Apriaden Pty Ltd v Seacrest Pty Ltd
[2002] VSC 357
•30 August 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4995 of 1999
| APRIADEN PTY LTD (ACN 007 284 513) | Plaintiff |
| v | |
| SEACREST PTY LTD (ACN 000 702 714) and BRATSK PTY LTD (ACN 007 098 759) | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 19, 21 and 22 August 2002 | |
DATE OF JUDGMENT: | 30 August 2002 | |
CASE MAY BE CITED AS: | Apriaden Pty Ltd v Seacrest Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 357 | |
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Landlord and tenant – retail tenancy – statutory overholding by tenant – repudiation by tenant – whether re-entry by landlord amounts to acceptance of repudiation – damages.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Andrew Kincaid | Henty Jepson & Kelly |
| For the Defendants | Mr Michael Heaton QC with Mr Peter Hannan | Fetter Gdanski |
HIS HONOUR:
Disputation continues into its fourth year between the defendants, Seacrest Pty Ltd and Bratsk Pty Ltd (“the landlords”), and the plaintiff, Apriaden Pty Ltd (“the tenant”), with respect to the termination of the retail tenancy of the premises situate at and known as Shop 8, Ivanhoe Shopping Plaza, Ivanhoe. The premises were used by the tenant as a coffee lounge and café under the name the Monet Café. They were let in 1990 under a lease which provided for a term of three years plus two options each of three years. By deed of extension dated 6 September 1993 the current term was extended to 30 April 1998 and the remaining option became one for five years. Rental was to be adjusted annually. It is common ground that the rental was, from time to time, adjusted pursuant to the agreement. In addition, the tenant was obliged to pay outgoings and promotion expenses.
It seems that the tenant, in early 1997, had a number of complaints about the landlords’ management of the Plaza and about the amount of rent. I express myself in this tentative way because the correspondence in evidence shows the tenant making these complaints in 1994 and 1995. These matters are not raised as an issue in this proceeding and I make no findings about them. The consequence, however, was that, as from March 1997, the tenant unilaterally stopped making the required monthly payments for rental, outgoings and promotion levy which then totalled $4,488.66 and commenced paying only $3,000 per month. Bodo Heller, a director of the tenant, said that he did this and that he continued to make monthly payments at the rate of $3,000 only, in order to cause the landlords to address his complaints. He accepted that he knew this was a breach of the lease, and that he continued to breach the lease notwithstanding demands for proper payment made by the landlords’ agent from time to time. This position continued until 30 April 1998 when the landlords re-entered. At that time the rental was $3,624.18, outgoings were $854.00 and promotion levy was $72.48, a total of $4,550.66 per month.
In this proceeding the tenant claims damages for wrongful re-entry and for wrongful repudiation of the lease by the landlords. The landlords’ counterclaim seeks rental to the date of their acceptance of the tenant’s repudiation.
The facts upon which these competing assertions are based are not seriously in dispute. This is because they are, for the most part, documented. In addition, as will be seen, the parties have been to arbitration pursuant to Part 3 of the Retail Tenancies Act 1986 and have received an award which binds them. Furthermore, a question of law which the arbitrator had determined has been the subject of a successful appeal to a judge of this Court[1] and, in due course, a relevantly unsuccessful further appeal to the Court of Appeal[2].
[1][1999] VSC 34
[2][2000] VSCA 75
On 29 January 1998, the tenant had purported to exercise its option for a further five-year term. The landlords responded on 23 March 1998 contending that the tenant was not at liberty to exercise this option having regard to s. 14(5), since it then had failed to remedy defaults and, indeed, was in persistent default under the lease. The landlords took the position that the term would expire on 30 April 1998 when the current term came to an end.
And so things stood on that date, 30 April 1998. In the course of that night the landlords re-entered and changed the locks. The tenant, for its part, maintained a right to the option term and asserted that the lease remained on foot. On 11 May 1998, the tenant, pursuant to s. 21, gave notice of this dispute together with a number of complaints including the invalidity of the provision in the lease for rent review and the landlords’ charges for outgoings and promotion levy.
I interrupt myself to observe that each party was in error in adopting these positions inasmuch as it was later held by the Court that the term had not expired by effluxion of time having regard to s. 14(4) which created a statutory overholding and, further, that any right of the tenant to possession existed not under the five year option term, but pursuant to this overholding. By reason of s. 14(8), the overholding was pursuant to the same terms and conditions as those on which the lease was held, including those with respect to payment of rent, outgoings and promotion levy.
