Paralawie Investments P/L v Maurice Srour P/L
[2006] SADC 16
•24 February 2006
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PARALAWIE INVESTMENTS P/L v MAURICE SROUR P/L AND ORS
Judgment of His Honour Judge Smith
24 February 2006
LANDLORD AND TENANT
Lease – termination of tenancy – whether statements made by landlord’s property manager amount to a repudiation of the lease – whether notice by tenant that it did not intend to renew was an irrevocable election or an acceptance of the alleged repudiation – discussion of doctrine of election and the extent of the knowledge required at the time of election.
STATUTES
Retail and Commercial Leases Act 1995 (as amended) – interpretation – whether Division 3 of Part 4A of the said Act applied to retail shop leases so as to modify or otherwise affect an option or right to renew – discussion of whether the subject lease was “entered into” as defined before the commencement of operation of Part 4A of the said Act – discussion of whether a common law election not to renew would be effective to preclude the operation of the provisions of Division 3 of the said Act.
Plaintiff leased two retail shops in a shopping centre to defendant for a term of five years with a right of renewal for a further five years – at time of renewal plaintiff’s agent alleged to have repudiated agreement by making demands which were contrary to the terms of the lease – tenant gave notice that it did not seek to renew lease – tenant alleged that notice was an acceptance of the landlord’s repudiation and an election to proceed for damages – discussion of whether the provisions in Division 3 of Part 4A of the Retail and Commercial Leases Act 1995 – 2003 applied to subject lease – discussion of whether any notice could be effective to preclude the application of the provisions of the said Act – consideration of whether the said Division 3 which provided a statutory right of renewal could apply to leases so as to modify or otherwise affect an option to renew.
HELD – that there was no repudiation of the lease by the landlord; that the tenant’s notice constituted a common law irrevocable election; that Part 4A of the 1995 Act had no application because the lease was entered into before Part 4A came into operation; that given the application of Part 4A the provisions of Division 3 did not apply to determine the renewal rights of the landlord and tenant because the tenant had a present applicable option to renew under the lease; and further in the alternative, if Part 4A applied the tenant’s notice that it did not seek a renewal excused the landlord from giving the tenant the preference prescribed in Division 3.
Defendants’ counterclaim which was prosecuted in default of appearance of the plaintiff dismissed.
District Court Rules 75.15(1); Retail and Commercial Leases Act 1995 (SA) Division 3 of Part 4A, ss 15, 23, 35 36, 68; Trade Practices Act 1974 (Cth) s52; Fair Trading Act 1987 (SA) s56; Misrepresentation Act 1972 (SA) s7, referred to.
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 57 ALR 609; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; Belperio v Linehaul Holdings (2004) 89 SASR 185; United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Sargent v ASL Developments Ltd (1974) 131 CLR 642; Potter v Minahan (1908) 7 CLR 277; Statutory Interpretation in Australia, Pearce & Geddes 5th ed; Owens v South Australia (1996) 66 SASR 251; MSP Nominees Pty Ltd v Commissioner of Stamps (1999) 166 ALR 149; Bennett v Minister for Public Works (NSW) (1908) 7 CLR 372, considered.
PARALAWIE INVESTMENTS P/L v MAURICE SROUR P/L AND ORS
[2006] SADC 16Introduction
In this action the plaintiff landlord claimed from the defendants the sum of $18,062.84 being rent and certain outgoings alleged to be outstanding pursuant to a lease, dated the 23rd November 1998, of two shops in the Paralowie Shopping Centre. The first defendant was the tenant of the shops and the second and third defendants, who were principals of the tenant company, were sued as guarantors of the due performance by the tenant of the lease.
The plaintiff’s action, which was instituted in the Magistrates Court on the 26th June 2003, was met with a defence and counterclaim, the quantum of which, was contended to exceed $100,000. Accordingly, on the 28th May 2004, the action was transferred to this Court. This caused the vacating of the trial date which had been fixed in the Magistrates Court.
The trial of the action in this Court was fixed for the 30th January 2006.
On the 25th January 2006, with leave of the Court, the plaintiff’s solicitors ceased acting in the matter.
On the morning of the trial of the action, namely the 30th January 2006, the plaintiff did not appear. In the course of the morning the Registrar of this Court received two facsimile letters purportedly from the plaintiff. The first, which was received at 10.08 am, asserted that the plaintiff had appointed a liquidator and the second, which was received at 10.40 am, withdrew that assertion. The commencement of the trial was delayed while the defendants’ legal representatives ascertained whether there was any statutory impediment to proceeding. I was told by counsel for the defendants, and I accept it, that there was no record at the Australian Securities and Investment Commission, of the plaintiff company being, for instance, in administration or liquidation.
In the circumstances, I decided to proceed in the absence of the plaintiff. Accordingly, on the afternoon of the 30th January 2006, I ordered as follows:
·that there be judgment for the defendants on the plaintiff’s claim (see District Court Rule 75.15(1));
·that there be a trial of the defendants’ counterclaim; and
·that the costs be reserved.
The trial of the counterclaim commenced on the following day, the 31st January 2006.
The Issues
The defendants’ counterclaim, as originally pleaded, was confined to a claim for damages for breaches of the relatively new statutory provisions in Division 3 of Part 4A of the Retail and Commercial Leases Act 1995 (as amended) (SA) (“the said 1995 Act”) (see First Amended Counterclaim 6.12.04). However, on almost the eve of trial, pursuant to leave granted, due notice having been given to the plaintiff, the causes of action were expanded to embrace, inter alia, claims for damages for breaches of s52 of the Trade Practices Act 1974 (Cth), s56 of the Fair Trading Act 1987 (SA) and s7 of the Misrepresentation Act 1972 (SA) (see Second Amended Counterclaim 24.01.06).
In summary, the defendant tenant claims that, by reason of the plaintiff landlord’s breaches of statutory and contractual duties, it was wrongly deprived of its right to renew the lease of its x-lotto and newsagency business and as a result it was forced to sell what remained of the business for $48,000 whereas if the lease had been renewed the business would have been worth $160,000. Accordingly, the claimed damages are $112,000.
Counsel, Mr Sallis, said that the legal basis for the above claim for $112,000 was threefold, namely:
1.for breaches of the statutory provisions of Part 4A of the said 1995 Act;
2.for breaches of ss 15, 23, 35, 36 and 68 of the said 1995 Act in the event that Part 4A is held to be inapplicable; and
3.for wrongful repudiation of the lease or fundamental breach of obligations under the lease (see Progressive Mailing House Pty Ltd v Tabali Pty Ltd[1]).
[1] (1985) 57 ALR 609
He added that the breaches of s52 of the Trade Practices Act 1974, s56 of the Fair Trading Act 1987 and s7 of the Misrepresentation Act were based on the landlord’s failure to comply with Part 4A and so that if the Part 4A is held not to apply to the lease then those said statutory claims would fail (379, 396, 397; see also 300, 301).
The above third aspect of the defendants’ case, namely the repudiation argument, was not pleaded. Counsel, Mr Sallis, did not seek leave to amend and continued to prosecute this contention despite the fact that I drew to his attention that it was necessary to apply to amend particularly in a matter proceeding in default of appearance of one of the parties (42-44). I think it appropriate to make it clear that a party proceeding in default may not pursue a claim that has not been specifically pleaded as at the time of the default. The party in default can only be said to have surrendered the claim which is pleaded before the default. The authorities referred to by counsel might have some cogency in an inter partes matter but not in a default matter such as this. Nonetheless I decided I would deal with the repudiation argument because, firstly, the facts upon which it was based were relevant to other issues, and secondly, any difficulty which might otherwise have arisen, does not arise, because the defendants have failed to make out the said argument.
