Emhill Pty Ltd & Anor v Bonsoc Pty Ltd

LEASE - Option to renew - Retail Tenancies Act 1986 (Vic), s 14 (now repealed) - Seacrest Pty Ltd v Apriaden Pty Ltd [2000] VSCA 75; (2000) 1 VR 567 considered - Surrender of lease by operation of law not excluded from application in the circumstances.

Introduction

1 This is an appeal in two separate matters between the same parties; matter numbers 4582 of 2003 ("the L proceeding") and 4583 of 2003 ("the Q proceeding") in the Supreme Court. Pursuant to s 109 of the Magistrates' Court Act 1989, a judge of the Trial Division heard appeals from the Magistrates' Court in both the L and Q proceedings. His Honour delivered a separate judgment in each of the two matters.[1] The appeal is from those decisions.

General Background to both L and Q Proceedings

Factual Background

2 Both the L and Q proceedings share the same background. Bonsoc Pty Ltd ("Bonsoc") leased to Emhill Pty Ltd ("Emhill") various subdivided units of 70 Gladstone Street, South Melbourne. Units 1, 2 and 3 were retail properties. Units 4, 5 and 6 were car-parks adjacent to those retail properties. Dixon Krestles & Co Pty Ltd ("Dixon Krestles") acted as an agent for Bonsoc. Mr Brian Arthur Cook, a director of Emhill, personally guaranteed Emhill's obligations under the leases.

3 There are three relevant leases. By lease commencing 1 November 1993, Bonsoc leased unit 1 to Emhill. By lease commencing 1 November 1994, Bonsoc leased unit 2 (including unit 6 annexed thereto) to Emhill. Both leases were due to expire on 31 October 1996 and both leases provided an option to Emhill to renew its tenure for two further terms of two years each. By lease dated 22 January 1996, Bonsoc leased unit 3 to Emhill. This lease was due to expire on 21 January 1998 and also provided for Emhill to renew its tenure for two further terms of two years each. It was a matter of contention between the parties whether the unit 3 lease also conveyed tenure to units 4 and 5.

4 The Q proceeding arises out of allegations as to Bonsoc's conduct prior to the parties entering the leases. The L proceeding arises out of the termination of those leases.

Litigation History

5 In November 1998, Bonsoc filed a complaint against Emhill and Mr Cook in the Magistrates' Court claiming arrears in rent and outgoings in respect of all three leases as well as damages (the L proceeding). In August 1999, Emhill filed an amended counter-claim for damages for wrongful termination of the unit 1 and unit 2 leases based on s 14 of the Retail Tenancies Act 1986. On 25 February 2000, having heard the matter, the learned Magistrate ordered that Emhill pay Bonsoc $27,630.30 in rent and damages together with $8,182.90 for interest and costs of $3,390.00. Emhill's counter-claim was dismissed.

6 In May 2001, Emhill appealed to the Supreme Court pursuant to s 109 of the Magistrates' Court Act 1958 raising questions of a law, including questions on the operation and effect of s 14 of the Retail Tenancies Act 1986. On 4 June 2001, Balmford J found for Emhill on these questions and remitted the matter to the same Magistrate for a rehearing in accordance with her Honour's answers.[2]

7 It was at this stage, on 18 March 2002, that Emhill instituted proceedings based on alleged misrepresentations by Bonsoc. Emhill claimed that Bonsoc, in asserting title to unit 6 which was attached to the unit 2 lease, fraudulently misrepresented its position to induce Emhill into the lease over unit 2 (with unit 6 annexed thereto); alternatively, that it acted negligently; alternatively, that it engaged in misleading and deceptive conduct contrary to the Trade Practices Act 1974 and the Fair Trading Act 1985. Emhill sought orders that the unit 2 lease be set aside ab initio; that a value of $150 per month be set off against monies owed by Emhill under the lease; that Emhill be absolved of its obligations under all three leases; and that Emhill be awarded damages for its loss of opportunity as well as the relocation of its premises upon the termination of the unit 1 and unit 2 leases. Accordingly, when the dispute between the parties came before the Magistrate for the second time in December 2002, this second claim by Emhill (the Q proceeding) fell for consideration.

8 The learned Magistrate heard the case for a second time and, on 22 January 2003, found for Bonsoc in both proceedings. Emhill appealed again under s 109 of the Magistrates' Court Act 1989 to a judge of the Trial Division on a question of law. On 18 September 2003, that judge found for Bonsoc.

Background Facts to the Q Proceeding

9 Bonsoc and Emhill entered the unit 2 lease on 11 November 1994. Attached to the unit 2 lease was unit 6 which was a car-parking space. It is uncontroversial that Bonsoc did not, in fact, possess title to unit 6. This came to light in mid-June 1996, when Mr John Counsel, proprietor of S&O Plumbing Pty Ltd ("S&O Plumbing"), advised Mr Cook that his company in fact owned the property and that they wished to use it.

10 This state of affairs, whereby Bonsoc was accepting money for a unit which it did not own, arose out of dealings between Mr Cook, as director of Emhill; Ms Pamela Ann Fay, the commercial property manager of Dixon Krestles; Mr John Pratt, a director and principal of Dixon Krestles; and Mr Nick Bonfitto, a director of Bonsoc who acted on their behalf in signing the leases. The addition of unit 6 to the unit 2 lease was apparently an afterthought: Mr Cook added a condition to the lease that the premises include one car parking space "adjacent as marked on the plan" (these markings are of unit 6). The condition was signed by Mr Bonfitto on behalf of Bonsoc. Unit 6 sat next to units 4 and 5 which, according to Emhill, formed part of the unit 3 lease. Mr Bonfitto knew that Bonsoc owned only two out of the three car-parking spaces. Also involved in the transaction were Ms Fay and Mr Pratt of Dixon Krestles. With respect to Mr Bonfitto, the Magistrate found:

"Mr Bonfitto, the principal of Bonsoc presented as unsophisticated in respect of commercial matters and clearly relied on his agents concerned (sic) the leasing of the units. He had no recollection of hand written special conditions in the unit 3 lease. He knew that Bonsoc had title to 2 car parks only and would not have agreed to the leasing of 2 car parks with unit 3 when one had been included in the unit 2 lease."

11 As to Ms Fay's evidence, the Magistrate found:

"The essence of Ms Fay's evidence was that she assumed all 3 car parking spaces adjacent to the building housing the 3 units were owned by Bonsoc. She could not recollect the car parking spaces being negotiated at the time Emhill entered the lease of unit 3 and noted the schedule to the unit 3 lease including Mr Cook's handwritten conditions was not countersigned on behalf of Bonsoc. Ms Fay denied that she was involved in the deliberate leasing of a car park space which was not owned by Bonsoc."

12 As to Mr Pratt's evidence, the Magistrate said:

"Mr Pratt gave evidence that he was not directly involved in the detailed negotiation of the leases. His role was generally overseeing the broad details such as rent and term of a lease while the commercial manager such as Ms Fay drafted the documentation. He believed a mistake had been made if the leases of units 2 and 3 provided for a total of 3 car park spaces. He further believed the contributing factors to the that (sic) mistake to be the addition of the handwritten conditions by Mr Cook to the lease of unit 3 and if the leasing manager was under the impression all 3 car park spaces were owned by Bonsoc."

