Posts Tagged Lexis Nexis

Content of default notices under s27 of Retail Leases Act

At general law the question of whether a tenant has validly exercised an option for a further term depends upon whether the tenant has met the conditions contained in the lease for the exercise of the option. The general law has been altered by the Retail Leases Act 2003. Section 27(2) provides that:

” If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term the only circumstances in which the option is not exercisable is if –

(a)the tenant has not remedied any default about which the tenant has been given written notice; or

(b)the tenant has persistently defaulted under the lease throughout is term and the landlord has given the tenant written notice of the defaults.

Section 27 raises a number of questions: what does a notice need to say to be be a “notice” of default (ss.27(2)(a) and (b)) and how many defaults must there be for the defaults to be “persistent” and when in the term of the lease do they need to occur to be defaults “throughout the term”  (s.27(2)(b)).

In Leonard Joel Pty Ltd v Australian Technological Approvals Pty Ltd [2017] VCAT 1781 VCAT had to consider s.27(2)(a). The dispute concerned whether the tenant was in default by not furnishing the landlord with “as built” plans following alterations to the premises and whether the purported notices of default constituted “notice” of the default.  After deciding that the tenant had not been in default at the time it exercised the option, the Tribunal went on to consider whether the purported default notices given by the landlord constituted “notice” of the default. The landlord’s letters requesting “as built” plans made no mention of a “default” under the lease or a “breach” of the lease.

In determining that the landlord’s letters were not “notices” of a default, Member Josephs said [140]:

“….the potential consquences to the tenant of the landlord not being required to grant the option to renew are significant and serious and as such I find that a more narrow interpretation has to be applied to the sufficiency of the notice any default under the lease “about” which the landlord has given. It is necessary therefor that the landlord applies some rigour in its giving of notice which should make it expressly clear that a breach by the tenant is alleged and should be clear and consistent in its description of the nature of the breach, all of which is alleged to constitute the default.”

And at [142]:

“..the landlord’s letters do not in any way refer to the possible consequence of the landlord not granting the renewal option if the alleged default is not remedied.”

While the latter statement could be interpreted as requiring that a notice refer to a possible consequence of the breach as being that any option might not be exercisable, the Member does not appear to have intended that outcome because he refers to the notice given in Computer & Parts Land Pty Ltd v Property Sunrise Pt Ltd [2012] VCAT 1522 as being an example of “a very appropriate example of a notice”; the notice in that case did not refer to the possibility that an option might be exercisable.

What the decision does highlight is that for a notice to constitute “notice” of  a default under s.27 it must communicate with “obvious clarity and sufficiency” that there is a default or a breach which must be rectified. The default or breach should be identified clearly,  the relevant lease provision referred to and a request made to rectify the default. The notice should be given as soon as possible after the landlord becomes aware of the default.

 

 

 

 

 

 

 

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Franchisor’s internet trading breaches restraint clause

There is a translation key(widget) on the mirrored blog for ease of reading for non-English speaking members of the public or professionals. The mirrored blog can be found at http://roberthaybarrister.blogspot.com.au/

 

Franchise agreements often restrict the franchisor from selling the franchised product in the territory in which the franchisee operates. Franchisors that engage in internet selling might be acting in breach of such clauses. This issue was highlighted in a recent appeal in New South Wales from the decision of a Magistrate to award damages against a franchisor. See: Video Ezy International Pty Ltd v Sedema Pty Ltd [2014] NSWSC 143.

 

In Video Ezy the franchisee operated a franchise business renting and selling DVDs.

A company related to the franchisor operated a website from which customers could order DVDs. The franchise agreement precluded the franchisor from carrying on a “trade or business involving the rental and/or sale of video products or any other business of a similar nature within the territory of the franchise” (restraint clause).

The franchisor contended that the online business did not breach the restraint clause because it did not refer to the rental and sale of DVDs “into” the territory of the franchisor: a business could undertake transactions in a place without it being correct to say that the business is “within” that place.

