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[2011] QSC 22
General information, not legal advice.
Supreme Court of Queensland
2011-02-23
McMeekin J
Original judgment source is linked above.
[1] McMeekin J: The applicant is Ruth Barbara Leahy. She is the registered proprietor of certain land[1] which is presently the subject of a registered lease and sub lease. Ms Leahy is seeking to recover possession of the land.
[2] The second respondent, Austwin Management Services Pty Ltd ("Austwin") is a sub lessee, and effectively seeks relief from forfeiture relying on s 125 of the Property Law Act 1974 (Qld).
[3] This application is one of three related matters that came before me on the one day. As will be seen the first respondent here, Fimiston Investments Pty Ltd ("Fimiston"), is now in liquidation as a result of my order in one of those applications. Subject to Austwin's application for relief from forfeiture, there is now no contest about the relief sought by the applicant.
[4] On 29 May 1992 Ms Leahy's mother leased the land to John Evelyn Winner. Mr Winner assigned the lease to Austwin in 1993. Mr Winner is and was the sole director and shareholder of Austwin. Subsequently Ms Leahy became the registered proprietor of the land on the death of her mother and pursuant to the terms of her mother's will.
[5] On 1 December 1997 Austwin assigned the lease to Fimiston. As part of that transaction Fimiston subleased a part of the leased area back to Austwin. These transactions required the consent of the lessee. At the time Mr Winner was the trustee of Ms Leahy's mother's estate and consented to these transactions in that capacity.
[6] There are improvements on the land namely a service station and mechanical workshop. Austwin conducts a business from the workshop and has done so for some 25 years.
[7] Presently an unrelated company, CQ Petroleum Pty Ltd ("CQP"), conducts the service station. A sublease was granted to CQP by Fimiston in respect of the service station area. That sub lease has expired but CQP continues in occupation under a periodic tenancy. There is no contest about its continued occupation.
[8] Ms Leahy has had long standing disputes with Mr Winner, Austwin and Fimiston. In December 2000 by order of the Supreme Court Mr Winner was removed as trustee of Ms Leahy's mother's estate at Ms Leahy's request.
[9] More recently Ms Leahy has had disputes with Fimiston with respect to monies owing under the lease. The disputes came on for trial and Ms Leahy obtained judgment in the District Court on 30 September 2010. The judgment remained unsatisfied. Consequently a Notice to Remedy Breach was served on Fimiston. That remained unsatisfied. Subsequently a Notice to Quit was served.
[10] Throughout this time, by reason of the original lease and assignment, Austwin and Mr Winner remained under contractual obligations to indemnify Ms Leahy in respect of any breach by Fimiston of its obligations under the lease. Consequently Ms Leahy served Mr Winner with a copy of the Notice to Terminate the lease and caused a copy to be delivered to Austwin's workshop premises and to its registered office. Mr Winner and Austwin have known then of Ms Leahy's complaints about Fimiston's breaches of the lease and her desire to terminate the lease at least since such service which occurred on 11-12 November 2010.
[11] On 13 November 2010 Ms Leahy attended at the property and sought to re-enter the premises. That was resisted by Fimiston and Austwin. She was unsuccessful. On 20 January 2011 Ms Leahy brought these proceedings seeking a declaration that she has determined the lease, recovery of possession of the land and an order that the respondents deliver up the land.
[12] On about 12 January 2011 Ms Leahy served Statutory Demands on Fimiston and Austwin under the provisions of the Corporations Act 2001 (Cth). The basis for the demand on Fimiston was the judgement debt that I have mentioned. The basis for the demand on Austwin was its contractual obligation to indemnify Ms Leahy under the earlier assignment of the lease. Those demands were not satisfied.
[13] On 7 February 2011, on the first day of the hearing of this matter but prior to hearing it, I ordered that Fimiston be wound up and I appointed liquidators. Fimiston had still not satisfied the debt owing to Ms Leahy. The liquidators have now indicated that they do not wish to defend these proceedings. Thus the head lease will be determined and Ms Leahy is entitled to repossess the property.
