Dykes and Wildie v Heatherway Pty Ltd (RLD)

[2007] NSWADTAP 26

Appeal Panel - Internal

CITATION:	Dykes and Wildie v Heatherway Pty Ltd (RLD) [2007] NSWADTAP 26
PARTIES:	FIRST APPELLANT Peter James Dykes SECOND APPELLANT Paul Richard Wildie RESPONDENT Heatherway Pty Ltd
FILE NUMBER:	079002
HEARING DATES:	4 April 2007
SUBMISSIONS CLOSED:	4 April 2007
DATE OF DECISION:	22 May 2007
BEFORE:	O'Connor K - DCJ (President); Montgomery S - Judicial Member; Weule B - Non Judicial Member
CATCHWORDS:	Retail Leases - default in payment of rent - guarantors' liability - evidence - findings of fact whether error of law - no error
MATTER FOR DECISION:	Principal matter
FILE NUMBER UNDER APPEAL:	045145, 065059
DATE OF DECISION UNDER APPEAL:	12/14/2006
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Heatherway Pty Ltd v Dykes & Wildie [2006] NSWADT 354 Lloyd v Veterinary Surgeons Investigating Committee (2005) 64 NSWLR 245 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tallerman and Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 City & Industrial Demolitions Pty Ltd v Shanahan [2000] NSWSC 1197 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Hinton & Ors v Commissioner for Fair Trading, Office of Fair Trading (GD) [2007] NSWADTAP 17 Sunol v Collier [2006] NSWADTAP 51 CDJ v VAJ (1998) 197 CLR 172 JHC Sydney Pty Ltd v Everson & Fauchon [2003] NSWADT 100 Ferns v Commissioner of Corrective Services [2006] NSWADTAP 50 University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 Coulton v Holcombe (1986) 162 CLR 1 VAAC v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 74 O’Brien v Komesaroff (1982) 150 CLR 310 Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 Metro Meat Ltd v Werlick (1993) Aust Torts Reports 81-242
REPRESENTATION:	APPELLANTS B Zipser of counsel instructed by P Tiernan, Tiernan and Associates RESPONDENT M Easton of counsel instructed by G Efron, Efron and Associates
ORDERS:	Appeal allowed in part.; In substitution for Order 1 of the Tribunal's orders, the following order is made:; 1. The Respondents/Cross Applicants are jointly and severally liable to pay to the Applicant/Cross Respondent the sum of $101,261.50

1 This appeal raises issues relating to the liability of directors in respect of personal guarantees given to secure a retail shop lease governed by the Retail Leases Act 1994 (RL Act).

2 The respondent (Heatherway) had since 1993 operated a Hungry Jack’s restaurant franchise on a site on the Pacific Highway at Coffs Harbour, which it owned. In late 1998 it agreed to sell the business to North Coast Foods Pty Ltd (NCF) for $900,000. To that end, it leased the site to NCF for a term of 10 years, commencing on or about 8 December 1998 at a rent of $120,000 per annum ($10,000 per month). The appellants controlled NCF, and gave personal directors’ guarantees in respect of any defaults under the lease.

3 Heatherway permitted NCF to operate the business under Heatherway’s existing franchise. Heatherway had not at that point obtained formal approval for the transfer from the franchisor, a partnership between Burger King Corporation of Florida America and Hungry Jack’s Pty Ltd of Western Australia.

4 NCF traded in difficulty during 1999. The appellants commenced discussions with Barry and Yvonne Hammond with a view to them taking over the operation. They kept informed Mr Cox, Heatherway’s principal.

5 On 9 February 2000 the appellants agreed to sell all shares held in NCF to the Hammonds by transferring all their shares to the Hammonds. This was recorded in a written agreement. Mr Cox approved the deal. The Hammonds immediately took over the running of the business. It was unnecessary to amend the lease, as NCF (now controlled by the Hammonds) remained in occupation. Heatherway had still not procured the franchisor a formal approval for the transfer of the franchise to NCF.

6 The appellants had during the negotiations leading to the hand-over been pressing Mr Cox to release them from their liability for the unpaid rent, which as at February 2000 stood at approximately $70,000. The appellants are of the view that they had, as a part of the February 2000 deal that led to the Hammonds taking over the franchise, a firm promise from both the Hammonds and Heatherway that they would be released from their accumulated liability. The evidence relating to the appellants’ dealings with Mr Cox up to this time is the subject of paras [21] to [44] of the Tribunal’s reasons.

7 The Hammonds, like their predecessors, also traded with difficulty. On 26 June 2003 NCF went into liquidation, and the accumulated default had ballooned to an amount in the order of $300,000.

8 Heatherway took the view that the personal guarantees given by the appellants remained binding, and they were liable for the debt left by NCF after the Hammonds abandoned the business.

9 On 9 June 2004 Heatherway commenced proceedings in the Supreme Court of Victoria seeking to recover from the appellants $316,187.30 for rent; and certain other amounts. On 20 September 2004, the proceedings were transferred to the Supreme Court of New South Wales, and, on 18 November 2004, by consent they were transferred to this Tribunal.

