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[2003] VCAT 1050
defendant. The landlord’s application was dismissed; the Tribunal found Ms Karnis retained rights under the agreement to lease, with her lessee entitlements proceeding on the basis that the lease commenced on...
The Tribunal found that the failed sale of Ms Karnis' business did not permanently strip her of her rights under the agreement to lease. The purchasers had not received a formal transfer before their sale contract ended for non-payment. The landlord also could not rely on rent arrears to justify locking Ms Karnis out: even on the assumption that the lease began when the purchasers started trading, the rent due had been paid. The Tribunal treated the purchasers' relevant conduct as conduct on Ms Karnis' behalf, so her lease entitlements proceeded from 27 December 2002. It declined to make the tenant responsible for unproved tradesmen's claims or the landlord's partitioning costs.
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2,764 words · generated 02/10/2026
Mammos v Karnis concerned competing claims to possession and lease rights in a redeveloped retail shop at 42 Mountjoy Parade, Lorne. Harris Mammos owned the premises. Panyiota Karnis had previously operated a fish and chip business there and had an agreement with Mammos for a further tenancy after redevelopment.
3 cited instruments linked from this judgment.
The agreement to lease, dated 30 September 2001, provided for an initial one-year tenancy and options for two further four-year periods. The lease was to commence after the landlord’s works and the tenant’s fit-out. The works schedule required the premises to be completed and ready for trading by 31 October 2002, and treated completion as the date a certificate of occupancy was issued ([2]–[4]). The Tribunal noted that an occupancy permit under the Building Regulations 1994 was treated by the parties as equivalent to the agreement’s “certificate of occupancy” ([30]–[32]).
Karnis agreed to sell her business to Peter and Christopher Lazarou on 11 December 2002. The agreement contemplated transfer of the existing lease or the grant of a new lease, and deferred payment of the balance of the purchase price until 15 January 2003 ([6]–[10]). Mammos gave written consent to the transfer after Lazarou agreed to pay him $42,000 for specified works ([11]–[14]).
The Lazarous entered the premises in December, completed a more elaborate fit-out than Karnis had planned, and began trading on 27 December ([15]–[16]). They did not pay the balance of the business purchase price when due. Karnis served a notice requiring payment within seven days, failing which she would end the contract ([16]). After unsuccessful attempts to recover possession, the Lazarous vacated under consent orders made in a Supreme Court proceeding on 14 February 2003 ([17]–[20]).
Mammos later excluded Karnis from the shop. He argued that she had transferred or surrendered her rights under the agreement to lease, and alternatively that the lease had ended because of rent arrears. He also sought to make any relief for Karnis conditional on payment of fit-out and tradesmen’s costs ([27]–[29], [43]–[46]). Karnis disputed those claims and counterclaimed for declarations and performance of the lease arrangements ([24]–[25]).
Deputy President Macnamara dismissed Mammos’ application. The Tribunal found that Karnis had retained rights under the agreement to lease, that the rent position did not justify Mammos’ re-entry, and that the relevant lease entitlements proceeded on a commencement date of 27 December 2002 ([61]–[66], [73]). The formal order required short minutes within 14 days and reserved costs.
The first important distinction was between an agreement to sell lease rights and an actual transfer of those rights. The Tribunal analysed the 11 December sale contract as an agreement to sell all Karnis’ rights under the earlier agreement to lease, including the right to the future lease ([59]). It accepted that the Lazarous might have acquired an interest while the sale contract remained on foot. But that interest was dependent on their performance of the contract.
The Tribunal used the principles concerning executory contracts for sale of land as an analogy. It referred to McDonald v Dennys Lascelles Limited, where the High Court explained that when a contract is discharged for a fundamental breach, it is determined so far as it remains executory, and the parties’ rights must be adjusted accordingly ([57]). The Tribunal reasoned that the fact the subject matter here was an equitable leasehold interest, rather than a freehold estate, did not prevent applying that analysis by analogy ([58]).
The Lazarous did not pay the purchase price after notice of default. Their interest under the sale agreement therefore ended when that contract was terminated. The Tribunal also found there had been no transfer of the agreement to lease at the contemplated preliminary settlement. As a result, there was no need for Karnis to obtain a re-transfer: she resumed full beneficial entitlement when the sale contract ended ([60]–[62]). The purchasers’ possession and trading did not change that conclusion. The Tribunal treated possession during an executory sale as compatible with the purchaser’s interest remaining dependent on completion ([61]).
The second main issue was rent. Mammos argued that the lease had commenced, at the latest, when the Lazarous began trading on 27 December, and that rent was more than 14 days overdue when he changed the locks on 24 February ([43]). The Tribunal considered the alternative arguments about the occupancy document, waiver and commencement of the lease, then calculated the rent on the assumption most favourable to Mammos: that the lease began on 27 December ([64]).
The scheduled rent was $36,000 per year, or $3,000 per month, plus GST. On a 27 December commencement, $3,300 was payable on 27 December and another $3,300 on 27 January. No further rent fell due before 27 February. The Lazarous had paid $6,000 on 3 February. On the Tribunal’s primary calculation, the rent component due by 24 February had therefore been paid ([64]). Even allowing an allocation to GST that favoured Mammos, the resulting rent shortfall was only $600, not an amount equivalent to 14 days’ rent ([65]). The Tribunal concluded that the re-entry ground failed ([66]).
The Tribunal also distinguished rent from GST. It stated that failure to pay GST was not failure to pay rent, and that a re-entry relying on unpaid GST would require notice under s 146 of the Property Law Act 1958. No such notice had been served ([64]). That distinction mattered because the landlord’s pleaded ground was rent arrears and the Tribunal found the rent itself had been paid.
A third issue concerned the Tribunal’s power to impose conditions. Mammos relied on s 38 of the Retail Tenancies Reform Act 1998 to argue that relief for Karnis should depend on removing fittings, making good the premises, and paying him or tradesmen ([45], [68]). The Tribunal held that s 38 was remedial, not a source of new substantive rights. It could authorise orders to enforce rights created by contract, restitution or other substantive law, but could not create a liability just because compensation or restitution appeared in the statutory wording ([69]).
The tradesmen were not parties, and there was no proof of the existence or amount of their claims. The Tribunal considered it improper to make orders concerning them ([70]). It also declined to make an order for Mammos’ claimed costs because he had not sought that relief in his points of claim. On the evidence, construction of the partitions was Mammos’ responsibility: the approved plans depicted them, and the obligation to build according to those plans took priority over the landlord’s general reliance on the tenant’s fit-out obligation ([71]).
Finally, the Tribunal addressed the positive basis for Karnis’ lease rights. It treated the Lazarous as acting for her in relevant respects: they performed fit-out obligations and exercised her rights by occupying and trading ([73]). Their decision to start trading on 27 December without the occupancy document, and to agree to pay rent, was treated as an agreement on her behalf to commence the lease on that date. This supported the conclusion that her entitlements proceeded from 27 December, despite the agreement’s occupancy-document wording ([73]).
The judgment did not purport to reformulate general Australian property or retail-tenancy law. Its contribution is an application of existing principles to a particular sequence: an agreement to lease, a contract to sell the tenant’s business and associated rights, entry by the purchasers before full payment, default, termination, and the original tenant’s return.
Before the decision, the parties disputed whether the purchasers’ entry and trading effectively transferred the lease rights, even though no completed transfer was shown. Mammos argued that conduct, part performance or estoppel meant the purchasers became parties to the agreement to lease and Karnis lost her entitlement ([34]–[42]). The Tribunal resolved the dispute through the effect of termination of the sale contract, rather than treating possession and trading as conclusive evidence of a completed transfer ([59]–[62]). It relied on the contract’s default provisions and the notice of default, and found that any interest acquired by the purchasers ended before a transfer occurred ([60]–[61]).
