34 NSWLR]
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MUSUMECI v WINADELL P/L
MUSUMECI
AND ANOTHER V
723
WINADELL PTY LTD
Equity Division: Santow J
14, 15 June, 4 August 1994
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Contracts — General principles — Consideration — What amounts to —
Existing contract — Performance of one party becoming doubtful — Other
party promising concession to secure performance — Whether promise
binding — Practical benefit to promisor may be consideration — Lease of
shopping centre premises — Promise by lessor to reduce rent — Practical
benefit to lessor in retaining lessee.
Damages — Breach of contract — Lease — Covenant for quiet enjoyment —
Mental distress caused by breach — No damages unless distress caused by
physical inconvenience.
Landlord and Tenant — Covenants — For quiet enjoyment — Breach —
Whether damages for mental distress — Only when distress caused by
physical inconvenience.
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Held: (1) Where A has entered into a contract with B to work for or to
supply goods or services to B in return for payment by B, and in the course of
the contract, A's performance having become doubtful, B promises A an
additional payment or other concession (such as reducing A's original
obligation) to secure A's performance, a practical benefit to B or a detriment to
A is capable of being consideration for B's promise, so long as a benefit to B as
a result of A's performance is worth more to B than any likely remedy against
A, taking into account the cost to B of the payment or concession (or
reciprocally without detriment to B). Such a promise will then be legally
binding, provided that it was not made as a result of economic duress, fraud,
undue influence or unconscionable conduct on the part of A nor induced as a
result of unfair pressure on the part of A. (746G-747F)
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, discussed
and followed in part.
Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168, distinguished.
Foakes v Beer (1884) 9 App Cas 605, discussed.
(2) When a lessee of premises in a shopping centre claims to be unable to
remain viable and continue paying the full rent by reason of the introduction of
a much larger, competing tenant, the practical benefit to the lessor of retaining
the lessee as a viable tenant and keeping the centre occupied with both
competitors, might serve as consideration for the lessor's promise to reduce the
rent. (747G-748G)
Held further: There can be no damages for mental distress caused by a breach
of a covenant for quiet enjoyment unless the distress proceeded from physical
inconvenience caused by the breach. (752D)
Baltic Shipping Co v Dillon (1993) 176 CLR 344, applied.
Note:
A Digest — CONTRACTS (3rd ed) [87]; (2nd ed) [82]; DAMAGES (3rd ed)
[18]; (2nd ed) [18]; LANDLORD AND TENANT (3rd ed) [32]; (2nd ed) [75]
724
SUPREME COURT
[(1994)
CASES CITED
The following cases are cited in the judgment:
Ajax Cooke Pty Ltd t/a Ajax Spurway Fastners v Nugent (Supreme Court of Victoria,
Phillips J, 29 November 1993, unreported).
The “Alev”, Vantage Navigation Corporation v Suhail and Saud Bahwan Building
Materials LLC [1989] 1 Lloyd's Rep 138.
Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA [1985] 1 WLR 925;
[1985] 2 All ER 796.
Anangel Atlas Compania Naviera SA v Ishikawajima-Harima Heavy Industries Co Ltd
(No 2) [1990] 2 Lloyd's Rep 526.
Anon YB 33 Henry VI (47 pl 32).
B & S Contracts and Designs Ltd v Victor Green Publications Ltd [1984] ICR 419.
Baltic Shipping Co v Dillon (1993) 176 CLR 344.
Butler v Fairclough (1917) 23 CLR 78.
Callisher v Bischoffsheim (1870) LR 5 QB 449.
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.
Chan v Cresdon Pty Ltd (1989) 168 CLR 242.
Commissioner of Stamp Duties v J V (Crows Nest) Pty Ltd (1986) 7 NSWLR 529.
Consolidated Development Pty Ltd v Holt (1986) 6 NSWLR 607.
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40.
Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50.
Foakes v Beer (1884) 9 App Cas 605.
Hirachand Punamchand v Temple [1911] 2 KB 330.
Hughes v Metropolitan Railway Co (1877) 2 App Cas 439.
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd
(1988) 5 BPR 11,110.
Lee v GEC Plessey Telecommunications [1993] IRLR 383.
Lock v Pearce [1893] 2 Ch 271.
Pao On v Lau Yiu Long [1980] AC 614.
Pinnel's Case (1602) 5 Co Rep 117a; 77 ER 237.
Pittsburgh Testing Laboratory v Farnsworth & Chambers Co, Inc 251 F 2d 77 (1958).
Price Brent Services Pty Ltd v Commissioner of State Revenue (Vic) (1993) 26 ATR
560; 93 ATC 4,953.
Rexite Casting Co v Midwest Mower Corp 267 SW 2d 327 (1954).
Selectmove Ltd, Re (Court of Appeal of the United Kingdom, 21 December 1993,
unreported).
Sidney Trading Co, Ltd v Finsbury Borough Council [1952] 1 All ER 460.
Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168.
United States v Stump Home Specialties Manufacturing, Incorporated 905 F 2d 1117
(1990).
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
Western Transfer Co v Fry (1920) 55 DLR 291.
Wigan v Edwards (1973) 47 ALJR 586; 1 ALR 497.
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1.
Yanchep Sun City Pty Ltd v Commissioner of State Taxation (WA) (1984) 15 ATR
1165; 84 ATC 4761.
No additional cases were cited in argument.
STATEMENT OF CLAIM
In these proceedings the plaintiffs sought a declaration that they had not
breached the terms of their lease as tenants of premises in a shopping
centre, claiming that the defendant lessor had made a binding promise to
reduce the rent.
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34 NSWLR 723]
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MUSUMECI v WINADELL P/L (Santow J)
725
C J Birch, for the plaintiffs.
S W Gibb, for the defendant.
Cur adv vult
4 August 1994
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SANTOW J.
Essential issues:
The plaintiffs, Charles and Margaret Musumeci (husband and wife) are
tenants of premises known as shop 19, Southpoint Shopping Centre, 238-262
Bunnerong Road, Hillsdale, New South Wales. The lessor is the defendant,
Winadell Pty Ltd, which is the owner of the Southpoint Shopping Centre.
The primary claim of the plaintiffs by the amended statement of claim
under which the matter has proceeded is for a declaration:
(a) that the plaintiffs have not breached the lease dated 14 December 1990
(the Lease);
(b) that the terms of the lease (expiring 30 September 1995) were varied
on or about 28 April 1992 such that the rent payable by the plaintiffs to the
defendant under the lease was to be two-thirds of that sum otherwise due as
rent under the terms of the lease;
(c) that on its proper construction, the term “rent” in the alleged variation
of lease included outgoings payable by the plaintiffs under the lease.
Alternatively, the plaintiff pleads that in the events and circumstances that
have happened, as from 28 April 1992, the defendant is estopped from
claiming from the plaintiffs any sum for rental under the lease greater than
two-thirds of the rental due under the lease. Rental is again said to include
such outgoings as the plaintiffs are liable to pay under the lease, on the
plaintiff's construction of the lease.
