Lituma Pty Limited v Jafari

[2005] NSWADTAP 37

Appeal Panel - Internal

CITATION:	Lituma Pty Limited v Jafari [2005] NSWADTAP 37
PARTIES:	APPELLANT Lituma Pty Limited RESPONDENT Zahra Jafari
FILE NUMBER:	059021
HEARING DATES:	20/06/2005
SUBMISSIONS CLOSED:	06/20/2005
DATE OF DECISION:	07/20/2005
DECISION UNDER APPEAL:	Lituma Pty Limited v Jafari [2005] NSWADT 64
BEFORE:	Chesterman M - ADCJ (Deputy President); Donald BG - Judicial Member; Weule B - Non Judicial Member
CATCHWORDS:	Claim for assignment of rights under a lease/ declaration lessor not entitled to withhold consent to an assignment of rights - statutory interpretation
MATTER FOR DECISION:	Principal matter
FILE NUMBER UNDER APPEAL:	055016, 055024
DATE OF DECISION UNDER APPEAL:	03/24/2005
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Conveyancing Act 1919 Law of Property Act 1925 (UK) Retail Leases Act 1994
CASES CITED:	Holden v Blaiklock [1974] 2 NSWLR 262 Lituma Pty Ltd v Jafari [2005] NSWADT 64 Plymouth Corporation v Harvey [1971] 1 All ER 623
REPRESENTATION:	A Monzo, barrister F Hicks, barrister
ORDERS:	1. Appeal dismissed; 2. Vary the Tribunal's Order (2), made on 24 March 2005, by deleting 'make the payments set out in cl.1(b) and (c) of the Deed on 26 November 2004 at 2pm' and substituting 'comply with any of the provisions of cl.1(b), (c) or (d) of the Deed'; 3. Vary the Tribunal's Order (4) by deleting 'on 7 April 2005 at 11 a.m.' and substituting 'at a date and time to be fixed by the Registry and communicated to the parties'; 4. Unless an application with supporting submissions is filed in the Tribunal within 28 days, there will be no order on the costs of this appeal. If any such application is filed, the opposing party's submissions must be filed within a further 28 days. In the absence of any request for a hearing, the matter will be determined 'on the papers', under s 76 of the Administrative Decisions Tribunal Act 1997.

Introduction

1 This appeal raises a difficult question of interpretation of a Deed of Release entered into between a lessor of retail shop premises at Willoughby, the initial lessee and an assignee of the lease, who was also the purchaser of the business formerly carried on by the lessee in the premises. The lease was governed by the Retail Leases Act 1994.

2 In these appeal proceedings, the lessor, Lituma Pty Ltd (‘Lituma’), challenged rulings made by the Tribunal, constituted by Ms S Higgins, Judicial Member, by way of determination of preliminary issues arising in two applications. These were (a) an application that Lituma had brought against the assignee, Mrs Zahra Jafari (file 055024) and (b) an application brought by Mrs Jafari against Lituma (file 055016). The Tribunal’s decision was delivered on 24 March 2005 (Lituma Pty Ltd v Jafari [2005] NSWADT 64). Its rulings were in favour of Mrs Jafari.

3 Before describing these rulings, we must summarise the events leading up to the execution of the Deed of Release (‘the Deed’) on 26 November 2004 and the instigation of the present proceedings. These events are outlined in the Tribunal’s judgment at [2 – 10].

Factual background

4 The lease, which was registered, was initially granted by Lituma to Sayed Mohammad Ali Khalili-Sohi and Shahin Mahdavi Nader (‘Sohi and Nader’) on 9 December 2002. Sohi and Nader conducted a Darya/Persian and Australian supermarket business in the premises. The lease was for a period of five years, with an option to renew for a further five-year period.

5 In March 2003, Sohi and Nader allowed Mrs Jafari and her husband, Mr Alireza Jafari, to run the business with a view that they would purchase it. In May 2003, Mr and Mrs Jafari executed an agreement for the sale of the business. That sale was never completed, but Mr and Mrs Jafari continued to run the business from the premises.

6 During 2004, a dispute arose between the parties in relation to outstanding rent. In consequence, Sohi and Nader filed an application in the Tribunal on 14 September 2004, seeking possession of the premises from Mr and Mrs Jafari. At about the same time, Lituma filed an application in the Tribunal seeking possession of the premises from Sohi and Nader.

