Carbure Pty Ltd v Brile Pty Ltd
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 6367 of 2000
| CARBURE PTY LTD (ACN 006 930 570) | Plaintiff | |
| and First Defendant to Counterclaim | ||
| v | ||
| BRILE PTY LTD (ACN 005 523 044) and | Defendant | |
| ROBERT KEITH CLUTTON | Second to Fifthnamed Defendants to Counterclaim | |
JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7-10 and 13-15 May 2002 | |
DATE OF JUDGMENT: | 17 July 2002 | |
CASE MAY BE CITED AS: | Carbure Pty Ltd v Brile Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 272 | First Revision 24/7/02 |
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LANDLORD AND TENANT – Landlord’s obligation to maintain and repair the structure of the lease premises – Implication of terms in contracts – Implication of such terms not found – Counterclaim for the unpaid rent allowed
Retail Tenancies Act 1986
Retail Tenancies Reform Act 1998
Residential Tenancies Act 1997
Adami v Lincoln Grange Management [1998] 1 EGLR 58
Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264
Barrett v Lounova (1982) Ltd [1989] 1 All ER 351
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20
Codelfa Constructions v State Rail Authority of NSW (1982) 149 CLR 337
Duke of Westminister v Guild [1985] 1 QB 688
Franceschini v Melbourne and Metropolitan Board of Works (1980) 57 LGRA 284
Granada Theatres v Freehold Investment (Leytonstone) Ltd [1959] 1 CH 592
Holding & Barnes Plc v Hill House Hammond Ltd [2000] L & TR 428
Jones v Bartlett (2000) 176 ALR 137
Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381
Liverpool City Council v Irwin [1976] QB 319
Northern Sandblasting Pty Ltd v Harris (1996) 188 CLR 313
New South Wales v Watton (1999) NSW ConvR 55-885
Progressive Mailing House v Tabarli (1985) 157 CLR 17
Southwark London Borough Council v Tanner [1999] 3 WLR 939
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T.R. Messer | Alpass & Associates |
| For the Defendant | Dr C.E. Croft S.C. with Mr G.K. Moore | Price Higgins |
HER HONOUR:
Introduction
In this proceeding, initiated by writ on 5 October 2000, the plaintiff is the tenant and the defendant the landlord of a guest house at Lorne, known as the Lorne Chalet (“the Chalet”). The second to fifth defendants to the counterclaim are sued on the basis that they are the guarantors of the tenant’s obligations under the lease.
Essentially the plaintiff seeks the carrying out by the defendant of certain repairs to the Chalet which it submits are of a structural nature. To that end it is claiming a declaration that the lease of the Chalet “contains an implied term requiring the defendant to repair and maintain the structure of the demised premises during the term of the lease”, and an order for specific performance of that implied term, or alternatively for damages. The defendant denies that any such term can be or is to be implied into the lease.
By the counterclaim the defendant seeks the payment of rent due under the lease, which it is not in issue that the plaintiff has failed to pay.
The Chalet can accommodate some 82 guests and consists of four buildings, namely:
Building A, the main building, containing office, dining and lounge rooms, as well as a number of guest rooms, probably built 60 or 70 years ago;
Building B, a brick building containing four guest units, probably built 30 to 40 years ago;
Building C, a timber building containing several guest units, probably built 40 to 50 years ago;
Building D, comprising two dwellings, probably built 30 to 40 years ago, which is occupied as their home by Mr Ritchie, who is a director of the plaintiff and the manager of the guest house, and his family.
The core clientele of the Chalet consists of elderly people travelling in tour groups.
The plaintiff purchased the guest house business from Festival Towns Pty Ltd (“Festival Towns”) by a contract dated 28 July 1993, and leased the premises from Festival Towns for a term of three years commencing on 1 August 1993, with options for renewal for five further terms each of three years. During the term of that lease the defendant purchased the freehold from Festival Towns, by a contract settled on 19 July 1994. On 26 February 1997, following the exercise by the plaintiff of its option for renewal, a fresh lease document (“the lease”) was executed, by which the defendant leased the premises to the plaintiff for a term of three years commencing on 1 August 1996, again with options for renewal for five further terms of three years each, making a total possible term of eighteen years under the lease.
In February 1999 the plaintiff exercised its option for renewal for a three year term commencing on 1 August 1999, and on 22 March 2002 it exercised a further option for renewal for another three year term commencing on 1 August 2002. No fresh lease document was executed on either occasion, but nothing turns on that. Clause 12 of the lease, providing for the further terms, sets out that a renewed lease shall be on the terms and conditions contained in the lease, save that the rent under the renewed lease shall be determined in accordance with the provisions for rent reviews contained in clause 11 (as to which see also clause 19 of the schedule). The amount of the rent from time to time is not significant for present purposes, and this matter proceeded on the basis that the relevant terms of the lease remained unchanged from 1 August 1996 onwards.
