Arrangements for Reduction - Consideration and Conclusions
46I am satisfied on the balance of probabilities that arrangements for the reduction of the lessee's liability for rent and outgoings were made in late 2006 and 2007 between the lessor, through the agents, and Mr Dover on behalf of the lessees. More particularly, those arrangements were:
(a) made partly orally and partly in writing in December 2006 and February 2007 for the reduction of a then outstanding 2006 outgoings adjustment from $8,916.66 to $2,229.17, subject to payment of the latter sum being made by 1 March 2007 and subject to the payment of the lessees' normal rent and outgoings on time; the arrangement arose out of discussions between Ms Edwards, of the agents, and Mr Dover, between December 2006 and February 2007 and the letters from the agents to Mr Dover of 4 December 2006 and 19 February 2007, which are set out above in the Arrangements for Reduction - Evidence section of this Decision ("the first arrangement"); and
(b) made partly orally and partly in writing in February 2007 for the reduction by 25% of the rent and outgoings for the period March-June 2007; the arrangement arose out of discussions between Ms Edwards and Mr Dover in or about February 2007 and the letter from the agents to Mr Dover of 24 April 2007 which is set out above in the Arrangements for Reduction - Evidence section of this Decision ("the second arrangement").
47It is difficult to discern from the print out from the agents' ledger in respect of the lease precisely how, and in what amounts, credit was given to the lessees in respect of the arranged reductions. Examples, however, appear to be entries on 24 August 2007 by way of credits to the lessees, not noted as arising from any payment, of $12,881.72 for rent and $1,288.17 for GST, totalling $14,169.89 and entries on 29 August 2007 by way of credits to the lessees of $6,489.09 for outgoings and $648.91 for GST, totalling $7,138.00. Nevertheless, there was no significant issue raised during the hearing about the giving of such credit and the parties appear to accept that such credit was given.
48As noted above in the Arrangements of Reduction - Evidence section of this Decision, the agents, on 26 August 2009, debited to the lessees $19,370.20 for "25% rent reduction" and $1,973.02 for GST in respect of that item (totalling $21,307.22) and $6,489.09 for "O/GS reduction for 05/06" and $648.91 for GST in respect of that item (totalling $7,138.00). That total of $21,307.22 is the same figure set out in the spreadsheet given by Ms Edwards to Mr Dover on 26 April 2007 as the total of the 25% reduction for the months of April, May, June, July and August 2007, in respect of the second arrangement. The $7,138.00 figure does not precisely correspond with the figures referred to in the first arrangement, being $8,916.66 for the original outgoings adjustment and $2,229.17 for the reduced outgoings adjustment, the difference between such figures is $6,687.49; nevertheless it is the same as the $7,138.00 apparently credited to the lessees in respect of GST and outgoings on 29 August 2007. I am satisfied, and it is not in issue, that the debits raised against the lessees on 26 August 2009 totalling $28,445.22 related to the attempted retrieval (referred to in the applicant's closing submissions as a "clawback") of credits previously allowed to the lessees under the first arrangement and the second arrangement ("the August 2009 debits").
49In my opinion, there was no entitlement in the lessor to impose the August 2009 debits. I have formed that opinion for two reasons: first, the first and second arrangements constituted enforceable agreements under which the lessor had no such entitlement; and secondly, and in any event, any such entitlement should not be permitted, by reason of estoppel and/or application of the Retail Leases Act 1994 ("the RLA").
50By a Management Agency Agreement dated 22 October 2003 agents were appointed by the lessor as Principal to manage the building for the Principal and in respect of any lease the agents were authorised and directed by the Principal to do various specified things on behalf of the Principal, one of which was to exercise the Principal's rights to vary the lease. I see no issue with the authority of the agents to have negotiated the first and second arrangements on behalf of the lessor and with the exception of consideration, the indicia of binding agreements or contracts constituted by those arrangements are clearly present. The applicant submits that there was no consideration. I am of the view, however, that the lease being a mutually continuing, or executory, relationship, there was a sufficient consideration within each of the first and second arrangements constituted by the negotiation by the parties of that arrangement to accommodate their then respective commercial interests by variation of the terms, or of the application of the terms, of the lease and by the parties' respective commitments to performance of the varied situation brought about by the arrangement (see e.g. Carter on Contract [06-180], [06-270], [06-440], [07-170] and [09-290]). These arrangements were, I am satisfied, conscientiously made by the lessor through the agents and by the lessees through Mr Dover, by mutual effort in the commercial interests of both parties, in an endeavour to keep the shop functioning. Particularly in the event that there were, as I conclude there was, a contract between the lessor and the lessees in respect of each of the first arrangement and the second arrangement, some of the terms of each arrangement need to be considered.
