Apriaden Pty Ltd v Seacrest Pty Ltd & Anor

[2005] HCATrans 978

[2005] HCATrans 978

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M73 of 2005

B e t w e e n -

APRIADEN PTY LTD

Applicant

and

SEACREST PTY LTD

First Respondent

BRATSK PTY LTD

Second Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 18 NOVEMBER 2005, AT 3.37 PM

Copyright in the High Court of Australia

MR P.R. BEST:   If the Court pleases, I appear with my learned friend, MR R.B. PHILLIPS, on behalf of the applicant.  (instructed by James Taylor & Co)

MR M.D.G. HEATON, QC:   If the Court pleases, I appear with my learned junior, MR P.J. HANNAN, on behalf of the respondents.  (instructed by Fetter Gdanski)

GUMMOW J:   Yes, Mr Best.

MR BEST:   Thank you, your Honours.  Now, your Honours, although the Court of Appeal was unanimous against us below, Justice Ormiston, as you may have noted in paragraph 2 of the judgment, which is at application book 16, had this to say:

I confess that at first I was uncomfortable with the concept that a lessor could re-enter premises still held by a lessee on grounds which could be justified only in terms of the law of contract.  The law of landlord and tenant may be said to be so well known, with leases customarily drafted upon the assumption that that law applies to them, at least so far as the right to possession is concerned, that it might lead to commercial uncertainty if more general and arguably more flexible contractual rules were applied to them.

Now, notwithstanding those comments, Justice Ormiston and Justice Batt agreed with Justice Williams in her judgment.  It should be noted Justice Batt agreed also with Justice Ormiston’s observations.  So one assumes Justice Batt was endorsing that caveat.  Now, the position that we say is the result of this particular decision in Apriaden v Seacrest is that those concerns which Justice Ormiston felt uncomfortable with and which, in fact, judges in the Court of Appeal in New South Wales have also ‑ ‑ ‑

GUMMOW J:   Let us get down to the basics.  What is the point of principle, apart from discomfort?

MR BEST:   The point of principle in a few words, your Honour, is what is the relationship of rescission to forfeiture in respect to the law of landlord and tenant?  We say that ‑ ‑ ‑

GUMMOW J:   That depends partly on the nature of the breach which occasions the forfeiture, does it not?

MR BEST:   Yes, we are talking about a natural breach, your Honour, of a ‑ ‑ ‑

GUMMOW J:   This is of a covenant to pay rent?

MR BEST:   Yes, of any covenant, your Honour.

GUMMOW J:   Not quite.  Section 146(12) of the Property Law Act puts to one side relief in case of non-payment of rent, does it not?

MR BEST:   As does every equivalent section throughout the Commonwealth.

GUMMOW J:   As it does.  All of this is derived from a British Act in the 1880s.

MR BEST:   Yes, 1881 the Imperial Act, Conveyancing Act 1881.  Now, the reason for that, of course, was that equity gave relief automatically and is discretionary relief on non-payment of rent on a breach of the rental covenant because it was considered ‑ ‑ ‑

GUMMOW J:   And nothing else.  That was the idea.

MR BEST:   That is right and that is why the statute was remedial.  Now, the position is that that statute has been interpreted in a number of cases as not applying to a rescission.

GUMMOW J:   Now, the question is though – and I agree with you to this extent.  Tabali does not include consideration of this question.

MR BEST:   That is correct, except in Justice Brennan’s judgment.

GUMMOW J:   But that may be because Tabali could not have been a case of relief against forfeiture on the facts.

MR BEST:   That is correct, your Honour.

GUMMOW J:   Yes, so they were not focused on this question.

MR BEST:   No, both in Shevill and in Tabali there was clearly a forfeiture and in both cases the Court was only focused on the issue of damages.

GUMMOW J:   How would you get relief against forfeiture in this case, given what Justice Byrne was saying on page 2 of the application book?

MR BEST:   We say, your Honour, that it was not ‑ ‑ ‑

GUMMOW J:   It looks like a contumelious refusal to pay rent in full.

