The Investment # 1 Pty Ltd v Subway Realty Pty Ltd (RLD)
[2011] NSWADTAP 2
•04 February 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: The Investment # 1 Pty Ltd v Subway Realty Pty Ltd (RLD) [2011] NSWADTAP 2 Hearing dates: 25 August 2010 Decision date: 04 February 2011 Before: P Callaghan SC, Deputy President
D Bluth, Judicial Member
R Ward, Non-Judicial MemberDecision: 1 Appeal dismissed.
2 Appellant to pay Respondent's costs of appeal on a party and party basis, as agreed or assessed.
Catchwords: Retail lease – exercise of option – annual rent increases insufficiently claimed – interest on increases – termination – repudiation - costs Legislation Cited: Administrative Decisions Tribunal Act 1997
Conveyancing Act 1919
Retail Leases Act 1994Cases Cited: Helou v P D Mulligan Pty Ltd (2003) 57 NSWLR 74
Italiano v Carbone [2005] NSWCA 177
Jonamill Pty Ltd v Alramon Pty Ltd (No.2) (RLD) [2010] NSWADTAP 3
Mannai Investment Co Ltd v Eaglestar Life Assurance Co Ltd [1997] AC 749
Shepherd v Felt & Textiles of Australia Pty Ltd (1931) 45 CLR 359
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213
World Best Holdings Ltd v Sarker [2010] NSWCA 24Category: Principal judgment Parties: The Investment #1 Pty Ltd (Applicant)
Subway Realty Pty Ltd (Respondent)Representation: J Hewitt (Appellant)
I Khan (Respondent)
A Kumar (Respondent)
File Number(s): 109039 Decision under appeal
- Jurisdiction:
- 9108
- Citation:
- Subway Realty Pty Ltd v The Investment #1 Pty Ltd [2010] NSWADT 123
- Date of Decision:
- 2010-05-26 00:00:00
- Before:
- R Fox, Judicial Member
- File Number(s):
- 095223 and 105023
REASONS FOR DECISION
A background to the proceedings in which the decision under appeal ("the subject decision") was given is conveniently presented in summary form in the first three paragraphs of the subject decision:
"These two matters arise out of the occupancy of the ground floor of 92 Liverpool Street, Sydney. The Applicant in number 105023, The Investment #1 Pty Ltd (which is the Respondent in 095223) owns the building and the First Respondent in 105023, Subway Realty Pty Limited is the Lessee. Subway is a multi-national franchisor for the sale of bread roll based food (for both onsite consumption and for takeaway). Its national practice is to sublet its leased premises to its franchisee operators. The sublessees of the shop in question are Durlabh Singh and Balvir Pawar. They are the Second and Third Respondents in number 105023 and Second and Third Applicants in 095223.
For obvious ease of reference I will refer to the parties as 'the Investment Corp', 'Subway', and 'Singh and Pawar'.
Investment Corp in 105023 sought the recovery of rent arrears which had started some six or seven months after the Lease began in 2005 as a result of a miscalculation by Investment Corp and its agents. It also claimed interest on those arrears, pursuant to a provision of the Lease. In 095223, Subway (and its sublessees Singh and Pawar) sought a declaration that it had validly exercised the first of two options of renewal, each for terms of 5 years."
The following orders were made in the subject decision:
"1. In 095223, claim by Second and Third Applicants dismissed.
2. In 105023, grant leave to discontinue against Second and Third Respondents.
3. In 095223, pursuant to s72(1)(f)(iii) of the Retail Leases Act declare that option of renewal in Lease dated 27 September 2005 registered no AB934976, for premises known as ground floor, 92 Liverpool Street, Sydney validly exercised to effect a five year term commencing 1 May 2010.
4. In 105023, pursuant to s72(1)(a) of the Retail Leases Act Order Respondent to pay Applicant $2,483.46 as debt for rent arrears, together with $697.43 as debt for interest on arrears pursuant to clause 5.1.5 of Annexure B to the Lease.
5. Pursuant to s88 of the Administrative Decisions Tribunal Act in 095223, Respondent to pay costs of First Applicant, no order for costs in respect of Second and Third Applicants and in 105023, Applicant to pay costs of First Respondent, no order for costs in respect of Second and Third Applicants."
The orders made concerning Messrs Singh and Pawar were based on the Tribunal's ruling that they were not parties to the relevant retail tenancy dispute. That situation is not in issue in the appeal.
The Notice of Appeal asserts that the questions of law involved are:
"1. Whether the Tribunal erred in failing to consider the arguments for the appellant that Lease No AB934976P ("the Lease") has come to an end.
2. Whether the Tribunal erred in failing to conclude that the Lease has come to an end.
3. Whether the Tribunal erred in failing to conclude that the appellant made a lawful demand for possession of the property based on non-payment of money due under the Lease.
4. Whether the Tribunal erred in failing to conclude that the respondent repudiated the Lease.
5. Whether the Tribunal erred in concluding that the obligation on the respondent to pay money under the Lease did not arise until demand was made by the appellant.
