Crossan & Anor v Utmission Pty Ltd

CATCHWORDS: TENANCY - commercial - premises leased to franchisor - licensed to franchisee for license fee which was same as rent - lease later assigned to franchisee - lessor re-entered due to default in payment of rent after demand - whether failure to pay in compliance with demand - depended on whether April rent (post assignment) paid twice - April rent paid by franchisee - franchisor took money including April licence fee - did not pay over to lessor - whether franchisor agent of lessor - on facts, no agency - no question of principle.

PARTIES: Matthew Gordon Crossan and Sharon Gail Crossan - Appeallants Utmission Pty Ltd - Respondent

COUNSEL: Mr and Mrs Crossan in person J Sheller - Respondent/Cross-Appellant

LOWER COURT JURISDICTION: District Court

LOWER COURT MEDIUM NEUTRAL CITATION: Utmission Pty Ltd v Crossan & Anor [2009] NSWDC 15

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2009/298465

GILES JA TOBIAS JA YOUNG JA

Friday, 3 December 2010 MATHEW GORDON CROSSAN and SHARON CROSSAN v UTMISSION PTY LIMITED

Judgment 1 GILES JA: Premises in Pennant Hills Road, Thornleigh, were owned by the respondent, Utmission Pty Limited, and leased to the appellants, Mr Mathew Crossan and Mrs Sharon Crossan. On 19 October 2007 the respondent re-entered the premises and took possession, under a clause in the lease by which that could be done after formal demand if the appellants were in default in payment of rent. 2 In proceedings in the District Court the respondent claimed from the appellants arrears of rent and outgoings and its expenses incurred in re-entry. The appellants defended the claim, and cross-claimed for damages on the ground that the re-entry had been unlawful because they had not been in default in the payment of rent. 3 Levy DCJ found that the appellants had been in default in payment of rent, although not to the extent that the respondent had asserted at the time. His Honour found that the rent for April 2006 had been paid twice, but that did not avail the appellants because he found that nonetheless the rent for September and October 2007 had not been paid. His Honour gave judgment for the respondent for $47,742.15, which was less than had been claimed because of the finding as to double payment, and gave judgment for the respondent on the cross-claim. 4 The appellants appealed by leave from his Honour's decision, the leave being limited to whether a formal demand was made in relation to the rent payable for October 2007. So far as the notice of appeal goes beyond the leave, which the submissions really did not do, it must be disregarded. The respondent cross-appealed by leave, the leave being limited to a ground defensive of the finding that the re-entry had been lawful and not extending to recovery of an amount greater than the $42,742.15. In substance, the cross-appeal was against the finding that the April 2006 rent had been paid twice. 5 Before us the appellants appeared in person, as they had in the District Court. Mr James Sheller appeared for the respondent. 6 The re-entry clause in the lease was clause 0.1, by which the respondent could re-enter and terminate the lease "if the rent hereby reserved or any part thereof shall be in arrears or unpaid for 14 days after the same shall have become payable (after formal demand has been made for payment)". 7 Rent was payable monthly on the first of each month. On 17 September 2007 the respondent demanded arrears of rent and outgoings for July, August and September 2007. The appellants paid the amount claimed less one month's rent. They did not make full payment because they maintained that the April 2006 rent had been paid twice and had been applied by them to the July 2007 rent. However, because of a dispute concerning land tax found against them by the judge, the appellants did not pay the October 2007 rent. It followed from the judge's finding that the April 2006 rent had been paid twice that the demand of 17 September 2009 was satisfied, but the judge upheld the re-entry on the basis of the subsequent non-payment of the October 2007 rent. (The finding of non-payment of the September 2007 rent is puzzling, but does not affect this.) 8 In their appeal the appellants submitted that his Honour overlooked the need for a formal demand for the October 2007 rent. At the time of the leave application the respondent relied on a communication of 3 October 2007 as a formal demand for the October 2007 rent, but at the hearing it accepted that the judge had been in error in the manner of which the appellants complained (while pointing out that the need for a formal demand had not been raised by the appellants in the District Court). But by its cross-appeal the respondent contended that the re-entry was well founded on the demand by the letter of 17 September 2007, because there had not been double payment of the April 2006 rent and so the demand had not been fully complied with. Thus the question came down to whether the judge was in error in finding that there had been double payment of the April 2006 rent. 9 Before going to the judge's reasons on that matter, I describe the background. 