[14] Austwin has taken two steps. First it applied for an order that the Statutory Demand served on it be set aside under s 459G of the Corporations Act 2001. That application was heard immediately after I had heard the present application and had reserved my decision. I determined to vary the amount of the demand to $46,649.88 under section 459H of the Corporations Act 2001. The amount relates to arrears of rent and rates owing under the lease. The end result is that I declared the demand to have had effect as so varied as and from when the demand was served on the company. The balance of $3,500 is still demanded by Ms Leahy. Austwin contends it does not owe her that amount.
[15] The second step taken by Austwin was to make this application under s 125 Property Law Act 1974 (Qld). I turn now to consider the relevant principles and issues.
[16] Section 125 provides:
"Power of court to protect under-lessee on forfeiture of
(1) Where a lessor is proceeding, by action or otherwise, to enforce a right of re-entry or forfeiture, under any covenant, proviso, or stipulation in a lease made either before or after the commencement of this Act or for non-payment of rent, the court may, on application by any person claiming as under-lessee any estate or interest in the property comprised in the lease, or any part of any estate or interest in the property, make an order staying any such action or other proceeding on such terms as to the court may seem just, and vesting, for the whole term of the lease, or any less term, the property comprised in the lease or any part of any estate or interest in the property, in any person entitled as under-lessee to any estate or interest in such property, upon such conditions as to execution of any deed or other document, payment of proper and reasonable rent, costs, expenses, damages, compensation, giving security, or otherwise as the court in the circumstances of each case, and having regard to the consent or otherwise of the lessor to the creation of the estate or interest claimed by the under-lessee, thinks fit, but in no case shall any such under-lessee be entitled to require a lease to be granted to the under-lessee for a larger area of land or for any longer term than the under-lessee had under the original under-lease.
(2) Any such order may be made in proceedings brought for the purpose by the person claiming as under-lessee or, where the lessor is proceeding by action or otherwise in the court, may be made in such proceeding."
[17] On general principles any consideration of the question of relief from forfeiture requires attention to a number of issues including the gravity of any breach, whether such breach was inadvertent or wilful, the damage to the lessee if the relief is not granted and the relative loss to the lessor if relief is granted.[2] Where s 125 is invoked it would be a rare case where a sublessee in material breach would be permitted to obtain such relief: Imray v Oakshette [1897] 2 QB 218 at 225 per Lopes LJ.
[18] Subject to what I have to say below, the cases, few though they are, seem to support the applicant's submission that this is a jurisdiction "to be exercised sparingly because it thrusts upon the landlord a person he has never accepted as tenant and creates in invitum a privity of contract between them": Creery v Somersall and Flowerdew & Co Ltd [1949] Ch 751 at 767 per Harman J.
[19] Where the imposition of a sub lease would cause significant hardship to the lessor by making it impossible to deal with the premises as a whole then that is a factor significantly against the exercise of the discretion: Chatham Empire Theatre (1955) Ltd v Ultrane Ltd [1961] 1 WLR 817 at 821 per Salmon J.
[20] Where the sub lessee is blameless then I apprehend that the Court should be astute to bear in mind the evident purpose of the provision is to assist a sub lessee from suffering significant loss likely to be consequent on a sudden forfeiture of the sub lease: Hurd v Whaley [1918] 1 KB 448 at 451 per McCardie J.
[21] Austwin undertakes to pay the arrears and rates owing under the head lease within 30 days. Austwin contends that by payment of the amount it concedes as outstanding Ms Leahy will not be disadvantaged.
(b) it has always honoured its obligations under the sub lease;
(c) that its business is conducted from the premises and the employment of two people as well as Mr Winner's livelihood will be affected if it is forced to close;
(d) if Austwin is required to relocate at short notice then that would be very difficult to achieve and may cause significant loss of business as there is a shortage of satisfactory premises for rent in the Beaconsfield area;
(e) the term of the sublease will expire in July 2012 and so the imposition on the applicant is not great.
