Lay v Alliswell Pty Ltd
[2001] VSC 385
•12 October 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 6967 of 2000
| STEPHEN LAY HENRY LAY KIN LIN LIE | Firstnamed Appellant Secondnamed Appellant Thirdnamed Appellant |
| v | |
| ALLISWELL PTY LTD (ACN 006 741 448) | Respondent |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 & 13 September 2001 | |
DATE OF JUDGMENT: | 12 October 2001 | |
CASE MAY BE CITED AS: | Lay v Alliswell | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 385 | |
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Appeal under section 148(1) Victorian Civil and Administrative Tribunal Act 1998 – an appeal by tenants against VCAT’s decision to dismiss their claims for damages and a declaration that the respondent landlord’s notice of redevelopment was invalid – where the method of rental payment in practice over months was different to that specified in the lease and the landlord subsequently re-entered the premises after a two day default in payment – where the landlord exercised its rights in an unreasonable manner - application for relief against forfeiture – whether the forfeiture was effective to determine the lease – implied term of good faith and fair dealing.
PROCEDURE – Amending the terms of questions of law in an order of a Master – reliance upon authorities that are too remote from the issue – raising an issue not dealt with in the lower court.
JURISDICTION – Whether the Supreme Court has jurisdiction to deal with claims for relief against forfeiture despite sections 34 and 35 of the Retail Tenancies Reform Act 1998.
Retail Tenancies Act 1986 – section 21
Retail Tenancies Reform Act 1998 – sections 34 and 35
Victorian Civil and Administrative Tribunal Act 1998 – sections 75(1) and 148(1)
Blair v Curran (1939) 62 CLR 464
Doherty v Murphy [1996] 2 VR 553
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Jam Factory Pty Ltd v Sunny Paradise Pty Ltd and Ohers [1989] VR 584
Popovski v Ericsson Australia Pty Ltd [1998] VSC 61
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr PT Nugent | Testart Robinson |
| For the Respondent | Mr MDG Heaton QC with Mr JB Nunns | Kliger Partners |
HER HONOUR:
Introduction
This is an appeal on questions of law pursuant to section 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 (“the VCAT Act”) against two decisions of the Victorian Civil and Administrative Tribunal (“the Tribunal”) constituted by Deputy President Macnamara. Although the copy of the first decision before the Court is undated, it appears that it is accepted as having been made on 19 September 2000. The second decision is the consequential costs order made on 22 September 2000. Leave to appeal was granted by a Master on 4 December 2000.
The Master’s order sets out two questions of law to be included in the notice of appeal. Counsel were in agreement that those questions should read:
1.Whether the Tribunal was entitled to dismiss the claim of the appellants for damages as set out in paragraphs 10 to 20 of the points of claim;
2.Whether the Tribunal was entitled to dismiss the claim of the appellants for a declaration that the notice of redevelopment was invalid as set out in paragraphs 22 to 29 of the points of claim.
In Popovski v Ericsson Australia Pty Ltd [1998] VSC 61 Ashley J, having formed the view that the parties should not be shut out from making certain specific contentions which were not available under the order of the Master, continued at [30]:
The way in which the issue(s) could be entertained appeared to be by my giving a direction under Rule 58.13. That was the course taken in DPP v Hinch (Supreme Court of Victoria, unreported, judgment 5 August 1994) where Mandie J said this:
Mr Graham submitted that Rule 58.13 broadly empowered the Court to deal with questions that arise at the hearing whether by way of amendment of the order or by simply directing that the matter be dealt with in the light of the arguments that had been advanced. I doubt that this power would extend to directing the amendment of the Master's Order having regard to the rules and practice in relation to the amendment of orders (see Rule 36.01(1) and Rule 36.01(9) and Rule 36.07). I am satisfied, however, that the Rule does empower the Court to direct in an appropriate case that the appeal be decided upon the questions of law identified and canvassed in the arguments advanced, where this is necessary to achieve the effective, complete and economic determination of the appeal and is otherwise just and convenient.
See also Buckman v Barnawatha Abattoirs (Supreme Court of Victoria, unreported, judgment 14 July 1994), where Smith J adopted the same course.
