CITATION: Diletosso Holdings Pty Ltd (as trustee for Relkitro Pty Ltd Superannuation Fund No.1) v Entertainment NT Pty Ltd [2012] NTMC 043
PARTIES: DILETOSSO HOLDINGS PTY LTD (AS TRUSTEE FOR RELKITRO PTY LTD SUPERANNUATION FUND NO. 1)
V
ENTERTAINMENT NT PTY LTD
TITLE OF COURT: LOCAL COURT
JURISDICTION Business Tenancies (Fair Dealing) Act (NT)
FILE NO.: 21244320
DELIVERED ON: 21/12/12
DELIVERED AT: Darwin
HEARIING DATES: 23 November, 3 December, 10 December
JUDGEMENT OF: David Dalrymple RM
CATCHWORDS:
Landlord and Tenant –Business Tenancies (Fair Dealing) Act (NT) – application for warrant of possession with ancillary claim for payment of outstanding rent – unrepresented respondent – availability of equitable set off in answer to application
Business Tenancies (Fair Dealing) Act (NT) ss 130, 131 & 132
Codelfa Pty Ltd v State Railway of New South Wales (1982) 149 CLR 337 cited
Big Toys v Bartlett [2001] NSWC 625 considered
British Anzani Felixtowe) Ltd v International Marine Management (U.K.) Ltd [1980] 1 Q.B. 137 followed
REPRESENTATION:
Counsel:
Applicant: Ms K Ranjithkumar
Respondent: Andrew Arthur (director of
respondent)
Judgement category classification: A
Judgement ID number: [2012] NTMC 043
Number of paragraphs: 63
IN THE LOCAL COURT
AT DARWIN IN THE NORTHERN
TERRITORY OF AUSTRALIA
No. 21244320
BETWEEN:
DILETOSSO HOLDINGS PTY LTD (AS TRUSTEE FOR RELIKTRO PTY LTD SUPERANNUATION FUND NO.1)
Applicant
AND:
ENTERTAINMENT NT PTY LTD
Respondent
REASONS FOR JUDGEMENT
(Delivered 21 December 2012)
D R Dalrymple RM:
1. These proceedings were commenced by way of an application for a warrant of possession of premises pursuant to section 131 of the Business Tenancies (Fair Dealings) Act (“the Act”), and for payment of outstanding rent pursuant to section 132 of the Act. The respondent has challenged the relevant notice to quit, both as to form and content, and disputes liability to pay the claimed rent.
2. Under section 131 of the Act, a landlord may apply to the Local Court for a warrant of possession if the landlord has given the tenant a notice to quit which complies with Division 2 of Part 13 of the Act. Subsection 130(2)(a) of the Act required the applicant in this case to specify a twofold ground for the giving of a notice to quit. Firstly, there needed to be “a breach or failure to comply with a provision of the lease”. Secondly “the breach or failure to comply” needed to be “such that the landlord was justified as treating the lease as at an end”.
BACKGROUND
3. On 22/11/12 the applicant filed an application pursuant to section 131 of the Act for a warrant of possession (“the application”) in relation to premises at 2/59 Delatour Street, Coconut Grove (“the premises”). In addition to seeking an order that the respondent be evicted from the premises, the applicant sought an order that the respondent pay “all outstanding rent in the sum of $1,998.81 per month up to date of eviction”.
4. The application came before me in the general civil list on 26/11/12. The applicant was represented by a solicitor, Ms Ranjithkumar, and the respondent appeared through its director, Andrew Arthur.
5. The applicant relied upon a notice to quit dated 12/11/12 which required the respondent to deliver up possession of the premises at the expiration of 7 days from service. Mr Arthur admitted that the notice to quit had been served on him on 23/11/12, but he wished at the outset of the proceedings to challenge both the court’s jurisdiction and the validity of the notice to quit.
