Cariste Pty Ltd v White & Ors

[2005] HCATrans 748

[2005] HCATrans 748

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S16 of 2005

B e t w e e n -

CARISTE PTY LIMITED

Applicant

and

ROBERT M.S. WHITE

First Respondent

REGINALD JAMES COURT

Second Respondent

MERRILYN BROOKES COURT

Third Respondent

Application for special leave to appeal

McHUGH ACJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 9 SEPTEMBER 2005, AT 12.49 PM

Copyright in the High Court of Australia

__________________

MR C.J. BIRCH, SC:   May it please the Court, I appear with my learned friend, MR G.M. COLMAN, for the applicant.  (instructed by Hunt & Hunt Lawyers)

MR G.A. SIRTES:   May it please the Court, I appear for the first respondent.  (instructed by Stuart and Mills)

MR J. M. IRELAND, QC:   Your Honour, I appear with my learned friend, MR H. ALTAN, for the second and third respondents.  (instructed by Walls & Rodrigues Solicitors)

McHUGH ACJ:   You need an extension of time, I think, Mr Birch?

MR BIRCH:   Your Honour, I have to confess I was not aware of that and I have to ask the Court’s indulgence without being fully versed in why.

McHUGH ACJ:   Well, judgment was given on 15 December and this application for special leave was not filed till the ‑ ‑ ‑

MR BIRCH:   9 February.

McHUGH ACJ:   Yes.  That is the amendment.

MR BIRCH:   Yes, your Honour, in fact that is partly confusion that I have brought about because what happened was that the ‑ ‑ ‑

McHUGH ACJ:   There was one filed on the 12th, was there not?

MR BIRCH:   There was one filed within time.

McHUGH ACJ:   Yes.

MR BIRCH:   Then what happened was that we sought to refine the special leave questions that we posed and filed a document called an Amended Application for Special Leave to Appeal, which is the document that appears at page 52.

McHUGH ACJ:   Yes.  Carry on, Mr Birch.

MR BIRCH:   Yes, and, your Honours, I can indicate that I am only moving in regard to the three special leave grounds that are set out on page 53.  Those are paragraphs 2.6, 2.7 and 2.8.  Your Honours, the key special leave question might be put compendiously in this way.  It is the first of those three paragraphs, that is, whether the Court of Appeal erred in determining that the lease arrangement between the parties was terminated and a fresh lease brought into existence because of an agreement to vary the rent that was payable.

Could I refer quickly to two or three of the key factual background matters and then turn to the legal question.  If I could take your Honours to page 27 of the application book.  That sets out in the judgment of Justice Hodgson the critical provisions in the lease memorandum.  It was common ground that the original term had expired in 1990 and that there was a holding over, and there was agreement that initially that was under 13.02 which appears at the bottom of page 27 and that provides that on the holding over:

the lessee shall become a monthly tenant –

and then it provides –

at a monthly rental equivalent to a monthly proportion of the total yearly rent including contribution to outgoings payable by the lessee hereunder at the expiration or sooner determination –

What we say that clearly means is that there was one sum payable, but it was calculated by reference to the rent and the outgoings at the expiration.  You add them together.  That combined sum was the holding over rent.  That is a view that Justice Bryson came to.  He was the only judge that dealt with that particular issue.

The case proceeded on the basis that that sum that would be determined under clause 13.02 was greater than the amount that was paid following some negotiations and discussions that occurred in early 1992, some year and a half odd after the expiry of the term.  What happened is – I should just add one further additional matter.  There was a non‑exclusive right to park cars, and that is referred to on page 28 of the application book at the very bottom of the page where Justice Hodgson summarises those terms.  That was a non‑exclusive licence to park cars and the parking areas were not part of the demise.

