FOR LIMITED DISTRIBUTICN "JUDGMENT No. S41 /-21 - IN FED! COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 188 of 1987 ) GENERAL DIVISION ) Between: IDEAS FACTORY ADVERTISING PTY. LTD. (Applicant) And: MAYFIELD YARRA PTY. LTD. (Respondent ) Coram: Ryan J. Date: 9 October 1987 AUSTRALIA REASONS FOR JUDGMENT ' PRINCIPAL By motion on notice dated 14 August 1987, the respondent, Mayfield Yarra Pty. Ltd., has sought possession of part of the premises at 3-21 Mayfield Street, Abbotsford, of which it is the registered proprietor. The applicant, Ideas Factory Advertising Pty. Ltd., presently occupies that part of the property known as 19-21 Mayfield Street by virtue of a lease executed on 12 June 1986. That lease is expressed to commence on 28 May 1986 and to continue for aterm of "Five years and the broken period to 1 June 1991". It appears that the part of the premises occupied by the applicant is divided into two floors, of which the upper floor is currently used as office space. Although the lease P ren '- F \ Ore 13 0CT 1987 « FEDERAL COURT OF was expressed to commence on 28 May 1986, it stipulated that the respondent would allow certain "rent free" periods, after which a rental of $3125 per calendar month would be payable for each of the two floors. In respect of the first floor this period was for six weeks to 9 July 1986, and for the ground floor it was to be until 28 September 1986. From that later date a total of $6250 per calendar month became payable for the whole premises. It was further stipulated that the rent would be reviewed on 1 June of each year, and for the financial year beginning 1 July 1987 the rent would rise to $6950 a month. In the substantive application, the applicant has sought, inter alia, orders declaring the lease "to be void ab initio, or, alternatively, to have been void as and from such date as the court may specify in its order". It has pleaded that it was induced to enter into the lease as a result of a representation by the respondent that the premises could lawfully be used as offices. It has alleged that' the respondent, in making that representation, has engaged in conduct in breach of 3.52 of the Trade Practices Act 1974 Cth. ("the Act"), as only 15% of the space leased could be so used in accordance with a planning permit in force in respect of the premises. The applicant further claims that the permitted use of part of the premises as offices was restricted to the use of offices ancillary to a principal use of the premises as a warehouse. It 1s not disputed that the applicant made payments in accordance with the lease until March 1987, and thereafter failed to pay part of the rent due for the months of April, May and June 1987 and failed to pay the whole of the rent due for July and August 1987. As at 1 July 1987 the arrears of rent amounted to $16,362.27. In an attempt to recover this outstanding amount, the respondent issued proceedings in the Melbourne Magistrates Court on 7 July 1987 against the applicant company, Ideas Factory Pty. Ltd., and its two directors, Mr. Seth Prokop and Mr. Paul Littman, who had allegedly given personal guarantees in respect of the company's performance of the terms and conditions of the lease. The present state of that litigation is unclear, but the relief there sought is reflected in the cross-claim now filed in these proceedings on behalf of the respondents. The respondent by its cross-claim filed on 14 August 1987 has sought, amongst other relief, possession of the property known as 19-21 Mayfield Street, Abbotsford. By a notice of motion also filed on 14 August 1987 the respondent has sought an order (presumably pursuant to 0.20 r.1) for possession of the same property, an order for the costs of the motion and such other order or orders as the court may deem fit. Mr Osborn for the respondent in support of the motion has contended that the applicant has repudiated the lease and that it would be inequitable to allow it to remain in possession paying no rent until it obtained alternative premises or until the hearing and determination of its application. Reference was made to Ripka Pty. Ltd. v. Maggiore Bakeries Pty. Ltd. €1984] V.R. 629 where Gray J held that the doctrine of repudiation is applicable to leases, and for the purposes of the present motion, I accept, with respect, the correctness of that view. Mr Osborn also referred me to Poort v. Development Underwriting (Victoria) Pty. Ltd. CNo. 23 £19771] V.R. 454 as providing an example of conduct by a purchaser of land, analogous to the conduct of the tenant in the present case, which was held to amount to repudiation. In that case the purchaser had been late in paying monthly instalments under a contract for the sale of land, and had completely failed to pay instalments for July and August. The vendor at the end of August gave notice of intention to rescind the contract unless the default were remedied within 16 days. On two occasions in September the purchaser was interviewed by officers of the vendor who indicated a readiness to accept the late instalments. However the purchaser affirmed his intention not to pay any further instalments