The lease was prepared on the Law Institute copyright form, last revised in August 1989. The following provisions of the lease (some of them abbreviated) are relevant to the issues before the Court:
2.Tenant’s Covenants
2.1The Tenant shall:
2.1.1pay the Rent free of all deductions to the Landlord or as the Landlord directs on the days and in the manner specified in Schedule Item 9:
.. .
2.1.9pay on demand interest on any rent or other moneys payable by the Tenant which remain unpaid for 7 days after the due date for payment at the rate specified in Schedule Item 13, such interest to be computed from the due date for payment and to accrue on a daily basis until paid;
2.1.10pay the Landlord’s reasonable expenses of:
.. .
(d)any default by the Tenant in observing the provisions of this Lease;
(e)the exercise or attempted exercise of any right or remedy of the Landlord against the Tenant.
.. .
3.Repairs, Maintenance, etc
3.1Except for fair wear and tear, the Tenant shall keep the Premises in the same condition as at the commencement of the term and properly cleaned, repaired and maintained and shall comply with the requirements of any Act, regulation, by-law or notice affecting the Premises. However the Tenant shall not be obliged:
3.1.1. . .
3.1.2to repair and maintain the structure or spend money on items of a capital nature unless the repair maintenance or expenditure becomes necessary because of the Tenant’s business or the Tenant’s failure to perform the Tenant’s obligations under this lease.
3.2Without limiting the Tenant’s obligations under clause 3.1, the Tenant shall:
3.2.1[maintain finished surfaces].
.. .
3.2.3[replace cracked or broken glass].
3.2.4[repair or replace defective or missing services, lights, doors, windows, fastenings, and locks].
3.2.5[maintain drains, toilets, sinks, gutterings and pipes].
.. .
3.2.12take all precautions required by law against fire but the Tenant shall not be liable to make structural alterations or install equipment unless arising as a result of the Tenant’s use of the Premises.
.. .
3.2.20[keep the gardens in good order].
6. Landlord’s Covenants
The Landlord covenants that if the Tenant performs and observes the Tenant’s obligations under this lease the Tenant may occupy and use the Premises during the Term without any interruption by the Landlord or any person lawfully claiming through the Landlord.
7.Events of Default and Consequence
.. .
7.4Failure by the Tenant to perform and observe any of the Tenant’s obligations under clauses 2.1.1, . . . [or] 3.1, . . . is a breach of an essential term of this lease.
8.Destruction or Damage
8.1If any part of the Premises is destroyed or damaged and as a result is unfit for the Permitted Use and the payment of any insurance moneys is not lawfully refused as a result of any act or omission of the Tenant or the Tenant’s employees or agents then
8.1.1the Rent or a fair proportion of the Rent according to the nature and extent of the damage shall be suspended until the Premises are again fit for the Permitted Use;
8.1.2if the Premises are totally or substantially destroyed or damaged and are not reinstated with 3 months the Landlord or the Tenant may end this lease by giving the other written notice; and
8.1.3the Landlord shall not be obliged to reinstate the Premises.
8.2If this is a lease to which the Retail Tenancies Act 1986 does not apply and if a dispute arises under this clause either party may ask the President of the Real Estate Institute of Victoria to nominate a practising member of that Institute to determine as an expert the dispute.
The Schedule provides for an annual rent, to be paid by monthly instalments in advance, for an interest rate of 16% per annum; and for a permitted use described as “guest house and associated uses”.
It is common ground that the floor area of the Chalet exceeds 1000 square metres, and accordingly the provisions of the Retail Tenancies Reform Act 1998 do not, and the provisions of the repealed Retail Tenancies Act 1986 did not, apply to the lease.
Pursuant to an order of Master Kings made on 13 March 2002, evidence in chief was given by affidavit. All deponents attended and were cross-examined. Evidence was given for the plaintiff by Mr Ritchie (see [4] above), Mr Anderson, a building consultant, and Mr Lewis, the plaintiff’s accountant. Evidence was given for the defendant by Mr Santalucia, a director of the defendant, Mr Gumienik, a structural engineer, Mr Hegarty, a building consultant, and Mr Gavens, a chartered accountant. The Court was assisted by a visit to the leased premises.
Implication of a term providing for structural repair by a landlord
The lease is in writing and contains no express condition requiring the defendant to repair and maintain the structure of the demised premises during the term of the lease, and it is not suggested by either party that the lease contains any oral terms. The only covenant relating to repair is contained in clause 3, the relevant portions of which are extracted in [7] above. Thus the only basis on which the plaintiff can obtain the relief which it seeks, that is, the performance by the defendant of what are claimed to be repairs to the structure of the premises, is if a term requiring such performance is found to be implied into the lease.