13 The main factual issue was Bonsoc's alleged dishonesty, either through an employee or its agent Dixon Krestles, in purporting to confer a right to occupy unit 6 on Emhill. This finding depended on two other issues: whether the unit 3 lease conferred rights with respect to units 4 and 5; and if it did, whether Bonsoc or its agent, knowing that Emhill owned only two out of the three parking spaces, was acting dishonestly in entering into the unit 3 lease which (when read with the unit 2 lease) conferred an entitlement to all three parking spaces. As explained later, the action in fraud failed. The former of these two inter-related issues being answered in the negative, there was no occasion to answer the second. In fact, as stipulated at several points in the communications between the parties, Bonsoc had not in fact assented to the annexure of units 4 and 5 to the unit 3 lease. The lease itself showed that Mr Cook unilaterally added the reference to units 4 and 5 himself.

14 Emhill's solicitors informed Dixon Krestles that Bonsoc did not own unit 6 soon after they became aware of the situation in mid-June 1996. Correspondence between the parties as to a solution to the problem proved fruitless. Dixon Krestles seemed to be under the impression that, by establishing that no rights were conferred with respect to units 4 and 5, it was relieved of any obligations under unit 6.

15 Around 15 July 1996, Emhill told Dixon Krestles that it had solved the problem at hand by entering into an agreement with S&O Plumbing for the rental of unit 6. In the same letter, Emhill also asserted that the rent for unit 2 should be reduced by $150.00 per month (backdated to the commencement of the lease - some 20 months); that $35.00 would also be deducted each month for administrative costs; and that Emhill's solicitors would be seeking from Bonsoc the costs incurred by Emhill in negotiating with P&O Plumbing. The letter also asserted that cheques were enclosed which, in light of the deductions outlined above, satisfied any outstanding debt. A series of communications then ensued which are relevant to the L Proceedings. In short, they led to, by one means or another, the termination of the unit 2 lease and Emhill vacating the premises on 13 November. Emhill occupied unit 2 from 1 November 1994 until 13 November 1996.

The Magistrate's Decision in the Q Proceeding

16 With respect to Emhill's claim under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1985 (Vic), the Magistrate held:

"In my opinion, save for the allegations in the Q proceeding based on fraud, Emhill is estopped from proceeding with the further allegation in that proceeding on the basis they have either been determined in the earlier proceeding...they ought properly have been raised in the counterclaim in the L proceeding.

In any event I am not persuaded that the conduct of Fay, Pratt or Bonfitto on behalf of Bonsoc breached the misleading and deceptive conduct provisions of the Trade Practices Act or Fair Trading Act. I am satisfied that until Council [sic] raised the issue of ownership of unit 6 in June 1996 nobody on behalf of Bonsoc had misled or deceived Cook as only then did it become apparent to those acting on the landlord's behalf that that 3 car parking spaces were nominated in the leases of units 2 and 3 of which Bonsoc owned only two. The actions then taken on behalf of Bonsoc to deal with the situation and which allowed continued use of the space by or on behalf of Emhill were transparent and open."

17 The Magistrate was equivocal as to whether Emhill was also estopped from bringing the action based on fraud: Emhill had argued that it was not was not privy to the alleged facts founding the action for fraud until the trial before the Magistrate on 31 January 2000 and that, therefore, it should not be so estopped.

18 In any event, after setting out the test for deceit in Bullen & Leake's Precedents of Pleadings (13th ed),[3] the Magistrate found that Bonsoc did not possess the requisite dishonesty in including unit 6 in the unit 2 lease. This was based on the findings with respect to the evidence of the witnesses Mr Bonfitto, Ms Fay and Mr Pratt described above. Accordingly, the Magistrate dismissed Emhill's claims in the Q proceeding.

The Judge's Decision in the Q Proceeding

19 Bonsoc appealed. The questions of law settled by the Master for the appeal before the judge in the Trial Division were:

(a) whether the learned Magistrate erred in finding that Bonsoc Pty. Ltd. (by its servants, agents or managing agents) by their conduct did not act fraudulently in purporting to convey rights of tenure in relation to accessory unit 6 (the `said accessory unit') under the lease contract for Unit 2, 70 Gladstone Street, South Melbourne (the `said contract') to Emhill Pty Ltd;

(b) whether the learned Magistrate erred in law in failing to find that Bonsoc Pty. Ltd. negligently misstated or misrepresented to Emhill Pty. Ltd. that it was ready willing and able to give contractual rights of tenure in the whole of the premises demised under the said contract, which included the said accessory unit;

(c) whether the learned Magistrate erred in law in failing to find that in or about June 1996 and following Bonsoc Pty. Ltd., its servants, agents or managing agents by their conduct did:

(i) not communicate that it was able to provide use, occupancy or rights of tenure in relation to the said accessory unit to Emhill Pty. Ltd., including use, occupancy or rights of tenure under the said contract;

(ii) fail, refrain or omit to communicate to Emhill Pty. Ltd. that the managing agents for Bonsoc Pty. Ltd. as landlord had made an arrangement with Mr. Counsel capable of enabling the quiet enjoyment of the said accessory unit by Emhill Pty. Ltd. as tenant.

(d) whether the learned Magistrate erred in concluding that there is evidence to support his finding that `Mr Cook subsequently advised the managing agents that he had reached agreement with Mr Counsel to lease unit 6 [the said accessory unit] for $150.00 per month;

(e) whether the learned Magistrate erred in holding that Emhill Pty. Ltd. is estopped from proceeding with any of the allegations made in this proceeding other than the allegations based on fraud;

(f) whether the learned Magistrate erred in holding that the principles in Port of Melbourne Authority v Anshun Pty. Ltd. [1981] HCA 45; (1981) 147 CLR 589 apply to any of the Plaintiff's causes of action and especially those based in negligent misstatement and misrepresentation and under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1984 (Vic);

(g) whether the learned Magistrate erred in:

(i) holding that the task of assessment of damages is highly speculative?

(ii) failing to make any assessment of damages?

20 The learned judge summarised the magistrate's findings of facts as follows:

"Given the test of fraud which the Magistrate had earlier set out, the Magistrate's view of the evidence appears to have been that:

* although Bonfitto knew that Bonsoc did not have title to accessory unit 6, he was so lacking in commercial sophistication as not to realise or at least to comprehend the significance of the fact that accessory unit 6 had been added to the schedule to the lease for unit 2 (and some evidence that that was so was to be found in the fact that Bonfitto did not initial that alteration);

* Mr Pratt was not relevantly involved; and

* although Ms Fay did indeed understand the significance of the addition of unit 6 to the schedule to the lease, she assumed incorrectly but not dishonestly that Bonsoc did have title to accessory unit 6."

His Honour considered that the magistrate was not in error in taking this view of the evidence.[4]

21 His Honour considered the test for fraud, as used by the Magistrate, from Bullen & Leake's Precedents of Pleadings (13th ed). Drawing on Krakowski v Eurolynx Pty Ltd,[5] his Honour applied that test.[6] There was another aspect to Emhill's argument with respect to Krakowski. It was that although no party to the transaction on their own possessed the dishonesty requisite for a finding of fraud, taking the knowledge of Ms Fay, Mr Bonfitto and Mr Pratt collectively, or on an aggregated basis, Bonsoc could be so imputed with that dishonest intention. In this light, his Honour examined Krakowski v Eurolynx:[7]

"In Krakowski v Eurolynx Brennan CJ and Deane, Gaudron and McHugh JJ made the point that:

A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them.

