Liley, Ian David v Pipers-Furniture Makers of Tasmania Pty Ltd
[1996] FCA 747
•15 AUGUST 1996
CATCHWORDS
LEASE - Lease or agreement for lease over industrial premises - guarantee by directors of lessee company - variation of rental payments - subsequent sale of shares of lessee company and liquidation of lessee company - lease not a deed - lease not in registrable form - creation of equitable lease - repudiation and surrender of lease by lessee - abandonment by lessee during liquidation - effect on guarantee
GUARANTEE - guarantee by directors of lessee company as to lessee's covenants - failure to register lease - creation of an equitable lease - whether repudiation or surrender of lease
DAMAGES - repudiation of lease - evidence of future rental earnings - whether present tenant likely to continue - onus of proof
Conveyancing and Law of Property Act 1884 (Tas): ss 3, 60(1) and 60(2)(a)
Land Titles Act 1990 (Tas): ss 49(1) and 64(1)
Corporations Law: s 443B
Adamson v Hayes (1973) 130 CLR 26
Barry v Heider (1914) 19 CLR 197
Chan v Cresdon Pty Ltd (1989) 168 CLR 242
Hill v Cox (1882) QLJ 78
Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 4 CLR 672
Nangus Pty Ltd v Charles Donovan Pty Ltd [1989] VR 184
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
The National Trustees, Executors and Agency Co of Australasia Pty
Ltd v Boyd (1926) 39 CLR 72
The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Walsh v Lonsdale (1882) 21 ChD 9
Wood Factory Pty Ltd and Others v Kiritos Pty Ltd (1985) 2 NSWLR 105
Ian David Liley & Ors v Pipers-Furniture Makers of Tasmania Pty Ltd & Ors.
No. TG 3019 of 1995
Judge: Heerey J
Date: 15 August 1996
Place: Hobart
IN THE FEDERAL COURT OF AUSTRALIA )
)
TASMANIA DISTRICT REGISTRY ) No. TG 3019 of 1995
)
GENERAL DIVISION )
B E T W E E N:
IAN DAVID LILEY, PATRICIA ELENA LILEY,
PENELOPE JOY DAY, ROGER GREGORY, GUS GREEN PTY LTD
ACN 009 544 889
Applicants
- and -
PIPERS-FURNITURE MAKERS OF TASMANIA PTY LTD
(in liquidation)
ACN 009 479 038
ROBERT EDWARD JOHN TENBENSEL,
JAMES THOMAS PIPER, THOMAS ALFRED PIPER.
MICHAEL JOHN WALSH, NORMAN GEORGE DAY
ANTHONY FITZGERALD
Respondents
JUDGE: Heerey J
DATE: 15 August 1996
PLACE: Hobart
MINUTES OF ORDER
The Court orders that:
There be judgment for the applicants against the third and fourth respondents for $459,191.93.
The question of costs and further directions are adjourned to a date to be fixed.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
TASMANIA DISTRICT REGISTRY ) No. TG 3019 of 1995
)
GENERAL DIVISION )
B E T W E E N:
IAN DAVID LILEY, PATRICIA ELENA LILEY,
PENELOPE JOY DAY, ROGER GREGORY, GUS GREEN PTY LTD
ACN 009 544 889
Applicants
- and -
PIPERS-FURNITURE MAKERS OF TASMANIA PTY LTD
(in liquidation)
ACN 009 479 038
ROBERT EDWARD JOHN TENBENSEL,
JAMES THOMAS PIPER, THOMAS ALFRED PIPER.
MICHAEL JOHN WALSH, NORMAN GEORGE DAY
ANTHONY FITZGERALD
Respondents
JUDGE: Heerey J
DATE: 15 August 1996
PLACE: Hobart
REASONS FOR JUDGMENT
The applicants and the sixth respondent Norman George Day are the owners of industrial premises on the outskirts of Ulverstone. A former tenant of the premises, the first respondent Pipers- Furniture Makers of Tasmania Pty Ltd (PFMT), has gone into liquidation. The applicants seek to enforce a guarantee of PFMT's obligations against the third and fourth respondents James Thomas Piper and Thomas Alfred Piper who were directors of that company. Mr Day is also sued because he acted as solicitor for the applicants. If the claim on the guarantee fails there is an alternative claim in negligence against him. However the questions of liability and quantum on the guarantee have been tried as separate issues.
Acquisition of the Premises
The land in question has an area of 3.632 ha. There is a large factory building of 2500 m2 and, about 100 m away, a showroom and office building of 235 m2. The premises have a frontage on Industrial Drive which is a service road running alongside the Bass Highway.
The buildings were erected about 10 years ago. In October 1989 the premises, then vacant, were to be sold by auction. PFMT (then known as Pipers Truline Pty Ltd) planned to expand its furniture manufacturing business and expressed interest in taking a lease of the premises. The first applicant Mr Ian Liley, an optometrist practising in Ulverstone, together with Mr Day organised a group of investors consisting of Mr Liley and his wife, Mr Day and his wife, Mr Roger Gregory and Mr Gus Green, the last mentioned operating through his company, Gus Green Pty Ltd. An initial meeting of all the investors was held at the home of Mr and Mrs Liley. Mr Day had previously acted as solicitor for Mr and Mrs Liley and also for Mr Gregory. It was agreed that he would undertake the legal work for the purpose of the investment. Mr Liley and Mr Day were authorised to negotiate for the purchase and a leasing arrangement with PFMT.