10 The original lessee of the premises from the respondent was a Midas company called either Midas Australia Pty Limited or Midas Asia Pacific Pty Limited ("Midas"). In July 2001 Midas franchised to the appellants and a Mr Paul Willoughby a business of general motor vehicle repair and maintenance, specialising in mufflers. Midas, the appellants and Mr Willoughby entered into a licence agreement for the use by the appellants of the premises. Through a company SMP Motor Group Pty Limited ("SMP"), the appellants and Mr Willoughby conducted the automotive business at the premises. 11 The lease permitted Midas to assign, sublet or otherwise deal with its right to possession of the premises with the respondent's consent, save that the respondent's consent was not required for it to sublet to a franchisee. The licence agreement was not in evidence, but it was referred to in a Deed of Surrender and Release dated 15 February 2006 which I will later mention. It can probably be inferred that the respondent knew that a franchisee was in possession of the premises, but there is no evidence that it knew any details of the licence agreement. The appellants and Mr Willoughby paid a monthly sum to Midas under the licence agreement, which the judge implicitly found was the same amount as the monthly rent payable by Midas. 12 In about April 2005 Mr Willoughby assigned his interest in the franchise agreement, the licence agreement and SMP to the appellants. 13 Midas and the appellants subsequently fell out. They recorded the severance of their connection by the Deed of Surrender and Release of 15 February 2006 ("the Deed"). It provided for the surrender of the franchise agreement and the licence agreement, taking effect on the Completion Date, but the appellants were obliged to procure a surrender or an assignment of the lease prior to the Completion Date. In the Deed the Completion Date was 3 April 2006 or such later date as the parties agreed, and it was in fact 3 April 2006. 14 In accordance with the Deed, there were negotiations for assignment of the lease. On a date in July 2006 a Deed of Assignment was executed. The parties were the respondent as landlord, Midas as assignor and the appellants as assignees. The Deed of Assignment provided for assignment of the lease to the appellants "on and from the Effective Date". The respondent consented to the assignment and released Midas from its obligations under the lease, and the appellants covenanted with the respondent that they would pay the rent reserved by the lease as from the Effective Date. The Effective Date was 1 April 2006. 15 In due course a transfer of the lease, which was a lease under the Real Property Act 1900, was executed and registered. 16 During the currency of the licence agreement the appellants established a direct debit authority with their bank under which amounts due to Midas pursuant to the licence agreement were paid to it. The nature of the authority, which was described in this way in the evidence, is not entirely clear. 17 In March 2006 the appellants arranged for cancellation of the authority, and on 13 and 18 April 2006 they paid to the respondent amounts representing the April 2006 rent payable by them under an assigned lease. That is, the appellants proceeded on the basis that they did not pay Midas in relation to their possession of the premises from 1 April 2006, but paid the respondent as their landlord. 18 In circumstances not entirely clear, Midas received an amount which the appellants equated with the other payment of the April 2006 rent. The judge found that on or about 3 April 2006 Midas "took its usual monthly periodical payment for rent and outgoings" from the appellants' bank account. That was not the evidence, although I do not think it matters greatly. The evidence of Mr Crossan was that Midas called in a bank guarantee and took $20,000, it seems some three months after April 2006, and that the appellants eventually received from Midas an invoice for "rent April 2006" which, at least on their understanding, represented part of the $20,000. Be that as it may, Midas took the money, and it did not pay the money to the respondent. It seems that the appellants did not know that Midas had taken the money until January 2007 or a little later. 19 I go then to the judge's reasons. 20 The judge referred at [8] to the arrangement at the time of the licence agreement as one under which money was paid to Midas, and said that "Midas in turn accounted to the Plaintiff in respect of such monies." He referred at [19] to Midas paying rent to the respondent on 4 March 2006 "using funds provided by the Defendants to Midas for this purpose pursuant to the arrangements that subsisted between Midas and the Plaintiff for that purpose." 21 His Honour said as to the double payment - "46. The Defendants finalised their negotiations with Midas and the Plaintiff on 15 February 2006. In the following months, namely March and April 2006, Midas received monies for rent and outgoings from the Defendants pursuant to an existing direct debit facility made pursuant to the former arrangements. 