Emhill Pty Ltd v Bonsoc Pty Ltd
[2003] VSC 333
•18 September 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 4583 of 2003
| EMHILL PTY LTD and anor | Appellants |
| v | |
| BONSOC PTY LTD | Respondent |
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JUDGE: | NETTLE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 and 28 August 2003 | |
DATE OF JUDGMENT: | 18 September 2003 | |
CASE MAY BE CITED AS: | Emhill Pty Ltd v Bonsoc Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 333 | |
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Landlord and tenant – retail tenancies – option to renew – exercise – validity – tenant in default under lease – term of lease extended by statute – repudiation – whether landlord’s repudiation of lease effective to determine lease – whether tenant ready and willing to perform lease – Retail Tenancies Act 1986, s. 14.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr B.A. Cook appearing as lay advocate for Emhill Pty Ltd | |
| For the Respondent | No appearance | Holding Redlich |
HIS HONOUR:
This is an appeal from final orders of the Magistrates’ Court at Melbourne, made on 22 January 2003, in Magistrates’ Court proceeding L 2785958 (“the L proceeding”). There is also a related proceeding, No. 4582 of 2003, which is an appeal from final orders made by the same court on the same day in Magistrates’ Court proceeding Q546332 (“the Q proceeding”). Both appeals arise out of a dispute between Bonsoc Pty Ltd (“Bonsoc”) and Emhill Pty Ltd (“Emhill”) concerning retail premises that were leased by Bonsoc to Emhill.
The facts
By lease dated 1 November 1993, Bonsoc leased unit 1, 70 Gladstone Street to Emhill for a term of two years expiring on 31 October 1996 with options to renew for two further terms each of two years. By lease dated 13 December 1994 Bonsoc leased unit 2, 70 Gladstone Street to Emhill for a term also expiring on 31 October 1996 and also with options to renew for two further terms of two years. By lease dated 22 January 1996 Bonsoc leased unit 3, 70 Gladstone Street to Emhill for a term of two years expiring on 21 January1998 with options to renew for two further terms each of two years. In each case Emhill’s obligations were guaranteed by Mr Cook.
On 5 September 1996, Emhill wrote to Bonsoc’s managing agents, Dixon Kestles:
“I would confirm my earlier verbal advices given during negotiation of the lease for Unit 3 for the extension of the above leases (units 1 and 2) for a further two year period of two years, as affirmed in June and July.”
On 12 September 1996, Bonsoc’s solicitors wrote to Emhill’s solicitors as follows:
“…We have advised our client that Emhill Pty Ltd has not validly exercised the option for a further term granted under each lease pursuant to Clause 3(f)(i) of each lease. Accordingly, our client is under no obligation to grant a further term of lease.
Emhill must therefore:-
(a)Vacate Units 1 & 2, 70 Gladstone Street, South Melbourne on or before midnight, 31 October, 1996;
(b)Observe its obligations under Clause 1(m) of each lease regarding the state each of the premises must be left in on 31 October, 1996; and
(c) Ensure that all arrears owing under each lease are satisfied.
Finally, in accordance with our client’s rights under each lease, ‘For Lease’ signs will now be displayed at each of the premises.”
On 13 September 1996 Emhill’s solicitors wrote back asserting that the options had been validly exercised and requesting that the new leases be forwarded for execution but that letter went unanswered except by without prejudice offer of settlement.
On 16 October 1996 Emhill’s solicitors wrote again insisting that the options had been validly exercised and noting that problems had surfaced with accessory unit 6, in as much as it had been discovered that Bonsoc had no title to the unit, and that in order to overcome the problem Emhill had entered into an arrangement with the registered proprietor of the unit 6. They suggested that the renewed lease for unit 2 should exclude accessory unit 6 and that the rent should be reduced accordingly. Discussions followed but to no avail.
On 18 October 1996 Emhill’s solicitors wrote again noting that in the discussions which had occurred since it last wrote Bonsoc maintained the position that the leases had not been renewed and that no adjustment would be made in respect of rental due to allow for unit 6. The letter concluded:
“In view of your client’s position, and in view of the fact that our client cannot afford the disruption to its business that a protracted argument with your client may have in relation to its rights regarding Units 1 and 2, our client is now engaged in finding alternative space in which to house as much of the part of the business which it can as may not be required for occupation of Unit 3. It will actively do so and will endeavour to vacate Units 1 and 2 as soon as possible and until such time shall continue to pay rent for Unit 1 and the relevant rate and for Unit 2 the relevant rate less the $150.00 attributable to The Accessory Unit No 6
Whilst this might resolve the issue as far as your client is concerned relating to Units 1 and 2, our client still insists upon its rights in relation to Unit 3.
