Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Gelin v Sumner [2012] NSWADT 81 Hearing dates: 24 April 2012 Decision date: 02 May 2012 Jurisdiction: Retail Leases Division Before: K Rickards Judicial member Decision: 1.The application is dismissed. 2. In relation to the costs of these proceedings, section 88 of the Administrative Decisions Tribunal Act 1997 provides that each party to proceedings before the Tribunal are to bear their own costs unless the Tribunal is satisfied that it is fair to make a costs order having regard to a number of factors set out within the section. Accordingly, there will be no order as to costs of these proceedings unless either party files and serves within 14 days of the date of this decision submissions setting out why there should be an order for costs. If either party makes such submissions, then the other party is to file and serve any submissions in reply within 28 days of the date of this decision following which the issue of costs will be determined upon the basis of the documents lodged with the Tribunal, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997. Catchwords: Disclaimer of lease; repudiation Legislation Cited: Retail Leases Act 1994 Corporations Act 2001 Conveyancing Act 1999 Administrative Decisions Tribunal Act 1997 Cases Cited: World Best Holdings Limited v Sarker [2010]NSWCA 24; Category: Principal judgment Parties: Ben Ami Gelin (Applicant) Ian Ross Sumner (Respondent) Louise Gay Sumner (Respondent) Representation: Counsel D Mahendra (Respondent) B Gelin (Applicant in person) Messenger & Messenger (Respondent) File Number(s): 115102 REASONS FOR DECISION Background 1The Applicant is the owner of the subject premises which are known as Shop 2, 52 Keppel Street, Bathurst New South Wales ("the premises"). 2The Respondents are the guarantors under a lease agreement in respect of the premises, commencing 1 March 2007 and terminating on 28 February 2012. The lessee under this agreement was Ian and Louise Sumner Pty Ltd ("the company"), which was placed in liquidation on 1 July 2008. The company operated a retail shop business at the premises called "Ziegler's Café" ("the business"). The Proceedings 3The Applicant seeks an order for payment of rent from the Respondents as guarantors for the period September 2008 to February 2012, being the residual term of the lease. The Applicant also seeks an order for payment in respect of an item described as a "capital contribution" in the sum of $3,300 and for unspecified legal costs in a total sum of $819; against this, credit is given for rent received by the Applicant from the new tenant who entered into possession in July 2008, but paying a significantly lower rent. The resulting total of the Applicant's claim is $32,234.73. The Applicant also seeks payment of interest as well as the legal costs of the present proceedings. 4Parallel proceedings were also brought by the Respondents against the Applicant alleging unconscionable conduct. These proceedings bore file number 115159 but were discontinued prior to hearing. 5The hearing of this matter took place at Orange on 24 April 2012. On behalf of the Applicant, his affidavit sworn 5 December 2011 and an affidavit of Ross McDonald sworn 2 December 2011 were admitted into evidence as were a series of annexures to an affidavit of the Applicant's former employed solicitor Craig Spinks sworn 6 December 2011. The affidavit itself of Craig Spinks was not admitted into evidence. The Applicant and Mr McDonald also gave oral evidence and were cross examined. 6On behalf of the Respondents, a statement of Louise Sumner made on 7 March 2012 together with annexures was admitted into evidence. Ms Sumner also gave oral evidence and was cross examined. Additionally, a letter dated 5 July 2008 from the Applicant to the liquidator Christopher Chamberlain was tendered on behalf of the Respondents and admitted into evidence. 7There is a relatively narrow band of factual and legal issues to be determined in order to reach a decision in these proceedings. Relevant Factual Findings 8The liquidator appointed on 1 July 2008 to manage the affairs of the company was Christopher Chamberlain, a chartered accountant practising as Chamberlains SBR in Wagga Wagga. The member of Mr Chamberlain's staff who had direct communication with the parties was a Mr Dodson. 9Prior to the date of appointment of the liquidator, the Respondents had negotiated a sale of their business to a company called Ilefloat Pty Ltd and Mr Ross McDonald as joint purchasers ("the purchasers"). Mr McDonald gave evidence in these proceedings on behalf of the Applicant. The contract for sale of the business between the company and the purchasers was dated 20 June 2008, and provided for completion to occur on 30 June 2008. Following exchange of the contract for sale, a request was made by the Respondents' then solicitor to the Applicant, seeking either consent to assignment of the lease, or a surrender of the lease and an agreement from the Applicant to enter into a new lease with the purchasers. 10A number of requirements which the Applicant wanted to be met were then spelt out in a letter sent on 30 June 2008 by his then solicitor Mr Spinks to the company's then solicitor. This letter also repeated a number of requirements which had been previously communicated in January 2008; it may be here observed that the Applicant's stated requirements far exceeded the permissible grounds for refusal of consent to assignment of lease set by section 39 of the Retail Leases Act 1994, although the parties had by now moved on to contemplate a surrender of the existing lease as being a preferable course. 