Brondolino v Surf Coast Smash Masters Pty Ltd
[2019] VSC 505
•8 August 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
JUDICIAL REVIEW AND APPEALS LIST
S ECI 2019 2075
| ANTHONY PAUL BRONDOLINO | Applicants |
| v | |
| SURF COAST SMASH MASTERS PTY LTD (ACN 162 103 675) AND BELINDA LOUISE PITTS | Respondents |
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JUDGE: | CROFT J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 June 2019 |
DATE OF JUDGMENT: | 8 August 2019 |
CASE MAY BE CITED AS: | Brondolino v Surf Coast Smash Masters Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2019] VSC 505 |
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PRACTICE AND PROCEDURE – Appeal to the Trial Division of the Supreme Court of Victoria from the Victorian Civil and Administrative Tribunal – Must demonstrate a real prospect of success – Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 – Not a fact finding exercise on appeal - Boucher v Dandenong Ranges Steiner School Inc (2005) 145 LGERA 21 – Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1 – Whitehorse City Council v Golden Ridge Investments Pty Ltd (2005) 13 VR 275 – Court to avoid overly pernickety examination of reasons – Roncevich v Repatriation Commission (2005) 222 CLR 115 – Victorian Civil and Administrative TribunalAct 1998, ss 148(1), 148(2A).
LEASES AND TENANCIES – Retail Leases – Covenants prohibiting the sharing of possession – Lam Kee Ying Sdn Bhd v Lam Shes Tong (1974) 3 WLR 784 – Tulepam Properties Ltd v Almeida [1981] 2 EGLR 55 – Akici v LR Butlin Ltd [2006] 1 WLR 201; [2005] EWCA Civ 1296 – Ace Property Holdings Pty Ltd v Australian Postal Corporation [2010] QCA 55 – Covenants prohibiting the sharing of occupation – Tulepam Properties Ltd v Almeida [1981] 2 EGLR 55 – Clarence House Ltd v National Westminster Bank Plc [2010] 1 WLR 1216; [2009] EWCA Civ 1311.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | D Clough | Lennon Lawyers |
| For the Respondents | T Sowden | Zervos Lawyers |
HIS HONOUR:
Introduction and background
This proceeding is brought pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”). The applicant, Mr Anthony Paul Brondolino (“the Landlord”), seeks leave to appeal the Orders of Senior Member L Forde of the Victorian Civil and Administrative Tribunal made on 12 April 2019 in VCAT proceeding number BP 1292/2018. The Tribunal published reasons for the making of these Orders.[1]
[1]Brondolino v Surf Coast Smash Masters Pty Ltd (Building and Property) [2019] VCAT 538 (“Tribunal Reasons”).
The dispute concerns a lease to which the Retail Leases Act 2003 (“the RLA”) applies. The first respondent, Surf Coast Smash Masters Pty Ltd (“the Tenant”), runs a panel repair shop at 184 – 186 Johnston Street, Collingwood (“the premises”). The premises are leased by the Tenant from the Landlord, pursuant to a Lease dated 14 August 2013.[2] The Lease is for a term of five years commencing 3 July 2013 and the Tenant has exercised an option for a further term of five years. The permitted use as specified in the Lease is:[3]
Panel beater, spray painting and mechanical repairs and any other use which the Landlord will consent to in writing, which consent shall not be unreasonably withheld.
[2]Exhibit APB-3 to the Affidavit of Anthony Paul Brondolino (31 August 2018), Lease of Real Estate (14 August 2013) (“the Lease”).
[3]Lease, Clause 2.2.1, Schedule Item 15.
The Tenant’s obligations under the Lease are guaranteed by the second respondent, Ms Belinda Louise Pitts. Ms Pitts is the director of the Tenant and her husband, Mr David Deicke, is described as the managing director of the couple’s seven panel repair shops, including the one operating at the premises.
Between November 2017 and June 2018 (“the Interference Period”) the Tenant was unable to operate its panel beating business as usual because the roof of the premises, which was made of fibro-asbestos, was not watertight. In June 2018 the Landlord replaced the roof. On 19 June 2018 the Landlord issued a Notice to Remedy Breach, claiming a number of breaches. On 20 July 2018 the Landlord issued a Notice of Termination. Before the Tribunal the Landlord sought Orders that the Tenant vacate the premises and the Tenant and guarantor pay $127,000 for outstanding rent, outgoings and mense profits and costs.
However, the Tribunal instead accepted the Tenant’s claim that a storm on or about 19 November 2017 caused the damage to the roof that resulted in flooding and leaks such that the premises could not be used for the permitted use until the roof was repaired. The Tenant claimed, and the Tribunal found, that the Tenant did not breach the Lease, including by sharing or giving up possession. The Tenant counterclaimed for the amount it paid in rent and outgoings during the Interference Period.
The Tribunal Orders relevantly provide:
1 Anthony Paul Brondolino’s claim against Surf Coast Smash Masters Pty Ltd and Belinda Louise Pitts is dismissed.
2Anthony Paul Brondolino must pay Surf Coast Smash Masters Pty Ltd $37,196.39
…
By his Amended Proposed Notice of Appeal dated 24 May 2019, the Applicant Landlord seeks leave to appeal Orders 1 and 2 of the Tribunal’s Orders.
The Landlord maintains that the leaks and flooding during the Interference Period was due to the Tenant’s installation of flues in the roof some two years earlier in November 2015, without prior landlord consent. The Landlord also claims that the Tenant has surrendered its possession to or “shared” its possession with another entity, a separate business belonging to Mr David Gavelan, in breach of the Lease.
Principles applicable with respect to appeals
Section 148(1) of the VCAT Act provides:
A party to a proceeding may appeal on a question of law from an order of the Tribunal in the proceeding—
(a)if the Tribunal was constituted for the purpose of making the order by the President or a Vice President, whether with or without others, to the Court of Appeal with leave of the Court of Appeal; or
…
(b)in any other case, to the Trial Division of the Supreme Court with leave of the Trial Division.
It follows from this provision that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law, and secondly, that the Court gives leave to appeal. The legislative policy underlying these provisions is that “VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal.”[4] It follows that “[t]his Court is not entitled to enter into the fact finding exercise which the legislature has deliberately entrusted to a specialist tribunal.”[5]
[4]Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 834 [5] citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335–6 and Myers v Medical Practitioners’ Board (Vic) (2007) 18 VR 48 at 55–6 [28].
[5]Boucher v Dandenong Ranges Steiner School Inc (2005) 145 LGERA 21 at 26 [15] citing Spurling v Development Underwriting (Vic) Pty Ltd [1973] VR 1 and Whitehorse City Council v Golden Ridge Investments Pty Ltd (2005) 13 VR 275.
The leave requirement under s 148(1) of the VCAT Act is designed to maintain this position. As Pagone J said in Commissioner of State Revenue v Frost:[6]
The requirement for leave under s 148(1) of the [VCAT Act] “is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the court do found the subject matter of the appeal”.[7] It also confers a discretion about whether to grant leave[8] which an applicant must persuade the court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave.[9] It will ordinarily be necessary (in addition to a clearly articulated question of law)[10] for an applicant to make out a prima facie case[11] and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.[12]
[6](2011) 83 ATR 832 at 833–4 [3].