The court rejected the franchisor’s contention on the basis that it was “artificial” and did not give the phrase “within the territory” its natural and ordinary meaning.

The court dismissed the franchisor’s appeal. The franchisor and the related company operating the website were treated as one entity and found liable for breaching the restraint clause and an implied duty to act in good faith and for unconscionable conduct under the Australian Consumer Law.

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

 

From 31 July 2014, liability limited by a scheme approved under Professional Standards Legislation

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Beware lodging caveat ‘without reasonable cause’

There is a translation key(widget) on the mirrored blog for ease of reading for non English speaking members of the public or professionals. The mirrored blog can be found at http://roberthaybarrister.blogspot.com.au/

 

Section 118 of the Transfer of Land Act 1958 and s.74P of the Real Property Act 1900 (NSW)  provide for payment of compensation to a party who has suffered “damage” (TLA) or “pecuniary loss” (RPA) where a person lodges a caveat “without reasonable cause”. In New South Wales s.74P also extends to a caveator who, without reasonable cause, refuses or fails to withdraw a caveat after being requested to do so. See: s.74P(1)(c).

As to the meaning of “reasonable cause” in Bedford Properties Pty Ltd v Surgo [1981] 1 NSWLR 106 Wootton J said at 109:

The drastic nature of the power is relevant in considering what is “reasonable cause” for its use, just as the dangerous character of a thing is relevant to deciding what is reasonable care in handling it. Before exercising such a power, a person can reasonably be expected to get proper advice, and be reasonably sure of his ground. If he does not, he may find that he has acted at his peril. This is all the more so when he knows, as Mr Richards knew, and indeed intended, that his action will prevent an important transaction involving a large sum of money.

In the recent case of  Arkbay Investments Pty Ltd v Tripod Funds Management Pty Ltd [2014] NSWSC 1003  Robb J said that it was “salutary to record” Wootton J’s observations in deciding that a caveat had been lodged without reasonable cause and had caused pecuniary loss.

In Arkbay there was no evidence that when the caveator lodged the caveat it had an honest belief on reasonable grounds that it had an interest in the relevant property. His Honour held that the lodging of the caveat had caused loss by reason of a delay in the settlement date for sale of the property.

At [17] Robb J said:

“The onus is on the plaintiffs to show that the caveator acted without reasonable cause. For there to be reasonable cause it is not necessary that the caveator actually have a caveatable interest, but it is necessary that the caveator have an honest belief based upon reasonable grounds that the caveator has such an interest. Wootton J in Bedford Properties noted at 108  that an honest belief on the part of the caveator based on reasonable grounds may not be sufficient to provide a reasonable cause for lodging or maintaining a caveat, if the caveat is lodged “not for the protection of his interest but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed.”

My  clerk can be contacted via this link http://www.greenslist.com.au/

From 31 July 2014, liability limited by a scheme approved under Professional Standards Legislation 

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Implied term that vendor must act in a reasonable manner when selling land pursuant to liquidated damages clause

There is a translation key(widget) on the mirrored blog for ease of reading for non-English speaking members of the public or professionals. The mirrored blog can be found at http://roberthaybarrister.blogspot.com.au/

 

What duties does a vendor have in selling land pursuant to a liquidated damages clause in the sale contract following a default by the purchaser?

There are three possibilities:

  • if a vendor acts unreasonably in failing to minimise loss arising from a purchaser’s breach, any damages will be reduced to the extent that the vendor’s loss would have been reduced had the vendor acted reasonably;
  • the duty imposed on a vendor is similar to that imposed on a mortgagee exercising a power of sale granted under a security, the duty being to act in good faith;
  • there is an implied term in the contract for the sale of duty that a vendor will exercise the power of resale in a reasonable manner.

