v and O Princi Pty Ltd v Prestige Holdings Group Pty Ltd
[2010] VSC 627
•23 December 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2010/05223
| V & O PRINCI PTY LTD | Plaintiff |
| - - and - | |
| PRESTIGE HOLDINGS GROUP PTY LTD and DAVID DEICKE | Defendants |
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JUDGE: | MUKHTAR As J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10, 17 December 2010 | |
DATE OF JUDGMENT: | 23 December 2010 | |
CASE MAY BE CITED AS: | V & O Princi Pty Ltd v Prestige Holdings Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 627 | |
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LANDLORD AND TENANT ― Commercial Tenancy – Retail premises – Non‑payment of rent and other breaches – Determination of lease – Re‑entry – Tenant’s refusal to vacate – Action for summary possession – Subsequent terms of settlement – Breaches of terms of settlement – Summary application for possession – Availability of relief from forfeiture
CONTRACT – Terms of settlement – Construction – Performance of obligations within stipulated times – Time not expressed to be of the essence – Essentiality of time stipulation – Common law and equitable principles
PRACTICE AND PROCEDURE – Summary proceeding for recovery of land – Action between landlord and tenant – Tenant claiming right to be in possession – Propriety of using special procedure under Order 53
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REASONS FOR DECISION
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Hopper | Gadens Lawyers |
| For the Defendants | Mr W Stark | D.E. Phillips |
HIS HONOUR:
This is a dispute between a landlord and tenant of commercial premises at Nepean Highway in Brighton. The plaintiff is the landlord. It gave a five year lease to the first defendant, a company, commencing on 15 March 2010. The rent was $6 666.67 per calendar month plus GST. Rent was payable in advance on the 15th day of each month. The landlord gave a four month holiday rental, so that rent was not due to commence until 15 July 2010. The lease contains a typical clause which entitles the landlord to re-enter the premises if rent is unpaid for 14 days, in which case the lease would “absolutely determine”.
The second defendant, Mr Deicke, was, and has now resumed office as, a director of the tenant company. He gave a personal guarantee of the tenant’s obligations in the usual form.
The permitted use of the premises, which was previously a used car yard, was a car wash and café. The tenant set up a business called Brighton Auto Spa & Café. In June this year, the landlord saw that the tenant had installed equipment for an automatic dog wash as an ancillary business. It is a coin operated service. Mr Deicke explains in an affidavit that he wanted a “car wash with a difference”. His business thinking was that “if they trust me to wash and detail their expensive family cars, would they trust me to wash and shampoo the family pet?” He says that many car washes in Melbourne have such a service. A permit from local authorities is not required to install such a facility on site. He says he had previously mentioned his plans for a dog wash to the landlord’s agent at the time without an objection being raised.
The landlord also observed that part of the premises was, it seemed, being used as a car hire business. There were many new cars without registration plates being parked at the premises. It appeared to the landlord that vehicles were being detailed for cleanliness and finish in preparation for sale. A sign had been erected which said “Auto trim repairs – repairs and recolouring of leather and vinyl”. It appeared this was a separate service to the car wash. That is, cars were being detailed not as part of the ordinary service of a car wash, but as a separate business.
The landlord also says that a supporting pole had been removed from the premises. I gather that pole formed part of an outdoor structure for “sail” type fabric awning. The tenant had previously mentioned his intention to do this to make space, but the landlord was concerned about the effect of removal on the structural integrity or safety of the awning structure. The landlord says there were a number of other alterations to the premises which had been made without its consent.
There is no evidence that rent was not paid on 15 July 2010, being the first payment due after the rent holiday. Rent then became due on 15 August 2010. It was not paid. By this time, Mr Deicke had resigned his directorship of the tenant company and a Mr Christos (who has not sworn an affidavit) was left to run the business. On 30 August 2010, the landlord instructed solicitors to serve a notice under s 146 of the Property Law Act 1958. That provision, as is well known, prevents a landlord from exercising a right of entry in a lease unless the landlord first serves on the tenant a notice specifying the particular breach, and gives the tenant 14 days to remedy the breach, if it is capable of remedy. Such a notice is not required where the breach consists only of a failure to pay rent: see s 146(12). Under s 146(2), a tenant may apply to the Court for relief against forfeiture.