[7]Commissioner of State Revenue (Vic) v STIC Australia Pty Ltd (2010) 2010 ATC 20-232 at 11,839 [10];
81 ATR 682 at 687 [10] per Davies J.
[8]Department of Premier and Cabinet v Hulls [1999] 3 VR 331; Al-Hakim v Monash University (unreported, Court of Appeal, Vic, No 3707 of 2003, 28 March 2003); Myers v Medical Practitioners Board (Vic) (2007) 18 VR 48.
[9]See Morris v The Queen (1987) 163 CLR 454 at 475; 61 ALJR 588 at 597; 28 A Crim R 48 at 63-64; 74 ALR 161 at 176-177 per Dawson J.
[10]Osland v Secretary to the Department of Justice [No 2] (2010) 241 CLR 320 at 333 [21]; 84 ALJR 528 at 536 [21]; 267 ALR 231 at 240 [21] per French CJ, Gummow and Bell JJ.
[11]Morris v The Queen (1987) 163 CLR 454 at 475; 61 ALJR 588 at 597; 28 A Crim R 48 at 63-64; 74 ALR 161 at 176-177 per Dawson J; Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335 [10]; 15 VAR 360 at 366 [10].
[12]Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335-336 [11]; 15 VAR 360 at 366 [11] per Phillips JA; Commissioner of State Revenue v Challenger Property Nominees Pty Ltd (2006) 63 ATR 65 at 69 [20] and 77 [65] per Hollingworth J.
An additional safeguard has since been imposed. Effective from 1 May 2018, the VCAT Act was amended to include s 148(2A).[13] The section provides:
The Trial Division of the Supreme Court may grant an application for leave to appeal under this section only if it is satisfied that the appeal has a real prospect of success.
[13] Justice Legislation Amendment (Court Security, Juries and Other Matters) Act 2017, s 31(3).
This amendment sees the replacement of the requirement that an applicant seeking leave to appeal from VCAT to the trial division of the Supreme Court must show that there is a real or significant argument to be put that an error below exists,[14] sometimes referred to as the Hulls test.[15] Instead, all applicants under s 148 are now subject to the same and more burdensome requirement: they must demonstrate that the appeal has a real prospect of success.[16] With respect to applications subject to the same test,[17] the Court of Appeal has said:[18]
the test under s 63 of the Civil Procedure Act should be construed as one of whether the respondent to the application for summary judgment has a “real“ as opposed to a “fanciful“ chance of success; that the “real chance of success“ test is to some degree a more liberal test than the “hopeless“ or “bound to fail” test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not “hopeless“ or “bound to fail”, it does not have a real prospect of succeeding.
[14]Myers v Medical Practitioners’ Board of Victoria (2007) 18 VR 48 at 55 [28], citing Secretary to the Department of Premier and Cabinet v Hulls [1999] 3 VR 331 at 335.
[15]See Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 6th ed, 2017) 871.
[16]The same requirement is imposed upon applicants for leave to appeal a VCAT decision before the Court of Appeal under s 148(1)(a) of the VCAT, with the additional requirement to such an application set out at s 14C of the Supreme Court Act 1986; see Emrys Nekvapil, Pizer’s Annotated VCAT Act (Thomson Reuters, 6th ed, 2017) 874–7.
[17]Section 63(1) of the Civil Procedure Act 2010 empowers a court to give summary judgment in a civil proceeding if the defence, inter alia, has “no real prospect of success”.
[18]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 at 39 [29]. See also Kennedy v Shire of Campaspe [2005] VSCA 47, [3]–[14].
The new requirement of s 148(2A) makes express the restraint this Court ought exercise when reviewing decisions of VCAT, a restraint long and more generally recognised in case authority. In considering applications of this nature, courts have been concerned to respect the role entrusted by the legislature to the particular tribunal and not, in effect, subvert this position by seeking out error. Thus, Kirby J in Roncevich v Repatriation Commission said:[19]
[19](2005) 222 CLR 115 at 136 [64].
Courts conducting this form of review have been repeatedly enjoined by this Court to avoid overly pernickety examination of the reasons.[20] The focus of attention is on the substance of the decision and whether it has addressed the “real issue” presented by the contest between the parties.
Similarly, in Vegas Nominees Pty Ltd v Werribee Sports & Community Club Inc, Ashley J said:[21]
This Court has said more than once that it should not examine briefly stated reasons by an expert Tribunal in an over-legalistic manner or by the over-zealous drawing of inferences in order to disclose some supposed error; although where unambiguous language is used, the user should be taken to mean what the words say. I should add that the Court is not entitled to interfere with the Tribunal’s decision unless it is satisfied that there was in fact a vitiating error of law. It is not enough for the appellant to show that the Tribunal’s reasons for its decision are so expressed as to suggest the possibility that it proceeded upon a wrong view of the law. In support of the several propositions that I have just stated I refer to Portland Properties Pty Ltd v Melbourne & Metropolitan Board of Works,[22] Michaelis Bayley (Vic) Pty Ltd v Melbourne & Metropolitan Board of Works[23] and Teston Investments Pty Ltd v Melbourne & Metropolitan Board of Works.[24]
Additionally, “[o]n appeal this Court must recognise the forensic realities of the way in which the case was put to the Tribunal. It is these realities to which a Tribunal must respond in its reasons.”[25]
[20]Minister for Immigration and Ethnic Affairs v Guo (1997) 191 CLR 559 at 575, 597; cf Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at 348 [74].
[21](Supreme Court of Victoria, Ashley J, 21 December 1994) at 13.
[22](1971) 38 LGRA 6 at 18.
[23](1980) 44 LGRA 65 at 67–8.
[24](1985) 62 LGRA 346 at 349–50.
[25]The Gombac Group Pty Ltd v Vero Insurance Ltd [2005] VSC 442, [59].
In terms of the parties’ submissions, it is clear from the authorities to which reference has been made that the role of a specialist tribunal, such as VCAT, is not to be usurped by the Court and that a decision of such a tribunal is not to be interfered with absent a vitiating error of law.
For the reasons which follow, I am not satisfied that the Appellant has established that the appeal has a real prospect of success. Consequently leave to appeal is refused. Moreover, as these reasons indicate, any appeal would have failed in any event, even if leave to appeal were to have been granted.
The Appeal
Appeal is sought with respect to the following questions of law as put by the Landlord in his Amended Proposed Notice of Appeal dated 24 May 2019:
A When determining to award the tenant the sum of $37,196.39 for being unable to make any use of the leased premises from 19 November 2017 to 18 June 2018 due to water ingress, was the Tribunal required to reduce the sum awarded to the tenant to account for the fact that the tenant continued to make some reduced use of the premises in accordance with [s 57(1)(b)] of the Retail Leases Act 2003 … ?
BWas it open to the Tribunal to conclude that a storm at the premises on or about 19 November 2017 caused the damage to the roof rather than the installation of flues on the roof of the premises by the tenant in 2015?
CWas it open to the Tribunal to conclude that the tenant’s installation of flues at the premises in 2015 did not cause the water ingress because, had the tenant damaged the roof in 2015, there would have been flooding at the premises between 2015 and November 2017 when there was an alleged storm?
DWas it open to the Tribunal to conclude that the landlord’s insurer covered the cost of making the premises watertight because it was the storm that caused the damage to the roof, not the tenant’s installation of the flues?
EWas it open to the Tribunal that it was more likely than not that the issues with asbestos arose after the November 2017 storm rather than from the tenant installing flues in 2015?