6. As regards jurisdiction, Mr Arthur submitted that because the value of the outstanding rent claimed by the applicant was less than $5,000 the proceedings should have been commenced under the Small Claims Act. I rejected the challenge to the court’s jurisdiction. My reasons for doing so were that the claim for payment of rent was in the nature of ancillary relief to the principal order sought which was recovery of possession of the premises. I was satisfied that the “value of the right to ownership or possession” for the purposes of subsection 14(c) of the Local Court Act was well in excess of $5,000.
7. As regards the validity of the notice to quit, Mr Arthur raised two arguments. Firstly he submitted that he hadn’t been able to operate his business from the premises because the premises were not “fit for purpose”. Secondly he submitted that the period stipulated in the notice to quit as the period within which he was to vacate the premises was less than the period of a regular rent interval, and therefore not in accordance with subsection 131(3) of the Act.
8. Ms Ranjithkumar relied on clause 38 in the applicant’s lease with the respondent which was to the effect that if the respondent had failed to remedy a breach of the lease after being required to do so in a default notice, the applicant could “cancel the lease by giving you seven days notice to quit”.
9. No affidavit had been filed by the applicant at that stage to substantiate breaches of the lease alleged in the application. I adjourned the proceedings to 3/12/12 so that the parties could file any affidavit material on which they intended to rely in relation to whether the breaches of the lease alleged by the applicant had occurred and whether any such breaches justified the termination of the lease.
10. On 3/12/12 Ms Ranjithkumar and Mr Arthur appeared before me again. The respondent had filed an affidavit substantiating the non-payment of the month’s rent payable in advance which had been due on 24/10/12, and a prior pattern of late or insufficient payment of rent. However, the affidavit contained only hearsay evidence in relation to other alleged breaches. Mr Arthur had filed an affidavit more along the lines of a pleading document which reasserted his denial that the respondent had breached its lease obligations.
11. Mr Arthur reasserted his challenge to the validity of the notice to quit on the basis of his interpretation of subsection 130(3) of the Act. I determined that the wording and 7 day time frame in the notice to quit reflected the wording in the relevant clause of the lease, and that on a proper interpretation of subsection 130(3) of the Act, where the period of a notice to quit is the period fixed by the lease a landlord has the option of requiring a tenant to vacate the premises either within that time frame or (assuming it to be longer) the period of one regular rent interval.
12. In arriving at my decision in relation to the proper interpretation of subsection 130(3) I had regard to the redundant role which the words “the period fixed by the lease or” would play if the interpretation contended for by Mr Arthur was preferred (essentially the words would have ‘no work to do’). I also had regard to the wording of section 43 of the now superseded Commercial Tenancies Act and the statement in the Second Reading Speech for the Business Tenancies (Fair Dealings) Bill that Part 13 of what became the Act had been taken from the Commercial Tenancies Act. There was no indication in the Second Reading Speech of any legislative intention to change the process of regaining possession of business processes by mandating the expiration of a full regular rent interval before a landlord’s entitlement to possession of premises after service of a notice to quit could be activated.
13. In canvassing the issues raised by the parties on 3/12/12 it became evident that Mr Arthur’s principal concerns were firstly the money he had already expended on the premises to try and convert them into a “production warehouse” and secondly the money he anticipated he would need to spend on removing airconditioners and other fittings and equipment from the premises were he required to vacate.
14. The primary basis for Mr Arthur’s position was that on at least one occasion in the previous wet season a heavy storm had resulted in the premises being flooded. That flooding had damaged his fittings and equipment. Mr Arthur blamed the damage on the condition of the building, in particular the size of its downpipes. The respondent had not been able to progress its plans for refurbishment of the premises because the applicant had not addressed structural flood mitigation measures which Mr Arthur considered to be necessary and which would have enabled him to confidently proceed with and complete the planned refurbishments. In the recent past the respondent had decided to stop paying rent and was seeking from the applicant compensation for its economic loss arising from not having been able to implement its plans to establish a production warehouse. The respondent was also seeking an advance payment of a sufficient sum of money to cover the respondent’s costs of moving out of the premises.