The landlord said that not only was rent not paid, but outgoings of $2 338 were not paid, no public liability insurance was obtained, and the air conditioning units had not been serviced.
There is evidence that the 14 day notice, as I shall call it, was served by the landlord’s managing agent on 30 August 2010 at the premises by giving a receptionist there an envelope addressed to “Mr David Deicke, Prestige Holdings Group Pty Ltd.” (Clause 1(k) of the lease permits service of notices to the lessee at the premises.) But Mr Deicke went overseas at the end of August and returned on 12 September. He did not go to the business premises until 14 September 2010, that is, the day that the 14 day notice expired. On that day, the landlord’s agent served a notice of re‑entry on Mr Deicke personally at the premises. Mr Deicke says that, on that day, he saw for the first time the earlier letter dated 30 August 2010 enclosing the 14 day notice. He says he then contacted the landlord’s agent, Mr Teneketzis, and offered to pay the rent that day. He was told to speak to the landlord’s lawyers. There was then correspondence between solicitors for each party in which, in essence, the tenant’s solicitors said that rent would be paid and contending there were no other breaches of the lease. Mr Deicke arranged for the rent moneys and outgoings to be paid into his solicitor’s trust account, ready to be released on instructions from him. He contended insurance had been obtained, and that he had obtained quotes for air conditioning maintenance but had deferred action until the warmer months.
Despite that, the landlord padlocked the premises on 14 September. The following day, a verbal confrontation occurred between landlord and tenant. The police were called.. They arrived but abstained from taking action, viewing it as a civil dispute. The tenant then broke the padlock, and resumed possession. Amidst these happenings, Mr Deicke says that on 14 September 2010, Mr Christos agreed to resign as director of the tenant company and Mr Deicke would resume as a director.
The landlord retaliated. On 24 September 2010, the landlord filed an originating motion seeking summary judgment for possession under rule 53. That rule creates a special summary procedure, not normally used in commercial lease disputes, where
…the plaintiff claims the recovery of land which is occupied solely by a person or persons who entered into occupation or, having been a licensee or licensees, remained in occupation without the plaintiff’s licence or consent or that of any predecessor in title of the plaintiff.
This rule is intended to quickly remove trespassers, unlawful occupiers, squatters, or persons whose licence to enter the land has been terminated; that is, defendants with no proprietary right to be there. Rule 53.03 even permits proceedings without naming the occupier if the owner does not know the name. Commentary on the rule in Civil Procedure Victoria[1] says the rule was intended to apply in cases where the occupier has no defence and there is no doubt about the plaintiff’s claim to possession. The Victorian Court of Appeal in Pappas v Bowmark Pty Ltd[2] said the procedure under this rule was not available in cases where the occupant went initially into possession as a tenant, and the question is whether the occupant was entitled to remain. Ordinarily, in such cases, the appropriate course is for the landlord to bring an action for possession by writ and possibly seek summary judgment. Or, if a statute such as the Retail Leases Act governs the relationship (and the landlord accepts this is a retail lease), it is incumbent on the landlord to take action in accordance with the applicable statute.
[1]Vol I at [53.01]
[2][1998] VSCA 120 at [13].
It should have been apparent to the plaintiff that there clearly was a dispute between it and the tenant under this lease. And it should have been apparent to the landlord’s advisers that the defendant, willing to pay the rent, would inevitably seek relief from forfeiture of any of its breaches in order to save the lease especially as the defendant’s business was at stake. This proceeding should not have been brought this way. This is something more than a procedural quibble for it has now created exigencies.
The landlord has filed an array of affidavits. Mr Deicke swore an affidavit on 19 October 2010 explaining and defending his position. I will not rehearse copiously its contents. In essence he says that:
(a)He “understood” from his dealings with the landlord’s agent, that he would receive tax invoices for rent and outgoings and that he never received a tax invoice for the rent due. He says “It was always my understanding that [the tenant] would receive tax invoices pursuant to which it would make payment.”
