Belperio v Linehaul Holdings Pty Ltd (Formerly Known as Linehaul Australia Pty Ltd)
[2004] SASC 238
•13 August 2004
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
BELPERIO & ORS v LINEHAUL HOLDINGS PTY LTD (FORMERLY KNOWN AS LINEHAUL AUSTRALIA PTY LTD) & ANOR
Judgment of The Full Court
(The Honourable Justice Duggan, The Honourable Justice Besanko and The Honourable Justice Anderson)
13 August 2004
LANDLORD AND TENANT - TERMINATION OF THE TENANCY - REPUDIATION
WHAT AMOUNTS TO
Appeal from a Judge of the District Court - appellants were the registered proprietors of a property leased to the first respondent - first respondent moved most of its business operations to other premises and was in arrears with payment of rent - whether the conduct of the first respondent constituted a repudiation of the lease which was accepted by the appellants - discussion of the application of the doctrine of repudiation in the context of leases - where appellants distrained for outstanding rent - where in the course of the distraint the appellants changed the locks and excluded the appellant from the property - where the appellants served a Notice to Quit on the second respondent at the time of the distraint for rent - whether the Judge was correct in holding the appellants' conduct amounted to a repudiation of the lease which was accepted by the first respondent - appeal dismissed.
The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1995) 157 CLR 17; Heyman v Darwins Ltd [1942] AC 356; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571; Shevill v Builders Licensing Board (1982) 149 CLR 620; Murray-Oates v Jjadd Pty Ltd (1999) 76 SASR 38; Rosa Investments Pty Ltd v Spencer Shier Pty Ltd [1965] VR 97; Price v Mayman [1948] SASR 241; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, discussed.
BELPERIO & ORS v LINEHAUL HOLDINGS PTY LTD (FORMERLY KNOWN AS LINEHAUL AUSTRALIA PTY LTD) & ANOR
[2004] SASC 238Full Court: Duggan, Besanko and Anderson JJ
DUGGAN J. I am of the view that the appeal should be dismissed. I agree with the reasons given by Besanko J.
BESANKO J: This is an appeal from orders made by a District Court Judge after a trial in that Court. The orders made by the Judge were as follows:
“1.On the claim there will be judgment for the plaintiffs against the first defendant for $2,350.00, which is inclusive of pre-judgment interest, in respect of the plaintiffs’ claim for damage to the fence.
2.There will be judgment against the plaintiff in favour of the second defendant.
3.The plaintiffs are to pay the defendants ninety percent (90%) of the defendants’ costs of the action and that there be no order as to the remaining ten percent (10%) of the costs.
4. The defendants may apply for solicitor-client costs if so advised.”
The plaintiffs to the action were Rosario Belperio, Assunta Belperio, Donato Belperio and Rosa Belperio, and the defendants were Linehaul Holdings Pty Ltd (Formerly Linehaul Australia Pty Ltd) and Richard Andrews. The plaintiffs’ claim for damage to the fence is not in issue on the appeal. The plaintiffs claim that the award of damages against the first defendant should have included an amount of $74,207.00 plus an allowance for goods and service tax being the damage the plaintiffs alleged they suffered as a result of the first defendant’s repudiation and breach of an agreement to lease premises. In the alternative, the plaintiffs submit that if the first defendant did not repudiate the agreement to lease premises, the agreement continued and the same amount is due under the agreement. The plaintiffs submit that there should also have been an award of this amount in their favour against the second defendant based on a guarantee given by the second defendant of the first defendant’s obligations to pay rent and other amounts under the agreement to lease premises.
I turn now to examine the facts.
The Background Facts
In 1998, the plaintiffs bought a commercial property at allotment 11, Hawker Road, Burton (“the property”). The property is about 2,000 m2 in area and had three sheds and some offices on it. The plaintiffs engaged Lin Andrews Real Estate Northern as their agent to lease the property. Mr Kevin Hodges was the manager of the agent, and he had the relevant dealings with the defendants. It was not suggested at the trial that in his dealings with the defendants, Mr Hodges at any time acted beyond the authority he had from the plaintiffs.
In 1999, the first defendant conducted a large trucking business. The second defendant was a director of the first defendant and its apparent controller. Over a number of years the first defendant increased the size of its business by taking over various other trucking businesses.
The first defendant wished to lease the property and it entered into negotiations for that purpose. On behalf of the plaintiffs, Mr Hodges proposed an agreement to lease which he had prepared. The agreement provided for a lease of the property for two years from 1st April 1999 at a monthly rent of $5,461 for the first year, and for an increase in the rent for the second year. The agreement provided for a formal lease to be prepared by the plaintiffs’ solicitors and executed by the parties. The failure to execute a formal lease was not to prejudice the binding nature of the agreement. Clause 17 of the agreement was to the effect that the second defendant guaranteed the payment of the rent and of other monies under the agreement and the performance of the covenants, terms and conditions of the agreement and the formal lease agreement to be prepared by the lessor’s solicitors.
The agreement to lease was executed by the plaintiffs and the defendants. However, no formal lease was executed by the parties. The Judge held that the legal relations between the parties were governed by the agreement and the general law. The Judge said that the lease remained only an equitable lease, but “that is of no significance in the context of the matters in dispute”. There was no challenge to that conclusion of the Judge which, in any event, appears to be correct (The Progressive Mailing House Proprietary Limited v Tabali Proprietary Limited (1995) 157 CLR 17 (“Progessive Mailing”)). For convenience, I will call the agreement to lease “the lease”.
On 1st April 1999 the first defendant occupied and commenced operating its business from the property. It appears that there then arose a number of disputes between the plaintiffs and the defendants concerning matters such as water damage, plumbing problems and the like. It is unnecessary to relate the details. Of more significance than those problems, were difficulties the first defendant encountered in its vehicles, in particular its B-double transports, obtaining access to the property. The first defendant’s vehicles were legally unable to obtain access to the property, and this led to difficulties with the police and the Department of Transport. It is not necessary to set out the details of this particular problem and it is sufficient to say that the difficulties with access led to considerable antagonism between the plaintiffs and the second defendant, and to a decision by the second defendant, which the Judge found had been made by at least early 2000, that the property was not suitable for the future conduct of the business of the first defendant.
