Gan v Shop 3, 228-230 Hanvaylee Parade Kensington Pty Ltd

The Lease to the Appellant

1. The lease between the Appellant and the Respondent included the following relevant terms: 1. The covenants and powers implied by the sections 84 and 85 of the Conveyancing Act 1919 were excluded, except in so far as the same were expressly included: cl 2.1. 2. Rent was to be paid free of all deductions and without any set off: cl 3.1. 3. The rent was to be paid by equal monthly instalments in advance, with the first of such payments to be made upon the commencement of the lease (25 April 2009): cl 3.2. 4. Clause 4.9 dealt with tenant's fixtures. All fixtures, plant, machinery, utensils, shelving, counters, safes and other materials or articles brought onto the premises by the lessee were said to be trade or tenant's fixtures. The lessee was entitled to remove these prior to the expiration of the lease, making good any damage this may occasion. 5. Clause 5 contained the lessee's obligations in respect of insurance. 6. Clause 9 was concerned with default and termination. Payment of rent was an essential term "where payment is in arrears by more than 14 days although no formal demand for payment has been made": cl 9.3.1(a). The lessor was entitled to terminate "at its discretion by giving notice in writing or by re-entry…" if an event of default occurs: cl 9.4.1. An event of default was defined to include non-compliance with an essential term: cl 9.4.3 (a). 7. Clauses 9.11, 9.12 and 9.13 dealt with removal of the "Lessee's property" and obligation to make good the premises. Under cl 9.11.1, subject to cll 9.12 and 9.13, "…..the Lessee must remove the Lessee's property from the premises before the expiry or termination of this Lease or, if it is terminated by the Lessor, within 7 days after this Lease is terminated [our emphasis]". If the lessee failed to do this, the lessor's rights included to sell or otherwise dispose of the property in the name of and as agent for the lessee. Clause 9.13 provided for abandonment of the lessee's property where the lessee failed to remove his property "after 7 days written notice from the Lessor". 8. This obligation to remove the lessee's property stands in contrast to the option to remove tenant's fixtures. 9. Clause 15 governed the option to renew. Provision was made for the new lease to be upon the like terms, with exceptions. One of those exceptions was that any provision for a rent free period was to be deleted: cl 15.2.2. 10. The rent for such renewed lease was to be "the current market rental" determined in accordance with cl 3.3.3. 11. However, as the Tribunal at first instance recognised, cll 3.3.3 and 15.1 were subject to the terms of s 31 of the RLA. It is that section that governed the rent review because the RLA overrides the lease: s 7 of the RLA. As with clause 3.3.3(c), that section provided for the reviewed rental to have regard to rent concessions that are frequently offered to prospective lessees of unoccupied retail shops. As will be seen below, the Appellant seeks to draw a distinction between the reference in s 31 of the RLA to "current market rent" and the reference in cl 3.3.3 to the rent to be "the current market rental".

The decision of the Tribunal at first instance

1. After setting out the factual background, the relevant lease provisions and the terms of s 31 of the RLA, the Tribunal came to the following conclusions of relevance to the arguments made by the Appellant on the appeal: 1. Under both s 31 of the RLA, with its reference to "current market rent" and cl 3.3.3, with its reference to "current market rental value", what the valuer was required to determine was the same, namely the rent payable under the renewed lease, having regard to specific assumptions and considerations. The Appellant was not correct in contending that Mr McCarney failed to determine the current market rent, but instead determined the current market value. Mr McCarney duly determined the rent payable under the renewed lease and the Appellant was bound by that determination: at [25]. 2. The Appellant had misinterpreted the rental determination in contending that he became entitled to a four month rent free period. The valuer had no authority to confer such a right: at [26]. 3. Having rejected the notion of a four month rent free period, the Tribunal was satisfied that the Appellant was in default for the non-payment of rent, cl 9.3.1(a) became applicable (the rental obligation became an essential term) and, as a result, the Respondent was entitled to terminate by re-entry, in accordance with cl 9.4: at [27]. 4. It followed that the Appellant was not entitled to the relief he sought in the amount of $400,000 (subject to any adjustment the Tribunal may deem just). This was because the Appellant had articulated his claim for this amount as the amount required to place him back in his original position before the breach and repudiation of the Respondent: at [28]. 5. There was no breach of a duty of good faith. The Appellant did not point to any particular act as constituting an absence of good faith. In the view of the Tribunal, the Respondent had done no more than rely on its contractual rights in the face of repeated and continuing breaches by the Appellant: at [30]. Earlier in its reasons, the Tribunal had found that prior to Mr McCarney's valuation there had been a history stretching back to August 2103 of default by the Appellant in the punctual payment of rent : at [13].

