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- Notable Unreported Decision
- Appeal Determined - Special Leave Refused (HCA)
Contempree v BS Investments Pty Ltd QCA 255
SUPREME COURT OF QUEENSLAND
Contempree v BS Investments Pty Ltd & Anor  QCA 255
BS INVESTMENTS PTY LTD ACN 135 819 939 AS TRUSTEE FOR B&G SMITH INVESTMENT TRUST
TIRLEY HOLDINGS PTY LTD ACN 135 942 862 AS TRUSTEE FOR GODDARD FAMILY TRUST
Appeal No 4005 of 2020 DC No 33 of 2019
Court of Appeal
General Civil Appeal
District Court at Southport –  QDC 29 (Kent QC DCJ)
17 November 2020
17 August 2020
Sofronoff P, Mullins JA and Lyons SJA
Appeal dismissed with costs.
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – OTHER MATTERS – where the appellant is a director of a company – where the company ran a backpackers hostel from a commercial building it owned – where the respondents purchased the land and premises from the company and leased the premises back to the company – where the company then in turn assigned the lease to a third party company – where the original lease was not registered until after it was assigned to the third party company – where the third party company’s obligations under the lease were guaranteed by, amongst others, the appellant – where the third party company initially paid rent but subsequently fell into arrears – where the respondents commenced proceedings against the guarantors for payment under the guarantee and were awarded judgment in the Magistrates Court – where the respondents then commenced proceedings in the District Court – where the appellant alleged at trial that there was no valid lease because it was not a registered lease at the time the assignment was entered into and therefore there was no performance to guarantee – where the basis of that argument was that the lease was not valid at law until it was registered and the respondents’ failure to have the lease registered until then constituted a repudiation of the agreement to lease, which gave the appellant the right to rescind the agreement to lease – where the appellant argued that the rescission was effected by vacating possession – where the appellant also pleaded at trial: that the guarantee did not comply with requirements of the Property Law Act 1974 (Qld); that the only lease in existence was a tenancy from month-to-month; that there was an Anshun estoppel by operation of the earlier Magistrates Court proceedings and the respondents were precluded from bringing the proceedings at trial pursuant to the res judicata principle; and that to the extent that it was argued a lease existed between the respondents and the third part company, that it was surrendered or terminated and that the guarantee was therefore limited to that period (and that in that respect, the respondents failed in their duty to mitigate losses in respect of the alleged lease) – where the respondents argued that the lease was at least an equitable lease from the date of execution of the deed of assignment and the guarantees and that furthermore, nothing was done to bring it to an end – where they argued that the lease was capable of being assigned and was assigned with that assignment subsequently perfected by registration – where after a three-day trial the learned trial judge concluded that the assignment and guarantees were effective and accordingly there was judgment in the respondents’ favour – where the appellant now raises some 30 overlapping grounds of appeal dealing with the lease, including its assignment, guarantee and surrender – whether the trial judge erred at law in his Honour’s findings in respect of the lease – whether the trial judge erred in fact and at law with respect to his Honour’s findings concerning the assignment, guarantee and surrender or termination of the lease
Land Title Act 1994 (Qld), s 62, s 64, s 182, s 184, s 185
Property Law Act 1974 (Qld), s 10, s 11, s 56
Alonso v SRS Investments (WA) Pty Ltd  WASC 168, cited
Artworld Financial Corporation v Safaryan  EWCA Civ 303, applied
Ashton v Hunt  QCA 308, cited
Butt v M’Donald (1896) 7 QLJ 68, cited
Chan v Cresdon Pty Ltd (1989) 168 CLR 242;  HCA 63, cited
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423;  HCA 12, cited
Long v Millar (1879) 4 CPD 450;  UKLawRpCP 31, cited
Mackay v Dick (1861) 6 App Cas 251, cited
Marminta Pty Ltd v French  QCA 541, cited
Rava v Logan Wines Pty Ltd  NSWCA 62, applied
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596;  HCA 51, cited
Timmins v Moreland Street Property Co Pty Ltd  Ch 110, cited
J M Manner for the appellant
L D Bowden for the respondents
O'Sullivans Law Firm for the appellant
Provest Law for the respondents
- SOFRONOFF P: I agree with Lyons SJA.
- MULLINS JA: I agree with Lyons SJA.
- LYONS SJA:
- The appellant is a director of Bemon Pty Ltd (Bemon). Bemon owned a commercial building in Innisfail and ran a backpackers hostel from those premises. In July 2013, the respondents, BS Investments Pty Ltd (BS Investments) and Tirley Holdings Pty Ltd (Tirley Holdings) purchased the land and premises from Bemon and the respondents became the registered proprietors on 28 January 2014. The premises were then leased back to Bemon for a term of ten years, expiring on 28 November 2023. Due to an oversight, that lease was not registered at that point in time. The obligations under the lease were guaranteed by the appellant, Mark Contempree.
- In late 2016, the respondents were requested by Bemon to consent to an assignment of the lease to a third party – Foxworth Pty Ltd (Foxworth). The respondents consented to the assignment, with the appellant (along with Paul and Fiona Power, the directors of Foxworth) guaranteeing Foxworth’s obligations under the assigned lease.
- The 2013 lease to Bemon was ultimately registered on 22 December 2016, and the transfer of the lease to Foxworth was registered two months later on 27 February 2017.
- Foxworth initially paid rent to the respondents but subsequently fell into arrears. At some stage in April 2017, Foxworth left the premises. In June 2017, the respondents commenced proceedings against the guarantors for payment under the guarantees for the rent due and owing by Foxworth. They claimed $47,226.76 in the Brisbane Magistrates Court and judgment was given for this sum including legal fees in February 2018. The respondents were able to call on a bank guarantee in the sum of $50,000 in partial satisfaction of amounts owing under the lease. Proceedings were then commenced in the Magistrates Court in May 2018 (later transferred to the District Court in February 2019) claiming $146,931.38 for rent, outgoings and costs together with interest.
The Trial in the District Court
- The amounts owing have continued to accrue. The amount claimed in the District Court action was a claim for money said to be owing under a guarantee and indemnity in the amount of $528,555.40, including monies continuing to accrue pursuant to the deed of guarantee and indemnity until trial. The appellant was the first defendant at trial below and contested the action. Whilst the second and third defendants in those proceedings filed a defence, they were unrepresented at trial as their previous legal representative was given leave to withdraw. They did not attend the trial in the District Court and the respondents proceeded against them pursuant to Uniform Civil Procedure Rules 1999 (Qld) (UCPR) r 476.
- At trial the appellant argued that there was no valid lease because it was not a registered lease at the time the assignment was entered into and therefore there was no performance to guarantee. The basis of this argument was that the lease was not valid at law until it was registered on 22 December 2016 and the plaintiffs’ failure to have the lease registered until then constituted a repudiation of the agreement to lease, which gave the appellant the right to rescind the agreement to lease. The appellant argued that the rescission was effected by vacating possession.
- The appellant also pleaded at trial that the guarantee did not comply with s 56 of the Property Law Act 1974 (Qld) (PLA). Alternatively, it was pleaded the only lease in existence on 16 December 2016 was a tenancy from month-to-month. It was also argued that there was an Anshun estoppel by operation of the earlier Magistrates Court proceedings and the respondents were precluded from bringing the proceedings at trial pursuant to the res judicata principle.
- To the extent that it was argued that a lease existed between the respondents and Foxworth, the appellant argued that it was surrendered or terminated in or about April 2017 and that the guarantee was therefore limited to that period. In that respect, it was argued that the respondents failed in their duty to mitigate losses in respect of the alleged lease.
- At trial the current respondents argued that the lease was at least an equitable lease from the date of execution of the deed of assignment and the guarantees. Furthermore, it was argued that nothing was done to bring it to an end. It was capable of being assigned and was assigned with that assignment subsequently perfected by registration. Accordingly it was argued that the guarantees were enforceable, there was no surrender or repudiation of the lease which remained on foot and no issues of estoppel or res judicata arose.
The District Court Decision
- After a three-day trial the learned trial judge concluded that the assignment and guarantees were effective. Whilst he considered that there were some omissions in the documents and they were imperfectly executed, he did not consider they were material and was ultimately satisfied they did not give rise to any ambiguity such as to result in an alternative interpretation which would favour the appellant. Furthermore it was held that neither Bemon nor the appellant Mr Contempree took any step to terminate the lease on any of the bases that were being advanced prior to the registration of the lease and assignment as between the parties. The trial judge also held that Foxworth’s occupation of the property was pursuant to the registered lease, not a tenancy at will, at least from 20 February 2017.
- The trial judge held that the assignment and guarantees were broadly drafted and the effect of them was that they would take effect immediately or at least from registration. The trial judge held that the obligations of the appellant to guarantee Foxworth’s obligations continued and were enforceable. The trial judge explicitly held that the circumstances did not amount to any surrender or any other termination of the lease following Foxworth’s abandonment. It was held that the obligations under the lease continued and the respondents were within their rights to enforce the guarantees.