G… [Withdrawn upon amendment.]HWas it open to the Tribunal to conclude that there had been no change in possession of the premises as alleged in the Notice to Remedy Breach of Lease dated 19 June 2018?
These grounds divide into three essential issues. The Landlord challenges two areas of the Tribunal’s factual or evidential findings, and the application of the RLA in respect of one of those findings. I shall consider the grounds first in terms of the cause of the roof damage (grounds B, C, D and E), the application of the RLA with respect to that finding (ground A) and finally the question of the sharing of or parting with possession or occupancy (ground H).
Grounds B, C, D & E: the damage to the Premises
The Tribunal held that the damage to the Premises was the responsibility of the Landlord. The Tribunal’s reasons for this are as follows:[26]
[26]Tribunal Reasons, [28].
aI accept the evidence of the tenant as confirmed by the landlord’s agent that there was flooding in the premises in November 2017;
b The landlord and tenant acknowledge that flooding occurred in November 2017 due to water ingressing through the roof;
cThe landlord claimed the roof leaked because of the installation of flues in 2015 by the tenant. I do not accept this to be the case as if it was there would have been flooding in previous years;
dI accept the evidence of the tenant that the flooding occurred after a storm on about 19 November 2017. This is supported by data from the Bureau of Meteorology and evidence from the agent;
e It is not disputed that following the flooding asbestos issues were identified in the roof at the premises;
fWorkSafe issued an Improvement Notice on 11 January 2018 relating to identifying asbestos and having an asbestos register for the premises;
gAzcor Consultants issued an asbestos removal certificate on 19 December 2017 following make safe works.[27] They prepared an asbestos register in February 2018;
[27]TB938.
hThe landlord’s insurers covered the cost of make safe repairs for the premises including making the premises water tight after the storm. This supports my finding that the damage was storm related rather than due to installation of flues in 2015;
i It is more likely than not that the issues with asbestos arose after the November 2017 storm rather than from the tenant installing flues in 2015.
JThe permitted use under the lease is “panel beater, spray painting and mechanical repairs and any other use which the landlord will consent to in writing which consent shall not unreasonably be withheld.”
k The tenant operated a panel beating business. I accept the tenant’s evidence which was not challenged that a panel beating business can not operate from premises which are not water tight;
lI accept the tenant’s evidence that it would not operate the business other than for assessing vehicles until the asbestos issues were resolved due to public and staff safety concerns;
mThe tenant claims it was unable to use the premises from 19 November 2017 to 18 June 2018 due to a structural defect in the roof;
nThe asbestos issues were resolved by February 2018 for which an asbestos register was prepared.
o The landlord says the roof had a few more years in it but nevertheless it was replaced in June 2018.
p I prefer the expert evidence of Rohan Saunders of SPI Property Inspections to the landlord’s evidence and find that the old roof was not water tight;
q The roof was replaced in June 2018. Until the roof was replaced the premises were not water tight and not fit for the operation of the tenant’s business;
r If the tenant could not fully operate its business due to the roof not being water tight (other than using the premises to assess vehicles), it cannot breach the lease by not operating. It was prevented from operating its business due to the state of the roof.
The Tenant criticises the findings of the Tribunal as to the cause of the water ingress. The water ingress during the Interference Period is variously described as flooding and leaks. The difference between these expressions is irrelevant for the purposes of the appeal, as the Landlord accepts that the roof of the Premises was not water-tight after November 2017 until the roof was replaced in June 2018.[28]
[28]Appellant’s Amended Outline of Submissions (21 June 2019), [17].
The Tribunal had the advantage of hearing the evidence first-hand from Mr Deicke, Mr Brondolino, the workers who inspected and repaired the roof, and the experts who prepared reports as to the condition of the roof during the Interference Period. Each of the Tenant’s criticisms of the Tribunal’s findings on this issue on appeal fall foul of Kirby J’s injunction against an overly pernickety examination of the Tribunal’s Reasons.[29] In every instance, the applicant Landlord does nothing more than demonstrate that there was evidence to the contrary before the Tribunal? That may be so, but contrary evidence that was considered and given lesser weight than other, more persuasive evidence is indicative of nothing more than precisely the task that the Tribunal is entrusted to fulfil. There is nothing in the reasoning of the Tribunal that, in my view, is affected by anything approaching the kind of error, an error of law, that would warrant, or even allow, the displacement of the Tribunal’s findings upon appeal. In other words, no vitiating error is apparent.
[29]See above, [12].
First, in respect of Ground B, the applicant says it was not open to the Tribunal to find there was storm on or about 19 November 2017 that caused the water ingress that precipitated the Interference Period. The Tribunal’s reliance on the evidence of the applicant’s agent and Bureau of Meteorology Storm Confirmation Reports are both challenged.
The evidence given by the agent of the Landlord was that in November 2017 the Tenant contacted him reporting water damage following a storm and the agent saw leaks after a large storm.[30] The agent used the word “leaks”, the Tribunal the word “flooding” during the Interference Period. This distinction is insignificant given all are agreed that the premises were not watertight.
[30]Tribunal Reasons, [19](c).
The Landlord says the Bureau of Meteorology Reports show that there were “‘no reports or observations’ of thunderstorms or strong wind on [19 November 2019]”.[31] This is true. However, the Reports disclose thunderstorms in Collingwood which were observed by the Bureau on every day from 13 to 18 November 2017 and strong winds on 14, 15 and 18 November 2017. This is referred to by the Tenant in its written submissions.[32] Moreover, as the Tenant submits, the words ”on or about”, a qualification with respect to the date of the storm which was applied by the Tribunal in its Reasons, should be given meaning.[33]
[31]Appellant’s Amended Outline of Submissions (21 June 2019), [18](a).
[32]Appellant’s Amended Outline of Submissions (21 June 2019), [18](b).
[33]Transcript, 78.
Neither of these aspects of the criticism of the Tribunal’s reasons disclose a vitiating error. Furthermore, they go nowhere in support of the Landlord’s position that the roof was prone to leaking due to damage caused by the installation of flues in the roof by the Tenant’s contractors in 2015.[34] While in the evidence put to the Tribunal mention was made of some leaks at the Premises, there was nothing rising to the level of that reported and agreed on or after 19 November 2017.
[34]Appellant’s Amended Outline of Submissions (21 June 2019), [14].
Secondly, in respect of Ground C, and contrary to the Landlord‘s submissions, I am of the view that the Tribunal had no basis to find that if the water ingress was caused by installation of the flues in April 2015 that there would have been leaks or flooding from that time onwards.[35] Confusingly, the Landlord submits on this point only that “[t]here was insufficient evidence that there had not been leaks between 10 April 2015 and 19 November 2019.”[36] Even if this argument were to be accepted, it is difficult to see how this assists the Landlord’s position. The Applicant Landlord was obliged to establish his case to the Tribunal, and by this submission concedes effectively that insufficient evidence was adduced to support its position in this respect.
[35]Tribunal Reasons, [28](c).
[36]Appellant’s Amended Outline of Submissions (21 June 2019), [20].