The arguments on appeal

1. No precise grounds of appeal were formulated by the Appellant, who was self- represented. In his Notice of Appeal, by a cross reference to the grounds for a stay application, the only alleged error by the Tribunal that the Appellant referred to was generally stated as (without further detail) : 4 The decision did not take account the entire Appellant's evidence submitted to the Tribunal, including relevant cases and Retail Lease Act to support the alleged breach of essential terms by the Respondent and the evidence given by witnesses at the hearing.
2. Otherwise, the Appellant's grounds of appeal (by cross-reference to the grounds of a stay application) consisted of contentions as to the merits of his case under various topics, without reference to the reasons for decision of the Tribunal at first instance.
3. Extensive written submissions were provided by the Appellant in chief and in reply. Consistent with those submissions, at the hearing, the Appellant advanced various points in support of his appeal as follows: 1. The Tribunal at first instance had misinterpreted Mr McCarney's report. Based upon that report, he was entitled to a rent free period of four months. The Tribunal had adopted the $50,000 amount as the new rent, but this was the current market rental value, not the current market rent, which was the amount of $53, 675, accompanied by a rent free period of four months. Accordingly, there was no rent outstanding at the time of termination - instead, he was entitled to a refund of rent overpaid and the Respondent had no right to terminate for default in payment of the rent. 2. Furthermore, the termination was invalid because he never received proper or valid notice of breach in the non-payment of rent before re-entry. At common law the right of re-entry could not be exercised unless the landlord made a formal demand for rent. The notices of breach dated 4 and 18 July did not suffice. First, they did not indicate the Respondent's intention to terminate the lease and thereby take possession of the premises. Second, the notice of 4 July 2014 was premature because the rent had not been outstanding for 14 days - he should have received a notice after the 14 day period notifying him that he was in breach and of the right to terminate. Presumably, this was a reference to the 14 days referred to in cl 9.3.1(a). Thirdly, the notice of 18 July 2014 gave too short a period for payment - he should have been given another 14 days to pay. Fourthly, the notices wrongly referred to cl 5 as the source of the rental obligation. Fifthly, the notices were wrongly addressed and sent to the previous tenant. 3. The Respondent had wrongfully converted his property, being the whole of the fit-out, after the re-entry. This was the case even if the Respondent had lawfully terminated. He should have received seven days notice of a requirement to remove his property. The notice he had received had been to remove his personal items - no notice had been given to remove the fit-out. He contended that the Respondent had made a substantial windfall from the fit-out, which he quantified at about $700,000. 4. The Respondent had engaged in unconscionable conduct in contravention of s 62B of the RLA. Factors that were relevant to this were that the Respondent had made a large gain for a small mistake in the non-payment of rent, in circumstances where the Respondent should have accepted his proposal for payment of rent up to December 2014, and where the Respondent had set out to get rid of the Appellant as tenant. In this respect, the Appellant referred to a number of decisions, including Sarker v World Best Holding Ltd [2004] NSWADT 14 and Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd [2000] NSWSC 459.
4. In summary, the Respondent submitted: 1. In reality, the Appellant was seeking to have a second hearing on the merits, without regard to the limitations on his appeal rights. 2. The Appellant's argument for a rent free period based upon the valuer's report was misconceived and had no reasonable prospects of success. 3. As to the contention that termination was unlawful for lack of notice of breach or demand, the first answer to that was that no such notice or demand was required. That was clear from the terms of cl 9.4 and pursuant to s 129(8) of the Conveyancing Act there was no requirement for notice. 4. In any event, notices of breach were given by the letters dated 4 and 18 July 2014. Those notices made it abundantly clear that the Appellant was in breach for non-payment of rent, provided a time by which the tenant was required to remedy the breach and gave notice of reservation of rights. Despite this, the tenant failed to remedy the breach. The Respondent accepted that the reference to cl 5 was an error, but said this was inconsequential. It is clear that the Appellant received the notice and the address used was that contained in the Deed of Consent for assignment of the lease to the Appellant. 5. The Appellant should not now be permitted to argue a case in conversion or of unconscionable conduct because these were not advanced in the proceedings at first instance. In any event, as to conversion, the Appellant had lost all right and title to its property. There had been no unconscionable conduct.