(b)On 2 or 3 August 2010, he received a telephone call from Lucky Teneketzis who introduced himself as the new managing agent of the premises, who said he would come to the premises to introduce himself. He told him the previous managing agent had been “given the flick”. (There was in evidence an affidavit from Sotirios Lucky Teneketzis sworn 24 September 2010 in which the deponent exhibits a letter dated 3 August 2010 to Mr Deicke informing him amongst other things that TCI Property Consultants had been appointed as managing agents. The letter also confirms the rental payment per calendar month as being due and payable on the 15th day of each month and says: “Tax invoices will be forwarded to you as the rent is due and payable.” That letter attaches a tax invoice dated 6 August 2010 showing rent due on 15 August, and other outgoings. It was not explained why the tax invoice post-dates the accompanying letter.)
(c)Deicke says he never met with Teneketzis on the premises.
(d)He says that a car dealership known as Brighton Jeep used his service to wash and detail new vehicles before delivery to customers. He says there were no trim repairs carried out at the leased premises. Instead, he had a friend who runs an auto trim repair business who was looking for more work, and he merely passed on customer enquiries to his friend. Thus, he was doing no more than directing business enquiries.
(e)He says he needed to have the pole removed to create extra space. He had made requests to the landlord and then the previous managing agent to have the pole removed but says it was never required of him that he obtain an expert engineer’s report.
(f)As for the dog wash, he said the landlord had never made any complaint about the installation of the dog wash. He believed that the soiled water from the dog wash drained through an interceptor treatment unit installed below ground, before discharge into the stormwater. That was the same means by which waste water was treated from the car washing. He says he was unaware that a pipe connection was needed from the dog washing unit. He says that he has now connected the necessary pipe in accordance with advice from the Environment Protection Authority.
Avoiding details for other alleged breaches of the lease, he says he had, or for all practical purposes had, met his obligations for taking out public liability insurance and arranging for servicing of the air conditioning unit at the premises. As for other alterations to the premises, he says that these were all done with the landlord’s knowledge and consent.
In swearing this affidavit, Mr Deicke also contended (as had his solicitor before then) that the dispute between him and the landlord was a genuine retail tenancies dispute under the Retail Leases Act and was not justiciable in this Court, but had to be referred to the Victorian Civil and Administrative Tribunal. Even before then, he had submitted to the Office of the Victorian Small Business Commissioner an application for a referral of a retail tenancy dispute for mediation.
I have not surveyed all of the facts in detail. There are many affidavits. The tenant’s affidavits suggest unbusinesslike dealings and advantageous assumptions. Statements such as “I believed” and “it was understood” lack legal strength and lead me to think that there has been inattention or incomplete dealings in this tenancy, including from the managing agents. Things have been allowed to happen. As against that, it is also apparent that the landlord has chosen to act strictly and sternly in accordance with its legal rights fairly soon into the life of a five year lease.
The landlord by its counsel sought to justify its action in starting a case under rule 53 by saying that there was a termination of the lease on 14 September and therefore the tenant was a trespasser. It is clear enough the rent was not paid on time. It is no answer for the tenant to say that he did not get a tax invoice. Good business and tax laws require an invoice, but the obligation to pay rent is incumbent on the tenant. But I am not sure that a tenant is a trespasser just because the landlord asserts that the lease had been determined. I note that a tenant that over‑holds after the expiration of a fixed term lease without the landlord’s consent, and does not pay rent, (that is, a tenant at sufferance) is regarded as being different from a trespasser in that his or her original entry into the property was lawful.[3] I shall not delve into the question because I would say anyway that, in the circumstances, deploying rule 53 was precipitant or not called not called for. There was bound to be a vehement dispute, and a claim for relief against forfeiture was inevitable especially as the tenant was willing and able to pay the rent.
