World Best Holdings Limited v Sarker [2010] NSWCA 24 (15 April 2010)

Last Updated: 15 October 2010

NEW SOUTH WALES COURT OF APPEAL

CITATION:
World Best Holdings Limited v Sarker [2010] NSWCA 24
This decision has been amended. Please see the end of the judgment for a list of the amendments.

FILE NUMBER(S):
2009/298267

HEARING DATE(S):
25/02/2010

JUDGMENT DATE:
15 April 2010

PARTIES:
A - World Best Holdings Limited
R - Abdul Sarker

JUDGMENT OF:
Tobias JA Campbell JA Handley AJA

LOWER COURT JURISDICTION:
Administrative Decisions Tribunal of NSW Appeal Panel

LOWER COURT FILE NUMBER(S):
089031

LOWER COURT JUDICIAL OFFICER:
Judge K P O’Connor President, R Perrignon Judicial Member and B Weule, Non-judicial Member

LOWER COURT DATE OF DECISION:
13/3/09

LOWER COURT MEDIUM NEUTRAL CITATION:
[2009] NSWADTAP 13

COUNSEL:
A - R S Angyal SC
R - M Ashhurst SC

SOLICITORS:
A - Phillip A Biber Lawyer
R - Kemp Strang

CATCHWORDS:
CONTRACT – construction - pre-contractual negotiations as such and post-contractual conduct - not admissible on construction.
CONTRACT - party preventing or obstructing performance by other party - cannot take advantage of own wrong - other party not in breach.
CONTRACT – damages - reliance loss - onus on party in breach to prove that performance would not have enabled innocent party to recover expenditure.
LANDLORD & TENANT – repudiation - innocent party entitled to terminate lease - landlord not bound to comply with s 129 of Conveyancing Act.
LANDLORD & TENANT - breach by tenant of essential term - termination by landlord - compliance with s 129 of Conveyancing Act essential.
LANDLORD & TENANT - retail lease - statutory prohibition of unconscionable conduct - landlord in breach.
ADMINISTRATIVE DECISIONS TRIBUNAL - orders for costs - relevant factors.
ADMINISTRATIVE DECISIONS TRIBUNAL – orders for costs - appeal to Supreme Court on questions of law - appeal only by leave.

LEGISLATION CITED:
Administrative Decisions Tribunal Act, s 119(1), (1A)(c)
Conveyancing Act, s 129
Retail Leases Act, s 8(1), s 62B(1)
Supreme Court Act, s 101(2)(c)

CATEGORY:
Principal judgment

CASES CITED:
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Alghussein Establishment v Eton College [1988] 1 WLR 587 HL
Apriaden Pty Ltd v Seacrest Pty Ltd [2005] VSCA 174; (2005) 12 VR 314
Attorney-General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81
Foran v Wight [1989] HCA 51; (1989) 168 CLR 385
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237
J&C Reid Pty Ltd v Abaw Holdings Pty Ltd (1988) NSW Conv R 55416
Lakshmijit v Sherani [1974] AC 605
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623
Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447 CA
New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1
North v Marina (2003) 11 BPR 21,359
Panamena Europa Navigacion (Compania Limitada) v Frederick Leyland & Co Ltd. [1947] AC 428
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235
Roberts v Bury Improvement Commissioners (1870) LR 5 CP 310
Sarker v World Best Holdings Ltd (No 4) [2008] ADT 75
Sarker v World Best Holdings Ltd (No 5) [2008] ADT 179
Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21; (1931) 45 CLR 359
Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620
Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418
The Mihalios Xilas [1979] 1 WLR 1008 HL
The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17
Vitol SA v Norelf Ltd [1996] AC 800
Wheeler v Somerfield [1966] 2 QB 94 CA
Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105

TEXTS CITED:


DECISION:
(1) Appeal as to Grounds 1 -- 15 dismissed;
(2) Leave to appeal in respect of Grounds 16 -- 22 refused;
(3) Appellant to pay the respondent's costs.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

2009/298267

TOBIAS JA

CAMPBELL JA

HANDLEY AJA

Thursday 15 April 2010

WORLD BEST HOLDINGS LIMITED v SARKER

CATCHWORDS

CONTRACT – construction - pre-contractual negotiations as such and post-contractual conduct - not admissible on construction.

CONTRACT - party preventing or obstructing performance by other party - cannot take advantage of own wrong - other party not in breach.

CONTRACT – damages - reliance loss - onus on party in breach to prove that performance would not have enabled innocent party to recover expenditure.

LANDLORD & TENANT – repudiation - innocent party entitled to terminate lease - landlord not bound to comply with s 129 of Conveyancing Act.

LANDLORD & TENANT - breach by tenant of essential term - termination by landlord - compliance with s 129 of Conveyancing Act essential.

LANDLORD & TENANT - retail lease - statutory prohibition of unconscionable conduct - landlord in breach.

ADMINISTRATIVE DECISIONS TRIBUNAL - orders for costs - relevant factors.

ADMINISTRATIVE DECISIONS TRIBUNAL – orders for costs - appeal to Supreme Court on questions of law - appeal only by leave.

HEADNOTE

The appellant landlord leased a shop in its Shopping Centre at Minto to the respondent for a term of three years with a three-year option. The lease, which was not executed by the landlord or registered, became binding under s 8(1) of the Retail Leases Act on 1 July 2003 when the tenant went into possession and paid rent. The tenant was permitted to use the premises as "an Asian Supermarket" and was granted exclusive rights to such use in the Centre. The landlord had previously let a nearby shop to another tenant for permitted uses which included the retail sale of Indian groceries, spices and halal meats and promised it the exclusive right to such uses in the Centre.

