Retail Leases Act 2003 (Vic) likely to apply where tenant provides a service

Where a tenant provides services from leased premises in accordance with the permitted use the lease is likely to be a “retail premises lease” and therefore governed by the Retail Leases Act 2003 (Vic).

In every case it is necessary to identify precisely the service being provided, consider what activity is permitted under the lease and whether the service provided accords with the permitted use.

The Act applies to a “retail premises lease”.  “Retail’ is not defined; however, the expression “retail premises” is defined (s.4(1)):

“….premises, not including any area intended for use as a residence, that under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for –

(a)   the sale or hire of goods by retail or the provision of services;”

(underlining added).

The authorities provide strong support for the ‘ultimate consumer’ test as the touchstone of retailing. In Wellington Union Life Insurance Society Limited [1991] 1 VR 333, Nathan J said at 336:

“The essential feature of retailing, is to my mind, the provision of an item or service to the ultimate consumer for fee or reward. The end user may be a member of the public, but not necessarily so.”

Wellington Union concerned the provision of a service: patent attorneys providing advice to large foreign chemical companies from rented premises. In some cases the advice passed through the hands of an intermediary to the ultimate consumer. Nathan J held that the premises were “retail premises”.

In Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd [2013] VSC 344 (which also concerned the provision of a service) Croft J referred to Wellington Union at [16]:

“The fact that the advice of the patent attorneys may pass through the hands of an intermediary to the ultimate consumer or end user was not regarded as significant, provided it came into the hands of that person in a form that could not be amended and hence remained the product of the intellect of the deliverer. More generally, this highlights and emphasises the importance of characterising the nature of the “service” that is being provided. Thus, in the context of Wellington, it would follow that if the position was that the patent attorneys provided advice to, for example, a solicitor who would, in turn, provide advice to his or her client, the ultimate consumer, using the patent attorney’s advice merely as an “input” in his or her advice, wholly or partially with additions and modifications on the basis of his or her professional opinion, the position would be different. In those circumstances the patent attorney’s advice could not, in a relevant sense, be said to pass through the hands of an intermediary to the ultimate consumer. It does not, however, follow that in these circumstances the solicitor may not be regarded as the “ultimate consumer” of the service for the purposes of his or her own practice; as is likely to be the case with other “inputs” for the practice such as, for example, legal research services, stationary and office supplies.”

Most reported cases concern whether goods are being sold by retail. At [17] in Fitzroy Dental Croft J considered whether the sale of goods could be said to be “retail”;

“….. a sale of “widget type A” from premises by A to B who, in turn, “converts” the good “widget type A” to “widget type B for sale to C would not involve the sale of “widget type A” to C as the ultimate consumer of that type of good. Depending on the nature of the goods involved these transactions may involve sale by wholesale to B and a retail sale to C – or, alternatively, two retail sales of different goods, “widget type A” to B and “widget type B” to C.”

And at [18];

“… that the fact that a good or a service is provided to a person who uses the good or service as an “input” in that person’s business for the purpose of producing or providing a different good or service to another person does not detract from the possible characterisation of the first person (and perhaps also the second person, depending on all the circumstances) as the “ultimate consumer” of the original good or service.”

In CB Cold Storage Pty Ltd v IMCC Group Pty Ltd [2017] VSC 23 Croft J had to again consider whether rented premises were “retail premises”. The tenant conducted the business of a cold and cool storage warehouse storage from the premises which accorded with the permitted use under the lease. The tenant’s customers ranged from large primary production enterprises to very small owner operated businesses. VCAT held that the tenant’s rented premises were not “retail premises” on the basis that a “consumer” was a person who used goods or services to satisfy personal needs rather than for a business purpose and therefore the tenant’s customers were not consumers of the tenant’s services. The tenant appealed VCAT’s decision. Croft J allowed the appeal and held that the premises were “retail premises”. The Tribunal erred in holding that customers that used a tenant’s service for a business purpose were not “ultimate consumers”; the Tribunal treated the services provided at the premises as an “input” into the tenant’s customer’s business arrangements with the consequence that the tenant’s customers were not the ultimate consumers of the tenant’s services. The matter was not remitted to VCAT because the Tribunal had been satisfied of all other matters necessary to support a conclusion that the premises were “retail premises”: the premises were being used in accordance with the lease, were “open to the public” and there were no findings to support a conclusion that the premises were not “retail premises”.

