Murdock v Bettcher - [2008] SASC 79

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
MURDOCK & ANOR v BETTCHER
[2008] SASC 79
Judgment of The Full Court
(The Honourable Justice Duggan, The Honourable Justice Debelle and The Honourable Justice David)
26 March 2008
LANDLORD AND TENANT - TERMINATION OF THE TENANCY - FORFEITURE - RE-ENTRY AND PROCEEDINGS TO RECOVER POSSESSION
Tenancy of commercial premises – appellants in default – respondent served appellants with notice of termination and notice to quit – appellants did not quit premises – respondent commenced proceedings for possession – order for possession made – stay of order for possession upon appellants paying sum of money to respondent each month – whether payment of money was rent – whether appellants held over for six months and thereby have five year lease pursuant to s 20B of Retail and Commercial Leases Act 1995 – whether proceedings are competent given bankruptcy of first appellant – appeal dismissed.
Bankruptcy Act 1966 (Cth) s 58(3); Real Property Act 1886 Part 17; Retail and Commercial Leases Act 1995 s 20B; District Court Rules 2006 R 204, referred to.
Croft v Lumley (1858) 6 HL Cas 672; (1858) 10 ER 1459; Davenport v The Queen (1877) App Cas 115; Evans v Enever [1920] 2 KB 315, applied.
Civil Service Co-operative Society v McGrigor’s Trustee [1923] 2 Ch 347; Ezekiel v Orakpo [1977] QB 260; Hinton v Fawcett [1957] SASR 213, considered.

MURDOCK & ANOR v BETTCHER
[2008] SASC 79
Full Court: Duggan, Debelle and David JJ

DUGGAN J. I agree that the appeal should be dismissed for the reasons prepared by Debelle J.
DEBELLE J. This is an appeal from a judge of the District Court of South Australia ordering the appellants to give up possession of premises to the respondent.
The respondent owns premises at 138 Grange Road, Flinders Park. The respondent had leased those premises to Emacord Autos Pty Ltd (“Emacord”) for some years. Emacord experienced financial difficulties. On 4 November 2005 a receiver and manager was appointed. Emacord was in arrears in payment of rent. By an agreement to lease dated 16 December 2005 the respondent agreed to lease the premises to the appellants. The appellants entered into possession on 22 December 2005.
In the events which have happened, the appellants have remained in possession of the premises since December 2005 notwithstanding defaults by them in complying with the terms of the agreement for lease. On 28 June 2007, the respondent applied for an order for possession pursuant to Part XVII of the Real Property Act 1886 and Rule 204 of the District Court Rules 2006. The appellants contended that they have a lease within the terms of the Retail and Commercial Leases Act 1995 so that in all the circumstances, fresh notices of breach and notices to quit had to be served. It is necessary, therefore, to trace in some detail the events leading to the application for possession.
After the appellants had entered into possession on 22 December 2005 they committed a series of breaches of the agreement for lease. The agreement provided that the parties would enter into a lease in registrable form. The lease was to be prepared by the respondent’s solicitors. The lease was not prepared because the appellants were in breach of the lease immediately upon taking possession. The agreement for lease provided, among other things, that, upon execution of the agreement, the appellants would pay into the trust account of the lessor’s agent the first month’s rental of $2,500 as well as arrears of rental owing by Emacord totalling $9,059.17. The appellants therefore had to pay a total of $11,559.17 upon execution of the agreement. The appellants defaulted in the discharge of that obligation in that they presented a cheque for $2,500 which was dishonoured. No payment was made of the sum of $9,059.17.
By notice dated 6 January 2006 the respondent gave the appellants notice to remedy the breach by paying $2,500 plus costs of $385 on or before 23 January 2006. The appellants denied being served with the notice. In any event, the appellants paid $2,500 being the first month’s rent but failed to pay the arrears due by Emacord.
The second month’s rent fell due on 22 January 2006. The rent was not paid. The appellants were in default on that and other grounds. By this time, the respondent had instructed Mellor Olsson, a firm of solicitors, to act for her. On 14 February 2006 the respondent gave the appellant notice to remedy that breach by paying $4,380 to Mellor Olsson on or before 1 March 2006. The appellants also failed to pay rent for the months of March and April and on each occasion a notice to remedy the breach was sent.