The landlord attempted, by notices given on 25 July and 14 November 2003, to terminate the subject lease for breach of covenants described in the lease as essential terms, but the notices did not comply with s 129 of the Conveyancing Act. On 27 July the landlord locked the tenant out but he regained possession pursuant to orders of the Supreme Court on 31 July. Those proceedings were then remitted to the Administrative Decisions Tribunal. The Tribunal heard cross applications by the tenant and the landlord for declarations, orders and damages. It held that the landlord's notices of termination were invalid, and awarded the tenant, who had accepted the landlord's repudiation and vacated, $72,223.79 as reliance damages for his wasted expenditure and the landlord's unconscionable conduct contrary to s 62B(1) of the Retail Leases Act. The landlord's cross application was dismissed. Its appeal to the Appeal Panel, which was limited to questions of law, was dismissed.

The landlord appealed to the Supreme Court, the appeal again being limited to questions of law.

It claimed that the user clause in the subject lease which permitted the premises to be used as an Asian supermarket did not entitle the tenant to sell Indian groceries and halal meats.

The landlord also claimed, in reliance on Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447 CA that it was entitled at common law to terminate the lease for breach of essential terms or because the tenant had repudiated, in either case without complying with s 129 of the Conveyancing Act. It also challenged the award of reliance damages, the finding that it had been guilty of unconscionable conduct, and the orders for costs made by the Tribunal in the Appeal Panel. HELD: (1) Although the appeal panel had relied, incorrectly, on pre-contractual negotiations and the post-contractual conduct of the parties in construing the user clause, its construction was correct, and the tenant was not in breach: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 applied; (2) The tenant had not repudiated the lease; (3) The landlord, having prevented or obstructed performance of the tenant’s obligations under his fit-out covenant could not take advantage of its own wrong and complain of the breaches: Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 applied; (4) The landlord 's notices of termination at common law in reliance on breaches of essential terms were invalid; dicta of Meagher and Powell JJA in Marshall v Council of the Shire of Snowy River (above) not followed; (5) The award of damages for the tenant's wasted expenditure as reliance losses was appropriate because the tenant’s interrupted trading did not provide a proper basis for an award of expectation loss damages; (6) The finding that the landlord had not discharged its onus of establishing that the tenant would not have recovered its expenditure was not vitiated by legal error: Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 applied: (7) The findings of the Tribunal and the Appeal Panel that the landlord had engaged in unconscionable conduct contrary to s 62B(1) of the Retail Leases Act was not vitiated by legal error; (8) The orders for costs against the landlord made by the Tribunal and the Appeal Panel were within in the powers conferred by s 88 of the Administrative Decisions Tribunal Act; (9) There is no appeal under s 119(1A)(c) of the Tribunal Act to the Supreme Court as of right against a decision of the Appeal as to costs. Such an appeal only lies by leave, even if the challenge forms part of a larger appeal on genuine grounds of substance: Wheeler v Somerfield [1966] 2 QB 94 CA distinguished.

ORDERS

(1) Appeal as to Grounds 1 -- 15 dismissed;

(2) Leave to appeal in respect of Grounds 16 -- 22 refused;

(3) Appellant to pay the respondent's costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

2009/298267

TOBIAS JA

CAMPBELL JA

HANDLEY AJA

Thursday 15 April 2010

WORLD BEST HOLDINGS LIMITED v SARKER

Judgment

1 TOBIAS JA: I agree with Handley AJA.

2 CAMPBELL JA: I agree with Handley AJA.

3 HANDLEY AJA: This is an appeal as of right by a landlord from a decision of the Appeal Panel of the Administrative Decisions Tribunal (the Panel) which affirmed the decision of the Tribunal (Acting Judge M Chesterman and assessors) in a retail tenancy case. The Tribunal declared that the landlord's notices of termination of 25 July and 14 November 2003 were invalid and that it had repudiated the lease. It awarded the tenant damages of $72,223.79 for breach of the lease and unconscionable conduct, and dismissed the landlord's application for declarations and damages (Sarker v World Best Holdings Ltd (No 4) [2008] ADT 75.)

4 The Tribunal subsequently ordered the landlord to pay pre-judgment interest on the damages and the tenant's costs of the proceedings other than the costs of the hearing on a preliminary point on which the tenant failed (Sarker v World Best Holdings Ltd (No 5) [2008] ADT 179.

5 The landlord's appeal to the Panel, limited to errors of law, was dismissed: [2009] NSW ADTAP 13. The landlord appealed to this Court under s 119(1) of the Administrative Decisions Tribunal Act (the Tribunal Act), which allows an appeal "on a question of law against any decision of the Appeal Panel".

6 The amended notice of appeal contained 22 grounds, two of which were not pressed. Six related to the validity of the landlord's notices of termination and the construction of the permitted use clause in the lease. Two challenged the finding that the landlord had repudiated the lease and the tenant had validly terminated on that ground. The award of reliance-based damages was challenged, four grounds of appeal challenged the finding that the landlord's conduct had been unconscionable, two challenged the award of costs by the Tribunal, and five challenged the award of costs by the Panel.

The construction of the permitted use clause.

7 The tenant’s retail lease of Shop 48B in the Minto Mall Shopping Centre, for a term of three years with an option of renewal for three years, took effect as a legal lease on 1 July 2003 after he went into possession and began to pay rent, although the lease was neither executed by the landlord nor registered under the Real Property Act. Section 8(1) of the Retail Leases Act 1994 provides:

"For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first)".

8 Clause 18.1 of the lease provided:

"You must use the Premises only for the Permitted Use in Item 13."

