Palermo Seafoods Pty Ltd v Lunapas Pty Ltd

Judgment 1I gave my principal judgment in this matter as a preliminary judgment on 16 June 2014 ([2014] NSWSC 792). I gave it as a preliminary judgment as I was concerned that some of the real and complicate legal issues had not been fully addressed in submissions. I had in mind that Judges should decide cases on what the parties put and that Judges must be careful not to go off on a tangent dealing with the case they would have liked to be presented. 2I thus gave the parties' lawyers the opportunity to make further submissions, though not to reopen the case. 3Both counsel put in further helpful submissions and I held a brief hearing on 14 August 2014 and then reserved my final judgment. 4In the earlier judgment I listed a number of issues. Unfortunately the text of the preliminary judgment is a little confusing as to the numbering of the questions and thus I have slightly altered those numbers in the following analysis. I set out those issues and my brief answer to each. 5The questions and a brief answer in bold type were as follows:- (1)Did the plaintiff have an option to renew from 2 July 2012 to 1 July 2015? Yes (2)Did the plaintiff duly exercise such option? No. (3)If the answer to (2) is no, is the defendant estopped from denying that the option was exercised and does the non-compliance with s 133E of the Conveyancing Act 1919 have any significance? There is an estoppel and s 133E does not affect the issue. (4)Was a fresh lease granted to take effect from 2 July 2012. and, if so, what is its nature? Yes: however, the lease was at most only a lease in equity to last until 1 July 2015. At common law there was merely a tenancy at will terminable on a month's notice vide s 127 Conveyancing Act 1919 (NSW). (5)How is such a lease brought to an end? It was determinable on one month's notice. The landlord, however, only gave 14 days' notice. It is clear that the lease was terminated, but there may be a liability on the landlord to pay nominal damages. (6)Questions of Credit. I did not accept either principal witness as a witness of credit. (7)As to a question of fact, is the defendant correct in saying that they were never notified of any problem with defects in the building until 2012? The defendant was notified sufficiently for the defendant to be aware that there were structural problems requiring its attention. (8)What is the significance if any of the defendant taking possession on 8 May 2013? This raises sub questions: (a)Was any reduction of liability to pay rent brought about in the circumstances reflected in clause 8.2.2 of the lease? No (b)Was there a right of recoupment arising from the fact that the tenant paid for repairs? No (c)Is there any equitable set off applicable against rent. No (9)What rebate if any should be allowed for non-repair. Not answered (10)Is the plaintiff entitled to any damages for loss of expectation or otherwise and, if so, in what amount? No (11)What is the result of the case? The proceedings should be dismissed with costs. 6I should explain that the answers set out above were reached after ruling that it was necessary to realise that there were three separate and distinct leases over the property between the parties. The first was prior to 1 July 2006, the second from 1 July 2006 to 1 July 2012 and the third after 1July 2012. I ruled that it was vital to the solution of the problem presented to the court that this fact be recognised. 7The preliminary reasons focussed on three significant issues. The first significant issue was whether arrears of rent carried over into the next following lease. I said, "No". The second significant issue (though perhaps the corollary to the first) is that one cannot recoup against the rent payable in the current lease for damage done to the premises under a former lease. The third significant issue is whether the exercise of the option created more than an equitable interest and, if an equitable interest only was created, whether it was at the relevant time able to be the subject of an order for specific performance. I held that the interest was equitable, but there could be no specific performance because of defaults by the plaintiff. 8I will review the findings which were the subject of challenge in Mr Loof's supplementary submissions and then deal with two matters which counsel informed me I had not or not adequately dealt with in my preliminary judgment viz: A. Is the tenant entitled to damages for confiscation of its chattels? B. Issues as to unpresented cheques. 9Paragraph 10 of Mr Loofs' further submissions challenges the second significant issue. He acknowledged that his submissions were not supported by actual authority, but reasoned from analogy. 