10 On 23 November 2005 Heatherway filed an amended statement of claim in the Tribunal, limiting its claim against the appellants to the period to 30 June 2000. It applied for orders for arrears to that date (stated to be $80,720) and interest from the date each rent payment was due to 9 June 2004 (the date of commencement of the Supreme Court proceedings).

11 By way of defence, the appellants contended on the following grounds that Heatherway’s claim was either not valid at law or no longer enforceable:

– the claim was statute barred;

– that in January 2000 Mr Cox had promised to release them from the liabilities;

– that the legal effect of a document dated 31 May 2000 naming as parties Heatherway and Power Image Pty Ltd, of the one part, and NCF, of the other part, had the effect of releasing them from any pre-existing liability (the May document); and

– that all payments of rent made by NCF after 30 June 2000 should be appropriated to pay for monthly arrears in the sequence in which they arose after December 1998, thereby expunging their liability.

12 The appellants also filed their own application, an unconscionable conduct claim (see RL Act, ss 70, 62B and 72AA). They contended that, if their defences were not accepted, they should nonetheless be relieved from liability because Heatherway had behaved unconscionably. The appellants also initiated District Court proceedings in February 2006 against the Hammonds seeking to enforce the alleged promise but have been unable to locate them.

13 In its decision, Heatherway Pty Ltd v Dykes & Wildie [2006] NSWADT 354, the Tribunal rejected all of these defences to the claim by Heatherway. It also rejected the unconscionable conduct claim. The Tribunal ordered that the appellants pay Heatherway the amount claimed ($80,720) and interest for the period to 9 June 2004 ($41,983), total $122,703. The Tribunal refused Heatherway’s application for an award of interest from that date to the date of its order.

The Appeal

14 The Tribunal’s conclusions as they relate to three of the defences and as to the unconscionable conduct claim are not the subject of appeal. The appeal is confined to the Tribunal’s conclusions in respect of the May document (the third point in para [11] above). The appeal also includes an additional point not canvassed below.

15 An appeal may be made in relation to a ‘question of law’, and, with the leave of the Appeal Panel, may extend to the merits: Administrative Decisions Tribunal Act 1997 (ADT Act), ss 112, 113. It is not necessary that an error of law be demonstrated before consideration can be given to extending the appeal to the merits: Lloyd v Veterinary Surgeons Investigating Committee (2005) 64 NSWLR 245.

16 The appellants submit that the Tribunal erred in two respects:

(1) In concluding that the May document had the effect of extinguishing the appellants’ liability under the guarantee. The notice of appeal put in issue paras [156] to [168] of the Tribunal’s reasons. However, at hearing, counsel for the appellants, Mr Zipser, narrowed the focus to paras [156] to [163] of the reasons.

(2) In concluding that the appellants should pay interest for the period up to 9 June 2004, when Heatherway had, it asserted, delayed four years (June 2000 to June 2004) in bringing the proceedings. The notice of appeal referred to paras [199] to [201] of the decision. This is the additional point.

(1) Tribunal’s Findings in relation to the May Document

17 The May document purported to effect a sale by Heatherway to NCF of the Hungry Jack’s franchise at Coffs Harbour as well as another Hungry Jack’s franchise at Port Macquarie. The latter franchise was owned by Power Image Pty Ltd, a company also controlled by Mr Cox.

18 The appellants submit that the Tribunal was wrong to conclude that this document did not extinguish their liability as guarantors.

19 The document was drafted by a solicitor at Neutral Bay in Sydney, who had been engaged by the Hammonds. It is headed ‘Agreement for Sale of Business’. It is 57 pages long.

20 At cl 3A there is a statement that ‘Completion of the sale and purchase of the Business Assets is interdependent with and will not proceed unless simultaneously Heatherway grants to the Buyer a new Lease for a term of Ten (10) years at an annual rental [set at $145,000’]. A new lease did commence on 1 July 2000.

21 In support of their argument that the document, properly construed, extinguished their liability for unpaid rent, the appellants referred to two clauses in particular. The first is cl 17.4:

‘The Vendor will bear all the risks of the Business [i.e. the two businesses being sold] prior to completion and will, subject to Clause 10.3, be solely responsible for all liabilities and debts incurred in connection with the Business prior to Completion.’

22 The second is cl 34.1:

‘The contents of this Agreement record the entire Agreement between the parties in relation to its subject matter. It supersedes all previous negotiations, understandings or agreements in relation to the subject matter.’

23 The Tribunal had before it evidence, written and oral, from Mr Cox and Mr Dykes (Mr Wildie did not give evidence). The Tribunal concluded that the May document did not result in the appellants being relieved from their guarantees.

24 We think it desirable to set out the whole of the text from [143], which deals with the evidence as well as the text put in issue by the appeal, which commences at [156] :

‘ Whether the May 2000 agreement extinguished all liability under the guarantee

143 The competing submissions. The nature and legal effect of the May 2000 agreement were topics receiving lengthy consideration in the written submissions of counsel. On any view of things, it was a remarkable document, having regard to the context in which it was prepared and executed.

