Georgeson v Palmos [1962] HCA 15; (1962) 106 CLR 578 (13 March 1962)

HIGH COURT OF AUSTRALIA

GEORGESON v. PALMOS [1962] HCA 15; (1962) 106 CLR 578

Landlord and Tenant

High Court of Australia
Taylor(1), Menzies(2) and Windeyer(3) JJ.

CATCHWORDS

Landlord and Tenant - Lease - Premises to be used as a coffee shop and restaurant in conjunction with retail business - Right of either party to terminate by notice where premises so damaged as to be wholly unfit for occupation or use for these purposes - Premises extensively damaged by fire - Some part of retail business still carried on by lessee - Notice of termination by lessor - Action to recover possession - Whether notice valid.

HEARING

Sydney, 1961, November 30; December 1.
Melbourne, 1962, March 13. 13:3:1962
APPEAL from the Supreme Court of Queensland.

DECISION

1962, March 13.
The following written judgments were delivered: -
TAYLOR J. By a memorandum of lease dated 16th October 1958 the respondents, of a basement and parts of the ground floor and first floor of a building in Edward Street Brisbane. That portion of the ground floor which was subject to the lease was substantial but only two rooms on the first floor were included in the demised premises. Upon these premises there was conducted a business known as the Colony Club restaurant and this business had been purchased by the appellant from the male respondent and his brother on 19th March 1958 for the sum of 17,000 pounds. The amount attributed to the goodwill was 7,700 pounds and the lease which the appellant subsequently obtained was for a term of five years from 24th March 1958. An option to renew the lease for a further term of five years subject to certain specified conditions was also accorded to the appellant by the lease. The question which now arises is whether the lease was determined by a notice in writing which the respondents gave to the appellant on 22nd February 1961 in purported pursuance of the so-called proviso to cl. 10 thereof. This question is, unfortunately for the appellant, unaffected by the fact that he had paid a large sum for the goodwill of the business; it depends upon whether, prior to the notice, the premises had become "wholly unfit for occupation or use for the purposes for which" they had been demised. (at p580)

2. This question arises in relation to cl. 10 of the lease which was in the following terms: "That the thirtyfirst section of The Real Property Act of 1877 shall be modified as applied to the lease hereby agreed to be created so as to read that if the demised premises or any part thereof shall at any time during the said term be destroyed or damaged by fire storm or tempest or other inevitable casualty or Act of God or by any means whatsoever without any default on the part of the Lessee his agents or servants so as to render the demised premises wholly or partially unfit for occupation or use then and in such case payment of the rent hereby reserved or a proportionate part thereof according to the extent of the damage suffered shall be suspended and cease to be payable so long as the demised premises shall be unfit for occupation by reason of such damage and without any default on the part of the Lessee his agents or servants provided always that in the event of the demised premises or any part being destroyed or so damaged as to be wholly unfit for occupation or use for the purposes for which the premises were demised either of the parties hereto may at their option terminate the tenancy hereby agreed to be created by giving to the other fourteen days notice in writing to that effect . . ." The purpose, or purposes, for which the subject premises were demised may be extracted from cl. 23: "The Lessee will use the demised premises as a modern coffee shop and restaurant in conjunction with a retail business for the sale of coffee tea and similar lines and also cakes scones confectionery cigars cigarettes matches and tobacco and for no other purpose . . ." (at p581)

3. The fact is that prior to the giving of the notice in question the premises had been extensively damaged by fire but the appellant, claiming that the damage was not of such a character or quality as to entitle either party to give a notice pursuant to the proviso, refused to deliver up possession. However in a suit subsequently instituted by the respondents they were adjudged to be entitled to possession and this appeal is brought from the order of the Supreme Court which so declared. (at p581)

4. There is no real dispute concerning the extent of the fire damage. Details of this were the subject of specific findings of fact by the learned trial judge and they are not challenged before us. What is the subject of debate is the true construction of the so-called proviso and the applicability of its provisions in the proved circumstances of the case. (at p581)

