Cafe Dansk Pty Ltd v Shiel & Ors

Cafe Dansk Pty Ltd v Shiel & Ors - [2009] VCAT 36 - VCAT 2009 case summary — Zoe

[23]

A mediation conducted at the direction of the Tribunal also proved unsuccessful.
Mr Langevad regarded the various documents presented to his company for execution as unsatisfactory because the text of the schedules departed from the text of the original lease and the lease as renewed for the first time and the standard "boiler plate" term presented were constituted by a different addition of the lease standard published by the Real Estate Institute of Victoria.
When the matter came before me, Mr Langevad said that there were three things which he was seeking. First, he sought documentation, namely a properly renewed lease and disclosure statement together with an estimate of outgoings in accordance with s 46 of the Retail Leases Act 2003 (the Act) and an audited statement of actual outgoings as provided for by s 47 of the Act. Secondly, he wished to obtain a declaration that in the events that had occurred and on the basis of the terms binding between the parties, his company was not liable for any maintenance and repairs to the subject property and, finally, he sought orders for the payment of interest which he submitted in the circumstances should be credited to his company's account relative to the prepayment of rental stipulated in the original lease which he says his company had maintained.
It is common ground that the renewed lease is governed by the Retail Leases Act 2003.
The hearing in this matter concluded shortly after lunch on 7 January 2009. On 9 January, I was handed a facsimile transmission from Mr Langevad in which he advanced some supplementary submissions as to costs. Since I have decided to reserve the costs in this proceeding for further consideration, these additional contentions need not detain us. More significantly, however, he referred to a telephone conversation which he had with a registry officer of the Tribunal in which he said he received an assurance that his company's case would be determined not only upon what was argued at the hearing but also on the basis of the "written submissions" which he had filed. I was uncertain as to what document was being referred to. As a result, upon receipt of the facsimile transmission, I had the same registry officer telephone Mr Langevad asking him to identify the document or documents to which he referred. If a document were identified which raised some point that had not been considered at the hearing at all, I would have to consider whether the rules of natural justice required me to hear supplementary submissions from counsel for the respondents, Mr White, whether at a further scheduled hearing of the matter or by way of supplementary written submission. I directed the registry officer to inform Mr Langevad that absent the identification of some particular document or documents, his company's case would be adjudicated upon what was argued at the hearing. The registry officer telephoned Mr Langevad. I am informed that Mr Langevad identified no particular document or documents. Hence, this determination is based upon what was argued at the hearing.

[59]

Mr Langevad based his claim for a declaration that his company is not liable for any repairs or maintenance to the demised premises upon special condition 4.1 of the 2003 lease as renewed. This special covenant imposes on the lessor an obligation of replacement with respect to "any items of its fixtures, fittings and installations which have become unserviceable".
Mr White submitted that the reference to fixtures, fittings and installations, was a reference to the lessor's fixtures and chattels which are referred to as being part of the demise in the introductory paragraph to the lease deed and are specifically described by reference to an annexure in item 4 of the schedule. As previously noted, it was part of the transaction whereby the 2003 lease was renewed by Habradel Pty Ltd as lessor that the items in the annexure would be transferred to Café Dansk Pty Ltd. The results according to Mr White were that clause 4.1 had become effectively inoperative.
Mr White called evidence from Mr Shiel, the first respondent - the managing agent, to the effect that the fitout of the premises had been installed by Café Dansk or its predecessor tenants. The freehold reversioners owned little more than "the shell" of the building said Mr White. Mr Shiel said that as far as he could see, the only fitting or fixture which could be regarded as falling within the definition of "fixtures, fittings and installations" in special condition 4.1 were the sanitary fittings. The shop includes a lavatory for staff and customers.
Mr Langevad did not, as I understand it, deny that the fitout in the restaurant and gallery consisted of tenant's rather than landlord's fixtures. He identified no particular item that might be described as a fixture which had not been comprised in the annexure to the 2003 lease which would fall within the definition. Rather, he said that the landlord owned everything except the fitout. For instance, the fabric of the building could be regarded as a fitting or installation.
Mr Langevad said that clause 4.1 had been specifically included at his insistence. His view was that where a tenant agreed to pay a particular rent for premises for a term of years, in particular where there was a built-in rental escalation as there was in the present case, it would be unjust and wrong to require the tenant to keep paying that rent if the premises deteriorated during the term of the lease. He said he insisted upon the reference to replacement of fixtures, fittings and installations where they became unserviceable to avoid a situation which he had experienced with landlords in the past where the landlord continued to patch up something which should really have been replaced.
In Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 605-6, Mason J (as he then was) in an oft quoted passage said that evidence of the expectations of the parties as distinct from the circumstances surrounding the negotiation of the relevant contract were not receivable as to the true meaning of the words used in the written instrument which recorded the contract.
In Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337, 352, returning to the same theme, his Honour said :

[62]

