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My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Please note that whilst I am an Australian Legal Practitioner who practices as a Barrister I am able to provide advice to companies, entities, individuals all over the world about Commercial Transactions in Australia such as Leasing, Property Law Purchases and other inquiries you may have to ensure a cohesive purchase process and or investment strategy within the Australian Jurisdiction.

The link to Australian Case Law is http://www.austlii.edu.au/

This blog is Authored by Robert Hay Commercial Barrister and is subject to copyright under DMCA.

Creation of Social media platforms - Corinne Jones with the support of Dave McLoughlin

Franchisees beware of arbitration clauses

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Prospective franchisees should be cautious about agreeing to the inclusion of arbitration clauses in franchise agreements. It is common for a franchisee to enter into an 'occupancy' or 'licence' agreement with an entity associated with the franchisor which entity is the lessee of the premises from which the franchisee will conduct its business. At the sane tine the franchisee usually enters into a franchise agreement with the franchisor. The so-called 'occupancy' or 'licence' agreement commonly has all the characteristics of a lease with the consequence that the agreement is a lease. 

In Victoria, if the 'occupancy' or 'licence' agreement is a lease any dispute will constitute a  'retail tenancy dispute' governed by Part 10 of the Retail Leases Act 2003 (2003 Act). VCAT has exclusive jurisdiction to hear and determine 'retail tenancy disputes'.  If the dispute resolution provisions in the franchise agreement require that disputes under that agreement be referred to arbitration the franchisee could be in the difficult position of having to prosecute or defend two proceedings at the same time - one  in VCAT and another before an arbitrator.  

This is the consequence of the Court of Appeal's decision in Subway Systems Australia v Ireland [2014] VSCA 142. In that case the franchisee conducted its business from premises in Doncaster, Victoria.  The arbitration clause in the franchise agreement required the arbitration to take place in Queensland. VCAT held that the "licence" agreement was a sub-lease with the consequence that that dispute will be determined as a 'retail premises dispute" in VCAT in Victoria under the 2003 Act. 

VCAT also decided that it  could hear and determine the dispute under the franchise agreement. The Court of Appeal held that VCAT did not have jurisdiction to hear and determine the dispute under the franchise agreement which will have to be heard and determined by an arbitrator in Queensland.

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If you wish to retain my services my clerk can be contacted via this link http://www.greenslist.com.au/ for any legal matter which is within the gamut of my legal experience.

VCAT is Court and therefore arbitration clause effective

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In  Subway Systems Australia Pty Ltd v Ireland [2013] VSC 550 Croft J held that a requirement in a franchise agreement that disputes be referred to arbitration did not prevent VCAT hearing and determining the dispute. The matter came before Croft J as an application for leave after a VCAT member declined to find that the Tribunal was bound by  s.8 of the Commercial Arbitration Act 2011 (Vic)) (CAA) to refer the dispute to arbitration.  In broad terms s.8 of the CAA requires a court before which an action is brought in a matter which is the subject of an arbitration agreement to refer the matter to arbitration if one of the parties makes that request. Croft J held that VCAT was not a “court” for the purpose of s.8(1) and therefore VCAT was not bound to refer the dispute to arbitration. In Subway Systems Australia Pty Ltd v Ireland [2014] VSCA 142 the Court of Appeal allowed an appeal from Justice Croft's decision. Maxwell P and Beach JA held that VCAT was a "court" for the purposes of s.8 of the CAA. Kyrou AJA dissented. This means that the dispute must now be referred to arbitration. The Court of Appeal's decision can be found here:

Subway Systems v Ireland_merged_17114[1]


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Author: Robert Hays Barrister subject to copyright under DMCA.

Mortgagee lender does not have duty of care to ensure that a loan isappropriate for borrower

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Defaulting mortgagor borrowers defending court proceedings by the mortgagee lender often allege that the lender owed them a duty to investigate their income and assets and liabilities to determine whether the loan could be serviced. The legal basis for such a claim was recently rejected by the Supreme Court of New South Wales in Westpac Banking Corporation v Diagne [2014] NSWSC 822. Among the many claims made by the defaulting mortgagor borrowers was that the lender had a duty to "[p]rudently investigate the income, assets and liabilities of [the borrowers] and the proposed business plan of [the borrowers] in order to determine serviceability" and "[t]o take reasonable remedial action when the loans fell into arrears, including investigating the causes of the arrears, working with [the borrowers] to remedy the problems identified and continuing to monitor the ability of the borrowers and guarantors to adequately service the facilities". Included in the alleged duty was a duty "to appropriately set and alter limits on overdraft facilities".

Ball J rejected the borrower’s claims. His Honour applied Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80  and held that the lender did not have a duty of care to investigate the borrower’s circumstances to determine whether the loan that was made was appropriate for them.

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience

Undertaking as to damages must not be a ritual or a formality

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Parties seeking injunctions are required to offer an undertaking as to damages as the price for the injunction. All too often the undertaking is given lightly and without an understanding of the potential consequences.  If the person against whom the injunction is granted succeeds at trial and has suffered loss or damage the consequences can be severe. The inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen.

