Supreme Court of WA|2002-04-12|Before: Pidgeon J

Glentham Pty Ltd v Luxer Holdings Pty Ltd & Anor [2002] WASC 80 (12 April 2002)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : GLENTHAM PTY LTD -v- LUXER HOLDINGS PTY LTD & ANOR [2002] WASC 80

Summary judgment - Moneys due under a lease - Default notice - No common law notice of default for nonpayment of rent - Fundamental breach of contract - Repudiation - Guarantor

Summary judgment for the plaintiff against the first defendant

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

Findlay & Anor v Nut Farms of Australia, unreported; SCt of WA (Pidgeon J); Library No 7047; 4 March 1988

McRae v Bolaro Pty Ltd [2000] VSCA 72

Nangus Pty Ltd v Charles Donovan Pty Ltd (In Liq) [1989] VicRp 17; [1989] VR 184

Ripka Pty Ltd v Maggiore Bakeries Pty Ltd [1984] VicRp 53; [1984] VR 629

Tony Sadler Pty Ltd & Ors v McLeod Nominees Pty Ltd (1994) 13 WAR 323

1 MASTER BREDMEYER: This is an application by the plaintiff for summary judgment for rent and other outgoings due under a lease. The plaintiff is the landlord; the first defendant is the lessee; and Mr McPhee is the guarantor. The demised premises were the 15th floor of the building at the corner of Howard Street and The Esplanade, Perth, known as the Griffin Centre , but now known as the BGC Centre.

2 The lease was for five years from 1 December 1995. The rent for the first 18 months was $91,850 per annum, payable by monthly instalments in advance of $7,654.17 on the first day of each month, the first of which was due on 1 December 1995.

3 The lessee was also required to pay its share of variable outgoings, ie, rates, takes, etcetera, based on floor area. These were also payable in advance on the first day of each month.

4 In addition to the lease, there was a licence granted by the plaintiff to the first defendant of four car bays in the building. The licence is a separate document. Mr McPhee was a guarantor of the lease, but not of the licence.

5 No rent or outgoings were paid on 1 December 1995 or on 1 January, 1 February or 1 March 1996; ie, for the first four months of the lease. On 20 March 1996, a notice of default relating to the lease and the licence was served on the first defendant. It called upon the defendant to rectify the breach mentioned therein within 14 days, failing which the plaintiff would evict the lessee from the premises and the car bays "without prejudice to Glentham's rights to recover damages against you". The notice of default is in the following form:

TO: Luxer Holdings Pty Ltd

(ACN 009 454 077)

15th Floor

28 The Esplanade

PERTH WA 6000

TAKE NOTICE that Glentham Pty Ltd ('Glentham') the lessor and the licensor under the Lease and Licence described in Parts I and III respectively of the Schedule ('the Lease' and 'the Licence' respectively) whereby Glentham leased and licensed to you the premises and car bays described in Parts II and IV respectively of the Schedule ('the Premises' and 'the Car Bays' respectively) hereby specifies the following breach of the covenants on your part in the Lease and Licence contained:

Failure to pay rent. your proportion of variable outgoings, City of Perth rates, water rates and land tax. and cleaning charges in respect of the Lease and car bay rental in respect of the Licence. in the total sum of FIFTY NINE THOUSAND FIVE HUNDRED AND FIFTY EIGHT DOLLARS AND SEVENTY SIX CENTS ($59,558.76) as itemised in Part V of the Schedule.

Failure to pay stamp duty in respect of the Lease and the Licence in the sum of $2,495.65.

AND FURTHER TAKE NOTICE that you are required within 14 days after the date of service of this Notice upon you to remedy the breach mentioned above and to make compensation in money for such breach AND FURTHER TAKE NOTICE that if you do not comply with the terms and conditions of this Notice the Lease and the Licence will be determined and proceedings taken to evict you from the Premises and Car Bays without Prejudice to Glentham's rights to recover damages from you.

SCHEDULE

Part I - Lease

Lease between Glentham Pty Ltd as Lessor and Luxer Holdings Pty Ltd as Lessee dated 21 December 1995.

Part II - Premises

All that area comprised in the 15th Floor of the Griffin Centre building being approximately 918.5M2 and being that area outlined in red on the plan attached to the Lease.

Part III - Licence

Licence between Glentham Pty Ltd as Licensor and Luxer Holdings Pty Ltd as Licensee dated 21 December 1995.

Part IV - Car Bays

Car bay nos 28, 29, 30 and 31 on car park level 3 of the Griffin Centre Building and being those car bays coloured yellow on the plan attached to the Licence.

Part V - Arrears

Water rates 95/96 apportioned from 1 December 1995 to 30 June 1996

Council rates 95/96 apportioned from 1 December 1995 to 30 June 1996

Land Tax 95/96 apportioned from 1 December 1995 to 30 June 1996

Rent, variable outgoings and cleaning charges December 1995

Rent, variable outgoings and cleaning charges January 1996

Rent, variable outgoings and cleaning charges February 1996

Rent, variable outgoings and cleaning charges March 1996

Dated this 20th day of March 1996

(Sgd)

HOTCHKIN HANLY

Solicitors and Agents for Glentham Pty Ltd"

6 A letter from Hotchkin Hanly accompanied the default notice and it said:

"Please find enclosed by way of service a Default Notice issued pursuant to the Lease and Licence with out client dated 21 December 1995.

Please note that our strict instructions are that if the Default Notice is not rectified in full within the time specified in the Notice, our client will re-enter the premises, terminate the Lease and the Licence and issue proceedings for recovery of amounts due under the Lease and Licence and damages."`

7 As stated, the notice of default gave the lessee 14 days to remedy the breach, after which the plaintiff said it would evict the tenant. That notice expired on 4 April. The breach was not remedied and the plaintiff retook possession on that day.

