Edwards v Merlaust Pty Ltd

Issues

1. The appeal was brought under s 39(1) of the Local Court Act 2007 (NSW), which permits an appeal to this Court only on a question of law. At the hearing the Court's lack of power to make findings of fact on an appeal such as this was accepted: Rose v Tunstall [2018] NSWCA 241 at [31].
2. But still Mr and Mrs Edwards sought to tender documents which were not in evidence in the Local Court on the consideration argument. They were only later tendered on the damages question. Their tender was thus opposed.
3. There was also no issue about the law in relation to consideration. Namely: 1. There is no consideration when a promisor promises to do something they are already bound to do: Larkin v Girvan (1940) 40 SR (NSW) 365 at 368 applied in Searle v Commonwealth of Australia [2019] NSWCA 127 at [7]. 2. Past consideration is not good consideration: SAS Realty Developments v Kerr [2013] NSWCA 56 at [69]-[70]. 3. At general law sufficient consideration imports a notion of tangible benefit or advantage conferred by the promisor on the promisee, as in the case of a forbearance to sue, a bona fide compromise of a disputed claim, or the conferral of some other form of practical benefit: Director of Public Prosecutions for Victoria v Le [2007] HCA 52 at [43]. 4. Nominal consideration, referred to as a peppercorn, may also be legally sufficient for contract formation.
4. The parties' pleadings were not in evidence on the appeal. Nor were other documents relied on in opening submissions in the Local Court, such as competing facts and issues documents. But there was no dispute about the evidence on which the issue about consideration had been pursued.
5. Mr and Mrs Edwards tendered the lease, the January letter and an extract from the statement of Merlaust's sole director and secretary, Ms Phillips. There she recorded the payments which had been made after the December agreement. There was no issue that they had not been made at the times which had been agreed.
6. In issue between the parties on the appeal was thus whether: 1. his Honour erred in concluding that there had been no consideration given for the December agreement; 2. Mr and Mrs Edwards could rely on the disputed documents on this appeal; 3. they were entitled to advance arguments which they had not relied on in the Local Court to establish the claimed legal error; and 4. whether some of their arguments depended on factual findings which could not be made by this Court on appeal.

The Local Court's ex tempore decision

1. Arm LCM's decision was given orally and is recorded in the transcript of the hearing.
2. There his Honour noted that Mr and Mrs Edwards relied on what had been agreed in December 2020, as reflected in the January letter, which both parties accepted encapsulated the meeting. The letter related to the late rent and non-payment of outgoings contained in the lease. There was no further evidence or correspondence tendered, either relating to acceptance of the letter or what had been disputed.
3. His Honour noted Mr and Mrs Edwards relied on the January letter as a valid and binding contract, given that it was an 'arrears agreement"; it contained an arrears payment schedule which set up payments over and above rent that was due under the lease; that the result was that Merlaust was bound to accept the payments made under that agreement; and it had not been breached.
4. Merlaust's case was noted to be that there had been no consideration given for its benefit by this plan; all that had been given was past consideration; the letter set out an agreement for Mr and Mrs Edwards' performance of existing contractual obligations and it accepting such late payment; with the result that it received nothing new and the agreement was not binding.
5. Mr and Mrs Edwards' response was that the letter set out performance and contractual obligations, including for them paying additional moneys, over and above rent and that it was implicitly thereby accepted that this was of benefit to Merlaust. His Honour also noted that an unpleaded argument about estoppel had been raised, but not pressed.
6. His Honour observed that there was no evidence which explained why Merlaust had accepted the December 2020 terms, so that it was "a matter for conjecture about whether that was to assist the defendant's financial hardship, whether it was made as a commercial decision by the landlord in relation to the consequences if they didn't accept the money as to terminating, and obviously finding a new tenant for their premises".
7. Arms LCM concluded: "It's clear that in that document there is no additional consideration for the benefit of the landlord. It's matters that specifically refer to catching up on rent, paying outgoings that were outstanding and also, which allows the lessee to catch up for a period of four-to-five-months reading from the document, and then it's to set a continuation of that arrangement to ensure that the tenants are back in the same position where they should have been at the start of the lease in relation to paying outgoings and being in advance in their rent. As I said, it appears to me to be a commercial decision by the landlord, or the plaintiff, to allow the tenants to catch up and stay in the premises. Having regard to that, it's not my view that the document of 6 January 2021 was, or ever intended, to be a formal variation to the lease specifically, or by commercial inference. It is in my view, an agreement of good will to pay arrears and not set a platform for them not to accrue in future. No specific benefit to the landlord other than recovering monies overdue that were entitled to them under the original lease of 18 December 2020. It does not specify any additional benefit to the landlord. This document in my mind is a payment plan and nothing else, and I THEREFORE DO NOT FIND IT IS A VALID AND BINDING CONTRACT BETWEEN THE PARTIES."