6. Whether the Tribunal erred in concluding that the obligation to pay interest only arose as at 1 April 2009.
7. Whether the Tribunal erred in ordering the appellant to pay the costs of the respondent."
The appeal is confined to any such questions of law and the Appellant has not sought to extend the appeal to the merits of the subject decision. S113(2) of the Administrative Decisions Tribunal Act 1997 ("the ADT Act") provides:
"An appeal under this Part:
(a) may be made on any question of law, and
(b) with the leave of the Appeal Panel, may extend to a review of the merits of the appealable decision."
Central to the factual issues that were before the Tribunal was a dispute between the Appellant and the Respondent commencing in about March 2009 and continuing until resolved by the orders in the subject decision, about rent increases and arrears and interest on them. The following chronology (cross referenced where appropriate to paragraph numbers in the subject decision) will assist at the outset:
1 May 2005(subject decision at [16])
Lease for term of 5 years commenced. Two 5 year options for renewal.Rent $111,000 per year (exclusive of GST) by monthly instalments in advance of $9,250.00.Increase of rent each year of 4% and full review to market at commencement of each option term.Rent holiday for first calendar month commencing 1 May 2005.
May to October 2005 [31]
Monthly rent payment of $8,266.17 to continue rent payable under previous lease and to achieve a discount equivalent to the rent holiday for May 2005.
November 2005 [31]
Rent of $9,822.40 paid. Total rent paid since 1 May 2005 was $59,419.42, a shortfall of $1,630.58.
1 May 2006 [31]
First annual 4% review of rent fee due but not applied. Rent payments continued at $10,175 per month instead $10,582 per month.
August 2006 [31]
Appellant took over management of lease from Drake Property Ltd.
1 May 2007 [31]
4% increase applied to first year rent figure, to produce monthly rent of $10,582 instead of $11,005.28.
1 May 2008 [31]
Similar error in annual rent increase.
6 March 2009 [33]
Letter from Appellant identifying errors and claiming shortfall of $14,154, later recalculated to $16,637.26.
2 April 2009 [40]
Payments at correctly adjusted figure commenced.
Early June 2009 [37] & [38]
$14,154 paid by Respondent into Appellant's Solicitor's trust account.
June 2009-September 2009
Further correspondence between parties which will be detailed below.
13 August 2009 [21]
Notice by Respondent to Appellant of exercise of option from 1 May 2010.
21 December 2009
Application 095223 filed in Tribunal seeking principally a declaration that the option had been validly exercised and a determination of the money (if any) owing under the lease.
22 February 2010
Application 105023 filed in Tribunal seeking:"1. An order that the respondent pay to the applicant the amount of $16,637.47 for unpaid rent.2. An order that the respondent pay to the applicant the amount of $5,886.67 for interest up to 31 January 2010 plus $7.41 per day.3. A declaration that the Lease No AB934976P ("the Lease") ends on 30 April 2010.4. An order that the respondents surrender possession of the premises referred to in the Lease to the applicant on 30 April 2010."
12 April 2010
Hearing of subject proceedings.
26 May 2010
Subject decision.
Details of the June 2009-September 2009 correspondence are as follows:
On 14 June 2009 the Appellant's solicitor emailed the Respondent:
"Dear Aimee
I am forwarding the attached ledger/statement of rentals received and payable on a year to year basis. Hopefully this will assist Subway in going through our breakdown of figures and make a comparison with what Subway has paid. From the landlord's point of view the actual amount of rent owing is actually $16,637.26. This is excluding interest of $4,389.29 which is chargeable on top of this figure. Outgoings are paid to date.
Trust this breakdown schedule will be of assistance to Subway in helping to resolve his matter.
Regards
Audrey"
On 13 August 2009, the Respondent purported to exercise its option to renew the Lease.
On 21 August 2009, the Appellant's solicitor wrote to the Respondent stating:
"We refer to the writer's telephone conversation with you yesterday, in reference to the purported exercise of option to renew the lease on the subject premises.
As advised, this matter remains unresolved. After Subway's last communication in early June advising that it treats this matter as imperative, and requesting urgent attention from within its ranks, the lessor has not heard further. As you are aware, this matter has been outstanding since early this year. At Subway's request and because the lessor relied on Subway's assertion that there was every intention for a quick resolution, the lessor communicated with Subway's head office from March 2009 and provided all information and did what was necessary to facilitate an amicable resolution. Despite extensive communication throughout the months of March, April, May and June, and with continued assurances from Subway that a meeting will soon be underway, our client has not heard from Subway since 8 June 2009.
The lessor views this treatment from Subway as a rejection of any attempts to resolve the matter. Our client intends to pursue the debt plus interest payable. We have consulted Counsel who has advised that proceedings be brought claiming outstanding rent plus interest plus legal costs and expenses in the matter.
Our client denies the validity of the purported exercise of option to renew the lease, and we are instructed to provide you with an updated schedule of outstanding rent plus interest payable and outstanding to date. We await your advices."