8 In this application, the plaintiff seeks summary judgment against the first defendant for approximately $86,000, plus interest, and damages to be assessed. The plaintiff seeks summary judgment against the second defendant for a slightly lesser sum because he is not a guarantor of the car bay licence.

9 Before turning to the defences offered, I mention some background facts which are relevant to some of the defences. For convenience, I will refer to the first defendant as "the defendant" unless otherwise specified.

10 The defendant had occupied the 15th floor of the Griffin Centre, as it then was, for about five years before the lease, the subject of this action, began. The first lease was for 10 years from April 1991 to April 2001. As at October 1995, the defendant was in substantial arrears of rent and outgoings. The plaintiff says the arrears were $365,749.08. The defendant says the arrears claimed by the plaintiff at that time were $470,484. The defendant had a "counterclaim" against the plaintiff for misleading and deceptive conduct. I use the word "counterclaim" in a lay sense. As I understand it, no court proceedings had begun. The basis of it was that the defendant only took the lease of this 15th floor on the misleading and deceptive representation of the plaintiff's agent that it would be able to sublet its existing premises (at 190 St George's Terrace) where the lease had two and a half years to run. That representation was false and, for two years, the plaintiff paid full rent on the two premises.

11 The plaintiff's claim for arrears of rent and outgoings, and the defendant's "counterclaim" for misleading and deceptive conduct, were settled in a deed of settlement dated 21 December 1995. Under that deed, the defendant agreed to pay a settlement sum of $370,000 in full satisfaction of the plaintiff's claim and to sign a new lease for the 15th floor. It is the arrears owing under that new lease which is the subject of this action. The lease was for a greatly reduced rent, compared to the prior rent. As part of the settlement, the defendant dropped its claims against the landlord for misleading and deceptive conduct.

(1) $150,000 by bank cheque on 22 December 1995. This was paid.

(2) $220,000 by instalments of $5,500 each month, beginning 1 January 1996. These instalments were without interest.

(3) Certain personal guarantees were to be given by Mr and Mrs McPhee and Mr and Mrs Barter. I add that Mr Barter was another partner in Mr McPhee's firm of solicitors. Both the McPhees and the Barters mortgaged their respective homes to secure these obligations. The deed of settlement is annexed to Mr McPhee's first affidavit, sworn on 31 January 2002.

13 The plaintiff's case looks straightforward on its documents, so I turn now to consider the defences.

14 The defendant's argument is that the plaintiff took a number of actions against the defendant, which were totally inconsistent with its obligations under the lease, so as to amount to a repudiation of the lease by the plaintiff.

15 I consider that argument first in relation to the default notice of 20 March 1996, quoted above. The defendant disputes the accuracy and the legality of many of the monetary claims set out in that notice.

16 The defendant does not dispute that four months' rent was owing under the lease and under the licence for the four car bays.

17 The plaintiff concedes, for the purpose of this application, that the sums owing in the notice under "Part V - Arrears" for water rates, apportioned from 1 December 1995 to 30 June 1996 - $6,513.44 and council rates 1995/96, apportioned for the same period - $4,779.26, arguably, were not owing by the defendant. This is because, arguably, those sums formed part of the $370,000 agreed as owing under the deed of settlement.

18 Land tax 1995/96, apportioned from 1 December 1995 to 30 June 1996 - $4,808.61 is claimed as owing in the notice of the demand. The defendant says that this falls into the same category as the water rates and the council rates; namely, that it was charged as part of the arrears owing under the old lease. The defendant says it was part of the settlement sum of $370,000 and that it was part of the claimed arrears of $470,484, which were compromised down to $370,000. The land tax claimed of $4,808.61 is the defendant's share of land tax for the whole building, based on the demised area for the seven-month period from 1 December 1995 to 30 June 1996: see Ms Tindale's first affidavit of 6 December 2001 at 88. There is a slight discrepancy in the figures there, which I will ignore for the moment.

19 Mr McPhee refers to the land tax at par 31 of his first affidavit and to annexures H1 and H2, found at 94 and 95. Annexure H1 at 94 is an invoice from the plaintiff to the defendant dated 1 December 1995, which lists various sums owing, to give a total of $470,484.77 said to be due and payable to the plaintiff prior to 1 January 1996. Included in that sum is land tax 1995/96 $8,243.33. He says that total sum of $470,484.77 was compromised to $370,000 in the deed of settlement, so the whole of the land tax for the year 1995/96 has been included in that settlement sum.

20 The deed of settlement does not offer any assistance, because it does not set out the sum claimed by the plaintiff against the defendant in the document prior to the parties' agreement on the settlement sum. I think it arguable that the land tax charged in the notice of default was included in the compromised sum of $370,000.

21 The default notice under "Part V - Arrears" lumps rent, variable outgoings and cleaning charges together. I quote:

"Rent, variable outgoings and cleaning charges December 1995 $12,637.03."

There are similar entries, for the same sum, for January, February and March 1996.

22 The monthly rent was $7,654.17, so by subtraction it is clear that the monthly outgoings and cleaning charges were $4,982.86.

23 Clause 3.4 of the lease is headed "Variable Outgoings". The lessee's covenant is to pay to the lessor, in addition to the rent described above, variable outgoings "in the manner provided for in this clause". Then follows a procedure for calculating the outgoings. The lessor "may" make "an estimate" of the outgoings for the next half year or year and "notify" that estimate in writing to the lessee. Then the clause provides that the lessee "will pay" the sum notified. As soon as possible after the conclusion of the rent year, the lessor will arrange for its auditors to calculate the exact variable outgoings for the year or part-year. The auditors will then give a certificate to that effect to the lessee, and then there has to be an adjustment made, either a payment from the lessor to the lessor, or vice versa, so that the payments made by the tenant for outgoings exactly equals the outgoings incurred.