- Accordingly the respondents succeeded against all of the defendants and there was judgment in the respondents’ favour.
Notice of Appeal
- The appellant’s Notice of Appeal raised some 30 grounds of appeal which overlap substantially. In the outline of argument Counsel for the appellant grouped those grounds into six categories which I shall adopt for convenience:
- (a)Grounds 1 – 3: The Lease;
- (b)Grounds 4 – 5: The Assignment of the Lease;
- (c)Grounds 6 – 8: The Guarantee of the Lease;
- (d)Grounds 9 – 30: The Surrender of the Lease;
- (e)Erroneous Findings of Fact re the Surrender of the lease; and
- (f)Erroneous Findings at Law re the Surrender of the Lease.
- The transaction between Bemon and Foxworth was intended to take effect on 16 December 2016 (identified in a Deed of Covenant, discussed below, as the Assignment Date). It appears to have been uncontroversial that Bemon departed from the premises on 19 December 2016.
- The monies for which the respondents sued were identified in a document described as the Activity Statement for Foxworth Pty Ltd for 01/12/16 to 02/12/19, which became Exhibit 2 (the Activity Statement). It is apparent from the Activity Statement that rent for the first five months of Foxworth’s occupation was paid.
- In the Magistrates Court proceedings, the respondents sued the present appellant and Paul and Fiona Power as the guarantors of Foxworth’s obligations under its lease of the premises for the sum of $47,224.46. Of that amount, the sum of $44,626.86 was alleged in the Statement of Claim to be the amount for which Foxworth was “now indebted” pursuant to the lease. The Statement of Claim bears the handwritten date of 3 January 2017; but that is plainly an error. The document was filed on 16 June 2017 and the amount of Foxworth’s alleged debt is the amount which, according to the Activity Statement, Foxworth owed on 25 May 2017.
- The respondents obtained summary judgment against the appellant and others for the amount claimed in the Magistrates Court Statement of Claim. The amount of the judgment was paid, and credited to Foxworth’s account in the activity statements. In addition, a sum of $50,000 from a security deposit was credited to Foxworth’s account on 25 April 2018.
- It is clear, therefore, that the amount for which the respondents sued in the District Court proceedings was for indebtedness of Foxworth alleged to have accrued after (at least) 25 May 2017. Indeed, the learned trial judge described the claim as being for an indebtedness that arose from about August 2017, an observation which was not criticised, and seems to be correct.
- There is some confusion about one of the documents tendered at the trial. It is sometimes referred to as a Deed of Covenant and Assignment, or the Assignment Document. It is in fact titled “Deed of Covenant on Assignment of Lease”, and will be referred to as the “Deed of Covenant”. It does not purport to be an assignment of a lease. Rather: Recital D records that the Assignor (Bemon) had agreed to assign the “Assigned Property” to the Assignee (Foxworth) from the Assignment Date (16 December 2016), subject to obtaining the consent of the Landlord (the present respondents); and clause 2.7 required the Assignor and the Assignee to forward to the Landlord within 21 days “a copy of the executed documents and all other documents evidencing the assignment”.
- This Deed defined the “Assigned Property” as “all the Assignor’s right, title and interest in the Lease”. The “Lease” was in turn defined to mean “the lease described in the schedule”. There, a lease number had been inserted, but was struck out. It may be noted that Recital A records that the respondents are the registered owners of land identified in the Deed as being (or including) the premises which are the subject of the document the respondents rely upon as the lease said to create the obligations of Foxworth which they contended were the subject of the guarantee from the appellant. Recital B records that the respondents leased premises (identified by reference to the schedule) at a street address which corresponds to that of the backpackers hostel the subject of the transaction between Bemon and Foxworth.
- The Deed also records: the consent of the respondents to the assignment (clause 2.1); Foxworth’s covenant to “strictly observe and perform the Lease Provisions on and from the Assignment Date… as if the Lease had originally been entered into between” the respondents and Foxworth (clause 2.2); and the undertaking of the appellant and others to sign a personal guarantee (clause 2.3). Clause 2.8 required Bemon and Foxworth, if “the Lease is registered or in the process of registration”, to take all steps to register a transfer of the Lease within a reasonable period from the Assignment Date.
- The appellant signed a document entitled “Guarantee and Indemnity Deed” (Deed of Guarantee). It is on the basis of this document that the respondents sued him in the District Court proceedings. Under it, he guaranteed to them “the strict performance and observance by [Foxworth] at all times of the Lease Provisions including, without limitation, the obligation to pay the Guaranteed Money and any obligation to indemnify [the respondents] from the Assignment Date” (clause 2.1). The Assignment Date is not in fact defined in the Deed of Guarantee. “Lease Provisions” were defined by reference to obligations under the Lease. “Guaranteed Money” was defined to mean “all amounts payable by [Foxworth] to [the respondents] in connection with the Lease or any transaction contemplated by the Lease…” The term “Lease” had an extensive definition. The first meaning was “the lease described” in the schedule. As with the Deed of Covenant, a lease number had been included in the schedule, but the number was struck out. The balance of the definition was as follows (the respondents having been defined as the Landlord; and Foxworth both as the Tenant and the Assignee):
- “(b)any agreement to enter into the lease described in schedule 1;
- (c)any lease, tenancy or relationship between the Landlord and the Tenant and assigned to the Assignee on the Assignment Date established by the lease described in schedule 1 whether legal or equitable, express or implied, registered or unregistered;
- (d)any lease, tenancy or relationship between the Landlord and the Tenant and assigned to the Assignee on the Assignment Date arising out of the Tenant’s and/or Assignee’s occupation and use of the Premises whether legal or equitable, express or implied, registered or unregistered; and
- (e)any lease, tenancy or relationship between the Landlord and the Tenant and assigned to the Assignee on the Assignment Date arising by the exercise by the Tenant or the Assignee of any option for renewal.”
Grounds 1 – 3: The Lease
- The appellant argues that the learned trial judge erred in law in a number of ways, namely:
- (a)by determining that the occupation of the premises at Innisfail occurred pursuant to a registered lease and not a tenancy at will from at least February 2017 (Ground 1);
- (b)in determining that the unregistered lease adduced in evidence, or an equitable lease between the respondents and Bemon, subsisted after the departure of the lessee Bemon from the property on 16 December 2016 (Ground 2); and
- (c)in determining that the lease was from the time of registration a legal lease under which Foxworth had its continuing obligations pursuant to a lease for a definite term (Ground 3).
- The appellant argues that at the time of the purported assignment of the lease on 16 December 2016, there was no lease registered and accordingly there was no legal lease. It was an uncontroversial fact that during the entire period of Bemon’s tenancy between 29 November 2013 and its departure on 16 December 2016 the lease which had been entered into was unregistered. As such it is argued that any alleged assignment failed to assign the lease to Foxworth.
- The appellant argues that given it was an unregistered lease, a tenancy at will arose which ended with the notified departure of the tenant on one month’s notice. Accordingly it is argued that Bemon’s departure on 19 December 2016 forever determined any extant lease and any obligations under the lease and that the entry of Foxworth in those circumstances acts at law as a novation of the tenancy at will. Accordingly it was argued that as Foxworth’s occupation commenced in circumstances of an extant tenancy at will, no legal lease existed at the time it commenced occupation.
- It was further argued that the alleged assignment then failed to assign the lease and any reference to a lease in the document could only refer to a legal lease and not an underlying equitable lease which arose from an unregistered instrument. Furthermore there was no term in the assignment document which contemplated a remedy by later registration of a lease. The appellant argues that the trial judge was in error to refer to the subjective intention of the parties in interpreting the assignment document and failed to consider the plain terms of the document itself. The appellant argues that there was no equitable lease and as such an equitable lease did not subsist after Bemon’s departure in December 2016.
- The respondents submitted that the learned trial judge was correct to hold that from the moment of its registration, the lease was a valid lease for all purposes. On the registration of the transfer of the lease to Foxworth on 27 February 2017, Foxworth achieved a title created by registration. The claim against the appellant on his guarantee was a claim for the indebtedness of Foxworth which arose well after 27 February 2017. It was unnecessary to consider questions relating to an equitable lease or a tenancy at will. On registration of the transfer of the lease, Foxworth became bound to pay the rent. In any event, the definition of “Lease” in the Deed of Guarantee extended to the equitable lease (to Bemon, prior to registration of the lease) which was effectively assigned to Foxworth. The appellant’s guarantee was not limited to the obligations of Foxworth under a registered lease.
