Wilson v Dobson

Supreme Court of NSW|2019-06-04|Before: Davies J

Judgment

The plaintiffs seek summary judgment, pursuant to r 13.1 of the Uniform Civil Procedure Rules 2005 (NSW), for what is claimed to be rent owing by the defendants to the plaintiffs. The dispute arises out of the occupation by the defendants, or one or more of them, of a hotel known as the Gearins Hotel in Katoomba. The plaintiffs are the registered proprietors of the property. It is claimed that the defendants were the tenants of the plaintiffs from April 2015 until a date late in 2018 or early 2019 when the tenancy was brought to an end.
Proceedings were commenced by the plaintiffs on 11 February 2019 claiming possession of the hotel together with outstanding rent and interest. The first and second defendants were the persons with whom the first plaintiff, Mr Garry Wilson, on behalf of both plaintiffs, dealt over a period of years before the present arrangements were entered into. The third defendant, RMHD Pty Ltd, was a company incorporated on 2 December 2015. It was a company of which the first defendant, Robert Peter Dobson, was the sole director, with Mr Dobson and the second defendant, Marnie Linton, being the two equal shareholders.
The defendants were initially represented by a solicitor who filed a defence on their behalf on 8 March 2019. That defence denied that there was any tenancy agreement and denied that a tenancy existed. The defence also denied that the first and second defendants were in occupation of the land but asserted that the third defendant was in occupation of the land. The defence denied that the defendants failed to pay rent. Shortly before the first judicial directions hearing, the solicitor ceased to act for the defendants. The defendants have thereafter acted on their own behalf.

Background

The plaintiffs purchased the property in August 2011. Although they initially tried to run the hotel themselves, they subsequently leased it to a Mr Brett Hollyoak in November 2011. Mr Hollyoak had a lease drawn up with his company BMCF Pty Ltd as the tenant but the lease was never signed. Mr Hollyoak simply paid rent to the plaintiffs. That arrangement continued until approximately March 2015.
The first defendant, Mr Dobson, worked in the hotel as an employee of Mr Hollyoak.
By February 2015, Mr Hollyoak was in arrears of rent and other monies. The plaintiffs decided to terminate the lease. Mr Dobson and Ms Linton offered to assist the plaintiffs to evict Mr Hollyoak. To that end, Mr Wilson gave them a copy of the unsigned lease prepared by Mr Hollyoak. Mr Dobson then caused a Notice of Eviction to be drawn up, and the Notice was given to Mr Hollyoak. He left the property on or about 3 April 2015, and Mr Dobson and Ms Linton moved in shortly thereafter. Mr Wilson had asked for a bond of $20,000 from Mr Dobson and Ms Linton, but they were only able to come up with $5,000. Mr Wilson accepted that.
At the same time, Mr Wilson said that the following conversation occurred: Mr Dobson: And now that Marnie and I have moved in, we would like to see if we could pay a reduced rent for a while, just until we get on our feet. Mr Wilson: Okay. You could just pay $2,500 for the first six months. How about that? Ms Linton: That would be great.
Thereafter direct payments of $2,500 per week, increased to $2,750 per week from 2 October 2015, were made into the plaintiffs' NAB account from "Marnie Linton" (up to 26 February 2016) and thereafter from "Hotel Gearin". Mr Wilson said that Mr Dobson and Ms Linton also looked after the rates and outgoings, and paid for maintenance. Shortly after the arrangement commenced, Mr Dobson asked Mr Wilson if he could be the licensee for the hotel because both he (Mr Dobson) and Ms Linton were bankrupt. Mr Wilson agreed, and remained the licensee until approximately June 2016.
At various times, the first and second defendants fell behind in the payment of rent. Discussions ensued between those defendants and Mr Wilson where the defendants said that the business was not doing particularly well. They asked for help with the rent. Mr Wilson said that he was not prepared to change the rent but agreed to pay the rates and insurance until the business improved.
In 2017 Mr Dobson wished to have new heating and air conditioning units installed in the hotel. However, at that time the first and second defendants were in arrears of rent to the extent of 11 weeks, and Mr Wilson was not prepared to agree.
With the rent still in arrears in early 2018, Mr Wilson requested a meeting with Mr Dobson. However, Mr Dobson told Mr Wilson to contact Mr Dobson's solicitor, Mr Benetatos. Before Mr Wilson could do so, the plaintiffs received a letter from Mr Benetatos dated 31 May 2018 attaching a draft lease. A covering letter said that the solicitors acted for RMHD Pty Ltd. The letter went on to say: Mr Dobson has requested that we draft a Lease for your consideration to formalise the relationship.
The draft leased identified RMHD Pty Ltd as the tenant with Mr Dobson being described as the guarantor. Mr Wilson said that prior to receipt of that letter he had never heard of RMHD Pty Ltd. He said that a lease was never signed, and the plaintiffs did not reply to the letter. Nothing further was heard from the solicitor or the defendants about the proposed lease.
With the defendants being further in arrears of rent by November 2018, the plaintiffs arranged for their solicitor to prepare Notices to Quit addressed to Mr Dobson, Ms Linton and RMHD Pty Ltd. Those letters were sent on or about 29 November 2018.

