SCANDI INTERNATIONAL PTY. LIMITED v. VARGA GROUP INVESTMENT (No. 8) PTY. LIMITED [2001] NSWSC 102

New South Wales Supreme Court

CITATION : SCANDI INTERNATIONAL PTY. LIMITED v. VARGA GROUP INVESTMENT (No. 8) PTY. LIMITED [2001] NSWSC 102 CURRENT JURISDICTION: Common Law FILE NUMBER(S) : SC 11444 of 2000 HEARING DATE(S) : Thursday 1 March 2001 JUDGMENT DATE : 1 March 2001

PARTIES : SCANDI INTERNATIONAL PTY. LIMITED v. VARGA GROUP INVESTMENT (No. 8) PTY. LIMITED JUDGMENT OF : Greg James J at 1

LOWER COURT Local Court JURISDICTION : LOWER COURT 2133 of 1999 FILE NUMBER(S) : LOWER COURT Lulham, LCM JUDICIAL OFFICER :

COUNSEL : Plaintiff: S. Coleman Defendant. C.A. Vindin SOLICITORS : Plaintiff: Joseph Guss Defendant: S.A. Teen CATCHWORDS : Appeal from Local Court - question of law - insufficiency of evidence - monthly tenancy - implied term - estoppel - what evidence is sufficient. LEGISLATION CITED : N/A CASES CITED : Carr v. Neill [1999] NSWSC 1263 DECISION : Appeal dismissed.

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

No. 11444 of 2000

GREG JAMES, J.