Historically, the common law has been reluctant to imply any obligation on a landlord to carry out repairs to the demised premises. In Duke of Westminster v Guild[1] the English Court of Appeal (Stephenson, Kerr and Slade LJJ) approved the following passage from Woodfall on Landlord and Tenant [2] in the following terms:
In general, there is no implied covenant by the lessor of an unfurnished house or flat, or of land, that it is or shall be reasonably fit for habitation, occupation or cultivation, or for any other purpose for which it is let. No covenant is implied that the lessor will do any repairs whatever . . .
[1][1985] 1 QB 688 at 697
[2]28th edition (1978) para 1-1465
In Southwark London Borough Council v Tanner[3] the House of Lords was concerned with a dispute between two municipal councils as landlords and certain tenants of residential accommodation provided by the councils, who complained that the sound insulation between their flats was ineffective. Lord Millett said [4] :
In the absence of statutory intervention, the parties are free to let and take a lease of poorly constructed premises and to allocate the cost of putting them in order between themselves as they think fit. . . . Of course, the tenants of local authority housing do not negotiate the terms of their tenancy agreements. They take what they are offered on terms set by the local authority. But the meaning and effect of contractual arrangements cannot be made to depend on the parties’ relative bargaining power. If it is thought right to redress any imbalance by importing terms in favour of the weaker party, this is a matter for Parliament.
[3][1999] 3 WLR 939
[4]at 952
In Victoria, section 68 of the Residential Tenancies Act 1997 (“the Residential Tenancies Act”) imports such a term, requiring a landlord to ensure that the rented premises are maintained in good repair, into tenancy agreements to which that Act applies. That would indicate a recognition by the legislature of the absence of any implied obligation on the landlord. However, although building D is occupied as a residence (see [4] above), which can be seen to be a use associated with a guest house in terms of the description of the permitted use under the lease (see [7] above), the lease is not “an agreement . . . under which a person lets premises as a residence” so as to come within the definition of “tenancy agreement“ in section 3 of the Residential Tenancies Act and I am satisfied that that Act has no application to the lease.
In Progressive Mailing House v Tabarli[5] the High Court [6] held that the ordinary principles of contract law apply to leases. Mason J said [7] :
as the law of landlord and tenant had outgrown its origins in feudal tenure, it was more appropriate in the light of the essential elements of the bargain, the modern money economy and the modern development of contract law that leases should be regulated by the principles of the law of contract.
[5](1985) 157 CLR 17
[6]constituted by Mason, Wilson, Brennan, Deane and Dawson JJ
[7]at 29, indicating that he was adopting a point made in 1933 by William O Douglas and Jerome Frank
The question is thus whether the ordinary principles of contract law relating to the implication of conditions into a contract can, in the face of the traditional approach of the common law set out in [11] above, be applied so as to allow the implication into a lease of the term for which the plaintiff contends.
Mr Messer, for the plaintiff, relied on both English and Australian authorities to justify his contention that such a term can be implied into the lease. In Karaggianis v Malltown Pty Ltd[8] the landlord had discontinued the operation of some of the escalators and lifts which provided access to the leased premises. Wells J found that there ought to be implied into the lease a covenant that the landlord would not during the term of the lease vary or withhold the facilities provided to the tenant to such an extent that there would be a substantial deprivation of the facilities provided when the lease was executed. He found that such a covenant could be justified on three separate grounds: the express terms of the lease itself, the principle that the implication of such a covenant was necessary to give business efficacy to the lease transaction or alternatively that it was so obvious that it went without saying, and the doctrine that the landlord should not be permitted to derogate from its grant. The first and third grounds are not relevant to this matter. The leased premises in that case were part of a shopping centre, and there were substantial common areas of the shopping centre for which the landlord was responsible under the lease; and the judge found that it was “obvious that it was the joint intention of the parties that the plaintiffs would use the demised property within the framework of the shopping centre”. The covenant which his Honour found to be implied into the lease was not a covenant that the landlord would repair the facilities in question, but rather a covenant that it would continue to operate those facilities, and thus the case does not go directly to the point in issue here.