On one view it would follow from what their Honours there said that, because Bonfitto knew that Bonsoc did not have title to accessory unit 6 and because Ms Fay (albeit mistakenly) represented that it did, Bonfitto represented through Ms Fay to Emhill that it did have title to accessory unit 6 when it knew through Bonsoc that it did not. However, I do not think that to be the correct view.

The question in Krakowski was whether the vendor corporation knew that a failure to refer in a section 32 statement to a side deal concerning rent payable by a tenant would be taken by a purchaser of the premises as a representation that there were no such side deals in existence. It was held that because the directors of the vendor company knew that to be so, or that an inference to that effect could be drawn in their absence from the witness box, it did not matter that the factotum who delivered the section 32 statement may not have known that it was so. The company knew there was a side deal and it knew that the effect of the section 32 statement was to represent that there was not.

Here the position is the converse. Here the Magistrate found that Bonfitto did not understand that any representation was being made about the title to accessory unit 6 and, although the agent did, she did not know that it was inaccurate. Other things being equal, that might have been enough to fix Bonsoc with liability for negligent misstatement or liability under s. 52 of the Trade Practices Act for misleading and deceptive conduct. But it is not enough to show that Bonsoc made a representation which it knew to be false or about the truth of which it was reckless."

22 With respect to Emhill's claims of negligent misstatement and misleading and deceptive conduct by Bonsoc in stating (or implying) that it had title to Unit 6, his Honour found:[8]

"The relief which was sought in the L proceeding was essentially the same as the relief which was later sought in the Q proceeding and, in the context of a case like this, that is enough for Anshun estoppel to apply. In the L proceeding the relief which was sought was damages for the costs of relocation and loss of opportunity when forced to vacate the premises. In the Q proceeding the relief which was sought was damages for costs of relocation and loss of opportunity said to have been caused by negligent misrepresentation. The only significant difference between the two proceedings was that whereas in the L proceeding the alleged basis of recovery was damages sufficient to put the plaintiffs in the position in which they would have been had the lease been performed in accordance with its terms, in the Q proceeding the alleged basis of recovery was damages sufficient to put the plaintiff in the position in which it would have been if it had not entered into the lease (it being contended that but for the negligent misrepresentation or misleading and deceptive conduct, Emhill would not have entered into the leases and would instead have gone elsewhere to a secure location from which it would not have had to depart midstream).

The position here, therefore, is akin to one which Callaway JA described in King v Lintrose as being like the plaintiff in Serrao v Noel: he believed that an order for delivery up of shares would be sufficient but, when they were sold at a loss, he tried to recover damages for their detention. Here, Emhill thought that an action for wrongful termination of the leases would be sufficient and it was only when it discovered otherwise that it tried to recover damages for entering into the leases."

In this light, it was unnecessary for his Honour to answer (g) as settled by the Master[9] with respect to the Magistrate failing to make an assessment of damages. [10]

23 The judge of the Trial Division found in favour of Emhill on one point. On the issue of the arrangement between Emhill and P&O Plumbing for the leasing of unit 6, the Magistrate said:

"Mr Pratt gave evidence that he came to an arrangement with Mr Council [sic] that auxiliary unit 6 would remain available for the use of the tenant of unit 2 at no cost. When shown Mr Cook's letter of 10 July 1996 to [Dixon Krestles] asserting payment by Emhill to the owner for use of the space, he responded that it was a lie. As to that I accept the evidence of Mr Council [sic] who stated that no payment was made by Emhill to his company for use of the car space."

24 The learned judge reviewed that passage and said:

"A plain reading of that passage of the Magistrate's reasons suggests that Mr Cook made a false allegation in the letter of 10 July 1996 that he had paid money to Mr Counsel. But in fact he alleged no such thing...

In my opinion, the Magistrate was in error...The letter of 10 July 1996 reported that "I have obtained an agreement from the owners of Unit 7 to lease Unit 6 - the car parking space cited in Emhill's lease for the above unit." That was true. Emhill through its solicitors had conducted a title search and ascertained the identity of the registered proprietor of unit 6 and had entered into an agreement with the registered proprietor to lease the unit at a rental of $150 per calendar month. Neither Emhill nor its solicitors was aware that the registered proprietor had agreed to sell the unit to Mr Counsel's company, S & O Plumbing Pty Ltd, and there were no dealings on title to alert them of that fact. Mr Counsel's evidence that he had not been paid anything was undoubtedly correct, but just as clearly, the letter of 10 July 1996 was not a lie. Emhill and its solicitors had done their best to overcome the car parking difficulties and had been completely open in what they had done. So much should have been clear to the Magistrate."

25 Although this correction is important, it is of no consequence to the outcome of the appeals.

26 Emhill appeals against the entire judgment of the judge below and his answer to every question as settled by the Master. Many of the specific grounds laid out by the Notice of Appeal are very hard to follow. They seek to impugn certain findings of fact as well as issues not under consideration before his Honour. In summary, the appellant seeks to impugn the decision of the judge below on the following bases:

1. The judge erred in his application of Krakowski;[11]

2. The judge erred in finding that Emhill was estopped from bringing an action for negligent misstatement and misleading and deceptive conduct;

3. The judge erred in not properly answering question (c);

4. The judge erred in not giving reasons for his answer to (e); and

5. As a consequence of his answers to the preceding questions, the judge erred in failing to assess damages.

27 (1) and (2) are answered hereafter. It follows from what is said there that it is unnecessary to answer (5). With respect to (3), the reasons of the judge below are brief.[12] However, as explained there, in light of his Honour's findings in the preceding questions, they need not be any longer than they are. In any event, more is said of the arrangement between Mr Counsel and Bonsoc below.[13] With respect to (4), it is true that the judge below gives no reasons per se for his finding with respect to (e). However, given the nature of the questions, those reasons are implicit in the judge's reasons for his answer to questions (b) and (e).

28 Overall, the appellant's submissions in the Q Proceeding disclosed two issues on appeal: first, whether Emhill should be estopped from bringing the action based on negligent misstatement and misleading and deceptive conduct; secondly, whether Emhill should succeed in its action for fraud.

Anshun Estoppel

29 Where a matter relied upon in support of an action is so relevant to the subject matter of a former action that it would be unreasonable not to plead it in the former action, then the party relying upon that matter is estopped from doing so in the subsequent action.[14]

30 The basis of Emhill's claims based on the allegedly negligent misstatements of Bonsoc hinge upon the fact the unit 2 lease purported to confer rights with respect to unit 6 where, in fact, Bonsoc did not own unit 6. Emhill became aware of this situation in mid-June 1996. There was no reason why Emhill could not have included these claims in the initial proceeding of August 1999 when Bonsoc sued on the very same contract with respect to which Emhill claims they have been negligent. On this basis, there was no error in the judge's finding that Emhill are estopped from bringing the action based on the negligent misstatement and misleading and deceptive conduct of Bonsoc.

