Skorpos & Anor v United Petroleum Pty Ltd
[2013] SASCFC 117
•29 October 2013
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
SKORPOS & ANOR v UNITED PETROLEUM PTY LTD
[2013] SASCFC 117
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice David and The Honourable Justice Peek)
29 October 2013
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - TERM OF LEASE OR TENANCY - COMMENCEMENT
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - POINTS AND OBJECTIONS NOT TAKEN BELOW - WHEN NOT ALLOWED TO BE RAISED ON APPEAL - COURSE OF CONDUCT AT TRIAL - GENERALLY
The appellants are the owners of three service station sites located in suburban Adelaide. The respondent, a petrol retailer, entered into the Heads of Agreement (HOA) with the appellants under which the respondent agreed to lease the three sites. The HOA proposed that the parties would enter a five-year fixed term lease subject to two conditions, a satisfactory tank and line test of the underground fuel systems and an environmental site assessment (ESA) report for each site. The HOA provided that the costs of obtaining the reports would be shared. With respect to the ESA, the respondent had the right to elect not to enter a lease for any site if "in its absolute discretion" the respondent considered the premises to be "unacceptably contaminated". The HOA provided that the "start date" of the lease would be confirmed after the results of the tank and line tests and the ESA reports were known.
The respondent subsequently entered into leases with the appellants over all three sites, even though it had not yet arranged the tank and line tests or ESA reports. Shortly thereafter, the respondent terminated the leases over two sites, in disputed circumstances, on the grounds that the ESA reports for each site revealed contamination.
The matter came before a Judge of the Supreme Court. The Judge concluded that the respondent was entitled to damages for the work performed on the tank and lines at one site and for one-half of the costs of the tank and line testing and ESA reports at all sites. The appellants' rent claim was dismissed. However, the Judge found that the appellants were entitled to damages, plus interest, for the respondent's failure to leave the two sites in a tenantable state of repair. Ultimately, the Judge gave judgment for the appellants for the balance in their favour in the sum of $15,305.94.
The appellants appeal against the dismissal of their rent claim. The appellants originally pleaded a claim for rent pursuant to the provisions of each of the leases. This was abandoned at trial and, instead, the appellants claimed an occupation fee pursuant to a tenancy at will. The tenancy at will claim was dismissed. The appellants now appeal on the ground that the Judge ought to have made an award in their favour on the abandoned claims for rent under the leases.
The appellants also appeal against the adequacy of the award in their favour for making good one of the sites; the award in the respondent's favour for the costs of repairing the tank and lines at another site; and the order as to costs.
Held:
(1) The threshold test to be met by a party seeking to raise an argument abandoned at first instance is high. An appeal court will only permit a party to do so in the most exceptional circumstances (Kourakis CJ at [33]-[34], David and Peek JJ agreeing).
(2) The ground of appeal contending that judgment should have been given in favour of the appellants on a claim for rent pursuant to the terms of the lease, abandoned at first instance, is dismissed (Kourakis CJ at [8], [35]-[38], David and Peek JJ agreeing).
(3) There was evidence to support the finding with respect to the award for making good one of the sites (Kourakis CJ at [9], [34]-[32], David and Peek JJ agreeing).
(4) The appeal against the award in favour of the respondent with respect to the cost of repairing the tank and lines at one of the sites is allowed because there is no evidential basis for holding the appellants liable (Kourakis CJ at [10], [50], David and Peek JJ agreeing).
(5) The construction of R 188 of the Supreme Court Civil Rules 2006 (SA) is confirmed and the appeal against costs dismissed (Kourakis CJ at [11], [51]-[53], David and Peek JJ agreeing).
(6) Appeal allowed for the purpose of increasing the judgment in favour of the appellants by the amount of $5,093.00 allowed for the tank and line work (Kourakis CJ at [54], David and Peek JJ agreeing).
Law of Property Act 1936 (SA) s 29; Electronic Transactions Act 2000 (SA) s 9; Supreme Court Civil Rules 2008 (SA) R 187, R 188, referred to.
Chilcotin Pty Ltd v Cenelage Pty Ltd [1999] NSWCA 11; Dockside Holdings Pty Ltd v Rakio Pty Ltd (2001) 79 SASR 374; Mostert v Durban Roodepoort Deep Ltd [2004] WASCA 309; Lucke v Cleary & Ors (2011) 111 SASR 134; Da Costa v Cockburn Salvage & Trading Pty Ltd (1970) 124 CLR 192, not followed.
Water Board v Moustakas (1988) 180 CLR 491; University of Wollongong v Metwally [No 2] (1985) ALJR 481; O'Brien v Komesaroff (1982) 150 CLR 310; Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631, considered.
SKORPOS & ANOR v UNITED PETROLEUM PTY LTD
[2013] SASCFC 117Full Court: Kourakis CJ, David and Peek JJ
KOURAKIS CJ: The appellants, Mr and Mrs Skorpos, are the owners of service station sites located at Park Holme, Port Adelaide and Henley Beach in suburban Adelaide. The respondent, United Petroleum Pty Ltd (United), is a petrol retailer. In April 2009, United entered into the Heads of Agreement (the HOA) with Mr and Mrs Skorpos under which United agreed to lease the three sites. The HOA conditioned entry into the leases on a satisfactory tank and line test of the underground fuel system (tank and line test) and an environmental site assessment (ESA) report for each site. The HOA provided that the parties would share the costs of obtaining the reports. With respect to the ESA, United had the right to elect not enter into a lease for any site if “in its absolute discretion” United considered the premises to be “unacceptably contaminated”. The HOA provided that the “Start Date” of the lease would be confirmed after the results of the tank and line tests and the ESA reports were known.
For reasons which need not be explained United entered into leases with Mr and Mrs Skorpos over all three sites (the Leases) in August 2009 even though it had not yet arranged the ESA reports or tank and line tests. In December 2009 United terminated the leases over the Park Holme and Port Adelaide sites in disputed circumstances on the grounds that the ESA reports for each site revealed contamination. On 11 January 2010, Mr and Mrs Skorpos re-entered the Park Holme site and purported to distrain petrol and petroleum gas for unpaid rent. United brought an application in this Court to enjoin Mr and Mrs Skorpos from retaining the fuel. That application was heard by Anderson J, who made orders permitting United to remove the fuel on certain terms. Anderson J also ordered that Mr and Mrs Skorpos pay the costs of the injunction proceedings.