On 24 August 2009, the Respondent wrote to the Appellant's solicitor stating:
"...In order to resolve this matter our franchisee ... has requested I write to you and offer the sum of $10,000 (to be deducted from funds held in your trust account) as an ex-gratia payment in full and final satisfaction of the landlord's claim.
Would you please advise if this is acceptable to the landlord?"
On 26 August 2009, the Appellant's solicitor responded:
"We refer to your letter dated 24 August 2009.
We are instructed that the landlord is not agreeable to the contents of your letter. The landlord refers to our letters to you of 21 August 2009, and demands for immediate payment of outstanding rental arrears of $21,026.78 referred to in the Schedule attached to our said letter, plus payment of legal costs incurred in this matter.
The tenant is in breach of the lease, and the landlord will not consider any further discussions until this essential breach of the lease is rectified immediately."
On 3 September 2009, the Respondent wrote to the Appellant's solicitor:
"I refer to your letter dated 31 August 2009.
Notwithstanding your comments, Subway Realty Pty Ltd hereby authorises you to pay the sum of $14,154.60 held in your trust account to the landlord in satisfaction of claim for rental arrears caused by incorrect invoicing of rents by the landlord to the tenant.
Subway Realty Pty Ltd rejects the landlord's claim for interest and other costs on the basis that the arrears was originally caused by the landlord in not providing correct tax invoices. Had correct tax invoices been issued, then arrears would not have occurred."
On 24 September 2009, the Appellant's solicitor sent a letter marked "Without Prejudice" to the Respondent:
"We refer to the subject lease and your letter dated 3 September 2009.
We have previously advised you on several occasions that the amount of rent owing to the landlord is $16,637.26 plus interest in the amount of $5,221.16. We refer in that regard to our email to Aimee Loinig dated June 14, and to subsequent trust ledger reports forwarded to your office.
In your letter of 3 September 2009 you authorised us to pay the sum of $14,154.60 to the landlord. However, that amount is not sufficient to fully satisfy the amounts overdue for payment to the landlord. Your letter does not provide any proper basis for your client to withhold the further amounts owing to the landlord. We therefore demand that you pay the balance of the overdue amounts in the sum of $2,482.66 plus $5,221.16 in interest by 30 September 2009. If this amount is not received by 30 September 2009 our client reserves all of its rights to take further action to recover the overdue amounts without further notice to you including by commencing legal proceedings against your client.
We also note that in our letter to you dated 21 August 2009 we advised you that your purported exercise of an option to renew the lease was invalid. Pursuant to clause 4.4.2 of the lease your client had no right to exercise the option because at the time your client sought to exercise the option there was rent overdue for payment. It follows that the lease will end on 30 April 2010.
We note that you have not responded to our letter of 21 August 2009 and request confirmation that your client will comply with its obligations pursuant to clause 12.3 of the lease to return the property to the landlord when the lease ends on 30 April 2010."
On 27 September 2009, the Respondent responded by e-mail to the Appellant's solicitor:
"The original amount that was demanded by your client was tendered immediately for the purposes of maintaining a decent working relationship with the landlord. After the amount was tendered, there was never a demand made for any subsequent amount owed to the landlord, only an email from you stating that the amount was higher than the $14,154.60 figure originally provided. It can be understood from your email that the landlord was not requiring the additional money but rather that you were informing us of the amount. If in fact the additional $2,482.66 is owed, that will be tendered post haste, but there is no basis for your client to claim interest charges on top of the amount when it was an error on the landlord's part in the first place. It is unlikely that based on these facts a Court would award your client the interest.
Further, we must receive acknowledgment that the landlord is accepting our renewal should the additional $2,482.66 be paid. The alleged un-acceptance of tenant's renewal was not in a timely fashion and tenant is willing to cure any reasonable and substantiated amounts that may be owing the landlord."
On 1 October 2009, the Appellant's solicitor emailed the Respondent:
"Dear Aimee,
Your email is not correct in stating that the amount demanded by my client was tendered by Subway. On 21 August I wrote to Subway Realty Pty Ltd (to the attention of Barry Stevenson) and provided a schedule of the outstanding rent plus interest payable and outstanding as of that date. The letter stated that the rent owing was $16,637.47 and the interest outstanding at the time of $4,389.31. In a letter from Subway Realty Pty Ltd (signed by Mr Stevenson) dated 10 September 2009, I was advised that Subway 'rejects the landlord's claim for interest and other costs beyond' $14,154.60. Accordingly, as at 30 September 2009, the overdue amounts are $2,482.66 plus interest of $5,221.16. Your email is also not correct in stating that there is no basis for my client to claim interest. Schedule 2 clause 17 of the lease provides that the lessee will pay to the lessor interest at the rate of 12% on monies due but unpaid for 14 days calculated from the due date for payment of the monies.