144 Before outlining and evaluating counsel’s submissions regarding this agreement to the extent necessary to resolve these proceedings, it is useful to recapitulate briefly the background to it. The important events are these:-

In August 1998, Heatherway agreed to sell the Coffs Harbour business to NCF for $900,000, subject to (a) the Lease being granted and (b) transfer of the franchise that had been granted to Heatherway being approved by the franchisor, Burger King.

In December 1998, Heatherway and NCF agreed that this sale should be completed even without Burger King’s approval of transfer of the franchise. This duly occurred, with the purchase price being paid in full. The agreement provided for rescission, however, if the transfer of the franchise was not approved.

In December 1998, Heatherway and NCF executed the proposed Lease, providing for an initial rent of $120,000 per annum, and NCF, having taken possession of the Premises, commenced to carry on the Coffs Harbour business in them.

In February 2000, Dykes and Wildie sold their interests in NCF to Mr and Ms Hammond, it being known to all parties to this transaction that the rent due to Heatherway under the Lease was substantially in arrears.

In February 2000, Power and NCF signed ‘heads of agreement’ for the sale of the Port Macquarie business from Power to NCF for a price of $200,000.

At the time of the May 2000 agreement, Burger King had still not approved the transfer of the franchise for the Coffs Harbour business.

145 The May 2000 agreement was, on its face, an agreement for a second sale of the Coffs Harbour business from Heatherway to NCF, alongside a sale of the Port Macquarie business from Power to NCF. The total consideration stipulated to be paid for the two businesses was $2.1 million. Amongst the numerous provisions of the agreement were clauses providing for the grant of a ‘new lease’ of the Premises, at an increased initial rent of $145,000.

146 The principal submission by Mr Easton regarding this agreement was that none of the three contracting parties – Heatherway, Power and NCF – treated it as a genuine agreement for the sale of either business. The two businesses had already been sold to NCF and the purchase prices of $900,000 (for Coffs Harbour) and $200,000 (for Port Macquarie) had been paid in full. The agreement was instead a document initiated by, and prepared on the instructions of, Mr and Ms Hammond, the directors of NCF. After execution, it was to be presented to Burger King. The sole purpose of this course of action, which was in fact achieved in July 2000, was to obtain Burger King’s approval to the transfer of the franchises for the two businesses to NCF.

147 The evidence given by Cox, however, and certain clauses inserted into the Amended Statement of Claim (see [88] above), suggested that, in his view at least, one significant component of the May 2000 agreement was intended to operate according to its terms. This was the component (clause 3A and Schedule 1) providing for the new lease, which was to commence on 1 July 2000. According to Cox, this was the only element of the agreement that he discussed with Mr Hammond before signing it on behalf of Heatherway and Power.

148 The principal submissions made by Mr Zipser regarding the status of the May 2000 agreement were (a) that under well-established principles of contract law, the parties must be deemed to have intended to enter into legal relations, since the agreement was commercial in content and was expressed in clauses that were both formal and detailed; (b) that this intention must be held to have existed even though Cox stated that he signed the agreement without having read it or having taken legal advice as to its contents; (c) that the requirement of sufficient consideration was amply satisfied through the exchange of numerous promises by the parties; (d) that significant consideration was in fact furnished to Heatherway pursuant to the agreement (notably, the release of its obligations to Burger King under the franchise); (e) that as just mentioned Cox himself regarded a significant component of the agreement as binding according to its terms and (f) that the agreement as a whole was accordingly valid and binding according to its terms.

149 For the proposition that a party who had signed a written agreement must be held to be bound by it even though he/she did not read it or take legal advice as to its contents, Mr Zipser relied on Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179-181.

150 From this starting-point, Mr Zipser argued that a number of provisions of the agreement clearly evinced an intention of the parties that the pre-existing liability of NCF for arrears of rent under the Lease was to be extinguished. In this connection, he referred particularly to clause 17.4 (under which Heatherway agreed to ‘bear all the risks of the Business’ and to be ‘solely responsible for all liabilities and debts incurred in connection with the Business prior to Completion’) and clause 34 (which stated that ‘the contents of the agreement record the entire Agreement between the parties in relation to its subject matter’ and that the agreement ‘supersedes all previous negotiations, understandings or agreements in relation to the subject matter’). He pointed out also that the May 2000 agreement made no mention of any debt owed by NCF on account of rent under the Lease, arguing that the correct inference to be drawn from this was that the parties no longer treated this debt as existing. It was clearly the intention of Heatherway and NCF, he said, that the May 2000 agreement should rescind or supersede the sales agreements of August and December 1998, the Lease and, with it, the guarantees provided by Dykes and Wildie.

151 For the proposition that a written agreement may impliedly rescind or supersede an earlier agreement between the same parties, Mr Zipser relied on a number of authorities, notably Tallerman and Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 and City & Industrial Demolitions Pty Ltd v Shanahan [2000] NSWSC 1197.

152 In addition, Mr Zipser submitted that the May 2000 agreement, in providing for the grant of the new lease, substantially increased the risk to which Dykes and Wildie were exposed as guarantors without obtaining their agreement to this. It did so by deferring the time of expiry of the lease from December 2008 to December 2010 and raising the rent from $120,000 to $145,000 per annum. Mr Zipser argued that on account of principles laid down by the High Court in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 559-560, this had the consequence of discharging their liability as guarantors.