15. During the course of the canvassing of the issues the following exchange took place:
MS RANJITH: Your Honour, I just want to confirm something. He thinks that the property is not fit and proper for his use but he’s saying that, you know, he wished to have a studio in there. And you know, for the past 16 months he has been trying to establish a studio in there, to date which he hasn’t succeeded. Therefore he’s claiming all this money from our client. Why does he still want to remain in the premises?
MAGISTRATE: Have you got an answer to that, Mr Arthur?
MR ARTHUR: We don’t your Honour. We’ve said this all along, we’re happy to get out. We understand that the – your client is not going to fix the place. It would be a real travesty of justice though if we were issued a warrant – if Ricardo was issued a warrant of possession and then someone else came along and hired this warehouse that floods.
16. On behalf of the respondent, Ms Ranjithkumar indicated that the applicant would be content with a consent order for the recovery of possession of the premises with outstanding claims between the parties relating to rent and fixtures to be negotiated or litigated at a later stage. But Mr Arthur wished to argue the respondent’s case on the issue of whether or not his complaints against the applicant had the legal effect of cancelling out the obligation to pay rent, and therefore the validity of the notice to quit.
17. I was of the view that the scheme and purpose of Part 13 of the Act was to enable applications for the repossession of business premises to be heard and determined quickly wherever possible, and I commenced a substantive hearing in relation to the matter that afternoon.
THE HEARING
18. Mr Ricardo Dilotosso was affirmed and gave evidence on behalf of the applicant. In his evidence-in-chief he described the premises at 2/59 Delatour Street in the following terms: “It’s just a block. It’s a warehouse with a toilet facility, concrete floor and just in the front corner there is an office partition. And that’s – there’s also a kitchen in there which was only two and half years old.” Mr Diletosso said that the premises were built “around 1985”, and that they had been “part owned” by the applicant and rented out since that time. He said that Mr Arthur had been the first tenant to ever complain about “damages to the property”. That answer was given in response to a question about “damages to the property” generally, but in the context of the principal issue being raised by the applicant in the proceedings I understood the answer to cover any damage arising from past flooding.
19. Mr Diletosso said that the last date when the respondent had paid rent was on 27/9/12. That payment was for one month’s advance rent which had been due on 24/9/12. At the end of Mr Diletosso’s examination-in-chief, there was further questioning about about rent payments:
MS RANJITH: So but the tenant has paid rent throughout the wet season up until the recent breaches now at one time or?
MR DILETOSSO: Well the tenant has rarely paid the rent on time but all rent ended up being collected up to 23 October. Including the – all – the rent due on 23 August which the initial notice to quit was provided.
20. The reference to “the initial notice to quit” was a reference to a notice to quit dated 17/9/12 which was not proceeded with, apparently due to technical deficiencies in its content (the document foreshadowed an application to the “Tenancy Tribunal”).
21. Mr Diletosso was then cross-examined by Mr Arthur, including in relation to the flooding problem, and in the course of that cross-examination Mr Arthur tendered three sets of e-mail correspondence between himself and Mr Diletosso (Exhibit R1), the first of which covered a period between 14/11/11 to 28/11/11, the second of which covered a period 1/2/12 to 15/2/12, and the third of which covered a period 13/3/12 to 22/5/12.
22. It was apparent from the three sets of e-mail correspondence that trust and goodwill as between landlord and tenant had diminished over time. In one of the e-mails in the first set of e-mails Mr Arthur refers to the costs and delays in his set-up plans and requests a “return to the 50% rent” which had been negotiated for a period at the beginning of the lease. It was apparent that in the earlier months of the lease (well before any complaints about flooding) the respondent was experiencing financial problems which made it difficult to pay the rent fully and on time. Then, in the second set of e-mails, what was referred to by Mr Arthur in these proceedings as an extreme “rain event” was the subject of an e-mail by him to Mr Diletosso on 1/2/12 in the following terms:
Hi Riccardo
Just finished cleaning up after our shed and contents suffered flooding
the rain today was to (sic) much
water was flowing down the rear of the shed like a waterfall …8-0 (sic)
it surged into and through the shed!!!
