Glenelg Backpackers Resort P/L v 1-3 Alexander Terrace P/L No. Scciv-01-1544

GLENELG BACKPACKERS RESORT PTY LTD v ALEXANDER TERRACE PTY LTD & ANOR
[2003] SASC 196
Full Court: Duggan, Debelle and Williams JJ

DUGGAN J. I agree with the orders proposed by Williams J. I also agree with his reasons for decision.
DEBELLE J. I agree with the substance of the reasons of Williams J.
WILLIAMS J. Glenelg Backpackers Resort Pty Ltd has applied to this Court for leave to appeal against the decision of a single judge upon appeal from a magistrate in civil proceedings.
Upon the hearing of the leave application, this Full Court identified a question of law of general importance as to the construction of s 68(2)(da) of the Landlord and Tenant Act 1936 which (with modification as prescribed) continues to apply by virtue of s 81 of the Retail Shop Leases Act 1995 (but now called Retail and Commercial Leases Act 1995). The Court then intimated that it would treat the disposal of the application for leave as the hearing of the appeal and the Full Court thereupon received full argument.
The matter concerns a lease of premises for the purpose of carrying on a business; the lease was entered into on 12 April 1991 for a term of 5 years commencing on that date together with options for two further terms each of 5 years. The lease constitutes a commercial tenancy agreement for the purposes of Pt 4 of the Landlord & Tenant Act which includes the following:
68(1)Subject to this Part, an action for relief under this section may be commenced by application to the [Commercial] Tribunal by any party (or former party) to a commercial tenancy agreement to which this Part applies or to a related guarantee.
(2)Upon an application under subsection (1), the Tribunal may, as the case requires-
(b)    by order -
(i)     restrain any action in breach of the agreement or a related guarantee, or in breach of any law; or
(ii)    require any action in performance of the agreement or a related guarantee, or to ensure compliance with any law; or ……
(da) grant relief from the operation of any provision of the agreement or a related guarantee; or
(db) where rights of occupation conferred by a commercial tenancy agreement have been forfeited or have otherwise terminated for a reason other than the expiration of the term of the agreement-order reinstatement of those rights on such terms as may be just; or….
(h)    make such other order as the Tribunal thinks fit.”
(By virtue of Regulation No 134 of 1995 made under the Retail Shop Leases Act a reference to the Commercial Tribunal is to be construed as a reference to the Civil (Consumer and Business) Division of the Magistrates Court insofar as the Landlord and Tenant Act continues to apply in accordance with s 81 of the Retail Shop Leases Act to leases entered into before 30 June 1995 - being the date as now relevant when the last mentioned Act came into operation.)
These proceedings were commenced in accordance with s 68(1).
The identified question of law arises in circumstances where the landlord’s obligation to grant a further lease upon the exercise of a tenant’s option to renew is expressed to be subject to a condition (or “provision”) in the lease that at the relevant times (ie the date of exercise of option and the date of expiry of that term of the lease) the tenant is not in breach; cl 8.2 of the lease which contains this provision is recited below. The question of law is whether s 68(2)(db) empowers the Magistrates Court to relieve a tenant from the operation of the provision when the tenant claims to rely upon an exercise of the option despite being in breach of covenants of the lease at relevant times.
On 7 March 2001 Glenelg Backpackers commenced proceedings in the Civil (Consumer and Business) Division of the Magistrates Court claiming a declaration that as lessee of business premises at Glenelg it had validly exercised an option to renew a commercial tenancy for a term of 5 years from 12 April 2001. The respondent landlords (1-3 Alexander Terrace Pty Ltd and 5-7 Alexander Terrace Pty Ltd) denied this claim in reliance upon cl 8.2 of the lease and alleged breaches of the lease which were particularised. However although in its formal claim the applicant sought relief under s 68 of the Landlord and Tenant Act by asking for an order to enforce the agreement (see s 68(2)(b)) it did not seek an alternative order relieving it from the operation of the provision quoted above in the event that the alleged breaches of the lease were established.
Following a trial on oral evidence a Magistrate on 25 October 2001 gave judgment for the applicant upon the footing that the relevant breaches by the applicant had been waived by the respondent landlords or were the subject of estoppel by conduct. The magistrate found that at least in some instances the “landlord by conduct and verbal assent raised no or insufficient complaint…[and when complaint was made] accepted the explanations provided by the tenant.”