In Love v Thwaites [2014] VSCA 56 the Court of Appeal upheld a trial judge’s order that the party who obtained an injunction pay damages and interest of more than $5,000,000 pursuant to an undertaking. This disastrous outcome was the consequence of the appellant seeking and being granted an interlocutory injunction restraining the Roads Corporation from demolishing a property. The appellant gave the usual undertaking as to damages. During the proceeding the appellant had been asked to consent to the discharge of the injunction but the requests were refused. After the appellant’s proceeding was dismissed and the injunction discharged there was then a trial to determine the damages suffered by the Roads Corporation resulting from the granting of the injunction. The trial judge[1] set out the principles governing the assessment of damages as follows:

“30. In Davinski Nominees Pty Ltd v I&A Bowler Holdings Limited, Kaye J described the basis for the assessment of damages on an undertaking to the court as uncontroversial: damages flowing directly from the injunction and which could have been foreseen when the injunction was granted, following the decisions of the High Court in Air Express Limited v Ansett Transport Industries (Operations) Pty Ltd and European Bank Limited and Robb Evans of Robb Evans & Associates.

31.  In Air Express, Aickin J held that in a proceeding of an equitable nature ‘the damages should be those that flow directly from the injunction and which could have been foreseen when the injunction was granted’. On appeal, Barwick CJ agreed with the reasoning of Aickin J. Gibbs J identified the generally accepted view to be that ‘the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice’ adding that ‘the party seeking to enforce the undertaking must show that the making of the order was a cause without which the damage would not have been suffered’. Stephen J referred to the court having the power, as far as monetary compensation allows, to make good the harm of which the grant of the injunction was a cause and that but for it he would not have suffered. Mason J said ‘generally speaking, so long as the claim for damages is not trivial or trifling, an enquiry should be directed and the defendant will be entitled to recover the loss which is the natural consequence of the grant of the injunction.’ The causal connection between the damage and the injunction is to be identified from the purpose for which the undertaking as to damages is designed to serve. That object is to protect a party from damage sustained in the event that it emerges that the plaintiff is not entitled to the relief sought. Its purpose is not to protect the defendant from damage otherwise sustained.

32.  In European Bank, the High Court, in a joint judgment, affirmed Air Express, restating the significance of the nature of the undertaking. It is not a contract between parties or some other cause of action upon which a party could sue, but is given to the court for enforcement by the court. The joint judgment emphasised the phrase ‘which could have been foreseen’. It is well established that for damage to be reasonably foreseeable it need only be damage of a type or character that is foreseeable or damage of a type or character that could not be considered unlikely.Roads Corporation submitted that the tortious concept ‘reasonable foreseeability’ is a wider concept than the contractual ‘reasonable contemplation’. The High Court in European Bank makes it clear that the inquiry is not whether the actual loss suffered was foreseen at the time the undertaking was given, but is whether loss of a kind actually sustained could have been foreseen. "

(citations omitted)

The Court of Appeal dismissed the appeal. The Court accepted that the concept of mitigation of damage applied (at least by analogy) in this case.

Tate JA said at [62]:

“While there is no suggestion that the usual undertaking was here given lightly, the consequences that have flowed from the failure of Mr Love to make out his case at trial have been significant. In my view, these consequences provide a salutary lesson to practitioners and their clients to appreciate the conditions governing the grant of an interlocutory injunction. The usual undertaking carries serious risks; it would be wholly erroneous to view it as no more than a ritual or a formality.”

[1] Love v Thwaites (No. 4) [2012] VSC 521

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Mortgagor fails in last minute bid to stop auction

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Bill Stark has posted an interesting article on his blog about a case concerning a defaulting mortgagor's last minute unsuccessful attempt to prevent the sale of the mortgaged land. See: Melbourne Property Law Blog.  Attempts by mortgagors to prevent  sales proceeding are rarely successful and the price for an injunction preventing a sale proceeding is usually payment of the amount owing into court. In the case analysed by Bill (Pearl Beach Property Administration Pty Ltd v Wisewoulds Nominees Limited [2014] VSC 113)  the mortgagee advertised the property for sale at an auction with an expected price range of $3,900,00 - $4,200,000.

The day before the auction the borrower "sold" the land for $5,000,000; however, the mortgagee did not consent to the proposed sale preferring to go to auction. The borrower sought an injunction on the day of the auction alleging that the mortgagee had breached its duty to act "in good faith and having regard to the interests of the mortgagor" under s.77(1) of the Transfer of Land Act 1958 and/or its obligations to the mortgagor under s.420A of the Corporations Act. The alleged bad faith was the mortgagee marketing the property for sale in a price range that was less than the valuation of $4,800,000 allegedly obtained by it. Despite the mortgagee not appearing at the hearing of the injunction  the injunction was refused.

Justice Dixon  held at [21] that "It was not properly open to infer a want of good faith or want of reasonable care in the conduct of the proposed sale from the fact that the property has been advertised as available within a range that is below the sworn valuation".  His Honour said that under quoting did not mean that the property was likely to be sold at an undervalue at auction.  There is authority that a mortgagee is  not bound to withdraw a property from auction merely because private offers are made  See: Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138. See also Qorum Pty Ltd v Younger (1995) NSW Conv R 55-738 (BC9504362).  While it is usual for a mortgagee to sell mortgaged property by auction it is not a breach of duty by the mortgagee if property is sold by private contract. See: s77(1) of the TLA.

However, where land is sold by private contract it is desirable for the mortgagee to obtain one or more estimates of the value of the mortgaged property from competent estate agents. See: Croft and Hay The Mortgagee's Power of Sale, 2012, para 6.2.

It is not a breach of duty merely because land is sold by private contract without advertising: the question is always whether the land sold in good faith and for a fair price. See: Vasiliou v Westpac Banking Corporation (2007 19 VR 229. The critical issue is the price obtained and not the presence or absence of advertising. See: Vasiliou at [63].

A mortgagee may also not be acting in bad faith by proceeding with an auction despite the existence of a lucrative offer for private sale if there is no evidence that the purchaser will be able to perform its obligations under the contract. See: Esanda Finance Corporation Ltd v C Conti (unreported, Supreme Court of Queensland, 15 January 1993, BC9303066).