Under the lease, the payments of rent were due on the first day of the month, but the Judge found that payments were often late and were often not made until shortly after the middle of each month. In most months, Mr Hodges had to contact the first defendant to ensure the rent was paid. The Judge found that the reason for the late payment of rent was that the first defendant did not want to affect its cash flow adversely. On 8th March 2000, Mr Hodges advised the first defendant that under the lease the monthly rent for the second year of the term would be $5,663.00. To this point there is no dispute about the facts.
The first defendant did and said a number of things between 1st April 2000 and 19th May 2000 which the plaintiffs alleged amounted to a repudiation of the lease which they accepted and/or a breach of the lease which gave them the right to terminate the lease which they did. In the alternative, they alleged that if the first defendant did not repudiate the lease, the lease continued and the first defendant continued to be liable for the payment of rent and other outgoings. The plaintiffs’ claim of $74,207.00 was calculated on the assumption that the first defendant was liable for damages for rent from June 2000 to March 2001, certain outgoings and other expenses or, in the alternative, for the payment of those amounts under the lease. For its part, the first defendant denied those allegations, and it asserted that in fact the plaintiffs repudiated or wrongfully terminated the lease on 19th May 2000. On appeal, there were challenges to the Judge’s findings and conclusions about the relevant events between 1st April 2000 and late May 2000, and I will need to set out the relevant events and those challenges in some detail. It is convenient, however, at this point to continue with a statement of the facts which are not in dispute.
WRB Transport Pty Ltd was a large interstate transport company which was controlled by Mr Wayne Bunker and Mr Phillip Bunker. The company was in serious financial difficulties. It conducted its business on a property at 20 George Street, Greenfields (“the George Street property”) and/or an adjoining property. I am not sure what the Judge means by his reference to “and/or an adjoining property” in light of his subsequent findings, but there was no issue about this on the appeal. The properties were owned by Wintide Pty Ltd (“Wintide”) which was another company controlled by the Bunker family. On 10th April 2000 the defendants entered into agreements with Wintide to rent the George Street property and the adjoining property from that date on monthly tenancies with options to purchase the properties. The Judge found that the first defendant took over much of the business and assets of WRB Transport Pty Ltd, and that that had the effect of substantially increasing the size of the first defendant’s business.
There was a large shed on the George Street property which was about 1500m2 in area. An area of 1000m2 in the shed was a truck workshop and the balance was sublet to another business. The Judge found that there was insufficient room on the George Street property for the first defendant to carry on all of its enlarged operations.
Shortly after 10th April 2000, the first defendant moved its office staff and most of its other operations from the property to the George Street property. The defendants did not advise the plaintiffs or Mr Hodges that they had done this. The Judge found that although most of the first defendant’s plant and equipment was moved from the property to the George Street property, some of it was left on the property. On the issue of the first defendant’s use of the property in April and May 2000, the Judge found that:
“Whilst its operations there were substantially scaled down the first defendant did continue in April and May 2000 to use it for limited purposes of storage and some repairs to vehicles.”
That finding of the Judge is not challenged.
The first defendant did not pay the rent and other monies due on 1st May 2000 until 25th May 2000. The first defendant removed all of its property from the property and cleaned the property shortly after 25th May 2000. The Judge found that the first defendant “finally vacated” the property somewhere between 27th and 29th May 2000, and that subsequently it had no further dealings with the property. It did not pay rent or other monies under the lease after 25th May 2000.
The plaintiffs, through Mr Hodges, made reasonable efforts to find another tenant for the property, but they were unsuccessful. It is unnecessary to relate the details although it may be noted that Mr Hodges was negotiating with a potential tenant at the time he wrote to the first defendant on 20th June 2000. The property was not re-let by the plaintiffs before the expiration of the two year term under the lease on 31st March 2001.
Issues on Appeal
There are two issues on the appeal.
As I have said, the plaintiffs claim from the first defendant damages comprising rent, outgoings and other expenses for the period from June 2000 to March 2001. The Judge rejected the plaintiffs’ claim. He found that the first defendant did not repudiate the lease in April or May 2000, nor did the plaintiffs have the right to terminate the lease for breach. The plaintiffs challenge the finding that the first defendant did not repudiate the lease in April or May 2000 and that challenge is the first issue on the appeal.
The Judge found that the plaintiffs wrongfully terminated or repudiated the lease on 19th May 2000 and that that wrongful termination or repudiation was accepted by the first defendant. That finding was enough to defeat the plaintiffs’ claim. I might add that it should be noted there was no counterclaim for damages by the first defendant. The plaintiffs challenge the finding that the plaintiffs wrongfully terminated or repudiated the lease on 19th May 2000 and that the wrongful termination or repudiation was accepted by the first defendant and that challenge is the second issue on the appeal.
It is important to note at this point that it was accepted by the parties both before the Judge and in this Court, that the plaintiffs would be entitled to the damages sought or an award of the amount sought if they were successful in relation to the second issue even if they were not successful in relation to the first issue. In other words, the plaintiffs are entitled to an award of the amount sought if they succeed on one of the two issues. As I understand it, if the finding that the plaintiffs terminated or repudiated the lease on 19th May 2000 is set aside, it is accepted by the first defendant that the lease continued and the plaintiffs are entitled to an award of $74,207.00 plus an allowance for goods and services tax.
The second defendant denied liability under the guarantee on the ground that the first defendant was not liable to the plaintiff. He also denied liability on a ground quite independent of the liability of the first defendant and that was that the lease did not operate as a deed binding him. The Judge did not find it necessary to make a decision on this independent ground in light of the fact that he found that the first defendant was not liable to the plaintiffs.