A single judge of this court allowed an appeal by the landlords against the Magistrate’s decision upon the basis that the waiver and estoppel were not raised as issues at trial or upon the pleadings. The single judge found specific breaches of the tenancy agreement (which he identified) but he declined to consider whether relief was available under s 68(2)(da). His Honour concluded that on the pleadings the Magistrate should have dismissed the application; moreover, the judge declined to allow the tenant to amend its pleading during the hearing of the appeal in order to seek relief from the operation of the provision of the lease with respect to the breaches upon which the landlords relied and which were proved.
His Honour said: (pars 128-p685 Book 3) of the Act.
“The applicant seeks an order granting relief from the operation of the lease pursuant to: s 68(2)(da) of the Act. In particular it seeks an order that the proviso to clause 8.2 not operate and that it be entitled to exercise the option to renew notwithstanding that it is in breach of the lease and that it has not complied with the stipulations or conditions attaching to the option.
I am not sure that s 68 of the Act would allow such an order to be made but in any event I do not believe that it is appropriate to seek such an order on this appeal.
The case was never run as one in which the applicant sought any relief from the operation of any term of the lease. Indeed it was always the applicant’s case that there were no breaches, although in the cross-examination of the respondents in answer to the applicant’s primary case, the applicant sought to adduce evidence that if there were breaches the respondents, through their Directors, were aware of those breaches.
Relief under s 68(2)(da) of the Act is discretionary. It requires an examination of the circumstances and conduct of the parties and a determination by the Tribunal as to where the justice of the case lies. However, evidence was not led as to the effect upon the respondents of such an order. The case proceeded mainly upon questions of breach. In my opinion, it would not be appropriate to allow the applicant to file a reply seeking relief which ought to have been sought in the application.
I therefore decline to allow a reply which includes a claim for relief under s 68(2)(da) and (h) of the Act.”
I observe that his Honour expressed some doubt as to the effect of s 68(2)(da) but he relied upon the way in which the case was run at trial as to limit the issues. There was no transcript made of the opening and closing addresses of counsel at trial and no affidavit as to what was said to the Magistrate by counsel.
Nevertheless, this Full Court has had the advantage of the recollection of counsel who conducted the trial in September 2001 and also this appeal. The Court is indebted to Mr Howard (for the applicant) and to Mr Milazzo (for the respondents) for their assistance. Mr Howard recalled that he mentioned s 68(2)(da) of the Landlord and Tenant Act in his opening and he then expanded upon this in response to questions from the Full Court: (p36-7 T)
“MR HOWARD: …I did specifically refer to paras (da) and (h), but I do not believe that I expanded on things in the opening to any extent. For example, I did not refer to the decision of Perry J at that time.
[This is a reference to Thunderbird Nominees v Affra - S5191 - 20 July 1995].
DEBELLE J:Did you refer to them in the context of to be relieved of the consequences of any breaches?
MR HOWARD: I believe that I did. I am using very careful phraseology. I believe that I did in the context of the fact that specific permission had not been obtained, for example, for some work. So that there was the likelihood of a technical breach of the lease.
DUGGAN J:But there wasn’t an indication that this was going to be a broad answer to all of these pleadings:
MR HOWARD: No. I didn’t say that because the case changed, of course, in what is factual.
MR MILAZZO: In answer to a suggestion at the trial, to have a pleaded case based on construction and then indicate at the end of the day that the evidence didn’t come out the way you liked and so you increase reliance on s 68. But all of the other problems only occurred by reason of the magistrate’s reasoning in his reasons, the reference to estoppel and everything else. There wasn’t any discomfort in the way that the trial proceeded as far as the parties were concerned, I believe, at the conclusion of the evidence and, indeed, they led the evidence they wanted to lead.
DEBELLE J:May I interrupt you? For your part, were you under the impression that Mr Howard was seeking to be relieved from s 68 when you were making your address to the magistrate?
MR MILAZZO: I really made that submission, yes.
DEBELLE J:When you answered that submission, you didn’t feel you were being prejudiced at that stage?
MR MILAZZO: No; I don’t think so, no. There were multiple breaches.”