Thirdly, in respect of Ground D, the Landlord submits that there was no evidence of why his insurer accepted his claim for the replacement of the roof, and so it was not open to the Tribunal to conclude the storm caused the roof damage and not the flue installation.38 Reference ought here again be made to Kirby J’s exhortation. The insurance issue is one of eighteen bases for the Tribunal’s conclusions about the cause of the Interference Period to which it referred expressly.[37] Moreover, this was a permissible inference for the Tribunal to draw. The Tenant submits: “[t]he Tribunal is permitted to draw an inference so long as there is evidence upon which the inference is based. Here: (a) the [Landlord] admitted that a storm occurred on 19 November 2017; (b) he admitted that his insurers covered the costs of making the premises watertight after the storm; (c) the fact that insurer was called after and not before the storm supports the inference.”[38] The position which the Tenant puts with respect to the existence of evidence favourable to it is correct in general terms but where there is a real conflict in the evidence the resolution of which conflict requires explanation. Turning then to the Tribunal’s treatment of the evidence, the admission of the Landlord to which reference has been made is the subject of the Tribunal’s Reasons, where the evidence given by the Landlord is summarised: “[h]e agreed in cross examination when taken to an email from the tenant’s solicitor to the agent dated 15 February 2018 that by reason of the storm on 19 November 2017 ‘the premises were no longer waterproof and accordingly could not be used as a panel shop.’ (The words quoted are from the email)”[39] [citations omitted].[40] The Tenant relies on this admission with respect to the fact of the storm itself, the significance of the flues’ installation and the Tribunal’s inference with respect to the Landlord’s insurer.[41] I am persuaded by these submissions with respect to this ground in light of the Tribunal’s consideration and resolution of any conflict in the evidence before it.
[37]Tribunal Reasons [28], set out above, [31].
[38]Outline of Submissions of the Respondent (21 June 2019), [7].
[39]Tribunal Reasons, [18](k).
[40]See VCAT Transcript, 55, 56; where an email from Mr Stefan De Palma to Mr Angelos Christodouloukis (16 February 2018) and an email from Mr Rohan Saunders to Mr Stefan De Palma (31 May 2018) are referred to.
[41]Outline of Submissions of the Respondent (21 June 2019), [5], [6], [7].
Finally, with respect to Ground E, the Landlord submits that the Tribunal’s finding that the asbestos issues arose only after the storm on 19 November 2017 and not after the installation of the flues,[42] “was not based on any evidence of whether and when issues with the asbestos arose”.[43] On the Landlord’s own evidence, he was aware of asbestos issues after the roof was damaged and notified his insurer on or about 23 November 2017.[44] Worksafe issued an Improvement Notice on 11 January 2018 relating to identifying asbestos and having an asbestos register for the premises. Azcor Consultants issued a removal certificate on 19 December 2017 and prepared an asbestos register in February 2018, at the Landlord’s behest.[45] In my view, or on the basis of this series of events, the inference was open to be drawn by the Tribunal that if the Landlord was aware of asbestos issues in 2015 he would have taken some action then and not waited until later November 2017.
[42]Tribunal Reasons, [28](i).
[43]Appellant’s Amended Outline of Submissions (21 June 2019), [24].
[44]Tribunal Reasons, [44].
[45]Tribunal Reasons, [18](h), (i); [44]; Outline of Submissions of the Respondent (28 June 2019), [8].
For these reasons I am of the opinion that the grounds the Landlord relies upon with respect to the timing, cause of and liability for the damage to the roof do not disclose any vitiating error of law, nor any real prospect of success.
Ground A: the application of the Retail Leases Act 2003
Having found the roof was damaged in the storm “on or about” 19 November 2017,[46] the Tribunal awarded the Tenant the amount sought by counterclaim; that is, the full amount of rent and outgoings it paid during the Interference Period.
[46]See above, [22].
The Tribunal relevantly held:[47]
[47]Tribunal Reasons, [39]–[57].
39For the reasons set out in paragraph 27 of these reasons I find that the tenant was prevented from fully operating its business at the premises from 19 November 2017 to 18 June 2018. It was able to have some limited use of the premises for vehicle assessments between February and June 2018. All repairs were conducted off site during the period.
40 The tenant claims reimbursement of $37,196.39 calculated as follows:
A$34,894.18 for rent paid between 19 November 2017 and 18 June2018; and
B$2,302.21 for outgoings paid between 19 November 2017 and 18 June 2018.
41The calculations relied upon by the tenant are based on the receipt history produced by the landlord.
42 Section 52 of the RLA provides
(1)A retail premises lease is taken to provide as set out in this section.
(2)The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into—
(a) the structure of, and fixtures in, the retail premises; and
(b) plant and equipment at the retail premises; and
(c)the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other
(3)However, the landlord is not responsible for maintaining those things if—
(a)the need for the repair arises out of misuse by the tenant; or
(b)the tenant is entitled or required to remove the thing at the end of the lease.
43For the reasons set out in paragraph 27 I found that the flooding on 19 November 2017 was caused by the storm event on that day and the age and condition of the roof. I did not find that the tenant caused the roof to leak because of the installation of flues in 2015.
44The landlord said he was aware of asbestos issues with the premises after the roof was damaged in November 2017. He saw pieces of asbestos roofing loose on the roof and about 20 holes in the roof.
45By reason of s 52 of the RLA the landlord is required to maintain the roof in the same condition it was in at the start of the tenancy. The tenancy started in 2013. There is no evidence that there were asbestos issues other than a lack of an asbestos register at the start of the tenancy.
46I accept the evidence of Rohan Saunders of SPI Property Inspections that he observed large rust holes in the roof, gutter failure and that the asbestos roof had deteriorated over time.
47I accept the uncontradicted evidence of the tenant that the premises were watertight at the start of the lease.
48The landlord agreed in cross-examination that after 19 November 2017 the premises were not watertight and unable to be used as a panel beating shop until the roof was replaced in June 2018. He also agreed with the contents of an email dated 31 May 2018 from Rohan Saunders which stated that the current condition of the roof is not fit for the trading purpose of the tenant.
49The evidence is that the premises were watertight at the start of the tenancy and not watertight from 19 November 2017 until the roof was replaced on 18 June 2018.
50The landlord did not maintain the roof in a condition consistent with the condition of the premises when the lease was entered into. For the reasons stated the deterioration of the roof was not caused by any misuse by the tenant associated with the installation of flues in 2015.
51I find the landlord breached the lease by not maintaining the roof.
52Section 57 of the RLA provides that where premises are damaged as in this case, the tenant is not liable to pay rent or outgoings during the period in which the premises cannot be used.
53The premises could not be used for the permitted purpose between 19 November 2017 and 18 June 2018.
54Section 54 of the RLA provides that the tenant is entitled to reasonable compensation from the landlord in the present circumstances.
55Clause 8.1 of the lease provides that if the premises are damaged and can not be used for the permitted use a fair proportion of the rent and buildings outgoings is to be suspended until the premises are wholly fit again.
56The tenant has not claimed any loss or damage other than reimbursement of the rent and outgoings paid while the premises were not fit for the permitted use. The tenant’s business interruption claim following the flooding in November 2017 was rejected by its insurer due to the condition of the premises. The tenant did not pursue any claim against the landlord at the hearing other than for reimbursement of money paid.
57I find that $37,196.39, being the amount of rent and outgoings paid by the tenant during the period when it could not operate its permitted use from the premises, is a reasonable amount of compensation that the landlord is to pay the tenant.
[Citations omitted.]
The Landlord submits that the basis of compensation ordered is erroneous because the Tribunal applied s 54 of the RLA where s 57(1)(b) of that legislation and, its corollary under the Lease provisions, clause 8.1, ought to have been applied:[48]
AWhen determining to award the tenant the sum of $37,196.39 for being unable to make any use of the leased premises from 19 November 2017 to 18 June 2018 due to water ingress, was the Tribunal required to reduce the sum awarded to the tenant to account for the fact that the tenant continued to make some reduced use of the premises in accordance with [s 57(1)(b)] of the Retail Leases Act 2003 (“the RLA”)?
