In the Matter of Case Stated by the Commercial Tribunal for the Opinion of the Supreme Court: Laszlo George Maria Ory and Charlotte Elizabeth Ory v Betamore Pty Ltd (in Liquidation)

[1993] SASC 3996

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA LEGOE(1), MATHESON(2) AND DUGGAN(3) JJ

CWDS
Landlord and tenant - rent - Case stated from Commercial Tribunal - tenant leased property under a commercial tenancy agreement for five years with a right of renewal of 5 years - after the five year period the lease was renewed - landlord purported to increase rent in accordance with the provisions of the lease - dispute arose as to increase in rent - independent land valuer was appointed to review the rental value of the property - rent was increased annually according to valuation - land valuer had dealings with the landlord and was not independent - tenant continued to pay rent under protest - tenant had another valuation performed and in accordance with this valuation rent had been overpaid - dispute arose - Commercial Tribunal ordered that future rent be paid into the Tribunal fund and found that the rent had been wrongly increased on renewal of the lease - overpayment of rent paid into the Tribunal was paid back to the tenant - whether tenant had right to claim the price of the second valuation and their contribution to the first valuation - landlords mortgaged land - defaulted on payments - mortgagee sent notice of redirection to the tenants - mortgagee went into liquidation - consideration of whether mortgagee was in possession - whether tenants had a right in law or in equity to set-off future rent to be paid to the mortgagee's receivers against the overpayments made prior to the time rent was paid into the Tribunal.
Jurisdiction of Commercial Tribunal under the Landlord and Tenant Act and s13 of Commercial Tribunal Act 1982 considered.
Commercial Tribunal Act 1982 ssl2, s13 and Landlord and Tenant Act pt IV.
British Ansani (Felixstowe) Ltd v International Marine (1980) QB 137; Reeves v Pope (1914) 2 KB 284; Noyes v Pollock (1886) 32 Ch D 53; Citibank Pty Ltd v Simon Fredericks Pty Ltd (1991) V Com R 54-408 and Walkley v Dairyvale Co-operative Ltd (1972) 39 SASR 327, applied. Pearson v Clarke 1864 Mac 136, distinguished.

HRNG ADELAIDE, 3-4 February 1993 #DATE 17:6:1993
Counsel for applicants:     Mr W J N Wells QC
  with Mr S M W White
Solicitors for applicants:    White Berman
Counsel for respondents:     Dr R J Baxter
  with Mr M Lawrie
Solicitors for respondent:    Finlaysons

ORDER
Questions answered.

JUDGE1 LEGOE J This is a case stated by the Commercial Tribunal for the opinion of the Supreme Court pursuant to section 19 of the Commercial Tribunal Act, 1982. Judge Noblet, the Chairman of the Commercial Tribunal (hereinafter called "the Tribunal") has stated a case arising out of two applications before the Tribunal. The first application is by Mr and Mrs Ory (hereinafter called "the tenants") as tenants under a commercial tenancy agreement with Betamore Pty Ltd (now in liquidation) as landlord (hereinafter called "the landlord"). Farrow Mortgage Services Pty Ltd (now in liquidation - hereinafter called "the mortgagee") as mortgagee was given leave by the Tribunal to intervene in the tenants' application against the landlord. The second application is by the mortgagee in relation to a Redirection Notice as to payments of rents served upon the tenants pursuant to its power to do so under its mortgage for payment of rent, which would otherwise be paid to the landlord under the Commercial Tenancy Agreement. 2. The questions that are reserved for the opinion of this Court are as follows:-
    "A. Are the tenants entitled to claim from the landlord -
    (a) three thousand six hundred and seventy eight dollars being
    the cost of valuations obtained by the tenants; and
    (b) eight hundred and fifty dollars, being the tenants'
    contribution to the cost of the Hillier Parker valuation?
