CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd

[2012] TASFC 7

[2012] TASFC 7

COURT:  SUPREME COURT OF TASMANIA (FULL COURT)

CITATION:CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd [2012] TASFC 7

PARTIES:  CMA RECYCLING VICTORIA PTY LTD
  v
  DOUBT FREE INVESTMENTS PTY LTD

FILE NO:  FCA 44/2012
JUDGMENT

APPEALED FROM:  CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd [2011] TASSC 71

DELIVERED ON:  24 December 2012
DELIVERED AT:  Hobart
HEARING DATE:  20 and 21 August 2012
JUDGMENT OF:  Blow, Tennent and Porter JJ

CATCHWORDS:

Landlord and Tenant – Termination of the tenancy – Forfeiture – Generally – Re-entry under contract law for breaches of essential terms – Breaches of covenants to keep in repair and promptly repair damage – Provision in lease for termination – Whether contract law applied – Whether compliance with Conveyancing and Law of Property Act 1884 (Tas), s15, required – Whether lease stipulated that termination under contract law was excluded.

Conveyancing and Law of Property Act1884 (Tas), s15(1).
World Best Holdings Ltd v Sarker [2010] NSWCA 24; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268, followed
Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17; Apriaden Pty Ltd v Seacrest Pty Ltd [2005] VSCA 139; (2005) 12 VR 319; considered.
Aust Dig Landlord and Tenant [191]

Landlord and Tenant – Termination of the tenancy – Forfeiture – Relief against forfeiture – Equitable relief – Whether available – Breaches of essential terms requiring tenant to keep in repair and promptly repair damage – Factors to be considered.

Shiloh Spinners Ltd v Harding [1973] AC 691; Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406, considered .
Aust Dig Landlord and Tenant [199]

REPRESENTATION:

Counsel:
             Appellant:  D Fagan SC and J C Giles
             Respondent:  I R Jones SC
Solicitors:
             Appellant:  Minter Ellison
             Respondent:  Allens Linklaters

Judgment Number:  [2012] TASFC 7
Number of paragraphs:  63

Serial No 7/2012
File No FCA 44/2012

CMA RECYCLING VICTORIA PTY LTD
v DOUBT FREE INVESTMENTS PTY LTD

REASONS FOR JUDGMENT  FULL COURT

BLOW J
TENNENT J
PORTER J
24 December 2012

Orders of the Court

1. Orders numbered 1, 2, 3 and 4 made 6 August 2012 are set aside.

1. Declaration that lease numbered D1115 continues in force.

1. Liberty to apply as to costs and consequential orders.

Serial No 7/2012
File No FCA 44/2012

CMA RECYCLING VICTORIA PTY LTD
v DOUBT FREE INVESTMENTS PTY LTD

REASONS FOR JUDGMENT  FULL COURT

BLOW J
24 December 2012

1. I agree with Tennent J that grounds 1, 2, 3 and 6 should succeed, substantially for the reasons stated by her.  I have reservations as to whether grounds 4 and 5 should fail, but the outcome of this appeal will be the same whether they succeed or fail.  I agree with the orders proposed by Tennent J.

   File No FCA 44/2012

CMA RECYCLING VICTORIA PTY LTD
v DOUBT FREE INVESTMENTS PTY LTD

REASONS FOR JUDGMENT  FULL COURT

TENNENT J
24 December 2012

1. This is an appeal from a decision of Crawford CJ, delivered on 21 December 2011, in relation to a dispute between a landlord and tenant. The appellant leased part of some land owned by the respondent, and operated a business from the leased area. The respondent purported to terminate the lease by re-entry onto the leased land. The proceedings, the subject of this appeal, relate to the validity of that purported termination and the consequences of it.

1. The land owned by the respondent is situated at 256 George Town Road, Rocherlea. From 2005, which was prior to the respondent becoming the owner of that property, a company by the name of Universal Metals Pty Ltd operated a scrap metal recycling business on part of the land.  A Mr Rowe controlled that company. It occupied the premises pursuant to some arrangement with the then owner. At some stage on or before 4 July 2007, the shares in Universal Metals were sold to interests other than Mr Rowe, and the name of the company was changed to CMA Recycling Victoria Pty Ltd (the appellant). The appellant then entered into a formal lease in respect of the area being used for the recycling business, which lease commenced on 4 July 2007.

1. Early in 2008, Mr Rowe was appointed as managing director of the parent company of the appellant. Then in December 2008, the respondent, a company wholly controlled by Mr Rowe, acquired the freehold of the property at 256 George Town Road.  In May 2010, however, Mr Rowe was summarily dismissed from his position with the appellant's holding company. Court proceedings followed.

1. Therefore, as at the beginning of 2011, Mr Rowe controlled the company which owned the land, part of which was leased to the appellant. Mr Rowe had no interest in the appellant or its holding company and, it may be inferred, was not particularly well disposed towards either as a consequence of his past dealings. Against this background, the appellant continued to occupy the land it leased from the respondent, and continued to operate its scrap metal recycling business there.

Nature of the appellant's business and its impact on the leased premises

1. The appellant's business involved it in buying quantities of scrap metal. It then crushed and processed that scrap and sold the processed product. At any given time, the appellant had quite large quantities of scrap metal stored at the leased premises.

1. Adjacent to that part of the land from which the business was run was unimproved land which remained the property of the respondent. Much of the boundary fence between the two areas consisted of concrete panels. These were set in concrete footings and were tilted at an angle. They were held in place by flanges on upright steel posts. At one part of this boundary there was a series of bays constructed on the leased premises but adjacent to the tilted concrete panels. They had perpendicular concrete walls, more robust than the tilted panels.