The parties' cases.

1. Mr and Mrs Edwards challenged these conclusions, contending that the December agreement had been entered in circumstances where Merlaust had no right to terminate the lease, even though they were behind in the rent; further, that sufficient consideration had been given by the implied promise not to terminate for late payment; there had earlier been no proper claim for outgoings made under the lease, despite written advice that outgoings were in arrears; and that what was agreed was payment of a fixed sum significantly in excess of rent payable, including for outgoings. The result of what was agreed was thus a tangible benefit to Merlaust, which comprised good consideration.
2. It was also contended to be inherent in the December agreement that adherence to its payment schedule meant that Merlaust would not terminate the lease, but that breach of the agreed schedule could give rise to valid termination. There was also an agreement in relation to payment of a lease preparation fee, the time of payment for which was not fixed by the lease and payment of a bond in advance of when it was due. That also provided good consideration.
3. A further agreement restricting Mr and Mrs Edward's use of their own electrician, was also argued to provide such consideration. That was because this involved variation to express special conditions in the lease.
4. Merlaust's case was that what had been agreed could not be construed in the way for which Mr and Mrs Edwards now contended. What the parties had dealt with were payments which were then in arrears, they agreeing to a mechanism for their payment. The result of what was agreed in relation to those arrears could not put it into surplus funds. It only provided a timetable for payment of what the parties accepted in December 2020 was outstanding under the lease. That gave it no benefit other than recovery of monies already due. That did not provide for good consideration, there being no relevant benefit flowing to it from such late payment of what it was already owed. There was no obligation to pay anything which was not in arrears.
5. Merlaust opposed the tender of the documents, that being further evidence on appeal for which leave had not been sought as the Uniform Civil Procedure Rules 2005 (NSW) required. It also contended that Mr and Mrs Edwards could not advance arguments for the first time on appeal, especially about matters which depended on findings of fact which had not been made in the Local Court, because of the way the case had there been pursued.

Further evidence?

