S & a Gallo Pty Ltd v Hollowood Pty Ltd
[2012] SASC 176
•3 October 2012
SUPREME COURT OF SOUTH AUSTRALIA
(Magistrates Appeals: Civil)
S & A GALLO PTY LTD & ORS v HOLLOWOOD PTY LTD & ORS
[2012] SASC 176
Reasons for Decision of The Honourable Justice Nicholson
3 October 2012
MAGISTRATES - APPEALS AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - POWERS AND PRACTICE OF COURT ON HEARING - POINT NOT RAISED IN COURT BELOW
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - SERIOUS QUESTION TO BE TRIED
LANDLORD AND TENANT - RETAIL AND COMMERCIAL TENANCIES LEGISLATION
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - RULES OF CONSTRUCTION
This is an appeal from an order of a Magistrate dismissing the appellant’s application for interlocutory relief. The appellant is the lessee of shop premises in a shopping centre. The respondent companies are the lessors. The appellant fell substantially behind in payment of rent and other outgoings. The respondents threatened to terminate the lease and re-enter the premises. The appellant thereupon filed an application in the Magistrates Court seeking urgent interlocutory relief to maintain the status quo and enjoin the respondents from taking those steps. The Magistrate dismissed the interlocutory application on the basis that the appellant had failed to establish that there was a serious issue to be tried. It was from this decision that the appellant appealed to this Court.
During the hearing of the appeal, the appellant sought leave to amend the notice of appeal to raise for the first time that s38(1)(d) of the Retail and Commercial Leases Act 1995 (“the Act”) operated to imply, in its lease, an obligation upon the respondents in the terms of that sub-section which obligation had not been observed by the respondents, thus giving rise to an entitlement in the appellant to claim compensation and an equitable set-off. The substantive claims otherwise relied on by the appellant in the Magistrates Court were abandoned.
Whether leave to amend the notice of appeal should be granted at such a late stage – whether the appellant has demonstrated a prima facie case to justify the preservation of the status quo pending trial – whether s38(1)(d) of the Act entitles the appellant, in the circumstances of the case, to make a claim for compensation against the respondents – whether a claim under s38(1)(d) of the Act would give rise to an equitable set off in favour of the appellant.
Held – appeal dismissed – the appellant’s oral application for leave to amend its notice of appeal refused – the appellant failed to establish a prima facie case pursuant to s38(1)(d) in the sense of a sufficient likelihood of success at trial – leave to amend at such a late stage if granted likely to cause significant prejudice to the respondents – the proposed amendment lacks utility because the appellant’s reliance on s38(1)(d) of the Act has no reasonable foundation – unnecessary in the circumstances of this case to consider balance of convenience factors.
Retail and Commercial Leases Act 1995 (SA) s68, s37, s38, s39, s40, s41; Acts Interpretation Act 1915 (SA) s19; Retail Shop Leases Bill 1994 (SA); Statute Law Revision Act 2003 (SA); Retail Leases Act 1994 (NSW) s34; Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) s14; The Law of Set-Off 3rd ed, SR Derham; Equitable Set Offs Dr I.C.F. Spry, (1969) 43 ALJ 265, referred to.
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; Rawcliffe v Bianco Hiring Service Pty Ltd [2002] SASC 430; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; Battye & Anor v Shammall (2005) 91 SASR 315; Coulton v Holcombe (1986) 162 CLR 1; Connecticut Fire Insurance Co v Kavanagh [1892] AC 473; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; Ragless v Prospect District Council [1922] SASR 299; Bourne v Norwich Crematorium Ltd [1967] 1 WLR 691; O’Hehir & Anor v Kennedy Plaza Pty Ltd [2008] NSWADT 30; Khao Thai Pty Ltd v Coles Myer Properties Holdings Ltd [2001] NSWADT 83; Bischof & Anor v Werncog Pty Ltd [2004] NSWADT 241; Kindful (Australia) Pty Ltd v Country Villa Holdings Pty Ltd [2006] NSWADT 224; Beyond Furniture (Australia) Pty Ltd v Virk [2008] NSWADT 76; Alcides Fernandes & Ors v Timothy Yat Wah Lamb & Anor [1998] WASCA 347; Rawson v Samuel [1841] Cr & Ph 161, 41 ER 451; Norman; in the matter of Forest Enterprises Ltd v FEA Plantation Ltd (2011) 195 FCR 97; Wytell Pty Ltd v Glowinski [2006] VCAT 454; Chrisanthos Kostopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 311, considered.
S & A GALLO PTY LTD & ORS v HOLLOWOOD PTY LTD & ORS
[2012] SASC 176Magistrates Appeal: Civil
NICHOLSON J: This is an appeal from an order of a Magistrate dismissing the first plaintiff’s application for interlocutory relief. Ordinarily, such an appeal is by way of re-hearing. To the extent that the decision below turns on the exercise of a discretion, an error in accordance with the principles stated in House v The King[1] must be demonstrated for the appeal to succeed. However, in this case the appellant seeks to rely, at the appeal, on a new ground not dealt with in the court below and to abandon grounds dealt with in the court below. This gives rise to additional considerations for the disposition of the appeal.
[1] (1936) 55 CLR 499 at 504-504.
Background
The first plaintiff, S & A Gallo Pty Ltd, is the lessee of certain shop premises in a shopping centre in Roxby Downs. The defendant companies[2] are the lessors. The parties entered into a memorandum of lease dated 10 July 2009 for a term of five years commencing 15 November 2009. Pursuant to clause 6.4 of the lease, the lessee is entitled to a single right of renewal for a further term of five years.
[2] Hollowood Pty Ltd, Attyford Investments Pty Ltd, Terlexis Nominees Pty Ltd, Luxmore Nominees Pty Ltd, Arkona Pty Ltd, Dip In Pty Ltd, CAJ Nominees Pty Ltd, Rigine Holdings Pty Ltd and Bryan Terry Nominees Pty Ltd.
The second plaintiff, Simon Vincent Gallo, has, apparently, executed a form of guarantee. However, given that all court proceedings, to this point, have been initiated by the lessee it is not immediately apparent why Mr Gallo, himself, has been included as a plaintiff. Apparently, the name of the third plaintiff, Alison Marie Gallo, appears on tax invoices but is not recorded as a guarantor with respect to the lease. Again, it is not immediately apparent why she has been included as a plaintiff. In these reasons I will refer to the first plaintiff as either the lessee or the appellant and the defendant companies as either the lessors or the respondents.
The specified (non-exclusive) use provided for in the lease is “Takeaway Café”.[3] However, at all material times the lessee has conducted the business of a pizza bar. The relationship between the lessors and the lessee has not been a happy one almost from the start. The lessee has been in possession of the premises from mid-2009, following its purchase of a previous tenant’s business and an assignment of the lease then in place. Almost immediately, on the lessors’ case, the lessee fell behind with rent and other outgoings.[4] By letter dated 8 September 2010, the lessors demanded payment of arrears in the amount of $68,407.22.[5] Of this amount $42,375.68 represented approximately 11 months of arrears of rent and GST payable on rent.
[3] The lease terms are exhibit LJE1 to the affidavit of Leslie John Eyre, sworn 7 June 2012; see Item 15 in the Schedule and clauses 11.1 and 11.4. Mr Eyre is a property manager employed by Savills who is responsible for the management of the lessors’ shopping centre property.