As soon as we are in receipt of a time table relating to the relocation or part of our client’s business we will advise as to its logistics.”
On 30 October 1996 Bonsoc’s solicitors responded:
“…So there is no misunderstanding, our client still requires your client to vacate the premises on or before 12.00 midnight, 31 October, 1996. If your client wishes to remain at the premises after that date, it will not be doing so under the overholding provisions for the lease for Units 1 and 2 but rather, there will there be a monthly tenancy created with effect from 1 November, 1996 which will bed on the same terms and conditions as the leases for Units 1 and 2 except that the rent will be the rent payable by your client as at 31 October 1996 increased by 7% per annum.
In relation to the arrears claimed by our client, our instructions are to proceed to institute recovery proceeding against your client for that amount. Do you have instructions to accept service?”
On 30 October 1996 Emhill’s solicitors wrote back that the demands to vacate were unreasonable but that the premises would be available for inspection at least by 13 November 1996.
On 13 November 1996 Emhill returned the keys to the leased premises to the managing agents under cover of a letter from Emhill’s solicitors. It was noted in the letter that the keys were returned “by way of formally handing back possession of the same to your client”. A copy of that letter was also sent to Bonsoc’s solicitors.
On 14 November 1996 Bonsoc’s solicitors wrote to Emhill’s solicitors:
“We understand that you met with Mr John Pratt of Dixon Kestles & Co Pty Ltd yesterday to inspect Units 1 and 2, 70 Gladstone Street, South Melbourne.
We are instructed that:
(a)rent for the month of November or part thereof has not been paid – that amount must be paid; and
(b)there are numerous items which your client must “make good” before returning the keys.
Could you please let us know when you expect the premises to be in the standard expected by Dixon Kestles & Co Pty Ltd so that we can arrange for another meeting.
In relation to rent, our client requires that to be paid as soon as possible”
On the same day Emhill’s solicitors wrote back:
“We refer to the above and your facsimile transmission to us of 14 November 1996.
We note that keys have been returned to Mr Pratt by way of return of possession of the property to your client. As at this morning, and as per the copy correspondence which we have sent to you as a matter of courtesy.
Our client is in the process of forwarding funds to Dixon Kestles & Co Pty Ltd by way of paying of rent and other outgoings which are due for the part of November up to and including 13 November which our client will forward on by way of payment.
Insofar as our client is concerned, the premises at present have been made good in accordance with the Lease. We understand that Mr Pratt will be meeting with the owner on the premises to inspect the same and would imagine that if indeed there is any thing further which the Lessor requires that may be a matter for dispute.
However, insofar as our client is concerned, the Lease is now at an end and the reversion in relation to possession has now vested in your client.
We will advise as soon as all monies to 13 November have been paid, and/or adjusted by our client.
Please be advised that our client remains as tenant in Unit 3 pursuant to its ongoing lease in relation thereto.”
On 26 November 1998 Bonsoc instituted the L proceeding in the Magistrates’ Court at Melbourne. By its Particulars of Claim, Bonsoc alleged that Emhill was liable to Bonsoc for arrears of rent, body corporate fees, municipal rates, interest and costs of restoration totalling some $40,000, and that Mr Cook was liable as guarantor of Emhill’s obligations in the same amount.
On 19 January 1999 Emhill and Mr Cook filed a Defence in which they denied that Emhill or Mr Cook were liable in any of the amounts alleged. In the alternative they averred that Bonsoc did not have title to the car park accessory unit (unit 6) which formed part of the leased premises under the unit 2 lease, and that Emhill was entitled to a set-off in respect of so much of the rent as had been paid as was said to be attributable to unit 6. They further alleged that Bonsoc had acted wrongfully in terminating the leases of units 1 and 2, and that Emhill had incurred costs of relocation which it was also entitled to set-off in extinguishment of Bonsoc’s claim. By amended counterclaim filed on 2 August 1999 Emhill reiterated the allegation that Bonsoc had acted wrongfully in terminating the leases of units 1 and 2 and Emhill claimed damages for costs of relocation and loss of opportunity totalling in excess of $40,000 and a further sum of $2,850 allegedly for overpayment of rent under the unit 2 lease due to Bonsoc’s lack of title to unit 6.