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 My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Section 32 statements need not be attached to contract of sale

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The vendor’s “section 32 statement” will not have to be attached to a contract for the sale of land following amendments to the Sale of Land Act 1962. See: s.4 of the Sale of Land Amendment Act 2014. The amendments have not yet commenced.  The latest day on which the changes can commence is 1 July 2015. See: s.2(3). The effect of the amendments is to replace s.32 in its entirety. Many of the changes do no more than restate the existing law.

The vendor’s statement need not be attached to the contract but must be given to the purchaser before the purchaser signs the contract. See: s.32(1). Where vendor’s statements have been given before the Act commences it will not be necessary to give a new vendor’s statement provided the land is not withdrawn from sale. See: the transitional provisions contained in s.6.

Some of the changes are:

(a)          the name of any planning overlay must be provided (s.32C(d)(iv));

(b)          there must be disclosure where a notice, order, declaration, report or recommendation of a public                 authority or government department or approved proposal that is “directly and currently affecting                   the land” (s.32D(a));

(c)          only non-connected services need be disclosed (s.32H);

(d)          where an owners corporation affects the land the vendor can provide prescribed information rather               than the owners corporation certificate (s32F);

(e)          vendors have to make available to prospective purchasers of vacant residential land a “due                           diligence checklist” which is in a form approved by the Director of Consumer Affairs (see new                       division 2A).

The “due diligence checklist” must be published on the internet site for Consumer Affairs Victoria.

A purchaser may rescind the contract where false information is provided, or information not provided, or no s.32 statement is provided. See: s.32K.

David Lloyd of counsel gave an excellent presentation about the changes to the Act at a recent seminar hosted by Green’s List and those wishing to know more should contact Green’s List to view David’s presentation. Click on the link Greens List.


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My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Terms of contract have ceased to be regulated by Sale of Land Act

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This blog has previously referred to the important decision of Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222[1] which confirmed that amendments to the Sale of Land Act 1962 made in 2008 had caused “terms contracts” to cease to be regulated by the Act where multiple  payments were made before the purchaser was entitled to possession of the land.  The effect of the definition of "deposit" was that multiple payments formed part of the deposit.  In Ottedin Dixon J considered the definition of “terms contract” that has applied since 31 October 2008. Section 29A provides:

“(1)      For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is -

(a)        obliged to make 2 or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or

(b)       entitled to possession or occupation of the land before the purchaser becomes entitled to a conveyance or transfer of the land.

(2)       In subsection (1)-

deposit means a payment made to the vendor or to a person on behalf of the vendor before the purchaser becomes entitled to possession or to the receipt of rents and profits under the contract;

final payment means a payment on the making of which the purchaser becomes entitled to a conveyance or transfer of the land.”

(italics added)

Before 31 October 2008 any payments made by the purchaser on or before the execution of the contract (ie the deposit) or upon becoming entitled to a conveyance or transfer (ie final payment) were not payments taken into account in determining whether the contract was on terms.

In Ottedin the purchaser, in December 2008 contracted to purchase land for $6.5 million and paid a deposit of $325,000 with settlement due in December 2009 upon which the purchaser became entitled to transfer and vacant possession of the land. The purchaser was unable to settle. By deed the parties deleted the particulars of sale and substituted new particulars under which the price remained the same but the settlement date was changed to December 2010, the deposit became $1,325,000 with $325,00 due on the day of sale and $1,000,000 due in January 2010 (increased deposit). There was also a provision for a contingent interim payment of $3,675,000 with a final payment of $1,500,000 due at settlement. Ottedin defaulted and sought to avoid the contract under s29O(2) of the Act on the ground that the contract was a “terms contract” that did not comply with the Act’s requirements concerning terms contracts. The contention was that apart from the initial deposit of $325,000 and the final payment, the contract (as varied) was a terms contract because it obliged the purchaser to pay two or payments after the execution of the contract, being the balance of the deposit ($1,000,000) due in January 2010 and the interim payment of $3,675,000. Dixon J rejected the purchaser’s contention and gave summary judgment to the defendant vendor. His Honour held that both the initial $325,000 and the increased deposit were each obligations to pay the “deposit” within the meaning of s29A. His Honour held that the contingent interim payment of $3,675,00 (which was not paid) was either a deposit or became part of the final payment but its characterisation did not matter because even if it was an interim payment before settlement, there was still only one payment. In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd [2014] VSC 57 Garde J reconsidered the issues determined by Dixon J and held that he considered “the decision of Dixon J to be correct on the issues decided by His Honour that were sought to be reargued before me”.

[1] The decision is now reported at (2011) 35 VR 1.

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My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Proprietary estoppel - estopped party does not have to disprove reliance

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The High Court has rejected the notion that the onus of proof in relation to detrimental reliance can shift to the party said to be estopped. In Sidhu v Van Dyke [2014] HCA 19 0the Court had to consider the sufficiency of proof of detrimental reliance required to given rise to an equitable estoppel (proprietary estoppel).  The appellant and his wife owned land as joint tenants. The trial judge found that the appellant had promised to give the respondent part of the land owned by him and his wife once that land was subdivided. The appellant and the respondent formed a relationship which resulted in the respondent’s husband leaving her. The respondent did not seek a property settlement from her husband because of the promises made by the appellant. The trial judge accepted that respondent had worked on the land and gave up opportunities for employment and that these activities might  be sufficient to amount to detrimental reliance for the purpose of an equitable estoppel; however, Her Honour concluded that the respondent may well have done all or most of those things in any event. This conclusion was based on answers given by the respondent in the course of cross-examination. The trial judge also held that it was not reasonable for the respondent to rely on a promise of a transfer of land when  performance depended on the land being subdivided and the consent of the appellant’s wife.