    B. Are the tenants entitled as a matter of law and/or equity
    (whether by reason of unconscionable behaviour on the part of the
    landlord, a constructive trust in favour of the tenants,
    beneficial ownership of the rent presently held by the Tribunal,
    or otherwise) to set off against rent otherwise due and payable
    to the mortgagee any and, if so, which, of the following:
    (i) the rent overpaid between 3 September 1989 and 15 July 1991;
    (ii) the amounts referred to in question A above (if claimable
    from the landlord);
    (iii) the costs of the proceedings in the Supreme Court and the
    Commercial Tribunal which are not otherwise the subject of
    orders;
    (iv) interest on the overpaid rent, calculated at 1% above the
    average bank overdraft interest rate prevailing from time to
    time, calculated on 6 monthly rests;
    (v) any compensation for hardship arising out of the demand for,
    and the dispute concerning, the overpaid rent or for other
    breaches of the lease by the landlord;
    C. Are the tenants entitled to off-set month by month future
    payments of rent as they fall due against any deficiency between
    the amount of their claim and any amount paid to them from the
    rent held by the Tribunal (on the basis that such payments of
    rent are due but not payable, or otherwise)?
    D. Is it open to the Commercial Tribunal, having regard to the
    requirement that it 'act according to equity, good conscience and
    the substantial merits of the case', to resolve the dispute
    between the parties in a manner other than by the application of
    established principles of law and equity, notwithstanding the
    answers given by this Honourable Court to questions A, B, and C
    above?" 3. These questions of law have been stated to this Court arising out of the following material facts. I set out those material facts more or less in chronological order. 4. 3 September 1984 - A lease was granted to the tenants whereby they had the right to occupy certain land for a period of five years commencing from a certain date with a right of renewal for a further period of five years. The land which is the subject of the Commercial Tenancy Agreement is situated at 249 Magill Road, Maylands in the State of South Australia, being land comprised and more particularly described in Certificate of Title Register Book Volume 4239 Folio 844 (hereinafter called "the land"). The Commercial Tenancy Agreement itself comprises Memorandum of Lease Registered No 5296270 and dated 3 September 1984 between S. and E. Papastergos as lessors and L.G.M. and C.E. Ory as lessee (hereinafter called "the lease"). 5. 28 October 1988 - S. and E. Papastergos sold their interest in the land to the landlord. 6. 10 May 1989 - The tenants validly exercised their option to extend the term of the lease for a further period of five years from 3 September 1989. 7. 1 June 1989 - The landlord mortgaged the land to the mortgagee pursuant to Registered Mortgage No.6747258 (hereinafter called "the mortgage"). 8. 5 June 1989 - The landlord borrowed the sum of $426,000 from the mortgagee on the security of the mortgage on the basis of a valuation by one Brian Branson, valuer, dated 10 January 1989 which purported to value the land at $640,000. 9. 26 July 1989 - The landlord wrote to the tenants accepting the exercise of the option to renew the lease for a further period of five years. 10. 3 September 1989 - In the letter dated 26 July 1989 the landlord purported to review the rental pursuant to the 4 alternative method described in item A(c) of the Schedule to the lease and demanded a rental of $64,000 per annum, being 10% of the valuation by Branson, for the sixth year of the lease. The fifth year of the lease ended on 2 September 1989. The rent for year five had been fixed and paid at $31,944 per annum or $2,662 per month. 11. 31 July 1989 - The tenants objected to the rental demanded by the landlord in the letter of 26 July 1989. A dispute having arisen as to the correct rental the parties agreed to appoint a valuer, Hillier Parker (SA) Pty Ltd (hereinafter called "Hillier Parker") to determine the fair market rental of the land pursuant to item A(c) of the Schedule to the lease. 