Your email seeks an acknowledgment that the landlord is accepting your renewal of the lease. However, as I stated in my letter dated 24 September 2009, Subway's purported exercise of an option to renew the lease was invalid pursuant to clause 4.4.2 of the lease. The lease will end on 30 April 2010. I again request confirmation that your client will comply with its obligations pursuant to clause 12.3 of the lease to return the property to the landlord when the lease ends.
Regards
Audrey"
A dominant issue raised by the Applications in both proceedings 095223 and 105023 was whether the option in the lease for a further term of 5 years commencing on 1 May 2010. The formal propriety of the notice of exercise constituted by the Respondent's letter of 13 August 2009 was not an issue, as noted in the subject decision at [21].
The objection to the validity of the notice of exercise of the option, however, could not stand on account of s133E of the Conveyancing Act 1919 as the Tribunal member pointed out early in hearing (page 7 of 121 of the unofficial transcript) and explained in the subject decision at [23] to [30]. No aspect of the treatment of the exercise of the option in the subject decision is in issue in this appeal.
Putting interest to one side at the moment, it is apparent that at the hearing the Respondent ultimately accepted that the rental arrears did constitute the approximately $16,637 recalculated by the Appellant as first advised in its letter of 14 June 2009 and not the approximately $14,154 calculated by the Appellant as advised in its letter of 6 March 2009. While the Respondent paid the $14,154 to the Appellant's solicitor in early June 2009 there were still arrears of rent of approximately $2,483 (and interest, with which we will deal later in this decision) as found in the subject decision.
Grounds of Appeal 1, 2, 3 and 4 involve predominantly assertions put thus in the Appellant's written submissions in this appeal (which we will refer to as "the termination issue"):
"48. Both the non-payment of rent and interest entitled the Lessor to end the Lease pursuant to both clause 12 of the Lease and Clause 7(b) of Schedule Two of the Lease.
49. The Lessor made lawful demands for possession of the Property on 24 September 2009 (paragraph 28 above) and 1 October 2009 (paragraph 30 above). These demands brought the Lease to an end on 30 April 2010.
...
61 There are no particular formalities associated with termination pursuant to a common law right, such as on the ground of conduct by the other party amounting to repudiation. In World Best Holdings Ltd v Sarker [2010] NSWCA 24, Handley AJA (Tobias JA and Campbell JA agreeing) stated at [69]:
69 An election to terminate for repudiation or fundamental breach must be communicated to the guilty party by an unequivocal act or statement that the innocent party is treating the contract as at an end: Lakshmijit v Sherani [1974] AC 605, 616; The Mihalios Xilas [1979] 1 WLR 1008 HL, 1024; and Vitol SA v Norelf Ltd [1996] AC 800, 810. In the latter case Lord Steyn said:
'An act of acceptance of a repudiation requires no particular form: communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that the aggrieved party is treating the contract as at an end.'
62. Both the demands for possession of the Property on 24 September 2009 (paragraph 28 above) and 1 October 2009 (paragraph 30 above) clearly communicated that the Lessor was treating the Lease as at an end on 30 April 2009. These demands brought the Lease to an end on 30 April 2010."
No such grounds or assertions were explicitly propounded by the Appellant in proceedings 105023 where the orders sought were stated thus in the Application:
"1. An order that the respondent pay to the applicant the amount of $16,637.47 for unpaid rent.
2. An order that the respondent pay to the applicant the amount of $5,886.67 for interest up to 31 January 2010 plus $7.41 per day.
3. A declaration that the Lease No AB934976P ("the Lease") ends on 30 April 2010.
4. An order that the respondents surrender possession of the premises referred to in the Lease to the applicant on 30 April 2010."
The grounds or particulars given in the Application in respect of the third order sought were:
"Clauses 4 and 12 of the Lease provide that the Lease ends on 30 April 2010. The option to extend the term pursuant to clause 4 of the Lease was not validly exercised because at the time of the purported exercise of option, there was rent overdue for payment with the result that Clause 4.4.2 prevented the exercise of the option."
The contention is made in the Introduction section of the Appellant's Outline of Submissions (in this appeal) that:
"4. The Lessor also sought a declaration that the lease had been brought to an end as a result of the non payment of rent and interest. The Tribunal failed to address this aspect of the Lessor's case."
So far as Application itself in proceedings 105023 is concerned, no declaration in such terms was sought in that document and that contention is not correct. The Appellant has pointed in oral address in this appeal and in supplementary written submissions to pages 5-7, 106-108, and 113-114 of the (unofficial) transcript of the hearing below to the contention. Without quoting these passages, we summarise the principal points in what was put there:
Page 6
Three reasons why the lease ended on 30 April 2010. First, failure to exercise the option, secondly, lawful demand based on repudiation (clause 12.2.1) and thirdly, lawful demand based on non-payment of rent (clause 12.2.2).
Page 13
The lease has been repudiated because there has been a breach of a fundamental term.
Page 107
The lease is brought to an end because the landlord made a lawful demand for possession on 24 September 2009.
