Tenant's Appeal Dismissed, Landlord's Re-Entry Upheld

The Court of Appeal dismissed the tenant's appeal and allowed the landlord's cross-appeal, upholding the landlord's re-entry based on the tenant's default in rent payment, despite the tenant's claim of double payment of rent.

[ADDRESS] of Appeal

CITATION: [NAME] & Anor v [COMPANY] [2010] NSWCA 340

HEARING DATE(S): 3 December 2010 JUDGMENT OF: Giles JA at 1; Tobias JA at 42; Young JA at 45

EX TEMPORE JUDGMENT DATE: 3 December 2010

Appeal dismissed. Stay the substantive judgment in the District Court until 31 January 2011. Stay the costs judgment save so far as may be necessary as to progress towards assessment of costs.

DECISION: *** [The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

CATCHWORDS: TENANCY – commercial – premises leased to franchisor – licensed to [NAME] for license fee which was same as rent – lease later assigned to [NAME] – [NAME] re-entered due to default in payment of rent after demand – whether failure to pay in compliance with demand – depended on whether April rent (post assignment) paid twice – April rent paid by [NAME] – franchisor took money including April licence fee – did not pay over to [NAME] – whether franchisor agent of [NAME] – on facts, no agency – no question of principle.

PARTIES: [NAME] and [NAME] - [COMPANY] - Respondent

FILE NUMBER(S): CA 2009/298465

COUNSEL: [redacted] [NAME] - Respondent/Cross-Appellant

SOLICITORS: [redacted]

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 1411/08

LOWER COURT JUDICIAL OFFICER: [NAME] DATE OF DECISION: 29 May 2009

LOWER COURT MEDIUM NEUTRAL CITATION: [COMPANY] v [NAME] & Anor [2009] NSWDC 15

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2009/298465

GILES JA TOBIAS JA YOUNG JA

Friday, 3 December 2010 [NAME] and [NAME] v [COMPANY]