For the rent issue, the decision demonstrates the importance of identifying what payment was due, when it fell due, what had actually been paid, and whether the claimed default was rent or another amount. The Tribunal did not need to decide that the lease necessarily commenced on the date trading began to test the landlord’s case. It assumed that date, calculated the rent, and still found no rent arrears permitting re-entry ([64]–[66]). The judgment’s treatment of GST was specific to the lease terms and arguments before it: the Tribunal said unpaid GST was not rent for the re-entry clause and referred to the need for a s 146 notice in that circumstance ([64]).
The decision also explains the limits of a statutory power to order payment or performance. In this case, s 38 of the Retail Tenancies Reform Act 1998 did not allow VCAT to create a new compensation regime or impose payment conditions without a substantive legal basis ([68]–[70]). The judgment therefore connects remedial jurisdiction to the underlying rights established by contract or other substantive law.
The judgment did not determine every possible liability arising from the fit-out. It expressly left open possible claims involving the tradesmen, and noted that the proceeding might not protect Karnis from such claims ([72]). It also left unresolved any other potential liabilities not claimed by Mammos in the proceeding. The decision’s limits are therefore as important as its conclusions: it determined the parties’ pleaded dispute on the evidence presented, not all possible claims connected with the redevelopment or the Lazarous’ trading.
At [58], the Tribunal said the fact that the subject matter was an equitable leasehold interest did not prevent applying the sale-of-land analysis by analogy. In plain English, the Tribunal considered that an agreement to sell a tenant’s equitable lease rights could be treated similarly to an executory agreement to sell a freehold interest when deciding what happens after the buyer defaults.
At [60], it found that the Lazarous’ interest, “whatever” it was, ended through their failure to pay, the sale contract’s default clauses, and Karnis’ notice of default. In plain English, the purchasers’ entry did not preserve their rights once the purchase contract was validly brought to an end for non-payment.
At [61], the Tribunal stated that because there had been no transfer at the preliminary settlement, Karnis did not need a re-transfer to regain her beneficial entitlement. The practical distinction was between taking possession and completing a transfer of the lease rights. The judgment found the former had occurred, but not the latter.
At [64], the Tribunal calculated that $6,000 in rent was due by 24 February and had been paid. In plain English, even using the landlord’s proposed lease commencement date, the payment history did not establish enough unpaid rent to justify re-entry under the clause relied on.
At [69], the Tribunal stated that s 38 did not create new substantive rights. In plain English, a power to order someone to pay money does not itself establish that the person owes the money. The legal basis for liability must come from elsewhere, such as the contract or another substantive rule.
At [71], the Tribunal held that the partitions shown on the approved plans were the landlord’s responsibility to construct. In plain English, the tenant’s general fit-out obligation did not shift to her the cost of building work that the agreement and approved plans required the landlord to complete.
At [73], the Tribunal treated the Lazarous’ commencement of trading and agreement to pay rent as conduct binding Karnis through their role as her agents in the relevant respects. In plain English, the purchasers’ conduct could affect the lease relationship even though they were not themselves the ultimate tenants under the restored arrangement.
The reasoning is most relevant to disputes where a tenant agrees to sell a business together with lease rights, a purchaser enters the premises before paying the full price, and the sale contract is later terminated for default. The judgment makes the actual legal steps important: whether the agreement to lease was transferred, whether the sale contract remained on foot, what default notice was served, and whether the purchaser’s interest ended before any transfer ([59]–[62]).
It is also relevant where a landlord relies on rent arrears to justify re-entry, but the parties dispute the lease commencement date or the allocation of payments between rent and other charges. Mammos v Karnis shows the Tribunal testing the landlord’s argument by calculating the amount due on the landlord’s assumed commencement date and comparing it with payments actually made ([64]–[66]). The judgment does not establish that all occupancy-document conditions can be waived, or that trading always starts a lease. Its finding depended on the agreement, the parties’ conduct, and the Lazarous’ conduct being treated as binding Karnis in the circumstances ([64], [73]).
A further relevant pattern involves a party asking VCAT to make relief conditional on payment of third-party costs or compensation. The judgment indicates that statutory remedial powers do not, by themselves, create the underlying liability. It also underscores the evidentiary and procedural relevance of whether the alleged creditors are parties and whether their claims and amounts have been proved ([68]–[70]).
The decision may also be relevant where a landlord alleges that tenant fit-out work includes construction that appears in approved plans or in the landlord’s works schedule. The Tribunal resolved that issue by giving priority to the specific obligation to construct in accordance with the approved plans over a general description of tenant fit-out ([71]).
The judgment text provides no information about how later courts or tribunals treated Mammos v Karnis. It records authorities considered in the decision, but does not identify later applications, distinctions, appeals, or reversals of this VCAT decision. No claim about its later precedential treatment can be made from the material provided.
Within the judgment itself, the principal authorities were used for defined purposes. McDonald v Dennys Lascelles Limited was quoted for the effect of discharging an executory contract following a fundamental breach, and the Tribunal applied that reasoning by analogy to the sale of equitable leasehold rights ([57]–[58]). Norman v Federal Commissioner of Taxation was cited in connection with the proposition that the future lease could be covered by the agreement to sell while that agreement remained on foot ([59]).
Other cases, including Walton Stores (Interstate) Limited v Maher, were referred to in the parties’ submissions on estoppel. The Tribunal’s reasons did not adopt the submissions as a separate basis for decision. Instead, its conclusions rested on the termination of the sale contract, the absence of a transfer, the rent calculation, and the limits of s 38 ([59]–[71]).
The Tribunal expressly left some matters unresolved. It noted that the proceeding might not, subject to any Anshun estoppel, exonerate Karnis from liabilities not claimed by Mammos. It also said that the decision could not determine the tradesmen’s possible claims, because they were not parties and their entitlements had not been proved ([72]). The judgment did not decide whether Karnis would be liable to any particular tradesman, or in what amount.
The judgment also did not assess damages on Karnis’ counterclaim. The Tribunal considered it inappropriate to assess them on the evidence available before the principal issues had been determined ([73]). The formal order required short minutes to give effect to the reasons, and the costs question was reserved ([74]–[75]).
There was no final determination of every question about the building works, the precise scope of the remaining fit-out obligations, or the consequences of the industrial “black ban” affecting the shop. The Tribunal observed that unperformed tenant fit-out obligations remained Karnis’ obligations, while also finding that the partitions shown on the approved plans were Mammos’ responsibility ([71]–[72]). The boundary between those categories would depend on the agreement and evidence relevant to any later dispute.
Finally, the judgment’s lease commencement finding was tied to the parties’ conduct in this case. The Tribunal treated the Lazarous as acting for Karnis when they undertook fit-out work and traded, and found their agreement to pay rent bound her in the relevant respects ([73]). The judgment does not establish a general rule that a purchaser’s trading automatically binds an original tenant, or that an occupancy-document condition can always be displaced by conduct.
This is general legal information, not legal advice. Zoe can make mistakes. Before relying on this analysis or acting on it, have it checked by a qualified Australian lawyer.
Retail Tenancies List; Agreement to Lease; Contract to Sell Tenant's Rights Under Agreement to Lease Along with Business Prior to Completion of Fit-out; Sale Agreement Terminated for Non-payment of Purchase Price; Assignor Tenant Purporting to Resume Possession; Landlord Excluding Assignor Tenant from Possession; Whether Agreement to Sell Tenant's Rights Deprived Her of Standing to Re-enter; Whether Lease Terminated for Non-payment of Rent; Whether Relief on Counterclaim to Tenant Should be Made Subject to Payment of Certain Liabilities to Applicant Landlord and Third Party Tradesmen
1. Within 14 days of the date of this order the parties must bring in short minutes to give effect to the Tribunal's reasons for decision.
For the Applicant: Bernard Fitzgerald of Counsel, instructed by Price Higgins
For the Respondent: Carey Nichol of Counsel, instructed by Alan Williamson, Lawyer
1. Mountjoy Parade is the principal esplanade and shopping strip in the popular tourist resort of Lorne on the Great Ocean Road in south-western Victoria. Mr Mammos (the applicant in this proceeding) owns the shops known as Nos. 42 and 44 Mountjoy Parade. The respondent Ms Karnis was the tenant of No. 42 under an initial five year lease from December 1995. She carried on a business there known as "Lorne Fish &Chips". That business had previously been conducted by Mr Mammos and thereafter by other tenants. When Ms Karnis' lease expired in December 2000, she and Mr Mammos negotiated an extension until 11 May 2001. They then agreed to a further 12 month extension.