[3]See Bradbrook and others, Australian Real Property Law, (4th ed) at [14.65]
This created a predicament for the Court. It aroused a question whether the matter fell within the purview of the Retail Leases Act 2003 which confers exclusive jurisdiction (but not for relief from forfeiture) for disputes in a tribunal. There is the associated question whether such legislation applies if there had truly been a determination of the retail lease, as was considered in Jam Factory Pty Ltd v Sunny Paradise Pty Ltd.[4] But for subsequent events, the proceeding was vulnerable to be stayed, or dismissed, or converted to a proceeding to enable a proper or usual trial with a counterclaim for relief against forfeiture. What were those subsequent events?
[4][1989] VR 584 (Ormiston J)
On 3 November 2010, the parties made terms of settlement expressed to be an agreement “…on a commercial basis to settle all claims made in the Proceeding …“. The agreement required the tenant to take a number of actions, including the payment of outstanding rent and outgoings of $25 386.62 under the lease. Upon performance of certain terms, clause 11 said the parties would consent to the proceedings being dismissed, and consent to an order giving the tenant relief against forfeiture of the lease. But, clause 12 said that if there was non‑performance of those same terms, the tenant would consent to a court order giving the possession of the leased premises to the landlord. The terms in question required performance by certain dates as stipulated.
A dispute has now arisen whether the tenant has fulfilled the relevant terms under the terms of settlement. There is a question whether the time limits were of the essence, even though they were not expressed to be so. There is a question, as a matter of fact, and proper construction of the agreement, whether the tenant has performed or whether substantial performance is sufficient. There is a question, in the event of non‑fulfilment of the terms, whether the tenant is still able to seek relief against forfeiture. And there remains the hovering question of the applicability of the Retail Leases Act, and this Court’s jurisdiction. The landlord contends that the terms of settlement is now the superseding repository of the parties’ rights and obligations, and no longer the lease from which those terms of settlement derive. I understood Mr Stark, counsel for the tenant, to be maintaining the contention that this Court lacked jurisdiction because the lease still remained on foot, yet he accepted the Court had jurisdiction to grant relief against forfeiture. To that end the tenant adduced affidavit evidence, including an affidavit filed with leave a day after argument had finished.
The various disputations and instabilities agitated in the Court much restlessness in how to deal with this matter. There were a multitude of affidavits and a number of legal issues. To compel the landlord to recommence proceedings by writ or properly pleaded facts would only add to cost, delay and prolong the tension and uncertainty concerning the use and occupation of the premises. Moreover, since the originating motion was filed, there were three adjournments leading up to the terms of settlement, and then two adjournments after that. As well as that, argument on this application this application was part‑heard over two days, the second of which was on the afternoon of last day of sittings for the year. The Court was impelled to find a legal solution.
Lest anything come to turn on this in an inflamed dispute, I should here record that this case involving as it does, in effect, final relief came to be conducted by the parties by acquiescence in the following way. It was an application for summary judgment on the terms of settlement, under the aegis of the principal proceeding. The question was whether the terms had not been performed, in which case there would be summary judgment for possession. The second question was whether the tenant could summarily save its position by seeking relief from forfeiture. Fortunately, rule 22.14 permits conveniently a tenant to apply for relief against forfeiture for non payment of rent after summary judgment for possession.
In this way, what has been sidestepped is the application of the Retail Leases Act. But the defendants do not say this Court lacks jurisdiction to decide the effect of the terms of settlement. And it is common ground that nothing in the Retail Leases Act precludes this Court’s exercise of jurisdiction to grant relief against forfeiture. Indeed, the very decision by the tenant to enter into the terms of settlement of itself is a manifestation that it was willing to put to one side its previous assertions about the Court lacking jurisdiction and to bind itself to the performance of a number of steps which, if performed, would restore its rights as tenant, but which, if it failed to perform, permitted the landlord to recover possession of the premises.
It was in these circumstances that the Court had to adroitly consider and decide the real dispute in the originating motion. Viewing procedural rules of Court as tools of justice, it is the expedient course.
The terms of settlement
The recitals say:
A.The Plaintiff issued proceedings against the Defendants … seeking possession of land situated and known as 721-725 Nepean Highway, Brighton in the State of Victoria … (excluding two rear factories)….