Judgment 1 GILES JA: Premises in [ADDRESS], Thornleigh, were owned by the respondent, [COMPANY], and leased to [NAME] and [NAME]. On 19 October 2007 the respondent re-entered the premises and took possession, under a clause in the lease by which that could be done after formal demand if [NAME] were in default in payment of rent. 2 In proceedings in the District Court the respondent claimed from [NAME] arrears of rent and outgoings and its expenses incurred in re-entry. [NAME] defended the claim, and cross-claimed for damages on the ground that the re-entry had been unlawful because they had not been in default in the payment of rent. 3 [NAME] found that [NAME] had been in default in payment of rent, although not to the extent that the respondent had asserted at the time. [NAME] found that the rent for April 2006 had been paid twice, but that did not avail [NAME] because he found that nonetheless the rent for September and October 2007 had not been paid. [NAME] gave judgment for the respondent for $47,742.15, which was less than had been claimed because of the finding as to double payment, and gave judgment for the respondent on the cross-claim. 4 [NAME] appealed by leave from [NAME]'s decision, the leave being limited to whether a formal demand was made in relation to the rent payable for October 2007. So far as the notice of appeal goes beyond the leave, which the submissions really did not do, it must be disregarded. The respondent cross-appealed by leave, the leave being limited to a ground defensive of the finding that the re-entry had been lawful and not extending to recovery of an amount greater than the $42,742.15. In substance, the cross-appeal was against the finding that the April 2006 rent had been paid twice. 5 Before us [NAME] appeared in person, as they had in the District Court. [NAME] appeared for the respondent. 6 The re-entry clause in the lease was clause 0.1, by which the respondent could re-enter and terminate the lease "if the rent hereby reserved or any part thereof shall be in arrears or unpaid for 14 days after the same shall have become payable (after formal demand has been made for payment)". 7 Rent was payable monthly on the first of each month. On 17 September 2007 the respondent demanded arrears of rent and outgoings for July, August and September 2007. [NAME] paid the amount claimed less one month's rent. They did not make full payment because they maintained that the April 2006 rent had been paid twice and had been applied by them to the July 2007 rent. However, because of a dispute concerning land tax found against them by the judge, [NAME] did not pay the October 2007 rent. It followed from the judge's finding that the April 2006 rent had been paid twice that the demand of 17 September 2009 was satisfied, but the judge upheld the re-entry on the basis of the subsequent non-payment of the October 2007 rent. (The finding of non-payment of the September 2007 rent is puzzling, but does not affect this.) 8 In their appeal [NAME] submitted that [NAME] overlooked the need for a formal demand for the October 2007 rent. At the time of the leave application the respondent relied on a communication of 3 October 2007 as a formal demand for the October 2007 rent, but at the hearing it accepted that the judge had been in error in the manner of which [NAME] complained (while pointing out that the need for a formal demand had not been raised by [NAME] in the District Court). But by its cross-appeal the respondent contended that the re-entry was well founded on the demand by the letter of 17 September 2007, because there had not been double payment of the April 2006 rent and so the demand had not been fully complied with. Thus the question came down to whether the judge was in error in finding that there had been double payment of the April 2006 rent. 9 Before going to the judge's reasons on that matter, I describe the background. 10 The original lessee of the premises from the respondent was a [NAME] company called either [COMPANY] or [COMPANY] ("[NAME]"). In July 2001 [NAME] franchised to [NAME] and a [NAME] a business of general motor vehicle repair and maintenance, specialising in mufflers. [NAME] and [NAME] entered into a licence agreement for the use by [NAME] of the premises. Through a company [COMPANY] ("[COMPANY]"), [NAME] and [NAME] conducted the automotive business at the premises. 11 The lease permitted [NAME] to assign, sublet or otherwise deal with its right to possession of the premises with the respondent's consent, save that the respondent's consent was not required for it to sublet to a [NAME]. The licence agreement was not in evidence, but it was referred to in a Deed of Surrender and Release dated 15 February 2006 which I will later mention. It can probably be inferred that the respondent knew that a [NAME] was in possession of the premises, but there is no evidence that it knew any details of the licence agreement. [NAME] and [NAME] paid a monthly sum to [NAME] under the licence agreement, which the judge implicitly found was the same amount as the monthly rent payable by [NAME]. 12 In about April 2005 [NAME] assigned his interest in the franchise agreement, the licence agreement and [COMPANY] to [NAME]. 13 [NAME] and [NAME] subsequently fell out. They recorded the severance of their connection by the Deed of Surrender and Release of 15 February 2006 ("the Deed"). It provided for the surrender of the franchise agreement and the licence agreement, taking effect on the Completion Date, but [NAME] were obliged to procure a surrender or an assignment of the lease prior to the Completion Date. In the Deed the Completion Date was 3 April 2006 or such later date as the parties agreed, and it was in fact 3 April 2006. 14 In accordance with the Deed, there were negotiations for assignment of the lease. On a date in July 2006 a Deed of Assignment was executed. The parties were the respondent as landlord, [NAME] as assignor and [NAME] as assignees. The Deed of Assignment provided for assignment of the lease to [NAME] "on and from the Effective Date". The respondent consented to the assignment and released [NAME] from its obligations under the lease, and [NAME] covenanted with the respondent that they would pay the rent reserved by the lease as from the Effective Date. The Effective Date was 1 April 2006. 15 In due course a transfer of the lease, which was a lease under the Real Property Act 1900, was executed and registered. 16 During the currency of the licence agreement [NAME] established a direct debit authority with their bank under which amounts due to [NAME] pursuant to the licence agreement were paid to it. The nature of the authority, which was described in this way in the evidence, is not entirely clear. 17 In March 2006 [NAME] arranged for cancellation of the authority, and on 13 and 18 April 2006 they paid to the respondent amounts representing the April 2006 rent payable by them under an assigned lease. That is, [NAME] proceeded on the basis that they did not pay [NAME] in relation to their possession of the premises from 1 April 2006, but paid the respondent as their landlord. 18 In circumstances not entirely clear, [NAME] received an amount which [NAME] equated with the other payment of the April 2006 rent. The judge found that on or about 3 April 2006 [NAME] "took its usual monthly periodical payment for rent and outgoings" from [NAME]' bank account. That was not the evidence, although I do not think it matters greatly. The evidence of [NAME] was that [NAME] called in a bank guarantee and took $20,000, it seems some three months after April 2006, and that [NAME] eventually received from [NAME] an invoice for "rent April 2006" which, at least on their understanding, represented part of the $20,000. Be that as it may, [NAME] took the money, and it did not pay the money to the respondent. It seems that [NAME] did not know that [NAME] had taken the money until January 2007 or a little later. 19 I go then to the judge's reasons. 20 The judge referred at [8] to the arrangement at the time of the licence agreement as one under which money was paid to [NAME], and said that "[NAME] in turn accounted to the Plaintiff in respect of such monies." He referred at [19] to [NAME] paying rent to the respondent on 4 March 2006 "using funds provided by [NAME] to [NAME] for this purpose pursuant to the arrangements that subsisted between [NAME] and the Plaintiff for that purpose." 21 [NAME] said as to the double payment - "46. [NAME] finalised their negotiations with [NAME] and the Plaintiff on 15 February 2006. In the following months, namely March and April 2006, [NAME] received monies for rent and outgoings from [NAME] pursuant to an existing direct debit facility made pursuant to the former arrangements.

47. I find that the former arrangements, whereby [NAME] paid [NAME] which in turn paid the Plaintiff, comprised a relationship of agency between the Plaintiff and [NAME] whereby [NAME] collected and received monies from [NAME] as the agent of the Plaintiff. The mechanism whereby the agency operated was that [NAME] made payments to [NAME] and in turn [NAME] made corresponding payments to the Plaintiff to account for the monies it received from [NAME].

48. In my view this indicates that before the lease was assigned by [NAME] to [NAME] the parties were in a fiduciary relationship and I am satisfied that this was so. Until the lease was formally executed in July/August 2006 and registered subsequently, this meant that when [NAME] received monies from [NAME] it did so as the agent of [NAME]. In my view this is evidenced by the fact that [NAME] adopted the practice of passing on those monies to the Plaintiff for payment of rent and outgoings in respect of the premises. I am satisfied that this course of dealings was conducted with the full authorisation of [NAME].

49.

Accordingly, I find that when [NAME] received monies from [NAME]' bank account in March and April 2006 [NAME] did so as agent for the Plaintiff." 22 With respect, the judge was in error. While the licence agreement was on foot, [NAME] was not the respondent's agent to collect and receive money from [NAME]. [NAME] was obliged as lessee to pay the monthly rent to the respondent, and by a separate agreement with [NAME] it received the same amount under the licence agreement in satisfaction of [NAME]' obligation owed to it, [NAME]. It was a case of two separate obligations, not a case of an amount being passed on by an agent. 23 There was in fact no evidence of an arrangement between [NAME] and the respondent whereby [NAME] used funds provided by the appellant to pay the rent, as apparently found by the judge. The evidence of [NAME] of the respondent was quite to the contrary of that, and of any agency, and there was no other evidence on which the agency could be found. 24 The basis for the judge's finding of agency appears to be the fact that [NAME] passed on the money paid by the appellant, "with the full authorisation of [NAME]" (at [48]). It is not clear what [NAME] meant by authorisation. If [NAME] meant that the respondent knew that the money was being passed on, there was no evidence that it knew the source of the money paid to it by [NAME]. Even if it did know of the source of the money, that would not make out agency. There was no evidence of any other kind of authorisation. 25 Apart from the lack of evidence, the judge's reasoning was circular. The agency indicated a fiduciary relationship, and a fiduciary relationship meant that [NAME] received money from [NAME] as the respondent's agent. This was false reasoning. 26 The position did not change with the assignment of the lease. By the Deed of [NAME] was released and [NAME] undertook a direct obligation to the respondent on and from 1 April 2006. [NAME] acted accordingly even prior to the execution of the Deed of Assignment. 27 Perhaps more fundamentally, there was no question at all of payment by [NAME] to [NAME] on behalf of the respondent of the money said to be the second payment of the April 2006 rent. [NAME] did not intend to pay the amount taken by [NAME] to [NAME], as an amount payable under the licence agreement let alone as rent payable to the respondent, and did not know that [NAME] had taken the money until many months later. 28 [NAME]' submissions in response to the cross-appeal had two limbs. 29 The first limb was that agency did not matter because as at 1 April 2006 [NAME] was responsible for the payment of rent to the respondent. This submission, which was outlined in the written submissions in the Orange Book, was not an easy submission to make when at the time [NAME] paid the April 2006 rent to the respondent, and when they now complain of double payment not of mistaken payment. 30 The submissions, as I understand them, were that a draft of an earlier version of the Deed of Assignment had provided that [NAME] would not be released from its obligations under the lease; that [NAME] of the respondent later changed his mind and so the Deed of Assignment did provide for [NAME]'s release; but that as at 1 April 2006 this had not occurred; and so [NAME] was as at that time responsible despite the later Deed of Assignment. The judge found, however, that under the Deed of Assignment the new arrangements were effective as at 1 April 2006, and that it did not matter that the Deed of Assignment was executed in July 2006. No error in so concluding has been shown. 31 The second limb was that the agency was made out because, as it was put in the written submissions, [NAME] "always acted like an agent for [NAME]". 32 The written submissions detailed, without reference to evidence - "(a) [NAME] found tenants for the properties like an agent.

(b) [NAME] wrote up the contract for the tenants like an agent.

(c) [NAME] was the intermediary between the [NAME] and its tenants like an agent.

(d) [NAME] collected the rent and forwarded it to the [NAME] like an agent.

(e) [NAME] collected a fee for doing this like an agent.

(f) [NAME] holds a real estate license." 33 [NAME] further submitted that the relationship between [NAME] and the respondent was the same as that between the respondent and the [NAME] acting as its rental agent, that is, collecting rent in a [COMPANY] and accounting for the balance to the respondent; and that [NAME]'s business experience was such that it was unlikely that he did not know that [NAME] was carrying out all the functions of an agent. 34 However, [NAME] frankly and appropriately agreed that there was no evidence in support of the propositions in paras (a) to (f) earlier set out, and an evidentiary basis for [NAME] always acting as agent for the respondent is otherwise lacking. The central assertion in para (d), namely, that [NAME] collected the rent and forwarded it on to the [NAME] like an agent, is not correct on the evidence before the Court. [NAME] was not collecting rent. It was receiving payment of money due to it under the licence agreement. It was not doing what the [NAME] did. 35 [NAME] referred in their oral submissions to three particular matters which it was suggested indicated agency. 36 One was a series of letters in which [NAME] and the [NAME] debated whether the landlord or the tenant was responsible for repair to a damaged Tiltadoor. [NAME] pointed to the reference in a letter from [NAME] to the [NAME] to "our client" being responsible for maintaining the cables in the door, and submitted that this was a recognition by [NAME], not refuted by the [NAME], that they, [NAME], were the client in question, and were in a client relationship which he said was one of agency. In my opinion, the letters simply indicate a debate between landlord and tenant, and the reference to "our client" is a mistake. Further, whatever the relationship between [NAME] and [NAME] was, it was not one whereby [NAME] were properly described as a client of [NAME]. I do not think that the letters in any way support agency, 37 The second matter was a reference to the clause in the lease dealing with permitted assignment. The submission, as I understand it, was that the respondent's consent to an assignment was necessary and there was no evidence of the respondent's consent prior to a time after 1 April 2006, so that [NAME] during the interim was, as it was put, in a quandary about assignment. That was then said to indicate that [NAME] in its position of quandary must have been an agent in relation to the rent. I regret that I do not understand the submission. I do not think reference to the clause assists [NAME]. 38 The final matter was some oral evidence given by [NAME], which is not particularly easy to understand but in which he appears to have said that someone (it is not entirely clear who) "assumes that when they took over that [NAME] had paid everything up to date and the Crossans had paid [NAME]." I am not entirely sure what use [NAME] made of this, but I think it was submitted that it showed that the respondent was aware that they had paid the April 2006 amount to [NAME] and that [NAME] had paid it over to the respondent. In fact the money was not paid over to the respondent, and I do not think that the evidence indicates awareness either of the payment to [NAME] or that it had been paid over to the respondent. This also does not seem to me to assist [NAME]. 39 In the result, therefore, in my opinion the payment of the April 2006 amount to [NAME] was not a payment of rent to the respondent. [NAME] were in arrears for the additional month's rent, part of the demand by the letter of 17 September 2007, and to the extent of that amount they remained in default in payment of rent. Thus the respondent was entitled to re-enter. [NAME], for whom one can readily have sympathy, may have had a valid complaint against [NAME], but that is of no consequence as between them and the respondent. 40 Although the appeal would otherwise have been allowed, the cross-appeal should be allowed and the allowance of the appeal that would otherwise have brought some success to [NAME] is negated. The cross-claim remains dismissed, although by reason of the limitation on the grant of leave to cross-appeal the respondent is not entitled to have its judgment increased by reinstatement of the one-third reduction made by the judge to reflect his finding that [NAME] had doubly paid the April 2006 rent. 41 In the circumstance, in my opinion, the appropriate orders are that the appeal be dismissed and the cross-appeal be allowed, although that does not bring any further order disturbing the orders made by the judge. The question of costs is one on which the parties should be further heard, particularly in the light of an indication to [NAME] at the commencement of the hearing that there may be a question arising from the way in which the cross-appeal was brought late. 42 TOBIAS JA: I agree with the orders proposed by the Presiding Judge and with his reasons. In order for [NAME] to accordingly resist the cross-appeal, it was necessary for them to point to evidence that for the purpose of the payment of the April 2006 rent to [NAME] which was due from [NAME] to [NAME] had [NAME]'s authority to collect that rent for that month on its behalf. The trial judge made a finding to that effect, but it was one made without any evidence to support it. 43 It may well be that from the perspective of [NAME], they considered that the rental money due to [NAME] under the lease for the month of April, if paid to [NAME], would be accounted for by it to [NAME]. Whether or not it was so accounted is irrelevant unless there was evidence to support a finding that [NAME] had authorised [NAME] to collect that month's rent on its behalf. 44 In the absence of that evidence, it follows that [NAME] erred in finding a relationship of agency between [NAME] and [NAME] with the consequence that the cross-appeal must succeed and, inevitably, the appeal must be dismissed. 45 YOUNG JA: I agree with Justice Giles and with the additional comments made by Justice Tobias.

[The parties addressed on costs] 46 GILES JA: No order as to costs of the appeal including the two applications for leave, on the basis that each side shall pay their own costs.

[The parties addressed on a stay.] 47 GILES JA: We stay the substantive judgment in the District Court until 31 January 2011. We stay the costs judgment save, so far as may be necessary, as to progress towards assessment of costs **********

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