Findings
I now turn to the evidence and my findings. I will set out my findings in the form of a narrative and identify the areas of contention as I proceed.
The evidence, both documentary and oral, was adduced in a piecemeal and haphazard way.
I heard oral evidence from:
·Maurice Srour, the second defendant;
·Ruby Ester Srour; the third defendant;
·Jon Gillett Noolan, accountant;
·Marc Palmer Ockenden, valuer; and
·Peter Bruce Southwick, property valuer.
I received considerable documentary evidence, including a large book of documents and correspondence which tracked the emergence of this dispute.
I turn then to the actual evidence.
The Parties
As at 1997 the second and third defendants, Maurice and Ruby Srour, were the sole directors and shareholders of the first defendant corporation, Maurice Srour Pty Ltd. As at 1997 that company owned and operated the Modbury Triangle Pharmacy, the Elizabeth Grove Pharmacy, the Flinders University Pharmacy, the Abbey Computer Retail Outlet on King William Road and the Big Man Store on The Parade at Norwood (112). Mr Srour was a pharmacist of 35 years experience. He worked in the various pharmacies. Mrs Srour worked in the Norwood business. They were no strangers to operating leasehold businesses (200, 201).
Harry and Ray Rashani were directors of the plaintiff company, Paralawie Investments Pty Ltd. In the years leading up to 1997 the Rashanis were establishing the Paralowie Shopping Centre (117).
The Srour’s early involvement in the Centre before signing lease 23rd November 1998
In about 1995 Mr and Mrs Srour came to know Harry and Ray Rashani (111, 112). The Rashani’s initially proposed that Maurice Srour operate a pharmacy in the proposed centre (312). In about 1996 discussions occurred between the Rashani’s and the Srours about the Srours also taking on a proposed news and x-lotto agency business (116, 117, 312-315). Maurice Srour agreed. On the 25th March 1997 he signed a letter confirming the terms of an agreement to lease premises in the centre for the conduct of such a business (313; see also Exhibit E). The lessee was recorded as “Maurice Srour and/or his nominee”. A deposit of $7,295 was paid. Of that sum, $6,270 was expressed to be 10 percent of the commencing annual rent. Maurice Srour Pty Ltd paid this deposit (294-296; see also Exhibit I).
Mr Srour said that at the time he signed the letter on the 25th March 1997 he did not intend that Maurice Srour Pty Ltd would operate the news and x-lotto agency. He explained that the company was an entity confined to operating pharmacies and that there were resultant professional barriers to it being the tenant at that time (313, 314). These barriers were obviously later relaxed because the first defendant corporation did eventually operate the business and signed the lease.
Mr Srour said that in July 1997 Harry Rashani indicated that he wanted to be part of the running of the news and x-lotto agency (315). The initial proposal was for the respective wives also to be involved (315). A decision was made to operate the business through a company named Seven Cedars Pty Ltd and to that end a company of that name was incorporated or registered on the 6th August 1997 (316).
Steps were then taken to set the business up and fit-out the shop. Credit arrangements were put in place with suppliers (318, 319; see also Exhibit E). Although Seven Cedars Pty Ltd was intended to be the lessee at this time it was Maurice Srour Pty Ltd who paid the bills of suppliers and shopfitters (321).
In September 1997, according to Mr Srour, “... me and Harry ....” moved into possession of shops 9 and 10 and trading commenced (321). However, it was Mrs Srour who actually worked in the business (322).
The proposal for the involvement of Harry Rashani and Seven Cedars Pty Ltd did not come to pass. A dispute with the Rashani’s over the chemist shop had by this time arisen (322). Further, Harry Rashani had not paid for any of the set-up expenses of the business. One of his cheques for shop fitting expenses was dishonoured (323).
In July or August 1998 Maurice Srour Pty Ltd entered into a licence agreement with the Lotteries Commission of South Australia. It was at this time that a decision about who was to be the lessee had to be made. According to Mr Srour, he then nominated Maurice Srour Pty Ltd to take the lease of shops 9 and 10 (343; see also Exhibit J).
During this time the plaintiff landlord was eager for the Srour interests to sign a lease (see Exhibit E, in particular letter from Kate Knight dated 9.03.98). Mr Srour said that he had refused to sign the lease because he was then embroiled in the litigation with the plaintiff over the chemist shop (322, 324, 325). The litigation resolved in 1998 on the basis of a payment to the Srour interests (323). I assume that the dispute had resolved by the time of the execution of the subject lease, that is the 23rd November 1998.
Though I have expressed some of the above events as “... Mr Srour said ...”, I indicate that I accept Mr Srour’s evidence, as set out above, as to what occurred between March 1997 and the signing of the lease on the 23rd November 1998.
The lease dated the 23rd November 1998
Accordingly, on the 23rd November 1998 the lease was executed by the plaintiff company. At the same time the second and third defendants executed the guarantees embodied within the document (328; see also Exhibit G pp16-51). The term of the lease was five years with a right of renewal for a further five years. The first term was expressed to commence on the 8th September 1997. The renewal provisions were as follows:
17. RENT REVIEW
The rent shall be reviewed at the times, in the manner and subject to the provisions specified in Item 7 of the Schedule.
18. RENEWAL
If the Lessee wishes to renew this Lease for the further term specified in Item 8 of the Schedule then the Lessee shall request the Lessor in writing for such a renewal. The request must be received by the Lessor not less than six months nor more than nine months before the expiry of this Lease. If at the time of the request there is no outstanding breach of this Lease by the Lessee and if after the request the Lessee does not breach this Lease then the Lessor will at the Lessee’s expense grant to the Lessee a renewal of this Lease. The renewed Lease will not include a right of renewal other than for any further term specified in Item 8 of the Schedule and otherwise will be upon the same terms and conditions as this Lease. Unless the Lessor and the Lessee otherwise agree a new Lease for the renewed Lease term shall be prepared by the Lessor’s solicitors at the Lessee’s expense and shall be executed by the parties before commencement of the renewed Lease term. If this Lease has been guaranteed then the renewed Lease shall automatically be deemed to be guaranteed by the same persons on the same terms unless the Lessor expressly agrees in writing to the contrary. Without limiting the previous sentence the Lessor may require a new Deed of Guarantee to be prepared by the Lessor’s solicitors and executed by the same and/or other guarantors prior to commencement of the renewed Lease term.
The material items in the said Schedule to the lease were as follows:
................................
Item 7 Rent Review
Dates Annually on each anniversary of the commencement date.
MethodAs from each review date there shall be a CPI rent review except on the commencement date of the renewed Lease term when there shall be a current market rent review.
Item 8Further Term(s)
A term of five (5) years commencing on the 8 September 2002
Notably the terms of the lease did not provide a mechanism for fixing the “... current market rent ...” for the renewed lease term in the event of there being a disagreement. However, s35 of the said 1995 Act, which clearly applied to this lease, provided not only that it be determined “... by valuation carried out by a person appointed by agreement between the parties to the lease or failing agreement appointed by the person for the time being holding or acting in the office of President of the Australian Institute of Valuers and Land Economists (SA Division) Inc ...” (see sub-s (c) of s35), but also provided guidance as to the criteria to which the valuer should have regard (see sub-s (a), (b) and (d) of s35).
