High Impact Holdings Pty Ltd v Famhall Pty Ltd
[2010] QSC 272
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- Unreported Judgment
- High Impact Holdings Pty Ltd v Famhall Pty Ltd[2010] QSC 272
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High Impact Holdings Pty Ltd v Famhall Pty Ltd[2010] QSC 272
High Impact Holdings Pty Ltd v Famhall Pty Ltd[2010] QSC 272
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED ON: | 28 July 2010 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 5 July 2010 |
JUDGE: | Boddice J |
ORDER: | 1.The respondent have summary judgment in a sum to be quantified for the outstanding rent and outgoings due and owing pursuant to the lease. 2.Unless the applicant pays such outstanding rent and outgoings within seven days hereof and undertakes to continue to meet its obligations to pay the rent and outgoings in the future until the final determination of its dispute with the respondent, the respondent recover possession of the property. 3.The applicant pay the respondent’s costs of and incidental to both the applicant’s application and the respondent’s application, such costs to be agreed or failing agreement to be assessed. |
CATCHWORDS: | LANDLORD AND TENANT – RENT – BREACH OF COVENANT TO PAY – ACTIONS TO RECOVER RENT OR DAMAGES – where the applicant is the lessee of a property owned by the respondent – where the applicant has failed to pay rent and outgoings in accordance with the lease but claims that the respondent has failed to comply with its obligations as lessor – where the applicant submits that it is entitled to set-off damages suffered by it as a consequence of the respondent’s failure against the rent and outgoings payable by it under the lease – where the lease provides that the lessee’s obligation to pay rent is not subject to any set-off – whether the respondent it entitled to summary judgment for outstanding rent and outgoings. LANDLORD AND TENANT – ACTIONS AND CLAIMS FOR USE AND OCCUPATION – where the applicant is the lessee of a property owned by the respondent – where the applicant has failed to pay rent and outgoings in accordance with the lease – where the applicant has refused to comply with a notice to remedy breach of covenant served on it by the respondent – whether the respondent is entitled to an order for recovery of possession of the premises. Property Law Act 1974 (Qld) Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122 Coca-Cola Financial Corporation v Finsat International Ltd & Ors [1998] QB 43 Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501 Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd trading as Betta Machinery Sales [2000] QSC 050 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 Knockholt Proprietary Limited v Graff [1975] Qd R 88 MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd [1994] ANZ ConvR 363 Re Partnership Pacific Securities Limited (1994) 1 Qd R 410 Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The Fedora, The Tatiana and The Eretrea II) [1986] 2 Lloyd’s Rep 441 (‘The Fedora’) |
COUNSEL: | L D Bowden for the applicant G Beacham for the respondent |
SOLICITORS: | DarganKelly Lawyers for the applicant Holding Redlich Lawyers for the respondent |
[1] By originating application filed 7 June 2010, High Impact Holdings Pty Ltd (“HIH”) sought orders, pursuant to the Property Law Act 1974 (Qld), that it be relieved from compliance with a notice to remedy breach of covenant served on it by Famhall Pty Ltd (“Famhall”) on 18 May 2010 together with associated declarations and other relief. By application filed 30 June 2010, Famhall sought an order for recovery of possession of premises leased by HIH, together with summary judgment for outstanding rent and outgoings and interests, and costs.
[2] Both applications arise out of a dispute concerning a lease executed on 27 September 2006 in respect of specified parts of a property located at Moggill Road, Kenmore (“the property”). HIH accepts it has failed to pay rent and outgoings in accordance with the lease but claims Famhall has failed to comply with its obligations as lessor of the premises, and that HIH is therefore entitled to set off damages suffered by it as a consequence of Famhall’s failure against the rent and outgoings payable by it under the lease. In response to HIH’s failure to pay the rent and outgoings as they fell due, Famhall served a notice to remedy breach and, in turn, a notice of termination. Following service of the notice of termination, HIH brought its application seeking declarations and relief against forfeiture of the lease.
[3] The leased area of the property is used as a commercial nursery. The nursery has carried on business for several years under various structures. The lease is a five year lease which was duly registered. The areas of contention in respect of Famhall’s obligations under the lease pertain to whether it has complied with its obligations to provide premises in accordance with the lease, whether it has kept the leased premises in good repair and whether it has breached the covenant for quiet enjoyment. The affidavit material filed on behalf of both HIH and Famhall indicates any resolution of these contentions will require substantial factual issues to be first resolved, some of which will involve findings of credit.
[4] On the hearing of the applications, Famhall contended HIH’s obligations under the lease required it to pay the rent and outgoings irrespective of whether there was disputation over breaches of the lease by Famhall as lessor and that it was entitled to summary judgment for the outstanding rent and outgoings and to possession of the property. HIH contended the relief sought by Famhall was premature as there is a genuine dispute between the parties and that the appropriate course was for directions to be made with a view to a speedy trial of the matter. HIH indicated it was ready and able to have an early trial of the issues in dispute.