2. In 2001 Mr Mammos decided to put into effect a plan to re-develop the sites of Nos. 42 and 44 Mountjoy Parade to include two new shops and also two new residential units. The parties agreed that Ms Karnis would continue to carry on her business from No. 42 once the re-development was complete. On 13 April 2002 Ms Karnis closed her business to allow the re-development to take place. Presumably this date was chosen as the beginning of the "low" season for the summer beach resort of Lorne. Mr Mammos carried out the re-development as owner builder engaging the sub-contracting tradesmen himself. On 30 September 2001 the parties had executed an agreement for lease to provide for the re-development and Ms Karnis' further tenancy at No. 42. The agreement provided for Ms Karnis to take up an initial one year tenancy with options for renewal for two further periods of four years each. A form of lease being the Law Institute standard (May 2000 revision) was scheduled to the agreement as setting out the terms upon which the lease would be given. In accordance with Clause 6 of the agreement the lease was to commence following the commencement of the landlord's works and the tenant's fit-out, details of which were provided respectively in Schedules 2 and 3 to the agreement. The landlord's works required in Schedule 2 constituted basically the completion of the re-development. The details are set out in some eight paragraphs, the first of which required Mr Mammos to:
"complete the Premises in accordance with the plans and specifications approved by the relevant authorities and in compliance with those approvals, in a proper and workmanlike manner and with a high standard of finish ..."
"completed and be ready for occupation and the commencement of trading by Tenant by 31 October 2002."
Clause 4 of the schedule further provided that the premises were to be ready:
"for fitting out by the Tenant [that is Ms Karnis] 30 days prior to 31 October 2002."
The clause defined "completion" as being "the date upon which the Certificate of Occupancy has been issued by the municipality". Clause 8 of Schedule 2 provided that if the premises were not completed according to the timeline required by Clause 4:
"The landlord agrees to pay an amount to the Tenant for every day that the Premises are not completed (`the default period') which will be the amount of the net profit which the Tenant would have earned during the default period calculated by reference to the profit and loss statement of the Tenant's business during the equivalent period in the previous year."
3. Schedule 3 set out the details of the lessee's fit-out as required by the agreement. Clause 1 required Ms Karnis to complete the fit-out of the interior:
"including the decorative treatment of walls and interior surfaces, within the period of 30 days before the expected completion date of the building, to be completed before the commencement date of the lease".
4. Clause 6 of the schedule dealt with insurance and was in the following terms:
"The Tenant shall ensure that the following insurances shall subsist during the fit-out period and evidence of those insurances shall be provided to the Landlord before the fit-out work is commenced:
(a) covering the Tenant's contractors and sub-contractors and their employees in respect of liability for death or injury in connection with the fit-out work on the Premises; and
(b) public risk insurance for not less than $10,000,000.00."
5. As the re-development progressed, by about October 2002 Ms Karnis became concerned at the amount which a fit-out of the new No. 42 would cost. She placed her business for sale with Lorne Real Estate. Mr Mammos says that as a result of this advertisement, enquiry was made to him by a Mr Peter and Mr Chris Lazarou for the purchase of the business. Since Mr Mammos owned the freehold and not the business, he referred the Lazarous to Ms Karnis.
6. Eventually on 11 December 2002 Ms Karnis entered into a contract for the sale of business being the business known as "Lorne Fish & Chips" at 42 Mountjoy Parade, Lorne with herself as vendor and Peter Lazarou and Christopher Lazarou as purchaser. The contract was in the form published by the Law Institute of Victoria as at May 2000. Its particulars of sale showed the settlement date as being 20th December 2002 "on which date the vendor must give possession of the business". Clause 2 of the General Conditions required the vendor to "transfer the business and the stock to the purchaser at the settlement date free from all encumbrances". Clause 3.1(b) required the purchaser to pay the residue of the purchase price "on the settlement date". Special Condition 3.1 provided, perhaps inconsistently, "the balance of the purchase price must be paid on 15th January 2003". Special Condition 4.1 provided:
"To secure the payment of the balance of the purchase price the purchasers grant to the vendor a legal security interest in their fixtures and fittings in the business premises and the plant and equipment used in the conduct of the business (called `the secured property')."
"If the purchasers default in the payment of any amount due to the vendor and the vendor ends the contract then:-
(a) the purchasers must immediately give up possession of the secured property to the vendor;
(b) the right title and interest of purchasers in the secured property will pass to the vendor;
(c) the purchaser must immediately transfer the business name to the vendor and sign all documents required to do so;
(d) the purchasers must immediately transfer the lease of the business premises to the vendor and sign all documents required to do so;
(e) the vendor may sell the business or all or any part of the secured property and in that event the vendor must apply the proceeds towards the payment of the amounts due to her and pay the balance to the purchasers."
8. General Condition 5, including six paragraphs numbered 5.1 to 5.6 dealt with what was referred to as "the lease". Clause 5.2 required the vendor to obtain for the purchaser "by the settlement date" either a transfer of "the current lease with the landlord's written consent" or a new lease in accordance with the requirements of Schedule C of the agreement. Clause 5.5 included a condition subsequent which would "end this contract" if there was neither a transfer of the existing lease nor a grant of the new lease. Schedule C described the terms upon which the assigned or new lease was required, setting out provisions not inconsistent with the terms of the lease which Ms Karnis had agreed to enter by virtue of the agreement dated the 30th of September 2001. Clause 1 of the Special Conditions said that a reference in General Condition 5.1 to the lease "will mean the agreement to lease between the vendor and Harris Mammos dated 30 September 2001".
9. Clause 11 of the General Conditions dealt with default in some eight sub-clauses numbered 11.1 to 11.8. Clause 11.4 provided, inter alia:
"If either party defaults, the other party may serve a notice which -
(c) states the rights under GC 11.5 and 11.6 which the parties serving the notice intends to exercise if the default is not remedied."
"The party giving the notice may state in it that unless the notice is complied with this contract is ended. If the notice is not complied with this contract is ended and no further notice is necessary."
11. As the nature of the transaction would indicate and a number of the specific terms which I have just mentioned make clear, this sale could go forward only with the consent of Mr Mammos. Clause 7.3 of the Agreement to Lease of 30 August 2001 provided for Ms Karnis to assign her interest as lessee under the agreement but only with Mr Mammos' "prior written consent". The agreement said that the several terms in the lease form would regulate such an assignment and the provision of the landlord's consent. On 11 December 2001 the Mr Peter Lazarou and Ms Karnis who had already met for the purpose of executing the sale agreement, met Mr Mammos by arrangement at a restaurant/coffee lounge at 46 Mountjoy Parade. Ms Karnis asked Mr Mammos to sign a form of consent typed on an otherwise blank sheet of paper which read:
"I, Harris Mammos consent to the transfer of the agreement to lease between myself and Panyiota Karnis in respect of the premises at 42-44 Mountjoy Parade Lorne to Peter Lazarou and Christopher Lazarou
12. Mr Mammos said that he declined to give the consent unless liability was accepted for some $42,000 representing the cost of
(a) works at No. 44 Mountjoy Parade (which the Lazarous were also going to occupy);
13. It is agreed that some $20,000 of this sum was referrable to No. 44, leaving $22,000 referrable to No. 42. Ms Karnis declined to accept this liability. No-one suggested that she should pay any party of the amounts referrable to No. 44. At the hearing before me, her Counsel said that she accepted liability for some amount of floor polishing at No. 42 but denied liability for any amounts attributable to "back room partitioning at No. 42". I will have more to say hereafter as to the merits of Ms Karnis' position in this regard. After a short confidential consultation between Mr Peter Lazarou and Ms Karnis, Mr Lazarou endorsed the following manuscript at the foot of the typed consent:
"I, Peter Lazarou at 44 Durrant Street Brighton Vic hereby appoint Mr Harris Mammos of 30 Mountjoy Parade Lorne to undertake and carry out fit-out works namely plastering and back room partitioning, floor polishing at the above-mentioned property. Mr Harris Mammos will act as a contractor for the above work.