. . . It was not suggested that the formal direction could not be given in the course of final disposition of the appeal.
I would, with respect, adopt that passage, as I have done on other occasions (see Pettet v Readiskill [1999] VSC 195 and Dickson v Barrow [2001] VSC 353) in respect of both questions in the order of the Master. On the basis of the same considerations as moved Ashley J in Popovski, given the agreement of counsel, and being satisfied that no injustice would thereby be done to either party, I directed that this appeal be decided on the basis that the questions be read as though expressed in the terms set out in the preceding paragraph.
On 30 October 1998 the appellants (“the tenants”) entered into a lease from the respondent (“the landlord”) of premises known as shops 13 and 14 in a shopping centre in Glenferrie Road Hawthorn, where they conducted a Chinese grocery store (“the premises”). The term of the lease was three years from 1 November 1998 with one three year option and rent was payable in advance on the first day of each month. However, a practice developed whereby the landlord’s agent (“the agent”) called at the premises to collect the rent, initially towards the start of each month. After some eight months the agent was calling late in the month, so that the rent was paid for a particular month towards the end of that month rather than in advance on the first day of the month. The tenants were never informed that this practice was unacceptable.
Special condition 1.1 of the lease read:
If the Tenant punctually and properly complies with this Lease it is not required to pay rent for or in respect of the period 1 November 1998 to 31 January 1999.
Special conditions 2.1 to 2.4 provided for the landlord, if it desired to redevelop, to give the tenant a “redevelopment notice” stating that the lease was to terminate in three months time. If a redevelopment notice was given, the tenant was required to vacate the premises on the expiry of the three months and $20,000 compensation was payable to the tenant. “Redevelop” was defined to mean:
Renovate, reconstruct, repair, modify, alter, vary, extend, demolish or otherwise carry out any works on the building or the land or any part of either of them which in the Landlord’s opinion will result in the Premises being made wholly or partly temporarily or permanently inaccessible or unusable or which in the Landlord’s opinion cannot be properly carried out while the Tenant uses or occupies the Premises.
Clauses 10.1 and 10.2 read, so far as relevant:
10.1(a)If the rent or any part of it is in arrears and unpaid for seven (7) days next after any of the due dates for payment (whether demanded or not and no demand shall be necessary) . . . then . . . the Tenant shall be deemed to have made default. The Landlord may elect to treat any such default as a repudiation of this Lease by the Tenant;
. . .
10.2If the tenant has made default as specified in Clause 10.1 the Landlord may, without prejudice to any other Claim which the Landlord has or may have or could otherwise have against the Tenant or any other Person in respect of such default, at any time but subject to any prior demand or Notice as is required by Law:
(a)re-enter into and take possession of the Premises or any part of them (by force if necessary) by itself or by any Person authorised by it and eject the Tenant and all other Persons from the Premises and thereupon this Lease shall absolutely cease and be terminated;
At the time of execution of the lease, the anchor tenant in the shopping centre was Franklins. The appellants claim that prior to their executing the lease, the agent represented to them that Franklins would remain at the shopping centre for at least the term of the lease and any option period, but there is no finding as to whether such a representation was made.
Franklins vacated the shopping centre on or about 31 December 1999. In February 2000 the agent informed the tenants that it was proposed that David Jones become the anchor tenant, and that David Jones required occupation of the premises in addition to the area previously occupied by Franklins. The agent informed the tenants that the landlord would be willing to pay compensation for the tenants to close their business.
On 1 May 2000 the agent called at the premises in the usual way and collected the April rent. On that same day the May rental payment fell due. On 2 May the landlord re-entered the premises with security guards. No warning had been given of its intention to do so. On 5 May the tenant tendered the rent due on 1 May and commenced proceedings in the Supreme Court.
On 12 May 2000 Mr Justice Beach ordered that the tenants be relieved of forfeiture and the landlord deliver up possession of the premises and pay the tenants’ costs on an indemnity basis. In the course of his reasons His Honour said:
14.In my opinion, the behaviour of the defendant in this case has been arrogant and high-handed to say the least of it.