So the first defendant, Maurice Srour Pty Ltd, with Mrs Srour at the helm, operated the news and x-lotto agency business from shops 9 and 10 for the first term of five years.
Renewal negotiations – March 2002 to June 2002
As the first five year period drew to a close negotiations began between the landlord and the tenant as to the renewal and the conditions thereof. Mrs Srour conducted these negotiations in consultation with her husband.
What occurred at this time is crucial to the defendants’ case. I will start by setting out the relevant evidence.
Mrs Srour, when led by her counsel, agreed that she knew:
·that the lease was due for renewal on 6th or 7th September 2002;
·that the lease had a right of renewal for a further period of five years;
·that the rent for the renewal period would be based on market value; and
·that the market value would or could be fixed by an independent person.
(169, 172)
The tenant, by its directors, must be taken to know the essential terms of the lease it has negotiated and signed. In any event, Mrs Srour as indicated above and Mr Srour said they knew of the company’s renewal rights.
Mrs Srour added that she considered that the rent currently being paid was too much. Speaking for the company she said she wished to renew the lease for shops 9 and 10 (170).
She then recounted what she did to achieve that objective.
First of all she said that “months before” the end of the original five year term she spoke with Mr Ray Rashani. This conversation took place at the Big Man Store on The Parade at Norwood. She said she indicated to him that the tenant wished to renew the lease but his reply was “... we’ll see, we’ll see ...” (172). She then said that she enlisted the aid of a real estate person by the name of Rino Passioni who worked for Hookers Real Estate Company at St Peters. However, the landlord’s agents refused to speak with Mr Passioni because of a perceived conflict of interest (174). Then Mrs Srour said she had a meeting with the landlord’s agent, Mr Lloyd Hunter-McKechnie, at a coffee shop on The Parade at Norwood across the road from the Big Man Store. She said that she told Mr Hunter-McKechnie that “... I wanted to renew the lease ... that the rent was too high ...” (176). She said his response was as follows “... this is strictly off the record if you want this shop you will have to do $100,000 fit-out here is the piece of paper, draw it up, have it to me soon ...” (176). Mrs Srour said she threw the paper onto the desk and the next thing that happened was that she wrote to Mr Hunter-McKechnie (177). Later in her evidence she said that her memory had been revived over night and returning to this topic of the conversation with Mr Hunter-McKechnie, said that he not only demanded the $100,000 fit-out as a pre-condition to a renewal, but also said there would be an increase in rent in the event of any renewal (197).
Then Mrs Srour said that she and her husband wrote the letters which are included in the correspondence at pp52-58 of the book of documents marked Exhibit G. I set out the detail of the final letter dated the 1st May 2002 which appears to be the culmination of this correspondence from the tenant to the landlord and his property manager.
PARALAWIE INVESTMENTS
Wednesday, May 1, 2002
It (sic) reply to:
HUNTER-McKECHNIE
Business 04149 555 474 (sic)
Office 08 8344 1964
Fax 08 8342 9522Email [email protected] (sic)
Dear Sir,
Re: Shop 9&10, Paralowie Shopping Center (sic) – Notice of Non-Renewal.
I refer to our discussion on the 27th of March and the letter dated 22 of March, advising you of our intention not to take up the offer to renew the lease.
Yours faithfully.
Maurice Srour
Ruby Srour
Maurice Srour Pty LtdIt can be seen that the letter constitutes a clear notice to the landlord that the tenant did not intend to exercise its right of renewal of the lease.
Though Mrs Srour had previously said she was aware of the tenant company’s rights of renewal, she explained that the letters were the only response she felt the company could make bearing in mind the hard line taken in respect of the renewal by the landlord through his agent, Mr Hunter-McKechnie (200, 202, 203, 205-210).
As to this same topic, Mr Srour said as follows:
Q.At that time, you, of course, had the lease that we have referred to. Did you realise that you had a right of renewal for the second period of five years.
A.Yes, I did.
Q.What did you understand about the condition, if you like, of renewal. Perhaps my question wants you to focus on did you now whether or not the landlord could insist on a refit and could insist on an increase in rent for the renewal period.
A.If he is entitled or if he would do it?
Q.Whether he was entitled to do it.
A.I don’t think he was entitled. I do think that he was pressuring to make life impossible.
Q.You were both directors of the company. You and your wife discussed this amongst yourselves when the trouble was brewing.
A.Yes.
Q.Did she tell you the landlord, through its agent, was insisting on more rent for the renewal period and wanted an expensive fit-out done.
A.Yes, she did.
Q.Did you know that could not be insisted upon; it wasn’t an entitlement under the lease.
A.Yes, I knew that they are not entitled.
Q.In the end – and your wife told me all about this – you sold what was left of your business when the renewal wasn’t achieved to an incoming tenant.
A.Yes.
Q.You transferred the x-lotto agency licence to him.
A.Yes.
Q.And you left.
A.Yes.
Q.What I want to know is the company whom you represent – when you left, did you have in mind legal action against the landlord, or was that the end of the matter, as far as your company was concerned.
A.I didn’t want to start legal action knowing that I might not be able to afford it.
Q.So was it when the landlord pursued a claim for alleged outstanding rent under both the lease and the guarantee, or under the guarantee, that you decided that you’d do something about it.
A.Yes.
(transcript pp 332 – 333)
Counsel, Mr Sallis, took Mr Srour back to the same topic immediately after the above evidence.
Q.Did your wife tell you at some stage in 2002 that, if you renewed the lease, the landlord wanted more rent.
A.Yes, she did.
Q.Did she tell you that, if you renewed the existing lease, the landlord wanted a new fit-out.
A.Yes, she did.
Q.Did she mention any amount of money that that would cost.
A.$100,000.
Q.Did she tell you that.
A.Yes.
Q.So, she told you that, if you renewed the lease, the landlord would want more rent that what you were paying at that time, and a fit-out for $100,000.
A.Correct.
Q.Did she tell you how she knew that.
A.A, by a conversation whilst she was at the solicitor, in discussion with John Viscariello, and the solicitor is Chrzaszcz in the city, and I’m sure there was also a document.
Q.I’ll go back. Before she sought any solicitors at all – I want you to go back before any lawyers became involved – were you aware that, if you renewed the lease, the landlord wanted a higher rent.
A.Yes.
Q.Were you aware that, if you renewed the lease, the landlord wanted you to carry out a new shop fit-out.
A.No. That came later, but I knew they would increase the rent per square metre and I wasn’t aware yet about the request for $100,000 shop fitting.
(The italics are mine)
(transcript p336)
The six letters from Exhibit G were produced to Mr Srour by me and the following exchange took place in respect of them.
Q.They are short letters. Just have a quick look at those. Do you agree with me that the impact of those letters is a notice to the landlord from the lessee, your company, Maurice Srour Pty Ltd, that it does not intend to renew the lease in respect of shops 9 and 10.
A.Yes.
Q.Were you a party to that decision, personally I mean.
A.Yes.
Q.What was your understanding of the reasons behind that decision.
A.The rent that was paid was making the company lose money each year and it would have broken even and eventually made some profit with a reduced area, but the way it was going, you can say easily that, in five year, we lost $100,000, or more.
Q.Those letters were written with your knowledge.
A.Yes.