1. The two documents Mr and Mrs Edwards sought to rely on were marked mfi 1, a 25 November letter sent to them by the agent and mfi 2, a 2021 February tax invoice for various outgoings. There is no question that they could have been relied on in the Local Court on the voir dire, tendered as they later were by Mr and Mrs Edwards in respect of the damages Merlaust pursued.
2. For Mr and Mrs Edwards it was accepted at one point that on the voir dire there had been no disagreement about facts. But it was submitted that reference to the disputed documents would now make "more clearly the point that was before his Honour, and doesn't change it, and wouldn't alter it either way, however it does shed light on it, and shows an example of what we were otherwise arguing in the abstract". Further, that it did not need to be before him, but would have been helpful" Tcpt, 24 November 2023, p 4.
3. Later it was submitted that there had been a dispute about invoices which Merlaust had issued, which Mr and Mrs Edwards had claimed not to have received. That accorded with Merlaust's case, that there had been an issue about whether invoices in respect of outgoings had been issued before the December meeting. But no evidence was led about this.
4. The result of the way in which the voir dire was conducted was that Mr and Mrs Edwards, on whom the onus on the consideration issue fell, led no evidence about what led to the December agreement, other than by tendering the January letter. They contended that it was this which imposed an obligation on them to pay outgoings which had not to that point crystallised, that providing the required consideration. Further, that what was so agreed would have necessarily resulted in a payment in excess of what was owed, that also constituting good consideration.
5. No leave was sought to rely on the letters on appeal, as the Uniform Civil Procedure Rules 2005 (NSW) permitted: r 50.16. If the Rule applies, that would be sought by motion supported by an affidavit explaining why the evidence had not been relied on in the Local Court.
6. It was Mr and Mrs Edwards' case that they were entitled to rely on those documents because Arms LCM had made no formal orders at the conclusion of the voir dire, when he gave his reasons for the conclusions which he reached about what was in issue in relation to consideration. When final reasons were later given and orders made, those earlier reasons were incorporated, so that technically, to that point his Honour had the right to come to some different view.
7. But that his Honour should do so was not urged below, the parties accepting that the view he had formed about the cases they had advanced about the disputed consideration, for the reasons given, resolved that part of what lay in issue between them. His Honour thus had no opportunity to consider the disputed documents on the construction question and made no relevant factual findings in relation to them.
8. In all of the circumstances, there being no explanation for the course which was taken in relation to this evidence, only contended on appeal to be relevant to the question of consideration, I am not satisfied that Mr and Mrs Edwards are entitled to rely on those documents as they sought to do, this appeal being confined to alleged errors of law as it is.
9. If leave to tender this correspondence had been sought to advance a basis for attacking the decision of the Local Court, which it had not had the opportunity to consider or Merlaust to meet, I would have refused it, no explanation having been given for the forensic course pursued below. His Honour was not called on to consider or make any findings about the facts which those documents might establish, or to take them into account in the conclusions which he reached.
10. Necessarily it seems to me, the receipt of the disputed documents could only now raise questions of fact which it is not for this Court to determine on this appeal. The Court having no power in these proceedings to engage in a fact-finding process about the merits of the case now sought to be advanced, by reference to evidence which was not relied on at first instance on the question of consideration, I am satisfied that the documents cannot justly be received.

The new arguments on appeal

1. It is settled that substantial issues between parties are ordinarily settled at the trial, so that proceedings at first instance do not amount to "more than a preliminary skirmish": Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7. Where, had an issue been raised in the court below and evidence could have been given which could have prevented the point from succeeding, the point cannot be taken afterwards: Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, at 438.
2. Further, a party is bound by the conduct of the case below. Except in the most exceptional circumstances, it is contrary to principle to allow a party to raise a new argument on appeal which, whether deliberately or by inadvertence, was not put at first instance when there was an opportunity to do so: University of Wollongong v Metwally (No. 2) [1985] HCA 28; (1985) 59 ALJR 481, at 483; [1985] HCA 28; 60 ALR 68, at 71.
3. But there are some cases when a question of law is raised for the first time on appeal, for example about the construction of a document, or upon facts either admitted or proved beyond controversy, that it is expedient in the interests of justice that the question be argued and decided: Suttor at 438.
4. In this case I have concluded that it is in the interests of justice to deal with the new legal arguments raised, turning as they do on the construction of the January letter. But as I will explain, I consider they have no good foundation.