24 To repeat a little, the first step in the process is for the lessor to give to the lessee a written estimate of the variable outgoings for the next year or half-year. This was not done in this case.

25 I think it arguable that the word "may" in the clause means "shall". I say that because the lessee has to pay the variable outgoings "in the manner provided for in this clause". When he gets the certificate of the lessor's estimate of outgoings, the lessee "will" pay them; ie, he must. I think it arguable that if a lessee does not get a written estimate of the outgoings, he does not have to pay them.

26 As stated, cleaning charges, along with rent and variable outgoings are lumped together in the default notice under the one item. As also stated, the charge for rent, outgoings and cleaning charges for each of the months of December 1995, January, February and March 1996 was $12,637.03.

27 The defendant disputes that it is liable under the terms of the lease to pay the lessor for cleaning charges; ie, the charges incurred by the lessor in cleaning the demised premises.

28 Clause 5.16 of the lease of 1 December 1995, found in Ms Tindale's first affidavit, provides:

"5.16 Cleaning

It is hereby acknowledged and declared that the Lessor shall cause the demised premises to be cleaned and the Lessee covenants to allow the Lessor and its servants, agents or contractors to enter the demised premises for that purpose."

29 That clause empowers, ie, allows or authorises, the lessor to clean the demised area. It says nothing about payment for that work.

30 Clause 3.5, one of the lessee's covenants, reads:

"3.5 Services

To pay directly to the supplier, or if necessary to the Lessor for transmission to the supplier, immediately the same becomes due and payable, all charges for the services and utilities expressly or impliedly authorised by or requested and utilised by and separately charged to, the Lessee in the demised premises, including (without in any way limiting the generality of the foregoing):

(a) electrical light, power and gas;

(b) telephone rental and charges; and

(c) office cleaning, rubbish collection and waste disposal."

31 That means that the lessee has to pay directly to the supplier (ie, the officer cleaner) the charges for office cleaning of the demised premises. He has to pay the charge directly to the supplier "or if necessary to the Lessor for transmission to the supplier". The latter is what is being asked in the notice of the default. I consider the notice of default lists correctly "office cleaning" as an item payable by the lessee.

32 I also note that "Variable Outgoings" already considered are defined in cl 1, the interpretation clause of the lease, to include numerous items. It expressly includes, as (c) "cleaning of Common Areas and signs by contractors engaged by the lessor". Thus, by implication, it excludes cleaning of the demised premises which are not common areas. The cleaning charges for the month of January 1996 are set out in an invoice from the plaintiff to the defendant found at 94 of Mr McPhee's first affidavit, as follows:

"Cleaning charges JANUARY 1996 918.5 sq.m @

$10.35 sq.m./annum $792.21."

33 The same charge is shown for February 1996 at 97 of that affidavit and also for March 1996 at 99. I consider that cleaning charges of $792.21 per month were properly payable by the defendant. However, the default notice is defective in that it does not itemise separately the cleaning charges.

34 The next item in the default notice is interest. There are three items as follows:

35 The defendant challenges these items in the default notice. Clause 5.5 of the lease deals with interest. It provides, in summary, that the lessee shall pay to the lessor interest at the rate set forth in item 9 of the first schedule on any moneys due, but unpaid for 14 days, by the lessee to the lessor on any account whatsoever, such interest to be computed from the due date for the payment of moneys in respect of which the interest is chargeable until payment of the moneys in full. Item 9 of the first schedule of the lease provides for the rate of interest. It is equal to 2 per cent per annum above the rate for the highest of the rates of interest charged by the Commonwealth Bank of Australia from time to time to its customers on overdraft account during the period in which such interest accrues. The Commonwealth Bank's overdraft interest rates are annexed to the affidavit of Ms Megan Jones, sworn 1 March 2002. The bank's overdraft interest rate for the months of January, February and March 1996 was 11.25 per cent. So, the rate of interest on arrears payable under the lease in this period, was 11.25 per cent, + 2 per cent = 13.25 per cent.

36 Under cl 5.5 of the lease, interest is payable "on any moneys due but unpaid for 14 days by the lessee to the lessor on any account whatsoever pursuant to the lease". I therefore consider that interest is payable on rent, variable outgoings and cleaning charges. However, because I have said earlier in these reasons that the defendant has an arguable defence in relation to the variable outgoings mentioned in the default notice, interest should not run on those outgoings. To restate the position, I think that interest is chargeable properly in this application on outstanding rent and cleaning charges.

37 There is no provision for the charge of interest on arrears due under the licence agreement. I do not know whether the notice of default purports to charge interest on the arrears owing under the licence agreement.

38 In summary, I consider the defendant has an arguable case that the water rates, council rates, land tax and variable outgoings are not set out correctly in the default notice. I consider that the defendant, likewise, has an argument that the quantum of interest charged in the default notice is not correct.