[4] Rent, GST on rent, contributions to electricity (plus GST) other defined outgoings (plus GST) and promotional levies (plus GST).
[5] Exhibit LJE5 to the Eyre affidavit, sworn 7 June 2012.
Thereafter the amount of arrears outstanding fluctuated from time to time. On 20 February 2012 a letter of demand for arrears of rent and outgoings in the amount of $39,640.21 was sent to the lessee.[6] In the meantime, the lessee had been complaining to the lessors’ managing agent about the conduct of another shopping centre tenant, with a permitted use of “Bakery”, in selling takeaway pizzas, in competition with the lessee’s business and with the effect, on the lessee’s case, of substantially damaging its trade and turnover. The first such letter of complaint from the lessee to the managing agent was dated 28 October 2011.[7] According to the affidavit of Simon Vincent Gallo it was in about September 2011 that “the [lessors] allowed the bakery to sell made-to-order pizzas in the evenings at a discounted price to the public which had a significant financial impact on the [lessee’s] business.” Thereafter the lessors, through their agent, took some steps[8] in an effort to have the proprietor of the bakery business desist from selling pizzas but without success.
[6] Exhibit LJE5 to the Eyre affidavit, sworn 7 June 2012.
[7] Exhibit SVG2 to the affidavit of Simon Vincent Gallo, sworn 26 June 2012.
[8] By face to face and written communications.
It is readily apparent, on the affidavit evidence read in the proceedings before the Magistrate,[9] that the lessee had been experiencing significant difficulty from mid-2009 onwards in meeting the rent payments. The lessee asserts that, as from about September 2011, this has come about as a direct consequence of the wrongful selling of pizzas by the bakery, the fault for which lies with the lessors and their managing agent. The lessors deny that they are at fault and also do not accept that the unwelcome competition by the bakery has caused or even substantially contributed to the lessee’s financial plight. They point to the period prior to September 2011 when the lessee was also in financial difficulty.
[9] Affidavits of Leslie John Eyre sworn 7 June 2012 and 28 June 2012, of Richard Stabile sworn 7 June 2012 (another Savills property manager) read in the respondents’ case and of Simon Vincent Gallo sworn 26 June 2012 and of David Ashley Starke sworn 6 June 2012 (the appellant’s solicitor) read in the appellant’s case.
In its letter of demand of 20 February 2012, the lessors threatened that if the default in payment of rent was not remedied they would terminate the lease and re-enter the premises.
On 28 May 2012, the lessee commenced proceedings in the Magistrates Court seeking various forms of relief pursuant to s68 of the Retail and Commercial Leases Act 1995 (SA) (the Act). It alleged a breach of the lease by the lessors by their failure to prevent the bakery from selling made to order pizza. The relief claimed included declaratory relief, an order that the lessors undertake corrective action, damages and, in effect, an injunction preventing the lessors from “distraint for rent until the proceedings are finalised” and a rent reduction.
On 4 June 2012 the solicitors for the lessee received a letter sent by facsimile by the solicitors for the lessors.[10] In that letter the lessors demanded payment of an amount due of $78,285.23, of which $41,571.65 comprised unpaid rent, by 4pm Wednesday 7 June 2012.[11] The letter continued “if your client fails to make the requested payment, then the landlord may exercise any rights available to it at any time without any further notice to you or to your client.”
[10] Exhibit DAS1 to the affidavit of David Ashley Starke (the lessee’s solicitor) sworn 6 June 2012.
[11] The letter in fact referred to Wednesday 6 June 2012 but it is common ground that the date of the next Wednesday was 7 June 2012 and that this was the intended deadline.
Upon receiving this letter, the lessee filed another application in the Magistrates Court, on 6 June 2012, this time seeking urgent interlocutory relief, including:
that the defendants and or their representatives be restrained from commencing or undertaking a distraint on the subject premises until the proceedings in this matter have been heard.
Throughout these proceedings the parties have variously referred to interlocutory relief with respect to a distraint,[12] interlocutory relief in order to prevent an impending termination of the lease and re-entry of the premises and a relief against forfeiture of the lessee’s interest under the lease. At no time to this point have the lessors purported to terminate the lease, to re-enter the premises, to forfeit the lessee’s leasehold interest or to effect a distraint of personal property. As the matter presently stands, the lessee’s interlocutory application is to be understood as an application to enjoin the lessors from taking steps to terminate the lease and re-enter the premises.
[12] Ordinarily, the notion of distraint relates to personal property; a self help remedy by a landlord in order to secure or obtain payment of unpaid rent.
The hearing in the court below
The lessee’s application for interlocutory relief was argued on 28 June 2012. On that day, the application was refused and the learned Magistrate delivered ex tempore reasons. Those reasons can be summarised as follows.
(i)The Magistrate characterised the application before him as one for “relief from forfeiture”.
(ii)His Honour noted that on 7 June 2012 he had made an interim order that the lessors be restrained from commencing or undertaking any distraint for rent or taking any other action to recover vacant possession of the premises until further order.
(iii)The Magistrate then set out the background circumstances and noted that, as at early June, the lessors’ claim for rent and other outgoings and costs was in the amount of $78,285.23 and that it was not in dispute that no part of those arrears had been paid.
(iv)His Honour also observed that it was not in dispute that the lessors had sought to terminate the lease, re-enter the premises and distrain for rent.[13]
(v)The Magistrate then noted the lessors’ contention that in the absence of any reasonable offer for payment of the arrears the court should not exercise its discretionary powers available to it and further, that the applicant had not, in any event, established any serious issue to be tried – presumably, as to why the outstanding rent outgoings and costs of $78,285.23 should not be regarded as due and payable.
(vi)His Honour then summarised the lessee’s position. In essence, it was the lessee’s case before the Magistrate that, prior to the lessee entering the lease, the lessor, through its agent, engaged in pre-contractual misrepresentations and made assurances concerning exclusivity of use leaving the lessee to understand, that the lessors could and would take steps to prevent competing uses in the shopping centre. The lessee also relied upon its own lease terms and the lease terms pertaining to the bakery premises for an argument that the lessors were contractually obliged to take steps to prevent the bakery from selling made to order pizzas in competition with the lessee.
(vii)Whilst it is not entirely clear on the materials before this Court, it is to be inferred that the lessee maintained in the court below that any damages it would become entitled to under these heads of potential liability would be sufficient to either eliminate or significantly reduce the amount of rent due and owing and, as a result, the lessors should be enjoined from terminating and re-entering (which would lead to the lessee losing its business) until these matters of final relief could be determined.
(viii)The Magistrate reached the conclusion that, with respect to both grounds, the lessee had failed to establish that there was a serious issue to be tried. It was not necessary for his Honour to go on and consider balance of convenience issues although he did address these to some degree. On the basis that there was no serious issue to be tried his Honour refused to make any order continuing the interim injunctive relief and dismissed the lessee’s interlocutory application filed on 6 June 2012.
[13] As I understand this statement by the Magistrate and on the basis of the evidence before his Honour, it was not in dispute that it was the lessors’ desire or intention to do these things.
It is common ground that it was only the interlocutory application that was dismissed by the Magistrate and that the lessee’s application for final relief under s68 of the Act, filed on 28 May 2012, remains to be prosecuted.