47. I find that the former arrangements, whereby the Defendants paid Midas which in turn paid the Plaintiff, comprised a relationship of agency between the Plaintiff and Midas whereby Midas collected and received monies from the Defendants as the agent of the Plaintiff. The mechanism whereby the agency operated was that the Defendants made payments to Midas and in turn Midas made corresponding payments to the Plaintiff to account for the monies it received from the Defendants. 48. In my view this indicates that before the lease was assigned by Midas to the Defendants the parties were in a fiduciary relationship and I am satisfied that this was so. Until the lease was formally executed in July/August 2006 and registered subsequently, this meant that when Midas received monies from the Defendants it did so as the agent of Utmission. In my view this is evidenced by the fact that Midas adopted the practice of passing on those monies to the Plaintiff for payment of rent and outgoings in respect of the premises. I am satisfied that this course of dealings was conducted with the full authorisation of Utmission. 49. Accordingly, I find that when Midas received monies from the Defendants' bank account in March and April 2006 Midas did so as agent for the Plaintiff." 22 With respect, the judge was in error. While the licence agreement was on foot, Midas was not the respondent's agent to collect and receive money from the appellants. Midas was obliged as lessee to pay the monthly rent to the respondent, and by a separate agreement with the appellants it received the same amount under the licence agreement in satisfaction of the appellants' obligation owed to it, Midas. It was a case of two separate obligations, not a case of an amount being passed on by an agent. 23 There was in fact no evidence of an arrangement between Midas and the respondent whereby Midas used funds provided by the appellant to pay the rent, as apparently found by the judge. The evidence of Mr Wright of the respondent was quite to the contrary of that, and of any agency, and there was no other evidence on which the agency could be found. 24 The basis for the judge's finding of agency appears to be the fact that Midas passed on the money paid by the appellant, "with the full authorisation of Utmission" (at [48]). It is not clear what his Honour meant by authorisation. If his Honour meant that the respondent knew that the money was being passed on, there was no evidence that it knew the source of the money paid to it by Midas. Even if it did know of the source of the money, that would not make out agency. There was no evidence of any other kind of authorisation. 25 Apart from the lack of evidence, the judge's reasoning was circular. The agency indicated a fiduciary relationship, and a fiduciary relationship meant that Midas received money from the appellants as the respondent's agent. This was false reasoning. 26 The position did not change with the assignment of the lease. By the Deed of Assignment Midas was released and the appellants undertook a direct obligation to the respondent on and from 1 April 2006. The appellants acted accordingly even prior to the execution of the Deed of Assignment. 27 Perhaps more fundamentally, there was no question at all of payment by the appellants to Midas on behalf of the respondent of the money said to be the second payment of the April 2006 rent. The appellants did not intend to pay the amount taken by Midas to Midas, as an amount payable under the licence agreement let alone as rent payable to the respondent, and did not know that Midas had taken the money until many months later. 28 The appellants' submissions in response to the cross-appeal had two limbs. 29 The first limb was that agency did not matter because as at 1 April 2006 Midas was responsible for the payment of rent to the respondent. This submission, which was outlined in the written submissions in the Orange Book, was not an easy submission to make when at the time the appellants paid the April 2006 rent to the respondent, and when they now complain of double payment not of mistaken payment. 30 The submissions, as I understand them, were that a draft of an earlier version of the Deed of Assignment had provided that Midas would not be released from its obligations under the lease; that Mr Wright of the respondent later changed his mind and so the Deed of Assignment did provide for Midas's release; but that as at 1 April 2006 this had not occurred; and so Midas was as at that time responsible despite the later Deed of Assignment. The judge found, however, that under the Deed of Assignment the new arrangements were effective as at 1 April 2006, and that it did not matter that the Deed of Assignment was executed in July 2006. No error in so concluding has been shown. 31 The second limb was that the agency was made out because, as it was put in the written submissions, Midas "always acted like an agent for Utmission". 32 The written submissions detailed, without reference to evidence - "(a) Midas found tenants for the properties like an agent.

