Archive for January, 2014

New Australian edition of classic mortgage text

A new Australian edition of Fisher & Lightwood’s Law of Mortgage has just been published by LexisNexis. This is the third Australian edition of the classic English text. The authors of the three Australian editions  have been Professor E.Tyler, the Honourable Justice Peter Young and the Honourable Justice Clyde Croft.  The first English edition (called Fisher on Mortgages) was published in 1856. There have been 13 English editions. The Australian editions are particularly useful because the English editions do not deal with the Torrens system. The third  Australian edition deals with the significant changes made to personal property securities by the Personal Property Securities Act 2009 (Cth).  The chapter on the PPSA was written by Clare Langford, the NSW Supreme Court Equity Researcher. This text is a significant  resource for any person practising in property law.

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Settlement agreements must be genuine compromises

Care needs to be taken in resolving disputes in which an allegation is made that an act or proposed act is prohibited by the Retail Leases Act 2003: settlement agreements must be genuine compromises or bona fide settlements and not merely attempts to avoid the Act.  On 24 January 2014 I posted a summary of Spirovski v Univest Asset Merchant Syndicators Pty Ltd [2013] VSC 728 in which Justice Croft refused an appeal against a determination by Deputy President Lulham in VCAT that terms of settlement made at a mediation conducted by the Small Business Commissioner were caught by the prohibition against the payment of “key-money” contained in s.23 of the Retail Leases Act 2003. See: Spirovski v Univest Assett Merchants Syndicators Pty Ltd [2013] VCAT 66. The Deputy President at [76] said that “Terms of Settlement are a form of contract. As such they are subject to the principles and requirements of contract law”.  A provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. See: s.94. Thus, terms of settlement that seek to avoid the Act’s provisions are void. When VCAT made its decision a number of practitioners expressed surprise that agreements made at or arising out of a mediation should be open to scrutiny.  Section 86 of the Act prevents statements or admissions made in the course of a mediation from being admitted in a proceeding; however, terms of settlement  made at mediations are not protected from scrutiny.  Provided a settlement agreement is bona fide a court will not re-open a settlement agreement merely because the dispute that has been settled involved legislation that the courts will not allow to be evaded. See: Binder v Alachouzos [1972] 2 QB 151. In Binder the compromise concerned a dispute about whether a party was acting as a money lender in contravention of the Money Lenders Acts. The parties settled the dispute with the settlement including a provision whereby the defendant admitted that the Money Lenders Act did not apply to the transactions.  While the English Court of Appeal  accepted that it was a policy of the courts not to allow the Money Lenders Acts to be evaded, it  held that it was also the policy of the court to encourage compromises and the settlement agreement was bona fide involving an agreement for good consideration and was therefore enforceable.  Justice Croft in Spirovski considered Binder and said at [76]  that:

“….it cannot be said that the evidence in the VCAT hearing indicates that the Terms and the Contract that arose out of the mediation were the fruits of a bona fide compromise, such as might attract the principles in Binder….”

At [79] His Honour said:

“The increasing role that the alternative dispute resolution techniques now play in the justice system cannot be overstated given that both courts and tribunals seek to encourage parties to identify and reach agreement on as many issues as possible to avoid the need for a trial, or to reduce its length and complexity where a hearing is needed. However, none of these considerations provide any basis for courts or tribunals to give effect to agreements that are rendered void or illegal, either by virtue of statute or common law….” (underlining added and citations removed)

In Spirovski, following the mediation, the parties entered into the terms of settlement, a lease and a contract of sale whereby the business allegedly conducted on the premises by the landlord was sold to the tenant. The purpose of the contract of sale was to take advantage of exceptions to the prohibition on the payment of “key-money” in circumstances where  goodwill is claimed from the tenant in relation to the sale of a business operated from the premises by the landlord immediately before its sale (s.23(3)(c)) and where plant, equipment, fixtures or fittings are sold by the landlord to the tenant (s.23(3)(f)).  Deputy President Lulham held at [70] that there was in fact no business to be sold so that the lease was not granted in the course of a sale and therefore the applicant’s “device of preparing for execution a Contract of Sale of Business was a sham”.

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Settlement terms caught by prohibition on payment of “key-money”

Despite the prohibition on the payment of “key-money” landlords persist in seeking the payment of substantial sums of money as the price for granting a lease.  A landlord who seeks or accepts “key-money” is liable to pay a penalty under s.23 of the Retail Leases Act 2003.  A provision in a lease that requires the payment of “key-money” is void (s.23(2)).  Section 94 of the Act makes  a provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. Section 23(3) of the Act contains exceptions to the prohibition on payment of “key-money”: among other exceptions  a landlord may seek and accept to payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business” and for  “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”.  See: ss.23(3)(c) and (f).  Because of the Act parties attempt to disguise “key-money” payments as something else. Cases where the payment of “key-money” is alleged usually result in settlement at a mediation. The Supreme Court of Victoria recently determined a case where the parties had settled a dispute concerning the payment of “key-money” and then had a further dispute about whether the settlement provided for the payment of “key –money”. In Spirovksi v Univest Asset Merchants Syndicators Pty Ltd [2013] VSC 728  the landlords sent a draft lease to the tenant who refused to execute the lease on the basis that it did not accurately reflect the parties’ agreement and that the landlord had purported to charge “key-money”. The alleged “key-money” was payable in two instalments; $90,000 was to be paid before the tenant took possession; and $90,000 when the first option to renew the lease was exercised. The parties subsequently attended a mediation under the auspices of the Small Business Commissioner where terms of settlement were signed. The terms of settlement provided for the landlords to retain $90,000 that had already been paid and that the tenant would pay a further $90,000 on the exercise of the first option. The terms also provided that the landlord would sign a transfer of the lease from the tenant to a new tenant.  The parties signed a lease and other documents pursuant to the terms. The first option was exercised. The landlords commenced a proceeding claiming payment of rent arrears and the second instalment of $90,000. VCAT dismissed the landlords’ claim and declared that the terms of settlement were void to the extent that they required the tenant to pay the $90,000 that the landlord had retained and required the second payment of $90,000.  VCAT also declared void a contract of sale of business and the lease executed by the parties following execution of the terms of settlement insofar as they required the prohibited payments.  The landlords appealed  on the basis that the exceptions to the prohibition on the payment of “key-money” contained in ss.23(3)(c) and (f) applied.  Section permits a landlord to seek payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business”. Section 23(3)(f) permits the landlord to seek payment for “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”.  The Tribunal had determined that  s.23(3)(c) did not apply because the landlords were not operating a business from the premises and that there was no business to be sold. The Tribunal had also determined that the furniture in the premises was “junk” and “valueless”. Justice Croft dismissed the landlords’  appeal holding that there was no error of law in the Tribunal’s findings. His Honour also rejected a claim that the tenants were estopped from claiming the benefit of the prohibition contained in s.23 of the Act. As part of that argument the landlord argued that by the terms of settlement the parties had “put to bed” the issue of “key-money”.  After an extensive review of the authorities and the provisions of the Act His Honour concluded that it was not possible for the parties to agree to a transaction  which breached s.23.  The decision contains a detailed discussion about the meaning of “goodwill” and the circumstances in which a party seeking to enforce an agreement the terms of which are prohibited can be precluded from relying on principles of estoppel.

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