The ESA report on the Henley Beach site was satisfactory and United remained in occupation of that site pursuant to the Lease. The tank and line test report on the Henley Beach site recommended that certain valves in the underground fuel system be serviced. United arranged and paid for that work to be done.
United brought this action to recover half of the costs of obtaining the tank and line tests and ESA reports for all three sites and for the costs of the repairs to the tank and line valves at the Henley Beach site.
Before terminating the Port Adelaide and Park Holme leases, United undertook works to improve the appearance of the service stations and to badge the sites with its livery. United left that signage on the sites when it terminated the lease. Mr and Mrs Skorpos counterclaimed that United thereby breached its obligation under the Leases over those sites to return them to good tenantable repair. They claimed damages for that breach and rent for the Port Adelaide and Park Holme sites in the period before the termination of the Leases.
The Judge concluded that United was entitled to damages in the sum of $63,603.98 for the work performed on the tanks and lines at Henley Beach and for one‑half of the costs of the tank and line testing and ESA reports. The Judge dismissed Mr and Mrs Skorpos’ rent claim, but found that Mr and Mrs Skorpos were entitled to $8,891.00 in damages for United’s failure to leave the Park Holme site in a tenantable state of repair and to $53,728.21 for a similar failure at Port Adelaide. The Judge awarded interest on both sums in the amount of $15,797.43. The Judge also found United liable for the replacement of a light sensor at Henley Beach and awarded Mr and Mrs Skorpos damages of $493.28. The total of the damages awarded to Mr and Mrs Skorpos was $78,909.92. The Judge gave judgment for Mr and Mrs Skorpos for the balance in their favour in the sum of $15,305.94.
Mr and Mrs Skorpos appeal against the dismissal of their rent claim. Mr and Mrs Skorpos’ originally pleaded case on their claim for rent was that, pursuant to the provisions of each of the leases, United was liable to pay rent from the day nominated by those leases as the commencement date of the Term of the Lease. On the other hand, United contended that each of the leases obliged it to pay rent only during the term of the lease and the express provisions of the leases provided that, notwithstanding the nominated commencement date, that term did not commence until satisfactory ESA reports and tank and line tests were obtained.
After the close of United’s case, Mr and Mrs Skorpos abandoned their rent claims under the leases and claimed instead an occupation fee pursuant to alleged tenancies at will operating from the time that United went into occupation of the Park Holme and Port Adelaide sites. The Judge dismissed Mr and Mrs Skorpos’ amended claim. Mr and Mrs Skorpos do not appeal against that part of the judgment on the ground that the Judge erred in dismissing the claim based on a tenancy at will. Indeed they accept that the Judge was right to do so. Instead they appeal on the ground that the Judge ought to have made an award in their favour on their abandoned claims for rent under the leases. On the hearing of the appeal, the Court dismissed the ground of appeal that judgment should have been given for Mr and Mrs Skorpos on a claim for rent pursuant to the terms of the leases because that claim had been abandoned at trial. The reasons for which I joined in that order are explained further below.
I turn to the other grounds on which Mr and Mrs Skorpos appeal. First, Mr and Mrs Skorpos appeal against the adequacy of the award in their favour for making good the Port Adelaide site on several grounds. The Judge miscalculated the area bearing United’s livery. I would dismiss that ground because the Jude’s finding was supported by the evidence. Mr and Mrs Skorpos complain that the Judge was wrong to find that another area of panelling at the Port Adelaide site did not need to be made good at all. I would dismiss that ground of appeal because Mr and Mrs Skorpos’ construction of the applicable term of the leases that would require removal of all fixtures put in place by United, irrespective of the condition of those fixtures, is misconceived.
Mr and Mrs Skorpos also appeal against the award in United’s favour for the cost of repairing the tank and lines at Henley Beach on the ground that there was no evidence that those tanks and lines were defective. I would allow the appeal on that ground because, even though the tank and line report recommended servicing of the valves, it did not state that there was a defect in the integrity of the underground fuel system. My reasons for so holding are further explained below.
Mr and Mrs Skorpos also challenge the costs order made by the Judge. United filed an offer of settlement pursuant to R 187(3) of the Supreme Court Civil Rules 2006 (SA). Very early in the course of proceedings United offered $29,000 in satisfaction of Mr and Mrs Skorpos’ claims. As has been seen, the judgment fell well short of United’s offer. United’s filed offer also proposed, by way of a compromise on the question of costs, a payment of $1,000 to Mr and Mrs Skorpos which carried with it the additional benefit of forgiving the costs to which United might otherwise have been entitled pursuant to the costs order of Anderson J. The offer stipulated that Mr and Mrs Skorpos could not accept the principal offer of $29,000 without also accepting the offer as to costs. The Judge found that, because Mr and Mrs Skorpos had not bettered the principal offer, United was entitled, pursuant to R 188 of the Supreme Court Civil Rules 2006 (SA), to its costs of the action on a solicitor-client basis and Mr and Mrs Skorpos were precluded from claiming costs after the filing of the offer, irrespective of the adequacy of the costs limb of the offer. Mr and Mrs Skorpos appeal against the Judge’s exercise of the cost discretion on the ground that it is vitiated by an error at law made in the construction of R 188 of the Supreme Court Civil Rules 2006 (SA). I would confirm the Judge’s construction of the Rule by which the cost consequences of the Rule are enlivened if the principal offer on the substantive claim is not bettered, irrespective of the adequacy of the costs offer. That is the most natural construction of the text of the Rule and encourages the parties to fully and comprehensively resolve their dispute. I explain my reasons further below.