The appeal in this Court
It was from this decision that the lessee appealed to this Court. In the meantime, the lessee secured a further interim order in the following terms “application for a stay granted in terms of paragraph 2 of the plaintiff’s application filed 11 July 2012 until either 2 August 2012 or matter is determined by the Supreme Court whichever should first occur”. The order sought in paragraph 2 of the lessee’s application filed in the Magistrates Court on 11 July 2012 and picked up by his Honour’s order was in the following terms.
That the [lessors] and or their representatives be restrained and or injunction be granted restraining [the lessors] from commencing or undertaking a distraint and or instructing its bailiff to undertake a distraint on the subject premises until the appeal in the Supreme Court of South Australia in this matter has been determined.
Notwithstanding the terms of the order sought and of the order granted and, in particular, the fact that, apparently, the further interim injunction was to expire no later than 2 August 2012, counsel for the lessors at the appeal indicated that the lessors at all times had been prepared to take no further steps until such time as the Supreme Court appeal had been resolved. Indeed, at the conclusion of argument on the appeal, the lessors, through counsel, gave an undertaking to this Court, to the effect that the status quo would be maintained until I were to deliver judgment in the matter.
The grounds of appeal, in the notice of appeal filed on 12 July 2012, are in the following terms.
1.The Magistrate knew at the hearing of the application that it was, in the circumstances, a summary hearing. He further knew if the application was dismissed, the First Appellants substantive proprietary rights as a tenant of leasehold premises, pursuant to a lease with the Respondents, would be extinguished and the Respondents could re-take possession. The Magistrate failed to apply the relevant law to the evidence and the circumstances. He therefore erred as a matter of law in the exercise of his discretion when hearing and determining the application.
2.The Magistrate erred in finding that there was no arguable basis for the First Appellant to bring a claim that it had an exclusive right to sell Pizzas in the subject shopping centre. As a result of making that first finding, the Magistrate, then refused and further erred, by refusing to extend a preservation Order preventing the Respondents from retaking possession of the Appellants leasehold premises, pending trial of the dispute.
3.The Magistrate also erred by failing to give appropriate weight to evidence that was before him, that showed the Respondents Managing Agent had at the relevant time, acknowledged another tenant in the same shopping centre was in breach of its lease by selling Pizzas in competition to the First Appellant, when the First Appellant was arguing that was a key foundation of its proposed claim against the Respondents.
4.The Magistrate erred by dismissing the application. He knew of the Respondents urgent desire to retake possession of the subject premises. He had been advised in submissions that the First Appellant due to its Roxby Downs location had difficulty obtaining evidence to support its proposed claim, had been unable to instruct its lawyers in order to draft a proposed Statement of Claim and was unable to contact a key witness due to that person being overseas. In all those circumstances the Magistrate should have granted the application, even for a short period to allow the First Appellant to properly formulate its claim and place evidence before the Court.
Ground 1 advances the lessee’s case no further than the assertion, as stated in the last sentence, that the Magistrate erred as a matter of law in the exercise of his discretion when determining the application. I will need to return to ground 2 because it was the subject of an oral application for leave to amend the notice of appeal made at the time of hearing the appeal. Ground 3 alleges a failure “to give appropriate weight” to evidence of a purported acknowledgement by the lessors that the lessee of the bakery premises was in breach of its lease. It seeks to rely on the allegation that the bakery is in breach of its lease as relevant to its allegation in ground 2. In ground 4 the lessee alleges a lack of procedural fairness which, whilst not abandoned on the appeal, was not specifically addressed during submissions. Furthermore, nothing was put before this Court concerning what further evidence or formulation of its claim (apart from the amendment to ground 2 and submissions based on that amendment) would have been available to the lessee had the Magistrate granted more time “even for a short period”.
I return to ground 2 of the notice of appeal. On the day before the hearing of the appeal, the appellant filed and served its outline of argument. The respondents had earlier filed a non-responsive outline of argument within the time prescribed by the applicable practice direction. In the appellant’s written outline an allegation to the effect that it was entitled to recover compensation from the respondents in reliance on the provisions of ss38(1)(d) of the Act was raised for the first time.[14] The appellant’s summary of argument, as filed, did not raise any complaint about the Magistrate’s judgment with respect to the alleged breach of contract (express lease terms) and pre-contractual misrepresentation and assurances relied on before the Magistrate. Shortly after submissions on appeal commenced, counsel for the appellant sought leave to amend ground 2 of the notice of appeal. The amendment for which leave was sought involved the deletion of the words “it had an exclusive right to sell pizzas in the subject shopping centre” and the insertion in lieu thereof of the words “the respondent had contravened the provision implied in its lease in ss38(1)(d) of the Act”. In the event that leave to amend were to be granted, ground 2 would read as follows.
The Magistrate erred in finding that there was no arguable basis for the first appellant to bring a claim that the respondent had contravened the provision implied in its lease in s38(1)(d) of the Act. As a result of making that first finding, the Magistrate then refused and further erred by refusing to extend a preservation order preventing the respondents from re-taking possession of the appellant’s leasehold premises, pending trial of the dispute.
[14] Counsel for the appellant, who was not counsel in the court below, did draw to the attention of the respondents’ legal advisers the appellant’s intention to rely on this provision shortly prior to the filing of the summary of argument.
The proposed amendment is in infelicitous terms perhaps because, as it would appear, it was formulated somewhat on the run. A claim based on ss38(1)(d) had not been raised before the Magistrate and it cannot be said that the Magistrate made a finding, let alone erred in making a finding, that there was no arguable basis for the appellant to bring a claim that the respondents had contravened that provision. Nevertheless, as the matter was argued by both parties, the appellant’s intention in seeking leave to amend in this respect became plain enough. It was the appellant’s case, on appeal, that ss38(1)(d) operated to imply, in its lease, an obligation upon the respondents in the terms of that provision which obligation had not been observed by the respondents, thus giving rise to an entitlement in the appellant to claim compensation.
Counsel for the appellant conceded that this was now the only substantive basis upon which the appellant’s appeal was to be pressed. At least insofar as the appellant was seeking interlocutory relief, the substantive claims relied on in the court below to the effect that the lessor was in breach of express terms of the lease (concerning a right to exclusive use) and had engaged in pre-contractual misrepresentation and assurances were now abandoned.[15]
[15] In my view this concession was properly made. Later in these reasons I deal with the contractual arrangements between the parties. Insofar as the allegations of pre-contractual misrepresentation and assurances are concerned, I would have reached the same conclusion as did the Magistrate that a prima facie case is not established on the affidavit evidence and, essentially, for the same reasons as his Honour gives in [13]-[14] of his ex tempore reasons.
The respondents opposed the application for leave and submitted, in effect, that to allow the appellant to change the basis of its case in this respect at such a late stage would cause the respondents significant prejudice. After hearing preliminary submissions from both counsel I ruled that I would hear argument on the leave question and on the merits of the appeal itself (in the event that leave were to be granted) together. Given the express abandonment of any other substantive grounds as referred to earlier, if leave to amend the notice of appeal were to be refused, ordinarily, the appeal would be dismissed on this ground alone.
The following matters arise for consideration.
(i)Should leave be granted, at this late stage, for the appellant to amend its notice of appeal so as to rely on, and solely on, a claim based on ss38(1)(d) of the Act?