By 6 April 2006 the appellants had committed four breaches of the agreement for lease and the respondent had caused separate notices to be served requiring the appellants to remedy each default. On 8 May 2006, the respondent caused the appellants to be served with a notice of termination and a notice to quit. By that notice the respondent terminated the tenancy forthwith and required the appellants to quit the premises before 22 May 2006. There is no dispute as to the validity of the notice to quit.
By letter to Mr Murdock from the respondent’s solicitors dated 19 May 2006, the respondent offered to extend the time for vacating the premises from 22 May 2006 to 21 June 2006 provided that the appellants paid by 22 May 2006 the sum owing for rent, a sum of $16,338.97. The letter also made the following offer which came into effect if the appellants paid the sum of $16,338.97 by 22 May.
As I mentioned during our various telephone discussions, if that payment is made on or before 11.00 am on 22^nd May 2006, you need not vacate the premises until 21^st June 2006.
If, in two weeks time, you wish to extend your occupancy of the premises by a further month, you should let me know and offer to pay $2,931.00 on or before 21^st June 2006. I will then put that to my client.
My client may accept or may refuse to accept. At least you will have two weeks within which you can vacate.
If my client accepts, the same scenario will apply the following month.
Please note carefully that as the prior lease was to your company and the agreement to lease which has recently been terminated is to you and Mr Lines as individuals, such a holding over cannot continue beyond six months from the 8^th May 2006 when the agreement to lease was terminated as otherwise a five year term will be brought to play under the provisions of the Retail and Commercial Leases Act.
If the monthly arrangement continues for four months or so you can put a proposal for a further lease to us with some reasonable provision for security.
On 22 May, the appellants paid the sum of $16,338.97 and the respondent permitted the appellants to remain in possession.
The appellants thereafter made three payments each of $2,931.00 on 22 June, 26 July and 31 August but did not pay the rent due on 21 September 2006.
On 30 August 2006 the appellant Murdock was declared bankrupt.
By letter from Mellor Olsson dated 26 September 2006, the respondent demanded possession of the premises by 7 November 2006 as well as payment of the rent due on 21 September 2006 and a further payment of $1,660 being that portion of rent due to 7 November 2006. On 3 October 2006, Emacord paid the amount of $2,931. Neither Emacord nor the appellants made any further payment.
The appellants did not quit the premises on 7 November. On 8 November Mellor Olsson wrote to the appellants stating that the appellants were remaining on the premises unlawfully and asking them to telephone “to discuss the civilised handing back of the property”. The appellants did not call. They remained in possession and made no payment of rent. Some negotiations followed as to the terms of a lease for one year to Emacord. The negotiations were unsuccessful. On 18 December 2006 Mellor Olsson served a notice requiring the appellants to quit the premises on or before 9 January 2007.
The appellants retained Mr Esau, a solicitor, to act for them. In January 2007 Mr Esau wrote to Mellor Olsson disputing the validity of the previous notices to quit and other notices. The appellants tendered the sum of $2,931 in each of January, February, March, April and May 2007 but the cheques were either returned to Mr Esau or not banked. Ultimately, on 26 June 2007 the respondent commenced these proceedings.
The respondent’s application for possession was heard on 15 August and 7 September. On 25 September 2007 a judge of the District Court published reasons for judgment and ordered the appellants to quit the premises. The judge held that the tenancy was properly terminated by the notice dated 8 May 2006; that following the termination, there was a series of tenancies for fixed terms each of one month’s duration so that each tenancy ended when the fixed term lapsed and there was no necessity to give notice to quit unless it had been agreed that it was to be given; that the respondent had allowed the appellants to remain in possession without payment of rent from 26 September 2006; and that the respondent was entitled to require the appellants to quit the premises. The appellants have appealed against that decision.