[8](1979) 21 SASR 381
The other Australian authority on which Mr Messer relied is Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd[9] . In that case the plaintiff tenant, as sub-lessee, operated a fitness centre in a gymnasium situated in a five-storey building leased by the defendant as part of a sale and lease-back financing arrangement. The building also contained offices, a pool, cafe, bars, a restaurant, a snooker room and function rooms. Members of the fitness centre were entitled to use the pool (which was not part of the leased premises) free of charge at certain hours. The sub-lease included a requirement that the plaintiff ensure that persons who became members of the plaintiff also became members of the defendant. This was achieved by the plaintiff requiring completion of application forms for membership of both bodies, collecting membership fees for both, and accounting to the defendant for its appropriate share. The relationship between the two was such that when the defendant proposed to refinance the building, the plaintiff offered a development proposal, although the offer was not accepted by the defendant. The plaintiff sought from the court an order requiring the defendant to consent to certain repairs which the plaintiff proposed to carry out, which were required by the local council as a condition of enabling the plaintiff to remain in possession of the demised premises. Austin J concluded [10] , after consideration of authorities which did not include Barrett v Lounova [11] :
Therefore, as I understand the law, it is permissible and necessary for the Court, where the parties to a lease are in a commercial contractual relationship such as they are in the present case, to consider whether any implied term arises under the principles applicable to commercial contracts, rather than limiting its attention to the implied covenants recognised by the law of landlord and tenant.
In the event, his Honour found that no such implied term arose. It should be noted that what was sought by the plaintiff was the landlord’s consent to the repairs; it did not claim the implication of a condition requiring the landlord to carry out those repairs.
[9][1999] NSWSC 264
[10]at [94]
[11](see [19] below)
In each of those two cases there was a commercial relationship between the parties, involving agreement on matters beyond the normal purview of a simple landlord and tenant relationship. That is not so in the case before me; the relationship between the parties here is much more analogous to the relationship between the council and its residential tenants in Southwark v Tanner. The conclusion of Austin J is specifically related to the circumstance “where the parties to a lease are in a commercial contractual relationship”, and cannot be said to be relevant to the relationship between the plaintiff and the defendant.
The principal authority upon which Mr Messer relied was the decision of the English Court of Appeal in Barrett v Lounova (1982) Ltd[12]. In that case there was in the lease a covenant requiring the tenant to keep the inside of the premises in good repair. There was no covenant requiring either party to keep the outside in good repair. The outside of the house fell into disrepair, as a result of which the tenant claimed that water was penetrating and damaging the interior. The Court of Appeal [13] upheld the decision of the recorder below that a covenant on the part of the landlord to repair the outside of the premises ought to be implied into the lease.
[12][1989] 1 All ER 351
[13]constituted by Kerr LJ and Swinton Thomas J
Kerr LJ referred to dicta of Ormrod LJ and Slade LJ to the effect that it might in some circumstances be possible to imply into a lease an obligation on a landlord to repair [14] . He went on to conclude that in the case before him there was an obligation on the landlord to repair the outside of the premises, correlative to the obligation on the tenant to repair the inside. He said [15] :
The considerations which lead me to that conclusion are the following. It is obvious, as shown by this case itself, that sooner or later the covenant imposed on the tenant in respect of the inside can no longer be complied with unless the outside has been kept in repair. Moreover, it is also clear that the covenant imposed on the tenant was intended to be enforceable throughout the tenancy. For instance, it could not possibly be contended that it would cease to be enforceable if the outside fell into disrepair. In my view it is therefore necessary, as a matter of business efficacy to make this agreement workable, that an obligation to keep the outside in repair must be imposed on someone.
He concluded that an implied obligation on the landlord was the only solution which made business sense. Swinton Thomas J agreed with this finding.
[14]at 356-7
[15]at 357
It is to be noted that the judgment was delivered by a Court of Appeal consisting of two judges, and appears to have been extempore, and that Kerr LJ said that the question was “difficult and on the borderline” [16] , and Swinton Thomas J that his “mind had wavered” during the submissions [17] .
[16]at 358
[17]at 360
In another English case, Holding & Barnes Plc v Hill House Hammond Ltd [18] , Neuberger J in the Chancery Division was concerned with a lease under which each party had an obligation to repair a specified part of the leased premises. His Honour found that in that situation [19] :
the court should lean in favour of a construction which results in there being a complete code so far as repair is concerned. . . . That is particularly so in a case where the gap in the repairing obligations relates to the structure and exterior, and where one of the parties (normally, as here, the tenant) is responsible for the interior, and particularly (as here) where the lease is of not inconsiderable duration.
He considered that some support for that view was to be derived from Barrett v Lounova, although he noted that that decision had been “powerfully criticised by Sir John Vinelott, giving effectively the judgment of the Court of Appeal in Adami v Lincoln Grange Management [1998] 1 EGLR 58” [20] .
[18][2000] L & TR 428
[19]at 434
[20]at 435
In Adami, Sir John Vinelott, with whom Hutchinson and Butler-Sloss LJJ agreed, accepted [21] the submission of counsel that the cases referred to by Slade LJ in Barrett v Lounova as giving rise to a “correlative obligation” were cases in which an obligation on the landlord to carry out work could be said to be a necessary counterpart to an obligation on the tenant to pay a fixed sum towards the cost of doing the work, and that similarly a landlord who takes the benefit of a covenant by the tenant, for example to pay a specified sum for cleaning, would also be under a correlative obligation to accept the corresponding burden. His Honour said, “An obligation to repair the interior of demised premises and to repair the structure of the building are not in that sense ‘correlative’” [22] . Adami concerned a lease for over 260 years, and in that situation the court clearly preferred the approach that structural defects arising other than from insured risks should be dealt with by co-operation between all the lessees and the lessor, rather than by imposing an obligation on either.