Your Honours, what happened in early 1992, there were negotiations with a view to creating a new term on conditions that were different to those that would have arisen from any exercise of option.  There had not been an exercise of option.  There was initially a view put by the respondents who were guarantors of the tenant’s obligations that indeed a new lease came into existence as a result of those negotiations.  That was their case at its highest.  However, the result of those negotiations is referred to by Justice Hodgson at the bottom of page 30.  After the letters referring to potential new terms had been exchanged, at paragraph 16 in his Honour’s judgment he said:

Mr Roach –

that is the representative of the landlord –

gave evidence, accepted by the primary judge, that after about two weeks –

following exchange of the letters –

he had a conversation with Mr Court in which Mr Court –

he was the representative of the tenant company –

said he did not want to commit to a further two year lease at this time, and went on to say “We will just stay with the existing arrangements”.  The work was not carried out, and no new lease was signed.  However, according to agreed facts –

and then his Honour records what those facts were from April 1992 the rent payable was $1400-odd and there were covered car spaces now made available without any additional payment.  Then finally, on these factual questions, on the bottom of page 31 his Honour records that in October there was a further conversation:

Mr Roach gave evidence, accepted by the primary judge . . . “Reg, please acknowledge in writing that you are holding over under the original lease on a reduced rental”.  Following that conversation, Mr Court sent Mr Roach a letter . . . in the following terms -

I will read only the last penultimate paragraph that appears on the top of page 32:

We would also like to confirm that we are renting the above named premises from you on a monthly basis for $1,486.33/month plus $190.00/month for outgoings.  We further acknowledge that the conditions of our lease are as defined in the original lease documents but at rates as set out above.

Your Honours, those are, in our submission, the significant and relevant facts and essentially the ones upon which the Court of Appeal decided the case.  The position that we had maintained throughout the litigation was that at all times up until the premises were vacated in 1997 the tenant had held over under clause 13.02 and what was put against us was that in some fashion, following those discussions to which I have referred, a new lease came into existence.  But that argument was put in various ways and it became something of a shrinking target, from a full‑blown agreement for a full two‑year term or something comparable, down to the way in which it is put in Justice Hodgson’s judgment in paragraph 38 of that judgment on page 38 of the application book.  He records the applicant’s primary submission in the preceding paragraph that:

there was no enforceable agreement arising out of the letter of 2 March 1992 and associated negotiations, and no agreement which could operate as a termination or surrender of the lease; so that the holding‑over under the lease continued.

I doubt if that finding and contention is even open, having regard to the agreed fact that from April 1992 the rent “payable” was $1,486.33 per month; which could only mean that there was an agreement or at least a binding arrangement under which that amount was payable, which would be inconsistent with the agreement constituted by the original lease and the holding‑over provision.

Now, we understand that to mean simply this, that the tenant was entitled to pay simply that sum, that he would have been obliged to pay a higher sum had the holding‑over provision applied.  He then summarises in paragraph 39 that ‑ ‑ ‑

McHUGH ACJ:   But, Mr Birch, the problem is that it is really a factual case, is it not?  If I had to decide this case on the justice and merits of the case I have little doubt I would be finding for your client.  But the respondents have done what they are entitled to do.  They have taken the point about the guarantee and it seems to me a question of fact that the Court of Appeal – it is hard to see that the Court of Appeal was wrong and even if it was, why would the Court grant special leave to appeal?  We cannot be granting special leave on every case that we think may have been erroneously decided on the facts.

MR BIRCH:   Your Honour, we would say that there was implicitly a broad legal principle that was applied by Justice Hodgson, that it was an erroneous legal principle, that there is a division of authority, putting it at its highest against me and that that legal principle should now be dealt with by this Court.  What we say is this, that the implicit principle was that where the parties come to an agreement to vary terms of the lease, even if they be varied in a fashion which represents a concession to the tenant, that will without more operate as a surrender of the pre‑existing lease and lead by operation of law to the grant of a new lease. 

McHUGH ACJ:   Commercial lawyers, particularly contract lawyers like tax lawyers, think every question of fact is really a question of law and these cases do not create any precedent or statement of principle, do they?  It must depend on its own facts.  The general principle is well known.  It is a question of how you apply it to particular circumstances.