The Leases
All of the Leases entered into in August 2009 contained the following provisions:
1.Definitions and Interpretation
1.2 Definitions
…
(3) Commencement Date means the date stated in Item 5;
(4) Contaminant means any substance, matter or thing on, in or under the Premises which case (sic) them to be:
(a) unsafe or unfit for habitation or occupation by persons or animals;
(b) degraded in their capacities to support plant life; or
(c) otherwise environmentally degraded;
…
(12) Landlord’s Property means the fixtures, fittings, equipment, plant, underground fuel tanks, lines, pumps, LPG Equipment, and other things that were on and in the Premises on the 23rd April 2009 including, for the avoidance of doubt, all the items of equipment listed in Schedule 3.
…
(16) Outgoings means all costs incurred in providing services to the Premises including heating, cooling, air conditioning, waste collection, landscaping, fire protection and control and the costs of maintaining and repairing the Building, statutory rates, taxes (excluding land tax with the exception of any increase in Land Tax that results as a consequence in any improvements effected by the Tenant) and charges separately assessed in respect of the Premises. The Tenant will not be liable for costs associated with structural repairs or payments of a capital nature other than expressly required by this lease.
…
(22) Services mean all utilities and Services in or to the Premises;
…
(26) Term means the Term stated in Item 4.
…
2. Term and Holding Over
2.1 Term
The Landlord leases the Premises to the Tenant for the Term.
2.2 Monthly Tenancy
If the Tenant continues to occupy the Premises after the Term with the Landlord’s consent then:
(1) the Tenant does so as a monthly tenant on the same basis and at the same Rent as at the last day of the Term; and
(2) either party may terminate the monthly tenancy by giving to the other 1 month’s notice expiring on any day.
3. Rent and Rent Reviews
3.1 Rent
The Tenant must:
(1) subject to clauses 3.1, 3.2 and 3.4, pay the Rent by equal monthly instalments in advance on the first day of each month;
…
4. Outgoings.
4.1 Payment by Tenant of Outgoings
The Tenant must pay the Outgoings as and when they become due and payable, and within 30 days after the Landlord provides invoices for the Outgoings.
….
9.Use of the Premises
…
9.5Alterations
The Tenant may at the cost and expense of the Tenant make any alterations, refurbishments or additions to the Landlord’s Equipment or the Premises, provided that it first obtains:
(1) any necessary consent from any relevant government authority and complies with the relevant laws; and
(2) the Landlord’s consent (which consent must not be unreasonably withheld) for any structural alterations to the Premises.
If the Tenant makes any alterations or replaces any of the Landlord’s Property in or about the Premises then the Tenant must be deliver the Landlord’s Property to a location in metropolitan Adelaide nominated by the Landlord.
In relation to clause 9, to avoid any doubt, the Tenant will not paint the cement render over any exposed brick surfaces on the Premises (unless already painted as at the Commencement Date). The Tenant, however, may cover the brickwork with compressed cement sheeting or other cladding and paint or cement render that cladding provided the Tenant does not bolt cam lock or drill into the brickwork.
…
10. Maintenance and Repair by the Tenant
10.1Repair
(1) the Tenant must:
(a)keep the Premises the Landlord’s Property and the Landlord’s Equipment (of which the Landlord’s pumping equipment is in poor condition) in reasonable repair and condition except for fair wear and tear including cathodic protection of the LPG Equipment and/or safety equipment; and
(b)fix any damage caused by the Tenant, the Tenant’s employees, the Tenant’s contractors, or the Tenant’s customers.
(2) The Tenant is not obliged to carry out structural repairs or make payments of a capital nature or replace of any of the Landlord’s Property.
…
13. Landlord’s Obligations
…
13.3 Quiet Enjoyment
The Landlord must allow the Tenant to occupy and use the Premises without undue interruption or disturbance. …
…
13.4Maintenance of Services Landlord’s Property and Landlord’s Equipment
(1) the Landlord must maintain, repair, replace and keep operational the Services and must make such alterations and improvements as may be required to the Services as are necessary from time to time to make them comply with relevant Australian standards….
…
(4) the Landlord must repair and replace as necessary any part of the underground fuel system unless such repair or replacement is as a result of neglect or failure by the Tenant, the Tenant’s employees or contractors in fulfilling the Tenant’s obligations.
…
15.Termination of Term
15.1Tenant’s Obligations
Within 30 days after termination of this Lease, the Tenant:
(1) must vacate the Premises and give them back to the Landlord in as good tenantable repair as at the Commencement Date or the Commencement Date of any prior Lease of which this Lease is a renewal, whichever is the earlier date;
(2) can, at its option, remove the Tenant’s Property from the Premises or if required by the Landlord must require the Tenant’s Property from the Premises. If the Tenant leaves any of the Tenant’s Property in the Premises after the date 30 days after the date of Termination of this lease, it becomes the Landlord’s Property;
(3) must repair any damage caused by removal of the Tenant’s Property and leave the Premises clean;
16 Environmental Report
16.1 Report
(1) Prior to the Commencement Date, the Tenant will obtain an Environmental Site Assessment Report (“the Report”) from a qualified environment consultant that must identify the location, concentration and nature of any contamination at the Premises. The cost of the Report is to be shared equally between the parties. The Landlord must reimburse one-half of the GST-inclusive cost of the Report within 30 days from the date a tax invoice is provided to the Landlord. The Landlord must provide security suitable to the Tenant before the Tenant will arrange for the report.
(2) The Tenant may Terminate the lease within 30 days of receiving the Report if the Tenant in its absolute discretion considers that the Premises are unacceptably contaminated.
…
(4) Where the Report is not completed by the Commencement Date, the Landlord agrees that the Report will form the benchmark referred to in clause 16.1(4) from the date that the Report is completed an annexed to the Lease. The Landlord agrees to release and indemnify the Tenant against any Claim, action or damage suffered by the Landlord or any third party as a result of any Contaminants located on the Premises prior to the Report being completed and annexed to the Lease.
(5) Despite anything else in this document, the Term will not commence until the Report is given to the Tenant and Item 5 of the Reference Schedule will be construed accordingly.
16.2 End of Term
(1)unless a Further Lease has been entered into under clause 17, subject to clause 16.2(2), at the expiry or sooner determination of the lease, the Tenant must, at the cost of the Tenant, give the Landlord a Further Report from an appropriate environmental consultant stating that the Premises are not contaminated beyond the level identified in the Report. The Tenant must carry out any necessary remediation works required to be undertaken (and) to obtain Further Report at its own cost.
