Nishtom Pty Ltd v Robinson

Underlying Transaction and Events 9 By Contract for Sale of Land dated 26 March 2004 ('the contract') the applicants agreed to purchase from the bankrupt the properties known as 346 and 348 Soldiers Point Road, Salamander Bay, NSW ('the property') for $850,000. Completion of the contract took place on 27 April 2004. 10 The contract contained the following relevant special conditions: '5. Following settlement the purchaser hereby agrees to allow the Vendor to remain in possession for a period of six (6) months at a weekly rent of $50 plus GST. During this period the purchaser has the right to enter onto the property at any time. If the Vendor does not vacate the property at the expiration of six months the rental shall increase to $1,000 per week plus GST. 6. All outgoings to be paid by the Vendor from the date of settlement for the six month period the Vendor is in occupation of the premises. 7. The Vendor hereby agrees to Vendor finance on the following terms: a. Term - six (6) months from date of settlement b. Principal amount - Four hundred thousand dollars ($400,000.00), c. Interest rate - 10% p.a. provided however that should the purchaser repay the principal within the term of the loan the Vendor will waive any interest accrued. d. Repayment - At the later date of the Vendor vacating the property or the expiration of the term of the loan, e. Mortgage - The purchaser will grant a first Registered mortgage over the subject property. … 12. The Vendor is to vacate the property after 6 months of the date of completion and remove all stock, cars, tyres, the music shop and work shop.' 11 The bankrupt remained in possession of the property beyond six months following completion and was still in possession of the property when the improvements erected thereon were substantially destroyed by fire on 22 December 2005. 12 The background to the contract is that the property was used, in the course of the bankrupt's business, as storage for hundreds of car bodies and thousands of car parts. The improvements erected on the property were used, as well, for business purposes. While the substantial destruction of the structures erected on the property impacted the bankrupt's business, it did not impede the storage use. Indeed, it was common ground that the bankrupt's obligations under special condition 12 of the contract, to vacate the property after six months including the removal of all stock, cars, tyres etc., had not been complied with by the date of his bankruptcy (30 August 2006) and much of it - unaffected by the fire - is still there today. 13 Subsequent to the fire, the bankrupt continued to enter the property. In correspondence he even asserted his rights allegedly as a 'mortgagee in possession'. The applicants continued to give the bankrupt access to the property to enable him to remove the car bodies, car parts and other stock. They do, however, have the benefit of an injunction preventing the bankrupt from dismantling the improvements. The injunction does not prevent the bankrupt from entering upon the property and removing the car bodies etc. that he should have removed within six months of completion of the contract.

THE APPLICANTS' POSITION 14 The applicants' position is that while the bankrupt's chattels remain on the property, for the purpose of the contract he has not vacated the property and remains liable for the 'rent' (Special Condition 5). According to the applicants, this was the situation at 30 August 2006, the date of bankruptcy. Implicit in this is that following completion of the contract, the bankrupt's possession of the property was as a licensee, and not as a tenant, and that that situation continued up until the date of his bankruptcy.

THE TRUSTEE'S POSITION 15 On the hearing of the application, the trustee's position was that, following completion of the contract, the bankrupt's possession of the property was as a tenant, and not as a licensee, and that while the bankrupt had not vacated the property as at the date of bankruptcy, in the sense of removing all his chattels from the property, there was no entitlement in the applicants to 'rent' beyond the date of the fire; any further claim for 'rent' beyond the date of the fire was limited to a claim in damages, if any, for loss of income arising out of the substantial destruction of the improvements erected on the property. 16 On the other hand, if the bankrupt's possession of the property beyond completion of the contract was as a licensee, the trustee on the hearing of the application, if not before, conceded that the applicants' entitlement to prove in the estate of the bankrupt was in the sum contended for by the applicants, namely, $119,646.44.

ANALYSIS 17 I think it is quite clear that the bankrupt's possession of the property beyond completion of the contract was as a licensee of, and not as a tenant from, the applicants and that that situation did not change at any time before the date of bankruptcy. My reasons for being of this view are as follows: (1) The circumstances in which the right of possession was granted - as a vendor, from the purchaser, of the property where the common intention of the parties, so far as it can be discerned from the relevant terms of the contract, was to allow the vendor time (six months) to remove his chattels from the property; hence the nominal 'rent' of $50 per week. True, there was no evidence as to what a market rent would be, but having regard to the purchase price of the property ($850,000), the improvements and the business being carried on from the property, 'rent' of $50 per week could not be characterised as anything but 'nominal'. (2) The terms of Special Condition 5 (see [10] above), in particular: (i) The use of the word 'rent' in the first sentence has no characterisation consequences of its own; for example, many chattel bailments use the word 'rent' to describe the consideration payable for the bailment when, strictly speaking, it is a hiring charge. The first sentence is totally neutral in indicating whether what is granted is a licence or a lease. (ii) More importantly, the right of the purchaser (the applicants) to enter onto the property is unlimited as to the purpose, frequency and time of entry. It is inconsistent with any claim or entitlement of the vendor (the bankrupt) to exclusive possession, which is the point of distinction between a licensee and a tenant: see Radaich v Smith (1959) 101 CLR 209 at 222 per Windeyer J; Street v Mountford [1985] AC 809 at 827A - E per Lord Templeman with whom the other of their Lordships agreed. (iii) The third sentence, which provides that if the vendor does not vacate the property 'at the expiration of six months (following settlement) the rental shall increase to $1,000 per week plus GST', informs the purpose of allowing the vendor to remain in possession beyond completion - time in which to remove his chattels from the property - and an ongoing weekly penalty if that task is not completed within six months of completion of the contract. These are the words of license, not demise and no covenant for quiet enjoyment could be implied. 18 For these reasons, the applicants' application must be allowed.

19 The applicants' costs and the trustee's costs must be paid out of the bankrupt's estate. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 2 July 2007 Counsel for the Applicants: Mr F Kunc