MR BIRCH:   Well, your Honour, I handed up a list of authorities.  I hope that bundle has reached your Honours.  If I could just take you quickly to the document which is under tab 2, a decision of Justice Goff in Gable Construction Co Ltd v Inland Revenue Commissioners.  I go to that because it is the one which considers the issue in the most detailed and well‑reasoned fashion.  In that instance there was a deed to vary various covenants in a lease and the argument was that this had worked an automatic surrender by operation of law and the grant of a fresh lease and his Honour concluded that that was not in fact the law at all.  He referred to a number of authorities.

Can I just adopt this passage that he cites from the judgment of Sir Michael Morris, the Chief Justice in Lord Inchiquin v Lyons.  It is at page 12 of the handwritten numbers that I have put on the bottom corner.  Your Honours will see at page 972 of the All England Reports towards the bottom - this is the Chief Justice of – this was an Irish decision:

“I am not aware of any case deciding, as an abstract proposition, that in no case can a landlord and tenant agree to raise the rent without creating a new tenancy.  That would lead to extraordinary consequences.  More generally there is a reduction of rent; and suppose a reduction is made to a tenant, and an arrangement that he is to hold on at the reduced rate, and that such reduced rate is to relate back to a previous period, would that create a new tenancy?  I presume that if an arrangement to increase the rent would ipso facto create a new tenancy, an agreement for a reduction would have the same effect.  The consequences of that are, at all events, worthy of consideration.  I am not aware that such proposition has ever been decided, and I think it is contrary to the ordinary right that two persons are to be prevented from entering into an agreement, which is not immoral or against public policy, viz, that the rent is to be increased or diminished, without putting an end to the old tenancy.”

Now, we say that is precisely the issue that arose here because the facts were that the parties’ expressed intention, properly construed, was that they were not seeking to disturb the old tenancy and, properly understood, what the Court of Appeal did was to find that because there was an agreement to vary rent principally in this instance ‑ ‑ ‑

McHUGH ACJ:   There was more than that to it, was there not?

MR BIRCH:   There was more, but they were all concessional arrangements and they were all concessions within the same context, the intention being to not otherwise disturb the arrangement between the parties. 

McHUGH ACJ:   But the intention of the parties has to give way to the legal operation of the facts.  The fact that people call a lease a licence does not mean that it is not a lease.  They may intend it to be a licence, but if they give exclusive possession, it is a lease.  Likewise here.  I mean, how do you get over the discussion by Justice Hodgson at page 37 where he holds that the holding over did not continue after March 1992?

MR BIRCH:   Well, your Honour, the reason by which he gets to that is the conclusion that there had been the variation.  If I can lay it out, his Honour says there was an agreement to vary.  That agreement to vary ipso facto brought about a surrender of the existing lease and the grant of a fresh lease.  If I could take your Honours over to page 39, paragraph 44 of his Honour’s judgment.  He says:

Having regard to those conclusions –

and I suggest that what his Honour is referring to are that a variation ipso facto works a surrender and a regrant –

in my opinion it is not to the point that the lease for a term of years contemplated by the letter of 2 March 1992 was never entered into, nor that in March 1992 Mr Court said to Mr Roach words to the effect “We will just stay with the existing arrangements . . It is also not to the point that in October 1992 Mr Court acknowledged that, apart from the changed rate of rent and outgoings, the conditions of the lease were the same as the original lease -

What his Honour is doing is applying this test.  He says whether there will be a fresh lease and a surrender of the old one will be determined simply by asking whether there has been an alteration in terms.  I do not proceed to inquire as a separate element into whether there was an intention on the part of the parties that it was to be merely a variation of an existing legal relationship as opposed to the creation of a fresh legal relationship and that is the ‑ ‑ ‑

McHUGH ACJ:   But intention in this area has to be objectively ascertained.

