Keswick Developments Pty Ltd & Anor v Keswick Island Pty Ltd & Ors

[2012] HCATrans 137

[2012] HCATrans 137

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane   No B2 of 2012

B e t w e e n -

KESWICK DEVELOPMENTS PTY LTD ACN 129 203 363

First Applicant

QUEENSLAND MARINA DEVELOPMENTS PTY LTD

Second Applicant

and

KESWICK ISLAND PTY LTD ACN 009 998 841

First Respondent

VINCENT HARLEY ALEXANDER

Second Respondent

KESWICK ISLAND HOLDINGS PTY LTD ACN 010 442 175

Third Respondent

CONNIE BAY DEVELOPMENT PTY LTD ACN 101 466 791

Fourth Respondent

Application for special leave to appeal

HEYDON J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON THURSDAY, 7 JUNE 2012, AT 4.09 PM

Copyright in the High Court of Australia

__________________

MR F.L. HARRISON, QC:   May it please the Court, I appear with my learned friend, MR C.C. WILSON, for the applicants.  (instructed by Kelly Legal)

MR W. SOFRONOFF, QC:   May it please the Court, I appear with my learned friend, MR K.C. KELSO, for the respondent.  (instructed by Michael Drummond Lawyer)

HEYDON J:   Yes, Mr Harrison.

MR HARRISON:   If the Court pleases, the applicant’s summary of argument identifies two special leave grounds, the first being the renunciation ground and the second the question of the administration of justice.  We propose to deal mainly with the first and only briefly with the second. 

The first point, in our submission, is whether on the issue of renunciation whether or when it is necessary or relevant that it should have appeared to the innocent party that the defaulting party intended to give up the benefits of the subject contract.  The test that we are applying here as to renunciation is that set out in many places, but, for example, by Justice Mason in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1988) 166 CLR 623 at 634 of conduct that shows the allegedly defaulting party is complying with its obligations only if and when or, affirmatively, as and when it suits it. The passage where Justice McMurdo introduces what we say is the at least unorthodox requirement is to be found in the appeal book at page 19, paragraph [46] where his Honour says:

Given what, on an objective view, was the importance of CBD holding the Sublease, its conduct could not have reasonably conveyed the impression that it wished to give up that interest. 

That, in our submission, is a departure from what is understood in the previous cases as being required and his Honour’s error seems to have been founded, in our submission, on a misunderstanding of a passage in the judgment of Justice Mason in Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 34 which his Honour quotes at appeal book page 13, lines 37 to 41. But before I go to that, I should say that the Court of Appeal in its judgment in appeal book page 55, paragraphs [71] to [72] was to be read, in our submission, as adopting Justice McMurdo’s judgment. The passage in the judgment of Justice Mason in the appeal book at page 13 is the passage that Justice McMurdo has italicised at about line 37 where his Honour says:

On the other hand, it should be acknowledged that it would be rare indeed that facts which fell short of abandonment would properly be seen as constituting repudiation by the lessee in the case of a long lease at a rental which was either nominal or but a fraction of the amount which could be obtained in the market place.

It is our submission that Justice McMurdo at least appears to have taken that and given it a more general application than Justice Mason intended.

KIEFEL J:   It is not a question of principle.  It is an observation as to how the facts operate in the context of a long lease.

MR HARRISON:   But his Honour has taken that up and made a principle of it, in our submission, and it does – although the way that Justice Mason expresses it, we would call it a statistical observation, Justice Deane in the same case does explain the underlying reasoning for such a statement.

KIEFEL J:   It is just one of the circumstances, is it not, that attend the likelihood objectively of abandonment – I should say repudiation?

MR HARRISON:   In our submission, it cannot be relevant to a case where one is relying on the conduct of the party in not performing its obligations under the lease, but this involves a departure from making an objective assessment in – objective in the sense that a person in the position of, in our case, the lessor acting objectively would treat that as showing an intention not to perform the obligations.

KIEFEL J:   Is it not more a question of objectively viewed it is unlikely that a person in the particular person’s position and with what was at stake would have acted in the way – would have had the requisite intention?

MR HARRISON:   But the error is to ask whether the person had that intention because none of the cases previously looked to the intention in a case where the – that is an intention of giving up the benefit of the lease.  It is an intention of not fulfilling the obligations under the lease.

KIEFEL J:   But it is not a subjective assessment of intention.  It is an objective assessment having regard to known facts about what was at stake.  You surely can infer whether or not someone is going to be likely compelled in one way or another in taking into account the probabilities of what was to occur, what was in their mind.

MR HARRISON:   I am sorry I did not ‑ ‑ ‑

KIEFEL J:   I mean, the question is about intention after all.

MR HARRISON:   It is about objective characterisation of the acts of the person, or the defaulting person, and as to whether they show an intention not to perform the lease, the obligations there.  That is a different question from whether that person wants to give up the benefit of the lease.  If one starts to look at whether there is an intention to give up the benefit of the lease, surely one – if it could be inferred here, one would infer that in every case where there was a refusal to perform, or most cases, that there was no – one could say that although the defaulting party had simply not performed and was persistently not performing his obligations, in any such case one would say, but unless we can infer that he had an intention to give up the benefit of the lease, then we do not infer repudiation.

KIEFEL J:   How critical was that in his Honour’s reasonings in the event the observation about compelling commercial reasons not to repudiate?  I mean, that there were other factors that he pointed to which very strongly indicated that there was no intention to repudiate.