The evidence

1. The lease commenced in February 2020 and had a term of five years, as well as an option to renew.
2. It provided for various payments, including monthly rent payable in advance, as well as a share of outgoings, a bond and Merlaust's reasonable costs and expenses in connection with preparation of the lease: cl5.1. Payment of outgoings was dealt with in cl5.2. The outgoings were specified in a schedule to the lease and had to be paid on the next rent day after Merlaust made a request for payment, after it had paid an outgoing or received an assessment or account for its payment: cl 5.3.
3. The lease provided for payment of a bond of $14,718 in 24 equal monthly instalments commencing March 2020, secured over a tractor and baler: cl17. The bond was not the subject of submissions below.
4. The lease also permitted Merlaust to enter and take possession or demand possession in circumstances which included Mr and Mrs Edwards repudiating the lease; if rent or other money due under the lease was 14 days overdue; or if they had failed to comply with a s129 certificate Merlaust served on them: cl12.2.
5. This provision explains Mr and Mrs Edwards' concession that if what was agreed in December 2020 did not involve a binding contract, their damages claim had to fail. On the evidence, by the time the December agreement was reached they had not paid the rent they had been obliged to pay in advance for October or November. The rent for December was also shortly due to be paid. There was no issue that monthly bond payments had not been made and while there had been an issue about whether invoices sent had been received, it was also agreed that outgoings were in arrears.
6. The 6 January letter provided: "Re: Arrears agreement for XXX Further to our meeting in my office on 7th December 2020 I wish to confirm your acceptance of an arrears payment schedule agreed to at that time. Current arrears to be paid as follows : Inv. 22722 for the period 10/10/20 to 9/11/20 to be paid by 11/12/2020. Inv. 22828 for the period 10/11/20 to 9/12/20 to be paid by 10/01/2021. Inv. 20388 for the period 10/12/20 to 9/01/21 to be paid by 10/02/2021. Invoice amounts for each of the above are $8,066.30, The Lessee agrees to pay an amount of $10,000.00 on the due dates being one month's rent with an additional credit toward the following invoice in the sum of $1,933.70. This will allow the Lessee to catch up on the arrears over a 4 to 5 month period. This payment is to continue after rent is back in advance as per the lease agreement and further, this payment is to continue until the outgoings recoverable are paid in full and the required bond is paid. Further agreement made as follows: Lease preparation fee to be paid within 30 x days from 7th December 2020. Payment of the Furniture will need to be addressed separately. I will Issue a payment schedule suggested by the Lessor separately. Lessee Is to provide the Lessor/Lessors agent with the outstanding reports for the following equipment: 1. Demag overhead crane 2. On-site septic tank servicing."
7. What was in issue turned on the construction of this letter.
8. Sensibly it must be inferred from its terms that in December 2020 there was no issue that Mr and Mrs Edwards were not only in arrears in relation to the rent, but that outgoings and bond payable under the lease were also in arrears and that they had also not paid the lease preparation fee which was also payable. The amount of that fee was not there specified. But logically, given what was agreed, it must be inferred that was also then known.
9. Rent of $8,066,30 was payable monthly in advance under the lease. The agreement to pay $10,000 a month so that over 4-5 months those arrears would be repaid, thus meant that the $10,000 to be paid on 11 December 2020 would repay the rent outstanding for October, as well as $1,933.70 for the rent which had fallen due in November and so on.
10. Once the outstanding rent had so been repaid over 4-5 months, so that Mr and Mrs Edwards were again paying rent in advance as the lease required, they had to continue paying $10,000 per month in total. That was in order to pay the "outgoings recoverable" and bond which were also in arrears, until those arrears were also paid in full.
11. Given the terms of the letter, even if before the December meeting it had been disputed that Merlaust had given the formal notice of the outgoings Mr and Mrs Edwards had to pay, they agreed at the meeting what was in arrears, including in relation to the outgoings.
12. The use of the term "outgoings recoverable" in this "arrears agreement" in the January letter necessarily connotes that there were then outgoings recoverable under the lease, which were already in arrears. Mr and Mrs Edwards agreed to pay them by the agreed ongoing additional monthly repayments, after the arrears in the rent were caught up. What was so agreed thus gave them extra time to make those outstanding payments.
13. The repayment schedule thus involved Merlaust forbearing. It accepting that they should have a chance to pay what was in arrears, within the times agreed. That did not involve any payments under the lease being made in advance.
14. The extract from Ms Phillip's affidavit tendered showed: "As of 11 March 2021, the Lessees had been late in all the agreed repayments from 7 December 2020 meeting, noting the following: a. the $10,000.00 due by 11 December 2020 was only paid on 14 December 2020; b. the $10,000.00 due by 10 January 2021 was only paid on 15 January 2021; c. the $10,000.00 due by 10 February 2021 was only paid on 19 February 2021; d. the $10,000.00 due by 10 March 2021 was only paid on 31 March 2021."
15. On this evidence there is no question that Mr and Mrs Edwards were not only in ongoing breach of the lease, but they also did not adhere to the schedule of payments agreed in December 2020. Merlaust thus remained in a position which permitted it to terminate the lease for breach.
16. Mr and Mrs Edwards contended that it was still bound by the lease, which permitted termination only if a payment was more than 14 days late:cl12.2.2. None of the rent payments were more than 14 days after the dates agreed in December, but there is no question that the payment of the lease preparation fee was also not made. There thus cannot be any doubt that it remained in arrears and Merlaust was entitled to terminate as it did.
17. The result was that the lease being terminated on 16 April 2021 could not offend cl 12.2.2.