I turn now to consider the two issues on the appeal. It is convenient to continue to refer to the parties as the plaintiffs and first defendant and second defendant respectively.
Were the Plaintiffs entitled to terminate the lease in May 2000?
Before the Judge, the plaintiffs put two arguments in support of their contention that they had lawfully brought the lease to an end in May 2000. Only one of those arguments is pursued on the appeal, but I mention the other for the sake of completeness. First, the plaintiffs submitted that the first defendant had repudiated the lease and that they had accepted the repudiation. That argument is pursued on the appeal.
Secondly, the plaintiffs submitted that the first defendant had committed a breach of the lease which entitled them to terminate. The breach of the first defendant which they identified was the failure to pay the rent due on 1st May 2000 after receiving a demand from the plaintiffs to do so. On 8th May 2000, Mr Hodges wrote a letter to the first defendant in the following terms:
“SUBJECT: OVERDUE RENT LOT 11 HAWKER RD BURTON
We note with concern that rental and outgoings arrears for the above premises and advise that you are in breach of your obligations as tenants by reason of your failure to pay the renal (sic) and outgoings when they fall due.
On behalf of the Landlord, we hereby require you to remedy the aforementioned breach and hereby demand for payment the amounts specified on the attached statement, being a total of $6416.46 which is to be received in the form of cash or a Bank Cheque in our office no later than 5.00 pm on 15th May 2000.
If payment is not received in full by the date specified herein, the Landlord intends to pursue its rights against you, pursuant to the Landlord and Tenant Act 1936 and otherwise for the recovery of the rental and outgoings and the premises without further notice to you or the guarantors of the lease.”
The Judge said that although he was prepared to infer that the letter (which was sent by facsimile transmission) was sent on 8th May 2000, he was not prepared to find that it was received before 9th May 2000. The letter required payment by no later than 5:00 pm on Monday 15th May 2000 which day was a public holiday. There was no evidence that the office of Mr Hodges was open on that day, and the Judge said that he would take judicial notice of the fact that it would have been impossible for the first defendant to obtain a bank cheque after 5:00 pm on Friday 12th May 2000. It followed said the Judge that the “effective time” which the first defendant had to comply with the demand was less than four days. The Judge found that the first defendant had the capacity to pay in that period. He said that in view of the serious consequences of non-compliance and the fact that under the lease the plaintiffs had the right to claim interest on the outstanding rent, he was unable to find that four business days was reasonable notice in the circumstances. Therefore, he rejected the argument that the plaintiffs were entitled to terminate the lease by reason of the failure to rent. Those conclusions of the Judge are not challenged and that argument is not pursued on the appeal.
I return to the first issue on the appeal, namely, that the Judge should have found that the first defendant repudiated the lease in April and May 2000 and that the plaintiffs accepted the repudiation.
For the purposes of the issues on this appeal, the relevant legal principles are clear.
In Heyman v Darwins Ltd [1942] AC 356 Lord Wright said (at 378 – 379):
“There is, however, a form of repudiation, where the party who repudiates does not deny that a contract was intended between the parties, but claims that it is not binding because of the failure of some condition or the infringement of some duty fundamental to the enforceability of the contract, it being expressly provided by the contract that the failure of condition or the breach of duty should invalidate the contract … But perhaps the commonest application of the word ‘repudiation’ is to what is often called the anticipatory breach of a contract where the party by words or conduct evinces an intention no longer to be bound, and the other party accepts the repudiation and rescinds the contract. In such a case, if the repudiation is wrongful and the rescission is rightful, the contract is ended by the rescission, but only as far as concerns future performance. It remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation.”
The application of the doctrine of repudiation in the context of leases was discussed by the High Court in Shevill v Builders Licensing Board (1982) 149 CLR 620, Progressive Mailing and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 (“Laurinda”) and by this Court in Murray-Oates v Jjadd Pty Ltd (1999) 76 SASR 38. In Progressive Mailing, the Court held that the contractual doctrine of repudiation applied to leases, although there are features of a lease which will affect how the doctrine applies in the particular circumstances of the case. In Laurinda, the Court was required to consider if a failure by a lessor to deliver a registrable lease to the lessee was a repudiation of the agreement. The Court held that in the circumstances of that case the failure was a repudiation of the agreement. A party repudiates an agreement if by his words and/or conduct he evinces an intention no longer to be bound by the agreement.
Repudiation is a serious matter and is not to be lightly inferred or forced. It is necessary to consider the objective acts and omissions of the promisor not his uncommunicated intention. In other words, the inquiry focuses on what the promisor’s acts or omissions would convey to a reasonable man. Deane and Dawson JJ said in Laurinda (at 657 – 658):
“Thus, it is of little assistance in the present case to identify reasons why the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease … It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.”
There is sometimes an issue as to the circumstances in which persistent procrastination amounts to repudiation (Laurinda per Mason CJ at 634, Deane and Dawson JJ at 658 – 659), but that particular problem does not arise in this case.
A repudiation is accepted when the promisee, by his words and/or conduct, elects to terminate the performance of the agreement.
The Judge stated the relevant legal principles as to repudiation in the following terms:
“The question of repudiation is to be judged objectively, and the subjective intention of the alleged repudiator is not relevant: Murray-Oates v Jjadd Pty Ltd (1999) 76 SASR 38 at 46-7. Neither is it relevant whether the alleged repudiator has communicated its intention to repudiate to the other party. The plaintiffs’ counsel conceded that repudiation is not to be lightly found: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (above) at 32.”
The plaintiffs submitted that the Judge did have regard to the subjective intention of the first defendant and that he erred in doing so. They pointed to a number of passages in his reasons for judgment in support of this submission including the statement to the effect that it is not relevant whether the alleged repudiator had communicated its intention to repudiate to the other party. It is not entirely clear to me what the Judge meant by this statement, but I would be very reluctant to conclude that he was saying that the subjective intention of the first defendant was relevant, bearing in mind the statement which immediately preceded it. In any event, it is necessary to look at the Judge’s reasons as a whole to determine if he made the error alleged.