Service fee for the above work is $42,000 and payable on or before 15th March 2003."
14. This writing was subscribed to by Mr Lazarou and Mr Mammos and Ms Karnis added her signature as witness. On this basis Mr Mammos signed the typed consent and dated it 11 December 2002. Ms Karnis obtained one or more photocopies of the signed document for distribution.
15. By this time Mr Mammos was still engaged in work on both shops and the residential units. He remained in possession of the entire complex as a building site. Nevertheless, despite the particular stipulations as to a settlement date on the 20th of December, in the Contract for the Sale of Business signed on 11 December, Ms Karnis agrees that the Lazarous were "in" from the 12th of December onwards. They had access given to them by Mr Mammos who as previously described was in possession of the premises as a building site. Meanwhile, they were working against the clock to try and be ready for opening to take advantage of the Christmas/New Year holiday period. This is the best trading period in Lorne and the urgency to open was obvious enough. The Lazarous had secured introductions to a number of tradesmen who were contracting for Mr Mammos and they engaged these tradesmen to carry out the fit-out to their requirements. The Lazarous as previously noted were intending to take both Nos. 42 and 44 and to open and conduct an establishment on a grander scale than Ms Karnis had operated previously or than she had planned when she signed the agreement for lease on 30 September 2001. For instance, the canopy to be placed over the deep frying units which Ms Karnis intended to use was of 3.6m dimensions; the Lazarous arranged for a 9.6m canopy to be delivered. This and a number of other items of plant equipment fit-out and fixtures were provided by a contractor known to Mr Mammos, a Mr Damvargis, known to those involved simply as "Jimmy". It was suggested to Mr Mammos that this gentleman was a friend of his and well known to him as they were both members of a Greek social club catering for former residents of the island of Lemnos. Mr Mammos said that he was scarcely acquainted with Jimmy from the social club and their relationship was solely business.
16. The Lazarous commenced trading on 27 December. The initial proposal which Ms Karnis and the Lazarous had agreed to, would have seen them paying the whole of the purchase price for the business before they took possession. Mr Peter Lazarou however had persuaded Ms Karnis to agree to a deferral of purchase price until 15 January and this is reflected in the agreement for sale of business which the parties executed on 11 December. In her evidence Ms Karnis said that the balance of purchase price payable on 15 January, namely $85,500 (out of a total price of $95,000 deposit of $9,500 having been paid) was to come variously from the proceeds of Christmas/New Year trading or from the call-in of a term deposit maturing on or about that date. When 15 January came and the Lazarous were unable to pay. That very day at Ms Karnis' direction, her solicitor, Mr Williamson served a notice on the Lazarous requiring them to rectify their default within the seven days by paying the purchase price, interest and default costs of $385.00 failing which:
"... the vendor will end the contract, retain the deposit and either:-
(a) resell the business and sue for all expenses and any deficiency in the price on the resale; or
(b) retain the business and sue you for damages for breach of contract."
17. Payment was not made within the seven day time limit. Early on the morning of 28 January, with the assistance of a locksmith, Ms Karnis re-took possession of No. 42 on the early morning of 28 January 2003 but the Lazarous managed to force a re-entry and resume possession. On 30 January a letter from the Lazarous' solicitors, including a number of documents for execution in anticipation of settlement arrived at the offices of Mr Williamson, Ms Karnis' solicitor. Ms Karnis said that by this time the Lazarous claimed to be in contact with a mortgage broker who had spoken directly to her and indicated that he would be able to raise funds for the Lazarous to pay the purchase price. The documents forwarded under cover of the letter were:
18. The transfer of lease related to a lease dated "30 September 2001" and was in the Law Institute standard form revised as at May 2000. The Lazarous were shown as guarantors and the transferee tenant was nominated as Eureka Janatorial Manufacturing Pty Ltd ACN 080 557 982. The document had been executed by the Lazarous and sealed by Eureka. Ms Karnis signed the transfer but in the event no final settlement ever occurred.
19. Ms Karnis' solicitors then commenced Proceeding No. 4389/2003 in the Supreme Court of Victoria, Commercial and Equity Division. They issued a summons on 5 February 2003 which came on for hearing before Ashley J on 12 February. His Honour ordered by consent that the Lazarous deliver up the business Lorne Fish & Chips, the premises at 42 Mountjoy Parade and various plant and equipment. Execution of the order was stayed until 4 p.m. 14 February 2003.
20. On the afternoon of 14 February, in accordance with the consent order, the Lazarous vacated No. 42 Mountjoy Parade. One of the brothers also vacated Ms Karnis' Lorne residence which he had been occupying as tenant since the brothers took possession of the business. Ms Karnis says and Mr Mammos agrees that he welcomed her back. He had previously "tipped her off" about the Lazarous removing plant and equipment from the premises and had not demurred when she changed the locks on the 28th of January. Mr Mammos says however that his welcome on the 14th of February was conditional. He says he told Ms Karnis that she would have to pay the tradesmen who were out of pocket as a result of the failure of the Lazarous venture. The Lazarous as previously noted, commissioned tradesmen to carry out a far more elaborate fit-out than was envisaged initially by Ms Karnis or than she envisaged when she returned on the 14th. They had not been paid. Ms Karnis denies that Mr Mammos rendered his welcome back in any way conditional. On the same day that Ms Karnis effected her abortive lock-out, namely the 28th of January, she wrote to Mr Mammos stating:
"If there is outstanding rental due from Messrs P. & C. Lazarou, I hereby accept full responsibility. Please advise me asap of details.'
My solicitor Mr Alan Williamson will be in contact with you (sic) solicitors regarding this matter."
Mr Mammos admitted he received this letter and said he gave no reply.
21. Once she had regained possession, Ms Karnis says she set about attempting to put No. 42 in shape to re-open in early March. She engaged two employees who had formerly worked for the Lazarous and set about rearranging the interior of the shop. She said at that time the exterior of the shop was still unpainted and the downpipes were not complete. She told the tradesmen who were on-site that she would pay them for any work which they undertook at her request. She refused to accept liability for the work done for the Lazarous. She said Mr Peter Lazarou promised to return on 15 February to pay off the tradesmen. This never occurred. On 19 February she sought to have gas connected or reconnected to the shop. At that time it became obvious that No. 42 was subject to an industrial black ban.
22. Mr Mammos says he spoke to Ms Karnis on 22nd February and told her that she had no lease. For her part, according to Mr Mammos, Ms Karnis admitted defeat and said that he, Mr Mammos should look for better tenants. Ms Karnis denies this conversation. It is common ground on 23 February, Mr Mammos informed Ms Karnis that she had no lease. On 24 February she was locked out. On 4 March Ms Karnis' solicitor, Mr Allan Williamson, sent a letter marked "delivered by hand" to Mr Mammos' solicitors Price Higgins. The letter stated:
"I enclose my client's cheque for $6,600 in payment of rent for the months of February and March.
My client intends to reopen the premises at the earliest opportunity and is now making the necessary (sic) for this to occur.
Please arrange for your client to provide an unconditional certificate of occupancy immediately as required by the agreement to lease.
My client will comply with her obligations under the lease but does not intend to make any other payments to your client or to third parties in respect of works previously carried out at the premises."
23. Mr Mammos was requiring payment of the tradesmen employed by the Lazarous and also of $22,000 being part of the $42,000 which Mr Peter Lazarou agreed on the 11 December 2002 as payable by him. Mr Harrison at Price Higgins and Fidge replied on behalf of Mr Mammos by letter dated 11 March. The cheque was returned. The letter continued:
"Pursuant to the transfer of the agreement and lease and subsequent conduct your client has transferred her right to occupy the premises under the lease and the agreement. As Mr Karnis surrendered her right with respect to the tenancy she is now unable to unilaterally reinstate her right.