9 Item 13 in the Reference Schedule provided:

"Item 13 Permitted Use

(Clause 18) Asian Supermarket” [grocery store in typescript

had been struck out and supermarket added in

handwriting]

10 Special Condition 33.5 provided:

"Notwithstanding any other provisions to the contrary herein We will not permit any other tenant to operate an Asian Grocery Shop within the Centre without your prior consent during Your occupancy of the Premises."

The landlord’s disclosure statement to the tenant (Blue 12-13) described the permitted use as “Asian Grocery” and “Asian Grocery Shop”.

11 This litigation, now late in its sixth year, arose because the landlord let Shop 48B to the tenant for use as an Asian Supermarket having previously let Shop 50A to Dhaka Corporation Pty Ltd (Dhaka) with permitted uses which included the retail sale of Indian grocery (sic) and spices, halal meat and poultry with the following covenant by the landlord:

"4. We agree that if You [Dhaka] are not in default under this Lease You will be the exclusive retailers of Indian groceries and halal meat during the term of this Lease and any renewal thereof."

12 In 2003 Dhaka’s lease had many years to run and it was not in default. The tenant knew that this shop was selling Indian groceries and halal meats but was not aware of the terms of its permitted user clause or the landlord’s covenant for exclusivity in that lease. These matters were not background facts known to both parties when the subject lease was entered into.

13 The landlord claimed that the tenant was in breach of an oral term, agreed with the landlord’s letting manager Ms Tracey James, that "Asian" in the tenant's user covenant meant South East and East Asian, and did not include the countries of the Indian subcontinent (India, Pakistan and Bangladesh).

14 The Tribunal found that there was no oral term. The landlord did not rely on the user clause, but the Tribunal was satisfied that there had been no breach ([159], [257]).

15 The landlord's case before the Panel on the tenant’s trading was based on the user clause. Its claim that the Tribunal erred in law by failing to construe the clause was rejected ([65-67]):

"The Tribunal did not deal in its reasons with the question whether the term ‘Asian grocery’ properly construed extended to Indian food products ... (66) The Tribunal's reasons are detailed and closely reasoned. It would be surprising, to say the least, that the Tribunal would have failed to identify as a major plank of the appellant's case that the question of the proper textual construction of the ‘permitted use’ clause was seriously in issue. (67) The appellant's case at hearing was that the ‘permitted use’ clause was to be read down by reference to the oral communications between the parties. This case failed on the evidence. The Tribunal was not, in our opinion, called on to address the further issue of whether absent the oral variation the words in the lease had the limited meaning now suggested."

16 The Panel dealt with the question of construction as follows ([69-71]):

"In our view ... Mr Sarker succeeded in his objective of obtaining a description that allowed him to trade in any groceries distinctive to the Asian region, and that therefore included South Asian groceries, in particular Indian groceries. ... (70) we acknowledge that many Australians may tend to see ‘Asian’ when used in connection with groceries or restaurant cuisine as referring to items with a Chinese, Japanese, Vietnamese or Thai provenance, as distinct from, say, items with an Indian or, for example, Persian provenance. (71) Nevertheless the word ‘Asia’ in its ordinary meaning encompasses all of the countries or regions mentioned (as well as many others). A prudent lessor would, we believe, have been extremely careful to delimit the meaning of Asian to exclude Indian in circumstances where an exclusive use had been given to an incumbent lessee in a nearby shop to trade in Indian food items."

17 The Panel referred to, and apparently relied on, the negotiations which preceded the grant of the lease but these were only admissible on questions of construction to the extent to which they revealed the existence of objective background facts known to both parties when the contract was entered into. The relevant principles are those stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24, 149 CLR 337 at 352, subject to the qualification that the High Court now accepts that evidence of surrounding circumstances is admissible in all cases, and not just where the language on its face is ambiguous. The cases are conveniently collected in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 paras [14]-[18], [42]-[43], [63], [239]-[305]. In Codelfa Mason J said at 352:

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although ..., if the facts are notorious knowledge of them will be presumed ... Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they had this tendency they are admissible. In so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable ... Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting."

18 The Panel also referred to and apparently relied on the subsequent conduct of the parties in construing the user clause. This too was irrelevant and should not have been taken into account.

19 The controversy about the relevance of subsequent conduct as an aid to the construction of a contract was settled by Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57, 238 CLR 570, 582 para [35] where Gummow, Hayne and Kiefel JJ, with a concurrence of Heydon J, referred to:

"... the general principle that ‘it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made."

20 The irrelevance and inadmissibility of post-contractual conduct as an aid to construction was confirmed in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407.

21 The Panel therefore erred in taking into account, as an aid to construction, the pre-contractual negotiations, and the post-contractual conduct of the parties. Nevertheless in my judgment those errors were not material and the Panel's construction of the user clause was correct.

22 In the passage quoted above at [14] the Panel reasoned that "Asia" in its ordinary meaning included the Indian sub-continent. The landlord relied on a special or qualified meaning that was not supported by the text or the context. The Court should, if that is really necessary, apply the "contra proferentem" principle that, in the last resort, contracts and grants are construed against the party preparing and proffering the text or making the grant, in this case the landlord. The problem discussed in North v Marina [2003] NSWSC 64, 11 BPR 21, 359 at [57-[72] where the proferror and the grantor are different does not arise. The principle and the authorities which support it are discussed in Broom’s Legal Maxims 10^th ed 1939 at p 402 & foll. In my judgment the sale of Indian groceries and halal meat was not a breach of the tenant’s covenant to use the premises only as an Asian supermarket.

Validity of the notices of termination.

23 The first notice of termination of 25 July 2003 (Blue 70) alleged breaches of cll 20.2 and 33.1 of the lease which obliged the tenant to fit-out the shop in accordance with the landlord’s Minto Mall Fit-out Manual, and the other provisions in cl 20.2. It also alleged a breach of cl 13.2 by failing on or before the commencement date of 1 July 2003, to provide a Bank Guarantee for $12,127.50 (Reference Schedule Item 17).