i climbed up onto the roof AND EVERY DRAIN PIPED (sic) WAS BLOCKED WITH DEBRIS AFTER THOSE HEAVY WINDS
*** i knew the shed was flooded when i saw the doors (including the rear one that is totally rotted away) and office walls with water damage, but old mate (agent) said it was just age…
the down pipes are undersized for the extreme falls we are receiving, and they are only going to get larger with climate change…
any way, we have had a massive is (sic) set back, not sure if insurance will cover… (we are not with tio)…
Onwards,
Andrew
23. By the time of the exchanges of e-mails on 21/5/12 (Arthur to Diletosso) and 22/5/12 (Diletosso to Arthur) the tone and content of the correspondence is adversarial and somewhat hostile, with Mr Arthur pressing his complaint in relation to the downpipes.
24. Mr Arthur cross-examined Mr Diletosso in relation to the steps he had taken to investigate that complaint, and Mr Diletosso’s response was to the effect that he had arranged for the owner of one of the four units comprising the block of units in which the 2/59 Delatour Street unit was situated to investigate the problem. Mr Diletosso explained that this person (“Emmanuel”) was a builder and that he was also the manager of the body corporate entity which consisted of the owners of the four units themselves. In the e-mail correspondence Mr Diletosso had reported to Mr Arthur on 15/2/12 in the following terms:
I talked to body corporate and was told that the down pipes are fine. Just an extraordinary event. I also requested someone to clear the debris in the drain pipes. No tenant has ever mentioned being flooded before, neither the owner of next doors (sic) unit with whom I talked.
25. The thrust of Mr Arthur’s cross-examination of Mr Diletosso was that the builder would not be inclined to acknowledge the existence of a flooding problem relating to the building because that would entail the body corporate having to pay for the problem to be fixed. It was put to Mr Diletosso that the builder had a “conflict of interest”.
26. After Mr Diletosso had completed his evidence on 3/12/12 I sought confirmation from Mr Arthur that the applicant’s case in relation to its entitlement to cease paying rent related to Mr Arthur’s anticipation that there would be a repetition of the extreme rain event from February and that would be resulting damage to his fittings and fixtures. The following exchange took place:
MAGISTRATE: Last year, yes. In terms of this year, is what you’re saying that you weren’t satisfied with the mitigation steps that had been taken by the landlord ---
MR ARTHUR: We suspected they were inadequate.
MAGISTRATE: You suspected they were inadequate, you were concerned about what impact future flooding would have on your property in the premises and it was for that reason that you withheld rent payment, is that correct?
MR ARTHUR: Can you ask that question again please?
MAGISTRATE: Yes, you’ve confirmed, I think that you had concerns about the adequacy of the steps taken to mitigate flooding.
MR ARTHUR: Yes.
MAGISTRATE: You were concerned there was going to be flooding occurring as the wet season progressed and you took the view and made a decision that because what you regarded as inadequate steps had been taken to mitigate the problem, you decided to withhold the rent. Is that the---
MR ARTHUR: We knew that we were vindicated in our belief that the premises was not a fit and proper place for ---
HIS
HONOUR: Well put that to one side. Just in terms of the question I
asked. Did I characterise that accurately?
MR ARTHUR: Well I agree with the first couple of statements. As I said yes. But I’m not quite sure---
HIS HONOUR: The critical issue is whether you, because of those concerns, that was why you stopped paying rent. Is that your position?
MR ARTHUR: We stopped paying rent because we realised that we had been duped and the place was not a fit and proper place for us to conduct our business.