153 Mr Easton’s response on this last issue was to argue that the May 2000 agreement did not in fact increase the risk to which Dykes and Wildie were subject because the period for which Heatherway was seeking payment under the guarantee ended before the commencement date of the new lease.

154 Mr Easton relied also on two clauses in the May 2000 agreement that he described as ‘self-terminating provisions’. These were clauses 3A.4 and 3.3 (as to which see [57] and [59] above). Mr Easton argued that since there was never any compliance with the requirements in these clauses that certain specified documents be delivered by NCF to Heatherway or by Power Image to NCF, the agreement had in fact been ‘automatically terminated’.

155 Mr Zipser’s response to this contention was to claim that both Heatherway and NCF had waived their right to rely on these self-terminating provisions because they had both taken steps (for example, in making representations to Burger King resulting in the transfer of the franchises) which implied that they continued to treat the May 2000 agreement as operative.

156 The Tribunal’s conclusions. The Tribunal has given careful consideration to the wide range of issues raised by this unusual situation. It believes, however, that relatively few aspects of the May 2000 agreement and the context in which it was executed need to be taken into account in determining whether it had any legal effect on the obligations of Dykes and Wildie as guarantors under the Lease and, if so, what that effect was.

157 The single factor of greatest importance is that what this agreement purported to be was in essence only an agreement for the sale of two businesses. It provided in clause 3A for the execution of a new lease of the premises in which one of these businesses – the Coffs Harbour business – was being conducted. But it did not itself purport to include a lease of these premises.

158 It is true that neither in its recitals nor in any other clause did the agreement expressly refer to the existing Lease of the Premises. But through using the phrase ‘a new lease’ in clause 3A it implicitly acknowledged the current operation of this Lease.

159 The point being made can be illustrated further by asking the question: on what terms did NCF, in operating the Coffs Harbour business, occupy the Premises during the period between the execution of the May 2000 agreement and the date (1 July 2000) on which the new lease was intended to commence (and may indeed have commenced)? The evident answer is: the terms of the Lease that Heatherway and NCF had concluded in December 1998. This answer is correct irrespective of whether the agreement was binding on the parties. Just as Heatherway and NCF, during 1998, entered into separate agreements to bring about (a) a sale of the Coffs Harbour business and (b) a lease of the Premises, so too the terms of the May 2000 agreement contemplated that these two types of transaction between them should be effected by separate instruments.

160 In the Tribunal’s opinion, once all the implications of this basic feature of the May 2000 agreement are taken into account, it becomes evident that even if this agreement was in fact valid and binding according to its terms, it did not operate to rescind or supersede the Lease. It provided only for the Lease to be superseded at a future time (1 July 2000) through the execution of the proposed new lease.

161 These considerations are sufficient also to counter Mr Zipser’s contention that clause 34 of the agreement (the ‘whole agreement’ clause) had the effect of superseding the Lease. In referring to ‘the subject matter’ of ‘this Agreement’ (see [70] above), this clause should not be interpreted to include the terms under which NCF occupied the Premises at the time when the agreement was signed.

162 These same considerations also form part of the reasoning whereby, in the Tribunal’s opinion, Mr Zipser’s argument based on clause 17.4 of the agreement must be rejected. This is the clause (see [69] above] whereby ‘the Vendor’ agreed to be ‘solely responsible for all liabilities and debts incurred in connection with the Business’. In another context, this clause might well be considered sufficiently broad to include rent payable for the premises in which the relevant business was conducted. But because, for the reasons given, the May 2000 agreement is to be interpreted as excluding from its coverage (except in Clause 3A and Schedule 1) the leasing arrangements for the Coffs Harbour business, this construction is not appropriate here. A further compelling reason for so deciding is that according to this construction Heatherway would be agreeing to be ‘solely responsible’ for a debt that, as ‘Vendor’ of the business, it owed to itself in the capacity of landlord – i.e., the rent payable under the Lease.

163 By virtue of this reasoning, it cannot be maintained that the May 2000 agreement expressly or by implication discharged NCF’s obligation to pay the arrears of rent on which Heatherway’s present claim under the guarantee is based.’

25 It is useful to set out the remaining paragraphs in this part of the Tribunal’s reasons:

‘164 Citing Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, Mr Zipser also argued that without the consent of Dykes and Wildie the May 2000 agreement enhanced the risk to which they were exposed under the guarantee. The Tribunal agrees, however, with Mr Easton’s response. This risk was not enhanced by the agreement itself, and if, as Cox clearly intended, there was an increase in the rent and duration of tenure on the commencement of the new lease it had no impact on the extent of the obligations imposed on Dykes and Wildie. Heatherway has effectively conceded that their guarantee ceased to operate on 30 June 2000.

165 The Tribunal can see no other basis on which Dykes and Wildie can claim that the May 2000 agreement extinguished or reduced their liability as guarantors up to 30 June 2000. Because they were not parties to this agreement, they can have no cause of action for breach of the contract that it purported to contain. Because they did not know that it had been executed until after these proceedings commenced, they cannot assert that they relied on its existence to their detriment, so as to give rise to some form of estoppel.