The plaintiffs also claim damage for interference with the covenant for
quiet enjoyment in the lease (cl 19(1)). This is by reason of the attempted
eviction and removal of the plaintiff as tenant on 17 January 1994, which I
deal with later in this judgment. The damages claimed include not only loss
of profit and associated costs but also damages for “emotional stress and
vexation caused by the defendant's breaches”.
Finally, if, in the alternative, the Court should determine the defendant
was entitled to determine the plaintiff's interest in the lease, on or about 17
January 1994, the plaintiffs seek relief against forfeiture, claiming to be
ready, willing and able to pay all arrears of rent and such costs or interest as
the Court may determine.
The defendant essentially contends that the plaintiffs were in breach of the
lease for failure to pay rent and outgoings, so disentitling them to such
enjoyment or continued possession. It also disputes the damage claimed and
contends that relief against forfeiture should be denied. The contentions are
contained in the defence and cross-claim.
Factual circumstances and principal contentions:
The correspondence and events upon which the principal contentions are
based:
On 14 April 1992, the plaintiffs' solicitors, Kalaf and Damianos
SUPREME COURT
726
[(1994)
(Mr Ian Kalaf) wrote to the solicitors for the lessor, Mr Robert Gellert of
Lang Gellert & Noonan, as follows:
“Re:
A
Charles and Margaret Musumeci Shop 19 Southpoint Shopping
Centre Negotiated terms of lease
Dear Sir,
We act for Mr and Mrs Musumeci who have instructed our firm to
make a formal application to renegotiate the terms of the existing lease
in respect to shop 19. The review that is sought includes provisions for:
1. the abatement of rent by a reduction of 1/3 commencing from the
date in which their competitor Duffy Bros opens its retail store to the
public comprising of shops 7-10 inclusive
2. a term of 5 years plus 5 years.
and
3. commencing 30th September 1995 an agreed principle will apply to
determine the rent taking into account the amount of trade and custom
that has been transferred from Southpoint shopping centre to Duffy
Bros.
The perceived economic effect of the decision to let out shops 7-10 to
Duffy Bros is to render the asset of the goodwill of shop 19 to be
valueless. It is now anticipated that the trade of selling fruit and
vegetables at shop 19 will be reduced to a subsistence level. The factors
that will create the transfer of trade from Southpoint Fruit Market to
Duffy Bros include:
(i) Increased merchandising area of shops 7-10 inclusive which is
approximately six times the size of shop 19.
(ii) Radio advertising by John Laws on 2UE.
(iii) Advertising support within the shopping centre to the exclusion
of shop 19.
(iv) the location of the store being next to the entrance outlet.
We suggest the existing lease be surrendered in favour of a new one
for term of five years plus a five year option. Provision for abatement of
rent until the 30th September 1995. The review of the rent from that
date will take into account the transfer of trade from Southpoint
Shopping Centre to Duffy Bros. The principle to be applied may be
agreed by exchange of views.
The object of the obtaining a new lease of 5 years plus 5 years is to
give adequate time for the present tenants to work to restore the
inevitable loss of trade and thus in subsequent years the value of the
goodwill which initially is valueless may through perseverance become
marketable and saleable at a reduced amount.
Enclosed is a copy of facsimile transmission that was sent on the 9th
April 1992 to the proprietor Windall Pty Ltd offering to take over shop
20 on specified terms. That offer was rejected on Saturday the 11th
April 1992 when the principals called at the shop and spoke to Charles
Musumeci and coincidentally the writer was present in the shop when
the principals, unannounced visited the tenant.
We request that your client sympathetically consider the application
to renegotiate the terms of the lease. The failure to provide a remedy
for:
(i) future lost income
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and
(ii) rendering valueless of the asset of the clients goodwill will
necessitate that proceedings be instituted in the Federal Court seeking
damages for lost goodwill which is estimated to between ($150,000.00 to
$200,000.00) and loss of future earnings for the period up to 30th
September 1995.”
On 21 April 1992, Mr Gellert replied with a letter marked “without
prejudice” as follows (so far as relevant):
“Re
Winadell Pty Ltd
Lease to C & M Musumeci
Ppty: Shop 19 Southpoint Shopping Centre
We acknowledge your letter of the 14th April 1992, the contents of
which have been discussed with our client. Although the lessor disagrees
with some of the allegations made in your letter, particularly the alleged
offer referred to on the second page of your letter which in its initial
terms was acceptable to the lessor as relating to the adjoining furniture
store. In any event our client appreciates, without admitting any liability
in respect thereof, that your client's business may suffer some reduction
in trade as a result of another fruit shop opening in the Centre.
However, it must be pointed out to you that your clients Lease does not
contain any restriction on the lessor to allow a similar business to
operate in the Shopping Centre and no representation to that effect was
ever made. Consequently, the threat of legal action for loss of income
and compensation for the alleged loss of goodwill is totally without legal
foundations and any such claim will be most strenuously defended.
Nevertheless our client has given some consideration to your request
for the reduction of rental and the current rent will be reduced by 1/3rd
from the date of the new fruit shop opening for business. The lessor is
not in the position to grant a new Lease but the above concession
indicates our client's goodwill and tangible benefit offered to your
client.”
On 28 April 1992, Mr Kalaf replied to Mr Gellert, so far as relevant, as
follows:
“Re:
F
MUSUMECI v WINADELL P/L (Santow J)
Charles and Margaret Musumeci Shop 19 Southpoint Shopping
Centre Negotiated terms of lease
Dear Sir,
We acknowledge receipt of your correspondence dated 21st April
1992 which contained an undertaking to reduce the rent of shop 19 for
the term commencing on Duffy Bros opening shops 7-10 to the public
and expiring on the 30th September 1995. On behalf of the tenants
Mr and Mrs Musumeci we accept that undertaking. The response by
your client is a significant contribution to effecting a negotiated
settlement of the claims made by our clients.
The offer of compromise made in our letter dated 14th April 1992
had as its object to balance two competing considerations: To provide:
(i) a basis in which the landlord is able to let out all of the shops in
the complex which includes (7-10, 20 and the video store upstairs)
and
(ii) remedial relief to be granted to the tenants of shop 19 and for
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[(1994)
them to be subject to conditions that allow the parties to compete
equally and fairly with Duffy Bros.
We are of the view that the under mentioned requirements are
necessary to be complied with in order that the tenants of shop 19 are
able to compete equally and fairly with Duffy Bros.
(i) that the term of the lease be 5 years plus 5 years option.
(ii) that rent paid per square metre after 30th September 1995 is
equal to that paid by Duffy Bros.
(iii) That the range of products permitted for retail sale are identical.
(iv) That active promotion of the stores are even handed and equal.
(v) Both parties are subject to the same principles to determine the
liability for charges and outgoings rebates, credits etc, and the form of
security for bond monies.
(vi) Hours of trading to apply equally.
The single most important reason of the requirement for the term of
5 years plus 5 years option is to provide an adequate period for the
proprietor of shop 19, to restore the value of an unsaleable business to
being marketable and allowing a reasonable period of tenure for the
incoming purchaser to conduct his newly acquired business.