The Court of Appeal upheld the respondent’s contention that the trial judge erred in holding that it was unreasonable to rely on the promises. The Court of Appeal also held that the onus of proof in relation to detrimental reliance shifted to the party said to be estopped (ie the male appellant) where inducement by the promise could be inferred from the conduct of the claimant (ie the respondent). The Court of Appeal held that an award of equitable compensation measured by reference to the value of the respondent’s disappointed expectation was the appropriate form of relief, being the value of the land at the date of judgment.

The High Court rejected the notion that the onus of proof in relation to detrimental reliance shifted: reliance was a fact that had to be found and not imputed on the basis of evidence that fell short of proof of the fact; the respondent at all times bore the legal burden of proving that she had been induced to rely upon the appellant’s promises. The Court said that the real question was the appropriate inference to be drawn from the whole of the evidence. The Court also held that the evidence established reliance.

As to the relief, the High Court said that "this category of equitable estoppel serves to vindicate the expectations of the represented against a party who seek unconscionably to resile from an expectation he or she has created". See: French CJ, Keifel, Bell and Keane JJ at [77].  Had  the respondent been induced to make a relatively small, readily quantifiable monetary outlay on the faith of the appellant’s assurances, then it might not be unconscionable for the appellant to resile from his promises to the respondent on condition that he reimburse her for the outlay. However,  the  Court decided that this case was one to which the observations of Nettle JA in Donis v Donis (2007 19 VR 577, at 588-589 were apposite:

“[H]ere, the detriment suffered is of a kind and extent that involves life-changing decisions with irreversible consequences of a profoundly personal nature…beyond the measure of money and such that the equity raised by the promisor’s conduct can only be accounted for by the substantial fulfillment of the assumption upon which the respondent’s actions were based.”

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

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Overstatement of amount owed does not make s.76 notice invalid

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Section 76(1) of the Transfer of Land  Act 1958  sets out the procedure to be followed by a mortgagee in the case of default in payment of moneys secured by a mortgage. Section 76(1) provides that the mortgagee may  in the event of default to serve  a "notice in writing to pay the money owing or to perform and observe the covenants (as the case may be)". The notice must be served if the mortgagee intends to sell the mortgaged land. See: s.77(1). In Whild v GE Solutions Ltd [2012] VSC 212 Croft J considered what should be contained in a notice served under s.76(1). His Honour dealt at length with a contention that a notice given under s 76 was invalid because it contained an overstatement of the amount owed.  His Honour drew a distinction between the requirements of the New South Wales provisions and s 76(1).   His Honour said:

[33] At the outset, in considering the authorities, it should be noted that the provisions of s 57 of the New South Wales Real Property Act 1900, provisions which regulate the exercise of the mortgagee’s power of sale of registered mortgages of Torrens system land in that State, require, specifically, that the mortgagee brings to the attention of the mortgagor the particular default which the mortgagee alleges has occurred.  Additionally, these provisions require that the notice specify that it is a notice pursuant to s 57(2)(b) of the Real Property Act 1900.  Thus, the provisions of the corresponding Victorian provisions, s 76 of the TLA, are in marked contrast to the more detailed and prescriptive provisions of s 57 of the New South Wales legislation.  Section 76(1) of the TLA requires “notice in writing to pay the money owing or to perform and observe the convenants (as the case may be)”.  It should also be noted that there is no provision in the Victorian legislation providing for a mortgagee’s statutory power of sale and its exercise, under ss 76 and 77 of the TLA with respect to Torrens title land, which requires the notice to specify that it is a notice to pay under these provisions.  Nevertheless, for reasons which are discussed further below, I do not regard the absence of an express requirement of this kind as decisive with respect to the form and content of such a notice in Victoria.

At [56] His Honour described the form of a valid notice under s.76(1):

Although it is the position that the Victorian legislation, ss76 and 77 of the TLA, does not specify the form or contents required of a default notice, its provisions do, nevertheless, contemplate that something in the nature of a “notice” (whether styled as a notice or demand) must be served on the mortgagor.As the High Court indicated in Barns v Queensland National Bank Ltd,the object of the notice is to guard the rights of the mortgagor. In my opinion, it follows that the “writing” constituting the notice must make it clear that its purpose is not merely to provide information, but that, rather, the mortgagee is taking a step which may result in the exercise of the statutory power of sale under the TLA and that, if the mortgagor wishes to prevent this course being taken, then action needs to be taken to attend to compliance with the notice. This may involve communication with the mortgagee to establish the quantum of any amount or amounts claimed with respect to the default or defaults specified in the notice and, if necessary, the taking of proceedings to enjoin the mortgagee from taking any further steps. Clearly, the exercise of the mortgagee’s power of sale is a very drastic remedy; it is a remedy involving a process of notification and execution which significantly affects, or has the potential to significantly affect, the rights of the mortgagor with respect to his, her or its property the subject of the mortgage. Consequently, although the Victorian legislation does not contain some of the specific requirements with respect to default notices as are contained in s57 of the Real Property Act 1900 of New South Wales, it is implicit in the Victorian provisions that a notice given under sub-s 76(1) of the TLA be drawn as a “notice” (whether styled as a notice or demand) which meets the objective of guarding the mortgagor’s rights by providing a clear indication, and thereby a warning, of the course upon which the mortgagee is embarking.