7 During this period, Mr and Mrs Jafari were involved in a matrimonial dispute. On 26 November 2004, the Family Court ordered that Mr Jafari’s interest in the business and the lease be transferred to Mrs Jafari.

8 On 26 November 2004, the following events occurred: (1) the proceedings in the Tribunal were settled; (2) the parties to the Deed (Lituma, Mrs Jafari, and Sohi and Nader) executed it; (3) Mrs Jafari made payments to Lituma and to Sohi and Nader in accordance with provisions of the Deed; (4) the sale of the business from Sohi and Nader to Mrs Jafari was completed; and (5) the Tribunal ordered by consent that the two applications then before it were withdrawn.

9 After 26 November 2004, Mrs Jafari remained in possession of the premises. She paid rent to Lituma until early February 2005, but she did not trade.

10 Shortly after 26 November 2004, Lituma commenced work in the premises in fulfilment of an obligation imposed on it by the Deed.

11 On 18 January 2005, Lituma re-entered the premises by changing the locks. It claimed to be entitled to do so on account of a breach of the Deed by Mrs Jafari. The basis of this claim is outlined below.

12 This action by Lituma prompted Mrs Jafari to file on 2 February 2005 her current application (subsequently amended) in the Tribunal, seeking possession of the premises. Her claim for an urgent interim order for possession was dismissed. Lituma filed its current application against Mrs Jafari on 28 February 2005, seeking amongst other orders a declaration that it was entitled to vacant possession of the land.

The relevant provisions of the Deed

13 In the Deed, Lituma was described as the ‘lessor’, Sohi and Nader as the ‘vendor’ of the business conducted at the premises and Mrs Jafari as the ‘purchaser’.

14 Paragraph C of the Recitals acknowledged that Mrs Jafari had been in occupation of the premises and conducting the business since 3 March 2003. It also referred to the parties’ failure to complete the sale of the business, caused by disputes regarding (a) the amount due by the purchaser to complete the purchase and (b) the lessor’s consent to the assignment of the lease.

15 Paragraph E of the Recitals referred to the proceedings then current in the Tribunal. It then stated that the settlement of the sale of the business in accordance with the terms of the Deed would resolve all issues in the Tribunal.

16 Clause 1 of the Deed, as far as relevant, stated as follows:

1. The vendor and the purchaser will complete the sale of the business as follows:
(a) completion of the sale will take place at the offices of the Administrative Decisions Tribunal, Sydney, on 26th November 2004 at 2pm. Time shall be of the essence.

(b) the purchaser will pay the vendor the sum of $53,000 by bank cheque;

(c) the purchaser will pay the lessor $63,535.87 being in respect of arrears of rent and other outgoings and interest thereon pursuant to the lease and in respect of its legal costs;

(d) the purchaser must deliver to the lessor:

(i) a bank guarantee in favour of Lituma Pty. Ltd for an amount equal to 3 months plus GST under the lease within 28 days after the date of this Deed; and

(ii) a certificate of currency of insurance evidencing the insurances required under the lease within 7 days after the date of this Deed.

(e) The vendor hereby assigns all their right, title and interest in the lease to the purchaser, and the lessor hereby consents to the assignment. Lituma hereby releases the vendor in respect of any liability under the lease, whether arising before or after the date of this Deed. The purchaser covenants that she will pay the rent and other outgoings and observe and perform all the terms of the lease as if she were the lessee under the lease.

….

17 Clause 2 of the Deed related to the lessor’s obligation to carry out works in the premises. The ‘Works’ in question were defined in the Deed to mean repairing the shop floor. The clause, so far as relevant, provided as follows:

Immediately after completion the lessor will, at its cost, carry out the Works to the premises as soon as possible…

18 Clause 3 set out various releases given by each of the parties to the Deed. It began with the words ‘Immediately after completion’. The releases included a release of Mrs Jafari by Lituma ‘in respect of any matter arising prior to the date of this Deed in respect of their (sic) occupation of the premises’.

19 Clause 3(f) provided that the vendor, purchaser and lessor would execute and file terms of settlement in terms of Annexure B to the Deed. These terms were that by consent the applications then current in the Tribunal were to be withdrawn. On 26 November 2004, the date of the Deed, the Tribunal made orders to this effect.