(transcript p335)
The contention of the defendants here is that Mr Hunter-McKechnie’s alleged insistence upon “a $100,000 fit-out and more rent” as a pre-condition to any renewal evinced an intention not to be bound by the lease agreement and so amounted to a repudiation of the contract by the landlord. Further, it is contended that the tenant’s notice to the landlord that it did not intend to exercise the right of renewal was an acceptance of the repudiation and a rescission of the contract. This bold contention, as previously indicated, was not pleaded.
Whether there has been a wrongful repudiation is an objective determination having regard to the conduct of the relevant party (see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd[2]; Progressive Mailing House Pty Ltd v Tabali Pty Ltd[3]). So it is necessary to examine all the relevant evidence and evaluate objectively whether the landlord’s conduct by its agent amounted to a repudation.
[2] (1989) 166 CLR 623
[3] (1985) 157 CLR 17
Therefore, before I proceed to make findings as to this “off the record” conversation and whether by itself or together with other proven facts it establishes a repudiation of the lease, it is necessary to examine the events which followed. What followed is relevant also to a range of other issues before me.
Negotiations – sale of business – surrender of shops 9 and 10 – June 2002 to March 2003
In June 2002 the landlord’s agent, Mr Lloyd Hunter-McKechnie, commenced advertising for a newsagent in the shopping centre (see pp59-61 of Exhibit G). Mrs Srour in her evidence said she was “... furious, upset, in total disbelief that he had no right to do that ...” (211). When it was put to her that it was not inexplicable bearing in mind the notice given by the company that it did not wish to renew the lease of shops 9 and 10, she said:
... I told him I wasn’t going to renew 9 and 10. I didn’t tell him I wasn’t’ going to take any shop. I told him I wanted a shop. He didn’t give me an answer. He didn’t give me an answer to shop 8. He never gave me an answer to shop 8 ...
(212)
She also made the point that the advertisements were an indication that the landlord was purporting to sell “... my business ...” (213). Mrs Srour said that she became further annoyed when she discovered that the landlord’s letting agent was dealing with an interested purchaser. It was then that the defendants engaged the solicitor Mr John Viscariello of Messrs Gretsas Chrzaszcz to act in the matter (217). Messrs Gretsas Chrzaszcz wrote on the 1st August 2002 to the landlord’s letting agent (see p65 of Exhibit G). In due course Messrs Cowell Clarke came to act for the landlord.
The book of documents, supplemented in particular by the evidence of Mrs Srour, traces what happened between, about August 2002 when solicitors became involved on both sides, and the 12th March 2003 when Maurice Srour Pty Ltd, having sold what was left of the business for $48,000, gave vacant possession of shops 9 and 10.
The following is a summary of those events:
1.The early correspondence of Messrs Gretsas Chrzaszcz contended that Division 3 of Part 4A applied to the subject lease and on behalf of their clients demanded that the landlord comply with the statutory rules of conduct as to the renewal of the lease prescribed therein (see pp65-70 of Exhibit G).
Messrs Cowell Clarke’s response, on behalf of the landlord, was firstly that Division 3 of Part 4A did not apply since the lease was “entered into” as defined before the commencement of the Part which was the 6th October 1997, and secondly that in any event the tenant had given notice that it did “not want to renew” pursuant to s20D(2) of the said Part which notice then precluded the operation of the rules (see pp71-72 of Exhibit G). In response to these contentions Messrs Gretsas Chrzaszcz said firstly that the lease was entered into on the 23rd November 1998 when it was signed and as to the notice said:
2.2In regard to our client’s notice to the landlord dated 1 May 2002 our instructions are that:
2.2.1Our client indicated to the landlord that the occupancy costs of their business were unsustainable and that in those circumstances our client requested that the landlord consider our client renewing the lease in respect of a half portion of the existing leased premises. The landlord advised that it would not accept any discussion about our client’s renewal of the lease on terms other than on terms strictly in accordance with the lease. In these circumstances our client had no other option but to, by its letter dated 1 May 2002, give notice to the landlord pursuant to Clause 18 of the lease that it did not wish to exercise its contractual right to renew the lease for a further term of five years which term is specified in Item 8 of the Schedule to the lease.
2.2.2The rights of existing tenants contained in Division 3 of the Act are clearly rights granted to them by statute. Our instructions are that at no time has our client ever purported to waiver or surrender its entitlement to the rights contained in Division 3 of the Act. In the absence of clear and a\express language our client’s notice to the landlord pursuant to clause 18 of the lease as contained in our client’s letter dated 1 May 2002 can in no way be interpreted or construed as notice by our client pursuant to Section 20D (2) of the Act.
(the italics are mine)
(see pp74-76 of Exhibit G)
In the six months which ensued this difference of opinion between the respective solicitors as to the legal ramifications of what had occurred, was not resolved. Rather, there was an attempt to settle the matter.
2.The landlord permitted the tenant to remain in occupation of shops 9 and 10 while negotiations took place and eventually on the 13th September 2002 agreed to permit the tenant to remain in possession for six months from that date on the same terms and conditions as provided for in the lease (see pp143-144 of Exhibit G).
3.On the 26th August 2002 the defendants’ solicitors proceeded to arrange for the President of the Australian Institute of Valuers to appoint a valuer to determine the current market rent for the renewal term (see p79 of Exhibit G). The landlord steadfastly refused to join in this appointment and made this clear not only to the tenant’s solicitors, but also to the valuer, Mr Marc Palmer Ockenden, who was eventually appointed by the President (see pp79-87, 143, 145 and 168 of Exhibit G).
4.By letter dated the 13th September 2002 the landlord, by its solicitors, made a without prejudice offer to the tenant for a renewal of the lease in respect of shops 9 and 10 on terms which included rent of $64,569.40 per annum plus GST (see pp143-144 of Exhibit G).
5.As at September 2002 the landlord, through its property manager, continued to seek a tenant for a “newsagent with lotto agency and post office” at the shopping centre and in particular shops 8 and 9 (see pp146-159 of Exhibit G).
6.By letter dated the 23rd September 2002 Messrs Gretsas Chrzaszcz effectively rejected the landlord’s offer drawing attention to the fact that the offer was less favourable than terms and conditions offered by the landlord to other prospective tenants “for the premises or premises that incorporate part of our client’s premises”. They invited the landlord to submit another offer (see pp160-161 of Exhibit G).
7.By letter dated the 24th September 2002 the landlord, through its solicitors, made a second offer to the tenant this time for a lease of shops 8 and 9 at a commencing rate of $55,110 plus GST (see pp162-163 of Exhibit G).
8.By letter dated the 10th October 2002 the valuer, Marc Ockenden, notified both the landlord’s and tenant’s solicitors that he had accepted the appointment to determine the current market rental applicable to the tenancy for the renewal term (see pp164-165 of Exhibit G).
9.By letter dated the 17th October 2002 the tenant’s solicitors indicated that the tenant was considering the offer in the letter referred to in item 7 above and went on to propose that a Mr Brian Scarborough, of SA Lease Management, take over negotiations on behalf of the tenant and deal directly with the landlord’s property manager in an effort to resolve the matter (see pp166, 167 of Exhibit G). Apparently, this suggestion was agreed. Mr Scarborough commenced representing the tenant in the matter (254).