15.If it was dissatisfied with the fact that the payments of rent made by the plaintiffs were always late, the least it could have done was to inform the plaintiffs of that fact and give them an opportunity to rectify the situation.
On 16 June 2000 the landlord caused to be served on the tenants a notice of breach of covenant (not relevant to this proceeding) and a redevelopment notice under special condition 2.2 of the lease, expiring on 16 September 2000.
On 23 June 2000 the tenants applied to the Tribunal for a declaration that the notice of breach of covenant and redevelopment notice were invalid. In accordance with directions given by the Tribunal on 24 July, the tenants filed a document referred to as “Points of Claim”. On 13 July the landlord applied to the Tribunal for a declaration that both notices were valid and on 25 August the landlord initiated an application to the Tribunal to strike out or summarily dismiss various claims of the tenants.
That application was made pursuant to section 75(1) of the VCAT Act, which reads:
(1)At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion—
(a)is frivolous, vexatious, misconceived or lacking in substance; or
(b)is otherwise an abuse of process.
The test to apply in determining such an application was set out by the High Court (Mason, Murphy, Wilson, Deane and Dawson JJ) in Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99 in the following terms:
The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.
The Tribunal relied on a passage to similar effect from the judgment of Barwick CJ in GeneralSteel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-30, which concluded:
. . . I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed.
The decision of the Tribunal, made apparently on 19 September 2000, read:
1.The applicants’ claims as articulated in:
(a)Paragraphs 10 to 20; and
(b)Paragraphs 22 to 29 (in so far as those paragraphs attack the validity of the Redevelopment Notice dated 16 June 2000)
are dismissed pursuant to section 75 of [the VCAT Act].
2.the applicants are at liberty within 14 days of this day to file and serve amended points of claim.
3.Costs reserved.
The costs order of 22 September 2000 provided that the applicants pay the respondent’s costs of the application to be taxed in default of agreement in accordance with County Court scale D.
The first question: damages (paragraphs 10-20 of the Points of Claim)
Paragraphs 10, 11, and 13 to 17 of the Points of Claim set out broadly the facts appearing in paragraphs 5, 8, 9 and 10 above. Paragraph 12 claims that by virtue of the matters set out in the last two sentences of paragraph 5 above, the landlord is “estopped and precluded from relying upon the strict terms of clause 10.1 of the Lease”. Paragraphs 18 to 20 continue:
18.The applicants regained possession of the demised premises on the 12th May 2000 but were only able to effectively recommence business at the demised premises on the 17th May 2000.
19.As a result of the Respondent’s unlawful conduct the Applicants were unable to trade from 2nd May to 16th May 2000. This had caused and is still causing the Applicants significant damage and embarrassment. . . .
20.The unlawful conduct of the Respondent had also resulted in the Applicants’ suppliers on credit losing confidence in the Applicants. . . . The losses suffered by the Applicants as a result of the Respondent’s unlawful re-entry are as follows:
a)Cost of stocks damaged $7,848-55
b)Cost of clearing damaged stocks
and cleaning the demised premises 200-00
c)Loss of profit from 2nd May to 16th May 2000 2,021-60
d)Damages for lost commercial reputation.
Thus those paragraphs constitute a claim for damages resulting from what is said to be the landlord’s unlawful re-entry to the premises on 2 May.
The Tribunal determined that Mr Justice Beach had found that the re-entry had effected a lawful termination of the lease, and accordingly that that issue had been determined once for all so that the tenants and the Tribunal were precluded from revisiting it by the doctrine of issue estoppel. Mr Heaton, for the landlord, submitted that this finding was probably correct, there was accordingly “no real question to be tried”, in terms of the passage cited above from the judgment of the High Court in Fancourt, and the appeal against the summary dismissal of the claim on this point should be dismissed.
The relevant passages from the judgment of Mr Justice Beach read as follows:
16.During the course of his submissions counsel for the defendant stated that the defendant had acted opportunistically to take advantage of its legal rights.
17.One could not but agree.
18.It was argued on behalf of the defendant that this court has no jurisdiction to entertain the plaintiffs’ application as the premises are retail premises within the meaning of the Retail Tenancies Reform Act 1998 [“the Reform Act”] and that pursuant to ss.[34] and 35 of the [Reform] Act only [the Tribunal] can hear and determine any dispute concerning the lease between the parties.