On 31 January 2000 the Magistrate began the hearing of the L proceeding and on 25 February 2000 his Worship published his decision and made final orders. He held that Emhill had not effectively exercised the options to renew the leases of units 1 and 2, for the reason that the notice of renewal had been served on Bonsoc’s managing agents rather than upon Bonsoc; that ss.14(3) and 14(4) of the Retail Tenancies Act 1986 did not apply, for the reason that Emhill had given notice of intention to vacate after the dispute arose and was thereby estopped from relying upon those provisions; that the leases had thus been “determined by effluxion of time”; that, accordingly, Emhill was not entitled to damages for the costs of relocation or loss of opportunity which it claimed; and that Emhill was not entitled to any set-off in respect of unit 6, because it had had the use of unit 6, whatever the inadequacies in Bonsoc’s title. His Worship adjudged Emhill to be liable to Bonsoc in the sum of $27,639.93 for rent, outgoings and restoration costs, together with interest of $8,182.90 and costs of $3,398.00, and Mr Cook to be liable as guarantor in the same amounts.
From that decision Emhill and Mr Cook appealed to this court on the following questions of law:
“(a)Whether the Learned Magistrate erred in law in holding that by reason of the conduct of Emhill as tenant it was unable to seek redress against Bonsoc for non compliance with section 14(3) of the Retail Tenancies Act 1986 (“the Act”)?
(b)Whether the Learned Magistrate erred in law in failing to find or consider that Emhill as tenant was able to raise as a defence the failure of Bonsoc as landlord to serve the necessary notice pursuant to section 14(3) of the Act?
(c)whether there was any evidence to support the Learned Magistrate’s finding that:
I.Emhill as tenant was obliged to reinstate the ceiling panels to Unit 2;
II.the said ceiling panels were in any different condition at the end of the lease to their condition at the commencement of the lease for Unit 2?
(d)whether there was any evidence to support the Learned Magistrate’s finding that Emhill as tenant was liable for the balance of the reinstatement works?
(e)whether the Learned Magistrate erred in law in finding that Mr Cook was liable under the guarantees for the leases for Unit 1 and 2 when it was common ground there had been not demand served on Mr Cook prior to the issue of the proceeding?”
On 4 June 2001 Balmford J held that questions (a) and (b) should be answered in favour of Emhill and Mr Cook but that the remaining questions should be answered in favour of Bonsoc. Her Honour ordered accordingly that:
“The orders of the Magistrates’ Court made in the proceeding on 25 February 2000, only in so far as they relate to questions of law (a) and (b), as set out in The Honourable Justice Balmford’s reasons for judgment dated 4 June 2001 are set aside, and the proceeding be remitted to the Magistrates’ Court, constituted by (the same Magistrate) for rehearing in accordance with the answers to those questions of law.”
On 18 March 2002 Emhill instituted the Q proceeding. It alleged that Bonsoc had induced Emhill to enter into the lease of unit 2 by fraudulent representation that Bonsoc had title to the accessory unit 6, or alternatively that in so representing, Bonsoc acted negligently or engaged in misleading and deceptive conduct contrary to the Trade Practices Act 1974 and the Fair Trading Act 1985; that as a consequence of that conduct Emhill had suffered loss, damage to its business and lost opportunity; that Emhill was entitled to an order setting aside the lease of unit 2 ab intio in so far as it related to the accessory unit 6; that a value of at least $140 per month should be attributed to the Lease from its inception “by way of a credit back to the Plaintiff”; and that Emhill was entitled to orders absolving it of all obligations to Bonsoc in respect of all three leases and damages for lost opportunity and expenses of relocation incurred upon the termination of the leases of units 1 and 2.
On 4 December 2002 so much of the L proceeding as had been remitted by the orders of Balmford J and the Q proceeding came on for hearing before the Magistrate and the hearing continued until 6 December 2002. The re-hearing of the L proceeding was conducted by way of submissions based upon the evidence given at the earlier hearing before the Magistrate and at the conclusion of those submissions his Worship heard evidence and submissions in the Q proceeding.