[21]at 60
[22]at 61
The only case to which I was referred which in any way relied on Barrett v Lounova was Holding & Barnes Plc v Hill House Hammond Ltd [23] , which was produced by the plaintiff. Counsel for the defendant expressly stated that they were unaware of any decided English or Australian case where Barrett v Lounova had been applied or even cited with approval.
[23]see [21] above
Barrett v Lounova has been criticised by a number of text writers. The authors of Dowding & Reynolds, Dilapidations, The Modern Law and Practice considered it to be “no longer a reliable authority” [24] , partly on the basis of Adami [25] . It was their view that performance of the tenant’s obligation to repair the inside of the premises was not impossible in the absence of a correlative obligation on the landlord to repair the outside, but merely would be more expensive and more frequent; that as the tenancy in Barrett v Lounova was for a year followed by a monthly tenancy, so that the tenant could leave if performance became too onerous; and that, even if a term should be implied, the full repairing covenant implied by the court went further than was justified.
[24]second edition 2000 at 355
[25]see [22] above
Woodfall Landlord and Tenant concludes after a similar but even more extensive consideration of Barrett v Lounova that “it seems probable that it is no longer safe to rely on” that authority [26] .
[26]Kim Lewison (ed) at footnote 3 to paragraph 13.007.1 on p 13/8
The author of The Interpretation of Contracts [27] concludes that the reasoning in Barrett v Lounova “seems manifestly unsound” and that “the conclusion does not follow from the premise either as a matter of logic or, with respect, as a matter of common sense” [28] .
[27]Kim Lewison, Second edition 1997
[28]at 141
However, the authors of Australian Tenancy Practice and Precedents [29] cite Barrett v Lounova without comment as authority for the principle set out in [19] above, as do the authors of Bradbrook and Croft, Commercial Tenancy Law in Australia [30] .
[29]Redfern and Cassidy, 1987, at paragraph 27.65
[30]Second edition 1997 at 10.1
Considering the cases and texts as they stand, I would have some doubt as to whether, under the law of Victoria, it is possible to imply into a simple lease, where there is no relationship between the parties other than that of landlord and tenant, an obligation on the landlord to repair and maintain the structure of the leased premises. However, assuming for the present, without deciding, that such a covenant can be implied into the lease, the question then is whether such an implication is possible in this case, having regard to the ordinary principles of contract law.
Implication according to contract law
The relevant principles of contract law are to be found in the well-known passage from the judgment of Mason J in Codelfa Constructions v State Rail Authority of NSW[31] where his Honour said [32] :
The conditions necessary to ground the implication of a term were summarised by the majority in B.P. Refinery (Westernport) Pty. Ltd. v. Hastings Shire Council (1977) 52 A.L.J.R. 20, at p. 26: "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that `it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."
[31](1982) 149 CLR 337
[32]at 347
Reasonable and equitable
Dr Croft, for the defendant, submitted that the inclusion of the term sought to be implied would be neither reasonable nor equitable. It was relevant to this question that the lease was on a printed Law Institute of Victoria copyright standard form, without any alteration being made to the standard printed conditions. The lease had been executed in 1997 with both parties being aware of the age and state of the buildings, and the options had been exercised in 1999 and 2002 with the parties in a similar state of knowledge. The parties must have been taken to have entered into the lease with their eyes open. Had they intended to insert a condition excluding the general rule referred to in [10] and [11] above, they could have done so. In his submission the plaintiff was in effect asking for the rectification of a complete written contract. It was always open to the plaintiff not to exercise its next option for renewal.
Mr Messer submitted that the term sought to be implied was reasonable and equitable. The evidence was that repairs to the structure of the Chalet were essential; someone must repair the structure during the tem of the lease; the defendant, as owner of the freehold, would be the ultimate beneficiary of expenditure on repairs to the structure; and the evidence of Mr Santalucia was that the defendant had no plans to redevelop the site for apartments. It was not reasonable or equitable to expect the plaintiff to bear the liability for repairs to the structure of a building which it did not own. As to the use of the Law Institute form, it was a lease obtained off the shelf, and said little about the intentions of the parties.