(citations removed and italics added)

His Honour undertook an extensive review of the authorities and concluded that a notice under s 76 would not necessarily be bad because a greater sum was demanded than was payable.  He held that the position might be different if the notice was, in all the circumstances, misleading.  Croft J concluded:

[47] In my opinion, on the basis of Websdale, Bunbury and the other authorities to which reference has been made, it is clear that a notice which correctly identifies the event of default relied upon but which overstates the amount owed is, nevertheless, valid for the purposes of the TLA provisions.

[48] For these reasons, I find that the notice of default with respect to Loan A overstated the amount owing but did, nevertheless, correctly identify the event of default upon which it relied and did not rely upon any non-default in the relevant sense. Accordingly, the notice of default was valid and the Tribunal was in error in finding that this notice was invalid.

(italics added)

His Honour's reasoning was applied recently by  Judd J in Equity-One Mortgage Fund Limited v Stoyanov and another [2014] VSC 70 where his Honour rejected a claim that a notice given under s.76(1) was invalid on the ground of ambiguity because it overstated the amount that was owed.

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Section 243 of Australian Consumer Law gives tenants a powerful weapon

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Landlords need to be very careful about what they say when negotiating leases because s.243  of the Australian Consumer Law provides a wronged tenant with a powerful weapon.  That section permits the court to make an order declaring the whole or any part of a contract void or to vary a contract.  The most famous case concerning the sections's predecessor (s.87 of the Trade Practices Act 1974)  was Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 where the High Court varied a lease. The Supreme Court of Queensland recently used s.243 of the ACL to set aside a lease and a guarantee. In that case the tenant and guarantors of the tenant’s obligations alleged that they were induced to enter into a 30 year lease by representations that if the tenant  paid rent at a rate of $180,000 per annum for three years and had not purchased the freehold after three years the landlord would cancel the lease and enter into a new lease at a rental of about $120,000 per annum.  The court found that the representation had been made and relied upon and that the tenant and the guarantor had suffered detriment as a result of the conduct of the defendants. The Court declared the lease and the guarantee void ab initio under s 243. The case is Morgo’s Leisure Pty Ltd and others v Morgan v Toula Holdings Pty Ltd and others [2013] QSC 325.


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 Author: Robert Hays Barrister subject to copyright under DMCA.

$1,000,000 in damages for loss of sperm even though purchaser not out of pocket

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A wise senior building barrister once said to me that in analysing a legal problem one should "always start with the money" - that is analyse how the methodology underlying the claim for damages. Too often little thought is given to how damages should be calculated before a proceeding is commenced.  In December 2013 the High Court in Clark v Macourt [2013] HCA 56  gave a decision concerning damages in a breach of contract case that has caused much discussion. A person who provided assisted reproductive technology services to patients purchased the assets and practice of a company providing similar services.

The assets included a stock of frozen donated sperm. A guarantor guaranteed the vendor’s obligations under the contract. The vendor warranted that the identification of donors of the sperm complied with specified guidelines; however, of the stock of sperm delivered, 1,996 straws which the purchaser would have expected to be able to use were not as warranted and were unusable.

The vendor could not buy suitable replacement sperm in Australia but could in the USA. The primary judge found that buying 1,996 straws of replacement sperm from the American supplier would have cost about $1 million at the time the contract was breached. The purchase price for the assets (including the stock of frozen donated sperm) was less than $400,000.

The purchaser could not have made any profit from the frozen donated sperm because ethically she could not  charge, and in fact had not charged, any patient a fee for using donated sperm greater than the amount the purchaser  amount had outlaid to acquire it. The question was, how should the purchaser's  damages for breach of warranty be fixed?

The primary judge gave judgment against the vendor and the guarantor for the costs  incurred in purchasing replacement sperm from the USA.  This was overturned by the NSW Court of Appeal which held that the purchaser had avoided any loss she would have suffered by purchasing replacement sperm and had charged each patient a fee which covered the costs of buying the sperm. The High Court held 4:1 that the appeal should be allowed and reinstated the decision of the primary judge with the consequence that the vendor's loss and therefore the damages were $1 million.

The methodology underlying the decision was entirely uncontroversial:   the principle according to which damages for breach of contract are awarded is that the damages should put the promisee in the same situation, so far as money can do it as it would have been in if the broken promise had been performed. Damages are assessed at the date of the breach.

The case emphasises the importance of carefully considering  how the claim is pleaded: in this case at the date of the breach the purchaser was in the position where she had to buy a $1 million worth of sperm to replace what she had lost.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.

Settlement agreements must be genuine compromises

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Care needs to be taken in resolving disputes in which an allegation is made that an act or proposed act is prohibited by the Retail Leases Act 2003: settlement agreements must be genuine compromises or bona fide settlements and not merely attempts to avoid the Act.  On 24 January 2014 I posted a summary of Spirovski v Univest Asset Merchant Syndicators Pty Ltd [2013] VSC 728 in which Justice Croft refused an appeal against a determination by Deputy President Lulham in VCAT that terms of settlement made at a mediation conducted by the Small Business Commissioner were caught by the prohibition against the payment of “key-money” contained in s.23 of the Retail Leases Act 2003. See: Spirovski v Univest Assett Merchants Syndicators Pty Ltd [2013] VCAT 66. The Deputy President at [76] said that “Terms of Settlement are a form of contract. As such they are subject to the principles and requirements of contract law”.  A provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. See: s.94. Thus, terms of settlement that seek to avoid the Act’s provisions are void. When VCAT made its decision a number of practitioners expressed surprise that agreements made at or arising out of a mediation should be open to scrutiny.  Section 86 of the Act prevents statements or admissions made in the course of a mediation from being admitted in a proceeding; however, terms of settlement  made at mediations are not protected from scrutiny.  Provided a settlement agreement is bona fide a court will not re-open a settlement agreement merely because the dispute that has been settled involved legislation that the courts will not allow to be evaded. See: Binder v Alachouzos [1972] 2 QB 151. In Binder the compromise concerned a dispute about whether a party was acting as a money lender in contravention of the Money Lenders Acts. The parties settled the dispute with the settlement including a provision whereby the defendant admitted that the Money Lenders Act did not apply to the transactions.  While the English Court of Appeal  accepted that it was a policy of the courts not to allow the Money Lenders Acts to be evaded, it  held that it was also the policy of the court to encourage compromises and the settlement agreement was bona fide involving an agreement for good consideration and was therefore enforceable.  Justice Croft in Spirovski considered Binder and said at [76]  that:

“….it cannot be said that the evidence in the VCAT hearing indicates that the Terms and the Contract that arose out of the mediation were the fruits of a bona fide compromise, such as might attract the principles in Binder….”

At [79] His Honour said:

“The increasing role that the alternative dispute resolution techniques now play in the justice system cannot be overstated given that both courts and tribunals seek to encourage parties to identify and reach agreement on as many issues as possible to avoid the need for a trial, or to reduce its length and complexity where a hearing is needed. However, none of these considerations provide any basis for courts or tribunals to give effect to agreements that are rendered void or illegal, either by virtue of statute or common law….” (underlining added and citations removed)

In Spirovski, following the mediation, the parties entered into the terms of settlement, a lease and a contract of sale whereby the business allegedly conducted on the premises by the landlord was sold to the tenant. The purpose of the contract of sale was to take advantage of exceptions to the prohibition on the payment of "key-money" in circumstances where  goodwill is claimed from the tenant in relation to the sale of a business operated from the premises by the landlord immediately before its sale (s.23(3)(c)) and where plant, equipment, fixtures or fittings are sold by the landlord to the tenant (s.23(3)(f)).  Deputy President Lulham held at [70] that there was in fact no business to be sold so that the lease was not granted in the course of a sale and therefore the applicant's "device of preparing for execution a Contract of Sale of Business was a sham".

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Settlement terms caught by prohibition on payment of key noney

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Despite the prohibition on the payment of “key-money” landlords persist in seeking the payment of substantial sums of money as the price for granting a lease.  A landlord who seeks or accepts “key-money” is liable to pay a penalty under s.23 of the Retail Leases Act 2003. 

A provision in a lease that requires the payment of “key-money” is void (s.23(2)).  Section 94 of the Act makes  a provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. Section 23(3) of the Act contains exceptions to the prohibition on payment of "key-money": among other exceptions  a landlord may seek and accept to payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business” and for  “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”.  See: ss.23(3)(c) and (f). 

Because of the Act parties attempt to disguise “key-money” payments as something else. Cases where the payment of “key-money” is alleged usually result in settlement at a mediation. The Supreme Court of Victoria recently determined a case where the parties had settled a dispute concerning the payment of “key-money” and then had a further dispute about whether the settlement provided for the payment of “key –money”. In Spirovksi v Univest Asset Merchants Syndicators Pty Ltd [2013] VSC 728  the landlords sent a draft lease to the tenant who refused to execute the lease on the basis that it did not accurately reflect the parties’ agreement and that the landlord had purported to charge “key-money”.

The alleged “key-money” was payable in two instalments; $90,000 was to be paid before the tenant took possession; and $90,000 when the first option to renew the lease was exercised. The parties subsequently attended a mediation under the auspices of the Small Business Commissioner where terms of settlement were signed. The terms of settlement provided for the landlords to retain $90,000 that had already been paid and that the tenant would pay a further $90,000 on the exercise of the first option.

The terms also provided that the landlord would sign a transfer of the lease from the tenant to a new tenant.  The parties signed a lease and other documents pursuant to the terms. The first option was exercised. The landlords commenced a proceeding claiming payment of rent arrears and the second instalment of $90,000. VCAT dismissed the landlords’ claim and declared that the terms of settlement were void to the extent that they required the tenant to pay the $90,000 that the landlord had retained and required the second payment of $90,000. 

VCAT also declared void a contract of sale of business and the lease executed by the parties following execution of the terms of settlement insofar as they required the prohibited payments.  The landlords appealed  on the basis that the exceptions to the prohibition on the payment of “key-money” contained in ss.23(3)(c) and (f) applied. 

These sections permits a landlord to seek payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business”.

Section 23(3)(f) permits the landlord to seek payment for “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”. 

The Tribunal had determined that  s.23(3)(c) did not apply because the landlords were not operating a business from the premises and that there was no business to be sold. The Tribunal had also determined that the furniture in the premises was “junk” and “valueless”. Justice Croft dismissed the landlords'  appeal holding that there was no error of law in the Tribunal’s findings.

His Honour also rejected a claim that the tenants were estopped from claiming the benefit of the prohibition contained in s.23 of the Act. As part of that argument the landlord argued that by the terms of settlement the parties had "put to bed" the issue of "key-money".

After an extensive review of the authorities and the provisions of the Act His Honour concluded that it was not possible for the parties to agree to a transaction  which breached s.23.  The decision contains a detailed discussion about the meaning of "goodwill" and the circumstances in which a party seeking to enforce an agreement the terms of which are prohibited can be precluded from relying on principles of estoppel.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.