Despite the above, by your correspondence we note that your client claims to be entitled to reopen her business in the premises. Our client denies that your client is so entitled.
Accordingly we give notice pursuant to Clause 9 of the agreement and lease that a dispute has arisen arising out of or in relation to the agreement to lease. The nature of the dispute:
(a) Ms Karnis has further or parted with her entitlement to occupy the premise (sic).
(b) Ms Karnis is not entitled to reopen her business from the premises.
(c) Is Ms Karnis required to meet the costs of renovations to the premises, which were installed at the request of the tenant?
We propose that the dispute be resolved by Mediation before David Lindsey of Wightons in his offices on 21 March, 2003. Mr Lindsey's fee is $3000 including GST and that cost is to be shared equally by your client and our client."
24. On 24 April 2003 Mr Mammos through his solicitors commenced the present proceeding. The application which include points of claim sought the following relief:
(a) the respondent [that is Ms Karnis] is not entitled to re-enter the premises; and
(b) there exists no lease between the applicant and respondent in respect of the premises.
C. Such further relief as the Tribunal may seem just or appropriate."
25. On 16 May 2003 Ms Karnis' solicitors filed a counterclaim. It sought the following orders:
"1. A declaration that there exists between the applicant and the respondent a lease in respect of the premises at 42 Mountjoy Parade Lorne .
2. An order that the applicant specifically enforce the agreement to lease and the lease between the applicant and the respondent in respect of the premises at 42 Mountjoy Parade Lorne.
3. Alternatively an order for relief against forfeiture.
6. Such further orders the Tribunal deems appropriate."
26. Directions were given for the conclusion of the usual interlocutory steps and the matter came on for hearing before me.
27. In Paragraph 6 of his statement of claim, Mr Mammos, after reciting the events up to the signature of the sale agreement on 11 December, asserted:
"By reason of her [that is Ms Karnis] having transferred the agreement to lease as aforesaid, the respondent brought to an end any interest or entitlements she had under or in relation to the agreement to lease or to occupy the premises."
28. That interpretation of events is consistent with the substance of the letter from Mr Mammos' solicitor to Ms Karnis' solicitor dated 11 March which I have quoted; but Mr Mammos' case is put on another basis as well. Paragraph 8 of the points of claim says that in late January or early February 2003
A. Defaulted under the agreement to lease when they failed to pay the applicant rent that was owing by them to the applicant pursuant to the agreement to lease;
29. Paragraph 9 asserts that Ms Karnis "in or about late January or early February 2003" "notwithstanding that she had no entitlement to do so, took possession of the premises". Paragraph 10 asserts that Mr Mammos "as he was entitled to do, excluded the respondent [Ms Karnis] from possession of the premises by changing the locks to the premises."
30. Since the operation of the agreement to lease is linked to the issue of what is described as a "certificate of occupancy", I should say something about this as well. On 9 January 2003 a private building surveyor, Mr Roger A. Gillett, exercising powers under the Building Regulations 1994 carried out an inspection of 42 to 44 Mountjoy Parade. He issued a building notice dated the 13th of January 2003 stipulating the following items which did not comply "with the Building Code of Australia 1996":
"2.1 Install fire extinguishers, adjacent to required exits and not within 2m of the main switchboard.
2.2 Install a fire breaker, complete with appropriate signage, adjacent to the ovens in the kitchen.
2.4 Complete laying of all non-slip tiles to work area behind counter.
2.5 Install a sign, indicating the toilets are staff only.
2.7 Seal the penetration in the wall of the staff toilets, where the outlet pipe is located.
31. On 4 February the surveyor issued a conditional occupancy permit under the Building Regulations 1994 Regulation 9.5. The conditions were as follows:
"1. Complete rendering and painting to the front of the shop.
2. Ensure that the entryway to the fish and chip shop has a permanent barrier in place to the east side of the opening as the step height into the shop exceeds 190mm. Alternatively, the upgrade of the sidewalk should be completed, ensuring that the rise into the shop at any point does not exceed 190mm."
32. Finally, an unconditional occupancy permit was issued under the same provisions by Mr Gillett and dated 3 April 2003. The expression "certificate of occupancy" relates to an earlier and now superseded system of regulation. The parties seem to have conducted themselves at the time and during the hearing upon the basis that the "occupancy permit" provided for by the Building Regulations 1994 was to be treated as synonymous with the certificate of occupancy referred to in the agreement to lease.
33. I should also say something as to what rent the Lazarous paid during their period of occupancy. Mr Mammos' view was that once the Lazarous have started to trade, whatever might be found in the agreement to lease, the lease should be regarded as having commenced and rental should be regarded as having been payable. The rental stipulated in the lease was $36,000 per annum, that is, $3,000 per calendar month plus GST (10%). The rent inclusive of GST was therefore $3,300 per month. Mr Mammos said that he harried the Lazarous and eventually received payment of $6,000 "towards the rent for December 2002 in January 2003" on 3 February 2003.
34. Mr Fitzgerald, Counsel for Mr Mammos, submitted that it was necessary to distinguish between the two relationships that were involved in this dispute, the first being the one between the respondent Ms Karnis and the Lazarous and the second one being the relationship between her and the landlord, Mr Mammos. He submitted that there had been an effective transfer of Ms Karnis' entitlements under the agreement to lease, despite the fact that no executed transfer of lease was ever given to the Lazarous. This flowed he said from the conduct of the parties which comprised:
"- the Lazarous' entry of possession into the premises;
- their proceeding to behave as the tenant of the premises by using the premises to carry on their business and by paying rent."
35. He said that this conduct entailed a carrying into effect of what Ms Karnis accepted were her obligations under the agreement for lease. He referred to Special Condition 4.2(d) of the Contract of Sale of Business which provided, upon default for a re-transfer of the lease and which I have quoted above. Mr Fitzgerald said:
"Inclusion of this condition necessarily implies that it was intended by the parties that the transfer of the agreement to lease came into effect at the commencement of the contract of sale of business."
36. By reason of the various items of conduct already described Mr Fitzgerald submitted:
"(a) There had been sufficient acts of part performance for both the Lazarous and Ms Karnis have acquired an entitlement in equity to an order that their agreement to transfer the agreement to lease is performed [he referred to Meagher, Heydon and Leeming Equity Doctrins and Remedies (4th Edition paragraph 20-180 to 20-230) and to McMahon v Ambrose [1987] VicRp 66; [1987] VR 817]."
"(b) Both parties will have been estopped from denying entitlement to give and receive the transfer of the agreement to lease."
38. He referred to Meagher, Heydon and Leeming at page 545 and following and Chapter 17 Generally and Walton Stores (Interstate) Limited v Maher [1988] HCA 7; (1988) 164 CLR 387, 4-8-9 per Brennan J.
39. Mr Fitzgerald submitted that upon this analysis:
(a) the Lazarous became a party to the agreement to lease; and
(b) as set out in Paragraph 6 of the applicant's points of claim Ms Karnis lost her entitlement under the agreement to lease and therefore her entitlement to a lease of the premises."
He referred to Richardson v Landuker (1950) 66 WN (NSW) 236 and Bradbrook and Croft Commercial Tenancy Law in Australia Second Ed [15.01]. He submitted that the non-issue of the occupancy permit (or certificate of occupancy as the agreement to lease described it) did not prevent the lease, as distinct from the agreement to lease from commencing:
"On any view, by commencing to carry on business on 27 December, the Lazarous - and therefore Ms Karnis - waived any entitlement to rely on any such failure by the landlord, or, alternatively, the Lazarous, and therefore Ms Karnis, were estopped from complaining about any such omission".
He referred to the Walton Store's case. Mr Fitzgerald said that even were the foregoing analysis wrong, "it must be that when the Lazarous went into possession, completed the fit-out and commenced to carry on business, they did so as licensees of Ms Karnis ..."