MR BEST:   Your Honour, the issue that we put in respect of that is this, that in fact there was no re-entry or forfeiture on the basis of a breach of covenant.  It is put that the re-entry was on the basis of a repudiation and, therefore, a rescission.  Now, after that purported rescission we in fact paid up all arrears, which is all we would have been obliged to have done under a relief for forfeiture application in any case.  Now, the parties were then in substantial dispute and they went through both an arbitration, a trial court, to the Court of Appeal, then back to the trial court in another matter, then to the Court of Appeal ‑ ‑ ‑

GUMMOW J:   Am I right in thinking from March 1997 until April 1998 there was this unilateral attitude towards payment of rent?

MR BEST:   Yes, your Honour, that was not of course a refusal to pay the entire rent and outgoings.  It was a short payment.

GUMMOW J:   Of course.

MR BEST:   Yes.  The point we are trying to put, your Honour, is this, that the Court of Appeal’s decision, if it stands and if it is correct in law, effectively sidesteps 150 years of statutory protection.  It puts at risk the issues of what equitable relief could be afforded to a party who is said to have ‑ ‑ ‑

GUMMOW J:   I am trying to work out what equitable relief you would have been entitled to between March 1997 and April 1998.

MR BEST:   Well, that is one of the issues we put before the court.  We say that on a rescission of a lease there is no certainty as to what that relief is.  So to put it in a few words, your Honour, we say that the issues that Justice Ormiston was addressing and which ‑ ‑ ‑

GUMMOW J:   I put it to you you would have been in real trouble in the Court of Equity I think, given your client’s attitude over this prolonged period.  That being so, or appearing to be so, how is this an appropriate occasion to enter into this unresolved question arising from Tabali as to the interconnection between the contractual principles and the possibility of relief against forfeiture and equity?

MR BEST:   Well, as far as we are aware, your Honour, this is the first case which has come to this Court since 1985 – in fact, at all that we can see – which does in fact raise directly the issue on what is the relationship between rescission and forfeiture in respect of landlord and tenant.

GUMMOW J:   It is not a question of raising the question; it is a question of having a real possibility of getting an answer favourable to you.

MR BEST:   Yes, your Honour.  The answer to that lies in respect to clause 8(b), which is the forfeiture clause, in which the Court of Appeal found, in fact, that one notice of determination should have been served if, in fact, that forfeiture clause applied to the rescission.  It held that it did not apply and therefore the rescission operated.  So the one victory we did have below was in respect of the fact that they found a notice of determination ought to have been served which would have warned us to pay the rent and outgoings and which may, in fact, have led to the dispute having been resolved.  Now, that notice was not served, but the Court of Appeal said the notice did not have to be served because of the conceptual distinction between a rescission and a forfeiture.

GUMMOW J:   Is there reference to 146(12) in that discussion?

MR BEST:   No, your Honour, there was not, but it is common ground that section 146 does not apply to a breach of the rental covenant, but it was also put in the Court of Appeal that the default was also a default in respect of payment of outgoings and, in fact, a demand had been made in respect of rental and outgoings and before Justice Byrne in the trial court it had been put on behalf of the landlord that they were relying on both breaches.  So in that respect a section 146 notice would have to have been served because it would have related to the outgoing component which was a separate breach.

So we say that a notice ought to have been served, at least the notice of determination which was the one that the court found ought to have been served subject to the issue of rescission, and also in respect of outgoings we say a section 146 notice ought to have been served.  So, in fact, two notices ought to have been served one after the other and that may have, in fact, resolved the situation.

Now, because those notices were not served and because we say Justice Brennan’s decision is the only reasonable way of consolidating the law – both advancing the law of contract within landlord and tenant law and also working it in harmony with the position as it stands with statutory protection and equitable protections given to a tenant, we say that those notices because they were not served meant that there was no forfeiture of the lease, therefore, we continue to hold as a tenant, therefore, there was, in fact, no right in which to re-enter the premises whatsoever.  Now, that is the heart and substance of the argument and it brings home ‑ ‑ ‑

GUMMOW J:   Are you saying that there is a breach of a nature which does attract 146?

MR BEST:   Yes.

GUMMOW J:   And there is a breach that does not attract 146?

MR BEST:   Yes.

GUMMOW J:   The breach that does not attract 146 cannot found a forfeiture in law?