Issues raised by the defence

The defence raises three issues which require consideration before summary judgment can be given. The first assertion is that the first and second defendants were not in occupation of the land. Rather, the third defendant was in occupation of the land. The second is that there was no tenancy between the plaintiffs and any of the defendants. The third issue is whether there was failure to pay rent.
In considering these issues, I have kept in mind the high degree of certainty which must be shown before the defendants should be deprived of their right to a final hearing of the proceedings: General Steel Industries In v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; Spencer v The Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28; Shaw v State of New South Wales [2012] NSWCA 102.

(1) Were the first and second defendants in occupation of the land?

The evidence of the defendants is that they went into occupation on 3 April 2015 when Mr Wilson handed them the keys. The first defendant agreed in his oral submissions that the defendants were the occupiers of the hotel, but he said that the company RMHD ran the hotel business. There are a number of difficulties with that submission.
First, RMHD was not incorporated until 2 December 2015, some eight months after the defendants went into occupation. Secondly, although the first defendant claimed in his oral submissions that Mr Wilson was "verbally" told about RMHD, no such evidence appears in the affidavits of the defendants. The evidence from Mr Wilson was that until he received the letter from Mr Benetatos of 31 May 2018 he had never heard of RMHD. Thirdly, even if Mr Wilson was told about RMHD, there is no evidence that the plaintiffs agreed to RMHD running the business or occupying the hotel. Further, what was said by the first defendant was only that Mr Wilson was told RMHD was running the business. The defendants did not even submit that Mr Wilson agreed. Fourthly, the only way RMHD could occupy the land was through its directors and agents. The first defendant was the sole director and the first and second defendants were the only shareholders of the company.
The pleading in the defence that the third defendant and not the first and second defendants were in occupation of the land is untenable.

(2) Was there a tenancy?