Mr Day prepared and executed a written agreement dated 6 October 1989 with PFMT which was an agreement to lease conditional upon Mr Day "and/or his nominees" entering into a contract to purchase the premises on or before 13 October 1989. The agreement made provision for the term of the proposed lease (ten years with an
option for a further ten years) and for the rent which was to be 13.5 per cent of the purchase price per annum up to a limit of $125,000 per annum with annual increases from 6 December 1990 related to the consumer price index. A brief summary of various terms of the lease were set out and it was provided also that the lease should contain "such other terms and conditions as are normally contained in leases of a similar nature", with any dispute in respect thereof being referred to the President for the time being of the Law Society of Tasmania. Clause 3 of the agreement provided :
The lease shall be prepared and executed as soon as possible after the condition in clause 1 hereof [entering into the contract to purchase] is fulfilled.
The property was purchased at the auction for $800,000. The investors financed the purchase as to $625,000 by way of bank bill for a fixed interest term of five years at 16 per cent. The balance was made up by individual contributions by the investors, in most instances the funds being also borrowed. PFMT went into occupation on 6 December 1990 and installed substantial plant and equipment.
The Tenancy Document
Towards the end of negotiations in October 1989 Mr Day and Mr Liley attended a meeting with Mr James Piper and Mr Thomas Piper. It was agreed that Mr Day would draw up a lease on behalf of the investors as landlords which would be submitted to the Pipers. Mr Day had also acted as solicitors for the Pipers and PFMT but he told them they should get separate legal advice on the terms
of the lease, which they did.
Mr Day prepared a document which was executed on 26 January 1990. It is called an Agreement for Lease but one of the disputed issues is whether it was in truth an agreement for a lease or a lease. I shall therefore use the neutral term "tenancy document" in referring to it.
The tenancy document is expressed to be between the investors of the one part and PFMT of the other part, the parties being respectively described as lessor and lessee. The following are the clauses relevant for present purposes:
Whereby it is agreed and declared as follows:
The Lessor agrees to let and the Lessee agrees to take ALL THAT the property situate at Industrial Drive Ulverstone in Tasmania [details of area and title reference].
...
The Lessor shall hold the same unto the Lessee from the sixth day of December one thousand nine hundred and eighty-nine for a term of ten years paying therefor rent at the rate of one hundred and eight thousand dollars ($108,000) per year for the first year and thereafter rent shall be increased annually on the 6th day of December each year in the manner provided in clause 4 hereof [there follow provisions as to mode of payment].
Clause 4 contains a mechanism for consumer price index increases in rental. Clause 5 contains covenants by the lessee to pay rates and taxes, to use the premises for the purpose of furniture manufacturing and sales only, to insure, and various other covenants commonly found in commercial leases. Clause 6 contains covenants by the lessor to keep the structural portions of the buildings in good order and condition and to give quiet possession. Clause 7 contains a re-entry clause applicable if
the rent is in arrears for 14 days. Clause 8 provides for payment of interest on arrears of rent at the rate charged by the Commonwealth Bank on overdraft loans of under $100,000. Clause 9 deals with damage or destruction by fire etc and clause 10 with alterations of a structural nature which the lessor might be required to make. Clause 11 contains an option for renewal for a further term. Clause 12 deals with interruption to electrical and water supplies. Clause 13 is an arbitration clause. Clause 14A provides that certain specified clauses, including the covenant to pay rent, are "essential terms of this lease". Clause 14B is as follows:
14B.(i) In the event that the Lessee's conduct (whether acts or omissions) constitute a repudiation of the Lease (or of the Lessee's obligations under the Lease) or constitute a breach of any Lease covenants, the Lessee covenants to compensate the Lessor for the loss or damage suffered by reason of the repudiation or breach.
(ii)The Lessor shall be entitled to recover damages against the Lessee in respect of repudiation or breach of covenant for the damage suffered by the Lessor during the entire term of this Lease.
(iii)The Lessor's entitlement to recover damages shall not be affected or limited by any of the following:
(a)If the Lessee shall abandon or vacate the said premises;
(b)If the Lessor shall elect to re-enter or to terminate the Lease;
(c)If the Lessor shall accept the Lessee's repudiation;
(d)If the parties' conduct shall constitute a surrender by operation of law.
(iv)The Lessor shall be entitled to institute legal proceedings claiming damages against the Lessee in respect of the entire Lease term, including the periods before and after the Lessee has vacated the said premises, and before and after the abandonment, termination, repudiation, acceptance of repudiation or surrender by operation of law referred to in sub-clause (iii), whether the proceedings are instituted either before or after such conduct.
(v)In the event of the Lessee vacating the said premises, whether with or without the Lessor's
consent, the Lessor shall be obliged to take reasonable steps to mitigate his damages and to endeavour to lease the said premises at a reasonable rent and on reasonable terms. The Lessor's entitlement to damages shall be assessed on the basis that the Lessor should have observed the obligation to mitigate damages contained in this sub-clause. The Lessor's conduct taken in pursuance of the duty to mitigate damages shall not by itself constitute acceptance of the Lessee's breach or repudiation or a surrender by operation of law.
Clause 15 provides for giving notices and clause 16 and 17 provide for inspections. Clause 18 deals with holding over and cl 19 with internal additions. Clause 20 is a construction clause and cl 21 provides for the lessee to pay the lessors' stamp duty and all the lessors' reasonable costs. In fact stamp duty of $1,080 was paid. Under the relevant Tasmanian legislation, stamp duty is payable without distinction on leases and agreements for leases.
The tenancy document is signed (but not sealed) by Mr and Mrs Liley, Mr and Mrs Day, Mr Gregory and the common seals of Gus Green Pty Ltd and PFMT (under its then name Pipers Truline) are affixed. There then follows:
IN CONSIDERATION of the Lessor having entered into this agreement with the Lessee at our request we James Thomas Piper and Thomas Alfred Piper directors of the Lessee Company hereby jointly and severally guarantee performance by the Lessee of all its agreements and undertakings contained in the above Agreement.