I accept that Mr Langevad intended to include a special condition that had the effect for which he now contends. That evidence on its own and in accordance with the principles enunciated by Sir Anthony Mason in the authorities referred, is reflective only of his subjective intentions at the time the contract was made. It is not probative as to what the contract actually means.
It seems unlikely that parties would choose the form of words to be found in special condition 4.1 to impose an obligation on a landlord, for instance, to replace a defective wall. An ordinary fixture such as an air-conditioning unit might become "unserviceable" but a wall which develops structural cracks would not normally be so described. The lease specifically makes reference to landlord's or lessor's fixtures and it is clear that in so referring, it is not referring to items such as structural walls. The conclusion that the lease is referring to the things referred to in item 4 of the schedule, and more particularly identified in the annexure, is inescapable. Similarly, the reference in the special condition to "its" viz the lessor's fixtures and fittings is calculated to refer to the items in the annexure. Mr Langevad placed particular reliance on the reference in the special condition "installations". That word is not especially apt to refer to the things in the annexure. Nevertheless, given the evidence as to the fitout being a tenant's fixture, one asks what were "the installations" of the landlord referred to? It would not be an ordinary use of language to refer to say a wall, a ceiling or the roof as an "installation". In my view, the proper construction of special condition 4.1 is that it refers to the items in the annexure. Once those items cease to be the property of the lessor, the clause becomes a dead letter. Accordingly, there is no basis upon which this special condition could be used as a ground for exonerating Café Dansk from any liabilities for repair and maintenance to, for instance, the building itself.
The question of the liability of landlord and tenant for repairs in tenancies governed by the Act is affected by s 52 of the Retail Leases Act 2003. That section provides as follows :

[81]

I find Dr Croft's sceptical views on this point compelling. It would, in my view, make a mockery of s 52 if Parliament having allocated the responsibility for certain repairs to the landlord, the landlord could then send the bill to the tenant for the cost of carrying out those repairs. To attempt to reach this unlikely result by reliance on the note at the end of the section is, to quote Lord Salmon, "like trying to suspend a 3 tonne truck from a cobweb" (Broome v Cassell & Co [1971] 2 QB 354, 390). Even if I were wrong on this point, the strategy for a landlord to recover the cost of compliance with his s 52 obligations from the tenant would depend upon there being a covenant in the lease making these amounts recoverable as outgoings. There is no such clause in this lease. The covenants requiring the tenant to carry out the repairs itself do not deal with any outgoings issue.
There remain the repair obligations expressly imposed on Café Dansk by the standard terms of the lease. These provisions can have at best limited and perhaps no effect at all by reason of the existence of the term implied by s 52 of the Act and the other provisions referred to by Dr Croft in the passage quoted above including s 94. Experience in the retail leases area, however, has been that it is difficult in the abstract to formulate appropriate rules which do not have unforeseen results. The fact that there were extensive and retrospective amendments to the 2003 Act within two years of its enactment is a testimony to this experience. Nor, I think are all the "bugs" and "kinks" yet removed from the 2003 Act. I am inclined to doubt, for instance, that Parliament really intended that in circumstances such as the present, the fact that Body Corporate or Owners Corporation levies are now being sought as outgoings should transform an otherwise straightforward situation where no audit of outgoings would be required to one where audit is required. Precisely what Café Dansk's repair obligations if any are in the present circumstance is somewhat obscure. It is best adjudicated when and if a particular instance arises.
Mr Langevad also made reference to s 41 of the Retail Leases Act 2003. That section provides as follows :

[89]

