Solicitors:
Solari & Stock Lawyers (Plaintiff)
Brazel Moore Lawyers (Defendants)
File Number(s): 2014/82091
Decision under appeal Court or tribunal: Local Court
Jurisdiction: New South Wales
Date of Decision: 14 October 2013 and 17 February 2014
Before: Milledge LCM
File Number(s): 2012/215077
[2]
Judgment
HIS HONOUR: By an amended summons filed on 5 May 2014, the Plaintiff Zovic Holdings Pty Limited (hereinafter referred to as "Zovic") seeks to appeal the decision of Milledge LCM dated 17 February 2014 to disallow its cross-claim alleging underpayment of rent by the Defendant Sader Investments Pty Limited (hereinafter referred to as "Sader"). Zovic also appeals against her Honour's orders as to costs.
Zovic claims rental arrears allegedly accrued due to Sader's continued occupation of the premises with Zovic's consent pursuant to clause 11 of a lease between the parties. Her Honour dismissed the cross-claim after concluding that clause 11 was not engaged.
Zovic appeals that decision on the basis that it was not available to be made on the pleadings, irrelevant considerations were taken into account, and a "no waiver" provision in the lease was not applied properly. Sader does not dispute that her Honour's decision was erroneous. However, by notice of contention filed 19 September 2014, Sader seeks to have the decision affirmed on other grounds.
Background
Zovic is the registered proprietor of premises known as 3/12 Central Road, Miranda. Anthony Zovic is the director of that company. Sader, trading as "The Shire Heart Clinic", was a medical practice operated by a cardiologist, Dr Mark Sader. Dr Sader and his wife Sandra Sader are respectively the guarantor and sole director of the company, as well as the second and third Cross-Defendants in these proceedings.
On 22 March 2004, Sader entered into lease agreement with Zovic in respect of part of the premises, referred to as Suite A Level 2, 12 Central Road, Miranda, for the purposes of operating the Shire Heart Clinic. The lease was for a term of five years from 22 March 2004 and provided an option for renewal of the lease for two further terms of five years. Provisions of the lease included:
4. GST
4.1. "GST" refers to goods and services tax under A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the terms used herein shall have the meanings as defined in the GST Act.
4.2. It is agreed that the rent and all other amounts agreed to be paid by the tenant to the landlord, being the consideration for the supply expressed in this lease, are exclusive of GST.
4.3. In respect of any liability of the landlord for GST under this lease, and the renewal and extension of this lease, including rent, rates, outgoings, or any consideration for any other taxable supply, the tenant covenants to pay to the landlord, at the same time as any payment is made involving the landlord in GST liability, the additional amount of GST, together with the payment to which it relates.
4.4. In respect of each payment by the tenant hereunder, the landlord agrees to deliver to the tenant, as required under the GST Act, tax invoices in a form which complies with the GST Act and the regulations, to enable the tenant to claim input tax credits in respect of the taxable supply.
…
11. Holding-over
Should the tenant with the consent of the landlord continue to occupy the Premises beyond the expiration of the term of this Lease (otherwise than pursuant to the grant of a further lease) he will do so as a monthly tenant only at a rate payable monthly in advance, the first such payment to be made on the day following the termination date equal to one-twelfth of the sum of the following amounts:
(i) The annual amount of the rent payable under this Lease immediately prior to the expiration of the term of this Lease increased by a factor of one point one (1.1); and
(ii) The annual amount of the tenant's payment or contribution to the outgoings referred to in clause 5 of this Lease
Such tenancy will be subject to the terms and conditions of this Lease as far as they can be applied to a monthly tenancy and the tenancy so created will be determinable at any time by either party by giving one month's notice in writing to that effect to the other party.