…
18 Tank and Line Integrity Testing
(1)The Tenant must commission a tank and line integrity test prior to the Commencement Date to confirm the integrity of the underground fuel system (“initial integrity test”). The Landlord must reimburse one-half of the GST-inclusive cost of the initial integrity test within 30 days from the date a tax invoice is provided to the Landlord. The Landlord must provide security suitable to the Tenant before the Tenant will arrange for the “initial integrity test”;
(2)if the underground fuel system does not pass the initial integrity test, the Landlord at its sole cost must effect repairs as required to the underground fuel system.
(3)the Tenant may elect to not enter into and/or continue with the lease for the Premises if the landlord does not effect required repairs to the underground fuel system.
(4)despite anything else in this document, the Term will not commence until the underground fuel system passes the initial integrity test and Item 5 of the Reference Schedule will be construed accordingly.
…
19. General[1]
[1] This clause is clause 20 in the Henley Beach lease agreement.
…
19.4 Entire Understanding
This Lease
(1) contains the entire agreement and understanding between the parties on everything between the parties on everything connected with the subject matter of this Lease; and
(2) supersedes any prior agreement or understanding on anything connected with that subject matter.
…
Reference Schedule
Item 1 Landlord COLLEEN KOULA SKORPOS and MICHAEL SKORPOS … as Joint Tenants
Item 2 Tenant UNITED PETROLEUM PTY LTD ACN 085 779 255 …
…
Item 4 Term Five (5) years fixed
Item 5 Commencement Date September 1 2009
Item 6 Termination Date August 31 2014
…
Item 10 Permitted use The Premises may be used as a service station, convenience store and workshop for the sale of fuel and motor vehicle products and services, operation of a workshop, grocery, newsagency or supermarket products and other items commonly associated with the operation of a convenience store.
The rent claim
The procurement of the ESA reports and tank and line testings, contemplated by clauses 16 and 18 of the Leases respectively, was delayed because Mr and Mrs Skorpos failed to pay half of the associated costs. The reports were eventually received between October and December 2009. The ESA reports revealed that there was contamination at the Park Holme and Port Adelaide sites but not at Henley Beach. The Henley Beach tank and line test results recommended the servicing of valves in the fuel lines at the Henley Beach site. United purported to terminate the Leases over the Park Holme and Port Adelaide sites pursuant to clauses 16 and 18 of the Leases.
At trial, Mr and Mrs Skorpos’ case was that United had taken a tenancy at will over the Park Holme and Port Adelaide sites. They contended that United’s rights of occupancy under the Terms granted by the Leases over the sites had yet to commence and that therefore United’s occupation of the Park Holme and Port Adelaide sites could not have been taken pursuant to the Leases. The Judge rejected that submission. The Judge commented on an apparent contradiction in Mr and Mrs Skorpos’ contention that the Leases had not commenced because the Terms over both sites had been postponed by the provisions of the very Leases which they claimed had not come into effect, namely, clauses 16.1(5) and 18(4). The Judge found that under the provisions of the lease United was not obliged to pay rent until it had obtained satisfactory ESA reports and tank and line integrity test results and that it was inconsistent with the clauses which so provided to imply a liability to pay rent under a tenancy at will in advance of those events. I set out the Judge’s reasons below:[2]
In my view it is tolerably clear that where those clauses refer to the term not commencing the parties intended by that provision merely to confine the obligation to pay the rent and outgoings prescribed by clauses 3 and 4 to the term prescribed by clause 2 of the lease agreements. The language of the lease agreements is not so intractable as to preclude this construction. “Term” is defined in clause 1.2(26) to mean the term stated in item 4 of the Reference Schedule, namely, five years fixed. There is an obvious relationship between the provisions of clauses 2, 3 and 4. Clause 2.1 provides that the landlord leases the premises to the tenant for the Term. Clause 3 requires the tenant to pay the rent. Clause 4 requires the tenant to pay the outgoings. It is implicit that the payments required by clauses 3 and 4 need only be made during the currency of the Term. Accordingly, where clauses 16 and 18 refer to the Term not commencing in the circumstances prescribed, that expression can be construed as confining the obligation to pay the rent and outgoings which would otherwise be payable during the currency of the Term.
The purpose of clauses 16 and 18 reinforces this construction of the lease agreements. These clauses are included for the protection of the plaintiff. In the context of the commercial agreement being made, the work to be performed by these clauses is obvious. The plaintiff, in occupying the leased sites without the benefit of a pre-contractual due diligence exercise, required the assurance that the sites were not contaminated and the tanks and lines were operating in a condition fit for purpose. The terms of clauses 16 and 18 do not suggest that the failure to obtain the reports or to undertake the test, or any delay in either of these events occurring, would terminate or void the lease agreements. On the contrary, the terms of clause 18(2) provides that if the underground fuel system does not pass the initial integrity test, the landlord, at its sole cost, must effect repairs as required to the system. This strongly points to an interpretation of the agreement whereby the rights and obligations set out in the lease agreements operate when the underground fuel system does not pass the initial integrity test, notwithstanding that the term of the lease does not commence if the underground fuel system does not pass the initial integrity test.
This construction finds further support in the terms of clause 2.2 of the lease agreements. The parties there prescribe their respective rights and obligations during a period where the plaintiff continues to hold over following expiry of the lease agreements’ term. The fact that the parties did not agree any provision for the payment of rent by the plaintiff in an interim period prior to the commencement of the lease term, evidences their intention that, pursuant to the bargain they struck, there was no obligation on the plaintiff to pay rent or outgoings until such time as the conditions precedent prescribed by clauses 16 and 18 had been satisfied. Such a construction is consistent with the commercial purpose of the agreement and the parties’ express agreement that the lease agreements were entire agreements on everything connected with the subject matter of the lease. By the terms of the lease agreement, read as a whole, the parties address exhaustively the commercial arrangement into which they have entered. This leaves no room for the implication of a tenancy at will.