[48]Appellant’s Amended Outline Submissions (21 June 2019), [4]–[6].
Section 54 of the RLA relevantly provides:
54 Tenant to be compensated for interference
(1) A retail premises lease is taken to provide as set out in this section.
(2)The landlord is liable to pay to the tenant reasonable compensation for loss or damage (other than nominal damage) suffered by the tenant because the landlord or a person acting on the landlord's behalf—
(e) fails to rectify as soon as practicable—
…
(ii)any defect in the retail premises or in the building or retail shopping centre in which the retail premises are located, other than a defect due to a condition that would have been reasonably apparent to the tenant when entering into or renewing the lease or when the tenant accepted assignment of the lease; or
…
And the relevant provisions of section 57(1) of the RLA as follows:
57 Damaged premises
(1)A retail premises lease is taken to provide the following if the retail premises, or the building in which the premises are located, is damaged—
(a)except where the tenant caused the damage, the tenant is not liable to pay rent, or any amount in respect of outgoings or other charges, that is attributable to any period during which the premises cannot be used under the lease or are inaccessible due to that damage; and
(b)except where the tenant caused the damage, if the premises can be used under the lease but that use is reduced to some extent by the damage, the tenant's liability for rent, and any amount in respect of outgoings or other charges, that is attributable to any period during which the use is reduced is decreased to the same extent; and
…
Clause 8.1 of the Lease provides:
8 DAMAGE OR DESTRUCTION
8.1If the premises or the building are damaged so that the premises cannot be used or accessed for the permitted use -
8.1.1a fair proportion of the rent and building outgoings is to be suspended until the premises are again wholly fit and accessible for the permitted use, and
8.1.2the suspended proportion of the rent and building outgoings must be proportionate to the nature and extent of the damage or inaccessibility.
The Tribunal did not refer to the provision of the RLA or the Lease under which it made its finding regarding reasonable compensation.[49] Indeed, the word “compensation” in that paragraph may, on its face, confuse, as “compensation” is the word used in s 54. However, when the paragraph is considered in its context there is no basis for any confusion. More particularly, as appears in its there immediate preceding reasons, the Tribunal observed that the Tenant made no claim for compensation for loss and damage, for which s 54 provides, other than for its rent and outgoings. In my view it is clear that on a reasonable interpretation of the reasons of the Tribunal its orders were made under s 57(1)(a), having found that the premises could not be used for their permitted purposes during the Interference Period. This is the submission the Tenant makes[50] and, for these reasons, I am persuaded by it.
[49]See Tribunal Reasons, [27], set out above [29].
[50]Outline of Submissions of the Respondent (28 June 2019), [4].
Moreover, I am of the view that the full amount of rent and outgoings paid during the Interference Period could equally have been sought to be recovered or reduced under any of ss 54, 57(1)(b) of the RLA or clause 8.1 of the Lease if the full amount of rent and outgoings were found to be appropriate compensation or the proportion of the rent and outgoings for which the Tenant ought not be liable during that period.
The Landlord makes contrary submissions in this respect. His primary submission is that the Tribunal ought to have ordered a reduction to the rent and outgoings under s 57(1)(b) given that the parties agree that the premises were put to some use during the Interference Period. Under the Lease the Permitted Use is, principally, “panel beater, spray painting and mechanical repairs ...”.[51] The parties agree that because the premises were not water-tight during the Interference Period they could not be used for panel beating.[52] Mr Deicke gave evidence that during the Interference Period the premises were put to limited use as a vehicle damage and assessment centre, evidence that was accepted by the Tribunal.[53] This evidence was supported by the evidence given by the Landlord himself, who observed that the premises were closed during business hours during the Interference Period.[54]
[51]See above, [2].
[52]Tribunal Reasons, [48]; see also above [25] and reference there to VCAT Transcript, 55–6.
[53]Tribunal Reasons, [39]; VCAT Transcript, 136; see also Appellant’s Amended Outline of Submissions (21 June 2019), [7(c)].
[54]This went to toward a claim of breach by the tenant, which the Tribunal did not find at first instance and did not form part of the present appeal.
In my view it is clear on the evidence before the Tribunal that, as the Tenant submits, the use of the premises as an assessment centre during the Interference Period was de minimis such that the Premises during that time cannot be said to have been capable of being put to their Permitted Use. There is no argument made that the Tenant was putting the premises to a use that was not permitted under the Lease.[55] There is in my view then no vitiating error which affects the Tribunal’s application of the RLA and orders that the Tenant be reimbursed for full amount of the rent and outgoings paid during the Interference Period.
[55]Rather, the Landlord failed to satisfy the Tribunal that the Tenant had breached the Lease for failing to keep regular opening hours during the Interference Period (see Tribunal Reasons, [27], [28]), a finding against which the Landlord made no appeal.
Ground H: sharing or giving up possession of the premises
The Lease obliges the Tenant to remain in sole possession and occupation of the premises, unless consent is otherwise given by the Landlord. The Lease relevantly provides:[56]
4.7Except by a transfer or sublease to which the landlord has consented, the tenant must not give up possession or share occupancy of the premises or grant a licence to anyone else or mortgage or charge its interest under the lease or enter into occupation of the premises without the landlord’s written consent. Consent is at the landlord’s discretion.
Breach of this Lease covenant was argued by the Landlord in the Tribunal.
[56]Lease, clause 4.7.
This ground of appeal is first articulated by the Landlord as follows:[57]
[57]Amended Notice of Appeal (24 May 2019), Questions of Law, [G].
GWas it open to the Tribunal to conclude that there had been no change in possession of the premises as alleged in the Notice to Remedy Breach of Lease dated 19 June 2018?
Developing this ground later in the Notice of Appeal the Landlord says:[58]
31[t]he Tribunal failed to address the question of whether David Gavelan or a person or entity associated with him was sharing occupancy of the premises in breach of clause 4.7 of the lease.
[58]Amended Notice of Appeal (24 May 2019), [31].
The Landlord failed to satisfy the Tribunal that on the balance of probabilities the Tenant had breached the Lease by sharing its possession or occupancy of the premises. The Tribunal said:[59]
[59]Tribunal Reasons, [25], [26].
25The first breach relied upon by the landlord is that the tenant has transferred the lease or sublet the premises to another person without the consent of the landlord and/or given up possession of the premises, sharing occupancy of the premises and/or entry into an arrangement that gives a person the right to enter into occupation of the premises.
26I do not find that the breach has been proven on the balance of probabilities for the following reasons:
aThe appointment of David Gavelan for one day as a director of the tenant does not equate to the tenant giving up possession of the premises;
bThe landlord accepted in cross-examination that the lease had not been transferred;
c The tenant retained the keys for the premises;
dSince the alleged giving up possession, the landlord continued to accept rent and accepted an option to renew suggesting a waiver of any breach by reason of who was occupying the premises;
eThe Google searches produced by the landlord do not show that the tenant gave up possession or shared possession of the premises;
fThe letter from the insurer denying cover to the tenants following the November 2017 flooding is not evidence of shared possession by reason of a reference to Melbourne Repair Centre. There could be many explanations for two business names being recorded in the letter. The insurance claim, policy document and other relevant documents relating to the insurance were not in evidence;
gDavid Deicke is not a director of the tenant. His use of the term managing director is a lay person’s use of the term and not reference to his legal position within the tenant or the related businesses. His evidence was, and this was not contradicted that he is the controlling mind of the tenant and of six other panel beating businesses regardless of whether he is a director of the companies conducting those businesses;
hI accept that the Tenant’s business rebranded to operate under the name Melbourne Collision Centre to conform with Mr Deicke’s six other businesses;
ithe tenant’s evidence which I accept was that there had been no change of possession and that it has remained in possession since the commencement of the lease.