Page 113
The final submission is that the Lessee has repudiated the lease by indicating that it does not intend to make the payment it was required to make pursuant to the terms of the lease. That is an essential term of the lease Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 is relied on. No basis has been put forward by the lessee for relief against forfeiture.
In this appeal, in respect of the termination issue the Appellant expands the case suggested in oral submissions at the hearing below to include reliance on the communication of 1 October 2009 as well as that of 24 September 2009 and the gist of the case propounded here can be noted by quoting again paragraph 49 of the Appellant's written submissions in this appeal:
"49. The Lessor made lawful demands for possession of the Property on 24 September 2009 (paragraph 28 above) and 1 October 2009 (paragraph 30 above). These demands brought the lease to and end on 30 April 2010."
It is appropriate to note with reference to the communications of 24 September 2009 and 1 October 2009, which we have set out in full above, that in neither of those is there any explicit reference to termination or determination by the Lessor of the lease (with both communications referring to the lease ending on 30 April 2010 which was the terminal date for the original term of the lease), to clause 7 or clause 12.1 or clause 12.2 of the lease, to repudiation of the lease, or to acceptance of any such repudiation. Nor is there is any such reference in the Application lodged by the Lessor in proceedings 105023. The language used in those documents envisaged the lease continuing until 30 April 2010 and did so with reference to the asserted ineffective exercise of the option. Throughout (and continuing) the Respondent remained in occupation of the subject premises and paid the full monthly rent, as adjusted, which the Appellant has accepted.
The subject decision did not deal with the termination issue. That may not be surprising having regard to the way in which it was referred to by the Appellant in the proceedings below. Grounds of appeal 1, 2, 3 and 4 require assessment of whether by not dealing in the subject decision with the termination issue, the Tribunal committed an appellable error and if so, whether the termination issue requires resolution in this appeal.
Clause 7(b) of Schedule Two in the lease provides as follows:
"IT IS HEREBY EXPRESSLY AGREED between the parties as follows:
...
(b) That if:
(i) the rent hereby reserved or any part thereof or any other monies payable hereunder shall be unpaid for a period of fourteen (14) days after any of the days on which the same ought to have been paid (although no formal or legal demand shall have been made therefore); or
...
then and in any one or more of such events the Lessor at any time or times thereafter and without notice or demand shall have the right to re-enter the premises or any part thereof in the name of the whole and thereby determine the estate of and interest of the Lessee therein and expel and remove the Lessee and those claiming under him without being taken or decreed guilty of any manner of trespass and without prejudice to any action or other remedy which the Lessor has or might otherwise could have for arrears of rent or preceding breach of covenant."
Clauses 12.1, 12.2, 12.3 and 12.5 of Annexure B of the lease are as follows:
"12.1 This lease ends -
12.1.1 on the date stated in item 3 in the schedule; or
12.1.2 if the landlord lawfully enters and takes possession of any part of the property; or
12.1.3 if the landlord lawfully demands possession of the property.
12.2 The landlord can enter and take possession of the property or demand possession of the property if -
12.2.1 the tenant has repudiated this lease; or
12.2.2 rent or any other money due under this lease is 14 days overdue for payment; or
12.2.3 the tenant has failed to comply with a landlord's notice under section 129 of the Conveyancing Act 1919; or
12.2.4 the tenant has not complied with any term of this lease where a landlord's notice if not required under section 129 of the Conveyancing Act 1919 and the landlord has given at least 14 days written notice of the landlord's intention to end this lease.
12.3 When this lease ends, unless the tenant becomes a tenant of the property under a new lease the tenant must -
12.3.1 return the property to the landlord in the state and condition that this lease requires the tenant to keep it in; and
12.3.2 have removed any goods and anything that the tenant fixed to the property and have made good any damage caused by the removal.
Anything not removed becomes the property of the landlord who can keep it or remove and dispose of it and charge to the tenant the cost of removal making good and disposal.
...
12.5 Essential terms of this lease include -
12.5.1 the obligation to pay rent not later than 14 days after the due date for payment of each periodic instalment (and this obligation step essential even if the landlord, from time to time, accepted late payment);
..."
Some of the provisions of ss 73 and 81 of the ADT Act should be noted:
"73. ...
(2) The Tribunal is not bound by the rules of evidence and may inquire into and inform itself on any matter in such manner as it thinks fit, subject to the rules of natural justice.
(3) The Tribunal is to act with as little formality as the circumstances of the case permit and according to equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms.
(4) The Tribunal is to take such measures as are reasonably practicable:
(a) to ensure that the parties to the proceedings before it understand the nature of the assertions made in the proceedings and the legal implications of those assertions, and
...
(c) to ensure that the parties have the fullest opportunity practicable to be heard or otherwise have their submissions considered in the proceedings.
(5) The Tribunal
...
(b) is to ensure that all relevant material is disclosed to the Tribunal so as to enable it to determine all of the relevant facts in issue in any proceedings, and ..."
"s81 ...