12. During the period between May 1989 and February 1990 the landlord continued to have dealings with Hillier Parker in that Hillier Parker acted on behalf of the landlord in relation to the purchase of 1 Adelaide Street, Maylands in the State of South Australia (a property directly adjoining the land) and other matters. The relationship between these two parties was not disclosed to the tenants before, during or after the appointment of Hillier Parker as the "independent" valuer to determine the fair market rental of the land. 13. The appellants contended, and it was agreed between the parties, that it was an implied term of the lease that on the appointment of Hillier Parker it would value the rental value of the land honestly and impartially. It was an expressed term of the appointment of Hillier Parker that the rental value of the land would be 10% of the market value unless the valuer determined otherwise from 'market evidence'. The ethical rules of the valuation profession require valuers to disclose to all parties with whom they are dealing any conflict of interest. 14. 11 September 1989 - Hillier Parker published a 'Valuation Report' purporting to value the capital value of the land at $460,000 and to determine the rental thereof at 10% of the capital value, namely $46,000 per annum, $3,833.83 per calendar month. 15. Between 3 September 1989 and 2 September 1990 the tenants paid, under protest, $3,833.83 per month amounting in all to $46,000 for the whole period of 12 months being the sixth year of the lease. 16. 2 October 1989 - The tenants lodged a caveat on the said land to protect their interest in the absence of a registered extension of lease. 17. 24 October 1989 - The landlord applied to the Registrar General to remove the said caveat. 18. 31 October 1989 - The Registrar General sent a notice to the tenants requiring them to remove the caveat or obtain an appropriate Supreme Court order. 19. 15 November 1989 - The tenants applied to the Supreme Court of South Australia to obtain an order to prevent or extend the time for removal of the caveat. 20. 20 November 1989 - An order made by a Master of this Court extending the time for removal of the caveat until further order. 21. 6 December 1989 - The tenants sought independent advice from R.J. Taylor and Associates Services Pty Ltd as to the correct valuation of the rental and as to his professional opinion on the '10% of capital value' approach taken by 6 Hillier Parker in its valuation. The tenants paid expenses in the sum of $3,278 for these services supplied by Taylor and Associates. 22. 18 January 1990 - The tenants first became aware of the existence of the relationship between the landlord and Hillier Parker. 23. 23 March 1990 - The tenants commenced proceedings in the Supreme Court of South Australia (Commercial Causes List Action No 714 of 1990) seeking a declaration that the Hillier Parker valuation was not a valid or binding valuation pursuant to the terms of the lease and orders to fix the correct rent. 24. March 1990 - 31 August 1990 - Argument before the Supreme Court as to the jurisdiction of the Court to hear and determine the tenants' application for a declaration. The Judge of first instance held that the Supreme Court had no jurisdiction to hear and determine the application but that it was solely within the jurisdiction of the Tribunal; Ory and Ory v Betamore (Nos.1 and 2)
(1991) 54 SASR 331. The tenants appealed against the decision of the Judge of first instance to the Full Court which held finally in March 1992 by a majority that the Tribunal was the appropriate forum for determination of the tenants' application and ordered that the landlord have the costs of the appeal (1991) 160 LSJS 1. 25. 3 September 1990 - The seventh year of the lease commenced. The Consumer Price Index applicable to the seventh year of the lease was 7%. The tenants paid rent for the seventh year of the lease at $48,220 per annum or $4,167 per month, under protest. 26. 7 8 March 1991 - A summons was issued in the Supreme Court of Victoria ordering that the mortgagee be wound up. Such an order was made on 17 April 1991. 27. 24 April 1991 - An order made by a Master of this Court that the action commenced in the Supreme Court by the tenants be transferred to the Tribunal to proceed in the Tribunal as if it had commenced therein. This order was authorised by amendments to section 56 of the Landlord and Tenant Act which came into operation on 11 March 1991. The whole Supreme Court file, including the pleadings, was subsequently forwarded to the Tribunal. 28. 5 June 1991 - The landlord defaulted in repaying its loan in the sum of $426,000 to the mortgagee pursuant to the terms of the mortgage. 29. 19 August 1991 - The mortgagees issued a Notice of which was Demand served upon the landlord. This notice demanded the principal sums advanced which expired on 4 June 1991 of $426,000 plus accrued interest at higher rate of $11,182.50 plus financial institutions duty of $59.76 making a total amount to be paid within seven days of the service of the notice upon the landlord of $437,242.26. The security documents upon which such a demand was made were those in the Memorandum of Mortgage over the said land. 30. 