HCA held that the liquidator of a landlord company could disclaim landlord and tenants interests in lease

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The High Court today held 4:1 that the liquidator of a landlord company could disclaim both the landlord’s interest and the tenant’s interest in a lease.  See: Willmott Growers Group Inc v Willmott Forests Limited [2013] HCA 51. The decision will have significant implications for tenants and their financiers. Section 568(1) of the Corporations Act permits a liquidator to disclaim certain property of a company, including property that consists of a contract. French CJ, Hayne and Kiefel JJ held that a lease was a species of contract and that the leases which were the subject of the appeal were “property of the [landlord] company”  within the meaning of s.568. Their Honours rejected the contention that the disclaimer power applied only to leases to the company in liquidation and held that the rights of the landlord and tenant ceased from the date the disclaimer took effect. Gaegler J, who was in the majority, delivered a separate judgment. Keane J, in a powerful dissent,  held that a disclaimer could not divest rights that had already accrued such as the interest of a tenant. I will be writing further about this decision.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.

VCAT applies general law principles in property partition under Part IV

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There is a dearth of authority in Victoria concerning the principles that apply in determining claims for the partition of property under Part IV of the Property Law Act 1958.  In broad terms Part IV permits a co-owner of land or goods to apply for orders in respect of that land or those goods. VCAT has the power to “make any order that it things fit to ensure that a just and fair sale or division of land or goods occurs” (s.228). The Tribunal must order the sale of the land or goods unless it considers it would be more just and fair to order the division of the land or goods (s.229(1)). In Sherwood v Sherwood [2013] VCAT 1746 the Tribunal considered and applied general law principles in determining how property should be partitioned.  The dispute was between siblings who were registered as joint proprietors of the land. The brother applied to VCAT seeking an order that he retain the land and also claimed that he had paid 92% of the loan costs and other expenses relating to the land. He and his sister were jointly liable to repay the loan with which they had purchased the land. The sister claimed that her interest in the land fixed at the date of purchase at 50% because she was jointly liable to pay the home loan and was a joint tenant.  The Tribunal held that while the Act did not say that the Tribunal’s discretion was to be applied in accordance with the general law, it would not be just and fair to disregard the general law ([27]). At [34]  Senior Member Riegler said that   “I approach the task at hand having regard to and being informed of the general law, rather than simply imposing some form of instinctive justice”.

Apart from the deposit, the parties contributed equally to the purchase price because repayments of a home loan are not counted as contributions to the purchase price. See: Calverley v Green (1984) 155 CLR 242. The applicant contended that if regard were had to the general law it would be just and fair that the Tribunal impose a remedial constructive trust in his favour of the type found in Baumgartner v Baumgartner (1985) 160 CLR 583 reflecting the unequal contributions made by him that conferred a benefit on his sister or alternatively that he was entitled to contribution from his sister and entitled to an equitable charge to secure the making of the contribution.  The Tribunal held that the parties had not purchased the property as a joint venture or joint endeavor and therefore rejected the applicant’s claim for the imposition of a remedial constructive trust. The Tribunal also held that when they purchased the land the parties had not reached an agreement as to how much of the home loan they were each to pay or what proportion of beneficial interest they each were to hold and for that reason rejected the imposition of a common intention type constructive trust in favour of the applicant.

However, because the applicant paid most of the deposit the Tribunal ordered a resulting trust in favour of the applicant that varied the legal interests of the parties to reflect the fact that they each held the land as tenants in common, with the applicant holding a 54.33% share and the respondent the balance.

The Senior Member also ordered contribution from the respondent to the applicant to the extent that he had paid more than 54.33% of the home loan payments and other outgoings.  The respondent was ordered to pay $78,000 in contribution plus interest of more than $5000.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Section 32 statements should disclose leases

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It has long been a vexed question whether a vendor of land needs to include details of a lease affecting the land in the vendor statement provided to a purchaser pursuant to s.32 of the Sale of Land Act 1962.  Section 32 requires the disclosure of, among other things,  mortgages and charges affecting the land but does not expressly require disclosure of a lease. The vendor is required to include in the statement  a “a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction”. See: s.32(2)(b). It is established that s.32 should not be given a “narrow, restrictive construction having regard to the evident reformatory object of the leglislation”. See: for example, Vouzas v Bleake House Pty Ltd [2013] VSC 534 at [49].  In Krakowski v Eurolynx Properties Ltd (1992) V ConvR 54-436 ( BC9200732) O’Bryan J did not consider that s.32(2)(b) required a vendor to disclose the existence of a lease affecting the land. However, in IGA Distribution Pty Ltd v King [2002] VSC 440 at [252] Nettle J (as he then was) doubted that O’Bryan J was correct but did not specifically decide the issue. In Vouzas the vendor had disclosed the existence of the lease but had not disclosed that the tenant had entered into a conditional agreement to assign the lease. Macaulay J had to decide whether s.32(2)(b) required the vendor to disclose  that the tenant of the land being sold had entered into the conditional agreement to assign the lease.   The vendor knew about the conditional agreement to assign the lease. Macaulay J expressed the view that “the doubts expressed by Nettle J in the IGA case" concerning whether a lease need be disclosed were "well founded". However,  his Honour held that the vendor had not breached s.32(2)(b)  because that section did not oblige a vendor to disclose a conditional agreement to assign a lease. His Honour also said that “he was not convinced that an assignment of lease would need to be disclosed under s.32(2)(b").

My clerk can be contacted via this link http://www.greenslist.com.au if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.

Advisers must consider registration of leases

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Lawyers acting for landlords of non-retail premises where the proposed lease term exceeds 3 years need to seriously consider whether to register the lease. This is one of the consequences of the Court of Appeal’s decision in Cooma Clothing Pty Ltd v Create Invest Develop Pty Ltd [2013] VSCA 106.   If the lease is not registered, the term of the lease is assigned and the landlord is not a party to the assignment document, the assignee of the term will have the benefit of the contract but be excused from the burden of the contract.