MR BIRCH:   And we would be content if that were the test, your Honour, because the evidence was all our way so far as the findings by the trial judge were concerned, namely, that the parties, after their negotiations, retreated back and said – and that was the passage I took your Honours to on page 30 that:

Mr Roach gave evidence –

following his conversation with Mr Court, that –

he did not want to commit to a further two year lease at this time, and went on to say “We will just stay with the existing arrangements”.

Now, those existing arrangements, as his Honour Justice Hodgson found, included the variation of rent, but they were within the circumstances where what they were doing was holding over and the only sensible way of ascertaining the parties’ intentions would be that they intended to continue holding over, as they had been, but with a different rent without a legal rule which ipso facto created a fresh lease.  In our submission, the Court of Appeal erred and, indeed, had they applied the principle that I referred to in the submissions, crystallised by Justice Goff, then we would have won on that point.  Your Honours, if we had won on the issue ‑ ‑ ‑

HEYDON J:   What is that legal principle?

MR BIRCH:   That legal principle is ‑ ‑ ‑

HEYDON J:   Gable Construction was not put to the Court of Appeal.

MR BIRCH:   Yes, Gable Construction and his Honour summarised it ‑ ‑ ‑

HEYDON J:   Well, was it put to the Court of Appeal, Gable Construction?  It is not listed as having been.

MR BIRCH:   No, it was not put to the Court of Appeal, your Honour.

HEYDON J:   No.

MR BIRCH:   What the Court of Appeal did - Justice Hodgson referred to the decision Savile Settled Estates, which we have included under tab 5.  If your Honour goes to page 23 of our handwritten pagination Justice Maugham there said, towards the bottom of the page – he was referring here to the common law rule which he said was not applicable.  He said this at about point 7:

I think there is no doubt that the law (as stated in . . . Halsbury’s Laws of England) is that any arrangement between the landlord and tenant which operates as a fresh demise will work a surrender of the old tenancy, and this may result from an agreement under which the tenant gives up part of the premises and pays a diminished rent for the remainder; and I would add that it may result from the mere alteration in the amount of rent payable, as seems to have been held in the case of Donellan v Read.

Donellan v Read is discussed by Justice Goff and there is the decision of Justice Mayo which contains a similar statement, although we say also obiter, also based on old cases which do not support it, which we have referred to in our submissions and we have enclosed here.

The previous single judge decision in New South Wales was the decision of Mr Justice McClemens that we refer to in our submissions and he applied Gable Constructions.  So we say that Gable Constructions is the most well‑argued decision on point that was followed previously by a single judge in New South Wales.  The point made in Savile was obiter and dubious if it is taken as broadly as it seems to have been taken by the Court of Appeal.

For those reasons we say the Court of Appeal erred on that point.  If they erred on that point, your Honours, we say that we would have succeeded.  Justice Bryson concluded that the guarantee was not a guarantee of the holding‑over obligations, but we argue – the other two judges declined to express an opinion on that point and the guarantee provision was expressed in words of great generality.

HEYDON J:   You have dropped 2.5 of your amended application.  Does that not relate to Justice Bryson’s separate reasoning?

MR BIRCH:   Well, I do not drop it, but I do not need it in order to succeed.

HEYDON J:   You said you relied on 2.6 to 2.8.  Is that not dropping 2.5?

MR BIRCH:   Sorry, your Honour, I should just make sure I am ‑ ‑ ‑

HEYDON J:   Page 53.

MR BIRCH:   I do not press 2.5 in the form it is there, but 2.8 is a modified version of it.

McHUGH ACJ:   Thank you.  Yes, the Court need not hear you, Mr Sirtes and Mr Ireland.

We are of the view that this case turns on its facts and the applicant would have insufficient prospects of succeeding on an appeal to warrant the grant of special leave to appeal.  Accordingly, the application is refused with costs in favour of both respondents.

The Court will now adjourn until 2.15 pm.

AT 1.10 PM THE MATTER WAS CONCLUDED