Vella & Anor v Wah Lai Investment

LEGISLATION CITED: Conveyancing Act 1919 Trade Practices Act 1974

Commonwealth v Verwayen (1990) 170 CLR 394 Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226 CASES CITED: Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39 Thompson v Palmer (1933) 49 CLR 507

Paul Vella - First Appellant PARTIES: Craftmill Pty Ltd - Second Appellant Wah Lai Investment (Australia) Pty Ltd - Respondent

COUNSEL: RD Wilson - Appellants C Law (Sol) - Respondent

SOLICITORS: McKells Solicitors - Appellants Equiton Solicitors - Respondent

LOWER COURT FILE NUMBER(S): 2907/96; 4900/98/; 1850/99

1 MASON P: I agree with Hunt AJA. 2 BRYSON JA: I agree with Hunt AJA. 3 HUNT AJA: This case concerns the lease of a hotel called the Waterloo Tavern ("Tavern"). 4 The respondent, Wah Lai Investment (Australia) Pty Ltd ("Wah Lai"), owns the building in which the Tavern is situated and the land on which it was erected. Wah Lai leased the Tavern to Buddies Liquor Pty Ltd ("Buddies") for a period of ten years commencing on 25 March 1993. This lease was registered under the Real Property Act 1900. Buddies is not a party to these proceedings.

Factual background 5 On 7 March 1994, Buddies entered into an agreement with Paul Vella ("first appellant") for the sale of the business of the Tavern to the first appellant or his nominee for the price of $105,000. The sale of the business of the Tavern involved the transfer of the lease of the premises. Craftmill Pty Ltd ("second appellant") is a company owned and operated by the first appellant.

6 The first appellant paid a deposit of $5,250 on making the agreement with Buddies. Completion of the sale was made conditional on the transfer of the lease of the Tavern, and on Wah Lai consenting to the transfer. The agreement also specified arrangements for the provisional transfer of the hotelier's licence "attaching to the premises" ("Licence").

7 In the lease itself there was a clause, cl 15.4, which authorised the lessor to act as the lessee's "true and lawful attorney" in respect of the transfer of the Licence in the event of default by the lessee under the lease. Pursuant to cl 15.5 of the lease, there were three conditions which had to be met before a complete and effective transfer of the lease to the first appellant could occur: (1) the lessor must give its consent to the transfer; (2) the new lessee must confirm the covenants of the lease; and (3) the present lessee must secure the execution by the new lessee of a power of attorney similar to that contained in cl 15.4 of the lease. Only the first of these conditions was satisfied. 8 The trial judge (Campbell J) found that, on 21 July 1994, Wah Lai consented to the transfer of the lease to the first appellant and that the first appellant and his domestic partner took possession of the Tavern on that day. However, the transfer was never registered. The trial judge accepted that, whilst the first appellant did pay some more of the purchase price to Buddies, $85,000 has never been paid. It was said that the second appellant operated the Tavern from 21 July 1994 on behalf of the first appellant, by virtue of an implied licence. 9 The first appellant applied for the transfer of the Licence to himself on 2 September 1994, but he abandoned his application following the lodgement of an objection to it by the Redfern Licensing Police. The grounds of the objection were that the first appellant was not a fit and proper person to hold such a licence, due to his past liquor offences and the misleading statements he had made in his application. Ms Koleta Gleeson, the first appellant's domestic partner, instead became the transferee of the Licence on 20 December 1994. 10 The trial judge found that, following the payment of the instalment of rent which fell due on 25 May 1995, no further rent was paid to Wah Lai. The first appellant had by that time also failed to pay the increase in the rent over the period 25 July 1994 to 25 October 1994. Certain outgoings were also not paid. As at the date of the trial, Wah Lai was owed $85,228.22. 11 Several demands for unpaid rent were made on behalf of Wah Lai. Ultimately, Wah Lai took proceedings in the Common Law Division of the Supreme Court against Buddies for possession of the Tavern on 29 September 1995 ("Possession Proceedings"). 12 In about February or early March 1996, the first appellant attended a meeting with Mr Wah Lai's real estate agent. This came to be known as the "You've Got No Lease" meeting. This significance of this meeting will become apparent later in this judgment. For present purposes, it is sufficient to note that the judge found that, at that meeting, the first appellant was told that there was a problem with his lease of the Tavern, and that in fact he had no lease. 13 On 17 April 1996, Sully J made an order for possession in Wah Lai's favour in the Possession Proceedings. On 14 May 1996, the first appellant and his partner were evicted from the Tavern by the Sheriff. 14 Whilst in occupation of the Tavern, the first appellant caused to be carried out certain repairs and building works. This was partly in response to notification received from the South Sydney Council as to the inadequacy of fire safety precautions at the Tavern and the issue of two Fire Safety Orders under s 124 of the Local Government Act 1993, one in August and the other in November 1994. The value of these works was found to be $61,820. 15 The trial judge found that Wah Lai had agreed with the first appellant to offset the cost of these repairs and building works against the rent due under the lease. Accordingly, the first appellant was entitled to set-off the $61,820 against the $85,228.22 owed to Wah Lai. This meant that the first appellant was still indebted to Wah Lai in the amount of $23,408.22 when he and his domestic partner were evicted. 16 The appellants commenced proceedings in the Equity Division of the Supreme Court on 31 July 1996 claiming, in essence, that they had a lease of the Tavern, that they were entitled to remain in possession and that the eviction was in breach of a covenant in the lease by which they were entitled to quiet enjoyment of the premises. They sought damages and other relief in connection with the alleged breach of this clause. Wah Lai cross-claimed for unpaid rent.