2 September 1991 - Mortgagee issued a Notice of Intention to Sell addressed and served upon the landlord. This Notice was issued upon the landlord's default in making payment in the sum demanded of $437,242.26. The mortgagee notified the landlord that it would exercise the power of sale and all other remedies, powers and authorities vested in and conferred upon or reserved to the mortgagee by virtue 8 of the mortgage unless the breach was remedied within seven (7) days of service of the Notice. 31. 2, 3 and 4 September 1991 and 22, 23 October 1991 and 6 April 1992 - The tenants' application was heard by the Tribunal. 32. 3 September 1991 - The eighth year of the lease commenced. The CPI increase applicable to the eighth year of lease was 4.8%. The tenants commenced paying under protest rental to the landlord at the rate of $51,533 per annum or $4,294.45 per month. 33. 18 September 1991 - The mortgagees' solicitors (Finlaysons) advised Sallmanns International Property Consultants that the mortgagee had, on the 17 September 1991, appointed Sallmans as Receivers for redirected rental income. 34. 24 September 1991 - Pursuant to the terms of the mortgage between the mortgagee and the landlord, the mortgagees duly appointed agent served on the tenants a Notice of Redirection of Rent purporting to require the tenants to pay to the mortgagee rent otherwise due to the landlord. 35. 17 October 1991 - The mortgagee made an application to the Tribunal for an order redirecting payment to the mortgagee of rental otherwise due by the tenant to the landlord. 36. 18 October 1991 - Letter from White Berman and Co, solicitors for the tenants, addressed to the mortgagees' solicitors, Finlaysons, acknowledging receipt of the application to the Tribunal dated 17 October 1991 and notifying the mortgagee that the tenants have a dispute as 9 to the overpayment of rent with the landlord which has been ongoing. Further the tenants had been paying rent conditionally and under protest at the rate specified in the disputed valuation with subsequent CPI increases since 3 September 1989. The tenants considered that they had overpaid rental in the total sum of approximately $24,000 or more over the two year period. Further, the tenants claim that the overpayments were received upon trust by the landlord and that they will have (in the event of a favourable rent fixation by the Tribunal or another expert) the right to recover the $24,000 or so immediately. In the alternative, the tenants claimed a right of set-off against each monthly rental instalment an equivalent amount from the overpayments so received upon trust. 37. 21 October 1991 - The Tribunal made an order requiring the tenant to pay rent from October 1991 (otherwise due to the landlord) into the Commercial Tribunal Suspense Account. 38. Between October 1991 and July 1992 the tenants paid into the said account monthly payments of $4,294.45 being a total of $42,944.50. 39. 6 May 1992 - The Commercial Tribunal published its reasons for decision in which it found, inter alia, the following:-
    (a) For the year ending 2 September 1989 the annual rent was
    $31,944.
    (b) The correct interpretation of the lease was that the landlord
    was not entitled to use the alternative method of rent review set
    out in Item A(c) of the Schedule to the lease for the sixth year
    of the lease.
    (c) The correct rental for year six of the lease was the rent for
    year five ($31,944) plus CPI increase therein of 7.8% being a
    total of $34,436 per annum.
    (d) The correct rent for year seven commencing 3 September 1990
    was the rent for year six ($34,436 per annum) plus CPI increase.
    (e) The correct rent for year eight commencing 3 September 1991
    was the year seven rent plus CPI increase.
    (f) The correct rent for year nine commencing 3 September 1992
    was the year eight rent plus CPI increase or, at the landlord's
    option, rent fixed by the alternative method set out in item A(c)
    of the Schedule to the lease.
    (g) The correct rental for year ten of the lease commencing 3
    September 1993 was the year nine rent plus CPI increase.
    (h) The Hillier Parker valuation was not made in accordance with
    the terms of the appointment in that the valuer did not properly
    address 'market evidence' as to the relationship between rent and
    capital value to determine the rental valuation of the land.
    (i) The lease contained an implied term that the valuation of
    Hillier Parker would be made honestly and impartially.