27. The hearing was adjourned on 3/12/12 to 10/12/12. Before commencing his own sworn evidence, Mr Arthur sought to tender a document in the form of a letter to the respondent with an “NT Consulting Engineers” letterhead. The letter was dated 10/12/12 and signed “Michael Cooper”. No information was set out in the letter as to Mr Cooper’s qualifications. Somewhat to my surprise, Mr Ranjithkumar did not object to the tender and the document was received as Exhibit R2. The letter was headed “RE: FLOODING OF 2/59 DELATOUR STREET., COCONUT GROVE” and continued as follows:
“Dear Sir,
An inspection of the above premises was conducted on the 6th December, 2012 at the above address. A review of roof drainage was also conducted.
The gutter size is adequate, a cross sectional area of 23,200 mm2 is required. The existing gutter has a cross sectional area of 32,800 mm2.
The downpipes are not sufficient to take the rainfall for Darwin with an ARI(Average Recurrence Internal) of 20 years as required by Australian Standard AS3500.3 which mandates requirements for gutter & downpipe sizing.
The Code requires 7x150 mm2 diameter downpipes and it is noted that the 4x110 mm2 diameter downpipes are inadequate for the roof area of 512m2.
In addition there is no drainage in the rear courtyard and the only way for the water to run is through the shed.”
28. When Mr Arthur commenced his testimony in the witness box, there was no attempt made by him to adduce any evidence confirming Michael Cooper’s qualifications other than references to him as an engineer. There was also no evidence adduced which could enable me to ascertain whether the reference to “the shed” at the end of letter was a reference to the main building leased to and occupied by the respondent or some separate or additional structure.
29. Mr Arthur’s testimony, both in examination-in-chief and in cross-examination was to the same effect as the matters he had put to the court in his cross-examination of Mr Diletosso:
…what I believe is our rent wasn’t owing from the first day of the flooding going back to the first letter – that first e-mail in February. We had premises that we wanted to set up and a – set up a legitimate business from and we were unable to – and right from the start, we were unable to set this business up, so from that moment that it flooded- and we know that we couldn’t set our business up – we didn’t owe rent.
30. When it was pointed out to him that the he had in fact paid rent (even if tardily) throughout the subsequent period, Mr Arthur responded that those payments were made on the basis of an expectation that the applicant would take steps to address the problems which Mr Arthur had brought to his attention.
31. Mr Arthur did not allege any damage to the structure of the premises themselves from the original flooding and although he referred to a more recent “rain event” in October 2012 he did not allege any damage to the premises or to his own fittings or equipment from that.
32. Mr Arthur did seek to raise a separate complaint in relation to the condition of roof and ceiling of the premises but there was no suggestion by him that it was linked or related to the flooding issue identified by him as the basis for the respondent’s cessation of rent payments.
33. In cross-examination Mr Arthur was shown the default notice relied upon by the applicant, a document which had been served at the accountant’s office identified by Ms Ranjith as the registered office of the respondent. Mr Arthur believed he had been sent the document by e-mail rather than having received it via the accountants. Mr Arthur’s disputing of the validity of the notice to quit continued to be focussed on his rejection of an obligation to pay rent and a claimed failure by the applicant to provide premises which were “fit for purpose”.
34. After the completion of Mr Arthur’s testimony on 10/12/12 I offered the applicant the option of having the matter adjourned in order for the applicant to obtain and then adduce its own evidence in relation to the alleged structural shortcomings alleged by Mr Arthur and supported to some extent in Exhibit R2. The applicant declined that offer, seeking instead to restrict the hearing to narrowly defined issues related to the express terms and conditions set out in the lease.
35. The matter was adjourned to 17/12/12 for decision. On that date Mr Arthur did not attend, having sent the court an e-mail in which he said: “I would like to send my apologies to the court for I have a contract as Santa for a large shopping centre and I dare not upset the children!” The matter was further adjourned to 21/12/12 for decision.
FACTUAL FINDINGS
36. I make the following findings of fact and conclusions in relation to unresolved factual issues:
(1) Prior to any flooding issue being raised by or on behalf of the respondent the respondent was already finding it difficult to pay the rent owing to the applicant when it fell due.
(2) There was a ‘rain event’ on 1/2/12 in the course of which the premises were flooded and the applicant’s fittings and equipment were affected.