The Bankruptcy of Murdock
It is convenient to consider first whether, given the bankruptcy of Mr Murdock, these proceedings are competent. Murdock had been declared bankrupt by an order made on 30 August 2006. These proceedings were instituted on 28 June 2007, after the date of bankruptcy. Section 58(3) of the Bankruptcy Act 1966 (Cth) requires leave to commence legal proceedings against a bankrupt in respect of a provable debt. It provides:
(3)Except as provided by this Act, after a debtor has become a bankrupt, it is not competent for a creditor:
(a)to enforce any remedy against the person or the property of the bankrupt in respect of a provable debt; or
(b) except with the leave of the Court and on such terms as the Court thinks fit, to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding.
The respondent did not obtain leave to commence these proceedings. Legal proceedings to recover possession of premises are not legal proceedings in respect of a provable debt: Ezekiel v Orakpo [1977] QB 260. In these proceedings, the respondent seeks no remedy other than to recover possession of the premises. The respondent is exercising her right to recover possession of her premises on the ground that the tenancy has been forfeited for non-payment of rent. The consequence of forfeiture is to determine the lessee’s interest. It is not a remedy seeking to recover in respect of a provable debt. The proceedings are, therefore, competent notwithstanding the bankruptcy of Murdock.
A Tenancy in Excess of Six Months?
Mr Manetta, who appeared for the appellant, did not dispute the validity of notice to quit dated 8 May 2006. Instead, he submitted that the appellants are entitled to rely on s 20B of the Retail and Commercial Leases Act 1995 (“the Act”). Section 20B is in these terms:
20B.   (1)     The term for which a retail shop lease is entered into must be at least five             years.
The term of a retail shop lease is worked out under this section on the assumption that any right or option of renewal or extension under the lease or a collateral agreement will in fact be exercised. However, a right or option of renewal or extension will not be taken into account if it is given after the lease is entered into.
(2)     A lease is not invalidated by contravention of this section but the term of the         lease is extended to bring the term (or aggregate term) to five years.
(3)     This section does not apply to a lease if –
(a)     the lease is a short-term lease (ie a lease entered into for a fixed term                 of 6 months or less); or
(b)the lease arises when the lessee holds over after the termination of an earlier lease with the consent of the lessor and the period of holding over does not exceed 6 months; or
(c)the lease contains a certified exclusionary clause; or
(d)the lessee has been in possession of the retail shop premises for at least 5 years; or
(e)in the case of a retail shop lease that is a sublease – the term of the retail shop lease is as long as the term of the head lease allows; or
(f)the lease is a class excluded by regulation from the ambit of this Division.
Mr Manetta relies on paragraph (b) of sub-section (3) and contends the appellants have held over a period in excess of six months with the consequence that they are now entitled to a five year lease. He contended that the six month period was from 8 May 2006 to 8 November 2006.
There is a real question whether s 20B(3)(b) operates so as to create a five year lease in circumstances such as these where the appellants have been continually in default. However, it is unnecessary to consider that question as the appellants fail on other grounds for the reasons that follow.
The appellants will be able to rely on sub-section (3)(b) only if they held over with the consent of the respondent for a period in excess of six months.
The original tenancy was terminated by notice to quit dated 8 May 2006. That notice required the appellants to give vacant possession on 22 May 2006, the date when rent for the next month was due and payable. It will be recalled that the appellants had gone into possession on 22 December 2005 and that the appellants were to pay rent on the 22^nd day of each month thereafter. The notice to quit terminated the tenancy arrangement which had previously existed. After referring to the breaches by the appellants, the notice stated that the respondent treated the tenancy as terminated and required the appellants to quit the premises and deliver up possession on or before 22 May 2006, failing which the respondent would re-enter. Effectively, the notice gave the respondents 14 days notice to quit. The lease therefore terminated as of 22 May. In addition, the new tenancy arrangement began on 22 May 2006. That is apparent from Mellor Olsson’s letter of 19 May by which the respondent offered to extend the tenancy if the sum of $16,338.97 was paid on 22 May. As the letter stated, the tenancy was to continue from month to month if on the 21^st day of each month $2,931 was paid to the respondent. Thereafter the appellants paid $2,931 on 22 June, 26 July and 31 August but did not pay that sum on 21 September. On 26 September the respondent gave the appellants notice to quit the premises by 7 November. Notwithstanding its relative informality, that letter constituted a valid notice to quit. The appellants did not vacate the premises on 7 November. The respondents then gave them notice in writing that they remained in possession unlawfully. In other words, after 7 November 2006 the appellants remained in possession without the consent of the respondent. It is apparent from this review of the facts that the appellants remained in possession with the consent of the respondent from 22 May to 7 November 2006, a period less than six months. The appellants are, therefore, unable to derive any assistance from the terms of s 20B(3)(b) of the Act.