T A Piper (sgd)
Guarantor
J T Piper (sgd)
Guarantor
Reduction in Rent
On 26 November 1990 Mr Day wrote to PFMT advising that the CPI
increase was 6 per cent and that the additional amount of rent payable per month would be $540. On 28 November Mr J T Piper replied stating that the company's industry was currently going through a severe recession and had reduced its workforce by 25 per cent and was operating on a four day week. The letter asked that the increase be suspended for three months after which the subject would be reviewed. On 11 December Mr Day wrote saying that the lessors "reluctantly agreed" to the request on the basis that it was a one-off concession. On 7 May 1991 Mr T A Piper wrote to Mr Day seeking reduction in rent "for a period of six months, or less, should the economy recover from this recession earlier". Following further discussions Mr Day wrote on 30 May in the following terms:
The Manager
Pipers - Furniture Makers of Tasmania Pty. Ltd.
P.O. Box 104,
ULVERSTONE. 7315
Dear Sir,
re:LEASE
I, on behalf of the landlords hereby confirm, that following the meeting between yourselves and the landlords, that as a measure to assist you to overcome the existing poor trading conditions, we agree:-
The amount payable for rent for up to the next twelve months can be reduced by 10%, thereby reducing rent from the current rate of $9,540.00 per month to $8,586.00 per month, commencing on the 6th of June 1991.
The difference between the rent you pay and the rent which was due under the Lease will remain a debt owed to the landlords, payable on 30 days notice, but on the understanding that we will not make a demand for payment of these moneys until such time as your trading circumstances considerably improve.
Not withstanding the above, in the event of your selling the business, or your finding an equity partner in the business, the full rent under the Lease is then to be paid and the arrears of rent are to be paid.
In the event of your finding a sub-tenant for portion of the premises, subject only to our approving of the sub-
tenant and the type of business to be carried on in the premises, our approval of such a sub-Lease should only be a formality.
Would you please advise in writing your acceptance of the above offer.
PFMT replied on 12 June accepting the offer and stating
Our company understands that the difference between the rent we pay and the rent that was due will be repaid in full when trading improves.
Sales of Shares in PFMT
By a deed dated 30 August 1991 the Piper family interests sold the entire issued share capital in PFMT to Britton Brothers Pty Ltd. By cl 5(1) of the deed Britton Brothers covenanted to use its best endeavours to obtain the release of T H Piper, T A Piper and J T Piper from each of the personal guarantees listed in the schedule and to that end to give if required by persons in favour of whom the guarantees were given at least two persons in substitution for the personal guarantees of the Pipers. The schedule referred to a number of guarantee obligations to Westpac Banking Corporation, Australian Guarantee Corporation Limited and the Tasmania Development Authority. Through an oversight on Mr Day's part, the tenancy document the subject of the present proceedings and the guarantee therein contained was not included in the schedule.
Subsequently the directors of Britton Brothers refused repeated requests by Mr Day and the Pipers to execute personal guarantees.
Demand for Arrears
On 14 November 1991 Mr Day wrote to PFMT advising that the CPI increase was 3.3 per cent and that the new rent payable from 6 December 1991 would be $9,854.82. The letter continued:
We also note that following the shares in the Company being sold to Britton Brothers Pty. Ltd., the concession granted by the Landlords in respect of rent to assist the Company over its current trading difficulties, lapsed with the result that rent should have reverted to the full $9,540.00 per month, and the arrears of rent accrued during the period of the payment of reduced rent, became liable for repayment.
Consequently, we calculate that in addition to the rent due on the 6th of December 1991, there is a further payment due in respect of these arrears of rent which we calculate to be $5,724.00 being six months reduced rent of $954.00 per month for the period from the 6th of June 1991 to the 6th of November 1991 (inclusive).
Therefore, on the 6th of December 1991 there should be paid to the Landlord's Bank account the new monthly rent amount of $9,854.82 plus the arrears of rent of $5,724.00. We would request that you change your authority with your Bank so that the future monthly rent payments paid by your Bank by automatic Bank transfers are increased to $9,854.82.
On 29 November PFMT replied in the following terms:
Thank you for your letter of the 14th November, 1991.
Your claim for increased rent comes as a surprise. Your letter of the 30th May, 1991 confirmed arrangements made to defer payment of rent because our company was experiencing difficulties due to poor trading conditions. I understand that no demand for payment would be made until trading circumstances considerably improved.
Let me assure you that trading conditions are still poor and if anything trading circumstances have deteriorated.
In any event, my view is that none of the conditions in paragraph three of your letter have been met. Our company has neither sold its business nor has there been any injection of equity into the company. Consequently, our company has no additional funds with which to pay the rent.
In addition we also note that interest rates have been reduced considerably in the past twelve months to the lowest levels for some decades and accordingly, albeit to the recession and demand, almost all lease and rental rates have remained static and in numberous [sic] instances have actually been reduced.
As there has been no improvement in our capacity to pay rent, I propose continuing to pay rental at $8,586.00 per month until June next year in accordance with the existing arrangement and ask you to stand by that arrangement.
Yours faithfully,
G. Britton
Managing Director.
Nothing apparently happened until the following year when on 10 July 1992 Mr Day wrote to PFMT advising that, subject to two pre conditions, the lessors were prepared to allow the current concessional arrangement as to rent to remain in place, that is rent to remain at $8,540.00 [sic] per month. The preconditions were, first, that the guarantees by the directors of Britton Brothers were completed and, secondly, that there be a mortgage or other form of security in respect of rent foregone and any future rent not paid.