20 Clause 4 of the Deed provided:

In the event that the purchaser fails to comply with any term of this Deed, the purchaser must immediately upon such a default surrender and give vacant possession of the premises to the lessor.

21 Lituma’s claim to be entitled to repossess the premises was based on Clause 4 of the Deed. It relied on the fact that Mrs Jafari breached Clause 1(d)(i), through failing to provide it with a bank guarantee for 3 months rent within 28 days of executing the Deed. Mrs Jafari did not deny that she failed in this regard. She did, however, provide an appropriate guarantee subsequently, on a date after she had commenced proceedings in the Tribunal. She also paid rent up to early February 2005. These payments were accepted by Lituma.

22 With the consent of the parties, the Tribunal heard argument on two preliminary issues, since in its view the determination of these issues was likely to resolve the dispute between the parties. In its judgment at [1], it formulated these issues as follows:

a) whether on a proper construction of cl.1(e) of the Deed, the lease was assigned to Mrs Jafari on 26 November 2004 and whether Lituma consented to that assignment on that day; and

b) if the lease is found to have been assigned on 26 November 2004, whether s 129 of the Conveyancing Act 1919 applied to a default by Mrs Jafari of her obligations under the Deed.

23 Following the approach adopted by the Tribunal, we will deal with these issues separately.

The date of the assignment of the lease

24 The Tribunal’s reasoning. At [23 – 29], the Tribunal concluded, after discussing the competing arguments, that the date on which the assignment of the lease to Mrs Jafari took effect was 26 November 2004, being the date on which the Deed was executed and the payments required by Clause 1(b) and (c) were made. It rejected Lituma’s submission that, on a proper interpretation of the Deed, the assignment did not occur until the further requirements set out in Clause 1(d) had been satisfied. The principal grounds on which the Tribunal relied in so deciding were as follows.

25 First, the ordinary meaning to be given to the word ‘hereby’ in Clause 1(e) was, to quote from the Australian Concise Oxford Dictionary (4th edition), ‘by this means: as a result of this’. The phrases ‘the vendor hereby assigns’ and ‘the lessor hereby consents’ therefore meant that the assignment and the accompanying consent occurred simultaneously with the transaction which clearly took immediate effect on the execution of the Deed, namely, the sale of the business to Mrs Jafari in return for the payments stipulated in Clause 1(b) and (c) and in fact made by her at the time of execution. It was relevant in this connection that, as the Tribunal stated at [26],

The lease is usually a valuable asset of the business that is being sold and a purchaser will only purchase the business if there is an assignment of the lease and the lessor consents thereto. Accordingly, an assignment is usually part of the completion of a sale of a business that is being conducted from leased premises.

26 Secondly, various aspects of the conduct of the parties after 26 November 2004 were consistent with the assignment having taken immediate effect. For example, Lituma commenced the works required by Clause 2 more or less straightaway, without waiting for the 28-day period referred to in Clause 1(d)(i) to expire. Most significantly, Mrs Jafari remained in possession and paid rent in advance.

27 Thirdly, the provision of a bank guarantee was not expressed to be a condition precedent to the operation of either the lease itself or the Deed, and the lease did not state that failure to provide a Guarantee would constitute a breach of an essential term of the lease. The parties to the Deed could have expressly stated that while the lease was assigned by the vendor on the completion of the purchase of the business, the lessor did not give consent to that assignment until the requirements of Clause 1(d) had been satisfied within the specified periods. But they did not do this. The correct conclusion, therefore, was that these requirements were conditions subsequent to the assignment of the lease.

28 With regard to the interpretation of the Deed advocated by Lituma, the Tribunal observed, at [24], that it was ‘inconsistent with the express words that are used in the Deed and the conduct of the parties after the Deed was executed’.

Lituma’s arguments on appeal

29 Mr Monzo, counsel for Lituma, submitted that the Deed’s functions were to set out the terms on which the dispute between the parties was settled and to provide for completion of the sale of the business. It was not intended to effect an immediate assignment of the lease.