The evidence before the Judge consisted of oral evidence called by the parties and documents tendered by the parties. The Judge was in an unenviable position as far as the oral evidence was concerned because he found that none of the witnesses (other than Mr Hodges and a Mr Shingles) were particularly satisfactory. The third plaintiff was the principal witness of the plaintiffs and the Judge said he was unimpressive and unreliable. The first plaintiff and his son were also unsatisfactory witnesses.
The Judge said the second defendant’s credibility was little better. The Judge said that overall he was an unimpressive and unconvincing witness, but he said that he accepted that there was a “general substratum of truth underlying much of what he claimed”.
The Judge said that he accepted the evidence of Mr Hodges, although as a witness Mr Hodges was vague on details. The Judge said that Mr Shingles was the best of the witnesses as to what occurred on 19th May 2000 and he accepted his evidence on those matters in preference to that of any other witness.
The Judge said he accepted Mr Wayne Bunker’s evidence as to the business dealings in which he was involved, although he did not accept his evidence in preference to the second defendant about the business activities of the defendants.
Four employees of the first defendant (Messrs McBeath, Driscoll, Mercer and Graham Andrews) gave evidence but the Judge found that they were not impressive or reliable witnesses. The Judge rejected their evidence where it was contrary to other evidence, and in particular he rejected their evidence as to what happened on the property during the week of 22nd May 2000 where it was contrary to the evidence of the second defendant.
None of the Judge’s findings as to the credit of the various witnesses were challenged on appeal. It is important to note them however, because they emphasise the fact that the Judge’s task in making findings of fact was quite a difficult one.
The Judge also found that the defendants did not conduct their business in a particularly business-like or efficient fashion, and that for their part the plaintiffs and their agents did not have a proper understanding of the legalities of the procedures which they carried out on 19th May 2000.
I turn now to a description of the first defendant’s conduct from 1st April to 19th May 2000.
On 1st April 2000 the first defendant send a letter to Mr Hodges which was in the following terms:
“Following to (sic) our telephone conversations concerning 111 Hawker Road Burton, as you are aware the property has no access for B Doubles as we were first told, it only has the approval from Salisbury Council, This approval needs to come from Transport SA and they will not give this permission.
As you can appreciate we are a growing Business and the access for B Doubles is imperative for the Transport Business. Due to these circumstances we will be moving premises. All premises will be cleaned and cleared of any rubbish by the end of the month.”
The Judge found that it is likely Mr Hodges received this letter, although he had no recollection of doing so. The Judge found that the intention in the last paragraph was “superseded” by subsequent negotiations on 14th April 2000 between Mr Hodges and the second defendant.
There is no clause in the lease that requires the first defendant to conduct a transport business on the property. The letter dated 1st April 2000 does not state that the first defendant will stop paying rent. It was not suggested by the plaintiffs on appeal that the letter of itself constituted a repudiation of the lease.
On 14th April 2000 there was a telephone conversation between Mr Hodges and the second defendant. The Judge said that the best evidence of what was said during this conversation is contained in letters which Mr Hodges wrote shortly afterwards. On 20th April 2000 Mr Hodges wrote to the plaintiffs in the following terms:
“SUBJECT: TENANT VACATING 11 HAWKER RD BURTON
This letter is to confirm my discussion with Don last Friday 14th April.
On that date, the tenant of your property at Burton, Linehaul Australia Pty Ltd informed me that they had vacated the property.
The reason for doing so was due to a continuous Police presence in the area resulting in every truck being fined for being on a road not gazetted for ‘B-Double’ vehicles. Mr Andrews informed me that he had been fined $1650 in the previous week.
He further informed me that they would leave the premises in a spotless condition …..”
On 27th April 2000 Mr Hodges wrote to the defendants in the following terms:
“SUBJECT: VACATING OF 11 HAWKER ROAD BURTON
This letter is to acknowledge your telephone call of 14th April advising us that you were vacating the above premises prior to the expiry of your Lease.
I have communicated with the owners and they have instructed our Company to seek a new tenant for the property.
Accordingly, next week, we will be erecting ‘for lease’ signage at the property and putting it on the market.
I also wish to advise that you are under obligation to continue paying rent on the premises until we obtain a new tenant or until the end of your current lease (31/03/01), and to reimburse the owners for re-leasing costs.
Could you please advise me when the premises will be vacant and arrange for return of keys.”
The Judge referred to what he said was a crucial difference between these two letters. The letter of 20th April 2000 refers to “they had vacated the property”, whereas the letter of 27th April 2000 refers to “that you were vacating”. The Judge found that what was said was that the defendants were vacating, and not that they had vacated. The Judge said that his finding was supported by the other evidence that the defendants were in the process of vacating and that they had not vacated as at 14th April 2000, and by the fact that the last sentence in the letter dated 27th April 2000 refers to advice as to “when the premises will be vacant and arrange for return of keys”. In other words, the property was not then vacant.
The Judge referred to other evidence which he said might suggest a contrary finding. On 20th June 2000 Mr Hodges wrote to the first defendant and stated (among other things),
“You advised by telephone on 14th April that you no longer wished to remain the tenant of the subject premises.”
In his evidence, the second defendant agreed that he said this.
The Judge said that this statement, in its context, meant no more than that the first defendant would not remain a tenant of the property if another tenant could be found. The Judge said that it was not an admission that the first defendant was unconditionally abandoning the property. The plaintiffs submitted that the Judge erred by having regard to the subjective intention of the second defendant. I should say that for present purposes, it is unnecessary to distinguish between the defendants because the second defendant was the controlling mind of the first defendant. The plaintiffs referred to the way in which the Judge expressed himself in his reasons. For example, he said:
“From 14 April until 19 May the defendants’ position was that if another tenant could be found for the Hawker Road property they would vacate it and thereby extinguish the liability for continuing rent, but if not, they would continue to use the property for limited purposes and pay the rent, albeit at the latest possible moment.”