(a) She is in dispute with Mr Winner in relation not only to the debt that is the subject of the statutory demand but in relation to other matters, some dating back to his management of her mother's estate. In her affidavit filed 20 January 2011 Ms Leahy states: "There is complete distrust between myself and those entities [Austwin and Mr Winner] and our history is bitter and acrimonious";[3]
(b) She has never accepted Austwin as tenant and has no wish to be forced into a relationship whereby privity of contract is created between her and a company effectively controlled by Mr Winner;
(c) That despite being aware of the significant breaches committed by Fimiston, Austwin has not honoured its obligations to indemnify her - monies having been now outstanding since at least October 2010 when judgment was obtained;
(d) Fimiston and Austwin are in breach of the covenant in the lease to keep the premises in good repair - the tarmac area of the premises being pot holed;
(e) The terms of the sublease are themselves uncertain and almost certainly will require a determination from the court as to their meaning and effect;
(f) On any view the terms of the sublease are not commercial - there being no provision for rental increases over the period of the sub lease and that advantage having been obtained by Mr Winner when trustee of her mother's estate;
(g) The current use made of the land by Austwin exceeds the land actually demised under the lease. By his affidavit filed in these proceedings Mr Winner contends that he has the right to store goods on the area in question even though the sub lease gives him only the right of free and unobstructed passage. That claim was not persisted in by Mr Winner's counsel.
(h) Austwin's continued possession of part of the premises is an impediment to her re-leasing the whole of the premises so as to obtain a "proper commercial return", she having received expressions of interest should the whole of the premises become available.
[24] While Austwin's submissions are straightforward some of the points made by Ms Leahy require amplification.
[25] As to (d) Mr McLennan submits on behalf of Austwin that the pot holes are merely fair wear and tear (there being the usual exception in the lease in this regard at cl 1.13) and their existence does not establish any breach of the covenant. He referred me to Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487, a decision which depended merely on the covenants and facts pertinent to that case.
[26] I am in no position to judge the merits of the argument, there being no evidence as to the state of the premises at the commencement of the lease or any evidence as to the probable cause of the pot holes.
[27] Whether the pot holes represent fair wear and tear or not, I would not be prepared to keep Austwin out of the demised premises merely on the ground of so minor a problem. In any case the area demised under the sub lease, and to which Ms Leahy wishes to strictly hold Austwin, does not include the tarmac area. Thus if there is any breach it does not involve a wilful breach of the sub lease.
[28] As to (e) and (f) the issues raised concern the meaning and effect of the clause imposing the obligation to pay rent under the sub lease.
[29] By the terms of the sub lease the rental payable under the sub lease is required to be calculated in accordance with the formula described in the Schedule[4] as follows: "AR = HLR2 - HLR1 x ½ + rent for the previous year" where AR means the annual rent, HLR2 means the annual rent for the head lease at the date of the calculation and HLR1 means the annual rent payable for the head lease 12 months prior to the date of the calculation.
[30] Ms Anderson makes two points, really in the alternative. The first is that if the clause is read literally then the lessee is substantially underpaying on the rent owed. That is so because the parties to date - that is Fimiston and Austwin - have assumed that the clause should be read as if parentheses were inserted as follows: "(HLR2-HLR1) x ½" and not HLR2 - (HLR1 x ½) as usual convention would dictate.
[31] Ms Anderson's second point is that if the clause is to be construed as the parties have assumed to date then there are in fact no increases in rent being paid. Such an arrangement is entirely uncommercial.
[32] The matter is further confused because the material shows that in fact Fimiston would advise Austwin of the CPI increase for the year and Austwin would accept the increase. This seems to have occurred without regard to the terms of the formula set out in the Schedule.
[33] I must confess to having some difficulty following the applicant's argument. Assume the rent for the previous year under the sublease was $50. And assume the rent for the current year under the head lease is $200 and the rent the year before $100, then the rent under the sublease for the second year is ($200 - $100) x ½ + $50 = $100 - an increase of $50. The only time there would not be an increase is if there was no increase in the rent of the head lease from one year to the next. But the head lease does provide for CPI increases in the Schedule.[5] Hence I cannot see why there must necessarily be no increase. Mr McLennan however seemed not to demur from the applicant's proposition.
[34] In the end I am not persuaded that it matters greatly. It is plain that Austwin accepts the imposition of CPI increases and did so in October 2010, the last occasion for a rental increase apparently.[6] The remaining period of the lease from the expiry of the term covered by that agreed rent mentioned in the correspondence is only 7 months. The possible impact on Ms Leahy's financial position would seem to be very modest.