10.By letter dated the 14th November 2002 the landlord’s property manager, Mr Lloyd Hunter-McKechnie, put a third offer to the tenant through Mr Scarborough that the tenant lease shops 8 and 9 at a rent of $47,730 plus outgoings plus GST together with a rent-free period (see pp171-184 of Exhibit G). This offer, according to Mrs Srour, was rejected on Mr Scarborough’s advice (254).
11.On the 26th November 2002 the valuer, Mr Marc Ockenden, notified the solicitors acting for the tenant that he had determined that the fair current market rental for shops 9 and 10 as at the 8th September 2002 in accordance with the terms and conditions of the lease was $52,800 inclusive of GST plus marketing levy and outgoings (239-242; see also Valuation Report Exhibit C).
12.On the basis of the rent valuation report Messrs Gretsas Chrzaszcz, by letter dated 2nd December 2002 to Messrs Cowell Clarke, demanded a credit for overpayment of rent since the 8th September 2002 (see pp186-187 of Exhibit G).
By letter dated the 11th December 2002 Messrs Cowell Clarke refused, repeating their position that Division 3 did not apply and pointing out what their earlier correspondence made clear, namely that the sixth months extension of occupancy was granted to facilitate the settlement, not because the tenant was entitled to it pursuant to s20G of the said 1995 Act (pp190,191 of Exhibit G).
Then Messrs Gretsas Chrzaszcz by letter dated the 17th December 2002 to Messrs Cowell Clarke effectively returned to the tenant’s original demand, namely that it occupy the leased premises for the renewal term but on the basis of the current market rent determined by Mr Ockenden (see pp193-194 of Exhibit G). This proposition was put at a time when the agreement with the Tiong interests for the sale of the business must have been all but agreed. In any event, this proposal was rejected by the solicitors for the landlord (see p204 of Exhibit G).
13.At about the time the above valuation came to hand Mr Scarborough, acting for the tenants, was negotiating the sale of the tenant’s business to Clarence Tiong (see p185 of Exhibit G). Indeed it was Mr Tiong’s company, Star Post Pty Ltd, which ultimately purchased the business (256; see also pp212-221 of Exhibit G). Mr Tiong offered $48,000 by letter dated the 29th November 2002 (see p185 of Exhibit G). Maurice Srour Pty Ltd counter offered $80,000 by letter dated the 5th December 2002 (see p188 of Exhibit G). By letter dated the 13th December 2002 Mr Tiong reiterated his $48,000 offer (see p192 of Exhibit G). The business was sold for that sum and the tenant Maurice Srour Pty Ltd duly transferred the x‑lotto licence and vacated shops 9 and 10 on the 12th March 2003 (258, 264; also pp205-265 of Exhibit G).
It can be seen that both the landlord and the tenant in the course of the six months from about September 2002 to March 2003 were negotiating not only with each other, but also with a prospective replacement tenant.
Though their evidence is not crucial to my findings, I indicate that I accept the expert testimony of:
·Mr Jon Noolan, accountant;
·Mr Marc Ockenden, valuer; and
·Mr Peter Southwick.
As indicated, the plaintiff landlord instituted this action on the 26th June 2003 and the claim was met with this counterclaim.
I now turn to the defendants’ contentions as to what flows from the above history.
“Off the record” statements of landlord’s property manager – repudiation of lease?
In Belperio v Linehaul Holdings[4] Besanko J, with whom Duggan and Anderson JJ agreed, set out the settled principles of the doctrine of repudiation in its application to leases at pp190 and 191. All that which is set out in paras 28 to 33 is directly relevant to the contentions made in this case. His Honour said as follows:
[4] (2004) 89 SASR 185
For the purposes of the issues on this appeal, the relevant legal principles are clear.
In Heyman v Darwins Ltd [1942] AC 356 Lord Wright said (at 378 – 379):
There is, however, a form of repudiation, where the party who repudiates does not deny that a contract was intended between the parties, but claims that it is not binding because of the failure of some condition or the infringement of some duty fundamental to the enforceability of the contract, it being expressly provided by the contract that the failure of condition or the breach of duty should invalidate the contract … But perhaps the commonest application of the word ‘repudiation’ is to what is often called the anticipatory breach of a contract where the party by words or conduct evinces an intention no longer to be bound, and the other party accepts the repudiation and rescinds the contract. In such a case, if the repudiation is wrongful and the rescission is rightful, the contract is ended by the rescission, but only as far as concerns future performance. It remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation.
The application of the doctrine of repudiation in the context of leases was discussed by the High Court in Shevill v Builders Licensing Board (1982) 149 CLR 620, Progressive Mailing and Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 (“Laurinda”) and by this Court in Murray-Oates v Jjadd Pty Ltd (1999) 76 SASR 38. In Progressive Mailing, the Court held that the contractual doctrine of repudiation applied to leases, although there are features of a lease which will affect how the doctrine applies in the particular circumstances of the case. In Laurinda, the Court was required to consider if a failure by a lessor to deliver a registrable lease to the lessee was a repudiation of the agreement. The Court held that in the circumstances of that case the failure was a repudiation of the agreement. A party repudiates an agreement if by his words and/or conduct he evinces an intention no longer to be bound by the agreement.
Repudiation is a serious matter and is not to be lightly inferred or forced. It is necessary to consider the objective acts and omissions of the promisor not his uncommunicated intention. In other words, the inquiry focuses on what the promisor’s acts or omissions would convey to a reasonable man. Deane and Dawson JJ said in Laurinda (at 657 – 658):
Thus, it is of little assistance in the present case to identify reasons why the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease … It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.
There is sometimes an issue as to the circumstances in which persistent procrastination amounts to repudiation (Laurinda per Mason CJ at 634, Deane and Dawson JJ at 658 – 659), but that particular problem does not arise in this case.
A repudiation is accepted when the promisee, by his words and/or conduct, elects to terminate the performance of the agreement.
The Judge stated the relevant legal principles as to repudiation in the following terms:
The question of repudiation is to be judged objectively, and the subjective intention of the alleged repudiator is not relevant: Murray-Oates v Jjadd Pty Ltd (1999) 76 SASR 38 at 46-7. Neither is it relevant whether the alleged repudiator has communicated its intention to repudiate to the other party. The plaintiffs’ counsel conceded that repudiation is not to be lightly found: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (above) at 32.
With those principles in mind, I turn to the evidence of in particular Mrs Srour, as to the alleged conversation with Mr Hunter-McKechnie.
There are two aspects to this enquiry. Firstly, did the conversation as recounted by Mrs Srour take place, and secondly, if it did, did it amount to a repudiation of the lease?
Though unopposed, I do not accept Mrs Srour’s evidence as to this conversation. It was inherently unconvincing and moreover it was inconsistent with other acceptable evidence before me. The following, in combination, convinces me that this evidence, which is the foundation for this claim of repudiation, is unreliable. It was, at the very least, a product of confused reconstruction:
1.When first addressing the topic in her oral evidence Mrs Srour said that Mr Lloyd Hunter-McKechnie said “... if you want this shop you will have to do a $100,000 fit-out ...” (176). There was no mention at that place in her evidence of Mr Hunter-McKechnie demanding more rent for the commencement of the renewal period. That topic was revisited in her evidence on the next day when, amongst other things, more documents came to light and she then recalled him also indicating more rent would be required (197).
2.The evidence of Mr Srour does not wholly support that of his wife. His evidence seemed to be that the issue of a $100,000 fit-out “... came later ...” (336). And he indicated that he thought that his wife was told of that pre-condition by the solicitor Mr John Viscariello (336).