    (j) The Hillier Parker valuation did not comply with the implied
    terms that the valuation be made honestly and impartially.
    (k) The landlord set out on and maintained a course of conduct
    which was designed to force the tenants to vacate the land at
    least four years before the expiration of the validity renewed
    lease so as to enable the land to be redeveloped.
    (l) In pursuing this course of conduct the landlord employed
    Hillier Parker to act on its behalf in its dealings with the
    tenants and with parties.
    (m) Neither Hillier Parker nor the landlord disclosed the fact of
    this agency to the tenant at any material time. 40. The above facts are taken from the case stated to this Court with the additional material which was added by letter from the Registrar of the Tribunal to the Registrar of this Court dated 22 January 1993. Additional documents were attached to that letter. 41. The parties have accepted all findings of fact set out in the Tribunal's reasons for decision based on the documents referred to above including those added by the letter of 22 January 1993 from the Tribunal to this Court. 42. 25 March 1992 - By summons issued by the mortgagee on 23 December 1991 the Supreme Court of South Australia ordered that the landlord company be wound up. 43. 5 June 1992 - The Tribunal ordered that the tenants pay to the Tribunal to the credit of the said suspense account the sum of $8,585.40 being rent payable for the months May and June 1992, and pay future rent to the Tribunal as it falls due until further order. 44. 15 July 1992 - The Tribunal made orders and declarations as follows:-
    (1) That the tenants validly exercised their option to extend the
    term of the lease for five years from 3 September 1989.
    (2) That the rent payable for the year commencing 3 September
    1989 (year six) was $31,944 plus CPI increase of 7.8% being a
    total of $34,435 (payable by rent instalment payments of
    $2,869.64 per month).
    (3) That the rent payable by the tenant for the year commencing 3
    September 1990 (year seven) was $34,435 plus 7% CPI increase
    thereon being a total of $36,846.12 per annum (payable by rental
    instalments of $3,070.51 per month).

    (4) That the rent for the year commencing 3 September 1991 (year
    eight) was $36,846.12 per annum plus CPI increase thereon of 4.7%
    being a total of $38,577 (payable by monthly rental instalments
    of $3,214.83 per month).
    (5) That an amount of $10,796.20 (being the amount of rent
    overpaid by the tenants for the months of October 1991 to July
    1992 inclusive of $1,079.62

JUDGE2 MATHESON J I agree with the answers proposed by Legoe J to the questions in the Case stated, and I agree in general with the reasons he gives for the answers to questions A, B and C. Specifically, I agree that the overpayments were not rent and that the tenants are not entitled to any set off against the rents due under the lease. As far as question D is concerned, I agree with the reasons of Duggan J. I merely add a reference to the unreported joint judgment of Gleeson CJ and Handley J in the Court of Appeal of the Supreme Court of New South Wales in the case of Qantas Airlines Ltd v. Gubbins which was delivered on 6 August, 1992. The statutory provision there under consideration was S108(1)(b) of the Anti Discrimination Act 1977 which provided: "(l) for the purposes of any inquiry, the Tribunal (a) ... (b) shall act according to equity, good conscience and the substantial merits of the case without regard to technicalities and legal forms. (c) ..." 2. At pp.4-6 their Honours said:
    "The precise effect of this section is not immediately clear.
    S118(1) provides that a party aggrieved by a decision of the
    Tribunal may appeal to the Supreme Court on a question of law and
    subs(3) provides that the Court shall hear and determine the
    question of law arising on the appeal and may make such order in
    relation to the appeal as to it seems fit. It is apparent
    therefore that s108(1)(b) does not release the Tribunal from the
    obligation to apply rules of law in arriving at its decisions.
    If that had been the effect of s108(1)(c) there would have been
    no point in conferring a right of appeal to the Supreme Court on
    a question of law. The apparently conflicting provisions must,
    as a matter of construction, be reconciled. Compare Coal Miners
    Industrial Union v Amalgamated Collieries of Western Australia
(1960) 104 CLR 437 at 454 - 455. The position may be otherwise
    where a tribunal is under a duty to act according to equity and
    good conscience, but its decisions are not subject to appeal on
    questions of law. Compare 'The Courts of Requests' (1936) 52 LQR
369-394 and 'Equity and Good Conscience' (1937) 10 ALJ 349 ...