1. Near the bays referred to above, the appellant operated a machine which was used to cut and crush scrap metal. There was no dispute that that crushing process produced fluids which drained through the boundary and onto the respondent's adjoining land. These fluids caused some pollution. The quantities of scrap metal stored by the appellant were stored both in the bays and at the rear of its premises. By the time this dispute arose, the height of the piles of stored scrap metal had become so great that items were falling over the top of the boundary walls onto the respondnet's adjoining land. The weight of the material stored in the bays had also caused damage to the boundary fence, pushing panels out and cracking and damaging others.

1. When the lease commenced, much of the leased area, not covered by buildings, was paved. The appellant's activities had resulted in damage to that paving. Indentations had been made in some areas and, in others, pavers had been torn from the ground. There had been other minor damage to the premises caused by the appellant's activities.

Relevant lease provisions

1. The provisions of the lease which governed the relationship between the parties which were particularly relevant to this matter were cls 9.1, 9.3, 12.1(a), (b) and (c), 13, 14, 15 and 17. All except cl 17 may be briefly summarised. Clause 9 provided that the leased premises could only be used for "the Permitted Use". That permitted use was "metal recycling/waste handling depot and transfer station". The respondent gave no warranty that the leased area was suitable for any purpose for which the area was to be used. By cl 12.1(a), the appellant accepted the condition of the leased area at the commencement of the lease. By cl 12(b), the respondent gave no warranties as to the "condition, description, state, quality, fitness and/or suitability of the Premises for the Permitted Use...".

1. Clause 12.1(c) required the appellant not to use the leased area in a manner "contrary to any laws, regulations, bylaws, policies or directions issued by any Authority having jurisdiction or control over the Premises and/or the Permitted Use, relating to environment protection, the Premises and its surroundings". Clause 13 required the appellant to comply with all requirements of any authority (this included the Launceston City Council) and all laws in connection with the property and the business the appellant was operating.

1. Clause 14 related to maintenance and repair. The appellant was required to keep the leased premises in good repair and condition. It also had an obligation to promptly repair damage and to notify the respondent of any damage to the premises. Clause 14.7 specifically provided that the plaintiff must not cause damage to the premises. However cl 14 also provided that the appellant need not carry out any work of a structural nature, except as provided in cl 14.3.

1. Clause 15.1(f) required the appellant to immediately deliver to the respondent a copy of every notice received by the appellant in relation to the leased premises.

1. Clause 17 was headed "Default" and relevantly provided as follows:

"17.1    Essential Terms

The following obligations of the Tenant are essential terms of this Lease:

(a)  all obligations to pay money under this Lease; and

(b)  the obligations under clauses 8.1, 9.1, 14.1 and 14.5.

This clause 17.1 does not prevent any other obligation of the Tennant under this Lease being an essential term.

17.2     Events of Default

An Event of Default occurs if:

(a)  the Tenant repudiates or commits a fundamental breach of this Lease;

(b)  the Rent is at any time unpaid for seven days after becoming due, whether formally demanded or not;

(c)  the Tenant does not comply with any of its other obligations under this Lease, whether or not an essential term;

(d)  a judgment, order or Security Interest is enforced or becomes enforceable against the Tenant's interest in this Lease or the Tenant's property; or

(e)  an Insolvency Event occurs with respect to the Tenant or a Guarantor.

17.3     Landlord's Right to Terminate

If an Event of Default occurs, the Landlord may terminate this Lease by:

(a)  re-entering the Premises without notice; or

(b)  notice to the Tenant

Except that when section 15(1) of the Conveyancing and Law of Property Act 1884 applies, the Landlord may only terminate this Lease if the Landlord has first given to the Tenant a notice which complies with that section and the Tenant has failed to comply with that notice within fourteen (14) days."

2011

1. Early in 2011, the respondent complained to the Launceston City Council about aspects of the appellant's activities on the leased premises. As a consequence, the Council's pollution control officer contacted a representative of the appellant. A meeting was held on site the next day. The appellant's representative was told by Council officers that they considered the appellant was breaching a planning permit by its activities, and that it would be fined and issued with an environmental protection notice. The appellant's representative gained the impression that the major problem arose from the quantity of scrap metal stored on the premises, and made immediate arrangements to start reducing the level of stock.

1. However, on 4 April 2011, the Council issued an Environmental Protection Notice (EPN) pursuant to the Environmental Management and Pollution Control Act 1994, s44(2). By that notice, the appellant was required to do a number of things. The learned Chief Justice found that the terms of the notice were ambiguous, particularly in relation to the times within which certain things needed to be done. Nevertheless, the appellant began to take a number of steps to address the terms of the notice and remained in contact with Council officers about steps being taken and to be taken. The appellant did not supply a copy of the notice to the respondent.

1. At some point, the respondent engaged a firm to inspect the leased premises and provide a report identifying structural defects or damage at the leased premises and the cause of them. That firm was also to assess whether the appellant may have breached maintenance obligations under the lease, and make recommendations about repair and other matters. That report was provided and was dated 24 April 2011. The view expressed in that report was that the appellant had breached its repair and maintenance obligations under the lease.

1. On 28 April 2011, the respondent's lawyers sent a letter to the appellant. It was received the next day. It attached a copy of the EPN and the report referred to in the preceding paragraph. As his Honour found, the letter stated its purpose which was to identify provisions of the lease it was asserted had been breached, to give notice of the respondent's requirements in respect of the breaches, and to advise what the respondent proposed to do if the appellant failed to remedy the breaches. His Honour set out in full at par[40] of his reasons part of the letter. That paragraph provides as follows:

"40      The letter is important to a consideration of the case and for that reason, I state the balance of its contents in full:

'This letter constitutes a notice (Notice) under section 15(1) of the Conveyancing and Law of Property Act 1884 (Tas.)