The Magistrate’s decision
On 22 January 2003 the Magistrate published his decision. In the L proceeding his Worship held that notwithstanding that the effect of s. 14(4) of the Retail Tenancies Act was that the leases of units 1 and 2 continued after 31 October 1996, he did “not consider that Bonsoc unlawfully evicted Emhill”; he did “not believe that there was conduct on the part of Bonsoc that could be held to constitute a repudiation of the lease… (because)… if the test as enunciated by Wilson J in Shevill v The Builders Licensing Board[1]… is applied then in the present case Bonsoc’s conduct falls short of repudiation”); he “considere(d) by reason of Emhill giving up the premises… there had been a surrender of the leases of units 1 and 2 by operation of law on 13 November 1996”; and accordingly, that “the orders which (his Worship) had made on the claim (and counterclaim) in the L proceeding should be maintained, subject to any arithmetical adjustment to the sum of the rent and arrears and reinstatement costs”.
[1](1982) 149 CLR 620 at p. 633
In the Q proceeding, his Worship held that he was “not satisfied that Bonsoc by its servants and agents was fraudulent by reason of the inclusion of unit 6 in the unit 2 lease” and that “save for the allegations in the Q proceeding based on fraud, Emhill is estopped from proceeding with the further allegations in that proceeding on the basis they have either been determined in the earlier proceeding and are not subject to the order setting aside, or they ought properly have been raised in the counterclaim in the L proceeding” (and his Worship referred in that connexion to the principles of quasi-estoppel considered in Port of Melbourne Authority v Anshun[2]). His Worship added that even if it were otherwise, he would not have considered that the conduct of Bonsoc or its agents “breached the misleading and deceptive conduct provisions of the Trade Practices Act or Fair Trading Act”. His Worship also remarked that “the paucity and unsatisfactory nature of the evidence adduced as to loss and damage would… make the task of assessment highly speculative”.
[2](1981) 147 CLR 589
Questions of Law
In this proceeding the questions of law settled by the Master are:
“(a)Whether the Magistrate erred in law in holding that the leases in relation to Units 1 and 2, 70 Gladstone Street, South Melbourne were determined by surrender by operation of law on 13 November 1996?
(b)Whether it was open to the Magistrate to hold that there had not been conduct on the part of Bonsoc that constituted a repudiation of the contract for the lease of Units 1 and 2?
(c)Whether the Magistrate failed to reconsider properly his decision in accordance with the directions of Balmford J in her Honour’s orders of 12 June 2001?”
It is convenient to take each question in turn.
(1) Surrender by operation of law
As has already been recorded the leases of units 1 and 2 had initial terms expiring on 26 October 1996 with options to renew for two further terms of two years each. Although Emhill gave notice purporting to exercise the options for renewal, the Magistrate held that the notices were ineffective, because they were directed to Bonsoc’s managing agents rather than to the address for service provided for in the leases. There has been no appeal from that holding and thus I proceed upon the assumption that it was correct.
As has also been recorded, however, Bonsoc failed to give notice to Emhill in accordance with s. 14(3) of the Retail Tenancies Act 1986 before the expiration of the leases and so, because of s. 14(4) of the Act, the date for exercise of the option was extended until a day three months after Bonsoc might later give to Emhill notice under s. 14(3), and the lease continued, subject to s. 14(9) of the Act, until that date[3]. As events transpired, Bonsoc never did give a notice under s. 14(3), and so on one view of the matter the lease may have continued indefinitely, or at least until the further terms had expired. But before that occurred, Bonsoc demanded that Emhill vacate the premises and on 13 November 1996 Emhill did vacate and go elsewhere, although maintaining that it had the right to stay. The Magistrate treated that as constituting a surrender by operation of law, despite the terms of s. 14(9).
[3]Seacrest v Apriaden Pty Ltd (2000) 1 VR 567
The argument before the Magistrate, which was repeated before me was as follows:
· First, that, because of the operation of s. 14(4), the leases could not lawfully be brought to an end without Bonsoc first giving notice in accordance with s. 14(3) or Emhill giving notice in accordance with s. 14(9).