(ii)If so, has the appellant demonstrated a prima facie case in the sense of a sufficient likelihood of success at trial to justify the preservation of the status quo pending trial?[16] This does not require a finding that it is more probable than not that the appellant will succeed.
[16] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65] (Gummow and Hayne JJ with whom on this point Gleeson CJ and Crennan J agreed).
(iii)If so, does the balance of convenience favour the appellant? Will the inconvenience that the appellant would be likely to suffer, if an injunction were refused, sufficiently outweigh the inconvenience which the respondents would be likely to suffer if an injunction were to be granted, so as to justify the granting of an interlocutory injunction?
The question of whether or not the appellant has demonstrated the existence of a prima facie case raises a number of sub-issues in the circumstances of this matter.
(iv)Does ss38(1)(d) entitle the appellant to make a claim for compensation against the respondents in the circumstances of this case, or more precisely, has the appellant demonstrated a prima facie case to this effect?
(v)If so, would such a claim give rise to an equitable set off in favour of the appellant, or, perhaps more precisely, has the appellant demonstrated a prima facie case to this effect?
(vi)If so, would such an equitable set off operate to reduce to nil the respondents’ claim for rent and other outgoings so that the respondents could no longer contend that they had a right to terminate the lease for non-payment of sums due under the lease, or more precisely, has the appellant demonstrated a prima facie case to this effect?
As far as (v) above is concerned, there is an added complication; clause 3.2 of the lease provides:
Payments Free of Deductions
The Lessee should pay the Rent to the Lessor free and clear from any exchange, deduction, reduction, abatements, charges or adjustments.
The question arises as whether a provision of this nature operates to exclude the defence of equitable set off, at least insofar as a claim for alleged unpaid rent is concerned.
Should leave to amend the notice of appeal be granted?
By its originating process filed in the Magistrates Court on 28 May 2012 the appellant alleges:
(i)conduct by the lessee of the bakery in selling pizza in direct competition with the appellant;
(ii)that the respondents in “allowing” (that is, not stopping) this conduct are in breach of the appellant’s lease;
(iii)that despite requests, the respondents have failed to take corrective action; and
(iv)that as a result the appellant has suffered loss.
In its prayers for relief the appellant seeks:
(v)declaratory relief to the effect that the respondents are in breach of the lease;
(vi)“corrective action”;
(vii)damages;
(viii)injunctive relief; and
(ix)a rent reduction.
In its affidavit evidence and in the proceedings before the Magistrate the appellant also relied on the lessors’ alleged pre-contractual conduct, although this has not been pleaded in the originating process.
The only section of the Act specifically referred to in the appellant’s pleading is s68. Section 68 sets out the jurisdiction of the Magistrates Court as to the types of orders that might be made upon application by a party to a retail shop lease. Section 68 is broad enough to encompass, inter alia, injunctive relief, orders mandating compliance with an obligation under the Act or under a lease and orders for the payment of monies due pursuant to the terms of the Act or a lease or for the payment of compensation for loss or damage resulting from a breach of the Act or a breach of a lease.
A generous reading of the appellant’s pleading, perhaps enlivened by hindsight, might lead to the conclusion that it is in very broad terms, and sufficiently broad to accommodate a claim within the literal terms of ss38(1)(d). However, this section, the terms of which will be set out shortly, raises a number of issues of a factual nature that were not before the Magistrate. Furthermore, the Magistrate did not appreciate that reliance by the appellant on this statutory provision was to be a live issue nor did the respondents until a matter of a day or days prior to the hearing of this appeal.
I adopt, with respect, the following remarks of Lander J in Rawcliffe v Bianco Hiring Service Pty Ltd.[17]
A notice of appeal must be drawn so as to give sufficient particularity to the proposed respondent and the Court of the matters which are to be raised on the appeal. The notice of appeal should include grounds of appeal which enable this Court and the respondent to know what points are being relied upon to support each ground. It is not permissible to draw a notice of appeal in general terms so that the opposing party and the Court cannot understand the matters which are to be advanced. The notice of appeal ought to identify the particular error made by the trial Judge and, if necessary, indicate how it is that the trial Judge should have proceeded. Again, so as to ensure procedural fairness, care must be taken that the grounds of appeal unambiguously indicate the issues sought to be agitated on the appeal. Any order sought on appeal by the appellant must be included.
Parties ought to understand that they will be bound by their notice of appeal and will not be allowed to advance arguments not raised in the notice unless they obtain leave to amend the notice of appeal.
Leave will not be given if it will occasion the other party irreparable prejudice and it may be given upon terms, one of which may be that the party or party’s legal adviser might have to pay the costs thrown away by the amendment.
Lander J refused leave to amend a notice of appeal. However he did so not because the amendment would cause prejudice to the respondent (no prejudice was claimed) but because, in his Honour’s opinion, the proposed new point was without substance and had no prospect of success.
[17] [2002] SASC 430 at [42]-[44] with whose reasons in this respect Doyle CJ and Bleby J agreed.
In University of Wollongong v Metwally (No 2)[18] the High Court[19] observed:
It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party after a case has been decided against him to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.
[18] (1985) 59 ALJR 481 at 483.
[19] Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ.
As a general proposition an appellate court will be reluctant to permit a new point to be raised for the first time at the appeal. It will require exceptional circumstances for it to be permitted where, had it been raised in the court below, it could have been met with further evidence.[20] Different considerations can apply where the issue raised for the first time is solely one of law.
When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient, in the interest of justice, to entertain the plea. The expediency of adopting that course may be doubted when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below. But their Lordships have no hesitation in holding that the course ought not, in any case, to be followed, unless the Court is satisfied that the evidence upon which they are asked to decide establishes beyond a doubt that the facts, if fully investigated, would have supported the new plea.[21]
[20] Coulton v Holcombe (1986) 162 CLR 1 at 7-8.
[21] Connecticut Fire Insurance Co v Kavanagh [1892] AC 473 at 480 and see also Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438.
In Battye & Anor v Shammall[22] Doyle CJ found in the circumstances of that matter that he was unable to identify any risk of prejudice to the defendant having regard to the manner in which the trial had been conducted and as a result of the case being pressed on appeal on a new basis. In these circumstances, the Chief Justice said this.[23]
I am left with the fact that ordinarily it is not in the interest of justice to permit a plaintiff to depart from the manner in which a case has been conducted prior to appeal. The change here is a striking one. But if the plaintiffs are held to the conduct of their case at trial an apparently good claim will be defeated. I do not think that the Magistrate’s decision to defer the trial of the defendant’s counter-claim and to defer consideration of the plaintiffs’ reply and defence to counter-claim, would have been any different if the claim had been presented as one for breach of fiduciary duty.
For those reasons I agree with Gray J that the plaintiff should be entitled to advance their case on the basis on which they now claim to do so, and on that basis they are entitled to succeed.
[22] (2005) 91 SASR 315.
[23] At [21]-[22].
It is with these principles in mind that the appellant’s application for leave to amend its notice of appeal so as to raise and rely upon ss38(1)(d) is to be considered.[24] Section 38 provides as follows.
38 – Lessee to be compensated for disturbance
(1) A retail shop lease is taken to provide that if the lessor –
(a) inhibits access of the lessee to the shop in a substantial manner; or
(b) takes action that would inhibit or alter, to a substantial extent, the flow of customers to the shop; or
(c) unreasonably takes action that causes significant disruption of, or has a significant adverse effect on, trading of the lessee in the shop; or
[24] I recognise that different or additional considerations might apply in the case of an appeal from a refusal to grant an interlocutory injunction as compared with an appeal concerning final relief. I will come back to this.
