For the reasons I have given, it is clear that the respondent is liable to pay the applicants rent and interest as a result of not paying rent between August 2010 and March 2011. The applicants calculated the arrears of rent in the sum of $627,748.20 and interest in the sum of $122,077.02 totalling $749,825.22. However, just before the conclusion of the hearing, the respondent challenged the correctness of these calculations. In an email sent to the Tribunal dated 31 May 2012, it would appear the quantum of rent and interest is now agreed by the parties to be $748,899.46.
It is clear for the reasons I have given that as the respondent failed to pay rent and the applicant has forfeited the lease that that lease remains forfeited. Even though rent has been accepted since that time, there is no evidence to suggest that that rent was accepted on the basis of the formation of a new lease. The lease once terminated remains terminated.
It is noted that the respondent has applied for relief against forfeiture. Pursuant to s 89 of the , this Tribunal has only power to give relief against forfeiture in respect of floors 1 and 2 of the premises. As it would be an unsatisfactory situation for the relief against forfeiture to be heard both here and in the Supreme Court, in my view, it is better that the matter be heard entirely within the Supreme Court. However, the applicants have asked that this matter be reserved. In the meantime, I intend to stay any order for possession I make for a period of 28 days to enable the parties to make an application in the Supreme Court or make submissions before me as to whether there should be relief against forfeiture in relation to floors 1 and 2. I will give the parties leave to apply for an extension to further stay the order of possession.
Insofar as the respondent's counterclaim is concerned, the same shall be dismissed save and except for the amount of the repair entitlement for the year ending 26 May 2010 to 26 May 2012 which sum I have found to be totalling $96,101.95. However, the parties have leave to make submissions as to the correctness of quantum in relation to this amount.
[2]
Since dictating the above reasons, the applicants delivered further submissions in relation to "Scheme of Management". The respondent objected to these further submissions. As no leave was given to file the further submissions, they will not be taken into account.
Parties
Applicant/Plaintiff:
Bradfield & Ors
Respondent/Defendant:
QOB Tenancy Pty Ltd
Legislation Cited (4)
Law Act 1958
Arbitration Act 1984
Body Corporate Regulations 1998
Owners Corporation Regulations 2007
Cases Cited (19)
Bradfield & Ors v QOB Tenancy Pty Ltd (Retail Tenancies) [2012] VCAT 755 (6 June 2012)
In relation to clause 4.1 and this issue of correction of mistake, I refer to paragraphs [29]-[32] inclusive herein. It will be remembered that in the original lease, clause 4.1 provided for payment of rent by the tenant, "free of exchange and all deductions during the term of this lease and the rent set out in item 6 of the schedule (the rent) and the manner set out in item 7 of the schedule ...". This clause was deleted in its entirety and in its place the words, "that it (the tenant) shall not be required to pay or reimburse the lessor for any outgoings". The applicants submitted that if it was intended that the original clause be deleted altogether, it would be "entirely nonsensical, as the clause would be unintelligible". In addition items 6 and 7 which remained incorporated in the lease cannot stand alone and are tied to the continued existence of clause 4.1. The applicants then submitted if the parties had intended to replace the words in clause 4.1 then items 6 and 7 would needed to have been removed.
Further, the applicants submit that clause 6.14.1.1 of the lease makes clause 4.1, to pay rent an essential term, it is then noted that clause 6.14.1.1 has not been deleted.
Mr Panna submitted that there was no evidence that there was any error of mistake in drafting the deed, which mistake caused the removal of the wording in the original clause 4.1 of the lease. He noted that the applicants' solicitors in this proceeding acted for the applicants at the time the deed of variation was drawn.
Mr Panna also made the point that the deletion of clause 4.1 of the lease did not relieve the tenants of their obligation to pay rent. He said that there did not need to be a clause in the lease which obliged the tenant to pay rent to make the payment of rent obligatory.
Mr Panna also stated that even if the obligation to pay rent was reinstated into clause 4.1, the clause as previously existed as requiring the rent free of exchange and all deductions, should not be read back into the lease in its entirety.
Correcting words in a contract was considered by the High Court in Fitzgerald v Masters[1956] HCA 53; [1956] 95 CLR 420. At 426 ff Dixon CJ and Fullagar J stated :
The authorities make it clear that the Tribunal has the power to correct a mistake in a lease. In Barbcraft Pty Ltd v Geobel Pty Ltd[2003] VCAT 1700 (3 November 2003) Deputy President Macnamara, as he then was, at para [44] stated :
The respondent recommenced paying rent in March 2011 and paid the rent a month at a time. No lump sum in respect of the back rent between August and March was paid. Therefore, at all times since March 2011 there has been seven months rent outstanding.