30 He pointed out that, at the time when the Deed was executed, Ms Jafari had paid no rent since taking over possession from Sohi and Nader in March 2003. Her occupation of the premises, he said, had therefore been as a trespasser and her payments pursuant to Clause 1(b) and (c) of the Deed operated only to discharge pre-existing obligations. Until she complied with the requirement in Clause 1(d)(i) to provide a bank guarantee, Lituma could not be satisfied that she would be a responsible lessee and should not, therefore, be deemed to have given consent to her taking an assignment of the lease. During the period after execution of the Deed, she accordingly did not occupy the premises as a lessee, and the ‘surrender’ which occurred under Clause 4 on account of her breach of the Deed was not a surrender of a lease but a surrender of possession pursuant to the terms on which the earlier disputes between the parties had been settled.

31 Mr Monzo also observed that, in addition to the meanings of ‘hereby’ on which the Tribunal relied, a further meaning given in Stroud’s Dictionary was ‘by this document, manner or thing’. He submitted that the meaning intended in the Deed was ‘by this document’. This, he said, accorded with its ‘commercial purpose’, being a purpose that the Tribunal had purported to discern (as indicated in paragraph [21] of its judgment).

32 Our conclusions. In our opinion, the Tribunal’s reasoning and conclusions were correct. The arguments advanced by Mr Monzo are insufficient to persuade us that the opening sentence of Clause 1(e) of the Deed should be given anything other than its natural meaning. In stating that Sohi and Nader ‘hereby’ assigned the lease and Lituma ‘hereby’ consented to the assignment, this sentence conveyed the clear intention of the parties that, simultaneously with the completion of the sale of the business and the mutual release of prior obligations and liabilities, the assignment of the lease was to take effect immediately. We also attach importance, as did the Tribunal, to the fact that Mrs Jafari remained in possession, paying rent in advance, and that Lituma commenced the stipulated repairs immediately.

33 We note finally in this context that s 8(1) of the Retail Leases Act 1994 might well place a further obstacle in Mr Monzo’s path. This subsection provides that for the purposes of the Act, ‘a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first)’. But we do not base our ruling on this provision, since it was not mentioned in argument before us nor, as far as we are aware, at first instance.

The question whether s 129 of the Conveyancing Act 1919 applied

34 We have found resolution of this second issue to be more difficult. The question of interpretation raised is far from straightforward.

35 The significance of s 129(1), if it was applicable, is that it would have required Lituma, before re-entering the premises, to serve a notice upon Mrs Jafari, identifying the breach of the Deed on which it relied and allowing her a reasonable time within which to remedy it.

36 The relevant provisions of s 129 are as follows: -

129 Restrictions on and relief against forfeiture of lease
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.

….
(5) For the purposes of this section a lease limited to continue as long only as the lessee abstains from committing a breach of covenant shall be and take effect as a lease to continue for any longer term for which it could subsist, but determinable by a proviso for re-entry on such a breach.
….
(10) This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary.

37 The Tribunal’s reasoning. At [30 – 38], the Tribunal concluded, after discussing the competing arguments, that Lituma was bound by the provisions of s 129(1).

38 Its starting-point in so deciding was it’s ruling that the lease was assigned to Mrs Jafari, with Lituma’s consent, on 26 November 2004. This meant, it said, that Mrs Jafari became obliged on that date to comply with the lessee’s obligations under the lease. One of these obligations, contained in clause 15 of the lease, was to provide a bank guarantee.

39 The Tribunal’s reasoning continued as follows (at [37]):

The effect of clause 1(d)(i) of the Deed was to set the period within which that Guarantee was to be provided. Accordingly, a failure to provide the Guarantee became a breach of the lease as amended by the Deed.

40 It would appear that, in deciding that Clause 1(d)(i) (at least) of the Deed fell within the definition of ‘covenant, condition, or agreement (express or implied) in the lease’ for the purposes of s 129(1) of the Conveyancing Act, the Tribunal took account of s 128 of this Act. Relevantly, this section brings within the definition of a lease ‘an agreement for a lease where the lessee has become entitled to have his or her lease granted’.

41 On the basis of this reasoning, the Tribunal held that Lituma had re-entered the premises on the ground of a purported breach of the lease by Mrs Jafari, but that s 129(1) prohibited it from so doing without first serving a notice on her complying with the requirements of that subsection.

42 The Tribunal’s judgment outlined two separate grounds for concluding that Clause 4 of the Deed could not operate according to its express terms. At [32], it referred to a submission by Mr Hicks, counsel for Mrs Jafari, that this clause amounted to a ‘stipulation to the contrary’ within the meaning of s 129(10), and therefore had to be ‘read down accordingly’. It did not, however, expressly endorse this submission. At [37], it suggested that once Mrs Jafari became the lessee following the assignment of the lease, Clause 4 had to be ‘read down’. It explained this by saying that ‘on a proper construction of clause 4 of the Deed it ceased to have any operation once the sale had been completed’.