(3) If this Act, the regulations or a rule of the Tribunal is not complied with in relation to the commencement (or purported commencement) of proceedings or conduct of proceedings before the Tribunal, the failure to comply is to be treated as an irregularity and does not nullify the proceedings, any step taken in the proceedings or any decision in the proceedings."
The relaxed procedure of this Tribunal typified by such provisions as those is nevertheless subject to the need to afford all parties procedural fairness. In Italiano v Carbone [2005] NSWCA 177 at [12] Spigelman CJ said of a provision in the Consumer, Trader and Tenancy Tribunal Act 2001 ("the CTTT Act") similar to s73:
"The Tribunal is a body which has been granted important powers, including powers which are not limited to small disputes in which speed and economy are entitled to determinative weight. It has a jurisdiction with respect to building claims up to $500,000 and the amount awarded in this particular case is almost double the jurisdiction of the Local Court. There are real limits to the extent to which this Court should countenance the Tribunal ignoring the basic requirements for its proper functioning, as laid down by the Parliament directly, or indirectly through Regulations which are capable of being disallowed by Parliament.
In this case the Tribunal proceeded with a level of informality which Parliament did not intend to countenance. Indeed a level, in my opinion, that Parliament intended to lead to invalidity of any decision reached in this manner. See Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [93].)"
In the same case Spigelman J said at [17] of an equivalent provision in the CTTT Act to s81(3):
"Provisions of this character must be construed widely and generously. (See e.g. Harkness v Bell's Asbestos & Engineering Ltd [1967] 2 QB 729 at 735.) Nevertheless, the issue remains whether or not a matter which, by statute, is to be treated as an irregularity, should be avoided pursuant to the clear reservation of a discretion to do so in provisions of this character. (See generally Vickers v Mayne (Unreported, Supreme Court of Western Australia, Full Court, Kennedy, Franklyn and Walsh JJ, 17 July 1998).)
In Trust Company of Australia Ltd v Skiwing Pty Ltd (2006) 68 NSWLR 366 at [54] Basten JA said with reference to the ADT Act and to Italiano v Carbone:
"The powers of the Tribunal conferred by s73 of the ADT Act, are broad and discretionary. They impose few express constraints, although it should be inferred that the Tribunal must act in a procedurally fair way, as between the parties."
At the hearing below, no amendment was sought by the Appellant to the Application in proceeding 105023 to raise the termination issue. On the other hand, no objection was taken on behalf of the Respondent to the Appellant raising it during addresses to such extent as it did. Overall, however, it seems to us that the termination issue was not squarely or sufficiently put forward in the subject proceedings. If it had been so raised then, or earlier, the Respondent would no doubt have sought relief against forfeiture. It would have been procedurally unfair to the Respondent to permit the Appellant to rely on the termination issue in the indirect and informal way that it did raise it, but that does not appear to have happened. We do not see in these circumstances that there was a failure in the subject decision to consider the termination issue such as to constitute an appellable error.
Nevertheless, it would be as well if we do visit the details of the termination issue. We have already pointed out that none of the letter of 24 September 2009, the email of 1 October 2009 or the Application in proceedings 105023 uses language which raises the termination issue, as opposed to the issue of the asserted ineffective exercise of the option. In Carter on Contract at [33-250] the form of a notice under termination provisions in a contract such as clauses 7 and 12 quoted above from the subject lease is discussed with reference to the House of Lords decision in Mannai Investment Co Ltd v Eaglestar Life Assurance Co Ltd [1997] AC 749:
"In cases where notice is required, the parties may specify the form which notice must take. However, generally, it is the substance of the notice which matters, and it would be wrong to say that the courts adopt a rigidly strict approach. An objective test applies, so that 'substance' is what the notice would convey to a reasonable person in the position of the promisor. ... Thus, if the notice is clear, or so plain that a reasonable person would not be misled by it, the notice will not be vitiated by errors which it contains. Ultimately, the relevant test is, in Lord Steyn's words whether a reasonable person is the position of the recipient is 'left in no doubt' that the right has been exercised. The point was also made that in construing notices a court is in no worse a position than when construing a contract, and the factual matrix can therefore be taken into account."
As we have previously noted from the Appellant's Outline of Submissions in World Best Holdings Ltd v Sarker [2010] NSWCA 24 Handley AJA (Tobias and Campbell JJA agreeing) said of termination not pursuant to a contractual right at [69]:
"An election to terminate for repudiation of fundamental breach must be communicated to the guilty party by an unequivocal act or statement that the innocent party is treating the contract as at an end: Lakshmijit v Sherani [1974] AC 605, 616; The Mihalios Xilas [1979] 1 WLR 1008 HL, 1024; and Vitol SA v Norelf Ltd [1996] AC 800, 810. In the latter case Lord Steyn said:
'An act of acceptance of a repudiation requires no particular form: communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that the aggrieved party is treating the contract as at an end.'"
