Leahy v Austwin Management Services Pty Ltd
[2011] QCA 186
•5 August 2011
SUPREME COURT OF QUEENSLAND
CITATION:
Leahy v Austwin Management Services Pty Ltd [2011] QCA 186
PARTIES:
RUTH BARBARA LEAHY
(appellant)
v
AUSTWIN MANAGEMENT SERVICES PTY LTD
ACN 059 616 643
(respondent)FILE NO/S:
Appeal No 2854 of 2011
SC No 6 of 2011DIVISION:
Court of Appeal
PROCEEDING:
General Civil Appeal
ORIGINATING COURT:
Supreme Court at Mackay
DELIVERED ON:
5 August 2011
DELIVERED AT:
Brisbane
HEARING DATE:
27 July 2011
JUDGES:
Fraser JA, McMurdo and Boddice JJ
Separate reasons for judgment of each member of the Court, each concurring as to the orders madeORDERS:
1. Appeal allowed.
2. Amend paragraphs 2(a) and 2(b) of the order of McMeekin J made on 9 March 2011 so as to read as follows:
“2. Pursuant to s 125 of the Property Law Act 1974, the Second Respondent be granted relief on the following terms:
(a) The Applicant grant to the Second Respondent a lease for the term 11 November 2010 to 29 June 2012 and subject to the covenants and conditions set out in the Head Lease with the exceptions that the area demised and the rent payable be in accordance with the registered sublease number 702560484 and the increase in rates being payable as to 40 per cent of the increase which would have been payable according to the Head Lease.
(b) That until increased according to the terms of such lease, the rent payable by the Second Respondent under that lease be fixed at $625.50 per month.”
3. The appellant to pay the respondent’s costs of the appeal.
CATCHWORDS:
LANDLORD AND TENANT – TERMINATION OF THE TENANCY – FORFEITURE – RELIEF AGAINST FORFEITURE – RELIEF UNDER STATUTE – RELIEF BY COURT – where the respondent was a sublessee – where the head lease was terminated – where the respondent had occupied the premises for 25 years – where the respondent had not defaulted as a sublessee – where the parties had a longstanding acrimonious relationship – where the appellant was ordered to grant the respondent a lease under s 125 of the Property Law Act 1974 (Qld) – whether the primary judge erred by not giving due recognition to the likely prejudice to the appellant
APPEAL AND NEW TRIAL – APPEAL - GENERAL PRINCIPLES – ADMISSION OF FRESH EVIDENCE – IN GENERAL – where the appellant was ordered to grant the respondent a lease under s 125 of the Property Law Act 1974 (Qld) – where the appellant seeks to admit fresh evidence on the market rental of the premises – whether the evidence should be admitted
Property Law Act 1974 (Qld), s 125
Belgravia Insurance Co Ltd v Meah [1964] 1 QB 436, considered
Cholmeley’s School Highgate v Sewell [1894] 2 QB 906, cited
Creery v Summersell and Flowerdew & Co Ltd [1949] Ch 751, considered
Hurd v Whaley [1918] 1 KB 448, applied
Public Trustee v Westbrook [1965] 1 WLR 1160, consideredCOUNSEL:
S D Anderson for the appellant
C M Muir for the respondentSOLICITORS:
Macrossan & Amiet Solicitors for the appellant
Strutynski Law for the respondent
FRASER JA: I agree with the reasons for judgment of McMurdo J and the orders proposed by his Honour.
McMURDO J: The appellant is the registered owner of land in Mackay, on which there is a service station and a mechanic’s workshop. The service station is conducted by CQ Petroleum Pty Ltd, under a periodic tenancy. The respondent occupies the mechanic’s workshop under a lease from the appellant which, under s 125 of the Property Law Act 1974 (Qld), she was ordered to grant. She appeals against that order.
From 1997 until February 2011, the respondent occupied its workshop as a sublessee from a company called Fimiston Investments Pty Ltd (“Fimiston”). Fimiston became insolvent and failed to pay its rent. On 30 September 2010, the appellant was given judgment in the District Court for that unpaid rent. Subsequently, she served on Fimiston a notice to remedy breach and then a notice to quit. The appellant thus became entitled to terminate the head lease, which she did by a notice of 5 November 2010, terminating the lease as of 10 November 2010.