166 These grounds for rejecting Mr Zipser’s submissions based on the May 2000 agreement have not included any ruling as to whether the agreement was binding on the parties (as he submitted) or had no contractual effect at all because there was no intention to create legal relations (as Mr Easton submitted).

167 The Tribunal is inclined to think that there was in fact no such intention. Cox’s evidence, which on this topic was not open to contradiction by Dykes and Wildie, suggested clearly that the sole purpose of the agreement was to assist in obtaining Burger King’s consent to the transfers of the franchises.

168 The Tribunal prefers, however, not to rule conclusively on this issue. Its reasons are these: (a) as already explained, it does not need to do so in order to resolve the dispute between the parties to these proceedings; (b) it received no evidence on the matter of contractual intention from the two individuals (Mr and Ms Hatton) who controlled one of the three parties to the agreement (NCF); and (c) such a ruling would be exceptional in relation to such a detailed and formal commercial document.’

26 The Tribunal’s core argument is that the document of May 2000 was at most a ‘sale of business’ agreement. It did not affect the continued operation of the lease of 1998, or the guarantees that attached to that lease. Any new lease commenced as and from 1 July 2000.

27 Mr Zipser advanced a number of arguments alleging errors of law in the Tribunal’s reasoning process. They were, essentially, a repeat of the submissions recorded at [148] and ff of the Tribunal’s reasons.

28 He contended that the May document was a second business sale agreement which replaced the first business sale agreement, with the result that the guarantee was extinguished. He submitted that the second business sale agreement was a valid and binding agreement. He noted that the Tribunal did not reject this contention, rather it chose not to decide the matter, referring to the reasons at [168]. Secondly, he relied, as he had before the Tribunal below, on cl 34.1 of the agreement. Thirdly, he submitted, as he had before the Tribunal below, that ‘on proper principles of contract law’ the second agreement superseded and replaced the earlier agreement. Fourthly, he submitted that cl 17.4 was effective. Fifthly, he submitted that the second agreement regulated the ‘entire relationship’ between NCF and Heatherway concerning the Coffs Harbour Hungry Jack’s business. Finally, he submitted that findings in favour of his clients on these matters resulted in ‘no unfairness to Cox’ for the reason that Cox chose to sign the May document without reading it or obtaining legal advice (Cox gave evidence to that effect), with an understanding that the agreement would give him some benefits and in circumstances where he had the opportunity to procure personal guarantees from the Hammonds but did not do so.

29 Because of the distinction drawn in the ADT Act’s appeal provisions between ‘question of law’ appeals and extension to the merits, an appeal can only put in issue an error that is not of the ‘question of law’ kind with the leave of the Appeal Panel. Where an appeal does not raise a question of law, but only questions of fact, an extension to the merits is required for it to be revisited.

30 That factor explains, we think, why in this case the appeal seeks to cast the Tribunal’s reasoning at paras [156] to [163] as raising questions of ‘law’. In our view, it is difficult to see what the questions of ‘law’ are.

31 Heatherway sold its business to NCF in December 1998. To that end, it needed to grant NCF a lease and did so. Heatherway remained the holder of the franchise, and therefore the sale of business arrangement was expressed as one under which NCF conducted the business permitted by Heatherway’s franchise. Heatherway promised that if subsequently the franchisor did not approve of NCF it would repay the price paid for the sale of the business ($900,000) and subsequent costs.

32 The transaction between the appellants and the Hammonds in February 2000 was plainly in a commercial sense an onward sale of the business. It was achieved by the appellants transferring all of the shares in NCF to the Hammonds. In the Appeal Panel’s opinion, the scepticism that the Tribunal below displayed in treating the May document as a genuine sale of business agreement was entirely justified. Heatherway had not owned the business in a commercial sense since December 1998. All it continued to possess was the franchisor’s authority to conduct the franchise.

33 While the Tribunal did not make a firm finding on whether the transaction was a sham designed simply to generate the kind of documentation that would pass muster with the franchisor, there are a number of elements of the documentation that point in that direction. For example, oddly Heatherway is declared by the document to be both the ‘Vendor’ and the ‘Purchaser’ of the business. Further, the consideration for the sale of the two businesses is expressed to be $2.1m. The commercial evidence suggests that the value of the two businesses was in the vicinity of $1.1m. NCF had bought Coffs Harbour in 1998 for $0.9m. The agreement valued Port Macquarie at $0.2m. It is highly unlikely, we think, that the Hammonds would have agreed to pay $1.9m for the Coffs Harbour business in circumstances where, it would seem, it had not been sufficiently profitable for the appellants (through NCF) to pay most of the rent that had fallen due.

34 The appellants were experienced commercial people. Theirs was a major commercial decision to take on, via NCF, the Coffs Harbour Hungry Jack’s franchise. The normal commercial practice that would be followed by a lessor minded to relieve director guarantors from their personal guarantees would be, we think, to grant any release (or reduction of the liability) by way of a direct written agreement. It may well be that in a case like the present where the lessee in difficulty has introduced an acceptable replacement lessee, a lessor might be prepared to grant a reduction or waiver of past debts.