19.I reject that contention. By re-entering the premises as it did the defendant determined the lease. In that situation I consider that this court does have the necessary jurisdiction. In that regard see Jam Factory Pty Ltd v Sunny Paradise Pty Ltd and Others [1989] VR 584; Klewet v Lansdown [1989] VR 969, and Waterend Pty Ltd v Ennis Hickey & Co Ltd [1992] 1 VR 430.
20.In my opinion, there can be no clearer case than this in which to grant relief from forfeiture.
To begin with, paragraphs 16 and 17 make it clear that his Honour was of the view that the landlord was exercising its legal rights. If that were the only relevant portion of his judgment it would be sufficient to determine the matter. However, paragraphs 18 and 19 are consistent with that finding, and were relied on by the Tribunal.
In the Jam Factory case Ormiston J was concerned with the application of section 21 of the Retail Tenancies Act 1986 (“the Tenancies Act”). Section 21(1) and (4) provided that “any dispute between a landlord and a tenant arising under a retail premises lease” was “not justiciable in any court or tribunal”. Sections 34 and 35 of the Reform Act, which replaced the Tenancies Act with effect from 1 July 1998, make a similar provision with regard to “any dispute between a landlord and a tenant arising under or in relation to a retail premises lease” (emphasis added). His Honour found that the Supreme Court had jurisdiction to deal with a claim for relief against forfeiture because the relationship of landlord and tenant had been determined by the forfeiture and accordingly there was no “dispute between a landlord and a tenant arising under a retail premises lease”. The Jam Factory decision was applied by Ormiston J in Klewet and by McDonald J in Waterend.
Thus the finding by Mr Justice Beach in paragraph 19 that he had jurisdiction to hear the matter before him necessarily involved a finding that the forfeiture was effective to determine the lease, and thus that it was a legal forfeiture. It also involved a finding that the inclusion in section 34 of the Reform Act of the words “in relation to” did not bring an application for relief against forfeiture within the confines of that provision; no doubt on the ground that once the lease had been determined, there was no lease in existence “in relation to” which the sections could operate.
Mr Nugent, for the tenants, submitted that the Tribunal was wrong to draw the inference from paragraphs 18 and 19 of the judgment that his Honour had found the re-entry to be lawful. However, it is clear from those paragraphs that his Honour had found the re-entry effective to determine the lease, which would not have been the effect of an unlawful re-entry. He did not find it necessary to spell out that step in his argument; no doubt because it had earlier been made clear in paragraphs 16 and 17.
Mr Nugent’s next submission was that the order that the landlord pay the tenant’s costs, and that they be paid on an indemnity basis, was so unusual on a claim of this kind that his Honour must have considered that the re-entry was unlawful. However, his Honour’s view of the landlord’s actions, appearing from paragraphs 14, 15 and 20 of his reasons, is sufficient justification for the making of that order.
Mr Nugent then submitted that as at 2 May the tenant was in default for only two days in respect of the May rent, and therefore the landlord had no right to re-enter pursuant to condition 10.1 of the lease (see paragraph 6 above). However, the effect of clauses 10.1 and 10.2 is that the default created by the failure to pay the April and earlier rent within seven days of the respective due dates is not cured by the subsequent payment of the rent. Further, the tenant by that time had not “punctually and properly” complied with the lease, and accordingly the rent for the period from 1 November 1998 to 31 January 1999 was payable pursuant to special condition 1.1 of the lease, this being the subject of the notice of breach of covenant referred in to paragraph 11 above. Thus it cannot be said that there was no basis on which the re-entry could lawfully be made. And his Honour’s grant of relief against forfeiture implies that the re-entry and hence the forfeiture was valid.