In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd [2014] VSC 57 Garde J rejected the first two possibilities and held that there was an implied term in the contract that the vendor would act reasonably in the exercise of its power of resale and that this implied term extended to all aspects of the resale. The contractual provision considered by the court was general condition 28.4 of the general conditions which provides:

“If the contract ends by a default notice given by the vendor:

(a)        the deposit up to 10% of the price is forfeited to the vendor as the vendor’s absolute property, whether the deposit has been paid or not; and

(b)       the vendor is entitled to possession of the property; and

(c)        in addition to any other remedy, the vendor may within one year of the contract ending either:

(i)        retain the property and sue for damages for breach of contract; or

(ii)       resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and

(d)       the vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and

(e)        any determination of the vendor’s damages must take into account the amount forfeited to the vendor.”

His Honour held that the implied duty to act in a reasonable manner in exercising the power of resale did not mean that a vendor had to put the interests of the defaulting purchaser ahead of his own. At [175] His Honour said:

“Where the interests of a vendor and the purchaser in breach are in conflict, for example as to the urgency or method of the resale, the vendor is entitled to prefer his own interests to those of the purchaser in breach, provided that in so doing the vendor acts in a reasonable manner. The obligation on the vendor to act in a reasonable manner has been held to apply to price, time of resale and conduct in the form or method of resale. It would also extend to the terms of resale to be offered by the vendor.”

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

 

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Media Presentation By Robert Hay

Re-entry and Relief from Forfeiture in Commercial Leases 

Robert Hay  – Greens List

 

My  clerk can be contacted via this link http://www.greenslist.com.au/

 

 

 

https://www.youtube.com/channel/UCnZ52SbIPsHnEz74tK8ikRg

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VCAT is a “court” and therefore arbitration clause effective

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

 

In  Subway Systems Australia Pty Ltd v Ireland [2013] VSC 550 Croft J held that a requirement in a franchise agreement that disputes be referred to arbitration did not prevent VCAT hearing and determining the dispute.

The matter came before Croft J as an application for leave after a VCAT member declined to find that the Tribunal was bound by  s.8 of the Commercial Arbitration Act 2011 (Vic)) (CAA) to refer the dispute to arbitration.

In broad terms s.8 of the CAA requires a court before which an action is brought in a matter which is the subject of an arbitration agreement to refer the matter to arbitration if one of the parties makes that request. Croft J held that VCAT was not a “court” for the purpose of s.8(1) and therefore VCAT was not bound to refer the dispute to arbitration.

In Subway Systems Australia Pty Ltd v Ireland [2014] VSCA 142 the Court of Appeal allowed an appeal from Justice Croft’s decision. Maxwell P and Beach JA held that VCAT was a “court” for the purposes of s.8 of the CAA. Kyrou AJA dissented. This means that the dispute must now be referred to arbitration. The Court of Appeal’s decision can be found here:

Subway Systems v Ireland_merged_17114[1]

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

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Mortgagee lender does not have duty of care to ensure that a loan is appropriate for borrower

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

 

Defaulting mortgagor borrowers defending court proceedings by the mortgagee lender often allege that the lender owed them a duty to investigate their income and assets and liabilities to determine whether the loan could be serviced. The legal basis for such a claim was recently rejected by the Supreme Court of New South Wales in Westpac Banking Corporation v Diagne [2014] NSWSC 822.

 

Among the many claims made by the defaulting mortgagor borrowers was that the lender had a duty to “[prudently investigate the income, assets and liabilities of [the borrowers] and the proposed business plan of [the borrowers] in order to determine serviceability” and “[t]o take reasonable remedial action when the loans fell into arrears, including investigating the causes of the arrears, working with [the borrowers] to remedy the problems identified and continuing to monitor the ability of the borrowers and guarantors to adequately service the facilities”. Included in the alleged duty was a duty “to appropriately set and alter limits on overdraft facilities”.

 

Ball J rejected the borrower’s claims. His Honour applied Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80  and held that the lender did not have a duty of care to investigate the borrower’s circumstances to determine whether the loan that was made was appropriate for them.