[35] Further if the rental has been calculated by Fimiston and Austwin since 1997 on a certain understanding of the way in which the formula works, and a way that assumes a clerical error in the failure to import parentheses, I am not persuaded that that provides any good ground for refusing to relieve from forfeiture. That Ms Leahy might wish to argue that they have proceeded on a wrong basis, and that she might seek to have such a declaration made and rentals adjusted, as well as resist any attempt to have the agreement rectified - as might be needed - is a matter for her but that cannot affect Austwin's rights. One side's wish to pursue litigation contrary to the established arrangements that appear to have been in place for many years, and litigation that might eventually prove to be unmeritorious, seems to me to be of little moment save perhaps that it reflects on the existing animosity.
[36] Nor is there any evidence that the rent being paid is uncommercial. No evidence was proffered from rental agencies that higher rents are normally paid for such premises nor was any evidence proffered of any significantly higher rent being available from any prospective tenant, although Ms Leahy is in discussions with such tenants.
[38] While it might be true to say that Ms Leahy personally has not accepted Austwin as a tenant or ever consented to its tenancy, and that factor has been decisive in English cases to which I was taken, this case is a little out of the ordinary. That is so because it is, in truth, Mr Winner to whom Ms Leahy takes objection, and he was plainly accepted by Ms Leahy's predecessor in title and the original lessor, Ms Leahy's mother. Thus had the various assignments and sub leases not been put in place Ms Leahy would not have the slightest choice but to be in privity of contract with Mr Winner. And I very much doubt that consent to the sub lease could have been reasonably refused assuming that Austwin was in sound financial position given that it is essentially the alter ego of the head lessee, Mr Winner. In my view those circumstances very much reduces the force of that argument.[7]
[39] There is the point that there is apparently long standing animosity. That is not necessarily the fault of Mr Winner. I am in no position to know. However that obvious animosity does suggest that placing these people into a commercial arrangement is very likely to foster significant disharmony. However that would be so, presumably, wherever a court is asked to exercise its powers under s 125 and the application resisted.
[40] That prospective disharmony however, in the normal course, should have little impact on Ms Leahy. Her only contact with the sub lessee presumably would be a matter of receiving rental payments into a bank account and perhaps periodic inspections of the premises which need not necessarily be preformed personally. Ms Leahy may seek to litigate matters further with Austwin and Mr Winner but, as I have said, that should not impact on the view I take of the merits here.
[41] The complaint about the failure to meet Fimiston's obligations involves no assertion of any failure to comply with the obligations under the sublease. In that sense Austwin is a blameless sublessee. No authority was cited for the proposition that the power to relieve from forfeiture ought to be influenced by the financial relationships that might exist between the parties in respects other than the sub lease in question - save perhaps to the extent those relationships might reflect on the financial suitability of the sub lessee as a tenant.
[42] Further Austwin is prepared to make good Fimiston's default, albeit it seeks 30 days to do so. True it is obliged to do so by reason of its obligations under the lease to indemnify in respect of Fimiston's default. But there is a significant difference between failing to meet rent as it falls due and a failure to immediately have available a very substantial sum of money to meet someone else's default.
[43] More significantly there is the difficulty that continued occupation of only part of the premises restricts Ms Leahy's capacity to deal with the whole. Indeed I see this as the only significant financial disadvantage that Ms Leahy suffers should I grant Austwin the relief it seeks. The difficulty is that that disadvantage has not been quantified. CQP continues under a periodic tenancy. Ms Leahy speaks in general terms that her "ability to negotiate a proper commercial return on [her] property will be prejudiced"[8] but provides no information by which I can judge just how significant that prejudice might be.
[44] Balanced against that is the obvious prejudice to Austwin if it were forced to vacate the premises from which it has conducted its business for 25 years. There was no suggestion that Mr Winner was wrong when he claimed that obtaining alternative premises would prove very difficult and that to move his business would be "risky". That is self evidently so. There are many mechanical workshops and no doubt convenience of access to the business is a key point in maintaining its customer base and hence its profitability.