The system adopted by the agent, Network Pacific, was to allocate rent paid where there was outstanding rent to the oldest outstanding rent and interest in arrears. Ms Letunica made it clear that the Network Pacific computer system only allowed rent to be allocated to the oldest outstanding rent and this was the way the allocations of rent payment were treated after the tenant resumed paying rent and has always been treated.
Mr Panna submitted that once the rental was paid in March, a new notice pursuant to s 146 of the Property Law Act needed to be issued. However, s 146 does not apply to the non-payment of rent. See sub-section 12. Therefore, as I have stated previously, the issuing of a notice is not required for the termination of the lease. All that is necessary is unequivocal re-entry which, in this particular instance, was the issue of the proceedings in April 2011.
Mr Panna relied on the Supreme Court case of Lontav Pty Ltd v Pineross Custodial Services[2011] VSC 278 at paras [64]-[65] to support his submission that as the rent was allocated to the back rent payable, the forfeiture that had occurred was waived as the debt had now been wiped off even though there was still seven months outstanding. At paras [64] and [65] of the Lontav case, Hargrave J stated as follows :
Mr Panna also relied on the proposition that a debtor in making payment to his creditor may appropriate money as he pleases and the creditor must apply it accordingly. See Cory Brothers & Company v Owners of Turkish Steamship 'Mecca'[1897] AC 286 at 293 per Lord Macnaghten. However, in this case, there is no evidence which I accept that made it clear how the money paid by the tenant on or after March 2011 was to be appropriated.
Further, the Lontav case was different to this situation. In that particular instance, it was a case of the tenant paying money towards a rent debt and it was applied by the landlord towards council rates which had recently become due for the artificial purpose of multiplying the defaults. This is different to the case here.
The authorities make it clear that once a lease has been terminated subsequent payments cannot revive the lease. In Rasheed v Burns Philip Trustee Co Limited (1982) NSW Conv R 55 102, Wooten J sitting in the Supreme Court of New South Wales Equity Division stated at 56,603 :
Mr Panna submitted that as the Body Corporate (Owners Corporation) had not passed a special resolution of members to commence this proceeding in accordance with the Body Corporate Regulations 1998 and as re-enacted by the Owners Corporation Regulations 2007 pursuant to the Owners Corporation Act 2006, these proceedings could not be brought and were a consequence nullity. He referred to ss 6 and 11 of the Owners Corporation Act 2006 and Division 3, 4 and 7 of that Act. He also referred to clause 6.11 of the lease which deals with the options for renewal and, in particular, that all leases needed to be renewed pursuant to the scheme of management. He said as a result of special resolution not having been passed, the proceeding should be dismissed or stayed.
Mr Panna also referred to Manor House Group Pty Ltd v Owners Corporation Plan No 349506U[2009] VCAT 2348 (29 October 2009). In that proceeding SM Vassie held that before issuing proceedings, the applicants and the managing agents are required to cause a vote to be taken of members of the Body Corporate and act in accordance with the ordinary resolution of members passed by the Body Corporate.
Mr Panna further stated that :
The concept of estoppel by convention, was described by the High Court (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited[1986] HCA 14; (1986) 160 CLR 226 at p 244-245 para [22]. Their honours there stated :
22. ... Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized: Thompson v. Palmer http://www.austlii.edu.au/au/cases/cth/HCA/1933/61.html\[1933\] HCA 61; [1933] HCA 61; (1933) 49 CLR 507, at p 547; Grundt v. Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, at pp 657, 675-677; Legione v. Hateley [1983] HCA 11; (1983) 152 CLR 406, at pp 430-431; Amalgamated Investment & Property Co. Ltd (in liq.) v. Texas Commerce International Bank Ltd (1982) QB 84, at pp 121, 126, 130-131; Spencer Bower and Turner, Estoppel by Representation (1977) 3rd ed., at pp.157-177. But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v. Seaman [1925] HCA 26; (1925) 36 CLR 538, at p 549. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v. Kettle (1938) AC 156, at p 170; Spencer Bower and Turner, Estoppel by Representation (1977) 3rd ed., at pp 167-168. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact. The submission with respect to estoppel accordingly fails.