43 The Tribunal would seem to have adopted the latter approach in resolving this question. This appears from the fact that Order (2) of the orders that it made by way of declaration was in the following terms:

The proper construction of cl.4 of the Deed is that Mrs Jafari agreed to surrender the lease in the event she failed to make the payments set out in cl.1(b) and (c) of the Deed on 26 November 2004 at 2pm.

44 According to this approach, as we understand it, Clause 4 ceased to be operative after 26 November 2004, as a matter of construction of the Deed. According to the alternative approach advanced by Mr Hicks, a breach of either of the obligations set out in Clause 1(d) could still attract the operation of Clause 4 even though it occurred after 26 November 2004, but Lituma could not rely on any such breach as a ground for re-entry without first complying with s 129(1).

45 The Tribunal rejected an argument by Mr Monzo that Clause 4 fell outside the scope of s 129(1) because it provided for an express ‘surrender’ by Mrs Jafari of possession of the premises, as distinct from authorising a re-entry or forfeiture by Lituma. As put forward by Mr Monzo, this argument was primarily based on the premise that Mrs Jafari’s occupation after 26 November 2004 was not as a lessee. The Tribunal rejected this premise, as we have done.

46 On the footing that Mrs Jafari was properly to be regarded as a lessee after this date, the Tribunal made the following observations in declining to accept Mr Monzo’s submissions: (a) that termination of a lease by express surrender was required by s 23B(1) of the Conveyancing Act to be effected by a deed, signed by the lessee or his/her agent; (b) that if (as in this case) the lease was registered, the surrender must also be registered; (c) that there were doubts as to whether a formal agreement to surrender a lease could be made to operate at a future date; and (d) that instead of seeking a decree of specific performance, as would be appropriate when a surrendering party refused to carry out an agreement to surrender, Lituma simply ‘changed the locks, which is in effect a re-entry for breach of a lease’ (see the judgment at [38]).

Lituma’s arguments on appeal

47 As at first instance, Mr Monzo’s argument before us was primarily based on the premise, which we have rejected, that Mrs Jafari’s occupation after 26 November 2004 was not as a lessee.

48 In addition, he contended that there was no basis for the Tribunal’s conclusion that Clause 1(d) of the Deed should be treated as part of the lease. The Deed was instead, he said, an independent agreement providing for quite distinct matters such as the resolution of the disputes between the parties. On this view of it, Clause 4 could operate free of the restrictions imposed by s 129 on the exercise of rights of re-entry or forfeiture.

49 Mr Monzo also took issue with the Tribunal’s ruling that Clause 4, despite its express terms, should be read down so as to apply only to breaches of Clause 1(b) or (c). He pointed out in his written submission that ‘it would be an odd result if it were found that Mrs Jafari paid the money and at the same time agreed to surrender the lease which had been assigned to her in the same transaction on the same day and time’.

50 Two further submissions made by Mr Monzo were (a) that Mrs Jafari should be presumed to have been made fully aware of the obligations placed on her by Clause 1(d); and (b) that Clause 1(d)(i), by providing her with a significant period in which to obtain a bank guarantee, operated in substance as a form of notice within s 129(1).

51 Considerations weighing in Lituma’s favour. Before indicating our conclusion on this difficult issue, we will set out in our own terms the main considerations operating both for and against the case brought by Lituma, the Appellant.

52 As we see it, the crucial question in this appeal is whether Clauses 1(d) and 4 should be taken, after 26 November 2004, to have become ingredients of the agreement for lease between Lituma and Mrs Jafari, or whether they formed part of an independent agreement created by the Deed, whose function, as we have said, included completion of the sale of the business and the resolution of prior disputes among the parties.

53 A number of arguments may be advanced in favour of the latter conclusion. They include the following.

54 First, the Deed clearly bears many of the hallmarks of a familiar document within the realm of retail leasing. It can be viewed primarily as an instrument of assignment of an existing lease, incorporating the required lessor’s consent and dealing with other related matters including the necessary transfer of the business carried on in the premises. It also operated, as its heading made clear, as a deed releasing the parties from various obligations that they had asserted against each other, and as a settlement of prior litigation amongst them.