Fraud

31 The Magistrate found that neither Mr Bonfitto nor any other relevant person was acting dishonestly. That was a finding of fact open to the Magistrate. Further, the learned judge's analysis[15] with respect to Krakowski v Eurolynx Pty Ltd[16] which is stated above is plainly correct.[17] In Macquarie Bank v Sixty-Fourth Throne Pty Ltd,[18] Tadgell JA observed that neither Krakowski nor any other authority "justified the simple aggregation of the knowledge of a number of persons individually unaware of fraud, or facts which ought to disclose it, to create a notional person with dishonest intent." Aside from this applying within the company, it also applies to the appellant's attempt to found a dishonest intent by attributing the knowledge of the agent, Dixon Krestles, that Bonsoc did not own unit 6 to its principal.[19]

32 Albeit innocently, on the findings of fact in the Magistrates' Court, Bonsoc had misrepresented its position: by conferring a lease with respect to certain land, Bonsoc represented that it held title to that land; or, at least, that it was entitled to confer the tenure it purported to confer. By entering into the lease that it did, Bonsoc represented that it held title to unit 6. It did not have such title. Further, given the circumstances under which unit 6 was added to the lease, it is clear that the inclusion of unit 6 in the lease induced Emhill to enter the contract. Mr Cook made the relevant addition to the contract himself and it was signed by Mr Bonfitto. Although Mr Bonfitto did not instigate the inclusion of unit 6 in the lease, by assenting to its inclusion, he held out that Bonsoc held title to unit 6.

33 Save for what I say below,[20] I do not consider it relevant for the purposes of determining the appellant's fraud claim that Emhill fortuitously did in fact use the land. Further, I do not consider it relevant that Bonsoc and P&O Plumbing subsequently permitted Emhill to continue to use the land. Clearly, Emhill was not privy to any arrangements between Bonsoc and P&O Plumbing and those parties could not, by themselves, derogate from any rights that Emhill possessed against Bonsoc by their own agreement. As between Bonsoc and Emhill, Bonsoc was receiving money under a false pretence. It purported to confer tenure to unit 6 and it failed to do so. Jessel MR said in Redgrave v Hurd:[21]

"According to the decisions of Court of Equity it was not necessary, in order to set aside a contract obtained by material false representation, to prove that the party who obtained it knew at the time when the representation was made that it was false. It was put in two ways either of which was sufficient. One way of putting the case was, "A man is not to be allowed to get a benefit from a statement which he now admits to be false. He is not to be allowed to say, for the purpose of civil jurisdiction, that when he made it he did not know it to be false, he ought to have found that out before he made it." The other way of putting it was this: 'Even assuming that moral fraud must be shewn in order to set aside a contract, you have it where a man, having obtained a beneficial contract by a statement which he now knows to be false, insists upon keeping that contract. To do so is a moral delinquency: no man ought to seek to take advantage of his own false statements." The rule in equity was settled, and it does not matter on which of the two grounds it was rested."

34 The judge below did not consider Redgrave v Hurd.[22] It is unclear whether the matter was in fact ventilated in front of him. That said, the case may bear upon question (a) as settled by the Master with respect to the alleged fraud of Emhill. Arguably, it entitles the appellant to a remedy for this equitable species of fraud.

35 Ultimately, however, the question at hand is one of remedy. The remedy normally granted for innocent misrepresentation is rescission ab initio. Emhill is not precluded from seeking to rescind the lease because it may have remedies in contract.[23] The availability of rescission is subject to the requirement that the parties are able to be substantially restored to the status quo.[24] This is to be considered in light of equity's ability to "ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction".[25]

36 The High Court in Vadasz v Pioneer Concrete[26] considered a party who, due to a misrepresentation,[27] signed a guarantee thinking that it only applied to future (cf. past) indebtedness. The Court rejected the guarantor's plea that he be relieved from all his obligations under the guarantee. Rather, the Court held the guarantor liable for only future indebtedness:[28]

"In Amadio, Deane J referred to what was said by Cussen J in Mueller in support of the proposition:

"Where appropriate, an order will be made which only partly nullifies a transaction liable to be set aside in equity pursuant to the principles of unconscionable dealing ... [T]he order will, in an appropriate case, be made conditional upon the party obtaining relief doing equity."

Thus unconscionability works in two ways. In its strict sense, it provides the justification for setting aside a transaction. More loosely, it provides the justification for not setting aside the transaction in its entirety or in doing so subject to conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the other."

37 In this matter, the unit 2 lease did not allocate a certain sum for the use of unit 6. But for this, Emhill may have been entitled to the money paid for unit 6 in an action for money had and received based on a total failure of consideration of a distinct and severable part of the contract.[29]

38 Further, the failure of the unit 2 lease to allocate a certain proportion of the rental to unit 6 renders the partial rescission of the type countenanced in Vadasz impossible. The nature of the agreement in Vadasz being a guarantee, the partial rescission was granted and readily given effect because the court was dealing with a liquidated sum, not with the uncertain value of a tenancy over a parcel of land. Accordingly, equity's requirement that the parties must be able to be substantially restored to the status quo is insurmountable. Emhill fully enjoyed its tenancy of unit 2 and that is irrecoverable.

39 On this basis, I would dismiss the appeal in the Q proceeding.

Background to the L Proceeding

The Relevant Legislation

40 The leases all fall within the purview of the Retail Tenancies Act 1986.[30] Section 14 of the Act relates to "options to renew". It states:

"14. Options to renew

(1) In this section "option" does not include the statutory option.

(2) If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the lease must state--

(a) the date until which the option is exercisable; and

(b) the manner in which the option is to be exercised; and

(c) the terms and conditions upon which the lease is renewable under the option; and

(d) the manner in which the rent payable during the term for which the lease is renewed is to be determined.

(3) If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable at least 3 months before that date.

(4) If a landlord fails to notify a tenant as required by sub-section (3), the retail premises lease is to be taken to provide that the date after which the option is no longer exercisable is the day that is 3 months after the landlord gives the tenant the notice required by that sub-section and, if that date is later than the date of the expiry of the term of the lease, the lease continues, subject to subsection (9), until that date.

(5) If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the only circumstances in which the option is not exercisable is if--

(a) the tenant has not remedied any default under the lease about which the landlord has given the tenant written notice; or

(b) the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults.

(6) If a retail premises lease does not provide for an option to renew the lease, at least 3 months before the lease ends the landlord must notify the tenant in writing whether or not the landlord wishes to renew the lease and the terms and conditions if the landlord wishes to renew it.

(7) If a landlord fails to notify a tenant as required by sub-section (6), the lease continues, subject to sub-section (9), until a day specified in a notice (containing the same information as is required by sub-section (6)) given to the tenant by the landlord that is more than 3 months after the giving of the notice.

(8) The terms and conditions upon which a lease that continues by virtue of sub-section (4) or (7) is held are the same as those upon which the lease was held immediately before it was continued.

(9) If a landlord fails to notify a tenant as required by sub-section (3) or (6), the tenant may, by written notice given to the landlord, determine the lease as from any day that is--

(a) not earlier than the expiry of the term of the lease; and

(b) not later than the day to which the lease would otherwise have continued by virtue of sub-section (4) or (7)."

The Background Facts in the L Proceeding

41 As already explained, both the unit 1 and unit 2 leases were due to expire on 31 October 1996. On 5 September 1996, Emhill wrote to Dixon Krestles purporting to exercise its option to renew. For reasons not under review in these proceedings, that communication was deemed to be ineffective.