Neither counsel noted that the printed conditions of the lease were amended insofar as they related to rent reviews (see clause 19 of the schedule); thus the parties had in fact directed their minds to its amendment as to one matter at least. As the author of Lewison, The Interpretation of Contracts says in the context of the implication of terms into a contract, “The addition [to the conditions] of “equitable” emphasises that the term must be judged from the point of view of both parties to the contract.” [33] . It is unlikely that a term so inconsistent with the general rule would be regarded as “equitable” by the defendant. Lease documents are, in any case, normally prepared by or on behalf of the landlord, and reflect their origin [34] . The only covenant by the landlord contained in the lease with which I am here concerned is the covenant for quiet enjoyment contained in clause 6 [35] .
[33]at para 5.04
[34]See the passage from the judgment of Aickin J in Codelfa, cited in [52] below.
[35]see [7] above
Necessary to give business efficacy
In Liverpool City Council v Irwin[36] the House of Lords found that where the lifts, staircases and rubbish chutes in a fifteen-storey block of seventy flats were retained in the ownership of the landlord, there was to be implied an obligation on the landlord to take reasonable care to keep those facilities in reasonable repair. Their Lordships made clear that the test for the implication of a term into the contract was necessity and not merely reasonableness. Lord Wilberforce said [37] :
In my opinion such obligation should be read into the contract as the nature of the contract itself implicitly requires, no more, no less: a test, in other words, of necessity. The relationship accepted by the corporation is that of landlord and tenant: the tenant accepts obligations accordingly, in relation inter alia to the stairs, the lifts and the chutes. All these are not just facilities, or conveniences provided at discretion: they are essentials of the tenancy without which life in the dwellings, as a tenant, is not possible. To leave the landlord free of contractual obligation as regards these matters, and subject only to administrative or political pressure, is, in my opinion, inconsistent totally with the nature of this relationship. The subject matter of the lease (high rise blocks) and the relationship created by the tenancy demand, of their nature, some contractual obligation on the landlord.
[36][1976] QB 319
[37]at 254
Mr Messer submitted that the lease was not effective without a covenant requiring repairs to, and maintenance of, the structure of the leased premises. He referred to the building orders served on the defendant by the Surf Coast Shire Council on 16 October 2001, requiring the carrying out of certain works, some of which could be said to be structural repairs, as a condition of the continuing occupation of the buildings. Had those repairs not been carried out by the landlord, the leased premises would have been unfit for their permitted use under the lease. It was unacceptable that in a matter such as this, the tenant should be at the whim of the landlord. He submitted further that there were other repairs of a structural kind, identified in the expert reports before the Court, which were also required in order to permit the proper conduct of the plaintiff’s business. I note that in his affidavit of 5 April 2002 Mr Santalucia deposes to the sums which the defendant has spent on repairs to the Chalet over the years, and Mr Ritchie, in his answering affidavit of 18 April 2002 challenges only one small item of those sums.
Dr Croft submitted that the lease and the renewals had been efficacious since 1 August 1996 without the inclusion in the lease or any renewed lease of the term sought to be implied. Accordingly, it could not be said that the term in question was necessary in order to give business efficacy to the lease. I would have some hesitation in finding otherwise. There are, it is to be assumed, many other leases prepared on the same or similar forms which do not include such a term, and which are nevertheless effective.
Goes without saying
The difficulty here is that, given the normal practice that there is no covenant to be implied requiring a landlord to repair and maintain any part of the demised premises, it can hardly be said that the inclusion of such a term in the lease is “so obvious that it goes without saying”. Why should a landlord wish to accept a burden which is not normally to be expected? The parties adopted a standard printed form, with minimal alteration. The alteration which is here sought would have had to be the subject of negotiation.
Mr Santalucia agreed in cross-examination that in recent years property prices in Lorne had increased considerably and a number of apartment developments had been build. I note his evidence that the defendant has no plans to develop the property for apartments, even had it not been subject to the lease. However, the defendant would still, at the time of entering into the lease, and indeed at the time of purchasing what was then a leased property, been aware of the potential of the site and would have been conscious that ultimately a time would come when expenditure on structural repairs to the relatively old buildings of the Chalet would not be economically justified. The evidence of Mr Santalucia was that the Chalet was the only traditional guest house in Lorne, Apollo Bay or Anglesea, which would suggest that the market for such accommodation was disappearing. It cannot be said to “go without saying” that the defendant would have been prepared in 1996 to undertake to repair and maintain the structure of the Chalet until 2014, the date of expiry of the last of the five possible renewed leases.
In this context, Mr Messer relied on the line of authority establishing a duty on a landlord to take reasonable care to avoid foreseeable risk of injury to a person lawfully on the leased premises, including a tenant [38] . However, there is no claim in negligence before me. The existence of that duty of care towards, no doubt, the guests and staff of the plaintiff, does not require the implication into the lease of a covenant with the tenant to repair and maintain the structure of the leased premises. The parameters of the duty of care would not, in any case, correspond with the terms of such a covenant.