55 Secondly, the Deed, standing alone, evidently does not constitute a lease at general law. Contrary to a submission by Mr Hicks, it also does not fall within the phrase ‘an agreement for a lease where the lessee has become entitled to have his or her lease granted’ in s 128 of the Conveyancing Act.

56 Thirdly, it is artificial to regard Clause 1(d)(i) (as the Tribunal did at [37]) as effecting a variation of the lease, substituting a new period for compliance by the lessee with clause 15 of the lease, the bank guarantee clause. This clause was in the following terms:

The Lessee shall upon the signing of this Lease hand to the Lessor a bank guarantee issued by the Lessee’s bank undertaking to pay on demand to the Lessor an amount equal to three (3) months rental hereunder and the Lessor shall be entitled to apply such finds in rectification of any breach by the Lessee of the terms and conditions contained in this lease.

57 This clause was expressly limited to define an obligation imposed on Sohi and Nader, the initial lessees, at the time of execution of the lease in December 2002. The question whether they complied with it was resolved soon after. By its express terms, Clause 1(d)(i) of the Deed imposed a wholly new obligation on a new party, the assignee. It did not merely vary an existing obligation. The fact that its commercial effect was the same as clause 15 of the lease – namely, to provide security to the lessor – did not make it a provision of the lease. It remained a condition of the independent agreement created by the Deed.

58 Fourthly, by virtue of similar reasoning, Clause 4 of the Deed should not be viewed as establishing a ‘right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease’. Its proper characterisation was as a contractual provision in a Deed of assignment, which effected a surrender of the lease if a condition of the Deed, under which the lessor consented to the assignment and accepted the assignee in place of the prior lessees, was not fulfilled.

59 A consequence of this characterisation of the contractual condition set out in Clause 4 is that it fell outside the ambit of the phrase ‘stipulation to the contrary’ in s 129(10) of the Conveyancing Act. This is because that phrase, in line with the phrase just quoted from s 129(1), is confined on its proper interpretation to stipulations within the relevant lease.

60 The fact that Lituma invoked Clause 4 by means of a lockout did not change the legal nature of this condition. Undoubtedly, lockouts are a familiar method of enforcing rights of re-entry or forfeiture. But it does not follow that, when a lessor locks out an assignee of the lease in order to enforce a condition accompanying its consent to the assignment, it must be taken to have invoked a right of re-entry or forfeiture.

61 Finally, the policy underlying s 129(1) of the Conveyancing Act – namely, ensuring that a lessee is given reasonable notice of an alleged breach of a term of its agreement with the lessor and a reasonable opportunity to remedy the breach – was in fact achieved by Clause 1(d)(i) of the Deed. Mrs Jafari was given the substantial period of 28 days in which to obtain the bank guarantee that Lituma reasonably required as a condition of consenting to the assignment of the lease.

62 Considerations weighing in Mrs Jafari’s favour. There are equally a number of grounds for concluding that those parts of the Deed that bore upon the rights and liabilities of Lituma and Mrs Jafari took effect as variations of the lease, in the form in which it operated between them. They include the following.

63 First, Clause 1(e) of the Deed ended with a covenant by Mrs Jafari that ‘she will pay the rent and other outgoings and observe and perform all the terms of the lease as if she were the lessee under the lease’. This of itself established privity of contract between Lituma, the lessor, and Mrs Jafari, the assignee of the lessee’s interest, with regard to all the terms of the lease, subject to any variation agreed between them.

64 Secondly, Clause 1(d)(ii) of the Deed required Mrs Jafari to deliver to Lituma within seven days ‘a certificate of currency of insurance evidencing the insurances required under the lease’. The only way to ascertain what insurances were required was to refer to the lease. Under clause 8.1 of the lease, the lessee was obliged to effect and maintain an insurance policy, covering public liability and property damage, in an amount not less than that specified in item 11 of the reference schedule in the lease. Given that the provisions defining the insurance cover to be obtained formed part of the lease, it is difficult in these circumstances to see why while a clause setting a time limit for Mrs Jafari, the incoming lessee, to obtain this cover should be treated as falling outside the scope of the lease.