MR HARRISON:   With respect, there were not.  As we read his Honour’s judgment, that was the ‑ ‑ ‑

KIEFEL J:   Well, the extent of the breaches in most cases they are minor nature.

MR HARRISON:   I am sorry, before I answer that could I go on briefly with the previous issue and that is if one takes, for example, the case of Laurinda v Capalaba Park Shopping Centre (1988) 166 CLR 623, in that case there was a persistent failure by the landlord to fulfil its obligations to provide a registered lease. There was no suggestion and no hint of its being relevant that one needed to infer from the landlord’s conduct that the landlord wanted to give up the benefit of the lease. The court treated as the sole relevant fact the persistent refusal to comply with the obligations. Yet, if this principle is right, it would have been a strong argument to come to the contrary view in Laurinda that there was absolutely no reason why the landlord should have wanted to give up the benefit of the lease.  It was an inexplicable, rationally inexplicable refusal to comply with its obligations.

KIEFEL J:   But it is just one factor.  I mean, these are just questions of fact.  The commercial reason might be very strong and it would therefore require other indicia to suggest that that was not a compelling reason.  On the other hand, persistent breaches might overcome what otherwise appears to be a compelling ‑ ‑ ‑

MR HARRISON:   You are looking at the commercial reasons if you are looking at the intention of the defaulting party rather than the way one should characterise his breaches.  So it is not a relevant inquiry, in this or in any other case, what commercial value the lease was to the defaulting party.  The law does not, or this part of the law, does not compel or hold a party to a contract where the other party – if the other party says, “I want to keep the benefit of the lease, but I am not going to fulfil my obligations”, if he said that outright, this decision would lead to a result that there was no repudiation because it was absolutely clear that he wanted to keep the lease.  He just was not prepared to do his part of the bargain.  As we have submitted, that is the factor that has never been considered relevant in any of the previous cases and adds a complicating rider to the jurisprudence, as it arises so far. 

I think I have left unanswered a question of your Honour’s.  Your Honour referred to the court’s consideration of a number of breaches which – I think this is what your Honour was referring to – in concluding that the breaches were of themselves relatively minor and that is what led into the consideration of the main point that we are arguing against here.  But there is another fundamental error in that approach also and that is that both his Honour at first instance and the Court of Appeal considered the breaches separately but did not consider the aggregate effect of numerous, they held, minor breaches.  Again, if I may, that part of the case was simply not considered and it was only because that part was not considered that they were able to turn to this issue of an intention not to give up the benefit of the lease. 

In support of the proposition that they should not have simply, as it were, excluded each individual breach but rather looked at the conduct as a whole, again we rely on Laurinda where the court went through each of the breaches and – in Laurinda at 667, I was looking at the passage in the judgment of Justice Mason, but at 667 Justice Gaudron said:

Mere failure to deliver a registrable lease within a reasonable time of the agreed commencement date could not itself amount to the manifestation by the lessor of an intention to render performance only in a manner inconsistent with its obligation.  But in the present case the relevant considerations extend far beyond the mere breach. 

Her Honour goes on to consider additional matters by way of aggregation of the breaches.  What I was looking for, I am sorry, your Honours, is Justice Mason in Progressive Mailing House, starting at the bottom of 35:

It is not suggested that the breaches so far discussed, viewed in isolation, amounted to a repudiation or fundamental breach of the lease.  It is the breach of the covenant to pay rent, in association with the other breaches, which is the central feature of the respondent’s case on this issue.

So in the present case what we have is conduct over a substantial period that indicates an intention not to comply.  The conduct just went on for a very, very long period.  If one takes each step, one says, well, the failure to do that was not significant, but if you aggregate them, then, with respect, it does amount to a case of repudiation by showing an intention to comply only if and when it suited.  One has the notice to require payment of rent.  Quibbling with that, a request for particulars, no quibbling with the particulars that are given, a long wait with nothing done.  A notice of intention to terminate, nothing done and termination and then payment only on the failure to set aside a statutory demand.

So one may say, look, in each instance of time that is not a substantial breach, but consideration of the conduct as a whole shows the requisite intention and it is when one takes that into account that one should conclude that if one ignores the false issue that his Honour in the Court of Appeal raised as to showing an intention to give up the benefit of the lease, then there is a proper case for repudiation which has not been decided by the court below because of the introduction of the false issue and the failure to consider the conduct in the aggregate rather than by, as it were, divide and rule by considering each aspect individually.  Those are the submissions on the main point.

We have listed a number of matters in relation to the interest of justice point in the Court of Appeal.  The Court of Appeal failed to deal with a number of issues that were raised by the applicant as listed at paragraphs [28] and [29] and, finally, made an order for costs which on the face of it is wrong in that the applicant was successful on all but one point

without giving the applicant the opportunity to argue against it.  Those are out submissions.

HEYDON J:   Thank you, Mr Harrison.  We need not trouble you, Mr Sofronoff. 

The application for special leave raises no point of law of general importance.  Were special leave to be granted the proposed appeal would not involve anything more than a challenge to concurrent unanimous findings of fact.  The appeal, if special leave were granted, would not enjoy sufficient prospects of success to warrant a grant of special leave.  The interests of the administration of justice do not warrant a grant of special leave either.  Accordingly, the application is dismissed with costs. 

The Court will adjourn to reconstitute.

AT 4.30 PM THE MATTER WAS CONCLUDED