· Secondly, since Bonsoc did not give notice under s. 14(3) and Emhill did not give notice under s. 14(9), the leases continued after 31 October 1996 despite the failure of Emhill effectively to exercise the options to renew.
· Thirdly, inasmuch as Bonsoc’s solicitors’ letter of 12 September 1996 asserted that the leases had come to an end and demanded that Emhill vacate the leased premises, the letter amounted to a wrongful repudiation of the leases or a wrongful termination of the leases.
· Fourthly, that by Emhill’s solicitors’ letter of 18 October 1996 Emhill accepted the repudiation as it was entitled to do, thus bringing the leases to an end, or alternatively acknowledged that the lease terms had been wrongfully brought to an end.
· Fifthly, by reason of Bonsoc’s repudiation or wrongful termination of the leases, Emhill is entitled to recover damages for the loss of the benefit of the remaining terms of the leases and the costs of relocation and disruption to business suffered as a consequence.
In my opinion the Magistrate was correct to reject the argument, although my reasons are a little different to the Magistrate’s reasons.
The Magistrate considered that Bonsoc’s conduct was not repudiatory. In my opinion it was. The decision of the High Court in Progressive Mailing House Pty Ltd v Tabali Pty Ltd[4] establishes that the ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases[5], and according to those principles a repudiation occurs when a party manifests unwillingness or inability to perform a contract at all or in some essential respect[6]. A contract is repudiated when a party evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his or her obligations[7], or only if and when it suits[8]. On any objective analysis, Bonsoc’s solicitors’ letter of 12 September 1996 evinced an intention on behalf of Bonsoc no longer to be bound by the leases. That intention was reiterated in the discussions which followed Emhill’s solicitors’ letter of 16 October 1996.
[4](1985) 157 CLR 17
[5]per Mason J ibid at p. 29
[6]Foran v Wight (1989) 168 CLR 385 at p. 441
[7]Carr v A J Berriman Pty Ltd (1953) 89 CLR 327 at p. 351; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at p. 643 and 664-7
[8]Capalaba ibid
But an act of repudiation of itself cannot bring a contract to an end. It is only if the non-repudiating party is entitled to and does accept the repudiation as terminating the contract that it is has that effect. And a party to a contract is not entitled so to treat an act of repudiation unless that party is able to demonstrate that they were themself ready and willing to perform the contract at the time of termination. That requires no more than that they be in a position to perform the contract in substance. A party in breach has a right to terminate so long as the breach is not repudiatory or breach of an essential term or such otherwise as to deprive the other party of the substantial benefit of the contract[9]. But Emhill was significantly in arrears of rental, and in the particular circumstances of this case that meant, in my view, that Emhill was in breach of an essential term of the leases.
[9]Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at pp. 440-2; Nina’s Bar Bistro Pty Ltd v MBE Corp (Sydney) Pty Ltd [1984]3 NSWLR 613 at 620-1 and 632; Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd Receiver & Manager Appointed (Formerly CEL Home Video Pty Ltd) (1997) 42 NSWLR 462 at pp. 479-480
A failure to pay rent timeously is not usually regarded as breach of an essential term or otherwise a fundamental breach of a lease[10]. But the parties to a lease (like parties to any contract) are free to stipulate that a term will be treated as having that effect. Here, clause 3(e) of the leases provided that the covenant to pay the rent was an essential term of the lease and, although courts are ordinarily hesitant to construe a term as a condition, I do not think that there is any doubt in this case that that is what the parties intended[11].
[10]Sheville v Builders Licensing Board (1982) 149 CLR 620 at p. 627
[11]cf Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at pp. 556-7
It follows in my opinion that the correct view of what occurred is that Emhill’s solicitors’ letter of 18 October 1996 repudiated the leases of units 1 and 2, but that Emhill was disentitled (by its failure to pay rent) from treating the repudiation as bringing the leases to an end. Thus the leases were continued by operation of s. 14(4) of the Act until otherwise determined.
Then come the events of 18 November 1996 and, like the Magistrate, I consider that they had the effect of bringing the leases to an end. As the Magistrate correctly observed, in order to constitute a surrender by operation of law it is enough that there be an act of purported surrender, albeit not complying with statutory or other formalities, and some change of circumstances supervening or arising from the purported surrender which by reason of the doctrine of estoppel or part performance makes it inequitable for any of the parties to rely on the formal invalidity of the purported surrender. Accordingly, if there is agreement between the landlord and the tenant to put an end to the term, and that is followed by resumption of possession by the landlord, there is a surrender by operation of law.