1    Breaches by reason of EPN

The Landlord hereby gives notice that the following clauses of the Lease have been breached by reason of the matters set out in the EPN –

1.1  Clause 12.1(c) – using, permitting or allowing the Premises to be used in a manner contrary to law;

1.2  Clause 13 – failing to comply with the requirements of any Authority and all laws in connection with the premises.

1.3  Clause 15.1(a) – failure to carry on the Tenant's Business in a proper manner.

1.4  Clause 15.1(f) – failure to provide the landlord with a copy of the EPN.

1.5  Clause 15.2(a) – conducting the Tenant's Business in a manner which is offensive or a nuisance.

1.6  Clause 15.2(c) – using the facilities in or near the premises for an improper purpose.

2    Breaches identified from the Building Report

The Landlord hereby gives notice that the following clauses of the Lease have been breached by reason of the matters set out in the Building Report –

2.1  Clause 14.1 – failure to keep the premises in good repair and condition.

2.2  Clause 15.1(a) – failure to carry on the Tenant's Business in a proper manner.

2.3  Clause 15.2(b) – interfering with or obstructing access to or overloading the Services.

2.4  Clause 15.2(c) – using the facilities in or near the Premises for an improper purpose.

3    Notice

3.1By this letter the Landlord gives you, as Tenant, notice that the Landlord requires that you –

a)Comply with the requirements of the EPN as you are required to do pursuant to Clause 13 of the Lease; and

b)Promptly repair the damage to the Premises identified in the Building Report as you are required to do under Clauses 14.1(c) and 14.3 of the Lease (collectively Rectification Works) –

both within a reasonable time after the date of this letter.

3.2The Landlord is unable to estimate a reasonable time for compliance at this time.  In this regard the Landlord will treat the Notice as having been complied with if you –

a)within 16 days of the date of this letter provide to the Landlord a timetable (Timetable) for completion of the Rectification Works acceptable to the Landlord (acting reasonably); and

b)within 23 days of the date of this letter enter into a further variation of the lease to incorporate, as an essential term of the Lease, a clause by which you will covenant with the Landlord to complete the Rectification Works at your cost in accordance with the Timetable.

4    No Waiver

Pursuant to Clause 17.1 of the lease your breach of Clause 14.1 of the lease constitutes a breach of an essential term of the Lease.  Nothing in this Notice constitutes, or should be taken as constituting, a waiver of: –

a)the Landlord's right to treat the breach of clause 14.1 of the Lease as a repudiation of the Lease (which the Landlord may accept) and the landlord expressly reserves the right to do so; or

b)   the Landlord's rights to damages pursuant to the Lease or at law.

5    Costs

The landlord reserves its right to recover all of its costs arising out of or incidental to the breaches of the lease identified in this Notice including, without limitation, the Landlord's costs and expenses in obtaining the Building Report and the Landlord's legal costs and expenses on a full indemnity basis in accordance with Clause 21.1 of the lease.

6    Failure to Comply

If you fail to comply with the Landlord's requirements specified in paragraph 3.2 of this Notice, the landlord will, at its election, either forfeit the Lease or accept your repudiation of the Lease constituted by your breach of clause 14.1 thereof.  In either case the Lease will then be at an end and the Landlord will require immediate vacant possession of the Premises.'"

1. The learned Chief Justice summarised in his reasons a number of other actions by the parties. I will refer to those only insofar as they become necessary to determine this appeal.

1. On 16 May 2011, the respondent purported to terminate the lease. It did so by re-entering the leased premises on that date. The appellant issued proceedings. It sought interlocutory orders permitting it to retake possession of the premises. Those orders were made, and the appellant continued to operate its business from the premises.

1. By way of substantive relief, the appellant sought a determination that the purported termination of the lease was ineffective, and that the lease remained on foot. In the alternative, the appellant sought relief against forfeiture. It also sought damages for breach of contract, and aggravated and exemplary damages for trespass.

1. At trial, the position of the respondent was that the appellant had:

·     caused damage to the leased premises,

·     failed to keep the premises in good repair and condition,

·     failed to promptly repair damage it had caused,

·     failed to comply with the council's requirements under the Environmental Management and Pollution Control Act 1994,

and, as a consequence, had breached the terms of the lease. That conduct was said to amount to a repudiation of the lease by the appellant which the respondent accepted by treating the lease as at an end and re-entering the leased premises on 16 May 2011.  The respondent also maintained that some of the breaches by the appellant amounted to breaches of essential terms of the lease and, as his Honour said, "were fundamental breaches of contract, entitling it to re-enter".

1. As far as the appellant was concerned, its position was that its conduct did not amount to a repudiation of the lease. In any event, the respondent was required to give the appellant a notice under the Conveyancing and Law of Property Act 1884 ("the Act"), s15, requiring it to remedy any breaches within a reasonable time. The respondent had not complied with that section. Alternatively, if the lease had been validly terminated, it sought relief against forfeiture.

1. His Honour ultimately determined that:

·    the appellant breached essential terms of the lease by failing to keep the premises in good repair and condition, and by failing to promptly repair damage,

·    the appellant did not repudiate its obligations under the lease,

·    the respondent validly terminated the lease under the common law of contract because of the appellant's breaches of essential terms,

· the respondent was not required to comply with s15 before terminating the lease, and that

·    although the appellant was entitled to apply for relief against forfeiture, such relief should not be granted.

1. The appellant has appealed his Honour's decision. The parties have agreed that the appellant would remain in possession of the premises until this appeal is determined.