51In the first arrangement, the contract included a condition in the language of the agents' letters of 4 December 2006 and 19 February 2007, that it was "subject to all the outstanding outgoings being paid in full by 1 March 2007"; there was also a condition stipulated in the letter of 4 December 2006 that "the Lessees must continue to pay their normal rent of set rent and outgoings on time". Set out above at the end of the Arrangements for Reduction - Evidence section of this Decision are somewhat conflicting assertions in the evidence of Ms Finlayson and of Mr Dover, with the latter contending in effect that these conditions were met and the former disputing that they were met. There was considerable cross-examination of Ms Finlayson, particularly as to the amounts and timing of payments made by Mr Dover. Ms Finlayson was assessing the agents' accounting records for a period before she became responsible for the bookkeeping. While I accept that Ms Finlayson was doing her honest best, she was having to cope with a difficult task and I feel that there is substance in closing written submissions on behalf of Mr Dover that:
"The accounts are somewhat difficult because of the nature of their operation. Accounts appear to have an automatic charge which is generated by the computer each month and credited to the account of the relevant party. As payments are made they credited against the charge which the computer generates. The latter sum is entered manually. A running balance is then maintained. However, on what is on the one hand confusing and on the other of assistance is that the credit dates are also recorded.
The confusion is created because charges generated which are paid months later have the credit listed in a subsequent date yet the running balance takes into account the credit at a subsequent date so that particular balances on any given date take into account credits after that date."
52There are entries in the printout form of the ledger in evidence which suggest to me that Ms Finlayson's assertions as to continuing indebtedness by Mr Dover in 2007, especially in March 2007, may not be completely correct; for example, there was entered on 26 February 2007 a credit to the lessees for $2,229.16 in respect of cheque 359 and that figure appears to relate to the $2,229.17 referred to in the agents' letters to Mr Dover of 4 December 2006 and 19 February 2007. Those letters were, as has been noted, written by Ms Amy Edwards who appears to also have been doing the bookkeeping for the agents at the time. The subsequent crediting to the lessees of the agreed reduction in outgoings is consistent with the conditions for payment of outgoings by 1 March 2007 and otherwise having been met. I am satisfied on the balance of probabilities that the lessees complied or complied at least substantially (as to the principle of substantial performance, see e.g. Carter on Contract [29-280]-[29-310]) with these conditions such that the lessor was not entitled to rely on those conditions to retrieve the credit for outgoings.
53The letter of 24 April 2007 from the agents to Mr Dover, part of the second arrangement, included these stipulations:
"...This rental statement is offered at the complete discretion of the lessor and the full rental can be reinstated at any time.
It is also offered on the condition that all current arrears are paid prior to the rent abatement."
As to the last-mentioned condition, there is again conflict between the respective evidence from Ms Finlayson and Mr Dover as to payment of the then current arrears. As noted above, there seems to have been the crediting to the lessees of $14,169.89, being a substantial part of the reduction provided for in the second arrangement, on 24 August 2007, which was at the end of the five month period the subject of that reduction. To my mind, that constitutes confirmation that the lessees had complied with or substantially complied with that condition. To adopt the language used in the stipulation of the condition in the letter, the "rent abatement" had been "offered on the condition that all current arrears are paid prior to the rent abatement" and the "rent abatement" was given; so the conclusion should follow that the "condition" had been met and that the agents assessed the position that way at that time. That situation, I feel, carries greater weight than Ms Finlayson's endeavours to cope with the difficult task of retrospectively assessing the position from the agents' accounting records. I am satisfied on the balance of probabilities that the lessees complied, or substantially complied, with the condition of payment of current arrears such that it constituted no justification for the August 2009 debits. The purported reservation in that letter of a discretionary power of reinstatement in the lessor of "full rental" could not, in my view, be reasonably construed as permitting the later withdrawal by the lessor of an already credited reduction as opposed to the withdrawal of a reduction by the lessor yet to be credited. That purported reservation of a discretionary power of reinstatement did not, in my view, permit any part of the August 2009 debits to be made.
54If contrary to my opinion, there were no contracts in respect of the first arrangement or the second arrangement, the relevance to the arrangements of estoppel and the RLA needs to be considered.
55In its Amended Reply in proceedings 115038 the respondent pleads that the applicant is estopped from claiming the amount sought by the applicant in those proceedings. The Amended Application in proceedings 115180 includes a claim that the lessor is estopped from claiming the amount of $28,495.22 (which is the sum the subject of the August 2009 debits).
56The principle of promissory estoppel can conveniently be explained by quoting from [12.230] of Young, Croft, Smith, On Equity:
"Promissory estoppel in its present incarnation can be traced back to Central London Property Trust Ltd v High Trees House Ltd ([1947] 1 KB 130), a case which resulted in a doctrine referred to as 'High Trees' estoppel. In High Trees, a landlord told a tenant that, during the course of the war, his rent would be reduced. The landlord company later went into receivership, and the receiver, noting that reduced rent had been paid for about five years, demanded the arrears. The landlord was found to be estopped from claiming the arrears. Typically, High Trees promissory estoppel was applied when a person who made the promise or representation, contrary to their contractual rights, later tried to insist on contractual performance, and the other party said 'but you assured me that I did not have to' ..."
