Micalizzi v Hasaj

[2008] NSWSC 809

CITATION:	Micalizzi v Hasaj [2008] NSWSC 809
HEARING DATE(S):	01/08/2008
JUDGMENT DATE :	11 August 2008
JURISDICTION:	Equity
JUDGMENT OF:	Bryson AJ at 1
DECISION:	Parties to bring in draft orders.
CATCHWORDS:	LESSOR and LESSEE - construction of lease - unclear description of leased area inserted by alteration - objective evidence of parties' intention in their conduct at the time of the alteration - other construction questions on obscure document - no question of principle.
LEGISLATION CITED:	Real Property Act 1900 Conveyancing Act 1919 s 129
CASES CITED:	Smith v Jones [1954] 1 WLR 1089 Harris v Smith [2008] NSWSC 545
PARTIES:	Carmelo Micalizzi - First Plaintiff Sylvana Micalizzi - Second Plaintiff Ilir Hasaj - Defendant
FILE NUMBER(S):	SC 5708/2007
COUNSEL:	F Hicks - Plaintiff D J A Mackay - Defendant
SOLICITORS:	Sarvaas Ciappara - Plaintiff K A Garling - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON AJ

Monday 11 August 2008

5708/07 CARMELO MICALIZZI & ANOR v ILIR HASAJ

JUDGMENT

1 HIS HONOUR: Lease AB 841947P relates to premises at 237 O’Riordan Street Mascot, Folio Identifiers 3 and 4 DP 262142. The plaintiffs own the premises and Mr Micalizzi conducts business as an automotive mechanic in the workshop at the rear. Mr Hasaj is the lessee and he conducts a car wash and associated coffee shop, the larger part of the premises.

2 The lessee named in the Lease was LAC (Maroubra) Pty Limited. The Lease was executed on or about 30 August 2005 and created a term of four years from 23 August 2005 to 22 August 2009. The description of the Leased premises was extremely unsatisfactory. When first executed the property leased was described thus: “PART FOLIO IDENTIFIERS 3/262142 and 4/262142. PART 237 O’Riordan Street Mascot per annexure ‘C’ hereto attached”. Annexure C was a site plan, very small in scale and very indistinct, so that a number of the statements forming parts of the plan cannot be clearly read. There was cross hatching on the site plan which covered the area of the two car wash bays, the building containing the shop and much of the part of the site nearer O’Riordan Street, where there is a front forecourt with an entry from Sarah Street on one side and an exit to Ewan Street on the other side. The cross-hatching did not cover seven car spaces and some open space towards the rear of the land, or the mechanical workshop. A small piece of open space on the Ewan Street side was not hatched.

3 The Lease did not say so but the assumption must be that all the cross-hatched area was the part of the property referred to in the description which was leased. This would be completely impractical if taken altogether literally because customers of the car wash driving their vehicles around the shop building to enter the Carwash at the rear would have to cross an area which was not hatched, and there was no express right to do so. Vehicles driving to and from the mechanical workshop would have to drive across the hatched area and there was no express right to do so. The only toilets on the property were inside the building containing the shop, and the whole building was hatched. It is possible that some of these problems were simplified by text written on the annexure, but this is no use as it cannot be read. If the Lease with Annexure C as part of it were to be given effect there would have to be implications of necessity about the use by one party and the other of parts of the premises for access, and about use of the toilets.

4 The Lease was lodged for registration but the Registrar General understandably refused to register it, on grounds relating to its not being sufficiently clear or legible.

5 The solution adopted by the solicitors who then conducted affairs was as follows. The description of the property leased was altered by ruling through the words “per annexure ‘C’ hereto attached” and adding instead “being shop 1 and carwash 1”. Annexure C was removed from the document. Someone wrote the words “hatched plan” into the description of the property leased, and then ruled them through. These alterations were made in or about early December 2005. The Lease was then relodged; in fact it was relodged twice, on 14 December 2005 and again on 9 January 2006, and it was then registered. Correspondence about the time the Lease was altered and registered as altered without any Annexure C suggests that the alteration was prompted by a wish to obtain registration without preparing a plan to the high standard required by the Registrar General.

6 Annexure B to the Lease sets out standard form clauses incorporated in the Lease. Clause 1.1 includes some interpretation provisions including the following.

In this Lease unless the contrary intention appears:-
“ Building ” means the premises described in Item 1 of the Reference Schedule together with any land and improvements used with them or added to them …


Item 1 of the Reference Schedule says: “Building. 237 O’Riordan Street Mascot New South Wales.”