Grounds of appeal

1. The grounds of appeal pursued by the appellant were in the following terms:

"1 His Honour erred in holding that s 15(1), Conveyancing and Law of Property Act, 1884 did not apply to a termination of the lease of land at 256 George Town Road, Rocherlea (premises) (made between the Respondent as lessor and the Appellant as lessee, dated 4 February 2010) (lease) for breach by the Appellant of Cl 14.1, which the parties had agreed (by Cl 17.1) was essential [117], [118].

2    His Honour ought to have held that as:

2.1the Respondent had purported to terminate the lease for breach by the Appellant of Cl 14.1 and

2.2Cl 14.1 was made an essential term of the lease by force of Cl 17.1(b) [95], [132] and

2.3Cl 14.1 would not have been an essential term of the lease but for the parties' agreement in that respect

Therefore the Respondent's right to terminate the lease for breach of Cl 14.1 was necessarily a 'right of re-entry of forfeiture under [a] proviso or stipulation in [the lease] for breach of any covenant or condition in the lease', within the meaning of sub-s(1) of s 15, Conveyancing and Law of Property Act, 1884 and was only exercisable in accordance with that sub-section – the requirements of which had not be fulfilled [122], [127]-[131].

3    In failing to hold as propounded in Ground 2 above his Honour erred in not following the decisions of the Court of Appeal of the Supreme Court of New South Wales in World Best Holdings Ltd v Sarker [2010] NSWCA 24 and Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 [106], [111] and [112].

4    His Honour erred in holding that Cl 17 of the lease did not have the effect of excluding the operation of the general law of contract with respect to termination for breach by the lessee of an essential term [112], [113].

5    His Honour ought to have held that:

5.1by Cl 17 of the lease the parties stipulated that common law rights to terminate (generally, and in particular for breach of an essential term) were excluded and replaced by the proviso or stipulation for re-entry or forfeiture comprised in cls 17.2 and 17.3;

5.2for this additional reason the Respondent's purported termination of the lease was necessarily pursuant to cls 17.2 and 17.3;

5.3therefore sub-s(1) of s 15, Conveyancing and Law of Property Act, 1884 applied; and

5.4the purported termination by the Respondent, in the absence of a valid notice under sub-s(1) of s 15, was invalid and ineffective to bring the lease to an end.

6    In the alternative to Grounds 1-5 inclusive, his Honour erred in refusing to grant the Respondent relief against forfeiture [55]-[174]." 

1. For the reasons, which follow, I would allow the appeal insofar as grounds 1, 2, 3 and 6 are concerned.

Conveyancing and Law of Property Act 1884, s15

1. The first five grounds of appeal concern the operation of s15. It relevantly provides as follows:

"15    Restrictions on and relief against forfeiture of leases

(1)   A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant or condition in the lease, shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice specifying the particular breach complained of and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and in any case requiring the lessee to make compensation in money for the breach, and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.

(2)   Where a lessor is proceeding, by action or otherwise, to enforce such a right of re-entry or forfeiture, the lessee may, in the lessor's action, if any, or in any action brought by himself, apply to the Court for relief; and the Court may grant or refuse relief as the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit; and in case of relief may grant it on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court, in the circumstances of each case, thinks fit.

...

(7)   This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

(8)   This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary." 

1. Grounds 1 to 3 of the notice of appeal relate to an argument that, in circumstances where the appellant did not repudiate the lease, and where the respondent purported to terminate for a breach of a provision of the lease which was an essential term only as a consequence of cl 17.1 of the lease, his Honour ought to have held that this was not a termination at common law independent of the lease. It was instead the exercise of a right of re-entry under a provision or stipulation in the lease. As a consequence, the respondent was required to comply with s15. By grounds 4 and 5, the appellant argues that cl 17 excluded by its terms the common law right to terminate. Therefore, s15 applied and notice under that section should have been given.

1. As to ground 6, that related to the argument about relief against forfeiture.

Discussion

1. Clause 17 in the lease is that relevant to default. Clause 17.1 makes cl 14.1 (covenant to repair) an essential term of the lease. Clause 17.2 then defines what is an "Event of Default". Relevantly in this case, an event of default would have occurred if the appellant had repudiated the lease or committed a fundamental breach of the lease. Clause 17.3 then provided that, if an event of default occurred, the respondent was entitled to terminate the lease either by re-entry without notice or by notice to the tenant:

"except that when the Conveyancing and Law of Property Act 1884 applies, the Landlord may only terminate this Lease if the Landlord has first given to the Tenant a notice which complies with that section and the Tenant has failed to comply with that notice within fourteen (14) days."

Clause 17.3 clearly recognized that circumstances might exist where the respondent had a right to terminate by re-entry without notice, and that there might be circumstances where the Act, s15, applied and notice under that section was required.

1. In the present case, his Honour found that the appellant had breached essential terms of the lease, but had not repudiated the lease. The particular essential term which the respondent relied on to terminate the lease (cl 14.1), found to have been breached, was made an essential term by cl 17.1. His Honour determined that the respondent had terminated the lease by reference to common law principles governing rights to terminate contracts for breaches of essential terms and, as a consequence, it was not required to comply with the Act, s15. In reaching that conclusion, his Honour relied on the decision of the High Court in Progressive Mailing House Pty Ltd v Tabali[1].

   [1] (1985) 157 CLR 17

1. At pars[97] and [98] of his decision, his Honour said:

"97 A landlord may have a right to terminate a lease for the tenant's default under a term of the lease that provides for that right, commonly one of re-entry and forfeiture. The derivation of that right to terminate is to be found in the terms of the lease. When a lease gives that right it falls squarely within the opening words of s15(1) and its exercise is governed by the subsection.