35 The appellants cannot point to any direct extinguishment of this kind. So they seek to rely on a document, the May document, to which they are not a party. Even if the appellants had succeeded before the Tribunal in showing that the document as a whole was binding between the parties to it, they would still have needed to show that they could take any benefit that might derive from cl 17.4 when they were not named as a party to that document; and, finally, they would have needed to demonstrate that the construction of cl 17.4 for which they contend was the proper construction of the term.

36 As to the construction point, we think it commercially highly unlikely that a lessor would forego a claim to unpaid rent against guarantors under the previous lease by way of an agreement using language as non-specific as that found in cl 17.4. It will be seen that the terms of cl 17.4 refer to ‘all liabilities and debts incurred in connection with the Business prior to Completion’. It is not, in our view, at all obvious that this clause ought be interpreted as covering outstanding rent under the 1998 lease.

37 In our view the arguments in this appeal are all designed to convert the fact finding in which the Tribunal engaged into ‘questions of law’. In our view, there was ample evidence to enable the Tribunal to reach the conclusion that it did as to the effect of the May document.

38 One of Mr Zipser’s points relates to the Tribunal’s failure to decide the question of the effect of the new lease on the appellants’ potential liability as guarantors after that date. Mr Zipser had made submissions that their obligation ceased after that date based on the principles expounded in Ankar Pty Ltd v National Westminster Finance (see [159] of the extract from the Tribunal’s reasons). It was strictly unnecessary for the Tribunal to form a view on this point. This was because of Heatherway’s limiting of its claim to the period prior to the commencement of the new lease. In our view, as Mr Zipser submits it ought be accepted, given Heatherway’s pleadings and having regard to the principles expounded in Ankar, that the new lease did commence on 1 July 2000 with the result that the personal liability of the appellants ceased.

39 Nonetheless, no basis exists, we consider, for granting leave to extend the appeal to the merits so as to reopen the Tribunal’s findings in relation to the May document. As the Appeal Panel noted in Hinton & Ors v Commissioner for Fair Trading, Office of Fair Trading (GD) [2007] NSWADTAP 17 at [85]:

‘85. While the Appeal Panel’s discretion to grant leave is not qualified by the ADT Act (see, for example, Sunol v Collier [2006] NSWADTAP 51 at [29]), it should be exercised with caution and in the interests of justice. It is not enough that the appellant disagrees with the decision. The Appeal Panel is not designed to be a second trial level of the Tribunal. As McHugh J said in CDJ v VAJ (1998) 197 CLR 172 at [111] the power to permit an appeal on a question of fact is ‘not intended to have the practical effect of obliterating the distinction between original and appellate jurisdiction’. Appeal Panels must recognise the importance of not interfering with soundly made decisions. An appellant should normally, we think, demonstrate on persuasive grounds that a substantial injustice would result if the decision was allowed to stand.

86. We have rejected the appellants’ arguments on points of law. So an application for extension that gives emphasis to errors on points of law is not open. …

88. In considering leave applications, Appeal Panels should be wary in acceding to objections to the fact-finding process which would manifestly have failed as error of law points.’

(2) Tribunal’s Decision as to Interest to be paid on Order

40 The Tribunal allowed in its final order the amount of interest sought by Heatherway in respect of the period between default and the date of commencement of formal legal proceedings (9 June 2004). This was calculated by reference to cl 14.4 of the 1998 lease. Heatherway applied for a further order for interest covering the period since 9 June 2004, referring to the Tribunal’s general power to award interest. The Tribunal refused the further application.

41 In making the order for interest to 9 June 2004, the Tribunal relied on its general order making power contained in s 72 which provides relevantly:

‘ 72 Powers of Tribunal relating to retail tenancy claims

(1) In proceedings for a retail tenancy claim lodged with the Tribunal under this Part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate:

(a) an order that a party to the proceedings pay money to a person specified in the order, whether by way of debt, damages or restitution, or refund any money paid by a specified person,’

42 As to this matter the Tribunal said in its reasons:

‘198 As mentioned above at [14], the Lease provided for interest on unpaid rent to be charged to NCF as set out in Schedule J of the Supreme Court Rules as varied from time to time. Under the clause of the Lease (clause 13.3) that the Tribunal has held to apply in this case, the guarantors’ liability extended to ‘any money due’ from NCF under the Lease.

199 In the Amended Statement of Claim, Heatherway accordingly sought an award of interest on the unpaid instalments up to 9 June 2004, the date of commencement of proceedings in the Supreme Court of Victoria. In an annexed schedule, the total interest, calculated on a principal sum of $80,270 at the rates from time to time applying, was shown to be $41,983.

200 Neither this liability for interest nor this calculation of the amount for interest was contested in the submissions filed on behalf of Dykes and Wildie.

201 In these circumstances, the amount for which Dykes and Wildie are liable should include an amount of $41,983 for interest under the Lease up to 9 June 2004.’

43 The Tribunal’s power to award interest is found in s 72A:

‘ 72A Power of Tribunal to award interest

(1) When the Tribunal orders on a retail tenancy claim or an unconscionable conduct claim that a person pay money to another person, the Tribunal may order that there is to be included, in the amount ordered to be paid, interest at a specified rate on the whole or any part of that amount for the whole or any part of the period between when the cause of action arose and when the order takes effect.

