Alliswell Pty Ltd v Macdav Pty Ltd
[2002] VSC 87
•27 March 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 8280 of 2001
IN THE MATTER OF SECTION 148(1) OF THE VICTORIAN CIVIL
AND ADMINISTRATIVE TRIBUNAL ACT 1998
| ALLISWELL PTY LTD (ACN 006 741 448) | Appellant |
| v | |
| MACDAV PTY LTD (ACN 087 439 601) | Respondent |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 22 and 25 March 2002 | |
DATE OF JUDGMENT: | 27 March 2002 | |
CASE MAY BE CITED AS: | Alliswell Pty Ltd v Macdav Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 87 | |
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Landlord and Tenant – termination of lease - re-entry for late payment of rent – whether acceptance of late payment before re-entry precludes re-entry - waiver.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr M. Heaton QC and Mr J.B. Nunns | Kliger Partners |
| For the Respondent | Mr S.E. Marantelli | Wisewoulds |
HIS HONOUR:
Alliswell Pty Ltd (“the Lessor”) appeals by leave against an order of the Victorian Civil and Administrative Tribunal made on 30 October 2001 in favour of Macdav Pty Ltd (“the Lessee”). The matter before the Tribunal was a claim by the Lessee for damages for the wrongful determination of a retail lease by the Lessor’s re-entry on 1 May 2000. The Tribunal concluded that the re-entry was not justified by the lease and that it amounted to a repudiation by the Lessor of the lease. It made an order that the Lessor pay to the Lessee damages in the sum of $45,000 and exemplary damages in the sum of $15,000. There is no challenge to the quantum of these damages; the issue is as to the entitlement to re-enter.
The facts of this case as found by the Tribunal may be shortly stated. The lease entered into between the Lessor and Gosbin 114 Pty Ltd is dated 29 August 1995. In it, the Lessor granted a term of three years with two three-year options of the shop premises situated at and known as Shop 15 Glenferrie Market Shopping Centre in Glenferrie Road, Hawthorn. The permitted use was that of butcher. The first option was exercised in 1998. Gosbin, at some stage, assigned the lease to a Mr Marolis who, in 1999, assigned it to the Lessee, a company whose principals were Mr McCrae and his son.
Under the terms of the lease, the Lessee is obliged to pay a base rent which is fixed, subject to periodic adjustment, a turnover rent, outgoings and various other sums. The base rent was payable monthly in advance on the first day of the month.
The Lessee did not pay the April rent on the first of that month, nor, indeed, on any day in April. The Lessor had as its managing agent Snow Group Retail Property Services (Aust) Pty Ltd whose office was in South Melbourne. Rent was collected by a rent collector, one Mr Broomhall, perhaps an employee of Snow Group.
In the last week of April 2000 Mr Broomhall telephoned Mr McCrae, senior, saying that he was running late in the rent collection and, later, that he would be away on the coming weekend of 28 and 29 April. He suggested that Mr McCrae hand deliver the April rent to the Snow Group office first thing on Monday 1 May and that they should make sure that the May rent was paid on time.
At about 9 am on 1 May Mr McCrae, senior, drove to South Melbourne and left with the receptionist at the Snow Group office a cheque for the base rent and the April outgoings.
Later on the same day, at 8 pm, the McCraes went to the butcher’s shop where they found Allen Banton, an officer of Snow Group, Mr Broomhall, two security guards and a locksmith. Mr Banton announced that the Lessor was making a re-entry, he handed to the McCraes a Notice of Re-entry and the locks were changed.
Following this, the McCraes handed to Mr Banton a cheque post-dated 6 May 2000 for the May rent. Mr Banton told them that this cheque was received for April rent and that the cheque delivered earlier that day had been applied for the May rent.
The contention of the Lessee was that this re-entry was void and was a repudiation of the lease by the Lessor which it accepted by notice given on 23 June 2000.