…
12.1 Default
In the event that:
(i) The rent reserved or any part thereof or any other money payable by the tenant to the landlord remains unpaid for a period of 14 days after the date on which the same ought to have been paid (although no formal or legal demand will have been made);
…
Then in any one or more of such events the landlord will have the right by itself or its authorized agent at any time thereafter and without notice to or demand on the tenant and notwithstanding prior waiver or failure by the landlord to take action in respect of any such matter thing or default whether past or continuing to re-enter into and upon the Premises or any part thereof in the name of the whole and thereby determine the estate of the tenant but without prejudice to any action or other remedy which the landlord has or may have for arrears of rent or breach of any covenant or provision or for damages as a result of any such event and thereupon the landlord will be freed and discharged from any action suit claim or demand by or obligation to the tenant under or by virtue of this Lease.
…
12.4 If any rent or other money payable by the tenant under this Lease remains unpaid for 14 days after their due date then the tenant will pay to the landlord interest on that money at the annual percentage rate equivalent to the prime overdraft rate for the time being applied by the Commonwealth Bank of Australia (Bank) in respect of an overdraft limit in excess of $100,000 (or in the event of the Bank ceasing to quote such a rate then such a rate as in the opinion of the Bank is equivalent thereto in respect of similar overdraft accommodation afforded to prime borrowers) plus 2% per annum calculated from the due date to the date of payment (both dates included) and the landlord will be entitled to recover that money and/or that interest as if the same were rent in arrears.
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20. Waiver
No waiver by the landlord of any breach of any of the tenant's obligations will be construed as a continuing waiver nor will it operate as a waiver of another breach of the same or any other obligation of the tenant and to be effective against the landlord any such waiver will be in writing expressed and signed by or on behalf of the landlord by its duly authorised agent and will take effect subject to any terms or conditions contained therein.
The lease also provided that during the first year the rent should be $2,750 per month and, by clause 3.3, that the rent in each subsequent year should increase by 4% on the rent payable in the previous year. By the end of the original five year term in 2009, the rent had increased to $3,538 per month comprising rent of $3,217.11 and GST of $321.71.
Up until about June 2009, the premises were managed by L J Hooker Commercial, after which time they were managed by Richardson & Wrench Miranda. During the period from 22 March 2008 until 23 March 2009, L J Hooker issued a tax invoice in respect of the rent payable as well as the GST. At this time, the rent was being paid by direct debit, for reasons set out by Dr Sader in his affidavit:
76. Sometime prior to July 2009, I had a conversation with Anthony Zovic on behalf of the Defendant regarding my complaint concerning the overpayment of outgoings for the premises. During the course of that conversation, Anthony Zovic said to me words to the effect of - 'I had told LJ Hooker not to remind you about exercising your option. Be careful if you are behind in rent'.
77. I understood Anthony Zovic to mean that the Defendant would enter possession of the premises and seize the Plaintiff's medical equipment and records if the Plaintiff became behind in the rental payments.
78. To ensure that did not occur, I then arranged for an automatic monthly direct debit payment to the Defendant's Bank account for the rent.
79. At pages 52 to 53 of Exhibit MAS-1 is a true copy of the Plaintiff's Bank Statement for the period from 25/01/2011 to 25/4/2012 showing B-Pay payments in the sum of $3,538.82 per month in respect of rental payments to Richardson & Wrench Commercial.
After the lease expired on 21 March 2009, Sader did not exercise the option to renew the lease, but instead remained in occupation of the premises, where consent of Zovic is to be inferred. Providing clause 11 was applicable, Zovic had the right to have the rent "increased by a factor of one point one. $3,538.82 x 1.1 is $3,892.70 and, subject to the applicability of clause 11, Zovic was entitled to charge Sader a monthly amount of $3,892.70 comprised of $3,538.82 rent and $353.88 GST.
However, Sader did not pay this increase. For the period from 1 April 2009 to 31 August 2009, tax invoices were sent to Sader for $3,538. On 15 October 2009, Richardson & Wrench Miranda sent a tax invoice to Sader, again for $3,538. That invoice indicated there was nil owing. Following the 15 October notice, Sader contends it did not thereafter receive - and this was not contradicted - any tax invoices from Zovic or Richardson & Wrench Miranda, either for rent or for GST thereafter. Accordingly, Sader left the direct debit as it stood, continuing to pay $3,538 per month.