The appeal 17 The central issue in the appeal is whether the first appellant had a lease of the Tavern. In support of the submission that the first appellant did have the benefit of such a lease, the appellants rely on two separate grounds: (1) that there was an assignment in equity of the legal lease of the Tavern from Buddies to the first appellant; and (2) in the alternative, that Wah Lai was estopped from denying the existence of such a lease by virtue of a common assumption by the parties as to its existence. If either ground is made out, the appellants submit that the first appellant would be entitled to claim damages because his eviction was in breach of a covenant in the lease for quiet enjoyment. 18 The first appellant also sought to challenge the trial judge's findings as to the damages to which he, as distinct from the second appellant, was entitled for the early termination of his tenancy. A separate claim by the first appellant under the Trade Practices Act 1974 (Cwth) was abandoned at the hearing of the appeal.

19 The appellants contended that, whilst there was no assignment of the lease to the first appellant at law (because the transfer was not registered and was not effected in accordance with the terms of the lease itself, especially cl 15.5), there was still an assignment in equity. It is said that this was because: (1) the first appellant gave valuable consideration for the assignment (namely the agreement to purchase the business of the Tavern for $105,000); (2) Wah Lai gave its consent; and (3) the failure to comply with cl 15.5 did not preclude an equitable assignment. 20 Counsel for the appellants argued that a finding that the lease had been assigned to the first appellant in equity did not depend on whether the agreement between the first appellant and Buddies was capable of specific performance. The appellants also called in aid ss 117-118 of the Conveyancing Act 1919 in support of this ground of the appeal. In answer to this, the respondent said that it was induced by the misleading and deceptive conduct of the appellants to consent to the assignment of the lease to the first appellant and, for this reason and for the appellants' misleading and deceptive conduct generally, this ground of appeal must fail. 21 The judge found that the first appellant had no rights in the lease of a kind recognised by the Real Property Act, because the transfer of the lease from Buddies to the first appellant was never registered. The judge also found that no equitable assignment of the lease from Buddies to the first appellant was effected, on the basis that: (1) there was no basis for treating the first appellant as having rights in equity against Wah Lai concerning the lease before there had been a finding that the agreement between Buddies and the first appellant for the assignment of the lease was capable of specific performance; and (2) the first appellant failed to demonstrate that his agreement with Buddies was capable of specific performance and thus created in him rights as against Wah Lai. 22 In the alternative, the appellants contended that Wah Lai was estopped from denying that the first appellant had a lease of the Tavern, on the basis of the judge's finding that Wah Lai represented to the first appellant that he had such a lease. The estoppel contended for is an estoppel by common assumption or convention, a common law estoppel. The appellants do not place any reliance on the principles of equitable estoppel in support of this ground. 23 The essential requirements of an estoppel by common assumption were discussed in MK & JA Roche Pty Ltd v Metro Edgley Pty Ltd [2005] NSWCA 39, where Hodgson JA said (at par [72]): However, I do not accept Mr Newlinds' submission that reliance and detriment are not essential for the existence of conventional estoppel. The passage from Con-Stan [ Con-Stan Industries v Norwich Winterthur Insurance (Aust) Ltd (1986) 160 CLR 226] refers inter alia to Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, in which Dixon J makes it clear that the relevant principle is that "the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations" (at 674), this involving both (1) action such that the party relying on the estoppel would suffer a detriment if the other party were afterwards allowed to set up rights inconsistent with the assumption; and also (2) that the party against whom the estoppel is asserted "must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it" (at 675). See also Thompson v Palmer (1933) 49 CLR 507 at 547. In my opinion, common law estoppel by representation or conventional estoppel still requires that the party relying on the estoppel must have "placed himself in a position of significant disadvantage if departure from the assumption be permitted": see Verwayen [ Commonwealth v Verwayen (1990) 170 CLR 394] at 444. 24 The appellants say that the first appellant acted on Wah Lai's representation to his detriment by taking steps which included moving into the Tavern, operating the Tavern on behalf of the second appellant, employing staff, taking out insurance, paying rent and other outgoings and undertaking substantial repair work. They also contend that, when Wah Lai purported to withdraw its representation at the "You've Got No Lease" meeting, the first appellant suffered a significant disadvantage in the loss of the benefit of the lease for the unexpired term of six years and forty-four weeks. For these reasons, it is said that to permit Wah Lai to depart from its representation would be unjust. 25 In answer, the respondent contends that: (1) it was the first appellant who misled Wah Lai into believing that the lease had been assigned; (2) any right to an estoppel was lost to the first appellant by reason of his ongoing failure to pay rent; (3) the first appellant suffered no detriment as a result of any representation attributed to Wah Lai; and (4) by delaying taking the steps necessary to effect a proper transfer of lease, the first appellant is prevented from relying on an estoppel. 26 The judge found that, whilst a tenancy by estoppel was created in the first appellant's favour, this did not assist him in the proceedings because it had ceased to apply at the critical time, namely when he was evicted from the Tavern, on the basis of the following findings to which reference has already been made: (1) Wah Lai represented to the first appellant that Wah Lai consented to the assignment of the lease from Buddies to the first appellant; (2) Wah Lai's representation gave rise to a tenancy by estoppel in the first appellant's favour; plus two further findings: (3) Wah Lai resiled from its representation during the "You've Got No Lease" meeting of February or early March 1996; and (4) this was something Wah Lai was entitled to do because the first appellant was unable to show that his position was irretrievably prejudiced by any detriment suffered by him following the making of the representation.