CB Cold Storage highlights the importance of identifying the nature of the service being provided and the user or consumer of that service. In most cases the provision of a service will be “retail”.

Hopeless proceeding can result in a cost order under Retail Leases Act 2003 (Vic)

The weakness of a party’s case in a retail tenancy dispute can be taken into account in determining whether or not it has “conducted” a “proceeding in a vexatious way” that would entitle the other party to a cost order under s.92(2) of the Retail Leases Act 2003 (Vic).

Part 10 of the Act contains the dispute resolution provisions. Except as provided in s.92(2) the Act requires each party to a retail tenancy dispute  to bear its own costs of the proceeding. See: s.92(1). Costs may be awarded in a retail tenancy dispute under s.92(2) if:

“…the Tribunal is satisfied that it is fair to do so because;

(a)   the party conducted the proceeding in a vexatious way that unnecessarily disadvantaged the other party to the proceeding; or

(b)   the party refused to take part in or withdrew from mediation or other form of alternative dispute resolution under this Part.”

(underlining added)

Judge Bowman in State of Victoria v Bradto Pty Ltd and Timbook Pty Ltd [2006] VCAT 1813 referred to the distinction in s.92(2)(a) between a proceeding which is conducted in a vexatious way and the bringing or nature of the proceeding being vexatious. His Honour held that a proceeding is conducted in a vexatious manner “if it is conducted in a way productive of serious and unjustified trouble or harassment, or if there is conduct which is seriously and unfairly burdensome, prejudicial or damaging”.

In 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VSCA 216 the Court of Appeal considered an appeal from a decision by VCAT in which costs had been awarded on an indemnity basis pursuant to s.92(2)(a). The Tribunal’s decision was based in part on a finding that the applicant had commenced an action for damages in circumstances where the applicant, properly advised, should have known it had no chance of success and persisting in what should, on proper consideration, have been seen to be a hopeless case. The applicant contended that there was a difference between instituting a proceeding that was vexatious, or making a claim that fails, and the conduct of the proceeding which is vexatious. It argued that the Tribunal focused more on what were perceived to be the prospects of success than on the actual conduct of the proceeding.

The Court of Appeal rejected the applicant’s contentions holding that the Tribunal had considered the conduct of the proceeding in addition to the “hopelessness of the applicant’s claim” and that there was no error in also considering the hopelessness of the claim because “the strength of the applicant’s claim for damages was a relevant factor to take into account”.

At [29] the Court of Appeal said:

“It would be artificial to attempt to evaluate the manner in which the proceeding was conducted without having regard to the strength of that party’s case. In the present circumstances, it was relevant that the applicant pursued the damages claim, in circumstances where it was bound to fail.”

If it appears that a proceeding is hopeless the applicant should be notified at an early stage that the application is hopeless and should be withdrawn.

Date of termination confirmed as the date for assessing damages for breach of contract for sale of land

The general rule is that damages for a breach of a contract for the sale of land are assessed at the date of the breach. The task is usually to compare the contract price with the value of the land a the time of the breach. If the value is greater than the contract price, the vendor has suffered no loss. But if the value is less than the contract price, it may be inferred that the discrepancy is an element of the vendor’s loss (Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 at [179]).

 

In Ng v Filmlock Pty Ltd [2014] NSWCA 389 the NSW Court of Appeal heard an appeal by a purchaser of land from a judgment where the trial judge had assessed the vendor’s loss as being the difference between the contract price and the price obtained on a resale. The contract restricted the use of the resale price as an element in the quantification of loss to a resale within 12 months of termination but otherwise the vendor was entitled to damages for breach of contract. The resale took place more than 12 months after termination and therefore the general law applied. The land had declined significantly in value by the time of the resale.