(3) The flooding did not result in any damage to the structure of the premises.
(4) There was a subsequent ‘rain event’ in October 2012, but I am unable to conclude that it affected the applicant’s fittings and equipment.
(5) It is more probable than not that the downpipes for the building leased by the respondent are not of an adequate size but I am unable to make a finding as to whether that problem contributed in any significant way to the flooding on 1/2/12 (i.e. it may be the case that given the heaviness of the downpour the premises would have flooded anyway).
(6) I am unable to make a finding as to whether some other defect or characteristic of the premises, in particular the draining or lack of it, in the rear courtyard, contributed to the flooding on 1/2/12.
(7) There has been a pattern of late and short payment of rent by the respondent throughout the term of the lease, but all rent owing up to 23/10/12 had been paid by the respondent when the applicant abandoned proceedings commenced by way of a notice to quit dated 17/9/12.
(8) The respondent withheld the rent payment due on 24/10/12 ($1,999.81) because of a decision by Mr Arthur that he should use the non-payment of rent as leverage to try and get the respondent to reimburse the respondent for its costs of vacating the premises and to compensate the respondent for lost business opportunities arising from the respondent’s unwillingness or inability to complete its originally proposed development and use of the premises (an unwillingness or inability which was due to Mr Arthur’s concerns about a repetition of the 1/2/12 flooding).
(9) I am unable to make a finding as to the likelihood of such repeat flooding or as to the extent to which the condition of the building made such repeat flooding more likely, but there is evidence before me to suggest that Mr Arthur’s concerns were not fanciful and that they had a sound basis.
(10) On 5/11/12 a document headed “default notice” was served on the respondent at its registered office address. The document identified breaches of the lease including the failure to pay rent owing as at 24/10/12, and stated “you are hereby given notice in accordance with clause 37 of the lease agreement”.
(11) As at 23/11/12 the rent payable on 24/10/12 had still not been paid, and a notice to quit (a copy of which is attached to the application) was served on Mr Arthur personally.
(12) The rent which was due on 24/10/12 remains unpaid and the respondent has also failed to pay the month’s rent which would have been due under the lease on 24/11/12.
RELEVANT EXPRESS CLAUSES IN THE LEASE
37. The lease includes a cover sheet headed “Commercial/Industrial Property Lease Explanatory Notes”, and in paragraph 2 in the notes it is stated:
“Before signing this lease you should make sure that it accurately reflects the agreement that you have negotiated with your landlord. If you are uncertain as to whether or not it reflects that agreement you should not sign it and seek legal advice.”
38. Clause 1.4 of the lease states: “The lease which includes any Schedules comprises the whole of the Agreement between you and us and can only be changed if both you and we agree in writing.”
39. Clause 11 of the lease is headed “Suitability of Premises” and reads:
“You acknowledge that we have not made any promise or representation or made any warranty to you as to the suitability of the premises for your business. You acknowledge that before entering into this lease, you carried out your own inspection of the premises and have relied on your own enquiries with all relevant authorities regarding the suitability of the premises for your business.”
40. Clause 25 is headed “Notice Of Damage” and states:
“You must give us written notice of:
(a) any structural defects which may become apparent in the premises;
(b) any damage caused to the premises (even if it is repaired by you); and
(c) any other circumstances likely to be dangerous to any person using the premises.”
41. Clause 29 of the lease is in the following terms:
“29.1 When the lease ends, you must leave the premises and give them back to us in the same condition they were in at the commencement date except for fair wear and tear.
29.2 You must remove all your property from the premises and where any damage is caused to the premises by the removal of your fixtures and fittings and partitions, you must immediately repair that damage. If you do not, we may repair the damage and you must properly reimburse us for all costs incurred by us in doing this. Any property of yours left at the end of the lease becomes our property and we may keep it or dispose of it.”
42. This clause is significant because it poses a major hurdle to the respondent’s claim for contribution by the applicant to the respondent’s costs of vacating the premises.