65 If this reasoning is correct in relation to Clause 1(d)(ii) of the Deed, it must also be correct for Clause 1(d)(i). There is no basis on which it could be held that the former subparagraph operated as a variation of the lease but the latter formed part of an independent agreement. As is the case with the former subparagraph, the only way to ascertain what obligations are covered by the bank guarantee required in the latter is to read it in conjunction with a provision of the lease (i.e., with the concluding words of clause 15). In the result, neither of these subparagraphs stands alone. They both rely for their meaning on provisions of the lease.

66 If Clause 1(d)(i) did not exist, it is strongly arguable that Mrs Jafari would have become bound by clause 15 of the lease, as were the original lessees, to deliver a bank guarantee ‘immediately’ she became the lessee. This is in fact what the Tribunal held, at [28]. It involves some straining of the language of the two provisions. The phrase ‘on the signing of this Lease’ in clause 15 must be read, in the circumstances of an assignment, to mean ‘on the execution of this assignment’. But this appears to have been the intention of the parties, given that, as just pointed out, the full import of Clause 1(d)(i) cannot be determined without recourse to clause 15.

67 Thirdly, as Mr Hicks pointed out in argument, the position taken by Lituma involves treating the time limit specified in Clause 1(d)(i) – ‘28 days after the execution of this Deed’ – as being of the essence. The parties did not expressly stipulate to this effect. Yet with reference to the date of completion of the sale of the business, they did stipulate in Clause 1(a) that time should be of the essence.

68 Fourthly, in a case such as this, where for the purposes of determining the applicability of s 129(1) of the Conveyancing Act it must be decided whether a contractual term providing for some sort of forfeiture of a lease (e.g. by surrender) falls within the lease or is part of a separate agreement, the former outcome, for policy reasons, should be preferred. It conforms with the evident intention of both s 129(5) and s 129(10).

69 To allow Lituma’s argument to prevail in this case would be to entitle it to terminate the lease and take possession even if (for example) Jafari had been only one day late in providing the bank guarantee, due to inefficiency on the bank’s part, or had in some minor way fallen short in fulfilling her insurance obligations within the distinctly shorter period of seven days allowed to her. It is to prevent the potential unfairness of outcomes such as these that s 129(1) exists.

70 On this view of the aims that s 129(1) seeks to achieve, there is no ground for confining the phrase ‘stipulation to the contrary’ in s 129(10) to stipulations within the relevant lease. It should be interpreted as extending to any contrary stipulation to which the lessor and lessee have agreed, whether in the lease or in any other contract between them.

71 Consistently with this approach, it is inappropriate to draw a distinction between ‘surrender by agreement’ pursuant to a provision such as Clause 4 of the Deed and the exercise of a ‘right of re-entry or forfeiture’ within the ambit of s 129(1). The outcome in each case is the same: the lessee loses his or her proprietary and contractual rights under the lease.

72 While authority on these various aspects of s 129 is conspicuously lacking, some support for the arguments just outlined can be found in an English case, Plymouth Corporation v Harvey [1971] 1 All ER 623. This case is mentioned in Duncan, W D, Commercial Leases in Australia (4th edn, Lawbook Co, 2005), as authority for the proposition that ‘A lessor must still comply with [s 129(1)], notwithstanding that the forfeiture is dressed in the guise of a surrender’. It was not cited to us nor, it appears, at first instance.

73 In this case, a deed of lease dated 25 March 1966 provided for the lessee of a caravan site, who had been in possession for several years, to remove by Christmas Day 1966 all caravans from the site except his own. Due to disputes on other matters, there was no exchange of lease documents until February 1967. The caravans had still not been removed. The lessor council agreed to an extension of time for this until 30 June 1967. But it insisted that the lessee should sign a formal deed of surrender, to become operative on 30 June 1967 if caravans were still present, and should deliver this deed in escrow to the President of the local Law Society. These steps were duly taken, with the terms of the delivery in escrow set out in a letter dated 21 March 1967. In November 1967, some 30 caravans were still on the site, so the President signed and dated the deed of surrender and delivered it to the council. The council then brought an action for possession, without having first served a notice under s 146(1) of the Law of Property Act 1925 (UK) (the equivalent of s 129(1)).