42 On 12 September 1996, Bonsoc's solicitors wrote to Emhill's solicitors stating that Emhill had not exercised its option to renew the lease; Emhill should vacate units 1 and 2 by midnight October 31; Emhill should leave each of the premises in the state required under each of the leases; Emhill should pay out any arrears in rent; and, pursuant to the lease, "for lease" signs would now be displayed in front of each of the premises. On 13 September 1996, Emhill's solicitors replied insisting that the options to renew each lease had in fact been validly exercised.

43 On 10 October 1996, Bonsoc's solicitors wrote to Emhill's solicitors stating that new leases would only be drawn if it paid $5,303.11 owed to Bonsoc. On 16 October 1996 Emhill's solicitors wrote back re-iterating that the options to renew each lease had in fact been validly exercised. They accordingly requested that new leases be re-drawn. Other communications followed these letters which were of no avail.

44 On 18 October 1996 Emhill's solicitors wrote again:

"In view of your client's position, and in view of the fact that our client cannot afford the disruption to its business that a protracted argument with your client may have in relation to its rights regarding Units 1 and 2, our client is now engaged in finding alternative space in which to house as much of the part of the business which it can as may not be required for occupation of Unit 3. It will actively do so and will endeavour to vacate Units 1 and 2 as soon as possible and until such time shall continue to pay rent for Unit 1 at the relevant rate and for Unit 2 the relevant rate less the $150.00 attributable to The Accessory Unit No 6. Whilst this might resolve the issue as far as your client is concerned relating to Units 1 and 2, our client still insists upon its rights in relation to Unit 3. As soon as we are in receipt of a time table relating to the relocation of part of our client's business we will advise as to its logistics."

45 On 22 October 1996, Emhill's solicitors sent a letter to the same effect.

46 On 30 October 1996, Bonsoc's solicitors responded that Emhill was still required to vacate the premises by midnight 31 October 1996; that should Emhill remain in the premises longer than this, it would not be doing so under the over-holding provisions in the leases but rather under a monthly tenancy with rent increased by 7 per cent; and that it would be issuing proceedings for the recovery of unpaid rent.

47 On the same day, 30 October 1996, Emhill's solicitors responded that, although they were in the process of vacating the premises, it would not be available for inspection until 13 November 1996. On 13 November 1996, Emhill handed back possession to Bonsoc through its agent Dixon Krestles.

48 That having occurred, on 14 November 1996, Bonsoc's solicitors wrote to Emhill's solicitors:

"We understand that you met with Mr John Pratt of Dixon Kestles & Co Pty Ltd yesterday to inspect Units 1 and 2, 70 Gladstone Street, South Melbourne. We are instructed that: (a) rent for the month of November or part thereof has not been paid - that amount must be paid; and (b) there are numerous items which your client must "make good" before returning the keys. Could you please let us know when you expect the premises to be in the standard expected by Dixon Krestles & Co Pty Ltd so that we can arrange for another meeting. In relation to rent, our client requires that to be paid as soon as possible."

49 On the same day, 14 November 1996, Emhill's solicitors replied that the keys had been returned to their agent Dixon Krestles; that their client was "in the process of forwarding funds to [Dixon Krestles]...[representing] rent and other outgoings which are due for the part of November up to and including 13 November"; that, so far as their client was concerned, the premises had been "made good in accordance with the Lease"; and that "the Lease is now at an end and the reversion in relation to possession has now vested in [Bonsoc]".

The Magistrate's Decision in the L Proceeding

50 One of the main issues in the L proceeding is by operation of what act(s) in the series of communications between Emhill and Bonsoc the units 1 and 2 leases came to an end.

51 As already observed, Emhill did not validly exercise its option to renew the leases. Further, the Magistrate held that Bonsoc did not, by its conduct of 12 September, repudiate the leases. Before referring to Shevill & Anor v the Builders Licensing Board,[31] the Magistrate stated:

"I do not conclude that the leases of units 1 and 2 were terminated or wrongfully terminated by Bonsoc. By reason of the provisions of section 14 of the [Residential Tenancies] Act the leases were not terminated on 31 October 1996, however, I do not consider that Bonsoc unlawfully evicted Emhill. In communications and in evidence Bonsoc's real estate agent expressed dissatisfaction with Emhill as a tenant and not wanting them to renew the leases by reason of breaches of obligations, in particular being arrears of rent."

52 Bonsoc's failure to abide by s 14(3) of the Act did not affect this conclusion. Further, the Magistrate determined that Emhill's letter of 18 October 1996 did not constitute a notice under s 14(9) of the Act which also would have brought the lease to an end.[32] Rather, the Magistrate held that "the conduct of Bonsoc and Emhill was such that the leases of units 1 and 2 can be said to have been determined by way of surrender by operation of law".

53 Referring to his reasons in the first instance, the learned Magistrate awarded Bonsoc $27,639.93 for rent, outgoings and restoration costs, together with interest of $8,182.90 and costs of $3,398.00 in respect of the leases for units 1, 2 and 3. The Magistrate did not apportion, in either his reasons of 31 January 2000 or 22 January 2003, Emhill's liability in respect of each of the three leases. [33]

The Judge's Decision in the L Proceeding

54 Emhill appealed. The questions of law settled by the Master for the appeal before a judge of the Trial Division were:

(a) Whether the Magistrate erred in law in holding that the leases in relation to Units 1 and 2, 70 Gladstone Street, South Melbourne were determined by surrender by operation of law on 13 November 1996?

(b) Whether it was open to the Magistrate to hold that there had not been conduct on the part of Bonsoc that constituted a repudiation of the contract for the lease of Units 1 and 2?

(c) Whether the Magistrate failed to reconsider properly his decision in accordance with the directions of Balmford J in her Honour's orders of 12 June 2001?

55 Albeit for slightly different reasons, the learned judge in the Trial Division came to the same conclusion as the Magistrate. His Honour disagreed with the Magistrate's conclusion that Bonsoc's conduct, in its letter of 12 September, did not constitute a repudiation of the lease:[34]

"The Magistrate considered that Bonsoc's conduct was not repudiatory. In my opinion it was. The decision of the High Court in Progressive Mailing House Pty Ltd v Tabali Pty Ltd establishes that the ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases, and according to those principles a repudiation occurs when a party manifests unwillingness or inability to perform a contract at all or in some essential respect. A contract is repudiated when a party evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his or her obligations, or only if and when it suits. On any objective analysis, Bonsoc's solicitors' letter of 12 September 1996 evinced an intention on behalf of Bonsoc no longer to be bound by the leases. That intention was reiterated in the discussions which followed Emhill's solicitors' letter of 16 October 1996." (citations omitted)

56 With respect to the acceptance of this repudiation by Emhill, his Honour held:[35]

"But an act of repudiation of itself cannot bring a contract to an end. It is only if the non-repudiating party is entitled to and does accept the repudiation as terminating the contract that it has that effect. And a party to a contract is not entitled so to treat an act of repudiation unless that party is able to demonstrate that they were themself ready and willing to perform the contract at the time of termination. That requires no more than that they be in a position to perform the contract in substance. A party in breach has a right to terminate so long as the breach is not repudiatory or breach of an essential term or such otherwise as to deprive the other party of the substantial benefit of the contract." (citations omitted)

57 Applying those words to the case at hand, his Honour stated:[36]

"Emhill was significantly in arrears of rental, and in the particular circumstances of this case that meant, in my view, that Emhill was in breach of an essential term of the leases.