We anticipate (based upon past experience) that an active promotion
of Duffy's pricing policy will be the main weapon to effect a transfer of
business from shop 19 to shops 7-10. That policy is based upon the
principle that Duffy Bros stores situated at Bonnyrigg, Flemington,
Hornsby, Hurstville, Maroubra, Minto, and Wentworthville will subsidise the operations of Southpoint Shopping Centre for a period of six
months. Essentially wholesale prices will operate during that period and
that overall prices at the above mentioned retail stores will exceed those
being charged by Duffy Bros at Southpoint Shopping Centre. The prices
charged at the wholesale outlet at the Auburn store will be
commensurate with retail prices offered to the public at Southpoint
Shopping Centre.
In light of the necessity to establish the principle that shop 19 is able
to compete fairly and equally with Duffy Bros, we request that the
second component of our compromise offer be reconsidered to allow
for a new lease to be drawn which embraces items (i) to (vi) inclusive as
well as an abatement of 1/3 rent agreed upon for the period referred in
the opening paragraph of this communication.
Since we believe that considerable progress has been made to effect
settlement by way of negotiation, an incomplete reference is now made
to a single ground under active consideration in respect to one point
raised in your memorandum dated 21st April 1992 which concerns the
defence of the landlord to an action by the tenant for damages for
diminished loss of the value of the assets and profits of the business
styled Southpoint Fruit Market.
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Omission of restrictive clauses
‘The absence of a provision in the lease of any restriction on the
lessor to allow a similar business to operate in the shopping
centre’ … is subject to statutory and common law provisions,
which includes:
(1) Contracts Review Act 1980.
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MUSUMECI v WINADELL P/L (Santow J)
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(2) Section 52 of the Trade Practices Act 1974 (as amended).
(3) Section 42 Fair Trading Act 1987.
(4) AWA Ltd v Exicom Aust Pty Ltd (1990) 19 NSWLR at 705,
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52
ALJR at p 20 (Bond Brewing case is still under review —
forfeiture of goodwill on expiration of lease).
In our opinion it would be a serious error of judgment to
conclude that sections 4, 7 and 9 of the Contracts Review Act 1980
do not apply to the present circumstances which are detailed
hereunder:
(1) The Landlord claims that he has a proper defence to an
action for damages or compensation and that he has the power
and right to render the business of shop 19 unsaleable and to
reduce its profitability to a subsistence level by the following
actions:
(i) letting out shops 6-10 inclusive to Duffy Bros, where it has
been a practice for a balanced mix of shops to operate within the
centre since its opening to the public.
(ii) reserving the right to require the tenant to subsidise the rent
paid by Duffy Bros (after 30th September 1995) if it so desires
where the tenants wish to maintain and operate their business.
(iii) reserving the right to permit Duffy Bros to obtain
advantages by the range of products for sale and other
concessions including bond monies.
(iv) actively participating in the promotion of stores 6-10
wherein one consequence is to facilitate the transfer of business
from shop 19 to shop 6-10 and wherein no regard or consideration
is given to pricing policies of Duffy Bros (ie wholesale and retail
prices during the period of promotion).
(2) Prohibiting the tenant pursuant to the terms of the lease
from taking remedial action by:
(i) Increasing the range of products for retail sale.
(ii) Increasing the hours for trading.
It is evident that powerful arguments arise to demonstrate that the
contract of lease in its present form is unjust where a Court is required
to have regard to the PUBLIC INTEREST and to all of the
circumstances of the case, including such consequences or results as
those arising in the event of:
(a) compliance with any or all of the provisions of the contract; or
(b) non-compliance with, or contravention of, any or all of the
provisions of the contract … vide section 9.
The proposal that we make to satisfy all claims against the landlord is
as follows:
(i) that the existing lease be surrendered;
(ii) that a new lease be drawn which embraces the principles that
allow the tenants to operate in conditions to compete fairly and equally
with Duffy Bros and incorporating the provisions of 1/3 reduction of
rent to 30th September 1995 and points (i)-(vi) noted on page one (1)
and two (2);
(iii) that a formal instrument be executed by our clients forebearing
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SUPREME COURT
[(1994)
to exercise their rights in consideration of the grant of a lease as
indicated in point (ii) supra;
(iv) all costs for the preparation of the lease including disbursements
and stamp duty to be borne by the tenant.”
On 27 May 1992, again in a letter marked “without prejudice”, Mr Gellert
replied:
“Re:
Charles and Margaret MUSUMECI
Shop 19, Southpoint Shopping Centre
We refer to your fax letter of the 28th April last.
Our client made its decision quite clear in our letter of the 21st April
and has given concession by way of reduction of the current rental for
the time being.
The lessor is not in a position to offer a new lease to your client and
the various propositions put forward in your letter are not acceptable to
it.
We wish to point out that at your client's request, the lessor evicted
the tenant of the adjoining furniture store in March and negotiated with
your client the terms and conditions of an additional lease of the
adjoining shop, which your client apparently refused to take up.
Accordingly, the lessor suffers a loss of rental at this stage, and
continuing. In the event of your client contemplating any action against
the lessor, which in our view is without merit, a counter claim will
certainly be made against your client for the aforesaid loss. The lessor
will also withdraw its without prejudice offer to reduce the rent in the
circumstances.
We can only suggest that your client should discuss with the Centre
Management the matters raised in your fax concerning the trading
hours and goods that may be sold from the premises. We do not see the
need for the solicitors to get involved in such matters.
Your client must realise that whatever arrangements are made by the
lessor with a new tenant it does not follow that the same conditions
should apply to another tenant who already holds an existing lease.”
Rent, it should be noted, was payable monthly in advance. A rent
statement in April 1992 for May 1992 was for the full rental, without
reduction. However the offer to reduce rental came into effect when Duffy's
came into occupation. This occurred on 27 May 1992. Thus this amount was
subject to a small adjustment down for four days of May 1992. Thereafter
the rent concession would have applied for June 1992 and until at least 8 July
1992. On that date, as appears below, the defendant purported to terminate
it. The plaintiffs contend that this could not be done unilaterally so as to
prevail over what they contend was a binding contractual alteration to the
lease. The defendant contends that there was no consideration for such a
concession so that it was revocable at will. I refer now to the relevant
ensuing correspondence.
On 23 June 1992, Mr Kalaf wrote to Mr Gellert as follows:
“Re: Charles & Margaret Musumeci shop 19, Southpoint Shopping
Centre
* Lease dated 14/12/92 Winadall Pty Limited and Charles &
Margaret Musumeci.
Dear Sir,
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We are in receipt of a memorandum directed to our clients by
Winadell Pty Limited indicating that an error of calculation has been
made concerning the reduction of rent by 1/3 in respect to the month of
June 1992. The total rent liable to be paid pursuant to clauses three,
four and five of the above mentioned lease entered into on the 14th
December 1990 includes all outgoings.
The calculations that personnel of our firm have made are as follows;
Minimum rent
Additional rent
Less 1/3
Total rent
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MUSUMECI v WINADELL P/L (Santow J)
$3,701.53
$2,168.21
$5,869.74
$1,956.58
clauses three and four
clause five
$3,913.16
The letter dated 21st April 1992 issued from your office is clear when
reference
is
made
to
the
lease
document:
the current rent will be reduced by 1/3 from the date of the new
fruit shop opening for business.