There was a dispute in the District Court whether the tenancy arrangements made in consequence of the letter from Mellor Olsson dated 19 May 2006 constituted a holding over from month to month or a series of monthly tenancies. The trial judge found it was the latter. It is not necessary to resolve that question because, on any view of the events after 22 May, the appellant did not hold over with the consent of the respondent for a period of six months or more.
Mr Manetta also submitted that by entering into negotiations for a new lease in November 2006, the respondent had consented to the appellants remaining in possession. The argument must fail. The respondent was only prepared to permit the appellant to remain in possession if they agreed the terms of the new lease. They did not. The respondent did not in any sense consent to the appellant remaining in possession. The conduct of the respondent after 8 November 2006 belies any suggestion of consent.
A Fresh Ground
Mr Manetta applied for leave to amend the notice of appeal to include a further ground in these terms:
Further and in the alternative, by demanding and receiving all arrears of rent from the appellants by order of the learned primary judge made on 15 October 2007 as a condition of the grant of a stay of execution of the order appealed from pending appeal to this Honourable Court, together with further instalments of rent as and when they fall due pending appeal, the respondent has in law consented or must be taken to have consented to the continuous occupation of the premises by the respondents since 8 November 2006, a period of more than 6 months for the purposes of the said section of the said Act, with the consequence that the appellant’s tenancy has been enlarged to a statutory term of five years, in respect of which there is no longer any unremedied breach which might otherwise have entitled the respondent to determine it.
As is apparent from its terms, that was not a ground of appeal but a new argument based on the terms of the order granting the stay of execution. It dealt with events subsequent to the stay order. It raised new issues which had not been agitated at the hearing in the District Court. Mr McNamara QC, who appeared for the respondent, was content to deal with the issue on this appeal in order that it could be resolved now and not agitated at some later stage. The determination of this issue does not require any further evidence to be adduced. The question is in narrow compass and can be resolved at this stage thereby saving the parties further inconvenience and cost that would follow if the issue were to be litigated later. The Court, therefore, ruled that it would determine the issue. However, for the reasons which follow, this contention of the appellants also fails.
The argument proceeds on a misunderstanding of the terms on which the stay was ordered. The order was in these terms:
THE COURT ORDERS that:
1.Execution of an order dated 25 September 2007 made in these proceedings be stayed until further order.
2.Paragraph 1 is conditional upon:
2.1     Payment by the defendants of the sum of $36,617.40 to the plaintiff on or before 22 October 2007;
2.2     Payment by the defendants of the sum of $2,931.00 to the plaintiff on or before 7 November 2007 and on or before the 7^th day of each month thereafter until an appeal from the orders of 25 September 2007 is determined;
2.3     The defendants instituting and prosecuting an appeal.
3.     Liberty to apply.
4.     Costs of this application shall abide the event of the appeal.
Mr Manetta submitted that the sum of $36,617.40 was arrears of rent and the monthly payments of $2,931 were rent. He added that as these conditions were imposed at the insistence of counsel for the respondent, the appellants have paid rent and the respondent has accepted and continued to accept those payments as rent and, thereby, has consented to the occupation of the premises by the appellant. Mr Manetta submitted that the respondent could not withhold consent yet at the same time demand that she recover rent. The appellant could not approbate and reprobate, he said. On that footing, he said, the appellants had been holding over with the consent of the respondent since at least 8 November 2006. Alternatively, he said, it was a re-instated tenancy so that the appellants were entitled to remain in possession.