(d) fails to take all reasonable steps to prevent or put a stop to anything attributable to causes within the lessor’s control that causes significant disruption of, or which has a significant adverse effect on, trading of the lessee in the shop; or
(e) fails to rectify any breakdown of plant or equipment under the lessor’s care or maintenance; or
(f) in the case of a shop within a retail shopping centre – fails to clean, maintain or repair the retail shopping centre (including common areas),
and the lessor does not rectify the matter as soon as reasonably practicable after being requested in writing by the lessee to do so, the lessor is liable to pay the lessee reasonable compensation for loss or damage (other than nominal damage) suffered by the lessee as a consequence.
(2)In determining whether a lessor has acted reasonably for the purposes of subsection (1)(c), due consideration is to be given to whether the lessor has acted in accordance with recognised shopping centre management practices.
(3)A retail shop lease may include a provision preventing or limiting a claim for compensation under the provisions implied by this section in respect of a particular occurrence if the likelihood of the occurrence was specifically drawn to the attention of the lessee in writing before the lease was entered into.
Note –
A disclosure statement is an appropriate means of specifically drawing the attention of the lessee to the likelihood of an occurrence.
(4)The provisions implied by this section do not apply to any action taken by the lessor –
(a) as a reasonable response to an emergency situation; or
(b) in compliance with a duty imposed by or under an Act or resulting from a requirement imposed by a public or local authority acting under the authority of an Act.
The opening words of ss(1) “A retail shop lease is taken to provide…”, suggest that the various paragraphs (a) to (f) operate in the nature of implied terms in the lease. When considering the obligation imposed on a lessor pursuant to sub-paragraph (d), in any given set of circumstances, evidence bearing on the following questions, ordinarily, would need to be considered.
(i)Has the lessor failed to take steps?
(ii)Were the steps such as to be characterised as “reasonable” in the circumstances?
(iii)Were those steps of such a character that if they had been taken they would have prevented or put a stop to a particular activity?
(iv)Is the particular activity in question attributable to causes within the lessor’s control?
(v)Is the particular activity in question one that causes significant disruption of, or which has a significant adverse effect on the lessee’s trading?
(vi)Has the lessor failed to rectify the matter as soon as reasonably practicable after being requested in writing to do so?
(vii)Has the lessee suffered loss or damage as a consequence of that failure to rectify as soon as reasonably practicable?
(viii)What is the reasonable compensation for that loss or damage for which the lessor should be liable?
It can be seen, that this “cause of action” is of a quite different character from those relied on by the lessee before the Magistrate. The allegations of pre-contractual misrepresentation and assurances relied on factual assertions quite unrelated to those that might arise with respect to ss38(1)(d) and the breach of contract allegations turned almost entirely on the proper construction of the express contractual provisions of each lease concerning permitted use and hours of use.
There is considerable force to the submission of counsel for the respondents that had ss38(1)(d) been in issue before the Magistrate, a significantly different evidentiary base would have been called for by way of defence, including, for example, factual matters bearing on (ii), (iii), (iv) and (vi). By raising this matter for the first time at the appeal stage, the respondents have been deprived of the opportunity of investigating and adducing evidence on these topics. It follows that if called upon, at the appeal, to refute the appellant’s claim that there is a factual basis to justify the finding of a prima facie case in its favour with respect to ss38(1)(d), the respondents will have been prejudiced in their capacity to do so.
One practical example will suffice to make the point. It may be that the respondents had exhausted their attempts by request and negotiation to persuade the bakery tenant to desist from selling pizzas. The next available step might be to commence litigation against the bakery tenant seeking declaratory and/or injunctive relief in reliance on the argument that the permitted use of “bakery and any reasonably incidental uses”[25] did not include the cooking and selling of pizzas. Whether or not such a step would be characterised as “reasonable” (and therefore to be required of the respondent) would be informed by a number of matters including, the likely costs of such litigation, the prospects of success and the effect that the conducting of such litigation might have generally on the respondents’ long term relationships with the bakery tenant and other tenants of the shopping centre. The respondents have not had an opportunity to investigate nor gather evidence relevant to these matters.
[25] Item 15 of the Schedule to and clause 11.1 of the bakery lease which is exhibit LJE1 to the Eyre affidavit, sworn 28 June 2012.
I will return to the question of leave later in these reasons but in the meantime the question of whether or not, even on the evidentiary basis that is before the Court, ss38(1)(d) gives rise to a cause of action needs to be considered.
The ambit of s38(1)
Section 38 is found in Part 6 of the Act. The heading to Part 6 of the Act is “Alterations and other interference with the shop”. Each of the sections in Part 6 has its own sub-heading, for example, s38 has, as its sub-heading, “Lessee to be compensated for disturbance”. According to s19 of the Acts Interpretation Act 1915, chapter headings, part headings, division headings and sub-division headings form part of an Act but subject to any express provision to the contrary,[26] whereas section headings do not form part of an Act again subject to any express provision to the contrary.[27] There are no express provisions to the contrary contained in the Retail and Commercial Leases Act. Accordingly, when construing s38 so as to identify its ambit, I am entitled to have regard to the heading for Part 6 – “Alterations and other interference with the shop” but not to the section heading itself. In Ragless v Prospect District Council[28] Murray CJ summarised the position as follows.
I think the rules… may be stated thus:
1. If the language of the sections is clear, and is actually inconsistent with the headings, the headings must give way.
2. If the language of the sections is clear, but although more general, is not inconsistent with the headings, the sections must be read subject to the headings.
3. If the language of the sections is doubtful or ambiguous, the meaning which is consistent with the headings must be adopted.
[26] Sub-section 19(1)(b).
[27] Sub-section 19(2)(a).
[28] [1922] SASR 299 at 311.
Part 6 is comprised of sections 37 to 41. Section 37 deals with the topic of alterations and refurbishment of the building or retail shopping centre of which a particular retail shop forms part. It restricts quite significantly the extent to which a lessor can commence or carry out an alteration to or refurbishment of the building or retail shopping centre without giving appropriate notice to the lessee. Section 39 addresses the situation where a retail shop lease contains a provision for termination of the lease on the ground of a proposed demolition of the building of which the retail shop forms part. Again, a lessor is obliged to observe the notice requirements set out in that section. There is also a provision for the lessor to pay compensation to a lessee in certain circumstances. Section 40 addresses the situation where the building, of which a shop subject to a retail shop lease forms part, is damaged. It provides for a statutory form of abatement of rent and other outgoings. It also provides for rights of termination in both the lessor and the lessee in defined circumstances. Section 41 restricts a lessor’s capacity to include in a retail shop lease a provision that limits or has the effect of limiting the lessee’s right to employ persons of the lessee’s own choosing. Leaving section 41, which would appear to be sui generis, aside, each of the other sections just referred to addresses a situation where the building or shopping centre premises, of which a retail shop forms part, is to undergo physical alterations or become subject to physical damage or demolition and the effect this might have on a lessee’s right to enjoy, in a physical sense, the retail shop premises. These provisions provide for, in a sense, a statutory manifestation of a lessee’s entitlement, in part, to quiet enjoyment of the leased premises.