We have received instructions to accept service of any originating process
and that all communications are to be directed to our office in respect to all
matters concerning the lease hereto referred.
Since the fruit business of Mr and Mrs Musumeci has been rendered
unsaleable, we invite the landlord to pay the sum of $120,000.00 in
consideration that our clients will cease operating the fruit shop at shop 19,
surrender the lease and forebear from exercising their rights rights [sic] to
sue for damages.
We should point that the developments arising from Winadell Pty Limited
being unwilling to renegotiate the existing lease has given rise to an invitation
to buy out the tenant. Should that component of due process fail then it will
be inevitable that further action will be taken to effect a compulsory
settlement. Our clients will not permit Winadell Pty Limited to render their
business valueless and unsaleable.”
On 6 July 1992, Mr Gellert replied to Kalaf & Damianos as follows:
“Re: Winadell Pty Ltd lease to Musumeci Property: Shop 19,
Southpoint Shopping Centre
We refer to your letter of 23rd June, 1992 concerning the reduction of
rent offer by the Lessor. We advise that there was no error in the
calculation of rent as your client has obviously misinterpreted the offer
which was limited to the actual rent, and doesn't include the outgoings
payable by the Lessee pursuant to clause 5. Such outgoings are only
referred to as additional rent for the purpose of recovery together with
the rent if they fall into arrears. It was never intended that the offer by
the Lessor should encompass the outgoings.
We also wish to bring to your attention that the Lessor reserves the
right to terminate the offer of rent reduction at any time particularly if
your client persists in misinterpreting the offer which was to assist him
for the time being and continues with his unlawful demands.
The Lessor hereby requests that the arrears of outgoings be paid
within seven days.”
On 8 July, Winadell wrote to Kalaf & Damianos purporting to terminate
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[(1994)
what it referred to for the first time as the “temporary” rent reduction, in the
following terms:
“Termination of temporary rent reduction — After inviting your client to
the payment of overdue rent monies for the above premises, and despite
the numerous correspondence in the matter with yourselves, correspondence in which we clearly and fully explained your accounting mistake in
agreement with lessee provisions, we now inform your client that in
accordance with the clauses of the partial relief of rent temporarily
granted to your client, Winadell is annulling the relief concession.
Such concession was standing provided your client would pay in full
the due monies as per agreement. Since your client's payments are
overdue in breach of this agreement, our Company has now withdrawn
the reduction which was granted on condition and only temporarily to
your client.”
Mr Kalaf, on 9 July 1992, to Mr Gellert as follows:
“Re:
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Charles and Margaret Musumeci Shop 19 Southpoint Shopping
Centre Negotiated terms of lease
Dear Sir,
We refer to your correspondence dated 6th July 1992 wherein the
points raised have been duly noted and considered. It is accepted that a
divergence of view has arisen in respect to the legal effect of your
communication dated 21st April 1992. The intention of a person, and
the legal effect of a document may not necessarily be congruent in all
respects. Thus for example we are invited to accept the proposition that
the representation of offering to reduce current rent by 1/3 excludes the
component of additional rent by implication and that the representation
does not constitute a variation of the terms of the lease agreement that
was entered into on the 14th December 1990.
We are further satisfied that issues of contention between the
Landlord and Tenants cannot be resolved by conciliation. Our
instructions are to commence proceedings claiming damages and
compensation on the receipt of an auditors report of the business
conducted at shop 19 Southpoint Shopping Centre. Your clients position
can be accommodated by way of Defence and Cross Claim.
In the meantime deductions of 1/3 of the current rent will continue
until the matter has been resolved by compulsory settlement.”
Thereafter followed further correspondence in similar vein from which it
is clear both that Mr Kalaf disputed the position put by Winadell and
Winadell accepted the payments of rent thereafter on a “without prejudice”
basis as “incomplete payment”. What happened was that the plaintiffs
tendered two-thirds of the total of the rent inclusive of outgoings, that is to
say on the basis that rental included the lessees' share of outgoings. The
defendant lessor disputed that rental, under the terms of the lease, properly
construed, included outgoings. The defendant thus accepted those payments,
as “incomplete payments” on a “without prejudice” basis. The defendant
thus sought to maintain its position that the rent concession had been
terminated as a result of the lessee's failure to pay outgoings in full.
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The relevant terms of the lease:
I refer to the relevant provisions of the lease so far as they bear on
whether the lease was varied and on whether the reduction the subject of the
claimed variation extended to cover outgoings as comprehended in rent. I
also draw attention to some of its other salient provisions.
(i) Clause 2 of the front of the lease describes the term as five years
terminating on 30 September 1995, subject to the covenants and provisions
set forth in Schedule 2 of the lease.
(ii) The key variables of the lease are set out in the Lease Schedule. They
include a minimum annual rent (par 9) of $43,200, with rental as provided in
cl 3 on an annualised basis, payable monthly in advance.
(iii) Clause 5 of the lease provides, relevantly, that “the Lessee shall pay to
the Lessor additional rent at the rate of the percentage set out in number 12
of the Lease Schedule of the amount of all outgoings of the Property in
respect of each lease year” (my emphasis). Paragraph 12 of the lease
schedule then provides that the lessee's percentage of outgoings is 2.735 per
cent of general outgoings with a separate percentage (4.687 per cent) of airconditioning outgoings, with annual figure stated as applicable “at the date
hereof” in the case of the general outgoings.
(iv) Clause 10(1) of the lease states: “This document embodies the whole
transaction of the leasing hereby made.”
Then cl 10(3) of the lease states: “This lease may be amended or varied
only by instrument in writing executed by the Lessor and the Lessee.”
(v) Clause 13 of the lease refers to “the rent hereby reserved or any other
monies payable by the Lessee pursuant to this lease”.
(vi) Clause 19(1) contains a lessor's covenant that “subject to this lease
and to the Lessee observing and performing all of the covenants and
provisions herein contained on the part of the Lessee to be observed or
performed the Lessee shall and may peaceably possess and enjoy the
premises for the term hereby granted without any interruption or
disturbance from the Lessor or any person lawfully claiming by or from or
under the Lessor”.
(vii) Clause 13(1) of the lease provides that “if any part of the rent hereby
reserved or any other monies payable by the Lessee pursuant to this lease
shall at any time be unpaid for fourteen (14) days … it shall be lawful for the
Lessor … without prejudice to any other remedy or right of the Lessor
unless prohibited by a statute to immediately or at any time thereafter and
without further notice or demand re-enter (forcibly if necessary) the
premises or any part thereof … to remove the property of the Lessee at the
premises, without being guilty of any manner of trespass”. The lease then
provides that “whereupon this lease shall terminate …”.
(viii) In cl 21(7) as in cl 13 there is a distinction drawn between “all
payments of rent” and “all other monies payable by the Lessee to the Lessor
pursuant to this lease”. Clause 21(11) refers to the “rent hereby reserved”.
Clause 21(12) provides for interest to be payable “on all monies due but
unpaid by the Lessee to the Lessor pursuant to this lease”.