98     But a landlord may also have a right to terminate a lease under general contract law principles that if one party to the contract breaches an essential term of the contract or repudiates its obligations under the contract, the other party may terminate it.  That was made clear in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, where it was held that as a general rule, the ordinary principles of contract law, including those of termination for fundamental breach or repudiation, apply to leases. It was argued in that case that an express proviso for re-entry in a lease excluded any common law right to terminate. Mason J, with whom Dawson J agreed and Wilson and Deane JJ generally agreed, concluded at 29-30 that re-entry under such a proviso is essential only where the parties have stipulated that common law rights to terminate are excluded. The mere presence of a proviso in a lease giving an express power to terminate does not exclude the exercise of such common law rights as may otherwise be appropriate, and the landlord may be entitled to rely upon both the contractual and the common law right to terminate. Deane J at 55. Nevertheless, it is open to the parties by their contract to regulate the exercise of the common law power. Mason J at 30; Deane J at 55 – 56."

1. His Honour went on to deal with the cases to which he had been specifically referred by counsel, that is Apriaden Pty Ltd v Seacrest Pty Ltd[2] and World Best Holdings Ltd v Sarker[3]. Counsel for the respondent relied on the former, and counsel for the appellant relied on the latter. His Honour discussed both, and identified differences between the approaches taken. He said that Apriaden followed Progressive Mailing. In respect of World Best, his Honour described it as doubtful authority. In that case, Handley AJA accepted the authority of Progressive Mailing, but pointed out that that case and others which followed it, involved repudiations by tenants of their obligations to pay rent. World Best did not deal with such a situation but dealt with a situation where a landlord asserted the tenant had breached a condition relating to what it could and could not sell, and failed to comply with requirements relating to a fit-out. Handley AJA said at [34]:

"The High Court has not yet considered the effect of s129 on the landlord's contractual right to terminate the lease for non-repudiatory breaches of other fundamental terms."

Section 129 referred to was the Conveyancing Act 1919 (NSW), s129. Section 129(1) is in almost identical terms to the Act, s15(1).

[2] (2005) 12 VR 319

[3] [2010] NSWCA 24

1. The learned Chief Justice, in referring to World Best as doubtful authority, said at par[106]:

   "When relying on the undoubted fact that breaches of contract or covenant, falling short of repudiation, fell squarely within the expression 'a breach of covenant, condition or agreement … in the lease' in s129(1) (and s15(1) of the Act I am considering) Handley JA appears to have overlooked the opening words of the section, which cannot be ignored. In full, the subsection provides that 'a right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise' except as the subsection provides."

2. His Honour then referred to Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service[4]. This was another decision of the New South Wales Court of Appeal following shortly after World Best. At par[296], Hodgson JA, with whom the other members of the court agreed, said:

"296     The decision in World Best proceeds on the assumption that there is a distinction between fundamental breaches of contract (which entitle the other party to terminate), and repudiation of a contract (which entitles the other party to terminate by acceptance of the repudiation): see Sanpine at [44], [47] – [49]. In general repudiation is constituted by communications or conduct manifesting unwillingness or inability to render substantial performance of the contract; and while some fundamental breaches would do this and thus amount to repudiation, this is not so in all cases. For example, it is open to parties to agree that a particular obligation under a contract is essential, in which case a breach of that obligation will be treated as a fundamental breach entitling the other side to terminate (Sharjade at [46]); but breach of such an obligation will not necessarily manifest unwillingness or inability to render substantial performance of the contract. In my opinion, as accepted in World Best, where a landlord terminates for breach of an obligation agreed by the parties to be essential, but where the breach does not amount to repudiation in the sense I have explained, a re-taking of possession would be the exercise of a 'right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition or agreement (express or implied) in the lease' within s 129(1)."

[4] [2010] NSWCA 268

1. Having canvassed these decisions, his Honour determined that he was compelled to follow a decision from a court more superior to both the New South Wales and Victorian appellate courts, namely that of Progessive Mailing. At par[112], he said that case was binding authority for the propositions that:

"termination of a lease under a provision contained in it is only essential where the parties stipulated that common law rights to terminate under ordinary principles of contract law are excluded, that the mere presence of a provision in a lease of an express power to terminate does not exclude the exercise of such common law rights as may otherwise be appropriate, and that a landlord may be entitled to rely upon both the contractual and the common law rights to terminate."

1. Counsel for the appellant has argued on this appeal that the breaches by the appellant of cl 14 were not repudiatory, and that the breaches would not have been characterised as breaches of essential terms save for the stipulation in cl 17 that a breach of cl 14 was a breach of an essential term. In those circumstances, when the respondent sought to terminate relying on a breach of cl 14.1, it necessarily had to rely on cl 17. Therefore it was exercising "a right of re-entry or forfeiture under any proviso or stipulation in a lease for breach of any covenant or condition in the lease".

1. This was, he argued, to all intents and purposes the approach taken by Handley AJA in World Best. Handley AJA said in World Best at pars[42] to [44]:

"42 Section 129(1) applies where a landlord wishes to terminate the lease 'for a breach of any covenant, condition or agreement ... in the lease'. It may be accepted that the tenant's repudiation of the lease is not within this language and that the landlord’s common law right to accept the repudiation and terminate the lease is not affected.

43     Breaches of contract or covenant, falling short of repudiation, fall squarely within the language of the section. The Court must start with the section and give full effect to its language. There is nothing, other than the dicta in Marshall, to support the view that compliance with the section is optional so that a landlord is free to choose between exercising an express right of termination or forfeiture which required compliance with s 129, and his common law right of termination for fundamental breach where that is not necessary.