The relevant provisions of the lease dealing with determination are found in cl. 10 as follows:
“10. DEFAULT, TERMINATION
10.1 Default:
If:
(a) Rent in arrears:
the Rent or any part of it is in arrears and unpaid for seven (7) days next after any of the due dates for payment (whether demanded or not and no demand shall be necessary); or
(b) Failure to pay other moneys:
any moneys (other than Rent) payable by the Lessee to the Lessor on demand are not paid within seven (7) days of the Lessor demanding payment in writing, or if any other moneys payable by the Lessee to the Lessor are not paid by the due date for payment; or
(c) Failure to effect repairs:
the Lessee fails or refuses to carry out any repairs properly required by any Notice within the time specified in the Notice; or
(d) Failure to perform other covenants:
the Lessee fails to perform or observe properly and/or punctually any of the covenants or conditions contained in this Lease which ought to be performed or observed by the Lessee; or
(e) Assignment for benefit of creditors:
any assignment is made of the property of the Lessee for the benefit of creditors; or
(f) Insolvency:
the Lessee, being a company, enters into liquidation (whether voluntary, compulsory or provisional), or is wound up or dissolved, or enters into a scheme of arrangement for creditors, or is placed under official management, or a receiver and/or manager of any of its assets is appointed
then and in any of such cases the Lessee shall be deemed to have made default. The Lessor may elect to treat any such default as a repudiation of this Lease by the Lessee.
10.2 Forfeiture of Lease:
if the Lessee has made default as specified in Clause 10.1 the Lessor may, without prejudice to any other Claim which the Lessor has or may have or could otherwise have against the Lessee or any other Person in respect of such default, at any time but subject to any prior demand or Notice as is required by Law:
(a) Termination by re-entry:
re-enter into and take possession of the Premises or any part of them (by force if necessary) by itself or by any Person authorised by it and eject the Lessee and all other Persons from the Premises and thereupon this Lease shall absolutely cease and be terminated;
(b) Termination by notice:
by Notice to the Lessee terminate this Lease, and from the date of giving such Notice this Lease shall absolutely cease and be terminated; and/or
(c) Conversion to monthly tenancy:
by Notice to the Lessee elect to convert the unexpired portion of the Term into a tenancy from Month to Month, in which event this Lease shall be terminated as from the giving of such Notice, and thereafter until that Month to Month tenancy is terminated the Lessee shall hold the Premises from the Lessor as tenant from Month to Month pursuant to Clause 3.4.
…
10.4 Waiver:
(a) No waiver:
The Lessor’s failure to take advantage of any default or breach of covenant on the part of the Lessee shall not be or be construed as a waiver of it, nor shall any custom or practice which may grow up between the Parties in the course of administering this Lease be construed to waive or to lessen the right of the Lessor to insist upon the proper and punctual performance or observance by the Lessee of any covenant or condition of this Lease or to exercise any rights given to the Lessor in respect of any such default.
(b) Waiver of individual default:
A waiver by the Lessor of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default.
(c) Acceptance or demand for rent not waiver:
The demand by the Lessor for, or subsequent acceptance by or on behalf of the Lessor of, Rent or any other moneys payable under this Lease shall not constitute a waiver of any earlier breach by the Lessee of any covenant or condition of this Lease, other than the failure of the Lessee to make the particular payment or payments of Rent or other moneys so accepted, regardless of the Lessor’s knowledge of any earlier breach at the time of acceptance of such Rent or other moneys.”
The issue before the Tribunal, as before me, was as to the legal effect of the payment on the morning of 1 May. Argument proceeded on the basis that the purported appropriation by the Lessor of this payment to May rental was ineffective so that this payment discharged the Lessee’s obligation to pay the April rent.
The Tribunal rejected as a matter of construction of the lease the following submission put on behalf of the landlord:
“Once a default in payment of rent had been established and the default extended for a period in excess of seven days there was a vested right of determination existing in favour of the lessor which could not be lost by subsequent payment of the rent.”
The Tribunal was of opinion that the right to determine for default required the Lessor, in terms of the second sentence of cl. 10.1, to elect to treat the default as a repudiation and that this it could not do unless at the time of the election the rent “is” in arrears and unpaid for seven days. Since the act of election relied upon by the Lessor was the re-entry at 8 pm on 1 May and since the April rent was not then in arrears, the election was ineffective as was the re-entry. This is the basis upon which the Tribunal held the Lessee’s claim to be successful.
The question of law raised in the Notice of Appeal dated 30 November 2001 is as follows:
“In respect of a Lease (being Exhibit “RMG3” to the Affidavit of Robert Mark Goldstein sworn 19 November 2001) which provided, inter alia:
’10.1 Default:
If:
(a) Rent in arrears:
the Rent or any part of it is in arrears and unpaid for seven (7) days next after any of the due dates for payment (whether demanded or not and no demand shall be necessary);…
… then and in any of such cases the Lessee shall be deemed to have made default. The Lessor may elect to treat any such default as a repudiation of this Lease by the Lessee.