(ix) In cl 24 there is in par 9 a definition of “minimum annual rent”, which
refers to the $43,200 referred to earlier, as indexed.
(x) The promotion fund in cl 26 requires a contribution of 5 per cent of
the “minimum annual rent”.
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(xi) Clause 28(1) as cl 5 refers to “additional rent”, in relation to airconditioning units. The lessee's percentage of outgoings is the reference
point for the calculation for outgoings: see cl 28(4).
(xii) Clause 31 makes clear that the lessor's entitlement to cover damages
is not to be affected or limited by, inter alia, the lessor electing to re-enter or
to terminate the lease.
(xiii) There is no provision in the lease which restricts the lessor as to the
kind of tenant that may be brought into the shopping centre and in particular
no provision preventing a competing tenant being so brought in. Equally
there is no provision giving express licence to do so.
The plaintiffs alleged that at or about the time when the lease was entered
into, a representation was made on behalf of the defendant Winadell Pty Ltd
that no other premises in the shopping centre would be leased for fruit shop
purposes, that being the purpose for which the premises were leased by the
plaintiffs. However no claim in that regard is made in these proceedings.
There is insufficient evidence before me to conclude that such representation
was made.
Attempts by lessor to regain possession and terminate the lease:
On 2 November 1993, the plaintiffs were threatened with legal proceedings
if payment was not made of the amount that the lessor claimed to be
payable, that is to say the full rental without reduction. The final paragraph
says: “The Lessor reserves the right to proceed in accordance with cl 13,
pursuant to breach of lease agreement, should the required payment not be
forwarded within the required time.”
On 11 January 1994, payment was required in full by Friday, 14 January
1994 with again reservation of the right to proceed in accordance with the
lease agreement, if payment is not made.
On 13 January 1994, a notice to quit was issued by the Southpoint
Shopping Centre. This failed to recognise that the lease, being for a term of
years, could not be so terminated but required a writ of ejectment. In fact
further notices to quit were issued on 21 and 29 August 1992.
No steps had been taken by either party to have the dispute resolved by
legal proceedings, though the plaintiffs had made clear they envisaged that
course. On Sunday, 16 January 1994, the lessor entered the premises,
changed the locks and immediately arranged for demolition works to be
commenced demolishing walls between the adjoining Franklins' store and
shop 19 leased to the plaintiffs. This was to enlarge the Franklins' store. The
matter came before Cole J on 18 January 1994 for an injunction restraining
Winadell. Cole J made orders entitling the plaintiffs to resume trading and
requiring all demolition work which had occurred to be restored. He stated
that the premises should be restored to the condition they were in at the
time when the lessor entered and prior to their commencing demolition.
This last was then incorporated in the short minutes of order subsequently
handed down.
Cole J noted various matters in dispute at that time. These correspond to
a number of those currently before me. He noted that the representation as
to exclusivity was denied by Winadell and that the matters in dispute had yet
to be resolved. After referring to the Lessor's entry onto the subject
premises he said: “In my view such conduct is quite unacceptable
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commercial conduct in circumstances where the lessor was aware that there
was an existing dispute regarding whether or not the lessee had in fact paid
the rental as varied as agreed or, alternatively, a dispute concerning the exact
quantum applicable.”
The remaining directions from Cole J required that the plaintiff's file and
serve a statement of claim, which subsequently was done. Also that the
defendant file and serve its defence and any cross-claim. This also was done.
It is essentially these pleadings, with some modifications that are before me
now.
The plaintiffs' claim for damages:
The plaintiffs seek loss and damage by reason of the alleged breach of the
covenant for quiet enjoyment constituted by the issuance of notices to quit,
the requirement that the plaintiffs vacate the premises on or before 21
September 1992, locking the plaintiffs out of shop 19 on Monday, 17 January
1994 and the other steps that were then taken as particularised in par 3 of
the statement of claim.
The claim for loss and damage was particularised as including loss of
profit from 17 January 1994 to 19 January 1994 with attendant costs of
restoring the shop premises to a satisfactory condition to enable trading to
re-commence on 20 January 1994 and for loss of stock, perished or spoiled
while the store was locked from 17 January to 19 January 1994. It also
includes “damages for emotional stress and vexation caused by the
defendant's breaches”.
I am not asked to quantify the various heads of damage, at least at this
point. I do however note that the amount claimed for emotional distress and
vexation by the plaintiffs is $10,000.
The plaintiffs' claim for relief against forfeiture:
The plaintiffs contend that if the Court should determine, contrary to the
claims made by the plaintiffs, that the defendant was entitled to forfeit the
plaintiffs' interest in the lease, nonetheless on the basis the plaintiffs have
never repudiated the lease, are ready, willing and able to pay all arrears of
rent and such costs or interest as the Court may determine and to comply
with any determination of the dispute, so that it would therefore be just and
equitable that the Court grant an order for relief against forfeiture. Further
it is contended that the defendant acquiesced in the plaintiffs' payment of
rent calculated in accordance with the plaintiffs' interpretation of the
agreement between June 1992 and 17 January 1994.
The plaintiffs rely upon the decision of Young J in Consolidated
Development Pty Ltd v Holt (1986) 6 NSWLR 607 at 620 as authority for the
proposition that, after the Judicature Act amendments and having regard to
s 129(10) of the Conveyancing Act 1919 and the capacity to apply for relief
under s 73 of Supreme Court Act 1970 against forfeiture, it is possible to seek
relief against forfeiture without admitting breach. Compare Lock v Pearce
[1893] 2 Ch 271 at 275 where Lord Esher MR said: “asking for relief against
forfeiture is an admission there is a forfeiture.” If it were necessary to decide
this, I would accept the position so put by Young J concerning forfeiture.
The plaintiffs made reference to the earlier quoted letter of 2 November
1993. There the defendant represented to the plaintiffs that it would take
legal proceedings to recover all outstanding amounts (though in fact none
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were taken) and in consequence it was reasonable for the plaintiffs to believe
that the defendant would seek to resolve any dispute by legal proceedings
rather than terminating the lease excluding the plaintiffs from the premises.
Also before me is a letter from the National Australia Bank which I am
satisfied indicates that the plaintiffs would now have borrowing capacity to
pay the arrears.
The plaintiffs allege that the correspondence put in evidence and quoted
earlier reveals an agreement to alter the contract which was either for
consideration or gave rise to an equitable estoppel. The defendant contends
that there was merely a voluntary concession and no agreement supported by
consideration whereby “current rent” would be reduced by one-third “for
the time being”, that is to say until the concession was revoked at the
discretion of the defendant. The defendant also contends that no acceptance
in the formal sense of offer and acceptance ever occurred by the lessees of
the lessor's offer as set out in the letter of 6 August 1992 from the defendant
to the plaintiffs' solicitors.