43. Clause 37 is headed “Default Notice” and states:
“If you breach the lease we must give you a notice requiring you to remedy the breach. If you fail to pay the rent, or you fail to maintain the premises in good condition, or use the premises for a purpose other than that allowed under clause 10.1 we must give you 2 working days notice to remedy the breach. If you breach the lease in some other way we must give you 7 days notice to remedy the breach.”
44. I am satisfied that the despite its somewhat oblique wording the default notice served on the respondent qualifies as a default notice for the purposes of clause 37 given that it identifies itself as “a notice in accordance with clause 37 of the lease agreement”, and could be reasonably expected to be read by the respondent in conjunction with that provision of the lease.
45. Clause 38 enables the landlord, in the event of a failure by the tenant to remedy a breach set out in a default notice, to “cancel the lease by giving you seven days notice to quit”.
46. Clause 43 is headed “Damage to Premises” and is in the following terms:
“43.1 If the premises are damaged or destroyed for any reason (other than a deliberate act by you or your negligence) so that they become unfit for your use, then the rent or a fair proportion of the rent depending on the amount of the damage, shall be suspended until the premises are repaired.
43.2 If the premises are damaged or destroyed to such an extent that they cannot be used by you and we do not commence work to reinstate the premises within 1 month of if we decide not to reinstate the premises, you or we may end this leases (sic) by given the other party notice”.
47. During the course of the hearing, Mr Arthur submitted that clause 43 should be read together with clause 25 which also uses the word “damage” in its heading but which in the body of the clause also covers “structural defects”. I am satisfied that clause 25 and clause 43 should be read as distinct and separate clauses, and that clause 43 cannot be relied upon by the respondent to argue that the rent under the lease has been or should have been suspended because the buildings downpipes were of an inadequate size. That problem may possibly qualify as a “structural defect” but it does not fall into the category of damage and Mr Arthur has not alleged any damage to the premises themselves.
48. Special conditions 8 and 9 are as follows:
“8. The Lessee agrees at his expense, to gyprock the existing office internal walls, repaint the office and install a new kitchenette/facilities subject to the new being better than the existing kitchenette.
9. The Lessor agrees to the reduction of rent by 50% for the first 3 months commencing 24th June 2011”.
49. These conditions are once again relevant to the respondent’s claim for contribution to its costs of vacating the premises and do not assist it in that regard (the respondent has already received a benefit by way of a 50% reduction in rent for 3 months in relation to its costs of installing at least some of the material used in developing the premises for its business use).
WAS THERE AN IMPLIED TERM IN THE LEASE?
50. Throughout the hearing Mr Arthur insisted that the lease should be read as including a term that the premises be “fit for purpose”. I am satisfied that the implication of such a term is expressly excluded by clause 11 of the lease.
51. Was there however an implied term to the effect that the premises should not be subject to flooding from moderate rainfall? People living in the Top End of the Northern Territory are aware of the risks of flooding associated with cyclones and other extreme weather events and usually address that risk by making a decision whether or not to obtain suitable insurance cover. Parties to a business premises lease would be expected to have turned their minds to such a risk being a matter for appropriate insurance cover.
52. But for premises to readily flood simply as a result of moderate monsoon rainfall may be a different matter. Because the parties have not presented their cases in such a way as to provide the court with evidence as to whether any flooding risk associated with any defect in the building is related to extreme weather events or regular wet season rainfall I am unable to take the question of whether the contract should be read as including any such implied term any further.
53. All I can say is that applying the criteria outlined in Codelfa Pty Ltd v State Railway of New South Wales (149 CLR 337 at 346) I do not think that conclusion can be rejected out of hand, assuming a more comprehensive evidentiary basis for finding the implied term.
54. But speculation in that regard cannot assist the respondent in these proceedings.
DID THE RESPONDENT BREACH OR FAIL TO COMPLY WITH A PROVISION OF THE LEASE?