The Tenant’s evidence with respect to this issue arose primarily out of Mr David Deicke’s evidence, which was summarised by the Tribunal as follows:[60]
[60]Tribunal Reasons, [22].
a[David Deicke] is the “managing director” of seven panel repair shops including the one operating from the premises. Each panel beating business is owned and operated by a separate company. He and his wife own the companies and their businesses. He attends all businesses on a weekly basis;
b The tenant’s only asset is the business operating from the premises;
cDavid Gavelan became the manager of the business operated by the tenant in 2015;
dIn 2015, he intended to franchise his shops. He approached shop managers offering profit shares or the sale of the business. David Gavelan wanted to buy the tenant’s business. Deicke discussed the possible sale with Mr Angelo Christodoulakis, the landlord’s property manager. He had documents prepared to effect a transfer of lease and submitted the documents to the landlord for approval. The landlord rejected the transfer and no transfer of lease occurred. In anticipation of the transfer, Gavelan was appointed as a director of the tenant for 1 day on 1 July 2015. He was immediately removed as a director when consent to the transfer was not given;
…
jThe tenant made a business interruption claim on its insurer. The claim was rejected on 23 February 2018 due to the premises being in poor condition and not well maintained: The Insured named on the letter rejecting the claim was Smash Master Collingwood & Melbourne Repair Centre;
kMelbourne Repair Centre had been the name of a Moonee Ponds panel shop which was once owned by David Gavelan. Gavelan sold the Moonee Ponds business sometime between November 2017 and February 2018 to Deicke. He rebranded the business at the Moonee Ponds premises to Melbourne Collison Centre. All the businesses are now operated under that brand. No business was run at the premises under the name “Melbourne Repair Centre”;
lHe and David Gavelan used the same insurance broker. He has separate insurance policies for each of the seven panel beating businesses. The reference to Melbourne Repair Centre on the insurer’s rejection letter must be a mistake;
…
The Landlord’s own evidence with respect to this issue was summarised by the Tribunal as follows:[61]
[61]Tribunal Reasons, [18].
…
bThe tenant allowed another business to operate from the premises without his consent. Proof of this is that an internet search on 24 September 2018 of “Smash Masters Panel Beater”, the tenant’s trading name does not show the tenant’s business operating from the premises;
cThe lease was transferred by the tenant to David and Sandra Gavelan in 2014 without his consent. After his consent was refused, the tenant remained in occupation of the premises and the transfer did not proceed;
…
p The tenant used the premises between November 2017 and June 2018. He knows this because the tenant was complaining to the agent about the roller door jamming and had materials in the premises;
qHe agreed that since 2015 the tenant was and remained in possession of the premises and that David Gavelan is running the business;
rHe accepts that Smash Masters Collingwood is operated by the tenant. When shown an invoice from Melbourne Collision Repair Centre with the address of the premises and the same ABN as Smash Masters Collingwood, he did not accept a connection between Melbourne Collision Repair, a trading name and the tenant;
sAfter being shown estimates issued by Melbourne Collision Repair dated 14 November 2018, 15 November 2018, 16 November 2018, 19 November 2018, 20 November 2018, 21 November 2018, 22 November 2018, 15 January 2019, 24 January 2019, 25 January 2019 and 30 January 2019, which have photos of vehicles attached, he agreed that the photos were taken in the premises; and
t The tenant has paid rent but not at the increased rent. ...
The Landlord’s agent, Mr Angelo Christodoulakis, also gave evidence with respect to this issue, which was summarised by the Tribunal:[62]
…
eIn cross-examination he accepted that the tenant retained the keys between November 2017 and June 2018 and never said it was giving up possession. He drove past the premises a few times in this period and the business was not trading; and
fOther than from the landlord telling him, he was not aware of any change in the identity of the tenant or a formal transfer of lease.
[62]Tribunal Reasons, [19].
The Landlord’s position on appeal is that: [63]
Mr Gavelan is running his own business in the premises … concealed and facilitated by Mr Deicke.
[63]Appellant’s Amended Outline of Submissions (21 June 2019), [34].
The Landlord contends that the Tribunal took into account, what he calls, irrelevant considerations; specifically, whether the Lease was transferred, whether the Tenant retained keys, whether the Landlord accepted rent and an option to renew from the Tenant and Mr Deicke’s role as the managing director of the Tenant.[64] These are, however, considerations relevant to the question the Tribunal had to decide because the Landlord asserted that the Tenant had either impermissibly given up possession or impermissibly shared occupation of the premises.[65] It was to this one question – whether there had been an impermissible sharing or parting with possession – that was consistently put, first to the Tenant in the Notice to Remedy Breach, then to the Tribunal, and to which the Tribunal expressly directed its findings in its Reasons.[66]
[64]Amended Notice of Appeal, [36], [37], [38], [40]; Appellant’s Amended Outline of Submissions (21 June 2019).
[65]Points of Claim (14 August 2018), [8(e)]; Notice to Remedy Breach of Lease with covering letter from Zervos Lawyers (19 June 2018), Particulars of Breach, [1(b)].
[66]See Tribunal’s Reasons, [25]; and set out above at [42].
Additionally, the Landlord submits that the Tribunal failed to take into account relevant evidence, namely:[67]
[67]Appellant’s Amended Outline of Submissions (21 June 2019), [28].
(a)David Gavelan’s LinkedIn webpage, in which he publicised his business at the premises[68];
[68]Points of Claim, [8 (Partics (viii))]; APB-10 (Lopez Affidavit, (251)).
(b)the existence of a company and business called Melbourne Repair Centre Pty Ltd, operated by Mr Gavelan and his wife[69];
[69]ASIC co search (Lopez Affidavit, (221)).
(c)the fact that the tenant did not claim compensation for interference during the Interference Period under s 54 of the RLA but merely reimbursement for rent and outgoings;
(d)the inclusion of Mr Gavelan’s business name in correspondence from the tenant’s insurer;
(e) the tenant’s failure to call Mr Gavelan or his wife as witnesses; and
(f)the tenant’s failure to produce evidence of his employment and the tenant’s purchase of his Moonee Ponds business.
The Landlord also says the Tribunal failed to have regard to the correspondence sent by Mr David Gavelan in the context of the roof leaks and rental review dispute referring to “my workers”, “our situation”, “we” and “our building” and “our business”.[70] The Landlord contends this correspondence “only makes sense if [Mr Gavelan] is conducting his own business on the premises and thus sharing occupancy in breach of the lease”.[71] Further, with respect to Mr David Gavelan’s employment by the Tenant, the Landlord submits that the Tribunal ought to have drawn adverse inferences from the Tenant’s failure to produce evidence of Mr Gavelan’s employment.[72] In the Landlord’s submission, an adverse inference ought also to have been drawn by the Tribunal from the Tenant’s failure to produce its insurance policy,[73] a Jones v Dunkel point.[74] Correspondence between the Tenant and its insurer referred to both the business name of the Tenant and the Melbourne Repair Centre.