Notwithstanding the positions then adopted by the parties, the landlords did not seek to re-let the premises but kept them available for the return of the tenant, first, during a period in May when the parties were at mediation and, thereafter, in case the dispute might be resolved before or at the arbitration. The tenant, for its part, maintained its position but refused to re-enter the premises and resume the business.
The parties maintained these positions, and on 22 December 1998 the arbitrator published his interim award. He found in favour of the landlords that the tenant’s exercise of the option on 29 January 1998 was ineffective and that the term had expired by effluxion of time on 30 April 1998. He held that the exercise of its option was ineffective because the tenant had not then remedied a default of which notice had been given and, further, that the it had persistently defaulted under the lease. He then held that he had no jurisdiction under the Retail Tenancies Act to determine the tenant’s other complaints since the lease was at an end.
On 5 March 1999, I gave judgment in favour of the tenant concluding that, by the operation of s. 14(4), the tenant had since 1 May 1998 overheld the premises pursuant to the terms of the lease. This overholding would expire pursuant to s. 14(5) on a date three months after the landlords served on the tenant a notice under s. 14(3) unless the tenant in the meantime exercised its option. I should add that I declined to give leave to appeal against the arbitrator’s conclusion that the tenant was not entitled to exercise such an option given that it was guilty of default within the meaning of s. 14(5)(a) and of persistent default within the meaning of s. 14(5)(b) and that, accordingly, it was not open to the tenant to have exercised the option.
On 12 March 1999, the solicitor for the tenant wrote to the solicitors for the landlords asserting that his client accepted the repudiation of the lease by the landlords, such repudiation being constituted by their wrongful re-entry some 10 months earlier. About this time, too, the landlords found a new tenant who entered into possession on 22 March 1999. It was common ground that, at least by this date, the lease was at an end. What was in issue before me was whether this was for breach by which party, and the financial consequences of this.
For the landlords, it was submitted before me that they had lawfully determined the lease on 30 April 1998 pursuant to cl. 8(b) of the lease for non-payment of rent and by their acceptance of the defendants’ common law repudiation. The submission based on cl. 8(b) must address the difficulty that this provision requires the landlords to give perhaps three notices before the termination is effective. These notices were not given. It is to my mind clear, however, that the tenant’s deliberate and persistent breach of the covenants to pay rental, to pay outgoings, and probably that to pay the promotion levy as and when required under the lease, amounted to a common law repudiation of the lease[3]. The landlords were therefore entitled to put an end to the lease by accepting this repudiation. It was then put that the acceptance was constituted by the landlords’ conduct in re-entering the premises and changing the locks on the night of 30 April – 1 May 1998. Thereafter, notwithstanding some negotiations, the tenant was excluded from the premises.
[3]Carr v JA Berriman Pty Ltd (1953) 89 CLR 327; The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17.
As an act of acceptance, the re-entry faced the tenant’s submission that it was effected not for breach or repudiation by the tenant, but on the erroneous basis that the term was at an end. This fact, however, does not destroy the effectiveness of the re-entry as an acceptance of repudiation. Where a party purports to determine a contract on one basis which turns out not to exist, it is, nonetheless, entitled to rely upon any other available basis even if it be unaware of the existence of this other basis[4]. I should add to this the further consideration that, in determining the effectiveness of an act of acceptance, the law is not concerned with the actual state of mind of the terminating party[5].
[4]Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; Nund v McWaters [1982] VR 575.
[5]Tropical Traders Limited v Goonan (1964) 111 CLR 41 at 55, per Kitto J.
Normally, a re-entry will be sufficient indication of the decision of the landlords to terminate a lease which has been repudiated. I say “normally” because this consequence may not follow where there are other factors which mitigate against such an implication. In this case, no other such factor was present at the time of re‑entry so that the landlords’ acceptance of the tenant’s common law repudiation was effective. I conclude, therefore, that the statutory overholding created by s. 14(4) was terminated on 1 May 1998 by the re-entry which took place in the early hours of that day.
This conclusion is sufficient to determine in favour of the landlords the tenant’s claim for damages for wrongful re-entry. Nevertheless, in deference to the arguments advanced and in case this proceeding might go further, I will briefly set out my views on the other issues raised.