27 The loss of the tenancy by estoppel caused the first appellant to revert to such rights as were available to him at law. He was thus in the position of a tenant at will pursuant to s 127 of the Conveyancing Act. His tenancy was terminable at any time by the giving of one month's notice by him or by Wah Lai. The order for possession made in the Common Law Division in April 1996 terminated the first appellant's tenancy. However, this did not prevent the first appellant from pursuing whatever private legal rights (other than under the lease) he had against Wah Lai. 28 The judge found that Wah Lai terminated the first appellant's s 127 tenancy without giving the required one month's notice. He also found that the second appellant's loss resulting from the unlawful termination of the tenancy would have been $10,250 per month. However, the second appellant was not the tenant, the first appellant was. Accordingly, the second appellant was not entitled to any damages from Wah Lai. The judge said that, whilst it may have been possible for the first appellant to demonstrate that he lost up to one month's profits as a result of the failure to give notice, he was not entitled to any damages because, at that time, he was deriving no profits from his tenancy and was therefore unable to show that he had suffered any loss by its early termination. 29 The judge upheld Wah Lai's cross-claim for unpaid rent in the amount of $23,408.22. There has been no appeal against the orders made on that cross-claim. 30 The appellants have put forward many arguments in support of their complaint that the judge erred in dismissing their claim on each of the bases on which the matter was argued in the Equity Division. Some of those arguments are interesting, but none is compelling. It is unnecessary in this appeal to deal with each and every one of the arguments put forward by the appellants in relation to the nature of the interest each claimed in the property leased by the respondent. That is because, whatever that interest (if any) each of the appellants may have had in the property at the relevant time, the lease must necessarily have been subject to a condition - arising either from common law, in equity or by statute - that the lessor was entitled to give at least one month's notice of termination of that lease by reason of the tenant's failure to pay the rent due. The lease must also have been subject to the lessor's entitlement to re-enter on non-payment of rent, and s 129 of the Conveyancing Act does not restrict that right: see s 128(8). The determination of this appeal therefore does not depend on the answers to any of those questions raised by the appellants' arguments. 31 Let it be assumed that the first appellant did have a lease of the Tavern of some kind. If the first appellant was to have the benefit of such a lease, he was also bound to adhere to its terms. This much was conceded by his counsel. Under the lease, the first appellant would have been obliged to pay rent (cl 4), to pay certain outgoings (cl 5(iv)), to maintain and repair the Tavern (cl 7(i)), and to comply with relevant statutes, orders and regulations (cl 7(iii)(c)). 32 The evidence made it clear that the first appellant was in breach of his obligation to pay rent. It is common ground that, as at the date of his eviction, the first appellant owed Wah Lai $85,228.22 in unpaid rent, although (as stated earlier) he was entitled to set-off the costs of the repairs and other work required by the South Sydney Council. The first appellant asserted that there was an implied term in that agreement whereby his payment of this rent was to be deferred until the work was completed. The effect of such an implied term, he argued, meant that, as at the date of his eviction, he was not in breach of the covenant to pay rent and could not be in breach of that covenant until the work was completed and the parties had had an opportunity to work out who owes whom what amount. 