The termination of the head lease also put paid to the respondent’s interest as a sublessee.[1] But the appellant’s recovery of possession of the workshop was subject to the potential for an order under s 125 of the Property Law Act 1974 (Qld), which is as follows:
“125 Power of court to protect under-lessee on forfeiture of superior leases
(1)Where a lessor is proceeding, by action or otherwise, to enforce a right of re-entry or forfeiture, under any covenant, proviso, or stipulation in a lease made either before or after the commencement of this Act or for non-payment of rent, the court may, on application by any person claiming as under-lessee any estate or interest in the property comprised in the lease, or any part of any estate or interest in the property, make an order staying any such action or other proceeding on such terms as to the court may seem just, and vesting, for the whole term of the lease, or any less term, the property comprised in the lease or any part of any estate or interest in the property, in any person entitled as under-lessee to any estate or interest in such property, upon such conditions as to execution of any deed or other document, payment of proper and reasonable rent, costs, expenses, damages, compensation, giving security, or otherwise as the court in the circumstances of each case, and having regard to the consent or otherwise of the lessor to the creation of the estate or interest claimed by the under-lessee, thinks fit, but in no case shall any such under-lessee be entitled to require a lease to be granted to the under-lessee for a larger area of land or for any longer term than the under-lessee had under the original under-lease.
(2)Any such order may be made in proceedings brought for the purpose by the person claiming as under-lessee or, where the lessor is proceeding by action or otherwise in the court, may be made in such proceeding.”
[1]Hill v Griffin [1987] 1 EGLR 81 at 82.
The respondent was granted relief under that provision, by an order that there be a lease of the workshop, granted by the appellant to the respondent, for a term commencing 11 November 2010 and expiring 29 June 2012 (which had been the expiry date of the respondent’s sublease). This new lease was to be upon the same terms as the (forfeited) head lease “with the exceptions that the area demised and the rent payable be in accordance with the [former] Sublease and the increase in rates being payable in the proportion of the area demised under the Sublease divided by the entire property”. His Honour fixed the rent at $625.50 per month “until further order or agreement”.
The appellant seeks to have those orders set aside. She argues that there should have been no relief granted under s 125 and that the primary judge erred by not giving due recognition to the likely prejudice to her from the orders which were made. She also seeks to rely upon evidence which was not before the primary judge, most of which relates to events which have occurred since the judgment. Before discussing those grounds it is necessary to say something more of the history of this site and its occupation.
The appellant inherited this land from her mother, Mrs Holmes. In 1992, Mrs Holmes leased the entire site to Mr Winner. He is the only director and shareholder of the respondent, to which he assigned his lease in 1993.
In December 1997, the respondent assigned that lease to Fimiston, which at the same time, subleased the workshop area to the respondent. By that stage Mrs Holmes had died. The trustee of her estate consented to the assignment to Fimiston and the sublease to the respondent. Remarkably, that trustee was Mr Winner.
The lease granted by Mrs Holmes was for a term of 20 years commencing 1 July 1992. The rental was fixed for the first five years after which it was to be adjusted annually according to movements in the Consumer Price Index upon a base rent of $20,400 per year. According to cl 2.1, the lessor was to pay all local authority, water and sewerage rates, but subject to the lessee’s obligation to pay “[a]ny increase in local authority water, general and sewerage rates which may be levied in respect of the premises during the said term or any extension thereof”.[2]
[2]Clause 1.2.5, which was mistakenly referred to as cl 5.2 within cl 2.1 of the lease.
The sublease was for an initial term of three years from 1 December 1997 but with several options for renewal. The respondent proved that they had been exercised and that most recently it had been occupying the workshop under a three year term expiring 29 June 2012. The rental for the initial term of the sublease was fixed, but for renewed terms it was to be calculated according to changes in the rent for the head lease. In particular, there was a formula by which the rent under the sublease would be increased each year according to the increase in rent under the head lease for the same period. Before the primary judge, counsel for the appellant argued that the formula had a different interpretation, and one which would have produced a much higher rental, year by year, under the sublease. I will return to that argument. But upon the interpretation advanced by the respondent, the rent was equivalent to $625.50 per month and hence the amount of the rent fixed by his Honour’s order.