Strictly speaking, the plaintiffs are right and the reference to the defendants’ “position” is irrelevant. However, having regard to the whole of his reasons, I do not think the Judge decided the issue by reference to the defendants’ subjective intention. I think the Judge considered the words and conduct of the defendants and asked himself what those words and conduct would convey to a reasonable man as to the first defendant’s intention with respect to the future performance of the lease. That is the correct approach.
The Judge referred to the fact that there was no evidence that a “For Lease” sign was erected or any other attempts were made by Mr Hodges to find an alternative tenant prior to 19th May 2000. The defendants did not return the keys which, said the Judge, would have confirmed their vacation of the property. Mr Hodges drove past the property and said that although there were a lot less vehicles there, there was still one semi-trailer on the property. Mr Hodges did not make any other investigations and inquiries about whether the defendants had completely vacated the property, and up until 19th May 2000 the plaintiffs personally had no knowledge of whether the defendants had vacated or not. The Judge did not err in considering the plaintiffs’ response (or lack of it) to the defendants’ words and conduct. The question is what the defendant’s words and conduct would have conveyed to a reasonable man and in considering that issue it is not an error to have regard to how the plaintiffs in fact responded to the defendants’ words and conduct.
The Judge referred to a letter from the defendants’ previous solicitors dated 18th July 2000 wherein they said that the first defendant had vacated the property on or about 18th April 2000, and that the plaintiffs had been aware since that time that the property was vacant. The Judge carefully analysed the statements in the letter. He said that if the statement about the property being vacant had been made to the plaintiffs prior to 19th May 2000 then it might have led the plaintiffs to believe that the property had been abandoned. However, the letter was only sent well after the relevant events. As to the letter, the Judge said:
“In part it reflects the 2nd defendant’s lack of understanding of the legal situation at the time and in part it was an attempt to raise a spurious answer to the plaintiffs’ claim based on alleged misrepresentations which have not been pursued. In the light of the other evidence to the contrary I do not find that what the defendants instructed their solicitors, as reflected in this letter, overrides the other evidence that they had not completely vacated the Hawker Road property before 19 May.”
I do not think the Judge erred in reaching this conclusion.
The Judge referred to the letter from Mr Hodges to the first defendant dated 8th May 2000 wherein there is a demand for the payment of outstanding rent. The terms of this letter are set out in [24] above. The Judge said that the letter referred not only to the recovery of the outstanding rent but also to recovery of the property, that is to say, the recovery of the property from the first defendant. The Judge noted that the letter did not refer to accepting a repudiation by reason of an abandonment of the property by the first defendant. The Judge did not err in having regard to this matter.
The question for the Judge was whether the first defendant had by its words and conduct repudiated the lease prior to 19th May 2000. The Judge answered that question in the negative. The important matters in the Judge’s mind were the following. First, the first defendant had, as the Judge put it, only “partially vacated” the property prior to 19th May 2000. More accurately, I think, the finding is that the first defendant had not vacated the property prior to 19th May 2000, although it had transferred a substantial part of its business to the George Street property. The first defendant was not bound to conduct a transport business, or indeed any business, on the property. The Judge found that the fact that the first defendant had partially vacated the property did not evince an intention by the first defendant to be no longer bound by the lease. The Judge said that the inference was that the first defendant’s intention was “conditional that it would only completely vacate the property if and when another tenant was found so that it was then relieved from its acknowledged obligation to pay future rent”.
Secondly, the Judge said that the first defendant’s failure to pay the rent due on 1st May 2000 either alone or in combination with other matters did not evince an intention by the first defendant to be no longer bound by the lease. The Judge found that although substantial rent was being paid in relation to the George Street property, the first defendant was not unable to pay rent in relation to the property.
The main attack by the plaintiffs on the Judge’s reasoning was that he had erred in taking two matters into account which could only be relevant to the first defendant’s subjective intention. First, it was submitted that the Judge had found that the vacation of the property was only “partial” but that fact was unknown to the plaintiffs. Therefore, it was said, the Judge had relied on the first defendant’s subjective intention. I do not think that there is anything in this criticism. The Judge was required to consider all the circumstances of the case and in the particular circumstances of this case, the three relevant matters were the first defendant’s statements of its intention, the significance of its failure to pay the rent and other monies due on 1st May 2000 and the extent to which it had vacated the property. The Judge found that prior to 19th May 2000 the plaintiffs had no definite knowledge of what the defendants were doing on the property, although their agent, Mr Hodges, had driven past the property and noticed a semi-trailer on the property. The extent to which the first defendant was occupying the property is a relevant consideration, but even if this be wrong, I do not think the other two matters are so strong that it must be concluded that the first defendant repudiated the lease.
Secondly, the plaintiff submitted that the Judge took into account the first defendant’s subjective intention when he found that the intention of the first defendant was conditional in that it would only completely vacate the property if and when another tenant was found so that it was then relieved from its acknowledged obligation to pay future rent. I think this criticism fails because I do not think the Judge was referring to the first defendant’s subjective intention when he made this finding. He was referring to an inference which would be drawn by a reasonable man from the first defendant’s words and conduct or at least an inference which could not be excluded on the balance of probabilities.
Having regard to the whole of the Judge’s reasons and the fact that repudiation is a serious matter not to be lightly found or inferred, I do not think the Judge erred in finding that the first defendant had not repudiated the lease prior to 19th May 2000.
The Judge went on to say that even if the first defendant had repudiated the lease prior to 19th May 2000, the plaintiffs had not accepted that repudiation. He said that the plaintiffs’ termination of the lease did not proceed on the ground that the first defendant had abandoned the property prior to 19th May 2000 or on the ground that it had failed to pay the rent on 1st May 2000. In view of my conclusion that the Judge did not err in finding that the first defendant had not repudiated the lease prior to 19th May 2000, it is not necessary for me to deal with this conclusion of the Judge.