40. As to the relationship between his client Mr Mammos, Mr Fitzgerald said:
"- The agreement to lease has been performed - by 27 September, the lease anticipated by the agreement to lease had come into effect; and
- Thereafter the parties' entitlements were governed by the lease."
"Had Mrs Karnis done what the Lazarous did - gone into possession, completed the fit-out, started trading, paid rent - could Ms Karnis now dispute that the agreement to lease had been performed, that a lease had come into effect, and that the parties' entitlements are now governed by the lease?"
42. He said it could make no difference that these acts were carried out by the Lazarous rather than by Ms Karnis. He submitted that any attempt by Ms Karnis to "resile" from liability for the rent would be contrary to the principles adopted by the High Court in the Walton Store's case. He referred particularly to some six indicia of estoppel postulated by Brennan J. (as he then was) in the Walton Store's case. All of those indicia, he said, had been satisfied in the present circumstances.
43. Mr Fitzgerald then submitted that with the lease in force Mr Mammos was entitled to any of the remedies bestowed upon the landlord by the terms of the lease, in particular the default clause, Clause 7.1.1 which authorised him as landlord to re-enter the premises and terminate the lease if rental were in arrear for 14 days. Neither the lease nor Section 146 of the Property Law Act 1958 required Mr Mammos to give any notice prior to exercising this power. He said:
"The evidence is clear that as of the date when Mr Mammos re-entered the premises (24 February) the rent had been unpaid for 14 days. Rent was agreed at $6,600 per month (see - Item 6 of the schedule to the lease) with instalments to be paid `on the commencement of the lease and thereafter in advance on the same day of each month' see Item 9 of the schedule. On any view, the lease commenced, at the latest, on 27 December, when the Lazarous commenced trading. Therefore, rent of $3,300 became payable on 27 December with a further $3,300 becoming payable on 27 January 2003 however, the only rent that was paid was $6,000, which was paid on 3 February. It is therefore clear that, as at 24 February, the rent was more than 14 days in arrears."
44. He said if it mattered, Ms Karnis was aware that there was a situation of rental arrears which led her to write her letter of 28 January 2003.
45. Mr Fitzgerald submitted if either of his lines of argument were correct, Mr Mammos was entitled to the relief which he sought. Even if neither were accepted, he submitted that the Tribunal's primary source of jurisdiction was Section 38 of the Retail Tenancies Reform Act 1998, in particular paragraphs (a) and (b) of the section. The effect, said Mr Fitzgerald was that any relief which might be given to Ms Karnis on her counterclaim should be rendered conditional as follows:
(i) for the tradesmen responsible for the installation of the various fittings that were installed at the request of the Lazarous - benches, canopy, kitchen fittings, light fittings - to be removed;
(ii) for Ms Karnis to [pay] the costs incurred in making good the premises;
(b) Provision should be made for the payment by Ms Karnis to Mr Mammos of compensation for the costs incurred by Ms Karnis in connection with the plastering and partitioning work referred to in the evidence, the cost of which was $22,000.
(c) It should be declared that the lease commenced on 27 December 2002 when the Lazarous commenced trading.
(d) Provision should be made for the date by which Ms Karnis must complete any further fit-out works and resume paying rent."
46. Mr Fitzgerald also said that his client would desire to be heard on the question of costs when the Tribunal's substantive determination was made known.
47. Mr Nichol on behalf of the respondent submitted that at no time had title to Ms Karnis' leasehold interest been vested in the Lazarous. The Lazarous occupied as licensees of Ms Karnis. She "let them in". He submitted that no rental was in arrears, first, because the requirements for the commencement of the lease, viz. the issue of a certificate of occupancy in accordance with the agreement had not been satisfied. He also noted that Mr Mammos conceded that no disclosure statement in accordance with the Retail Tenancies Reform Act 1998 had been provided, hence no rental was payable. He referred to Section 8 of the Act. He also referred to Clause 2.2(c) of the General Conditions of the contract for sale of business which provided "Ownership of the business passes when the whole of the price is paid." He also referred to Clause 5.3(b) of the General Conditions which provided for the purchase of the "prepare the transfer" of the lease. He referred to General Condition 11.7 which authorised Ms Karnis to "retain the business" if she ended the contract in accordance with the clause, which he submitted she did.
48. He submitted that the order of Ashley J assumed an entitlement to possession on the part of Ms Karnis. Mr Mammos was aware, Mr Nichols said, of the proceedings in the Supreme Court and having stood by and permitted them he was now estopped by conduct from denying Ms Karnis an entitlement to possession of No. 42.
49. He submitted that the requirement that the tradesmen creditors be paid by Ms Karnis was a relatively late requirement and was not to be found in the affidavit sworn by Mr Mammos at the outset of the present proceeding nor was it to be found in any letter from Mr Mammos' solicitor to Ms Karnis, in particular the letter of 11 March.
50. He submitted I should find that the issue of paying the tradesmen was not raised at all on the 14th of February when Mr Mammos welcomed Ms Karnis back. He noted that Mr Mammos at no stage on the 14th of February said to Ms Karnis that she had no lease and no entitlement to possession. Seemingly Mr Mammos was aware of the action which she took to change the locks on the 28th of January and the issue of the proceedings on 5 February in the Supreme Court. Mr Nichol said the evidence showed that Mr Mammos was aware of all this and took no action to tell Ms Karnis that she had no entitlement to possession. When she returned to possession she did a lot of work and made many arrangements but was not told that her entitlement to possession was denied, Mr Nichol submitted, until the 23rd of February. He referred to Section 22(7) of the Retail Tenancies Reform Act 1998 and submitted that this gave Ms Karnis an entitlement to remedy the faults by the Lazarous. He referred to Dr Croft's work on Retail Tenancies 3rd Edition at page 267.
51. He submitted the mere fact that Clause 4.2.3 of the Special Conditions of the Sale of Business Agreement provided for a re-conveyance did not mean that one was necessary, if the circumstances did not dictate it.
52. He submitted that the maxim "he who seeks equity must do equity" applied to anyone seeking injunctive relief but did not authorise a court or tribunal to impose conditions along the lines suggested by Mr Fitzgerald. The only conditions which could be imposed upon the grant of relief were the satisfaction of the legal obligations which the person seeking relief was obliged to perform under the agreement upon which he or she relied.
53. He said it would be unconscionable to allow the applicant to succeed on the basis of alleged arrears of rent in light of the offer made by Ms Karnis in her letter of the 28th of January. In the face of this letter, which went unanswered, to allow Mr Mammos to succeed on this point would offend the principle of no man can profit from his own wrong.
54. Mr Nichol submitted that no case of estoppel based on the Walton Stores' principles had been made out which would allow the clear terms of the agreement to lease as to the date for the commencement of the lease proper to be varied. He said that his client accepted liability to Mr Mammos for the cost of polishing the floors. According to Ms Karnis this represented a cost of $2,000.
55. The fact situation as narrated is quite complex. Many arcane, though not fully developed submissions were pressed before me; nevertheless, resort to some fundamental legal and equitable principles and a critical analysis of the evidence gives a relatively clear conclusion to the present dispute.
56. The paradigm for analysis of the relationship between vendor and purchaser under an uncompleted contract for sale can be seen in a simple cash contract for the sale of a freehold interest in land. The situation there is as follows:
"Upon the signing of a valid and specifically enforceable contract for the sale of the land the vendor becomes in equity (and so long as the contract is specifically enforced he continues to be) a trustee of the land for the purchaser, and the beneficial ownership passes to the latter subject to his paying the purchase money. The vendor is, however, until the whole of the purchase money is paid, a trustee in a qualified sense only, for until that time he has still a substantial interest in the property - a lien on the property as security for the payment of the purchase money, the right to retain possession (unless the contract otherwise provides) until payment in full of the purchase money, and an active right to protect his interest if anything should be done to endanger it." (see Wikrama, Voumard The Sale of Land Victoria (4th Edition 1986) 112-3) (Footnotes omitted)
57. Upon completion the legal and beneficial ownership of the subject land is united in the purchaser, subject of course to registration of the transfer under the Transfer of Land Act 1958. Assuming that the contract is properly formed and is not liable to be set aside for fraud, mistake or some such thing, it may be prospectively discharged where the purchaser fails to meet his fundamental obligation to pay the purchase price. As Dixon J said in his celebrated judgment in McDonald v Dennys Lascelles Limited [1933] HCA 25; (1933) 48 CLR 457, 477-8:
"... when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. ... when a contract stipulates for a payment of part of the purchase money in advance the purchaser relying only on the vendor's promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arisen for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. ... it is now beyond question that instalments already paid may be recovered upon default of the purchaser when the vendor elects to discharge the contract."