Disputes arose between the appellant and Mr Winner, some of which must have concerned his performance as the trustee of her mother’s estate because in 2000, she successfully applied for an order that he be removed as trustee. But their disputes continued in relation to this site. As already noted, Fimiston failed to pay rent under the head lease. Mr Winner and the respondent, as former lessees under that lease, remained bound to pay that same rent which they failed to do. When the appellant went to the premises in November 2010 and sought to re-enter, this was resisted by the respondent and it remained in occupation.
In January 2011, the appellant served statutory demands upon Fimiston and the respondent. The respondent applied to set aside the demand upon it and in a decision which is not challenged, his Honour varied the amount of the demand to $46,649.88, on the basis that there was a genuine dispute as to a balance of $3,500. The disputed amount was for interest on the judgment debt from the appellant’s judgment against Fimiston. There was no genuine dispute that the respondent owed to the appellant, pursuant to the head lease, at least $39,000 for rent and $7,500 for (increases in) rates.
The reasoning of the primary judge
His Honour summarised the respondent’s case for relief, by referring to these circumstances: that it had been in occupation of the workshop for 25 years, it had not defaulted as a sublessee, it continued to conduct a business there, the livelihood of two employees (as well as that of the respondent) would be affected if it had to leave, there were no alternative premises immediately available and the new lease which it sought was relatively short because it could expire no later than June 2012.
He summarised the appellant’s case by reference to these matters: the longstanding acrimonious relationship between the appellant and Mr Winner, the fact that she had never accepted Mr Winner or the respondent as a tenant and had no wish to be forced into a lease as was sought, the failure of the respondent to pay to her what it then still owed and certain other circumstances, the existence of which was in dispute and which require some explanation.
The first of these was a complaint that Fimiston and the respondent had failed to keep part of the service station in good repair in that there were potholes on the tarmac. As to that, his Honour was unable to determine whether the potholes represented fair wear and tear, but rightly observed that it did not matter because they were not within the area demised under the sublease.
The second of these circumstances was said to be an uncertainty in the terms of the sublease. A related point advanced by the appellant was that the terms of the sublease were uncommercial, in that the provision (or absence of a provision) for rental increases over the period of the sublease unduly favoured the sublessee. These points, which may be considered together, surrounded the formula for variations of rent.
According to the sublease, the rental was to be increased year by year as follows:
“AR = HLR2 – HLR1 x ½ + rent for the previous year”
where AR meant the annual rent, HLR2 meant the annual rent under the head lease at the date of calculation and HLR1 meant the annual rent under the head lease one year prior to the calculation. The appellant argued that what was to be halved under that formula was only HLR1. The respondent argued that what was to be halved was the difference between HLR2 and HLR1. The appellant argued that if the formula was interpreted as the respondent contended, then it could result in no increases in rent, an arrangement which was uncommercial. His Honour understandably confessed to having some difficulty following that argument.[3] But he said that it did not matter because the respondent and Fimiston had been applying the formula according to the respondent’s interpretation, with resultant increases in rental as recently as October 2010. And he observed that the new lease which was sought would involve only one review of rental before the expiry of its term and which would have effect for only some months so that this point was not of great financial consequence.
[3][2011] QSC 22 at [33].
His Honour found it unnecessary to resolve the question of the interpretation of the formula. In particular, he said:
“[35]Further if the rental has been calculated by Fimiston and Austwin since 1997 on a certain understanding of the way in which the formula works, and a way that assumes a clerical error in the failure to import parentheses, I am not persuaded that that provides any good ground for refusing to relieve from forfeiture. That Ms Leahy might wish to argue that they have proceeded on a wrong basis, and that she might seek to have such a declaration made and rentals adjusted, as well as resist any attempt to have the agreement rectified – as might be needed – is a matter for her but that cannot affect Austwin’s rights. One side’s wish to pursue litigation contrary to the established arrangements that appear to have been in place for many years, and litigation that might eventually prove to be unmeritorious, seems to me to be of little moment save perhaps that it reflects on the existing animosity.”
That passage explains why his Honour saw fit to fix the rent at the amount which the respondent had been paying Fimiston, but with the qualification that it was “until further order or agreement”. In his reasons, he also said that he did not intend to prejudice the appellant’s “rights to argue that the rent should be differently construed if she is so minded to litigate the issue” and he acknowledged “the prospect of litigation and of the appropriate tribunal varying the current rent at the suit of [the appellant]”.