3.In the correspondence dealing with the issue of renewing, prior to the engagement of solicitors, (see Exhibit G at pp52-58 as set out above), there is not a hint of any such pre-conditions. Rather, the defendants’ solicitor contended that the landlord’s position had been that any renewal had to be on terms “... strictly in accordance with the lease ...” (see [51] above).
4.Further, in the detailed correspondence between the lawyers there is no mention of any such “off the record” pre-conditions as serving to qualify the notice constituted by the letters. It is inconceivable that the Hunter-McKechnie conversation would not have been raised to address this, if indeed it had taken place as Mrs Srour says.
5.Messrs Gretsas Chrzaszcz purported to explain away the notice given by their clients not as a reaction to the “off the record” pre-conditions imposed by the landlord’s property manager, but in the following terms:
The landlord advised that it would not accept any discussions about our client’s renewal lease on terms strictly in accordance with the lease. In these circumstances our client had no other option but to, by its letter dated the 1st May 2002, give notice to landlord ... (see [49] above).
6.Together with the letters (pp52-58 of Exhibit G) other evidence from both Mr and Mrs Srour suggest that they were not keen to renew the lease for shops 9 and 10 but would have preferred another shop or shops as they were unhappy with both the performance and location of the business (206, 335, 338).
7.Finally, the defendants two detailed pleadings, namely the First Amended Defence and First Amended Counterclaim of the 6th December 2004 and the later Second Amended Defence and Second Amended Counterclaim of the 24th January 2006 make no mention of the alleged “off the record” conversation which alleged “to evince an intention by the landlord not to be bound by the lease”.
If am in error in holding the above view and a conversation of that ilk did take place, then it cannot be characterised as the landlord repudiating the lease agreement by evincing an intention no longer to be bound. Undoubtedly the landlord would be hoping, and even expecting, to receive more rent at the commencement of the renewal term; however, both Mr and Mrs Srour knew that the landlord was not entitled to insist on that (see Mrs Srour 169; Mr Srour 332, 333). Such a conversation if it occurred could be characterised as “puff” for the purposes of negotiation. The fact that it did not rate a mention in the correspondence or the pleadings bears this out. Mr Srour, the co-director of the tenant company, understood, even if his wife did not, that the property manager had no entitlement to demand either more rent or a new “fit-out”, but “... was pressuring to make life impossible ...” (333). The tenant company gave the notice in that state of knowledge. Accordingly, the company in such circumstances could not sensibly claim that the said notice amounted to it accepting a repudiation of the lease.
Letter of 1st May 2002 – Election
I now turn to the issue of the legal impact which the letter of the 1st May 2002 has on the respective rights of the parties. For the purposes of this, I put aside for the moment whether any of the provisions of the said 1995 Act apply, and if so, whether the notice constituted by the letter is capable of affecting the operation of its provisions.
Pursuant to the provisions of the lease at the end of the first term of five years the tenant can choose to exercise the option to renew the lease for a further five years or not to exercise it. The tenant chose not to exercise the option and notified the landlord accordingly. So at law the tenant has elected not to exercise the option. Strictly speaking it is a matter of election rather than waiver. In United Australia Ltd v Barclays Bank Ltd[5] Lord Atkin explained:
If a man is entitled to one of two inconsistent rights it is fitting that when with full knowledge he has done an unequivocal act showing that he has chosen the one he cannot pursue the other, which after the first choice is by reason of the inconsistency no longer his to choose.
[5] [1941] AC 1
As to the pre-conditions for the operation of the above doctrine, Stephen J in Sargent v ASL Developments Ltd[6] said:
For the doctrine to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses (Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326; United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30).
[6] (1974) 131 CLR 642
The case of Sargent concerned a contract for the sale of land. The contract provided that if the property was discovered to be affected by any planning scheme other than as disclosed then either party would be entitled to rescind. At all material times the land was so affected. This was known to the vendors and purchasers as at the date of the contract, yet the vendors accepted from the purchasers payments of interest, instalments of principal and increased rates and they joined with the purchasers in taking other steps to facilitate the sale. The purchasers then sought to rescind the contract. The High Court held, inter alia, that by their unequivocal conduct, with knowledge of the facts giving the right to rescind the contract, the vendors had elected to treat the contract as subsisting and were precluded from exercising the right to rescind it.
As to the knowledge required at the time of election, Stephen J said at 645 as follows:
In the present appeals I conclude that, contrary to the appellants' contentions, all that need be established in order for the doctrine of election to apply is knowledge by the vendors of the facts giving rise to inconsistent legal rights; the appellants are to be taken to know of their rights of rescission conferred by cl. 16 and, of course, of their right to enforce the contracts according to their terms. If they then knew of the relevant facts giving rise to the rights of rescission, that is, the existence of a planning scheme affecting the lands sold, that is enough to invoke the doctrine. Their own interpretation or understanding of the nature of extent of their contractual rights will be irrelevant, so that it matters not at all whether they were aware of the existence of cl. 16 or of its effect as it came to be enunciated in Wolczyk v. Barr (1970) 92 W.N. (N.S.W.) 518; it is enough that they knew of facts which have brought cl. 16, as so interpreted, into operation.
In my view the tenant company, by its directors, had the requisite knowledge. The directors knew of the relevant facts giving rise to the right of renewal. They knew that their company by reason of the lease had the choice of renewing the lease or not for the further term of five years and, moreover, knew that the rent to which the landlord was entitled was the then “current market rent”.
The company unequivocally elected not to exercise the option to renew and notified the landlord accordingly.
In the result, the tenant company at common law is precluded from exercising the right to renew.
The issue now to be dealt with is whether any part of the said 1995 Act applies to change this common law consequence.
The defendants, by their solicitors, contend that the said notice could not amount to a waiver or surrender of the tenant’s statutory rights – including the right of preference – as provided for in Division 3 of Part 4A of the said 1995 Act.
I turn now to the application and relevance of Division 3 of Part 4A.
Division 3 of Part 4A does not apply because lease was “entered into” before Part 4A came into operation
I turn then to the statutory provisions relating to the issue of whether Part 4A has application to this lease. The material parts of the applicable provisions are as follows:
·firstly, s20C provides that Division 3 of Part 4A applies to a lease “... in relation to a retail shop lease of premises in a retail shopping centre entered into after the commencement of this Division ...”;
·secondly, s6 of the said 1995 Act provides as follows:
6. For the purposes of this Act, a retail shop lease is taken to have been entered into when—
(a) both parties have executed the lease; or
(b) a person enters into possession of the retail shop as lessee under the lease; or
(c)a person begins to pay rent as lessee under the lease or proposed lease (but not if the payment is an advance payment of rent made to secure the premises),
(whichever happens first).
·thirdly, s3 provides:
“party” means the lessor or the lessee under a retail shop lease.
By reference to the definition section, it is clear, that the subject lease is a “retail shop lease” of a “retail shop” in a “retail shopping centre” (s3). So to that extent the Division applies. The question remains was the lease entered into before Part 4A came into operation?
The object of, in particular s6, which is made clear the Second Reading Speech, to which I will refer in due course, is to ensure that the statutory requirements in Part 4A and in particular in Division 3 are not imposed retrospectively on parties to a leasing agreement who have already agreed to and implemented the material terms and conditions of their relationship.