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

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Undertaking as to damages must not be a ritual or a formality

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

Parties seeking injunctions are required to offer an undertaking as to damages as the price for the injunction. All too often the undertaking is given lightly and without an understanding of the potential consequences.  If the person against whom the injunction is granted succeeds at trial and has suffered loss or damage the consequences can be severe. The inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen.

In Love v Thwaites [2014] VSCA 56 the Court of Appeal upheld a trial judge’s order that the party who obtained an injunction pay damages and interest of more than $5,000,000 pursuant to an undertaking.

This disastrous outcome was the consequence of the appellant seeking and being granted an interlocutory injunction restraining the Roads Corporation from demolishing a property.

The appellant gave the usual undertaking as to damages. During the proceeding the appellant had been asked to consent to the discharge of the injunction but the requests were refused.

After the appellant’s proceeding was dismissed and the injunction discharged there was then a trial to determine the damages suffered by the Roads Corporation resulting from the granting of the injunction. The trial judge[1] set out the principles governing the assessment of damages as follows:

“30. In Davinski Nominees Pty Ltd v I&A Bowler Holdings Limited, Kaye J described the basis for the assessment of damages on an undertaking to the court as uncontroversial: damages flowing directly from the injunction and which could have been foreseen when the injunction was granted, following the decisions of the High Court in Air Express Limited v Ansett Transport Industries (Operations) Pty Ltd and European Bank Limited and Robb Evans of Robb Evans & Associates.

31.  In Air Express, Aickin J held that in a proceeding of an equitable nature ‘the damages should be those that flow directly from the injunction and which could have been foreseen when the injunction was granted’.

On appeal, Barwick CJ agreed with the reasoning of Aickin J. Gibbs J identified the generally accepted view to be that ‘the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice’ adding that the party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered’.

Stephen J referred to the court having the power, as far as monetary compensation allows, to make good the harm of which the grant of the injunction was a cause and that but for it he would not have suffered. Mason J said generally speaking, so long as the claim for damages is not trivial or trifling, an enquiry should be directed and the defendant will be entitled to recover the loss which is the natural consequence of the grant of the injunction.

The causal connection between the damage and the injunction is to be identified from the purpose for which the undertaking as to damages is designed to serve. That object is to protect a party from damage sustained in the event that it emerges that the plaintiff is not entitled to the relief sought. Its purpose is not to protect the defendant from damage otherwise sustained.

32.  In European Bank, the High Court, in a joint judgment, affirmed Air Express, restating the significance of the nature of the undertaking. It is not a contract between parties or some other cause of action upon which a party could sue, but is given to the court for enforcement by the court. The joint judgment emphasised the phrase ‘which could have been foreseen’.

It is well established that for damage to be reasonably foreseeable it need only be damage of a type or character that is foreseeable or damage of a type or character that could not be considered unlikely.Roads Corporation submitted that the tortious concept ‘reasonable foreseeability’ is a wider concept than the contractual ‘reasonable contemplation’.

The High Court in European Bank makes it clear that the inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen. “

(citations omitted)

The Court of Appeal dismissed the appeal. The Court accepted that the concept of mitigation of damage applied (at least by analogy) in this case.

Tate JA said at [62]:

“While there is no suggestion that the usual undertaking was here given lightly, the consequences that have flowed from the failure of Mr Love to make out his case at trial have been significant. In my view, these consequences provide a salutary lesson to practitioners and their clients to appreciate the conditions governing the grant of an interlocutory injunction. The usual undertaking carries serious risks; it would be wholly erroneous to view it as no more than a ritual or a formality.”

[1] Love v Thwaites (No. 4) [2012] VSC 521

 

 

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Landlord’s consideration of proposed assignment must be “reasonable”

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

 

Section 60 of the Retail Leases Act 2003 prescribes when a landlord can withhold consent to a proposed assignment of a retail premises lease. The most significant provision is sub-section 60(1)(b) which provides that:

“(1)           A landlord is only entitled to withhold consent to the assignment of a retail premises lease if one or more of the following applies –

….