39 In addition to these defects in the notice of default, the defendant relies on a number of other matters to show an intention by the lessor to act in a manner inconsistent with its obligations under the lease. The first of these relates to subleasing. Under cl 3.1 of the lease, the defendant was entitled to sublet the premises and the plaintiff was not able to withhold its consent unreasonably. Implicit in that clause, was an obligation on the part of the plaintiff not to obstruct any effort made by the first defendant to sublet the premises. Mr McPhee, at pars 24 and following of his first affidavit, in summary, states that, in early March 1996, he engaged a reputable agent, Jones Lang Wootton, to find a subtenant to let a portion of the premises, which was not needed by Mr McPhee's firm. He instructed Jones Lang Wootton, and, on 6 and 18 March 1997, that firm advised Mr McPhee of a possible tenant, the first being Carlson Waglit Travel, and the second, Homestake Gold of Australia Ltd. Mr McPhee telephoned Ms Anne Tindale, who is the plaintiff's property manager, advising of these developments and she was annoyed to learn that another agent had been approached. She said:

"You must go through our agent, Richard Ellis & Co, at all times for any subtenants."

40 That response did not deter Mr McPhee from dealing with Jones Lang Wootton. As stated, that firm introduced two prospects, who viewed the premises. Negotiations did not proceed with either of those parties in any substantial manner, nor did any other prospects from Jones Lang Wootton come to fruition in relation to the premises because soon after, on 20 March 1996, the plaintiff issued the default notice.

41 I think it could be said, for the purposes of this application, that Ms Tindale's response evinced an intention, on behalf of the plaintiff, to be obstructive with the defendant's endeavours to find a subtenant. I consider the defendant had the right to engage its own agent. Ms Tindale's stipulation that it should be the plaintiff's agent, Richard Ellis & Co, is not a term of the lease, nor, I think, could it be implied that the lessee was required to use the landlord's agent. Nevertheless, her words did not deter Mr McPhee from engaging his agent. So, this complaint by the defendant remains a minor one.

42 The second matter raised in par 6(c) of the defendant's written outline is that, after settlement of the earlier dispute was effected pursuant to the terms of the deed of settlement, the plaintiff continued to make demand on the first defendant for sums which were far in excess of the amounts due by the first defendant under the lease. That is true, and pars 31(f) and 33 of Mr McPhee's first affidavit refer to this. It is as if the plaintiff's accounts department was ignorant of the settlement deed, and, post the deed, issued invoices for large sums owing as if the deed did not exist. These invoices were annoying, but I do not consider that Mr McPhee would, for one minute, think that the plaintiff was not honouring the deed. Being an experienced lawyer, I think he was likely to understand those invoices as mistakenly issued by junior staff members. He said in par 29 of his second affidavit that he believed these invoices were issued as a result of clerical errors in not taking into account the deed of settlement.

43 The next matter raised as evidence of an intention not to honour the lease, and hence as evidence of repudiation by the landlord, is mentioned at pars 28 and following of Mr McPhee's first affidavit. After receiving the default notice on 20 March 1996, his partner, Michael Barter, phoned Mr Hotchkin, solicitor for the plaintiff, and asked him if the defendant could speak with his clients direct. Mr Hotchkin said he would check and call back. Later, Mr Hotchkin phoned Mr Barter, saying words to the effect that "no negotiations will be entered into".

44 I do not consider that as evidence of repudiation. It is evidence of a tough attitude on behalf of the plaintiff, but I can understand that in the circumstances. After settlement of a long, drawn-out, rental dispute with the defendants, culminating in the deed of settlement of December 1995, under which the claims and counterclaims were resolved by the defendant agreeing to pay $370,000 to the plaintiff, and to enter into a new lease at a greatly reduced rent, the defendant failed to pay any part of the first four monthly payments due under the lease. Moreover, I would not expect that message from the plaintiff, communicated by Mr Hotchkin, to have deterred a solicitor of Mr McPhee's standing from writing to the plaintiff, through the plaintiff's solicitors, putting any proposal for deferral or compromise which he might choose to make. The plaintiff shut the door on Mr McPhee or Mr Barter speaking directly with the plaintiff's officers, but not from making an approach to the plaintiff through the plaintiff's solicitors. No such approach was made.

45 I consider that the defects in the notice of default, taken with the other matters raised by Mr McPhee, do not, together, amount to an arguable defence that the defendants only honoured the lease in a manner substantially inconsistent with its obligations so as to amount to a repudiation by the plaintiff.

No service of a notice for payment of rent at common law

46 This argument is that this lease required a common law notice of default in order to forfeit it for non-payment of rent, and that the notice of default which was served did not amount to a common law notice of default. The defendant cited the law as it is found in W D Duncan: Commercial Leases in Australia, 3rd ed at 318 - 319:

"Precondition. for forfeiture of lease

for non-payment of rent

A common law demand for rent must be made where it is proposed to forfeit the lease for non-payment of rent, unless the lease dispenses with the formal demand or the lessor is excused by statute from doing so. A properly drawn lease will include words that the rent will be payable 'whether legally demanded or not' or words to that effect to dispense with the necessity of making a common law demand for rent.

If a lease is to be forfeited for non-payment of rent, and the common law demand is dispensed with either by the lease itself or by statutory provision, the common law demand must meet the following requirements:

1. It must be made by the lessor or the lessor's agent;

2. It must state the precise amount of rent due;

3. It must be made upon the precise day which the rent might be paid to avoid forfeiture;

4, It must be made at a convenient time before sunset and continuing until sunset;

5. It must be made upon the land or at the place, if any, appointed for payment.

In is this day and age, a common law demand for rent may seem otiose and there has been much disagreement throughout the cases as to whether, in the particular circumstances, a demand has been necessary.

It should be noted that unless this common law demand for rent is dispensed with, the lessor must, before proceeding to recover the land, make the formal demand. Proceedings for re-entry for non-payment of rent would be misconceived unless the lessor can prove that the demand has been made prior to the issue of proceedings.