In May 1998, the parties went to mediation and then exchanged open correspondence regarding the possibility that the tenant might resume possession. Furthermore, on 13 May 1998, the tenant paid under protest $21,375.93 being the amount of the arrears of rental, outgoings and promotion levy as at 30 April 1998. This cheque was received and banked in a trust account pending unconditional payment. The correspondence between the solicitors for the parties at this time has to be read in the light of the misapprehension as to the legal position under which each party was labouring. In effect, the landlords, who had taken the position that the term had expired, were proposing that the tenant remain in possession on an overholding basis pending the determination by the arbitrator of the validity of the exercise of the option. The solicitors for the tenant rejected this proposal on the basis that it required their client to admit that the term was at an end. The landlords responded that they required no such admission. Even so, the tenant did not resume possession. Mr Heller said by way of explanation that his intention was to re-enter and then to sell the business. He knew, he said, that without some leasehold term the business was unsaleable.
The stalemate continued. The landlords maintained their position but, in case the arbitration should go against them, they kept the premises available for the tenant to return. The tenant maintained its position that the option was on foot but did not re-enter and paid no rent, outgoings or promotion levy.
As I have mentioned, things came to a head on 22 December 1998 when the arbitrator found in favour of the landlords that the lease was determined by effluxion of time on 30 April 1998. The tenant’s appeal to this Court produced the result on 5 March 1999 that this finding of the arbitrator was set aside on the basis that the term continued pursuant to s. 14(4).
On 12 March 1999 the solicitors for the tenant treated this result as a vindication of their client’s position and informed the landlords that the tenant treated their re‑entry on 30 April 1998 as a repudiation of the lease and that it accepted this repudiation as terminating the lease. They advised, too, that the tenant would seek damages for the landlords’ repudiation representing the total loss of the business. This proceeding was then commenced on 8 April 1999 to recover those damages.
The tenant here seeks damages for the loss of the business. As the evidence was presented, these damages represented $67,200, being the tenant’s loss of profit from 1 May 1998 to 12 March 1999 and the loss of the goodwill of the business which was valued at between $110,000 and $115,000 approximately. There were also some less significant items.
I would have assessed the claim for lost profits at $4,000. The accounts produced by the tenant show that the business was trading at a loss in the 43-week period of the financial year 1998, which period ended on the date of re-entry. Gross profit which, in that period, ran at $3,789 per week, was a little down in comparison to $3,865 in the financial year 1997 and in comparison to the $3,990 average over the preceding four years. The net loss of the business for the year 1998 was over $18,000 compared with the net loss of $3,611 for the year 1997 and an average net profit of $12,937 for the four years to 1997. Accepting that some of these expenses of 1998 were fixed and referrable to the full year, it seems, nevertheless, that the business was declining in profitability. The evidence of the landlords’ valuer, Joe Leonard Dicks, shows that, on an annualised basis, the business should be seen as making a profit before tax of only $16,909 on the assumption that profitability continued in 1998 at the average rate of the preceding four years. This figure is to be contrasted with the comparable figure of $69,441 calculated by Russell John Munday, the tenant’s accountant. It is likely, in either event, that the comparable figure for the 1998 year would have been less. These figures would have to be further adjusted for fixed costs which continued notwithstanding that no sales were made during the period of closure.
The present assumption, that the landlords wrongfully excluded the tenant for the period 1 May 1998 to 12 March 1999 is, of course, incorrect. The tenant might have resumed the business when it was invited to do so in May. To my mind, it ought to have accepted this invitation or, more correctly, it cannot as a matter of law, charge the landlords on the basis that it neglected to do so. The evidence showed that the business would, in such an event, have been restored to its previous position within six to 12 weeks, that is, by 30 June 1998 or 31 July 1998. At the annual loss assessed by Mr Munday, this represented a loss of about $34,500 for the 12-week period and, on Mr Dicks’ figuring, $3,692. Of the two estimates, I prefer that of Mr Dicks, subject to an adjustment to admit $1,500 per annum for depreciation as a fixed cost. The loss over the 12 week period then becomes a little over $4,000.
Then it is said that the tenant in March 1999 lost the value of its business. Again, making the necessary assumptions contrary to my primary conclusion, this value must represent the value of the business on the basis that it was being conducted by an overholding tenant with no long-term tenure. The evidence of all the experts shows that a purchaser would not pay anything for the goodwill of such a business. I therefore value the goodwill on this basis at nil.
I would value the stock as at the date of termination at $2,000. I reject the tenant’s claim for bond money: I am not satisfied that any bond was paid. I reject the claim for costs of the arbitration. This is a matter for the arbitrator to determine; the jurisdiction of the Court is excluded by s. 20(2). In any event, I reject the allegation that the tenant’s costs of the arbitration were caused by the supposed wrongful re‑entry of the landlords.
In conclusion, therefore, based on my primary findings, I reject the claim for damages. In these circumstances, the landlords did not press their claim for rental and outgoings. I would propose, therefore, that there be judgment for the defendants with costs including reserved costs.
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