[38]See Northern Sandblasting Pty Ltd v Harris (1996) 188 CLR 313, New South Wales v Watton (1999) NSW ConvR 55-885, Jones v Bartlett (2000) 176 ALR 137.
Capable of clear expression
Dr Croft submitted that the proposed covenant was not capable of clear expression. His written submission reads “The words ‘structural repair’ do not appear to have any fixed, a priori meaning in landlord and tenant law, and judicial exegesis is often unhelpful, if not overtly tautological”. The relevant words in the proposed covenant as appearing in the prayer for relief are “repair and maintain the structure”, but I accept that, “structural” being a congener of “structural”, the relevant meanings correspond. If “structure” is here employed as an ordinary English word, the question as to what is its relevant meaning is a question of fact. (See the discussion by Tadgell J in Franceschini v Melbourne and Metropolitan Board of Works[39] .)
[39](1980) 57 LGRA 284 at 290 and following
The expression “repair and maintain the structure” already appears in the lease in any case, and the submission of Mr Messer was based on the provision of clause 3.1.2 that “the Tenant shall not be obliged . . . to repair and maintain the structure” [40] . In his submission (see [35] above) that left a gap in the terms of the lease which it was appropriate should be filled by a covenant by the landlord to repair and maintain the structure, being the mirror image of the exception in clause 3.1.2. If that submission is to be accepted, the relevant meaning of “structure” in the context of the question before me must in part at least be determined by a consideration of the terms of clause 3 insofar as they relate specifically to the responsibilities of the tenant for repair.
[40]see [7] above
As is often the case, dictionaries are not of assistance as to the relevant meaning [41] . Both the second edition of the Oxford English Dictionary and the third edition of the Macquarie Dictionary give a number of definitions of the word “structure”. None of those definitions appears to be relevant to the distinction here between the obligations of the tenant and the claimed obligations of the landlord. However, there was evidence on the subject from the expert witnesses called by the parties.
[41]Francheschini v Melbourne and Metropolitan Board of Works (1980) 57 LGRA 284, 293-4
In paragraph 7 of Mr Gumeniek’s affidavit sworn on 12 April 2002 he deposes:
In my opinion the definition of a structural defect is a defect beyond reasonable repair to an essential part of the building structure or framework of the building or structure that is required to provide a safe environment for the people using that building or structure.
That evidence is not of great assistance.
However, in paragraph 6 of his affidavit of 28 March 2002 Mr Hegarty deposes as follows:
The definitions of “structural”, “structural member “ and “structural frame”, as noted in the Glossary of Building Terms, where one of the joint publishers is Standards Australia (the others being, National Committee on Rationalised Building (NCRB) and Suppliers Index Pty Limited) read as follows:
(a)Structural. Describing an element or part of a building or structure that carries or transfers a load in addition to its own weight as opposed to partitions, joinery or finishes.
(b)Structural member. A component or part of an assembly which provides vertical or lateral support to a building or structure.
(c)Structural frame. An assembly of beams and columns designed to support all loads on a building or structure and resisting any resultant forces.
In the light of the above definitions, “the structure” is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defects – susceptible of patching, painting or other straight-forward repair. Further, a building may become structurally unsound and vulnerable to failure solely by reason of poor maintenance over time. For example, a load-bearing timber support may rot to the point of collapse or beyond if left unpainted, unprotected and exposed to weather.
Mr Anderson said in evidence that the passage quoted by Mr Hegarty appeared in the fourth edition of the Glossary of Australian Building Terms. The third edition defined “structure” separately, as follows:
(a)The loadbearing part of a building.
(b)Any building, wall, fence or other construction, or anything fixed to or projecting therefrom.
(c)A construction, not necessarily roofed, which performs a function or functions requiring rigidity; eg. A bridge or a mast.
In cross-examination Mr Hegarty agreed that there were two definitions of “structure” in the fourth edition of that publication, namely:
The loadbearing part of a building, comprising the primary elements.
A construction, not necessarily roofed, which performs a function or functions requiring rigidity; such as a bridge or a mast.
The relevant meaning of “structure” and “structural” is readily apparent from that evidence, assuming, as I have done, that the word “structure” is used in the lease as an ordinary English word. If I am wrong in that assumption, and the word is used in the lease in a technical sense, judicial exegesis is to be found in two authorities to which I was referred by Dr Croft.
In Granada Theatres v Freehold Investment (Leytonstone) Ltd[42] Jenkins LJ, with whom the other two members of the English Court of Appeal [43] agreed, said, adopting the observations of the judge below [44] :
It appears rather surprisingly, that the expression “structural repairs” had never been judicially defined, a fact to which attention is drawn in Woodfall on Landlord and Tenant, 25th ed., p. 770, para 1732, and counsel in the present case have accepted that statement as correct. The writer of the text-book submits on the same page that “structural repairs” are those which involve interference with, or alteration to, the framework of the building, and I would myself say that “structural repairs” means repairs of, or to, a structure. It is sometimes said that repairs must always be either structural or decorative, and if that is the simple criterion we are, in this case, certainly not dealing with decorative repairs.