When the contract is discharged the full beneficial title revests in the vendor and the parties' rights must then be adjusted on the footing that the purchaser never obtained title to the property.
58. To what extent can this analysis be applied in the present circumstance? Here, the subject matter of the sale was inter alia, an equitable leasehold interest, not a legal freehold. The neat separation between legal and beneficial interest which the analysis of the freehold executory sale yields is not available here because the subject matter of the sale is itself equitable; nevertheless, in my view, the application by analogy of the analysis just described is not impaired by this. Equitable property can itself be the subject matter of a trust and therefore the equitable leasehold can be the subject of the qualified trusteeship which exists when a vendor holds property under specifically enforceable executory contract of sale. Again, the facts that the subject matter of the sale is a leasehold estate rather than a freehold state would not seem to matter.
59. The agreement of 11 December 2002 operated as an agreement to sell all the rights created in favour of Ms Karnis under the Agreement to Lease of 30 September 2001 - including the right to the proposed lease. As at 11 December 2002 the lease had on no view come into effect. It was future property. If and when it did come into existence the agreement to sell would have bound it - as long as the agreement of 11 December 2002 had not by then been discharged. Norman v Federal Commissioner of Taxation [1963] HCA 21; (1963) 109 CLR 9, 24. There is no evidence of any lease other than the one provided for in the agreement of 30 September 2001. Hence there is no need to distinguish between the lease and the agreement to lease.
60. What creates confusion in the present circumstance is that the sale contract as described appears to assume the occurrence of a preliminary settlement as at 20 December 2002, at which, inter alia, the relevant leasehold interest will be transferred with a deferral of the payment of the purchase price in full until 15 January 2003 subject to a grant of a legal security to Ms Karnis over certain property to secure performance of the obligation to pay the entire purchase price. Ms Karnis said that her understanding and her intention was that there should be no transfer of the lease until payment of the purchase price in full, that is, on 15 January. There seems to have been no attempt by the Lazarous to get any title to the lease as at 20 December. Why the conduct of the parties diverged from the written contract is not illuminated by the evidence. It may be that the contract as executed simply failed to reflect the intention of the parties or they may have intended to deal on the basis of the written contract but changed their minds and performed in a different fashion. In the end, it does not matter. Whatever interest the Lazarous or for that matter the company which they seem to have nominated on 29 January as the proper party to take title to the lease might have had in the lease by reason of the contract entered into on 11 December was terminated by the combined effect of:
(a) their failure to pay the purchase price in full;
(c) the operation of the notice of default served by Ms Karnis' solicitor.
That the contract was "at an end" is confirmed by the consent orders made by Ashley J in the Supreme Court. The contract of sale did not oblige Ms Karnis to transfer the agreement to lease dated 30 September to the Lazarous, she could have performed her obligations by procuring the creation of a new lease or agreement to lease in accordance with the terms set out in the relevant schedule to the contract of sale. I was not taken to any authorities which would indicate whether this possibility affected the passing of a beneficial interest in the lease to the Lazarous upon the making of the contract. In the end it does not matter because that beneficial interest, whatever it is, has come to an end.
61. Since the agreement to lease was never transferred to the Lazarous at a preliminary settlement on 20 December, as the contract appears to contemplate, there was no need for any re-conveyance to re-vest the agreement to lease in Ms Karnis. Had a preliminary settlement occurred on the 20th of December and had the lease or agreement to lease been transferred to the Lazarous then, it would be have been necessary for Ms Karnis to seek a retransfer pursuant to Special Condition 4 of the contract. As it was however since there was no transfer, there was no need for a re-transfer. Whatever interest the Lazarous took in the agreement to lease by reason of the execution of the agreement of 11 December was brought to an end by the termination of that contract prior to transfer and Ms Karnis therefore resumed full beneficial entitlement to the agreement for lease or lease as the case may be. The fact that the Lazarous had entered into possession of the leasehold interest is neither here nor there. A terms contract for the purchase of a freehold estate in land is no less fully rescinded upon purchasers default in the payment of an instalment of purchase money because the purchaser has been let into possession and has exercised the rights of a freehold owner and met the liabilities of a freehold owner, for instance, by the payment of rates and taxes on the land.
62. The contention that Ms Karnis has "lost" her entitlements to the lease or agreement to lease by reason of transfer express or implied, must fail.
63. Nor is there any merit in the contention that Mr Mammos has validly terminated the lease or agreement to lease for non-payment of rent.
64. As Mr Nichol has correctly observed, the terms of the agreement for lease provide that the lease itself is not to commence until after the issue of what is described as the "certificate of occupancy". The document treated as such certificate did not issue on any unconditional basis until April. The only basis upon which it could be suggested that the lease commenced at an earlier date and with it the obligation to pay rent, is either that the provision as to the commencement date for the lease was a provision introduced entirely for the benefit of the lessee, and as it were on behalf of Ms Karnis, the Lazarous waived that requirement or else being a provision for the benefit of both parties, the Lazarous and Mr Mammos agreed together to waive or vary it such that the lease commenced when the Lazarous began trading on 27 December 2002. Whilst Mr Fitzgerald's submissions appeared to flirt with the possibility that lease should be regarded as having commenced from some earlier date, there seems to be no basis for selecting any earlier date. Mr Mammos' view seems to be that once the business was trading, the Lazarous should pay rent and their action in paying $6,000 in early February seems consistent with an acceptance on the Lazarous part of this view. Assuming that the one lease term should be regarded as having commenced on the 27th of December, what then was the state of accounts as to rent on 24 February 2003? According to Item 6 of the scheduled form of lease, the rental was "$36,000 plus GST", presumably the $36,000 was an annual rate and Item 9 of the Schedule provides that it is payable by equal monthly instalments "the first such instalment to be paid on the commencement of the lease and thereafter in advance on the same day each month". The rent therefore was $3,000 per month, the 10% Goods and Services Tax would require an additional payment of $300 making a total payment of rent and Goods and Services Tax of $3,300. Accordingly, $3,300 was payable on the 27th of December 2002; $3,300 was payable on the 27th of January 2003. No further rent was payable until 27 February 2003. Accordingly, as at 24 February 2003 the total amount of rent and GST payable was $6,600. On 3 February the Lazarous paid Mr Mammos $6,000. The rental component that was payable for the period up to 27 February therefore was $6,000. It had been paid in full as at 24 February, there were no arrears of rent at all, hence there was no occasion for a re-entry pursuant to Clause 7.1 of the lease. The failure to pay Goods and Services Tax is not a failure to pay rent and any re-entry based on the failure to pay Goods and Services Tax would have to be the subject of a notice under Section 146 of the . No such notice had been served.
65. It may be objected that the assumption that the $6,000 represented rent rather than partly rent and partly GST is unjustified. I was not taken to the authorities as to the allocation of payment between various liabilities. There was no evidence of any allocation made with respect to the $6,000 either by the Lazarous or Mr Mammos; nevertheless, be it assumed that some $600 of the $6,000 was to be regarded as being allocated to Goods and Services Tax. This is a most generous assumption in favour of Mr Mammos because the actual GST payable on rental of $5,400 would be $540 not $600. The result of this allocation however would be that as at 24 February the rent was some $600 in arrears, assuming that the $6,000 was to be allocated to the older debt in accordance with the FIFA principle the $600 underpayment would be referrable to February 2003. There are 28 days in February and therefore 14 days of rent arrears would be precisely $1,500 (or $1,380.82 if the calculation were made against the annual rental). On the view most favourable to the applicant landlord, the arrears of rent were $600.