MR BEST:   No, the breach of the rental covenant can found a forfeiture, of course, it just does not require the service of a notice.  But under clause 8(b), the forfeiture clause, the Court of Appeal found – and it is a very complex clause – that there were three notices that could be served.  They found that at least one had to be served which was called a notice of determination and expressly states that a notice of determination has to be served.  Justice Williams then said, “Notwithstanding that we on the construction point find a notice of determination ought to have been served” ‑ ‑ ‑

GUMMOW J:   Where do we see clause 8?

MR BEST:   Clause 8(b) your Honour will find in the Court of Appeal’s judgment at page 21.

GUMMOW J:   Yes.  One would hope this is a method of drafting ‑ ‑ ‑

MR BEST:   It is not the happiest piece of text to ever stare at, your Honour.

GUMMOW J:   No.

MR BEST:   But her Honour’s finding in respect to it, which is probably just easier to go to ‑ ‑ ‑

GUMMOW J:   To the extent that this case turns upon a construction of this paragraph, the attraction of special leave diminishes.

MR BEST:   Now, her Honour found that the notice of determination ought to have been served, but it was irrelevant to her decision because of the conceptual approach the court took in interpreting rescission and forfeiture.  Now, we say that that is the fundamental issue for this Court.  If, in fact, rescission, as Justice Brennan would have it, is impossible without forfeiting the lease because there is an executed or vested interest from the landlord to the tenant, then the forfeiture clause must, on any view, have operated and, therefore, the lease was not properly determined because that notice of determination at least was not served.  We would say that another notice had to have been served, that is a section 146 notice, in respect of the outgoings.  Therefore, the lease was invalidly terminated or not terminated at all and there was an unlawful re-entry and, therefore, my client would be entitled to damages.

Now, that in a nutshell is the position.  Now, it affects not only Victoria, of course, but section 146 is almost in identical terms in every State and Territory throughout the Commonwealth.  I will point out though to your Honours that in the bundle of documents which was delivered to you yesterday is proposed amendments by the Victorian Parliament to section 146.

GUMMOW J:   Yes, I saw that.

MR BEST:   That has gone through both Houses and, in fact, I understand the Act – and this is a tacked‑on section to a larger Act – will come into effect in respect of this particular section ‑ ‑ ‑

GUMMOW J:   What is the effect of the new legislation?

MR BEST:   The new legislation is to require the service of a notice not only on a forfeiture but on a repudiation, that is for a breach amounting to a repudiation, but the legislation, even if it affected our case, which of course it does not, still has two problems, one of which is the Parliament has still chosen to exclude rent.  Now, that is consistent with the way the section was but it has a profound effect in respect of a rescission. 

As your Honours are aware, it is now commonplace in leases throughout the Commonwealth to have an essential terms clause and invariably – in fact always the rent covenant is made an essential term.  Chief Justice Gibbs in Shevill’s Case said that even a trifling breach of an essential term will be a repudiatory act.  So one day late in rent will be a repudiation of a lease in Victoria and, in fact, throughout the Commonwealth.

GUMMOW J:   The question not faced in Tabali is whether there is any equity founding an injunction against acting on the purported repudiation.  That is the question, but I do not at the moment see how this case is an appropriate occasion to get into it.

MR BEST:   Well, your Honour, the argument we put to you in respect of that is that this case in the Court of Appeal’s ‑ ‑ ‑

GUMMOW J:   The discussion between the States in contracts is fine, but on a practical level it comes down to, can you get an injunction to restrain activity on the faith of the exercise of the purported legal contractual rights, and I think you accept that.

MR BEST:   If we had been acting for our client at that early stage, we would have said to our client, “They have not served a notice a determination.  They have not served a section 146 notice.  Therefore the lease has not been determined.  Therefore we can go to the court and get an injunction restraining the landlord” ‑ ‑ ‑

GUMMOW J:   But the price of the injunction is doing some equity.

MR BEST:   Yes.  And we could get an injunction restraining the landlord from remaining in possession of the property, and we say that we would have got that.  It may have been on a condition that we pay up all the arrears of rent, but that is what equity does.  It does equity to both parties.  That would have resolved the dispute and we would not be here.

GUMMOW J:   That is right.