44 A landlord cannot contract out of s 129(1) by making any or all of the tenant’s covenants essential terms, and providing that any breach or fundamental breach thereof will give rise to a right of termination. Section 129 exists for the protection of tenants, and subs(10) provides that it "shall have effect notwithstanding any stipulation to the contrary".

1. With respect, the decisions in World Best and Progressive Mailing do not appear to me to be inconsistent. In part, they dealt with different issues and factual scenarios.  Progressive Mailing dealt with a situation involving a breach of an obligation to pay rent, and the court there found that the relevant conduct amounted to a repudiation of the lease on the part of the tenant. Apriaden also involved a breach of an obligation to pay rent. In that case, there was no argument on the hearing of the appeal that the lease had been repudiated and terminated by an acceptance of that repudiation by a re-entry.

1. It seems to me that, insofar as the propositions extracted by the learned Chief Justice from Progressive Mailing are concerned, there is no argument that they are correct. The argument of counsel for the appellant is that Progressive Mailing does not go as far as is needed for the purpose of considering the situation in the present case.           In Progressive Mailing, the court was dealing with a breach of an obligation to pay rent, clearly a fundamental breach of the lease. It was a breach which evidenced an intention not to be bound by the bargain provided for. That the words of Mason J were directed to that factual situation is highlighted by the words in the penultimate sentence of the passage quoted. In the present case, the situation was different and not one apparently considered by either Mason J or the other members of the High Court. His Honour the Chief Justice specifically found the breaches of cl 14.1 did not amount to repudiatory conduct. The breaches were not of a type which evidenced an intention not to be bound by the lease. The breaches were only breaches of an essential term as a consequence of the provisions of cl 17. If it were accepted that the opening words of s15 covered such a situation, then s15 applied and the respondent could not, having regard to the specific terms of cl 17, ignore that section and purport to rely on common law principles.

Does s15 apply in this case?

1. The respondent purported to terminate the lease in reliance on a breach of cl 14.1. That much must follow from the letter from the respondent's solicitors to the appellant dated 28 April 2011. By the same letter, the respondent accepted that a breach of cl 14.1 constituted a breach of an essential term as a consequence of cl 17.1. There was no suggestion that it was otherwise a fundamental breach of the lease. Clause 17 provided that the respondent could terminate by re-entry except in circumstances where the Act, s15, applied.

1. There seems little doubt that, had his Honour found that the conduct of the appellant was repudiatory, relying on Progressive Mailing, the respondent could have terminated by re-entry relying on common law principles. However, the conduct of the appellant was found specifically not to be repudiatory. Further, the breach of cl 14.1 was only a breach of an essential term because of cl 17.

1. The opening words of the Act, s15, are that "A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of covenant or condition in a lease, shall not be enforceable". In this case, the respondent's right to terminate the lease arose because of a breach of conditions in the lease. It did not, as his Honour found, arise because of a repudiation of the lease by the appellant. The words of Handley AJA in World Best, quoted in par[39], are entirely apposite.

1. For the foregoing reasons I am of the view that grounds 1, 2, and 3 must succeed.

1. As to grounds 4 and 5, it follows from what I have already said that the right of the respondent to rely on common law principles of contract was not entirely excluded by the provisions of cl 17. It was however excluded to the extent of circumstances where s15 applied. I have found that it did in the circumstances of this case.

Ground 6

1. The grounds of appeal pursued by the appellant all relate to the validity of the respondent's  actions of 16 May 2011. However, at par[135] of his reasons, the learned Chief Justice said:

"135     I accept the submission of counsel for the defendant that if for some reason it failed to terminate the lease on 16 May, it did so when it filed and served its counterclaim on 14 June, in which it purported to terminate the lease and sought an order for possession.  Moore v Ullcoats Mining CoyLtd [1908] 1 Ch 575 at 584; Canas Property Co Ltd v K L Television Services Ltd [1970] 2 QB 433 at 442; Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562; Lidsdale Nominees Pty Ltd v Elkharadly [1979] VR 84 at 90 – 91; Billson v Residential Apartments Ltd [1992] 1 AC 494 at 534. Counsel for the plaintiff did not challenge the authority of those cases."

1. There is no appeal against that finding, and no submissions were addressed to the paragraph by either counsel. For completeness, I refer to it briefly. If regard is had to the cases to which his Honour referred, and my findings as set out in these reasons, it must follow that the filing and service of the respondent's counterclaim in which it sought possession, could only operate as an effective termination if there had been an effective notice pursuant to the Act, s15, which had not been complied with. His Honour determined in effect that the notice issued by the respondent was not an effective notice (see pars[119] – [131]) because it did not allow the appellant a reasonable time to remedy its breaches of the lease.

1. On the face of it therefore, the issue of relief against forfeiture does not arise because there has been no effective termination of the lease necessitating the appellant to apply for such relief. However, the ground should perhaps be dealt with.

1. The learned Chief Justice determined that the appellant was entitled to apply for relief against forfeiture, but exercised his discretion to refuse it. It is the exercise of his Honour's discretion to refuse relief against forfeiture which is the subject of this ground. The Supreme Court Civil Procedure Act 1932, s45, deals with appeals from judgments given in the exercise of a discretion. It provides:

"45 Appeals from judgments given in exercise of discretionary jurisdiction

(1)  A Full Court, on the hearing of any appeal from any judgment, order, or other determination (whether final or otherwise) of a judge, shall not reverse or vary any adjudication of the judge which is, or purports to be, only the exercise of a discretion which the judge was entitled by law to exercise, unless it appears to the Full Court that –

(a)  the judge has, in fact, declined or failed to exercise the discretion;

(b)  the judge has proceeded on a wrong principle or otherwise contrary to law, or on irrelevant or insufficient materials, or has misapprehended the facts or has failed to consider any material fact;

(c)  the adjudication is founded wholly or in part on an erroneous finding of fact or an erroneous determination in point of law; or

(d)  by reason of further evidence received by the Full Court in exercise of the powers conferred by section 48, or some special circumstance, the adjudication should be reversed or varied.

