Sydney Harbour Federation Trust v McCluskey

Judgment 1HIS HONOUR: Sydney Harbour Federation Trust is the body charged with responsibility for the conservation and preservation of a number of properties, including Macquarie Lightstation at Vaucluse. There are four townhouses erected upon the Vaucluse site. Some years ago the Trust, or one of its predecessors, entered into a series of separate leases of these townhouses to each of the defendants, who have all remained in occupation of the premises ever since. By its summons filed on 16 September 2010, the Trust sought declarations that it had validly terminated each of the leases and orders that the defendants respectively give vacant possession of the townhouses to the Trust. The defendants all originally opposed the Trust's claims and proceedings were eventually listed before me for hearing on 12 December 2011. I reserved my decision on that day. However, since then the first, third and fourth defendants have settled the Trust's claim against them on terms that include agreements to vacate the premises later this year. The Trust's claim against the second defendant has not settled and she continues to contest both the validity of the notice of termination upon which the Trust's claim for possession against her is based as well as the Trust's asserted right and entitlement to recover possession of the premises that she occupies. These reasons are therefore limited to the adjudication of the Trust's claim against the second defendant.

Background 2The second defendant originally entered into a lease of townhouse number 2 with the Trust for a period of 12 months commencing on 12 March 2005 and terminating on 11 March 2006. The rent for the premises was originally $1,993.35 per month. That rent was later increased to $505 per week and remains at that weekly sum today. Although the Trust is named in the lease as the lessor of this townhouse, title to the land had not vested in the Trust when the lease commenced. The Commonwealth of Australia remained the registered proprietor until a date after the expiration of the original 12-month term of the lease. When the land subsequently vested in the Trust, a new lease was not executed. The second defendant therefore remained in occupation of the premises in accordance with the terms of the original lease and, on the Trust's case, pursuant to a holding over provision in the (by then) expired lease. 3On or about 24 June 2010 the Trust caused a notice of termination to be served upon the second defendant giving her 67 days notice to vacate the premises, purportedly in accordance with the relevant term of the lease. That notice required the second defendant to deliver up vacant possession of the premises by 30 August 2010. For reasons that will emerge, the terms of the notice of termination and of the lease pursuant to which it was served are central to the disposition of the Trust's claim in these proceedings. It is convenient, therefore, to set out the relevant terms of the notice of termination as follows: "TAKE NOTICE that the Residential Tenancy Agreement of the Premises dated 10th March 2005 is hereby terminated with effect from 30th August 2010, being the date that is no earlier than sixty (60) days from the date of this notice of termination. Vacant possession of the premises is required on 30th August 2010. This notice of termination is issued in accordance with section 58 of the Residential Tenancies Act 1987 (Act) without specifying any ground for termination. Section 58 of the Act provides that the date of vacant possession must be no earlier than 60 days after the day on which the notice is served. Further information about your rights and obligations can be found in your Residential Tenancy Agreement. ... Note: Section 71(1) of the Sydney Harbour Federation Trust Act 2001 (Cth) (SHFT Act) provides that an excluded State law does not apply, and is taken never to have applied, in relation to: (a) the Trust; (b) the property (including Trust land) or transactions of the Trust; or (c) anything done by or on behalf of the Trust. The Residential Tenancies Act 1987 (NSW) is an excluded State law within the meaning of section 71 of the SHFT Act, and accordingly does not apply, and is taken never to have applied, to Sydney Harbour Federation Trust, the above Residential Tenancy Agreement or the land on which the premises are situated. This notice of termination is issued in accordance with the Residential Tenancy Agreement, but not subject to the Residential Tenancies Act 1987 (NSW). Sydney Harbour Federation Trust reserves its position in respect of the jurisdiction under which this notice is given." 4The lease contained a number of clauses that are potentially relevant to the current inquiry. They include the following. "CONTINUATION: At the end of the term the tenant can stay in the residential premises at the same rent (or at an increased rent if the rent is increased in accordance with the Residential Tenancies Act 1987) but otherwise under the same terms unless or until the agreement is ended in accordance with the Residential Tenancies Act 1987. TERMINATION 34. The tenant agrees, upon termination of the agreement, to promptly and peacefully deliver up vacant possession of the premises, which shall include the handing over of all keys, and to notify the landlord or the landlord's agent of the tenant's forwarding address." 5The lease also contained a section headed "NOTES". The entries under that heading include the following: "NOTES ON ENDING THE TENANCY 2. The first step to end a tenancy is, almost always, for the landlord or the tenant to give a notice of termination. The tenancy ends when the tenant moves out, on or after the date specified in the notice, or when the Residential Tenancies Tribunal orders the tenancy to end. HOW TO END A CONTINUING AGREEMENT 7. (2) A continuing agreement may be ended by a landlord in the following ways: (a) without stating a reason (in which case at least 60 days' notice must be given); (b)...". 6The second defendant maintains that upon the basis of these provisions, and in the events that have happened, the Trust's notice of termination was ineffective to bring her tenancy to an end and submits that the proceedings should be dismissed with costs. The basis for that contention is exposed in the reasoning adopted in the second defendant's written submissions. These are reviewed in what follows.

Second defendant's contentions 7The second defendant identified four bases upon which she perceived the Trust's case must fail. 8First, the tenancy agreement provides for continuation of the lease at the expiration of the original term so that it does not automatically determine at the expiration of the term. The tenancy remains on foot subject to the same terms and conditions except as to rent "unless or until" the tenancy is ended in accordance with the (now repealed) Residential Tenancies Act 1987. Service of a notice under s 60 of that Act is said not to end the tenancy, but is only a condition preceding an application to the Tribunal for an order for possession under s 64. That section was relevantly in the following terms: "64 Application to Tribunal by landlord for termination and order for possession (1) If: (a) a landlord or a tenant gives notice of termination of a residential tenancy agreement under this Part, and (b) the tenant fails to deliver up vacant possession of the residential premises on the day specified, the landlord may, not later than 30 days after that day, apply to the Tribunal for an order terminating the agreement and an order for possession of the premises. (2) The Tribunal, on application by a landlord under this section, is to make an order terminating the agreement if it is satisfied: (a)... (b) ... (c) in any other case ...: (i) that the tenant has seriously or persistently breached the agreement, or (ii) that, having considered the circumstances of the case, it is appropriate to do so." 9The second defendant contended that under the 1987 Act, an order terminating an agreement was not given as of right: Roads and Traffic Authority v Swain (1997) 41 NSWLR 452. On that basis it is said to follow that the duration of the agreement should be characterised as being for an initial fixed period of twelve months but with the tenant being able to remain until the Tribunal terminates the agreement. In the circumstances of the present case, the second defendant submitted that the initial fixed term had expired but the tenancy agreement has not. The second defendant maintained on this analysis that she was not, contrary to the Trust's contention, holding over under an expired lease. 10Secondly, according to the second defendant's submission, it follows if the tenancy agreement has not ended that she did not remain in possession under a "holding over" in the sense considered by Ward J in Quest Rose Hill Pty Ltd v White [2010] NSWSC 939 at [129]. The second defendant contended that neither mode of holding over there considered was applicable to her. That is because the agreement provided that the lease continued "unless or until" it ended in accordance with the Act. The statutory constraints on termination imported into the agreement meant that no new agreement came into existence on the expiration of the initial fixed period of the lease. 11The second defendant maintained, contrary to the Trust's position, that the Residential Tenancies Act 1987 continued to apply to her lease. In short, this was said to be because that Act was not repealed until the commencement of the Residential Tenancies Act 2010 on 31 January 2011 and so continued to apply in relation to the enforcement of a termination of a residential tenancy agreement that occurred before that date. (This argument does not take account of whatever may be the effect of s 71 of the Sydney Harbour Federation Trust Act 2001). 12Thirdly, the lease makes specific reference as to how the agreement can be "ended in accordance with the Residential Tenancies Act 1987". The Trust's notice of termination complied with s 58 of the 1987 Act, and stated in terms that it was issued "in accordance with the Residential Tenancy Agreement, but not subject to the Residential Tenancies Act 1987". The second defendant maintained that the notice of termination purported to "invoke" the s 58 "no grounds" basis for termination and the form of the notice was said to be "consistent with the [Trust's] obligations under the residential tenancy agreement". The service of the notice and the expiration of 60 days were not of themselves effective to give the Trust a right to possession but only operated to give the Trust a right to apply for an order terminating the agreement and an order for possession under s 64 of the 1987 Act. 13Upon this basis the second defendant contended that the lease agreement had not been terminated and remains on foot. It has continued in effect between the Trust and the second defendant. Regardless of whether or not the land is still subject to the 1987 Act, the Trust has failed to comply with the only relevant contractual stipulation relating to termination. The second defendant maintained that it was irrelevant that the Trust could never satisfy that requirement. 14According to the second defendant's submission, even if she is found to be holding over following the expiration of the original term, the lease has still not been correctly determined because the tenancy became a periodic tenancy and any notice that purported to terminate it could only be effective if fixed to expire at the end of a complete period of the tenancy. The second defendant relied on well-known cases such as Dockrill v Cavanagh (1944) 45 SR (NSW) 78 at 82; Queens Club Garden Estates Ltd v Bignell [1924] 1 KB 117 at 124-5. 15Finally, the second defendant acknowledges that she made an agreement with the Trust that was to come to an end "in accordance with the Residential Tenancies Act". She contends, however, that if s 71 operates according to its terms then it operates retrospectively to divest the second defendant of some of her rights pursuant to her lease. As such the second defendant submits that s 71 is a "law with respect to the acquisition of property" within s 51(xxxi) of the Constitution so that any interference with her accrued rights under the lease without just compensation is ineffective: see Georgiadis v Australian & Overseas Telecommunications Corporation [1994] HCA 6; (1994) 179 CLR 297. The "property" of which the second defendant alleges she was improperly divested includes the opportunity to have the termination dealt with upon referral to the Tribunal in accordance with s 64 of the 1987 Act. The second defendant's argument appears to be that her right in accordance with s 64(2)(c)(ii) of the 1987 Act to have the Tribunal consider whether, "having regard to the circumstances of the case, it is appropriate to" make an order terminating the agreement, is a valuable property right that has been divested and for which compensation is payable. 16The second defendant's written submissions described this argument in the following terms: "35. It is submitted that in order to bring an end to the interests of the [second defendant], the SHFT Act either had to bring the leases to an end validly in accordance with their terms, by a notice that satisfied s 58 [of the 1987 Act], followed by a determination of the Tribunal, or to acquire the leasehold interest of the [second defendant] under the Lands Acquisition Act 1989. Neither of those actions has been taken by the [Trust]. The [Trust] cannot therefore employ the combined effect of s 71 of the SHFT Act, and the vesting of the land in it, to effect the acquisition of the [second defendant's] interest in the land, because that which cannot be done directly cannot be done indirectly by the device of issuing a notice of termination referable only to the continued operation of legislation which the [Trust] denies has any operative effect (see Bank of New South Wales v The Commonwealth (1948) 76 CLR 1 at 349; Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 at 510)."

Consideration 17Putting aside the second defendant's contention that s 71 of the Sydney Harbour Federation Trust Act is constitutionally objectionable and ineffective in this case, her arguments purporting to support the general proposition that the Trust cannot validly terminate, and has not validly terminated, the lease are somewhat difficult to follow. This is primarily, but not solely, because they are to some extent a series of variations upon a single and reoccurring theme. In my opinion, none of them is correct. 18In no particular order of significance, when the notice of termination was served, the second defendant was not in possession of the property pursuant to a periodic tenancy. She remained in possession of the property holding over at the expiration of the original term of the lease and according to its terms. The second defendant's characterisation of the lease following the expiration of the original term as one "being for an initial fixed period of twelve months but with the tenant being able to remain until the Tribunal terminates the agreement" misconceives the significance of the former Tribunal's role under s 64(2)(c)(ii) of the 1987 Act. It is difficult to understand how or in what circumstances the Trust would now ever be able effectively or validly to bring the tenancy to an end if the second defendant's argument were correct and it appears to raise the spectre of some kind of lease in perpetuity. 19The requirement under the 1987 Act that the Tribunal had to make an order terminating the agreement if it was satisfied, having considered the circumstances of the case that it was appropriate to do so, did not give it a discretion to refuse to do so if the formal requirements of the termination had otherwise been established. In Scicluna v NSW Land and Housing Corporation [2008] NSWCA 277; (2008) 72 NSWLR 674, Campbell JA said this at [63] - [64]: "[63] If the Tribunal is satisfied that the landlord has established the ground, and is also satisfied that the breach, in the circumstances of the case, is such as to justify termination of the agreement, then the Tribunal is required to make an order terminating the agreement. In accordance with section 53, it is only when the Tribunal makes that order that the tenancy terminates. [64] In my view, the reasoning of the Tribunal shows that it has misapprehended the legal tests that it is required to apply. First, it is wrong to say that the Tribunal has a "discretion to set aside the termination" if it finds special circumstances (or indeed, in any circumstances). There is no termination of the tenancy at all until the Tribunal makes an order terminating the agreement. While the landlord might give a Notice of Termination, that the tenant fails to comply with, those circumstances do not of themselves terminate the agreement. All they do, in accordance with section 64(1), is give the landlord the right to apply to the Tribunal for an order terminating the agreement. The Tribunal does not have any "discretion to set aside a termination", when it is applying section 64(2)." 20Scicluna was a case dealing with a breach to which s 64(2)(b) of the 1987 Act was relevant. In the present case, but for the repeal of the Act, s 64(2)(c)(ii) would have applied. However, the remarks of Campbell JA apply to it with equal force. Even though the service of the notice and the expiration of 60 days would have operated to give the Trust a right to apply for an order terminating the agreement and an order for possession under s 64 of the 1987 Act, there was no demonstrated impediment or reason why that order would not have been made by the Tribunal as a matter of course. 21Moreover, a notice of termination giving not less than 60 days' notice expiring at any time was effective to terminate the lease. Contrary to the second defendant's (apparently alternative) submissions, the tenancy did not become a periodic tenancy at the expiration of the original term of 12 months and it is therefore incorrect to say that any notice that purported to terminate it could only have been effective if fixed to expire at the end of a complete period of the tenancy. In this case there was no "complete period of the tenancy". Cases like Dockrill v Cavanagh and Queens Club Garden Estates Ltd v Bignell, which were concerned with leases granted from week to week or month to month or their equivalent, therefore have no application. The notice of termination was issued in accordance with the terms of the lease agreement, which was not a periodic tenancy, and was effective according to its terms. 22Nor does the fact that the 1987 Act has been repealed mean that there is now no way in which the lease can be terminated, upon the basis that the agreed formula is no longer available. By the operation of s 71(2) of the Sydney Harbour Federation Trust Act, a law of New South Wales relating to "tenancy" is an excluded State law so that the general law applies. The Trust has validly terminated the lease in accordance with the general law. 23Lastly, the lease was always governed by federal legislation because of s 52(i) of the Constitution, as follows: "52 The Parliament shall, subject to this Constitution, have exclusive power to make laws for the peace, order, and good government of the Commonwealth with respect to: (i) the seat of government of the Commonwealth, and all places acquired by the Commonwealth for public purposes;..." 24The 1987 Act never applied to the lease by virtue of that provision. The Commonwealth Places (Application of Laws) Act 1970 picked up the 1987 Act and applied it to the lease as a law of the Commonwealth. However, the Commonwealth Places (Application of Laws) Act did not pick up s 64 of the 1987 Act, permitting the Tribunal to make orders for possession, as this would involve the exercise of judicial power. Accordingly, provisions of the 1987 Act, such as s 64, imposing a requirement that the lease be terminated by an order of the Tribunal, where other modes of termination are not available, are void. 25In any event, in so far as the lease is concerned, s 71 of the Sydney Harbour Federation Trust Act excludes, and is deemed always to have excluded, the application of all State laws respecting tenancy, including the 1987 Act. Section 51(xxxi) of the Constitution is therefore not engaged since the second defendant's asserted right to maintain possession of the property until an order is made by the Tribunal under s 64(2)(c)(ii) of the 1987 Act never existed. There was never any thing, and certainly no property, that has been acquired by operation of s 71. Accordingly, the lease is one that can be terminated in accordance with the general law. 26Quite apart from this line of reasoning, in my view the second defendant's so-called right to have the Tribunal deal with the Trust's application to make an order terminating the agreement under s 64(2)(c)(ii) of the 1987 Act is not a right of property which can only be acquired on just terms within the meaning of s 51(xxxi) of the Constitution (see Mutual Pools & Staff Pty Ltd v The Commonwealth of Australia [1994] HCA 9; (1994) 179 CLR 155) on the one hand, and there would not in any event appear to have been an acquisition of it (see Attorney-General for the Northern Territory v Chaffey; Santos Ltd v Chaffey [2007] HCA 34; (2007) 231 CLR 651) on the other hand. The second defendant's "right" was in this case of its very nature susceptible of statutory alteration, modification or extinguishment and its alteration, modification or extinguishment here does not effect an acquisition. Moreover, all of the second defendant's other nominated rights, possessed by her as a tenant whose tenancy was subject to the 1987 Act, are in my view of the same character. Specifically these were identified as a right to contest any increase in rent in ss 45 to 49, a right to apply for recognition of another person to have the agreement vested in him or her in s 35, and a right to limit the landlord to a period of 30 days within which to apply to the Tribunal concerning a breach in s 16. These rights, all said to arise from the provisions of the 1987 Act, are in my opinion, and by way of example, far removed from the leasehold interest that was the subject of the alleged acquisition of property that attracted the operation of s 51(xxxi) with which the High Court was concerned in Minister for State for the Army v Dalziel [1944] HCA 4; (1944) 68 CLR 261. 27Unlike the extinguishment of the right to bring an action for damages considered in Georgiadis, upon which the second defendant relies, the issue at stake in this case is the modification or extinguishment of so-called rights of property that have no existence apart from statute. In this respect I observe that the Trust submitted, and I accept, that the potentially adjustable nature of a lease granted by the Commonwealth in respect of a Commonwealth place is "obvious". As Mason CJ, Deane and Dawson JJ said in Georgiadis at 305-306: "Accordingly, 'acquisition' in s 51(xxxi) extends to the extinguishment of a vested cause of action, at least where the extinguishment results in a direct benefit or financial gain (which, of course, includes liability being brought to an end without payment or other satisfaction) and the cause of action is one that arises under the general law. The position may be different in a case involving the extinguishment or modification of a right that has no existence apart from statute. That is because, prima facie at least and in the absence of a recognized legal relationship giving rise to some like right, a right which has no existence apart from statute is one that, of its nature, is susceptible of modification or extinguishment. There is no acquisition of property involved in the modification or extinguishment of a right which has no basis in the general law and which, of its nature, is susceptible to that course. A law which effected the modification or extinguishment of a right of that kind would not have the character of a law with respect to the acquisition of property within s 51(xxxi) of the Constitution." 28In Commonwealth v WMC Resources Ltd [1998] HCA 8; (1998) 194 CLR 1, Brennan CJ dealt with this passage at [16] and [17] as follows: "[16] In this passage, their Honours treat "acquisition of property" as a single concept. I agree that, where a purely statutory right is by nature susceptible of modification or extinguishment, its modification or extinguishment works no acquisition of property. But, in my respectful opinion, it does not follow that a law of the Commonwealth which extinguishes purely statutory rights having no basis in the general law can never effect an "acquisition of property" within s 51 (xxxi). If statutory rights were conferred on A and a reciprocal liability were imposed on B and the rights were proprietary in nature, a law extinguishing A's rights could effect an acquisition of property by B. In the present case, where the rights of the permittee and of WMC, though created by statute, are properly to be regarded as proprietary in nature, a Commonwealth law which purported to effect a compulsory transfer of those rights to a third party would be a law for the acquisition of property. But the Consequential Provisions Act does not have that effect. The present case does not turn on the proprietary nature of the rights of the permittee or of WMC; it turns on a different issue, namely, whether the modification of the rights of the permittee and of WMC amounts to an acquisition by the Commonwealth of the rights which the permittee and WMC respectively possessed before the Consequential Provisions Act commenced. [17] Where a law of the Commonwealth creates or authorises the creation of a right, a statutory modification or extinguishment of the right effects its acquisition if, but only if, it modifies or extinguishes a reciprocal liability to which the party acquiring the right was subject. Thus in Newcrest Mining (WA) Ltd v The Commonwealth, the law which sterilised Newcrest's right under its mining lease to carry on "operations for the recovery of minerals" on land vested in the Commonwealth was, in my opinion, a law for the acquisition of property because it extinguished the liability of the Commonwealth to have those minerals extracted from its land and thereby enhanced the property of the Commonwealth. But where a law of the Commonwealth creates or authorises the creation of a right that does not impose on the Commonwealth a reciprocal liability, the mere extinguishment of the right effects no acquisition of the right by the Commonwealth. The Commonwealth's position remains unchanged by the extinguishment." 29Toohey J also had this to say at [56]: "[56] In Mutual Pools and Staff Pty Ltd v The Commonwealth Dawson J and I held that the extinguishment of a right to proceed against the Commonwealth was not an acquisition of property because "when a chose in action is extinguished, the debtor receives merely a financial advantage, not a proprietary interest in the chose in action". However, that was a minority view and, in light of Georgiadis v Australian and Overseas Telecommunications Corporation and Commonwealth v Mewett, it must be accepted that where a distinct financial benefit is conferred upon the Commonwealth, the extinguishment of a cause of action will amount to an acquisition of property[99]. What is clear is that acquisition involves obtaining "some identifiable benefit or advantage relating to the ownership or use of property..." 30I am unable to accept that the second defendant's "right" was relevantly acquired. There does not seem to me to have been some identifiable benefit or advantage relating to the ownership or use of property as described in Mutual Pools that has been conferred on the Commonwealth following the enactment of s 71. This is particularly so having regard to the reasoning in Scicluna referred to earlier. The Tribunal retained no discretion under s 64(2)(c)(ii) of the 1987 Act to do otherwise than to make the order terminating the tenancy. The second defendant has pointed to no basis upon which the order terminating the tenancy would not have been made. Adopting the terminology of s 64(2)(c)(ii) of the 1987 Act, the second defendant has not shown why, having considered the circumstances of this particular case, the Tribunal would not, or could not, have been satisfied that it was appropriate on application by the Trust to make an order terminating the agreement. Far from acquiring some financial benefit or advantage, the Trust is in the same position as a result of the operation of s 71 in practical terms as it was prior to its enactment and, correspondingly, so is the second defendant. 31Nor in my view are any of the other particular rights that are advanced by the second defendant capable of being characterised as property or anything other than statutory rights susceptible of modification or extinguishment. In so saying I take account of the warning to the effect that caution should be exercised when seeking, possibly slavishly, to employ expressions such as "inherently susceptible of modification" without regard to the specific case in point. It is unnecessary in these circumstances to consider the accompanying argument that the second defendant's leasehold interest should have been acquired under the Lands Acquisition Act 1989. 32It follows that s 71 of the Sydney Harbour Federation Trust Act is not constitutionally objectionable and that the Trust has validly terminated the second defendant's lease.

Orders 33In these circumstances I make the following orders:

1. DECLARE that by notice of termination dated 24 June 2010 Sydney Harbour Federation Trust validly terminated the Residential Tenancy Agreement made between it and the second defendant in respect of the premises known as Townhouse 2, Macquarie Light Station, Old South Head Road, Vaucluse.
2. ORDER that the second defendant give vacant possession of the premises to Sydney Harbour Federation Trust.
3. GRANT leave to Sydney Harbour Federation Trust forthwith to apply for a writ of possession in respect of the premises.
4. ORDER that execution upon any writ of possession issued to Sydney Harbour Federation Trust be stayed up to and including midnight on 30 April 2012 upon condition that the second defendant continues to pay rent to Sydney Harbour Federation Trust in accordance with the Residential Tenancy Agreement and otherwise continues to observe and to comply with its terms.
5. GRANT liberty to apply in respect of the meaning or enforcement of these orders on 2 days' notice. 34I have yet made no order as to the costs of the proceedings at the request of the parties, as I am led to understand that each wishes to make submissions concerning that question. I will accordingly hear the parties concerning any costs orders for which they respectively contend at some time convenient to the parties and to the Court to be arranged in consultation with my Associate.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 March 2012