On 18 September Mr Day wrote indicating that there would be a further reduction of the current concessional rent to $8,000 provided the guarantees were completed. On 13 October Britton Brothers replied stating that the directors' guarantees would not be given. The letter pointed out that the tenancy document did not contain provisions stipulating that further guarantees were to be provided in the event of a change of directors. The letter also advised of negotiations with Mr Arnoldus Van Neutegem with a view to subletting part of the premises. That sub-lease was to be for an area 25 x 13 metres in the factory building for $250 per week inclusive of rates, land tax and electricity commencing on 19 October 1992.
On 2 December Mr Day replied to PFMT. The letter stated:
I write on behalf of all the Landlords in response to your letter
of the 13th of October. The concern of the Landlords is to protect their position while making sure that Pipers can continue. As a result, the concession as to rent was made. However, so that the Landlords protect their position against claims of other creditors of the Company in the event of the Company being wound up, the Landlords do not agree to the terms of the Lease being varied, or any acknowledgment that the Landlords forego any claim in respect to arrears. However, I can indicate that it is our present intention not to seek to recover those arrears. I trust that you can see the reason for our approach, and because this approach does not in any way affect the present cash flow position of the Company, it should not have any adverse affect on the operation of your business.
We agree to the sub-letting of portion of the premises to Mr. Van Neutegem.
The letter concluded with a further request for personal guarantees by the directors of Britton Brothers and the statement that "the concession referred to in our previous correspondence and in this letter are conditional upon these guarantees being given".
Appointment of Administrator
On 15 April 1994 the second respondent Mr R E J Tenbensel was appointed administrator of PFMT. On 2 May Mr Tenbensel wrote to Mr Day in terms which included the following:
In respect of the property situated at 44-46 Industrial Drive, Ulverstone (CT Vol 4311 Fol 90, 3.632 hectares), I advise as follows:-
Section 440C - Right of Possession
During the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession [emphasis in original] of the property or otherwise recover it, except:
(a)with the administrator's written consent; or
(b)with the leave of the Court.
Section 443B - Continued Occupation
Subject to my investigation, report to creditors and the creditors resolution I anticipate that the company will be placed into liquidation and will not require the property beyond the period necessary to the orderly disposal of assets.
If I continue to occupy and use the premises I cannot be taken to have adopted the lease agreement or assume any liability under the agreement other than in respect of rent during my occupation (Section 443B(9)).
Administrator's Responsibility
You have advised that the monthly rental is $10,152.20 of which $8,542.00 has been paid by the company for the period 6th April, 1994 to 5th May, 1994. I calculate the shortfall of rent for the period 16th April, 1994 to 5th April, [sic] 1994 to be $1,080.00.
The rates assessment for 1993/94 was $11,680.00 of which the company has paid $6,500. I calculated the monthly amount to be $973.00 and the shortfall for the period 16th April, 1994 to 5th May, 1994 to be $653.00.
The land tax for 1993/94 ($1,472.50) was paid by the company.
I calculate my daily responsibility as administrator to be $365.76 and enclose my cheque for $1,733.00 representing the shortfall for the period 16th April, 1994 to 5th May, 1994.
If I continue to occupy and use the premises I cannot be taken to have adopted the lease agreement or assume any liability under the agreement other than in respect of rent during my occupation (Section 443B(9)).
Rental Reduction
It will be necessary for you in the short-term to consider re-leasing the property and consequently will require access to show prospective tenants.
It is most likely that the stock, plant and equipment of the company will be auctioned. Given the expected scale and statewide/interstate advertising of an auction and the anticipated variety and volume of bidders I believe the additional exposure of an auction would greatly assist you re-leasing the property.
In view of the above I request a reduction in rental to $183 per day (all inclusive) payable weekly in advance from 6 May, 1994.
I will advise you of the likely date I will quit the premises when I have details of the auction program.
Co-operation
I believe it is in your best interests to co-operate with the administrator and the liquidator to maximise the realisation of assets and the return to ordinary unsecured creditors, of which you will be one.
Depending on your ability to re-lease the property you may have a substantial claim against the company for damages due to early lease termination.
I would be pleased to receive your response to the matter as soon as practicable in order that I may forward the revised rental payment by 6th May, 1994.
On 12 May Mr Day wrote to Mr Tenbensel stating that the lessors "will only agree to a reduction of rent to the same level as being paid by the company prior to your administration, namely $8,542 per month plus rates". This amount was calculated to be $312.83 per day ($280.83 for rent and $32 for rates). The letter stated that insurance on the building was to continue and that the tenant was responsible for making good any damage caused by removal of plant and equipment. Mr Tenbensel's undertaking as to the making good of any such damage was sought.
Liquidation
Also on 12 May PFMT went into liquidation. Mr Tenbensel was appointed liquidator. On 19 May Mr Tenbensel wrote to Mr Day referring to the latter's letter of 12 May and advising of an auction of plant, equipment and furniture to be held on Friday 3 June and Saturday 4 June. Allowing for the removal of items from the premises, Mr Tenbensel stated that he believed he would be in a position to vacate the premises by 5.00 pm on Monday 6 June. The letter stated that rent had been paid to 5 May and enclosed a cheque for $10,010.56 being payment of rent and rates to 6 June calculated at 32 days x $312.83. The letter stated
Depending on the timing of removal of property I may find it necessary to extend the rental period for a few extra days and will advise you further if this appears likely.