In Waterman v Gerling Australia Insurance Company P/L and Anor[2005] NSWSC 1066; [2005] 65 NSWLR 300 at para [83], Brereton J in the Supreme Court of NSW set out the requirement for convention by estoppel to apply. At para [83], his Honour stated :
Mr Panna submitted that neither of the parties, in particular the respondent, had turned their mind to the question of reconciliation prior to August 2010. He therefore stated that it could not be said that the parties adopted an assumption upon which they relied. In support of the submission, he relied on the evidence of Ms Rayson who, up to 2010, was a director of the respondent. At p 527 commencing line 17 of the transcript, Mr Panna asked Ms Rayson, "Can you tell the member why there was no reconciliation on a yearly basis?" Ms Rayson answered : "Well, I believe that we were so relieved when the rental negotiations concluded, it was long and arduous, so we just got on with business at that point and when it came 12 months later my expectation was that Network Pacific, the Body Corporate Owners, would do that reconciliation as part of the AGM where they do all the accounts". Mr Panna then asked, "Did you turn your mind at all whilst you were a director", to which Ms Rayson answered, "No".
It is notable that even though Ms Rayson was a director of the respondent up to 2010, she did not appear to be the main driving force behind the respondent. The main driving force was Mr Finnimore and perhaps Mr Sonni. Mr Finnimore made it clear in his evidence that most of the business in relation to Quest On Bourke was conducted by the manager. In spite of Mr Finnimore and Ms Warnock giving evidence, neither of those people gave evidence which I find acceptable, that prior to August 2010 they did not turn their minds to reconciliation of outgoings from 2004.
Even though Ms Rayson had not been a director of the respondent for some considerable time, I gained the impression from her evidence that she was somewhat "loose with the truth". For example, she maintained that under the repair entitlement amount referred to in the lease, she stated that the landlords were obliged to undertake repairs and maintenance at the premises. However, when cross-examined on this matter, she conceded that she was in error and was not aware that the funds could only be reimbursed to the respondent by the applicants on an annual basis. Further, Ms Rayson gave evidence that she was told that the premises had been recently downgraded to 3½ star rating. This was not correct. In fact, the premises are still 4 star albeit that there is a moratorium because the criteria for the rating has changed.
Taking these matters into account, I cannot place reliance on the evidence of Ms Rayson as to the fact that she had not turned her mind to the question of reconciliation. The question is had the respondent itself turned its mind to that matter and in order to answer that question and as to the applicant's state of mind, I should have regard to the surrounding facts.
Having found that estoppel by convention applies, I do not really need to decide the point of adjustment of outgoings. However, because it has been fully argued before me, I think it is desirable that it should be decided. I have already referred to these matters previously to some extent in paragraphs 33 ff hereof.
Clause 4.2 of the lease sets out a number of categories of outgoings which the landlords are obliged to pay. Clause 5.7 beginning with the words, "that notwithstanding" expands the definition of outgoings. In clause 5.7(a) the words are used "all outgoings including without limitation, the outgoings listed in clause 4.2.1 ...".
Clause 5.7(b) relieves the tenant from paying outgoings assessed, charged or incurred or payable in respect of the building or the demised premises.
Clause 5.8 sets out the method of the payment of outgoings and in particular clause 5.8.3 defines the outgoing payment amount at $189,929.54, "increased on each anniversary of the commencement date by 2.5% of the previous outgoings amount". It should also be noted that the effect of clauses 5.8.1 and 5.8.2 is that if the outgoings amount paid is less than the outgoings payment amount calculated in clause 5.8.3, the balance should be paid by the landlord to the tenant. However, if in any year the outgoings are greater than the outgoings payment amount then the greater amount shall be paid by the tenant.
It is also noted that clause 5.9 explicitly differentiates between the landlords and the body corporates. That is, it makes the landlords completely separate entities from the body corporates.
Mr Golvan and Mr Bloch submitted that the term "outgoings" as used in the lease, covers, "a very wide spectrum of expenditure on any basis of reasonable construction, and includes every expense in which the ordinary use of management would require to be made to earn rent, or would be a proper deduction from ascertaining the net rent received, other than State land tax and municipal rates which have been expressly excluded by the lease (see clause 4.2.1.2).
It seems clear that the lease should be construed according to its text. (See Mrocki & Anor v Mountview Prestige Homes Pty Ltd[2012] VSC 74 at [26] (Court of Appeal Buchanan, Hansen JJA and Hollingworth AJA)). Mr Golvan then states :
I have already made mention of the canopy outside the premises that was damaged by trucks along Bourke Street (see paragraphs 40 and 41 hereof). Mr Panna has submitted that the cost paid to repair the canopy is a structural cost and therefore should not be included as part of "outgoings". In support of his submission, Mr Panna referred to Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Ltd & Anor[2006] NSWCA 224 at paras [37-40] :
40 Applying the same concepts, maintenance, replacement or repair is "structural" when its purpose and effect are to remedy some "failure on the part of the structure to remain satisfactorily put together". This is, I think, consistent with the approach taken to the meaning of "structural repairs" in relation to buildings as such in cases such as Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] 1 Ch 592 and Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd[1999] NSWSC 264 to which counsel for both parties referred. Reference may also be made to what was said by Balmford J - again in relation to a building - in Carbure Pty Ltd v Brile Pty Ltd[2002] VSC 272:
In my view, the situation of the canopy at the premises is very different from the bitumen referred to in the Alamdo case or the swimming pool wall referred to in the Hampson case. In this particular instance, the canopy was damaged as a result of truck movements in Bourke Street, that is, the activity of a third party. It was not part of the structure of the building. It does not support a load, stop the building from falling down, nor is it relevant or critical to the load bearing integrity of the building.