Mr Nugent also submitted that it was not possible to draw from his Honour’s use of the word “forfeiture” the inference that his Honour intended to refer only to circumstances where the re-entry was lawful. It was consistent with his Honour’s reasoning, he submitted, that a wrongful re-entry would have had the effect, in a real sense, of determining the lease, because the tenants would be unlikely to re-enter without an order of the court. However, to say that, as a matter of practicality, a person needs an order of the court to enforce a particular legal right, is not to deny the existence of that right. A wrongful re-entry would not, as a matter of law, have determined the lease, whatever its effect on the physical situation on the premises. Whatever relief might be given for an unlawful re-entry by a landlord, it cannot be described as “relief from forfeiture”.
In Blair v Curran (1939) 62 CLR 464 Dixon J said at 531-2:
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue-estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. . . . But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order. In the phraseology of Coleridge J in R v Inhabitants of the Township of Hartington Middle Quarter (1855) 4 E & B 780 at 794; 119 ER 288 at 293 the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, thought not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.
The order of Mr Justice Beach was an order which “disposed once for all of the issue” and which “necessarily decided”, for the reasons set out in paragraphs 19 to 23 above, that the re-entry by the landlord was lawful. I accept the submission of Mr Heaton, set out in paragraph 18 above.
The alternative submission of Mr Nugent was that, even if the re-entry was lawful, the tenants ought to have been given leave to amend their Points of Claim to plead an alternative basis for their claim in damages. That alternative basis was that damages could be based upon a breach of an implied term of the lease that the landlord would exercise its strict legal rights in good faith, reasonably, and not capriciously or for some extraneous purpose. The result of the Tribunal’s dismissal of the tenants’ claim was that the factual basis for such an alternative claim had not been determined, because there had been no testing of the bona fides of the landlord in exercising its rights.
Mr Nugent relied on a number of authorities in support of this submission, beginning with the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 where his Honour said at 268 after an extensive consideration of the relevant statutory and other provisions in the UK and the United States as well as in Australia:
The result is that people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard and anything less is contrary to prevailing community expectations.
Mr Heaton submitted in response first, that the implication of such a term did not preclude a party from pursuing its legitimate interests. He cited a passage from the judgment of Finkelstein J in the Federal Court in Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 at [37] where his Honour said:
In my view, a term of a contract that requires a party to act in good faith and fairly, imposes an obligation upon that party not to act capriciously. It would not operate so as to restrict actions designed to promote the legitimate interests of that party. That is to say, provided the party exercising the power acts reasonably in all the circumstances, the duty to act fairly and in good faith will ordinarily be satisfied.
In Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310 at [120] Byrne J of this Court said:
As I indicated to counsel in argument, I do not see myself as at liberty to depart from the considerable body of authority in this country which has followed the decision of the New South Wales Court of Appeal in Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. I proceed, therefore, on the basis that there is to be implied in a franchise agreement a term of good faith and fair dealing which obliges each party to exercise the powers conferred upon it by the agreement in good faith and reasonably, and not capriciously or for some extraneous purpose. Such a term is a legal incident of such a contract: Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 191-193, per Finn J; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 368-369, per Sheller JA; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 at [37] per Finkelstein J.
Thus, whatever the motives of the landlord in terminating the lease by re-entry, the fact remains that the tenants were in default and the landlord was entitled to exercise the rights which the lease conferred upon it by virtue of that default. While the manner in which the landlord exercised its rights cannot be regarded as reasonable, the remedy which the tenants sought and obtained was relief against the forfeiture which was the consequence of the re-entry.
Mr Heaton submitted further that in none of the Australian cases cited were damages awarded for breach of such an implied term of a contract. Mr Nugent had cited two American cases where damages were awarded, in each of which an employer was shown to have acted in bad faith in dismissing an employee in order to avoid paying commission or bonuses, namely Fortune v National Cash Register Co 1977 Mass., 364 NE 2d 1251 and RLM Associates Inc v Carter Manufacturing Corp 1969 Mass., 248 NE 2d 646. Mr Heaton referred to the caution expressed by Ormiston JA in Stefanovski v Murphy [1996] 2 VR 442 at 445 against the indiscriminate use of authority from the United States. I do not consider that it can be said that there is a “real question to be tried” where the authorities relied upon are from another jurisdiction and are remote from the issue of whether damages are to be awarded for the effects of a lawful re-entry where relief against forfeiture has been awarded by the court. The decision of Badgery-Parker J in Gibson v Parkes District Hospital (1991) 26 NSWLR 9, awarding damages in tort against a workers’ compensation insurer and an employer for breach of a duty to act in good faith in the processing of a worker’s compensation claim is, for other reasons, equally remote.