There are at least three reasons why this argument must fail. The first is that it fails to give effect to the fact that the respondent has instituted these proceedings to recover possession. The institution of the proceedings to recover possession for breaches of covenant in a lease is an irrevocable election to determine the lease and no subsequent acts of the respondent can be relied on to qualify that position: Evans v Enever [1920] 2 KB 315 at 320 per Lord Coleridge J. In that case, the defendant had paid rent and costs to the plaintiffs after the commencement of proceedings claiming possession of premises. It was held that the acceptance of the rent did not constitute a waiver of the forfeiture of the lease. That decision was followed and applied in Civil Service Co-operative Society v McGrigor’s Trustee [1923] 2 Ch 347 at 358. See also Hinton v Fawcett [1957] SASR 213 at 221.
A second answer to Mr Manetta’s contention is that the appellants are relying on the terms of s 20B(3)(b) which requires that the holding over be with the consent of the respondent. The respondent did not consent to the appellants remaining in possession. She had secured an order for possession which she wished to enforce. However, she was prevented from enforcing the order for possession by reason of the stay. In no sense could it be said that she consented to the appellants holding over. In other words, whatever might have been the nature of the payments made pursuant to the order, the appellants were not holding over with the consent of the respondent.
A third reason why this argument must fail lies in the fact that Mr Manetta has incorrectly characterised the payments made pursuant to the order. Mr Manetta’s argument depends for its validity on the premise that the money paid by the appellants was rent. While the sum of $36,617.40 paid was an amount equivalent to arrears of rent and the sum of $2,931 was equivalent to the rent stipulated in the letter from Mellor Olsson dated 19 May 2006, it was not rent in either fact or law. The judge had ordered the stay on the application of the appellants. But for the stay the appellants would have had to quit the premises in compliance with the order for possession. Given that the stay would keep the respondent out of possession, the stay was granted on terms that a sum of money was paid and thereafter that the appellant had to pay an amount of money in each month. That was the price to be paid by the appellants for the stay. It was the quid pro quo for the grant of the stay. That is evident from the terms on which the order was granted and from the transcript of the argument of the appellant’s application for the stay.
Mr Manetta called in aid the decision of the Privy Council in Davenport v The Queen (1877) 3 App Cas 115. In that case, a lessee was in breach of the terms of the lease of Crown land and was liable to forfeiture of the lease. The Crown with full knowledge that the lease was liable to be forfeited received rent from the lessee. It was held that by accepting the rent the Crown had waived the events giving rise to forfeiture. The Privy Council applied the reasoning of Williams J in Croft v Lumley (1858) 6 HL Cas 672; (1858) 10 ER 1459 to this effect:
It was established as early as Pennant’s Case that if a lessor after notice of a forfeiture of the lease accepts rent which accrued after, this is an act which amounts to an affirmance of the lease and a dispensation of the forfeiture. In the present case the facts, I think, amount to this, that the lessor accepted the rent, but accompanied the acceptance with a protest that he did not accept it as rent, and did not intend to waive any forfeiture. But I am of opinion that this protest was altogether inoperative. As he had no right at all to take the money unless he took it as rent, he cannot, I think, be allowed to say that he wrongfully took it on some other account. And if he took it as rent, the legal consequences of such an act must follow, however much he might desire to repudiate them. (Citations omitted).
While they did not find it necessary to invoke this opinion to its fullest extent, Their Lordships held that, where money is paid and received as rent under a lease, a mere protest that it is accepted conditionally and without prejudice and the right to insist upon prior forfeiture, cannot counter-vail the fact of the receipt. The position here is altogether different in that proceedings for possession have been commenced. The decision in Davenport v The Queen has no application in these circumstances.
Conclusion
The appellants have, therefore, failed on all the arguments on which they seek to rely. They have not demonstrated that there is any ground on which this court should interfere with the order of the judge of the District Court. I would, therefore, dismiss the appeal.
DAVID J. I agree with the reasons of Debelle J. I would dismiss the appeal.