(b) Midas wrote up the contract for the tenants like an agent.

(c) Midas was the intermediary between the lessor and its tenants like an agent.

(d) Midas collected the rent and forwarded it to the lessor like an agent.

(e) Midas collected a fee for doing this like an agent.

(f) Midas holds a real estate license." 33 The appellants further submitted that the relationship between Midas and the respondent was the same as that between the respondent and the real estate agencies acting as its rental agent, that is, collecting rent in a trust fund and accounting for the balance to the respondent; and that Mr Wright's business experience was such that it was unlikely that he did not know that Midas was carrying out all the functions of an agent. 34 However, Mr Crossan frankly and appropriately agreed that there was no evidence in support of the propositions in paras (a) to (f) earlier set out, and an evidentiary basis for Midas always acting as agent for the respondent is otherwise lacking. The central assertion in para (d), namely, that Midas collected the rent and forwarded it on to the lessor like an agent, is not correct on the evidence before the Court. Midas was not collecting rent. It was receiving payment of money due to it under the licence agreement. It was not doing what the real estate agencies did. 35 The appellants referred in their oral submissions to three particular matters which it was suggested indicated agency. 36 One was a series of letters in which Midas and the respondent's solicitors debated whether the landlord or the tenant was responsible for repair to a damaged Tiltadoor. Mr Crossan pointed to the reference in a letter from Midas to the respondent's solicitors to "our client" being responsible for maintaining the cables in the door, and submitted that this was a recognition by Midas, not refuted by the respondent's solicitors, that they, the appellants, were the client in question, and were in a client relationship which he said was one of agency. In my opinion, the letters simply indicate a debate between landlord and tenant, and the reference to "our client" is a mistake. Further, whatever the relationship between Midas and the appellants was, it was not one whereby the appellants were properly described as a client of Midas. I do not think that the letters in any way support agency, 37 The second matter was a reference to the clause in the lease dealing with permitted assignment. The submission, as I understand it, was that the respondent's consent to an assignment was necessary and there was no evidence of the respondent's consent prior to a time after 1 April 2006, so that Midas during the interim was, as it was put, in a quandary about assignment. That was then said to indicate that Midas in its position of quandary must have been an agent in relation to the rent. I regret that I do not understand the submission. I do not think reference to the clause assists the appellants. 38 The final matter was some oral evidence given by Mr Wright, which is not particularly easy to understand but in which he appears to have said that someone (it is not entirely clear who) "assumes that when they took over that Midas had paid everything up to date and the Crossans had paid Midas." I am not entirely sure what use the appellants made of this, but I think it was submitted that it showed that the respondent was aware that they had paid the April 2006 amount to Midas and that Midas had paid it over to the respondent. In fact the money was not paid over to the respondent, and I do not think that the evidence indicates awareness either of the payment to Midas or that it had been paid over to the respondent. This also does not seem to me to assist the appellants. 39 In the result, therefore, in my opinion the payment of the April 2006 amount to Midas was not a payment of rent to the respondent. The appellants were in arrears for the additional month's rent, part of the demand by the letter of 17 September 2007, and to the extent of that amount they remained in default in payment of rent. Thus the respondent was entitled to re-enter. The appellants, for whom one can readily have sympathy, may have had a valid complaint against Midas, but that is of no consequence as between them and the respondent. 40 Although the appeal would otherwise have been allowed, the cross-appeal should be allowed and the allowance of the appeal that would otherwise have brought some success to the appellants is negated. The cross-claim remains dismissed, although by reason of the limitation on the grant of leave to cross-appeal the respondent is not entitled to have its judgment increased by reinstatement of the one-third reduction made by the judge to reflect his finding that the appellants had doubly paid the April 2006 rent. 41 In the circumstance, in my opinion, the appropriate orders are that the appeal be dismissed and the cross-appeal be allowed, although that does not bring any further order disturbing the orders made by the judge. The question of costs is one on which the parties should be further heard, particularly in the light of an indication to Mr Sheller at the commencement of the hearing that there may be a question arising from the way in which the cross-appeal was brought late. 42 TOBIAS JA: I agree with the orders proposed by the Presiding Judge and with his reasons. In order for the appellants to accordingly resist the cross-appeal, it was necessary for them to point to evidence that for the purpose of the payment of the April 2006 rent to Midas which was due from the appellants to Utmission, Midas had Utmission's authority to collect that rent for that month on its behalf. The trial judge made a finding to that effect, but it was one made without any evidence to support it. 43 It may well be that from the perspective of the appellants, they considered that the rental money due to Utmission under the lease for the month of April, if paid to Midas, would be accounted for by it to Utmission. Whether or not it was so accounted is irrelevant unless there was evidence to support a finding that Utmission had authorised Midas to collect that month's rent on its behalf. 44 In the absence of that evidence, it follows that his Honour erred in finding a relationship of agency between Utmission and Midas with the consequence that the cross-appeal must succeed and, inevitably, the appeal must be dismissed. 45 YOUNG JA: I agree with Justice Giles and with the additional comments made by Justice Tobias.

[The parties addressed on costs] 46 GILES JA: No order as to costs of the appeal including the two applications for leave, on the basis that each side shall pay their own costs.

[The parties addressed on a stay.] 47 GILES JA: We stay the substantive judgment in the District Court until 31 January 2011. We stay the costs judgment save, so far as may be necessary, as to progress towards assessment of costs

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