(2) If the whole or part of an amount claimed under a retail tenancy claim or an unconscionable conduct claim is paid during proceedings in the Tribunal on the claim, prior to or without an order for payment being made in respect of the claim, the Tribunal may order that interest be paid at a specified rate on the whole or any part of the money paid for the whole or any part of the period between when the cause of action arose and the date of the payment.

(3) The rate of interest specified by the Tribunal under this section must not exceed the rate at which interest is payable on a judgment debt of the District Court.

(4) This section does not:

(a) authorise the giving of interest on interest, or

(b) apply in relation to any debt on which interest is payable as of right whether by virtue of any agreement or otherwise, or

(c) affect the damages recoverable for the dishonour of a bill of exchange.

(5) On a claim for the payment of money, the Tribunal may not order the payment of interest under subsection (1) in respect of the period after the date on which an appropriate settlement sum (or the first appropriate settlement sum) has been offered unless the special circumstances of the case warrant the making of such an order.

(6) For the purposes of subsection (5), "appropriate settlement sum" is a sum offered by a party in settlement of a claim for the payment of money where the amount ordered to be paid (including interest accrued up to and including the date of the offer) does not exceed the sum offered by more than 10 per cent. Subsection (5) does not prevent an award of interest for the period before the settlement offer is made.’

44 The Tribunal dealt with Heatherway’s further claim as follows:

‘202 Heatherway also claimed interest from 9 June 2004 to the date of judgment in these proceedings. The RL Act provides in s 72A that the Tribunal, when making an order for the payment of money in a retail tenancy claim, may also order that interest be paid ‘for the whole or any part of the period between when the cause of action arose and the date of payment’.

203 Although interest is commonly awarded, the matter is within the Tribunal’s discretion and on occasions (see e.g. JHC Sydney Pty Ltd v Everson & Fauchon [2003] NSWADT 100) a claim for interest is refused.

204 In submissions, neither counsel specifically addressed the matter of interest under s 72A.

205 In the Tribunal’s opinion, this is a case where interest under this section should not be awarded. Heatherway has had the benefit of a contractual provision for interest covering the period of nearly four years (from 30 June 2000 to 9 June 2004) during which it was entitled to institute proceedings to enforce the guarantee but did not do so. When it eventually commenced proceedings, its decision to do so in the Supreme Court of Victoria caused the resolution of this matter to be further delayed. Its Amended Statement of Claim was not filed until more than a year after the proceedings were transferred to the Tribunal. In these circumstances, it would be unfair to Dykes and Wildie to exercise against them a statutory discretion to require them to pay yet more interest.’

45 Raising Fresh Issue. A recent statement of the Tribunal’s approach to the question of whether a fresh matter not considered by the Tribunal below may be raised on appeal is found in Ferns v Commissioner of Corrective Services [2006] NSWADTAP 50 at [49] and ff, a freedom of information case arising in the Tribunal’s merits review jurisdiction:

‘49 The agency objected to the Tribunal examining documents 19 and 20. Mr Dawson acknowledged that before the Tribunal his client had instructed him not to press for documents 19 and 20. Ms Anderson submitted, therefore, that in light of the concession this part of the litigation was closed and should not be reopened, citing University of Wollongong v Metwally (No 2) , (1985) 59 ALJR 481 at 483 where the High Court said:
‘It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case has been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had the opportunity to do so.’
See further Coulton v Holcombe (1986) 162 CLR 1.

50 We accept that similar principles should apply to hearings by the Appeal Panel. In FOI matters it is commonplace for parties to move positions. One of the objects of the preliminary procedures of the Tribunal in FOI matters (normally the planning meeting) is to see if the scope of the controversy can be reduced. Therefore concessions made in either direction should be carefully made, and treated as final, especially where the party has been competently represented.

51 However, to assist in allaying the concerns raised and as there is no prejudice to the agency given our conclusion, we have examined the two documents. They are of no special moment. We simply note that they are, like many of the other documents to which we have accorded protection, communications of an entirely conventional variety passing between a legal officer, Ms Ball, and an agency officer in connection with the IRC proceeding.’

46 Mr Zipser takes issue with the Tribunal’s adoption of the principles found in Metwally and Coulton v Holcombe.

47 Mr Zipser submitted that the relevant principles are more appropriately stated at VAAC v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 74. The primary judge had heard, and dismissed, an application for review of a decision of the relevant Commonwealth tribunal. On appeal, the appellant now wished to raise a new ground, denial of procedural fairness. The Full Court noted that the new ground did not require the calling of any additional evidence, and could be dealt with by reviewing the Tribunal transcript.

48 The Full Court noted that appellate courts have drawn a distinction between applications to have a new point considered where evidence might need to be adduced and cases where that is not required. The fault, in Mr Zipser’s submission, with the Appeal Panel’s approach in Ferns is that it drew the general rule to be applied from cases where further evidence might be adduced.