Neither of the communications of 24 September 2009 or 1 October 2009, nor for that matter, the Application in proceedings 105023, conformed to the above tests such as to constitute a notice by the Appellant to the Lessor of any type of termination of the lease. Other considerations apart, the suggested prospective termination date of 30 April 2010 was the terminal date of the first term expressed in the subject lease and was six months away from the two notices; those features are incompatible with any situation of termination of the lease for breach.
The Appellant makes another submission:
"It does not matter whether the Lessor relied upon the non-payment of rent and interest in making the demands for possession of the Property because an innocent party can support its termination of a contract by reference to conduct which it had not relied on at the time: Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 377-378 per Dixon J approved by the majority of the High Court in Concut Pty Ltd v Worrell (2000) 176 ALR 693 at [27]-[29]."
This submission, too, is answered by the failure of any of the notices relied on by the Appellant to satisfy the requirements for a notice of termination or acceptance of repudiation. Additionally, as we will explain below in dealing with the issue of interest, we are of the view that the rent increases which were not sufficiently sought by the Appellant until about April 2009, could not in the circumstances be assured as relevantly "due" or "payable" before then, such that non-payment of them did not involve repudiation by the lessee.
Thus, we find that appeal grounds 1, 2, 3 and 4 have not been made out.
Grounds of appeal 5 and 6 deal with interest and challenge the finding in the subject decision that interest was payable on outstanding rent from only 1 April 2009. At [46] of the subject decision interest was assessed from April to June 2009 on $16,637.46, at $449.13 and from July 2009 to April 2010 $2,483.46, at $248.30. The total interest awarded was thus $697.43.
Clause 17 of Schedule 2 of the lease provides as follows:
"Without prejudice to the rights powers and remedies of the Lessor hereunder the Lessee will pay to the Lessor interest at the rate of twelve percent (12%) per annum on any monies due but unpaid for fourteen (14) days by the Lessee to the Lessor such interest to be compounded from the due date for the payment of the monies in respect of which interest is chargeable until payment of such monies in full and to be recoverable in like manner as rent in arrears. The payment and acceptance of such interest shall not be construed as a waiver or acceptance or release of the breach involved in non-payment of the monies on the due date."
Clause 26 of Schedule 2 provides:
"The Lessee expressly agrees to make all payments due under this Lease (including those for rent and outgoings) punctually on the date when each payment is due and shall not withhold or be entitled to withhold the whole or part of any such payment by way of deduction, set off, counterclaim or otherwise in respect of any claim for damages or for compensation which the Lessee shall make or has made against the Lessor."
There is a section headed "Acknowledgment by Lessor" in the lease between the second schedule and Annexure B, comprising nine clauses prefaced by this provision -
"The Lessor acknowledges that Subway is an international franchising system and has certain requirements with respect to conformity of its leasing policy and acknowledges the following:"
Clause 9 in that section reads as follows:
"The Lessor and Lessee acknowledge that it is extremely important that rent be paid in a timely manner as required by this Lease. Since the Lessee may sublet the Premises to a licencee/franchisee of Subway Systems Australia Pty Ltd and the licencee/franchisee may pay rent directly to the Lessor, the Lessee does not receive rental income and will not know if rent has not been paid. Since the parties recognise that time is of the essence in this matter, the Lessor agrees to give written notice to the Lessee within 21 days of any default committed under this Lease by a sublessee or assignee of the Lease. Any notice which is to be given to the Lessee as required by this Lease shall be sent to the Premises and to the Lessee's registered address as follows:
Subway Realty Pty Ltd
Citilink Business Centre
153 Campbell Street
Bowen Hills, Queensland, 4006"
Clause 5.1.5 of Annexure B provides:
"The tenant must pay to the landlord or as the landlord directs -
5.1.1 the rent stated in item 13A in the schedule: ...
5.1.5 interest on these monies at the rate stated in item15 in the schedule when payment is more than 14 days overdue, calculated from the due date to the date of payment
..."
The rate stated in item 15 in the schedule is 12%.
The subject decision at [41] explains why interest was ordered commencing only in April 2009:
"The period of potential interest liability is from 1 November 2005 to 30 April 2009, a period of 3 years and 6 months. The Schedule of Interest in the Affidavit of Sri Susanty correctly calculates the interest at 12% but claimed it for 4 years and 6 months, a year more than the actual elapsed period. Be that as it may, the calculation of the actual amount does not arise, because I am satisfied that no liability arose at all for this period. The breach by Investment Corp of the 'notification' covenant in clause 9 of Schedule 2 meant there was no obligation to pay the rental arrears until demand. There can be no liability for interest when the payment upon which the interest is claimed was not 'overdue for 14 days' (to quote cl 5.1.5 of Annexure B). It follows that the liability for interest arose not as at November 2005, but as at (for practical purposes) 1 April 2009 - being approximately 14 days after the corrected demand of $16,637.26."