(2)  Nothing in this section contained shall limit or restrict the powers of a Full Court on the hearing of an appeal from a judgment or order of a judge decreeing or ordering or refusing to decree or order the specific performance of any contract, or granting or refusing any injunction or order for an injunction, or appointing or refusing to appoint a receiver, or granting or refusing any other equitable remedy or relief the granting of which is discretionary.

(3)  Nothing in this section contained shall in any manner affect the provisions of section 44." 

The appellant's argument in respect of this ground is by reference to (1)(b).

1. His Honour dealt with the issue of relief against forfeiture in pars[166] - [175] of his judgment. In determining that the appellant was entitled to apply for such relief, but that the facts of this matter were such that he would not exercise his discretion to grant it, his Honour had regard to Legione v Hateley[5] and Shiloh Spinners Ltd v Harding[6].  He said at pars[166] - [167]:

"166     In Legione v Hateley, a case concerning a contract for the sale of land, Mason and Deane JJ at 447 made the point that if parties stipulate that performance of a term is essential to their bargain, then it is ordinarily unjust to the innocent party to require it to complete the contract notwithstanding a breach of that term. Their Honours said that generally speaking equity expects parties to carry out their bargains and "will not let them buy their way out by uncovenanted payment" (Shiloh Spinners Ltd v Harding at 723), nor will it remake the parties' contract simply because it transpires that as things happen, one party has made a bad bargain. Their Honours continued: "But if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser's interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation.

167      It is the question of whether it would be unconscionable or inequitable for the innocent party to insist on forfeiture upon which courts concentrate their intention.  In Shiloh Spinners Ltd v Harding at 723 – 724, Lord Wilberforce said that whether it is appropriate to grant relief "involves considerations of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach."

[5] (1983) 152 CLR 406

[6] [1973] AC 691

1. Legione's case related to a situation involving a contract of sale of land in which a vendor purported to rescind the contract. The Shiloh Spinners case related to a dispute arising from terms of a lease. Counsel for the appellant argued, by reference to the text, On Equity, by Young, Croft and Smith at par 5.990, that there was a distinction to be drawn between the principles to be applied in respect of relief against forfeiture in lease cases and those to be applied in other cases. As a consequence, since Legione's case did not deal with a lease, it was not directly relevant to the present case.

1. With respect, I am not convinced that the principles upon which he sought to rely in Shiloh Spinners case were so different from those in Legione, such as to suggest that last-mentioned case should be put to one side. In Shiloh Spinners at 722, Lord Wilberforce discussed the principles relating to forfeiture. He said:

"There has not been much difficulty as regards two heads of jurisdiction.  First, where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money, equity has been willing to relieve on terms that the payment is made with interest, if appropriate, and also costs (Peachy v Duke of Somerset (1721) 1 Stra 447 and cases there cited).  Yet even this head of relief has not been uncontested : Lord Eldon LC in his well-known judgment in Hill v Barclay (1811) 18 VesJun 56 expressed his suspicion of it as a valid principle, pointing out, in an argument which surely has much force, that there may be cases where to oblige acceptance of a stipulated sum of money even with interest, at a date when receipt had lost its usefulness, might represent an unjust variation of what had been contracted for : see also Reynolds v Pitt (1812) 19 VesJun 140.  Secondly, there were the heads of fraud, accident, mistake or surprise, always a ground for equity's intervention, the inclusion of which entailed the exclusion of mere inadvertence and a fortiori of wilful defaults.

Outside of these there remained a debatable area in which were included obligations in leases such as to repair and analogous obligations concerning the condition of property, and covenants to insure or not to assign." 

His Lordship then went on at 723 - 724 to say:

"But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result.  The word 'appropriate' involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach." 

1. Lord Wilberforce, having reviewed the law, moved to consider whether in the particular case relief should be granted. He said at 725:

"The respondent's difficulty is that the Vice-Chancellor, who heard the witnesses and went into all the facts, clearly took the view that the case was not one for relief.  I should be reluctant, in any event, except on clear conviction to substitute a different view of my own.  But I have examined in detail the evidence given, the correspondence over a period of four years, the photographs and plans of the site.  All this material establishes a case of clear and wilful breaches of more than one covenant which, if individually not serious, were certainly substantial: a case of continuous disregard by the respondent of the appellants' rights over a period of time, coupled with a total lack of evidence as to the respondent's ability speedily and adequately to make good the consequences of his default, and finally a failure to show any such disproportion between the expenditure required and the value of the interest involved as to amount to a case of hardship.  In my opinion the case is not, on established principles, one for relief." 

