Sweeney v Johnston
[2007] QSC 35
•7 February 2007
SUPREME COURT OF QUEENSLAND
CITATION:
Sweeney & Anor as t’tees of the Bankrupt Estate of Johnston v Johnston [2007] QSC 035
PARTIES:
PAUL DESMOND SWEENEY AND TERRY GRANT VAN DER VELDE IN THEIR CAPACITY AS TRUSTEES OF THE BANKRUPT ESTATE OF LORIS HALLOWEEN JOHNSTON
(applicant)
v
MARTIN JAMES JOHNSTON
(respondent)FILE NO/S:
BS11228/06
DIVISION:
Trial Division
PROCEEDING:
Originating application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
7 February 2007
DELIVERED AT:
Brisbane
HEARING DATE:
4, 18, and 31 January 2007
JUDGE:
Muir J
ORDER:
[1] It is declared that no agreement for lease of Lot 7 on Registered Plan 19427 in the County of Stanley, Parish of Enoggera, was entered into between the registered proprietor of such land Loris Johnston and the respondent Martin Johnston prior to 18 May 2005 and the instruments between Loris Johnston and the respondent Martin Johnston, which or copies of which are exhibits MJ2 and MJ3 to exhibit 14 in these proceedings, do not limit or otherwise affect the rights or interests of the applicants in or in relation to the said land.
[2] Order that the respondent pay the applicants’ costs of and incidental to the proceedings, including reserved costs, if any.
CATCHWORDS:
LANDLORD AND TENANT – AGREEMENTS FOR LEASE – GENERALLY – where the applicants were trustees in bankruptcy of the bankrupt’s estate – where the respondent claimed to have an agreement for lease over land registered in the bankrupt’s name – where the applicants sought a declaration that the purported lease was not bona fide or binding on them – whether the purported agreement for lease was entered into prior to bankruptcy
LANDLORD AND TENANT – AGREEMENTS FOR LEASE – GENERALLY – where the applicants were trustees in bankruptcy of the bankrupt’s estate – where the respondent claimed to have an agreement for lease over land registered in the bankrupt’s name – where the applicants sought a declaration that the alleged agreement for lease had been surrendered or abandoned – whether the lease was surrendered or abandoned
Residential Services (Accreditation) Act 2002 (Qld)
Apriaden Pty Ltd v Seacrest Pty Ltd (2005) 12 VR 319, applied
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, appliedADVOCATES:
T Sullivan, counsel, for the applicants
B Peters, solicitor, for the respondentSOLICITORS:
Deacons for the applicant
Douglas Law for the respondent
The application
The applicant trustees in bankruptcy of Loris Johnston seek a declaration that a purported agreement for lease dated 1 August 2004, under which Mrs Johnston purportedly leased to her son, Martin Johnston, the respondent, land registered in her name is not bona fide or binding on the applicants. Alternatively, the applicants seek a declaration that the alleged agreement for lease has been surrendered or abandoned.
Relevant history
Mrs Johnston became bankrupt on 18 May 2005. She and the respondent resided together at “Hazelwood”, as the boarding house on the land was known. The respondent was intimately involved in the boarding house business run by his mother. She is an astute woman and experienced in business affairs. There is no precise evidence of the educational level reached by the respondent but he was described by his solicitor, Mr Peters, as a simple man still “controlled by [his mother who] made most if not all the decisions regarding the boarding house.” I accept Mr Peters’ description as reasonably accurate. The respondent did not appear to have any background in, or aptitude for, matters of a clerical nature and presented as untutored in business affairs.
Although the respondent spent much of 2005 in Melbourne caring for his sick father, he and Mrs Johnston remained in frequent contact and discussed the business. In March 2005, the respondent applied to be a service provider under the Residential Services (Accreditation) Act 2002 (Qld) in respect of “Hazelwood”, although Mrs Johnston was then carrying on the business. From time to time Mrs Johnston would write letters in respect of “Hazelwood” to the Office of Fair Trading, which would be signed by the respondent as their author. At times, the respondent would be made aware of the contents of such documents but it is probable that the respondent, often, was informed in a general way only of what was done in his name.
On 27 August 2004, Mrs Johnston listed “Hazelwood” for sale with real estate agents, Remax Solutions. She informed the representative of Remax that she wished to sell “Hazelwood” as she wanted to retire. She did not inform the agent’s representative of the existence of the lease.
In or about December 2004, with the knowledge of the respondent, Mrs Johnston listed “Hazelwood” for sale with the Professionals, New Farm. Neither Mrs Johnston nor the respondent mentioned the existence of the lease to any representative of the Professionals.