[5] Famhall accepts that on the material HIH has established an arguable case (albeit weak) for a claim for damages for breach of Famhall’s obligations under the lease, but asserts Famhall is still entitled to summary judgment for the outstanding rent and outgoings as a consequence of the provisions of cl 3.4 of the lease. It provides:
3.4Rent Obligation Absolute
The Lessee’s obligation to pay Rent is not subject to any abatement reduction, set-off, defence, counter claim or recoupment.
[6] Famhall relies upon that provision, and the provisions of cl 5 which require outgoings to be paid “… at the same time and in the same manner as the Rent”, to support assertions that HIH is in breach of its obligations as specified in the notice to remedy breach of covenant. Famhall contends that HIH’s assertions of breaches by Famhall of its obligations under the lease, at best, give HIH a damages claim in the nature of a set-off and that cl 3.4 precludes it from relying on such a claim as a legally enforceable justification for non-payment of the rent and outgoings.
[7] In support of its claim for summary judgment, Famhall relies on a line of authority in relation to clauses to similar effect in guarantees.
[8] In ‘The Fedora’[1] the English Court of Appeal rejected a contention that a term in a guarantee which provided “[a]ll payments by the Guarantor under this Guarantee shall be made without set-off or counterclaim and without deductions or withholdings whatsoever …”, should be construed like an exemption or exclusion of liability clause and that without plain words claims of negligence ought not to be construed as being within it. The Court observed:
There must also be added (1) that the commercial purpose of the transaction is that, upon default by the borrower the bank should be paid quickly, and (2) that the natural meaning of the words is that all set offs and counterclaims are excluded. The natural meaning of the words is not that all set offs and counterclaims ‘other than set offs and counterclaims for negligence or breach of the bank’s duties as mortgagee’ are excluded.[2]
[9] The reasoning of the Court of Appeal in ‘The Fedora’ was accepted and adopted in Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd trading as Betta Machinery Sales.[3]
[10] A similar conclusion was reached in Capital Finance Australia Ltd v Airstar Aviation Pty Ltd.[4] That case concerned a clause in a guarantee to the following effect:
[a] [g]uarantor must not exercise any right of set-off, withholding, deduction or counterclaim which reduces or extinguishes the obligation of Customer or Guarantor to pay the Money.[5]
[11] In holding that such a clause was “unambiguous” and that its effect was to preclude the defendants from setting off any claim for damages against their liability, Holmes J noted that in Coca-Cola Financial Corporation v Finsat International Ltd Neill LJ, in rejecting an argument that such a clause was against public policy, observed:
I can see no reason in principle why parties who are in a general contractual relationship cannot isolate one contract or one aspect of their dealing and provide that their rights in relation thereto are to be treated separately from their other dealings.[6]
[12] HIH, whilst accepting the terms of cl 3.4 of the lease, contends its damages claim is in the nature of an equitable set-off and that cl 3.4 pertains only to legal set-offs and has no application to its claim against Famhall. Further, HIH contends that each of the authorities relied upon by Famhall are distinguishable as they did not consider a claim for damages in the nature of an equitable set-off by a lessee against a lessor in respect of alleged breaches of the lessor’s obligations under the lease.
[13] In support of its contentions, HIH relies on Re Partnership Pacific Securities Limited.[7] In that case, Williams J rejected a contention that a clause in a lease which required the rent to be paid “without any deduction” gave the lessee no right in any circumstances to set off any amount against the rent. After noting the observations of Lord Diplock in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd that clear unequivocal words would be required in a contract before a Court would find that the parties had agreed that remedies normally available to them would not be available in respect of breaches of that particular contract,[8] Williams J adopted the following observations by Andrew Waite in an article in The Conveyancer in the context of setting off damages against rent:
It is submitted that the same rule applies in the case of equitable set-off in accordance with the ‘contra proferentem’ rule. A phrase such as ‘without any deduction’ seems singularly inapt, in other equitable set-off, which is a true defence. Since the landlord’s entitlement to the rent is ‘impeached’, that amount of rent is no longer due, so it is inaccurate to speak of a ‘deduction’. There term ‘deduction’ on the other hand seems more apt to cover a legal set-off. In that case, both the claim and the cross-claim are admittedly due. One does not ‘impeach’ the entitlement to the other. The defendant is simply entitled to deduct what is owed from the sum he owes.[9]
[14] Similar conclusions were reached in Connaught Restaurants Ltd v Indoor Leisure Ltd[10] and MEK Nominees Pty Ltd v Billboard Entertainments Pty Ltd.[11]
[15] HIH also relies on Knockholt Proprietary Limited v Graff where WB Campbell J (as he then was) held that a lessee entitled to set off damages suffered by them by reason of the landlord’s breach of covenant is not in breach of their obligation under the lease to pay rental as they would be entitled to retain the rental until, at least, the set-off moneys equal the rental payments due.[12]
[16] In my view, the reasoning in Capital Finance, and the other authorities relied upon by Famhall, is compelling and apposite. Clause 3.4 in the present lease is clear and unambiguous. By it, HIH and Famhall agreed, as part of a commercial agreement, that notwithstanding any claim HIH may have against Famhall, including by way of set-off, HIH’s obligation to pay rent and outgoings was ongoing.
[17] I do not accept HIH’s contention that a distinction should be drawn between an equitable set-off and a legal set-off. No authority was cited to support that contention, and the cases relied upon by HIH are distinguishable as they do not concern cases with clauses of the specificity of cl 3.4. Whilst it is arguable the distinction between equitable and legal set-offs no longer exists, at least in Queensland, it is unnecessary to determine this question as cl 3.4 did not, by its terms, seek to draw any such distinction. The agreement reached between HIH and Famhall was that notwithstanding any claim HIH may have in relation to breaches of the lease, its obligation to pay the rent and outgoings remained throughout the lease. A plain and ordinary reading of cl 3.4 indicates it was intended to cover all types of claims that may be made by HIH as lessee. Such an interpretation is not unfair. It does not deprive HIH of the ability to prosecute any claim for breach of the lease. It simply ensures rent and outgoings do not remain outstanding whilst those proceedings are continuing, and whilst HIH has the ongoing use and benefit of the property.
[18] For the abovementioned reasons, I am satisfied HIH is in breach of its lease by failing to pay the rent and outgoings required of it and that it ought to have remedied that breach in accordance with the notice received by it. That being so, Famhall was entitled to give notice of termination of the lease, and is entitled to judgment for the outstanding rent and outgoings.
[19] The second issue to be determined in relation to the applications is whether HIH is entitled to relief from forfeiture.
[20] In circumstances where there is a genuine dispute between the parties as to whether the lessor has satisfied its obligations under the lease, I would be inclined to grant relief from forfeiture, particularly where, as here, a commercial business is operated on the property and has been operated there for some time.
[21] Any application for such relief would normally be accompanied by an offer to pay the outstanding rent and outgoings which had been withheld in breach of the lease, together with an offer to continue to pay such rent and outgoings in accordance with the lease whilst the dispute is litigated in appropriate court proceedings. However, HIH’s counsel specifically advised that HIH does not offer to pay the outstanding rent and outgoings, or to pay the ongoing rent and outgoings in accordance with the lease. Instead, HIH wished the matter to be determined on the basis that it had no such obligation due to its entitlement to set off its damages against those sums.
[22] Notwithstanding that clear indication from HIH’s legal representatives, I am inclined to allow HIH the opportunity to reconsider its position having regard to my finding that it is obligated to pay the outstanding rent and outgoings in accordance with the lease.
[23] If HIH were prepared to forthwith pay those outstanding sums, I would be inclined to grant it relief from forfeiture on strict conditions, namely, that it undertake to continue to meet the rent and outgoings in accordance with the lease and that it prosecute speedily any claim it may have for breach of the lease.
[24] Subject to granting the parties an opportunity to make further submissions as to the terms of the orders, I propose to order that:
1. Famhall have summary judgment in a sum to be quantified for the outstanding rent and outgoings due and owing pursuant to the lease;
2. Unless HIH pay such outstanding rent and outgoings forthwith and undertake to continue to meet its obligations to pay the rent and outgoings in the future until the final determination of its dispute with Famhall, Famhall recover possession of the property;
3. HIH pay Famhall’s costs of and incidental to both HIH’s application and Famhall’s application, such costs to be agreed or failing agreement to be assessed.
Footnotes
[1] [1986] 2 Lloyd’s Rep 441.
[2] Ibid, 444.
[3] [2000] QSC 050.
[4] [2004] 1 Qd R 122.
[5] Ibid, 124.
[6] [1998] QB 43, 52; cited in Capital Finance Australia Ltd v Airstar Aviation Pty Ltd [2004] 1 Qd R 122, 126.
[7] [1994] 1 QdR 410.
[8] [1974] AC 689, 717-718.
[9] Andrew Waite, ‘Disrepair and set-off of damages against rent: The implications of British Anzani’ (1983) The Conveyancer, 373, 389.
[10] [1994] 1 WLR 501.
[11] (1994) ANZ ConvR 363.
[12] [1975] Qd R 88, 90.