In Victoria, a lease for a term in excess of 3 years may be registered. See: s.66 of the Transfer of Land Act 1966.  A lease made by deed for a term of less than 3 years is also a legal lease. However, an unregistered lease for a term exceeding 3 years is a lease in equity.

In Cooma the facts were:

• the owner (Landlord) entered into a contract to sell land to a purchaser (Purchaser) which land was also leased to a tenant (Tenant) for a term of less than 3 years (Lease). The term of the Lease was close to its expiry date.


• Before settlement and before expiry of the term of the Lease, the Purchaser’s  agent wrote to the Tenant (Agent’s Letter) offering a new for a term of 3 years commencing upon expiry of the Lease . The Tenant accepted the agent’s offer by signing the Agent’s letter (Agreement for Lease)


• thereafter the Landlord, the Tenant and a third party (New Tenant) signed a documented entitled “Transfer of Lease” that assigned the balance of the term of the Lease to the New Tenant (Transfer).


• The Transfer contained a special condition in which the New Tenant acknowledged receiving the Agent’s Letter (ie the letter from the Purchaser to the Tenant) “in relation to the Lease renewal” and in which the New Tenant acknowledged and consented to the terms and conditions for the renewal of the Lease.


• The New Tenant occupied the land before the expiry of the Lease and the Purchaser became the registered owner of the leased land before the expiry of the Lease.


• Shortly after the expiry of the Lease the New Tenant vacated the premises. The Purchaser contended that the New Tenant was obliged to comply with the  covenants contained in the Agreement for Lease. The New Tenant contended that it had the benefit of an option to renew or extend the Lease for a further 3 years which option had not been taken up. The Purchaser was successful in VCAT and in the Court of Appeal.

The Court of Appeal held:

(a)        the Lease was a legal lease because it was for a term not exceeding 3 years;

(b)        the Tenant’s signing of the Agent’s Letter gave rise to an equitable lease between the Purchaser and the Tenant (ie the Agreement for Lease);

(c)        it was irrelevant that when the Agreement for Lease was made there was no privity of estate between the Purchase and the Tenant (ie because the Purchaser was not the owner of the land) because it was well established that a if two parties contract as landlord and tenant neither of them can deny the title of the other;

(d)        a party to a contract for a lease that is not a legal lease (ie such as the Agreement for Lease) may assign the benefit of the contract but may not assign the burden;

(e)        thus, the Transfer (which transferrred the Agreement for Lease from the Tenant to the New Tenant) was incapable of subjecting the New Tenant to the burden of the Agreement for Lease and under the general law this remained so ever after the New Tenant entered into possession under the Lease;

(f)         after the Purchaser was registered as proprietor of the land it became, by reason of ss.141 and 142 of the Property Law Act 1958, entitled to the benefit and the burden of the Lease;

(g)       however, the assignment of the Agreement for Lease from the Tenant to the New Tenant had the effect of assigning the benefit of the contract to the New Tenant but not assigning the burden.

Thus, the position at general law was that the New Tenant had the benefit of the Agreement for Lease but was not subject to the burden of the Agreement for Lease.

Fortunately for the Purchaser the Agreement for Lease was a “retail premises” lease within the meaning of s.4 of the Retail Leases Act 2003 (2003 Act). See also s.3 of the 2003 Act.  Section 8 of the 2003 Act provides that an assignment of a lease results in a continuation of the lease as opposed to creation of a new lease. Accordingly, despite the lack of privity of contract and estate between the New Tenant and the Purchaser, the transfer of the executory contract for a new lease (ie by the Transfer the Agreement for Lease was assigned) was in effect deemed by s.8 to have created privity of contract between them and thus conferred on the Purchaser a direct right of enforcement against the New Tenant.

The most important points arising from this case are that serious consideration needs to be given to whether a lease should be registered and, if the lease is not to be registered, ensuring that the clause governing assignments requires the landlord to be a party to the assignment document so as to ensure there is privity of contract between the landlord and the assignee of the term.

I will be doing a further blog concerning this case (stay tuned)

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Be wary of unrepresented parties at mediations

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com/

Mediations at which parties are unrepresented or not represented by lawyers are fraught with risk. Even with legal representation mediations are stressful, particularly where the mediation is only fixed for a half day and there is pressure to avoid long winded discussions about the facts. Experienced mediators invariably offer unrepresented parties an adjournment so that legal advice can be obtained. VCAT recently decided case in which landlords sought to set aside terms of settlement agreed at a half day mediation conducted by the Small Business Commissioner. In Wong v Hook Line and Sinker Fish and Chips Pty Ltd [2013] VCAT 263 the landlords sought to have the terms of settlement set aside on the grounds of undue influence or duress by the mediator and a barrister.  At the mediation the parties had been in dispute about whether the tenant was being required to pay “key money” under a lease contrary to s.23 of the Retail Leases Act 2003. The terms of settlement required the parties to appoint a valuer to determine the market rent. The landlords were not represented by a lawyer at the mediation but were represented by an advocate who held himself out as an expert in retail tenancy matters and who prepared written submissions. The mediator was highly experienced and was accompanied by a trainee mediator. The tenant was represented by an experienced barrister. The mediator offered the landlords the opportunity to adjourn the mediation to enable them to obtain legal advice but the offer was declined. The landlords subsequently refused to appoint the valuer to determine the market rent and commenced a proceeding alleging that the terms of settlement had been obtained by undue influence or duress. At the hearing the mediator, the trainee mediator, the tenant's barrister at the mediation, representatives of the tenant, the landlords and the landlords' advocate all gave evidence. The Tribunal rejected all of the the landlords’ claims. An application for leave to appeal has been filed.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.