B.The First Defendant entered into a lease of the premises on or about 15 March 2010 (the ‘Lease’).
C.The Defendants deny the Plaintiff’s claim in the Proceeding.
D.The Plaintiff and Defendants have agreed on a commercial basis to settle all claims made in the Proceeding on the terms and conditions set out in this Terms of Settlement.
E.The terms set out in this Terms of Settlement are intended to amend the Lease.
Clause 1 of the terms stated:
That the Defendants pay to the Plaintiff’s legal representatives, Gadens Lawyers, the Plaintiffs’ outstanding rent and outgoings fixed at $25,386.62 (inclusive of GST) in accordance with the Tax Invoice from TCI Property Consultants dated 27 October 2010 payable on or before Wednesday 3 November 2010.
The defendants have performed that obligation, and did so by the stipulated date.
Clause 2 concerned the removal of the post. It said:
That the Defendants provide to the Plaintiff an engineers report confirming that the removal of the bracing post does not adversely affect the structural integrity of shade sail structure … on or before Friday 26 November 2010.
Clause 5 concerned the dog wash. It says:
That the Defendants provide to the Plaintiff written evidence from an appropriate expert that the dog wash collection system is connected from the dog wash unit to the interceptor and that written evidence is provided from South East Water … on or before Friday 26 November 2010.
Clause 9 concerned costs. It said:
That the Defendants pay the Plaintiff’s legal costs of $12,500 in full and final settlement of the Plaintiff’s claim payable to…Gadens Laywers, on or before 26 November 2010.
Pausing here, this was performed, but not until 30 November 2010.
Clauses 11 and 12 are important for their consequential operation. They say:
11.Upon the conditions set out in paragraphs 1–2, 5, 8 and 9 being satisfied, the Parties agree to sign a Minute of Order by consent granting the first defendant relief against forfeiture of the Lease and otherwise dismissing the Proceeding.
12.If any or all of the terms set out in paragraphs 1-2, 5, 8 and 9 are not satisfied, both Defendants consent by execution of this Terms of Settlement to an Order from the Supreme Court or any Court or Tribunal with jurisdiction that the Defendants immediately yield up to the Plaintiff possession of the Premises and pay the Plaintiff’s legal costs and disbursements of obtaining that Order on an indemnity basis. The Defendants agree that filing a signed copy of these Terms of Settlement with an appropriate Affidavit in Support from the Plaintiff’s solicitor will be good evidence of failure by the Defendants to comply with the Terms of Settlement and of their consent to an order for possession of the Premises.
On 30 November 2010, the plaintiff, regarding the time stipulations as essential, appeared in court and, as the Court orders record, obtained an adjournment to enable the enforcement of the terms of settlement and obtain an order for possession. To that end, the reference to the satisfaction of the conditions in clause 8 referred to in both those clauses is immaterial for present purposes. As clause 1 was met (rent and outgoings), what mattered was clause 2, 5 and 9.
Thus, the case proceeded. Attention then turned to recital E (“The terms…are intended to amend the lease”) which Mr Stark submitted revealed an intention to preserve the lease especially as the tenant disputed the termination of the lease. If the recitals are ambiguous and the operative part is clear the operative part must prevail. Conversely, if the recitals are clear then the operative part of the deed is ambiguous, the recitals govern the construction: see generally Norton on Deeds.[5]
[5](2nd ed) Chapter 11.
The point may be academic. But I should say I do not think the terms of settlement can be construed as, of themselves, preserving the leasehold estate as if to concede the termination did not occur. On the facts, there was no doubt that the August rent was not paid and the 14 day notice was served. The terms of settlement do not say the lease was somehow reinstated despite the events that had occurred. The fact that clause 11 gives an opportunity to obtain relief from forfeiture is consistent only with there having been a termination .
Mr Hopper submitted that Recital E was referable to clause 7, but I am not convinced it is. I think Recital E needs to be understood in the context that the landlord regarded the dog wash and the removal of the pole as unauthorised. Yet the terms of settlement in effect allow those things, subject to certain action. Assuming the tenant performed the terms, it seems to me Recital E is saying that the lease is varied to authorise the dog wash and the pole removal.