The single judge in his reasons for allowing the appeal said [par 130] “the case was never run as one in which the applicant sought any relief from the operation of any term of the lease”; this statement must be considered in light of what this Court has now been told. The information provided to this Court by counsel (as quoted above) places a different complexion upon the trial from that which might be distilled from a reading of the appeal papers which were before the single judge. Whereas the single judge regarded it as unfair to entertain a claim for relief which was not properly raised (cf SCR 46.04(b)), it now appears that counsel were aware of the significance of the evidence as possibly affecting the exercise of a discretion under s 68(2)(da) even although the magistrate may have wrongly assumed that questions of estoppel by conduct and waiver were being put in issue.
There are three issues requiring determination in these proceedings:
Q1Whether as relevant the applicant was in breach of its lease on 11 September 2000 (when it purported to exercise an option to renew the lease) or on 11 April 2001 when the current lease expired. If the answer to this be yes then -
Q2Whether s 68(2)(da) of the Landlord and Tenant Act confers upon the court a discretion to make an order which would operate retrospectively so as to validate the exercise of the option to renew. If the answer to this be yes then -
Q3Whether the court should exercise any available discretion to relieve the plaintiff from the consequences of breaches of the lease.
In my opinion the single judge was correct in identifying breaches of the following clauses of the lease;
1Clause 2.6 - Failure to comply with condition of approval of use of premises as set out in a letter dated 22 September 1998 from City of Holdfast Bay to applicant’s solicitors.
The permitted use of the premises under the lease was as (p677)
“Backpacker accommodation and licensed premises under and pursuant to a residential licence including the provision of entertainment and as approved by the Municipality of Glenelg.”
Certain works were carried out on the premises. A condition of the Development approval given by the Corporation of the City of Holdfast Bay (formerly Glenelg) “provided that the basement area of the demised premises was only to be used by guests staying in the premises and was not to be made available to the general public without the further Development Approval of the Council”. (p677)
2Clause 2.11 - 4 neon signs were exhibited in breach of clause 2.11 which reads as follows: (p678)
“Not without the prior approval in writing of the Lessor and any relevant authority to erect display fix or exhibit on or to the demised premises any sign whether illuminated or not advertisement or notice PROVIDED THAT to the intent that all such signs advertisements and notices used in or upon or about the demised premises shall be of uniform manner and the approval of the Lessor shall not be arbitrarily withheld or refused…”
3Clause 2.13 which reads as follows (p679)
“The Lessee shall not without the previous consent in writing of the Lessor first had and obtained by the Lessee to make any alteration addition in the demised premises.”
It was accepted on appeal to the single judge that alterations had been made to the manager’s flat, the basement and verandah without first obtaining the consent in writing of the respondents. (p679)
5Clause 2.14 which reads as follows (p679)
“The Lessee shall not without the previous consent in writing of the Lessor install any water gas or electrical fixtures equipment or appliances or any apparatus for illuminating air-conditioning heating cooling or ventilating the demised premises nor shall the Lessee mark paint or drill or in any way deface or damage any walls ceilings partitions floors wood or other part thereof.”
It was conceded before the single judge that the applicant did not obtain the consent in writing of the respondents before installing an electric stove in the manager’s flat. (p679)
6Clause 2.25 required the tenant: (Copy par 91 on p680)
“To comply with all statutes ordinances proclamation orders or regulations present or future affecting or relating to the Lessee’s use of the demised premises and with all requirements which may be imposed upon he use of the demised premises and to ensure compliance with any of such requirements as aforesaid and against all expenses chargeable by virtue of any such Act Code or Statute upon the Lessee owner tenant or occupier of the demised premises or upon the demised premises PROVIDED THAT the covenants contained in this Clause 2.25 shall not impose on the Lessee any obligation in respect of any structural alterations improvements additions or repairs except where the same are rendered necessary or desirable as a consequence direct or indirect of any act or omission on the part of the Lessee the servant agent contractor or sub-tenant of the Lessee or any person on the demised premises or by the use of the demised premises by the Lessee notwithstanding that such use of the demised premises may be within the scope of the permitted use.”
A planning approval by the abovementioned corporation was granted for the “demised premises for ninety-nine beds (Development Approval 110/40/90), subject to conditions” (p681). The applicant had 52 more beds on the premises than permitted between 8 January 2000 and 4 October 2001.