On or about 10 February 2005, Mrs Johnston received a Section 133(2) Notice under the Residential Services (Accreditation) Act 2002 requiring certain information to be provided.
On 14 February 2005, Mrs Johnston made the following written reply to the Section 133(2) Notice:
“(1)I wrote to advise you that I did not apply for accreditation as the Boarding House was under contract and settlement was to be 20 August, 2005.
(2)I have another contract – settlement was to be about 1 September 2004 …
I wish to advise you that I am negotiating to lease the business, which I will notify you about.
I have been trading without a licence and fully expect your Department to fine me. The Department can serve documentation to me at 237 Hudson Road. …”
Mrs Johnston completed a Statement of Affairs in her bankruptcy on 4 July 2005 in the form of a declaration. In Item 20, she listed her occupation as “Boarding House Proprietor.” At Item 28, in answer to the question, “Is the property rented to tenants?” she had written “No”, but struck it out, inserted “Boarding House”, and identified herself as the person collecting the rent.
In mid-2005, the respondent and his mother had fairly extensive dealings with representatives of the Office of Fair Trading and in particular with Ms Kelly. During that period, neither Mrs Johnston nor the respondent mentioned to Ms Kelly that there was any lease of “Hazelwood” to the respondent in existence. On or about 21 April 2005, the respondent told Ms Kelly that he had received an offer of $1.5 million from a person wishing to purchase “Hazelwood” as a home. The respondent told Ms Kelly that there was no lease agreement in place in respect of “Hazelwood” and that it was being sold by the trustees in bankruptcy.
Mr McKenzie, a solicitor in the employ of the applicants’ solicitors, visited “Hazelwood” on 11 July 2005 in company with Mr Cronan, an employee of S V Partners, the accounting firm in which the applicants are partners. On that occasion, they were told by Mrs Johnston that she had entered into a written lease with the respondent in July 2004 under which “he would run ‘Hazelwood’ as a boarding house and pay to her half of the takings.” Mrs Johnston promised to provide Mr Cronan with a copy of the lease on the following day. She said that her son had not proceeded with the lease as he had experienced difficulty with one of the tenants who had psychiatric problems. Mrs Johnston did not provide the copy of the lease as promised.
Also on that occasion, Mrs Johnston said that she was negotiating the sale of “Hazelwood” to the Department of Housing.
At no time between 11 July 2005 and 7 December 2006, did the respondent assert to the applicants the existence of a lease in respect of “Hazelwood”. That is so despite the fact that in August 2005 the applicants evicted tenants from “Hazelwood” as a result of concerns about fire safety. They also evicted tenants from “Hazelwood” in January 2006. In November 2006, the applicants entered into a contract to sell “Hazelwood” to the Department of Housing for a sale price of $1,025,000.
The respondent first asserted the existence of the lease on 7 December 2006 in a letter to the Minister for Public Works.
On 11 December 2006 at “Hazelwood” Mrs Johnston informed Mr McKenzie and Mr Cronan that:
(a) The lease was handwritten;
(b) She did not have a copy of the lease and believed that the respondent would have a copy, possibly in a safety deposit box;
(c) She had not previously supplied Mr Cronan with a copy of the lease, as she had not been requested to do so.
Mr Cronan asked Mrs Johnston to provide him with a copy of the lease urgently. He said that he would require the original document to have it forensically tested.
No lease was provided and on 12 December 2006, Mr Cronan telephoned the respondent. The respondent, in that conversation, said that he did not have the original document and that he thought that a copy of the lease had been provided to S V Partners. He further said that he had a copy of the lease on his computer and that an unsigned copy had been sent to Mr Stack of Stack’s Finance (the mortgagee of “Hazelwood”).
On 13 December 2006, the respondent wrote to the applicants referring to the lease and stating:
“Mr McKenzie advised Loris (being a reference to his mother) that I would have to pay your office the terms of the lease which is $85,000 pa (per annum). I disagree with this. I feel your office knew about the lease. Loris and I agreed on the date 1st July as Loris was to do all the outgoing and have the property in compliance with all the government departments. As she was made bankrupt, this work was not done, your office was not interested in my lease. I have lost my income of $8500 pa and lost $10,000 I paid for the furniture in Hazelwood. I am prepared to go to court about this …”
Under the terms of the Memorandum of Mortgage over “Hazelwood” granted by the respondent in favour of Hacana Pty Ltd, Mrs Johnston, as mortgagor, was obliged not to agree to lease “Hazelwood” without the prior written consent of the mortgagee. At no time until 11 December 2006, when a director of Hacana received a telephone call from Mrs Johnston advising that the respondent had a lease over “Hazelwood”, did Mrs Johnston or the respondent inform Hacana of the existence of the lease or seek its consent to it.