unless' the contract were renegotiated and the subsequent instalments reduced. The vendor thereupon notified the purchaser that the contract had been rescinded on 11 September, the date on which the 16 days allowed for remedying the default had expired. It was held by the Full Court on appeal ina joint judgment that the finding of the trial judge that the Plaintiff's conduct amounted to repddiation could not be attacked. The judgment of the Full Court continued, at 458: "Whether or not the plaintiff might have gone on with the existing contract if he had been unable to obtain a variation of its terms, his words and conduct made it clear that he did not intend to perform it according to its terms, and this was so even if the obligation of the contract was to pay the instalments within a reasonable time after the 12th day of each month. The plaintiff was, in effect, refusing to be bound by the "contract 'either wholly or in a_e substantial part', the substantial part being, at least, the remaining 12 monthly instalments. What was indicated by the plaintiff's words and conduct was that he did not intend to pay the two instalments owing or any others until a demand which he was not entitled to make was complied with. The threatened breach lay in non-payment, not in late payment." On the evidence before the court, I am unable to conclude that the applicant has made it clear that it is no longer prepared in any circumstances to perform the lease according to its terms. It is true that by paragraph 1 of its application herein the applicant has sought - "Orders pursuant to Section 87(1), (1A) and (2) of the Trade Practices Act 1974 declaring the lease referred to in paragraph 5 of the Statement of Claim to be void ab initio, or, alternatively, to have been void as and from such date as the court may specify in its order." However, the remedies afforded by 3.87 of the Act are expressly predicated on an exercise of a discretion by the court after a finding that a party has suffered, or is likely to suffer, loss, or damage by conduct of another person which was in contravention of Part IV or V of the Act. In that sense the remedies are quite different from a declaration, in the exercise of jurisdiction at commén law, of the legal effect of a pre-existing state of fact as, for example, that &@ contract has been rescinded, or was void. Accordingly, where, as here, an applicant by its prayer for relief seeks an order under s.87(2) declaring a contract or arrangement to be void, or to have been void ab initio, it is doing no more than indicating the way in which it invites the court to exercise a statutory discretion. There is, in the present case, no assertion of fact which can he relied on by the respondent as an unequivocal indication of a refusal by the applicant from the time of issuing its application to perform its obligations under the lease. However, to hold that there has been no repudiation of the lease by the applicant tenant does not entail that the respondent is not entitled to summary judgment for possession for breach of the tenant's covenant duly and punctually to pay rent. It is clear that the issue ina court of competent jurisdiction and service of a claim for possession is equivalent to re-entry effecting a forfeiture. See, for example, Serjeant v. Nash, Field & Co £19031 2 K.B. 304 and Canas Property Co. Ltd. v. K.L. Television Services Ltd. £19703 2 Q.B. 433. I also consider that a cross-claim for possession in proceedings instituted under the Act by a tenant attracts the associated jurisdiction conferred on this court by s.32(1) of the Federal Court of Australia Act 1976. It therefore becomes necessary to examine whether the applicant has demonstrated an arguable case for relief against forfeiture, and if s0, whether the court should impose any terms on which the applicant should be permitted to pursue that relief. In an affidavit sworn on 20 August 1987, Mr. Prokop, on behalf of the applicant, has deposed that the amounts allegedly short paid for the months of April, May and June were "in fact the amounts of rental agreed upon between me and Mr. Ford, la director of the respondent) being a reduction in the monthly rental by reason of the fact that a sub-tenant could only occupy part of the ground floor because Telecom was unable to provide telephone lines". Mr. Prokop also deposed that the applicant's decision to cease paying rent altogether was the result of a letter dated 25 May 1987 which it received from the Planning Department of the City of Collingwood. That letter stated: "It has come to our attention that the first floor of the northern warehouse is being used for the purpose of offices by your company. You are reminded that the Permit No. 86/117 is for 2 adjoining warehouses with ancillary offices only. To use the entire first floor of the northern premises for offices contravenes this permit, as it can only be used as part of the warehouse below. You are requested to cease using this area for offices immediately and to lodge an application for offices as soon as possible, if this is so desired. Offices are infact a Column 4 use pursuant to the