I reject the plaintiffs’ submission in relation to the first issue. The Judge did not err in finding that the first defendant had not by words or conduct repudiated the lease prior to 19th May 2000.
Did the plaintiffs repudiate the lease on 19th May 2000?
The Judge found that the plaintiffs repudiated the lease on 19th May 2000. The plaintiffs submitted that the Judge erred in so finding and that they did no more on 19th May 2000 than distrain for rent.
On 19th May 2000 a couple of employees of the first defendant worked at the property. They left the property at about 4:00 pm and padlocked the front gate. An employee of the first defendant, Mr B McBeath stored a 21-foot aluminium boat with an outboard motor on the property. During the afternoon of 19th May 2000, the plaintiffs’ solicitors instructed Mr Benjamin Shingles, a licensed bailiff, to distrain for the outstanding rent on the goods of the first defendant on the property. Mr Hodges gave Mr Shingles a key to the property and Mr Shingles and three assistants went to the property at 5:00 pm. The Judge found that they proceeded to make an inventory of various goods and chattels which were on the property and to distrain them up for the outstanding rent. The Judge noted that there was no suggestion before him that the distraint was unlawful. Mr Shingles called a locksmith and the locksmith changed all the locks on the buildings and installed a new padlock for the front gate. Shortly afterwards, the two male plaintiffs and the son of one of them entered the property and remained there for some hours.
The Judge made findings, which were not challenged, as to what happened next. He said:
“At about 6pm on that day McBeath and another employee of the 1st defendant, Driscoll, came to the Hawker Road property to collect the boat so that they could use it on a fishing trip that weekend. Shingles refused them entry to the property and told them they could not take the boat. The 2nd defendant arrived shortly afterwards. Initially Shingles refused him entry to the property, but he then allowed him to come in to speak with the 3rd plaintiff about what was occurring. The 2nd defendant was upset and angry. He spoke for a few minutes with the 3rd plaintiff in the yard of the property endeavouring to sort out a solution to the problem. However, nothing was agreed between them. To avoid the situation getting out of hand Shingles then intervened and told the 2nd defendant that he had to leave the property. The 2nd defendant thereupon left. He said something to the effect that he would take up his discussion with the 3rd plaintiff at his home later than evening but he did not do so.”
The Judge found that, while he was on the property, the second defendant was served with a document entitled “Notice to Quit” which had been prepared by the plaintiffs’ solicitors and which was in the following terms:
“At some stage while the 2nd defendant was at the property on this evening he was served with a document prepared and signed by the plaintiffs’ solicitors which was entitled “Notice to Quit”. The relevant parts read:
“NOTICE TO QUIT
TO:LINEHAUL AUSTRALIA PTY LTD (ACN 077 750 451)
BURTON SA 5110
WHEREAS
A.You the said LINEHAUL AUSTRALIA PTY LTD (CAN 077 750 451) are a tenant of those premises situate at Allotment 11 Hawker Road, Burton ………… as a tenant of ROSARIO BELPERIO and ASSUNTA BELPERIO ……….. and DONATO BELPERIO and ROSA MARIA BELPERIO …………. (hereinafter called “the Landlord”).
B.TAKE NOTICE that you are in breach of the terms and conditions of your agreement to lease of the demised premises insofar as you have failed:
1. To pay rent in the sum of $5,663.60 due as at the lst day of May 2000.
2. To pay outgoings in the sum of $752.86 due as at the 1st day of May 2000 being
2.1Monthly contribution to council, water, insurance and auditing rates $560.55
2.2Management fees $192.31.
NOW the Landlord hereby requires you to forthwith pay the said sum of $6,416.46 to Thomson Playford, ……….. and to forthwith quit and deliver up possession of the demised premises to the Landlord or its duly authorised agent AND TAKE NOTICE that failure to comply with this notice will result in legal proceedings being taken for your eviction.
DATED this 19 day of May 2000.
THOMSON PLAYFORD
………………’”
It may be noted at this point that the Notice to Quit claims the payment of rent and other outgoings, and quite independently requires the first defendant to quit and deliver up possession of the property.
Mr Shingles left the property at about 10:00 pm on 19th May 2000 and he locked the front gates with the new padlock. Sometime during that night Mr McBeath removed his boat from the property and he said that when he went there the front gates were open. The Judge said that there was no evidence as to how that might have come about. The first plaintiff and his son found the front gates open when they went to the property on the morning of 20th May 2000. The Judge found that some unknown person then removed goods from the property, although apparently not anything which had been made the subject of the distraint. The front gates were relocked with the new padlock, although the Judge was unable to make a finding as to who did that.
On Monday 22nd May 2000 the second defendant entered into negotiations with the plaintiffs’ solicitors about the payment of monies outstanding and the return of the goods which were the subject of the distraint. After some discussion the issues were resolved, and, as I have said, on 25th May 2000 the defendants paid the sum of $7,393 to the plaintiffs for outstanding rent, other costs and the costs of the distraint. Thereafter, the defendants collected the new keys to the property from Mr Hodges and they removed their goods from the property and cleaned it. The Judge found that the defendants finally vacated the property between 27th and 29th May 2000, and subsequently they had no further dealings with the property.
On 20th June 2000, Mr Hodges wrote to the first defendant in the following terms:
“Linehaul Australia Pty Ltd
……..
SUBJECT: LOT 11 HAWKER ROAD BURTON
We refer to previous action regarding the above property, and draw your attention to the following details:
-you advised by telephone on 14th April that you no longer wish to remain the tenant of the subject premises
-the property appears to be vacant
-your transport business now operates from another address
-we have not received any written reply to our correspondence of 27th April 2000
Could you please confirm these details by signing the bottom of this letter where indicated and fax or mail back to us as soon as possible.
It is our duty to mitigate any losses for all parties and wish to re-lease the premises as soon as possible.