In the alternative, if it is considered that the reference to the term not commencing in clauses 16.1(5) and 18(4) is susceptible of more than one possible meaning, I consider the surrounding circumstances support the construction I have given the lease agreements. Having regard to the genesis of the lease agreements, and the background and the context in which the parties were operating, including the heads of agreement of 22 April 2009, I am satisfied that the objective intention of the parties was that the obligation to pay rent and outgoings would not commence until the performance of the tests and the provision of the reports prescribed by clauses 16 and 18. Those provisions were included for the benefit of the plaintiff. The plaintiff was proposing to operate petrol stations from sites it had not previously occupied, the condition of which was not known by it. It was understandable it sought protections from the risk that the sites might prove unsuitable by reason of contamination or problems with tanks or lines. However, the failure to undertake the tests or provide the reports was not intended to render the lease agreements inoperative. On the contrary, the parties had expressly agreed that the lease agreements could be terminated at the election of the tenant in the specific circumstances prescribed by clauses 16.1(2) and 18(3). Until the lease agreements were terminated, the rights and obligations prescribed by the whole of the lease agreements would continue to obtain. Those rights included the right of the tenant to be relieved of the obligation to pay rent and outgoings until such time as the conditions precedent prescribed by clauses 16.1(5) and 18(4) had been satisfied.
[citations omitted]
[2] United Petroleum v Skorpos & Anor [2012] SASC 151, [44]-[47].
As I earlier foreshadowed, the tenancy at will claim was abandoned on appeal and instead the originally pleaded claim for rent pursuant to the Leases was resurrected.
The question of construction on which Mr and Mrs Skorpos’ rent claim now rests can be shortly stated. As has been seen, the Term granted by each of the Leases was five years (cl 2.1 and item 4 of the Reference Schedule). Even though not explicitly stated it is plainly implicit that the “Commencement Date” referred to in Item 5 of the “Reference Schedule” (the Schedule) is the commencement date of the Term. The Commencement Date specified in Item 5 of the Schedule for each Lease is 1 September 2009, but clauses 16.1(5) and 18(4) expressly modify the commencement date in Item 5 by providing that the Term “will not commence” until both a satisfactory ESA report is provided to United and the tank and lines pass the integrity tests, whichever is the latter. The question is whether the obligation to pay rent under the Leases is limited to the period of the Term, so defined, or arises even before the Term commences.
Counsel for Mr and Mrs Skorpos expressly put their case on appeal on an intrinsic construction of the clauses of the Leases and eschewed any reliance on the fact or circumstances of United’s occupation. Counsel contended that the postponement of the Term effected by clauses 16 and 18 of the Leases effectively extended the period of the Term from five years to a term of five years plus that period of time between 1 September 2009 and the receipt of the satisfactory reports. On the appellants’ submission the Term, as defined, only affected the timing of the exercise of the option to renew and the rent review dates under the Leases.
In my view, that construction founders on the plain words of clauses 16.1(5) and 18(4). There is also tension between that construction and the text of clauses 16 and 18 which do not speak of an extension of the Term but of its postponement. Another problem with the construction for which the appellants contend is that it would leave United liable to pay rent from 1 September 2009 even if it had not gone into occupation. In this respect it should be noticed that the HOA did not provide for the payment of rent in the period of delay contemplated by its provisions between arranging the ESA reports and tank and line testing, and the entry into the Leases.
I also observe that there is no reason to imply a term like that contended for by the appellants to give the Lease business efficacy. The parties were free to agree on the terms of a licence which would allow United to effect preparatory work on the sites in anticipation of favourable ESA reports and tank and line integrity test results.
The tenure of a tenant under a lease is for the term of the lease and the obligation to pay rent is an incident of that tenure.[3] There is nothing inconsistent with that fundamental aspect of the relationship of landlord and tenant in the provisions of the Leases. If the obligation to pay rent in clause 3.1 of the Leases is read in that common law context it is plain that the obligation to pay rent under the Leases is enlivened by the commencement of, and subsists for, the duration of the Term.
[3] Thomson Reuters, Laws of Australia (at 16 July 2008), 28 Real Property, ‘7 Landlord and Tenant [28.7.1340].
For now it is sufficient to note the several substantial objections to the construction of the Lease proposed by the appellants, which I have mentioned, because there is a threshold objection to the prosecution of this ground of appeal given the abandonment of any claim under the Lease at trial.
Mr and Mrs Skorpos’ closing submissions at trial expressly referred to their rent claim as an “occupancy rent under a tenancy at will” and claimed that the occupancy of each site was “pursuant to a tenancy at will”. Indeed, as to the occupancy of the Henley Beach site Mr and Mrs Skorpos contended that the “occupation could not be pursuant to the formal lease”. With respect to the Park Holme site Mr and Mrs Skorpos contended that “the tenancy at will is the applicable tenancy”. The appellants devoted much of their written submission to “the law of tenancy at will”. The claims for making good the site were expressly based on the common law principles governing a tenancy at will, as were the submissions on the tenant’s fixtures.
The abandonment of the rent claim under the Leases was imperfectly pleaded in the Fifth Amended Defence Set Off and Cross Action (the Amended Cross Action) which was filed by Mr and Mrs Skorpos shortly after the conclusion of the trial. The intention of filing the Amended Cross Action was clearly to reflect the change in course taken at trial. A perusal of the Amended Cross Action shows that the few remaining references to the Leases were simply overlooked.
In Water Board v Moustakas, Mason CJ, Wilson, Brennan and Dawson JJ said:[4]
More than once it has been held by this Court the point cannot be raised for the first time on appeal when it could possibly have been met by calling evidence below. Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied.
In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings would be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet.
[4] Water Board v Moustakas (1988) 180 CLR 491, 497.
In University of Wollongong v Metwally (No 2),[5] an application was brought before the High Court to vacate decretal orders made resolving questions of law which had been removed into the High Court from the Court of Appeal of New South Wales. The application was refused. Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ made the following observations:[6]
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.
[5] (1985) 59 ALJR 481.
[6] University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481, 483.