[45] Ms Anderson stressed in her submissions that the English cases show that this jurisdiction is one that is "sparingly exercised".[9] She pointed out that counsel's researches have turned up very few cases in which the jurisdiction has ever been invoked, but that is not necessarily the same as a claim that, when invoked, the jurisdiction ought to be "sparingly exercised". I am not at all sure that it is accurate to limit the Court's discretion by such a phrase. McCardie J's approach in Hurd seems to me to be more in accord with the evident purpose of the legislation where he opined that the English legislation from which s 125 is derived "should be construed with a generous desire to save an under lessee from the grave loss which may fall upon him unless the section be liberally construed."[10] I note that no mention was made of any such limitation by the Court of Appeal in Belgravia Insurance Co Ltd v Meah[11] where the history of the section was discussed but rather Lord Denning said that "it is clear that the Court may always refuse relief, if the conduct of the applicant is such as to make it inequitable that relief should be given to him."[12] While the conduct of the applicant for relief is not the only relevant factor that statement, in my view, provides some guide to the approach I should take. Nor was mention made of a "sparing" use of the discretion in Public Trustee v Westbrook,[13]a decision of the Court of Appeal the following year.
[46] Here there is no evidence that Austwin is under any financial difficulty. Indeed, within a relatively short period of time, it proposes to pay over a substantial sum of money to Mrs Leahy. It has honoured its obligations under the sub lease. It is willing to enter into a sublease containing covenants in identical terms to the head lease that Ms Leahy had with Fimiston "with the exceptions of the rent being payable in accordance with the sub lease and the increase in rates payable being in the proportion of the demised area divided by the entire property".[14] There was no submission that these were not reasonable adjustments.
[47] Ms Leahy complained that Austwin was using an area outside that demised to it to conduct its business. That use cannot be characterised as a wilful breach of the sub lease as that seems to have occurred with the consent of Fimiston over some 25 years. By its counsel Austwin now undertakes to operate from within the demised area, if that is Ms Leahy's wish.
[48] On balance I am persuaded that Austwin should have the relief that it seeks conditioned as follows:
(a) That it pay to the applicant the sum of $46,613.84 that it concedes to be owing by Fimiston to the applicant on or before 4 pm on 7 March 2011;
(b) That it enter into a lease with the applicant for the term and subject to the covenants and conditions set out in the head lease with the exceptions of the area demised and rent being payable in accordance with the sub lease and the increase in rates payable being in the proportion of the demised area divided by the entire property;
(c) That it pay the costs of the preparation and execution of such lease;
(d) That it pay the costs of this application on the standard basis.
(a) This order is not intended to prejudice either parties' arguments as to Austwin's obligation to pay any further amount relating to Fimiston's obligations to Ms Leahy under the head lease;
(b) When I refer to "the rent being payable in accordance with the sub lease" I mean to refer to the rent payable in accordance with the formula as construed by Fimiston and Austwin which presently stands at $625.50 per month. Again I do not intend to in any way prejudice Ms Leahy's rights to argue that the rent should be differently construed if she is so minded to litigate the issue - that is, I have not determined the merits of that argument. The obvious downside for Austwin is that if it enters into the proposed lease it faces the prospect of litigation and of the appropriate tribunal varying the current rent at the suit of Ms Leahy.
(c) I am not prepared to allow a further 30 days for the payment of monies that Austwin concedes it owes - this application was brought on 24 January and 30 days have already elapsed. As well Austwin has had notice of Fimiston's reluctance or inability to pay the monies outstanding since November last year. If after such a period of notice Austwin is unable to honour this obligation promptly then I assume that its continued financial stability is in serious doubt.
[50] Subject to the foregoing the applicant is entitled to the relief that she seeks.
[51] I direct that the parties bring in minutes of order that reflect these reasons.
[1] Described as Lot 1 on SP 129626 County of Carlisle Parish of Bassett Title Reference 50313458 situated at 47 Beaconsfield Rd Mackay.
[2] Shiloh Spinners Ltd v Harding [1973] AC 691 at 723-724; Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 449.
[4] Ex RBL 7 at p 43 of the exhibits to Ms Leahy's affidavit filed 20 January 2011.
[5] See Mr Winner's affidavit at Ex JEW 01 at p1 of the Schedule to the lease
[7] Cf Grangeside Properties Ltd v Collingwood Securities Ltd [1964] 1 WLR 139
[8] Para 5 Affidavit filed by leave 11 February 2011
[10] [1918] 1 KB 448 at p 451
[14] Para 11 ii. affidavit of Mr Winner filed 7 February 2011.
Leahy
Fimiston Investments Pty Ltd & Anor [2011] QSC 22
(1983) 152 CLR 406