5. It is the appellant's argument that a provision in the terms of the proviso applies only when it is seen that damage has occurred which has rendered the demised premises wholly unfit for occupation or use for each and every one of the purposes for which they have been demised. It is not sufficient, it is said, if the damage renders the premises unfit for occupation or use for some only of such purposes and it is on this point, according to the appellant's argument, that the learned trial judge fell into error. The contention is that his Honour erroneously took the view that it was sufficient to invoke the operation of the proviso if it could be shown that damage had occurred which rendered the premises unfit for occupation or use for any one of the specified purposes. It is true, of course, that his Honour rejected the argument advanced on behalf of the appellant "that as long as the damage leaves his front counter intact for the sale of cigarettes and confectionery" the proviso could not operate. It is true, also, that his Honour took the view that the expression "wholly unfit for occupation or use for the purposes for which the premises were demised" was intended to predicate unfitness of the premises as a whole for such occupation or use whether the cause of the alleged unfitness should be damage to the whole or only part of the premises. But the rejection of the appellant's argument did not logically involve, as was contended, that his Honour entertained the view that in a case where premises had been demised for several different and distinct purposes damage to a part, or even to the whole, of the premises rendering them unfit for occupation or use for any one of such purposes would invoke the provisions of a covenant couched in the terms of the proviso. What his Honour was concerned with was the question whether the fire damage in this case had rendered the premises unfit for use or occupation "as a modern coffee shop and restaurant in conjunction with a retail business for the sale of coffee tea and similar lines and also cakes scones confectionery cigars cigarettes matches and tobacco". The solution to this question was not to be solved by ascertaining whether "the damage physically extends over the entire premises, nor whether occupation or use of every part of the premises has been denied". As his Honour pointed out, the question was whether the damage in question in this case "had the effect of rendering" the premises, "as a whole, unfit for occupation or use of a given kind" and this was, of course, as the learned judge indicated very much a matter of estimate and degree. (at p582)

6. No doubt where premises have been leased for a number of separate and distinct purposes, damage, either to part or to the whole of the premises, which renders them unfit for occupation or use for some of those purposes but which leaves them fit for occupation and use for other specified purposes, may not render the premises wholly unfit for occupation or use for the purposes for which the premises have been demised. But, putting aside for a moment a further contention of the appellant, the damage which resulted in this case quite clearly rendered the premises unfit for occupation or use as a coffee shop and restaurant and rendered that part of the premises used as the kitchen and its appurtenances unusable as a kitchen or as a place for the preparation and storage of food. But it is said that as it was physically possible for the appellant to continue to sell cigarettes and confectionery at the small counter near the front door on the ground floor the premises were not wholly unfit for occupation or use for the purposes for which they were demised. The sale of cigarettes and confectionery was referred to by his Honour as "one of the ancillary purposes mentioned" but, standing alone, that activity could not be rated as a separate and distinct purpose or, indeed, as one of the purposes for which the premises had been demised. There can, of course, be no question that the sale upon the premises of cigarettes and confectionery was contemplated by the parties to the lease. But it was contemplated as one of the related activities, though a minor one, in the business which was to be carried on upon the premises. That business was "a modern coffee shop and restaurant in conjunction with a retail business for the sale of coffee tea and similar lines and also cakes scones confectionery cigars cigarettes matches and tobacco" and it is impossible to regard the sale of cigarettes and confectionery, without more, as a purpose for which the premises had been demised. Accordingly, I think his Honour was right when he said: "I reject the defendant's argument that as long as the damage leaves his front counter intact for the sale of cigarettes and confectionery, one of the ancillary purposes mentioned, the proviso to Clause 10 does not operate, although that part of the premises set aside and normally used as 'a modern coffee shop and restaurant', in which I include the basement in use as an adjunct to the dining floor, is a shambles. The facts did not allow the argument to be put as baldly as I have stated it, because of the hole cut by firemen immediately inside the public entrance, but that was the principle of it". (at p583)

7. The further argument advanced by the appellant was that the damage did not render the premises wholly unfit if it appeared that the premises could be restored within a reasonable time having regard to the term of the lease. It may be that cases will arise where a lessee has been denied the use of premises for a particular purpose by an occurrence which produces a transient or temporary consequence only. In any such case the circumstances may preclude the conclusion that the premises have thereby become wholly unfit for occupation or use for the purposes for which they were demised. But this is not such a case and it is not to the point to consider whether the premises might have been restored to their original condition within a period of weeks or months as the case may have been. The damage was both serious and extensive and could not by any means be regarded as a transient or temporary consequence. Moreover, there was no obligation upon the lessor to restore the premises to their original condition and it was a matter for him to decide whether he would adopt that course or embark upon a process of reconstruction which would alter the character of the premises. (at p583)