A further argument made by the appellant to the primary judge was that the respondent should be denied relief, partly because of its unlawful use of other parts of the service station (beyond the area of its sublease) for storage. Mr Winner gave affidavit evidence claiming to have a right to do so but that was abandoned at the hearing by the respondent’s counsel and no provision was made for it in the orders. In his reasons, his Honour referred to an undertaking by the respondent’s counsel that it would confine its operation to the workshop. But there was no undertaking given; rather, the respondent simply abandoned its claim to a right to use other parts of the site.
Lastly, the appellant argued before his Honour that the continued occupation of the workshop would impede her leasing the whole of the service station in order to obtain a “proper commercial return”. His Honour noted there was no attempt to quantify the appellant’s disadvantage in that respect. He said:
“[43]More significantly there is the difficulty that continued occupation of only part of the premises restricts Ms Leahy’s capacity to deal with the whole. Indeed I see this as the only significant financial disadvantage that Ms Leahy suffers should I grant Austwin the relief it seeks. The difficulty is that that disadvantage has not been quantified. CQP continues under a periodic tenancy. Ms Leahy speaks in general terms that her ‘ability to negotiate a proper commercial return on [her] property will be prejudiced’ but provides no information by which I can judge just how significant that prejudice might be.”
His Honour discussed each of the considerations advanced by the parties. As to the acrimony between the appellant and Mr Winner, he considered that this should not be a practical difficulty because under this lease, they would not have to have much to do with each other. As to the respondent’s failure to pay what Fimiston should have paid under the head lease, his Honour considered that the respondent was relevantly “blameless” and noted that the respondent was then prepared to make good Fimiston’s default. The respondent offered an undertaking to do so within 30 days and by the time the relevant orders were made on 9 March 2011, that default had been remedied so that an undertaking was unnecessary.
Against the possible prejudice to the appellant from not being able to lease the site as a whole, his Honour weighed what he described as the obvious prejudice to the respondent if it was forced to vacate immediately the premises from which it had conducted its business for 25 years.
Before the primary judge, as she did here, the appellant argued that the jurisdiction under s 125 was to be exercised “sparingly”, relying upon what Harman J said in Creery v Summersell and Flowerdew & Co Ltd, which was that it was to be “exercised sparingly because it thrusts upon the landlord a person whom he has never accepted as tenant and creates in invitum a privity of contract between them”.[4]
[4][1949] Ch 751 at 767.
As to that submission, and in particular as to the phrase “sparingly exercised”, his Honour said:
“[45]… I am not at all sure that it is accurate to limit the Court’s discretion by such a phrase. McCardie J’s approach in Hurd seems to me to be more in accord with the evident purpose of the legislation where he opined that the English legislation from which s 125 is derived ‘should be construed with a generous desire to save an under lessee from the grave loss which may fall upon him unless the section be liberally construed.’[5] I note that no mention was made of any such limitation by the Court of Appeal in Belgravia Insurance Co Ltd v Meah[6] where the history of the section was discussed but rather Lord Denning said that ‘it is clear that the Court may always refuse relief, if the conduct of the applicant is such as to make it inequitable that relief should be given to him.’[7] While the conduct of the applicant for relief is not the only relevant factor that statement, in my view, provides some guide to the approach I should take. Nor was mention made of a ‘sparing’ use of the discretion in Public Trustee v Westbrook,[8] a decision of the Court of Appeal the following year.”
[5]Hurd v Whaley [1918] 1 KB 448 at 451.
[6][1964] 1 QB 436.
[7]Ibid at 446.
[8][1965] 1 WLR 1160.
I agree with that analysis of the authorities. Undoubtedly the Court is to be mindful of imposing a lease upon a blameless lessor, who has been put to the trouble of forfeiting the head lease. Clearly also, the level of acrimony between the present parties was relevant in considering whether to impose this new lease upon the appellant. But although relevant and important considerations, they were not determinative.
The appellant’s arguments here
The appellant argues that his Honour “…failed to put sufficient weight on the evidence of the prejudice which would attend the appellant if such a lease was granted”. As already noted, the potential for that prejudice was considered, but its weight was affected by the lack of any quantification or detail of the claim. In a belated attempt to overcome that difficulty, the appellant now seeks to lead further evidence.