- The appellant’s arguments ignore the effect of the registration of the lease, and the subsequent registration of its transfer to Foxworth. Under s 64 of the Land Title Act 1994 (Qld) (LTA), a lot may be leased by registering an instrument of lease for the lot. Under s 182 of the LTA, on the registration of an instrument that is expressed to create an interest in a lot, the interest is created, and vests in the person identified in the instrument as the person entitled to the interest. It follows that on the registration of the lease, it created a leasehold interest in the property, which vested in Bemon. Under s 184(1) of the LTA, Bemon then held that interest, subject to registered interests affecting the lot, but free from all other interests. An exception to the effect of s 184(1) of the LTA is created by ss 184(3) and 185(1)(a) for any equity arising from the act of the registered proprietor. No doubt Bemon held the lease on its registration subject to an equity in favour of Foxworth. However that is of no significance in the present case.
- When the transfer of the lease from Bemon to Foxworth was registered, all the rights, powers, privileges and liabilities of Bemon in relation to the property vested in Foxworth. In particular, Foxworth was bound by and liable under the lease to the same extent as Bemon had been. That is the consequence of ss 62(1) and (3) of the LTA. The right to possession of the property which vested in Bemon on the registration of the lease was thus transferred at law to Foxworth. In view of the effect of registration of the lease and the transfer, it cannot be said that Foxworth thereafter had any other right to possession of the premises. The implied tenancy at will arising from the payment of rent and possession of the premises is the consequence of the fact that there is no other basis for explaining the relationship between the owner of the land and the occupier. The learned trial judge was correct to find that from at least February 2017, the premises were occupied pursuant to the registered lease.
- These considerations are sufficient to dispose of the appellant’s arguments relating to grounds 1 to 3 of the Notice of Appeal. However some observations should be made about them.
- The appellant is literally correct to say that, on its face, the “Lease Document” does not impose any obligation on Foxworth, who was not a party to the lease. That is no answer to the effect of s 62 of the LTA.
- A number of the appellant’s submissions proceed on the basis that the Deed of Covenant was the assignment of the lease. As has been pointed out, that is erroneous. The assignment of the lease was effected by the registration of a transfer of the lease, which occurred on 27 February 2017. Similarly, the Deed of Covenant was not an agreement to assign the lease. As has been pointed out, it records a preceding agreement. Moreover, it does not record the terms of any agreement to assign the lease. Rather, it records the covenants given as consideration for the respondents’ consent to the assignment of the lease.
- If it was intended to submit that, from the Deed of Covenant, one could infer that the agreement to assign related only to a lease already registered, that, too would be incorrect. Clause 2.8 recognised that the lease may not have then been registered.
- One of the grounds of appeal asserted is that the learned trial judge “erroneously relied upon the question of the subjective intention of the parties”, referring to paragraphs  and  of his Honour’s reasons for judgment. While in the first of these paragraphs, his Honour referred to the appellant’s subjective intention to transfer to Foxworth the balance of the term of the lease, he made it clear that this was not a determinative matter for his decision. In any event, the critical finding on the effect of the lease not being registered by 16 December 2016 appears in paragraph  of the reasons. There his Honour found that the respondents’ position should be accepted. That followed his Honour’s description of the position of the respondents, which included a submission that the proceedings relate to an indebtedness deriving from about August 2017, well after the lease and its assignment (by the transfer) were duly registered. In support of his conclusion, his Honour, having referred to the position if the lease and assignment had never been registered, held that from the time of registration, the lease was a legal lease under which Foxworth had continuing obligations (which were guaranteed by the appellant). It is plain that the registration referred to was both of the lease and the transfer. These findings do not depend on any question of subjective intention; they are fatal to the appellant’s position.
- Ground 2 of the Notice of Appeal contended that the learned trial judge erred in determining that an unregistered lease, or an equitable lease, between the respondents and Bemon, and its obligations, subsisted after Bemon departed from the premises on 16 December 2016 (which occurred with the knowledge and consent of the respondents) and that obligations on Bemon at law could not subsist after that date. The ground relies upon paragraph  of the reasons. The argument in support of this ground appears to be that the respondents consented to Bemon’s departure; the “Assignment Document” did not succeed; and an assignment of an equitable lease was inconsistent with that document.
- It has already been pointed out that the Deed of Covenant was not an assignment of Bemon’s rights in relation to the lease, and that that was ultimately achieved by the registration of the lease and its transfer to Foxworth, as anticipated in clause 2.7. The fact that the Deed did not effect an assignment is of no significance.
- The appellant has not demonstrated that an assignment of the equitable lease was inconsistent with the Deed of Covenant. On the contrary, the subject matter of the agreement to assign, recorded in Recital D, was apt to include an equitable lease. The fact that the Assignment Date was 16 December 2016, and that the lease might not be registered was explicitly recognised, show that an assignment of the equitable lease was not inconsistent with the Deed.
- The submission that Bemon departed from the property with the consent of the respondents may perhaps be intended to suggest that the agreement which was the basis of their equitable lease was terminated by mutual agreement, thus bringing the equitable lease to an end. That an agreement might be so terminated was recognised in the joint judgment in DTR Nominees Pty Ltd v Mona Homes Pty Ltd, where it was said:
“… there can be no doubt that by 5th December 1974, when these proceedings were commenced, neither party, whatever may have been their reasons, regarded the contract as being still on foot. Neither party intended that the contract should be further performed. In these circumstances the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract.”
- With reference to this passage, Jerrard JA (with the agreement of the other members of the Court) said in Marminta Pty Ltd v French:
“I respectfully agree with the observations of Finkelstein J in CGM Investments Pty Ltd v Chelliah (2003) 196 ALR 548, at , that not only can an agreement be abandoned by conduct, but also that the question whether an agreement has been so abandoned does not require one to examine whether the party actually had the intention of abandoning the agreement; only whether their conduct, when objectively viewed, manifested that intention. I also respectfully agree with his Honour’s observations at  that to show that a contract has been abandoned by inactivity on both sides it is necessary to establish that the inactivity produces the clear inference that one party does not wish to proceed with the contract and the other consented to that situation.”
- Bemon’s departure from the premises does not demonstrate an intention to abandon its agreement with the respondents. It is simply a consequence of its agreement to assign its interests in the Lease to Foxworth, in accordance with the agreement referred to in the Deed of Covenant. Any abandonment of its rights under its agreement with the respondents which is recorded in the unregistered lease would have been inconsistent with Bemon’s obligation to do all things necessary to give Foxworth the benefit of its agreement to assign the lease. Ground 2 is not made out.
Grounds 4 – 5: The Assignment of the Lease
- The appellant argued that the learned trial judge erred in a finding of fact and law by determining that the:
- (a)assignment document dated 16 December 2016 assigned Foxworth any obligations arising under the lease or a legal lease (Ground 4); and
- (b)assignment assigned an equitable lease to Foxworth and that such equitable lease was intended to be assigned with the consent of all the parties (Ground 5).
- In support of these grounds the appellant contended that: the Deed of Covenant did not support an assignment of the equitable lease; the decisions in Chan v Cresdon Pty Ltd and in Ashton v Hunt have the consequence that references in the Deed of Covenant to an assignment of the lease cannot be taken to refer to an assignment of an equitable lease; the assignee of an equitable lease could not be sued directly by the lessor on the covenants in the lease; and there had been no assurance of land passing an interest at law made by deed or in writing, as required by s 10 of the PLA for an assignment of a lease.
- The respondents repeated their earlier submissions that they sued in respect of liabilities which arose after the registration of the lease, as against Foxworth as a consequence of the registration of the transfer of the lease to it.
- Those submissions are a complete answer to the matters raised by the appellant in relation to these grounds. Moreover the arguments advanced on behalf of the appellant are without merit. They pay no real attention to the language of the Deed of Covenant. They ignore the basis for Foxworth’s liability relied upon by the respondents. They ignore the effect of the registration of the transfer of the lease, discussed elsewhere in these reasons.
Grounds 6 – 8: The Guarantee of the Lease
- The appellant argued that the learned trial judge erred in a finding of fact and law by determining that the:
- (a)guarantee guaranteed Foxworth’s obligations under the lease after registration as a legal lease (Ground 6);
- (b)appellant’s obligation under the broadly drafted guarantee was in place, continued and became crystallised upon registration of the lease and assignment (Ground 7); and
- (c)description of a lease the guarantee purported to guarantee was clear and there was nothing which would avoid its effectiveness (Ground 8).
- In written submissions in support of these grounds the appellant contended: that an assignment of the lease to Foxworth did not occur, so that the guarantee was not operative; the Deed of Guarantee preceded the creation of a legal lease, and was entered into in the context of a tenancy at will, which did not survive Bemon’s departure from the premises; the decisions in Chan v Cresdon Pty Ltd and in Ashton v Hunt had the consequence that references in the Deed of Guarantee to a lease must be taken to refer only to a legal lease, and not an assignment of an equitable lease; no legal lease existed at the date of the Deed of Guarantee; the learned trial judge erred in relying on clause 2.7 of the Deed of Guarantee, which only related to obligations that can be traced back to a registered lease; and the Deed of Guarantee is to be construed strictly in favour of the guarantor, and does not extend to obligations arising after the date of that document.