Arms LCM did not err

1. Merlaust commenced the proceedings in the Local Court to recover damages following its termination of the lease. Mr and Mrs Edwards resisted its claim, relying on the December 2020 agreement as a binding contract which varied the lease. That was disputed and so it had to establish that it comprised a binding agreement, the required consideration having been given.
2. There was no question that the January letter accurately reflected what the parties had agreed. There is no issue that did not involve payment of any rent in advance. On appeal Mr and Mrs Edwards urged the view that the agreement provided for the payment of other sums payable under the lease in advance, that providing good consideration. But that is not what the agreement contemplated or required.
3. While it was agreed that an agreement to make a payment in advance is theoretically capable of amounting to the giving of the necessary consideration, Merlaust's case that this was not contemplated by the agreement must be accepted. It was entirely concerned with the payment of arrears.
4. In submissions in reply, mathematical calculations were advanced on the run for Mr and Mrs Edwards, in an attempt to establish that what had been agreed in relation to payment of the bond amounted to an agreement to pay part of it in advance and effectively, an overpayment. That had not been argued in the Local Court, where no reliance was placed at all on what had been agreed in relation to the bond.
5. Such calculations would necessarily have to have regard not only to the amount of the bond payable and the amount in arrears once the rent was caught up, but also to outgoings which were also in arrears. Despite what was said to have been a disagreement about whether invoices Merlaust had sent had been received, there was no evidence about the basis on which the parties arrived at the agreement that rent, bond, outgoings and lease preparation fees were all in arrears.
6. Mr and Mrs Edwards could have led evidence to seek to establish that there were no outgoings in arrears. But they led no such evidence, even though it was argued on appeal that there had been no "proper claim" made in respect of the outgoings beforehand. That was not attempted to be established by any evidence.
7. Given what was in evidence, the January letter, and the case advanced, it must be inferred from its terms that there had been an earlier demand made for payment of outgoings and the lease preparation fees. That was amongst what was discussed at the December meeting, when it was not only agreed that the outgoings and the bond were in arrears and would begin to be paid after the unpaid rent was caught up, but that the unpaid lease preparation fees would also be paid on the date specified.
8. As explained in White Pointer Investments Pty Ltd v Creative Academy Group Pty Ltd [2023] NSWSC 817 at [236] by reference to Larkin v Girvan (1940) 40 SR (NSW) 365 at 368 and Searle v Commonwealth of Australia (2019) 100 NSWLR 55; [2019] NSWCA 127 at [7], it must be concluded that here what Mr and Mrs Edwards promised by the December agreement to do, but did not perform, was no more than they were already bound to do under the lease.
9. As explained in SAS Realty Developments v Kerr [2013] NSWCA 56 at [69]-[70], such past consideration is not good consideration.
10. The lease expressly required Mr and Mrs Edwards to pay Merlaust's reasonable costs and expenses of the preparation of the lease. Time for payment of this was not otherwise expressly specified. Clause 5.1 only providing that they were amongst the payments Mr and Mrs Edwards had to "pay to the lessor or as the lessor directs". That was accepted in the Local Court as not being relied on to advance the argument about the provision of further consideration.
11. On what was argued for the first time in this Court, there are three possible constructions of what was so provided in relation to the lease preparation costs and expenses. Firstly, that they were immediately payable on entry into the lease, unless Merlaust directed otherwise, the construction I favour. Secondly, that they only became payable when Merlaust later directed. Thirdly, the lease being silent, a term was implied that they would be paid within a reasonable time.