The hearing commenced on 7 February 2011 on the return date of an Originating Application by the appellant seeking a declaration that the head lease had been terminated and an order for recovery of possession against both Fimiston and the respondent. On that day, Fimiston was ordered to be wound up (upon the appellant’s application) and it did not resist the claim for possession. The hearing continued as a claim against the respondent, when the respondent’s counsel said that the respondent was seeking relief under s 125. To some extent that oral application had been foreshadowed by a claim for s 125 relief which had been filed in the Magistrates Court but which had not been pursued. But the absence of any filed application for relief under s 125 explains why, on 7 February, there was no evidence for the appellant directed to that case.
There was an affidavit of Mr Winner, sworn on 7 February, which did go to the s 125 claim. Mr Winner there said that the respondent sought orders to the effect that it would become bound under a lease from the appellant on the same terms as the existing head lease with the exceptions of the rent being payable in accordance with the sublease and the increase in rates being payable in the proportion of the demised area to the entire property. But he did not then disclose the amount of the rent according to the sublease.
Not much was argued in relation to s 125 on 7 February and the application was adjourned to 11 February. On 9 February, Mr Winner swore another affidavit, this time disclosing the rent which the respondent had been paying under the sublease, which was $625.50 per month. But on the resumption of the hearing, the appellant did not seek to prove the market rental of the workshop or of the site as a whole. It was in that context that his Honour commented upon the appellant’s claim for prejudice being an unquantified one. There was no application for an adjournment beyond 11 February. Nor did the appellant ask his Honour to receive any further evidence after the hearing and whilst the judgment was reserved.
In these circumstances, the appellant argues that she did not have a fair opportunity to respond to this application under s 125, and in particular, to present evidence as to market rental as she now seeks to do. I would accept that she was given little time to respond to this application which, together with the evidence in support of it, should have been notified to her well prior to 7 February. But she decided to argue the case on 11 February rather than seeking an adjournment and she must now establish why she should be permitted to rely upon this fresh evidence.
The further evidence is not of the market rental of the entire site. Therefore, it does not meet the evidentiary gap to which the primary judge referred. Instead, it is an opinion that the market rental for the workshop area is $16,625 per annum. Clearly that is more than the rental of $625 per month as was ordered. But had that evidence been before the primary judge, it is unlikely to have mattered. In Woodfall’s Law of Landlord and Tenant, it is said that although relief can be granted upon terms that the sublessee pays a higher rent than that which the sublease had required, “the Court cannot (or should not) require the sub-tenant to pay a higher rent merely because the market rental value of the property has increased”,[9] citing Cholmeley’s School Highgate v Sewell.[10]
[9]Sweet & Maxwell, Woodfall’s Law of Landlord and Tenant, vol 1 at [17.171].
[10][1894] 2 QB 906.
For these reasons, the arguments that his Honour erred in his consideration of a potential prejudice to the appellant, from being unable to let either the workshop or the site as a whole on more favourable terms, cannot be accepted. Nor should the appellant be permitted to adduce further evidence in that respect.
The appellant complains that the respondent, through Mr Winner, misled his Honour by failing to fully disclose the terms of the sublease. The point here concerns council rates. It is said that the respondent failed to inform the Court that what it was proposing for the new lease was more favourable to it than what it had agreed with Fimiston. After the hearing, the appellant found within her own records a letter from solicitors for Fimiston to Mr Winner dated 31 October 2001, countersigned by Mr Winner. It recorded an agreement under which the respondent was to pay “…40% of the total of rates increases on the subject property from 1st December, 1997 (the date of commencement of your sub-lease) and during the term of the existing sub-lease and any option period of the sub-lease”. The appellant had this letter because it had been disclosed by Fimiston in proceedings which she had brought against Fimiston for the outstanding rental. Under the lease which was ordered, the respondent is to pay not 40 per cent of the increase in rates, but a percentage corresponding with the proportion of the workshop to the entire service station, which is obviously less than 40 per cent.
The effect of the respondent’s case for s 125 relief was that it should be permitted to occupy the workshop, as a lessee from the appellant, for the same period and at the same cost to it as if it had not lost its sublease. There is no indication that it was seeking a result which in fact was more favourable to it than its position under the sublease. But that was the effect of what it sought and was granted by this judgment. It failed to disclose that the sublease, which was exhibited to an affidavit of Mr Winner, had been amended in relation to the rates contribution so that the relevant proportion became 40 per cent.