Section 38 is of a similar character. Paragraphs (a), (b), (e) and (f) target conduct by a lessor that either positively inhibits or fails to rectify a situation which would inhibit a lessee’s physical use and enjoyment of its premises.[29]
[29] In this respect it should be noted that sub-paragraph (b) is directed at “the flow of” customers to the shop.
Sub-paragraphs (c) and (d) are in slightly different terms, the former targets unreasonable action by a lessor that causes significant disruption of or has a significant adverse effect on “trading of the lessee in the shop” and sub-paragraph (d), which is relied upon by the appellant in this case, targets a failure by a lessor to take all reasonable steps to prevent or put a stop to anything attributable to causes within the lessor’s control that causes significant disruption of or has a significant adverse effect on “trading of the lessee in the shop”.
In order to better appreciate the appellant’s case in reliance on ss38(1)(d) it is necessary to identify some of the lease provisions relevant to the parties’ dispute.
The specified use under the lease for the appellant’s shop is that of a “takeaway café”.[30] Clause 11.4 of the lease is in the following terms.
The specified use is not necessarily exclusive to the lessee and the lessor may permit other persons to conduct similar or competing businesses on the centre.
In fact, the lessee uses the shop premises as a pizza bar, a purpose more limited than otherwise allowed. Nevertheless, clause 11.4 clearly provides that the lessee is to have no contractual entitlement to an exclusive use nor any contractual entitlement to prevent the respondents from permitting other persons to conduct a similar or competing business in the centre. Any argument to the contrary is untenable. Given this contractual framework and given the abandonment of any claim based on pre-contractual misrepresentation or assurances (at least at this interlocutory level) it is very difficult to see how any failure by the lessors to take steps to prevent the bakery tenant from selling pizzas would be characterised, vis a vis the lessee, as a failure to take all reasonable steps.
[30] Clause 11.1 and Item 15 of the Schedule.
The lease under which the bakery tenant operates[31] contains a similar provision as to use. The specified use, as provided for in Item 15 of the Schedule to that lease, is “Bakery”. Clause 11.1 of the lease which is headed “Specified use” provides as follows.
Unless the lessor consents to any other use the premises should be used only for the specified use in Item 15 and any reasonably incidental uses.
Certain uses are excluded in accordance with the provisions of 11.2 of the lease. The excluded uses (as set out in Item 16) relate to electronic items only. Again, there is a clause 11.4 which provides that the specified use (Bakery) is not exclusive to the lessee.
[31] Exhibit LJE1 to the Eyre affidavit, sworn 28 June 2012.
Part of the appellant’s complaint is that the lessee of the bakery sells its takeaway pizzas in the evenings and in particular after 5.30pm. Clause 11.1 of the bakery lease deals with trading hours and provides as follows.
The lessee covenants and agrees with the lessor to keep the premises open for business during the days and hours from time to time notified in writing by the lessor to the lessee as the core trading hours for the centre… . The core trading hours at the Commencement Date are specified in Item 18.
Item 18 of the Schedule sets out the core trading hours for each day of the week. Item 18 also includes the qualification “or such other hours as may be agreed in writing by the lessor and the lessee”. Again, there can be no substance to the appellant’s complaint that the bakery is trading outside permitted hours. The only sensible reading of clause 11.1 together with Item 18 of the Schedule is that the hours identified are core trading hours during which the bakery must be open and that if the bakery tenant wishes to reduce those hours in some way it needs written permission from the lessors. On a proper reading of the provision there is no restriction on the bakery tenants operating, in addition, outside the core trading hours.[32] In any event, there is provision in the bakery lease for the lessors to consent to alternative uses and hours of opening. Given the contractual framework governing the lessee’s tenancy and the abandonment of any claim based on pre-contractual misrepresentation or assurances it is, again, very difficult to see how any failure by the lessors to intervene in these respects (and, thereby, tacitly consent) would be characterised, vis a vis the lessee, as a failure to take all reasonable steps. In my view, this is a fortiori where any necessary intervention would require the lessors to engage in potentially expensive litigation in circumstances where there must be a strong argument at the outset that a permitted use of “Bakery” would include or permit the baking of pizza dough in ovens and the selling of takeaway pizzas.
[32] Of interest in this respect, is that the lease was drawn knowing of the existence of the Act as being intended to regulate this area, see Definitions clause 1.1 and clause 2.6. The Act defines “Core Trading Hours” for its purposes in the same way, see ss3(1).
The permitted use for leasehold premises, and particularly whether a permitted use is to be exclusive or non-exclusive to a tenant, is a fundamental aspect of any tenancy arrangement in a shopping centre. As would be expected, in the leases that are before the Court these matters have been expressly dealt with. Similarly, where a shopping centre is concerned, the notion of core trading hours, that is, the minimum hours when a tenant is expected to be open for business as part of the centre operation is a fundamental matter between the parties. Again, in the leases before the Court, the parties have made express provision in this respect. In both cases (permitted use and core trading hours) the rights of the parties, ordinarily, are to be ascertained by a proper construction of the contractual arrangements between them and, insofar as may be relevant, the contractual arrangements between the lessors and any competing tenancy. To allow s38 to imply terms into a lease that would cut across or undermine these fundamental, contractually agreed, issues makes little commercial sense, would inevitably lead to conflicting rights and obligations on a lessor’s part and, in my view, would require clear statutory language to that effect.
Indeed, when regard is had to ss5(1) of the Act which provides “this Act operates despite the provisions of a lease” it would follow from the lessee’s approach as to the proper ambit of ss38(1) that a lessor can no longer confidently rely on a non-exclusive use provision in a shopping centre lease. In other words, the lessee’s argument is to the effect that even though a lessor has a contractual right to do nothing to prevent another tenant in the centre from engaging in a competing use (and a contractual right to control the mix in a centre) the lessor is still obliged by ss38(1)(d) to take all reasonable steps to prevent it. This would be productive of great uncertainty. The ultimate effect would be to convert absolute rights and entitlements as provided for by the law of contract into a duty to act reasonably in all the circumstances.
In my view, s38 was never intended to trespass into this area. Section 38 is intended to address disturbances and disruptions, usually of a physical nature, to or within the shopping centre or directed specifically at particular shop premises and which are in a lessor’s control. To limit s38 in this way is consistent with the terms of the section itself, the content of the other sections that are within Part 6 and with the heading to Part 6 “Alterations and other interference with the shop”. Whilst ss38(1)(d) contains words which when read literally might be seen as embracing more than this, such a reading would not pay sufficient regard to the overall context and the evident purpose behind s38 and Part 6 as a whole.
Sentences are not mere collections of words to be taken out of the sentence, defined separately by reference to the dictionary or decided cases, and then put back again into the sentence with the meaning which one has assigned to them as separate words, so as to give the sentence or phrase a meaning which as a sentence or phrase it cannot bear without distortion of the English language.[33]
In my view, the language of s38 and in particular ss38(1)(d) is such as to fall to be considered within either the second or third “rule” (approach) identified by Murray CJ in Ragless and set out earlier.
[33] Bourne v Norwich Crematorium Ltd [1967] 1 WLR 691 at 696 (Stamp J).