Limitations on right of appeal

1. As we examine further below, although not articulated by the Appellant, some points of law are raised by the Appellant's arguments. Largely, however, the Appellant seeks a second go at arguing the merits of his case. The appeal rights that the Appellant has are, however, restricted. Because we are concerned with an appeal from the Consumer and Commercial Division of the Tribunal, an appeal is only available: 1. Where it is on a question of law: s 80(2)(b) of the Civil and Administrative Tribunal Act 2013 (NSW) (the Act). 2. Otherwise, with the leave of the Appeal Panel, as provided for as follows (in cl 12 of Schedule 4 of the Act): 12 Limitations on internal appeals against Division decisions (1) An Appeal Panel may grant leave under section 80(2)(b) of this Act for an internal appeal against a Division decision only if the Appeal Panel is satisfied the appellant may have suffered a substantial miscarriage of justice because: (a) the decision of the Tribunal under appeal was not fair and equitable, or (b) the decision of the Tribunal under appeal was against the weight of evidence, or (c) significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with).

Consideration - rent free period

1. We do not see how the Appellant's contentions about a rent free period based upon the valuer's determination raise any question of law because it is concerned with the interpretation of the valuer's determination and not with the construction of the lease. However, whether or not it is properly regarded as an appeal on a point of law, in our opinion, there is no legal basis for a contention that the valuer, carrying out the contractual task of determining the current market rental for the purposes of the renewed lease, could confer a right to a rent free period. As is plain from the above extract from Mr McCarney's determination, he did not seek to do so. Moreover, cl 15.2.2 of the lease makes it clear that the renewed lease is not to include any rent free period.
2. We also agree with the Tribunal at first instance in its conclusion that the applicable rent as determined by the valuer was the amount of $50,000, which sum was arrived at after taking account of the appropriate rent free concession. This is the plain interpretation of the determination.
3. Accordingly, we agree with the reasons of the Tribunal at first instance on this point and reject the Appellant's arguments. Because of the lack of merit in the Appellant's argument, we would have refused any application for leave to appeal had such an application been made.

Consideration - absence of proper or valid notice of breach before re-entry

1. As outlined above, the Appellant makes various arguments about lack of valid or proper notice of breach before re-entry occurred.
2. Deficient notice of breach was part of the Appellant's case in the hearing at first instance, although it is not clear that the Appellant identified the basis for a contention that such notice was required by law. Be that as it may, the arguments about defective notice are not addressed in the reasons for decision. Although not articulated by the Appellant, we regard the contentions of the Appellant on this subject as raising a question of law, namely whether there was error by the Tribunal in not dealing with such contentions.
3. In our opinion, there was no error of law by the Tribunal in this respect. This is because it is clear enough that the Tribunal at first instance proceeded on the basis, correctly, in our opinion, that no demand or notice of breach was required, in view of the terms of clauses 9.3 and 9.4. Hence, issues concerning any deficiencies with the notices of 4 and 18 July 2104 were otiose.
4. As indicated above, the Tribunal reasoned (at [27]) that the rental default had become a breach of an essential term by the operation of cl 9.3.1(a) (the July rental was in arrears by more than 14 days and no formal demand was required) and, based upon the terms of cl 9.4, the right to terminate by re-entry had arisen. This was because an event of default had occurred, within the meaning of cl 9.4.1.
5. Such reasoning by the Tribunal followed the contractual description of the right to terminate. Clause 9.4 made provision for two methods of exercising the termination right - by notice in writing "…or by re-entry…".
6. In our opinion, it is plain that the lease sets out a specific right to terminate for breach in the payment of rent, without the need for demand for that rent or notice to remedy or any other notice. It is, sufficiently, apparent that the Tribunal below recognised that the lease conferred such a right and that the conditions for its exercise had been satisfied on the facts.
7. On appeal, the Appellant referred to the common law requirement for a demand for rent, where it is proposed to forfeit the lease for non-payment of rent, and that there had been a failure to comply with this requirement. This raised a question of law.
8. However, there is no such requirement where the lease dispenses with a formal demand (or such demand is excused by statute): W D Duncan, Commercial Leases in Australia, 7th ed at [130.4000].
9. As we have already indicated, in our opinion, the lease does so dispense with such a demand.
10. For completeness, we mention that reference was made in argument to sections 85(1) (d) and 129(8) of the Conveyancing Act.
11. It is clear that the power given to a lessor in s 85(1) (d) to re-enter, without demand for rent, where rent is in arrears by more than one month, is not applicable in this case. This is because the lease excluded the section from application: cl 2.1. In effect, this allowed for re-entry for a shorter period of default in payment, as provided for in clauses 9.3 and 9.4.
12. As to s 129(8), the Respondent contended that pursuant to this section there was no requirement for the Respondent to serve a notice of breach in respect of the non-payment of rent, giving an opportunity to remedy the breach. We agree, in so far as it is intended by this submission to contend that s 129(8) permits the lease provisions themselves to operate unaffected by the requirement for notice contained in s 129(1). Section 129(8) provides that s 129(1) does not affect the law concerning re-entry for the non-payment of rent. That law includes the common law rule that permits the lease to dispense with formal demand.
13. In the circumstances, it is not strictly necessary for us to deal with the arguments about deficiencies with the notices of 4 and 18 July 2014. However, should we be wrong in our opinion about the lack of need for notice, in our opinion, sufficient notice was given by, at least, the notice of 4 July 2014.
14. Briefly, this is because: 1. It was not premature to make a demand for payment on 4 July 2014. The rent was due on 1 July 2014 (it is clear that the parties had for some time proceeded on the basis that rent was due from the beginning of the month, rather than the month from the commencement date of the 25th of the month). Had a demand been required, we see no reason why the lessor would need to wait until after the expiry of the 14 day period referred to in cl 9.3.1(a) in order to make a valid demand. 2. The notice gave notice of the prospect of termination. The Appellant did not refer to any authority which required that a valid demand must state in categorical terms that it is the lessor's intention to terminate or to re-enter. 3. The notice was directed to the attention of the Appellant. Clearly, it was received by him. The Appellant did not dispute that the address given on it was the address for the tenant given in the Deed of Consent to Assignment. 4. The mistaken reference to cl 5 was inconsequential. It was clear that the Respondent was relying upon the indisputable obligation to pay rent and a breach of that obligation. 5. We should mention here that the Appellant suggested on the appeal (not, apparently, in the proceedings at first instance) that the obligation to pay rent monthly meant that he could make the payment at any time during the course of the month. Such contention is, plainly, wrong. That is not the meaning of the obligation to pay rent "by equal monthly instalments in advance… the first of such payments to be made upon the commencement of the Lease": cl 3.2.