We also take this opportunity to point out that you are responsible for the on-going rent and outgoings until we lease to a new tenant, together with re-leasing costs. You are currently outstanding an amount of $7,169.32.
Yours truly,
Kevin Hodges
Kevin Hodges CREI MREI
Director
ACKNOWLEDGEMENT:
We, Linehaul Australia Pty Ltd acknowledge that we have vacated the property known a 111 Hawker Road, Burton and no longer require the premises to run our business.
SIGNED: …………… DATE: …………………………”
The Judge found that the first defendant did not immediately reply to this letter, and he did not sign the acknowledgment.
The Judge found that the plaintiffs’ conduct on 19th May 2000 went beyond a lawful distraint for rent. His reasoning was as follows:
1.A landlord who is distraining for rent has a right to secure the goods over which the distraint is taken on the property, but he is not otherwise entitled to exclude the tenant from the property except insofar as it is necessary to effect the distraint. The locking up of the whole of the property in order to effect a distraint is an incidental power of last resort.
2.In this case, the plaintiffs locked the first defendant out of the whole property, and on the evidence it had not been shown that this was necessary. For example, it had not been shown that the distraint could not have been properly effected by confining the goods distrained to part of the property which could be locked up and/or by removing them to some other safe location.
3.In any event, there was no justification for Mr Shingles to have required the second defendant to leave the property as there was no suggestion that he was seeking to retake any of the goods which had been the subject of the distraint.
The Judge found that the acts of the plaintiffs’ agents in changing the locks on the gates and each of the buildings and in excluding the first defendant’s employees and the second defendant from the property went well beyond anything which was justified for effecting their distraint on the goods, and were in fact “the classical actions of a landlord physically re-entering leased premises”.
The Judge said that the plaintiffs’ intention to re-enter the property and to dispossess the first defendant was made explicit in the Notice to Quit. The Notice to Quit required the first defendant to pay the outstanding rent and “to forthwith quit and deliver up possession” of the property to the plaintiffs. It also said that failure to comply with the notice would result in legal proceedings being taken for the eviction of the first defendant. The Judge said that this was incorrect as the service of the notice was part of the “self-help” remedy of physical re-entry.
The Judge rejected the plaintiffs’ argument that the Notice to Quit was of no legal effect. He said that a document entitled “Notice to Quit”, and in the general form of this notice, can, in the context of leases for a fixed term, be used as a form of re-entry by a lessor making an unequivocal demand for immediate possession. He found that the Notice to Quit was served by the plaintiff as an alternate means of effecting a re-entry and terminating the lease.
The Judge also noted the plea in paragraph 4 of the Statement of Claim as follows:
“On or about 19 May 2000, the Plaintiffs terminated the Agreement ……… for non-payment of rent and outgoings pursuant to its right to do so under the terms of the Agreement ………. and/or in the alternative at common law.”
The Judge described this plea as “a classical plea of termination by re-entry”. The Judge said that the plaintiffs had no right of re-entry under the lease or at common law. The plaintiffs’ re-entry and termination of the lease was wrongful and it was a repudiation of the lease. The first defendant accepted the repudiation in that it did not resume its business activities at the property. It went back to the property merely to collect its goods and to comply with its obligation to clean the property. The plaintiffs could not recover rent or damages for loss of rent thereafter.
The plaintiffs’ main challenge to the Judge’s conclusion that they had repudiated the lease by their conduct on 19th May 2000 was the submission that the Judge had erred in placing weight on the service of the Notice to Quit. The plaintiffs’ submissions were as follows:
1.A Notice to Quit is a notice to determine a periodic tenancy at the end of an appropriate period, and it is not a recognised step in the exercise of a right of re-entry or forfeiture (Rosa Investments Pty Ltd v Spencer Shier Pty Ltd [1965] VR 97 per Sholl J at 102 (“Rosa Investments”)).
2.There was no right of re-entry or forfeiture in the lease in this case, and therefore the Notice to Quit, even if otherwise effective, could not effect a re-entry or forfeiture (Halsbury’s Laws of Australia Vol 28 at [973]) (Woodfall Landlord and Tenant General Principles 28th ed at [1 – 1880]).
3.There is considerable doubt as to whether, even if there was a right of re-entry or forfeiture in the lease, a Notice to Quit is sufficient to effect a re-entry or forfeiture (Rosa Investments; Price v Mayman [1948] SASR 241).
As I understand it, the plaintiffs submitted that there being no right of re-entry or forfeiture in the lease, the Judge should have ignored the Notice to Quit.
It seems to me that the plaintiffs’ argument proceeds on a false assumption. It proceeds on the assumption that the Notice to Quit is only relevant if it was effective to achieve a re-entry or forfeiture because (if for no other reason) there was no right of re-entry or forfeiture in the lease. The Judge placed weight on the Notice to Quit in reaching his conclusion that the plaintiffs had repudiated. It is true that in parts of his reasons he uses language which suggests that he was holding that the Notice to Quit was effective in terms of a re-entry. However, I do not think that was his reasoning because ultimately he made it clear that there was no right of re-entry in the lease, and that the purported re-entry and termination was wrongful.
The significance of the Notice to Quit was what (if anything) it indicated about the plaintiffs’ intention (objectively assessed) as to the future performance of the lease. In my opinion, it was open to the Judge to find that it, with the other matters he identified, revealed an intention on the part of the plaintiffs to bring the lease to an end. After all, by its terms it requires the first defendant to forthwith quit and deliver up possession of the property.