34. Landlord and Tenant Act 1958 (Vic), s 10; Property Law Act 1974 (Qld), s 139.

35. Conveyancing Act 1919 (NSW), s 85(1)(d); rent one month in arrears; Supreme Court Act 1986 (Vic) s 79; demand for rent unnecessary where one-half year's rent in arrears, no demand required in Victoria in the case of registered leases; Transfer of Land Act 1958 (Vic), s 67(1)(d); Property Law Act 1974 (Qld), s 107(d): demand for rent unnecessary where one-half year's rent in arrears.

36. Commissioners of State Savings Bank of Victoria v Millane [1931] VR 18; Gleeson v Richey[1959] VR 258; Lo Giudice v Biviano (No 1) [1962] VicRp 59; [1962] VR 412."

47 I agree with the statement of law from Duncan's text quoted above. Similar statements of law are found in Bradbrook and Croft, Commercial Tenancy Law in Australia (2nd ed) at [17.2] and [17.14], and in Lang's Commercial Leasing in Australia (CCH) [30 - 420]. In that latter text at [32 - 000] is a precedent for a re-entry clause excluding a common law notice for non-payment of rent.

(i) Each of the following constitutes a default by the Lessee under this Lease:

(a) the failure to pay to the Lessor rent or any other financial obligation under this Lease, including rates, taxes and operating expenses, for a period in excess of fourteen (14) days after the due date for payment, whether a formal demand for payment has or has not been made."

48 Other examples of those exclusionary words appear in Shevill & Anor v The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 623, "(Although no formal or legal demand shall have been made therefor)", and in identical words in the lease under question in Progressive Mailing House Pty Ltd v Tobali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at 21.

49 I think it arguable that the notice of demand issued in this case was not adequate as a common law notice of demand for non-payment of rent. It did not, for example, state the precise amount of rent due. The rent due was, as has been seen above, mixed in with variable outgoings and cleaning charges. I also think it arguable that the obligation to give a common law notice of demand for non-payment of rent was not excluded by the words of the lease. Clearly, the express exclusionary words, which are commonly found in leases, were not there. Although an argument was mounted by Mr Hotchkin that there was an implied exclusion, based on a comparison of cl 5.3(b)(i) and (ii), I think it arguable for the defendant that the common law notice of demand was not excluded in the lease.

50 Mr Hotchkin, for the plaintiff, argued that, even if the default notice issued was defective as a common law notice of demand for non-payment of rent, or was defective in other ways, for example, for demanding payment of variable outgoings arguably not due, as discussed above, notice of default was not essential, and, in any event, served a useful purpose. Its useful purpose was that it warned the defendant that it risked losing possession of the premises, if it did not meet the payments claimed under the notice. He said the notice was not necessary because the lessee had repudiated the lease.

51 I consider that some notice of demand is essential because of the requirement under s 81(1) of the Property Law Act, which I quote:

"81. (1) A right of re-entry or forfeiture under any provision or stipulation in a lease for a breach of any covenant or condition in the lease is not enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice --

(a) specifying the particular breach complained of;

(b) where the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) in any case, requiring the lessee to make compensation in money for the breach,

and the lessee fails, within a reasonable time after the service of the notice on him, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach."

52 That requirement is mandatory because of subs (10) which provides:

"(10) This section has effect notwithstanding any stipulation to the contrary."

53 I consider the notice of demand which issued was adequate compliance with s 81(1).

54 I want to examine further Mr Hotchkin's submission that a lessee can repudiate a lease in such a way that it is not necessary, perhaps apart from s 81(1), to give any notice of default. I think that submission is right. The starting-point is Progressive Mailing House (cited above) at 29, that the ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases.

55 The second case relied on by the plaintiff is Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623. In that case, a lessee gave a 14-day notice of default to the lessor for failing to deliver to the lessee a registrable lease. The notice was not obeyed and the lessee claimed that that failure was repudiation of the lease. All five Judges considered that the lessor had repudiated the lease by failing to deliver a registrable lease to the lessee, and the lessee was entitled to treat the lease as ended. Three of the Judges, Brennan, Deane and Dawson JJ, considered that the lessee's 14-day notice was ineffective to make time of the essence because of its inadequate wording. Four of them considered that the time allowed by the notice to complete was not reasonable in all the circumstances. Nevertheless, despite the ineffectiveness of the notice, the High Court held that the lessor's conduct in failing to deliver a registrable lease - a failure which had persisted five months into the term of the lease - amounted to a repudiation of the agreement, which entitled the lessee to treat it as ended. At 649, Brennan J said:

"Repudiation may be established without proof of an effective notice to complete. The absence of an effective notice means that the other evidence must be examined to determine whether a clear inference of repudiation should be drawn, but it does not preclude the drawing of that inference."

56 In the present case, I consider that the defendant's failure to pay any part of four months' rent prior to the issue of the notice of demand amounts to repudiation of a fundamental term of the lease. I note that cl 5.3(a)(i) makes the covenant to pay rent an "essential" term of the lease. I contrast the facts in this case with those in Shevill, where the High Court found that the lessee's failure to pay rent did not evince an intention to be no longer bound by the lease, and did not go to the root of the contract and make further commercial performance of it impossible. In that case, the lease did not make the covenant to pay rent an essential term of the contract. Also, in that case, the lessee was constantly late in paying the rent. Although the lessor pressed for prompt payments, the payments were often late and often only partial payments. From April to August 1997, the lessee's account was constantly in debit. The largest debit balance reached was $6,971.25. In June and July, three of the lessee's cheques for rent were dishonoured. Finally, on 3 August 1977, two months' rent, amounting to $5,442.50, remained unpaid. On that date, the lessor issued a writ and statement of claim claiming possession of the land. The High Court drew from this evidence at 624 in the judgment of Gibbs CJ:

"It is enough to say that the only possible inference is that the lessee was experiencing financial difficulty which made it unable to make the payments of rent at the times required by the lease. It is however impossible to conclude that the lessee was unwilling to comply with its obligations."