The alleged lease
The lease is alleged by the respondent to be contained in one or both of two instruments. One is a standard form contract of the Real Estate Institute of Queensland for the sale of a management rights business. As such, it is quite inappropriate for use as an agreement for lease. For example, it describes Mrs Johnston as vendor, the respondent as purchaser and states the “purchase price” as $85,000 per annum. It also has “$85,000 per annum” against the word “balance” under the heading “Purchase Price” as well as listing the purchase price of plant, furniture, chattels, fixtures and goodwill as $30,000. “Date and Place of Completion” appears as “Brisbane 1st July, 2005.” Under the heading, “Special Conditions” beside the typed words “Special Conditions” appears “for lease of 237 Hudson Road, Wooloowin.” The following appears under that:
“Terms of Lease five years with two five-year options
Purchase Price $85,000 per annum
Payable $7083.00 on first of every month
PlusPlant furniture fixtures goodwill
(Less Dep paid) $30,000
$10,000
Balance $20,000 (as attached inventory)
Payable $40,000 per annum for five years.”The signature of Mrs Johnston as “vendor” and the respondent “as purchaser” appears at the foot of that page.
There is another document dated 1 August 2004 signed by the respondent and Mrs Johnston (“the second lease”) which makes reference to the lease. It is in a REIQ standard form contract for the sale of “commercial land and buildings”. It describes Mrs Johnston as the vendor and Mr Johnston as the purchaser. Under the heading in the Items Schedule “Improvements included in sale”, it lists “multi unit dwelling – boarding house.” Under the heading, “other chattels included in sale”, it states “inventory attached.” There is an attached list of household contents on a room-by-room basis. In a “lease schedule” and in special conditions information is set out concerning the alleged lease similar to that contained in the lease.
The evidence relied on by the respondent
Mrs Johnston swore in an affidavit filed in these proceedings that she was planning to retire and was endeavouring to sell the property, however:
“The prospective purchasers were taking their time with final contracts. I was in trouble with the Department of Fair Trading as the fire requirements were not getting done. I was falling further behind when Martin Johnston put to me that he would lease Hazelwood. We went over figures and came up with what we wanted an (sic) agreed to a contract which was fair to both of us.”
Mrs Johnston swears that on 11 July 2005 she mentioned the lease to Messrs Cronan and McKenzie “but neither party showed any interest in it … The matter of the lease was just brushed aside.” She swears that at a meeting with Messrs Cronan and McKenzie on 11 December 2006 there was a discussion in which both men “were very angry about the lease.” She says that Mr McKenzie stood up and shouted “That’s a lie! All lies! All lies!!! We have never before heard about this lease!!! This is some trick you are pulling with us!! Right we are going to search here until we find it!” She asserts that the two men proceeded to undertake a search. She does not mention whether she made any attempt to find a copy of the lease or to provide a copy of it to them.
In an affidavit sworn in these proceedings on 17 January 2007, the respondent swore that after having spoken to his brother about their mother’s age and health it was decided that he would approach her and discuss his leasing “Hazelwood”. He swore that he did this and that he and his mother discussed “price and terms etc that of which was very fair to both of us.” According to him, he obtained the management rights contract under the understanding that that was the correct form to use, but subsequent enquiries suggested to him that he should use a different form. That is the explanation for the two signed documents. Both the respondent and his mother swear that the respondent paid $500 on the signing of the lease but that the balance of the $10,000 due on signing was deferred by agreement until “closer to the time that the lease commenced.”
Ms Walkington, a daughter-in-law of Mrs Johnston, swears that she witnessed the signatures on the lease and on the second lease. She swears that she witnessed the signatures on the lease on 1 August 2004 and on the second lease about a week later, the respondent having advised “that he had used the wrong document for the lease of Hazelwood.”
Credibility
Mrs Johnston admits to not having lodged tax returns and to not having paid tax for approximately 20 years. She has been convicted of social securities fraud. She gave false evidence in and in relation to her bankruptcy and bankruptcy proceedings. Some of her evidence in this case was improbable and was contradicted by witnesses, whose veracity I have no reason to doubt. I would not accept her evidence unless corroborated or unless it was inherently probable.
The respondent is under the influence of his mother and it is likely that in these proceedings he has followed her directions. His account of events was also improbable in many respects and I do not regard him as a creditworthy witness. I do not accept Ms Walkington’s evidence. Her assertion that she witnessed the subject instruments did not emerge in an earlier affidavit sworn by her or in another document prepared with her assistance prior to the swearing of her final affidavit. The family is close and it is likely that Ms Walkington has given her evidence at the urging of Mrs Johnston.