[70]Appellant’s Amended Outline of Submissions (21 June 2019), [33].
[71]Appellant’s Amended Outline of Submissions (21 June 2019), [33].
[72]Appellant’s Amended Outline of Submissions (21 June 2019), [29], [30].
[73]Appellant’s Amended Outline of Submissions (21 June 2019), [31].
[74](1959) 101 CLR 298.
In my view, the evidence before the Tribunal fell well short of establishing that anything close to Mr Gavelan’s involvement with the premises constituting the should be characterised as the sharing or surrendering of occupancy or possession with or to another entity. Moreover, the Landlord never established that an entity other than the Tenant traded from the premises. The trading names for the Tenant – Melbourne Collision Centre or Melbourne Collision Repair Centre – are explained in Mr Deicke’s account of having purchased Mr Gavelan’s Moonee Ponds business. Mr Gavelan’s use of first person possessive adjectives and pronouns to describe the Tenant’s employees is also explained by his role as the manager of the Tenant. As to the Jones v Dunkel point, the Landlord, who was the applicant at first instance in the Tribunal, cannot rely on a lack of evidence brought by the Respondent not having first satisfied the burden of proof of its, the Landlord’s, case.[75] Accordingly, this ground must fail on appeal.
[75]Primrose Meadows Pty Ltd v Riverview Pty Ltd [2019] VSC 263, [19], citing Tenth Vandy v Natwest Markets Australia [2012] VSCA 103; (2012) VConvR 64,366 at 64,396 [154]–[156].
Nevertheless, the facts in the present appeal do touch upon significant questions with respect to the nature of possession. It is helpful to address some aspects of the these questions; principally, what is meant by a covenant prohibiting the sharing of possession and the sharing of occupancy of leased premises? “Possession” is in the law a term of art. It has been described as follows, “[i]n the strict legal sense of the word ‘possession’ has a highly technical meaning, and the sharing of possession is an unknown concept. It has been said that possession is single and indivisible.”[76] Covenants preventing a tenant from parting with possession of a property during the term of a lease have been strictly construed given the consequence of a breach is forfeiture.[77]
[76]Tulepam v Alemeida [1981] 2 EGLR 55 at 56.
[77]Lam Kee Ying Sdn Bhd v Lam Shes Tong (1974) 3 WLR 784 at 791.
In cases brought with respect to lease covenants that prohibit the sharing of possession but do not prohibit the sharing of occupancy, a distinction is made between the two. In Lam Kee Ying Sdn Bhd v Lam Shes Tong, the Privy Council advised that while there could be no dispute that occupancy had been shared, “[a] covenant which forbids a parting with possession is not broken by a lessee who in law retains possession even though he allows another to use and occupy the premises”.[78] In that appeal, many factual examples were given that demonstrate what counted towards and what did not count towards the ultimate finding that the tenant had parted with possession of the demised premises. Thus, the Privy Council observed in its advice:[79]
Some of the evidence — as to the erection of the signboard, the transfer of the electricity, water supply and telephone and the issue of receipts, bills and invoices in the name of the second respondent — is equivocal and is quite consistent with a conclusion that although the second respondent occupied the premises the first respondent retained possession. However the fact that the second respondent tendered its own cheque in payment of the rent is some evidence that the second respondent regarded itself, and was regarded by the first respondent, as having possession of the premises. Even more significant in their Lordships' opinion is the fact that at no time before the trial or in evidence did the respondents give an unqualified denial that the first respondent had parted with possession to the second respondent. In their solicitors' letter of November 13, 1969, in their defence and in evidence the reply given by the respondents to the claim that they had broken the covenant was not that there had in fact been no parting with possession, but that there had been no parting with possession because the first respondent was a major shareholder in the second respondent. If in truth the second respondent had merely been given a licence to occupy the premises, and the first respondent had retained possession, it would have been easy for someone to say so. The other evidence that is in itself equivocal is to be understood in the light of the fact that the respondents, who could have produced affirmative evidence that the first respondent retained possession if that had been the fact, failed to do so In their Lordships' opinion the proper conclusion to be drawn from the whole of the evidence in the case, scanty as it may be, is that the first respondent did part with possession of the premises. The trial judge was therefore correct in his conclusion that the evidence established a breach of the covenant contained in clause 1 (g) of the lease.
[78]Lam Kee Ying Sdn Bhd v Lam Shes Tong (1974) 3 WLR 784 at 790.
[79]Lam Kee Ying Sdn Bhd v Lam Shes Tong (1974) 3 WLR 784 at 790.
Further guidance on prohibited sharing, albeit with reference again to the sharing of possession, rather than mere occupation, is provided by Tulepam Properties Ltd v De Almeida.[80] The lease in that case contained an absolute prohibition against sharing or parting with possession of a part only of the leased premises. Sir Douglas Frank QC, sitting as a deputy of the High Court, was required to determine whether there had been a breach of the covenant against sharing possession. On the basis of Lam Kee Ying, his Lordship found that there had been no parting with possession. However, it was found and it was “beyond dispute” that possession had been shared.
[80][1981] 2 EGLR 55.
His Lordship also found that there was a prohibited “multi-occupation” in Tulepam for a number of reasons. The defendants were both natural persons and the tenants under the lease. The third defendant was a company in which the second defendant had an interest. The ground floor of the premises, a terrace, was permitted under the Town and Country Planning Act 1971 to be used for offices, but the two upper floors could only be used for residential purposes. His Lordship found:[81]
So far as the maisonette is concerned, unquestionably that has been used for office purposes from 1977, certainly until lunch-time yesterday. This flat was laid out, improved, to provide a standard of accommodation suitable for a director of a company, with carpets and high-grade wallpaper and so on. What the defendants did was to partition off some of these rooms and undoubtedly use them for general office purposes. For example, wardrobes were used as filing cabinets; there was an inter-office telephone exchange; there was a boardroom; and there were typists’ desks, and so on. That breach is admitted.
This case is unusual in that the use the sharing entity, the third defendant company, made of the premises was also prohibited (albeit by the provisions of the Town and Country Planning Act 1971 not by a lease covenant), making it more readily apparent that the natural persons, renting those floors for strictly residential purposes, allowed that part of the premises to be occupied contrary to lease covenant. On his Lordship’s construction of the lease, the clear occupation of part of the premises by a stranger to the lease was sufficient alone to demonstrate a breach of the absolute prohibition against the sharing of possession of part of the premises. This case has, however, attracted some criticism.
[81]Tulepam Properties Ltd v De Almeida [1981] 2 EGLR 55 at 56.
The relevant lease covenant considered by the Court of Appeal in Akici v LR Butlin Ltd[82] was similar to that considered in Tulepam in that it only prohibited parting with or sharing possession and did not make any express reference to occupation. The tenancy was held solely by Mr Akici. Shortly after his entering into the tenancy a company, Deka Ltd, started trading, making and selling pizzas at the premises. Around that time a Mr Gultekin became the company’s sole director and holder of its two issued shares. It was found at first instance that “Mr Akici had shared occupation of the premises with the company, and that represented a breach of the covenant against the sharing of possession”.[83] Neuberger LJ’s leading judgment noted that the trial judge had relied upon the reasoning in Tulepam, of which his Lordship was critical in certain important respects:[84]
[82][2006] 1 WLR 201; [2005] EWCA Civ 1296.