    The words 'equity, good conscience and the substantial merits of
    the case' are not terms of art and have no fixed legal meaning
    independent of the statutory context in which they are found.
See generally Santos Ltd v Saunders (1988) 49 SASR 556 at 564 per
    Legoe J. In some circumstances the presence of this language may
    indicate that the decision maker is free from any obligation to
    apply rules of law so that any decision will be executive rather
    than judicial and not subject to appeal even if that is otherwise
available. See Moses v Parker (1896) AC 245. In other contexts
    such words have been construed as requiring the tribunal to apply
    the ordinary law. (Section) 7 of the now repealed Small Debts
    Recovery Act 1912 provided that the Small Debts Court should hear
    and determine civil actions for the recovery of small debts 'in a
    summary way and according to equity and good conscience.' In Ex
parte Herman Re Mathieson (1960) 78 WN (NSW) 6 at 9 Kinsella J
    said: '... I am not sure what the magistrate meant to imply in
    using the words "according to equity and good conscience" in his
    brief judgment, but I am clearly of opinion that as used in s7 of
    the Small Debts Recovery Act they do not give the Court power to
    depart from established principles of law nor do they give it
    power to dispense justice otherwise than according to law.' In a
    very different context in the former British India the words were
    interpreted as a direction to the courts to apply English law if
    applicable to Indian society and circumstances. See Rajsanji v
    Masludin (1887) LR 14 Ind Ap 89 at 96 and compare Barlow v Orde
    (1870) LR8 PC 164. In our view the duty to act according to
    equity and good conscience, in the context of this Act, did not
    free the Tribunal from its duty to apply the general law in
    deciding the issues raised by the defences of release by deed."

JUDGE3 DUGGAN J I agree with Legoe J that questions A, B, and C should be answered in the manner suggested by him. I also agree with the reasons he has given in support of the answers. 2. Question D requires consideration of the effect of s.13(1) of the Commercial Tribunal Act, 1982 which provides as follows: "The Tribunal shall act according to equity, good conscience and the substantial merits of the case without regard to technicalities and legal forms and, subject to subsection (2) and the provisions of any other Act, is not bound by the rules of evidence, but may inform itself on any matter in such manner as it thinks fit." 3. The court has been asked whether, in the circumstances of the present case, it is open to the Commercial Tribunal to apply the subsection so as to reach a decision other than that which would be dictated by the application of established legal principles. 4. The subsection cannot have the effect of excluding altogether the application of all legal principles which would otherwise be applicable. In the light of the broad range of commercial matters within the jurisdiction of the Tribunal it is highly unlikely that the legislature intended to remove the degree of certainty which the law attempts to bring to such transactions. The relevance of these legal principles is also demonstrated by the Tribunal's power to state a case on any question of law for the opinion of the Supreme Court (s.19) and the appeal as of right to the Supreme Court on a question of law. (s.20.) In Eagle Star Insurance Co. Ltd. v Yuval Insurance Co. Ltd.
(1978) 1 Lloyd's Rep. 357 at 363, Goff LJ, when interpreting a similar provision in an arbitration agreement, said that it enabled the arbitrator "to view the matter more leniently and having regard more generally to commercial considerations than would be done if the matter were heard in Court". I think the same can be said of the effect of this subsection. 5. In this case the principles discussed by Legoe J in his judgment provide a resolution of the matters in dispute and I am not persuaded that a different result is required by the application of the considerations referred to in s.13(1) of the Act. 6. In my view question D should be answered as follows: "The requirement that the Commercial Tribunal shall act according to equity, conscience and the substantial merits of the case without regard to technicalities and legal forms should not, in the circumstances of the case stated, lead to a resolution of the dispute between the parties other than that which would result from the application of the established legal principles referred to in support of the answers to questions A, B and C."