Earlier in the subject decision at [19] clause 9 was quoted and the comment was subscribed that "this quite unusual provision is critical to the resolution of several parts of the dispute". That clause is also referred to in [34]:
"Subway's Reply argued that the demand of 6 March 2009 (as corrected by the later demand) initiated the liability for the payment of the arrears, and that there was no liability before that demand. Although in a more conventional lease it may well be accepted that liability for rent (and arrears) arises without specific demand, in this instance the terms of the covenant in the Schedule 2 clause headed 'Notification' obliges the Lessor to give notice of a rent default. It follows that the submission in Subway's Reply is correct. It had no actual obligation to make good the arrears until it received the 6 March 2009 letter. The covenant shifted the burden of responsibility for assessment of ongoing collections to the Lessor, and so delayed the obligation to pay until it was notified. This point is also important in relation to the question of liability for interest, which is dealt with later in these reasons."
The Appellant submits that the interpretation given in the subject decision to clause 9 "is contradicted by other express provisions of the lease" and reference is made to clauses 17 and 26 in Schedule 2 and clause 5.1.5 of Annexure B, together with clause 5.2 which specifies that the due date for payment of each month's instalment of rent is the first day of each month.
In point of fact, the Appellant's claim for interest prior to April 2009, indeed going back to 1 November 2005, does not appear to be meritful. The subject decision held at [32] that "it was clear that Investment Corp had, prior to March 2009, simply demanded and received the incorrect lower monthly amounts." Nevertheless, it is the entitlement of the Appellant in law to the interest that has to be assessed.
There are distinctions to be drawn between money being "due" and any money being "payable" and also as to money being "due" in the sense of being "owing" or as being "payable" e.g. Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 especially at [27] to [33] and [44] to [48] and Helou v PD Mulligan Pty Ltd (2003) 57 NSWLR 74 at [26]. In the last paragraph just cited, Mason P expressed agreement with propositions "for money to be 'payable' in a context where that word is used in distinction to 'due' and 'owing' there must be an immediate obligation to pay" and "in the expression 'due and payable', 'payable' means required to be immediately paid."
The subject decision centres on the ruling as to the commencement date for interest on Clause 9 and that provision does impose an obligation on the lessor to give written notice to the lessee of any default in rent within 21 days of any default. That provision was not complied with by the lessor. Assessing the specific interest obligations of the lessee, it might be said, in the prevailing circumstances correctly in our view, first as to Clause 17 of Schedule 2 that the rent increases which were not imposed and not paid prior to April 2009 were not earlier than April 2009 "due but unpaid" and secondly as to clause 5.1.5 of Annexure B that payment of such rent increases was not "overdue". When all these quoted provisions, including Clause 9, clause 57(b)(i) of Schedule Two and clause 12.2 of Annexure B, of the lease are construed in the context of the lease as a whole and applied to the circumstances applying around April 2009, the result in respect of interest found in the subject decision, is correct and should be assessed, in our view, as involving no relevant error of law.
Thus we find that grounds of appeal 5 and 6 have not been made out.
33 Ground of appeal 7 challenges on a question of law, the ruling as to costs in [47] of the subject decision:
"In relation to the matter of costs, it seems to me that Investment Corp adopted an entirely untenable position in relation to the exercise of the option in the face of the very clear requirements of s133E of the Conveyancing Act. In addition to that, in relation to the arrears, and interest, it claimed an amount of $16,637.46, a very substantial amount ($14,154.00) of which had, in truth, already been paid to it, and, on top of that, its claim for interest was based on a very obvious initial miscalculation (not as to the rate of interest, but as to the period of liability) and then compounded by failing to take its own breach of covenant into account. That being the case, it seems to me that this is an instance where, in both matters, it is fair, pursuant to s88 of the Administrative Decision Tribunal Act 1997, to direct that Investment Corp pay the costs of Subway."
The Appellant's Outline of Submissions in support of ground 7 are:
"If the appeal is allowed, the Lessor seeks its costs of the Appeal and of the hearing below.
If the appeal is not allowed, the Lessor submits that the Tribunal erred in ordering the Lessor to pay Subway's costs. The Lessor was forced to bring the proceedings to seek the payment of rent that was rightfully owing to it. The amount of $14,154 was paid under protest so the Lessor sought an order that it was entitled to this amount plus the amount necessary to bring the payment to the amount of $16,637.46. The Lessor was successful in establishing its entitlement to this amount and costs should follow the event."
In our opinion, no error involving a question of law is pointed to or is apparent in the decision on costs. In any event, we see what is written in the subject decision as to costs as justifying the result there expressed.
It is appropriate to bear in mind the considerations noted in Jonamill Pty Ltd v Alramon Pty Ltd (No.2) (RLD) [2010] NSWADTAP 3 at [44] with reference to authorities on s88, in its previous form:
"...costs were more readily awarded when either (a) the case arose in the Retail Leases Division or (b) costs were sought against an unsuccessful appellant."
In the result, the appeal should be dismissed. We also assess, in all the circumstances set out above, that it is fair that the unsuccessful Appellant be ordered to pay the Respondent's costs of the appeal.
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Decision last updated: 17 February 2011
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