55. I find that the respondent did breach a provision of the lease by failing to pay the rent that was due on 24/10/12.
WAS THE BREACH OR FAILURE TO COMPLY SUCH THAT THE APPLICANT WAS JUSTIFIED AS TREATING THE LEASE AS AT AN END?
56. Even if the lease was to be read as including an implied term along the lines of what I have considered in paragraph 49 above, the proper course to have been followed by the respondent if it wished to pursue a legal claim arising from an alleged breach of the implied term was to commence proceedings claiming a liquidated amount by way of abatement/set-off. Even if the respondent had followed that course it appears likely that the proceedings would have failed (I was referred by Ms Ranjithkumar to the case of Big Toys v Bartlett, [2001] NSWSC 625, and I agree that there are some similarities between that case and this one, see in particular paragraphs 11-13 and 19-21 of the judgement).
57. The respondent is not, in the circumstances of this case in any event, in a position to raise a legal claim of abatement/set-off in the context of proceedings in relation to an application under section 131 of the Act.
58. That does not however automatically translate into a conclusion that “the applicant was justified in treating the lease as at an end”, because the issues
raised by the respondent need to also be considered in the context of a notional claim for an equitable set off. This court has jurisdiction to entertain equity-based claims pursuant to section 6 of the Local Court Act. Despite the failure by Mr Arthur to present the respondent’s claim by way of equitable principles, the availability of an equitable set off needs to be carefully considered by reference to the facts and circumstances of the case.
59. As regards the availability of such a remedy in general I note the following passage from the judgement of Forbes J in British Anzani (Felixtowe) Ltd. v International Marine Ltd. [1980] 1 Q.B. 137 at 151:
“A consideration of all these cases leads me to the conclusion that except in cases of distress or replevin equity has never refused to interfere to protect a tenant whose landlord was bringing proceedings based on the non-payment of rent, if the tenant had a bona fide cross-claim for unliquidated damages against the landlord, provided that he was not covered by an existing common law remedy and that the ordinary rules pertaining to equitable set off were obeyed.”
60. As to the test to be applied in terms of ascertaining whether a claim for equitable set off can succeed in any particular case, I adopt a further passage from British Anzani (Felixtowe) Ltd. v International Marine Ltd. (at 152):
“While I am satisfied that it is proper in principle to allow that a cross-claim could be effective as an equitable set off against a claim for rent, it by no means follows that such a defence is available in all circumstances. The important qualification is that the equity must impeach the title to the legal demand, or in other words go to the very foundation of the landlord’s claim. This seems to me to involve consideration of the proposition that the tenant’s cross-claim must at least arise under the lease itself, or directly from the relationship of landlord and tenant created by the lease.”
61. That test was met in British Anzani (Felixtowe) Ltd. v International Marine Ltd. because it was the landlord which had built the warehouses in which, after the commencement of the underleases, defects were revealed and because there had been collateral agreements prior to the underleases being entered to whereby the landlord promised to remedy any such defects. The situation is starkly different in this case where there has been no preceding collateral agreement and where clause 11 of the lease clearly reflects an unwillingness on the part of the applicant to accept any liability in relation to defects in the building.
62. Nevertheless, I do not think the respondent is without any prospect of success in raising an equitable set off in answer to an action by the applicant for unpaid rent. But I do not see how equity could be invoked to assist the respondent in relation to the warrant of possession aspect of the current proceedings, given Mr Arthur’s frank concession that the respondent does not wish to remain in the premises in any event.
63. As regards the applicant’s claim for outstanding rent, I am of the view that that claim is more appropriately pursued in a Local Court action for damages, in which the respondent would have the option of attempting to raise an equitable set-off.
ORDERS
I make the following orders:
1. I issue in favour of the applicant a warrant of possession of the premises at Unit 2/59 Delatour Street, Coconut Grove to take effect from 28/12/12.
2. I make no order in relation to the payment of outstanding rent.
I will hear the parties as to costs.
Dated this 21st day of December 2012
DAVID DALRYMPLE
RELIEVING MAGISTRATE