That is what happened here. Emhill gave up possession and Bonsoc retook possession claiming that it was entitled to do so on the basis that the leases had come to an end. That operated to release Emhill from liability on the covenants in the future but Emhill remained liable for past breaches and for the performance of obligations accrued at the point of termination[12].
[12]NLS v Hughes Pty Ltd (1966) 120 CLR 583
One argument advanced before the Magistrate and mentioned again on appeal was that s. 14 of the Retail Tenancies Act constituted a code, which is to say that once its operation was attracted the only way in which the leases could be brought to an end was by Bonsoc giving notice in accordance with s. 14(3) or by Emhill giving notice in accordance with s. 14(9). Thus it was contended that, since Bonsoc never did give a notice in accordance with s. 14(3) and Emhill did not give a notice in accordance with s. 14(9), the leases must have continued despite what might otherwise have operated as a surrender by operation of law.
The argument appears to be based upon observations of Brooking JA in Seacrest Pty Ltd v Apriaden Pty Ltd[13], with which Ormiston and J D Phillips JA agreed, concerning the effect on s. 14(4) of subsequent events. The contention seems to be that the events which the Magistrate held to constitute a surrender by operation of law were no more than “later events” of the kind which Brooking JA held to be incapable of overriding the operation of s. 14(4).
[13]supra at 574
The Magistrate rejected the argument and so do I. When Brooking JA spoke of “later events” his Honour had under consideration an ineffective exercise of option and an argument that although the exercise of option was ineffective to extend the lease, it impliedly stopped running the time in which s. 14(4) provided that an effective exercise of option could occur. As his Honour held, the argument was bound to fail because the suggested implication was inconsistent with the express terms of the lease as affected by s. 14(4):
“16.Sub-section (4) operates in two ways. By what I might call its first branch, it operates, in effect, by way of varying of the provisions of the lease: the lease is to be taken to provide that the last day for the exercise of the option is the day that is three months after the landlord gives the notice required by sub-section (3). The second branch of sub-section (4) does its work, not by way of varying the provisions of the lease, but by way of providing what the operation or effect of the lease is to be: if the date which the lease is to be taken to fix as the last day for exercising the option is later than the date of the expiry of the term of the lease, the lease is to continue until that date unless the tenant determines it pursuant to sub-s. (9). As regards the first branch of sub-s. (4), I find it extremely difficult to see how it could be said that, by implication from the suggested purpose of the section, some subsequent event is to affect the reforming of the lease which has already occurred by force of sub-s. (4): the lease is to be taken to make a certain provision, and I should have thought that it must be taken to continue to make that provision notwithstanding later events. (Emphasis added)
17.It is unnecessary for us to decide what effect the purported exercise of the option on 29 January 1998 would have had if it had been in all respects effectual, although I may say that I have little doubt that, one way or another, it would have been possible to arrive at a satisfactory resolution of the question how sub-s. (4) was to be squared with the effective exercise of the option, on the basis that Parliament must have intended that the statutory extension of the term should not stand in the way of the creation of the new term upon which the parties had agreed. But, as I say, that is not this case on the facts. All that the landlords have in this case as a supervening event is the purported exercise of option on 29 January 1998, good as to manner and form but bad as to substance. I am not persuaded that, as a matter of implication from the purpose of the legislation, on the proper construction of s. 14 that event had the result that sub-s. (4) did not cause the lease to continue beyond the date of the expiry of the term. What I have called the first branch of sub-s. (4) in effect altered the lease by enlarging the time for the exercise of the option of renewal. Why should one conclude that Parliament intended that a defective exercise of option, whether bad in form or bad in substance or bad in both respects, should cause the second branch of sub-s. (4) to cease to operate? If the defect was merely one of manner or form, then a tenant could rectify the situation by giving a further notice without the defect. If the defect was one of substance, the tenant might cure that defect and then give a further notice. I do not think it can be said that Parliament intended that the consequence contended for by the present landlords was to ensue.”