11Relevant to the claim made in the present proceedings for loss of rent for the remainder of the term of the company's lease agreement, for the "capital contribution", and for the Applicant's legal costs of acting in relation to the lease, the above letter dated 30 June 2008 required a substantial preliminary payment in an amount satisfactory to the Applicant, in reduction of the assessed sum of $33,465 to be made by the company before consideration would be given by the Applicant to a surrender of lease. This amount was calculated by the Applicant based upon the anticipated rental deficiency over the ensuing four years which would arise because of the new lower rent for the premises; this new lower rent had been negotiated by the Applicant directly with Mr McDonald and the directors of Ilefloat Pty Ltd (the purchasers under the contract). This amount assessed by the Applicant also included the "capital contribution", and the claimed legal costs. 12The Tribunal accepts the evidence of Louise Sumner that the café business was not conducted at the premises on the day before the completion date expressed within the contract for sale, so as to prepare the premises for handover following completion. Other documentary evidence, including the letters from the company's then solicitors and the terms of the exchanged contract for sale of the business, clearly support as reasonable the Respondents' anticipation that the sale of business would be proceeding to completion at that time and the resulting decision not to trade immediately prior to completion. 13Various documents had been forwarded to the Applicant by the Respondent's then solicitors on 27 June 2008 but, because the Applicant was not satisfied that his requirements had been met, completion did not occur as anticipated on 30 June 2008. 14On the following day 1 July 2008, although the anticipated date for completion of the sale of the business had passed and there was uncertainty as to when completion might occur, the company paid rent for the months of July and August 2008 to the Applicant. 15The Applicant then sent a letter by facsimile transmission to the liquidator on 3 July 2008. In this letter it was stated: "I need to know, as soon as possible, what you propose to do with respect to said Lease. As the landlord of premises where the lessee is in breach of various essential terms of the lease, and thus given the possibility of my terminating the lease (or of you negotiating a termination of the lease), I have a duty to mitigate my losses, and will need to obtain a new tenant." 16The above letter also had endorsed upon it a hand written note, apparently from the Applicant, that: "Also, we urgently require the keys to the premises." 17In relation to the above assertion as to breach of "various essential terms of the lease", there is no evidence before the Tribunal of any subsisting breach in existence as at 3 July 2008 when the above letter was sent. Although the evidence of the Applicant is that there had been arrears of rent in the past which had led to notices of termination being issued on at least two occasions, any outstanding issue to do with rent had been resolved in June 2008 (see paragraph18 of the Applicant's affidavit). Additionally, as at 1 July 2008, rent for the premises had been paid two months in advance. 18The liquidator forwarded a letter by facsimile to the Applicant on the following day 4 July 2008 stating, inter alia, that: "I note we have yet to formally disclaim the lease and as such put you on notice that you are not to remove or deal with any of the property without prior consent." 19Having considered the totality of the documentary evidence in these proceedings and in particular the correspondence from the Applicant, the concessions made by the Applicant in the course of cross examination as to the date when he took possession of the premises, and the evidence given by Ms Sumner that she discovered that she could not unlock the premises when she tried to enter the premises on 4 July 2008, the Tribunal is satisfied that the Applicant had changed the locks to the premises and taken possession at least by 4 July 2008. 20Having locked the company out of the premises, the Applicant entered into a new lease with the purchasers; this new lease agreement included provision of one month rent free to allow the purchasers to establish their new café business, as well as a lower rent than that which was being paid by the company. The Applicant also subsequently negotiated the purchase from the liquidator of the equipment previously belonging to the company which still remained upon the premises. 21The Applicant wrote again to the liquidator on Saturday 5 July 2008 by facsimile and stated: "Based on your telephone advice, last Friday, that you disclaimed the lease, I took steps to enter the premises and take possession, and to secure them, including changing all the locks ...I am now about to grant a lease to new tenants." In referring to "last Friday" this could only have referred to a conversation alleged as having occurred on the preceding day, namely Friday 4 July 2008; this is because the liquidator had only been appointed on Tuesday 1 July 2008. It is clear that the Applicant was notified within the letter from the liquidator sent to him by facsimile on 4 July 2008 that he was to take no action in relation to the premises without the prior consent of the liquidator, and that there was yet to be a formal disclaimer of the lease. 