Permanent Trustee Australia Limited v Finlayson - [1999] WADC 2

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
CHAMBERS

LOCATION: PERTH

CITATION: PERMANENT TRUSTEE AUSTRALIA LIMITED -v- FINLAYSON [1999] WADC 2

CORAM: FRENCH DCJ

HEARD: 24 JUNE 1999

DELIVERED : 12 JULY 1999

FILE NO/S: CIV 4566 of 1998

BETWEEN: PERMANENT TRUSTEE AUSTRALIA LIMITED (ACN 008 913)
Plaintiff
AND
RAYMOND JOHN FINLAYSON
First Defendant
WAYNE GEOFFREY WATTERSON
Second Defendant

Catchwords:

Practice and procedure - Order 13 - Application to set aside default judgment - Lease agreement - Surrender by operation of law.

Legislation:

Nil.

Result:

Defendant's application dismissed.

Representation:

Counsel:

Plaintiff:     Mr C Colvin
First Defendant             :     Mr J Curthoys
Second Defendant         :     Mr J Curthoys

Solicitors:

Plaintiff:     Clayton Utz
First Defendant             :     Slee Anderson & Pidgeon
Second Defendant         :     Slee Anderson & Pidgeon

Case(s) referred to in judgment(s):

Tasita v Papua New Guinea 34 NSWLR 691
Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105

Case(s) also cited:

Palmer v Prince [1980] WAR 61

FRENCH DCJ: By a writ dated 26 November 1998 the plaintiff claims the sum of $43,581.97 plus interest against the defendants as guarantors of the obligations of Finesse Foods (Australia) Pty Ltd ("the lessee") under the terms of a lease in relation to Shop 11 at the Thornlie Square Shopping Centre. The amount claimed by the plaintiff is for rent, outgoings and interest for the period 1 January 1997 to 30 June 1998. The deed of lease is undated but was stamped 16 March 1995 for a period of 5 years from 4 April 1994. In June 1995 the lessee granted a licence to Ms Carton and Mr Clarke to occupy Shop 11 pursuant to a franchise agreement. Clause 7 of the lease provided that the permissible use of the premises was for the sale of fresh, frozen, gourmet and cooked poultry.
In January 1997 the premises at Shop 11 were abandoned by the licensees under the franchise agreement. In approximately September 1997 the fittings in Shop 11 were removed after a sale to a third party and without any involvement of the plaintiff. After the removal of these items the front of the premises was shielded by displays placed in front of the shop by the plaintiff's agent as the premises were simply open to the shopping centre with no lockable door or roller door. The purpose of placing the displays in that position was to improve the appearance of the vacant premises and to assist in leasing the premises to another tenant. In 1997 there were attempts made by the plaintiff's agents to find a new tenant and it appears that there were offers to lease the premises in February and March of 1997. There is no information in the affidavit material as to why these attempts were not successful.
In September 1997 the plaintiff entered into an agreement for lease with a person who was to take a tenancy of an adjacent shop immediately next to Shop 11. It was a term for that agreement for lease that the plaintiff as lessor of the shopping centre would not lease the premises at Shop 11 to anyone selling uncooked chicken products except for an entity operating Lennards Poultry Shop or a supermarket.
The writ in this matter was served on each of the defendants in December 1998 and a default judgment was regularly entered on 15 January 1999. The plaintiff has accepted that the delay in filing an appearance has been explained in the first defendant's affidavit sworn 17 February 1999 but opposes the defendant's application to set aside judgment on the basis that there is no defence on the merits to the plaintiff's claim. Although the defendant's affidavits raised a number of matters it was common ground at the hearing of this application that the only defence available to the defendants was that they were not liable for payment of rent and other outgoings as from 9 September 1997 as on that date there was a surrender by operation of law of the lease. Therefore the defendants' application to set aside judgment is restricted to the period from 9 September 1997 to 30 June 1998.
The defendants submit that by entering into an agreement for lease for adjacent premises which contained a term effectively prohibiting the sale of chicken products from Shop 11 the plaintiff has acted in a manner that is so inconsistent with the continuance of the lease that it amounts to a surrender by operation of law. It was submitted that there is no logical reason why this principle should be restricted to a situation where the lessor has either taken physical possession of the premises, sold the premises or entered into a new lease agreement that is inconsistent with the continuation of the previous leasehold arrangement.
The plaintiff submits that the fact that it has entered into an agreement with another tenant does not and cannot amount to a surrender by operation of law as any difficulties that may arise as a result of a perceived inconsistency are solely between the lessor and the tenant of the adjacent premises and does not effect the relationship between the plaintiff and the tenant of Shop 11. It was pointed out by the plaintiff that the authorities dealing with the question of surrender by operation of law are all concerned with circumstances where the inconsistent conduct of the lessor relates to the subject premises, that is to the taking of physical possession, sale or re‑leasing of the premises to another party. It is therefore argued that any reference to the operation of the principle in those cases should receive a narrow interpretation consistent with the circumstances of the case then under consideration.
As with the law of contract where a party to a lease has breached a lease or repudiated it by abandoning the premises the lease can be determined if that conduct is accepted by the lessor either expressly by written agreement or by what has been termed operation of law. In Tasita v Papua New Guinea 34 NSWLR 691 at 695 surrender by operation of law was described as being a form of estoppel. At p695 Young J stated that:
"The question always is 'Are the acts of the lessor so inconsistent with the continuance of the lease that it is estopped from asserting that the lease has continued all the time?'"
This form of "estoppel" was described in terms of being an unequivocal act that demonstrates that the lessor has accepted the lessee's relinquishment of possession. While there was reference to the fact that the concept of surrender by operation of law has created difficulty there seems to be no issue that the unequivocal act or acceptance of the abandonment must be something more than an acknowledgment of that abandonment. Accordingly in that case the landlord's oral representations that the surrender of a lease would be accepted was held not to amount to an effective surrender of the lease by operation of law although it was held that the landlord was estopped in equity from denying the lease had come to an end.
In Wood Factory Pty Ltd v Kiritos Pty Ltd (1985) 2 NSWLR 105 the New South Wales Court of Appeal considered the principle of surrender by operation of law. In that case the act which was said to amount to an acceptance of the repudiation was a re‑letting of the premises to another party for a reduced rent following an abandonment or partial abandonment and failure to pay rent. Although the principles of termination of a contract by acceptance of some repudiatory conduct are expressed in broad terms in the judgments the issue of what constituted such acceptance was considered only on the basis of the existence of a new lease. At p133 Priestley JA refers only to the consequences of "a delay in the taking of possession." It is also of significance that the issue of what constituted acceptance was considered from the perspective of an acceptance that the lessee had abandoned the premises with an election to treat that abandonment as terminating the lease so that the tenant was no long liable for rent as opposed to damages for breach of the lease.
After considering the submissions of both parties and reading the authorities to which I was referred I accept the defendants' submissions that there seems no logical reason why the inconsistent conduct of the landlord said to constitute acceptance of the surrender should be confined to circumstances analogous to retaking of physical possession. However I do consider that the conduct which is said to be inconsistent with the continuation of the lease cannot amount to surrender by operation of law unless that conduct expressly manifests an election by the landlord to accept the repudiation and to regard the lessee as no longer bound to pay rent under the terms of the lease. In most cases the retaking of physical possession by sale or re‑leasing of the subject premises will amount to a manifestation of such an election by the landlord. In this case all that the landlord has done is to enter into a lease of adjacent premises that could be inconsistent with its continuing obligations to allow the lessee of Shop 11 continued enjoyment of the premises and the right to continue to operate it as an uncooked poultry shop. Although this would give rise to a right of action by the lessees of the adjacent premises for a breach of its lease with the landlord it does not amount to an election by the landlord to treat the lessees of Shop 11 as being no longer bound by the lease. At most such conduct amounts to nothing more than a recognition of the fact that the premises have been abandoned, the fittings removed and that at the time the landlord entered into the new lease for the adjacent premises there was no longer any retail business being conducted at Shop 11 involving the sale of uncooked poultry nor was there likely to be. It is somewhat analogous to the situation of a landlord attempting to obtain a new tenant. Until this has occurred and possession taken this conduct alone does not manifest an election to treat the lease as terminated. The evidence on the affidavits filed in support of this application indicate that the plaintiff's agent had attempted unsuccessfully to re‑let the premises at Shop 11 in 1997.
The defendants' application will be dismissed and there will be an order that the defendants pay the costs of this application.