Vacation of Premises
On 30 May Mr Tenbensel wrote to Mr Day advising that removal of plant and equipment would take longer than initially expected and requesting that Mr Day
leave the period of my continued occupation open for several days beyond 6th June, 1994. During this period I undertake to pay rent and rates at $312.85 per day.
Mr Tenbensel suggested that there be a joint inspection of the premises just before he vacated. On 15 June Mr Tenbensel wrote to Mr Day confirming that he would vacate the premises at 5.00 pm on 14 June [sic], 1994 and enclosing a cheque for $2,502.64 rent up to that day. However a hopper, a large piece of machinery which was part of the dust extraction system, was not removed from the premises until 20 June.
The sub-tenant Mr Van Neutegem stayed in possession of his part of the premises until December of that year.
Proof of Debt
On 22 April 1994 Mr Day lodged a proof of debt with Mr Tenbensel for outstanding rent to 15 April 1994 $46,230.50 and outstanding rates to the same day $5,180.20 "plus contingent liability under the lease terms if lease not adhered to". The covering letter included the following:
Because the business was in financial troubles, at the request of the Pipers who were then the shareholders of the company, the landlords agreed that for a period of 12 months instead of paying the full rent, they could deduct 10% from the rent payment, but on the basis that the unpaid rent was still rent owed to the landlords and would be paid at a later date.
Subsequent to Britton Bros Pty Ltd acquiring the shares of the company there were discussions and correspondence with regard to rent reductions, because terms could not be agreed as to guarantees, there was never any agreement that rent payable under the terms of the lease would be reduced and the landlords specifically reserved their right to claim the unpaid rent.
The Guarantors' Defence
To the prima facie liability of the guarantors under the tenancy document the guarantors' primary defence was that the tenancy document was ineffectual and void by reason of its non registration: s 49(1) of the Lands Titles Act 1990 (Tas) and by not being a deed under seal: s 60(1) of the Conveyancing and Law of Property Act 1884 (Tas). Therefore, it was said, there was no debt of PFMT for which the guarantors could be liable. Alternatively it was said that if there was a binding lease it came to end by surrender and there was no liability for any rent thereafter. Other issues arose as to quantum, but I shall turn at once to the question of liability.
Chan v Cresdon Pty Ltd
The guarantors' first defence was squarely based on the decision of the High Court in Chan v Cresdon Pty Ltd (1989) 168 CLR 242 which was said to be indistinguishable. In Chan a landlord and tenant entered into a written agreement for a lease of land in Queensland "upon the terms and conditions set out in the Annexed Lease". A clause of the agreement required the landlord to arrange for stamping and registration of the lease. Simultaneously the parties executed a lease which was in the same terms as the annexed lease. That lease was in the form prescribed by the Real Property Act 1861 (Qld) (the Queensland Act) but was never registered. The lease contained a clause whereby Mr and Mrs Chan guaranteed "due and punctual performance by (the tenant) of the obligation on its part to be performed under this lease" (emphasis added). Mr and Mrs Chan executed the
lease. The tenant went into possession and paid rent, but subsequently defaulted.
Section 43 of the Queensland Act provided that, until registration, no instrument was "effectual to pass any estate or interest in any land under the provisions of this Act". A majority of the High Court (Mason CJ, Brennan, Deane and McHugh JJ, Toohey J dissenting) held that the claim against the guarantors Mr and Mrs Chan failed. But in so holding the majority nevertheless made it clear that failure to register the lease did not result in the landlord having no rights. The landlord had rights based on two foundations. First, entry into occupation followed by payment of rent under an agreement for a future lease brought into existence a common law tenancy from year to year. A similar tenancy arises from entry into occupation and payment of rent under an informal lease, including an unregistered lease of land under the provisions of the Queensland Act. Such a tenancy is an implied or imputed tenancy (168 CLR at 248). Section 43 of the Queensland Act did not prevent a common law tenancy coming into existence in accordance with those principles (at 240), although s 129(1) of the Queensland Act did have the effect of bringing into existence, rather than a tenancy from year to year, a lease terminable by a month's notice expiring at any time. (There is no equivalent of s 129(1) in Tasmania.) The majority concluded (at 249)
Accordingly, in the present case, once [the tenant] entered into possession of the shop premises, which were the subject of the lease, and paid rent, a common law tenancy at will terminable on one month's notice came into existence. There was imported into
that tenancy a covenant to pay rent in the terms of the covenant in the unregistered lease, as well as the other covenants in that instrument so far as they were consistent with such a tenancy. Furthermore, the covenant to pay rent under s 105(1)(a) of the Property Law Act was implied in the tenancy.
The second foundation was an equitable lease under the doctrine of Walsh v Lonsdale (1882) 21 ChD 9, the result being that
an agreement for a lease will be treated by a court administering equity as an equitable lease for the term agreed upon and, as between the parties, as the equivalent of a lease at law, although the lessee does not have a lease at law in the sense of having a legal interest in the term. (168 CLR at 252)
The High Court in The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 had already applied this doctrine in the case of an unregistered lease in registrable form of Torrens system land; see also The National Trustees, Executors and Agency Co of Australasia Pty Ltd v Boyd (1926) 39 CLR 72.
But the critical point where the claim against the Chans failed was that, as a matter of construction of the guarantee, the only obligations guaranteed were those arising "under this lease". The majority held that "only a lease at law would meet this description for the purposes of the guarantee" (168 CLR at 256). Neither the common law tenancy nor the equitable lease answered that description.