Consideration - conversion

1. The Appellant accepts that a case of conversion of his property was not advanced in the hearing at first instance. The Appellant's Points of Claim for the hearing confirm this.
2. We are not prepared to entertain the claim. In our opinion, it is not the kind of new point that will be permitted on appeal: see Hudson v Arp 1 (NSW) Pty Ltd [2014] NSWCATAP 31; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438; Coulton v Holcombe (1986) 162 CLR 1 at 7. The considerations favouring finality of litigation are at least as strong, and probably stronger, in the case of the Tribunal given the importance attached to the expeditious and inexpensive disposition of proceedings under the Act.
3. Although questions of law arise in respect to the new claim for conversion, the issues are not confined to such questions. Factual questions arise, including what happened to the fit-out, what benefit, if any, did the Respondent obtain from it and what was its value at the time of termination. There might also be some factual question as to the extent to which the fit-out was or were fixtures.
4. Another reason to reject the appeal based upon a new claim for conversion is that it requires leave for such ground of appeal (it is not confined to a question of law) and, in our opinion, the conditions for the grant of such leave, to which we have referred, are not satisfied. The failure by the Appellant to advance this claim in the hearing at first instance was not because of the discovery of new evidence not reasonably available at the time of that hearing. It cannot be said that the hearing below was not fair or equitable because this claim was not run or that the decision was against the weight of the evidence.
5. It is tempting to consider that there is a short answer to the conversion claim, namely that the fit-out amounted to a tenant's fixture(s) within the meaning of cl 9 of the lease and became the lessor's property, subject only to the election the tenant had to remove it and which the tenant chose not to exercise: see Butt, Land Law, 6th ed at 15.252; Wincant v SA (1997) 69 SASR 126. If such were the case, then the provisions of clauses 9.11, 9.12 and 9.13, the application of which was contentious in argument on appeal, would have nothing to do with the question because these provisions concern removal of the "Lessee's property", not fixtures. If that were so, this would overcome a point raised by the Appellant on appeal that he never received the notice contemplated by cl 9.13 (a pre-condition to abandonment of title) in respect of the fit-out - his contention was that the notice he did receive only concerned his "personal" items.
6. However, to so conclude would be to embark upon the consideration of a claim that, for the above reasons, should not be permitted on appeal.

Consideration - unconscionable conduct

1. Again, the Appellant accepts that this was not a claim that he made at the hearing at first instance.
2. Clearly, if the claim were permitted, it would not be confined to a question of law. A new hearing would be needed to determine the relevant facts, including the potential for a much more detailed examination of the relationship between the Appellant and the Respondent in respect of the operation of the lease and the circumstances leading to its termination, including the strategy and motives of the Respondent in connection with that termination and the alleged gain that it made from termination.
3. In the circumstances, in our opinion, the restriction on entertaining a new point on appeal is applicable. Furthermore, for the same reasons as given in respect of the new claim of conversion, leave to appeal is required and the conditions for the grant of leave are not satisfied.

Orders

1. For the above reasons, in our opinion, the appeal should be dismissed and we so order.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 13 September 2016