In my opinion, the evidence points overwhelmingly to the arrangement between the plaintiffs and the first and second defendants as being a tenancy determinable at the will of either of the parties by one month's notice in writing: s 127 Conveyancing Act 1919 (NSW). Significantly, the defendants in oral submissions accepted that they were tenants. They sought to distance themselves from the defence filed and their former solicitor who prepared it. That tends rather to overlook the fact that both defendants swore an affidavit as to the truth of the allegations in the defence.
There is no doubt from the evidence of both the plaintiffs and the defendants that Mr Dobson and Ms Linton went into occupation of the hotel. The conversation between Mr Wilson and the first and second defendants (set out at [8] above) is entirely consistent with what was described by Mr Dobson as "the monetary agreement" in paragraph 21 of his affidavit. The plaintiffs' bank records show the receipt of regular amounts of $2,500, increasing to $2,750 from Marnie Linton and later from "Hotel Gearin". These transfers are given the description "Rent and GST".
After the defence was filed in the present proceedings, the solicitor acting for the defendants forwarded on two occasions proposed forms of a cross-claim intended to be filed by the defendants. As matters transpired, a cross-claim was never filed. In the proposed cross-claim forwarded under cover of the letter of 2 April 2019, the cross-claim asserted that the plaintiffs made representations to the first and second defendants. Paragraph 4 then asserted: Acting in reliance upon the representations, the first and second cross-claimants: (a) Entered into an oral agreement with the first and second cross-defendants to lease the Hotel and to operate the Hotel business.
Paragraph 5 then asserted: It was agreed, inter alia, that: (a) The term of the lease would commence on 5 April 2015 and would continue on a monthly basis; … (c) The cross-claimants would pay to the first and second cross-defendants the sum of $2,500 per week in rent for the Hotel and the business conducted from the Hotel.
Paragraph 11 pleaded: As a consequence of the breaches of agreement by the first and second cross-defendants and the misrepresentations made prior to the commencement of the tenancy, the first and second cross-claimants have suffered loss and damages (sic).
In the form of the cross-claim served under cover of the letter of 14 March 2019, paragraph 2 said this: At the meeting [in about March 2015] the first cross-defendant [Mr Wilson] and the first and second cross-plaintiffs (sic) agreed that the first and second cross-claimants would take occupation of the Hotel Gearin, 273 Great Western Highway, Katoomba (the premises) which was owned [by] the cross-defendants and operate the business located in the premises.
That form of the cross-claim was sworn to be true by the first and second defendants.
Those assertions in proposed pleadings forwarded by the solicitor then acting for the defendants amount to admissions that the first and second defendants were in occupation pursuant to a tenancy.
In Radaich v Smith (1959) 101 CLR 209 the question was whether an instrument created a lease as opposed to a license. The instrument itself referred to the parties as licensors and licensees. Justice McTiernan said (at 215): The preamble recites that the respondents are "to carry on the business of a milk bar" in the subject Premises. I think that such a business could only be carried on in reasonable convenience by persons having the exclusive possession of the premises. Nothing in the deed suggests that the parties did not recognise this as an implication of their agreement embodied therein. The premises, it appears, constituted what is often called a "lock-up shop". On several of the rent receipts given by the respondents, and which are in evidence, is the notation: "All window, door keys, locks, etc., lost or broken, shall be paid for by the tenant". The agreement contemplates that the so-called "licensee" is to have control of the premises, and of the persons entering them, during business hours and, indeed, at all other times.
Justice Taylor said (at 217): I have no doubt that the substance and effect of the instrument in question here was to grant to the appellant a right to the exclusive possession of the subject premises upon the specified conditions for the prescribed term. The deed obviously contemplated that the appellant should have the right to occupy the premises for the purposes of her business and the business was to be carried on upon the premises at all times when they might lawfully be kept open. The character of the business was such that it could only be effectively carried on if the appellant had exclusive occupation and it seems clear that, even at times when they could not lawfully be kept open for the purposes of the business, the premises were to remain under her effective control. That being so it is inevitable that we should hold that the instrument created a leasehold interest and that at the material time the relationship of lessor and lessee existed between the parties.
In the same way, in the present case the hotel business could only be carried on by persons having exclusive possession of the premises.
In Chan v Cresdon Pty Ltd (1989) 168 CLR 242 the majority judgment said (at 248-249): It is convenient to consider, first, the respondent's argument based on the existence of a common law tenancy. It is well settled that entry into occupation followed by payment of rent under an agreement for a future lease brings into existence a common law tenancy from year to year, so long as the payment of rent is referable to a yearly tenancy, as where it is for an aliquot part of a year: Dockrill v. Cavanagh. Such a tenancy determines on the expiration of the lease agreed upon and it is on the terms and conditions of the agreement so far as they are consistent with a tenancy from year to year (Moore v. Dimond; York House Pty. Ltd. v. Federal Commissioner of Taxation; Progressive Mailing House Pty. Ltd. v. Tabali Pty. Ltd.). At common law the tenancy from year to year was liable to termination by notice to quit before the expiration of the term contracted for: Moore v. Dimond. A similar tenancy from year to year arises from entry into occupation and payment of rent under an informal lease, including an unregistered lease of land under the provisions of the Act: Moore v. Dimond; Carberry v. Gardiner. This tenancy is an implied or imputed tenancy. As Patteson J. noted in Doe d. Thomson v. Amey: "[T]he terms upon which the tenant holds are in truth a conclusion of law from the facts of the case, and the terms of the articles of agreement.'' In Moore v. Dimond, Knox C.J.. Rich and Dixon JJ. cited this statement with evident approval. (emphasis added)
Section 127 of the Conveyancing Act modifies aspects of a common law tenancy so that what is now implied is a tenancy at will determinable on one month's notice.
It is of some significance that the defence does not assert that the arrangement between the plaintiffs and the defendants was some arrangement other than a tenancy such as a license agreement. It simply denies a tenancy and, in relation to the first and second defendants, appears to do so because of the assertion that the first and second defendants were not even in occupation of the land.
In my opinion, the evidence establishes, unarguably, that there was a tenancy at will between the plaintiffs and the first and second defendants.