The High Court acknowledged the long-standing principle that unregistered instruments may confer equitable estates and interests in Torrens system land. Their Honours quoted the statement of Isaacs J in Barry v Heider (1914) 19 CLR 197 at 216, speaking of the New South Wales equivalent of s 43 of the
Queensland Act:
Section 41, in denying effect to an instrument until registration, does not touch whatever rights are behind it. The parties may have a right to have such an instrument executed and registered; and that right, according to accepted rules of equity is an estate or interest in the land. Until that instrument is executed, s 41 cannot affect the matter, and if the instrument is executed it is plain its inefficacy until registered - that is, until statutory completion as an instrument of title - cannot cut down or merge the pre-existing right which led to its execution.
The majority in Chan (at 257) go on to say:
The point made in this passage is that, though the unregistered instrument is itself ineffective to create a legal or equitable estate or interest in the land, before registration, the section does not avoid contracts or render them inoperative. So an antecedent agreement will be effective, in accordance with the principles of equity, to bring into existence an equitable estate or interest in the land. But it is that antecedent agreement, evidenced by the unregistered instrument, not the instrument itself, which creates the equitable estate or interest. In this way no violence is done to the statutory command in s 43.
In the present case, the obligations guaranteed by the guarantors are the "performance by the lessee of all its agreements and undertakings contained in the above Agreement". The terms of the guarantee do not depend on any characterisation of the tenancy document as a lease at law. It is the landlord's rights contained in the tenancy document itself, whatever their foundation in law or equity, which are to be guaranteed.
In any case, unlike the lease in Chan, the tenancy document in the present case was not in registrable form. It did not comply with Form 16 as required by regulation 32 of the Land Titles Regulations 1981 (Tas).
Moreover the Land Titles Act, unlike the Queensland Act, permits,
but does not require, leases for terms in excess of three years to be in a particular form, or to be registered. Section 64(1) of the Land Titles Act provides:
The registered proprietor of land may lease it for any term exceeding three years by a memorandum of lease in the prescribed form.
This is to be contrasted with s 52 of the Queensland Act which provides:
When any land under the provisions of this Act is intended to be leased for a life or lives or for any term of years exceeding three years the proprietor shall execute a lease in the prescribed form and every such lease shall refer to the description that is given in the grant or Certificate of Title of the land or shall give such other description as may be necessary to identify such land and shall be attested by a witness. [Emphasis added in both instances]
Even so, an unregistered lease for more than three years in Queensland may be enforced in equity: Hill v Cox (1882) QLJ 78 at 79.
Conveyancing and Law of Property Act
Section 60(1) of the Conveyancing and Law of Property Act 1884 (Tas) provides:
All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.
By s 3(1) "conveyance" is defined to include
assignment, appointment, lease, settlement and other assurance, made by deed, on a sale, mortgage, demise or settlement of any property or any other dealing with or for any property.
However the short answer is that the tenancy document took effect as an equitable lease: s 60(2)(a) of the Conveyancing and Law of
Property Act 1884 (Tas) and see Bradbrook and Croft "Commercial Tenancy in Australia" paragraph 1.06 and Adamson v Hayes (1973) 130 CLR 276. Counsel for the guarantors argued, probably correctly, that the tenancy document was a lease rather than an agreement for lease because it took effect as a present demise and there was nothing to show that any further document was contemplated. However even if this be so, it does not have effect that s 61 renders the tenancy document invalid. The document is still enforceable in equity. In Progressive Mailing House at 26 Mason J said:
In equity, however, a written lease not under seal was regarded as evidencing an agreement for lease. As an agreement for lease was capable of specific performance equity would decree specific performance of the written lease by ordering the execution of a lease under seal. In the meantime in accordance with the doctrine of Walsh v Lonsdale the relationship between the parties in equity was that of landlord and tenant.
Repudiation and Surrender
Progressive Mailing House confirms that the contractual principles of repudiation and acceptance apply to leases. I am satisfied that there was repudiation by PFMT of its obligations under the tenancy document.
Not only was there abandonment by PFMT, but that abandonment took place in the context of PFMT's liquidation. PFMT could only thereafter function, under the control of the liquidator, for the limited purpose of winding-up. It was no longer a going concern. There was no proffered assignment. It is hard to imagine clearer circumstances of PFMT, as tenant, evincing an intention not to be bound for the remainder of the term. But if there was a
surrender, that does not avail the guarantors. In Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105 McHugh JA said:
The argument for the defendant assumed that the effect of a surrender by operation of law deprived the plaintiff of a claim for damages based on repudiation. But in my opinion this is not so. The position is correctly stated by Brennan J in Progressive Mailing House Pty Ltd v Tabali Pty Ltd. His Honour said (at 386-387; 632) that "acceptance of a surrender by a lessee who has repudiated a lease is at once an acceptance of the repudiation and a determination of the lessee's interest in the land". Brennan J pointed out (at 387; 632) that, where the lease is liable to forfeiture, enforcing the forfeiture both determines the lessee's interest in the land and constitutes the lessor's election to accept the repudiation. In principle, I see no distinction between a landlord accepting the repudiation by forfeiting a lease by re-entry and a landlord accepting a repudiation by accepting the surrender whether by agreement or by operation of law. In both cases, the act of the landlord determines the tenant's interest in the land. In both cases the tenant has repudiated the lease. It would be odd, if the landlord who elected to bring the lease to an end was entitled to damages if he re-entered under a power to forfeit but was not entitled to damages if he simply took possession of the premises after the tenant had abandoned them. Indeed in some case the position of the landlord accepting a surrender which also constitutes the acceptance of a repudiation would seem to be stronger than that of the landlord wishing to forfeit the lease for repudiation.
See also per Priestley JA at 133.