The definition of “Demised Premises” in clause 1.1 includes these words:

“ Demised Premises ” means that part of the Building which is comprised in the premises described in Item 2 of the Reference Schedule (up to and including the outside face of external walls and the centre line of dividing walls) including any part thereof and when the context so admits such of the fixtures … from time to time installed therein and owned by the Lessor.

7 Item 2 of the Reference Schedule says “Demised Premises Part Folio Identifiers 3/262142 and 4/262142 being premises known as Part 237 O’Riordan Street Mascot NSW as marked on Annexure ‘C’ as hereto indicated”. In the Lease as altered and registered there is no Annexure C and the reference to Annexure C has no meaning.

8 In 2006 LAC (Maroubra) Pty Limited agreed to sell its business and transfer the lease to Mr Hasaj the defendant. The agreement for sale of the business included cl 36: “Completion is subject to written confirmation by the lessor that the premises leased are in fact the area hatched on the plan annexed to the Lease”. Solicitors then acting for Mr Hasaj asked Mr and Mrs Micalizzi’s then solicitors, by a letter of 1 August 2006, for several items of information; among other things they asked for “written confirmation by the lessor that the Leased premises are in fact the area hatched on the plan annexed to the Lease. Please confirm so”. It must be understood that they were referring to the Lease as originally executed and that in some way they had a copy of that, not the registered version. Mr and Mrs Micalizzi’s then solicitors answered on 4 August 2006 and among other information they said “We … confirm our client’s instruction that the Leased premises are those hatched on the plan originally annexed to the Lease.”

9 The Micalizzis claim that the Lease as originally drawn up was greatly affected by mistake in that it was not intended that the whole of the area covered by hatching should be leased. According to this claim, which has not been brought to trial, the original lease should have been rectified so as to make several things clear which were wrongly shown in Annexure C. In some way less of the forecourt was to be leased and there was to be a right of access to the mechanical workshop. There was to be a right of access to the toilets, which could only be reached by going into the building and through the shop; there are no other toilets. The Micalizzis were to have the right to use a small room within the building containing the shop as an office; the small room is marked “Store” on Annexure C and is accessible only from the outside of the building by its own door; it is not accessible from within the shop.

10 In the present proceedings the Micalizzis claim rectification of the Lease. There are a number of difficulties about this claim. The prime difficulty is that the registered lease does not incorporate Annexure C. The area leased is to be established by the description in the Lease; that description is very brief and very unsatisfactory, but it does not include Annexure C. Further and at least as importantly Mr Hasaj who is now the registered proprietor of the Lease has the protection given by the Torrens system to registered proprietors against equitable claims such as a claim to rectify the Lease based on dealings and transactions to which he was not a party. There is no evidence that Mr Hasaj was on notice of any claim that the terms of the Lease were erroneous or that it should be rectified before he became the registered proprietor. There is no evidence which could possibly bring under consideration any of the exceptions stated in s 42 of the Real Property Act 1900. In the absence of some personal equity enforceable against him a subsequent registered proprietor is not bound by a claim to rectify a lease (or other interest) of which he has become the registered proprietor. In my opinion the immunity of a purchaser for value from a rectification claim appears clearly, in a context outside the Torrens system, from Smith v Jones [1954] 1 WLR 1089. Under the Torrens system the position is even clearer; this is illustrated by Harris v Smith [2008] NSWSC 545 (Brereton J): see [49] and [50] and following.

11 Mr Micalizzi and Mr Hasaj both spend their working days on the site and the relationship among the people who work there has been extremely unpleasant. A number of controversies were raised in the present proceedings and I will deal with them.

12 The principal controversy related to establishing what part of the premises is leased to Mr Hasaj, in particular whether this includes the office, and whether there is a right of access to the toilet.

13 The meaning of the description of the demised area “PART 237 O’Riordan Street Mascot being shop 1 and carwash 1” in the Lease falls to be established, in my opinion, by evidence establishing to what part of the premises the parties intended to refer at the time when the Lease was altered. The intention is not to be ascertained by examining their states of mind but by considering what is objectively indicated by conduct and behaviour bearing on the meaning of those words at the time when the alteration was made.

14 Mr Micalizzi’s evidence, not substantially disputed or challenged in cross-examination, shows that at that time LAC (Maroubra) Pty Limited was in occupation of the shop premises, conducting the Carwash business, and in association with that was using part of the surrounding land for access, car parking by customers and similar uses. There was no conflict about passage by anyone over the open areas or any access they needed. The toilet was used by the Micalizzis and their staff who went through the shop for the purpose. The office or storeroom was used only by the Micalizzis, and was used by them as an office. It is not difficult to recognize the parts of the premises then used as the shop and the Carwash and it is plain that the office was excluded from them. The toilet was being used as a common area and there was no dispute about access to the toilet; access should be attributed to an implied reservation of a right of access through the shop. The implication arises from the necessity of there being access to the toilet when occupation of the premises was shared. In this body of evidence, the area leased is narrowly confined to the shop and the Carwash, with implied rights of access and use of common areas.