In May 2012, Zovic's solicitors advised Sader that the lease was to be terminated in June and Sader vacated the premises on 1 June 2012. The "holding over" period had lasted for 38 months and 10 days.
The pleadings
During the currency of the tenancy there had been a number of disputes between the parties. By statement of claim filed in the Local Court on 11 July 2012, Sader sued Zovic in connection with these disputes, the claims including:
1. the return of a security deposit that was passed to the landlord at the time of the arrangement of the lease ($3,119.80);
2. reimbursement for keys and a swipe card ($252);
3. damage to a sign that was occasioned during the fit out ($235); and
4. overcharging for outgoings ($10,346).
Sader asserted in the Statement of Claim that it had "continued in occupation of the premises after the expiry of the term of the lease pursuant to a holding over provision in clause 11 of the lease".
Zovic filed a defence which included an admission that clause 11 had been engaged with its consent. It also lodged a cross-claim alleging that due to the engagement of clause 11, it had been paid an inadequate amount of rent by Sader during the holding over period from 22 March 2009 to 1 June 2012, and claimed a further $353.88 per month for that period. As has been indicated, $353.88 is the increase if the multiplier 1.1 is applied to the previous rent. It is also the GST payable if the rent, not including GST, was $3,538.82. Zovic's claim for unpaid rent was in an amount of $13,561.59.
Sader lodged a defence to the cross-claim, denying indebtedness to Zovic on the basis that:
4. [Zovic] never notified them of any increase in rent upon the commencement of the holding over period and has sought to retrospectively increase the rent payable pursuant to the Lease.
The Local Court proceedings
The proceedings came before Milledge LCM on 21 March and 14 June 2013, and her Honour delivered judgment on 14 October 2013 and 17 February 2014. She held in favour of Sader for the amount of $9,107.84, in respect of the majority of its claim, and dismissed the cross-claim. The expressed basis for this dismissal was:
I am not convinced that that was in fact a live issue, that a proper holding over period was established… So it was an ongoing negotiation period, and I am not prepared, given the conduct of Mr Zovic, to read that as a holding period and therefore invoking clause 11.
Zovic was ordered to pay Sader's costs on the ordinary basis up and to including 16 November 2012, and indemnity costs thereafter.
The appeal
Appeals made to this Court from the Local Court are governed by the Local Court Act 2007 (NSW). The relevant provisions are ss 39-41:
39 Appeals as of right
(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law.
...
40 Appeals requiring leave
(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court.
...
41 Determination of appeals
(1) The Supreme Court may determine an appeal made under section 39(1) or 40:
(a) by varying the terms of the judgment or order, or
(b) by setting aside the judgment or order, or
(c) by setting aside the judgment or order and remitting the matter to the Local Court for determination in accordance with the Supreme Court's directions, or
(d) by dismissing the appeal.
Zovic submitted that it was appealing on a question of law under s 39, on the basis that her Honour fell into a clear and demonstrable error of law by finding that clause 11 of the lease did not apply to the holding period. In this respect Zovic is clearly correct and counsel appearing for Sader in this Court conceded as much. The engagement of the clause 11 was clearly accepted by all parties in the pleadings in the Local Court. In its defence to the cross-claim, Sader did not deny indebtedness on the basis that clause 11 was not in operation. In fact, Sader admitted that it had continued in occupation of the premises pursuant to the holding over provision in clause 11, and rather denied indebtedness to Zovic on the basis that it "never notified them of any increase in rent upon the commencement of the holding period and has sought to retrospectively increase the rent payable pursuant to the lease".
Zovic submitted that due to this major error, the only finding available to the Court, both as a matter of law and on the pleaded position of all parties, was a finding that clause 11 was engaged. On that basis, Zovic submitted it was entitled to an amount of rent that was increased by 1.1 during the period from 22 March 2009 to 31 May 2012. In addition, Zovic submitted that Sader must be liable to pay the costs of the cross-claim as well as interest on the amounts remaining unpaid pursuant to clause 12.4 of the lease.