(3) Was there a failure to pay the rent?

The plaintiffs' bank records disclose that rent was not paid on the dates identified in annexure "A" to the statement of claim. The notices to vacate were posted on 29 November 2018. Allowing four working days for receipt of the notices (Evidence Act 1995 (NSW) s 160), the tenancy came to an end on 6 January 2019.
Although the defence simply denies that the defendants failed to pay rent, the basis for that denial was said by Mr Dobson in oral submissions to be that there had been various agreements between the defendants and Mr Wilson that the defendants need not pay rent either as a result of the purchase of chattels and equipment for the hotel or by reason of the cost of work which the defendants had paid for. I note that there is no pleading to that effect in the defence, nor has any cross-claim to that effect been filed. It was agreed between the parties, however, that the matter would be considered as if such a pleading had been raised.
The significant matter is, however, that despite evidence from Mr Wilson in his affidavit that he refused to agree to requests to forego rent, the defendants adduced no evidence of any conversations or agreements to the contrary. Accordingly, there was no evidence of any justification for the non-payment of the rent which was otherwise proved on the evidence. Absent such an express agreement, a tenant would not ordinarily be able to set off the cost of carrying out work or other expenditure against the rent: Sze Tu v Jam Studios Pty Ltd; Jam Studios Pty Ltd v Sze Tu [2018] NSWSC 868 at [189].
Not only was there no evidence in the defendants' affidavits of any of these alleged agreements, the details of the expenditure were never provided to the plaintiffs' solicitors. Mr Dobson said that this failure was because the defendants were not able to get their financial documents into order until just prior to 3 May 2019 when the matter had previously been in Court. There was no explanation for the non-provision of the material between 3 May and 4 June 2019.
The defendants do not dispute that the rent was unpaid for the periods identified. On the assumption that the basis for non-payment came from an agreement or a number of agreements whereby the defendants were permitted to offset against the rent moneys expended by them, there is no evidence to support the assertion and clear evidence to the contrary. The defence in this regard is untenable.

Conclusion

In my opinion, the defendants have no arguable defence to the claim. They accept that they are tenants and that they have not paid the rent. There is no pleading or evidence to provide any justification for that non-payment.
The plaintiffs are entitled to rent until as shown in annexure "I" to the affidavit of Garry John Wilson sworn 16 March 2019 with the addition of one further week to take the amount up to the date the tenancy came to an end being 6 January 2019. The plaintiffs are also entitled to mesne profits from 6 January 2019 until the defendants vacated the premises on 3 April 2019. The usual measure of mesne profits is the rent that was being paid: Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 439. The plaintiffs are entitled to interest at court rates on the outstanding rent and mesne profits. A schedule is attached to this judgment showing the calculations.
The result is that the plaintiffs are entitled to summary judgment in the sum of $109,107.87.
I make the following orders: (1) Judgment for the plaintiffs against the defendants in the sum of $109,107.87. (2) The defendants are to pay the costs of the proceedings.

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