The construction I have adopted is consistent with the terms of the second reading speech at the time this section was originally introduced into the legislation. The present Act was formerly the Retail Shop Leases Act 1995.[34] The Retail Shop Leases Bill 1994 was introduced in the Legislative Council and read a first time on 13 November 1994. The provision which ultimately became s38 was initially introduced as clause 34. By the time it reached the House of Assembly it had been re-numbered as clause 40. Its terms did not change throughout the debate. However, after amendment to other parts of the Bill which led to a consequential re-numbering of the clauses the relevant clause became clause 38 and was enacted as s38. During the second reading speech clause 40 was described in the following way.
Clause 40 creates rights of compensation for the lessee if the lessor unreasonably disrupts the lessee’s business or fails in obligations of maintenance and repair with consequent loss to the lessee.
[34] The long title was amended by the Statute Law Revision Act 2003.
In my view, where ss38(1)(d) refers to a failure to take all reasonable steps to prevent or put a stop to anything attributable to causes within the lessor’s control, it is not intended to embrace an obligation on a lessor to undertake potentially expensive and unpredictable litigation against another tenant in the circumstances where the complaining tenant has no contractual right to complain about what that other tenant might be doing.
In New South Wales ss34(1) of the Retail Leases Act 1994 is in materially the same terms. In that jurisdiction there have been a number of decisions in the Administrative Decisions Tribunal to the effect that the ambit of s34 is similarly confined.[35] In O’Hehir & Anor v Kennedy Plaza Pty Ltd[36] President O’Connor DCJ said this.
In my view paras (a) to (d) of s34(1) would, ordinarily, be concerned with physical interferences with the use of the premises by the lessee. … This understanding fits with the ordinary understanding of the covenant of quiet enjoyment. The terminology used in s34 is drawn from the law on the covenant of quiet enjoyment.
I would not go so far as to rule out entirely non-physical interferences… . It may be that a communication could be a source of disruption to trade, for example, some slanderous comment by the lessor in the media about the quality of the business or its long term future. Bullying conduct by a lessor trying to drive out a lessee by persistent threats and violent behaviour has been held to constitute a breach of the covenant of quiet enjoyment… . [Citations omitted.]
In Khao Thai Pty Ltd v Coles Myer Properties Holdings Ltd[37] Judicial Member Donald said this.
As to s34, I am of the view that it does not provide a basis for claim by a lessee asserting that the grant of trading rights to or the failure to enforce trading restrictions upon, other shops in the shopping centre, have damaged the business. As noted during the hearing, I consider the section applies to disturbances of a physical or management nature but are related to a particular shop and does not extend to the conduct of the lessor in this case relating to rights granted to other premises which, from a commercial point of view, have a trading impact upon a shop.
[35] Khao Thai Pty Ltd v Coles Myer Properties Holdings Ltd [2001] NSWADT 83; Bischof & Anor v Werncog Pty Ltd [2004] NSWADT 241; Kindful (Australia) Pty Ltd v Country Villa Holdings Pty Ltd [2006] NSWADT 224; Beyond Furniture (Australia) Pty Ltd v Virk [2008] NSWADT 76 and O’Hehir & Anor v KennedyPlaza Pty Ltd [2008] NSWADT 30.
[36] [2008] NSWADT 30 at [105]-[106].
[37] [2001] NSWADT 83 at [72].
In Alcides Fernandes & Ors v Timothy Yat Wah Lamb & Anor[38] the Western Australian Full Court adopted similar reasoning with respect to and so as to restrict the operation of s14 of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA). However, ss14(c) of that Act is in terms that differ from those of ss38(1)(d).
[38] [1998] WASCA 347.
The Western Australian sub-paragraph uses the following language:
causes or fails to make reasonable efforts to prevent or remove any disruption to trading within the centre which disruption causes loss of profits to the tenant.
It will be remembered that sub-paragraph (d) of the South Australian provision is in the following terms:
fails to take all reasonable steps to prevent or put a stop to anything attributable to causes within the lessor’s control that causes significant disruption of or which has a significant adverse effect on trading of the lessee in the shop. (Emphasis supplied.)
The Western Australian provision targets “disruption to trading within the centre” whereas the South Australian provision targets “disruption of or which has a significant adverse effect on, trading of the lessee”.
As such, the reasoning adopted by the Full Court is not of direct assistance on the question of the proper construction of ss38(1)(d). In Alcides Fernandes, Anderson J (with whom Kennedy and Murray JJ agreed) reasoned that the starting up of another lawful retail business in the centre could not possibly amount to “disruption to trading within the centre”. At the heart of the complaint in that case, as in the present case, was the notion that the competing business attracted customers that might otherwise have been customers of the complaining tenant. His Honour took the view that this did not fall within the concept of “disruption”. However, as I have already noted, the South Australian provision uses different language and identifies causes which have “a significant adverse effect on trading …”.
Nevertheless, the other matter raised by Anderson J which, to my mind, is just as applicable in the present case was this.
I do not think that would be a sensible result or that it would have been the result that was intended by the legislature. Implicit in the submission is that there was an intention on the part of parliament to enact legislation having an anti-competitive effect. That is not an intention which should be readily imputed to any legislative body these days. In my opinion, it is impossible to find in the Commercial Tenancy (Retail Shops) Agreements Act 1985 the slightest indication of an intention on the part of parliament to protect lessee’s from competition.
I agree, with respect, with this proposition and am satisfied that it applies with similar force to the South Australian Act. It is another reason why ss38(1)(d) was not intended to cover the situation argued for by the appellant in this case.
Does a claim under ss38(1)(d) give rise to an equitable set off?
Equitable set off is the substantive defence which may be set up by a person as an immediate answer to liability. … because equitable set off is a substantive defence, a landlord is not entitled to regard a tenant possessed of this form of set off as being indebted for rent to the extent of the set off. As a result the landlord would not be justified in asserting forfeiture, and the tenant would have a defence to an action for possession.[39]
[39] SR Derham, The Law of Set-Off 3rd ed, OUP at [5.60], citations omitted.
In the event that I were to be wrong as to the proper construction of ss38(1)(d), the question would arise whether or not a right to compensation, as provided for by that section, gives rise to an equitable set off by way of defence to the respondents’ claim in this matter for unpaid rent and outgoings. The full circumstances in which a tenant might claim an equitable set off with respect to unpaid rent has not been fully determined by the authorities. It is clear that a claim for equitable set off is not limited to a breach of the covenant to repair or other similar covenants. The availability of equitable set off to a tenant is much wider than that.[40]
[40] See, for example, Derham at [5.57] and the various examples with cited authorities there offered.
The circumstances in which an equitable set off, as opposed to the mere existence of cross-demands, might arise has been expressed in various ways. In Rawson v Samuel[41] the test was stated as being where “the parties seeking the benefit of [an equitable set off] can show some equitable grounds for being protected against their adversary’s demand…”. Dr I.C.F. Spry[42] has posed the question as “what must be established was such a relationship between the claim of the plaintiff at law and the claim of the defendant that the right of the plaintiff should be regarded in equity as dependent on satisfaction of the claim of the defendant”. It has often been said that the claim relied upon must “impeach” or go to the root of the plaintiff’s claim or render it unconscionable that the plaintiff’s claim be enforced without taking account of the cross-demand.
[41] [1841] Cr & Ph 161 at 178; 41 ER 451 at 458.
[42] Equitable Set Offs (1969) 43 ALJ 265 at 268.