Maurice Srour Pty Ltd paid the rent in relation to, at least, the proposed lease as and from about July 1997 and it seems to me to be of no moment whether it was paid for Maurice Srour personally or in its own right. The accountant, Mr Noolan, considered that it was paid by and for the company who was of course the ultimate lessee (see Noolan 288-296; see also Exhibit I).
I reject the suggestion that a new lease was in the throes of being negotiated in the months of occupancy leading up to the 23rd November 1998. The agreement to lease of the 25th March 1997 (see Exhibit E), the unsigned lease said to have been proffered to the tenants some time before November 1998 (139; see also Exhibit F), and the lease signed on the 23rd November 1998 are not, in the sense debated here, materially different. The terms of occupancy were settled in substance and the occupant was to be some entity associated with the Srour interests.
Further, it is notable that the parties agreed that the lease apply as and from the 8th September 1997. It was then that the trading commenced and it was from that time that Mr and Mrs Srour guaranteed the performance of the terms of the lease. It is notable also that the parties regarded the lease as “coming up for renewal” in September 2002, (ie five years from the 8th September 1997), rather than in November 2003 (ie five years from the 23rd November 1998). In my view either s6(b) or s6(c) applies to the circumstances of this matter to fix the time when the lease was entered into as being at the latest September 1997 in which case Part 4A has no application.
Given that Division 3 of Part 4A of the said 1995 Act applies to the subject lease, does it modify or affect the option to renew?
I here address the substantive issue of whether, as a matter of statutory construction, the provisions of Division 3 of Part 4A could apply to modify or affect the renewal provisions of the subject lease.
The Retail Shop Leases Amendment Act 1997 amended the Retail and Commercial Leases Act 1995 by, inter alia, inserting Part 4A after s20. The said amendment Act was assented to on the 31st July 1997 and came into operation on the 6th October 1997 (see p612 Gazette 4.09.97). The object of Part 4A was to “... ensure as far as practicable fair dealing between lessor and lessee in relation to the renewal or extension of a retail shop lease ...” (s20A(2)). Pursuant to that express object the provisions in Division 3 of Part 4A prescribe, inter alia, “rules of conduct at the end of the term” of a lease, (see ss 20D to 20G), and remedies for non-compliance with the said rules (see s20H).
Clearly the provisions of the said 1995 Act, including those in Division 3, do not seek to replace the law of contract insofar as it applies to leases.
To do so, that is to remove the shopping centre lease agreements the subject of the said 1995 Act from the general body of the common law, the legislature would need to express “... its intention with irresistible clearness ...” (see Potter v Minahan[7]; see also Pearce & Geddes, Statutory Interpretation in Australia[8]). Rather, what the provisions in the said 1995 Act have done is to regulate and to some extent modify the leasing arrangements entered into in respect of certain retail shops. In that sense, there are modifications of common law contractual rights. Only the provisions in a lease or agreement which are in conflict with the Act are rendered void (see s5). The Act is not an exhaustive code of the legal relations between lessee and lessor. Accordingly, duties and obligations imposed by agreement between the parties will subsist insofar as they are not in conflict with the provisions of the Act.
[7] (1908) 7 CLR 277 per O’Connon J at 304
[8] 5th ed at [5.21-5.23]
The expressed objective of the Retail Shop Leases Amendment Act 1997 as gleaned first of all from Hansard is to provide a statutory right of first refusal for an existing tenant who had no right or option to extend or further extend the lease.
In his Second Reading Speech, the Attorney-General, after referring to some of the legal history, explained the underlying purpose of the proposed legislation in the following terms:
.......................
This Bill responds to a number of concerns identified by the committee as legislation requiring change. The amendments are designed to improve the operation and effectiveness of the Retail Shop Leases Act and to ensure that lessees have as much information as possible prior to making a decision whether or not to enter into a lease and are then to be able to make an informed decision knowing the consequences if a lease is entered into. The key feature of this Bill is that it provides for a statutory right of first refusal for an existing tenant who has no right or option to extend the lease. This right is unique in Australia.
The provision attempts to weigh the needs and relative bargaining positions of the lessor and the lessee. It will apply in circumstances where the lessee has no right to renew the lease, or no further right to renew the lease and the lessor proposes to continue to lease the premises for a business of substantially the same kind as that conducted by the existing lessee. It will require the lessor before entering into a lease with another prospective lessee to offer the existing lessee a new lease on terms that are no less favourable to the lessee than those offered to another prospective lessee. The statutory right of first refusal will be available only so far as it is necessary to bring the aggregate period of occupation up to 10 years if that is what the lessee wishes. To weigh the interests of lessors the Bill provides, as the select committee recognised would be necessary, a range of reasons for which the lessor may decline to offer renewal of a retail shop lease.
If the landlord requires the repossession of the premises for the purpose of renovation or redevelopment or if the landlord wishes to change the tenant mix in a shopping centre or to use the premises for a purpose that will not involve re-letting for at least six months, or if the lessee has been guilty of a substantial breach or persistent breaches of the lease or if the continuation of the lease would substantially disadvantage the lessor, the landlord may decline to offer a new lease. In addition, the lease itself may exclude the application of the statutory right of first refusal provided a lawyer acting for the lessee and independently of the lessor certifies that the effect of the provision has been explained to the lessee.
In keeping with the Government's view that existing negotiated commercial relationships should not be disturbed or interfered with retrospectively, this provision will only apply to leases entered into after the commencement of the section. The Government's view also is that this statutory right should only relate to retail shop leases and not leases of a commercial nature. This will be dealt with in the regulations.
.......................................
(the italics are mine)
(see Hansard Thursday 14 November 1996 pp 523, 524)
There is now no debate that it is permissible for a court to refer to a Second Reading Speech to ascertain the mischief to be addressed and the purpose of the legislation (see Owens v South Australia[9]; MSP Nominees Pty Ltd v Commissioner of Stamps[10]; Pearce & Geddes, Statutory Interpretation in Australia[11]).
[9] (1996) 66 SASR 251 per Cox J 255-6
[10] (1999) 166 ALR 149 at 155-6
[11] 5th ed at [3.5]
The provisions themselves bear out the intention articulated by the Attorney-General in his above speech.
Section 20A sets out the two objectives of Part 4A in the following terms:
20A. (1) The Parliament recognises that conflicts sometimes arise between a lesssor’s expectation to be able to deal with leased premises subject only to the terms of the lease and a lessee’s expectation of reasonable security of tenure.
(2) The objects of this Part are to achieve an appropriate balance between reasonable but conflicting expectations and to ensure as far as practicable fair dealing between lessor and lessee in relation to the renewal or extension of a retail shop lease.
The above s20A is a statement of intention or objects clause and is the modern equivalent of a preamble. It can be used as an aid to the interpretation of the Act (see Pearce & Geddes, Statutory Interpretation in Australia [12]). Clearly the provisions of s20A are recognising the need to provide for a lessee’s expectation that he or she ought not to be dealt with in strict accordance with the contract, namely the lease. The section indicates an intention to provide rights and duties in addition to those in the lease agreement.
[12] (supra at [4.40])
Subdivision 2 of Division 3 of Part 4A is headed “Rules of conduct at end of term”. What is meant by “end of term”? Like the objects clause, the headings “... can be taken into consideration in determining the meaning of a provision where that provisions is ambiguous ...” (see Bennett v Minister for Public Works (NSW)[13]; see also Pearce & Geddes, Statutory Interpretation in Australia [14]). I construe “end of term” as the end of the total leasing period as provided for in the lease. So in a three year lease it would be year three and in a three plus three year lease it would be year six.