57 In the present case, there were no underpayments, or late payments of rent or office cleaning charges in the four-month period. Although the tenant could have disputed the charges for variable outgoings as not having been calculated in accordance with the procedure set out in the lease, there could be no dispute about the rent. The first schedule to the lease set out clearly the annual rent of $91,850 and the monthly rent of $7,654.17, payable from 1 December 1995 until 1 May 1997, when the rent was to increase. Moreover, during the 14-day period given in the notice of demand, there was no offer by the defendant to pay the outstanding rent, or cleaning charges, or any part of them, and no formal attempt made, through the plaintiff's solicitors, to ask for more time, or to come to some other arrangement. I consider that the defendant's total failure to pay the outstanding rent and cleaning charges over a period of four to five months amounts to a breach of a fundamental term and a repudiation of the lease.

58 I have not come to this view lightly. I am aware that in Progressive Mailing House at 32 Mason J said:

"Repudiation of a contract is a serious matter and is not to be lightly inferred and that neither a breach of a covenant to pay rent nor a breach of a covenant to repair, without more, constitutes a breach of a fundamental term, nor amounts to a repudiation of a lease."

"What needs to be established in order to constitute a repudiation is that the party evinces an intention no longer to be bound by the contract or that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way: Shevill at 625 - 627."

59 I consider in this case, the defendant's non-payment of any rent over that four-month period evinces an intention no longer to be bound by the lease, even though the defendant had not abandoned the premises.

60 The defendant's next argument is based on estoppel as per Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1987) 164 CLR 387 at 425 et seq. The argument is that on 20 March 1996, the plaintiff issued a default notice in which it referred to various breaches, including the non-payment of rent, and specified a period of 14 days for the defendant to rectify the breaches by paying the total sum of $59,558.76 demanded. If the plaintiff was entitled to re-enter for non-payment of rent without demand, which the defendant denies, then the defendant says the plaintiff would, during that period of 14 days, be estopped from doing so because of the terms of the default notice. I agree with that. I think that is arguable. The defendant says that, by issuing that notice of default for various sums, for rates and variable outgoings, etcetera, which were arguably not then due by saying in the letter that the sum stated in the default notice had to be paid in full, and by denying Mr Michael Barter (Mr McPhee's partner) the opportunity of speaking directly with the plaintiff's officers, it represented to the defendant that it would re-enter unless the defendant paid the full sum of $59,558.76. The defendant understood there was no point in making a payment for any lesser sum. In Mr McPhee's third affidavit of 6 March 2002, he said that if he had known the plaintiff had intended to exercise a right of re-entry for non-payment of rent, irrespective of the validity of the default notice, he believed that he and Mr Barter would have been able to raise sufficient money to pay that rental before 4 April 1996. That outstanding rental, including that payable on 1 March 1996, amounted to approximately $30,000. I quote from pars 4 to 6 of Mr McPhee's affidavit:

"4. I have not had time to study the bank records of the First Defendant at the time of swearing this affidavit but my recollection is that the First Defendant had available to it, by arrangement with the principals, Mr Barter and myself, the cashflow of the firm. This proved sufficient in March 1996, and again in April 1996 to make outlays including the following:

(a) Salaries of approximately $40,000.00 per month.

(b) Bank payment of approximately $8,000.00 per month.

(c). Private payments to partners (Michael Barter and myself) of approximately $6,000,00 per month,

(d) On or about 16 April 1996 a payment of $10,000,00 in advance on the lease in West Perth.

5. Further, at that time, the First Defendant would have had available to it the resource of debtors in excess of $180,000,00 and work in progress of approximately $300,000.00.

6. If the Plaintiff had been prepared to talk to Michael Barter or myself or to say then what it is now saying, namely that it would have accepted the rent which was due under the lease then I would have taken all steps within my power to see that cash paid by 4 April 1996. 1 would have accelerated collection of debtors, not allowed any drawings and even if necessary made arrangements with senior staff over salaries, and then attempted to borrow from private sources, any difference, to see the rent paid. It was the claim of a sum in excess of $62,000,00 in the short period, which I did not think due and in respect of which the Plaintiff stated it would not enter into any negotiation, that led Mr Barter and I to conserve the resources that the First Defendant had, which would otherwise have gone into the payment of the rent, to paying for the re-establishment of the firm in West Perth so the business could continue and not be destroyed by the re-entry by the Plaintiff."

61 The elements of the defence of estoppel as per Walton Stores (Interstate) Ltd v Maher (supra) are as follows:

(1) the defendant assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case that the plaintiff would not be free to withdraw from that expected legal relationship;

(2) the plaintiff has induced the defendant to adopt that assumption or expectation;

(3) the defendant acts or abstains from acting in reliance on the assumption or expectation;

(5) the defendant's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and

(6) the plaintiff has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

62 I apply those six elements to the factual matters put by the defendant. (1) The defendant assumed that the plaintiff would re-enter unless the defendant paid the full sum of $59,558.76 stated in the default notice; (2) the plaintiff, by letter and by phone call (Hotchkin to Barter) induced the defendant to adopt that assumption; (3) acting on that assumption, the defendant abstained from paying the rent component of the default notice; (4) the plaintiff knew that the defendant would do that; (5) the defendant's failure to pay the outstanding rent within the 14 days caused detriment to it; namely, the costs of shifting to new office premises in West Perth, as detailed in Mr McPhee's second affidavit. The defence breaks down on the sixth element. The plaintiff did not fail to fulfil the assumption mentioned in par (1). On the contrary, it carried out that assumption. It re-entered on 4 April. Contrast this with the facts in Walton Stores, where the owner represented that it would give the proposed tenant a lease. Acting on that assumption, the proposed tenant carried out expensive alterations to the premises in anticipation of getting the lease. The owner, however, failed to fulfil that assumption by renting the property out to another person. I conclude that this is not an arguable defence.