- In their Outline of Submissions, the respondents contend that the Deed of Guarantee and the Deed of Covenant should be read together. The “Lease” extended to a broad range of relationships relating to the land. There is only one document that could have been referred to as the Lease. It is adequately described by the reference to “Lease” in Schedule 1 of the Deed of Guarantee. Extrinsic evidence is admissible to identify the subject matter of the guarantee. The decision of the learned trial judge was correct.
- It is argued for the respondents that the Deed of Guarantee and the assignment document each had the same schedule in it describing the lease and accordingly make the same point in relation to the guarantee as they did in relation to the assignment which is that when construed objectively, the plain intention of the parties was that the guarantee related to a broad range of various leases or tenancies and was not restricted to a registered lease.
- The primary point made by the appellant may be stated as being that the obligations, the performance of which he guaranteed, were not adequately identified, so that the guarantee is of no effect. It would follow (on the basis that the only evidence of the appellant’s obligations as guarantor is in the Deed of Guarantee) that there is no written record of the promise, for the purposes of s 56 of the PLA. That requires that attention be paid to clause 2.1 of the Deed of Guarantee. It is in the following terms:
“The Guarantor unconditionally and irrevocably guarantees to the Landlord the strict performance and observance by the Assignee at all times of the Lease Provisions including, without limitation, the obligation to pay the Guaranteed Money and any obligation to indemnify the Landlord from the Assignment Date.”
- It is sufficient to note that the guarantee was of performance of the Lease Provisions by Foxworth, including the payment of the Guaranteed Money. The Lease Provisions were defined by reference to the provisions of the Lease, and the Guaranteed Money meant all amounts payable to the respondents “in connection with the Lease or any transaction contemplated by the Lease…” To determine what effect the guarantee might have, it is therefore necessary to consider the definition of “Lease” in the Deed of Guarantee.
- Paragraph (a) of the definition of “Lease” refers to the lease identified in the Schedule to the Deed of Guarantee. It is correct to say that there is no description of a lease in that schedule. That does not mean that the document is ineffective, if, on its proper construction, the intended reference to a lease can be determined, as a matter of construction. In Rava v Logan Wines Pty Ltd, Campbell JA made the following observations about the correct approach to the construction of a guarantee:
“49 I wish to make remarks concerning one topic only and that is the reliance by Mr Owens upon the principle of construction for guarantees that has been most recently approved by the High Court in Andar Transport Pty Limited v Brambles Ltd. In Andar the majority judgment of Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ affirmed the principle previously stated in Ankar Pty Limited v National Westminster Finance Australia Limited that:
‘At law, as in equity, the traditional view is that liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.’
50 That principle is one that would apply to the construction that the trial judge adopted, namely, that the guarantee involved in this case is in substance a guarantee by each man of the obligation of his company to pay half the debts of the partnership. That construction could be sustainable only if it was consistent with the principle for construction of guarantees that was re-stated by the High Court in Andar. Mr Owens in his submissions to us relied upon that principle of construction.
51 Andar recognised that that principle of construction is an aspect of the contra proferentem rule. As I have pointed out in North v Marina, there are several totally different and inconsistent lines of authority about what construing a document contra proferentem means. That account has been in substance approved in Lewison, The Interpretation of Contracts, 3rd edition. The oscillations that there have been in the courts’ approach over two centuries to the construction of guarantees that is set out in Andar is the consequence of favouring first one and then the other of the principles embodied in those lines of authority. Now, Andar has clearly laid down that one of those lines of authority is to be used in Australia, at least so far as the construction of contracts of guarantee or indemnity is concerned.
52 There is an unusual feature of clause 2 of the guarantee in the present contract in that under it, on the construction adopted by the trial judge, both Mr Logan and Mr Rava are guarantors. I accept Mr Owens’ submission that that is not a sufficient basis to treat the principle of construction that was adopted in Andar as inapplicable to this contract. Rather, I accept Mr Owens’ submission that that feature of the guarantee means only that the Andar principle could result in the scope of the indemnity given by each of Mr Logan and Mr Rava being read down.
53 There is, however, another way in which the principle of construction that was adopted in Andar needs to be applied to the facts in this case. It needs to be recalled that the contra proferentem rule is just one rule of construction. It needs to be used bearing in mind the fundamental purpose of construction of a document, namely, to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it.
54 Further, it is to be used along with other aids that the law recognises for the construction of a document. Other such aids for construction of a document include the one that says that a contract that has been entered in a business context and is elliptical or ambiguous should be not read in a way that is commercially unlikely to be what the parties intended. Closely allied principles are ones whereby a construction should be avoided if it leads to a capricious and unreasonable result and whereby if a contract is open to two constructions it will receive that construction which will avoid consequences that are capricious, unreasonable, unjust or inconvenient.
55 Further, it is not a legitimate use of the contra proferentem rule to say that two meanings of a particular contractual provision are possible and hence the meaning unfavourable to the proferens should be chosen if one of those meanings is an unrealistic or unlikely construction of the contract. Rather, the contra proferentem rule is to be used only where the document is otherwise ambiguous, and it is a principle of last resort.
56 Where it is understood in that way, the application of the principle for construction of guarantees and indemnities that was adopted by the High Court in Andar does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that is most favourable to the guarantor or indemnifier. Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction.”
- It will be apparent from what his Honour said at paragraph  that the fundamental purpose of construction of a guarantee is to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it.
- In the context of the sale of land, it has been held that, where a document signed by the party to be charged makes reference to another document, reference may be had to the other document, and it may be identified by parol evidence, so as to satisfy statutory provisions requiring a written agreement or memorandum, signed by that party. The same principle applies to guarantees. It follows that, notwithstanding the failure of the Deed of Guarantee to identify the document which is referred to in paragraph (a) of the definition of “Lease”, it may be identified, if necessary, by evidence other than the terms of the Deed of Guarantee.
- The Deed of Guarantee itself does much to identify the lease, notwithstanding the inadequacy of the Schedule. It is apparent from the description of the consideration for the guarantee in clause 2.4, and from Recital A to that document, that it is the subject of the assignment from Bemon to Foxworth. It is at least implicit that it is a lease under which the respondents were the lessors. That clause, as well as Recital A, make express reference to the Deed of Covenant. Recital B of the Deed of Covenant records the lease to Bemon “on the terms contained in the Lease”. It is clear from the Deed of Covenant that the lease is a lease from the respondents to Bemon. The premises the subject of the lease are identified. The lease was also to be assigned to Foxworth. The parties to the Deed of Covenant, including the appellant and the respondents, contemplated in clause 2.8 that the lease might not be registered. Indeed, paragraph (c) of the definition of “Lease” in the Deed of Guarantee plainly contemplated that the lease might not be registered, but might be an equitable lease. One document satisfies the description resulting from an analysis of the Deed of Guarantee and the Deed of Covenant, namely the lease which was registered on 22 December 2016. That document is the lease referred to in paragraph (a) of the definition.
- The parties, including the appellant, plainly contemplated that the transfer of the lease to Foxworth would be registered, and that after registration, Foxworth would be bound by its provisions. The guarantee was intended to cover the performance by Foxworth of its obligations after the registration of the transfer. Since the claims made by the respondents were based on obligations of Foxworth which arose after the transfer of the lease was registered, it is unnecessary to consider what effect the guarantee had before the transfer to Foxworth was registered.
- There is no merit in grounds 1 – 8 as advanced by the appellant. The remaining grounds of appeal, grounds 9 – 30, relate to what the appellant claims was a surrender or termination of the lease. It is convenient to deal with these remaining grounds together as many of the arguments are repetitive and intersect to a significant degree (other than ground 23 which warrants further discussion).
Grounds 9 – 30: The Surrender or Termination of the Lease
- At trial the appellant argued that if there was a lease on foot, it had been surrendered by Foxworth in April 2017 as evidenced by its abandonment of the premises. Evidence was given at trial by Brian Smith, the director of the first respondent, Ivan Goddard, the director of the second respondent, Peter Wollschlager, the previous manager of the backpackers business conducted by Foxworth, David Tate, a potential guest who viewed the premises in October 2018, and the appellant Mark Contempree. Also in evidence was an affidavit by Marina Podleska, the solicitor who prepared the documentation for the assignment of the lease from Bemon to Foxworth in 2016, about the circumstances surrounding the execution and registration of the assignment of the lease.
- As to whether there had been a surrender, the trial judge determined that because there had not been an express surrender in writing as required by s 11(1)(a) of the PLA, the reference was to a surrender by operation of law. A surrender by operation of law is not required to be evidenced in writing but does require two elements, namely: an act by the tenant evidencing an intention to give up possession such as an abandonment of the property; and an assent to the abandonment by the landlord. The trial judge held that there was no surrender at law.