In O’Brien & Others v Komesaroff, Mason J (as his Honour then was) recognised that, even though an appellate court might entertain an appeal on a point not raised at trial, it would only do so if it was relevant in the interests of justice to do so:[7]
In some cases when a question of law is raised for the first time in an ultimate court of appeal, as for example upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is expedient in the interests of justice that the question should be argued and decided.
[7] (1991) 150 CLR 310, 319.
In Multicon Engineering Pty Ltd v Federal Airports Corporation,[8] referring to the above cited statement of principle in Metwally, Mason P recognised the distinction between the nature of the proceedings in the High Court in Metwally and appeals by way of rehearing. Mason P then adverted to the rule that a party on appeal is precluded from raising on an appeal by way of rehearing a point which may have been met by evidence at trial before articulating a related principle which is particularly apposite to the appellants' change of position on this appeal. Mason P said:[9]
However there is another principle of more direct relevance. A party does not have a right to insist that a new point be decided on appeal simply because all of the facts have been established beyond controversy or the point is one of construction or of law, even constitutional law. This is because it remains a question of whether the appellate court “may find it expedient and in the interests of justice to entertain the point”: Water Board v Moustakas (1988) 180 CLR 491 at 497; see also Jones v Minister for Immigration and Ethnic Affairs (1995) 63 FCR 32 at 47. The rule is not an absolute one, as evidenced by this Court's decision in Della Patrona v Director of Public Prosecutions (Cth) [No 1] (Court of Appeal, 1 September 1995, unreported). Unlike the present case, the respondent in Della Patrona failed to raise the “procedural point” until long after the appellant had been given leave to debate it. This was a very important factor in the Court's consideration. For later proceedings in the same case: see Della Patrona v Director of Public Prosecutions (Cth) [No 2] (1995) 38 NSWLR 257. However:
“… it is a sound general principle, leading not only to the maintenance of fair play, but also to the repression of unnecessary litigation, that parties must be bound by the course they deliberately adopted at the trial” : Rowe v Australian United Steam Navigation Co Ltd (1909) 9 CLR 1 at 24, per Isaacs J; see also Browne v Dunn (1893) 6 R 67 at 75; Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 284.
In Coulton (at 7), Gibbs CJ, Wilson J, Brennan J and Dawson J said that:
“It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish.”
(Citations omitted)
[8] (1997) 47 NSWLR 631.
[9] (1997) 47 NSWLR 631, 645-646.
Subsequently in Chilcotin Pty Ltd v Cenelage Pty Ltd,[10] Giles JA, with whom Mason P and Priestley JA agreed, accepted that even in those cases in which no other evidence would have been adduced at trial bearing on the issue which is raised for the first time on appeal, a party might still be bound by the conduct of his or her case at trial. Giles JA founded the principle on “public policy considerations favouring the finality of litigation”.
[10] [1999] NSWCA 11, [14]-[15].
In Mostert v Durban Roodepoort Deep Ltd, Le Miere J, with whom Steytler and Jenkins JJ agreed, also recognised that a party cannot insist, as of right, to have a fresh point determined on appeal simply because all of the necessary facts have been conclusively established at trial or because the point is one of construction of agreed documents.[11]
[11] [2004] WASCA 309 [55].
In contending that this Court should entertain the alternative foundation for the rent claim put on appeal the appellants placed much reliance on the decision of this Court in Dockside Holdings Pty Ltd v Rakio Pty Ltd.[12] The question in Dockside was the proper construction of a rent review clause and in particular whether the review of the rent to market should be premised on the annual CPI increases preceding the review. Even though it is not completely clear from the report, it appears that the appellant, the tenant, in Dockside consistently contended to the contrary but at trial argued that that construction was supported by a literal reading of the applicable term of the lease. The trial Judge in Dockside adopted a literal approach to the construction of the lease but found that, literally construed, the lease required the review to factor in the CPI increases. On appeal, the appellant conceded that on a literal approach the trial Judge’s construction was right, but was permitted to advance a submission in support of its construction based on a purposive reading of the rent review clause. In my view, Dockside provides only limited support for the appellants because the tenant in Dockside consistently contended for the same interpretation of the rent review term, albeit by reference to different canons of construction.
[12] (2001) 79 SASR 374.
In Lucke v Cleary & Others,[13] a Full Court of this Court refused permission to amend a notice of appeal to raise a point abandoned at trial. The deed under consideration in Lucke had not been signed, but no point was taken at trial that the deed was ineffective pursuant to s 29 of the Law of Property Act 1936 (SA) because it was mistakenly thought that s 9 of the Electronic Transactions Act 2000 (SA) cured the defect because the deed, although not executed by the parties, was confirmed by email an exchange. Counsel for the appellant at trial had overlooked regulation 5(1)(a) of the Electronic Transactions Regulations which provides that s 9 of the Electronic Transactions Act 2000 (SA) does not apply to a requirement under a law of the State that any dealing in relation to an interest in land be effected by an instrument or be evidenced in writing.
[13] (2011) 111 SASR 134.
In dismissing the appellant’s appeal which sought to rely on s 29 of the Law of Property Act 1936 (SA) Stanley J explained that a change of position on appeal will only be countenanced in limited circumstances:[14]
[14] Lucke v Cleary & Others (2011) 111 SASR 134, [44]-47].
In Coulton v Holcombe, the High Court explained the underlying principles justifying this approach:
It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish. The powers of an appellate court with respect to amendment are ordinarily to be exercised within the general framework of the issues so determined and not otherwise. In a case where, had the issue been raised in the court below, evidence could have been given which by any possibility could have prevented the point from succeeding, this Court has firmly maintained the principle that the point cannot be taken afterwards.
The High Court reaffirmed the position in Water Board v Moustakas:
More than once it has been held by this Court that a point cannot be raised for the first time upon appeal when it could possibly have been met by calling evidence below. Where all the facts have been established beyond controversy or where the point is one of construction or of law, then a court of appeal may find it expedient and in the interests of justice to entertain the point, but otherwise the rule is strictly applied.
Examples of the High Court allowing a new point to be raised for the first time on appeal can be found in Coulton v Holcombe, National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq), and Fingleton v The Queen.