Clause 14B(v) does not affect the result. I note in any event that cl 14B(iii)(d) expressly provides that the landlord's entitlement to recover damages is not to be affected or limited by, amongst other things, a surrender. But cl 14B(v) does not have the effect that there will be no acceptance of repudiation unless there is something other than reletting. Counsel for the guarantors argued that implicitly some sort of formal notice was necessary. I do not think the basic rights of the landlords were to be affected in this drastic way. The surrounding circum-stances including PFMT ceasing business, going into liquidation, vacating the site and the landlords searching for new tenants and ultimately reletting the premises, unequivocally point to
acceptance of repudiation.
Quantum
In Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd (1906) 4 CLR 672 at 684 Griffith CJ said :
In the ordinary case of a demise for a term of years with an express covenant to pay the rent, if the lessee unequivocally repudiates the lease and abandons the land, the lessor may at his option bring an immediate action for breach of covenant, in which he will be entitled to recover the full amount of the agreed rent for the whole term, less such sum as the jury may think he is likely to derive as profits from the use of the land during the residue of the term ... This is the ordinary rule of damages.
A guarantor of a lessee's obligations will be liable notwithstanding that the lease comes to an end by the lessor's acceptance of the lessee's wrongful repudiation: Nangus Pty Ltd v Charles Donovan Pty Ltd [1989] VR 184.
The history of the premises after PFMT left was as follows. Mr Day and Mr Liley had meetings with two commercial real estate agents, Webster Limited and L J Hooker Ulverstone. They decided to decline the offer of a sole agency by Webster Limited. In conjunction with Mr Frank O'Connor, the manager of L J Hooker Ulverstone, they contacted a number of possible tenants in the area and spoke to bank managers, other estate agents and solicitors to enquire of interest. An approach was made to the Ulverstone Council which it was thought might be looking for a larger works depot as a result of the amalgamation of the Penguin and Ulverstone municipalities, but to no avail. The Victorian firm Visy Board announced it was setting up an operation in Northern Tasmania. Mr O'Connor contacted them but the response
was that the premises were not near a port and Ulverstone was too small a population centre. Eventually Visy Board built a new factory in Devonport. The major businesses in the Ulverstone, Edgells, Besser Brick and CIG Pyrethrum were approached without success. A large sign was erected on the highway and advertisements placed in Tasmanian newspapers.
As leads had come to nothing, one Saturday afternoon Mr Liley, Mr Day and Mr O'Connor sat down with the three Tasmanian telephone books and selected from the Yellow Pages all the firms which might be interested in a tenancy. They wrote about 40 or 50 letters to the ones selected. They did not advertise on the mainland because, Ulverstone being a small centre without any other real industry, it was thought to be a waste of money.
Eventually Mr O'Connor, through his brother who worked for the fertiliser company Pivot Limited, heard that the company was setting up business in Tasmania and intended to build premises at Devonport. An approach was made to Pivot to take a short term lease. Meetings were held but, in Mr Day's words,
Pivot needed greater height to take trucks in there to tip up their fertiliser and because of the shape of the fertiliser heap, that it just wasn't satisfactory for their purposes on a long term basis.
In the event, Pivot took up a tenancy on a reduced rent for six months in the first half of 1995.
A number of enquiries were made about the front office showroom
area. Ultimately a local company Aware Technology Pty Ltd took a lease for a six month period. Mr Day and Mr Liley were "a bit hesitant about this firm" because one of their principals had been in business in a neighbouring town and gone bankrupt, but as they were "the only thing going" the decision was made to lease to them. Currently Aware Technology are a monthly tenancy and negotiations are proceeding for a three year lease.
Some enquiries were made from people wanting part of the land between the factory and the showroom area to establish a garden centre, but that failed because the prospective tenant wanted an expensive security fence around this area.
Some attempts were made to sell the building through a local property consultant Mr Clyde Eastaugh. This achieved some enquiries and a "tentative offer" of $600,000 but that did not become firm.
To return to Pivot, they moved out after their first six months but after a further three months moved back in and are still in occupation although no lease has been negotiated. They are tenants on a month to month basis. Pivot are not ideally suitable tenants because they store 45,000 tons of bulk fertiliser on the concrete slab within the confines of a metal building and there may be some risk of corrosion. Attempts have been currently made to find another tenant to replace Pivot. There is the possibility of the involvement of a transport company.
Assessment of Damage
A number of issues arise:
Was increased rent payable for the three months to 6 March 1991?
Was the rental permanently reduced by the agreement recorded in Mr Day's letter of 30 May 1991?
Did the arrears become due?
Did the agreement with Mr Tenbensel permanently reduce the rent?
In estimating the loss of future rent should a credit be allowed for rental from Pivot on the assumption that it will be received for the whole of the remainder of the term?
(i) Suspension to March 1991
In its terms Mr Day's letter of 11 December 1990 spoke of the CPI increase being "suspended" as a "one off concession". There was no stipulation (as there was in subsequent concessions) for the amount foregone to be payable in the future. In my view there was a variation of the lease to the effect that the increase of $540 per month was waived by the landlord for three months. No point was taken as to any absence of consideration.
(ii) Letter of 30 May 1991
On the best view for the tenant the reduction was only for the period "up to the next twelve months" from 6 June 1991. The agreement evidenced by this letter did not effect any reduction beyond that point.
(iii) Did the Arrears become Due?
The debt constituted by the arrears would become payable on the giving of the notice referred to in para 2 of the letter of 30 May 1991 or in the event of PFMT "selling the business" or the existing proprietors "finding an equity partner in the business".