- Counsel for the appellant argues that the evidence of the independent witness, Mr Wollschlager, was such that it should have led to a conclusion that there had been an abandonment of the premises by Foxworth whereby the lease was essentially surrendered. It is also argued that the evidence of the respondents and the documentary evidence do not support a finding that the lease continued, and that the re-entry and occupation of the premises by the respondents, together with the collection of rent, meant that the respondents had accepted that the lease was determined. The trial judge was satisfied that the respondents had not re-entered or otherwise terminated the lease and held that the respondents’ actions were reasonable in protecting their position. In this appeal the appellant refers in particular to the admission by Brian Smith, that he had specifically requested the previous hostel manager, Mr Wollschlager, to continue what he was doing in maintaining the property. The appellant argues that this request and his subsequent actions meant that Mr Wollschlager was acting as agent for the respondents which, it is alleged, amounts to an occupation of the premises by the respondents via their agent.
The Alleged Erroneous Findings of Fact and at Law
- Accordingly on appeal the appellant argues that the learned trial judge erred in his findings of fact and in his legal conclusions. The simple errors of fact were argued to be by determining that the:
- (a)electricity for the property had to be connected in Mr Smith’s name;
- (b)appellant’s conduct constituted a limited attempt to pay the electricity bill; and
- (c)monies paid went to payment of the electricity bills for the property.
- The appellant also argues that the learned trial judge erred in his findings both of fact and at law in:
- (a)determining that to the extent that any lease existed between Foxworth and the respondents, such lease was not terminated by surrender at law by 31 August 2017;
- (b)determining that Mr Wollschlager was not acting as an agent for the respondents in occupying the property from August 2017;
- (c)determining that the respondents did not have keys nor were any keys surrendered to them and that the evidence was relevant to the issue of whether the respondents took possession of the property;
- (d)determining that the respondents’ actions did not constitute unequivocal acts inconsistent with the continuation of Foxworth’s lease of the property;
- (e)determining that Foxworth never performed any express acts of abandonment of the property;
- (f)determining that the respondents did not re-enter or otherwise terminate the lease;
- (g)determining that Foxworth had not abandoned the property given the items left behind and the lack of clear unequivocal written notice from the tenant;
- (h)determining that the respondents’ conduct went no further than normal protection and preservation of the property consistent with their rights under the lease and that the respondents were reasonable in protecting their position and maintaining the property in a minimal way while maintaining their rights as against the tenant;
- (i)determining that the respondents’ conduct was not such as to amount to a resumption of possession, because their actions were not inconsistent with holding the defaulting tenant to perform the lease;
- (j)determining that neither of the respondents did anything that might suggest an election to terminate the lease or to surrender the lease;
- (k)failing to give adequate reasons;
- (l)determining that Mr Wollschlager was Foxworth’s subagent when Foxworth had departed the property;
- (m)determining that the respondents continued to offer performance of their obligations under the lease and were thereby entitled to demand the rent;
- (n)determining that neither of the respondent director’s actions were other than consistent with maintaining the lease against Foxworth;
- (o)determining that the respondents’ decision was to not disturb Mr Wollschlager’s informal ad hoc arrangement and that maintenance of the electricity arrangement was consistent with the desire to preserve the property; and
- (p)determining that the money paid to the respondents by Mr Wollschlager was to reimburse the respondents for the electricity for the property.
- The appellant also argues that the learned trial judge erred in law by determining that the judgment amount was $528,555.40 and not taking into account: monies paid to the respondents from ongoing tenancies in the amount of $13,779.99; the amount of $80 per week paid by Mr Wollschlager for maintenance supplies totalling $8,320; and the value of maintenance works undertaken by Mr Wollschlager, purportedly valued at $140,000 (discussed further later in these reasons).
- As can be seen from the outline above, the appellant argues on appeal that the factual findings made by the judge were not consistent with the evidence given at trial and the legal conclusions based on that evidence were also flawed. The major issues however relate to the factual findings about the electricity account, whether Mr Wollschlager was the respondents’ agent and the alleged abandonment of the premises by Foxworth. Accordingly I will address those factual issues in some detail.
The Electricity Account
- The appellant submits that rather than concluding the money paid to the respondents by Mr Wollschlager was to reimburse the respondents for the electricity for the property, the learned trial judge ought to have found that the payments amounted to the respondents setting up their own trading operation as a backpackers premises. It is necessary to examine Mr Wollschlager’s evidence at trial, so as to provide context to the evidence concerning payment of the electricity account and the appellant’s argument about its significance.
- Mr Wollschlager’s evidence was that he had been employed as a manager of the backpackers business in January 2017 by Richard George (the property agent who had negotiated the assignment of the lease from Bemon to Paul and Fiona Power, the directors of Foxworth). Mr Wollschlager gave evidence that when it was fully operational, the backpackers lodge had beds for 105 people and was fully equipped with furniture, television sets, cutlery, crockery and other items. He stated that he was solely responsible for the management of the premises and did all the administration work including cleaning and driving the bus to transport backpackers to and from the farms where they worked. He stated that he was subsequently told by Richard George that the Powers were ceasing business so he had emptied out all the backpackers and shut down the business. He stated however that none of the chattels or other items were removed by the Powers and that two or three permanent residents were still living at the property.
- Mr Wollschlager stated that he first spoke to Brian Smith in late August or early September 2017 when Mr Smith rang and told him he was the owner of the property. Brian Smith then asked him what he was doing on the property and he had replied that he wasn’t doing much as they had ceased operations and had just a couple of people living there. He said that during that conversation Mr Smith asked him whether he could continue what he was doing in maintaining the property until they could decide what to do next. He stated there was no discussion about what he was to do with the rent he was already receiving from the tenants.
- His evidence was that very soon after that telephone call Mr Smith sent through an electricity bill to him which he paid at the post office from the rent money that he had collected. His evidence was he continued to maintain the property and collect the rent from the two or three permanent residents. He said that it was subsequently arranged that he would pay a regular amount of $300 from the rent he collected into the joint account of the respondents for electricity. After paying for pool supplies or other items required to maintain the property he kept any amount that was left over for himself. Mr Wollschlager stated that the only outgoing that the respondents actually paid was the electricity account. He stated that he did not pay the respondents the entire amount of rent he collected as he was his own boss at the premises and did not account to the respondents.
- An examination of his testimony at trial reveals that it was Mr Wollschlager who had initially expressed a concern to the respondents that the electricity would be cut off as the account had not been paid by Foxworth. It was in this context that he was asked by Mr Smith to pay the bill given there were two or three residents still in occupation and the pool needed to be maintained. He stated that it was obvious that the electricity accounts needed to be taken care of and there was then an agreement in early 2018 that he would pay $300 intermittently into the respondents’ account and they would then manage the electricity account. His evidence under cross-examination by Counsel for the respondents at trial was as follows:
And one of the problems was that that electricity wasn’t being paid or was not being paid. It was about – well, by the - - -?---It - - -
- - - Powers. The Powers were no longer paying their share?---Correct. Yes.
And you were concerned that the power might be disconnected?---Yes.
You mentioned that to Mr Smith?---Yes.
And at some point in time, we can’t give you the precise date either - - -?‑‑-No.
- - - there was an agreement made that my clients would get the power put on in their name?---Yes.
They would pay it and you would reimburse them?---Correct.”
“… Mr Smith said he would put it on in the name of either BS Investments or Tirley Holdings, didn’t he?---Yes.
All right. Had you tried to put the power on in your name?---No.”
- Mr Wollschlager stated that he was not promised anything by the respondents for his work but rather it was implied he would be “looked after”. He stated that in terms of his duties, he continued to maintain the swimming pool which involved spending about $80 a week on chemicals and he also took care of the lawns and did general maintenance like replacing locks on doors. He stated he would automatically deduct those maintenance expenses from the rent he collected and would keep the balance.
- Mr Wollschlager’s evidence was that he had been told by the respondents that they were suing the Powers and that they were not making any final decisions about the property until they received legal advice. He also gave evidence that the fire department raised issues with him about the hostel and the local council identified concerns about the pool gate however he had to sort those issues out himself and the respondents had not been involved. He did however send the quotes on to them when the cost was more than he could pay out of the excess rent monies. Mr Wollschlager gave evidence that the conversations with Mr Smith were to the effect that the respondents were not making any final decisions until they had further advice and he was simply told more or less to “hold the fort”. He primarily spoke to Mr Smith but also spoke to Mr Goddard at times.
- Brian Smith gave evidence about the electricity account in the following terms under cross-examination by Counsel for the appellant:
“You wanted Mr Wollschlager to reimburse you for the electricity?‑‑-Yes.