The vendor argued that there was no available market as at the date of the breach of contract and therefore the resale price was relevant to the calculation of loss. The argument was based on a proposition said to be derived from the decision of the English Court of Appeal in Hooper v Oates [2014] Ch 287: the correct date for assessment of damages for breach of contract is the date of breach only where there is an immediately available market for the subject matter of the sale.

Emmett JA, after noting that the English Court of Appeal did not explain what was meant by an “immediately available market”, said at [26]:

“While a sale of land might take longer than the sale of other types of assets, it does not follow that there should be a departure from the general rule, which focuses on the value of the land as at the date of termination of the contract. There is good reason for that approach where the damages sought by the innocent seller are loss of bargain damages. The critical date is when the bargain was lost.”

While the appeal was successful the court accepted that in an appropriate case the interests of justice may require that “the date of breach” rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale. See: Johnson v Perez (1988) 166 CLR 351 at 367.

Gleeson JA said at [58]:

“….whether a market value may be assessed in the case of land as at “the date of breach” is ultimately a question of fact. Of necessity, the sale of land will generally require a period to elapse for proper marketing. Unsuccessful attempts by a vendor to resell the property are not determinative as to whether there is no market for the land. Much will depend on the usual method of sale for the land in question having regard to its location, particular characteristics, the range of likely interested purchasers, and the time usually required for proper marketing of land of that type. Expert valuation evidence is likely to have a significant role.”

And at [59]:

“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt [2013] HCA 56 at [109] (Keane J). A vendor claiming damages assessed at a date later than “the date of breach” must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima face or “usual” measure of damages.”

 

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

 

 

Mortgagor fails in last minute bid to stop auction

Bill Stark has posted an interesting article on his blog about a case concerning a defaulting mortgagor’s last minute unsuccessful attempt to prevent the sale of the mortgaged land. See: Melbourne Property Law Blog.  Attempts by mortgagors to prevent  sales proceeding are rarely successful and the price for an injunction preventing a sale proceeding is usually payment of the amount owing into court. In the case analysed by Bill (Pearl Beach Property Administration Pty Ltd v Wisewoulds Nominees Limited [2014] VSC 113)  the mortgagee advertised the property for sale at an auction with an expected price range of $3,900,00 – $4,200,000. The day before the auction the borrower “sold” the land for $5,000,000; however, the mortgagee did not consent to the proposed sale preferring to go to auction. The borrower sought an injunction on the day of the auction alleging that the mortgagee had breached its duty to act “in good faith and having regard to the interests of the mortgagor” under s.77(1) of the Transfer of Land Act 1958 and/or its obligations to the mortgagor under s.420A of the Corporations Act. The alleged bad faith was the mortgagee marketing the property for sale in a price range that was less than the valuation of $4,800,000 allegedly obtained by it. Despite the mortgagee not appearing at the hearing of the injunction  the injunction was refused.  Justice Dixon  held at [21] that “It was not properly open to infer a want of good faith or want of reasonable care in the conduct of the proposed sale from the fact that the property has been advertised as available within a range that is below the sworn valuation”.  His Honour said that under quoting did not mean that the property was likely to be sold at an undervalue at auction.  There is authority that a mortgagee is  not bound to withdraw a property from auction merely because private offers are made  See: Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138. See also Qorum Pty Ltd v Younger (1995) NSW Conv R 55-738 (BC9504362).  While it is usual for a mortgagee to sell mortgaged property by auction it is not a breach of duty by the mortgagee if property is sold by private contract. See: s77(1) of the TLA. However, where land is sold by private contract it is desirable for the mortgagee to obtain one or more estimates of the value of the mortgaged property from competent estate agents. See: Croft and Hay The Mortgagee’s Power of Sale, 2012, para 6.2. It is not a breach of duty merely because land is sold by private contract without advertising: the question is always whether the land sold in good faith and for a fair price. See: Vasiliou v Westpac Banking Corporation (2007 19 VR 229. The critical issue is the price obtained and not the presence or absence of advertising. See: Vasiliou at [63]. A mortgagee may also not be acting in bad faith by proceeding with an auction despite the existence of a lucrative offer for private sale if there is no evidence that the purchaser will be able to perform its obligations under the contract. See: Esanda Finance Corporation Ltd v C Conti (unreported, Supreme Court of Queensland, 15 January 1993, BC9303066).