Dealing first with the two last mentioned conditions, there was in fact no sale of the business - there was a sale of the shares in the company (PFMT) which owned the business. Such a transaction was no doubt the commercial equivalent of the sale of the business. The possibility of a sale transaction occurring in this way should have been obvious to any reasonably competent solicitor. Appropriate provision should have been made in the 30 May letter. But the fact remains this was not done and the event which occurred - the sale of shares - does not answer the description in the letter of the event which was to make the arrears payable. There is no suggestion any "equity partner" was found.
Turning to the first condition, I note that counsel for the guarantors did not argue that no demand could be made because "such time as your trading circumstances considerably improve" had not arrived. While one might suspect that the fortunes of PFMT were in a state of continuous decline from the date of the letter until administration and liquidation, there was no attempt to prove that fact by evidence.
Mr Day's letter of 14 November 1991 was in my opinion a
sufficient demand. True it is the letter asked that the arrears be paid on 6 December, which was less than 30 days after the date or receipt of the letter. However that only meant that the debt was not payable until the 30 day period expired. Notice, that is to say indication that the landlord wanted payment, was clearly given in the letter. Accordingly the arrears became due 30 days after 14 November or after receipt of the letter. The latter date is in my view preferable, but in any event the due date was before the commencement of the present proceedings.
(iv) The Tenbensel Agreement
The arrangements with Mr Tenbensel were clearly referrable to him and his occupation in his statutory capacity as administrator: see Corporations Law s 443B. After liquidation Mr Tenbensel's brief occupation was purely to enable the orderly disposal of PFMT's assets. His payment of rent was a cost incidental to the winding-up for the purposes of s 512.
(v) Pivot Rental
The first contention of counsel for the applicants was that in assessing damages for loss of future rental there should be no discount at all for the Pivot rental. Counsel relied on TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 159 where Hope JA said that damages in that case should not be reduced because of "a possibility that the damages would in fact be mitigated by some future event". But his Honour was speaking in the context of an argument by the defendant that, not having established a probability that the plaintiff's damage
would be mitigated, it should nevertheless get a discount for the possibility of that occurring, like the discount for the "vicissitudes of life" in personal injuries claims. Hope JA pointed out that in a contract case the defaulting party by "establishing a possibility ... does not establish that the innocent party has failed in his duty or has mitigated or will mitigate his losses".
In the present case, I am not satisfied that the applicants have failed to mitigate their loss. Indeed the evidence shows they tried hard to obtain a new tenant. Those efforts have to some extent succeeded in that they have produced the Pivot and Aware Technology tenancies. The rent paid by Pivot and Aware Technology to date must be taken into account. As to the future, I think the onus is on the applicants to show that a currently continuing state of affairs, that is to say the paying of rent by the two tenants, is going to come to an end. This is not a question of failure to mitigate as the application of the general maxim that he who alleges must prove. No party called evidence from Pivot or Aware Technology as to their intentions in relation to these premises or alternative premises. I readily accept that, if either or both of these tenants leave, previous experience shows that it is going to be very difficult to provide replacements. I also accept that neither occupancy is all that secure. But in the absence of evidence I do not think I should speculate as to when they might leave.
Calculation of Damages
On the evidence, I find the rent payable under the tenancy document from 6 December 1990 to the date of trial to be $685,024.78 (after deducting $1,620 for the March 1991 suspension). The rent paid by PFMT, Mr Tenbensel, Mr Van Neutegem, Pivot and Aware Technology for the same period was $510,399.02. The shortfall is therefore $174,625.76. Together with other payments admitted to have been made the loss to date is as follows:
Rental174,625.76
Rates (net) 36,211.33
Insurances to 30/6/95 6,888.44
Security 397.90
Electricity 475.45
Advertising 1,179.20
Lawn Mowing 105.00
Land Tax to 30/6/96 4,025.00
Estate Agents Commission 3,750.00
Consultant's Fee 812.50
Estate Agent's Collection
Fee and Government Charges 6,445.92
Repairs 116.00
$235,032.50
Gross future rental to the end of the term on 5 December 1999 is $454,806.72, which assumes, reasonably in my opinion, an average CPI increase of 2.5 per cent, that being the average over the preceding five years of the lease. Discounted at 13.06 per cent,
the higher of two rates put by the applicant, the present value is $371,411.89. Correspondingly figures for future rates and insurance are:
Gross Present Value
Rates 53,364.82 43,860.80
Insurance 12,468.00 10,247.98
Total loss is therefore
Past loss 235,032.50
Future rent 371,411.89
Future rates 43,860.80
Future insurance 10,247.98
$660,553.17
The gross rental received from Pivot ($7100 per month) and Aware Technology ($720 per month) is $7,820 per month for 38.5 months that is $301,070. The present value of that sum at the same discount as applied to the gross rent is $245,853.76. Deducting the last mentioned amount, the damages recoverable will be $414,699.41.
Interest on arrears of rent at the interest rate specified in the tenancy document is $44,492.52.
Judgment
There will be judgment for the applicants against the third and fourth respondents for $459,191.93.
The question of costs and further directions will be adjourned to a date to be fixed.
I certify that this and the preceding thirty-one (31) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.
Dated:
Associate
Appearances
Counsel for the applicant: Mr O'Farrell
Solicitor for the applicant: Dobson Mitchell & Allport
Counsel for the third and fourth Mr A Blow QC
respondents:
Solicitor for the third and McLean Phillips & Bartlett
fourth respondents:
Counsel for the fifth and Mr P Evans
seventh respondents:
Solicitors for the fifth and Butler McIntyre & Butler
seventh respondents:
Counsel for the sixth respondent: Mr S Estcourt
Solicitors for the sixth Barker & Worsley
respondent:
Dates of hearing: 5, 6 and 7 August 1996
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