Is that right? Why didn’t you just allow Mr Wollschlager to connect his own electricity?---Because he couldn’t. We owned the property. The guy – they wouldn’t accept it. That’s the reason he approached us.
Well - - -?---He wasn’t running a business.
Mr Smith, you said before that you weren’t aware what was going on in the property. Correct? Why were you connecting electricity to the property in your own company name?---What? Because Wollschlager specifically said, they’re going to turn the light off. The disconnection notice came, they’re going to turn the lights off, I’m going to be without power. I can’t maintain the swimming pool - - -
Well, why does that - - -?--- - - - I can’t see.
Why does that concern you, Mr Smith?---Why does it concern me?
Why does it concern you if the lights are turning off - - -?---Well - - -
- - - in that property?--- - - - they can turn them off, all the vagrants in the world can go in our property. Property can be destroyed. It wouldn’t concern you, but it did concern us.”
- The evidence before the trial judge was that the total of the electricity accounts between November 2017 and October 2019 was $13,799.99 and that the deposits made by Mr Wollschlager between March 2018 and September 2019 were $14,700. Furthermore an email dated 27 February 2018 from Mr Wollschlager to the respondents about the unpaid account and the “electricity disconnection notice” was in evidence, which stated that he would deposit $500 that day. The email continued:
“… I can deposit $500 On Friday and then pay $500 every Friday going forward and will continue until bill is paid. After that I can continue to pay $300 per week going towards next bill which will be due soon. I know this is not the perfect solution but at least no one gets left with this bill outstanding.”
- The evidence at trial had included an SMS from Richard George to Brian Smith on 16 August 2017, in which he essentially advised the respondents to keep the place running as it shouldn’t be left closed up and he advised them to keep the electricity connected. The response to that email was as follows:
Thanks for the reply I spoke to Peter earlier in the day who said he was going in for two / three hours a day just to keep the place in some sort of order. He said the phone was cut off and did not know when the electricity would be cut off. He has two or three people staying and is keeping the rent from them as some sort of payment. He told me has hasn't been paid for about 7 weeks. I wanted to speak to you and find out what is owing. Do you have any written confirmation from Paul Power that he has abandoned the property, if you don't mind, I would like to speak to you to discuss the above matters as well as the possible sale of the property?
- In my view the trial judge had clear and consistent evidence upon which he could conclude: that the electricity for the property had to be connected in the name of an owner; that the respondents’ conduct constituted a limited attempt to pay the electricity bill; and that the monies paid went to payment of the electricity bills of the property. The appellant’s arguments in relation to the findings of fact made by the trial judge in relation to the electricity account are without substance.
Was Mr Wollschlager the Respondents’ Agent?
- The evidence of Ivan Goddard was that the respondents did not want the asset to be destroyed and that Mr Wollschlager volunteered to maintain the property and was kept on to look after it. He stated:
“Look after the property, I think, was the term used. And the pool was obviously one. It’s a tropical climate and the pool goes green there in about three seconds. And to obviously prevent squatters. It’s a large property with 40 rooms.”
- In terms of whether Mr Wollschlager was the respondents’ agent, Brian Smith’s evidence was also very explicit in that he stated he had asked Mr Wollschlager to simply continue doing what he had been doing (simply maintaining the premises) after he was instructed to close the business down. In my view Mr Wollschlager was not running the business on behalf of the respondents, as his evidence was that he was his own boss and did not account to anyone about his actions or the funds he collected for rent. He clearly did not advise the respondents about the amounts he was collecting for rent. The evidence at trial established that it was indeed Mr Wollschlager who approached the respondents to pay the first outstanding electricity bill as there was a danger the electricity would be cut off. Furthermore, his email of 27 February 2018 clearly shows that he was the one who was trying to get the electricity paid and was setting out a payment arrangement, and not vice versa. He was clearly not being directed in this regard.
- Indeed, there was no evidence that he was being directed or instructed by the respondents in any way. Mr Wollschlager’s evidence was that he was not their employee, and did not consider himself to be such. Contrary to the appellant’s contention on appeal, there was no evidence, other than Wollschlager’s assertion, that he was instructed to stay at or to maintain the property. He was given no instructions to account for the rents he was collecting and it was Mr Wollschlager who suggested the payment arrangements for electricity to allow the electricity to remain connected and he was not directed to do so.
- Correct it is that there was an email from Mr Wollschlager to Brian Smith on 16 October 2017 outlining in some detail his ideas for running the backpackers business in a more expansive and efficient way, however the response from Mr Smith was clear and stated “[w]e are currently awaiting on the go ahead from our attorney, I suggest you carry on as you have been until we hear from him”.
- In my view the trial judge’s conclusion that the respondents’ actions amounted to the normal protection and preservation of the property were clearly supported by the evidence, as was his conclusion that Mr Wollschlager was not the respondents’ agent.
Was there an Abandonment of the Premises in Fact or at Law?
- The appellant maintained at trial that: Foxworth had legally and as a matter of fact abandoned the property; the actions of the directors of the respondents were consistent with them occupying the premises; and accordingly they were estopped from asserting that the lease had continued. There was no evidence of any direct communication between Paul and Fiona Power and the respondents about them ceasing business or even an indication that they were no longer involved. The email from Brian Smith of 16 August 2017 to the property agent specifically asked the question as to whether there was any “written confirmation from Paul Power that he has abandoned the property”. The evidence established that there was never a direct response from the Powers.
- However, as the trial judge noted, at some point it became clear to the respondents that the Powers had essentially abandoned the backpacker business which had been run at the premises. They obviously knew the rent was not being paid and by August or September 2017, when Brian Smith spoke to Peter Wollschlager, it would have been clear that the backpackers business had ceased operations and there had been no contact with the Powers. It was also clear by that stage that there was an outstanding electricity bill of some thousands of dollars and it had been threatened that the electricity would be disconnected.
- The respondents also knew by late July 2017 that Paul and Fiona Power and the property agent Richard George, who had essentially been running the business, had had a falling out because he had not been paid. Indeed, Richard George had emailed the respondents on 25 July 2017 stating that he had tried negotiating with Paul Power for his company to purchase the property but was ceasing his involvement with the business as from that day. He also foreshadowed that Paul Power was intending to cease trading and wanted to relinquish the lease from 31 July 2017.
- Ivan Goddard’s evidence was that he took the email from Richard George of 25 July 2017 to be an embittered statement by him and given their falling out it was clear to him Mr George did not represent the Powers. Mr Goddard stated the keys were never returned and that no communication to the effect that the lease was being terminated was ever received. During cross-examination on that email he gave the following evidence:
“… It says he intends not to carry on trading?---Yep.
Are you saying that you’ve read this email and still understood that Foxworth intended to remain in the premises despite saying he intends not to carry on trading?---Yes, because I’d never heard anything from Richard – from Paul Power or Foxworth. This man no longer represented him so they were two different things.”
- In terms of the factual findings which were made by the trial judge and which are the subject of this appeal, having considered the evidence set out above, the trial judge was correct in my view to conclude that that whilst Foxworth had physically left the premises they had not legally and effectively abandoned the premises. As Mr Wollschlager had made clear, there were numerous chattels still on the property. The evidence of the respondents as set out above, was that they had not received any advice from the Powers or Foxworth that they were leaving. Furthermore, there was other evidence upon which the judge could conclude that the respondents had not in fact occupied the premises as asserted by the appellant. His conclusion that the respondents were attempting to sell the property subject to the lease was supported by the evidence given they were they were affirming the lease and suing the guarantors.
- The trial judge also considered that whilst the respondents needed to maintain the premises, which they did through Mr Wollschlager, in his view they never took possession and indeed they did not have keys nor were keys ever surrendered to them. I consider there was ample evidence before the trial judge, particularly the evidence of Mr Wollschlager, for him to conclude that the respondents had not entered into occupation. His Honour did not accept that the actions of the respondents constituted unequivocal acts inconsistent with the continuation of the lease and in particular, he considered that the payment of the electricity bill did not amount to them setting up their own trading operation as a backpackers premises as the appellant submitted.
- Clearly then his Honour was correct when he concluded that he was satisfied that the appellant had not established that the respondents had occupied the property either through Mr Wollschlager as their agent or in any other way.
The Legal Conclusions
- Turning then to the legal conclusions made by his Honour based on his factual findings. In terms of whether there was a surrender, it is clear that there was no express written surrender in evidence. I refer again to the email sent by the property agent Mr Richard George on 25 July 2017 to the respondents which stated in part:
“I am informing you that as of today, I will have no involvement with the lodge for Paul Power. I am also informing you that Paul intends to relinquish the lease as from the 31st of this month. I do not know what is physically involved in shutting up shop, but he intends to not carry on trading. There are guests staying there at present and the manager is still working there, but for how much longer I have no idea. The name of the manager is Peter Wollschlager [with the mobile number supplied]…”
- Whilst there was an email from the past agent for the Powers about their future intention, there was no actual email ever provided in relation to a formal notice of a surrender of the lease. Clearly the email which had been sent by the property agent Mr George on 25 July 2017 fell short of what would have been necessary for an express written surrender and no further written correspondence was ever sent by Mr George or by Foxworth.