The plaintiffs contend in the alternative that if there were no agreement
supported by consideration there was nonetheless in the correspondence and
events that happened an equitable estoppel against the defendant claiming
any sum for rental under the lease greater than two-thirds of the rental due
under the lease as and from 28 April 1992 when the competing tenant
(Duffy's) came into occupation. The defendant denies that such estoppel is
made out on the ground that there was no reliance by the plaintiffs but that
in any event, even if estoppel were made out, on the principles in Waltons
Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, the estoppel ceases when
the representation is withdrawn upon which the other party relies. Put
another way, the assumed state of affairs upon which the other side has
relied to its detriment is no longer capable of giving rise to such reliance
upon its withdrawal, though reasonable notice of withdrawal may be
necessary.
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Resolution of legal issues:
Question 1:
Was there a contractual variation to the lease for consideration, binding
against the lessor, in the circumstances?
The plaintiffs put their case for there being a binding contract on one of
two grounds.
Forbearance of consideration?
The first ground is that the lessor agreed to the rent reduction in favour of
the lessees in consideration of the lessees agreeing to abandon their claim
for alleged destruction of their goodwill in leasing a substantially larger area
to a major competing fruit market business. The lessor denied any legal
obligation to refrain from leasing to a competitor and in particular any
representation to refrain from so leasing was denied. It should be noted that
the lessees did not explicitly put that claim on the basis of any such express
representation. Rather it was put in the first instance (14 April 1992) entirely
generally and then, but only after the rent concession was given, in a letter
dated 28 April 1992 by reference to a number of alternative bases which
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might imply the claimed representation, but also particularly on the basis of
the Contracts Review Act 1980.
There is no evidence before me as to such alleged representation in fact
having been made. Equally though, there is no evidence before me to lead
me to doubt that such claim was made bona fide on the other grounds put,
and in particular the Contracts Review Act 1980. Thus such claim, when
elaborated on 28 April 1992, was put in terms alternatively of s 52 of the
Trade Practices Act 1974 (Cth), s 42 of the Fair Trading Act 1987, by
reference to the Contracts Review Act 1900 or under general law.
Essentially this ground proceeds on the basis that a forbearance to sue is
good consideration. Thus abandonment, or promise of abandonment, or
even conduct signifying abandonment, of a substantive claim suffices as
consideration, where there is either liability on the part of the claimant, or a
bona fide belief in that liability. In short, where there is the giving up,
expressly or signified by conduct, of a seriously asserted claim which is at
least arguable, provided the assertion is made bona fide. The claim must not
however be vexatious or frivolous or known to be bad, though abandonment
suffices as consideration even if the claim be clearly bad in law, so long as
believed by the promisee to be valid: Callisher v Bischoffsheim (1870) LR 5
QB 449, Wigan v Edwards (1973) 47 ALJR 586; 1 ALR 497, Butler v
Fairclough (1917) 23 CLR 78 at 96, Allied Marine Transport Ltd v Vale do
Rio Doce Navegacao SA [1985] 1 WLR 925 at 933; [1985] 2 All ER 796
at 802 (conduct signifying abandonment sufficing, without the necessity for a
formal release).
However there is a significant difficulty in the way of this basis for
establishing consideration. The letters of 28 April 1992 and 23 June 1992
from Mr Kalaf to Mr Gellert make clear that this proposition of
abandonment of the alleged claim was maintained after the undertaking to
reduce rent, as the reduction offer was accepted on 28 April 1992 without
actually then abandoning the threatened legal action. The continued threat
of action was thus implied, if not reiterated, in the context of the plaintiffs'
solicitor's “comprehensive proposal” that the existing lease be surrendered
and a new lease drawn up specifically. As an inducement, the plaintiffs'
solicitor then offered in return a formal instrument, forbearing to exercise
such rights of action said to be “in consideration of” the grant of a new lease.
This new lease was to embrace principles which were in fact never agreed to
by the lessor and in fact never became part of the overall arrangements.
Thus the first part of the letter of 28 April 1992 may be said to simply record
there being an undertaking to reduce the rent on the part of the lessor
(though the use of the word “undertaking” seems inappropriate to describe
the arrangement in fact entered into). This was without attributing
forbearance as a consideration for that alone, but for that plus more — and
the “more”, in the form of a new lease, was never forthcoming.
The lessor refused any further concession on 27 May 1992 (whilst
contending there had been short payment of the lessees' share of outgoings
by one-third). The lessees replied on 23 June 1992, inviting the lessor to
accept a surrender of the lease, and forbearance to sue for damages, in
return for payment of $120,000 for lost goodwill. The lessor did not take this
invitation up, instead threatening to terminate the rent concession, if the
lessee “continues with his unlawful demands”. As we know, on 8 July 1992
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the lessor then purported to terminate the rent concession, describing it —
for the first time — as “temporary”. It did so, on the express basis that the
rent concession did not, in terms, include outgoings and thus there had been
a shortfall in what was paid. I deal with that contention later.
Accordingly, I am satisfied that forbearance, the sense of a formally
binding release, or formally agreed forbearance, affords no basis in the
circumstances for attribution of consideration, even if the release may have
been initially proposed, inter alia, for the rent concession actually obtained.
Practical benefit or detriment as consideration?
That leaves the second basis for putting the plaintiffs' contention that
consideration was in fact provided for the rent concession. That basis relies
upon the decision of the Court of Appeal in Williams v Roffey Bros &
Nicholls (Contractors) Ltd [1991] 1 QB 1. That case held that A's promise to
B to perform an existing duty owed to B may be consideration,
notwithstanding the rule that a promise to perform an existing duty is not
consideration. This rule is avoided only where the promisor in fact obtains in
practice a benefit or obviates a “disbenefit”, from the promise or its
performance, so enabling the promisee's reciprocal promise to be enforced.
This is despite such benefit (or avoidance of disbenefit) not being expressly
promised.
In that case, the principal contractor B agreed to pay a subcontractor A an
additional sum over and above what was payable under the subcontract in
order to secure the benefit of more assured performance from A. Thus the
benefits which the defendant B was said to have obtained by so securing the
plaintiff A's performance were twofold. First, there was a measure of
protection against the risk that, as a result of the main contract to refurbish,
B would be liable to pay liquidated damages if A failed to perform when that
was a real risk and, secondly, avoidance of trouble and expense in finding a
replacement for A.
Essentially the plaintiffs in the present case have to overcome the difficulty
that, if a formal binding forbearance to sue were not the consideration, then
the plaintiffs might be said to be merely promising, as consideration, to
perform a contractual duty already owed to the lessor and nothing more. If
so, this could not be good consideration: Stilk v Myrick (1809) 2 Camp 317;
170 ER 1168. This decision has not been over-ruled, though is possibly
explicable today as denying enforcement to a promise exacted by duress. The
duress was by threatening desertion and thus a breach of contract, so as to
secure more advantageous terms to perform an existing contractual duty.
There was, after all, a similar practical benefit to the shipowner (or the
Captain) from performance by the sailors of their duty to complete the
voyage (despite desertion by two of them) of the sort that would have
satisfied the Williams v Roffey test. Thus, in Wigan v Edwards (at 594; 512)
Mason J said:
“… The general rule is that a promise to perform an existing duty is no
consideration, at least when the promise is made by a party to a preexisting contract, when it is made to the promisee under that contract,
and it is to do no more than the promisor is bound to do under that
contract. The rule expresses the concept that the new promise,
indistinguishable from the old, is an illusory consideration. And it gives
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no comfort to a party who by merely threatening a breach of contract
seeks to secure an additional contractual benefit from the other party on
the footing that the first party's new promise of performance will
provide sufficient consideration for that benefit.”
