Robert Hay Senior Counsel Commercial Law

Thursday, 13 March 2014

Section 243 of Australian Consumer Law gives tenants a powerful weapon

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

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.

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.

Wednesday, 26 February 2014

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

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.

Thursday, 30 January 2014

New Australian edition of classic mortgage text

A new Australian edition of Fisher & Lightwood's Law of Mortgage has just been published by LexisNexis. This is the third Australian edition of the classic English text. The authors of the three Australian editions have been Professor E.Tyler, the Honourable Justice Peter Young and the Honourable Justice Clyde Croft. The first English edition (called Fisher on Mortgages) was published in 1856. There have been 13 English editions. The Australian editions are particularly useful because the English editions do not deal with the Torrens system. The third Australian edition deals with the significant changes made to personal property securities by the Personal Property Securities Act 2009 (Cth). The chapter on the PPSA was written by Clare Langford, the NSW Supreme Court Equity Researcher. This text is a significant resource for any person practising in property law.

http://store.lexisnexis.com.au/product?product=fisher-lightwood-s-law-of-mortgage-3rd-edition-ebook&meta_F_and=9780409332605

Published by LexisNexis.

Wednesday, 29 January 2014

Settlement agreements must be genuine compromises

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.

Friday, 24 January 2014

Settlement terms caught by prohibition on payment of key noney

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.

Wednesday, 4 December 2013

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

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.

Tuesday, 3 December 2013

VCAT applies general law principles in property partition under Part IV

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.