74 Plowman J held that the council’s action must fail on account of its failure to serve this notice. He referred to the equivalents of s 129(5) and s 129(10), saying that they were ‘aimed against the evasion’ of the section ([1971] 1 All ER 623 at 627). He then held that ‘the condition on breach of which the surrender was to become operative’ – that is, the condition set out in the letter of 21 March 1967 – was a ‘condition or covenant in the lease’ and ‘operated as a variation of the lease’. It was capable, he said, of doing so even though, unlike the lease itself, it was not under seal. It varied the pre-existing covenant to remove the caravans by 25 December 1996 by (amongst other things) substituting a later date.

75 Plowman J went on to say that the deed of surrender did not, in fact, ‘operate as a surrender’. He continued as follows, at 627:

Section 146 prevents a lessor from putting an end to a lease for breach of covenant without serving the appropriate notice, and he cannot avoid that result by attempting to change the mechanics of the operation. A forfeiture in the guise of a surrender in my judgment remains a forfeiture for the purposes of s 146.

76 In Holden v Blaiklock [1974] 2 NSWLR 262 at 267, Lee J cited this case at some length in support of the proposition that a ‘device… cannot be given effect to so as to defeat the operation of s 129(1)’. Holden v Blaiklock was also not cited to us.

77 The circumstances of Plymouth Corporation v Harvey can be distinguished from those of the present case. It was clear there, subject only to the question of formalities that the agreement of March 1967 to extend the time for caravan removal operated as a variation of a covenant in the lease between the parties. The equivalent conclusion is not so readily drawn in this case. In addition, the situation in the Plymouth Corporation case was not complicated by an assignment of the lessee’s interest.

78 The judgment in this case does however provide support for two propositions of direct relevance when the operation of s 129(1) as an instance of legislative protection of a lessee’s interests is in issue. These are (1) that a court or tribunal should not be reluctant to treat an agreement between lessor and lessee reached subsequent to the lease as constituting a variation of the lease, and therefore as potentially falling within s 129(1); and (2) that the term ‘forfeiture’ in s 129(1) should be given a broad interpretation so as to cover, amongst other things, the deprivation of the lessee’s interest through the mechanism of a ‘surrender’. The latter proposition was specifically confirmed by the Supreme Court of New South Wales in Holden v Blaiklock.

Our conclusions

79 The decision reached by this Appeal Panel is that the more compelling of these two sets of arguments supports Mrs Jafari, the Respondent to this appeal. It raises distinctly fewer difficulties of interpretation than the case argued by the Appellant.

80 Furthermore, while due allowance must be made for the fact that under the relevant provision of the Deed Mrs Jafari had ample time to obtain a bank guarantee, the preferable view is that the policy underlying s 129(1) would be undermined if, through the expedient of a ‘surrender clause’ forming part of an independent agreement, the assignee of a lease could be deprived of the benefit of the provision on account of having breached this agreement after the assignment had taken effect. Given our endorsement, earlier in this judgment, of the Tribunal’s holding that the assignment of the lease, with the lessor’s consent, was operative on 26 November 2004, this is the result for which Lituma, the Appellant, was forced to contend. If such a result is to arise, it must be on the basis of clearer indications than were given by the documentation in this case.

Our orders

81 The appeal should be dismissed and, subject to one variation of substance, the orders made by the Tribunal on 24 March 2005 at first instance should stand.

82 This variation may be explained as follows. While generally endorsing the Tribunal’s reasons, we do not agree with its ruling that Clause 4 of the Deed applied only to breaches by Mrs Jafari of Clause 1(b) or (c). We think that on its proper interpretation it was applicable also to any breach by her of Clause 1(d). But any right of re-entry or forfeiture conferred on Lituma by virtue of Clause 4 was subject to s 129(1) of the Conveyancing Act.

83 We accordingly vary the Tribunal’s Order (2) by deleting ‘make the payments set out in cl.1(b) and (c) of the Deed on 26 November 2004 at 2pm’ and substituting ‘comply with any of the provisions of cl.1(b), (c) or (d) of the Deed’.

84 Under Order (4), the matter was stood down for further directions on 7 April 2005 at 11 a.m. We substitute ‘at a date and time to be fixed by the Registry and communicated to the parties’.

85 Unless an application with supporting submissions is filed in the Tribunal within 28 days, there will be no order on the costs of this appeal. If any such application is filed, the opposing party’s submissions must be filed within a further 28 days. In the absence of any request for a hearing, the matter will be determined ‘on the papers’, under s 76 of the Administrative Decisions Tribunal Act 1997.