57In Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 at 610 Priestley JA (albeit in dissent, but with the agreement on this point of Kirby P at 585, and with reference to, among other decisions, Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387) said of promissory estoppel:
"For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff in circumstances where departure from the assumption by the defendant would be unconscionable."
58The August 2009 debits occurred two years after credits had been given to the lessees under the first arrangement and the second arrangement. They also occurred while the parties and/or their advisors were in negotiations as to the future of the shop, as detailed to an extent above in the Relinquishment of Possession - Evidence section of this Decision. Complaint on behalf of Mr Dover is made in the particulars that this was when "the issues between the parties were due to be mediated". The first arrangement and the second arrangement were made at a time when the shop was struggling financially; as Mr Dover said in his affidavit there was "difficulty trading". Obviously, that plight of the shop business continued, if not increased, up to September 2009.
59While I can see no estoppel arising in respect of the whole of the lessor's claims, in my opinion there was an effective promissory estoppel against the lessor preventing the August 2009 debits. The latter situation would fall squarely within the account of "High Trees estoppel" that is contained in the quotation above from Young, Croft, Smith, On Equity. The concept of unconscionability referred to by Priestley JA in the quotation from his judgment which I have set out above, seems to me to be satisfied in the circumstances that I have outlined; it would, for example, meet the test referred to by Mason CJ and Wilson J in Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404 where (using in part language taken from previous High Court authority) their Honours said:
"One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has 'played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it'. ... Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption."
60The unconscionability in the imposition of the August 2009 debits is, in my opinion, also of an order which constituted that "unconscionable conduct" under s62B of the RLA. Sub-sections (1) and (3) of that section are as follows:
"(1) A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable.
...
(3) Without in any way limiting the matters to which the Tribunal may have regard for the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to:
(a) the relative strengths of the bargaining positions of the lessor and the lessee, and
(b) whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and
(c) whether the lessee was able to understand any documents relating to the lease, and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and
(e) the amount for which, and the circumstances under which, the lessee could have acquired an identical or equivalent lease from a person other than the lessor, and
(f) the extent to which the lessor's conduct towards the lessee was consistent with the lessor's conduct in similar transactions between the lessor and other like lessees, and
(g) the requirements of any applicable industry code, and
(h) the requirements of any other industry code, if the lessee acted on the reasonable belief that the lessor would comply with that code, and
(i) the extent to which the lessor unreasonably failed to disclose to the lessee:
(i) any intended conduct of the lessor that might affect the interests of the lessee, and
(ii) any risks to the lessee arising from the lessor's intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and
(j) the extent to which the lessor was willing to negotiate the terms and conditions of any lease with the lessee, and
(k) the extent to which the lessor and the lessee acted in good faith.
..."
In forming that opinion, I have borne in mind the counsel of caution given in cases such as A.G. v World Best Holdings Ltd (2005) 63 NSWLR 557 and Armstrong Management Pty Ltd v Saies-Bond & Associates Pty Ltd [2007] NSWADTAP 47. In the former case at [121] Spigelman CJ said:
"The Ministerial second reading speech ... indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in s62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under s51AC of the Trade Practices Act (Cth) suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was 'fair' or 'just', it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of 'unconscionability' would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises."
In the latter case an Appeals Panel of this Tribunal said at [141]:
"In our view s62B requires, ultimately, an holistic examination of all the circumstances of the lease relationship. While no case is likely to involve all the categories of misconduct enumerated in the non-exclusive check-list, one would normally expect to see an unconscionable conduct finding supported by a range of considerations. It would be unusual, but not impossible, we think, for one instance of egregious conduct to be enough to give rise to a finding of unconscionable conduct."
Particulars in the Amended Application in proceedings 115180 suggest that "the lessor had no intention of honouring such an agreement" (referring apparently to the first arrangement) but I do not see that this particular has been made out on the evidence. Nevertheless, the imposition by the lessor of the August 2009 debits was itself, in the circumstances then obtaining, so inappropriate as to constitute, in my opinion, and on cautious assessment, such a degree of unconscionability as to amount to unconscionable conduct within s62B of the RLA. The lessor sought to undo unilaterally the first and second arrangements and thereby renege on them two years after the event, when the lessees' business was on the brink of ultimate financial failure, and without explanation. Those arrangements, which as I have said above, had been implemented in a conscientious mutual effort in the commercial interests of both parties, to keep the shop functioning. I have concluded, therefore, that Mr Dover is also (apart from his rights under the contractual and estoppel situations referred to above) entitled to relief in accordance with s72AA of the RLA in respect of unconscionable conduct constituted by the imposition by the lessor of the August 2009 debits.