In my opinion no appeal should be entertained by this Court against the decision of the single judge as to the existence of these six breaches relied upon by the landlords and occurring at the times determined by the single judge. However, in view of the abovementioned explanations given to this court by counsel as to the conduct of the trial, justice requires that the court should consider whether relief should be granted in accordance with s 68(2)(da) notwithstanding that the ground for relief was not mentioned in the applicant’s pleadings. I reach this conclusion having regard to the matters undermentioned.
SCR 46.04(4) enables the Supreme Court in appropriate cases (and unless it would be unfair) to grant relief which is justified upon the evidence although not formally requested on the pleadings. MCR 12(4) enables the Magistrates Court to adopt (mutatis mutandis) Supreme Court practice and procedure where the Magistrates Court Rules do not themselves speak. MCR 24 allows a short form of pleading (unless contrary directions are given) and MCR 25 and 26A prescribe the form of claim (Form 3E) to be used. In the absence of a direction under MCR 24(1)(b) “requiring a more detailed pleading” the opening of a case conducted on abbreviated pleadings assumes particular importance. Although we do not have a transcript of the applicant’s opening before the Magistrate the mention by the appellant’s counsel of s 68(2)(da) of the Landlord and Tenant Act provides sufficient notice (albeit informal) in light of the evidence subsequently adduced so as to justify the Court in considering the applicability of that subsection as the source of discretionary relief. Moreover in determining the course now to be followed, it is relevant that in accordance with s 82 of the Retail and Commercial Leases Act the present claim is a “minor statutory proceeding” for the purposes of the Magistrates Court Act and as such falls within the definition of a “minor civil action” as this is defined in the last mentioned Act. Section 38(1)(d) of the Magistrates Court Act deals with the trial of a minor civil action and provides that “the parties are not bound by written pleadings”. While basic concepts of fairness require that the landlords must know the case which they have to meet, the Magistrates Court Act and rules allow for informality.
Accordingly, this Court should now determine the question of law upon which the single judge expressed some doubt and which has led this Full Court to consider the merits of the appeal as raised upon this leave application. In granting limited leave to appeal I apply the principle identified by Doyle CJ in Stokolosa & Anor v Weeks Peacock Quality Homes Pty Ltd [2000] SASC 334 when his Honour said: (par 5)
“The court’s practice has been to grant leave to appeal only if a question of general principle arises, and usually the court considers also whether there is reason to doubt the correctness of the decision under consideration. However, in the end the court must act as the interests of justice may require.”
Upon appeal to the single Judge counsel for Glenelg Backpackers Resort Pty Ltd sought to advance a new alternative argument that the landlords’ actions constituted unconscionable conduct within the meaning of 51AA or 51AC of the Trade Practices Act. The conduct upon which the applicant seeks to rely is broadly the same as that which may have supported an allegation of waiver or estoppel. However, the Trade Practices point was not addressed at trial and the landlord did not have an opportunity to address the elements of a claim which seeks “an order pursuant to s 87(2)(b) or (ba) of the Trade Practices Act varying or refusing to enforce…part of cl 8.2 of the lease….”. The single judge was correct in his refusal to entertain this alternative late claim.
Clause 8.1 of the lease provides the procedure (by the giving of notice) for the exercise of the option to renew and cl 8.2 of the lease reads as follows: (p665 par 17)
“Where the Lessee exercises his option for a further term pursuant to Clause 8.1 hereof and PROVIDED THAT there is neither then nor at the date of expiration of the term of this Lease any existing breach of any terms of this Lease then the Lessor shall grant a further lease of the demised premises on the same terms and conditions as this Lease except that the affected terms and such further lease shall be read as containing the following variations to this lease.”
The respondent landlords argue that by reason of the applicant’s breaches (which were extant at the date of the purported exercise of the option and at the date of expiration of the term of the lease) there was (as relevant) no provision of the lease in operation in respect of which the Court could grant relief under s 68(2)(da) of the Landlord and Tenant Act. The respondents contend that the absence of any obligation resting upon the tenant under cl 8.2 of the lease means that there is nothing to which s 68(2)(da) can apply because the existence of a right to exercise the option and to require the grant of a further term was dependant upon the observance of certain conditions (ie the absence of breach of the lease on two dates) which were not fulfilled. The respondents argue that the subsection cannot be utilised to create a right which does not exist; they submit that the subsection cannot be employed so as to rewrite the terms of the agreement contrary to the agreement of the parties so as create a right which otherwise had never accrued.