A failure to pay rent timeously is not usually regarded as breach of an essential term or otherwise a fundamental breach of a lease. But the parties to a lease (like parties to any contract) are free to stipulate that a term will be treated as having that effect. Here, clause 3(e) of the leases provided that the covenant to pay the rent was an essential term of the lease and, although courts are ordinarily hesitant to construe a term as a condition, I do not think that there is any doubt in this case that that is what the parties intended.

It follows in my opinion that the correct view of what occurred is that Emhill's solicitors' letter of 18 October 1996 [would have accepted Bonsoc's repudiation of][37] the leases of units 1 and 2, but that Emhill was disentitled (by its failure to pay rent) from treating the repudiation as bringing the leases to an end. Thus the leases were continued by operation of s. 14(4) of the Act until otherwise determined." (citations omitted)

58 It is important to note that the Magistrate, having concluded that Bonsoc's conduct was not repudiatory, was not required to decide whether Emhill was capable of terminating the contract lawfully; that is, whether Emhill had acted in a repudiatory manner or breached an essential term or acted such as to deprive the other part of the substantial benefit of the contract. The learned judge was the first to embark upon this exercise.

59 His Honour then went on to state the following with respect to the surrender of a lease by operation of law:[38]

"As the Magistrate correctly observed, in order to constitute a surrender by operation of law it is enough that there be an act of purported surrender, albeit not complying with statutory or other formalities, and some change of circumstances supervening or arising from the purported surrender which by reason of the doctrine of estoppel or part performance makes it inequitable for any of the parties to rely on the formal invalidity of the purported surrender. Accordingly, if there is agreement between the landlord and the tenant to put an end to the term, and that is followed by resumption of possession by the landlord, there is a surrender by operation of law."

60 Applying those words to this case, his Honour concludes that "Emhill gave up possession and Bonsoc retook possession claiming that it was entitled to do so on the basis that the leases had come to an end."[39] In this way, according to the learned judge, the leases came to an end - releasing the parties from their obligations under the lease except those that had already fallen due.[40]

61 His Honour considered Emhill's argument that, in the circumstances, a lease could not come to an end other than pursuant to s 14. Having examined the judgment of Brooking JA in Seacrest Pty Ltd v Apriaden Pty Ltd,[41] his Honour rejected this argument.[42]

62 The final question of law for his Honour's consideration was whether the Magistrate "failed to reconsider properly his decision in accordance with the directions of Balmford J". This argument proceeded on the basis that Balmford J made a determination that Emhill was in fact entitled to damages and that the matter was referred back to the Magistrate for the determination of those damages.[43] In response to this argument, his Honour held:[44]

"I think that argument to be misconceived. Balmford J decided no more than that the Magistrate had erred in his understanding of the operation and effect of s. 14(3), in that he had been wrong to hold that the leases ended upon the expiration of the original term, and her Honour directed the Magistrate to reconsider the matter on that basis. That is what the Magistrate did."

63 Having determined the issues this way, the judge below held that it was not necessary for the Magistrate to make an assessment of damages. He dismissed the appeal.[45]

The Appeal in the L Proceeding

64 Like the Notice of Appeal in the Q Proceeding, the appellant alleges that the judge below erred in all three of his answers to (a), (b) and (c) as settled by the Master. In summary, Emhill seeks to impugn the answers of the judge below on the following bases:

1. The judge erred in his interpretation of the events of 18 November 1996;

2. The judge erred in his application of the Retail Tenancies Act to the facts of the case;

3. The judge erred in his application of the doctrine of surrender of a lease by operation of law; and

4. The judge erred in construing the judgment of Justice Balmford of 4 June 2001.

65 The respondent sought leave to file out of time a notice of contention under O 64.17 of the Rules asserting:

1. That the conduct of the respondent did not amount to a repudiation of the leases at issue in the proceedings; and

2. That if (which is denied) (sic) the conduct of the respondent did amount to a repudiation of those leases, the applicant did not purport to accept that repudiation by its letter dated 18 October 1996 or at all.

It is unnecessary to decide whether leave should be granted in this respect. Both these issues fell for consideration given the nature of the proceedings and have been answered, in any event, in the reasons that follow.

66 Overall, the issues that arise out of the appellant's contentions in the L proceedings are:

1. Whether Bonsoc, by its letter of 12 September 1996, repudiated the unit 1 and unit 2 leases;

2. If Bonsoc did repudiate those leases, whether Emhill was entitled to accept that repudiation by its letter of 18 October 1996, thereby bringing the leases to an end; and

3. If Emhill was not entitled to accept the repudiation, how the leases did come to an end.

Bonsoc's Repudiation

67 Contrary to the findings of the Magistrate, the judge of the Trial Division applied the standard test in Foran v Wright[46] and found that Bonsoc repudiated the lease. His Honour's reasons have already been set out.[47] I agree that by virtue of its letter of 12 September, Bonsoc repudiated the lease. That letter evinced an intention to honour Bonsoc's obligations under neither the leases nor s 14(3) of the Act. The latter of these is relevant to the question of repudiation because, as Brooking JA pointed out in Seacrest Pty Ltd & Anor v Apriaden Pty Ltd,[48] the effect of s 14(3) is to vary the terms of the lease.[49]

Emhill's Inability to Accept Repudiation

68 N C Seddon and M P Ellinghaus state in Chesire & Fifoot's Law of Contract (8th ed, 2002):[50]

"A party need only be ready and willing to perform the contract in substance. A party who is in breach may nevertheless have the right to terminate, so long as the breach is not repudiatory or of an essential term or such as to deprive the other party of the substantial benefit of the contract."

This is the view espoused by the learned judge below and supported by Roadshow Entertainment Pty Ltd v CEL Home Video Pty Ltd.[51]

69 The question then becomes whether Emhill had repudiated the contract, breached an essential term of the contract or deprived the other party of the substantial benefit of the contract. In the original complaint filed with the Magistrates' Court on 26 November 1998, Bonsoc sued on all three leases. In his findings and orders, the learned Magistrate awarded Bonsoc a total amount of $27,630.93 plus interest of $8,182.90 and costs of $9,398.00. Given the nature of the evidence in front of him, it is clear the Magistrate accepted the evidence of Mr Pratt that the amounts owing under each of the leases were as follows: unit 1 lease - $5,618.09; unit 2 lease - $506.95; unit 3 - $5,705.89.

70 As the judge below stated, the unit 2 lease contains a clause 3(e) rendering time of the essence with respect to the payment of rent, outgoings as well as costs and expenses. By reason of Emhill's breach of an essential term, his Honour held that it was not entitled to accept Bonsoc's repudiation.[52] I agree with his Honour's reasoning.

71 His Honour said the same of the unit 1 lease.[53] It should be noted that the unit 1 lease does not contain such a clause. In this respect, the judge below made an error. However, it is of no consequence. As the Magistrate accepted, Emhill was $5,618.09 in arrears of the unit 1 lease. The amount was equivalent to more than five months rent on unit 1 and was repudiatory conduct. By operation of the same rule already stated, Emhill was precluded from accepting Bonsoc's repudiation with respect to the unit 1 lease.