63 For the above reasons, I am satisfied to the requisite standard for a summary judgment, that the defendant repudiated the lease and that the plaintiff is entitled to summary judgment against the first defendant for four months' rent, office cleaning charges and car bay charges, plus interest thereon. Those charges are as follows:

64 I would seek counsel's assistance on the calculation of interest. Because I consider the first defendant has repudiated the lease, I consider there also should be judgment for the plaintiff against the first defendant for damages to be assessed.

65 I now turn to the plaintiff's claim against the second defendant, Mr McPhee, the guarantor of the lease, but not of the car bay licence.

66 The guarantee is found in cl 6 of the lease, which reads as follows:

"6. Guarantee

In consideration of the Lessor having granted this Lease to the Lessee at the request of the Guarantor named and described in item 12 of the First Schedule (herein called 'the Guarantor') the Guarantor HEREBY GUARANTEES to the Lessor the due and punctual payment by the Lessee of the rent reserved by and the performance and observance by the Lessee of the covenants, conditions and stipulations contained or implied in this Lease during the term hereby granted and any extension or renewal thereof upon the following terms and conditions:

(a) if and whenever any instalment of the rent or any part thereof is in arrears or unpaid for the space of one (1) month after it has become due and payable the Guarantor will upon demand pay the same to the Lessor; (emphasis mine)

(b) if and whenever there is a breach by the Lessee of any of the covenants, conditions or stipulations herein contained the Guarantor will upon the written request of the Lessor cause the breach to be remedied within a reasonable time and pay to the Lessor all losses, damages, expenses and costs which the Lessor is entitled to recover by reason of the breach; (emphasis mine)

(c) the liability of the Guarantor hereunder is not impaired or discharged by reason of any time or other indulgence granted by or with the consent of the Lessor;

(d) this guarantee is a continuing guarantee and binds the Guarantor and the personal representatives of the Guarantor and passes upon an assignment by the Lessor of the reversion of the demised premises and is not revocable nor discharged by the winding up or composition made by the Lessee with its creditors; and

(e) where there are two (2) or more persons named and described in item 12 of the First Schedule as Guarantors their liability is joint and several."

67 The default notice of 20 March 1996 quoted in full above, was addressed to Luxer Holdings Pty Ltd, the first defendant only. It was not addressed to Mr McPhee. A letter of demand was sent to Mr McPhee on 1 July 1996. It is found at AT13, page 109 of Ms Tindale's affidavit of 6 December 2001. It reads:

"Dear Sir

LEASE OF 15TH FLOOR, GRIFFIN CENTRE, DATED 21 DECEMBER 1995 AND STAMPED 3 APRIL 1996

We enclose a statement of arrears owing as at 4 April 1996, in the sum of $69,916.30, to which can be added a stamp assessment of $2,563.90, a copy of which is enclosed.

You will note that our client has not assessed interest on the arrears. We are instructed to demand payment of the sum of $71,480.20 within 21 days. If payment is made within that time, our client will forego interest claimable on that sum.

Payments should be made by bank cheque to our office, payable to Glentham Pty Ltd. A demand has also been made on Mr Barter.

Yours faithfully

HOTCHKIN HANLY"

68 That letter of demand refers to an enclosed statement of arrears owing as at 4 April 1996 in the sum of $69,916.30.

69 The statement of arrears is a letter dated 27 June 1996, from the plaintiff to Hotchkin Hanly which sets out a summary of the account owed by Luxer Holdings from 1 December 1995 to 4 April 1996 totalling $69,916.30. I have marked this letter exhibit A. A copy of it was annexed to Mr Hotchkin's letter to Mr McPhee of 1 July 1996.

70 Exhibit A, sets out the sums owing for each of the months December 1995, January, February, March and April 1996. I will summarise the figures, which are the same for each of the months December to March.

71 There are a number of problems with these figures as they apply to the guarantor, Mr McPhee. Firstly, he is not a guarantor of the car bay charges. Secondly, as previously discussed, I consider the defendants have an arguable defence that the variable outgoings were not properly due, because no prior estimate of them had been given to the defendants. Thirdly, in relation to the cleaning charges, cl 6(b) of the lease, the guarantee clause quoted above, applies. Prior to demanding the payment of outstanding cleaning charges, the lessor is required to send a written request to the guarantor to remedy that breach within a reasonable time. This was not done. The default notice of 20 March 1996 given to the first defendant was not such a notice. That requirement in cl 6(b) is expressed as a condition. It is a condition precedent to the demand upon the guarantor. I consider that these various defects in the notice are sufficient to allow Mr McPhee to be given leave to defend. The law has a tender concern for guarantors and this is a case where the rent claim in the demand is probably good, but it is mixed up with three claims which are arguably bad. This is one of those cases where I consider that the whole demand should be examined, where "for some other reason" (Rules of the Supreme Court O 14 r 3(1)) there should be a trial of this claim.