The Notice of Contention
As I have indicated, Sader does not dispute the proposition that her Honour's reasoning was erroneous. However, Sader disputes the submission by Zovic that due to the engagement of clause 11 there was only one possible finding available to the Court. It filed a Notice of Contention in which it seeks to have her Honour's decision upheld on the following grounds:
1. The landlord was not entitled to claim $353.88 per month during the holding over period from October 2009 until 1 June 2012 because it had not rendered tax invoices for GST during that period.
2. By accepting payment of $3,538.82 per month during the holding over period from 22 March 2009 until 1 June 2012 the landlord either elected not to claim an outstanding amount of $353.88 per month during this period or waived any claim to this amount.
The Notice of Contention was filed late but I permitted it in circumstances where earlier written submissions had raised the arguments in support, and Zovic's counsel agreed she ws not prejudiced if given time to respond. Furthermore to some extent the issues, though not pleaded, had been canvassed in the court below and, as was said by the High Court in Vale v Sutherland [2009] HCA 26; (2009) 237 CLR 638 at [41]:
[41] … Modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties. … cases are determined on the evidence, not the pleadings.
In due course written submissions in response were filed on Zovic's behalf and it is appropriate to consider the issues raised.
The claim for unpaid rent
There can be no doubt that, subject to the issues raised in the Notice of Contention, Zovic is entitled to the further rent claimed. It is common ground that there was a holding over for the period alleged and clause 11 is clear.
Sader submitted that by accepting payment of $3,538.82 per month during the holding over period from 22 March 2009 until 1 June 2012, Zovic either elected not to claim an outstanding amount of $353.88 per month during this period or waived any claim to this amount. It contends that Zovic, having taken this position, cannot now take one that is inconsistent.
Waiver
In support of its contention that Zovic had waived its right to claim the extra $353.88 per month, Sader drew attention to the fact that the lower rent was accepted for the lengthy period of 38 months, was included in the trust statement as inclusive of an amount of GST and that statement was signed off as leaving "nil owing". It was submitted that this was conduct indicating that Zovic had taken a clear position on whether or not to raise the rent. On Sader's behalf it was also suggested that this waiver was further demonstrated by the fact that Zovic only demanded the rent after the Statement of Claim was filed by Sader in the Local Court.
Zovic's response to this argument was that there was no intentional or deliberate act by it, and that the above evidence purporting to indicate that it waived its right to the rent was deficient. It referred me to the decision of the High Court in Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326, where it was declared that:
A waiver must be an intentional act with knowledge… First, 'some distinct act ought to be done to constitute a waiver; next, it must be 'intentional', that is, such as either expressly or by imputation of law indicates intention to treat the matter as if the condition did not exust or as if the forfeiture or breach of condition has not occurred; and lastly, it must be 'with knowledge' an essential supported by many authorities.
Zovic conceded that the trust ledger statement and tax invoice did not acknowledge that a higher amount of rent was due. However, Zovic's submission was that this was an erroneous and unintentional act that was not undertaken "with knowledge". In support of that contention, Zovic highlighted the statement of counsel for Sader during proceedings that:
I am not going to say a conscious decision was made. That wasn't put to [Zovic] in cross-examination.
Zovic submitted that if no conscious decision was made to waive the right to a higher amount of rent, it could not be inferred from its conduct that it undertook a deliberate course to abandon its contractual right to that amount, especially so in the absence of a written waiver. Reliance was placed on the terms of clause 20 set out above.
I accept, as was pointed out in Canberra Advance Bank Limited v Benny (1992) 38 FCR 427; (1992) 115 ALR 207 by reference to what was said in R v Paulson [1921] AC 271, that:
It is, of course, true that a term in a contract which states that any waiver must be in writing can be the subject of evidence which would justify a finding that the conduct of a party was such that the requirement for writing had been waived by that party.