[83][2006] 1 WLR 201 at 205, [13]; [2005] EWCA Civ 1296.
[84][2006] 1 WLR 201 at 205 at 207–9 [23]–[36]; [2005] EWCA Civ 1296; with which the other member of the Court, Mummery LJ, agreed, see 219 [90].
23The difference between possession and occupation is rather technical, and, even to those experienced in property law, often rather elusive and hard to grasp. Nonetheless, it is very well established, and is particularly important, and indeed well known, in the field of landlord and tenant law, especially in relation to the question of whether an agreement creates a tenancy or a licence, and in relation to alienation covenants such as clause 4.18.
24While interpretation of a word or phrase in a document must ultimately depend upon the documentary and factual circumstances in which it was agreed, it is desirable that the courts are as consistent as they properly can be when construing standard phrases in standard contexts. In that connection, a covenant against parting with possession is included in many, quite possibly most, modern commercial leases. Further the Courts have consistently given the strict meaning to such covenants as was adopted in unreserved terms by the Privy Council in Lam Kee Ying, and in the five cases therein referred to at 255H to 256B.
25Accordingly, while one cannot lay down any immutable rule as to how a particular word or expression is to be construed in every document or lease, I consider that any court must be very cautious before construing the word “possession” as extending to occupation which does not amount to possession, especially in a familiarly expressed covenant against parting with possession in a detailed professionally drafted commercial lease, such as that in the present case.
26In these circumstances, I consider that it would require a very strong and clear case before a covenant against parting with possession should be construed in any way other than that adopted by the Privy Council in Lam Kee Ying, particularly in the light of the consistent approach taken in the earlier authorities cited therein. …
27I turn to the covenant against sharing possession. On the face of it, one would expect the word “possession” to have the same meaning each time it appears in clause 4.18, particularly in light of the fact that it is a word which is familiar, especially in the context of leases, to lawyers. The only reason for not giving the word “possession” its normal technical meaning in a covenant against sharing possession appears to be that identified by Sir Douglas Frank, namely that possession is, as it were, unitary and cannot be shared.
28I do not accept that possession cannot be shared. It seems to me that, as a matter of principle, it would have been open to Mr. Akici to share possession of the premises in this case with the company, or indeed with Mr. Gultekin. I accept that, as stated by Sir Douglas Frank, possession in those circumstances would be joint, and, in a sense, therefore unitary. However, it seems to me that, as a matter of ordinary language, a lessee who lets another person into possession of the demised premises, so that they are both in possession, can properly be said to “share” possession with that other person. Joint owners can be said to enjoy “shared” ownership. Indeed, I note that both section 34 of the Law of Property Act 1925 and section 36 of the Settled Land Act 1925, which are concerned with joint ownership of land, refer to the land being owned in “undivided shares”.
29In consequence, I do not agree with Sir Douglas Frank that to give the word “possession” its usual meaning in the context of the phrase “sharing possession” deprives the covenant of any legal effect. It has a real effect, namely to prevent the conversion of a tenancy to a single lessee into what, in practical terms, will amount to a joint tenancy.
30It may be said that this conclusion will result in a covenant against sharing possession having relatively little value. The answer to that point may be said to be same as that given in Lam Kee Ying at 256C, namely that “the words of the covenant must be strictly construed, since if the covenant is broken a forfeiture may result”. That approach may well be a little less powerful than it was 30 years ago, on the basis that such canons of construction are now given rather less weight. Nonetheless, the modern approach, namely that such covenants should be given what is, in their documentary, factual and commercial context, their natural and commercially sensible meaning, indicates, in my judgment, the same result. Further, I do not think one should lean in favour of giving a wide meaning to an absolute covenant (i.e. one which is not subject to a proviso that consent cannot be unreasonably withheld).
31Another reason for giving “possession” the same meaning in the covenant against parting with possession and the covenant against sharing possession was identified by Mr. Lloyd in the course of his submissions. If, as the Judge thought, clause 4.18 forbids parting with possession of the whole or part of the premises and sharing occupation of the whole or part of the premises, it means that the lessee is not precluded from parting with occupation (as opposed to possession) of the whole or part of the premises. Given that he is not permitted to share occupation of the whole or part, that would be a rather odd result. As Mr. Lloyd submits, that is a factor that suggests that “possession” should either, as he contends, be given the meaning of “occupation” throughout clause 4.18 or, as I prefer, its natural technical meaning throughout the clause.
32A further reason why it seems to me that it would be inappropriate to construe a covenant against sharing possession in a full and carefully drafted commercial lease as extending to sharing occupation is because many leases do contain covenants against parting with possession or occupation and/or covenants against sharing possession or occupation, as opposed to possession only. Indeed, as the facts in Jackson –v- Simons [1923] 1 Ch. 373 at 374 show, even as long ago as 1906 commercial leases were being drafted with covenants by the lessee not to “part with or share the possession or occupation [of the demised premises] or of any part thereof”.
33I also note that in Jackson at 380, Romer J, in a reserved judgment, found that the lessee had “retained the legal possession of the whole of the premises” and therefore had not committed any “breach of covenant against parting with possession”. However, he went on to say that what the lessee had done “amounted to a sharing of the possession of part of the demised premises”. This was, it should be added, in the context of a covenant which also precluded sharing of occupation. It therefore appears that that experienced Judge had no difficulty with the notion of sharing possession, because he would otherwise have found that there had been a sharing of occupation.
34In my judgment, therefore, the reasoning in Tulepam was simply wrong on this point, because the whole basis upon which Sir Douglas Frank considered that he was justified in not giving “possession” its normal meaning was flawed.
35For what it is worth, in this case the conclusion that the word “possession” in clause 4.18 should not be given the same meaning as “occupation” derives a little support from the fact that there is reference to occupation elsewhere in the lease (namely in the covenant restricting the user of the premises and the proviso providing for an abatement of the rent in the event of damage by an insured risk). That is a makeweight point, but it certainly does not detract from the conclusion that “possession” should be given its natural, if technical, meaning when it appears in clause 4.18.
36In these circumstances, I conclude that there would only have been a breach of clause 4.18 in the present case if Mr. Akici had parted with possession, or shared possession, of the whole or part of the premises, and that there would have been no breach of covenant if he had merely shared occupation of the whole or part of the premises.
The judgment of Neuberger LJ in Akici, and this passage in particular, was cited with approval in Clarence House Ltd v National Westminster Bank Plc,[85] which, like the present lease, concerned a lease covenant prohibiting the sharing of occupation and the sharing of possession. However, on the facts of Clarence House v NatWest there was no possibility of a shared occupation. Akici has also been cited with approval by the Queensland Court of Appeal, also on facts distinguishable from both Akici and the present case. There does not, however, appear to be any evidence of the issue of shared occupancy where such a thing is prohibited by lease covenant having been considered by the courts. The present facts do not, as the Tribunal found, provide such a case, as the applicant Landlord has failed to prove that any entity other than the Tenant was ever present at or operating from the premises, much less in occupation.
[85][2010] 1 WLR 1216; [2009] EWCA Civ 1311.
Conclusion
The Landlord has failed to show any real prospect of success with respect to any of the grounds of appeal upon which it relies. The Landlord’s application for leave to appeal fails. The parties are to bring orders to give effect to these reasons.
I reserve the question of costs and will hear the parties on this issue.
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