In my opinion the respondents’ argument approaches the question of construction too narrowly. The lease (in cl 4) contains the usual powers for the landlords to re-enter upon the tenant’s default (including circumstances where there has been a breach of the tenant’s covenants); the Landlord and Tenant Act enables the court to relieve the tenant from such consequences of default. However, the Act is not limited to relief from the consequences of default but extends to relief from the operation of “any provision of the agreement”. In my opinion “provision” in this context is a word of wide import and may be applied to any of the stipulations which comprise the agreement. However the subsection does not allow the court to change the essential pith and substance of the agreement. It will be a matter for determination in each particular case as to the ambit of the court’s power.
In the present case I regard the proviso to cl 8.2 of the lease as a stipulation which in its context may relevantly be characterised as a “provision” which regulates the landlord’s obligation to grant an extension or renewal. Significantly the subsection is not confined to relief with respect to the tenant’s obligations (which in some contexts involving mutual responsibilities might be difficult to identify separately). Instead, parliament has used the expression “provision” which is much more comprehensive and requires a stipulation rather than an obligation to be addressed as the subject matter of an intended order of the Court.
Section 68 of the Landlord and Tenant Act is included within pt 4 of the Act which deals comprehensively with commercial tenancies and regulates renewals and extensions. For example, s 67 deals with a situation where a commercial tenancy agreement “makes provision” for extension or renewal of the term; if the tenant gives notice of his desire for renewal or extension and if at the expiration of the term agreement has not been reached between the parties with respect to an extension then s67(1) provides that:
“…the tenancy shall be deemed to continue upon the same terms and conditions until the matter is resolved by the parties or by determination of the [Court] made having regard to the terms of the agreement.”
(This section appears to apply where there is some responsibility on the parties to negotiate).
It seems to me that the resolution of a dispute arising under s 67 will necessitate an application for “relief” under s 68. In my opinion the construction which I have placed upon “provision” in s 68 is consistent with the phraseology “makes provision” (ie “contains a stipulation”) as used in s 67. However, the word “relief” as used in s 68(1) and (2) has an ambulatory meaning. The “relief” sought under s 68(1) may be for orders as of right (eg enforcement of the agreement - s 68(2)(b)) or the relief may be by way of orders modifying rights under s 68(2)(da). It is understandable that the magistrate did not appreciate the changing emphasis of the applicant’s case with respect to “relief” as the evidence unfolded. The Magistrate treated some of the evidence as supporting a case of estoppel or waiver with respect to breaches of the lease (and relevant to the establishment of the applicant’s rights) when it was really directed to question of the exercise of a discretion to modify the strict rights of the parties.
In my opinion the Magistrates Court has power to “grant relief” to the applicant under s 68(2)(da) with respect to the operation of the proviso in cl 8.2 but whether the court should exercise its discretion in this behalf is a different question.
Upon the evidence it may be arguable by the respondents that the applicant is not prepared to abide by the terms of the lease; in response the applicant may argue that the landlords by their attitude bear some degree of responsibility for the applicant’s default. These are matters affecting the exercise of discretion. It will be necessary for the matter to be remitted to the Magistrates Court for further hearing. As the magistrate who conducted the original trial has now died another magistrate will conduct the further hearing. Unless the parties can agree to restrict the evidence it will be appropriate for the matter to be re-heard upon new evidence with respect to factors affecting the exercise of discretion.
I propose the following order:
1Leave to appeal granted limited to the question of construction of s 68(2)(da) of the Landlord and Tenant Act and any matter consequential thereon but otherwise refuse leave to appeal.
2Appeal allowed for the purpose of declaring that the applicant is entitled to apply for relief under s 68(2)(da).
3Remit to the Magistrates Court for further hearing and determination (before another magistrate) of the question as to whether the applicant should be entitled to relief under s 68(2)(da).
The parties will be heard as to the question of costs.

[2003] SASC 196

20 June 2003