 

No easy answers to whether premises are “retail premises”

It is often difficult to determine whether premises are “retail premises” within the meaning of s 4 of the Retail Leases Act 2003 Act. Section 4(1) provides that “retail premises” means premises that:

“under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for –

(a)    the sale or hire of goods by retail or the retail provision of services.”

One difficulty that arises is that the definition excludes premises that are “intended for use as a residence” with the result that it is not always clear  whether premises such as motels, serviced apartments and caravan parks are “retail premises”.  In the recent decision of String v Gilandos Pty Ltd [2012] VSC 361 Croft J highlighted that there are no easy or broad brush answers: in each case the terms of the lease and the nature of the premises needs to be examined carefully.

His Honour was required to decide whether leases by owners of units in an apartment/resort  complex to the operator of the resort were “retail premises leases” within the meaning of the Retail Tenancies Act 1986, the Retail Tenancies Reform Act 1998 and the 2003 Act. The operator paid rent to the owners and rented the units to members of the public. The units were used as “serviced apartments” and the members of the public did not know who the owners were. From at least 2007 to January 2012, no member of the public had stayed at the units on a permanent or semi-permanent basis and members of the public had only occupied the units for a day or few days at a time. His Honour determined (at [42]) that the units were used for short-term holiday accommodation in a manner difficult to distinguish in any meaningful way from the manner in which motel and hotel rooms were used.

At [47] His Honour considered the meaning of “serviced apartments” and said:

The term or description “serviced apartments” seems to be a relatively modern one; which probably accounts for the lack of assistance from dictionaries. Thus it cannot be assumed that this term or description has any settled meaning. Consequently it is only a term or description that derives meaning – other than in a very general sense – from the particular circumstances in which it is used; and, in most cases with respect to particular premises. This is, in my view, clear from the cases in which the term or description has been considered.

After reviewing the authorities, Croft J said at [52]:

Thus these cases indicate that there may be very fine distinctions between use of premises as a motel on the one hand or as a serviced apartment or serviced apartment complex on the other hand. The observations by the various courts and tribunals with respect to motels and serviced apartments indicate that the characteristics of both types of premises can overlap, thus adding to difficulties in characterising the mode of usage. A clear example is to be found in St Kilda City Council v Perplat Investments Pty Ltd [(1990) 72 LGRA 378] where Young CJ observed that, while it was open to the Tribunal to make a finding of fact based on the evidence before it that the proposed building would be used as serviced apartments, in his view, the proposed buildings looked more to be a motel.

Following Wellington v Norwich Uniton Life Insurance Society Limited [1991] 1 VR 333 and similar cases (at [58]), His Honour held that that the “ultimate consumer” test was the “touchstone of retailing, whether goods or services” and (at [65]) that members of the public were ultimate consumers for fee or reward (being fees paid for accommodation) and the units were used “wholly or predominantly for the carrying on of a business involving the sale or hire of goods by retail or the retail provision of services”.  Thus, each of the leases were “retail premises leases”.

At [65] His Honour said:

Motels, hotels or resort complexes, generally speaking, provide retail services for fee or reward, including the hiring out of rooms. They may also sell food, liquor and other beverages, by retail, at any restaurant faculty provided. In any event, the hiring out of rooms or units for fee or reward to members of the public clearly constitutes the provison of retail services.

