Reid v Hipkiss [2001] NSWSC 986 | Case summary

then under clause 4.10.8 the lessor could re-enter. 5 Clause 4.10.11 said: "On the occurrence of any one or more of the events referred to in clauses 4.10.1 to 4.10.7 it shall also be lawful for the Lessor to terminate this Lease by 28 days notice to quit in writing to the Lessee signed by the Lessor or the Lessor's agent and immediately on the expiration of the 28 days this Lease shall cease". 6 The rent was due for review in December 1999. It took a while for the rent to be determined and, when it was found to be about $800 less per month than previously, this meant that the tenant was entitled to a reduction of rent that had been overpaid of some $10,967. 7 The determination, in fact, only became available in about January/February 2001. 8 The cost of the valuation was $1,100. The tenant by his solicitor's letter suggested to the landlords on 9 February 2001, with reminder letters on 19 and 23 February 2001, that the valuation fee should be split equally and deducted from the rent. There was never any reply. 9 The tenant made payments to the landlords during 2001. He made a payment on 25 January, another payment on 20 April, 8 May and 18 July. These payments were made on the basis that the credit of $10,967 would be used up and as at 18 July the landlords say they were owed $316. The tenant says that with the credit for the sum of $1100 in respect of the valuation he in fact was owed money by the landlords. 10 The actual amounts do not matter very much and I have not gone out of my way to determine which is the correct figure, because it is clear that one of the essential points for decision is whether the tenant was entitled to offset the moiety of the valuation fee that he claims that he has done. The tenant claims that he has either done this through the operation of estoppel, because of the non-reply to letters by the landlords or because of some collateral contract. 11 The dominant points in the case are whether, in the circumstances, an event of default has occurred and whether the notice to quit is valid. It is in any event acknowledged that even if the main points are found against the tenant, the tenant is entitled to relief against forfeiture. 12 As the default is only $316.56 according to the landlords' case as at the date of issue of the notice to quit of 8 August, the intellectual exercise with which I am presented is only just that, because ordinarily, if a landlord seeks to determine a lease for a breach of $316.56 and concedes that the tenant is entitled to relief against forfeiture, no costs would be payable in any event. 13 However, I will deal with the questions raised. There seems to be five of these:

(a) Is there an operative estoppel? (b) Is there a collateral contract? (c) Is the tenant entitled to set off the fee against rent? (d) Has the landlord the right to seek to determine the lease if there is less than four months rent owing at the date of the notice to quit? (e) What is the formal requirement of the notice to quit? 14 Before dealing with these points it is necessary to go into the background of the law of rent. As has been pointed out many times in the authorities, the law still retains a number of medieval aspects which have never been removed. Accordingly, rent is due in the morning of the day appointed for payment, but is not in arrear until after midnight: Dibble v Bowater (1853) 2 E & B 564. But the reason for this is probably that rent was to be made payable on quarter days which were High Feast Days and that arrangement prevented the sacred character of the day being broken. Payment before the day was considered to be a voluntary payment by the tenant and was no satisfaction at law of the covenant to pay rent, which required the tenant to actually pay the rent just before sunset on the day in question: Clun's case (1613) 10 Co Rep 127b; 77 ER 1117; Cromwel v Andrews (1583) Cro Eliz 15; 78 ER 281. These authorities are the basis for the Full Court's decision in Ex Parte Alcock; Re McConnell (1955) 55 SR (NSW) 259, 262. In that case the tenant had been paying rent in excess of the fair rent. When this was realised, the tenant stopped paying rent until the overplus had been made good. However, Roper CJ in Eq said that this was quite wrong, that the obligation of the tenant was to pay "the rent" each and every month and the mere fact that he was owed money for previous months by the landlord was no defence to his breach of not paying the rent for that particular month. 15 The covenant in the standard form of lease is not to pay rent but to pay "the rent". This means that on the day in question the tenant must pay the full amount no matter what offsetting claims there may be, no matter what he may have paid earlier on account of rent, or what money the landlord may owe the tenant. There are some exceptions by statute, such as where, for instance, rates have been demanded by the council from the tenant and the tenant has paid them. By statute, they can be deducted from the rent. But unless there is some statutory authority, that is the situation. 16 Accordingly, the mere fact that there is an offsetting by a tenant against a landlord does not excuse the tenant from tendering the rent on the proper day: Ford v Centenary Investments Pty Limited [1957] VR 288, 292. 17 Turning to my series of questions, it follows that question (c) must be answered "No". So that it is only if question (a) or (b) is answered in the affirmative that the tenant can succeed on the first of the principal points, ie whether he is entitled to be credited with that $1100 or whatever the sum may be. 18 Question (a) asks whether there is an operative estoppel. The only evidence is that the tenant's solicitor wrote the letter saying that is what they would like to do and they got no response, and that Mr Reid, the tenant, says he relied on that correspondence, that the payment of the valuation costs were to be taken off the rent. I agree with Mr Tregenza for the defendants that this is not enough to establish estoppel. There has been no representation of existing facts by the defendants. The only conduct relied on was the non response of the landlords and, even if one took the passage in the affidavit of the tenant of 18 October literally, he did not rely on that conduct, he relied on the correspondence between the solicitors. There is really nothing more than the fact that the action was taken on the part of the tenant's side, nothing happened on the landlords' side and the tenant made assumptions. That is not enough to create an estoppel. 19 The other way of looking at it as per question (b) is that there is some sort of contract. The difficulty with that approach is that there has been either no acceptance or no communication of acceptance and on the traditional reading of cases like Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037, non-communication of acceptance is fatal. 20 That may not be the appropriate way of reading that case and it may be that the real ratio of it is that the contract in that case failed because of non-compliance with the Statute of Frauds: see Felthouse v Bindley - Re-visited (1972) 35 Mod LR 489. It may also well be that the development of the law of contract which has taken place, particularly in judgments of the NSW Court of Appeal in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117, 11,118; Pobjie Agencies Pty Limited v Vinidex Tube Makers Pty Limited [2000] NSWCA 105 and Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 (noted in (2001) 75 ALJ 419) shows that the law is not now so strict on this point and that one can have a contract where there has not been communication of acceptance. Obviously the scope of any modern principle is ill-defined. Mr Tregenza submits that it only applies in the more complicated commercial situations where there is no obvious offer of acceptance and cannot be employed to dispense a communication of acceptance. It is probably wise to leave that point up in the air. However, where there has been a purported offer and a purported acceptance, even if communication is dispensed with, one would still have to show something in the conduct of the opposing party which would not amount to acceptance; the mere ignoring of letters is insufficient to my mind. 21 Accordingly, I find points (a), (b) and (c) against the tenant. 22 Thus, I pass to what I might call the formal arguments. 23 Question (d). The default is "if the rent" is unpaid for twenty eight days after it has become due. This is not to my mind a normal default clause in leases, if there may be a normal clause. I believe the usual clause is as set out on page 3223 of Volume 8 of the 3rd edition of Australian Encyclopaedia of Forms and Precedents (Butterworths, Sydney, 1992) namely: "… if the rent or any part of it or the other moneys owing to the landlord under the lease is or are in arrears for X days, whether formally demanded or not ..." 24 The reason why that is the standard clause is because otherwise there is one unseverable covenant, that is to pay the whole amount of the rent on the rent day. Of course one must look at the terms of the lease. The present lease, however, probably reinforces that view, although it is not completely clear. In clause 1.1 the document talks about a rent of X per annum. Clause 1.2 talks about "rental" rather than "rent" but in clauses 1.5 and 2 one sees the term "the rent" related to the monthly payment. 25 The default to my mind is that it must be what is supposed to be paid on the 7th of each month and it must be unpaid for twenty eight days and not merely part of it. 26 Mr Tregenza argued strongly that as a matter of construction that was not so but, with respect, I cannot support that submission. Mr Tregenza, however, had an alternative way of approaching it, and that is if someone pays less than the total sum due, then that person has not paid the total sum, ie the rent is unpaid. In other words, the actual condition has been breached. That would be perfectly right if it were not for the fact that the words "unpaid for twenty eight days" follow. This seems to suggest to my mind that the whole of the rent must be paid in twenty eight days. It is insufficient that part only is paid. The words in 4.10.1 "after it has been due" again tend to resolve that one must look to see if the whole of the rent, "it", has been unpaid and then look to see whether "it" has been unpaid for twenty eight days. As at 8 August when the notice to quit was given this had not occurred. 27 Question (e). A notice to quit is, of course, not a way to terminate a lease for a term. A notice to quit, apart from special contracts, only terminates periodic tenancies. However, one has to look at 4.10.11, which makes it lawful to terminate by 28 days notice in writing signed by the lessor or lessor's agent. This notice to quit was signed by a solicitor but no point has been taken as to whether that was a signature by an agent within the meaning of the lease, although it is arguable that it is not. Clause 4.10.11 does not indicate whether or not the notice to quit has to contain a ground. The notice must fairly bring to the attention of the person receiving the notice what it is that the landlord is seeking to do. The notice says: "You are now in arrears of rent in respect of the period exceeding Twenty eight (28) days ..." 28 That is not one of the events of default. In clause 2 of the notice to quit it also misstates the covenant. 29 However, the landlords by their notice drew attention to what concerns them particularly the fact that they considered the lease was terminated at the expiration of twenty eight days. Accordingly, it seems to me that it is sufficient in form to convey to the tenant what is expected and indeed the evidence shows that that was its effect. 30 Accordingly, in all the circumstances the landlords were not entitled to bring the lease to an end and the tenant is entitled to relief of a declaration that lease 2094020 in respect of the Railway Hotel at Murrurundi continues in force. 31 As to costs, Mr de Vere Tyndall for the plaintiff says he has won and he should get his costs. Mr Tregenza recognises that general principle but says that all of the principal arguments of the plaintiff were rejected and the one that the tenant won on just came up during argument during the day. Mr Tregenza also points out that at the beginning of the day the tenant was offered relief against forfeiture, which would have produced much the same result. As I said earlier in my judgment, I would not have given any costs on such application. I think, however, in all the circumstances the plaintiff is entitled to some costs and the defendants should pay half the plaintiff's costs. The exhibits may be retained.

Reid v Hipkiss

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