The threshold test to be met by a party which seeks to raise an argument for the first time on appeal is high. An appeal court will only permit a party to do so in the most exceptional circumstances. Where all the facts have been established beyond controversy or where the point is one of construction or of law, the appeal court may, in the exercise of its discretion, entertain the point where it is expedient in the interests of justice to do so but, even in those circumstances, the exercise of the court’s discretion is informed by the proposition that a party will only be permitted to do so in the most exceptional circumstances.
[citations omitted]
In a common law adversarial trial the Court determines the issues submitted to it by the parties for resolution. Moreover, the judicial determination of an action at trial is a final, not preliminary, resolution of the legal controversy. Appeal proceedings are not a continuation or extension of the trial. The issue on appeal is whether the judgment given at trial is vitiated by error.[15]
[15] Da Costa v Cockburn Salvage & Trading Pty Ltd (1970) 124 CLR 192, 208-209 (Windeyer J).
Plainly enough there are both semantic and substantive difficulties in the proposition that a judgment is attended by error if the issue which it is contended was wrongly adjudicated was never submitted to the court. Nonetheless, the interests of justice may on occasion demand a reversal of the decision. It is not possible to be prescriptive about the conditions and considerations which will bring about that result. In ascertaining where the interests of justice lie it should be recognised that there are competing considerations. On the one hand it is in the interests of justice that the orders of courts reflect the correct application of the law to the facts as found. On the other hand, the public interest in the finality of litigation demands that parties be bound by the conduct of their case at trial. To say that a judgment will be set aside on a point not taken at trial only in exceptional circumstances should be understood as an observation about what will commonly be the result of the evaluation of those competing principles and not as a presumptive rule.
In this case, the appellants seek to have their action for rent determined on appeal on a basis which was abandoned at trial and which is diametrically opposed to the basis on which the claim for rent was pursued at trial. It would seriously undermine the principle of finality to allow a party to run only one of two inconsistent claims, whether they are mutually exclusive or alternative claims, at trial and if unsuccessful run the other on appeal. It is contrary to the interests of justice to countenance the wasteful expenditure on legal costs and the waste of judicial resources which such a course entails.
There are no countervailing considerations here. There are some cases in which the result of the litigation will have material consequences beyond the litigants themselves, or in which there is a broad public interest. There may be good reason in the circumstances of these cases not to burden third party interests with unjust results brought about by the poor forensic decisions of the parties to the litigation. There is no public interest in the determination of the private property rights of the parties to this litigation. Nor has the forensic choice affected personal liberty as it may in a criminal appeal.
Finally, by confining their case to an intrinsic construction of the Leases, irrespective of the fact, or circumstances, of occupancy the appellants are forced to advance a construction which, for the reasons I earlier explained, has only poor prospects of success. There is very little, if any, reason to apprehend a miscarriage of justice on the face of the judgment and reasons.
For the above reasons I joined in the order dismissing the appeal of Mr and Mrs Skorpos on this ground.
Damages for making good Port Adelaide site
Mr and Mrs Skorpos claimed an amount of $14,927.00 to remove and dispose of panelling at the Port Adelaide site and to make the area good. Mr and Mrs Skorpos complain that the Judge erred in his findings as to the area of panelling bearing United’s livery. These appeal grounds were argued on the premise that the provisions of the Leases governed the obligation to make good even if the term under each of the leases had not commenced. A quotation provided by a Mr Tiani, and put into evidence by the appellants, assumed a length of 50 metres of panelling above the fridges in the internal shop area and 30 metres on an external wall. Mr Tiani did not testify that he took measurements for the purpose of his quote. The Judge accepted that the removal of the panelling was necessary to restore the premises to a state of tenantable repair but awarded damages based on the lesser lengths of 30 metres and 18 metres respectively. Mr and Mrs Skorpos complain that the Judge’s findings lacked any evidential foundation. That contention is plainly wrong. Mr and Mrs Skorpos put into evidence a quotation from the firm Sign Concepts to put signage over the same area after it had been made good. Ms Rochester, the principal of Sign Concepts, gave evidence that she measured the length of panelling before providing the quote and it was 34 metres internally and 18.6 metres externally. Moreover, Ms Rochester’s measurements were consistent with the measurements on which yet another quote from the firm Infinity Signs was based. The appellants did not contend that there was reason for the Judge to prefer the estimates in Mr Tiani’s quote over Ms Rochester’s measurements. The ground was limited to the contention that there was no evidence at all to support the Judge’s finding. The appellants have failed to make good that complaint and that part of ground 4 should therefore be dismissed.
The Judge disallowed another part of Mr and Mrs Skorpos’ claim for making good the Port Adelaide site. That claim concerned the removal of panelling and a stud wall placed over a brick face wall on the left hand side interior of the building. The claim was for the cost of removing the panelling and replacing it with tiles. The Judge dismissed that part of the claim, holding that the gyprock panelling was acceptable, even though not to the taste of the appellants. In particular, the Judge rejected the claim insofar as it was based on the requirement in clause 9.5 of the Lease that the tenant obtain permission for any structural alteration to the premises. The Judge was satisfied that the fixing of the gyprock panels did not constitute “structural alterations to the premises” within the meaning of that term in clause 9.5 of the Lease. The Judge also held that the fixing of the gyprock panelling was authorised by that part of clause 9.5 of the Lease which expressly allowed the tenant to cover brickwork with compressed cement sheeting or other cladding, provided that the cladding was not bolted, locked or drilled into the brickwork. There was no bolting, locking or drilling of the panelling in this case.
On appeal, Mr and Mrs Skorpos primarily relied on the obligation in clause 15 of the Lease to vacate the premises and hand them back to the landlord “in as good tenantable repair as at the commencement date”. The Judge proceeded on the basis that the Lease was operative and that United’s obligation was to return the premises in good tenantable repair as at the Commencement Date pursuant to clause 15 of the Lease and not that United was required to deliver up the premises in the same condition in which they were received pursuant to a tenancy at will. The Judge proceeded on a construction of the covenant in clause 15 of the Lease which obliged United to restore the leased premises to a state fit for the requirements of a future tenant likely to take the premises at the termination of the Lease, consistent with the state of the premises at the commencement of the lease. I respectfully agree with that construction. The Judge correctly held that the obligation to give the premises back in as good tenantable repair as at the Commencement Date did not require the tenant to restore the premises to the condition that they were in when they were let. I would confirm the Judge’s conclusion that the panelling left the premises in good tenantable repair, and that United was not obliged to make that good. That conclusion is supported by the express authority to panel the wall given by clause 9.5 of the Lease.