(b)             the landlord considers that the proposed assignee does not have sufficient financial resources or business experience to meet the obligations under the lease;”

 

On its face s.60(1)(b) appears to give the landlord unfettered power to withhold consent – that is the landlord’s subjective view is all that matters. Despite the wording of the section VCAT has implied a requirement that the landlord must act “reasonably” in undertaking its consideration. In AAMR Hospitality Group Pty Ltd v Goodpar Pty Ltd [2009] VCAT 2782 Deputy President Macnamara held at [45] that:

“With the utmost hesitation however I consider that the words ‘reasonably’ or ‘acting reasonably’ should be read into section 60(1)(b)……. The overriding policy evident in the Retail Leases Act is to provide special protection to a limited class of commercial tenants, namely those who are tenants of small retail tenancies and do not have the clout that say a listed corporation would have. The provisions of the statute are aimed at providing protection to this class of tenant and constraining and restricting a largely unrestricted power which landlords of these premises at common law and before the enactment of special retail tenancies legislation had available. To construe a provision such as section 60(1)(b) such that one of the protected class of tenants was to be at the mercy of the purely subjective determination of a lessor would not be conducive to the statute’s overall policy, per contra it would tend to subvert the wider policy of the statute, …”

In a recent decision Member Farrelly said  that he agreed with Deputy President Macnamara’s reasoning and construed s.60(1)(b) as if it the word “reasonably” appeared before “considers”. See: Villa v Emaan Pty Ltd [2014] VCAT 274 at [47]- [48].

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

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Tenants beware of onerous “make good” obligations

 

There is a translation key(widget)  on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/

 

Lawyers acting for tenants often fail to advise their clients about the burden of the repair obligations imposed by the lease during the term of the lease and the “make good” obligations at the end.

These obligations can be particularly onerous in Victoria because of  cases such as Joyner v Weeks [1891] 2 QB 31.

In Joyner the landlord brought an action against the tenant upon a covenant in a lease that the tenant would leave the leased premises in repair at the end of the lease.

When the lease came to an end the premises were out of repair. The landlord proved before the official referee that the cost of putting the premises into repair was £70; however, the tenant claimed the landlord was entitled only to nominal damages because he had leased the premises to a third party who had covenanted to pull down and rebuild the premises and also to pay a higher rent than the defendant had paid and consequently there was no loss.

The official referee gave the landlord a farthing damages, and gave the tenant all the costs of the action; however, on appeal the Court of Appeal held that the measure of damages was the amount which the landlord proved to be the fair and reasonable sum necessary to put the premises into the state of repair in which he was entitled to have them left, being £70.

What is often referred to as the “rule in Joyner v Weeks” is not an absolute rule, but it is a prima facie rule. The effect of Joyner has been abrogated in some States but not in Victoria. Joyner was applied by the Full Court of the Federal Court in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) FCR 494[1].

In a case similar to Joyner, the Supreme Court of Victoria  recently considered the consequence of a tenant failing to comply with a make good obligation that required it to maintain the premises in good repair during the currency of the lease and to deliver them up to the lessor at the end of the lease in as good condition as they were at the commencement of the lease, fair wear and tear excepted. The tenant breached the obligation to maintain the premises in good repair and failed to deliver them up at the end of the lease in good condition. The landlord conducted a complete refurbishment of the premises, including both internal and external reconfiguration and extensions. The tenant argued that the landlord’s refurbishment rendered the precise works necessary to meet its make good obligations theoretical or irrelevant and therefor the landlord had suffered no loss. Hargrave J rejected the tenant’s arguments and held that the landlord was entitled to recover the cost of performing the precise works which were reasonably necessary to bring the premises up to the state that they would have been in had the tenant complied with its make good obligations during and at the end of the lease. See: Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd [2013]  VSC 464

 

[1] The appeal was dismissed by the High Court in High Court Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.

 

My clerk can be contacted via this link for bookings  http://www.greenslist.com.au/

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