I think the outcome is that the parties’ legal relationship is governed by the terms of settlement. If there is relief from forfeiture under clause 11 or otherwise, then the lease is revived.
Performance of clause 2
The tenant says it has substantially performed this, but it did not do so until 3 December 2010. The plaintiff says this was not performed as required and in any event was done too late.
The clause requires an engineer’s report. On 3 December 2010, the tenant produced a document signed by Mr Abu Hanifa followed by the designation “Chartered Professional Engineer Structural and Mechanical SMIE Aust 784001”. It refers to inspection having occurred on 1 December 2010 and states that the existing shade sail structure is structurally sound. The document adds:
Taking off only one side member, noting that the other side member is intact, away from the structural post that the members were supporting will not affect the integrity of the structure provided that all the nuts and bolt joints are in place as per engineering detail. At the time of my inspection all the nuts and bolt joints were in place.
Not only was this report provided outside the time limit, the landlord contends that this document is not a “expert report”. The landlord’s solicitor has also undertaken quite a few electronic searches in an endeavour to cast doubts on the existence or qualifications of Abu Hanifa. This led to counter allegations based upon internet searches to establish his bona fides. I will have to proceed on the basis that Mr Hanifa is, on the evidence, a senior member of the Institute of Engineers Australia.
The question is does clause 2 require this to be an “expert’s report”? It does not. It requires it to be an “engineer’s report”. That means a report from somebody who is qualified as an engineer to confirm that the removal of the post will not adversely affect the structural integrity of the shade sail structure. Although in litigation, at least in building cases, one is accustomed to seeing comprehensive engineer’s reports, I do not think the terms of settlement called for such a thing. The scale of the problem or the apprehended problem did not call for such a thing. This had nothing to do with the structural integrity of a building.
I can only suppose the landlord was concerned that the awning might fall and there could be liability as owner. It is as much in the tenant’s interests to ensure it has a reliable engineer’s opinion as well. So it is not as if the tenant has put up a shallow or bogus effort just for the sake of compliance.
As a matter of construction, it appears to me that clause 2 is calling for the provision of an assessment of the structure’s integrity. And that is what the report from Mr Hanifa does. It is brief, but maybe there is not a lot to say. If the landlord had wanted to be more prescriptive about the qualitative aspects of a “report” it could have said so. Bearing in mind this is a settlement on a “commercial basis”, I think there has been compliance with that part of clause 2.
Performance of clause 5
The plaintiff says this was not done at all. The defendants say a plumber has done the connection, South East Water have approved, and they are waiting for something in writing.
There are two limbs to this clause. The first concerns the connection of the dog wash unit to the interceptor. The second concerns written evidence from South East Water. It is not clear whether the “appropriate expert” is the same for both limbs. I think the clause has in mind the appropriate expert saying the connection is there, and that fact being confirmed by the regulatory authority, South East Water. If South East Water says there has been a connection, then that surely meets the purpose of the clause, which is to ensure that waste water from the dog wash goes into the sewerage system and not down the stormwater drain.
Mr Deicke proves that he paid a plumber, Peter Maric, $1 480 to do or check the connection. He produces a tax invoice as evidence. He says a visual inspection of the dog wash reveals that a connection pipe from the dog wash unit to the interceptor as part of the effluent collection system has been installed. He says he has been waiting for South East Water to give a report. He says that on 8 December 2010 a Mr John Robinson from the Trade Waste Department at South East Water advised he had inspected the dog wash and concluded that the current configuration was acceptable. This was confirmed in an e-mail from Mr Robinson which was then forwarded to the landlord’s solicitor on 9 December 2010.
I would say that the appropriate expert has been obtained and that the requirements of “written evidence” seem to be an expectation of something far less than a report. I think the parties have in contemplation that somebody from an authority such as South East Water would be giving the confirmation and could not be expected to provide a report. Hence, it was sufficient that something like an email or some such document would be acceptable as “written evidence”.