The application to adduce further evidence in this respect has more force. Not only was the respondent’s case misleading, but it must be inferred that if the true position had been known to the primary judge, the order would have been different in that it would have provided for a contribution of 40 per cent of the increase in rates. And unlike the evidence about market rental of the site, which was necessary for an argument which the appellant was making to the primary judge, this evidence went to a question upon which the respondent bore the evidentiary burden, so that its absence in the appellant’s case might be more easily explained. It is true that this is evidence which the appellant had in her possession. But the appellant has satisfactorily explained why it was not identified by her within the limited time available. I would now admit that evidence and amend the order in that respect.
The appellant, however, goes further and submits that this was such a serious misleading of the Court that, at least when considered with other misconduct of the respondent, the respondent should be denied any relief. Part of that misconduct was the unauthorised use of parts of the site outside the workshop, which was the subject of evidence and argument before his Honour. The appellant also wishes to adduce evidence of some further conduct of that kind, including some interference with a wire fence near the workshop, which has occurred since the judgment. Similarly, the appellant wishes to rely upon the lateness in the payment of rent since the judgment.
The evidence of the respondent’s conduct since the judgment should not be admitted here, at least because it is irrelevant to the question of whether the primary judge erred in any respect. These subsequent events could be relevant only if this Court was first persuaded to set aside the orders and itself exercise the discretion under s 125. As to the conduct involving the use of other parts of the service station which occurred before judgment, and the failure to disclose the true terms of the sublease, these are not matters which require the orders to be set aside. In that respect, the non-disclosure of the 40 per cent contribution is not demonstrated to have been a deliberate omission.
Other considerations
As already noted, there was an unresolved debate as to the interpretation of the formula which was within the sublease for increasing rent and which was therefore to be imported into this new lease. As already noted, the primary judge saw fit to leave that point open, by fixing the rent but upon the provisional basis that it was until further order. I would respectfully disagree with that approach. Given the longstanding acrimony between these parties, it was desirable that these orders should limit the prospect of further litigation. The primary judge should have resolved the question of the interpretation of the formula, and in my view the question was one which had to be resolved in favour of the respondent. The unreasonable outcome from an acceptance of the appellant’s argument means that upon an objective view, it could not have been the intended outcome. The obvious intention was to increase the rent, year by year, by an amount which was half of the increase in the rent under the head lease for the same period. I would vary paragraph 2(b) of the orders, by which it was ordered “[t]hat until further order or agreement the rent payable by the Second Respondent is fixed at $625.50 per month” so that it would read “that until increased according to the terms of such lease, the rent payable by the Second Respondent is fixed at $625.50 per month”.
Finally, something else should be said about rates. As I read the orders, the importation of the provisions of the former head lease had the effect that the respondent was to pay a proportion of the difference between the rates as levied from time to time upon the entire site and the rates levied upon the site at the commencement of the head lease in 1992. That interpretation was accepted by both parties in the hearing of this appeal and therefore the orders require no clarification in that respect.
Conclusion
The appellant’s arguments have failed to establish any error in this discretionary judgment. However, the orders should be amended upon the new evidence about rates and as to the form of order about the rent.
I would allow the appeal by amending paragraphs 2(a) and 2(b) of those orders so as to read as follows:
“2.Pursuant to s 125 of the Property Law Act 1974, the Second Respondent be granted relief on the following terms:
(a)The Applicant grant to the Second Respondent a lease for the term 11 November 2010 to 29 June 2012 and subject to the covenants and conditions set out in the Head Lease with the exceptions that the area demised and the rent payable be in accordance with the registered sublease number 702560484 and the increase in rates being payable as to 40 per cent of the increase which would have been payable according to the Head Lease.
(b)That until increased according to the terms of such lease, the rent payable by the Second Respondent under that lease be fixed at $625.50 per month.”
The outcome is but a small victory for the appellant, likely to be worth only a few thousand dollars and less than the cost of this appeal. The appellant has substantially failed because she argued against the grant of any relief. In those circumstances I would order the appellant to pay the respondent’s costs of the appeal.
BODDICE J: I have read the reasons of McMurdo J. I agree with those reasons and the proposed orders.
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