10.2 Forfeiture of Lease:
If the Lessee has made default as specified in Clause 10.1 the Lessor may, without prejudice to any other Claim which the Lessor has or may have or could otherwise have against the Lessee or any other Person in respect of such default, at any time but subject to any prior demand or Notice as is required by Law:
(a) Termination by re-entry:
re-enter into and take possession of the Premises or any part of them (by force if necessary) by itself or by any Person authorised by it and eject the Lessee and all other Persons from the Premises and thereupon this Lease shall absolutely cease and be terminated;
(b) Termination by notice:
by Notice to the Lessee terminate this Lease, and from the date of giving such Notice this Lease shall absolutely cease and be terminated;’
did the Tribunal err in concluding that by virtue of the Respondent having paid rent after the seven day period, the Appellant was precluded from legally re-entering the premises and/or serving a Notice of Re-Entry on the basis of the ‘deemed default’?”
The scheme of cl. 10 is somewhat obscured by the layout of the provision but its meaning is, to my mind, quite clear. Clause 10.1 creates in its first sentence a number of events which are deemed to be defaults under the lease. Some of these events are actual breaches, for example (a), (b), (c) and (d); others may not be. Nor is any distinction drawn by reference to the trifling nature of the breach or whether the breach is commercially explicable or morally excusable.
Faced with such a default, the Lessor has two options available –
(1)It may elect to treat the default as a repudiation pursuant to the second sentence of cl. 10.1. In such an event, it may accept the repudiation with the consequence that, at common law, it is discharged from further performance and may sue for damages.[1] In addition, this lease by cl. 10.9 confers further rights on the Lessor to seek compensation for all costs suffered as a consequence and damages, and by cl. 10.7 releases the Lessor from all claims by the Lessee as there specified; or
(2)It may terminate the lease by re-entry or by notice or convert the term into a monthly tenancy pursuant to cl. 10.2. Again, cl. 10.9 confers a right to compensation for costs and damages and cl. 10.7 releases the Lessor from the Lessee’s claims.
[1]Shevill v The Builders Licensing Board (1982) 149 CLR 620 at 626, per Gibbs CJ.
It will be apparent that this analysis differs in an important respect from that of the Tribunal. The Tribunal concluded, as a matter of construction, that cl. 10.1, including the second sentence, was tied to cl. 10.2. This meant that, before exercising any right under cl. 10.2, the Lessor must have elected to treat the default as a repudiation. My construction of the two sub-clauses is that the first sentence of cl. 10.1 creates a deemed default. Thereupon, the procedures specified in cl. 10.2 become available, not upon such a default followed by an election to treat it as a repudiation.
The analysis which I have adopted is indicated by the opening words of cl. 10.2; it is confirmed by the distinction drawn in cll. 10.7 and 10.9 between the termination of the lease by acceptance of repudiation pursuant to cl. 10.1 and by re-entry or notice pursuant to cl. 10.2. It is, moreover, consistent with the principle which recognises that a lease, like any contract, may be determined by repudiation or by its own contractual procedures.
In this case, the Lessor adopted the second option: it re-entered and also gave notice of re-entry for breach of the rental covenant which is a deemed default under cl. 10.1(a). This breach was the non-payment of the April rent which fell due for payment on 1 April and which by cl. 10.1 became a deemed default after seven days. The right of the Lessor under cl. 10.2 arises “if the Lessee has made default as specified in Clause 10.1”. The Lessor is entitled to exercise that right “at any time” subject to any requirement of the law that notice or demand be given. There is in this case no such requirement.
Then it is said that, at the time of re-entry, the April rent had been paid and accepted and the May rent had not yet fallen due or was not yet overdue. I say “not fallen due” since the Lessee had the whole of the day within which to make payment on the first day of the month.