72 There is also the issue as to whether the judge below, in determining that Emhill was precluded from accepting Bonsoc's repudiation, was acting within jurisdiction. This issue arises because the Magistrate, having found that Bonsoc's actions did not constitute repudiatory conduct, did not turn his mind to the question of whether Emhill were precluded from accepting such repudiatory conduct. The judge below was hearing an appeal pursuant to s 109 of the Magistrates Court Act "on a question of law."

73 However, in this instance, the judge below did not disturb any of the basic factual premises upon which the Magistrate proceeded. Rather, he drew different inferences (with concomitant legal consequences) from those findings and gave the judgment which ought to have been given on those findings. Such an exercise involves answering a question of law.[54]

74 On this basis, I would uphold the conclusion of the judge below that the contract did not come to an end by operation of Emhill's letter dated 18 October 1996. In any event, this conclusion may be of little consequence given that the lease came to an end by reason of surrender by operation of law.

Surrender of the Lease by Operation of Law

75 Because Emhill was not in a position on 18 October 1996 to accept Bonsoc's repudiation of the unit 1 and unit 2 leases, it is necessary to consider whether those leases came to an end by operation of law.

76 The learned judge below referred to Seacrest Pty Ltd & Anor v Apriaden Pty Ltd[55] ("Seacrest"). Like the facts in this case, the landlords in Seacrest had failed to comply with s 14(3) of the Act.[56] Also similar to the facts in this case, Seacrest involved the ineffective exercise of an option to renew a lease that fell within the Act. Initially, an arbitrator held that the tenants, by purporting to renew the lease immediately prior to the expiry of that option, had relieved the landlords of their obligations under s 14(3). The reasoning behind this decision was clear: the policy behind s 14(3) is to ensure tenants know of a pending expiry date to renew their lease; the purported exercise of the renewal (later found to be ineffective) evincing that awareness by the tenants, s 14(3) need not be strictly enforced.

77 On appeal before a judge of the Trial Division, this reasoning was rejected.[57] On appeal to the Court of Appeal, Brooking JA (with whom Ormiston JA and Phillips JA agreed) also rejected this reasoning. Brooking JA reasoned that, if a landlord had failed to execute its duties under s 14(3), s 14(4) "is to operate according to its tenor unless it can be said that some event has occurred which, on the proper construction of the section, is by implication to have some effect that can be precisely stated by way of cutting down the operation of the subsection".[58] In support of this, Brooking JA cited Dawson J in Mills v Meeking,[59] with respect to s 35 of the Acts Interpretation Act 1984 (Vic):[60]

"The approach required by s 35 needs no ambiguity or inconsistency; it allows a court to consider the purposes of an Act in determining whether there is more than one possible construction. Reference to the purposes may reveal that the draftsman has inadvertently overlooked something which he would have dealt with had his attention been drawn to it and if it is possible as a matter of construction to repair the defect, then this must be done. However, if the literal meaning of a provision is to be modified by reference to the purposes of the Act, the modification must be precisely identifiable as that which is necessary to effectuate those purposes and it must be consistent with the wording otherwise adopted by the draftsman. Section 35 requires a court to construe an Act, not to rewrite it, in the light of its purposes."

78 Applying those words to s 14 of the Act, Brooking JA said:[61]

"Subsection (4) operates in two ways. By what I might call its first branch, it operates, in effect, by way of varying of the provisions of the lease: the lease is to be taken to provide that the last day for the exercise of the option is the day that is three months after the landlord gives the notice required by subs (3). The second branch of subs (4) does its work, not by way of varying the provisions of the lease, but by way of providing what the operation or effect of the lease is to be: if the date which the lease is to be taken to fix as the last day for exercising the option is later than the date of the expiry of the term of the lease, the lease is to continue until that date unless the tenant determines it pursuant to subs (9). As regards the first branch of subs (4), I find it extremely difficult to see how it could be said that, by implication from the suggested purpose of the section, some subsequent event is to affect the reforming of the lease which has already occurred by force of subs (4): the lease is to be taken to make a certain provision, and I should have thought that it must be taken to continue to make that provision notwithstanding later events. I am not sure whether the arbitrator, in speaking of the sanction for failing to give the notice required by subs (3), had in mind the first branch of subs (4), or the second, or both branches. As regards the second branch of subs (4), what is the suggested event upon the occurrence of which the operation of subs (4) is, by implication, to be affected, and in precisely what way is the operation to be affected? As to the second question (how is the operation of subs (4) affected?), is the term of the lease to expire immediately upon the occurrence of the event (assuming that it would already, but for subs (4), have expired)? As to the first question, what is the event which it is suggested in this case has affected the operation of subs (4)? It is certainly not the effectual exercise of the option of renewal, for on the unchallenged determination of the arbitrator the purported exercise, although good in manner and form, was ineffectual by reason of breaches of covenant."

79 Brooking JA refrained from stating what the effect of a valid exercise of the option to renew would be.[62] At its narrowest, Seacrest stands for the proposition that an ineffectual exercise of an option to renew by a tenant does not obviate the need for a landlord, if the lease is to come to an end, to provide the tenant with the notice required under the Act.

80 Here the learned judge found that the lease came to an end by Emhill surrendering the lease by operation of law. The doctrine of surrender by operation of law being a means to termination extraneous to the Act, the question is whether, once s 14 is engaged, the only manner in which a lease under the Act may come to an end is pursuant to that section.

81 To summarise Brooking JA in Seacrest, s 14(4) operates in the following way: (1) upon the fulfilment of a certain condition, it varies the terms of the lease; and (2) upon the fulfilment of a further condition, subject to s 14(9), it extends the period of the lease. Section 14(9) requires that termination be in writing. However, just because the second limb occurs "subject to" sub-s (9) (a terminating provision), does not mean that sub-s (9) is the sole manner in which the lease may be terminated once sub-ss (3)-(4) has been engaged. In light of the ordinary and natural meaning of that section, such a conclusion is not justified. The situation in Seacrest is distinguishable because the construction of the Act put forward by the landlords in that case was contrary to the express wording of s 14(4). In this case, the express wording of the section does not touch upon the operation of the doctrine with which we are concerned; namely, the doctrine of surrender of a lease by operation of law. Further, it would not be consistent with the purposes of the Act to exclude the operation of surrender by operation of law from retail tenancy arrangements. The doctrine of surrender by operation of law operates contemporaneously with the Act.

82 On that topic, Fullagar J in Andrews v Hogan[63] stated:

"[A]nything which amounts to an agreement on the part of the tenant to abandon and on the part of the landlord to resume possession of the premises amounts to a surrender by operation of law."

83 Young J in Tasita Pty Ltd v Sovereign State of Papua New Guinea[64] held:

"Surrender by operation of law is a form of estoppel. The question always is "Are the acts of the lessor so inconsistent with the continuance of the lease that it is estopped from asserting that the

lease has continued all the time?"...[quoting New Zealand Motor Bodies Ltd v Emslie [1985] 2 NZLR 569] "surrender is effected once the lessee has vacated the premises with the intention of putting an end to the lease and the landlord has, by some unequivocal act accepted that the lease is determined....

Although there may be an agreement between the landlord and the tenant to terminate the lease, this agreement must be perfected by, on the tenant's part, relinquishment of possession and, on the landlord's part, acceptance of possession. Until the tenant has yielded up possession the agreement is merely a conditional one where the condition has not been fulfilled and so is ineffective...Until the landlord has accepted the possession he has not shown an unequivocal intention to treat the lease as terminated."