MR BEST:   Now, that never happened because no notice was served and then post the re-entry this argument was then conceived of relying on a rescission.  It was only the day before the trial that this issue was raised and the trial court and the Court of Appeal accepted it, although the Court of Appeal, we say, only accepted it on two hesitant bases.  One was that they saw not so much a ratio but a majority view in Tabali which, we say, there is not a majority view in Tabali supporting the proposition that rescission is an alternative to forfeiture in terms of determining a lease. 

The second basis was that there seemed to be a number of cases out there which have come to some or similar conclusions.  Now, those cases on an analysis will indicate that in a number of them there was, in fact, a forfeiture, so the issue was irrelevant, but in the majority, if not all, of those cases the reference has been solely to Justice Mason’s, as he then was, judgment for the simple proposition that contractual principles, including rescission, apply to leases.

Now, we say that that is reading his Honour’s judgment out of context of the case that was decided, which was that rescission applied and contractual principles applied to give a remedy in damages.  His Honour was not intending, we say, to go further and state that rescission was an alternative method for determining a lease other than forfeiture.  So this issue which is before the Court and affects practically every lease in the Commonwealth was the direct issue that was argued in the Court of Appeal below.  No other issue was argued.  It did not turn on any specific facts.  It turned on a principle of law and that is how the judgment was determined.  We say that it is a pure question of law for this Court to determine, to lay down considerable uncertainty and unrest indicated by the amendment to section 146 by the Parliament in this State.

HAYNE J:   If you got leave, what would you say should be said or done about the decision in Tabali?

MR BEST:   We say that the decision in Tabali can simply be distinguished on the basis of its facts.  Their Honours had to determine, in the circumstance where a lease had been forfeited, whether a landlord was entitled to damages for rescission on the basis of repudiatory conduct which had been accepted.  The ratio that was derived from that case is that a landlord is therefore entitled to damages on a rescission.  It says nothing in terms of a ratio that rescission is an alternative method to determining a lease apart from forfeiture. 

We say that in respect of Justice Brennan and Justice Deane so far as they discussed those issues, they were clearly obiter.  But having said that, we say that Justice Brennan’s judgment is an extremely erudite analysis of the principles and attempts to marry the contract and property law together to a working synthesis which is the way to advance the position.

Now, at the moment that synthesis has been shattered by the Court of Appeal’s decision in this State.  At the moment in Victoria, until the legislation is passed, it is open to a landlord, we say, to accept that a one day late payment in outgoings is a repudiation of the lease and to rescind it.  If the landlord rescinds that lease, then the question is, what remedy would a tenant have?  Does the tenant have a ‑ ‑ ‑

GUMMOW J:   He would be up in the Equity Court if he had half a wit.

MR BEST:   He will be up in the Equity Court ‑ ‑ ‑

GUMMOW J:   Yes.

MR BEST:   ‑ ‑ ‑ but what is the application?  Justice Brennan suggested there may not be any remedy, but that was a throwaway line.  We suggested to the Court of Appeal that it may not be the remedy one would expect in landlord and tenant, that is, except in exceptional circumstances there will be payment.  It may, in fact, be the remedy that the Court considered in Stern v McArthur and those cases that it is the reverse.  You have to show that there is unconscionable conduct and it is only in exceptional circumstances, having shown that ‑ ‑ ‑

GUMMOW J:   Not with forfeiture of a property right.

MR BEST:   Well, your Honour, that is one of the issues we are asking this Court to determine:  what is the remedy that is available?  At the moment that is not clear and it will not be ascertained, even in Victoria once the legislation is passed, because section 146(2), which provides the statutory

relief from forfeiture, was not amended.  It does not provide expressly that it is applicable to a rescission.  It remains in terms of the word “forfeiture”. 

So even after the legislation becomes effective in Victoria, there is still a significant doubt as to whether there is a remedy to a tenant if a lease has been rescinded.  So there are profound issues here, we say, that have to be advanced and have to be determined.  If your Honours please.

GUMMOW J:   Thank you.  We do not need to call on you, Mr Heaton.

Having regard to the particular facts in this case, this is not an appropriate occasion to enter upon the questions of principle said to arise concerning the operation of the reasoning in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17. Accordingly, special leave is refused with costs.

The Court will adjourn to 10.15 am on Tuesday, 6 December 2005 at Canberra.

AT 3.59 PM THE MATTER WAS CONCLUDED