Carpet Fashion Pty Ltd v Forma Holdings Pty Ltd.

LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 50030/02 FILE NUMBER(S) : LOWER COURT Einstein J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40559/03 Eq 50030/02

HANDLEY JA SANTOW JA STEIN AJA

20 MAY 2004 CARPET FASHION PTY LTD v FORMA HOLDINGS PTY LTD

1 HANDLEY JA: I agree with Stein AJA 2 SANTOW JA: I agree with Stein AJA. And I would add that what is a derogation from the grant must in every case depend on the other terms of the lease which limit the ambit of what could constitute a derogation from the grant in the particular case. In that sense the other terms of the lease qualify the general implied term against derogation but do not exclude it. 3 It is possible to envisage actions by the lessor so extreme as to derogate from the very basis of a lease itself as in the extreme circumstances illustrated by Nordern v Blueport Enterprises Ltd [1996] 3 NZLR 450. Even if such extreme conduct finds literal support under the terms of other provisions of the lease those other terms must be read consistently with the general implied term against derogation. But this was never such an extreme case. 4 STEIN AJA: The appellant, Carpet Fashion Pty Ltd, appeals from a judgment of Einstein J delivered on 5 June 2003 whereby his Honour dismissed proceedings brought by it against Forma Holdings Pty Ltd, the respondent. 5 The appellant claimed, inter alia, that by its actions the respondent, the lessor of shopping centre premises at Homebush, derogated from the grant of the lease to it of portion of the centre for the retail sale of carpets. It was submitted that it did so by altering the tenant mix and types of products sold in the centre. Under the lease to the appellant the centre was described as a home renovation, building products exhibition and bulky goods retail centre. 6 Attached to a relocation notice given by the respondent to the appellant on 1 September 2000 was a "disclosure statement" which included details that the name of the centre would be changed to Homebush Direct Factory Outlets and the majority of the shops in the centre would be women's fashion and similar enterprises. 7 At trial the appellant put its derogation case on two separate bases- described by his Honour as a specific implied term formulation and general implied term formulation. 8 By the latter I understand non-derogation from the grant as a legal incident arising from the relationship between lessor and lessee. 9 The appellant failed before his Honour on the specific implied term formulation on the basis that the term would not be implied because it was contradicted by a number of express terms of the lease, see [176]. This is not challenged in the oral submissions on the appeal and is clearly correct. 10 His Honour then turned to the alternative case of the general implied term formulation and said:

187 Approaching the matter in terms of the general implied term formulation that the lessor would not derogate from the grant of the lease [cf Harrington & Anor v Harrington Services Pty Ltd supra], the court's finding is that for the same reasons , the conduct of Forma is not shown to have constituted a breach of any such term. (His Honour's emphasis). 11 By this statement I do not understand that his Honour was saying that the express terms of the lease to which he referred, negatived the non- derogation covenant. Rather he was saying that the express terms qualified the implied term so that there was no breach by the lessor of such term. 12 In applying the third criterion of BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 and Codelfa Construction Pty Ltd v SRA of NSW (1982) 149 CLR 337 at 346 his Honour found that a number of the express terms of the lease in effect qualified the covenant not to derogate from the lease. 13 These included clauses 8.2 [177-178 of the judgment], 8.3.1 and 8.3.1.5 [179-180], 17.1,17.4,17.5 and 17.11 [181-182] and 27.1,27.11 and 27.12 [183-186]. I have not set out the texts of these terms since they are reproduced in his Honour's judgment, suffice to quote cl.27.12 which provides:

27.12 The Lessee agrees that the exercise by the Lessor of its rights to relocate the Lessee to the New Premises does not constitute a derogation from the grant of this Lease or a breach of the covenant for quiet enjoyment contained in this Lease." [My emphasis] 14 His Honour concluded that each of the above terms of the lease qualified the covenant against non-derogation. Clearly some of them are of more weight than others, e.g 8.3.1 and 8.3.1.5 (the nature and quality of the other occupiers) and 17.1, 17.4 and 17.5 (change of name, appearance, tenant mix and "character" at the lessor's discretion are significant. Moreover, 27.1 and 27.12 both qualified the implied covenant, the last directly. 15 In my opinion, the finding of his Honour that the implied covenant against non-derogation was not breached by reason of the existence of the specified express terms was open to his Honour to conclude. As observed by Handley JA in Wilcox v Richardson Ltd (1997) 43 NSWLR 4 claims of derogation from grant based on the conduct of the lessees claiming under the same lessor, have rarely succeeded and then only in extreme circumstances (see Nordern v Blueport Enterprises [1996] 3 NZLR 450). 16 The other aspect of attack on his Honour's judgment concerns the fitness of the premises for use as a retail carpet shop. On behalf of the appellant Mr Warren of counsel submitted that his Honour erred in finding that the decision by the respondent to redevelop the centre as a women's fashion outlet store centre did not render the subject premises unfit for use as a retail carpet shop. He said that his Honour ought to have found that the proposed redevelopment of the centre and change of use would have rendered the leased premises so unfit for the purpose for which they had been leased as to constitute a derogation from the grant. This submission is embraced in grounds of appeal 5 to 8. 17 The challenge concerns the findings of the judge to be found in paragraphs [188] and [196] of the judgment. His Honour said as follows: 188 Further Forma's decision to redevelop the Centre did not render Carpet Fashions's premises unfit for their use as a carpet and floor coverings shop because:

(a) The decision to redevelop did not itself have any physical or proved financial effect upon the operation of Carpet Fashion's business; (b) The proposed relocation of Carpet Fashion's premises within the redeveloped Centre would have provided them with equivalent floor space in the same building and on the same level from which they had always traded. There was nothing suggested or required by Forma that would have prevented Carpet Fashion operating precisely the same shop, selling precisely the same goods in precisely the same way, in the redeveloped Centre; (c) The proposed tenant mix of the redeveloped Centre was quite consistent with (and an appropriate context for) a retail outlet selling carpets, rugs and other floor coverings. It was, in any event, certainly not a trading context that would have rendered Carpet Fashion's premises 'unfit' for the purpose of the retail sale of carpets and floor coverings; cf Mr Leyshon's opinions about the very advantageous retailing opportunities for the plaintiff at the redeveloped Centre (d) There was no physical interference with Carpet Fashion's business.

18 And, at [196]: For reasons given above Carpet Fashion has not established that having regard to all the circumstances, any reasonably anticipated interference with its use by reason of: · the relocation notice or · the circumstances in which the redevelopment and proposals were communicated to Carpet Fashion was so substantial or material that it is to be regarded as rendering the premises unfit for their particular use. Notwithstanding the evidence given by Mr John as to the inappropriateness of the new Centre for Carpet Fashion's business, the evidence of Ms Smith that there were at least two retailers which could be appropriately described as 'bulky goods retailers' operating from the new Centre, is accepted. The problem may simply inhere in Mr John's personal opinion and anathema to being required to permit Carpet Fashion to trade in the new Centre, and this by reason of his general knowledge, understanding and beliefs based upon his experience as to situations which may and situations which may not on the balance of probabilities, permit satisfactory trading. But these proceedings necessarily require to be determined upon the appropriate application of legal principle and centrally fail by reason of the express terms of the lease. 19 The key finding above is at subparagraph (c) of [188]. 20 Mr Warren has contended that his Honour's finding should be set aside for the reasons he advanced in argument. What is plain, however, is that what his Honour said was clearly available on the evidence and perfectly open for him to find. The documentary evidence, Mr Leyshon's evidence as well as Ms Smith's, lays a proper foundation for the conclusion in (c) and [196]. That his Honour did not find that Mr John was untruthful is beside the point. His Honour was entitled to accept and act upon Leyshon and Smith without disbelieving John. 21 It seems to me that his Honour was entitled to conclude that the appellant had not established that either the relocation notice or the circumstances in which the redevelopment proposals were communicated to it was so substantial as to render the premises unfit for their particular use. 22 One other matter should be mentioned. That is the definition of the word 'centre' in the lease. This question had never been pleaded, nor did it become part of the issues litigated or referred to in final submissions. That is, until his Honour raised it late in the day. It was never relied on directly by the appellant and if correct, would require evidence which was not before his Honour. The primary judge nevertheless dealt with the matter in [194] rejecting the argument. 23 Since the appellant did not raise the issue in the Notice of Grounds of Appeal I do not think that it would be appropriate to consider the matter. 24 In my opinion the appeal should be dismissed with costs.

Last Modified: 06/08/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.