[13] (1908) 7 CLR 372 per Latham CJ at 383
[14] (supra at [4.41])
Section 3 of the said 1995 Act defines “renewal” in the following terms:
“renewal” of a retail shop lease extends to the lessor and the lessee entering into a new retail shop lease for the retail shop (whether on the same or different terms).
The above definition extends the accepted meaning of renewal to embrace the intent of Division 3, namely to give the tenant, who has either no option to renew, or no further option to renew, a statutory right to do so. The new occupancy would be pursuant to a new lease since the old one will have expired.
Section 20D is a key provision. By its sub-s (1) it provides that a lessor proposing to re-let the premises “... must give preference to the existing lessee ...”. By sub-s (2) the lessor is to presume a lessee “... wants a renewal or extension of the term ...” unless the lessee has given a notice to the contrary. Then sub-s (3) provides that a lessor is not obliged to prefer an existing lessee in a specified range of circumstances.
This key provision only makes sense, in the context of all the provisions in the Division, if it is applied at the end of the full term of the lease. It could not be intending to replace contractual rights of renewal in a lease such as the subject lease. To legislate to do away with any such contractual options to renew, as I previously indicated, would require language of “... irresistible clearness ...” (see Potter[15]). It is notable that the security of further tenure of a lessee as provided for in a lease such as the subject lease is more assured and robust than that provided for in Division 3. For instance, it would be a most unusual lease which provided that the landlord could resist an option to renew provided in the lease, on grounds that “... the renewal or extension of the lease would substantially disadvantage him ...” (s20D(3)(e)). Further, such an interpretation would be contrary to the expressed intent of the legislation to provide for the expectation of continuing tenure of lessees whose leases did not provide for any such continuing tenure.
[15] (supra at 304)
Division 4 of Part 4A deals with “Other cases”. Notably under the heading “Application of this Division” s20I provides as follows:
20I. This Division applies to a retail shop lease other than one—
(a) to which Division 3 applies; or
(b) in relation to which a right or option to renew or extend the lease exists.
Again, this is a clear indication that the draftsman did not intend that the “first right of refusal” provisions in Division 3 apply to a retail shop lease in which there was an active and applicable right or option to renew or extend the lease (s20I(b)). Sub-section (b) would be unnecessary if it were otherwise.
So in summary Parliament in Division 3 and in particular in s20D has added to the contractual relationship “a statutory right of first refusal for an existing tenant” who otherwise has no right to a further tenancy (ie no option to renew the lease or in the case where there is an option to renew, no further right to renew after the expiration of the renewed term). The sections set out rights and duties which are to prevail “at the end of term”, that is, at the end of the lease as opposed to the point at which an option to renew arises.
Therefore I conclude that it is demonstrably obvious that Division 3 of Part 4A does not apply to determine the rights and obligations of renewal under the subject lease.
If the tenant had renewed the subject lease for a further five years, then on the face of it, in the tenth year, the right of preference under Division 3 would arise.
I note in this respect that in the Second Reading Speech the Attorney-General indicated:
·firstly, that “... the statutory right of first refusal will be available only insofar as it is necessary to bring the aggregate period of occupation up to 10 years if that is what the lessee wishes ...”; and
·secondly, that the right of preference was to be for a “... further period of five years”.
The enactment as it finally emerged does not provide for any aggregate ceiling of ten years and nor has the legislation specified any further period to be the subject of the preference. Of course, it is not unusual that the enactment when it finally emerges from Parliament differs from the Bill. I would have thought, however, some such ceilings ought to have reached the final legislation.
The above conclusion is so clear that I am reluctant to explore any further alternatives. Nevertheless, I indicate that in the further alternative, if Division 3 of Part 4A applies, then the tenant’s letter of the 1st May 2002 constituted a sufficient notice under s20D(2) to preclude the operation of the consequential statutory rules in Division 3.
I set out short reasons for the above further alternative view.
In the further alternative the tenant’s notice of election constituted a notice under s20D(2) of the said 1995 Act and so precluded the operation of the statutory rules in Division 3
Section 20D of Division 3 of Part 4A provides, inter alia, as follows:
20D.(1) If a lessor of premises in a retail shopping centre proposes to re-let the premises, and an existing lessee wants a renewal or extension of the term, the lessor must give preference to the existing lessee over other possible lessees of the premises.
(2) The lessor is to presume that the existing lessee wants a renewal or extension of the term unless the lessee has notified the lessor in writing within 12 months before the end of the term that the lessee does not want a renewal or extension.
(3) .....................
(the italics are mine)
In my view, the unequivocal conduct of the tenant company, in giving the notice constituted by the letter dated the 1st May 2002 accompanied as it was by knowledge of the essential facts as previously explained, operates to preclude the operation of the rules of conduct at the end of term as provided for in Division 3. In particular, the notice would excuse the landlord from giving the tenant a preference over other possible lessees and therefore preclude the operation of the statutory duties for implementing that preference (see s20E), which are predicated on the tenant being entitled to a preference. The knowledge of the tenant at the time of giving the notice does not have to extend to being aware of particular statutory rights in the said 1995 Act, which in any event, in material respects, are no more than the lease provided. It would be a manifestly absurd interpretation of the legislation to say it requires a landlord to give preference to a previous tenant who has clearly notified him that he does not wish to continue the tenancy.
Claims pursuant to ss 15, 23, 35, 36 and 68 of the said 1995 Act
The only issue remaining is to determine whether there has been, as alleged, breaches by the landlord of the above sections of the said 1995 Act. There is simply no sensible basis upon which it could be said, given my findings, that the above sections support any claim against the landlord. No further elaboration is necessary.
Conclusion
In summary, my conclusions are as follows:
·the “off the record” statement of the landlord’s property manager either did not occur as alleged or, alternatively, if it did occur, it did not amount to a repudiation of the lease agreement;
·by its unequivocal conduct, namely the sending of the letter dated the 1st May 2002, with knowledge of the facts, the tenant elected not to renew the lease and at common law was thereby precluded from later seeking to exercise the option to renew;
·Part 4A has no application because the subject lease was “entered into” no later than September 1997, which was before the 6th October 1997 when Part 4A came into operation;
·alternatively, given that Division 3 of Part 4A applied to the subject lease it did not modify or affect the renewal rights of the landlord and tenant because there was a present option to renew pursuant to the lease;
·further, in the alternative, if Part 4A applied to the subject lease the letter dated the 1st May 2002 constituted a notice pursuant to s20D from the tenant to the landlord that it did not seek a renewal, and as a result the landlord was excused from giving the tenant the preference prescribed in Division 3 and further was necessarily excused from the obligations to implement that preferential right; and
·there is no sensible basis for any claims by the tenant against the landlord pursuant to ss 15, 23, 35, 36 and 68 of the said 1995 Act.
The defendants have failed to establish that they are entitled to a judgment or damages on their counterclaims. Accordingly, the counterclaim is dismissed. There will be judgment for the plaintiff on the counterclaim.
I will hear the defendants as to the issue of costs on the plaintiff’s failed claim. I indicate that, any costs entitlement of the defendants in respect of the dismissed claim of the plaintiffs, would be more than balanced by the fact that the plaintiffs, at least until the trial date, had to meet the unmeritorious counterclaim of the defendants.
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