84 Clarke JA in Konica Business Machines v Tizine Pty Ltd[65] states:

"Whether the landlord has resumed possession of the premises, or, to put it another way, accepted the tenant's abandonment is a question of fact. In deciding that question an important consideration is whether the landlord has acted in such a manner as to show that it regards the lease as at an end. In NRMA Insurance Ltd v B & B Shipping & Marine Co (1947) 47 SR (NSW) 273 at 281; 64 WN (NSW) 58 at 62, the court said:

"... it is clear that relinquishment of possession by a tenant, coupled with an acceptance of possession by the landlord, is sufficient to determine the tenancy; but relinquishment by the tenant and resumption of possession by the landlord must take place in such circumstances as to warrant an inference of an agreement that the lease shall be terminated."

It has long been accepted that, subject to a qualification to which I will return, if the landlord re-lets the premises to another tenant it will be taken to have accepted the original tenant's abandonment. But a re-letting is not essential to surrender by operation of law. A landlord might respond to a tenant's abandonment in such a manner as to demonstrate that it regards the lease as at an end, for example, by setting up its own trading operation in the premises. Such an act is entirely inconsistent with the continued existence of the lease and would constitute an acceptance of the tenant's abandonment."

85 There is little question that Emhill surrendered the possession and Bonsoc resumed the possession of the unit 1 and unit 2 properties. They did so in line with a common understanding that the leases were to come to an end.[66] The property was soon after leased to another party. These acts are unequivocal and entirely inconsistent with the continued existence of the leases. Applying what was said in

the above cases, it follows that the leases were surrendered by operation of law.

Conclusions

86 The appeal in the Q proceeding should be dismissed.

87 The appeal in the L proceeding should be dismissed.

[1] Emhill Pty Ltd & Anor v Bonsoc Pty Ltd [2003] VSC 333 and Emhill & Anor v Bonsoc Pty Ltd (No 2) [2003] VSC 337.

[2] Emhill Pty Ltd and Brian Arthur Cook v Bonsoc Pty Ltd [2001] VSC 179.

[3] p 426.

[4] Ibid.

[5] (1995) 183 CLR 563, 578-79 ("Krakowski").

[6] Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2003] VSC 337, [4].

[7] Ibid [17] - [18].

[8] Ibid.

[9] See [20] above.

[10] Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2003] VSC 337, [26].

[11] (1995) 183 CLR 563.

[12] See Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2003] VSC 337, [19]-[20].

[13] See [34].

[14] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589.

[15] See Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2003] VSC 337, [11-12].

[16] (1995) 183 CLR 563.

[17] at [21].

[18] [1998] 3 VR 133, 145.

[19] This argument of the appellant also involved reliance on Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd v Ors [2004] HCA 52; (2004) 211 ALR 342. This case, however, does not help the appellant.

[20] See [48].

[21] (1881) 20 Ch D 1, 12-13.

[22] The law as laid down in that case is described as 'unchallenged' in R Meagher, D Heydon and M Leeming, Meagher, Gummow & Lehane's Equity, Doctrines & Remedies (4th ed, 2002), [13-025].

[23] Academy of Health and Fitness Pty Ltd v Power [1973] VicRp 25; [1973] VR 254, 265-66.

[24] Maguire v Makaronis (1996) 188 CLR 216, 224; Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216, 223.; cf the position at common law as stated in Clarke v Dickson [1858] EngR 605; (1858) EB & E 148; 120 ER 463.

[25] Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216, 224.

[26] [1995] HCA 14; (1995) 184 CLR 102 ("Vadasz").

[27] The decision in this case does not rest on whether the misrepresentation was fraudulent; see ibid 109-10.

[28] Vadasz [1995] HCA 14; (1995) 184 CLR 102, 114.

[29] See Roxburgh v Rothmans of Pall Mall Australia (2001) 185 ALR 335, 339-41.

[30] Later repealed by the Retail Tenancies Reform Act 1998, s 50.

[31] [1982] HCA 47; (1982) 149 CLR 620, 633.

[32] The learned Magistrate referred to the terms of the letter. Putting this aside, the conclusion is correct, if not for any other reason than by s 14(9)(a): The lease was due to cease on 31 October 1996; the letter was dated 18 October 1996.

[33] That said, with respect to the unit 3 lease, there was evidence that the appellant was in arrears some $5,705.89. The Magistrate's findings with respect to the unit 3 lease were not the subject of this appeal.

[34] Emhill Pty Ltd v Bonsoc Pty [2003] VSC 333, [28].

[35] Ibid [29].

[36] Ibid [30-31].

[37] In this space, the original actually states 'repudiated'. However, it is clear from what precedes this paragraph that this is an error and this insertion is really what the judge below meant.

[38] Ibid [32]. Just prior to the passage quoted, his Honour refers to "the events of 18 November 1996". This is an obvious typographical error and should read "the events of 13 November 1996".

[39] Ibid [33].

[40] Ibid [33].

[41] [2000] VSCA 75; (2000) 1 VR 567.

[42] Emhill Pty Ltd v Bonsoc Pty Ltd [2003] VSC 333, [37].

[43] Ibid [39].

[44] Ibid [40].

[45] Ibid [43].

[46] [1989] HCA 51; (1989) 168 CLR 385, 441.

[47] See [54] above.

[48] [2000] VSCA 75; (2000) 1 VR 567.

[49] The respondent also relied on DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 432 for the proposition that the conduct of a party who insists bona fide on the wrong interpretation of a contract should not be considered repudiatory. That case involved a bona fide dispute over the interpretation of a contract. Even if the case were applicable here, there was no evidence upon which this claim could be supported.

[50] See p 943.

[51] [1997] NSWSC 473; (1997) 42 NSWLR 462, 470-80.

[52] See above n 34.

[53] Ibid.

[54] See Unsworth v Commissioner for Railways [1958] HCA 41; (1958) 101 CLR 73, 83.

[55] [2000] VSCA 75; (2000) 1 VR 567.

[56] See Seacrest [2000] VSCA 75; (2000) 1 VR 567, 573; the landlord argued that it had not in fact breached s 14(3) because, although it had failed to give notice and the lease did contain an option to renew, it was not "exercisable" (ie able to be exercised) by virtue of the tenant's breach of the lease with respect to rent. This argument was rejected. The words a "lease contains an option exercisable by the tenant" in s 14(3) of the Act means "the lease contains an option of renewal in favour of the tenant".

[57] See Seacrest Pty Ltd & Anor v Apriaden (1999) V Conv R 54-598 (Byrne J).

[58] See Seacrest [2000] VSCA 75; (2000) 1 VR 567, 573-74 (citations omitted).

[59] [1990] HCA 6; (1990) 169 CLR 214.

[60] Ibid 235.

[61] Seacrest [2000] VSCA 75; (2000) 1 VR 567, 574.

[62] Ibid.

[63] (1952) 86 223, 253; Konica Business Machines v Tizine Pty Ltd (1992) 26 NSWLR 687, 693; Tasita Pty Ltd v Sovereign State of Papua New Guinea (1991) 34 NSWLR 691, 695.

[64] (1991) 34 NSWLR 691, 695 (citations omitted).

[65] Konica Business Machines v Tizine Pty Ltd (1992) 26 NSWLR 687, 693.

[66] See Emhill Pty Ltd v Bonsoc Pty [2003] VSC 333, [33].