His Honour stressed that in each case the nature of the premises had to be analysed together with the manner in which the occupancy was provided. His Honour said at [68]:

I should, however, sound a note of caution in relation to this finding by emphasising that whether or not premises described as “serviced apartments” is to be characterised as “retail premises” depends upon the particular circumstances, including the nature of the premises, the manner in which occupancy is provided and the nature of that occupancy (see Meerkin v 24 Redan Street Pty Ltd [2007] VCAT 2182 (Deputy President Macnamara); though see Bradfield & Ors v QOB Tenancy Pty Ltd (Retail Tenancies) [2012] VCAT 755 (Senior Member Davis) where the parties took the common view that the serviced apartments ought to be considered as retail premises for the purposes of the 2003 Act (see paragraph [82]) .  As I have said, the term or description, “serviced apartments”, is not a term of art. Rather, it is a term or description of premises which connotes a range of possibilities. At one end of the range one would find premises managed and occupied in a manner indistinguishable from a motel or hotel and at the other end premises indistinguishable from long term residential accommodation, separately let but with the attribute of being serviced. In the former case it would be expected that the Acts would apply on the basis that the premises are “retail premises” and in the latter case they would not, any more than they would to any block of residential units. In between there are a range of possibilities each of which may have different consequences in terms of the application of the Acts.

As to the exclusion from the definition of “any area intended for use as a residence”, His Honour said at [64]:

For the sake of completeness I observe that the Retail Leases (Amendment) Act 2005 amended the 2003 Act to include the words “not including any area intended for use as a residence” in the provisions defining the meaning of “retail premises”. In my view, the expression residential accommodation connotes accommodation of this type which is occupied with a degree of permanence. I observe that, consistent with this view, the Full Federal Court of Australia said, in Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR; 214 ALR 190; [2004] FCAC 307 (“Marana Holdings”) that: [citation omitted]

“It may be that the expression “residential accommodation” is sometimes used to describe short-term accommodation in an hotel or a motel. We are not sure that any such usage is as common in Australia as the Court of Appeal in Owen v Elliott [(Inspector of Taxes) [1900] 1 Ch 786] considered it to be in England. We would have thought that such accommodation is more often described as “temporary accommodation”, “holiday accommodation” or perhaps as “hotel accommodation” or “motel accommodation””.

Although Marana Holdings was not a retail leases case this statement is, in my view, one of general application. In the present case the agreed facts are that the Plaintiffs’ Units have been used as only temporary accommodation by its occupants,[citation omitted] so no issue arises with respect to the possibility of residential use.

The agency exception

His Honour also considered a claim by the operator the units were not “retail premises” because the employee or agency exception applied. Section 4(2)(b) of the 2003 Act exempts premises where the tenant is “carrying on” a business “on behalf of the landlord as the landlord’s employee or agent”. After a comprehensive consideration of the terms of the leases His Honour at [69] – [95] rejected the operator’s claim that it was carrying on a business as the landlord’s agent.  Helpfully, His Honour at [94] said:

….in my view, the agency exception only applies if the tenant and landlord relationship is merely incidental to the agency relationship. So even if I am wrong in finding that there is no agency relationship, it cannot be said that the landlord and tenant relationship between the Plaintiffs and the Defendant is incidental to the agency relationship.

(italics added)

Consequences of repeal of Fair Trading Act

In yesterday’s post I stated that the Fair Trading Act 1999 had been repealed effective 1 July 2012 and replaced with the Australian Consumer Law and Fair Trading Act 2012.  Many commercial disputes brought in VCAT were “consumer and trader” disputes within the meaning of s.107 of the FTA. Chapter 7 of the new Act preserves the “consumer and trader” dispute regime.  Note should be taken of s.3(2) which provides that unless the contrary intention appears the words and expressions used in the new Act have the same meaning as they have in the Australian Consumer Law. This means, for example, that in deciding whether a dispute is a “consumer and trader” dispute recourse will have to be had to the definition of “goods” and “services” in s.2 of the Australian Consumer Law.

Section 8 of the new Act provides that the “Australian Consumer Law text” applies as a law of Victoria.  The expression “Australian Consumer Law Text” is defined in s.7 as meaning, among other things, schedule 2 to the Competition and Consumer Act 2010 (Cmlth), being the Australian Consumer Law. Thus, when considering, for example, a potential claim for misleading or deceptive conduct recourse must be had to s.18 of the the Australian Consumer Law and not to any provision in the new Act.  VCAT has jurisdiction to hear and determine disputes under the Australian Consumer Law and thus the full suite of remedies available under the Australian Consumer Law can be utilized in VCAT. See: s.224 of the ACLFTA.

