in Eq. adopted in Ex parte Alcock; Re McConnell (1955) 55 SR (NSW) 259, at p 261; 72 WN 309, at p 310 . In effect that meaning was that "payable" connoted that the lessee was liable for the rent and that this involved legality. It goes away too from the construction adopted in Haugaard v. Rowlands (1955) 72 WN (NSW) 460 . Instead it supposes that "rent payable" means simply the rent which the law would allow to be paid, whether the tenant at the time had incurred any liability to pay such a rent or not. (at p491)

16. This construction, it seems clear enough, s. 15 (1) does not bear. (at p491)

17. A still further contention was advanced in support of the appeal depending upon what was said to be a want of evidence to support the information. The contention took four steps, viz. : - (1) that there was no evidence to show that all the covenants in the earlier lease were "covenants, conditions and provisions usually entered into by a lessee" within the meaning of those words in the definition of "rent" in s. 8 ; (2) that in fact some appeared not to be so, notably the covenant restricting the use of the premises to a high-class restaurant ; (3) that there was no evidence of the value of such covenants ; and (4) that therefore it was consistent with the evidence that, if the value of these covenants were added to the rent to make the fair rent, the total might be equal to or greater than the payment of rent received on or about 4th June 1953. An offence was therefore not proved. (at p491)

18. To this it was replied, first, that although the covenants in the second or later lease were not the same, they were so similar to those of the earlier, that the values must turn out to be approximately the same, that is if the covenants possessed any value capable of expression in money, and, second, that the disparity between the 109 pounds 13s. 1d. and the 140 pounds was too great to be bridged by any value that could reasonably be added for the difference in the covenants. (at p491)

19. A comparison of the two leases is enough to establish the first of these arguments. Indeed it must prevail unless an entirely artificial estimate of the facts is substituted for the reasonable inferences to be drawn from the practical considerations an inspection of the two leases discloses. It is impossible to sustain this last contention on behalf of the appellant. (at p491)

20. The application of s. 15 (1) to the present transaction may be unfortunate. It is said that both parties to the lease are content that the rent reserved by the lease should be paid. Further, it may be true that the operation which, according to the foregoing view of the matter, s. 15 (1) has upon the transaction, is rather a fortuitous result of the nature of the earlier lease and of the amount of business done upon the premises than a consequence of any real attempt to increase (without lawful authority) the economic rent of the premises. But these are not considerations that can affect the construction of such a provision as s. 15. It is a provision restricting the right of landlords to reserve rents which tenants might be prepared to pay and it restricts that right in terms evidently intended to apply generally and subject only to the qualifications actually expressed in the legislation. (at p492)

21. For these reasons the appeal should be dismissed. (at p492)

FULLAGAR J. I agree with the conclusion reached by my brethren, and with the reasons which they have given for that conclusion. I wish to add only a few words. (at p492)

2. The construction put upon s. 15 (1) of the Landlord and Tenant (Amendment) Act 1948-1952 by the magistrate and by the learned judges of the Supreme Court is, as I understand it, this. The "rent payable at the 1st March 1949" is the amount of rent which actually became payable in respect of the period in which 1st March 1949 occurred. The "period", of course, is fixed by the relevant lease. It may be a week or a fortnight or a month or a quarter or a half-year or a year. When the question arises whether rent payable under a later lease exceeds the rent payable under the lease current at 1st March 1949, we may find that the period, in respect of which rent is payable under the later instrument, is different from the period in respect of which it is payable under the earlier instrument. The period may be, as in the present case, a week under the one lease and a calendar month under the other lease. But this creates no problem. Rent accrues due from day to day, and there is no difficulty in reducing the two rents to a common denominator and then comparing them in order to see whether the later "exceeds" the earlier. This is what the informant tried to do in the present case. His arithmetic was not quite correct, but the evidence clearly established that the rent payable under the current lease, reduced to a weekly basis, exceeded the amount of rent which became payable in respect of the week in which 1st March 1949 occurred. (at p492)

3. This construction of s. 15 (1) is, in my opinion, correct. It produces, as Street C.J. and Herron J. observed, "a serious result for the lessor", and it is tempting to say that the "rent payable at 1st March 1949" cannot in this case be expressed otherwise than as a percentage of the gross receipts of the business carried on by the lessee on the premises. If this view were accepted, it is perhaps arguable that it would not be impossible to make the comparison required in order to establish the commission of an offence against s. 35 (1) of the Act. For it might be said that the comparison could be made by ascertaining the gross receipts of the business for the period in respect of which rent was paid under the current lease, and seeing whether the amount paid did or did not exceed ten per cent or eight and one-half per cent (as the case might be) of the gross receipts of the business in that period. On this view, of course, no offence was proved to have been committed in the present case. Such a comparison, however, could only be made in a case where the rental period was the same under each of the two leases to be compared. Where, as here, the period is in the one case a week and in the other case a month, it cannot be made. Nor could it be made in a case where the lease current at 1st March 1949 based the rental on a percentage of the receipts of a business, and the premises had, when the later lease was executed, ceased to be used for the carrying on of a business. (at p493)

4. These considerations alone make it very difficult to say that in such a case as the present the "rent payable at 1st March 1949" is not a sum certain but a percentage of a fluctuating amount. And, when we look at the whole of s. 15 and at the whole of the Act, it becomes very clear that what is contemplated is that there shall be a "fair rent" for all "prescribed premises", and that that fair rent shall be a fixed amount per week or per month or as the case may be. Sub-sections (1) and (2) of s. 15 purport to deal exhaustively between them with all prescribed premises, and sub-s. (4) speaks of "the rent fixed by sub-s. (1) or sub-s. (2) of this section". The only construction of the words "rent payable at 1st March 1949" which will give effect to the obvious intention of the legislation is the construction accepted by the magistrate and by the Supreme Court. It is a natural enough construction. I can see no real inherent difficulty in it, and, whatever may be thought of its consequences, I feel no doubt that it is correct. I would only add that the case of City of Geelong v. Tait (No. 2) (1950) VLR 504 was, in my opinion, correctly decided. (at p493)

5. The appeal should, in my opinion, be dismissed. (at p493)

ORDER

Appeal dismissed with costs.