10Mr Loofs submitted that the right of recoupment was equivalent to payment of rent in advance. He put that rent in advance is considered in law to be part of an implied agreement that the parties will apply that advance payment as against future rent and that there is no reason to confine the implied agreement to rent that might become due under the then current lease. 11I do not accept that proposition for two strong reasons. 12First, I do not agree that cases with respect to payments of rent in advance and cases where the tenant has a right of recoupment are necessarily analogous. The rule as to payment in advance depends on an implied agreement, whereas recoupment involves a legal right. Secondly, even if I am wrong in this, the rent in advance cases do not assist Mr Loofs. I will expand on this. 13In De Nicholls v Saunders (1870) LR5CP 589 at 594, Willes J, with whom Keating and Montague Smith JJ concurred said: payment of rent before it is due is not a fulfilment of the obligation imposed by the covenant to pay rent, but is, in fact, an advance to the landlord, with an agreement that on the day when the rent becomes due such advance will be treated as a fulfilment of the obligation to pay the rent. 14That utterance has been treated as a good summary of the governing principle in the leading textbooks on Landlord and Tenant, see eg Woodfall's Law of Landlord and Tenant 28th ed (1978) p 296, [1-0734] and Foa, The General Law of Landlord and Tenant, 7th ed (1947) pp 148-9, [240]. Dixon J also quoted it in an income tax case which he decided as a single judge in Federal Commissioner of Taxation v Steeves Agnew & Co (Vic) Pty Ltd [1951] HCA 26; (1951) 82 CLR 408, 418. Brereton J approved it in Elite Promotions & Management Pty Ltd v 5A Investments Pty Ltd (2011) 80 NSWLR 686, 708-9. 15However, the quotation must be approached with care for at least two reasons. First, a court may find that there was no such implied agreement when it reviews all the facts and circumstances, as Dwyer J did in McDonald v Moyes (1951) 69 WN (NSW) 123. Secondly, the quotation hales from the era of so called quasi-contract which has virtually been superseded by unjust enrichment. Thus the passage in the 6th edition of Goff & Jones on the Law of Restitution p 455 which deals with this principle has been entirely omitted from the 8th (2011) edition, now renamed The Law of Unjust Enrichment. 16It is difficult to imply any such agreement from the facts of the instant case. The rent was constantly in arrears over a period of seven years. In those seven years a number of events occurred where the tenant, on its case, expected to recoup payments, yet at no stage when it was demanded that the arrears be remedied was the matter of recoupment raised. 17Even if this were wrong, the principle in the cases over the last 200 years is that if a tenant has a right of recoupment that gives it the right on the next rent day to claim the offset or to pay the rent in full and sue for the expense it has incurred. The cases say that it is only on the next rent day after the expense paid by the tenant that the right of recoupment exists. 18One of the earliest cases to make this clear is the decision of the full Kings Bench on demurrer in Stubbs v Parsons (1820) 3 B & Ald 516; 106 ER 750. Bayley J there said, at 520 (ER 751): a payment of the land-tax can only be deducted out of the rent which has then accrued, or is then accruing due; for the law considers the payment of the land-tax as a payment of so much of the rent then due, or growing due, to the landlord; and if afterwards he pays the rent in full, he cannot at a subsequent time deduct that overpayment from the rent: he may, indeed, recover it back as money paid to the landlord's use. 19The principle has been applied on many occasions since, see particularly Cumming v Bedborough (1846) 15 M & W 438; 153 ER 921 and Lamb v Brewster (1879) 4 QBD 220, 224 and also the cases noted in footnote 26 on p 455 of the 6th edition of Goff & Jones. 20The reason for the principle is that the landlord could assign his or her interests or become a bankrupt in which case, the tenant for the overpayment would be a creditor of the original landlord or his trustee in bankruptcy but the assignee of the reversion would be entitled to be paid the rent. 21Although early on it was doubted whether the tenant could sue for the payment he had made if he did not recoup it from the next rent due, as the payment might be classed as a voluntary payment, later cases show that the tenant has the election of deducting the payment from the next rent or suing, see Ford v Centenary Investments Pty Ltd [1957] VR 288, 293. 22In Smith's Leading Cases 7th ed, Vol 1, p 173, the very learned authors criticize the rule that the tenant may only deduct from the next rent. This criticism has not been taken up in any subsequent case and if the tenant has a election to sue, it causes no injustice. 23Mr Loofs suggested that my decision in Reid v Hipkiss (2001) 10 BPR 19,305, was per incuriam. I do not agree, though it would have been better had I said that rent had to be tendered on the proper day and that the mere fact that on that day the landlord owed the tenant money in respect of the premises was insufficient to satisfy the obligation to pay rent unless statute or agreement made other provision. 24Mr Loofs also relied on the decision of the High Court in Copping v Commercial Flour and Oatmeal Milling Co Ltd [1933] HCA 65; (1933) 49 CLR 332. However, that was a simple case of money had and received when a buyer had prepaid a greater sum than the actual purchase price and does not assist in the resolution of the present problem. 25The present case is an a fortiori one. Not only was there no claim for deduction against the next rent, the claim is made as against the rent due under a subsequent lease of the property. 26Thus, this submission and the research done on it reaffirms the view I took in the preliminary judgment. 27Mr Loofs then criticises my assessment of the credit of the principal witnesses and suggests that I have not fully considered all the relevant evidence, in particular inconsistencies within Mr Menitti's evidence. 28My initial reaction to these submissions was that even if I upheld them, it would make no difference to the result. The principal reason for the decision is that on the proper view of the law of landlord and tenant and in the events which have happened, the plaintiff's case fails on the material which is virtually common ground. 29As appears from the preliminary judgment, I was not over impressed with either of the principal witnesses. Even if it were the case that I could have been more condemnatory with respect to the evidence of Mr Menniti, the result would be no different and I see little sense in now re-examining the evidence. 30Then Mr Loofs suggests that I was in error in dealing with useability only with respect to the 2012 lease. He submits that "[a] reduction of useability in the earlier lease resulted in the reduction of the obligation to pay rent". The fallacy of this submission has already been considered in the discussion of the second significant issue. 31I was then asked to review my treatment of the document of 28 March 2013 and accept Mr Palermo's version of what occurred. I do not consider that anything in Mr Loofs' further submissions makes me alter what I have written. 32There is thus left outstanding the two matters which I identified as A & B in [8], viz: A. Is the tenant entitled to damages for confiscation of its chattels? B. Issues as to unpresented cheques. 33A. It is quite correct that I did overlook dealing with this significant matter in my preliminary reasons. However, I agree with Mr Wright's original submissions that this matter was hardly pressed at the trial and in particular there was little reliable evidence as to the value of the goods in question. 34The landlord took possession on 8 May 2013. At [72] I ruled that this was premature as a one month notice was required and the landlord only gave 14 days. However, both parties accept that this put an end to any tenancy. 35On 8 May itself the landlord gave the tenant until 5pm on the following day "to remove its goods and chattels and stock." But on condition that neither Joe nor Frank Palermo was to be involved in the removal. This condition was added as Mr Menitti feared for his safety if those persons were present. In view of the subsequent charge by the Queensland police of Joe Palermo of attempted murder of Mr Menitti, this fear may well have been justified. 36The same day, the plaintiff's solicitors replied that the time allowed for removal of the tenant's goods and chattels and stock was unreasonable and unconscionable. The letter then continued: It would also appear to be a futile exercise on the basis that our client has no capacity to store its stock at alternative premises due to the perishable nature of the inventory and the quantity of it at the time of your unlawful re-possession of the Leased Premises, and the size and nature of our client's plant and equipment located on the site. 37There is little material as to what was on the premises by way of fixtures. Mr Palermo's affidavit refers to a schedule which lists a series of refrigerators and display cabinets, which would probably not be fixtures as they would be resting on the floor or counters by their own weight. It then lists a number of benches and shelving, sinks and wash basins etc as well as cooking apparatus and a burglar alarm which, or some of which, would probably be fixtures. Then there are items which are obviously chattels including tables and chairs in the dining area, trays, tubs and prawn bins, a photocopier, cutlery, a TV, a forklift truck, cameras and a heterogeneous list of chattels. The plaintiff says the total value on the replacement basis is $521,025.90. Additionally there is $60,000 worth of stock. 38The defendant relies on clause 12.3 of the lease which provides that the tenant at the end of the lease is to return the premises to the landlord in proper condition and then provides: The tenant must have removed any goods and anything that the tenant fixed to the property and have made good any damage caused by the removal. Anything not removed becomes the property of the landlord who can keep it or remove and dispose of it and charge to the tenant the cost of removal making good and disposal. 39The general law, which is subject to specific contract, is that if there is a tenancy at will, as existed here at the time the landlord took possession, the tenant does not even have a reasonable time to remove his or her fixtures and chattels, see Doe d Nicholl v M'Kaeg (1830) 10 B & C 721; 109 ER 618. However, both that case and the equity case of Spurgin v White (1860) 7 Jur (NS) 15; (1890) 2 Giff 473; 66 ER 198 suggest that the tenant has an implied licence to enter the premises and remove chattels for a reasonable time. 40There is no evidence here as to what is a reasonable time. I note that in one of the cases referred to in submissions, DW & JA Edwards Pty Ltd v Shih (1995) 7 BPR 14,405 the court was told that it would take five days to remove the tenant's property. This fact and common sense would make me find that one day was insufficient to remove the plant of a seafood shop with eating area including heavy refrigeration plant, burglar alarm systems and cooking apparatus, let alone the chairs and tables etc. 41Another way of approaching the matter is to say that by virtue of the law declared by the Court of Appeal in Fitzgerald v Kellion Estates Pty Ltd (1977) 2 BPR 9,181, the principle is that if a person's goods come on to another person's land lawfully, if a demand is made for the return of the goods, the landowner must not prevent the owner of the goods from reclaiming them. 42I should now refer to the pleadings. 43The prayers in the Statement of Claim seek a declaration that the goods are held on constructive trust for the plaintiff. This cannot be the case. On the above analysis the goods still belong to the plaintiff at common law and the proper cause of action is detinue or trover. 44Neither detinue nor trover is actually pleaded. Although the issue of the Statement of Claim may be considered a demand, because of the different dates for assessing damages it is difficult to maintain a case of both detinue and conversion in the one pleading. 45I can only decide the issues that are raised in the pleadings and as neither detinue or conversion were pleaded, I cannot consider them. 46Whether the Anshun principle prevents any further proceedings on such issues is a matter on which I make no comment. 47Mr Wright, in any event submits that he has three answers to this claim, viz, (a) clause 12.3 of the lease, (b) that the tenant did not collect the goods and fixtures and made it clear that it could not collect the goods and (c) that the damages due to the landlord for not restoring the property would be at least as much as the value of the goods and fixtures. 48The third of these "defences" is not an answer. There is no pleading of a set off to this claim of the tenant's. If new proceedings are commenced, this matter may well be relevant. 49As to the first defence, I do not know of any case, nor was any cited to me where this clause has been construed by a court. 50I thus must apply basic principles of construction. One of these is that a contract is usually construed that vested rights are not taken away without clear words, see Duncombe v Porter [1953] HCA 78; (1953) 90 CLR 295 at 311. 51Next, "[a] commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience" (Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 88 ALJR 447, 455 [35] quoting from the plurality in Zhu v Treasurer (NSW) [2004] HCA 56; 218 CLR 530 at [82]). 52There would seem to be some unintended commercial consequences if a landlord could determine a lease prematurely and without notice and then claim that the whole of the tenant's business furnishings and equipment as well as the stock (perhaps half a million dollars' worth) are forfeited to the landlord for no consideration. However, that is what the plain wording of clause 12.3 appears to provide. 53However, another basic principle of construction is that a person cannot take advantage of his own wrong. This principle is discussed in Lewison & Hughes, The Interpretation of Contracts in Australia, at [7.09]. In the instant case, the landlord prematurely brought the tenancy at will to an end. Moreover it did not give a reasonable time for the tenant to remove its plant and equipment. 54Clause 12.3 only operates, "when this lease ends". In TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130, the Court of Appeal held that similar words, though apparently unambiguous, should in the light of this principle and in the circumstances, be read as the lease ending other than by the repudiation of the landlord. 55The entirety of cl 12.3 deals with the obligation of the tenant to make good any damage to the freehold, in particular, damage caused by the removal of tenant's fixtures. Surely at least this part of the clause is to operate no matter why the lease was terminated. 56This is a valid point, but one must consider the whole of the obligations which the clause throws up. 57Another point which was not explored in submissions was whether the terms of the 2006 lease still applied to the relationship between the parties as at 8 May 2013. It seems relatively clear that all the terms of the expired lease which touch and concern the land continued, but cl 12.3 may not be a term which ran with the land, see eg Woodall v Clifton [1905] 2 Ch 257. 58I now turn to the defence which I have noted as (b) above, that is, that the tenant did not seek to remove its goods within the time limited by the landlord and, indeed, made it clear that it had nowhere to store them. 59I thus doubt whether cl 12.3 is a good answer to trover or detinue, but I do not need to and do not decide the point. 60The fact, if it be the fact, that the tenant had nowhere to store the goods and plant is irrelevant. Theoretically, the tenant could have paid to have them stored even in a self-service storage unit and the fact, if it be the fact, that the tenant was impecunious would likewise be irrelevant, at least unless it is proved that the landlord knew this. 61In my view, the tenant's letter indicating its difficulties did not amount to an abandonment of its goods nor a consent that the property in them should pass to the landlord. 62Admittedly this puts the landlord in an awkward position as it may have a shop full of plant and equipment which will impede its intended use of the property. However, this is not an uncommon problem and is usually dealt with under the Uncollected Goods Act 1995 (NSW). 63Thus, although the plaintiff may have a claim re the contents of its former premises, there is nothing pleaded in this case which would justify me making a finding in its favour in this litigation. 64B. The Statement of Claim charges that (i) on or about 8 June 2009, the plaintiff cashed a cheque for Mr Menitti for $6,500 cash and the cheque was not met on presentation, (ii) similarly on 15 May 2010 $3,000 was paid in respect of a cheque not met on presentation and (iii) on 24 August 2010 there was a third cheque for $4,250. The plaintiff claims $13,750. 65Mr Menitti's defence was odd. He pleaded that "no cheques were dishonoured" but that he paid the plaintiff cash for the cheques. 66With respect to the $4,250 cheque there is evidence from the plaintiff's bank statements that the plaintiff was paid this sum in cash as Mr Menitti said in evidence was the case. 67The plaintiff did not present all his relevant bank statements in evidence. He says that he lost a lot of material in his eviction and is currently on remand in jail which causes difficulties in securing copies. 68Mr Wright says that as it has been shown in one case that Mr Menitti had made good the default on his cheque, the plaintiff's case on the other two cheques must be considered doubtful. He points out that Mr Menitti was not cross examined on his affidavit where he deals with alleged dishonoured cheques. 69However, when one looks at the affidavit of Mr Menitti of 16 February, he does not actually deal with the cheques for $6,500 and $3,000. He only deals with two other cheques one for $6,000 and another for $4,000. 70The onus on a plea of payment is on the person alleging payment, see Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560. Thus submissions by Mr Wright that the weakness of the plaintiff's case and the non-production of bank statements do not have much significance. It seems common ground that there were a number of cheques cashed for Mr Menitti by the plaintiff and that some were torn up after cash was paid in lieu, but there was no satisfactory evidence as to the actual cheques sued for. 71Accordingly the plaintiff is entitled to a verdict against Mr Menitti for $9,500. 72Thus I find that verdict. It may be set off against the costs payable by the plaintiff. Otherwise, I dismiss the proceedings with costs.

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