33 The judge found that the substance of the agreement was that the first appellant - … would carry out the necessary work as required by the Council and all the expenses for the work done will be used to offset the monthly rental paid to [Wah Lai]. The judge made a specific finding that he did not accept the evidence of the first appellant in which he asserted that Wah Lai's agent (Mr Touma) had agreed that they would work out the amount of the set-off when he had finished the repairs and the other work required by the Council. It was conceded on appeal that this finding rejected the existence of such an implied term. 34 The judge said that, as the lease did not operate at the time of the eviction, it was unnecessary for him to determine whether there was an implied term in the agreement to that effect. Nor is it necessary for this Court to do so. That is because, as counsel for the first appellant conceded, the operation of the covenant to pay rent, and the right of the lessor to re-enter for the breach of that covenant, continued notwithstanding any collateral agreement for set-off. 35 Clause 11(i) of the lease relevantly provides as follows: That if the rental hereby reserved or any part thereof shall be unpaid for the space of fourteen (14) days after any of the days on which it ought to have been paid … or if the Lessee commits permits or suffers to occur any breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions of this lease … then … the Lessor … shall have the right without any notice to re-enter into and upon the premises or any part thereof … . The covenant to pay rent and to preserve the licence herein contained is an essential term of this lease and the Lessee hereby acknowledges and agrees that equitable relief against forfeiture shall not be available to the Lessee. Wah Lai was entitled under this clause, and possibly also in equity, to re-enter and take possession of the Tavern for non-payment of rent. 36 The appellants argued that the first appellant would have had a right to seek relief against forfeiture. However, he did not exercise this right prior to the date of his eviction or at any time. Relief against forfeiture would no longer have been available to the first appellant by the time he commenced the proceedings in 1998 by reason of his delay. In any event, it would only have been granted on the condition that all breaches of the lease by the first appellant be remedied. The evidence discloses that such a condition would not have been met. 37 The appellants' claim for damages is founded on the first appellant's eviction from the Tavern constituting a breach of cl 10(i) of the lease, the quiet enjoyment clause. However, cl 10(i) made the first appellant's right to quiet enjoyment of the Tavern conditional on his "duly and punctually observing and performing all covenants, obligations and provisions in this lease". As the first appellant had failed to fulfil his obligations under the lease (including the obligation to pay rent), his right to quiet enjoyment under cl 10(i) no longer existed. Wah Lai's eviction of the first appellant from the Tavern was therefore not an infringement of the first appellant's rights and could not be in breach of cl 10(i) of the lease. The first appellant's claim for damages for breach of cl 10(i) must therefore fail as the judge found. 38 Wah Lai's eviction of the first appellant from the Tavern therefore did not breach cl 10(i) of the lease, although (as the judge found) the eviction did breach the first appellant's right to one month's notice. However, the judge also found that he was not entitled to damages for that breach. If it were accepted that the parties were bound by estoppel to the convention that there was a lease between them on 14 May 1996 - the date when the lessor evicted the occupants and re-entered with the assistance of the Sheriff - the lessor had a legal right at that time to re-enter for non-payment of rent under that lease. 39 I would not disturb the orders the judge made. Accordingly, I propose that the following orders be made:

1. The appeal is dismissed.
2. The appellants are to pay the respondent's costs of the appeal. ~ o0o ~

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