I think the landlord has got the satisfaction of what it bargained for, to be satisfied that unlawful pollution was not occurring.
Compliance with clause 9
The payment of the landlord’s legal costs occurred but not until 30 November 2010. Mr Deicke explains it took him two extra business days to obtain the funds.
Is time of the essence?
Even if there had been substantial compliance, the landlord says it was out of time. But the terms do not state that time is of the essence. They could have so easily done so had that been the mutual intention, especially as the parties had legal advisors. But the landlord says as a matter of intention, and therefore proper construction, time was of the essence and it is entitled to possession under clause 12.
Discourse in this field of contract law and equity is usually in the context of assessing the essentiality of a time condition as a basis for justifying a termination of a contract, or obtaining specific performance.
It is well established that a right to terminate a contract for a breach arises only if the breach, amongst other things, is a breach of an essential term. Whether a term is essential is in the first place determined by reference to the contract itself so that even if objectively a particular stipulation has little importance, the parties are nevertheless free to stipulate that the performance of a particular obligation is essential. If the contract does not stipulate whether a term is essential, then the issue is determined by law on the well known Tramways Advertising test, [6] that is:
Whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor.
[6]See Tramways Advertising Pty Ltd v Luna Park (1938) 38 SR (NSW) 632; on appeal (1938) 61 CLR 286.
As was later said in DTR Nominees Pty Ltd v Mona Homes Pty Ltd [7] this requires a judgment to be made according to the general nature of the contract, taking into account the importance of the provision to the parties as evidenced by the contract itself as applied to the surrounding circumstances.
[7](1978) 138 CLR 423
The position in equity was different. Equity treats a time stipulation as not being essential, preferring to look to the substance of an obligation and asking: can the time limit be disregarded without doing any injustice to the other party? See Legione v Hatel [8]; Tanwar Enterprises Pty Ltd v Cauchi [9]; Chesire & Fifoot’s Law of Contract [10];and Spry, Equitable Remedies.[11] If there is no injustice, a mere breach of a time limit will not justify rescission, and will not bar specific performance: see Louinder v Leis.[12] But if the innocent party gives a notice, after the due date has passed, fixing a reasonable time for performance, then in effect time is being made of the essence and equity regarded generally the non‑compliance with that notice as unreasonable delay justifying rescission. If time was of the essence, equitable intervention is usually confined to cases of fraud, accident, mistake, or surprise.
[8](1982) 152 CLR 423.
[9](2003) 217 CLR 315.
[10]9th ed at 21.19
[11]8th ed at p 203-208.
[12](1982) 149 CLR 509 at 526.
Whether in equity or common law, there is a common question of construction when it comes to giving effect to intention and the substance. The modern approach to the construction of contracts is to proceed in a common sense, non‑technical way and ask: how would reasonable business people construe the agreement in the light of the commercial purpose of the setting? See generally Unique Lifestyle Investments Pty Ltd v Robertson[13] and MLW Technology Pty Ltd v May.[14] I think it comes to this: is there something in the nature of the obligations in the terms of settlement or the surrounding circumstances which makes it inequitable to treat the obligations in question as non‑essential?
[13][2005] VSC 347.
[14][2005] VSCA 29.
Mr Hopper for the landlord submitted time was of the essence because the agreement hinges on timing. He says the agreement sets up a regime for performance of tasks and the dates for performing those tasks; the dates are in bold face; and the terms state the consequences of non compliance. Moreover, looking outside the four corners of the agreement, he submits there was sufficient to show the landlord was looking for a disciplined and business-like approach to obligations under the lease. There had been instances of non‑compliant user and non‑payment of rent and as a matter of ordinary commercial expectations, the landlord would wish to be satisfied that things had been regularised before agreeing to relief against forfeiture under clause 10.