[42][1959] 1 Ch 592
[43]Romer and Ormrod LJJ
[44]at 603
Austin J, in Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [45] said [46] :
In deciding whether the works in the Howse Report are properly described as structural works, I must have regard to the principles enunciated in such cases as [Grenada Theatres]. The distinction between structural and non-structural repairs requires the Court to make a practical judgment as to whether the work, having regard to its nature and extent, interferes with or alters the framework or structure of the building. Older case law, referred to by Jenkins LJ in that case at page [603], tended to describe all non-structural work as “decorative”, but the modern connotation of that word may be too limited to allow it any continuing utility.
[45]see [17] above
[46]at [108]
Taking into account the considerations to which I have referred, I am satisfied that the covenant sought to be implied into the lease is capable of clear expression.
Contradict express terms
Dr Croft submitted that the proposed covenant was inconsistent with clauses 8.1.2 and 8.1.3 of the lease [47] . However, assuming the probable intention that the specific provision for dealing with destruction or damage would be intended to override a general covenant for repair and maintenance of the structure, there would be no difficulty in the drafting of a provision to that effect.
[47]see [7] above
Implication according to contract law: conclusion
As Mason J said in Codelfa , “for obvious reasons the courts are slow to imply a term into a contract” [48] . I note also the following passage from the judgment of Aickin J in Codelfa, which has particular relevance to the matter before me [49] :
The second problem, which does not seem to have been expressly adverted to in the authorities is the manner in which the doctrine of implied terms should be applied in the case of "contracts of adhesion" where the terms are not the result of negotiation (except as to price) but are provided in a standard form designed by one party upon which the other must tender. In the present case the only questions for negotiation were the price and one aspect of the mode of performance of part of the work.
It does not however follow that there is no room for implied terms in the case of standard form contracts, but undoubtedly it will be more difficult to imply the existence of unexpressed terms in such cases. The calling for tenders by a government authority upon its own standard form of contract suggests that it contains the only terms on which it is prepared to contract, and that a tender on the basis of different terms would be instantly rejected. It must however remain possible that there is some matter to which neither party has adverted but to which both would readily assent if it were brought to their attention. In the case of standard form contracts however it seems much more likely that, although neither party had considered the point raised, they might not have readily agreed upon a common solution to the new problem.
[48](see [30] above) at 346
[49]at 374
The consideration of whether to imply into the lease the term claimed by the plaintiff in this case has not been easy. However, on balance, I have come to the conclusion, taking into account all of the matters to which I have referred, that the circumstances do not justify the implication of such a term. The general practice that a landlord is not responsible for repairs; the doubt as to whether the law of Victoria permits the implication of the term sought; and the uncertainty as to whether such a term can be regarded as reasonable or equitable, and whether it is necessary to give business efficacy to the contract, all militate against the implication of the term. And conclusively, I cannot be satisfied that it is so obvious that it goes without saying that the parties would have wished to imply such a term into the lease. Accordingly, the claim of the plaintiff fails.
Counterclaim
To begin with, I note that counsel for the defendant made no response to the submission of Mr Messer that there was no evidence of the execution of the guarantee by the second to fifth defendants. I accept that submission, and there is no need to say anything further about those parties, save that the claim against them will be dismissed.
By the counterclaim against the plaintiff, the defendant seeks the payment of unpaid rent due under the lease, together with interest and expenses pursuant to clauses 2.1.1, 2.1.9 and 2.1.10 of the lease (see [7] above). The plaintiff concedes that it has failed to pay an amount of $7,777.80 being part of the rent due and payable under the lease in respect of the months of June 2000 to November 2000 inclusive and Dr Croft indicated that the defendant accepted that concession.
The plaintiff claims that pursuant to clause 8.1.1 that amount was a fair proportion of the rent according to the nature and extent of damage to part of the leased premises which rendered that part unfit for use as a guesthouse from June to September 2000. However, Mr Ritchie indicated in evidence that no records were kept as to the state of the premises, and Dr Croft submitted that there was no evidence before the Court as to the nature of the damage in question. Mr Messer did not respond to that submission, which I accept. Accordingly, the plaintiff’s defence to the counterclaim is unsubstantiated. There will be judgment for the defendant as plaintiff on the counterclaim against the plaintiff as defendant to the counterclaim.
Conclusion
In summary, there will be judgment for the defendant on the claim and counterclaim, save that the counterclaim will be dismissed as against the second to fifth defendants thereto. I invite submissions from counsel as to the terms of the orders to be made and as to costs.
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