24 The notice then stated:

"You have repudiated your obligations under the lease, in particular in relation to compliance with the Tenancy Fit-out Guide, the quality of the fit-out, the amount to be expended and provision of the bank guarantee."

25 The notice, which do not comply with s 129 of the Conveyancing Act, was in terms given pursuant to cll 24.1 and 24.2 of the lease. The former provided that the tenant's obligations under cll 13 and 20 "are essential terms of this lease". Clause 24.2 provided, so far as relevant:

"24.2 We may end this lease by giving you notice or by re-entry if you:

(a) repudiate your obligations under this lease;

(b) do not comply with an essential term of this lease ...”.

26 The Tribunal held that the landlord was estopped from relying on the tenant's failure to provide the bank guarantee by the due date. This finding was upheld by the Panel and Mr Angyal SC, who appeared for the landlord, did not press the grounds of appeal directed to this part of the Panel’s decision.

27 The Tribunal found that there have been breaches of the tenant's covenants relating to the fit-out, which were fundamental terms, but the tenant had not repudiated the lease. These findings were upheld by the Panel, and were not vitiated by legal error. There was no evidence that the tenant “evinced an intention no longer to be bound by the contract, or to fulfil it only in a manner substantially inconsistent with his obligations”: Shevill v Builders Licensing Board [1982] HCA 47, 149 CLR 620, 625-6 per Gibbs CJ.

28 The landlord invoked the principle in Shepherd v Felt & Textiles of Australia Ltd [1931] HCA 21, 45 CLR 359, 377-8 that the innocent party may support its termination of the contract by reference to conduct which it had not relied on at the time. The conduct relied on was a breach of the user covenant but there was no such breach and the principle does not help the landlord.

29 The first notice can only be supported as a notice of termination under cl 24.2(b) for breach of essential terms but this raises the application of s 129 of the Conveyancing Act in such cases.

30 Section 129(1) of the Conveyancing Act provides:

"(1) A right of re-entry or forfeiture under any proviso or stipulation in the lease, for a breach of any covenant, condition or agreement ... in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach."

31 The section applies in terms to the notice of termination. However the landlord relies on decisions that a lease, like any other contract, may be repudiated, and s 129(1) and its equivalents do not affect the right of an innocent party to accept a repudiation and terminate the lease.

32 The Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14, 157 CLR 17, 29, 34, 38, 53 and 56 established that the ordinary principles of contract are applicable to contractual leases and the principle was recently applied in Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10, 234 CLR 237.

33 Those cases involved repudiations by tenants of their obligations to pay rent. The principle was applied to repudiation by a landlord in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23, 166 CLR 623. The cases were reviewed by Williams AJA in Apriaden Pty Ltd v Seacrest Pty Ltd [2005] VSCA 139, 12 VR 314 at 328-335. Her analysis demonstrates that the views expressed in this Court in Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105, and J&C Reid Pty Ltd v Abaw Holdings Pty Ltd (1988) NSW Conv R 55416 that a leasehold estate cannot be forfeited simply by accepting the tenant’s repudiation can no longer be accepted.

34 Section 129 does not affect the landlord's remedies for non-payment of rent (s 129(8)). The High Court has not yet considered the effect of s 129 on the landlord's contractual right to terminate the lease for non-repudiatory breaches of other fundamental terms.

35 That question arose in this Court in Marshall v Council of the Shire of Snowy River (1994) 7 BPR 14,447. In 1988 the Council agreed to lease the subject property to the appellant for five years with options for renewal. The tenant was obliged to pay the rates which were deemed to be rent (ibid at 14,445 per Kirby P). The lease was never registered.

36 In May 1994 the Council gave the tenant notice of termination relying on various breaches of fundamental terms, including his refusal to pay the rates since 1988. The notice also claimed that the tenant had repudiated the agreement (ibid at 14,453).

37 The tenant's application for relief against forfeiture failed before McLelland J and his appeal was unanimously dismissed. Kirby P, who agreed "basically" with the reasons of Meagher JA (ibid at 14,454), held that s 129 did not apply. The tenant, by repudiating the agreement for lease, had lost the right to specific performance and did not have an equitable lease within the definition of lease in s 128. His breaches of the covenant to pay rent in the form of rates brought the case within the exclusion in s 129(8) previously referred to. His only right to possession, as a legal tenant at will under s 127 of the Conveyancing Act, had been terminated by the notice.

38 Meagher JA, with the approval of Powell JA, added the following at p 14, 457:

"... a lease being a contract, where one party to it repudiates it or commits a fundamental breach or a breach of one of its essential terms, the other party may ‘accept’ the repudiation or breach and terminate the lease. In such a case the lessor, presuming him ... to be the innocent party, will have two rights: first, a contractual right to terminate the lease by re-entry for breach of covenant ... and secondly, on the application of the ordinary principles of contract law to terminate for breach. If he relies on the former right he must comply with s 129 of the Conveyancing Act before re-entry; if, as here, he relies on the latter right, s 129 becomes an irrelevance."

39 His Honour’s reference to termination by a landlord for fundamental breach, not amounting to a repudiation, was clearly dicta. The appeal was to be dismissed for reasons already given. The tenant did not have the protection of s 129 as he had in fact repudiated the agreement for lease and the landlord had accepted that repudiation. The landlord's remedies for non-repudiatory breaches of fundamental terms, other than for payment of rent, did not arise for decision.

40 Marshall was referred to by the Victorian Court of Appeal in Apriaden Pty Ltd v Seacrest Pty Ltd (above), at 332-3, 335 but only for the proposition that a landlord may terminate for repudiation without complying with s 129(1) or its equivalent.