In the context of a leasehold relationship, for an equity to attach so as to impeach a lessor’s claim, it must arise from the landlord and tenant relationship itself although not necessarily from the same (usually lease) contract from which the claim for rent arises.
The question of whether or not a tenant’s claim against its landlord will give rise to an equitable set off by way of defence to a claim for rent raises complex issues of law which it is not necessary to explore in these proceedings.[43] If, contrary to my earlier finding, it were to be that ss38(1)(d), in the circumstances of this matter, provided the lessee with a right to claim compensation against the lessors, I accept that it is arguable that an equitable set off might be allowed. The opening words of s38 provide “a retail shop lease is taken to provide that if…”. In other words, whether or not the rights conferred by s38 are strictly to be characterised as implied terms of the lease, they are very closely connected to the terms and conditions governing the landlord and tenant relationship. Furthermore, if in fact a lessor’s conduct or lack of conduct has caused disruption to or has had a significant adverse effect on a lessee’s trading it is arguable that this would impeach or go to the root of the lessor’s title to claim rent for the periods of time thus affected. I have formed no view on these matters but I accept that in an application for interlocutory relief, such as the present, it would not be appropriate to reach a view that the lessee, if entitled to rely upon s38, would not have demonstrated a prima facie case with respect to a right to an equitable set off.
[43] There is a helpful recent review of the principles of equitable set off and of a number of the relevant authorities in Norman; in the matter of Forest Enterprises Ltd v FEA Plantation Ltd (2011) 195 FCR 97 at [135] ff.
The respondents maintain that clause 3.2 of the lease operates to contractually exclude any right to rely upon an equitable set off. Clause 3.2 of the lease provides.
The Lessee should pay the Rent to the Lessor free and clear from any exchange, deduction, reduction, abatements, charges or adjustments.
The word “Rent” is defined to mean “the clear annual rent specified in item 11 as reviewed and varied from time to time under this Lease”.[44] Item 11 sets out the annual rent payable in dollar terms described as “Base Rent”.
[44] Clause 1.43 of the lease.
The question of whether or not, as a matter of principle, it is possible to contract out of an equitable set off and, if so, the type of provision that will achieve such a contracting out has been the subject of conflicting authority. A number of the authorities dealing with these issues were referred to and discussed by the Full Federal Court in Norman; in the matter of Forest Enterprises Ltd v FEA Plantation Ltd[45] and by Deputy President MacNamara in Wytell Pty Ltd v Glowinski (Retail Tenancies).[46]A cursory review of those authorities is sufficient to conclude that these are difficult questions which admit of no obvious answer. Furthermore, there would appear to be no appellate authority in this State dealing with these issues. I did not have the benefit of full argument on these points during submissions in this matter and I am not in a position to form a concluded view on either issue. However, I am satisfied that the lessee has made out a prima facie case to the effect that in the event that, it otherwise were to be entitled to an equitable set off, clause 3.2 of the lease would not preclude such a defence arising.
[45] (2011) 195 FCR 97 at [180]-[202], Jacobson, Nicholas and Yates JJ.
[46] [2006] VCAT 454 at [11]-[31].
Another difficulty would confront the lessee even in the event that the cause of action for compensation pursuant to s38 were available to it in the circumstances of this case. The lessors maintain that the affidavit evidence to this point is not sufficient to demonstrate a prima facie case to the effect that any equitable set off, if available, would be sufficient to exhaust the lessors’ otherwise uncontested claim for unpaid rent and outgoings. If so, a right to terminate and re-enter would still be available to the lessors. Given the conclusions I have reached, based on my reasons to this point, it is not necessary that I consider this matter any further.
Conclusion
I am satisfied that the lessee’s reliance on ss38(1)(d) of the Act is without any reasonable foundation. In my view, the sub-section does not operate, in the circumstances, to give the lessee a cause of action. Furthermore, and in any event, on the evidence available to this point, the lessee has not established a prima facie case that the lessors would be found to have failed “to take all reasonable steps” as required by ss38(1)(d). As ss38(1)(d) is the only basis on which interlocutory relief is claimed, the lessee has failed to establish a prima facie case in the sense of a sufficient likelihood of success at trial to justify the preservation of the status quo pending trial. Given this finding, it is unnecessary that I consider balance of convenience issues in any detail. On any analysis, given my findings as to the prima facie case issue, the balance of convenience in this case cannot support the granting of interlocutory relief.
I recognise that it is less usual to refuse an application such as this on the prima facie case basis rather than on the balance of convenience basis. And, that a court, at the interlocutory stage, should avoid speculating about a party’s prospects of ultimately succeeding after a final hearing on all issues. Usually it is not possible for a Judge hearing such an interlocutory application to come to a firm view about a party’s prospects of success. However, there are occasions where such a firm view can be reached and, in my view, this is one of them.[47]
[47] See generally, for example, Chrisanthos Kostopoulos v GE Commercial Finance Australia Pty Ltd [2005] QCA 311 at [65]-[70] (Keane JA with whom McMurdo P and Dutney J agreed; remarks given in the context of an application for stay of execution of judgment pending appeal).
Leave to amend the notice of appeal should be refused and for two reasons. First, to allow it at this late stage is likely to cause significant prejudice to the lessors. It could only be allowed on the assumption that the lessee would make out a prima facie case with respect to ss38(1)(d). If so, the lessors would have been prejudiced in their efforts to resist such a claim on a factual basis. Second, and in any event, the application for leave to amend lacks utility because on the evidentiary basis put forward by the lessee its reliance on ss38(1)(d) has no prospect of success. As a result, the appeal itself should also be dismissed.
I said earlier[48] that different or additional considerations might apply where leave to make a late amendment to a notice of appeal is sought in the context of an appeal from a refusal to grant an interlocutory injunction. If the proposed new ground had sufficient merit and if the balance of convenience sufficiently favoured the plaintiff, I would have given consideration to the question of whether the status quo ought to be maintained pending steps being undertaken to remove or sufficiently ameliorate any prejudice that otherwise would confront the respondents. However, as the proposed new ground lacks merit, it is not necessary and would be inappropriate for me to give consideration to this possibility.
[48] See fn 24.
During the argument on the appeal the Court was informed that rent for the months of July, August and September 2012 had now been paid and that the lessee was willing to pay (indeed, was taking steps to pay) $50,000 into the Magistrates Court Litigants Fund to abide the outcome of the dispute concerning the arrears of rent (as at late June) and the lessee’s claim for compensation.[49] Nothing I have said to this point should be taken as indicating a view as to the potential availability to the lessee of an order for relief against forfeiture, if the lessors were to terminate the lease and re-enter the premises for any continued failure to pay outstanding rent. However, ordinarily, such relief will only be granted on terms which usually would include that all outstanding rent together with costs be brought up to date.
[49] After I reserved my decision in this matter the appellant filed a further affidavit sworn by its solicitor, Mr Starke, on 2 October 2012. In that affidavit, Mr Starke deposed to the fact that the appellant had paid $50,000 into the Adelaide Magistrates Court Litigants Fund to abide the outcome of the Magistrates Court proceedings and in accordance with a consent order made in that court on 27 September 2012.
I make the following orders.
(i)The appellant’s oral application for leave to amend its notice of appeal is refused.
(ii)The appeal is dismissed.
I will hear the parties on the question of costs.
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