The plaintiffs submitted that their conduct on 19th May 2000 should not be held to be repudiatory in light of the first defendant’s conduct prior to that date. They acted as they did only because they believed that the first defendant had repudiated the lease. They relied on cases in which a party who takes a mistaken view as to the proper interpretation of a contract and refuses to perform it in any other way is held not to have repudiated the contract. The Court was referred to the decision of the High Court in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 per Stephen, Mason and Jacobs JJ at 432; and the decision of the House of Lords in Woodar Investment Development Ltd v Wimpey ConstructionUK Ltd [1980] 1 All ER 571 per Lord Wilberforce at 576. I do not think reference to the principles stated in these cases assists the plaintiffs. In this case the plaintiffs by their conduct on 19th May 2000 intended to bring the lease to an end. There is no evidence from the two plaintiffs who were called as witnesses to the effect that they thought the first defendant had repudiated the lease, but if they were wrong about that they were happy for the lease to continue. This is not a case of a party asserting a wrong view of the contract (DTR Nominees Pty Ltd v Mona Homes Pty Ltd) and whilst it is true the decision in Woodar Investment Development Ltd v Wimpey Construction UK Ltd goes a long way in protecting a promisor from the consequences of repudiation, the question in each case is whether on the facts the promisor has evinced an intention to abandon and to refuse to perform the contract. The Judge’s answer in the affirmative in this case was supported by the changing of the locks, the requirement that the second defendant leave the property and the service of the Notice to Quit.
The plaintiffs submitted that the distraint for rent which was carried out on 19th May 2000 was a recognition that the lease continued, not that it was terminated. The Judge proceeded on the basis that the distraint was lawful. However, he decided that in securing the property in the way in which they did the plaintiffs were acting outside the powers they had under the right to distrain. The Judge’s statement of the relevant legal principles in relation to the powers under a right to distrain were not challenged on appeal, and insofar as there was a challenge to his findings of fact, no basis to inference with the Judge’s findings was shown. As to the argument that a distraint for rent is inconsistent with a re-entry or forfeiture, I would reject the argument for two reasons. The first is that the plaintiffs are seeking to use the relevant principle outside of its proper field of operation. The relevant principle is that in certain circumstances a lessor is held to have waived a forfeiture by reason of the exercise of a right to distrain for rent (Woodfall Landlord and Tenant General Principles 28th ed at [1 – 1909]). That is not this situation because here the tenant is saying that the landlord has repudiated. Even if the principle has some relevance to that question, it does not assist the plaintiffs because a distraint is only an acknowledgment of a tenancy to the day of the distraint, and a waiver of any forfeiture to that time.
The plaintiffs submitted that the payment of rent by the first defendant on 25th May 2000 was inconsistent with repudiation by the plaintiffs or inconsistent with the acceptance of the repudiation by the first defendant. I cannot see how the acceptance of rent by the plaintiffs on 25th May 2000 can negate their repudiation of the lease (Woodfall Landlord and Tenant General Principles 28th ed at [1 –1910]), and as far as the payment of rent is concerned that cannot negate the first defendant’s acceptance of the plaintiffs’ repudiation bearing in mind that the rent fell due on 1st May 2000.
The Judge rejected a submission by the plaintiffs that the only effect of their conduct on 19th May 2000 was to dispossess the first defendant for a few hours and that the lease thereafter revived. The Judge inferred that the property was re-secured by the plaintiffs on or shortly after 20th May 2000. The Judge said that there was no evidence that there was anything said or done in the dealings between the parties, “which discharged the distraint which suggested that the distinct act of re-entry had been waived or the lease otherwise revived”. The Judge also noted that the plaintiffs had not pleaded that the lease had revived after re-entry.
The Judge rejected the plaintiffs’ submission that the first defendant continued to occupy the property and conduct its business from the property after 19th May 2000 and therefore it did not accept a repudiation by the first defendant. The Judge said that all the defendants did after the rent was paid to release the distraint was to remove their goods and chattels from the property and to clean it. There was a faint challenge to the Judge’s finding and it was said that it was inconsistent with the evidence of the employees of the first defendant. However, that evidence was specifically rejected by the Judge and there is no reason to interfere with the Judge’s approach in that regard. The plaintiffs submitted that the Judge erred in another respect in finding that the first defendant had accepted the plaintiffs’ repudiation and they said that the Judge overlooked evidence that at the time the second defendant on behalf of the first defendant paid the rent to the plaintiffs’ solicitors he suggested to them “that the lease in the premises continue”. It is difficult to know what the second defendant meant by this answer and ironically the plaintiffs’ counsel objected to further evidence on the topic. It is true the Judge did not mention this evidence, but it is not sufficient to lead to the conclusion that the Judge erred in finding that the first defendant accepted the plaintiffs’ repudiation of the lease bearing in mind the clear finding by the Judge that the first defendant did not resume any business activities at the property after 19th May 2000 and that all it did was to return to the property for the limited purposes of retrieving its goods and complying with its obligations to clean up the property.
The Judge expressed his conclusions as follows:
“I find that there was a wrongful repudiation of the Agreement by the plaintiffs on 19 May in that they deprived the 1st defendant of its lawful occupation of the premises and by the terms of the Notice to Quit and by changing the locks they showed that they intended to exclude the 1st defendant from the property for the balance of the term subject to its rights to regain the distrained goods after payment of the outstanding rent. I find that the 1st defendant accepted this repudiation of the lease in that it did not resume its business activities at the property and merely went back for the limited purposes of retrieving its goods and complying with its obligations to clean it up.”
I do not think the Judge erred in making those findings and for the reasons I have given I reject the various submissions put by the plaintiffs.
The Judge said that in the alternative it may well be that as a matter of law the wrongful re-entry was sufficient to put an end to the lease and the first defendant’s obligation to pay rent, irrespective of any acceptance by the first defendant of any repudiation inherent in the plaintiffs’ re-entry. I have considerable doubt as to whether that proposition is correct but in view of my earlier conclusion it is not necessary to examine that issue.
I reject the plaintiffs’ challenge to the Judge’s conclusion that the plaintiffs repudiated the lease by their conduct on 19th May and that the repudiation was accepted by the first defendant.
Conclusions
I would dismiss the appeal and I would hear the parties as to costs and any other orders.
ANDERSON J: I agree that the appeal should be dismissed for the reasons given by Besanko J.
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