Here there is no inconsistency between the terms of s. 14(4) and the conduct of the parties which evinced the intention to treat the lease at an end. Logically, the position is the same as if the lease had provided for a term of six years and the parties had agreed upon a surrender by operation of law after only four years. The implication which Brooking JA rejected contradicted the terms of s.14 (4). In effect the section provided that the term of the lease should be continued despite the failure to give notice, and the implication which was contended for was that the term of the lease should not be continued, despite the failure to give notice. Here the surrender by operation of law did not contradict the section. Here the lease was continued, just as the section provided, but by the acts which constituted the surrender the parties are to be taken as having agreed to bring the continued term to an end.
(2) Repudiation
I have dealt already with the question of repudiation. For the reasons expressed, I consider that the Magistrate was in error in holding that Bonsoc’s conduct amounted to a repudiation of the leases of units 1 and 2. But as it happens, the error was not of any consequence. Because Emhill was not entitled to treat the repudiation as bringing the leases to an end, the leases continued in existence by operation of s. 14(4) until determined by surrender by operation of law in the way which was found by the Magistrate.
(3) Failure to observe the directions of Balmford J
The argument that the Magistrate failed properly to reconsider his decision in accordance with the direction given by Balmford J is that her Honour’s reasons for judgment and orders amounted to a binding determination that Emhill was entitled to damages arising out of Bonsoc’s non compliance with s. 14(3) of the Act, and that the failure of Bonsoc as landlord to serve the necessary notice pursuant to s. 14(3) of the Act was a defence to Bonsoc’s claims. Thus it was contended that the only task which remained for the Magistrate was to quantify the damages to which Emhill was entitled and to make formal orders giving effect to the s. 14(3) defence, and that by doing otherwise the Magistrate made an error.
I think that argument to be misconceived. Balmford J decided no more than that the Magistrate had erred in his understanding of the operation and effect of s. 14(3), in that he had been wrong to hold that the leases ended upon the expiration of the original term, and her Honour directed the Magistrate to reconsider the matter on that basis. That is what the Magistrate did.
Criticism was also made of the Magistrate’s observation that “the paucity and unsatisfactory nature of the evidence adduced as to loss and damage would… make the task of assessment highly speculative”. It was said that the Magistrate was obligated to ascertain the damages which had been suffered no matter how difficult the task may have seemed and that to avoid the task in the fashion which he did amounted to error of law.
There is perhaps some substance in the criticism. As Mawson CJ and Dawson J said in The Commonwealth v Amann[14]:
“The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can: Fink v. Fink (1946)[15]; McRae v. Commonwealth Disposals Commission[16]; Chaplin v. Hicks[17]. Indeed, in Jones v. Schiffman[18], Menzies J. went so far as to say that the ‘assessment of damages... does sometimes, of necessity involve what is guess work rather than estimation’. Where precise evidence is not available the court must do the best it can[19]. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages[20].”
[14](1991) 174 CLR 64 at p. 83
[15]74 CLR 127, at p 143
[16](1951) 84 CLR 377, at pp. 411-412
[17](1911) 2 KB 786, at p. 792
[18](1971) 124 CLR 303
[19]Biggin and Co Ltd v Permanite Ltd (1951) 1 KB 422, per Devlin J at p. 438
[20]see McGregor on Damages, 15th ed. (1988), pars 357-359
But once again, the criticism is not of any consequence. Once it was established that the leases came to an end by surrender by operation of law, there was no need to make an assessment of damages. It is not to the point that there may have been a requirement to assess damages if the circumstances had been different or if the case had been put on another basis.
Conclusion
For those reasons, I answer the questions of law for appeal as follows:
(1)The Magistrate did not err in law in holding that the leases in relation to units 1 and 2, 70 Gladstone Street, South Melbourne were determined by surrender by operation of law on 13 November 1996.
(2)The Magistrate did err in holding that there had not been conduct on the part of Bonsoc that constituted a repudiation of the contract for the lease of units 1 and 2. But the error was of no consequence. Because Emhill was not ready and willing to perform the leases, Emhill was not entitled to treat the repudiatory conduct as terminating the leases.
(3)The Magistrate did not fail to reconsider properly his decision in accordance with the directions of Balmford J of 12 June 2001.
I consider that the appeal should be dismissed and that the Appellants should pay the Respondent’s costs of the appeal including any reserved costs.
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