49 In cases where that difficulty did not arise, appellate courts had been less strict. The Full Court noted in VAAC that appellate courts simply assessed whether it is ‘expedient in the interests of justice’ to deal with the new point, citing various authorities including O’Brien v Komesaroff (1982) 150 CLR 310 per Mason J, and Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 per Mason P at 645. (Multicon was, the Appeal Panel, notes an appeal by way of rehearing.)

50 VAAC involved the liberty of the individual. The appellant, an Afghan national, had been refused a protection visa and faced deportation. He now wished to contend that the Tribunal had failed to inform him of material adverse to him prior to taking it into account, and then relying upon it. The Court said at [26]:

‘It is therefore necessary to consider whether it is expedient in the interests of justice to allow the new ground to be argued and determined. In the present case, the interests of justice require reference to a number of considerations, namely, the appellant’s prospects of success on the appeal on the new argument, the explanation given by the appellant for failing to raise the argument before the primary judge, the prejudice to the respondent in allowing the appellant to raise the new argument, the potentially serious consequences to the appellant if leave to amend is refused, and the integrity of the appellate process.’

51 The Full Court allowed the appeal to be extended.

52 Heatherway opposes any extension to the merits on this point. But, if there is to be an extension, it makes the following points in defence of the Tribunal’s order. The Tribunal considered a range of matters within the factual matrix of the case, both pro and contra an award of interest for the period claimed. These factors were mainly discussed by the Tribunal in its consideration and rejection of the unconscionable conduct claim. Factors contra to Heatherway, which, in Heatherway’s submission were considered, were the delay in notification of arrears (at [181]) and the time that passed before Heatherway enforced the guarantee (at [181]). Factors contra to the appellants included their failure to deal with this issue in the sale of their interests to NCF (at [182]), their acknowledgement of a debt of approximately $70,000 in February 2000, and that the default occurred substantially within a period during which the appellants controlled NCF (at [183]). It noted that the Tribunal’s finding in relation to contractual interest was a material consideration in rejecting Heatherway’s claim for interest from 9 June 2004 onwards (at [205]).

53 As it is not necessary to reopen in relation to the evidence, and the point is a narrow one but of some importance, we think it desirable in the interests of justice to consider the appellants’ contention.

54 Assessment. The primary function of compensation by way of interest, whether deriving from the contract or by way of judgment interest, is to protect the creditor against the erosion in value of the amount owing. Insofar as the rate is set above the inflation rate, it builds in a profit element to the creditor; and acts as a deterrent against slow payment. In ordinary circumstances the creditor should be entitled to interest for the whole period between the time of first default and the time of the order.

55 The Tribunal appears to have taken the approach that it ought to enforce the provisions of the lease up until 9 January 2004, but after that the question of awarding any further interest became discretionary. In our view the grant of relief under either s 72(1)(a) or s 72A is discretionary.

56 It is most undesirable that a creditor move against a debtor long after the default has ended (in this instance on 1 July 2000). We endorse the view to which Mr Zipser drew our attention expressed in Metro Meat Ltd v Werlick (1993) Aust Torts Reports 81-242 (South Australian Supreme Court (Full Court)) per Olsson J:

‘There have been a number of pronouncements of judges of this court bearing upon the approach proper to be adopted towards the allowance of interest in situations in which there has been delay on the part of a plaintiff in prosecuting proceedings … It seems to me that a clear balance of authority does favour the disallowance of interest in respect of any significant period of time during which there has been inexplicable tardiness on the part of the plaintiff in prosecuting his claim’.

57 Mr Zipser’s submission is that Heatherway delayed four years (June 2000 to June 2004) in commencing proceedings against the appellants. Heatherway, he submits, should not be entitled to interest for the entire period of the delay. Heatherway should, he submits, be entitled to interest for one or two years, but no more.

58 There is an additional consideration which supports Mr Zipser’s submission. As our narrative earlier in these reasons indicates, Heatherway initially sued the appellants for more than $300,000. By an amendment made 23 November 2005, they limited their claim to an amount in the order of $80,000 plus interest, in line with the principles found in Ankar’s case.

59 It may well be that had the initial proceedings been in this more modest sum, the proceedings would have had a different complexion. It is important the creditors limit their claims to the proper amount of the debt, and not inflate them.

60 In our view there should be an adjustment downwards of the interest component of the order. We agree with Mr Zipser’s point that the proceedings should have been brought promptly, in our view within a year of the default arising. This is particularly so in circumstances where the debtors had moved on, and there was no continuing commercial relationship. On the other hand, it is proper to compensate Heatherway for the period after they revised downwards their claim. (November 2005 to date of order). The result, in our view therefore, is that Heatherway should be awarded only two years interest.

61 Accordingly, we would partially allow the appeal on this point. In our view the appropriate course is to adopt the approach of reducing by half the amount ordered in respect of interest by the Tribunal, from $41,983 to $20,991.50. To this is to be added the principal sum of $80,270.

62 Accordingly we substitute the following order in substitution for Order 1 made by the Tribunal

Order

Appeal allowed in part.

In substitution for Order 1 of the Tribunal’s orders, the following order is made:

1. The Respondents/Cross Applicants are jointly and severally liable to pay to the Applicant/Cross Respondent the sum of $101,261.50.