12. The lease commenced in February 2020, but this payment had still not been made by the time of the December meeting and so was one of the payments in arrears which the agreement dealt with. In the circumstances, that was certainly after the time that payment should reasonably have been made, if that term was implied.
13. On any construction of clause 5.1, these costs and expenses were payable before the December meeting, or they then became payable. Either because they were payable on entry into the lease, or because the date agreed, 30 days from 7 December, was the time Merlaust directed for its payment. Payment within that time could not result in any payment in advance.
14. It follows what was agreed in December about this payment by the then specified date was also incapable of providing the required consideration for variation of the obligations already imposed by the lease on Mr and Mrs Edwards.
15. Nor could what was noted in the January letter in relation to power supply, another argument not advanced in the Local Court.
16. By a special condition to the lease it was also agreed: "Inspections, Services, Maintenance & Repairs of Electrical Equipment (a) The lessee must ensure that all Internal and external electrical, lights, fitting and cabling, switchboards and other electrical equipment fitted or installed at the premises are regularly inspected and maintained to meet current Australian electrical standards. (b) The lessee must cause any electrical equipment found not to meet the standards after inspection to be repaired, when appropriate, by a license electrician so that it meets current Australian electrical standards. (c) Immediately prior to the completion of the Terms the Lessee must engage an independent licensed electrician to inspect all internal and external electrical, lights fittings and cabling, switchboards and other electrical equipment fitted or installed at the Premises to verify that all such electrical equipment meets current Australia electrical standards."
17. Special condition 1.9 only permitted modification, change or addition to electrical wiring, with Merlaust's prior written approval. It also had the right to inspect the property, had such consent been sought: cl9.1.
18. It follows that the advice given in the January letter that if Mr and Mrs Edwards wished to pursue the issue they had raised about the power supply with Merlaust, that it would engage a licensed electrician to investigate, cannot have provided the claimed consideration. Thereby nothing was agreed, but notice was given of what Merlaust proposed to do, if the power supply issue was pursued by Mr and Mrs Edwards. There was no suggestion that they did.
19. In the result it cannot be accepted that Arms LCM erred in the conclusion that no additional consideration was given by the December agreement for the benefit of Merlaust. To the contrary, it was forbearing, payments due including the outstanding rent and monthly bond payments unquestionably then being more than 14 days in arrears.
20. Rather than acting to terminate the lease, Merlaust gave Mr and Mrs Edwards not only an opportunity to catch up on rent over four-to-five-months, but also then the outgoings and bond payments that were also outstanding, as well as further time to pay for the lease preparation costs, in order to put them into the position they should have been in, had they complied with the terms of the lease. That requiring them to pay rent in advance, make agreed monthly payments for bond, as well as paying for outgoings and the lease preparation fees.
21. By the December agreement Mr and Mrs Edwards thus gave no further consideration for the opportunity they were given to bring their outstanding payments under the lease up to date, with the result that the lease was thus not varied by agreement, as his Honour correctly found.
22. I am thus satisfied that the appeal must be dismissed, his Honour not having fallen into the alleged legal errors which Mr and Mrs Edwards advanced.

Costs

1. The usual costs order under the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event: r 42.1. In this case that is an order that Mr and Mrs Edwards bear Merlaust's costs as agreed or assessed. Unless the parties approach to be heard within 7 days, that will be the Court's order.

Orders

1. For these reasons I order that: 1. The appeal is dismissed. 2. Unless the parties approach to be heard within 7 days, Mr and Mrs Edwards bear Merlaust's costs as agreed or assessed.

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. Decision last updated: 07 December 2023