41 This Court is not bound by the dicta of its Judges although they will receive respectful consideration when the question arises for decision. In the present case I am persuaded that Homer nodded and that the dicta in question should not be followed.

42 Section 129(1) applies where a landlord wishes to terminate the lease "for a breach of any covenant, condition or agreement ... in the lease". It may be accepted that the tenant's repudiation of the lease is not within this language and that the landlord’s common law right to accept the repudiation and terminate the lease is not affected.

43 Breaches of contract or covenant, falling short of repudiation, fall squarely within the language of the section. The Court must start with the section and give full effect to its language. There is nothing, other than the dicta in Marshall, to support the view that compliance with the section is optional so that a landlord is free to choose between exercising an express right of termination or forfeiture which required compliance with s 129, and his common law right of termination for fundamental breach where that is not necessary.

44 A landlord cannot contract out of s 129(1) by making any or all of the tenant’s covenants essential terms, and providing that any breach or fundamental breach thereof will give rise to a right of termination. Section 129 exists for the protection of tenants, and subs (10) provides that it "shall have effect notwithstanding any stipulation to the contrary".

45 The first notice of termination did not comply with s 129 and was therefore invalid and of no effect.

46 The second notice of termination dated 14 November 2003 (Orange 114) stated that the lease "makes provision for the following" and referred to clauses imposing obligations on the tenant for the payment of rent and the conduct and quality of the fit-out. It then alleged various breaches of those clauses and added at the end, without reference to the user clause, the claim:

"F. You are trading in Indian groceries contrary to the permitted use."

47 It concluded with the allegation that the tenant had "repudiated essential obligations under the lease as set out above. As a consequence ... pursuant to cl 24.2 of the lease ... your lease ... is terminated." This entitled the landlord to end the lease by notice or re-entry if the tenant repudiated his obligations or did not comply with an essential term.

48 The reasons for concluding that the first notice was invalid, insofar as it relied on non-repudiatory breaches of covenant by the tenant, apply with equal force to those parts of the second notice. It fell outside s 129 only in so far as it relied on the tenant's repudiation and his failure to pay rent. The Panel found that there had been no such repudiation, and that there was no evidence the tenant was in arrears with his rent when the notice was given. There were no breaches of his user obligation.

49 The remaining breaches related to the conduct and quality of the fit-out. The Tribunal said that there was some basis for characterising these breaches as repudiatory because ([220]):

"... they involved failure by him to comply with his fit-out obligations, despite the clear indications in the first notice that [the landlord] treated compliance as important, over an additional period of nearly five months."

50 However the landlord's conduct during this period also had to be taken into account. The first notice was given on 25 July and the landlord locked out the tenant on 27 July. He regained possession pursuant to orders of the Supreme Court on 31 July but the landlord did not return all his stock until 4 August ([112]). The proceedings were then remitted to the Tribunal.

51 On 8 August the tenant applied for the landlord's consent to his application to the Campbelltown City Council for development approval for his fit-out. This was required both by law and by the terms of the lease but on 12 August consent was refused. On 15 August the tenant applied to the Tribunal for an order requiring the landlord to give its consent.

52 That order was made on 21 August but the landlord appealed and applied to the Panel for a stay. When this was refused it consented to the application (Tribunal [116]-[118]).

53 On 19 September the Council granted consent to the development application but required the tenant to install a hand basin served with hot and cold water. His plumber needed access to the common property but on 23 September the landlord refused access.

54 The landlord maintained its refusal and on 15 October the tenant applied to the Tribunal for an order granting the necessary access. On 24 October the Tribunal made that order by consent (Tribunal [122]-[125]).

55 On 5 September the landlord filed a cross application in the Tribunal seeking a declaration that the lease had been validly terminated by the first notice, an order rectifying the lease to exclude Indian groceries and halal meats from the permitted user clause, and a declaration of unconscionable conduct by the tenant in trading in breach of an oral agreement.

56 On 28 October the landlord threatened proceedings to restrain the sale of Indian groceries and halal meats and it made that application to the Tribunal on 12 November. The second notice was served on the 14^th (Tribunal [120], [126], [129]). On 7 November the tenant resumed trading for the first time since his eviction on 27 July.

57 He was confronted, throughout the period between the two notices, with the landlord's continuing repudiation and other acts of obstruction which delayed his fit-out. He continued to pay rent without trading until a few days before the second notice was given.

58 There are concurrent findings by the Tribunal and the Panel that the tenant had not repudiated the lease prior to the second notice. The Panel said ([75]):

"... the Tribunal gave cogent reasons for not treating the second termination notice as effective. [The landlord] had impeded [the tenant’s] ability to progress the fit-out by refusing to give approval to the development application and by impeding plumber access. It had not accepted that Mr Sarker was lawfully in occupation as a tenant. To adapt the language of Dixon CJ in Peter Turnbull, especially at 246-8, [the landlord] had persistently maintained that [the tenant] had no lawful right to remain in occupation as a tenant and he had no co-operated at crucial points in enabling him to proceed with the fit-out. In these circumstances [the landlord] could not treat [the tenant’s] failure to complete the fit-out satisfactorily as a breach entitling it to terminate the contract. [The tenant] was entitled to be excused from ‘literal compliance’ with the terms of the lease."

59 Mr Angyal submitted that the tenant's obligations remained in force because he did not elect to terminate the lease. This is correct but the landlord cannot complain of any breaches if he has prevented or obstructed performance by the tenant.

60 The relevant principle, cited by the Panel, is that stated by Sir Owen Dixon in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25, 90 CLR 235, 246:

"Now, long before the doctrine of anticipatory breach of contract was developed it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof."