8. In my opinion, the appeal should be dismissed. (at p583)

MENZIES J. In the action out of which this appeal arises, the Supreme Court of Queensland (Wanstall J.) decided that a lease of premises in Brisbane for five years from 24th March 1958 had been validly determined by a notice given by the respondent landlords to the appellant tenant and expiring on 8th March 1961. The ground upon which the notice of termination was given was "that the demised premises have been so destroyed or damaged by fire as to be wholly unfit for occupation or use for the purposes for which they were demised". (at p584)

2. The lease contained the following provision: "10. That the thirtyfirst section of The Real Property Act of 1877 shall be modified as applied to the lease hereby agreed to be created so as to read that if the demised premises or any part thereof shall at any time during the said term be destroyed or damaged by fire storm or tempest or other inevitable casualty or Act of God or by any means whatsoever without any default on the part of the Lessee his agents or servants so as to render the demised premises wholly or partially unfit for occupation or use then and in such case payment of the rent hereby reserved or a proportionate part thereof according to the extent of the damage suffered shall be suspended and cease to be payable so long as the demised premises shall be unfit for occupation by reason of such damage and without any default on the part of the Lessee his agents or servants provided always that in the event of the demised premises or any part being destroyed or so damaged as to be wholly unfit for occupation or use for the purposes for which the premises were demised either of the parties hereto may at their option terminate the tenancy hereby agreed to be created by giving to the other fourteen days notice in writing to that effect but without prejudice to any rights that may have occurred prior to such determination and in the event of any difference between the parties as to any matter arising under this clause such difference shall be referred to arbitration as hereinafter provided." The foregoing proviso, notwithstanding its lack of precision, is, it seems, a provision that is commonly employed and it was pursuant thereto that the notice already referred to was given. (at p584)

3. The purposes for which the premises were demised were to carry on a modern coffee shop and restaurant in conjunction with a retail business for the sale of coffee, tea and similar lines and also cakes, scones, confectionery, cigars, cigarettes, matches and tobacco - cll. 4 and 23 of the lease. (at p584)

4. The demised premises consisted of a basement, a ground floor and two rooms upon the first floor of a city building. The shop and restaurant were on the ground floor. The findings which his Honour made about damage to the premises were expressed as follows: "The main damage by fire occurred in this area in the basement and in the area above on the ground floor. As two sides of the basement in this corner are enclosed by masonry walls, the damage spreads out forward and sideways, diminishing as it goes. I find that the principal relevant damage by fire comprises: (a) charring and reduction of size of plates or bearers carrying the building, and the wooden piers on which it is supported within the masonry perimeter. On the evidence I am not able to find that this damage has structural consequence, but I am satisfied that this charring, as well as other charring in the basement, is a significant factor in the question whether the premises were rendered unfit for use for the purposes for which they were demised. (b) Total destruction of ten floor joists to a length of 20 ft forward from the rear wall and four other shorter joists adjacent. These are the 14 joists carrying the floor out from the left-hand side wall and the rear wall looking from the entrance: Charring and partial destruction of other adjacent joists, to a degree diminishing away from the seat of the fire. The number in this category is uncertain, but is at least 10 per cent of the total joists and it could be as high as 20 per cent. Some of these would have to be replaced. (c) Total or partial destruction of at least 50 per cent of the flooring timber in the part of the cafe used by the public. Here again there was a difference of opinion between the two architects as to the precise area in need of replacement. The plaintiffs' witness estimated about 60 per cent, and the defendant's roughly 50 per cent, of the total public area. The latter gave measurements of an area 26 ft X 24 ft, which does not differ greatly from that indicated as obviously unusable in the plaintiffs' architect's plan Ex. 3. Again there is a wider margin of boards charred on the under surface. (d) Total destruction of the electrical switchboard and its switches and much of the wiring installation, so that all would, as both architects concede, need replacing. The switchboard and some of the wiring are in the basement, but the architects did not diffentiate between wiring there and wiring at ground floor level, for obvious reasons. (e) Total destruction of some partitions in basement staff rooms. I find that reinstatement of the structure in all of the categories embraced above in (b) (c) and (d) is necessary before the premises could be used as a coffee shop and restaurant in conjunction with the retail business stipulated in the lease". This conclusion of his Honour was, it seems to me, not merely open to him but unmistakably right. (at p585)