That notion of illusory consideration is reinforced by the analogous
proposition in the context of part payment of debts. This proposition predates any doctrine of consideration and provides that part payment of a debt
or the promise thereof, does not afford consideration: Pinnel's Case (1602) 5
Co Rep 117a; 77 ER 237 (already accepted as early as 1455, Anon YB 33
Henry VI (47 pl 32). That proposition received the approval of the House of
Lords in Foakes v Beer (1884) 9 App Cas 605 and has not been over-ruled.
It is true that this dealt with the claimed extinction of a chose in action
being the original debt rather than the reduction of a series of promised
payments yet to accrue, as here. Yet the underlying rationale for the rule is
the same for either situation. However that strict rule in relation to debts
was early subject to exception where a creditor accepted the promise of part
payment by a third party in full settlement. This was held to be a good
defence to a creditor's action against the debtor for the balance: see most
recently Hirachand Punamchand v Temple [1911] 2 KB 330.
Of course there is clearly a benefit to the recipient from the third party
putting its credit behind the debtor — and a detriment to the third party in
so doing.
It has been suggested that this result should depend rather on a broader
notion of practical benefit to the creditor where it exists, rather than on the
distinction between third party promises and promises from the original
debtor or original contracting party. So Lord Blackburn, doubting though not
dissenting in Foakes v Beer (at 622):
“What principally weighs with me in thinking that Lord Coke [in
Pinnel's Case] made a mistake of fact is my conviction that all men of
business, whether merchants or tradesmen, do every day recognise and
act on the ground that prompt payment of a part of their demand may
be more beneficial to them than it would be to insist on their rights and
enforce payment of the whole. Even where the debtor is perfectly
solvent, and sure to pay at last, this often is so. Where the credit of the
debtor is doubtful it must be more so.”
Re Selectmove Ltd (Court of Appeal of England, 21 December 1993,
unreported) demonstrates the tension between the Williams v Roffey
principle and the strict approach taken to concessions in relation to debts,
when logic dictates that there should be no ultimate distinction in result. I
quote from Peter Gibson LJ, who declined to be a bold spirit:
“Mr Nugee submitted that although Glidewell LJ [in Williams] in terms
confines his remarks to a case where B is to do the work for or supply
goods or services to A, the same principle must apply where B's
obligation is to pay A, and he referred to an article by Adams and
Bromsword in (1990) 53 MLR 536 at 539 and 540 which suggests that
Foakes v Beer might need reconsideration. I see the force of the
argument, but the difficulty that I feel with it is that if the principle of
the Williams case is to be extended to an obligation to make a payment,
it would in effect leave the principle of Foakes v Beer without any
application. When a creditor and a debtor who are at arm's length reach
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agreement on the payment of the debt by instalments to accommodate
the debtor, the creditor will no doubt always see a practical benefit in
himself so doing. In the absence of authority there would be much to be
said for the enforceability of such a contract. But that was a matter
considered in Foakes v Beer yet held not to be good consideration in
law. Foakes v Beer was not even referred to in Williams case, and it is in
my judgment impossible consistently with the doctrine of precedent, for
this court to extend the principle of the Williams case to any
circumstances governed by the principle in Foakes v Beer. If that
extension is to be made, it must be by the House of Lords or, perhaps
even more appropriately, by Parliament after consideration.”
In truth, there has been a continuing trend to side-step the artificial results
of a strict doctrine of consideration. Consideration did not need to be
adequate. The fact that the promisor is under an existing duty to A is no
matter if the promise be repeated to B; Pao On v Lau Yiu Long [1980] AC
614 at 632. A deed dispenses with consideration altogether. And promissory
and related equitable estoppels may be called in aid, when consideration is
lacking but it would be unconscionable for a voluntary promisor to escape
altogether. Though affording lesser protection than a contract for consideration, by reason of the likely inherent temporality of the suspension of the
promisor's rights, equity nonetheless provided a flexible remedy, moulded to
the circumstances, under the general notion of unconscionability: see Carter
and Harland, Contract Law in Australia, 2nd ed (1991) at 119-138. This has
evoked the comment that the situations which give rise to estoppel should, at
least in Australia, be dealt with under its more flexible doctrines and
remedies than by an artificial extension of the doctrine of consideration: see
Halyk “Consideration, Practical Benefits and Promissory Estoppel: Enforcement of Contract Modification in light of Williams v Roffey Brothers” (1991)
55 Sask L Rev 393. I discuss this issue later in this judgment.
The traditional definition of consideration in terms of bargain from the
nineteenth century contract writers was “an act or forbearance of the one
party, or the promise thereof, [being] the price for which the promise of the
other is bought, and the promise thus given for value is enforceable”: Sir
Frederick Pollock, Principles of Contract, 8th ed (1911), at 175. Thus a
distinction had to be drawn between a benefit in fact or in practice, not
bargained for or expressly promised, which could not itself be consideration
but was the hoped for end-result of performance and a benefit in law which
could afford consideration. The latter referred to what the parties expressly
gave — or promised — in exchange at the moment of formation: see Brian
Coote; “Consideration and Benefit in Fact and in Law” (1990) 3 JCL 23
at 27.
Glidewell LJ in Williams v Roffey (at 15-16) departed from this traditional
approach, when allowing consequential practical benefits to suffice that were
never explicitly the subject of the parties' promised bargain. He did so in
reasoning encapsulated in the following five elements leading to the
conclusion in (vi):
“… The present state of the law on this subject can be expressed in the
following proposition:
(i) if A has entered into a contract with B to do work for, or to supply
goods or services to, B in return for payment by B; and
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(ii) at some stage before A has completely performed his obligations
under the contract B has reason to doubt whether A will, or be
able to, complete his side of the bargain; and
(iii) B thereupon promises A an additional payment in return for A's
promise to perform his contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or
obviates a disbenefit; and
(v) B's promise is not given as a result of economic duress or fraud on
the part of A; then,
(vi) the benefit to B is capable of being consideration for B's promise,
so that the promise will be legally binding.”
So far as element (iii) is concerned, conceptually it can make no difference
whether B promises A an additional payment for A's promise of
performance or grants A the equivalent concession of promising a reduction
in A's payment obligations, where these pre-exist. To reflect this, it is
suggested element (iii) should have added the words “or other concession
(such as reducing A's original obligation)” immediately after “payment”. (In
the discussion which follows I refer to A and B in the context of
Glidewell LJ's proposition.)
In either case the question is whether such a payment is nonetheless made
for an illusory consideration in that it buys merely a promise by the same
party to perform its existing contractual obligation. But should Australian
courts follow the English Court of Appeal, in taking a more pragmatic
approach to the true relationship between the parties in accepting practical
benefits as consideration? And, if so, subject to what qualifications? I deal
with that basic issue below.
Williams v Roffey — should it be followed in Australia?