The legal effect of the acceptance of the April rent, it was put, was that the Lessor waived its right to forfeit the lease. At common law this is not necessarily the case. Where a Lessor accepts rent after the date of a breach of the lease by the Lessee, the question whether this amounts to a waiver of the right of re-entry for that breach will depend upon whether the rent fell due before or after the breach. If the rent fell due after the breach, its acceptance is taken at common law to be a waiver because it is an unequivocal assertion that the lease is on foot. If it were not on foot the rent would not have fallen due and the Lessor would have had no entitlement to demand or accept it.[2] Where, on the other hand, the rent fell due before the right of re-entry arose, then its acceptance without more cannot amount to a waiver because the rent was and remained due and payable as a debt to the Lessor.[3] Whether the acceptance of such rent amounts to an election not to determine the lease will depend upon all the circumstances relied upon as giving rise to such an inference.[4]
[2]Owendale Pty Ltd v Anthony (1967) 117 CLR 539 at 557, per Windeyer J; Lidsdale Nominees Pty Ltd v Elkharadly {1979] VR 84 at 89, per Lush J.
[3]Balls-Headley v Ambler (1880) 6 VLR 360 at 365, per Stawell CJ, Barry and Higinbotham JJ concurring.
[4]Croft v Lumley (1858) 6 HLC 672 at 705; 10 ER 1459 at 1472, per Bramwell B.
Returning to the facts of this case, the April rent fell due on 1 April and the right of re-entry for deemed default arose seven days thereafter. Acceptance of rental after this date does not, of itself, at common law amount to a waiver of the right to re-enter.[5]
[5]Rasheed v Burns Philp Trustee Co Ltd (1982) NSW ConvR 55,102 at 56,603, per Wootten J.
Counsel for the Lessee then argued that this common law conclusion has been varied by the express agreement of the parties contained in cl. 104(c) which I have set out above. He contended that the exception in this non-waiver clause has the effect that the acceptance of rent constitutes a waiver of an earlier breach where that earlier breach is the non-punctual payment of the rent accepted.
On behalf of the Lessor it was put that this was an unlikely construction of the lease. Counsel submitted, first, that the exception, like the whole of cl. 10.4, operated only where there were multiple breaches available so that, in the case such as the present where one breach only applied, the clause had no work to do. I think not. The structure of cl. 10.4 indicates otherwise. Paragraph (a) seeks to prevent waiver by acquiescence or custom; paragraph (b), insofar as it is meaningful, deals with the case of multiple or successive breaches and provides that waiver of one is not to be deemed a waiver of other subsequent breaches. Paragraph (c) is directed to waiver by demand or acceptance of rental or other money payable under the lease. In such a case, this is said not to be a waiver of an earlier breach. “Earlier” in this context is perfectly capable as being read as earlier vis-à-vis the demand or acceptance as well as earlier vis-à-vis another breach. A comparison between the terminology of this paragraph and paragraph (b) which clearly deals with multiple breaches, suggest that paragraph (c) is not limited as the Lessor contended.
Counsel for the Lessor, surprisingly, sought to bolster their submission by pointing out that the lease gave very little in the way of rights to the Lessee so that it should not be construed as intending to do this otherwise than by clear expression. I doubt very much whether such a reverse contra proferentem approach is an appropriate construction technique for a commercial document. It is certainly not indicated in the present case.
Nevertheless, when pressed as to the meaning of the words of exception, “other than the failure of the Lessee to make the particular payment or payments of Rent or other moneys so accepted”, counsel for the Lessor was able to offer only that these words meant that where the Lessor had accepted rent it could not thereafter sue for that rent. I would be very reluctant to conclude that a phrase in such a comprehensive document as this would be so devoid of effect.
I accept, therefore, the submission put on behalf of the Lessee that, by cl. 10.4(c), the parties agreed that where the Lessor accepts late rent this gives rise to a waiver on the part of the Lessor of any right to terminate the lease which might otherwise have arisen by reason of the non-punctual payment of that rent. It follows that, after the payment on the morning of 1 May, the Lessor was not entitled to terminate the lease for default in the Lessee’s obligation for timeous payment of that rent.
I turn now to the Notice of Appeal and the question of law certified by the Master. I have concluded that the Tribunal did not err in concluding “that by virtue of the Lessee having paid rent after the seven day period, the Lessor was precluded from legally re-entering the premises and/or serving a Notice of Re-Entry on the basis of the ‘deemed default’”. While it may be correct that I have arrived at this conclusion a little differently from the reasoning contained in paragraph 28 and following of the Tribunal’s Reasons, we have both arrived at the same destination. The consequence of this is that the order of the Tribunal should be affirmed.
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