Melbourne Metropolitan Planning Scheme Ordinance and therefore requires planning permission. As occupier of the premises, the onus is upon you to ensure compliance with the Melbourne Metropolitan Planning Scheme at all times. Non- compliance could render you liable for prosecution. ° If you have any further queries, please do not hesitate in contacting this department." Mr. Prokop concluded his affidavit by outlining steps which the applicant had taken to obtain alternative premises. Because of the need to relocate its darkroom, PABX facility and custom-built partitions, he has estimated that four or five months will elapse before a move to other premises can be completed. By letter dated 11 June 1987, the solicitors for the applicant notified the respondent that they had instructions to issue proceedings in this court, and invited the respondent to comment on the situation revealed by the City of Collingwood's letter. It is unclear whether the applicant itself accepted this invitation, but on or about 4 August 1986, the applicant received a letter from a Mr. Mohr of Epac Pty. Ltd., which had acted as agent for the respondent in the leasing of the premises. That letter was in the following terms: "Following our meeting last Friday I am writing to you to notify you of current progress. I went to the Collingwood Council last Friday and had a very brief talk to the Building Surveyor. We were not able to have a long discussion with either the Building Department or the planning department, as both are closed every Friday. As we have on file a stamped plan giving us a permit for the use of the majority of the building, including the whole of the top floor for offices, your architects were completely misinformed about what was required. They do not have to get any Planning permit for this use - they were completely misinformed about this by a junior officer - Mr. Frank Mangin. I spoke to Bill Williams late on Friday and we agreed that I would lodge for the building permit today (Monday). When we contacted them to organise lodging the documents, they said they would not have them ready until later this week. We will of course lodge them within an hour or two of receiving them." Planning Permit No 1922 issued by the City Collingwood on 23 September 1984 recites that: "the following is hereby permitted: Use/Development: Warehouse and offices in one occupancy at 15 Mayfield Street." Then follow a number of conditions including: "1. The building and layout as shown on the endorsed plan may not be altered or modified (whether to comply with any Statute, Statutory Rule or By-law or for any other reason) without the permission of the Responsible Authority, except insofar as is required to comply with Condition 2 of this permit. 9. The building shall be occupied in one occupancy only. 10. Pursuant to Section 18(5) of the Town & Country Planning Act 1961, unless the use and/or development hereby permitted is commenced within 12 months from the date of this permit, or any extension of such period which the Responsible Authority, within 3 months after the expiration of the period of 12 months from the date hereof has allowed 10. in writing, the permit will lapse. The development must be completed within 2 years from the date of commencement, or the permit will expire, unless extended by the Responsible Authority. + NOTE: The premises may not be used for industry, i.e. a factory without further provision of car parking to the satisfaction of the Responsible Authority." Annexed to the permit are plans endorsed by the City of Collingwood of the ground and first floors respectively of the subject premises. That for the ground floor shows three separate rooms or areas occupying about three quarters of the floor area, each of which is designated "wholesale showroom". The remaining area on the ground floor apart from service facilities, is designated as an "office". The corresponding Plan for the first floor shows it to be divided into three areas, apart from stair wells and service facilities, each of which is designated as an "office". The respondent points to cl.2.24 of the lease between it and the applicant whereby the applicant as tenant covenanted "to conduct on the demised premises continuously at all times during business hours the business specified in the Schedule and to do s0 in good faith and in accordance with the best business methods". The Schedule, in turn, contained, amongst others, the following item: "13. Use of Premises Offices, Warehouse and associated purposes" ll. It has been contended by Mr Houghton for the applicant, in opposition to the motion, that the applicant is entitled to set off against the respondent's 'claim for rent, very substantial damages caused by the respondent's conduct in contravention of the Act. As itemized in an exhibit to Mr Prokop's affidavit, those damages include legal costs, removal expenses, the cost of printing stationery bearing the address of the subject premises, and costs incurred in fitting out and furnishing those premises together with expenses incurred in sub-letting the ground floor, amounting, on the applicant's calculation, to $193,642.69. I assume that the longer the applicant and its sub-tenant have the use and occupation of the premises, the smaller will become the proportion of those expenses which can be said to have been thrown away. In my view, there is sufficient connexion between the allegedly deceptive and misleading conduct of the respondent inducing the applicant's entry into the lease, and the lease itself, for the applicant to he entitled, on the principles discussed in British Anzani (Felixstowe) Ltd. v. International Marine Management (U.K.) Ltd £19801 1 Q.B. 137, to an equitable set off against the respondent's claim for rent, in the amount of any damages which it may be proved to have suffered as a result of any contravention of the Act by the respondent. See also Eagle Star Nominees Ltd. v_ Merril C1982] V.R. 557 at 561 and Indrisie v. General Credits Ltd. C1985] V.R. 251 at 253. 12. I agree that it is inappropriate, on an interlocutory proceeding of this kind, to attempt to determine which of the two planning permits issued by the' City of Collingwood numbered 1922 and 86/117 applies to the subject premises, or whether the respondent has been guilty of deceptive or misleading conduct in making itself, or by its agent, any representation as to the use to which the premises might lawfully be put. It is sufficient for present purposes to indicate that a number of serious questions have been disclosed in respect of the terms and operation of the planning controls over the premises, the nature and substance of any representation made by or on behalf of the respondent concerning those controls, and the effect of the grant by the applicant of a sub-lease of the ground floor. It therefore becomes necessary to consider what interlocutory relief (if any) should be granted before those questions can be resolved conclusively on the trial of the application and the cross-clain. I am not persuaded that the balance of convenience requires that the applicant and its sub-tenant should be allowed to remain in possession of the premises rent-free until trial. On the existing evidence, the City of Collingwood has not sought to compel the applicant, or its sub-tenant, to cease the present use of the premises. Nor has it sought to prosecute either of them for any breach of the relevant town planning ordinance. Indeed, even if the applicant be correct in its contention that permit number 86/118 currently regulates the use to which the premises may 13. be put and that it does not permit the separate use of the first floor as offices, the City of Collingwood may be persuaded to amend that permit to regularize the existing non-conforming use. In that event the applicant would apparently obtain the full consideration for which the rent of $6,250 per calendar month has been reserved by the lease. On the other hand, to require the applicant, as a condition of being allowed to pursue its claim for relief against forfeiture, to pay or give security for the whole of the rent reserved by the lease, including arrears, may be unduly onerous when account is taken of its arguable case for relief under s.87 of the Act. It will be apparent from what I have already said that I consider that a speedy trial of the application and the cross-claim herein would be in the interests of both parties. On the assumption that directions can be given, and complied with, enabling such a speedy trial to be held, I consider that a balance can best be preserved between the applicant and the respondent in the meantime by making the following orders: "Upon the applicant giving the usual undertaking as to damages, and undertaking not to assign to any other person or otherwise charge or encumber the fixtures and fittings installed in the premises known as 19-21 Mayfield Street, Abbotsford IT IS ORDERED that: 1. The respondent be restrained on the conditions hereinafter set out until the hearing and determination of the application and cross-claim herein or further order from re-entering the said premises or otherwise forfeiting the lease thereof dated 12 June 1986. I shall hear counsel as to the date to which the directions hearing herein should be adjourned and any further directions 14. The injunction granted by paragraph 1 of this order is conditional upon the applicant paying to the respondent within 14 days of this day two-thirds of the arrears of rent under the said lease and upon it paying to the respondent two-thirds of each instalment of the rent reserved by the said lease as the same falls due until the hearing and determination of the application and cross-claim herein or further order. The costs of the respondent's notice of motion dated 20 August 1987, the hearing on 27 August 1987 and this day be costs in the cause. Liberty is reserved to either party to apply on not less than 48 hours notice in writing to the other party for further orders or directions herein as it may be advised." which should be given to achieve a speedy trial. I certify that this and the thirteen (13) preceding pages are a true copy of the Reasons for Judgment herein of Honour Mr. Justice Ryan. Associate: ~(°S Vatanrks Dated: 9 October 1987