66. This aspect of the applicant's case fails.
67. What I have said so far indicates that the applicant's claims must fail.
68. I should now say something about Mr Fitzgerald's contention that any relief upon the counterclaim in favour of Ms Karnis should be somehow rendered conditional upon her meeting various liabilities including unquantified liabilities to tradesmen. He did not submit that orders along these lines could be made on the basis of the maxim "he who seeks equity must do equity". The relief sought in the applicant's points of claim has no fallback position. The points simply seek an adjudication that Ms Karnis has no entitlement as tenant. Mr Fitzgerald submitted that I could impose the conditions which he suggested not on the basis of the equitable maxim and not on the basis that any of these matters were sought as relief in his client's points of claim but rather upon the basis of the conjunction of powers bestowed upon the Tribunal by Section 38 of the Retail Tenancies Reform Act 1998. He referred in particular to paragraphs (a) and (b). The section states, inter alia:
"On a proceeding under this part the Tribunal may, by order -
(a) require a party to do, or not to do, anything including to provide specified facilities, services, fixtures or fittings under the retail premises lease or to return specified fixtures or fittings to another party;
(b) require a party to pay money (by way of restitution or compensation or otherwise) to a specified person."
69. In my view, these powers are not intended to create any new substantive rights. To put it another way, the reference in Paragraph (b) to restitution or compensation is not a justification for the Tribunal to fashion its own new and previously non-existent substantive set of rules on compensation or restitution. The various paragraphs of Section 38 in my view are intended to authorise the Tribunal to make certain orders or grant certain relief only if the existing substantive law provides a justification for the making of such orders. So, if the law of contract or restitution or some other law creates a liability on a party to pay money, paragraph (b) authorises the Tribunal to make an order requiring that party to pay the money. If the substantive law of contract or otherwise creates an entitlement in favour of a party to require another party to do something or not to do something, paragraph (a) authorises the Tribunal to make orders in the nature of mandatory or prohibitory injunctions or perhaps specific performance as the case may be. It does not empower the Tribunal to make orders along those lines without some backing from the substantive law. I therefore reject the submission that relief upon Ms Karnis' counterclaim should somehow be conditional upon any basis other than some existing substantive legal rights or obligations.
70. The tradesmen are not parties to this proceeding and there has been no proof of the existence or quantum of their entitlements. It would be quite improper therefore to purport to make any orders with regard to them. Quite where the tradesmen fit in is not fully explained. It emerged in the course of Mr Mammos' cross-examination that the electrician and plumber had attended a conference in Mr Fitzgerald's chambers, also attended by Mr Mammos "to see where they stood".
71. As to the amounts claimed by Mr Mammos himself, since it was open to him to make a claim against Ms Karnis in his points of claim but he failed to do so, I think it would be inappropriate to make any order as to his claims. Ms Karnis admitted liability for the cost of polishing floors but there was no clear evidence as to what portion of the $22,000 claimed by Mr Mammos this represented. As previously noted, Ms Karnis said it was $2,000. Mr Mammos failed to answer a question on that subject put by me. I do not believe that whether it was sought in the proceeding or not, Mr Mammos should be entitled to recover the cost of constructing the partitions in the rear of Shop No. 42. The agreement for lease required Mr Mammos to construct the premises as described in the plans and specifications accepted by the authorities. Mr Mammos agreed that the plan produced at the hearing and marked as an exhibit was the plan accepted by the local shire. That plan depicts the relevant partitions, therefore it was Mr Mammos' obligation to construct them and he cannot charge Ms Karnis for this work. Mr Mammos said that the inclusion of partitions as distinct from structural walls is a matter of fit-out which the agreement for lease clearly requires Ms Karnis to pay for and to arrange. There was no evidence as to the usage in the building trade or elsewhere of the expression "fit-out". Common experience however has it that modern office buildings are frequently let with entire floors wide open with the configuration to office or other use to be provided by or on behalf of the tenant, which configuration is commonly referred to as "fit-out". Nevertheless, such unpartitioned floors do include some non-structural walls, for instance, around utility areas such as toilets. Whatever meaning "fit-out" might bear in the abstract without further explanation, the obligation to construct in accordance with plans which depict the relevant partitions or non-structural walls trumps it. It was therefore Mr Mammos' obligation to construct these partitions or walls and his claim in that regard against Ms Karnis cannot succeed.
72. The result seems to be a very substantial victory for Ms Karnis. Nevertheless, since there was no claim made by Mr Mammos for any relief against Ms Karnis other than a denial of her right to possession of the premises, these proceedings may not (subject to the operation of any Anshun estoppel) exonerate Ms Karnis from the potential of other liabilities. Since the tradesmen are not parties to this proceeding, this adjudication would not protect her from any possible liability to them under the law of restitution. Moreover, it cannot remove the industrial problems and "black ban" which appear to have been imposed on Shop 42. These black bans are frequently more effective in the recovery of debts than mortgages, liens, receiverships or court orders could be. To the extent that the tenant's fit-out obligations under the agreement to lease remain unperformed they are Ms Karnis' obligations.
73. The applicant's claim fails for the reasons already given and must be dismissed. I should now consider what relief should be granted upon Ms Karnis' counterclaim. Having regard to the findings which I have made one can put to one side Item No. 3, namely relief against forfeiture (assuming that the Tribunal had jurisdiction to grant it in this proceeding). As to Item No. 4, I indicated that on the present scope of the evidence it would be inappropriate to attempt any assessment of damages prior to the publication of reasons determining the principal issues in dispute between the parties. That leaves substantially Paragraphs 1 and 2, a request for declaration as to the existence of a lease and an order requiring specific performance thereof. In my view, for the reasons given Ms Karnis clearly has an entitlement to a lease or rights under the agreement to lease. Clause 3 of the agreement to lease states that upon its exchange "the tenant's solicitors agree to deliver to the landlord's solicitors the lease in duplicate duly executed by the tenant". Clause 3(5) provides "the lease is delivered in escrow pending the commencement of the lease at which time the lease will be binding on all parties". There was no evidence before me as to whether Clause 3 was carried into effect such that the parties did exchange and deliver engrossments of the lease "in escrow". Mr Fitzgerald said that it was essential that any relief which I gave identified when any lease should be regarded as having commenced. I agree that it is just and proper that this matter be the subject of appropriate findings and declarations. There may be some debate as to precisely how one would characterise the role of the Lazarous between 11 December 2002 when they were "in" and 14 February 2003 when they were "out". Mr Nichol described them as licensees of Ms Karnis. Clearly in so far as they commenced fitting out the premises they were performing obligations on behalf of Ms Karnis and in so far as they traded and enjoyed possession of the premises they were exercising her rights on her behalf, hence they were in those respects her agents and in my view they must be taken to have had the right to bind her with respect to the lease arrangements. When they commenced trading on 27 December 2002 without the document which was treated as the "Certificate of Occupancy" for the purposes of the agreement to lease and subsequently agreed to pay rent, they must be regarded as having agreed on Ms Karnis' behalf to the lease commencing on 27 December 2002 despite the provisions of the agreement for lease. In my view therefore, Ms Karnis' entitlements as lessee must proceed from this basis.
74. I will direct that the parties bring in short minutes to give effect to my reasons within 14 days of this date.
75. Certain cost submissions were foreshadowed on behalf of the applicant. None were made at all on behalf of the respondent. In the circumstances I will reserve the question of costs.
Mammos
Karnis [2003] VCAT 1050
(1988) 164 CLR 387
(1963) 109 CLR 9
(1933) 48 CLR 457
The landlord’s application was dismissed; the Tribunal found Ms Karnis retained rights under the agreement to lease, with her lessee entitlements proceeding on the basis that the lease commenced on 27 December 2002. The parties were ordered to bring in short minutes within 14 days, and costs were reserved.