In Carbure Pty Ltd v Brile Pty Ltd[2002] VSC 272 at [44] Balmford J discussed the meaning of the word "structure". Her Honour there stated :
(1937) 59 CLR 641
(1986) 160 CLR 226
(1933) 49 CLR 507
(1983) 152 CLR 406
(1925) 36 CLR 538
It is clear on the evidence, including the evidence of Ms Rayson, that the negotiations for the deed of variation of the lease were long and arduous. It is unlikely that either of the parties would have not realised that they had a right to a reconciliation in relation to the outgoings.
Mr Golvan submitted that a reconciliation could go "both ways". That is, if a reconciliation was to be performed, it could favour the applicants or it could favour the respondent. In fact, the evidence that has been presented before me shows that such a reconciliation in some years favours one party and in other years, the other party. Thus, I find that there was an interest in both parties in not having the reconciliation performed. Thus, I find that both parties had adopted an assumption that the reconciliation between the parties would not be performed and this is what happened between 27 May 2004 and 25 August 2010, a period in excess of five years.
Further, it is clear to me that both parties have conducted their relationship in the period I have referred to on the basis that the outgoings would not be reconciled. That is, there was a mutual assumption. This assumption arose because it is likely on the balance of probabilities that both parties knew of their right to have the reconciliation performed. Until August 2010 neither party requested that reconciliation. It is likely that neither party wanted to take the risk that they may come out on the "wrong side" of the reconciliation. Or alternatively, that they did not want to go to the trouble of doing the reconciliation. I am entitled to make this assumption from the conduct of the parties. I do not need to have specific evidence as to what the parties actually thought at the time or any particular minutes of their meetings. In my view, the conduct of the parties is quite clear. They did not intend or want a reconciliation to take place. Therefore, I conclude that each party knew or intended that the other party would act on that basis.
Mr Panna submitted that there had been no detriment identified to the applicants by reason of the failure to conduct a reconciliation at the end of each year. I disagree with this submission.
There was evidence from Mr Truter that he owned a number of apartments in the complex and he had since sold those apartments. There was also evidence from Mr Ronald Schwartz that he owned an apartment at the premises which he had sold. It thus necessarily follows that any person buying an apartment at these premises, would buy such an apartment without the knowledge that there may be a reconciliation going back many years before they became purchasers. Doing a reconciliation at this particular time could result in such a purchaser being liable to pay money that they were unaware of and of which they had no benefit at the relevant time. That is, they were not the actual owners at the time relating to the reconciliation.
Further, there has been considerable evidence before me in particular from a Mr Glenister on behalf of the applicants and a Mr Finnimore on behalf of the respondent who have attempted to do reconciliations in relation to the years in question. There is disagreement between them as to how certain invoices should be attributed in relation to the reconciliation. This is in part due to the fact that it is difficult in some instances to identify precisely what work was performed in relation to invoices that would necessarily form part of a reconciliation. Had the reconciliation taken place at the end of a particular year, it would have been considerably easier for the items to be identified. In the time between May 2004 and the present time, personnel have changed and memories are likely to have dimmed. This would make it extremely difficult to perform a proper and accurate reconciliation at this time. Mr Panna said that reconciliations have been performed and therefore it cannot be said to be a detriment. However, as I noted in the previous paragraph, in my view, such reconciliations appear to be at the least very contentious and possibly quite inaccurate. Therefore, I conclude on both of these bases, that in order to do a reconciliation at this time would be a detriment to the applicants.
Further, I note that there is no allegation by the respondent that there has been a mistake in either fact or law. The general manager of the respondent at the relevant time was not called to say that he/she was not aware of the operation of clause 5.8 at the relevant period. Therefore, it is not a case of either party seeking to rely on a mistake of fact or law. The applicants correctly submitted that any general presumptive connection between inaction and a belief in the state of facts which must depend on probabilities which arise from the common cause of affairs and accordingly must be governed objectively by circumstances. Reference was made to Newbon v City Mutual Life Assurance Society Ltd[1935] HCA 33; [1935] 52 CLR 723 at 734-735 per Rich, Starke, Dixon and Evert JJ. Their Honours there stated :