- A surrender by operation of law however is not required to be in writing given the requirements of s 10(2)(b) of the PLA. A surrender by operation of law requires two elements: firstly, an act by the tenant evidencing an intention to give up possession of the leased property, usually in the form of abandonment of the property; and secondly, an assent to such abandonment, usually in the form of a retaking of possession. Accordingly in the trial, these two issues were very much in contention.
Was there an Act by Foxworth evidencing an Intention to give up Possession of the Leased Property?
- As has already been indicated, whilst there was an email from a third party providing an indication as to a future intention, there was nothing formally said in that regard by the actual directors of Foxworth to the respondents.
Was the Property Surrendered based on a Legal Abandonment?
- It would seem that when Foxworth left, the manager, Mr Wollschlager, was still in place despite the fact that the business’ signs had been taken down and the property was not being run as a backpackers lodge. It was clear however that there were three buildings which housed some long-term residents and the premises were full of furniture and other items that had been sold by Bemon to Foxworth. Those items had not been collected by Foxworth – they remained on the premises.
- In Artworld Financial Corporation v Safaryan, Dyson LJ reiterated the relevant principles in the following terms:
“29. In my judgment the propositions derived by the judge from the authorities and stated in paragraph 68 of her judgment are correct:
- ‘(1)The issue of whether there has been a surrender by operation of law after a tenant's abandonment of the leased premises must be determined by evaluating the effect of the landlord's conduct as a whole. I accept Mr Kremen's argument that the totality of such acts can amount to a resumption of possession even though individual acts might each be only equivocal. With this in mind --
- (2)The test is whether the landlord's conduct is “so” inconsistent with the continuation of the tenant's lease that it could only be justified as being lawful on the basis that the landlord has accepted the tenant's implied offer to give back possession, and has taken possession of the premises beneficially for himself.
- (3)Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them.
- (4)Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing.
- (5)Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord's interest in the value of his property, is a reasonable response to the tenant's evinced intention not to perform the obligations of the tenancy.
- (6)Similarly, any act of the landlord which amounts to the landlord's performing the tenant's covenants under the lease, such as keeping the garden tidy, would not necessarily amount to a resumption of possession as it is not inconsistent with holding the defaulting tenant to performing the lease.
- (7)Any further act of the landlord referable to the landlord's seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties. The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant's abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so.
- (8)However, if the landlord goes further and uses the premises for his own benefit beyond the totally trivial -- and certainly, in my judgment, if such use amounts to occupation of the premises -- then he re-takes possession of the premises inconsistently with the continuance of the lease. This will give rise to a surrender by operation of law, since it is only on the basis of having accepted such a surrender that the landlord's acts would be lawful.’”
- In the present case it is clear that the learned trial judge applied the relevant principles and his conclusion that the respondents did not re-enter or otherwise terminate the lease and that their actions were reasonable in protecting their position and maintaining the property in a minimal way whilst maintaining their rights as against the tenant and the appellant is unassailable. The learned trial judge was correct in his determination that there was no surrender or termination of the lease. In my view the learned trial judge was correct that neither Mr Goddard nor Mr Smith of the respondents did anything that would suggest an election to terminate the lease by the respondents or to surrender the lease.
- In my view, it was clear that the respondents were maintaining the lease as against Foxworth. They had legal advice at all times and were in fact maintaining an action in the Magistrates Court for the recovery of rent. It was perfectly rational for them not to disturb Mr Wollschlager’s informal arrangement to maintain the premises. The money paid by Mr Wollschlager to the respondents was simply to reimburse for the electricity.
- The question as to whether a tenant has abandoned a property is a question of fact to be determined objectively in all the circumstances and as the respondents assert, the leaving of a considerable amount of fittings can prevent the finding of abandonment. Furthermore, I note that the evidence before the trial judge was that in a letter to a real estate agent in August 2017, Mr Smith of the respondents indicated to the agent that the premises were available for a possible sale but that any sale would need to be subject to the registered lease unless a written surrender could be procured. The email also refers to legal proceedings against all persons involved. Any reference by Mr Smith to the fact that Foxworth had effectively abandoned the premises was simply a reiteration of what Mr Wollschlager had advised them. It is clear that the decision was made to maintain the premises for the purposes of the sale so as to give the appearance of the property being occupied thus minimising the risk of squatters or damage being caused by vandals.
- In this case, it is clear that not only was there no surrender of the keys, there was no entry to the premises to inspect or repair them by the respondents. Whilst the respondents allowed Mr Wollschlager to continue to maintain the property, he was not paid for those services but rather he was allowed to take an amount out of the rent money he collected but the amount was not referable to the respondents. It would seem something that he did for himself as a continuation of the arrangements he already had in place.
- Accordingly, grounds 9 – 30 of the appellant’s notice of appeal are not made out.
- Ground 23 outlined in the appellant’s notice of appeal is that in determining the judgment amount of $528,555.40 (derived from the respondents’ claim of obligations under the lease and offset by payments made by Foxworth), the learned trial judge did not apply, consider or offset against that amount as follows:
- (a)those monies paid to the respondents from rent collected in respect of ongoing tenancies, determined in the reasons at  to be $13,779.99 (the Electricity Monies);
- (b)the $80 a week paid by Mr Wollschlager from September 2017 to September 2019 in maintaining the property (amounting to $8,320) (the Maintenance Monies); and
- (c)the monetary value (submitted at trial to be $140,000) of maintenance works undertaken by Mr Wollschlager in maintaining the Property (the Maintenance Works).
The Electricity Monies
- At trial, the appellant’s Counsel made the submission that Exhibit 2 (Activity Statement for Foxworth Pty Ltd for 01/12/16 to 02/12/19) (the Activity Statement) which contained the respondents’ claim in the proceedings did not account for the monies paid by Mr Wollschlager. He submitted that the owners accepted fixed amounts of money from Mr Wollschlager, who they knew to be occupying the premises, and “did not apply that to the rental in any way”.
- It would seem that Counsel and his Honour were at cross-purposes. It was not in dispute that the power bills had in fact been paid by the respondents. The issue taken by Counsel for the appellant at trial would seem to be that the payment of the electricity bills was not an obligation owed by Foxworth, which can be gleaned from the following exchange:
“MR MANNER: Well, the fact that, your Honour, two years had passed and the evidence is that the plaintiffs knew that Foxworth had left, they knew Wollschlager was in there taking money, they knew there were tenants in the property, they knew that money was being paid to them, it wasn’t being paid to an electricity bill. They also knew that Mr Wollschlager was applying the rental moneys to the upkeep of the property. That’s their asset which is being enriched as a result. That is not being applied and the evidence of the plaintiffs themselves is that the moneys have not been applied in any way to the – it does not appear in the statement that’s in the proceedings, exhibit 2. It should have been applying to that money, but it wasn’t. It was independent, your Honour.
HIS HONOUR: So what’s exhibit 2?
MR MANNER: Exhibit 2 is the rental statement in evidence coming up-to-date - - -
HIS HONOUR: So if exhibit 2 had at the bottom of one of the pages an asterisk and it said, “By the way, this is being applied in reduction of the power bill,” that is, one of the outgoings for which the tenant was responsible, then it would have been all tickety-boo and we would have passed the Konica test; is that the story?
MR MANNER: What properly ought to have occurred, your Honour, is, if that was the case, the outgoing invoice amount should have appeared and that should have then been offset by certain payments that had been made by Wollschlager. That didn’t occur at all, Your Honour. It’s totally independent and we see nothing in the proceedings that this money went anywhere other than into the plaintiffs’ pocket.”
- It would seem that Counsel’s ultimate submission was that the payment of the electricity bills was not an obligation owed by Foxworth, evidenced by the fact that “the power was on in the name of the plaintiffs, not in Mr Wollschlager’s name”, and that the electricity invoices and periodic payments by Mr Wollschlager did not appear on the Activity Statement. In those circumstances, it was asserted the payments made by Mr Wollschlager to the plaintiffs were, as was submitted, not accounted for and merely “money put straight into the pocket of the plaintiffs”.
- In terms of the setup of the electricity account, as I have already noted, it is clear that the account was set up in the respondents’ name because the electricity for the property had to be connected in the name of an owner – it does not in some way evidence the fact that Foxworth was not obligated under the lease to pay the electricity bills for the property.