However, the question remains whether the evidence justifies a finding of waiver.
Although, given the time over which this occurred, one might have expected Zovic or its officers to have noticed the payment of the lower rent, there is insufficient evidence to indicate that Zovic intended to intentionally accept the lesser rent. There is no evidence of a conscious decision or any written waiver under clause 20.1, and the conduct of the parties is more consistent with error and forgetfulness than a deliberate abandonment of a right.
It is a reasonable inference that it was the managing agents who caused the lower amount to be included in the tax invoices and no basis for concluding that, even if they had authority to do so, they intended to waive the lessor's entitlement. In my view the probabilities favour the situation arising due to either carelessness or during the confusion of changing agents. Certainly, the probabilities do not lie in the opposite direction.
Therefore I do not consider that Zovic waived its right to the higher amount of rent.
Election
Sader also attempted to rely on the doctrine of election to avert liability for the rent in arrears. It asserted that Zovic made a deliberate election between two inconsistent rights by accepting rent of $3,538.82 per month after October 2009 while knowing that:
1. it was entitled to rent of $3,538.82 apart from GST under clause 11;
2. that a failure to pay rent in accordance with clause 11 entitled it to exercise rights of re-entry under clause 12; and
3. it was required to render tax invoices for GST in accordance with clause 4.4 of the lease.
Sader submitted that Zovic's choice between the two inconsistent amounts of rent enlivened the doctrine of election, outlined in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 645-646 (Stephen J):
… All that need be established in order for the doctrine of election to apply is knowledge by the vendors of the facts giving rise to inconsistent legal rights…
...
The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the other"
In response, Zovic submitted that the doctrine of election is inapplicable since the "election" relied on by Sader was not an election between inconsistent rights or inconsistent remedies.
I agree. Zovic had a right to the rent specified in the lease. It had no separate right to a lower amount or portion of that rent that could be said to be inconsistent with the right to the rent specified.
Nor is there any evidence or suggestion that Zovic received any type of benefit by accepting a lower amount of rent. In fact, there is not even any evidence pointing to any reason why Zovic would consciously accept a lower amount of rent. Such evidence as there was - see paragraph 76 of Dr Sader's affidavit quoted above - argued to the contrary.
These conclusions made it unnecessary to consider whether, because they reflect terms of the lease, Zovic is to be regarded as knowing of the matters referred to in paragraph 35 above and knew, or was conscious, of the amount in fact being received.
In the result, Dr Sader is not assisted by relying on the doctrine of election.
The claim for unpaid GST
Sader submitted that Zovic was not entitled to claim $353.88 GST per month during the holding over period due to its failure to render tax invoices. Clause 4.4 of the lease provides that the landlord must deliver to the tenant "tax invoices in a form which complies with the GST Act and the regulations, to enable the tenant to claim input tax credits in respect of the taxable supply".
Failing to render tax invoices is an offence under Taxation Administration Act 1953 (Cth), s 288-45, which provides:
288-45 Penalty for failing to issue tax invoice etc
(1) You are liable to an administrative penalty of 20 penalty units if you fail to issue a tax invoice as required by section 29-70 of the GST Act.
So far as is presently of the A New Tax System (Goods and Services Tax) Act 1999 (Cth), relevant s 29.70(2) provides:
Tax invoices
(2) The supplier of a taxable supply must, within 28 days after the recipient of the supply requests it, give to the recipient a tax invoice for the supply, unless it is a recipient created tax invoice.
Zovic submitted that Sader never made a request for a tax invoice, and that since there is no general requirement to issue tax invoices in the absence of such a request, Sader's submission is erroneous.
I agree. Sader did not make a request and hence there was no breach of either of the provisions just quoted.