Readers should also note that the Landlord and Tenant Act 1958 will be, but has not yet been, repealed by the ACLFTA with the consequence that the law concerning uncollected goods left in premises at the termination of a lease remains in Part IVA of the Landlord and Tenant Act. When Part IVA  is repealed Part 4.2 of the ACLFTA will be the statutory source of the law in Victoria concerning uncollected goods.

Tenants need the protection of s.146 of the Property Law Act

I have had a number of queries about a recent post concerning N.C.Reid & Co v Pencarl Pty Ltd [2011] VCAT 2241. In Reid Judge O’Neill held that before re-entering leased premises the landlord did not have to serve a notice that complied with s.146 of the Property Law Act 1958. The lease permitted the landlord to re-enter if the guarantor became bankrupt.  Section 146 requires service of a notice where a right of re-entry or forfeiture under any proviso or stipulation in a lease or otherwise arising by operation of law for “a breach of any covenant or condition in the lease, including a breach amounting to a repudiation”. Judge O’Neill held that there was no “breach” and therefore a notice under s.146 was not required. If Reid stands it has major implications for tenants who will lose the protection afforded by s.146. Judge O’Neill does not appear to have been referred to authorities that might have persuaded him to adopt a different interpretation of s.146. For example, the application of the reasoning applied by McLelland J in Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW Conv R 55-538 might have resulted in a different outcome.  McLelland J had to consider a lease that permitted the lessor to enter premises and determine the lease without notice if the lessee entered into liquidation or was wound up. His Honour held that the right of re-entry under the lease was a “right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any….condition in the lease”, within the meaning of s.129 of the Conveyancing Act 1919 (being the NSW equivalent of s.146) which could not be enforced unless and until the lessor gave notice  under s.129 and in respect of which the tenant could apply for relief against forfeiture. His Honour held that a provision in a lease that provided for re-entry on the happening of an event, regardless of whether or not there was any obligation on the lessee to prevent that even happening, was a “condition” within the meaning of s.129 and that the word  “breach” in s.129 was equivalent to non-fulfilment”.  His Honour held that this interpretation was supported “by the evident policy of the provision [ie s.129 in NSW or s.146 in Victoria] which would otherwise be manifestly inadequate for the protection of lessees which it obviously is intended to confer”.  If Reid is the law in Victoria s.146 will need to be amended.

Meaning of “terms contract” examined

Any practitioner who acts for vendors and purchasers of land should have a good understanding of what is and what is not a “terms contract” for the purpose of the Sale of Land Act 1962. The Act prohibits certain types of “terms contracts” and a purchaser can avoid contracts entered into in contravention of the Act. In an important decision, Dixon J in Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222  considered the definition of “terms contract” that has applied since 31 October 2008. Section 29A provides:

“(1) For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is –

(a) obliged to make 2 or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or

(b)entitled to possession or occupation of the land before the purchaser becomes entitled to a conveyance or transfer of the land.

  (2) In subsection (1)- deposit means a payment made to the vendor or to a person on behalf of the vendor before the purchaser becomes entitled to possession or to the receipt of rents and profits under the contract; final payment means a payment on the making of which the purchaser becomes entitled to a conveyance or transfer of the land.” (italics added)

Before 31 October 2008 a “terms contract” was an executory contract under which the purchaser is (a) obliged to make two or more payments to the vendor after execution of the contract and before the purchaser was entitled to a conveyance or (b) entitled to possession or occupation of the land before becoming entitled to a conveyance or transfer. The definition of “deposit” and “final payment” in s29A have a much wider meaning. In Ottedin the purchaser, in December 2008 contracted to purchase land for $6.5 million and paid a deposit of $325,000 with settlement due in December 2009 upon which the purchaser became entitled to transfer and vacant possession of the land. The purchaser was unable to settle. By deed the parties deleted the particulars of sale and substituted new particulars under which the price remained the same but the settlement date was changed to December 2010, the deposit became $1,325,000 with $325,00 due on the day of sale and $1,000,000 due in January 2010 (increased deposit). There was also a provision for a contingent interim payment of $3,675,000 with a final payment of $1,500,000 due at settlement. Ottedin defaulted and sought to avoid the contract under s29O(2) of the Act on the ground that the contract was a “terms contract” that did not comply with the Act’s requirements concerning terms contracts. The contention was that apart from the initial deposit of $325,000 and the final payment, the contract (as varied) was a terms contract because it obliged the purchaser to pay two or payments after the execution of the contract, being the balance of the deposit ($1,000,000) due in January 2010 and the interim payment of $3,675,000. Dixon J rejected the purchaser’s contention. His Honour held that both the initial $325,000 and the increased deposit were each obligations to pay the “deposit” within the meaning of s29A. His Honour held that the contingent interim payment of $3,675,00 (which was not paid) was either a deposit or became part of the final payment but its characterisation did not matter because even if it was an interim payment before settlement, there was still only one payment.

Tenancy in common trumps joint tenancy

When property is purchased in joint names and one party dies the question of whether the proprietors held the land as joint tenants or tenants in common invariably arises. The answer is significant because if the parties were joint tenants the whole of the land remains with the surviving joint tenant. The law concerning joint tenancies and tenancies in common was recently reviewed in detail in Sacks v Klein [2011] VSC 451.  In Sacks two brothers purchased a flat as as joint proprietors as an investment. The mortgage loan was made to them jointly and severally. One brother died and the survivor claimed to be entitled to be registered as the sole proprietor and was so registered. The administrator of the deceased’s estate sought a declaration that the survivor held the land on trust for himself and the plaintiff as tenants in common in equal shares. Sacks contains an excellent summary of the relevant legal principles and provides a good example of the analysis that needs to be undertaken in determining what the parties’ intentions were when the land was purchased. In summary the legal principles are:

(a)  Where  property is conveyed to two or more persons who are named as transferees without further specification as to whether they hold the title as joint tenants or tenants in common, they are deemed by operation of s.33(4) of the Transfer of Land Act 1958 to hold the legal estate as joint tenants. But that section does not preclude the operation of equity.

(b)  In the absence of evidence that the transferees hold a different intention, equity will follow the law.  However, equity favours tenancies in common and even “slight circumstances” are enough to indicate that the parties do not intend to hold property as joint tenants.

(c)  Prima facie, the provision of purchase money in equal shares is consistent with an intention to hold property as joint tenants. But equity will presume an intention to hold the beneficial interest as tenants in common where, among other things, a mortgage is made to them jointly, or where the property is acquired by partners or participants in a joint undertaking.

(d)  The application of the equitable presumption was not confined to formal business structures; an informal  joint business venture or undertaking would still give rise to equities leaning towards a tenancy in common of the beneficial interest.

(e)  The equitable presumption may be rebutted by evidence of a common intention by the co-owners to acquire the property as joint tenants; the common intention must be actual and not presumed. If there is ambiguity at to the existence of a common intention the court will lean towards a construction which creates a tenancy in common rather than a joint tenancy.

(f)  If the parties describe their interests in words which suggest distinct shares are to be held, their words prevent the creation of a joint tenancy. The evidentiary threshold needed to establish a division is easily met because:

….anything which in the slightest degree indicates an intention to divide the property must be hold to abrogate the idea of a joint tenancy and to create a tenancy in common” (Robertson v Frazer (1871) LR 6 Ch A 696 at 699).

Hargrave J  held that the brothers purchased the land as a joint business undertaking and therefore the equitable presumption of tenancy in common applied with the consequence that the survivor had to rebut the presumption by “clear and cogent” evidence. Despite finding that the brothers agreed to be registered as joint tenants Hargrave J held that the brothers intended to divide their interests in the flat equally and therefore the administrator’s claim succeeded.

Thanks to Elizabeth Michael for mentioning this case to me.