THURSDAY 1 MARCH 2001

SCANDI INTERNATIONAL PTY. LIMITED v. VARGA GROUP INVESTMENT (No. 8) PTY. LIMITED

JUDGMENT

1 HIS HONOUR: A summons has been brought in this court contending that a magistrate, who gave judgment for the defendant on proceedings in the Local Court against the plaintiff for rent, erred in law. 2 It is common ground before me that the magistrate based his decision on two doctrines in the alternative, one being that the plaintiff was the tenant of the defendant on a monthly tenancy into which were implied the applicable provisions of a lease originally entered into between Scandi Pty. Limited, a related company to the plaintiff as tenant, and the defendant. That lease contained, in particular, a rental adjustment clause permitting the re-fixing of rent following the expiry of the principal term, such re-fixed rent to apply during an additional term of one year arising on exercise of option to renew. 3 The action, commenced by a statement of liquidated claim claimed a sum of money and pleaded the cause of action as follows:- "To rental and other monies payable by the plaintiff to the defendant in respect of the defendant's occupation of the premises known as ... from 1 July 1998 to date, full particulars of which have already been provided by the plaintiff to the defendant." 4 The defence asserted:- "1. There is no lawful basis for the plaintiff's claim herein. 2. If there was any liability for rental in respect of the premises described therein (the said premises) by the defendant (which is expressly denied) it has been discharged in full by the payment to the plaintiff of the sum of $2,083.33 per month since 1 July 1998, which was the rental payable at law in respect to the said premises and accepted by the plaintiff. 3. In the premises the defendant denies each and every allegation therein contained and denies that it is indebted to the plaintiff in the sum claimed or at all. …" 5 A further ground of defence asserted a difficulty with venue. 6 The learned magistrate concluded:- "I make these findings. I am satisfied without any doubt at all that on that correspondence there was created a monthly tenancy from 1 July whereby Scandi International Pty. Limited agreed to rent the premises at a rental of $25,000 per annum but to be increased to the market rental either by agreement or in default of agreement to be determined by a real estate valuer and upon the determination of that rental such rental was to apply from 1 July 1998. Scandi International Pty. Limited was in possession of the property, they occupied the property, they paid the rental, they were the tenants. That was the basis of their tenancy and I make those findings and I come to that decision." 7 He went on to say:- "The alternative claim by the plaintiff is based on estoppel and is on the basis that Scandi International Pty. Limited is estopped from denying that it was in possession of the premises as from 1 July, on the same terms and conditions as are contained in the previous lease pursuant to the exercise of the option by Scandi Pty. Limited. The basis of that claim is that Scandi International Pty. Limited it is said had an obligation to inform the landlord that Scandi Pty. Limited had a receiver appointed on 9 April and if that was the case that it had taken over the assets and liabilities of that company and that it was now in occupation of their premises. I am satisfied that a common law estoppel was in fact created by the silence of Scandi International Pty. Limited. I have absolutely no doubt that the landlord proceeded on the basis that it was dealing with the same entity. The significance of the addition of the word 'International', was not apparently realised by Miss Callanan and I find that the significance should not, in the absence of advice from Scandi Pty. Limited, or Scandi International Pty. Limited, that in the absence of such advice, her failing to notice a difference does not assist Scandi International Pty. Limited. I am satisfied that clearly the plaintiff landlord suffered an enormous detriment. It believed that it was continuing with its existing tenant whereas in fact that tenant had had an administrator appointed and it was dealing with a different tenant altogether. The detriment that it faced was that if it attempted to recover the rental that it would, without relying on the common law estoppel and the common law, it may be required to proceed against Scandi Pty. Limited which may result in it not being able to recover its money." 8 At page 20 he said:- "I am satisfied that a common law estoppel has been established which would estop, have the effect of estopping the defendant Scandi International Pty. Limited from denying that as from the 1st, whatever the date was, but certainly 1 July 1998, that it occupied the premises on the terms and conditions contained in the commercial lease and that it was bound by the terms of the condition in relation to the exercise of the option of the lease. It follows from that that Scandi International Pty. Limited was bound to pay the rental as agreed between the parties and in default of agreement to be determined by the real estate agent." 9 The magistrate went on to hold:- "Despite the submissions and the complaint made in relation to the manner in which the valuation was carried out, I'm satisfied it was a proper valuation and that the rent determined by the real estate agent is the proper market rental and the plaintiff would be entitled to succeed on that basis as well." 10 He therefore found for the plaintiff in the sum claimed with costs, including the costs of an antecedent arbitration. 11 The magistrate had found facts which are set out in his judgment as follows:- "By a commercial lease dated 29 May 1996, the plaintiff landlord granted to Scandi Pty. Limited a lease of the premises known as room 1, 11-23 Gordon Street, Marrickville, for a term of two years commencing on 1 July 1996 and ending on 30 June 1998 with an option for a further one year. A copy of the lease is annexed and marked A to the statement of Christine Callanan. On 31 March 1998, Scandi Pty. Limited wrote to the landlord saying that:- 'We referred to the lease dated 29 May 1996 and pursuant to the provisions thereof, hereby exercise our option to renew the lease for the further period of one year therein provided. We look forward to the receipt of the renewal lease in due course.' The s.32 of the lease provided for three months notice of the exercise. No point is taken on that and provided for the landlord at the cost of the tenant to grant him a further term, the further term at a rent which would, at such time, be the current market rental of the premises. On 1 April, the landlords wrote to Scandi Pty. Limited indicating that the present market rental would be $48,320 and that would be the rental for the next 12 months. Scandi Pty. Limited wrote back saying, by letter dated 2 April that:- 'The present market rental is unacceptable and not in accordance with reality. The rent agreed was $25,000 per annum and it was in fact offered for a third year of our lease too. In the circumstances we contend that the rental should remain at $25,000. We propose that unless we can agree on the above, pursuant to the provisions of clause 32B of the lease, the issue should be referred to the president of the Real Estate Institute or his appointee, for determination.' A s.32B indeed provided that if there was a dispute between the landlord and tenant as to the rental that the same should be determined by the president of the Real Estate Institute of New South Wales or his nominee. On 6 April, the landlord wrote back seeking advice as to what the tenant, Scandi Pty. Limited, was prepared to indicate as a fair rental and indicating that if no reply was received, then the matter would be referred to the - or instruction would be sought from the Real Estate Institute of New South Wales. Up to this stage there is absolutely no dispute, nothing untoward, nothing that is really likely to cause a problem except the determination of the rental. The next correspondence is dated 6 July and is on the letterhead of Scandi International Pty. Limited, not Scandi Pty. Limited, although the person who signs the letter, one J. Guss, would appear to be the same person. That letter says:- 'I refer to our telephone conversation this morning in relation to the question of the rental