The passage quoted from the special conditions of the lease relative to security deposits is problematic. On the one hand, it appears to say that there will be no security deposit merely the payment of rent in advance. On the other hand, Mr Langevad contends that he negotiated this provision so that the amount of the "advance payment", to use a neutral term, could be resorted to by the landlord only for non-payment of rent, not for issues of repair and not even to recoup the landlord for unpaid outgoings which the lease required the tenant to pay. The passages from Sir Anthony Mason's judgments in the Secured Income and Codelfa cases show why Mr Langevad's expectations and intentions with regard to the security deposit special provision are not probative. The provision that Café Dansk agreed that "such forward payment of rental will be deemed to be by way of a security deposit and will be dealt with accordingly pursuant to the provisions of this lease" clearly negate any contention that the advance payment of rent can be used only with regard to rental defaults and no other defaults. I quoted above from the text of the security deposit clause in the standard provisions of the lease. The passages state that return of the deposit is dependent upon the condition of the premises (which is not a matter of rental default) and that the deposit is to secure the lessee's obligations generally under the lease not merely the rental obligation.
Mr Langevad's view of the special provision under item 14 of the 2003 lease cannot be accepted.
Mr Langevad sought an order that his company's account should be credited with compound interest reaching back to 1 April 2003. In this he relied on s 24 of the 2003 Act which requires that security deposits "must be held by the landlord on behalf of the tenant in an interest bearing account" and that the interest earned is to "form part of the security deposit" and that the landlord "must account to the tenant for interest earned on the deposit". This section cannot apply to the 2003 lease which whilst undated is expressed to commence on 1 April 2003. The 2003 Act commenced on 1 May 2003 (s 2(5)) and generally applied only to leases entered into after that commencement (s 11). Certain provisions of the 2003 Act apply retrospectively to leases entered into before that commencement date but s 24 is not one of them. The 2003 lease would have been regulated by the Retail Tenancies Reform Act 1998. The 2003 Act made certain amendments to that statute in its continued application to pre-2003 leases but the insertion of a provision along the lines of s 24 was not one of them. Hence, there can be no claim for interest with respect to the pre-payment of rent for the term of the 2003 lease against any person. Even if there could be, the present lessors, the Yalamanchilis, were never party either by privity of contract or privity of estate to the 2003 lease and so therefore they could not be regarded as "the landlord" for the purposes of that lease.
No claim for interest can therefore predate 1 April 2006 the date of the lease as renewed by Habradel Pty Ltd with effect from that date. In the present case, the Yalamanchilis became entitled to the rents and profits of the premises in February 2008. Mr Langevad's contention is that if the Yalamanchilis are not liable for the interest from 2003 onwards, they certainly may be liable for the interest going back to the beginning of the present lease.
The evidence on the point of whether any interest had been earned in that period was unclear. As I understood Mr Shiel, he said that an amount equal to three months rent in advance had been accounted to his principals at settlement in February 2008. Inferentially, no interest had been passed over. Section 142 of the Property Law Act 1958 provides in broad terms that the burden of a lessor's covenant under a lease runs with the reversion. The effect then is that once persons become entitled to the reversion under a lease as the Yalamanchilis did in February 2008, they become liable upon the covenants of the lease. I was not referred to any authorities on the question whether this liability extended to any pre-existing defaults or not. The statutory obligation to invest the bond monies in an interest bearing account and to account for the interest established by s 24 of the Act creates the relevant obligation by the device of stating "a retail premises lease is taken to provide that ...", the effect then is to create a statutory implied covenant.
The section applies only "with reference to the subject matter of the lease". This phrase is equivalent to whether the covenant in question touches and concerns the land (Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 244 ALR 1, 22). According to Bradbrook and Croft Commercial Tenancy Law in Australia (2nd Ed) [1520] 324 :

[91]

A covenant with respect to a security deposit would certainly seem to fall within this category. Moreover, as the Gumland case shows, it is well established that a covenant to pay rent touches and concerns the land and here the provision in question could as easily be characterised as a provision for the payment of rental in advance.
It appears that the advance payment had never been invested in an interest bearing account until 24 October 2008. Can the Yalamanchilis be held responsible for the default before they became entitled to the rents and profits in February 2008? I was referred to no authority on the question whether the assignee of the reversion could be liable for breach of a landlord's covenant occurring prior to the assignment. Section 141 of the Property Law Act deals with the assignee's right to enforce the benefit of covenants. It was previously believed that absent a separate assignment of a right of action the mere assignment of the reversion did not carry with it a right to sue for past breach (Woodfall on Landlord and Tenant (Vol 1) (1960) [1869] 852). This statement and others to like effect were however disapproved by the English Court of Appeal in the case in Re King (deceased); Robinson v Gray [1963] Ch 459 where the covenant in question was one for repair and reinstatement. The result according to their lordships was that following assignment, the right of action was vested in the assignee and not in the assignor. The Full Court of the Supreme Court of Queensland in Ashmore Developments Pty Ltd v Eaton [1992] 2 Qd R1 reached the same conclusion relative to the right to enforce following assignment a claim for arrears of rent accrued prior to assignment. There seems no reason why a different rule should apply to the question whether the assignment of the burden of a covenant extends to breaches taking place prior to assignment.
It follows therefore that the Yalamanchilis are liable for the failure to invest the advanced payment of rent in accordance with the term implied by s 24 of the Act. Their liability with respect to that breach is not, however, simply to pay money to Café Dansk, rather it would be to add the appropriate sum to the security deposit which has now been established. In light particularly of the fact that I have rejected Mr Langevad's contention that the security deposit as established for this tenancy is available only for rental breaches, the amounts in question may ultimately go to the Yalamanchilis at the end of the tenancy.
Mr White contended that the Yalamanchilis' liability should be limited because Mr Langevad had failed to make a timely response to a request which was made eventually by Mr Shiel for a tax file number to enable the relevant security deposit account to be established. It was not demonstrated that it would have been entirely impossible to establish the account as distinct from the situation attended by unsatisfactory taxation consequences. It might be for instance that all of those consequences would "wash out" at the next return lodged by Café Dansk. Moreover, there was no explanation as to why the predecessor in title, namely Habradel Pty Ltd, did not establish the required security deposit. In the circumstances, therefore, the Yalamanchilis are responsible to account for the interest that should have been earned from the outset of the 2006 lease.
I had no evidence as to what interest should have been earned, hence that matter would have to be stood over for further consideration.

At a glance

Court

Decision date

Before

Source

Judgment (95 paragraphs)

Cafe Dansk Pty Ltd v Shiel & Ors (Retail Tenancies) [2009] VCAT 36 (14 January 2009)

Parties

Cases Cited (4)