I think it begs the question to say that the agreement hinges on timing. And I place no weight on the use of typewritten bold face for the dates. I can accept that timeous performance was important to the landlord at least in an adversarial setting, who had already shown a propensity to act strictly and swiftly. As I see it, payment of rent is the fundamental obligation to any landlord. That occurred, on time, under clause 1. I can accept the pollutant discharge of dog wash waste water into the stormwater drainage system is a real concern for the plaintiff. But the important thing was to make the sewerage connection to the satisfaction of the authority. That is what really matters. It is not so much the timing but the action. Similarly, no responsible landlord can be expected to allow a risk of structural building problems. The important thing was obtaining a clearance from an engineer, not the timing. I think the same goes for the payment of costs.
It is correct to say that the legal rules I have briefly stated concern the effect of time limits in cases of rescission or specific performance, which is not the case here. Mr Hopper submits in this case the consequences of non performance by the due date are preordained by agreement under clause 12. But I do not see how that alters the application of principle. The stated serious consequences of non fulfilment of the terms does not ipso facto mean that any of the dates ought to be construed as being of the essence. Rent aside (which was paid on time), it is not as if delay in getting reports and approvals was inflicting any loss or economic harm to the landlord.
For those reasons I am not persuaded that time was of the essence. It is not harsh or inequitable to treat the timing of the obligations in question as non‑essential. What was essential was to get the rent paid; deal with the problems; to ensure the relevant authority approved of the waste water connection and to ensure there was no structural problems with the awning. That is what a reasonable commercial landlord and tenant can be presumed to have intended in their mutual interests.
But even if time could be regarded as being of the essence, would the Court grant relief against the forfeiture as effected under clause 12 in the circumstances? Mr Hopper accepted that as the categories of relief against forfeiture are never closed, the Court had the jurisdiction to grant relief under the terms of settlement. The question is whether the landlord is unconscionably asserting its legal rights under clause 12 to take away, or preclude the regaining of a proprietary interest.
Relief from forfeiture
Not a lot need be said about this part of land law. Where relief is granted, the lease is restored without the need for any formal re‑grant as if it had never been forfeited: see generally Bradbrook and Others, Australian Real Property Law[15] and Butt, Land Law.[16]
[15]4th ed at 332-3.
[16]5th ed at 392 ff.
In Jam Factory Pty Ltd v Sunny Paradise Pty Ltd[17] Ormiston J restated the principle that relief against forfeiture for non‑payment of rent should be granted usually as of course, save in exceptional circumstances, because the right of re‑entry was deemed to be intended as mere security for payment of the rent.[18] The power to refuse relief is reserved for cases of consistently lengthy defaults which may fairly lead to an inference that even if relief be given, there is a reasonable likelihood that the rent will not be paid in future, at least for some considerable time after the due date for payment. There might also be cases where the landlord could show that the tenant would soon become insolvent.[19] That case also deals with the suggestion that defaults under other covenants in a lease are irrelevant to the application for relief. His Honour held it would be preferable to view that as being subject to exceptional circumstances or as being a mere general rule.
[17](1999) VR 584.
[18]See also Maher, Gummow and Lehane’s, Equity Doctrines and Remedies (4th ed) at [18-025].
[19]At 591.
Mr Hopper submits it is nether unfair or inequitable to deny relief from forfeiture. He says in essence the tenant: broke back into the premises; did not pay the rent until sued; did not seek an extension of time; and overall, has behaved in a way to give the landlord no confidence that it will comply with the terms of the lease in the future.
The Court was informed that the tenant tendered the rent due on 15 December but the landlord has refused to accept it, presumably because it regards the lease as at an end. The tenant has paid the costs under the terms of settlement. It has, so I have found, practically sorted out the problems concerning the dog wash and the pole. Mr Deicke has sworn an affidavits in essence showing that he has spent moneys to set up this business and is seeking to find a buyer. The business is a going concern. There is no suggestion of insolvency.
I accept there is a basis for the landlord to be wary or apprehensive about the future based on the unbusinesslike behaviour in the past. And I detect there has been some cavalier or undeserving conduct. But the rent is paid. If there are future breaches, the landlord can take action. In my view justice is better done if there is relief against forfeiture. If time is not of the essence, that is what clause 10 says. The greater hardship would be inflicted on the tenant if it was refused.
I would ask counsel to bring orders into Court.
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