Mr Nugent’s final submission relied on the circumstance that, given that the relationship of landlord and tenant had resumed by virtue of the order of Mr Justice Beach, it was not open to the tenants to apply to the Supreme Court for damages because of the effect of sections 34 and 35 of the Reform Act, as to which see paragraph 21 above. A claim for damages would not be justiciable before the Court and could only be dealt with in the Tribunal; and because the Tribunal had dismissed the claim, the tenants would have suffered damage but be left without a remedy in either place. However, he cited no authority for the proposition that a tenant who has obtained relief against forfeiture by a lawful re-entry is also entitled to recover damages in respect of the re-entry and associated matters.
For all of these reasons, I find that there is no real question to be tried on the issue of damages and the answer to the first question in paragraph 2 above must be Yes.
The second question: the redevelopment notice (paragraphs 22 to 29 of the Points of Claim in so far as they attack the validity of the redevelopment notice)
Paragraphs 22, 23, 24, 26 and 27 of the Points of Claim read:
22.By a letter dated 14th June 2000, the Respondent through its managing agent, Snow informed the Applicants that the Respondent will be undertaking a major redevelopment and upgrade of the Shopping Centre as a result of Franklins leaving. This letter also stated that the redevelopment and upgrade will include inter alia, the introduction of a new major tenant namely, David Jones Ltd. and the creation of a new main entry from Glenferrie Road.
23.By a letter dated 16th June 2000, the Respondent through its Solicitors, Kliger Partners served on the Applicants a purported Notice of Breach of Covenant and a purported Redevelopment Notice, both dated 16 June 2000.
24.The Applicants contend that both the Notice of Breach of Covenant and Redevelopment Notice are unlawful by reason of the fact that the said Notices were served for the ulterior purpose of paving way for the entry of David Jones Ltd into the Shopping Centre.
26.The purported Redevelopment Notice purports to terminate the Lease three (3) months from the date the Notice is given to the Applicants on the alleged ground that the Respondent desires and intends to redevelop the shopping Centre as defined in Clause SC2.1 of the Lease.
27.The Applicants contend that the redevelopment as proposed by the Respondent does not give the Respondent an absolute right to terminate the Lease.
The test again is as set out by the High Court in the two cases cited in paragraph 14 above. The Tribunal considered the question before it having assumed, without deciding, and indeed with some reluctance, that a term requiring good faith and fair dealing was to be implied into the lease, consistently with the passages cited in paragraphs 30 and 31 above from the judgments of Priestley JA, Finkelstein J and Byrne J. The Tribunal’s reasons continued at paragraph 41:
Is there anything to suggest that the landlord has acted either with caprice or mala fide? In my view there is not. Mr Hii [the managing director of the landlord] said that the landlord had been contemplating a redevelopment for two years. It follows that it contemplated such a redevelopment when it signed the lease. The inclusion of the redevelopment clause [special conditions 2.1 to 2.4 see paragraph 6 above] is indicative that the landlord was “up front” on this point. It may be that the re-entry in May exhibited some features of caprice or lack of good faith. Certainly the strictures administered by Beach J indicate that he was of that opinion. For reasons already given, that matter cannot be the subject of further relief in this Tribunal. It may however be properly regarded as part of the background against which other acts and omissions may be characterised. One might assume that the opportunistic re-entry was adopted to avoid payment of the $20,000 compensation that is attached to the redevelopment notice. If that is a proper interpretation of events the service of the redevelopment notice constituted the adoption of the proper open and “up front” procedure which had sought to be avoided by the opportunistic re-entry. Upon that view the landlord is now taking the proper step. Nothing appears to suggest that this power to issue the redevelopment notice has been exercised for any purpose other than the one for which it was contractually granted, viz. to facilitate redevelopments which necessitate the tenants to relinquish their premises.