1. In Legione, their Honours Gibbs CJ and Murphy J in their joint judgment at 424 quoted in part the same passages from Lord Wilbeforce's judgment in the Shiloh Spinners case which I have, and determined that in that case there seemed no reason why, having regard to the statements of principle in the Shiloh Spinners case, the power of the courts to relieve against forfeiture should not be available in that case. Their Honours,  Mason J (as he then was) and Deane J also dealt with the issue. Having canvassed not only the Shiloh Spinners case but others, their Honours said at 448 – 449:

"The foregoing discussion indicates that the Judicial Committee in Steedman v Drinkle and Brickles v Snell gave more weight to the value of enforcing contracts according to their strict terms and less attention to the fundamental principle which underlies the exercise of the equitable jurisdiction to relieve against forfeiture than we are disposed to give them. That the Judicial Committee did so is readily understandable because in the early part of this century overriding importance attached to the concept of freedom of contract and to the need to hold parties to their bargains. These considerations, though still important, should not be allowed to override competing claims based on long standing heads of justice and equity. The result of the two decisions was to enunciate an inflexible rule that specific performance will never be granted where there is a breach of an essential condition, thereby diminishing the utility of the remedy in cases of relief against forfeiture. A preferable course is to adjust the availability of the remedy so that it becomes an effective instrument in situations in which it is necessary to relieve against forfeiture of the purchaser's interest under a contract for sale. The rule would then be expressed by saying that it is only in exceptional circumstances that specific performance will be granted at the instance of a purchaser who is in breach of an essential condition.

Whether the exceptional circumstances exist in a given case hinges on the existence of unconscionable conduct. It is impossible to define or describe exclusively all the situations which may give rise to unconscionable conduct on the part of a vendor in rescinding a contract for sale. None the less it may be said that where the conduct of the vendor, though not creating an estoppel or waiver, has effectively caused or contributed to the purchaser's breach of contract there is ground for exercising the jurisdiction to relieve. And if it also appears that the object of the rescission is not to safeguard the vendor from adverse consequences which he may suffer as a result of the contract remaining on foot, but merely to take unconscientious advantage of the benefits which will fortuitously accrue to him on forfeiture of the purchaser's interest under the contract, there will be even stronger ground for the exercise of the jurisdiction.

In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach? (4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?" 

1. With respect, it seems to me that the learned Chief Justice has confined too narrowly the principles which should be had regard to in determining in this case whether relief against forfeiture should have been granted. I refer in particular to the words of Lord Wilberforce quoted at [52] above. It is clear in the present case from the relevant lease that the respondent had the benefit of provisions in the lease which ensured his property would not be damaged and that, if it were, that damage would be remedied at the appellant's expense. It is also clear that the respondent's purported termination was as a consequence of breaches of the covenant to repair, and that such breaches occurred as was found. However, the evidence demonstrated that, from the start, the respondent made no effort to invoke the covenant to repair in the sense of seek to have the appellant make good the damage caused. Instead, rather than giving notice to the appellant, it brought in the local council which resulted in environmental steps being taken. It then, by its actions, frustrated the attempts by the appellant to repair the damage it had caused and comply with the environmental concerns raised by the Council. It is difficult not to conclude that the respondent has used its powers under the lease by reference to the covenant to repair to achieve a goal other than the repair of damage caused.

1. There was no suggestion that the appellant could or would not repair any damage it had caused were it given the opportunity to do so.

1. The learned Chief Justice determined that the appellant's breaches of the lease were so grave that it would not be unconscionable or inequitable for the respondent to insist upon forfeiture. In so doing he had regard to the statement of Lord Wilberforce in the Shiloh Spinners case. However, with respect, he did not consider all the factors identified by his Lordship. He should additionally have had regard to whether the respondent was acting to secure compliance with cl 14. It is clear from my comments above that in my view the respondent did not so act. It is sufficient however for me to say that I take the view his Honour made an error in confining his consideration of the matters to be had regard to in the manner he did. I would allow this ground of appeal. However it is unnecessary to consider whether or not this Court should re-exercise the discretion required, given the conclusions about other grounds.

1. I have not dealt with the argument dealt with on the hearing about the meaning of the phrase "the value of the property of which forfeiture is claimed" as quoted by the Chief Justice at par[167] simply because it is unnecessary to do so.

Outcome

1. The learned Chief Justice did not make any final orders when he published his reasons, but on 6 August 2012 he made orders in the following terms:

"1The plaintiff's claim is dismissed.

2The injunction granted on 18 May 2011 be dissolved.

3The plaintiff to deliver up possession of the premises at 256 Georgetown Road, Rocherlea, Tasmania to the defendant.

4Orders 2 and 3 be stayed until further order or judgment in appeal proceedings FCA 44 of 2012 or by agreement between the parties.

5Further proceedings on the defendant's counter-claim for damages and for indemnity for loss be listed for directions not before 1 September 2012.

6Costs of the proceedings to date be reserved until judgment in appeal proceedings FCA 44 of 2012."

1. No point has been taken as to the appeal having been instituted before formal orders were made.  As can be seen from order no 5, the trial before the learned Chief Justice was not intended to dispose of all the issues in the proceedings.  The respondent has a counterclaim for damages and other relief that has not been disposed of.  The appellant also has a claim for damages which will need to be determined.

1. As a consequence of my conclusions, I would allow the appeal, set aside orders 1, 2, 3 and 4 made on 6 August 2012, and make a declaration that the lease registered no D1115 continues in force.  Counsel should be afforded an opportunity to make submissions as to costs and consequential orders.

   File No FCA 44/2012

CMA RECYCLING VICTORIA PTY LTD
v DOUBT FREE INVESTMENTS PTY LTD

REASONS FOR JUDGMENT  FULL COURT

PORTER J
24 December 2012

1. I have read the reasons for judgment of Tennent J.  I generally agree with her Honour as to grounds 1, 2, 3 and 6.  The appeal should be allowed, and I agree with the proposed orders.  I have also read the reasons for judgment of Blow J.  Like his Honour, I express no concluded view as to the merits of grounds 4 and 5.  It is unnecessary to decide whether the construction of cl 17 of the lease can be advanced to the point contended for in ground 5.