Set aside by Appeal : Set aside by Appeal in part on 22 May 2007: Dykes and... [1999] VSC 208 | Case summary

REASONS FOR DECISION Introduction 1 The principal issue to be resolved in this case is whether the liability of two guarantors of a lessee's obligations to pay rent under a retail shop lease was extinguished by virtue of the subsequent execution of a business sales agreement between the lessor and the lessee, occurring at a time when the lessee was no longer controlled by the guarantors. 2 The other issues raised include the following: (a) whether the lessor's claim against the guarantors was barred on account of the limitation provisions in ss 71 and 71B of the Retail Leases Act 1994 ('the RL Act') and (b) whether the lessor's conduct in seeking to enforce the guarantee was unconscionable within the meaning of s 62B(1) of this Act. 3 Since the proceedings include a claim of unconscionable conduct, the Tribunal must be constituted in accordance with Clauses 1 and 4 of Part 3B of Schedule 2 of the Administrative Decisions Tribunal Act 1997. It is constituted by a Deputy President who is a member of the Retail Leases Division, assisted by two other appropriately qualified non-judicial members of that Division acting in an advisory capacity only. 4 The lessor in this case is the Applicant/Cross Respondent, Heatherway Pty Ltd ('Heatherway'). At all relevant times, this company was controlled by Mr David Cox ('Cox'), who resides in Victoria. The lessee is a company called North Coast Foods Pty Ltd ('NCF'). The guarantors were the two Respondents/Cross Applicants, Mr Peter Dykes ('Dykes') and Mr Paul Wildie ('Wildie'). 5 The premises leased ('the Premises') were situated at the corner of Bray Street and Pacific Highway, Coffs Harbour. 6 It is useful to note here that, except on a few ancillary matters, all the written and oral evidence in this case was furnished by two witnesses, Cox and Dykes. The sale and lease by Heatherway to NCF 7 On 21 September 1993, Heatherway entered into a franchise agreement with Burger King Corporation ('Burger King') and Hungry Jacks Pty Ltd ('Hungry Jacks'). Burger King was a company incorporated in Florida, USA. The agreement provided for Heatherway to carry on a fast food sales business known as Coffs Harbour Hungry Jacks ('the Coffs Harbour business') at the Premises. 8 On or about 31 August 1998, Heatherway and NCF signed an agreement, governed by the law of Victoria, for the sale of this business from Heatherway to NCF for a total price of $900,000. This agreement was expressed to be subject to (a) NCF obtaining, before completion of the sale, both Burger King's consent to the sale and an assignment of Heatherway's rights and liabilities under the franchise agreement to NCF; and (b) the execution of a lease of the Premises. 9 Between the time at which this agreement was negotiated and signed and 9 February 2000, NCF was owned and controlled by Dykes and Wildie. 10 Early in December 1998, Heatherway and NCF entered into a second business sales agreement. It recited that Burger King and Hungry Jacks had not granted the approvals on which completion of the earlier agreement was conditional and that the parties wished to complete the sale of the Coffs Harbour business without waiting for these approvals. 11 So far as relevant, it provided as follows: (a) that on 7 December 1998, NCF should pay the balance of the purchase price ($810,000) together with adjustments to Heatherway (clause 1); (b) that on the following day Heatherway should permit NCF both to take possession of the Premises under the terms of a lease to be signed by the parties, and to commence operating the business under Heatherway's franchise, pending receipt of the approvals for the transfer of the franchise (clauses 2, 4); and (c) that if these approvals and the grant of a new franchise agreement to NCF were not forthcoming, Heatherway should repay the purchase price of $900,000 to NCF (clause 11). 12 On 7 December 1998, the sale was completed and NCF paid the balance of the purchase price to Heatherway. 13 On or about 8 December 1998, Heatherway, as landlord, and NCF, as tenant, executed an agreement for the lease of the Premises ('the Lease') for the period from 8 December 1998 to 8 December 2008, with two five-year options to renew. The permitted use was 'fast food outlet'. 14 Under the Lease, the initial rent stipulated was $120,000 per annum, payable by monthly instalments of $10,000. There was provision for turnover rent set at 7% of sales and for annual adjustment in line with the CPI. In the event of default in the payment of any instalment, the Lease provided for interest to be charged as set out in Schedule J of the Supreme Court Rules as varied from time to time. 15 It was not disputed between the parties that the Lease was governed by the law of New South Wales and, furthermore, by the RL Act. 16 The Lease identified Dykes and Wildie as the 'guarantor'. The obligations of the guarantor were set out in clause 13. So far as relevant, this clause stated:- 13.2 The guarantor guarantees to the landlord the performance by the tenant of all the tenant's obligations (including any obligations to pay rent, outgoings or damages) under this lease, under any 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. 13.4 If the tenant does not perform any of the tenant's obligations under this lease, under any extension of it or under any renewal of it or under any tenancy the guarantor must compensate the landlord even if the landlord has not tried to recover compensation from the tenant. 13.5 The landlord can recover damages for losses over the entire period of this lease or any extension or renewal but must do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms. 13.6 Even if the landlord gives the tenant extra time to comply with an obligation under this lease, under any extension of it or under any renewal of it or under any tenancy, or does not insist on strict compliance with the terms of this lease, or any extension of it or renewal of it or of any tenancy, the guarantor's obligations are not affected. 17 During December 1998, NCF took possession of the Premises. It also commenced operation of the Coffs Harbour Business as trustee of the NCF Unit Trust No. 1 ('the Unit Trust'). The unit-holders in the Unit Trust were Dykes, Wildie and two other investors. 18 In the ensuing months, the attempts made by Heatherway and/or NCF to obtain approvals of the assignment of the franchise from Burger King and/or Hungry Jacks were unsuccessful. In view of this lack of success, Dykes and Wildie asked their solicitors to obtain an opinion from counsel as to whether they could rely on clause 11 of the supplementary agreement of December 1998 to recover the purchase price of $900,000 from Heatherway. 19 A further consequence of this lack of success was that Heatherway remained liable to remit royalties to Burger King pursuant to obligations 20 The evidence included an unsigned copy of a letter dated 9 November 1999 on Heatherway's letterhead, in which the writer was identified as Cox, in his capacity as a director. The letter advised Dykes that NCF was in arrears of rent under the Lease in the amount of $50,000 plus turnover rent due on 30 June 1999. In cross-examination, Dykes said that he never received this letter. The transfer of Dykes' and Wildie's interests to Mr and Ms Hammond 21 During the second half of 1999, Dykes and Wildie began to discuss with Mr Barry Hammond the prospect of their selling the Coffs Harbour business to him. 22 During the second half of January 2000, Dykes and Mr Hammond reached agreement during a meeting on the principal terms of a sale of the business. They then telephoned Cox to seek his approval. There was a conflict of testimony regarding what was said in this conversation. 23 According to Dykes, the conversation was to the following effect. Dykes told Cox that Mr Hammond and his wife Ms Yvonne Hammond ('Ms Hammond') had agreed to buy Dykes' and Wildie's shares in NCF, to replace them as directors and to take over 'any obligations' that they had 'under any guarantees in relation to the business'. Dykes said to Cox: 'Paul [Wildie] and I are to have no ongoing obligations in relation to the business.' Cox then said: 'That is fine. I am delighted that Barry [Hammond] is taking over the business.' 24 According to Dykes, he understood from this exchange that on the takeover of the franchise by Mr and Ms Hammond, Cox would agree to their being substituted as guarantors and would release both him and Wildie from the guarantees that they had given. 25 According to Cox, however, Dykes told him only that Mr and Ms Hammond had agreed to take over the franchise, buy the shares in NCF and replace Dykes and Wildie as directors. His response was solely to congratulate them. 26 The evidence included an unsigned copy of a letter dated 3 February 2000 on Heatherway's letterhead, in which the writer was again identified as Cox, in his capacity as a director. The letter advised Dykes that NCF was in arrears of rent under the Lease in the amount of $70,000 plus turnover rent due on 30 June 1999. Cox requested Dykes to telephone him 'to discuss payment'. In cross-examination, Dykes said that this was another letter that he never received. 27 In cross-examination, Dykes also said that at about this time his co-director Wildie had raised questions with Cox regarding the amount of rent then owed. The issue in dispute had been whether Heatherway or NCF should meet certain expenses associated with improving the Premises. Dykes said that he did not make this assertion in his affidavit because he had only recently heard about it from Wildie. As already indicated, Wildie gave no evidence in these proceedings. 28 On 9 February 2000, NCF, Dykes, Wildie, Mr Hammond and Ms Hammond signed an agreement ('the February 2000 agreement') for the sale of the shares in NCF owned by Dykes and Wildie to Mr Hammond and Ms Hammond respectively. A nominal consideration of $10 was stipulated. 29 This agreement was prepared by solicitors instructed by Mr and Ms Hammond. Dykes said in cross-examination that he read it before signing it, but did not seek legal advice about its terms. 30 Under clause 16 of this agreement, Dykes and Wildie agreed to take all reasonable steps necessary to obtain Burger King's consent to the transfers of shares. 31 Under clause 17, Mr and Ms Hammond agreed to obtain from Esanda and the Colonial State Bank the release of all guarantees that had been given by all or any unit-holders in the Unit Trust in order to secure leasing or hire purchase agreements. They acknowledged that they might have to give guarantees to these two banks. They also agreed to obtain within a reasonable time the release of all identified guarantees that had been given by Dykes and Wildie to suppliers of products. 32 Clause 17 also provided as follows:- And in addition to the above [Mr and Ms Hammond] must within the same period obtain from Heatherway Pty Limited a release releasing [Dykes and Wildie] from any guarantee to Heatherway Pty Limited. 33 Under clause 18, NCF indemnified Dykes and Wildie against all losses and liabilities that they might suffer in connection with any liability to any creditor, provided that it had been disclosed. This clause continued:- PROVIDED FURTHER that [Mr and Ms Hammond] acknowledge and agree that the above indemnities do apply to, and also acknowledge that they are aware of, the following: 18.1 [NCF] owes Heatherway Pty Limited approximately Seventy Thousand Dollars ($70,000.00) in unpaid rent and that therefore [NCF] is in breach of the lease… 34 Subclauses 18.2 and 18.3 referred respectively to the fact that Burger King had not approved and might never approve the transfer of the franchise from Heatherway to NCF and that Burger King Australia Pty Ltd ('Burger King Australia') had indicated that approval would not be granted unless certain works (the nature of which had been notified to Mr and Ms Hammond) were carried out at the Premises. 35 A company search of NCF on 17 November 2005 revealed that Mr and Ms Hammond were its only two shareholders and directors and that they were appointed as directors on 9 February 2000. 36 In cross-examination, Dykes said that he believed that the execution of the February 2000 agreement would bring about a release of the guarantees given by him and Wildie to Heatherway. This, he believed, would follow from the oral agreement that, on his account, had been reached between him and Cox in their telephone conversation during the preceding month. He said that on his understanding of the matter the purpose of inserting clause 17 in the February 2000 agreement was to ensure that this oral agreement would be confirmed in writing. 37 Dykes also said that he and Wildie did not insist that NCF, or indeed Mr and/or Ms Hammond, should pay the arrears of rent before this agreement was signed because they wanted NCF to retain some 'leverage' in negotiating a reduction of the arrears on the ground that Heatherway should pay or contribute towards the cost of improving the Premises. In this connection, he referred specifically to expenses that 'we' (meaning either himself and Wildie, or NCF) had outlaid in improving the driveway. He said that the negotiations on this matter with Cox had been conducted by Wildie, and that Mr Hammond also had tried to secure a reduction of the rent arrears. 38 On 9 February 2000, Whitehead Cooper Williams, solicitors for NCF, sent a letter by fax to Cariss and Company (a Victorian firm), who were the solicitors for Heatherway. The letter commenced by referring to a letter from Cariss and Company dated 2 February 2000 (this letter was not put into evidence) and indicating that its 'contents' were being signed and would be 'returned' shortly. It then advised of the sale of the shares in NCF to Mr and Ms Hammond and stated that this sale would 'require the release by Heatherway Pty Ltd of the existing personal guarantees given by Paul Richard Wildie and Peter James Dykes'. It asked Cariss and Company to obtain instructions from Heatherway to consent to the change in ownership in NCF and to 'the preparation of an appropriate release from the personal guarantees'. It requested a reply as soon as possible. 39 In cross-examination, Dykes said that he did not recall the precise instructions to Whitehead Cooper Williams that prompted the writing of this letter, though he believed that what they had written was not inconsistent with his instructions. He said that he had asked them to 'ensure' that the guarantees were released. He added the observation that the 'purpose' of the letter was evidently to deal with the matters raised in the earlier letter of 2 February 2000. 40 On 9 February 2000, Cariss and Co sent a fax, marked 'urgent', to Cox. It was accompanied by a copy of the letter of the same date from Whitehead Cooper Williams. It stated:- We have reviewed the Lease and can see no obligation on you to release [Dykes and Wildie] from their guarantee provided to Heatherway Pty Ltd concerning the Lease… When the Lease terminates on the 8th December, 2008, the matter could then be reviewed. However, you may wish to release them from their guarantees providing there is an appropriate substitution of guarantor by the new shareholders ie. Barry and Yvonne Hammond. In view of the apparent urgency of this matter, could we please have your immediate instructions. 41 In an affidavit admitted into evidence, Cox stated that this was the first time that he heard of any request by Dykes and Wildie to be released from their guarantees. He said that in view of the advice given by Cariss and Company, he 'clearly instructed' them not to grant any release. He was not cross-examined on this testimony. 42 It would appear from evidence outlined below that Cariss and Company may not have conveyed to Whitehead Cooper Williams any response to the letter of 9 February 2000. 43 Dykes stated in cross-examination that in February 2000 the Coffs Harbour business was valued at about $900,000, subject to reduction on account of its debts. The debts owed to creditors other than Heatherway amounted to a figure between $400,000 and $500,000. Consistently with these figures, Mr and Ms Hammond acquired the four units in the Unit Trust for a total of $400,000. Dykes received a payment of $100,000 from them on 15 February 2000. 44 From February 2000 onwards, NCF maintained its record of not making all rent payments due to Heatherway under the Lease. The agreement dated 31 May 2000 45 The circumstances in which this agreement was executed. On or about 31 May 2000, a lengthy document headed 'Agreement dated 31st May 2000' ('the May 2000 agreement') was signed by Cox under the seal of Heatherway, by Cox under the seal of a company called Power Image Pty Ltd ('Power') and by Ms Hammond under the seal of NCF. It purported to provide for (a) the sale of the Coffs Harbour business by Heatherway to NCF and (b) the sale of a business known as Port Macquarie Hungry Jack's Restaurant ('the Port Macquarie business') from Power Image to NCF. 46 For reasons that will become apparent, the particular circumstances in which this agreement was signed are of major significance in this case. Cox was the only witness to testify on this matter. Dykes said in cross-examination that he was not aware of the agreement's existence until his solicitor in these proceedings, Mr Philip Tiernan, told him about it. He understood that Mr Tiernan had obtained access to it after Burger King had produced it to the Tribunal pursuant to a summons. 47 At the time when the agreement was signed, Power was controlled by Cox. The Port Macquarie business that it owned, like the Coffs Harbour business, operated under a franchise from Burger King. The premises in which the business was conducted were leased from the owners of a shopping centre. 48 According to Cox, in or about February 2000, he and Mr Hammond prepared 'heads of agreement' for the sale of the Port Macquarie business from Power to NCF. Mr Zipser, counsel for Dykes and Wildie, called for the production of this document. It was not produced. 49 Cox testified also that before 31 May 2000 NCF paid to Power the purchase price of $200,000 stipulated in these heads of agreement. Mr Zipser called for the production of a bank statement providing evidence of this payment. No such document was produced. 50 According to Cox, the only purpose for which the May 2000 agreement was prepared and executed was that of obtaining Burger King's consent to the transfer of the franchises for the two businesses (at Coffs Harbour and Port Macquarie) from Heatherway and Power respectively to NCF. The agreement, he said, was prepared by solicitors instructed by Mr and Ms Hammond. With one exception of significance, outlined below, he did not discuss its terms with Mr or Ms Hammond or with their solicitors. He did not remember providing any information to assist in its preparation, though he accepted that he may have done so and/or that one or more agents on his behalf (for example, his solicitor or his accountant) may have done so. 51 Cox said further that because he trusted Mr Hammmond, he did not consult his own solicitor before signing the agreement, nor did he read it. He said that he might not have received a copy of it until the day (31 May 2000) on which he signed it. After it was signed, he did not keep a copy of it. The copy that was annexed to his affidavit in these proceedings was obtained by Efrons, his solicitors in these proceedings, from Mr Tiernan. 52 The terms of the May 2000 agreement. For present purposes, the relevant provisions of this agreement are as follows. 53 It commenced with recitals describing Heatherway as (a) the registered proprietor of the property on which the Premises are situated; (b) a party to a franchise agreement with Burger King and Hungry Jacks for the operation of a Hungry Jacks' restaurant at the Premises ('the franchise agreement'); and (c) as 'the owner of various assets' in this restaurant. The recitals outlined in similar terms Power's role with regard to the Port Macquarie business, except that it was described as the lessee, not the registered proprietor, of the relevant property. They concluded by stating that Heatherway and Power ('the Vendor') had jointly agreed to sell and NCF ('the Buyer') had agreed to buy both restaurants for the price and on the conditions stipulated in the agreement. 54 Clause 2 was headed 'Conditions Precedent for Completion - Franchises'. In clause 2.1, provisions of the franchise agreements under which both businesses operated were set out. They were to the effect that (a) the consent of Burger King was required to any transfer of the franchise and (b) that when any such consent was sought, Burger King had a right to repurchase the franchise. Clauses 2.2 to 2.7 imposed obligations on the parties to the agreement to ensure that these requirements were complied with. Clauses 2.8 provided that if Burger King exercised its option to repurchase, the agreement would be 'automatically terminated'. The consequences of such termination were outlined in clauses 2.8 and 2.9. 55 Clause 3A was headed 'Conditions Precedent for Completion - Coffs Harbour Property Lease'. Clause 3A.1 commenced as follows:- Completion of the sale and purchase of the Business Assets [these were comprehensively defined in clause 1 to include assets owned by the Vendor in the businesses] is interdependent with and will not proceed unless simultaneously Heatherway grants to the Buyer a new Lease for a term of Ten (10) years at an annual rental for the first term of One Hundred and Forty Five Thousand Dollars ($145,000.00) per annum ( sic ) plus … [there followed a provision for a percentage increase]. 56 The remainder of clause 3A, read together with Schedule 1, stipulated a commencement date of 1 July 2000 for this lease (hereafter 'the new lease'), provided for the lease to run until December 2010, gave NCF an option of renewal for 4 x 5 years, provided for Heatherway to deliver a lease to NCF as soon as reasonably possible and for NCF to execute it, and imposed further obligations on NCF relating to the lease. These included an obligation under clause 3A.6.2 to provide to Heatherway, if so required, a personal guarantee by the shareholders or officers of NCF of the performance of NCF's obligations under the lease and a promise by them to indemnify Heatherway against any losses suffered by it on account of failure by NCF to comply with these obligations. 57 It was also provided, in clause 3A.4, that if within a stipulated period NCF did not deliver to Heatherway the new lease, duly executed, together with other specified documents required by Heatherway under clause 3A.4, then the agreement should be 'automatically terminated' and the provisions of clauses 2.8 and 2.9 should apply as if the termination was effected under clause 2.8. 58 It is convenient to interpolate here that, according to Cox, the one topic dealt with in the May 2000 agreement that he did discuss with Mr Hammond was the content, set out in clause 3A and Schedule 1, of the proposed new lease of the Premises. Their discussion led to an agreement between them on what Cox said was the only points of difference between the new lease and the Lease of 8 December 1998. These were the deferment of the time of expiry of the lease from December 2008 to December 2010 and the raising of the rent from $120,000 to $145,000 per annum. 59 Clause 3.3 provided, in terms similar to clause 3A.4, that the agreement should be 'automatically terminated' if specified documents relating to the lease of the premises at Port Macquarie were not delivered by Power Image to NCF within a stipulated period. 60 Clause 4 was headed 'Release of Guarantees - Franchise'. It referred to Burger King's past exercise of a right under the franchise agreement to require that the performance of the franchisee's obligations be guaranteed by selected officers or directors of the franchisee. It went on to state that if Burger King were to require such guarantees from officers or shareholders of NCF, then these individuals would be obliged to comply with this requirement and would be liable to indemnify 'the Vendor' (i.e., Heatherway or Power) against any claim brought against it by Burger King in this connection. It also required NCF to indemnify the Vendor against any claim that might be made against it by Burger King for royalties or advertising payments under the franchise agreement, during the period when any consideration remained to be paid by NCF to Vendor under the May 2000 agreement. 61 Under clauses 5.3 to 5.5, NCF was also required to indemnify the Vendor against any liability to Burger King, Burger King Australia or Hungry Jacks that might arise after completion of the May 2000 agreement (including liabilities for royalties or advertising payments) unless the liability arose on account of default by the Vendor before completion. 62 Further indemnities in similar broad terms, covering liabilities to the providers of stock for the restaurant businesses and liabilities incurred in connection with the businesses following completion, were set out in clauses 12.5 and 17.3. 63 Under clause 5.12, NCF agreed (a) to 'join with the Vendor' in applying to Burger King and/or Burger King Australia for the Vendor, its officers and shareholders to be released from 'all guarantees both past and present' to either of these companies and (b) to provide to these companies 'such reasonable guarantees or other security as may be necessary to ensure the release of' these guarantees. 64 Clause 6 provided that on a single completion date the Vendor was bound to sell, and NCF to purchase, the assets of the two businesses for the stipulated purchase price. 65 In clause 7.2, this price was stipulated to be $2.1 million plus stock as valued, less accumulated wages, holiday pay and long service leave entitlements payable by the Vendor to the employees of the businesses (particulars of whom were set out in a schedule). Further provisions relating to payment of the price appeared in other parts of clause 7. 66 Clause 9 contained detailed provisions relating to completion of the sale of the businesses. Subject to variation by written agreement, it provided for completion on or before 30 June 2000, unless the conditions in clauses 2 and 3 had not been satisfied by that date. 67 Clause 10.3 dealt with ordering of stock by the Vendor before completion. 68 Under clause 14, NCF agreed that on and from the date of completion, it would offer employment to all the employees of the two businesses, on terms no less favourable than those already applying to their employment by the Vendor. 69 Clause 17 was headed 'Title and Risk'. Clauses 17.1 and 17.2 provided for title and risk with regard to the business assets to pass to NCF on completion. Clause 17.4 stated:- The Vendor will bear all the risks of the Business [i.e. the two businesses being sold] prior to completion and will, subject to Clause 10.3, be solely responsible for all liabilities and debts incurred in connection with the Business prior to Completion. 70 Finally, clause 34, headed 'Whole Agreement', included the following provision:- 34.1 The contents of this Agreement record the entire Agreement between the parties in relation to its subject matter. It supersedes all previous negotiations, understandings or agreements in relation to the subject matter. Subsequent developments 71 There was no evidence to suggest that a formal completion of the May 2000 agreement ever occurred or that the new lease, as contemplated in clause 3A of this agreement, was ever prepared and executed. Cox testified that the purchase price stipulated in clause 7 was never paid. Bank statements annexed to an affidavit signed by him provided confirmation of this. 72 In or about July 2000, Heatherway and NCF executed a document headed 'Notice and representations to Burger King Corporation in connection with submission of offer to purchase'. Relevantly, it stated that the May 2000 agreement 'includes all agreements' between these two parties 'or any of their respective affiliates', that it represented 'the entire agreement between the parties relating to the Restaurants' and that the written notice of the offer required to be given to Burger King included both the May 2000 agreement and 'copies of any and all real estate purchase agreements or lease agreements, proposed security agreements…' 73 Copies of this notice and the May 2000 agreement were forwarded to Burger King. None of the other agreements, such as the business sales agreement of August 1998 or the Lease, was forwarded. 74 As at 30 June 2000, a reconciliation statement annexed to an affidavit sworn by Cox showed the total arrears of rent due under the Lease to be $91,100. 75 In or about July 2000, Burger King granted its consent to the assignment of the franchise for the Coffs Harbour business. The terms of this consent were set out in a deed to which the signatories chiefly comprised Burger King, Hungry Jacks, Heatherway, Cox, NCF and Mr and Ms Hammond. Relevantly, this deed released Heatherway from its obligations as franchisee and Cox from his obligations as a guarantor. 76 On 23 August 2000, Whitehead Cooper Williams sent a letter by fax to Cariss and Company in the following terms:- We refer to our phone call when we sought information concerning the release of the guarantees, which our clients are still awaiting. You were to contact your clients, ascertain the position and let us know. We should be glad to hear from you at your early convenience. 77 Cox testified that when consulted about this letter he instructed Cariss and Company not to release the guarantees. Cariss and Company's file on this matter contained an undated file note (annexed to Cox's affidavit) including the words 'No release of personal guarantees'. In addition, a letter dated 30 September 2005 from this firm to Cox (also annexed to his affidavit) contained a statement by the firm's principal, Mr Paul Cariss, that 'I clearly recall your refusal to release Dykes and Wildie from this guarantee, which refusal was communicated to their solicitors'. 78 NCF made no rent payments to Heatherway between 30 June 2000 and April 2001. Between April 2001 and January 2003, NCF made payments on account of rent totalling approximately $136,000. The evidence regarding these payments contains nothing to indicate whether the rent understood by the parties to be due was in accordance with the Lease of December 1998 ($120,000 per annum with percentage adjustments) or with the new lease ($145,000 per annum). Cox testified that he took no steps to enforce the higher rent amount. 79 On 6 November 2002, Cox wrote to Mr Hammond at NCF, enclosing a rental reconciliation which showed that the arrears of rent under the Lease amounted to $226,461.70. The rental amounts used in this calculation were in accordance with the Lease, except that there was no mention of a percentage sales adjustment. The letter concluded as follows:- As this has dragged on for eternity, I am keen to have this account settled and conduct business on a more realistic level, as I am not in the business of financing North Coast Foods. Please attend to this account as a matter of urgency, as my patience is running out. 80 Following this letter, NCF made one more payment of rent ($11,000) to Heatherway. This was in January 2003. 81 On 17 June 2003, Cariss and Company wrote to Dykes in the following terms:- RE: LEASE HUNGRY JACK'S COFFS HARBOUR We act for Heatherway Pty Ltd, the Landlord of the above premises. You guaranteed the performance of the Lease together with Paul Richard Wildie. We now advise that there are substantial arrears of rent, outgoings and rates and we have written to Barry Hammond seeking payment of the amount outstanding. A copy of our letter of demand and attachments is enclosed. If our client issues Court proceedings to recover the arrears, you will be joined as a Defendant and the full amount outstanding will be claimed against you, Mr Hammond and your fellow guarantor Paul Richard Wildie. 82 On or about 26 June 2003, NCF went into liquidation. 83 On 19 May 2004, Complete Debt Solutions Pty Ltd, as agent for Heatherway, wrote separate letters to Dykes and to Wildie advising them that unless the 'outstanding debt of $316,187.30' was paid within fourteen days, 'immediate legal proceedings' would be instituted against them. 84 On 9 June 2004, Heatherway commenced proceedings in the Supreme Court of Victoria against Dykes and Wildie. The Statement of Claim alleged that NCF owed (a) $316,187.30 for rent, (b) $10,004.23 for rates and (c) interest, that Dykes and Wildie had agreed as guarantors under the Lease to pay all monies due on demand and that although demand had been made 'by letter to the defendants dated 17 June 2003', no payment had been made by them. 85 In an affidavit sworn in the Victorian proceedings, Dykes implicitly denied having received either of the two letters of demand (i.e., those of 17 June 2003 and 19 May 2004). This denial was not challenged in the Tribunal. 86 On 20 September 2004, on the application of Dykes, the Supreme Court of Victoria ordered that the proceedings be transferred by consent to the Supreme Court of New South Wales. 87 On 18 November 2004, by consent, the Supreme Court ordered that the proceedings be transferred to the Tribunal. 88 On 23 November 2005, Heatherway filed an Amended Statement of Claim in the Tribunal. This version amended the original Statement of Claim in three respects. First, it added an allegation that on or about 31 May 2000 Heatherway entered into a 'new lease' of the Premises to NCF, stipulated to commence on 1 July 2000. Secondly, it asserted that 'in the premises', the guarantees given by Dykes and Wildie related to NCF's performance of its obligations under the Lease until 30 June 2000, and accordingly substituted a distinctly smaller amount ($122,703, comprising $80,720 as the principal sum owed for rent and $41,983 for interest (at differing rates) from the date each rent payment was due up to 9 June 2004) for the amount originally claimed. Thirdly, it referred to the sending of the second letter of demand to Dykes and Wildie, dated 19 May 2004. 89 It will be noted that the principal sum claimed to have been due on 30 June 2000 ($80,720) is less than the amount of the arrears at that date ($91,100) shown on the reconciliation statement annexed to Cox's affidavit (see [74] above). 90 On 8 February 2006, Dykes and Wildie instituted District Court proceedings against Mr and Ms Hammond on account of their failure to carry out their obligation under the February 2000 agreement to obtain releases of the guarantees previously given by Dykes and Wildie to Heatherway. A private investigator was, however, unable to locate Mr and Ms Hammond. In the course of instructing the investigator, Mr Tiernan was in contact with both Dykes and Wildie. 91 On 10 April 2006, Dykes and Wildie filed by way of cross claim in the Tribunal an unconscionable conduct claim against Heatherway. It asserted, on grounds outlined below, that Heatherway had acted unconscionably in seeking to enforce the guarantee clause in the Lease. It sought an order on this ground that they should not be liable to pay any money to Heatherway under their guarantees. 92 At the hearing on 11 and 12 May 2006, Dykes and Wildie also raised four significant grounds of defence. These were (a) that Heatherway's proceedings in the Tribunal were statute-barred because they were instituted outside the relevant time-limit of three years stipulated by s 71(2) of the RL Act; (b) that Cox, on behalf of Heatherway, had indicated in the telephone conversation of January 2000 with Dykes that their liability under the guarantee would come to an end when they sold their interests in NCF to Mr and Ms Hammond; (c) that the legal effect of the May 2000 agreement and the subsequent transfer of the franchise for the Coffs Harbour business from Heatherway to NCF with Burger King's consent was to release them from any pre-existing liability under their guarantees; and (d) that payments of rent made by NCF after 30 June 2000, totalling more than the amount claimed from Dykes and Wildie, should be appropriated to pay the arrears accruing before that date, with the result that their liability should be held to have been totally discharged. 93 With regard specifically to the first of these grounds, the Tribunal required supplementary written submissions from both sides, in addition to those received on all aspects of the case pursuant to directions given at the conclusion of the hearing. 94 It is convenient to examine the four grounds of defence before dealing with the unconscionable conduct claim lodged by Dykes and Wildie. Whether the proceedings instituted by Heatherway were statute-barred 95 The relevant provisions of the RL Act. The claim made by Mr Zipser, counsel for Dykes and Wildie, that Heatherway's claim was statute-barred was based on s 71(2) of the RL Act. The text of s 71 is as follows:- 71 Lodging of retail tenancy claims with Tribunal (1) A party or former party to a retail shop lease or former retail shop lease may lodge a retail tenancy claim in respect of the lease with the Tribunal for determination of the claim. (2) A claim may not be lodged more than 3 years after the liability or obligation that is the subject of the claim arose. 96 There is no doubt that Heatherway's claim in these proceedings (in contrast to the claim brought by Dykes and Wildie) is a retail tenancy claim within the definition in s 70 of the RL Act. 97 Mr Zipser's argument was that s 71(2) operated to defeat Heatherway's claim because (a) the rent default by NCF which rendered Dykes and Wildie liable under the guarantee provision (clause 13) in the Lease was limited in the Amended Statement of Claim to cover the period from the commencement of the Lease (8 December 1998) to 30 June 2000 and (b) Heatherway did not institute proceedings under the guarantee until 20 September 2004, more than four years after the end of this period. 98 Initially, Mr Easton, counsel for Heatherway, sought to overcome this difficulty for his client by making an application under s 71B(1) of the RL Act. This states as follows:- A retail tenancy claim may be lodged more than 3 years but no later than 6 years after the liability or obligation that is the subject of the claim arose, if the Tribunal orders that the claim may be lodged with the Tribunal. 99 Section 71B(3) states that the Tribunal may make such an order under subsection (1), on application by the party concerned, if satisfied that it is 'just and reasonable' to do so. Mr Easton put forward various reasons why an order would indeed be just and reasonable in the present case. 100 In correspondence with the parties' representatives after the hearing, the Tribunal pointed out that s 71B was a new provision, inserted in the Act by the Retail Leases Amendment Act 2005. This amending Act did not come into operation until 1 January 2006. Clause 34 of Schedule 3 of the RL Act (this Schedule is headed 'Savings and transitional provisions') states: 'Section 71B as inserted by the 2005 Amending Act extends to a liability or obligation that arose, or conduct that occurred, before the commencement of that section.' It is evident that this clause does not expressly bring within the scope of s 71B a retail tenancy claim (like that of Heatherway) which was lodged before the section commenced on 1 January 2006. 101 In supplementary submissions, Mr Zipser adopted these propositions that the Tribunal had put before both counsel and argued that an inference giving retrospective operation to s 71B in this way should not be drawn from clause 34 or indeed from s 71B itself. It followed, he claimed, that Heatherway could not rely on s 71B. 102 Mr Easton's response was to submit that clause 34 should 'logically be read to permit an order that the Applicant's amended claim be lodged'. To determine otherwise would, he contended, be an inappropriate application of beneficial legislation, particularly since the Amended Statement of Claim was in fact lodged as late as November 2005. 103 In the Tribunal's opinion, clause 34, by expressly designating cases where the relevant liability or obligation arose before 1 January 2006 as falling within s 71B, but remaining silent as regards retail tenancy claims lodged before this date, should not be taken to imply that such claims also fall within s 71B. To adopt this interpretation would appear to contravene the normal presumption that legislation should not be accorded retrospective operation unless such an intention is expressly conveyed. In reaching this conclusion, the Tribunal also takes account of the final words of s 71B(1). These seem to imply (though the Tribunal does not expressly rule) that an application for an order extending the time for lodgement of a claim must be made before the claim itself is lodged. 104 The Tribunal acknowledges that this interpretation of s 71B and clause 34 may be open to question because it is based on inferences only. It is unfortunate that clause 34 of Schedule 3, unlike clauses 35 and 36, does not state expressly whether or not the section with which it deals extends to proceedings that were pending at the date of commencement of the Retail Leases Amendment Act 2005. 105 Whether s 71(2) of the RL Act is in fact applicable. Another matter raised by the Tribunal in correspondence with the parties' representatives after the hearing was whether the time limit of three years stipulated in s 71(2) in fact applied to these proceedings, in view of the fact that they were not initiated in the Tribunal but in the Supreme Court of Victoria. 106 On the face of it, s 71 seems not to cover the situation where proceedings are commenced outside the Tribunal and are subsequently transferred to the Tribunal. As indicated above, s 71(1) states: 'A party… to a retail shop lease… may lodge a retail tenancy claim… with the Tribunal…' Subsection (2) of s 71, which imposes the three-year time limit, commences: 'A claim may not be lodged…' The terminology of 'claims' being 'lodged' with the Tribunal is maintained in s 71B and in other provisions of the RL Act (see for example ss 71A, 72 and 72AA). 107 By contrast, s 75, which is the section under which Heatherway's claim was transferred from the Supreme Court to the Tribunal, commences as follows:- 75 Removal of court proceedings to the Tribunal (1) If civil proceedings pending in a court involve a retail tenancy dispute, the court must on the application of any party to the proceedings transfer the proceedings (or so much of the proceedings as involve such a dispute) to the Tribunal to be dealt with as a claim under this Division,… 108 Nothing in s 75 or in any other part of the RL Act suggests that where proceedings are transferred under s 75(1) the party to the lease who initiated them should be deemed to have 'lodged' a claim in the Tribunal, either at the time when the proceedings were initiated or at the time of the order for transfer. 109 This issue is of major significance in the present case because if s 71(2) is not applicable the relevant limitation period is six years, by virtue of ss 14(1) and 78(2) of the Limitation Act 1969. The latter of these two subsections states that a limitation law of the State forms part of the 'substantive law' of the State. This makes the Limitation Act potentially applicable to the present proceedings instituted under the guarantee clause of the Lease (which was governed by the law of New South Wales) even though these proceedings began in the Supreme Court of Victoria. Under s 14(1)(a) of the Limitation Act, the period of limitations for 'a cause of action founded on contract' is six years. 110 For completeness, it should be added that the same result would eventuate even if the period of limitation were to be as stipulated by Victorian law, by virtue of its being the law of the forum where the proceedings began. The Limitation of Actions Act 1958 (Vic) establishes a limitation period of six years for 'actions founded on simple contract' (s 5(1)(a)) and indeed for 'actions to recover arrears of rent' (s 19). 111 Mr Easton indicated in supplementary submissions that he wished to rely on this line of reasoning. It followed, he contended, that Heatherway 'properly commenced proceedings in a court of competent jurisdiction within time'. 112 In his supplementary submissions, Mr Zipser acknowledged that this line of reasoning 'had force' and that, if it were accepted as correct by the Tribunal, the question of an extension of time would no longer arise. 113 The Tribunal recognises that if for the reasons suggested the present proceedings do not fall within s 71(2), retail tenancy claims (and for that matter unconscionable conduct claims) must be considered subject to different limitation periods depending on whether they are commenced in the Tribunal or in another court possessing jurisdiction (such as the Supreme Court, the District Court or indeed the Local Court). This is an anomalous and unfortunate result. But in the Tribunal's opinion it appears to be inescapable. 114 Without distorting substantially the unambiguous terms of s 71(2), it seems impossible to interpret them as applying to claims under the RL Act that are instituted elsewhere than in the Tribunal. The opening words - 'A claim may not be lodged…' - can only be interpreted by reference to s 71(1). This subsection speaks only of lodgement of retail tenancy claims 'with the Tribunal', not with any other court or tribunal. 115 It follows that where, as here, proceedings under the RL Act are commenced elsewhere than in the Tribunal, the applicable limitation period is that specified by the Limitation Act - i.e., generally six years. If no transfer to the Tribunal occurs under s 75(1), that period remains unchanged. If a transfer is ordered, it could not be the case that the period would be reduced thereby to three years, unless s 71(2), s 75(1) or some other provision of the RL Act clearly required this. But as already stated, no provision of this nature is to be found in the Act. 116 The resulting anomalies might be lessened to some extent through liberal use of the power of extension in s 71B. But this is hardly a satisfactory way of dealing with them. 117 By virtue of this reasoning, the Tribunal concludes that the contention by Dykes and Wildie that Heatherway's claim against them is statute-barred must be rejected. 118 The date on which the liability of Dykes and Wildie arose. Mr Easton relied on one further line of argument that the Tribunal raised for the consideration of counsel after the hearing had finished. 119 This was that while the 'obligation' of Dykes and Wildie under the guarantee clause arose (within the meaning of s 71(2) of the RL Act) when they signed the Lease in December 1998, their 'liability' did not arise until a demand for payment was made upon them. This result followed from clause 13.3 of the Lease (relevant parts of clause 13 are quoted above at [16]). Clause 13.3 was in these terms:- 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. 120 As Mr Easton pointed out, there was no evidence of any demand being made under the guarantee until the letter dated 17 June 2003 from Cariss and Company was sent to Dykes. It was not until then, Mr Easton submitted, that the period of three years permitted by s 71(2) commenced. 121 In drawing attention to this issue, the Tribunal referred to Bischof & Anor v Werncog Pty Ltd [2004] NSWADT 241. In this decision, at [85 - 87], the Tribunal pointed out that in the context of a retail tenancy claim a 'liability' may arise later than the 'obligation' from which the liability is derived and that in this situation it will be sufficient under s 71(2) for the party lodging the claim to do so within three years after the 'liability' arose. 122 In response, Mr Zipser argued that both the obligation and the liability of Dykes and Wildie arose under clause 13.2. He relied on the opening words of clause 13.2, which were as follows:- The guarantor guarantees to the landlord the performance by the tenant of all the tenant's obligations (including any obligations to pay rent, outgoings or damages) under this lease, … 123 In Mr Zipser's submission, this subclause made it clear that the liability of the two guarantors arose as and when NCF, the tenant, failed to pay rent. He maintained that if this was not the case, landlords could wait as long as ten years before issuing a demand to a guarantor. This, he said, would defeat the purpose of limitation periods. 124 Mr Zipser further argued that in relation to the obligation or liability to which Dykes and Wilde were subject, clause 13.3 of the Lease was 'superfluous'. The reason was that even if clause 13.3 did not exist, Dykes and Wilde as guarantors would still have 'an obligation or liability to pay rent under clause 13.2'. 125 With reference to Bischof v Werncog, Mr Zipser observed that the Tribunal there was dealing with a situation where a failure to perform an act gave rise to separate causes of action on each day when the act was done. In this situation, he said, there may be a distinction between the concepts of 'liability' and 'obligation'. He drew attention to discussions of this situation in Hawkins v Clayton (1988) 167 CLR 539 at 589 and Sheldon v McBeath (1993) ATR 81-209. But this was not the situation, he maintained, under clause 13 of the Lease. 126 In view of the Tribunal's conclusion that the period of limitations applicable to Heatherway's claim is six years, not three years, it strictly does not have to determine whether or not a demand for payment was a pre-requisite to Dykes and Wildie becoming liable under the guarantee. It will, however, express an opinion on this matter. 127 It is well established that while an indemnity involves the assumption of primary liability by the idemnifier, a guarantor undertakes secondary liability only. His or her liability arises only if the principal debtor has defaulted and is liable to the creditor. The terminology of clause 13 suggests clearly that a guarantee, not an indemnity, was intended. This follows from the use of the words 'guarantee' and 'guarantor' throughout and from the fact that in clauses 13.3 and 13.4 the guarantor's liability is expressed to arise 'if the tenant does not' pay rent or perform an obligation. 128 The fact that clause 13 appears properly to be characterised as a guarantee does not lead to the conclusion that the liability of the two guarantors is dependent on a demand having been made. The question whether a demand is necessary must instead be resolved by construction of the whole agreement between the parties (see for example the Federal Court decision in Re Taylor; Ex parte Century 21 Real Estate Corporation (1995) 130 ALR 723 at 727-728; Benson-Brown v Smith [1999] VSC 208 at [133]). 129 Accordingly, it cannot be said, as Mr Zipser argued, that the opening words of clause 13.2 are sufficient to indicate that no demand was required to give rise to liability under clause 13. Instead, the succeeding provisions of clause 13 - notably clauses 13.3 and 13.4 - must be interpreted alongside clause 13.2. 130 The provision that specifically deals with the liability of Dykes and Wildie as 'guarantor' is clause 13.3. It covers the situation where the tenant, NCF, 'does not pay any money due under this lease'. It expressly states that in such event 'the guarantor must pay that money to the landlord on demand…' 131 This indication that a demand was necessary is weakened by clause 13.4. It is of broader scope, covering any failure by the tenant to 'perform any of the tenant's obligations under the lease…' It states that the guarantor must 'compensate the landlord' without suggesting expressly or by implication that a prior demand is necessary. This clause, standing alone, would clearly extend to a tenant's failure to perform the obligation to pay rent and would not require any prior demand. 132 The Tribunal's conclusion regarding the true interpretation of these contradictory provisions is that the guarantor's liability when rent is unpaid should be taken to be governed by the provision that more specifically purports to deal with this situation. This provision is clause 13.3, which does require that a demand be made. 133 For these reasons, the Tribunal is inclined to the view that the 'liability' of Dykes and Wildie under clause 13 did not arise until (at the earliest) payment of the outstanding rent was demanded from Dykes in the letter of 17 June 2003. So far as Wildie at least is concerned, the date of demand would appear to have been as late as 17 May 2004. If these conclusions are correct, Heatherway's proceedings were instituted within the three-year period that would have been required under s 71(2) of the RL Act if that subsection were applicable. Whether Dykes and Wildie were released from the guarantees in February 2000 134 This ground of defence can be dealt with relatively briefly. For a number of reasons, the Tribunal does not accept Dykes' account of the telephone conversation in January 2000 between himself and Cox (see [23] above) on which this defence is based. 135 As Mr Easton pointed out, if this account were accurate, the stance adopted by Dykes and Wildie in dealing with Cox and with Mr and Ms Hammond in the period immediately following the telephone conversation would have been substantially different in at least two respects. First, they would not have requested through NCF's solicitors, Whitehead Cooper Williams (i.e. in the letter of 9 February 2000, outlined at [38] above) that Heatherway's solicitors should obtain instructions regarding release of the guarantees. They would instead have asked Whitehead Cooper Williams to seek written confirmation of the agreement for release already reached in the telephone conversation. Secondly, they would not have arranged for the February 2000 agreement to include a clause (clause 17 - see [32] above]) imposing an obligation on Mr and Ms Hammond to obtain from Heatherway their release from the guarantee. 136 In both of these important respects, the conduct of Dykes and Wildie shortly after the telephone conversation was inconsistent with Dykes' having obtained from Cox a promise during that conversation to release them from the guarantee. 137 Three further considerations underlie the Tribunal's decision on this matter. They are as follows. 138 First, Mr Dykes' attempted explanation, during cross-examination, of the contents of the letter written by Whitehead Cooper Williams on 9 February 2000 was unconvincing. He appeared to be arguing that since this letter had a specific purpose - that of responding to matters raised in an earlier letter of 2 February 2000 - it was unlikely to deal satisfactorily with the issue of release of the guarantee. The Tribunal does not understand why this should be so. It was quite feasible for Whitehead Cooper Williams, in composing the letter of 9 February, to represent Dykes and Wildie effectively both with regard to the very important issue of release from the guarantee and the distinct matters (whatever they were) that had been raised in the letter of 2 February. 139 Secondly, more than six months passed before Whitehead Cooper Williams drew the attention of Cariss and Company again to the issue of release from the guarantee. When they did so, in their letter of 23 August 2000 (see [76] above]), there was still no mention of an oral agreement for release, for which written confirmation was being sought. They simply asked somewhat tentatively for 'information concerning the release of the guarantees'. 140 Thirdly, even on Mr Dykes' account of the matter, Cox's alleged promise during the telephone conversation did not extend unambiguously to liability under the guarantee for the arrears of rent that had already accrued. As indicated above at [23], this promise, according to Dykes, was solely that Mr and Ms Hammond would be permitted to take over any obligations that Dykes and Wildie had 'under any guarantees in relation to the business' and that Dykes and Wildie should have 'no ongoing obligations in relation to the business.' Undoubtedly, a promise in such terms extends to liability under the guarantee in the event of any future default in the payment of rent. The words attributed to Cox, however, fall short of clearly absolving Dykes and Wildie from their liability for past default. The word 'ongoing', in fact, seems in its natural meaning to confine the alleged release from liability to future default only. 141 It is noteworthy that in his written submissions Mr Zipser placed relatively little emphasis on the allegation by Dykes that Cox orally agreed to release the guarantee in the conversation during January 2000. 142 For the foregoing reasons, the second ground of defence put forward by Dykes and Wildie is unsuccessful. Whether the May 2000 agreement extinguished all liability under the guarantee 143 The competing submissions. The nature and legal effect of the May 2000 agreement were topics receiving lengthy consideration in the written submissions of counsel. On any view of things, it was a remarkable document, having regard to the context in which it was prepared and executed. 144 Before outlining and evaluating counsel's submissions regarding this agreement to the extent necessary to resolve these proceedings, it is useful to recapitulate briefly the background to it. The important events are these:- In August 1998, Heatherway agreed to sell the Coffs Harbour business to NCF for $900,000, subject to (a) the Lease being granted and (b) transfer of the franchise that had been granted to Heatherway being approved by the franchisor, Burger King. In December 1998, Heatherway and NCF agreed that this sale should be completed even without Burger King's approval of transfer of the franchise. This duly occurred, with the purchase price being paid in full. The agreement provided for rescission, however, if the transfer of the franchise was not approved. In December 1998, Heatherway and NCF executed the proposed Lease, providing for an initial rent of $120,000 per annum, and NCF, having taken possession of the Premises, commenced to carry on the Coffs Harbour business in them. In February 2000, Dykes and Wildie sold their interests in NCF to Mr and Ms Hammond, it being known to all parties to this transaction that the rent due to Heatherway under the Lease was substantially in arrears. In February 2000, Power and NCF signed 'heads of agreement' for the sale of the Port Macquarie business from Power to NCF for a price of $200,000. At the time of the May 2000 agreement, Burger King had still not approved the transfer of the franchise for the Coffs Harbour business. 145 The May 2000 agreement was, on its face, an agreement for a second sale of the Coffs Harbour business from Heatherway to NCF, alongside a sale of the Port Macquarie business from Power to NCF. The total consideration stipulated to be paid for the two businesses was $2.1 million. Amongst the numerous provisions of the agreement were clauses providing for the grant of a 'new lease' of the Premises, at an increased initial rent of $145,000. 146 The principal submission by Mr Easton regarding this agreement was that none of the three contracting parties - Heatherway, Power and NCF - treated it as a genuine agreement for the sale of either business. The two businesses had already been sold to NCF and the purchase prices of $900,000 (for Coffs Harbour) and $200,000 (for Port Macquarie) had been paid in full. The agreement was instead a document initiated by, and prepared on the instructions of, Mr and Ms Hammond, the directors of NCF. After execution, it was to be presented to Burger King. The sole purpose of this course of action, which was in fact achieved in July 2000, was to obtain Burger King's approval to the transfer of the franchises for the two businesses to NCF. 147 The evidence given by Cox, however, and certain clauses inserted into the Amended Statement of Claim (see [88] above), suggested that, in his view at least, one significant component of the May 2000 agreement was intended to operate according to its terms. This was the component (clause 3A and Schedule 1) providing for the new lease, which was to commence on 1 July 2000. According to Cox, this was the only element of the agreement that he discussed with Mr Hammond before signing it on behalf of Heatherway and Power. 148 The principal submissions made by Mr Zipser regarding the status of the May 2000 agreement were (a) that under well-established principles of contract law, the parties must be deemed to have intended to enter into legal relations, since the agreement was commercial in content and was expressed in clauses that were both formal and detailed; (b) that this intention must be held to have existed even though Cox stated that he signed the agreement without having read it or having taken legal advice as to its contents; (c) that the requirement of sufficient consideration was amply satisfied through the exchange of numerous promises by the parties; (d) that significant consideration was in fact furnished to Heatherway pursuant to the agreement (notably, the release of its obligations to Burger King under the franchise); (e) that as just mentioned Cox himself regarded a significant component of the agreement as binding according to its terms and (f) that the agreement as a whole was accordingly valid and binding according to its terms. 149 For the proposition that a party who had signed a written agreement must be held to be bound by it even though he/she did not read it or take legal advice as to its contents, Mr Zipser relied on Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179-181. 150 From this starting-point, Mr Zipser argued that a number of provisions of the agreement clearly evinced an intention of the parties that the pre-existing liability of NCF for arrears of rent under the Lease was to be extinguished. In this connection, he referred particularly to clause 17.4 (under which Heatherway agreed to 'bear all the risks of the Business' and to be 'solely responsible for all liabilities and debts incurred in connection with the Business prior to Completion') and clause 34 (which stated that 'the contents of the agreement record the entire Agreement between the parties in relation to its subject matter' and that the agreement 'supersedes all previous negotiations, understandings or agreements in relation to the subject matter'). He pointed out also that the May 2000 agreement made no mention of any debt owed by NCF on account of rent under the Lease, arguing that the correct inference to be drawn from this was that the parties no longer treated this debt as existing. It was clearly the intention of Heatherway and NCF, he said, that the May 2000 agreement should rescind or supersede the sales agreements of August and December 1998, the Lease and, with it, the guarantees provided by Dykes and Wildie. 151 For the proposition that a written agreement may impliedly rescind or supersede an earlier agreement between the same parties, Mr Zipser relied on a number of authorities, notably Tallerman and Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 and City & Industrial Demolitions Pty Ltd v Shanahan [2000] NSWSC 1197. 152 In addition, Mr Zipser submitted that the May 2000 agreement, in providing for the grant of the new lease, substantially increased the risk to which Dykes and Wildie were exposed as guarantors without obtaining their agreement to this. It did so by deferring the time of expiry of the lease from December 2008 to December 2010 and raising the rent from $120,000 to $145,000 per annum. Mr Zipser argued that on account of principles laid down by the High Court in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 559-560, this had the consequence of discharging their liability as guarantors. 153 Mr Easton's response on this last issue was to argue that the May 2000 agreement did not in fact increase the risk to which Dykes and Wildie were subject because the period for which Heatherway was seeking payment under the guarantee ended before the commencement date of the new lease. 154 Mr Easton relied also on two clauses in the May 2000 agreement that he described as 'self-terminating provisions'. These were clauses 3A.4 and 3.3 (as to which see [57] and [59] above). Mr Easton argued that since there was never any compliance with the requirements in these clauses that certain specified documents be delivered by NCF to Heatherway or by Power Image to NCF, the agreement had in fact been 'automatically terminated'. 155 Mr Zipser's response to this contention was to claim that both Heatherway and NCF had waived their right to rely on these self-terminating provisions because they had both taken steps (for example, in making representations to Burger King resulting in the transfer of the franchises) which implied that they continued to treat the May 2000 agreement as operative. 156 The Tribunal's conclusions. The Tribunal has given careful consideration to the wide range of issues raised by this unusual situation. It believes, however, that relatively few aspects of the May 2000 agreement and the context in which it was executed need to be taken into account in determining whether it had any legal effect on the obligations of Dykes and Wildie as guarantors under the Lease and, if so, what that effect was. 157 The single factor of greatest importance is that what this agreement purported to be was in essence only an agreement for the sale of two businesses. It provided in clause 3A for the execution of a new lease of the premises in which one of these businesses - the Coffs Harbour business - was being conducted. But it did not itself purport to include a lease of these premises. 158 It is true that neither in its recitals nor in any other clause did the agreement expressly refer to the existing Lease of the Premises. But through using the phrase 'a new lease' in clause 3A it implicitly acknowledged the current operation of this Lease. 159 The point being made can be illustrated further by asking the question: on what terms did NCF, in operating the Coffs Harbour business, occupy the Premises during the period between the execution of the May 2000 agreement and the date (1 July 2000) on which the new lease was intended to commence (and may indeed have commenced)? The evident answer is: the terms of the Lease that Heatherway and NCF had concluded in December 1998. This answer is correct irrespective of whether the agreement was binding on the parties. Just as Heatherway and NCF, during 1998, entered into separate agreements to bring about (a) a sale of the Coffs Harbour business and (b) a lease of the Premises, so too the terms of the May 2000 agreement contemplated that these two types of transaction between them should be effected by separate instruments. 160 In the Tribunal's opinion, once all the implications of this basic feature of the May 2000 agreement are taken into account, it becomes evident that even if this agreement was in fact valid and binding according to its terms, it did not operate to rescind or supersede the Lease. It provided only for the Lease to be superseded at a future time (1 July 2000) through the execution of the proposed new lease. 161 These considerations are sufficient also to counter Mr Zipser's contention that clause 34 of the agreement (the 'whole agreement' clause) had the effect of superseding the Lease. In referring to 'the subject matter' of 'this Agreement' (see [70] above), this clause should not be interpreted to include the terms under which NCF occupied the Premises at the time when the agreement was signed. 162 These same considerations also form part of the reasoning whereby, in the Tribunal's opinion, Mr Zipser's argument based on clause 17.4 of the agreement must be rejected. This is the clause (see [69] above] whereby 'the Vendor' agreed to be 'solely responsible for all liabilities and debts incurred in connection with the Business'. In another context, this clause might well be considered sufficiently broad to include rent payable for the premises in which the relevant business was conducted. But because, for the reasons given, the May 2000 agreement is to be interpreted as excluding from its coverage (except in Clause 3A and Schedule 1) the leasing arrangements for the Coffs Harbour business, this construction is not appropriate here. A further compelling reason for so deciding is that according to this construction Heatherway would be agreeing to be 'solely responsible' for a debt that, as 'Vendor' of the business, it owed to itself in the capacity of landlord - i.e., the rent payable under the Lease. 163 By virtue of this reasoning, it cannot be maintained that the May 2000 agreement expressly or by implication discharged NCF's obligation to pay the arrears of rent on which Heatherway's present claim under the guarantee is based. 164 Citing Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, Mr Zipser also argued that without the consent of Dykes and Wildie the May 2000 agreement enhanced the risk to which they were exposed under the guarantee. The Tribunal agrees, however, with Mr Easton's response. This risk was not enhanced by the agreement itself, and if, as Cox clearly intended, there was an increase in the rent and duration of tenure on the commencement of the new lease it had no impact on the extent of the obligations imposed on Dykes and Wildie. Heatherway has effectively conceded that their guarantee ceased to operate on 30 June 2000. 165 The Tribunal can see no other basis on which Dykes and Wildie can claim that the May 2000 agreement extinguished or reduced their liability as guarantors up to 30 June 2000. Because they were not parties to this agreement, they can have no cause of action for breach of the contract that it purported to contain. Because they did not know that it had been executed until after these proceedings commenced, they cannot assert that they relied on its existence to their detriment, so as to give rise to some form of estoppel. 166 These grounds for rejecting Mr Zipser's submissions based on the May 2000 agreement have not included any ruling as to whether the agreement was binding on the parties (as he submitted) or had no contractual effect at all because there was no intention to create legal relations (as Mr Easton submitted). 167 The Tribunal is inclined to think that there was in fact no such intention. Cox's evidence, which on this topic was not open to contradiction by Dykes and Wildie, suggested clearly that the sole purpose of the agreement was to assist in obtaining Burger King's consent to the transfers of the franchises. 168 The Tribunal prefers, however, not to rule conclusively on this issue. Its reasons are these: (a) as already explained, it does not need to do so in order to resolve the dispute between the parties to these proceedings; (b) it received no evidence on the matter of contractual intention from the two individuals (Mr and Ms Hatton) who controlled one of the three parties to the agreement (NCF); and (c) such a ruling would be exceptional in relation to such a detailed and formal commercial document. Whether NCF's payments after 30 June 2000 should be appropriated to the arrears accruing before that date 169 The competing submissions. As mentioned above, between 30 June 2000 and a date in January 2003 NCF made payments on account of rent to Heatherway totalling approximately $136,000. 170 Mr Zipser submitted that these payments should be treated as appropriated to the earliest debts due from NCF to Heatherway on account of rent - that is, initially to the earliest unpaid instalment of rent (this was the instalment due on 8 February 1999, according to Cox's letter to Dykes dated 9 November 1999) and thereafter to all ensuing instalments that were unpaid. If these payments were appropriated in this way, they would be sufficient to discharge totally the higher of the two principal sums ($91,100) claimed at different stages of these proceedings to have been owed on account of rent at 30 June 2000, plus any interest accruing. 171 In Mr Zipser's submission, there was no evidence to show how either Heatherway or NCF appropriated these payments. In this situation, the approach taken by the law was, he said, to appropriate such payments as were made to the earliest of the debts that were outstanding. In support of this proposition, he relied on the following dictum of Lockhart J in Re Walsh; Ex parte Deputy Commissioner of Taxation (1982) 42 ALR 727 at 729:- A debtor who owes two debts to a creditor is entitled to appropriate a payment which he makes to his creditor to one debt rather than to the other. If he omits to do so, the creditor may make the appropriation. If neither makes any appropriation, the law appropriates the payment to the earlier debt. 172 In his submissions on this matter, Mr Easton noted what he described as a concession that NCF made no appropriation of the payments. He went on to submit that there was clear evidence that Heatherway treated each rent payment under the Lease as discharging the rent for the month in which the payment was made. This evidence comprised Cox's letter of 9 November 1999 to Dykes and his letter of 3 February 2000 to Wildie (see [20], [26] above). Mr Easton pointed out that each of these letters contained a 'lease payments reconciliation' which adopted this methodology. By way of example, the last payment recorded in the later letter, received on 23 December 1999, was depicted as NCF's payment of the instalment due on 8 December 1999, even though at that stage the aggregate of the unpaid instalments due in preceding months was $50,000. 173 In contending that Heatherway was entitled to appropriate the rent payments in this way, Mr Easton relied on the decision of Nicholas J in Sydney Concrete & Contracting Pty Ltd v BNPM Paribas Equities (Australia) Ltd [2005] NSWSC 408. At [11], his Honour quoted a passage from the judgment of Lord Macnaghten in Cory Brothers and Co v Owners of Turkish Steamship "Mecca"; The "Mecca" [1897] AC 286 at 293-294. This passage includes the following observations:- When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor… [I]t is now quite settled that the creditor has the right of election "up to the very last moment" and he is not bound to declare his election in express terms… Where the election is with the creditor, it is always his intention express or implied or presumed, and not any rigid rule of law that governs the application of the money. The presumed intention of the creditor may no doubt be gained from a statement of account, or anything else which indicates an intention one way or the other and is communicated to the debtor, provided there are no circumstances pointing in an opposite direction. 174 At [12], Nicholas J quoted a dictum of Lord Herschell in "The Mecca" at 292, to the effect that once a creditor has made an appropriation and communicated it to the debtor, the creditor has no right to appropriate the payment otherwise. 175 In the remainder of his judgment in Sydney Concrete v Paribas, Nicholas J applied these principles in reaching a decision that a letter from the creditor to the debtor in the case, showing that the proceeds of sale of certain shares owned by the debtor had been paid into a specified account maintained by the creditor, constituted an appropriation reducing the debt to which the account related. He held that there were no 'circumstances pointing in the opposite direction' and that the creditor, having chosen to appropriate the proceeds in this way, could not subsequently elect to appropriate them to another debt owed by the debtor. 176 Mr Zipser sought to rebut these submissions of Mr Easton by arguing that the letters of November 1999 and February 2000 did not 'address the position after June 2000', that Heatherway could have adduced evidence to show what this position was, and that since it not did so the Tribunal should infer that any evidence available to it would not have assisted it. 177 The Tribunal's conclusions. In the Tribunal's opinion, Mr Easton's submissions must be accepted. The two letters on which these submissions were based indicated to NCF clearly the methodology that Heatherway adopted in dealing with rent payments once the first default gave it a choice (there being no appropriation made by NCF) as to how it should appropriate subsequent payments. As the decision in Sydney Concrete v Paribas illustrates, Heatherway was bound by the appropriations described in the letters. Although after 30 June 2000 the lessor-lessee relationship between Heatherway and NCF may have been governed by the new lease, there is no reason for inferring that Heatherway had abandoned, or intended to abandon, this methodology. The opposite presumption applies, namely, that as with numerous provisions of the original Lease, the relationship between these two parties continued as before. 178 The Tribunal accordingly rejects the fourth and final ground of defence advanced by Dykes and Wildie. The unconscionable conduct claim lodged by Dykes and Wildie 179 In their unconscionable conduct claim, Dykes and Wildie alleged that Heatherway had acted unconscionably in seeking to enforce the guarantee clause in the Lease. 180 As formulated in Mr Zipser's submissions, there were three specific grounds on which Heatherway's conduct in commencing these proceedings was claimed to be unconscionable. It is convenient to deal with them separately. 181 The first ground was that, despite persistent failures by NCF to make rent payments following its take-over by Mr and Ms Hammond in February 2000, Heatherway did not notify Dykes and Wildie that the rent was substantially in arrears until June 2003, and did not commence proceedings to enforce the guarantee until June 2004. In consequence, Dykes and Wildie lost the opportunity to assist NCF to rectify the situation and would appear to have lost the opportunity to ascertain the whereabouts of Mr and Ms Hammond, in order to bring a cross claim against them. 182 While Mr Easton's submissions did not at any stage make specific reference to this ground, they did point out, by way of general response to the unconscionable conduct claim, that Dykes and Wildie chose to go through with the sale of their interests in NCF to Mr and Ms Hammond without ensuring either (a) that the rent arrears, then acknowledged to be $70,000, had been paid by NCF or (b) that their guarantees had been or would be released. 183 The Tribunal would add the observation that this debt of $70,000, acknowledged to be owing in February 2000, represents a substantial proportion of the principal sum claimed from Dykes and Wildie in these proceedings. This is not a case where the guarantors under a lease to a corporate lessee are being held liable for rent defaults incurred wholly or substantially during a period of the lease where the lessee was controlled by persons other than themselves. While there has undoubtedly been delay in enforcing the guarantee (rendering necessary the discussion of limitation periods earlier in this judgment), the fact remains that most of the rent default that has prompted these proceedings relates to the period when Dykes and Wildie controlled NCF. 184 For this reason alone, the rights of recourse that Dykes and Wildie have sought to assert against Mr and Ms Hammond under clause 17 of the February 2000 agreement (see [32] above) might not, if the matter came to trial, prove as valuable to them as they would wish. It is not at all certain that clause 17 would be interpreted as imposing an unconditional obligation on Mr and Ms Hammond to obtain a release covering liability under the guarantee for past defaults in rent payments by NCF, as well as for future defaults. 185 The second ground was (a) that Heatherway was entitled under the May 2000 agreement both to obtain guarantees from Mr and Ms Hammond and to be paid a purchase price of $2.1 million by NCF, (b) that this payment would discharge all rent arrears then owing under the Lease, but (c) that Heatherway failed to exercise these rights. 186 The Tribunal has, however, given its reasons for holding that the May 2000 agreement, even if valid, should not be interpreted as superseding the Lease and thereby discharging NCF's pre-existing liability for arrears of rent. It would add that any guarantees given by Mr and Ms Hammond pursuant to this agreement would not in the ordinary course relate back to rent arrears incurred before they took over NCF, let alone lead to an immediate discharge of the guarantee given by Dykes and Wildie. 187 The third ground was that Cox had agreed orally in the telephone conversation of January 2000 to release Dykes and Wildie from their guarantees. 188 The Tribunal has already held, however, that it does not accept Dykes' testimony on this matter. It has found that no such release was granted. 189 For these separate reasons relating to each of the three alleged grounds for characterising Heatherway's conduct as unconscionable, the Tribunal's conclusion is that the criteria laid down by the Court of Appeal in Attorney General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557 at 583 have evidently not been satisfied. These are to the effect that conduct is not unconscionable within the meaning of the RL Act unless it is 'highly unethical' and involves 'a high degree of moral obloquy'. 190 A further submission made by Mr Easton was that the unconscionable conduct alleged against Heatherway was, in substance, its conduct in suing Dykes and Wildie on the guarantee and that such behaviour could not be held to be 'unconscionable conduct' under the RL Act on account of s 62B(5) of the Act. This states:- A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with a retail shop lease by reason only that the first-mentioned person institutes legal proceedings in relation to that lease or refers to arbitration a dispute or claim in relation to that lease. 191 This submission might, if correct, be sufficient of itself to rebut the unconscionable conduct claim: cf Armstrong Jones Management Pty Ltd v Saies-Bond & Associates Pty Ltd [2006] NSWADT 323 at [343 - 344]. Mr Zipser sought to meet it by arguing that there is a distinction between seeking to enforce, and bringing legal proceedings in relation to, a guarantee. 192 In the circumstances, the Tribunal does not need to determine whether this distinction is sustainable. It is bound in any event to dismiss the unconscionable conduct claim. The amount recoverable under the guarantee 193 For the foregoing reasons, Heatherway's claim for moneys due under the guarantee is upheld. 194 It has been noted in this judgment that in the Amended Statement of Claim Heatherway quantified the principal sum being claimed as $80,720, but that in a later affidavit by Cox this sum was increased to $91,100. The reason for the difference is that in calculating the second sum turnover rent for the years ending 30 June 1999 and 30 June 2000 was added. 195 This affidavit by Cox was filed and served on 9 May 2006, just two days before the hearing of these proceedings commenced. In cross-examination, Cox conceded that he had no documentary evidence in support of his quantification of this amount for turnover rent. 196 Mr Zipser submitted that because this increase in the amount claimed should not be permitted by the Tribunal because (a) it was notified to Dykes and Wildie late in the proceedings, giving them little time to prepare a response and (b) it was not adequately substantiated by evidence. 197 The Tribunal agrees. The principal sum for which Dykes and Wildie should be held liable should be limited to the amount stated in the Amended Statement of Claim, namely, $80,270. 198 As mentioned above at [14], the Lease provided for interest on unpaid rent to be charged to NCF as set out in Schedule J of the Supreme Court Rules as varied from time to time. Under the clause of the Lease (clause 13.3) that the Tribunal has held to apply in this case, the guarantors' liability extended to 'any money due' from NCF under the Lease. 199 In the Amended Statement of Claim, Heatherway accordingly sought an award of interest on the unpaid instalments up to 9 June 2004, the date of commencement of proceedings in the Supreme Court of Victoria. In an annexed schedule, the total interest, calculated on a principal sum of $80,270 at the rates from time to time applying, was shown to be $41,983. 200 Neither this liability for interest nor this calculation of the amount for interest was contested in the submissions filed on behalf of Dykes and Wildie. 201 In these circumstances, the amount for which Dykes and Wildie are liable should include an amount of $41,983 for interest under the Lease up to 9 June 2004. 202 Heatherway also claimed interest from 9 June 2004 to the date of judgment in these proceedings. The RL Act provides in s 72A that the Tribunal, when making an order for the payment of money in a retail tenancy claim, may also order that interest be paid 'for the whole or any part of the period between when the cause of action arose and the date of payment'. 203 Although interest is commonly awarded, the matter is within the Tribunal's discretion and on occasions (see e.g. JHC Sydney Pty Ltd v Everson & Fauchon [2003] NSWADT 100) a claim for interest is refused. 204 In submissions, neither counsel specifically addressed the matter of interest under s 72A. 205 In the Tribunal's opinion, this is a case where interest under this section should not be awarded. Heatherway has had the benefit of a contractual provision for interest covering the period of nearly four years (from 30 June 2000 to 9 June 2004) during which it was entitled to institute proceedings to enforce the guarantee but did not do so. When it eventually commenced proceedings, its decision to do so in the Supreme Court of Victoria caused the resolution of this matter to be further delayed. Its Amended Statement of Claim was not filed until more than a year after the proceedings were transferred to the Tribunal. In these circumstances, it would be unfair to Dykes and Wildie to exercise against them a statutory discretion to require them to pay yet more interest. The Tribunal's orders 206 The Tribunal's principal order is that Dykes and Wildie are jointly and severally liable to pay to Heatherway the sum of $122,703. 207 The application lodged by Dykes and Wildie is dismissed. 208 Any application for costs must be filed and served, with supporting submissions, within 28 days of the date of this decision. The opposing party or parties must file and serve submissions in reply within a further 28 days. Unless reasons are advanced for a hearing to be conducted, the matter will be resolved 'on the papers', pursuant to s 76 of the Administrative Decisions Tribunal Act 1997.

Set aside by Appeal : Set aside by Appeal in part on 22 May 2007: Dykes and Wildie v Heatherway Pty Ltd

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