Reliance was placed on clause 4.4 of the lease which, it was submitted, amounted to such a request. However, though that clause imposed a contractual obligation on Zovic to supply a conforming invoice, I am unable to regard it as a request by Sader or, as is the logical consequence of the submission, a continuing or series of requests by Sader, operating every month of the lease. Otherwise, despite the issue of a complying invoice, Zovic would breach sub-section every month after the first because the invoice was not within 28 days of 22 March 2004, the date of the lease and the suggested request.
But even if the lease amounted to a request and Zovic was guilty of breaching s 29-70(2), I would not regard Zovic as disentitled to recover the rent. Sader's submission was that to permit a landlord to recover GST in the absence of issuing tax invoices would be contrary to public policy. In support of this argument, Sader referred to the general statement of principle in Wilkinson v Osborne (1915) 21 CLR 89 at 97:
In my opinion the public policy which a Court is entitled to apply as a test of validity to a contract is in relation to some definite and governing principle which the community as a whole has already adopted, either formally by law, or tacitly by its general course of corporate life, which the Courts of the country can therefore recognise and enforce. The Court is not a legislator. It can only initiate the principle. It can only state or formulate it if it already exists.
However I am unable to conclude that in the circumstances of failure to issue an invoice as required by s 29-70(2) public policy requires that in addition to the penalty for which the legislation itself provides, there should be some invalidity in the contract or some part of, or right incidental to, it. Even if one confined the invalidity to the supplier's right to receive the purchase money, that invalidity would be not unlikely to have a capricious effect. The amount might be small or large. It might be nil if payment had been made before the 28 days expired. It might be way out of proportion to the 20 penalty units for which s 288-45 provides.
In the result Sader's reliance on the taxation legislation as a defence to Zovic' claim fails.
Interest pursuant to clause 12.4
Sader submitted that due to the absence of any demand for the rent prior to the filing of the cross-claim, interest should only run from the date of judgment. However, clause 12.4 clearly states that any interest on unpaid rent must be calculated "from the due date to the date of payment". Since Sader has funds remaining unpaid to Zovic, it therefore must pay that interest as if it were also rent in arrears.
Costs
By reason of its successful appeal, Zovic is prima facie entitled to its costs of the cross-claim before the Magistrate, as well as costs of the appeal.
Zovic submitted however that if its appeal were upheld, each party should bear their own costs of the Local Court proceedings. Since Sader was awarded judgment on its statement of claim for $9,107.84, which effectively cancels out the award on the cross-claim but for a small sum, this was submitted to be a simpler course than in effect ordering that two sets of costs follow the event (and, I might add, possibly making a separate order for the general costs of the action). It was submitted that this would be likely to result in a substantially similar outcome for both parties. That may well be so but in any event the orders proposed will avoid yet more costs being incurred in dealing with the costs in the Local Court. However Zovic should have its costs in this Court and the Respondents should have certificates under the Suitors' Fund Act 1951 (NSW) if it not disentitled. In that connection I note, for example, that there is no evidence as to Sader's paid up capital - see Suitors' Fund Act, s 6(7).
Orders
The orders sought by Zovic included:
1. that the appeal be allowed;
2. that the orders of the Local Court be set aside;
3. a declaration that the Defendants are liable pursuant to clause 11 of the Lease to pay the Plaintiff unpaid rental arrears in the sum of $13,538.44 and interest pursuant to clause 12.4 of the Lease;
4. leave to bring in short minutes to calculate the final liability owing by the Defendants to the Plaintiff; and
5. costs.
I have said enough to indicate that Zovic is entitled to the first and second of these prayers and relief to the effect of the third and fifth. There is clear advantage in also making an order finally disposing of the litigation, and accordingly I propose to afford the parties an opportunity of calculating the interest and the final amount owing. The only orders I make at this time are:
1. I publish these reasons;
2. stand the proceedings over for a short period; and
3. direct the Plaintiff to bring in short minutes giving effect to these reasons.
[3]
Amendments
27 March 2015 - Amended Order 2 by omitting "for a short period" and inserting "to 9.30am on 8 April 2015 before R S Hulme A J".
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: 27 March 2015