22In this letter to the liquidator dated 5 July 2008, the Applicant went on to say: "I confess that, although I am an old legal practitioner with considerable experience, I am handicapped when it comes to semantic ambiguities and word games. I do not know what the difference is between "disclaiming the lease" (as your Mr Dodson stated in our good telephone conversation last Friday) and "formally disclaiming a lease" (second paragraph in your second 4.7.08 fax). I do not believe you can be selective as to what clauses of the lease you disclaim, or claim the benefit of. Please refer to the whole of clause 12 "Forfeiture and End of Lease" (Annexure B), of which I assume you have a copy. The tenants (Ian and Louise Sumner Pty Ltd) abandoned the business and the premises, and your office most clearly has not taken either over. The said tenants failed to take remedial action with respect to numerous breaches of essential terms of the lease, of which breaches my solicitors had given them due and repeated notices (again I assume you have copies of all such correspondence). Aside from your disclaim, the lease has been duly terminated for breach by the tenant of essential terms, and the premises have been abandoned by the tenant ..." 23The above assertion that the premises were abandoned by the lessee was repeated during the hearing within the submissions made by the Applicant as being one of the bases upon which he had been justified in taking possession of the premises. 24The Applicant was equivocal as to exactly when the locks were changed and possession taken of the premises but, as stated above, I am comfortably satisfied that this took place by 4 July 2008 and not on some later date as suggested by the Applicant. Was the lease repudiated by the lessor? 25As at 4 July 2008, the lessee had paid all due rent and was not in arrears. There is no evidence of any other subsisting breach as at that date, as opposed to the assertion made by the Applicant to the liquidator which is set out above, that the company had "failed to take remedial action with respect to numerous breaches of essential terms of the lease". 26The Applicant also contends that the premises had been abandoned as at 4 July 2008. There is no issue that the usual café business had not been conducted at the premises since 29 June 2008. There has been no real evidence furnished by the Applicant to rebut the Respondents' evidence that this cessation of business had occurred because of an expectation that completion of sale of the business would soon be taking place. What is also not contested is the evidence of Ms Sumner that on 4 July 2008 she attended at the premises in order to open up, and then realised that the locks had been changed; such behaviour is entirely inconsistent with abandonment of the premises by the company. 27Of course, by this time, the liquidator was responsible for the affairs of the lessee company. There is no evidence of any communication or behaviour on the part of the liquidator, nor indeed on the part of the Respondents, which could reasonably indicate that the premises had been abandoned as at 4 July 2008. The Applicant relies upon his observation when visiting the premises on 30 June 2008 that the tables and chairs were not stacked in their usual place, in submitting that the premises had then been abandoned, but this is a very weak submission in the circumstances and is not accepted. 28The Applicant also contends that the liquidator disclaimed the lease on 4 July 2008 during a telephone conversation which took place between Mr Dodson from the liquidator's office and the Applicant. This assertion stands in stark contradiction of the express advice given by the liquidator within his letter to the Applicant dated 4 July 2008 that he was yet to "formally disclaim the lease" and that the Applicant was "not to remove or deal with any of the property without prior consent". What should further be considered is the Applicant's own contemporaneous version of the telephone conversation had with Mr Dodson on 4 July 2008, which is contained within his letter of the same day: "I note that you as the liquidator have no further interest in the lease or in the business, and I advise that I am in the process of negotiating for a new lease with prospective tenants. It would indeed be helpful, in this regard, to have a proper Surrender of Lease executed by yourself as the Liquidator of the lessee company." 29The Applicant does not assert within this letter, prepared on the same day that the conversation with Mr Dodson occurred, that the liquidator had advised that the lease was disclaimed; instead, the Applicant sought a surrender of the lease from the liquidator. 30What should further be considered upon this issue are the provisions of section 440C of the Corporations Act 2001 which then applied: Owner or lessor cannot recover property used by company During the administration of a company, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except: (a)with the administrator's written consent; or (b)with the leave of the Court. 31Upon consideration of all of the above evidence, the Tribunal is satisfied that there had been no disclaimer of the lease made by the liquidator as at 4 July 2008 when the Applicant changed the locks and re-entered possession of the premises, nor had the premises been abandoned by either the company or the liquidator. The terms of the subject lease agreement allowed continued possession of the premises by the lessee subject to any unremedied breach of an essential term of the lease. As stated above, there was no such unremedied breach as at 4 July 2008. 32In relation to the unsubstantiated assertion made by the Applicant to the liquidator that the company was in breach of essential terms of the lease, the provisions of section 129(1) of the Conveyancing Act 1999 are relevant: Restrictions on and relief against forfeiture of lease (1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice: (a) specifying the particular breach complained of, and (b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and (c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same, and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach. In the present case, there was no such notice given by the Applicant. 