payable for the option period, 1 July 1998 to 30 June 1999. As advised previously the rent agreed was $25,000 per annum and this was in fact offered by your office for the third year of the lease too. We confirm …' I've omitted a paragraph:- 'We confirm that without prejudice to our contention that the rental should remain at $25,000 per annum for the one year period we would be prepared in the interests of expediency to offer a 5% increase from 1 July 1998 for the 12 months period. I confirm that I will call and see you to discuss the matter on my next visit to Sydney, with a view to reaching an agreement on this matter as otherwise as discussed pursuant to the provisions of the lease the issue should be referred to the President of the Real Estate Institute of NSW or his Appointee for determination. I also confirm my advice that we have posted a replacement cheque for the May 1998 rental forwarded on 4 May 1998 which your office advised was not received, apparently lost in the mail, and which if not already received should be received shortly.' That letter really raises and can be the basis for the issues between the parties, because it subsequently transpires that on 8 April, Scandi Pty. Limited - that on 9 April, a receiver and manager was appointed in respect of Scandi Pty. Limited. This fact was not indicated in any formal way or informal way to the landlord other than the fact that the letterhead reads now Scandi International Pty. Limited. It is not in dispute that since 1 July 1998, Scandi International Pty. Limited was in occupation of the premises and continued to occupy the premises and were occupying the premises on the date of the issue of the summons, 26 February 1999. When, however, Scandi International Pty. Limited was summonsed for outstanding rental it sought to rely on the defence that it had no agreement with the landlord and to in effect say all your agreements were with Scandi Pty. Limited and in effect you should try to recover the rental from that company. What happened subsequently was that Scandi International Pty. Limited continued to pay the rental at the rate of $25,000 per annum, or $2,083.33 per month and they paid that amount from 1 July to the date of the issue of the statement of claim. There was the correspondence that I have referred to seeking to reach a higher rent by agreement. That did not come to anything and subsequently the plaintiff landlord wrote to the president of the Real Estate Institute of New South Wales who appointed a Mr. Colin Tseris as to the person to asses the market rental of the premises. Whilst there is some dispute as to the manner he went about doing that, Mr. Tseris in fact prepared his valuation and fixed the rental value of the property from 1 July 1998 to be $41,600 per annum. It would seem that equates to a monthly payment of $3,466.67. For the whole of the period from 1 July 1998 to February 1999, Scandi International Pty. Limited continued in correspondence with the plaintiff landlord as to trying to reach an agreement for the rental and then subsequently as to how the valuation should be carried out. As late as 5 February 1999, Scandi International Pty. Limited wrote to the plaintiff landlord complaining that Mr. Tseris had indicated that he was going to inspect the property and then allow the parties to make submissions and that he had failed to do that. The letter goes on to say that:- 'The assessment must be carried out in accordance with proper procedure before it can be said to be valid. Whatever proper rental may be assessed consequent to the following of the proper procedure, will be the rental. In the mean time we will continue to pay the rental pursuant to the lease, pending completion of the proper market assessment rental pursuant thereto to and we will forward the February rental with the confirmation copy of this fax.'" 12 The matter had been conducted before him on the basis of the tender of an agreed bundle of documents, including the witness statement of Miss Callanan as constituting the evidence. 13 In the amended summons it was contended that the magistrate had, firstly, erred in law in holding that a tenancy had arisen between the parties into which tenancy, (whatever may have been its principal term) there was a term implied from the conduct of the parties or by law that the rent fixing mechanism would establish the rental due in respect of the premises for the option period. Alternatively, that the magistrate erred in law in holding that the plaintiff was estopped from denying such a tenancy. 14 An additional question arose as to whether the magistrate erred in law in determining that the valuation was a proper valuation. 15 Before me these questions have resolved to some extent in the light of the decision of Sully, J. in Carr v. Neill [1999] NSWSC 1263, which sets out the bases upon which such an appeal as this might be decided and refers helpfully and compendiously to authorities on the nature of such defect as would amount to a defect by way of error of law such as to vitiate the decision of the magistrate as being "erroneous in law". 16 It is common ground that if there is a sufficiency of evidence for the magistrate to have concluded as he did, then the plaintiff before me must fail on a submission that the magistrate erred in law. 17 As to the last matter, that is to say, the question of the valuation, in evidence before the magistrate there was evidence that a valuation had occurred which fixed the rent at the rate which led to the plaintiff's claim. The quarrel asserted with the magistrate's finding was that it was contended that the valuer did not value the property in an acceptable mode. The magistrate held in the passage to which I have referred that he was satisfied that it was a proper valuation and that the rent determined in consequence was a proper market rental. These are questions of fact. Whether the magistrate was right or wrong, no argument could be put that in the presence of such a valuation could be found an absence of a sufficiency of evidence to support such a finding. 18 As to the other matters, the magistrate's reasons make it perfectly plain that in consequence of the plaintiff's predecessor being placed in receivership, the plaintiff, on its own letterhead and by its own cheques, conducted itself in a way which could well be accepted as carrying with it all the hallmarks of the conduct of a party to the lease, including disputing, not the application of the mechanism for the re-fixing of the rent, but the way in which rent might be fixed under the application of that mechanism. Whether the proper mode of analysis the magistrate should have employed is to ascertain whether there had been an assignment or whether, as he found, there was a monthly tenancy into which was implied the terms and conditions of the lease because the plaintiff acted, and represented itself as acting, on the basis those terms applied to it, there was quite sufficient evidence to enable the magistrate to conclude there was a tenancy which included such a term. 19 Such a conclusion would mean that the magistrate's ultimate decision was supportable on that basis alone, so that it is not strictly necessary to decide whether there was or was not a sufficiency of evidence such as to found the estoppel which was put as an alternative basis for the magistrate's conclusion. 20 One could be forgiven for thinking that a deal of confusion arose at the primary hearing, which conclusion was not entirely dissipated in the argument on this appeal. One could be forgiven for thinking that if there was a sufficiency of evidence to conclude that the plaintiff was the tenant, there would be a sufficiency of evidence to conclude that the plaintiff was estopped from denying that it was the tenant. But, in any event, approaching the matter from this alternative viewpoint, I am not satisfied that there was an insufficiency of evidence for the magistrate to conclude that the plaintiff was estopped in the light of its own conduct and its own representations from denying that it was a tenant by some such tenancy as into which the rent-fixing mechanism to which I have referred should be imposed. 21 I have therefore concluded that the appeal must be dismissed. 22 There appears no reason, nor is any submitted, as to why costs should not follow the event. I order the plaintiff to pay the defendant's costs. ********