- Similarly, in terms of the alleged lack of accounting, it is unsurprising that Mr Wollschlager’s intermittent payments and the electricity bills do not appear on the Activity Statement. Mr Smith’s evidence at trial was that the ad hoc arrangement whereby Mr Wollschlager made intermittent payments (usually of $300) was implemented because Mr Wollschlager could not afford to pay the electricity bills outright. Furthermore, Mr Wollschlager himself acknowledged that he would be transferring sums of money to be put towards electricity bills which had not yet been rendered. It would therefore have been impractical for those payments to be included in the Activity Statement, given they would need to be receipted against a non-existent invoice. The fact these transactions do not appear in the Activity Statement reflects the realities of dealing with monies paid in advance – it does not evidence that there was no obligation incumbent upon Foxworth to pay the electricity invoices.
- In any event, having found, as I have, that the learned trial judge did not err in concluding there was no surrender of the lease by the respondents demonstrated by their purported abandonment of the premises, the submission that Foxworth was not obligated to pay for electricity must fail. The payment of the electricity bills remained an obligation owed by Foxworth pursuant to clause 4.1 of the Lease. Accordingly, the monies paid by Mr Wollschlager were properly applied by the respondents in fulfilment of that obligation, as recognised by the learned trial judge at  of his reasons. The fact that the electricity was not cut off, as well as the invoices and bank statements disclosed by the respondents, evidence that the respondents did in fact pay the electricity bills as they fell due.
- As such, the learned trial judge could only have fallen into error in not applying, considering or offsetting the electricity monies against the judgment amount if the plaintiffs’ calculation for damages included an amount for payment of the property’s electricity bills. Having perused the Activity Statement, the relevant invoices, and the trial transcript, there is no evidence suggesting that the electricity invoices were included in the plaintiff’s calculations.
- Accordingly, there would have been no basis for the trial judge to offset the electricity monies against the judgment amount in circumstances where the amounts owing in relation to electricity were not in fact claimed by the respondents at trial. This ground must therefore fail.
The Maintenance Monies
- At  of the reasons, the trial judge summarised the respondents’ position in relation to maintenance work carried out by Mr Wollschlager – namely, that they did not pay nor reimburse him for any works done on the property. On Mr Wollschlager’s own evidence at trial, he continued collecting rent from the permanent tenants, would pay $300 to Mr Smith and would keep any excess. He expressly stated that the $80 he spent on maintenance came from excess rent payments above $300.
- The learned trial judge did not err in not applying, considering or offsetting the maintenance monies against the judgment amount, given they were paid from a sum that Mr Wollschlager asserts he received from the collection of rent from permanent tenants.
The Maintenance Works
- The appellant points to maintenance works undertaken by Mr Wollschlager in maintaining the Property “submitted at trial, based upon the adduced and uncontroversial evidence as to the time and performance of the Duties by Mr Wollschlager, to be valued at $140,000”.
- The phrasing of this aspect of ground 23 is entirely misleading. Firstly, having perused the transcripts and Appeal Record Books in their entirety, I have been unable to find any submission at trial as to the value of the works undertaken – the only reference to a value of $140,000.00 that I have been able to locate is to the fact that the rent for the property itself was $140,000 per annum. Of greater concern however is the appellant’s reference to this submission being based upon “the adduced and uncontroversial evidence as to the time and performance of the Duties by Mr Wollschlager”. The issue with this submission is clearly illustrated by the following exchange at trial:
“MR MANNER: … And then, your Honour, it ought to be considered as well that Mr Wollschlager is acting as a, effectively, maintainer and groundskeeper of the property. That would entail, undoubtedly, a substantial amount of time on the part of Mr Wollschlager and is undoubtedly something that could be considered to be of value which has been provided, ostensibly, to the plaintiffs. I dare say that it would be, you know, a thousand dollars a week as a minimum to have a full-time individual maintaining a particular property, or even discounting that the - - -
HIS HONOUR: But you called Wollschlager, didn’t you?
MR MANNER: Yes.
HIS HONOUR: Did you adduce this evidence from him?
MR MANNER: It was adduced from him that he spent time maintaining the property and that it was specifically adduced from him at 2-15, 45, that he was spending $80 a week of his own money. As to the number of hours, that was not specifically obtained from Mr Wollschlager and it’s merely a submission on my part, your Honour, that it has value. As to the exact value I don’t know but it’s certainly value being provided to the plaintiffs.”
- The submission that the trial judge could, and on the appellant’s case, should, have attributed a monetary value to the maintenance works conducted by Mr Wollschlager in the absence of any evidence on the point is completely without basis.
- Further, as has already been noted, Mr Wollschlager’s evidence was not, as was asserted by counsel on multiple occasions, that he was spending “$80 a week of his own money”. Rather, it was clearly stated that the money spent on maintenance came from excess rent he collected above the $300 paid intermittently to the respondents for electricity.
- Even if evidence of the value of the maintenance works conducted by Mr Wollschlager had been adduced at trial, the learned trial judge accepted both: that Mr Wollschlager remained at the property as Foxworth’s subagent; and that the respondents’ intention in regards to Mr Wollschlager’s continuing involvement with the property was not to disturb the existing “informal ad hoc arrangement” which his Honour indicated was “both understandable and consistent with the desire to preserve the premises”.
- The informal ad hoc arrangement, as outlined in Mr Goddard and Mr Smith’s evidence, was that Mr Wollschlager was an occupier/caretaker who had asked to stay at the property and volunteered to maintain it. Mr Goddard stated that they enabled Mr Wollschlager to stay on and maintain the property, to clean the pool and prevent squatters. Mr Goddard thought Mr Wollschlager was living at the property and benefiting from free accommodation. Mr Smith summarised the relationship as “he was there, he paid the electricity and kept the swimming pool clean”.
- No evidence was adduced at trial as to the existence of an agreement to pay Mr Wollschlager for any maintenance work he undertook. Indeed, when Mr Wollschlager was specifically asked if Mr Smith offered him anything in return for his maintenance services, his response was “[n]ot exactly. It was more of an implication that, look, appreciate your help and, you know, we will look after you down the track”.
- Given the apparent lack of any agreement to pay Mr Wollschlager, or any specific expectation of payment on his part, in addition to the complete lack of evidence adduced at trial on the point, this aspect of appeal ground 23 must similarly fail.
- This appeal is entirely misconceived. I would dismiss the appeal with costs.
See the evidence of Goddard at ARB 347–350; and of Smith at ARB 400. Exhibit 1 is materially the same as Exhibit 2.
The respondents have not relied upon any estoppel argument in the present proceedings.
See the evidence of Goddard at ARB 349.
See the evidence of Goddard at ARB 349.
See, for example, the Appellant’s Outline of Argument, para 3 at footnote 7.
Probably intended to refer to 19 December 2016: see ARB 486.
See, for example, para 10(g) of the Appellant’s Outline of Argument.
See para  of the reasons.
(1978) 138 CLR 423 at 434.
 QCA 541 at  (citations omitted).
Butt v M’Donald (1896) 7 QLJ 68; Mackay v Dick (1861) 6 App Cas 251; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596.
(1989) 168 CLR 242.
 QCA 308.
(1989) 89 ALR 522.
 QCA 308.
 NSWCA 62.
At – (emphasis in original; citations omitted in part where referred to within a sentence and in full where referred to following a sentence).
See Long v Millar (1879) 4 CPD 450, 454–6; Timmins v Moreland Street Property Co Pty Ltd  Ch 110.
See O'Donovan and Phillips, The Modern Contract of Guarantee, 4th ed, Thomson Lawbook Co, Sydney, 2004, para [3.850]. See also Alonso v SRS Investments (WA) Pty Ltd  WASC 168 at – per Edelman J, in relation to a
The description of Foxworth as both Assignee and Tenant in clause 1.1 of the Deed of Guarantee is plainly a mistake and references to the Tenant should be construed as references to Bemon, if necessary, by reference to the Deed of
Covenant: see O'Donovan [5.100] at footnote 96.
Appellant’s Outline of Argument at p 9, para (a).
ARB 466 ll 27–30.
ARB 373, ll 41–44.
 EWCA Civ 303 at , citations omitted.
ARB 571, ll 25–27.
ARB 572, ll 28–29.
ARB 572, ll 6–7.
ARB 572, ll 31–32.
ARB 575, ll 12–36.
ARB 572, ll 9–10.
ARB 573, l 20.
ARB 436, ll 23–28.
ARB 292–305 and 616–66.
Reasons at .
ARB 458, l 43 – ARB 459, l 5.
Amended Notice of Appeal at p 14, para 23(c).
ARB 502, ll 31–32.
At ARB 458, l 44 to ARB 459, l 5.
Reasons at .
Reasons at .
Reasons at  and .
ARB 456, ll 17–19.
- Published Case Name:
Contempree v BS Investments Pty Ltd & Anor
- Shortened Case Name:
Contempree v BS Investments Pty Ltd
 QCA 255
Sofronoff P, Mullins JA, Lyons SJA
17 Nov 2020
- White Star Case: