Pozetu Pty Ltd v Alexander James Pty Ltd

Court of Appeal (NSW)|2016-07-14|Before: McColl JA, Ward JA

Background

In 2003, Pozetu, as lessor, entered into a written lease of Shop 1 with James as lessee (2003 Lease). The 2003 Lease was for a term of five years commencing on 1 September 2003 and expiring on 31 August 2008. Each of the Guarantors was named as a party to the 2003 Lease and each executed the Lease. Pozetu was obliged under the terms of the 2003 Lease to ensure it was registered, [8] but Pozetu never did so despite the Lease being in registrable form. Nonetheless, there is no dispute that the 2003 Lease was a "retail shop lease" for the purposes of the RL Act. [9]

NCAT Reasons

Pozetu commenced proceedings in the Retail Leases Division of the Administrative Decisions Tribunal (ADT) claiming damages by reason of James' alleged repudiation of "the Lease of [Shop 1]" on 24 February 2009. Despite Pozetu's claim being founded on the renewed lease of Shop 1, the NCAT Reasons record that counsel for Pozetu contended that the Option Rental Provision contravened s 18(3)(c) of the RL Act and was therefore void. [12] The NCAT Reasons also record (not surprisingly) that counsel for the Respondents accepted Pozetu's contention. Notwithstanding this, the parties advanced competing arguments as to the method by which rent payable under the renewed lease was to be calculated.
The Senior Member held that cl 5.5 of the 2003 Lease, which stated that "the tenant must continue to pay rent at the old rate until the new rent is known", had the effect that the rental payable by James in the first year of the renewed lease was to be the same as that payable in the last year of the 2003 Lease. [13] In reaching this conclusion, the Senior Member appears to have attached no significance to the fact that cl 5.5 was in a section of the 2003 Lease headed "When and how is the rent to be reviewed?". Nor does the Senior Member appear to have appreciated that cl 5.4 stated that "The rent is to be reviewed on the rent review dates stated in item 16 in the schedule" which in turn referred to an increase in rent "on each anniversary of commencement of the lease". [14]
The Senior Member concluded that what he described as the "Option Lease" was: [15] "valid and enforceable notwithstanding failure to register the Lease and the exercise of the option [created] a binding contractual agreement between the parties able to be performed by Pozetu…[with] the new rent in the Option Lease determinable [viz: capable of being determined] on the terms of the [2003] Lease itself." On this basis, the Senior Member found that James had repudiated its obligations under the "Option Lease" by vacating Shop 1 and thus was liable to pay damages to Pozetu. [16]
The Senior Member also held that cl 13 of the 2003 Lease, by which the Guarantors guaranteed James' performance of the obligations under "any renewal" of the 2003 Lease, rendered each of the Guarantors liable to Pozetu for the damages payable by James by reason of the repudiation of the renewed lease. [17] The Senior Member appears to have taken the view that although the 2003 Lease was unregistered, James' obligations under the 2003 Lease were equitable. He also seems to have found that James' exercise of the option created an equitable lease of Shop 1 for a renewed term of five years.
On 22 April 2015, some six months after delivering the NCAT Reasons, the Senior Member made orders that James, Mr Dedman and Mr Maxworthy jointly and severally pay Pozetu the sum of $400,000. This Court was not taken to any reasons of the Senior Member that supported these orders and was not informed as to whether the Guarantors opposed the making of orders in this form.
During oral argument in this Court, it was pointed out that the Senior Member's orders omitted any reference to Mr Hancock, one of the Guarantors. Nevertheless, Mr Southwick, who appeared for Mr Hancock on the application for leave to appeal, seemed content to proceed on the basis that the omission was an oversight that could be rectified if necessary.

Appeal Panel Reasons

The Appeal Panel summarised the grounds of appeal as follows: [18] "All of the [Respondents] submitted that in the factual circumstances as they emerged, there had been no grant of a lease by [Pozetu] for any renewed term. They also rejected [Pozetu's] claim that an equitable lease covering the renewed term had come into existence on the basis that no written lease document was ever entered into by the parties covering the renewed term, and in the circumstances [Pozetu] was not entitled to specific performance. Furthermore, the [Respondents] submitted that the provisions of the original lease which stipulated the quantum of rent which should be paid during any renewed term were void by reason of certain provisions of the [RL Act]. The [Respondents] also submitted that the fact that the premises has been the subject of registration of a strata plan after the original lease had been entered into had rendered it impossible for [Pozetu] to grant a renewed lease in the same terms as the original lease. Finally, the [Respondents] said that the fact that [Pozetu] had agreed that the second appellant [Mr Dedman] should no longer be guarantor under any renewed lease prejudiced the circumstances of the remaining two guarantors, and would preclude any equitable lease coming into existence."
The Appeal Panel's reasons for allowing the appeal from the Senior Member's decision and quashing the orders he made are not always easy to follow and, in some respects, appear to be inconsistent. [19] The principal conclusions reached by the Appeal Panel are as follows:

The Option Rental Provision in the 2003 Lease was void by reason of s 18(3)(c) of the RL Act. [20]
The rent to be paid at the commencement of the option period was the rental paid by James at the conclusion of the original lease period (that is, $156,000 per annum). [21] (The Appeal Panel Reasons do not explain this finding.)
The communications between Pozetu and James after the exercise of the option to renew showed that Pozetu insisted that James was obliged to pay the market rent for Shop 1 from the commencement of the option period. It was equally clear that Pozetu regarded the market rent to be $175,000 per annum plus GST. [22] These conclusions were fortified by lease documentation proffered by Pozetu to James which consistently incorporated a market rental, rather than the rent payable in the last year of the original lease. [23]
As from 1 September 2008, the parties had not reached agreement about a fundamental term of the renewed lease, namely the rental payable at the commencement of the lease. [24] At law, by virtue of James' continuation in possession of Shop 1 and payment of rent, it became a tenant at will under a tenancy terminable on one month's notice in writing, in accordance with s 127(1) of the Conveyancing Act 1919 (NSW). [25]
The Appeal Panel disagreed with the Senior Member's finding that the exercise of the option gave rise to "a binding contractual agreement between the parties". [26] Upon exercise of the option: [27] "the lessor and the lessee were obliged to enter into a lease containing the same provisions that were agreed to apply, as identified in the [2003 Lease] subject importantly to the qualification concerning the appropriate rental, which we have considered above." [Emphasis added.]
Following the exercise of the option, Pozetu was obliged to grant a new lease upon the terms and conditions stipulated in the 2003 Lease "but qualified as to the rental payable because the provisions dealing with ascertainment of the rent were void". [28]
At no stage had Pozetu proffered to James a draft lease "consistent with the quantum of the rent fixed by the [2003] Lease as applying to the option period". [29] (The Appeal Panel Reasons do not explain why the 2003 Lease had the effect of fixing the quantum of rent for commencement of the option period, given that the Option Rental Provision was void.)
Pozetu "repudiated its obligations under the lease with respect to the grant of renewal" because it failed to permit James to lease the property for a further five years at a rent which was consistent with "that fixed by the lease agreement as applying to the option period". James was entitled to accept the repudiation "as a breach and to terminate its relationship with [Pozetu] as lessor of [Shop 1]". [30]
Contrary to Pozetu's submissions, an equitable lease for a period of five years did not come into existence "ipso facto" upon the exercise of the option. No lease for a period of five years came into existence on the exercise of the option because Pozetu refused to submit a draft lease "reflecting the appropriate rental that was payable at the commencement of the option period under the provisions of the [2003 Lease]". [31]
Accordingly, "there was no written instrument, no lease at law, and no equitable lease". [James] was holding over on the basis that it could, at the least, leave the premises upon giving one month's notice which it had done. Any obligation to pay moneys referable to its occupation of the premises came to an end at the end of the notice period". [32]
Since James was entitled to terminate its occupation of Shop 1 by giving one month's notice, it had no continuing obligation to pay any moneys to Pozetu after 31 March 2009. [33]
In circumstances where the Appeal Panel had held that the "putative five year option lease … does not exist", Pozetu had no entitlement to compensation. [34]
The Senior Member erred in finding that the lease did come into existence and therefore his decision and consequential order had to be set aside. [35]

Since the Appeal Panel found that James was entitled to terminate its occupation of Shop 1 by giving notice to Pozetu, [36] it did not deal separately with the Guarantors' argument that the guarantee clause in the 2003 Lease did not apply to the agreement for a lease constituted by the exercise of the option.

A Comment on the Proceedings

NCAT came into existence on 1 January 2014. [37] Its predecessor was the Administrative Decisions Tribunal (ADT). The objects of the NCAT Act are stated in s 7(3) and include the following: "(d) to enable the Tribunal to resolve the real issues in proceedings justly, quickly, cheaply and with as little formality as possible, and (e) to ensure that the decisions of the Tribunal are timely, fair, consistent and of a high quality." Section 3(c) of the Administrative Decisions Tribunal Act 1997 (NSW), which was repealed by the NCAT Act, stated that the objects of the legislation included enabling "proceedings before the Tribunal to be determined in an informal and expeditious manner".
The "guiding principle" for the NCAT Act and the procedural rules is to "facilitate the just, quick and cheap resolution of the real issues in the proceedings". [38] Each party to the proceedings and any legal practitioner representing a party is under a duty to co-operate with the Tribunal to give effect to the guiding principles. [39]
Although these proceedings were commenced before NCAT came into force, the object of resolving the real issues in the proceedings justly, quickly and cheaply has not been achieved in the present case. While this Court is not in a position to apportion responsibility, it is a cause for concern that what was essentially a relatively straightforward commercial dispute between legally represented parties should have taken so long to resolve. It is also a matter of concern that, as will appear, the proceedings seem to have been marked by a considerable degree of confusion as to the real issues in dispute.
The principal events leading to Pozetu's claim occurred in February and March 2009. For unexplained reasons, Pozetu did not lodge its claim with the ADT until 23 February 2012.
The ADT set the matter down for hearing on 19 and 20 November 2012. The hearing was adjourned, apparently because the ADT accepted that counsel for the Respondents was unable to follow the case Pozetu wished to make out. [40] Pozetu was directed to file a statement of facts, issues on contention and did so on 4 December 2012. Pozetu amended its claim and increased the amount of damages sought from the Respondents beyond the Tribunal's jurisdictional limit of $400,000.
The proceedings were relisted for hearing by the ADT on 6 June 2013. On this occasion counsel for Pozetu said she was not ready to proceed and the ADT again granted an adjournment. The ADT finally heard the matter on 27 and 28 August 2013 [41] but did not deliver its reasons until 30 September 2014, more than one year later (by which time the NCAT Act had come into force).
The Respondents' appeal was heard by the Appeal Panel on 24 August, 7 and 15 September 2015. The Appeal Panel delivered its reasons promptly, on 21 October 2015.
This, however, did not conclude the proceedings. The Respondents sought a special costs order against Pozetu and their application was heard by the Appeal Panel on 26 February 2016. The Appeal Panel delivered reasons on 8 April 2016, ordering Pozetu to pay the Respondents' costs of the proceedings before the Senior Member and of the appeal. The proceedings in the Tribunal were therefore completed four years and two months after they had been commenced and some seven years after the relevant events had occurred.
In this Court, the proceedings have been marked by changes of position and continuing uncertainty as to the matters in dispute. In support of Pozetu's application for leave to appeal, Mr Lynch sought to argue that s 18(3)(c) of the RL Act did not invalidate the Option Rental Provision. In taking this course, Mr Lynch was not merely putting forward an argument that had not been advanced before either the ADT or the Appeal Panel. He was putting an argument that was directly contrary to Pozetu's position before the ADT and to which it adhered before the Appeal Panel. For reasons I will explain, the Court did not permit Pozetu to change its position in this manner. [42] In addition, as will be seen, Mr Lynch sought to recast Pozetu's case in other respects.
The Respondents, faced with Pozetu's changes of position, vacillated as to whether they wished to challenge the finding made both by NCAT and the Appeal Panel that the rental payable in the first year of the renewed lease was that payable in the last year of the 2003 Lease. They also vacillated as to whether they were required or should seek leave to file a cross-appeal. In the end, Mr Pesman challenged the finding, but did not seek leave to file a cross-appeal on behalf of Mr Dedman. Mr Southwick followed suit on behalf of the James Respondents.
The changes of position and the uncertainty as to the issues truly in dispute even at the third stage of the litigation demonstrate the importance of parties assisting the Tribunal in giving effect to the "guiding principle" stated in the NCAT Act and of the Tribunal itself taking appropriate steps to ensure early identification of the real issues in dispute. A failure to identify the true issues at an early stage of litigation is apt to prolong the proceedings and encourage belated attempts to put new arguments that should have been advanced at the hearing on the merits.

Identifying and Addressing the Issues on the Appeal

Invalidity of the Option Rental Provision

Pozetu's written submissions in this Court contended that s 18(3)(c) of the RL Act is concerned only with the adjustments to rental during the currency of a retail lease shop lease. On this basis, Pozetu argued that s 18(3)(c) cannot invalidate a provision setting out a formula for ascertaining the initial rental payable during the first year of a new lease. Thus, so it was submitted, s 18(3)(c), contrary to the findings of NCAT and the Appeal Panel, did not invalidate the Option Renewal Provision in the 2003 Lease. Pozetu's written submissions did not advert to the potential difficulty that it had maintained before both NCAT and the Appeal Panel that s 18(3)(c) of the RL Act rendered the Option Rental Provision void.
The written submissions filed on behalf of the James Respondents and Mr Dedman objected to Pozetu being permitted to contend for the first time on appeal that s 18(3)(c) of the RL Act did not apply to the Option Rental Provision. They pointed out that Pozetu had not attempted to explain its reversal on this issue and contended that Pozetu should not be permitted to resile from the stance it had taken in the Tribunal proceedings.
In oral argument, Mr Lynch acknowledged that Pozetu's counsel had "initiated" the concession before the ADT that s 18(3)(c) of RL Act invalidated the Option Rental Provision. He also acknowledged that Pozetu had not taken any different attitude before the Appeal Panel. Mr Lynch did not seek to adduce evidence explaining why Pozetu had not only failed to argue in the ADT that s 18(3)(c) did not apply to the Option Rental Provision, but had affirmatively asserted that the Option Rental Provision was void. Mr Lynch suggested from the bar table that Pozetu's approach may have been the consequence of an oversight. However, even if that was the reason, it is not a satisfactory explanation for Pozetu's change of position and does not justify this Court permitting Pozetu to raise the argument for the first time on appeal.
As I have noted, each party to proceedings in the Tribunal and any legal practitioner representing a party is under a duty to co-operate with the Tribunal to give effect to the "guiding principle". [43] It is not consistent with the discharge of that duty for a legally represented party to make a concession on a crucial issue before the ADT and adhere to the concession before the Appeal Panel, yet attempt to change course on an appeal to this Court. Had Pozetu not made its concession, the conduct of the proceedings before the ADT and the Appeal Panel may have been quite different. In any event, proceedings in the ADT and NCAT are not to be regarded as a rehearsal for an appeal (or an application for judicial review), on the basis that a fresh opportunity will be provided to recast a party's case. It would be neither expedient nor in the interests of justice to permit Pozetu to take that course in the present case. [44]
For these reasons, the Court declined to permit Pozetu to rely on the grounds in its draft Notice of Appeal contending that the Appeal Panel erred in law in holding that the Option Rental Provision was void by reason of s 18(3)(c) of the RL Act. The Court also declined to permit Pozetu to rely on these grounds in support of its application for judicial review of the Appeal Panel's decision. Of course, in so doing the Court should not be taken as expressing a view as to the merits of the argument Pozetu wished to advance.

Pozetu's Affirmative Case

Pozetu's written submissions in this Court did not clearly identify the basis of its claim for damages. In particular, it was not clear whether Pozetu founded its claim on James' repudiation of an equitable five-year lease created by James' exercise of the option or whether Pozetu was simply making a common law claim in contract based on James' repudiation of the agreement to renew the lease of Shop 1 for a further term of five years.
In his oral submissions in this Court, Mr Lynch submitted that Pozetu was entitled to maintain a contractual claim for damages, regardless of whether it could have enforced the agreement for lease by obtaining a decree of specific performance. In framing Pozetu's case this way, Mr Lynch was perhaps conscious that Pozetu might have had difficulty in establishing that it was notionally entitled to a decree of specific performance of the agreement for lease, even assuming the parties had reached agreement on the rent payable under the renewed lease. The obstacles in the path of such a decree might well have included Pozetu's failure to register the 2003 Lease [45] and its delay in proffering a lease to James in registrable form for the renewed term of five years.
Mr Lynch frankly acknowledged that Pozetu had not put forward a purely contractual claim for damages either to the ADT or the Appeal Panel (instead relying on an equitable lease for five years said to be valid by James' exercise of the option to renew). For reasons given below, the reframing of Pozetu's case in this way does not assist it.

Appeal Panel's Reasoning

The Appeal Panel found that the Option Rental Provision was void and that James' exercise of the option to renew created neither a five year lease at law nor a lease enforceable in equity. The conclusion that no lease was created by James' exercise of the option (as distinct from the tenancy at will created by James' continuation in possession and payment of rent) seems to rest on the finding that the parties never reached agreement about a fundamental term of the renewed five year lease, namely the rental payable at the commencement of the renewed lease.
If the parties never reached agreement as to a fundamental term of the renewed lease, they could not have concluded a final and binding agreement to enter into a new lease for a term of five years. As three members of the High Court recently observed: [46] "On basic principles, there can be no enforceable agreement to renew a lease, breach of which sounds in damages, unless at least the essential terms of such a lease have been agreed upon." It is an essential term of a lease that the parties have agreed on the rental payable by the lessee or on a mechanism for determining the rental payable by the lessor. [47]
If the parties to a purported renewal of a lease have not agreed on the rental payable under the lease or on a mechanism for ascertaining the rental, no new lease comes into existence either at law or in equity. It necessarily follows that if a lessee purports to exercise an option to renew a lease but there is no agreement between the lessor and lessee as to the rental payable under the renewed lease, no new lease comes into existence, either in law or in equity. If the lessee remains in possession and pays rent a tenancy at will determinable on one month's notice comes into force pursuant to s 127(1) of the Conveyancing Act, but that occurs independently of the purported exercise of the option to renew.
As Mr Lynch accepted in argument, if there is no agreement between the parties as to the rental payable under the renewed lease, the exercise of the option to renew cannot result in an agreement for a lease enforceable as a contract. The reason is that an agreement does not result in a binding contract unless the parties have agreed on all terms essential as a matter of law to the creation of the contract sought to be enforced. [48]
It follows that in the absence of agreement between Pozetu and James as to the initial rental payable under the renewed lease for a term of five years, no binding agreement for a new lease came into force by James' purported exercise of the option to renew. Accordingly, Pozetu could not have repudiated its obligations under an agreement for a lease constituted by the exercise of the option. Equally, James could not have repudiated its obligations under an agreement for a lease.
Having apparently concluded that the parties had not reached agreement on a fundamental term of the agreement for a renewed lease, the Appeal Panel went on to find that the rent payable by James at the "commencement of the option period" was that payable during the last year of the 2003 Lease. If this was intended to be a finding that the parties had agreed on a default mechanism for ascertaining the rent payable in the first year of the renewed lease, it seems to be inconsistent with the finding that the parties had not reached agreement as to the rental payable at the commencement of the renewed lease.
The Appeal Panel also appears to have given inconsistent reasons for concluding that James was entitled to vacate Shop 1 on 31 March 2009. Its first reason was that Pozetu repudiated its obligations "under the lease and repudiated the grant of a renewal" by failing to permit James to lease Shop 1 for a further five year term at the rent "fixed by the lease agreement applying to the option period". According to the Appeal Panel, James was entitled to accept Pozetu's repudiation and terminate "its relationship with the lessor". This analysis assumes that a binding agreement for a lease came into force between the parties upon James' exercise of the option to renew.
The Appeal Panel's second reason was that James "at the least" could give up possession of Shop 1 on giving one month's notice, as it did on 29 February 2009. The Appeal Panel seems to have considered that s 127(1) of the Conveyancing Act applied because no new lease had come into existence either at law or in equity and therefore there was no agreement as to the duration of James' tenancy. When read with the Appeal Panel's finding that there was no agreement as to a fundamental term of the renewed lease (the rent), the conclusion that s 127(1) applied to James' occupation of Shop 1 seems to be based on the failure of the parties to reach a final and concluded agreement for a renewed lease.
An alternative interpretation of the Appeal Panel Reasons is that it considered that s 127(1) of the Conveyancing Act applied because James' purported exercise of the option to renew created neither a renewed lease enforceable at law (because the lease was not registered) or in equity (because the agreement for lease was not specifically enforceable). The Appeal Panel Reasons seem to imply that if James was able to terminate its tenancy at will by giving one month's notice, Pozetu must have been unable to claim damages for James' repudiation of the agreement for a lease.
If this was the Appeal Panel's reasoning, it was not correct. An enforceable agreement for a lease and a tenancy at will are independent sources of rights. The termination of the tenancy at will does not terminate the rights of the parties under the agreement for a lease. [49] Having said that, it must be remembered that Pozetu did not put its case in the Tribunal simply as a contractual claim for damages for breach of the agreement for lease. This may explain why the Appeal Panel did not advert to the relationship between termination of a tenancy at will and the availability of a contractual claim for breach of an agreement for lease constituted by the exercise of an option to renew.
A further difficulty with the Appeal Panel's reasoning is that it does not identify the source of Pozetu's asserted obligation to proffer a new lease at an initial rental equivalent to that paid by James during the last year of the 2003 Lease. The most plausible interpretation of the Appeal Panel's Reasons is that it accepted the Senior Member's view that cl 5.5 of the 2003 Lease established a formula for ascertaining the rent payable for Shop 1 in the first year of the renewed lease.
If this is the correct interpretation of the Appeal Panel's reasoning, in my view, it cannot be supported. Clause 5.5 of the 2003 Lease must be read with cl 5.4. The heading to both clauses was "When and how is the rent to be reviewed?". Clause 5.4 stated that the rent was to be reviewed on the rent review date stated in Item 16 in the Schedule to the 2003 Lease. Item 16 provided, albeit in a somewhat inelegant manner, that the rent review was to take place "on each anniversary of the commencement of the lease". That the "rent review date" was intended to refer to each anniversary of the commencement of the lease is reinforced by Item 13 of the Schedule, which clearly distinguished between the "commencement date" and the first review date. The first rent review date was plainly one year from the commencement date.
Clause 5.5 stated that the tenant was to continue to pay rent at the old rate until the new rate was known. This created an interim regime for the determination of rent payable until the rent review was finalised. When it was finalised, cl 5.5 provided that the new rent was payable from the rent review date. Clause 5.5 had nothing to say about the rent payable from the commencement of a new lease created by James' exercise of the Option to Renew.
In this Court, Mr Lynch supported the Appeal Panel's reasoning based on cl 5.5 of the 2003 Lease. In the alternative, he relied on cl 4.5 of the 2003 Lease to justify the Appeal Panel's conclusion that the rent payable under the agreement for a lease was that payable under the final year of the 2003 Lease (although the Appeal Panel itself did not rely on cl 4.5). Clause 4.5 provided as follows: "After exercising the option the tenant must continue to pay all rents and outgoings on time and continue to comply with all of the tenant's obligations under this lease. If the tenant does not do so, the landlord may treat any breach as being a breach of the new lease as well as of this lease."
Clause 4.5 was clearly intended to ensure that the tenant complied with all terms of the 2003 Lease, including the payment of rent, between the date on which the option was to be exercised (no later than 30 May 2008) [50] and the date that the 2003 Lease expired (31 August 2008). If the tenant failed to do so, the landlord could treat any breach "as a breach of the new lease as well as of this lease". The reference to "this lease" is to the 2003 Lease, since the exercise of an option to renew creates a new lease. [51]
Clause 4.5 like cl 5.5, had nothing to say about the rent payable under the renewed lease to be created by James' exercise of the option to renew. This conclusion is hardly surprising, since the 2003 Lease contained an express provision stipulating how the rent at the commencement of the new lease was to be ascertained. The fact that the Option Rental Provision was rendered void by statute (the basis upon which the proceedings have been conducted) cannot transform the meaning of other provisions in the 2003 Lease.

Summary

In summary, the position in relation to James' exercise of the option to renew the 2003 Lease for a further term of five years is as follows:

As all parties to the Tribunal proceedings accepted, the Option Rental Provision is to be regarded as void by reason of s 18(3)(c) of the RL Act.
James' exercise of the option to renew would have created an enforceable agreement for a new five year lease of Shop 1 if the parties had reached a concluded agreement on all essential terms of the new lease. Since ordinary principles of contract law apply to leases, [52] Pozetu could have enforced the agreement for lease as a contract, even if it was not effective to create a renewed lease at law or a lease enforceable in equity. However, Pozetu and James never agreed on an essential term of the renewed lease, namely the rental payable by James at the commencement of the lease.
James' purported exercise of the option to renew the 2003 Lease therefore did not bring into existence a binding agreement for a new lease of Shop 1. A fortiori the purported exercise of the option to renew did not bring into existence either a legal lease or a lease enforceable in equity for a term of five years.
Since James remained in possession of Shop 1 after the expiration of the 2003 Lease and paid rent, it became a tenant at will under a tenancy terminable on one month's notice pursuant to s 127(1) of the Conveyancing Act. [53]
James was entitled to terminate the tenancy at will by giving one month's notice on 24 February 2009.
The termination of the tenancy at will did not terminate any rights Pozetu had against James under the agreement for a new lease, assuming it to be enforceable. But since James' purported exercise of the option to renew did not create an enforceable agreement for a lease, James could not have repudiated that agreement.
Accordingly, Pozetu was not entitled to claim damages from James for breach of the agreement for lease.
Since James was not liable in damages to Pozetu, the Guarantors could not be liable to Pozetu under the guarantee contained in cl 13 of the 2003 Lease.
Whether Pozetu repudiated its obligations under the 2003 Lease (as the Appeal Panel found) or the agreement for lease does not arise for decision.

Can the Respondents Rely on the Unenforceability of the Agreement for Lease?

The question that remains is whether the Respondents are precluded from challenging the Appeal Panel's finding that the rental payable in the first year of the renewed lease was that payable in the last year of the 2003 Lease and, if so, whether they are also precluded from arguing that the purported exercise of the option did not result in a final and concluded agreement for a renewed lease of five years. Mr Lynch submitted that what was sauce for the goose should be sauce for the gander and that just as Pozetu had been precluded from reopening the invalidity of the Option Rental Provision, the Respondents should not be permitted to rely on failure of the parties to agree on the rental payable under the renewed lease. He emphasised that the Respondents had not challenged the Appeal Panel's finding that the 2003 Lease fixed the first year's rental under the renewed five year lease at $156,000 per annum, the same rental as James had paid in the last year of the 2003 Lease. On this basis, so he argued, the Respondents should not be allowed to resile from their acceptance of the Appeal Panel's finding.
The Respondents' responses to these submissions differed as between themselves and in the course of oral submissions. Mr Southwick initially accepted that the James Respondents had conducted the application for leave to appeal on the basis that James had validly exercised the option to renew and that they had not challenged the finding that the rental under the renewed lease was $156,000 per annum.
Mr Pesman's written submissions on behalf of Mr Dedman contended that if s 18(3)(c) of the RL Act rendered the Option Rental Provision void, Pozetu was left "stranded … with an option agreement in which the most essential term is unknown". This contention was based on the lack of evidence before NCAT or the Appeal Panel establishing the true market rental of Shop 1. Nonetheless, the submission raised the issue of the validity of the exercise of the option. This prompted Mr Lynch, in Pozetu's reply submissions, to rely on cl 5.5 of the 2003 Lease to support the Appeal Panel's finding that the initial rental for the renewed lease was $156,000 per annum.
In oral submissions, Mr Pesman said that he wished to dispute Pozetu's contention that the 2003 Lease fixed the initial rental for the renewed lease. He foreshadowed that, if necessary, he would seek leave to file a cross-appeal out of time.
Later in oral argument Mr Pesman submitted that he did not need to file a cross-appeal because Mr Lynch's submissions to this Court had put in issue the question of whether the terms of the 2003 Lease determined the initial rent of the renewed lease of Shop 1. Mr Southwick then changed course and adopted Mr Pesman's submissions. The James Respondents had previously submitted to the Appeal Panel that the Senior Member erred in concluding that cl 5.5 of the 2003 Lease applied so as to determine the rent for the first year of the renewed lease. [54] The Appeal Panel Reasons did not address James' Respondents' arguments.
In this confused state of affairs I think that it is in the interests of justice to permit the Respondents to argue that the purported exercise of the option to renew did not create a valid and enforceable agreement for a lease (or an equitable lease). There is a significant difference between Pozetu's position on s 18(3)(c) of the RL Act and the Respondents' position on the validity of James' purported exercise of the option to renew. The James Respondents expressly submitted to the Appeal Panel that since the Option Rental Provision was void, the "Option Lease" was also void. They put this submission on the basis that Pozetu and James had never agreed on an essential term of the renewed lease, namely the quantum of rental payable by James. [55]
It would have been better if the Respondents had included in their Notices of Contention a contention that the Appeal Panel's decision should be affirmed on the ground that the Appeal Panel erred in apparently finding that James' exercise of the option to renew the 2003 Lease created a valid and enforceable agreement for a lease for a further term of five years. However, the failure to do so is partly explicable on the ground of uncertainty as to the precise basis on which the Appeal Panel reached its decision. This issue, which is fundamental to the case, was raised before the Appeal Panel (although not addressed) and was argued on the application for leave to appeal. There is no denial of procedural fairness to Pozetu in allowing the argument to be put in this Court.
For these reasons, I would allow the Respondents to contend that the Appeal Panel was in error to the extent that it found that James' purported exercise of option to renew the 2003 Lease created a valid and enforceable agreement for a new lease. To regularise the formal position I would order the James Respondents and Mr Dedman to file amended Notices of Contention within seven days incorporating a ground that the Appeal Panel erred in law to the extent that it found that James' purported exercise of the option to renew the lease of Shop 1 created a valid and enforceable agreement for a new lease.

Repudiation

Since I have concluded that the purported exercise of the option to renew did not create a valid and enforceable agreement for a lease, it is not necessary to consider whether the Appeal Panel erred in finding that Pozetu repudiated its obligations under the agreement for a lease. However, I think it appropriate to indicate that if, contrary to the conclusion I have reached, Pozetu was required to proffer a lease for execution at the rental payable by James in the last year of the 2003 Lease, the finding of repudiation against Pozetu would not stand. Indeed, although Mr Southwick endeavoured to support the Appeal Panel's finding, Mr Pesman accepted that the finding was "unsupportable".
The principles governing repudiation were conveniently summarised by Gleeson JA in DCT Projects Pty Ltd v Champion Homes Sales Pty Ltd [56] as follows: "For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract, or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620 at 625-626 (Gibbs CJ); Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623 at 634, 647-648, 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 at [44]. Repudiation is a serious matter and is not to be lightly found or inferred: Shevill at 633 (Wilson J)." The Appeal Panel did not refer to these principles.
Pozetu's repudiatory conduct was said to be its insistence on a market rental of $175,000 per annum as the initial rent for the renewed term. In assessing this contention, it is not necessary to describe in detail the correspondence between the parties between December 2008 and March 2009. During this period, neither Pozetu nor James adverted to the possibility that the Option Rental Provision might be void. On the contrary, Mr Ballas of Pozetu plainly believed that the Option Rental Provision entitled Pozetu to charge the market rental for Shop 1 and that the only matter requiring resolution between the parties was agreement as to the market rent.
The correspondence shows that Pozetu asked James to agree on a figure of $175,000 per annum (plus GST) as the market rent to be incorporated in the new lease. Pozetu sought to justify this figure, arguing that it had spent substantial amounts refurbishing the building of which the shop formed part. At no stage, despite Pozetu's requests for a response, did James indicate what it considered to be a fair market rent. Nor did James ever suggest that Pozetu was not entitled to a lease that incorporated a market rental for the premises. Far from evincing an intention not to be bound by the agreement for lease, the correspondence demonstrates that Pozetu wanted an agreement as to market rent to be reached as soon as possible in accordance with its understanding of the Option Rental Provision.
For these reasons, had it been necessary to decide, I would have concluded that the Appeal Panel failed to apply the correct principles in finding that Pozetu repudiated its obligations under the agreement for lease established by James' exercise of the option.

The Guarantee

Mr Pesman, in his argument on behalf of Mr Dedman, accepted that the guarantee clause in the 2003 Lease (cl 13) applied to the renewed lease for five years, even if the renewed lease was enforceable only in equity. He made this concession because cll 13.1 and 13.8 of the 2003 Lease provided that the guarantee applied to a renewal of the 2003 Lease "even if any obligation of the tenant is only an equitable one", thereby overcoming the decision in Chan v Cresdon Pty Ltd. Mr Pesman submitted, however, that if the agreement for a lease was effective only as a contract and did not create a lease enforceable in equity (the position adopted by Mr Lynch on the application for leave to appeal), cl 13 would not render the Guarantors liable to meet any default by James under the agreement for lease. Mr Southwick adopted that submission.
If it was necessary to decide this point, I would be inclined to accept Mr Pesman's submission. The relevant provisions are as follows: "13.1 This clause applies if a guarantor of the tenant is named in item 10A in the schedule and has signed or executed this lease or, if this lease is a renewal of an earlier lease, the earlier lease. 13.2 The guarantor guarantees to the landlord the performance by the tenant of all the of all the tenant's obligations (including any obligation to pay rent, outgoings or damages) under this lease, under every extension of it or under any renewal of it or under any tenancy and including obligations that are later changed or created. 13.3 If the tenant does not pay any money due under this lease, under any extension of it or under any renewal of it or under any tenancy the guarantor must pay that money to the landlord on demand even if the landlord has not tried to recover payment from the tenant. … 13.8 The terms of this guarantee apply even if this lease is not registered, even if any obligation of the tenant is only an equitable one, and even if this lease is extended by legislation."
The ordinary meaning of cl 13.2 of the 2003 Lease is that the Guarantors guarantee to Pozetu the performance by James of its obligations under the renewed lease. If the renewed lease was enforceable by Pozetu either at law or in equity, the guarantee provided for in cl 13.2 would be enlivened. However, if the exercise of the option to renew created neither a lease enforceable at law nor in equity, the better view seems to be cl 13.2 would not respond to that situation. It would follow that the Guarantors would not be liable for any breach by James of the agreement for lease, considered simply as a contract. I do not think that any other provision in cl 13 expands the operation of cl 13.2 so that it applies to contractual obligations under an agreement for lease that is ineffective to create a leasehold interest either at law or in equity.

The Notices of Contention

The James Respondents and Mr Dedman filed Notices of Contention. Each sought to uphold on the Appeal Panel's decision on the ground that Pozetu's actions in registering a strata plan in respect of the premises of which Shop 1 formed part prevented Pozetu providing a lease in conformity with its obligations.
It is not necessary to deal with the Notices of Contention. It is enough to say that Mr Southwick, who argued the point, did not advance convincing reasons why registration of a strata plan would have prevented Pozetu from complying with its obligations, assuming that James' exercise of its option created a valid and enforceable agreement for a lease.

Orders

I have reached the following conclusions:

The Appeal Panel erred in law in finding that James' purported exercise of the option to renew in the 2003 Lease created a valid and enforceable agreement for lease and equitable lease. The error was to hold that the terms of the 2003 Lease determined the initial rental payable under the renewed lease in circumstances where the common position of the parties was that s 18(3)(c) of the RL Act invalidated the Option Renewal Provision.
The Appeal Panel also erred in law in finding that Pozetu repudiated its obligations under the agreement for lease or equitable lease by proffering a lease for execution incorporating a rental of $175,000 per annum plus GST.
Pozetu's claim for damages against James and its claim against the guarantors must fail because James' purported exercise of the option to renew the 2003 Lease did not create a valid and enforceable agreement for a renewed lease.
James was entitled to terminate its tenancy at will pursuant to s 127(1) of the Conveyancing Act by giving one month's notice on 24 February 2009.
The Appeal Panel correctly concluded that the Senior Member erred in upholding Pozetu's claims against James and the Guarantors, although the Appeal Panel Reasons do not reflect the reasoning I consider to be correct.

The orders I propose are as follows: 1. Refuse leave to the applicant (Pozetu) to appeal from the decision of the Appeal Panel of the Civil and Administrative Tribunal on 21 October 2015, insofar as the application for leave to appeal is based on Grounds 2-6 in the Draft Notice of Appeal. 2. Grant leave to Pozetu to appeal on the remaining grounds in the Draft Notice of Appeal. 3. Direct Pozetu to file a notice of appeal in the form of the draft in the White Book, but reflecting the grounds for which leave to appeal has been granted, within seven days. 4. Direct the first, third and fourth respondents to file within seven days an amended Notice of Contention incorporating a ground that the Appeal Panel erred in law to the extent that it found the first respondent's purported exercise of the option to renew the lease of Shop 1 created a valid and enforceable agreement for a new lease. 5. Direct the second respondent to file within seven days an amended Notice of Contention incorporating the ground referred to in Order 4. 6. Dismiss the appeal. 7. Dismiss the Summons filed on 1 April 2016 seeking judicial review of the Appeal Panel's decision. 8. Pozetu pay the costs of the first, third and fourth respondents of the application for leave to appeal and of the appeal. 9. Pozetu pay the costs of the second respondent of the application for leave to appeal and of the appeal. 10. Pozetu pay the costs of the first, third and fourth respondents of the Summons filed on 1 April 2016. 11. Pozetu pay the costs of the second respondent of the Summons filed on 1 April 2016.

Endnotes

Alexander James Pty Ltd v Pozetu Pty Ltd [2015] NSWCATAP 228 (Appeal Panel Reasons).
NCAT is named as a fifth respondent and has filed a submitting appearance.
Pozetu Pty Ltd v Alexander James Pty Ltd [2014] NSWCATCD 183 (NCAT Reasons).
RL Act, s 73(1).
As to "internal appeals", see NCAT Act, s 32.
The definition of "specified tribunal" in s 48(1)(a)(vii) of the Supreme Court Act 1970 (NSW) includes the Appeal Panel.
Supreme Court Act, s 48(2)(f).
Clause 11.4. See also RL Act s 15(1)(b), which implies into a retail shop lease that is to be registered a term requiring the lessor to lodge the lease for registration within one month of the lease being stamped.
RL Act, s 3.
Clause 4.2; Schedule, Item 12A.
Clause 5.11; Schedule, Item 13A.
NCAT Reasons at [48]. Although commenced in the ADT, the proceedings were determined by the ADT sitting as NCAT: NCAT Act Sch 1 Part 2 Div 1 cl 7(2).
NCAT Reasons at [60].
See below at [54].
NCAT Reasons at [62].
NCAT Reasons at [67(f)].
NCAT Reasons at [65].
Appeal Panel Reasons at [6]-[9].
See at [44] below.
Appeal Panel Reasons at [44].
Appeal Panel Reasons at [45].
Appeal Panel Reasons at [47].
Appeal Panel Reasons at [48].
Appeal Panel Reasons at [50].
Appeal Panel Reasons at [50]. Section 127(1) of the Conveyancing Act provides as follows: "No tenancy from year to year shall, after the commencement of this Act, be implied by payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time."
Appeal Panel Reasons at [50].
Appeal Panel Reasons at [53].
Appeal Panel Reasons at [54].
Appeal Panel Reasons at [55].
Appeal Panel Reasons at [56].
Appeal Panel Reasons at [58].
Appeal Panel Reasons at [58].
Appeal Panel Reasons at [74].
Appeal Panel Reasons at [75].
Appeal Panel Reasons at [76].
Appeal Panel Reasons at [74].
NCAT Act, s 7(1),(2).
NCAT Act, s 36(1).
NCAT Act, s 36(3).
The history of the proceedings in NCAT is outlined in the Appeal Panel's decision on costs: Alexander James Pty Ltd v Pozetu Pty Ltd (No 2) [2016] NSWCATAP 75 (Costs Reasons) at [4].
These dates are recorded by the Appeal Panel in the Costs Reasons at [4] and in the Black Appeal Book containing the transcript of the NCAT hearing. The NCAT Reasons, however, record the hearing dates as 15 and 16 October 2013. It is not entirely clear which are the correct dates.
See [38]-[40] below.
See at [26] above.
See Water Board v Moustakas [1988] HCA 12; 180 CLR 491 at 497 (Mason CJ, Wilson, Brennan and Dawson JJ). See also Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26 at [42] (French CJ, Kiefel and Bell JJ).
See Chan v Cresdon Pty Ltd [1989] HCA 63; 168 CLR 242 at 256 (Mason CJ, Brennan, Dean and Dawson JJ).
Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd at [31] (French CJ, Kiefel and Bell JJ).
Placer Development Ltd v The Commonwealth [1969] HCA 29; 121 CLR 353 at 360-361 (Taylor and Owen JJ); Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; 149 CLR 600 at 604 (Gibbs CJ, Murphy and Wilson JJ); Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd at [199] (Nettle J) and authorities cited there.
Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [61]-[63] (Sackville AJA, Macfarlan and Gleeson JJA agreeing).
Leitz Leeholme Stud Pty Ltd v Robinson (1977) 2 NSWLR 544 at 547 (Glass JA, Hope JA agreeing).
Schedule, Item 12E.
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41; 239 CLR 27 at [8] (French CJ), citing Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; 163 CLR 326 at 337-338 (Barwick CJ), 344 (Gibbs J), 351-352 (Stephen J).
Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; 157 CLR 17 at 29 (Mason J, Wilson, Deane and Dawson JJ agreeing).
See Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; 157 CLR 17 at 26 (Mason J, Wilson, Deane and Dawson JJ agreeing); Chan v Cresdon Pty Ltd [1989] HCA 63; 168 CLR 242 at 248-249 (Mason CJ, Brennan, Dean and Dawson JJ).
James Respondents' Submissions to the Appeal Panel at [25]-[28].
James Respondents' Submissions to the Appeal Panel at [19]-[22].
[2016] NSWCA 117 at [39] (Macfarlan JA and Sackville AJA agreeing).

Amendments 02 September 2016 - Amending references to NCAT and the Tribunal. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 September 2016

Retail Leases Act 1984(NSW)

Administrative Decisions Tribunal Act 1997(NSW)

its Ltd v Shell Co of Australia Ltd [1976] HCA 9; 163 CLR 326 Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 Placer Development Ltd v The Commonwealth [1969] HCA 29; 121 CLR 353 Pozetu Pty Ltd v Alexander James Pty Ltd [2014] NSWCATCD 183 Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; 157 CLR 17 Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620 Water Board v Moustakas [1988] HCA 12; 180 CLR 491 Category: Principal judgment Parties: Pozetu Pty Ltd (Applicant) Alexander James Pty Ltd (First Respondent) Christopher Dedman (Second Respondent) Christopher Hancock (Third Respondent) Anthony Maxworthy (Fourth Respondent) New South Wales Civil and Administrative Tribunal (Fifth Respondent) Representation: Counsel: Mr T Lynch / Ms R Francois (Applicant) Mr M Southwick (First, Third and Fourth Respondents) Mr M Pesman / Mr N Allan (Second Respondent)

Solicitors: Surry Partners Lawyers (Appellant) James Legal (First, Third and Fourth Respondents) Ziman & Ziman Solicitors (Second Respondent) File Number(s): 2016/97697, 2016/99496 Decision under appeal Court or tribunal: Civil and Administrative Tribunal Jurisdiction: Appeal Panel of the Civil and Administrative Tribunal Citation: [2015] NSWCATAP 228 Date of Decision: 21 October 2015 Before: F Marks, Principal MemberS Thode, Senior Member File Number(s): AP15/31810

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