15 Mr Hasaj inspected the premises several times before the transfer of the Lease to him. It should be understood from the terms of their enquiry that his solicitors (and their state of mind should be attributed to him) held some doubt as to what was the demised area; hence the enquiry. The answer they were given on behalf of the Micalizzis adhered firmly to the hatched area on the plan originally annexed to the Lease as the demised premises. There was no qualification whatever about implied rights of access, about the toilet or the office.

16 Mr Hasaj gave evidence to the effect that when he looked at the premises with a view to buying the business the store was locked; he did not see it being used by the Micalizzis as an office. He did not understand why the room was locked and unused; but he had a great deal of work to do and did not press the subject. On the other hand Mr Micalizzi’s evidence, which was not challenged in this respect in cross-examination, establishes quite clearly that before, at the time when Mr Hasaj took over and ever since the Micalizzis have continuously used the store as an office and no one else has used it for anything.

17 The letter of 4 August 2006 and the reference to the hatched area on the plan constitute an admission about what the lease meant, made on behalf of the Micalizzis to Mr Hasaj’s solicitors, at a time when it was obviously important to Mr Hasaj to establish what the position was. Reading the Lease would not give them any real help; they had to know the surrounding facts as of December 2005. It must be taken that Mr Hasaj’s solicitors and Mr Hasaj acted on the statement and admission that the Leased premises were those hatched on the plan when Mr Hasaj went ahead and completed his purchase. In the circumstances I am of the opinion that the Micalizzis are disentitled from departing from the state of facts represented in their solicitor’s letter of 4 August 2006, to the extent to which Mr Hasaj acted on the representation to his prejudice. Evidence supports two findings, quite inconsistent with each other, about what was the area leased; the evidence which should carry by far the greater weight is the admission so made. The basis upon which the rights of the parties under the Lease should be determined is that the Leased premises are those shown as hatched on the plan originally annexed to the Lease. But this is qualified because Mr Hasaj did not act on the basis that the office or store was part of the demised area: he says he did not use it. Notwithstanding that the toilets are shown within the hatched area, the Lease would be absurd if its true meaning and effect was that there was no right of access to the toilets. In my opinion the Lease contains an implied reservation of a right of reasonable access through the shop to the toilets and of use of the toilets, by the Micalizzis and persons including their employees who use the premises for the Micalizzi’s purposes. There is also an implied reservation of a right of access across the open area within the hatched area by vehicles or persons on foot to the mechanical workshop. The office was not part of the area leased and the representation did not make Mr Hasaj act on the basis that it was: so it remains as it was, outside the leased area.

18 There is a controversy about display of signage on the exterior walls of the building containing the shop (and perhaps the external walls on other parts of the demised premises). In the defined expressions “Building” and “Demised Premises”, “Building” as defined does not mean literally a building, but with the assistance of the Reference Schedule includes the whole premises at 237 O’Riordan Street Mascot. “Demised Premises” means part of the building so extensively defined. “Demised Premises” includes the outside face of external walls, and extends to fixtures installed and owned by the Micalizzis on the outside face of external walls; that is, to any signs on the outside face, including the one outside face of the building containing the shop which does not have frontage to a hatched area. It follows that the lessee has control over whether existing signage remains on the outside face of the building. The provisions of the Lease require the lessee to obtain approval to erect signage himself. He can require removal of the Micalizzis’ signage but he cannot put up his own without their approval. If he is not careful the walls will be blank.

19 A controversy which existed when these proceedings were commenced and led to an application for an interlocutory injunction relates to signs advertising both businesses which are displayed on the Sarah Street and O’Riordan Street corner of the premises. These are not displayed on the outside surface of the building; they are supported by poles. The advertising signs referring to the defendant were placed there with the consent of the plaintiffs. In the plaintiffs’ evidence, immediately before the litigation was commenced Mr Hasaj threatened to remove their signs. I am satisfied from the way the litigation was conducted that there is no longer any threat or serious grounds to fear that he will do so. It is plain that he is not entitled to remove the plaintiffs’ signs from the poles.

20 There was a further controversy about payment of rent. It is altogether clear from Parts 3, 18 and 19 of the Lease that rent is payable in advance by regular monthly payments, with an annual rent review. The lessors were aggrieved that the lessee did not comply by making monthly payments in advance, but made payments at other intervals, approximately weekly, thus being at all times in arrears, not necessarily for a great amount. Further there was, when the hearing began, some difference between the parties about whether rent had been paid up to date; and counsel for the plaintiffs made some reference to possible re-entry and by a late amendment sought a declaration relating to rights of re-entry. However during the course of the hearing I suggested that the parties ought to be able to determine the state of payments. I am anxious to avoid strong-handed exercise of the right of re-entry if disputes related to rent can be resolved in any other way. Late in the hearing I was told that parties were in a position to resolve the rent controversy themselves.

21 There were also references to various matters which were said to be breaches of covenant; including late payment or non-payment of contributions to outgoings. As no notice under s 129 of the Conveyancing Act 1919 has been given there is no immediate risk or prospect of an attempt to effect re-entry for these breaches of covenant. The parties asked me to determine the basis on which outgoings ought to be assessed. It is plain that there has been breach of covenant with respect to paying outgoings; in particular, the defendant has paid nothing for water charges for well over one year.

22 Part 20 of the Lease in Annexure B is one of many clauses which are plainly standard clauses adopted when drafting this lease without any close attention to a need for redrafting to meet the purposes of this particular Lease. Part 20 begins “The Lessee shall pay to the Lessor the following expenditures of the Lessor in respect of the Demised Premises”. There follow 11 paragraphs specifying classes of expenditures, such as Local Council rates, water, sewerage and drainage rates and charges, land tax, management costs, the costs of operating services, car parking levies and many others. There are further references to liability to contribute to outgoings in Part 21 which relates to essential terms; counsel for the defendant contended that Part 21 has some bearing on the meaning of Part 20 but I do not think it has. If Part 20 were to govern the liability to pay outgoings there would be apportionment exercises because it would be necessary to determine what part of each expenditure was “in respect of the demised premises”. This could be very complex, particularly as to water charges for a carwash. Distribution by ratio of area or value would be an inappropriate allocation of water charges. The parties agreed that if it was appropriate to apportion expenditures in respect of the demised premises under Part 20, two-thirds of the various charges referred to in Part 20 should be apportioned to the demised premises and the remaining third should be apportioned to the area retained by the lessor; so that the lessee would be liable to pay two-thirds of the expenditures. To this there was an exception; it was said and not contested that the fixed charge relating to water supply should be apportioned in this way, but that variable charges, meaning charges relating to the amount of water used, should not be apportioned but should all be charged against the lessee as Item 8 in the Reference Schedule says (not completely clearly).

23 In the Reference Schedule Item 8 refers back to Part 20; Part 20 does not refer to the Reference Schedule, or to any Item 8, a departure from the pattern found elsewhere in the Lease where there was explicit reference to Reference Schedule items. Item 8 is as follows:

Item 8 (Clause 20) Lessee’s Proportion of the Lessor’s Operating Expenses 100% of water 80% of all other expenses.

24 Subclause (i) of Part 20.1 refers to operating expenses. However it is plain that the Reference Schedule does not refer to operating expenses in the same sense as that expression has in Part 20.1, where it refers to one of 11 classes of expenditures; in the Reference Schedule all the lessors’ operating expenses in the general sense of that term, including all those referred to in Part 20, are collected under the expression “Operating Expenses”. This reading is assisted by dividing operating expenses into “water” and “all other expenses” in the Reference Schedule.

25 In my opinion it is relevant to the construction of these passages that Part 20 is one of the standard clauses in Annexure B adopted without close consideration what was needed for this lease, and Item 8 contains provisions which have been specially composed for the present lease; hence Item 8 should have more influence when there is any inconsistency or anomaly.

26 In my opinion on the true construction of the Lease there is not first an apportionment exercise under Part 20 (by agreement, apportioning two-thirds to the defendant) and then an application of the proportion in Item 8, reducing the expenses other than water to 80 per cent of two-thirds. Rather it should be understood that the apportionment which Part 20 on its own would appear to require was carried out by the parties on what might be thought to be an arbitrary basis, and they allocated all water charges to the lessee without apportionment and 80 per cent of all other operating expenses to the lessee, substituting 80 per cent for detailed consideration of what were appropriate apportionments. On the true construction of the Lease all water charges fall on the lessee and 80 per cent of the other charges referred to in Part 20 fall on the lessee.

27 In my opinion no important issue in the proceedings turned on any question of credit.

28 I publish these reasons and I ask the parties to bring in drafts of the orders which should be made.

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