61 This statement was cited with apparent approval in Foran v Wight [1989] HCA 51, 168 CLR 385, at 418, 445, 456. The underlying principle is that the law will not permit a party to take advantage of his own wrong: New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1; Panamena Europa Navigacion (Compania Limitada) v Frederick Leyland & Co Ltd. [1947] AC 428, 436; Suttor v Gundowda Pty Ltd [1950] HCA 35, 81 CLR 418, 440-1; Alghussein Establishment v Eton College [1988] 1 WLR 587 HL. In Roberts v Bury Improvement Commissioners (1870) LR 5 CP 310, 329 Kelly CB expressed the principle as follows:

"The rule of law applies which exonerates one of two contracting parties from the performance of a contract where the performance of it is prevented or rendered impossible by the wrongful act of the other contracting party."

62 As Gaudron J said in Foran v Wight [1989] HCA 51, 168 CLR at 458:

"In such a case it is said that the contract continues on foot. But it continues on foot in what is, in effect, varied form. It is transformed from one requiring performance at a specified time to one requiring performance within a reasonable time".

63 The tenant's obligations under the fit-out covenants continued, but in a modified form requiring performance within a reasonable time after the last of the landlord's acts of obstruction. The tenant had not repudiated his obligations under the lease and the second notice was also invalid.

Election

64 On 12 February 2004 the landlord served a notice under s 129 requiring the tenant to remedy breaches of his obligation under cl 18.2 to trade during core trading hours. On 22 or 28 February the tenant ceased to trade and on 24 February the tenant's solicitors wrote to the solicitors for the landlord purporting to accept the landlord's repudiation.

65 On 1 or 2 March the shop was empty, and the tenant returned the keys. The premises were re-let on 28 April.

66 Grounds 9 and 10 in the notice of appeal challenged the Panel's decision that the landlord had repudiated and the tenant had validly terminated the lease. Despite their width the only point argued by Mr Angyal was that the tenant had elected to affirm the lease by keeping "on foot" the Supreme Court injunction protecting his possession, and by leaving on the file a claim for relief against forfeiture (t.49).

67 The order in question (Blue 73) dated 31 July 2003 relevantly provided:

"That the Defendant be restrained from interfering with the

Plaintiff's possession of the said premises".

68 The tenant’s second further amended summons in the Tribunal of 2 October 2007 (Red 8) claimed various orders including (Order 4) a declaration that the landlord had repudiated the lease, (Order 5) damages for the landlord's repudiation, and (Order 6) alternatively relief against forfeiture.

69 An election to terminate for repudiation or fundamental breach must be communicated to the guilty party by an unequivocal act or statement that the innocent party is treating the contract as at an end: Lakshmijit v Sherani [1974] AC 605, 616; The Mihalios Xilas [1979] 1 WLR 1008 HL, 1024; and Vitol SA v Norelf Ltd [1996] AC 800, 810. In the latter case Lord Steyn said:

"An act of acceptance of a repudiation requires no particular form: communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that the aggrieved party is treating the contract as at an end."

70 There was nothing equivocal about the letter from the tenant's solicitors of 24 February 2004 or the tenant's conduct in vacating the shop and returning the keys. The tenant’s election took effect on 2 March at the latest, and being unequivocal the lease then came to an end. The landlord was in no doubt because it re-let the premises on 28 April. However it was submitted that ambiguity was introduced by the continuing injunction and the standing claim for relief against forfeiture.

71 The injunction became inoperative when the tenant gave vacant possession to the landlord because he no longer had any possession to be protected. His continuing claim for relief against forfeiture was itself equivocal. It may only have been an alternative to the declaration sought in Order 1 that the landlord's notices of termination were invalid. In any event its passive retention could not possibly have misled the landlord and did not.

72 Mr Angyal relied on the exchange before the Tribunal on 2 October 2007, the first day of the rehearing, when he applied for the order of the Supreme Court to be dissolved (Black 34). Mr Ashhurst, counsel for the tenant, then submitted that this was not "appropriate or necessary" (ibid 35) because the orders were "otiose" and of no continuing relevance. Later he said that the claim to relief against forfeiture could still be relevant to the tenant's claim for damages.

73 The composite election evidenced by the solicitor's letter and the return of the keys occurred in February-March 2004 and brought the lease to an end. Submissions by the tenant's counsel in October 2007, even if otherwise relevant, could not make equivocal what was earlier unequivocal or reverse the earlier termination. The election point fails.

Reliance damages

74 The Tribunal awarded damages of $72,223.79 for the tenant's reliance losses because it found ([246]-[247]):

"... the profits obtained by [the tenant] during the first few days after commencement of his business provide inadequate guidance as to how profitable his business would have been if it had been allowed to proceed unhindered ... the failure of [the landlord] to tender any evidence showing that [the tenant], if permitted to maintain his tenancy for the agreed period would have failed to recoup the expenditure reasonably incurred by him in connection with the Lease, has the consequence that [the tenant] is entitled to claim this expenditure as damages for breach of contract."

75 The award was affirmed by the Panel because, as it held, ([81]):

"There was only the barest information as to the possible profitability of [the tenant’s] business. He had trading figures from his three days of operation in July 2003 ... In our view it would be commercially impossible to come up with any reliable indication of the long-term level of profitability (or otherwise) of the business on the basis of his trading experience over the two months - mid-November to mid-January".

76 Mr Angyal relied on the tenant's evidence that his average profit over his first three days trading was $107.14 a day, and submitted that damages should have been awarded at this rate for 50 days. The reason for selecting a multiplier of 50 days is not apparent. The lease was for three years with an option for a further three years and expectation loss damages could have been awarded at that rate for the whole period, discounted to a present value, for a substantially larger sum.

77 Mr Angyal also complained that the Tribunal treated the landlord as having the onus of proving that the prima facie measure of damages for reliance loss should be reduced because the business would not have been profitable ([74] above). The Panel did not deal with this point in terms, but implicitly endorsed it. In my judgment the Panel did not fall into legal error in doing so.

78 Reliance damages were awarded in The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54, 174 CLR 64 where the onus of proof in such cases was considered at some length. Mason CJ and Dawson J said at 89:

"... a plaintiff has a prima facie case for recovery of wasted expenditure once it is established that the expense was incurred in reliance of a promise of the party in breach, there being a failure of performance by that party ... it is just and fair that the repudiating party should bear the onus of showing that the party not in breach would have made a loss on the contract."

79 Brennan J said at 105 (see also at 107):

"... when a contract is rescinded for breach and that breach, by preventing the performance of the contract, has made it impossible for the plaintiff to prove that the net value of his contractual benefits ... exceeds the wasted expenditure incurred in reliance on the defendant's promise prior to rescission ... it is just to shift to the defendant the ultimate onus of showing that, had the contract been performed, the net value of the plaintiff's benefits would not have covered the expenditure he had incurred before rescission."

80 Deane J held (at 131) that there was:

"a presumption that the value of the contractual benefits ... would have at least equalled the expenditure incurred in obtaining the contract and in performance of it on its part. Clearly enough [it is] impossible for the Commonwealth to demonstrate that the total monetary value of any benefits which would have been derived by Amann from full performance would have been less than the total of its net expenditure."

81 The other Judges held that the onus of proving reliance damages is on the plaintiff throughout. However a prima facie case may arise from the Court's assumption that if the contract had been fully performed the plaintiff would, at least, have recovered his expenditure. The defendant will then have an evidentiary onus and, in the absence of further evidence, damages for the plaintiff’s full reliance loss may be awarded: see per Toohey J at 142-3, per Gaudron J at 155-7, and per McHugh J at 165.

82 There was majority support in Amann for a legal onus on the landlord of proving that damages for the tenant's full reliance loss should not be awarded. Even if it only had an evidentiary onus this was not discharged. It called no evidence on this issue, and nothing of relevance was established in the cross-examination of the tenant. The landlord's challenge, on legal grounds, to the award of reliance damages fails.

Unconscionability

83 The Tribunal and the Panel held that the landlord's conduct from service of the first notice of termination onwards was unconscionable and in breach of the proscription in s 62B(1) of the Retail Leases Act which provides:

"(1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable."

84 The Tribunal based its award of damages on the landlord's repudiation and on its unconscionable conduct. Its decision on both grounds was affirmed, although the Panel recognized that it was not necessary to deal with unconscionability. The issues will be relevant to the landlord's challenges to the costs orders.

85 The Act does not contain a definition of unconscionability but s 62B(3) lists matters to which the Tribunal "may have regard" in determining whether a landlord has contravened subs (1). The more relevant are:

"(a) the relative strengths of the bargaining positions of the lessor and lessee, and

...

(d) whether any undue ... pressure was exerted on, or any unfair tactics were used against, the lessee ... by the lessor ..., and

...

(k) the extent to which the lessor and lessee acted in good faith."

86 Subsection (5) provides:

"A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that [he] institutes legal proceedings in relation to that lease ...".

87 The Tribunal found that the following matters provided ample basis for a finding of unconscionable conduct ([249], [254], [257], [259]):

(a) serving the first termination notice and evicting the tenant without giving him an opportunity to rectify the breaches, when the fit-out was not complete, in breach of the extension of time it had granted for the delivery of the Bank Guarantee, without attempting to comply with s 129 of the Conveyancing Act and when the notice falsely claimed that the breaches had been drawn to the tenant's attention;

(b) detaining the tenant’s stock between 31 July and 4 August without justification or excuse;

(c) refusing to consent to the tenant's development application forcing him to go to the Tribunal for the necessary order;

(d) appealing to the Panel and seeking a stay of the Tribunal's order when it ‘must have known that the appeal had no prospects of success’;

(e) refusing to give the tenant’s plumber access to the common property forcing the tenant to go to the Tribunal for the necessary order, and then consenting to the order, acknowledging that it had no defence;

(f) applying on 12 November for an injunction to restrain the sale of Indian groceries and halal meats in breach of an alleged oral term. This was dismissed by the Tribunal on 28 November because there was no "significant likelihood that the version that it puts forward ... of a conversation ... would be accepted" (para [132]). That version was rejected by the Tribunal after a trial;

(g) serving the second invalid notice of termination on 14 November without attempting to comply with s 129 of the Conveyancing Act on grounds which could not be supported.

88 The Tribunal found ([257]) that the landlord:

"... employed a wide range of tactics to put pressure on [the tenant] either to abandon the Premises or to accept a restriction on his activities ... to which, according to a key finding of the Tribunal, he had not agreed in the course of negotiations with [the landlord] and which could not fairly be imposed on him after he had entered into possession and commenced trading."

89 The Tribunal also found that the landlord was not protected by s 62B(5) because the finding of unconscionable conduct was not "by reason only" of instituting legal proceedings.

90 The Panel held that these findings were reasonably open to the Tribunal on the evidence. Indeed most of the primary facts could not be disputed. They considered that the conduct of the landlord " went beyond a level of robustness that might be expected in commercial dealings" ([87]), that it had been hostile, had impeded the tenant's ability to operate his business, and went "well beyond looking to its legitimate self-interest".