72 Mr Scott, counsel for the guarantor, argued another matter. He said that the guarantor guaranteed the lessee's obligations under the lease, but that does not extend to an equitable lease. He says that the lease under consideration here was meant to be registered and the plaintiff's failure to register it, which is what had been agreed between the parties, means that the lease is only an equitable lease. Mr Scott says that this case in on all fours with Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242. That was a case in which guarantors were parties to the lease and they guaranteed the performance by the lessee of its obligations "under this lease". The lease was not registered under the Property Law Act 1974 (Qld). The lessee went into possession and paid rent. On default by the lessee, the lessor sought to recover the amount of rent owing from the guarantors. Section 43 of the Real Property Act 1861 (Qld) provided that, until registration, no instrument was "effectual to pass any estate or interest" in land. Section 129(1) of the Property Law Act 1974 provided that no tenancy from year-to-year should be implied by payment of rent; if there was a tenancy, and no agreement as to its duration, then such tenancy should be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time. The Court held, by a majority, that, because the lease was not registered, then by s 129(1) of the Property Law Act, it amounted to a tenancy at will terminable on one month's notice. Thus, the obligation to pay rent, because of the non-registration of the lease, was an obligation to pay rent under the common law tenancy, but not "under this lease". The guarantors had only guaranteed the lessee's obligations "under the lease" that is, under the lease meant to be registered. Their guarantee did not extend to an equitable tenancy at will.

73 The rationale of Chan is based on the non-registration of the lease. Mr Scott says that s 43 of the Real Property Act 1861 (Qld), which provides that, until registration, no instrument is effectual to pass any estate or interest, is mirrored in s 58 of the Transfer of Land Act 1893 (WA), which provides:

"No instrument until registered in manner herein provided shall be effectual to pass any estate or interest in any land under the operation of this Act ... "

74 The High Court said, at 246 and 247, that it was obvious the parties intended the lease to be registered. The lease was in the form appropriate for registration (Form E) and was certified as correct for registration by the solicitors for the lessor or the solicitors for the lessee, and otherwise complied with the statutory requirements, so that it was in registrable form. At 248, the Court said the failure to register the lease did not render it void. The lease was capable of being or becoming a source of rights. The existence of the unregistered lease brought into existence an equitable lease, and occupation and the payment of rent under the unregistered lease created an implied tenancy at common law. The lease in the present case was for five years: see cl 2 and item 3 in the first schedule. It also contained, in cl 5.17, an option to extend for a further period of five years.

75 I do not consider that the facts in this case are on all fours with the facts in Chan v Cresdon (supra). On the contrary, I think the facts in the present case are markedly different. In Chan v Cresdon, it was easy for the Court to infer that the parties intended the lease to be registered. The lease was in registrable form. It was in Form E, as required by the section. Secondly, the solicitors for the lessor, and the solicitors for the lessee, had both certified that the lease was "correct for the purposes of registration". In the present case, the lease was not in registrable form. Section 91 of the Transfer of Land Act 1893 (WA), as it stood in 1995, and prior to amendment number 81 of 1996, required a registrable lease to be "in the Form in the Eleventh Schedule". I quote from the opening words of that schedule:

"ELEVENTH SCHEDULE

WESTERN AUSTRALIA

Lease

A.B. (hereinafter called the lessor) and who is registered as the proprietor of an estate [here state nature of estate] in the land hereinafter described subject to the encumbrances notified hereunder hereby LEASES to C.D. (hereinafter called the lessee) ALL THAT ... TO BE HELD by the lessee for the term of years from the day of at the clear yearly rent of payable [here insert terms of payment] subject to the covenants and powers implied under 'The Transfer of Land Act 1893' (unless hereby negatived or modified) and also to the covenants and conditions hereinafter contained [here set forth any special ones]

... "

76 The lease in this case, dated 21 December 1995, is not in that form. The lease is of the 15th floor of the building. The lease in the definition section sets out the description of the land and the certificate of title number. It does not appear that a strata title exists for the 15th floor. I consider that the lease of the 15th floor of a building, not strata titled, could not be registered against the Torrens title. It could, at best, be protected by a caveat. Clauses 3.34 and 3.35 refer to caveats. They permit the lessee to lodge a "subject to claim" caveat, but not an absolute caveat. The lessee is required to withdraw that caveat promptly on the expiration, or sooner determination, of the term of the lease. If the lessee fails to do that, then by cl 3.35 the lessee irrevocably appoints the lessor his agent to sign and withdraw the caveat. The cost of that has to be paid by the lessee.

77 The only mention of registration in the lease before me is found in cl 3.33 headed "Legal Costs". I quote from the opening words of that:

"To pay all the Lessor's legal costs, charges and expenses of and incidental to the instructions for the preparation, completion and stamping of this Lease in triplicate and all stamp duties and registration fees thereon ... " (Emphasis mine)

78 I consider the words "registration fees" in that clause are otiose and that, for the two reasons given - the lack of form, and the lack of a separate title for the 15th floor - this lease was never intended to be registered.

79 Mr Scott, for Mr McPhee, also referred me to Ashton & Ors v Hunt [1998] QCA 308, which followed Chan v Cresdon. In Ashton, Thomas JA at [3] noted that the lease was in registrable form. In the same paragraph, he said:

"It is common ground that the parties intended the lease to be registered. This can be inferred from the lessee's covenant 'To pay all costs ... of and incidental to the ... registration of this Lease'."

80 In the case before me, although there is a costs clause which refers to "registration fees" it is not as clear as the "costs of ... the registration of the lease". Moreover, the lease was not in registrable form and it was not common ground between the parties that it would be registered.

81 For the reasons given earlier, there will be summary judgment for the plaintiff against the first defendant, but the second defendant will be given leave to defend.

Property Act 1861(Qld)

Glentham Pty Ltd v Luxer Holdings Pty Ltd & Anor [2002] WASC 80

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (150 paragraphs)

Glentham Pty Ltd v Luxer Holdings Pty Ltd & Anor [2002] WASC 80 (12 April 2002)

Parties

Legislation Cited (4)

Cases Cited (10)