Was the lease entered into prior to Mrs Johnston’s bankruptcy?
There are aspects of the version of events given by Mrs Johnston and the respondent which are quite improbable. Both contend that the question of the lease was first raised by the respondent and that, in effect, negotiation took place as to terms. That is inconsistent with the nature of the relationship between the respondent and his mother. It is much more probable that if there had been discussions about a lease they would have been initiated by Mrs Johnston and that she would have dictated the terms.
The account given by Mrs Johnston of her dealings with representatives of S V Partners and the applicants’ solicitors is improbable. It is unlikely that they would not have sought to obtain a copy of the lease when Mrs Johnston first mentioned it. It is unlikely also that if the lease had existed on 11 July 2005, Mrs Johnston and/or the respondent would not have provided a copy of it. It was in their interests to do so. The alleged conduct of these representatives at the meetings referred to by Mrs Johnston does not ring true. Also it would be remarkable if Mrs Johnston would sit back and watch “Hazelwood” being ransacked by agents of the applicants seeking the lease if a copy was then available and could be provided by her.
Mrs Johnston’s explanation for how the lease came to be entered into in consequence of trouble with the Department of Fair Trading over fire requirements was false. No such trouble eventuated until well after 1 August 2004.
It is improbable also that if a lease existed, Mrs Johnston and the respondent would not have referred to it and asserted the respondent’s title when the applicants were dealing with “Hazelwood” by, for example, giving notice to tenants and placing the property on the market. The conduct of Mrs Johnston throughout 2004 and 2005 in relation to “Hazelwood” and the boarding house business is quite inconsistent with the existence of the lease.
The most likely explanation for the respondent’s application for accreditation is that Mrs Johnston, because of her conviction for defrauding the Department of Social Security, trading without a licence and failure to lodge tax returns (or pay tax), considered it safer to use the respondent as her nominee. She told Mr McKenzie on or about 12 July 2005 that she did not make the application as her conviction would prevent her from obtaining accreditation.
The respondent stated to Ms Kelly that there was no lease in existence and the lease described by Mrs Johnston to Mr McKenzie on 11 July 2005 is different in substance to the written instrument. The story advanced by the respondent and Mrs Johnston about how only $500 was paid of the $10,000 acknowledged as paid in both instruments does not sit comfortably with the wording of the instruments.
Finally, I consider it improbable that the lease would have been executed on or about 1 August 2004 to commence about a year later because the respondent “wanted it the 1st of July, the start of the financial year because he wanted to tidy up … the loose ends that we had.” The respondent was lacking in financial sophistication. Any commencing date, most probably, would have been selected by Mrs Johnston and there was no good reason for postponing the commencing date of the proposed lease for 11 months. Mrs Johnston was not troubled by financial years; she did not submit tax returns. The evidence does not disclose whether the respondent lodged income tax returns, but it is unlikely that he would have ordered his affairs by reference to financial years.
Having regard to the above matters, I find that neither the lease nor the second lease were entered into or signed prior to Mrs Johnston’s bankruptcy.
Surrender by operation of law or abandonment
In view of the above findings, it is unnecessary for me to consider the questions of abandonment or surrender in any detail. The principles of contract law are applicable to the termination of tenancies such as the alleged agreement for lease under consideration.[1] The respondent at no time paid rent under the lease or otherwise purported to observe any of its terms. Over a long period he permitted the applicants to act inconsistently with his rights as lessee without asserting those rights or even asserting the existence of the lease. In those circumstances, if the lease ever existed, it was abandoned by the respondent.
[1]Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 and Apriaden Pty Ltd v Seacrest Pty Ltd (2005) 12 VR 319.
The facts also support the conclusion that if, contrary to my conclusions, the respondent ever had possession of the premises, he abandoned any such possession and any right to possession and the applicants assumed possession and exercised rights on the basis of entitlement to possession.
Conclusion
For the above reasons, it will be declared that no agreement for lease of Lot 7 on Registered Plan 19427 in the County of Stanley, Parish of Enoggera, was entered into between the registered proprietor of such land Loris Johnston and the respondent Martin Johnston prior to 18 May 2005 and the instruments between Loris Johnston and the respondent Martin Johnston, which or copies of which are exhibits MJ2 and MJ3 to exhibit 14 in these proceedings, do not limit or otherwise affect the rights or interests of the applicants in or in relation to the said land.
There is no reason why the respondent should not be ordered to pay the applicants’ costs of and incidental to the proceedings, including reserved costs, if any.
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