91 They directed themselves in accordance with the statements of principle by the Chief Justice in Attorney-General of New South Wales v World Best Holdings Ltd [2005] NSWCA 261; 63 NSWLR 557 [120]-[121]. The landlord's overall conduct, objectively viewed, which the Tribunal found was not undertaken in good faith ([254]), was calculated to wear down the tenant and exhaust his resources. It delayed his resumption of trading and forced him to make or defend applications to the Tribunal where the landlord's position appeared at the time to be unmeritorious and was found to be so at the trial.

92 There is nothing in the reasons of the Panel to indicate that, in upholding the Tribunal's findings of unconscionable conduct, they applied, or must have applied, a less rigorous standard than that identified by the Chief Justice. In my judgment the findings of unconscionable conduct by the Tribunal and the Panel were not vitiated by legal error and cannot be disturbed.

Costs order in the Tribunal

93 The Tribunal ordered the landlord to pay the tenant's costs of the proceedings in the Tribunal, including the costs of the proceedings remitted from the Supreme Court, other than the costs of the hearing on a preliminary issue: [2008] NSWADT 179. Section 88(1) of the Tribunal Act provides:

"Subject to the rules of the Tribunal and any other Act or law, the Tribunal may award costs in relation to proceedings before it, but only if it is satisfied that there are special circumstances warranting an order for costs."

94 In Cripps v G & M Dawson Pty Ltd [2006] NSWCA 81 [60] Santow JA, with whom Mason P and Brownie AJ agreed, found special circumstances because "the circumstances were clearly out of the ordinary and the landlord's conduct grossly unreasonable".

95 The Tribunal reviewed the facts and the history of the proceedings ([74]-[114]) and concluded that the landlord's conduct between 27 July and 28 November 2003 answered this description and justified an award of costs.

96 This decision was challenged before the Panel on 17 grounds alleging that particular findings "were not open to the Tribunal" or that it had failed to "take into account" various matters. Another alleged that it was not open to the Tribunal to find that there were special circumstances warranting an award of costs.

97 One ground of appeal alleged error because the Tribunal did not determine whether the user clause prohibited the tenant selling Indian groceries and halal meats. This was said to fatally undermine another five findings. This ground was misconceived because the landlord's case in its application for an interim injunction and at the final hearing had not included breach of the user clause. In any event the Panel held, correctly in my view ([12] above), that the Tribunal had been satisfied that the user clause allowed the tenant to sell Indian groceries and halal meats.

98 The Panel held that the Tribunal had acted within the wide bounds of its discretion as to costs and upheld that order.

99 The landlord challenged this decision (grounds 16 -- 17). The first repeated the claim that a finding of special circumstances was not open because the Tribunal had not ruled on the construction of the user clause. The second repeated the claim that the Tribunal had not taken into account certain behaviour of the tenant. Neither ground raises any question of law of substance. In my judgment the decision of the Panel to affirm the award of costs by the Tribunal was not vitiated by legal error and cannot be disturbed.

The costs order in the Panel

The Panel ordered the landlord to pay the tenant's costs of the appeal to the Panel: [2009] NSWADTAP 55. This was challenged on four grounds in the amended notice of appeal. Two (19 and 20) challenged the Panel's decision that an order for costs at first instance was a relevant factor. Ground 18 alleged that the Panel failed to consider whether it was fair to award costs having regard to the relevant factors. Ground 21 was based on the claim that the tenant had traded in breach of the user clause.

100 The Panel's power to make an order for costs was defined by s 88 of the Tribunal Act as amended by Act No. 77 of 2008. The question is whether it would be "fair" to make such an order having regard to a series of factors which included (s 88(1A)(a)(v)) attempting to deceive the Tribunal (found by the Tribunal); (s 88(1A)(a)(vi)) vexatiously conducting the proceedings (found by the Tribunal); (s 88(1A)(c)) the relative strengths of the claims of the parties and whether a claim had no tenable basis (found by the Tribunal and the Panel); and (s 88(1A)(e)) any other matter the Tribunal considers relevant.

101 The width and open-ended nature of the factors mentioned in s 88(1A), particularly that in para (e), makes it very difficult to identify an error of law in a finding that a particular matter is relevant. In my judgment the landlord did not come close to discharging that onus. There is no substance in any of these grounds. The order for costs made by the Panel was not vitiated by legal error and cannot be disturbed.

The requirement for leave to appeal

102 Section 119(1A)(c) of the Tribunal Act provides so far as relevant:

"... an appeal does not lie to the Supreme Court against any of the following decisions of the Appeal Panel except by leave of the Supreme Court:

(a) ...

(b) ...

(c) a decision as to costs.”

103 Section 101(2)(c) of the Supreme Court Act requires leave to appeal to this Court from a decision in a Division "as to costs only which are in the discretion of the Court". In Wheeler v Somerfield [1966] 2 QB 94 the Court of Appeal held that it could hear an appeal as to costs which was part of a larger appeal based on genuine grounds of substance, although those grounds failed, because such an appeal is not as to "costs only".

104 This construction is not open in relation to s 119(1A)(c) of the Tribunal Act where the word "only" does not appear. In my judgment the grounds of appeal which challenged the Panel's decisions to dismiss the landlord's appeal from the order for costs made by the Tribunal and award costs of the proceedings before the Panel were incompetent without leave. The relevant grounds, as allegations of legal error, lacked substance and I would refuse leave to appeal on those grounds.

105 The following orders should be made:

(1) Appeal as to Grounds 1 -- 15 dismissed;

(2) Leave to appeal in respect of Grounds 16 -- 22 refused;

(3) Appellant to pay the respondent's costs.

**********

AMENDMENTS:


13/10/2010 - Error made - hearing date should be 25/02/10 - Paragraph(s) coversheet


LAST UPDATED:
13 October 2010