42. It follows in my view that there is no substance in the attacks mounted upon the redevelopment notice. That conclusion is reached only after what Sir Garfield Barwick described as “argument . . . of an extensive kind”; but once it appears that the applicant’s case on this point is clearly untenable, it is appropriate to grant relief under Section 75 with respect to that part of the claim.
The essential submission of Mr Nugent was that it was not possible to test whether the landlord had served the notice in good faith without testing the credibility of the relevant officers of the landlord. The decision of the Tribunal should be set aside to enable the question to be litigated in such a way that their evidence could be tested by the normal processes of discovery and cross-examination.
However, as Finkelstein J found in the passage from Garry Rogers v Subaru cited in paragraph 31 above, the implication of the term for good faith and fair dealing does not operate to frustrate the legitimate interests of the party said to be bound by that term. The procedure for the issue of a redevelopment notice was included in the lease from the outset. The affidavit evidence, including that of Mr Laffan, the builder and architectural assistant, makes clear that the works involved would fall within the definition of “redevelop” in clause 2.1 and set out in paragraph 6 above. They involved changing gradients and levels, resurfacing the entire shopping centre, and removal of walls and other works to enable the premises to become part of David Jones. Mr Hii, as landlord, had formed an opinion consistent with the requirements of that clause.
It is convenient to do as the Tribunal did and assume, without deciding, the implication into the lease of a term for good faith and fair dealing. I find that in those circumstances the landlord had a legitimate interest in serving the redevelopment notice and was entitled to do so. The tenants were aware in February 2000 of the proposal to introduce David Jones to replace Franklins and that David Jones would require the premises to be incorporated in its area. There is no evidence of any inappropriate motive on the part of the landlord in serving the redevelopment notice. I accept what is said by the Tribunal in the passage cited in paragraph 37 above as to the relationship between the behaviour of the landlord in relation to the re-entry and its right to issue the redevelopment notice. The evidence is that the lease with David Jones was entered into in early June 2000, and the landlord would have been unwise, to say the least, to serve the redevelopment notice before David Jones was bound by the terms of a lease.
There is nothing in the evidence to suggest that the landlord did not genuinely hold both of the opinions required of it in the definition of “redevelop”, and a consideration of all of the circumstances would indicate only that those opinions were genuinely and reasonably held. The evidence that some other tenants were not being required to close down, or were being required to close only for short periods, leads only to the conclusion that the shops occupied by those tenants are less directly affected by the reconstruction than are the premises, and that David Jones does not require those shops to be incorporated in its area. Mr Stephen Lay gave no reasons for his belief that the landlord and David Jones wish to exclude retailers selling brands or lines of food similar to those sold by David Jones.
Accordingly, I find that there is no real question to be tried on the issue relating to the redevelopment notice. The answer to the second question must accordingly be Yes.
Mr Nugent sought to raise a ground relating to the second question which had not been put to the Tribunal. He relied on the decision of the Full Court in Doherty v Murphy [1996] 2 VR 553 that it was appropriate to raise an issue not dealt with below when the decision appealed from had not been given at a trial, and Mr Heaton did not oppose that request.
The ground was based on the claim of the tenants that before the execution of the lease the landlord’s agent had represented to the tenants, as set out in paragraph 7 above, that Franklin’s would remain a tenant of the shopping centre for the whole of the lease and option term. This claim appears in paragraphs 5 and following of the Points of Claim. Mr Nugent submitted that the tenants acted in reliance on that representation by expending moneys in building up their business; and that as a consequence the parties operated on the common assumptions that Franklins would remain the anchor tenant and that the landlord would not exercise its strict legal rights in relation to the redevelopment notice because it would not need to do so. If the landlord resiled from that common assumption and served the redevelopment notice the tenants would suffer loss and damage, and accordingly the landlord was estopped from serving the redevelopment notice.
Mr Heaton submitted, and I accept, that this submission was, in effect, a claim for damages on the basis of the representation. The relevant paragraphs of the Points of Claim had not been struck out by the Tribunal, and that claim was still on foot and could still be dealt with by the Tribunal. I accept that submission and say no more about the matter.
For the reasons given, the appeal against both decisions will be dismissed. Counsel may wish to make submissions as to costs.
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