For the above reasons I would dismiss Mr and Mrs Skorpos’ appeal on ground 4.
Tank and line testing
United claimed the costs of engaging a contractor, Petrol Services Australia Pty Ltd (PSA), to perform work on the tank and valve lines at the Henley Beach site. The Judge awarded United $5,093.00 on this part of its claim. United supported its claim by reference to two clauses of the Lease: clauses 13.4 and 18(2).
Clause 13.4(4) of the Lease provides that the landlord must repair and replace as necessary any part of the underground fuel system unless the repair is a result of the tenant’s failure. The trial Judge approached United’s claim on the basis that United carried the onus of proving that “the work undertaken by PSA was necessary”. United did not call evidence from PSA or any of its employees or from any other expert to show that the work was necessary. A report on the tank and line integrity test which had been performed by the firm Leighton O’Brien reported that some of the tank check valves were not functional and recommended the servicing of the valves. However, the report did not assert that that work was in any way necessary. That is not surprising, because the Leighton O’Brien report was admitted for the purpose of proving the basis for United’s claim for half of the cost of the tank and line integrity testing. The Judge concluded therefore that United had not discharged its onus of proving its claim insofar as it was brought pursuant to clause 13.4 of the Lease.
At trial, United also relied for this part of its claim on clause 18(2) of the Lease. Clause 18(2) of the Lease provides that if the underground fuel system does not pass the initial integrity test, Mr and Mrs Skorpos must effect repairs as required to the underground fuel system at their cost. The Judge was able to identify certain items on a United “repair and maintenance order” issued to PSA which appeared to relate to elements of the tank and line system mentioned in the Leighton O’Brien report. The work order included the cleaning of “poppetts” and the testing of their operation. Poppetts are a value component. On that basis, the Judge awarded the sum of $5,093.00 inclusive of GST to United for the work done repairing those items.
On appeal, Mr and Mrs Skorpos contend that the Leighton O’Brien report showed that the underground fuel system passed the integrity testing and the recommendation that the tank check valves be serviced did not mean that the underground fuel system was defective.
The Leighton O’Brien report is headed “UPSS Precision Test Report”. The executive summary provided with the report reads, “All tanks and lines passed the test”. The body of the report distinguishes between the tank test results and the line test results. The report records that all of the tanks passed the test to which they were put. The report records the results for “lines” and the “tank check valves” in separate columns. All lines passed the tests applied to them. All but two of the valves passed the testing procedure. I set out below the concluding paragraphs of the report:
Comments/Discussions
All tanks and lines passed the test.
The lines ULP Tank 1 to Pump (10,11) and ULP Tank 1 to Pump (6,7) were tested as part of the ullage test on ULP Tank 1 due to non functional tank check valves.
The fail result for the tank check valves associated with the lines PULP Tank 2 to Pump (1,2) and Diesel Tank 3 to Pump (1,2) is due to non functional tank check valves not sealing till the higher test pressure.
Recommendations
It is recommended that the tank check valves associated with the following lines are serviced prior to commissioning:
· Diesel Tank 3 to Pump (1,2)
· PULP Tank 2 to Pump (10,11)
· ULP Tank 1 to Pump (10,11)
· ULP Tank 1 to Pump (6,7)
There is a distinction between the servicing of a mechanical part and its repair. The description of the tank check valves as “non functional” may be indicative of a defect but there may be reasons other than a defect for a lack of functionality in certain circumstances.
Mr Skorpos’ uncontradicted testimony was that the “non functional” tank check valve did not qualify the “pass” given to the integrity of the underground fuel system in the executive summary. Mr Skorpos testified that he was present when PSA was engaged in the work identified in the work order for the Henley Beach site. Mr Skorpos’ evidence was that the apparent problem with the valves was in fact caused by the lack of fuel in the tanks. No evidence to the contrary from Leighton O’Brien or PSA was adduced by United.
On my reading of clause 18 of the Lease, the purpose of the test is to determine the integrity, in the sense of being sealed, of the underground fuel system. The obligation imposed on Mr and Mrs Skorpos to effect repairs on the underground fuel system, pursuant to clause 18 of the lease, is only enlivened if it “does not pass the initial integrity test” for the purposes of clause 18(2) and the repairs are, by implication, limited to those repairs required to obtain a pass on the integrity testimony. Other ongoing repairs are dealt with by clause 13 but, as the Judge found, United failed to bring its claim within that clause because of the absence of evidence that the repair was “necessary”. The integrity tank and line test report expressly gives the system a pass grade. In the absence of any evidence explaining the Leighton O’Brien report I am not satisfied that there was an evidential basis for holding Mr and Mrs Skorpos liable for the cost of repairs and servicing of the tank check valves.
Offer
I would confirm the construction of R 188(6) of the Supreme Court Civil Rules 2006 (SA) given by the Judge. The cost penalty follows for not bettering the offer on the claim irrespective of the reasonableness or otherwise of the costs limb of the filed offer.
On its face, the purpose of the rule is to provide a mechanism by which all aspects of the dispute, including costs, can be resolved. It encourages the parties to focus their attention on both the outcome of the substantive dispute and the costs orders.
If one party makes an unreasonable costs offer but links it to an offer on the substantive claim which the other party wishes to accept, the offeree’s remedy is to file his or her own offer to settle the substantive dispute for the same amount but with a different offer as to costs.
Conclusion
I would allow the appeal only for the purpose of increasing the judgment in favour of Mr and Mrs Skorpos by the amount of $5,093.00 allowed for the tank and line work at the Henley Beach site. I would hear the parties on final orders.
DAVID J: I would allow the appeal in the limited sense referred to by the Chief Justice. I also agree with his reasons.
PEEK J: I would allow the appeal. I agree with the reasons of the Chief Justice.
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