33The Applicant has referred the Tribunal to the provisions of section 443B of the Corporations Act 2001 as supporting his submission that the liquidator had communicated disclaimer of the lease to him over the telephone on 4 July 2008. The provisions of sub sections 1, 2, 3 and 4 of section 443B are as follows: Payments for property used or occupied by, or in the possession of, the company Scope (1) This section applies if, under an agreement made before the administration of a company began, the company continues to use or occupy, or to be in possession of, property of which someone else is the owner or lessor, including property consisting of goods that is subject to a lease that gives rise to a PPSA security interest in the goods. General rule (2) Subject to this section, the administrator is liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period: (a) that begins more than 5 business days after the administration began; and (b) throughout which: (i) the company continues to use or occupy, or to be in possession of, the property; and (ii) the administration continues. (3) Within 5 business days after the beginning of the administration, the administrator may give to the owner or lessor a notice that specifies the property and states that the company does not propose to exercise rights in relation to the property. (4) Despite subsection (2), the administrator is not liable for so much of the rent or other amounts payable by the company under the agreement as is attributable to a period during which a notice under subsection (3) is in force, but such a notice does not affect a liability of the company. 34In the present case, no notice was given by the liquidator to the Applicant pursuant to section 443B(3). The Applicant says that the liquidator had indicated to him that a surrender of lease would be given in due course and that this surrender of lease was then provided at a later time, but this does not alter the fact that there had been no formal notice given to the Applicant as at 4 July 2008. 35The Applicant also submits that there was an urgent necessity to have an occupant in the premises as a matter of urgency so as to protect against vandalism. The Applicant says that he was legitimately worried about the premises being unoccupied in circumstances where the liquidator had indicated to him that they were not proposing to operate the business. Accordingly, it is argued that the re-taking of possession of the premises and the installation of the new tenant were necessary and appropriate. The Tribunal accepts that there may have been some real concern that vandalism may occur, but this concern would not of itself justify the re-taking of possession of the premises in circumstances which were not justified by relevant legislation or by the terms of the existing lease agreement. 36It is clear that the company's rights under the lease to continued possession of the premises and to the conduct of its business at the premises were expressly repudiated by the actions of the Applicant in changing the locks and taking possession of the premises. It is also clear that, following such repudiation, the company elected to accept the repudiation and to treat the lease as having been terminated. No formal notice was required to be given of this election; see, for example, the judgment of the Court of Appeal in World Best Holdings Limited v Sarker [2010]NSWCA 24 at paragraph 69: "(69) An election to terminate for repudiation or fundamental breach must be communicated to the guilty party by an unequivocal act or statement that the innocent party is treating the contract as at an end: Lakshmijit v Sherani [1974] AC 605, 616; The Mihalios Xilas [1979] 1 WLR 1008 HL, 1024; and Vitol SA v Norelf Ltd [1996] AC 800, 810. In the latter case Lord Steyn said: 'An act of acceptance of a repudiation requires no particular form: communication does not have to be couched in the language of acceptance. It is sufficient that the communication or conduct clearly and unequivocally conveys to the repudiating party that the aggrieved party is treating the contract as at an end.' " 37The Tribunal is satisfied that the Applicant repudiated the lease on 4 July 2008 and that such repudiation was accepted by the company as lessee. The premises were thereafter leased by the Applicant to the same parties who were the purchasers under the pre-existing contract for sale by the company of the café business conducted at the premises. The subject lease agreement between the parties having been repudiated by the Applicant, the claim now made by the Applicant for loss of rent and other items pursuant to the terms of the subject lease agreement cannot be maintained. 38Accordingly, the application is dismissed. 39In relation to the costs of these proceedings, section 88 of the Administrative Decisions Tribunal Act 1997 provides that each party to proceedings before the Tribunal are to bear their own costs unless the Tribunal is satisfied that it is fair to make a costs order having regard to a number of factors set out within the section. Accordingly, there will be no order as to costs of these proceedings unless either party files and serves within 14 days of the date of this decision submissions setting out why there should be an order for costs. If either party makes such submissions, then the other party is to file and serve any submissions in reply within 28 days of the date of this decision following which the issue of costs will be determined upon the basis of the documents lodged with the Tribunal, pursuant to section 76 of the Administrative Decisions Tribunal Act 1997. I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal. Registrar ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 May 2012