5. It was the appellant's main case, however, that his Honour, in holding that the damage that occurred did warrant the giving of a notice of termination pursuant to the proviso to cl. 10 of the lease, misconstrued that provision. In the course of his judgment the learned judge said : "The sense of the covenant is to require the use of the premises as a whoe for those purposes and all of them. It is fitness for use in this way that is contemplated as the measure of damage for the purpose of Clause 10, i.e. whether the premises as a whole, having regard to the damage they have suffered, be it confined to a part or parts or widespread, are fit for use for those purposes, and all of them." The appellant contended that by these observations his Honour meant that the lease could be determined whenever the premises became unfit for use and occupation for any one of the purposes for which they were demised, whereas upon its true construction the proviso applied only when the premises became unfit for use and occupation for every one of those purposes so that no use could be made of the premises for the purposes for which they were demised. In support of this contention the appellant relied strongly upon the contrasted between the phrase "wholly unfit" in the operative proviso and the phrase "wholly or partially unfit" earlier in clause 10 as indicating that the proviso applied only when there could be no effective use of the premises for any of the purposes for which they were demised. (at p586)

6. Looking at the proviso in the abstract it may be said with some confidence that where premises are leased for more than one purpose the fact that they are rendered unfit for one of those purposes would not warrant the giving of a notice. Here, however, even if the words which I have quoted from his Honour's judgment, taken in the context of the judgment as a whole, do mean what the appellant contends, the findings of fact upon which his Honour ultimately rested his judgment established that the damage done by the fire and by the steps taken to quell it reduced the premises to a state such that, for a time which could not be regarded as negligible, the only purpose for which they could be occupied was to repair the damage that had been done in order to render them fit for use again and that for that time occupation was not possible for any of the purposes for which the premises were demised. It is true that by making some temporary repairs the appellant was able to open the retail shop for restricted business within fourteen days of the fire. It is also the case that had further temporary repairs been made with the utmost expedition the premises could have been used as a coffee shop or restaurant within a few weeks of the fire. But to state these things, and to do so in the manner most favourable to the appellant, only demonstrates that his Honour's finding that the damage caused by the fire did render the premises wholly unfit for occupation and use for the purposes for which they were demised was correct. (at p587)

7. Furthermore his Honour was right, I consider, in rejecting the tenant's argument that the proviso did not come into operation if the premises, having been rendered wholly unfit for occupation or use for any of the purposes for which they were demised, could nevertheless, by the making of repairs that would not take very long or cost very much, be put into a state where it would be possible to use them for those purposes. It seems to me that it would be proper, in deciding whether the premises were "wholly unfit" for occupation and use for certain purposes, to have regard to what would have to be done to remedy any defect of a temporary nature (e.g. the restoration of electric light and power or the repair of a damaged entrance, to take two obvious instances), but once damage does render premises wholly unfit for occupation and use for the purposes specified - as was the case here - the applicability of the proviso cannot depend upon estimates of the time and cost of carrying out the repairs necessary to restore the premises to a state fit for such occupation and use. (at p587)

8. The appeal must be dismissed. (at p587)

WINDEYER J. I agree that this appeal must be dismissed. The relevant facts and the inevitable conclusion from them appear in the judgments that have just been delivered. I need say no more than that I do not think the learned trial judge misapplied the relevant provisions of the lease. Whether or not the events that had occurred had brought those provisions into operation is necessarily very much a question of fact and degree. Premises are not so damaged by fire as to be wholly unfit for occupation or use within the meaning of the clause merely because at the moment the fire was extinguished the business conducted there could not have been resumed. Some interval for cleaning-up and restoration after the immediate effects of the fire and the work of the fire brigade must necessarily be allowable. On the other hand, it is not enough that by makeshift arrangements some activities might be resumed promptly, and the business carried on in some truncated form pending repairs and reconstruction necessary to restore the premises and make them wholly fit for occupation or use for the purposes for which they were let. (at p587)

ORDER

Appeal dismissed with costs.