There are three reasons which might be put as to why a contract to
perform an existing obligation should not be enforced.
First, to protect the promisor from extortion, such as may result from
threatening to breach a contract in order to exact a concession. Thus, for
example, the two dollar unguaranteed corporate tenant in a falling market,
whose directors threaten to walk away from a lease, unless rent concessions
are conceded.
G H Treitel, The Law of Contract, (8th ed, 1991) suggests (at 90 and 364)
that this argument is much reduced in importance, now that such a refusal
may constitute duress: B and S Contracts and Designs Ltd v Victor Green
Publications Ltd [1984] ICR 419 was such a case. However it has been held
by the Privy Council that a threat to breach a contract may not amount to
duress, where there has been no “coercion of the will”, having regard to
alternative courses open: Pao On v Lau Yiu Long. The Australian cases,
discussed below, make clear that coercion of the will is not essential for
duress. One may choose to submit, without one's will being overborne, but
by reason of illegitimate pressure consisting of unlawful threats or
unconscionable conduct: Crescendo Management Pty Ltd v Westpac Banking
Corporation (1988) 19 NSWLR 40 at 45-46. Furthermore economic duress
has not received unqualified acceptance as a basis for setting aside contracts
in Australia.
Thus, in Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32
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NSWLR 50, Kirby P (at 106) cast doubt on the utility of economic duress as
a satisfactory remedy. He described it as an unsatisfactory and uncertain
doctrine, lending itself to open ended formulae, little clarified by the cases
over the last hundred years. He criticised its encouragement to the courts to
substitute their own subjective opinion about agreements for those reached
by the parties, particularly when substantial corporations. He preferred to
see the concepts of economic duress invoked under sensibly limited and
structured legislation like the Contracts Review Act 1980 or more broadly,
subsumed by the doctrine of undue influence and unconscionability.
Clarke JA and Cripps JA did not reject the doctrine, but were satisfied it
did not apply in the circumstances. This reflects the Court of Appeal's
acceptance of economic duress in earlier cases such as Crescendo
Management Pty Ltd v Westpac Banking Corporation.
But does it follow that, because there is not as yet a fully developed
doctrine for the avoidance of contracts on the grounds of economic duress
(pace Hobhouse J in The “Alev”, Vantage Navigation Corporation v Suhail
and Saud Bahwan Building Materials LLC [1989] 1 Lloyd's Rep 138 at 147,
who thought otherwise), that therefore strict consideration should remain the
discrimen for enforceability of contractual modifications? There are a
number of reasons why not. If it be assumed that the underlying concern is
to prevent coercive modifications, the traditional notion of consideration
does not perform that role very well. Its very certainty is bought at the price
of inflexibility. This produces a real disincentive to re-negotiate a contract
which changed circumstances have made unduly onerous. This is especially if
the outcome is likely to be unenforceable by reason of lack of consideration.
Even the presence of consideration does not preclude there having been
economic duress inducing the contract. Consideration expressed in formalistic terms of one dollar can indeed actually cloak duress rather than expose
it.
Posner J sets out incisively the policy issues as he saw them in United
States v Stump Home Specialities Manufacturing, Incorporated 905F 2d 1117
(1990) at 1121-1122:
“The requirement of consideration has, however, a distinct function in
the modification setting — although one it does not perform well — and
that is to prevent coercive modifications. Since one of the main
purposes of contracts and of contract law is to facilitate long-term
commitments, there is often an interval in the life of a contract during
which one party is at the mercy of the other. A may have ordered a
machine from B that A wants to place in operation on a given date,
specified in their contract; and in expectation of B's complying with the
contract, A may have made commitments to his customers that it would
be costly to renege on. As the date of scheduled delivery approaches, B
may be tempted to demand that A agree to renegotiate the contract
price, knowing that A will incur heavy expenses if B fails to deliver on
time. A can always refuse to renegotiate, relying instead on his right to
sue B for breach of contract if B fails to make delivery by the agreed
date. But legal remedies are costly and uncertain, thereby opening the
way to duress. Considerations of commercial reputation will deter
taking advantage of an opportunity to exert duress on a contract partner
in many cases, but not in all. For examples of duress in the contract-
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modification setting: see Austin Instrument, Inc v Loral Corp, 29 NY 2d
124, 324 NYS 2d 22, 272 NE 2d 533 (1971), and Alaska Packers' Ass'n v
Domenico, 117 F 99 (9th Cir 1902); and for general discussion see
Selmer Co v Blakeslee-Midwest Co, 704 F 2d 924 (7th Cir 1983);
Richards Construction Co v Air Conditioning Co of Hawaii, Inc, 318 F 2d
410, 413-414 (9th Cir 1963), and Farnsworth, supra, at 271-278.
[7] The rule that modifications are unenforceable unless supported by
consideration strengthens A's position by reducing B's incentive to seek
a modification. But it strengthens it feebly, as we pointed out in
Wisconsin Knife Works v National Metal Crafters, supra, 781 F 2d
at 1285. The law does not require that consideration be adequate —
that it be commensurate with what the party accepting it is giving up.
Slight consideration, therefore, will suffice to make a contract or a
contract modification enforceable. Wilson v Dexter, 135 Ind App 247,
251-252, 192 NE 2d 469, 472 (1963); Simpson, Handbook of the Law of
Contracts 82, 87 and 88 (2d ed 1965); cf A & S Corp v Midwest
Commerce Banking Co, supra, 525 NE 2d at 1293. And slight
consideration is consistent with coercion. To surrender one's contractual
rights in exchange for a peppercorn is not functionally different from
surrendering them for nothing.
The sensible course would be to enforce contract modifications (at
least if written) regardless of consideration and rely on the defence of
duress to prevent abuse. Wisconsin Knife Works v National Metal
Crafters, supra, 781 F 2d at 1286; UCC §2-209, official comment 2;
Hillman, Contract Modification Under the Restatement (Second) of
Contracts, 67 Cornell L Rev 680 (1982). All coercive modifications
would then be unenforceable, and there would be no need to worry
about consideration, an inadequate safeguard against duress. But we
need not decide whether the Indiana Supreme Court is prepared to take
the bold step of abolishing the requirement of consideration in
modification cases; there was consideration here.”
I conclude that even if duress is not a fully developed doctrine, it is
nonetheless a useful weapon. It, with fraud, is already introduced by element
(v) of Glidewell LJ's formulation, precluding enforcement of a promise so
induced. Logically though, one should expand that element also to exclude
promises induced by undue influence or unconscionable conduct, at the least.
But should our courts go further, as American courts have done, by
drawing a line between legitimate inducement and extortion, doing so
according to a doctrine of good faith, as suggested by Richard Hooley,
“Consideration and the Existing Duty” [1991] JBL 19 at 27-28, 33-34? Thus,
in Pittsburgh Testing Laboratory v Farnsworth & Chambers Co, Inc 251 F 2d
77 (1958), it was held (at 79), obiter, that: “… the courts generally sustain
the consideration for the new promise, based upon standards of honesty and
fair dealing and affording adequate protection against unjust or coercive
exactions.”
In Rexite Casting Co v Midwest Mower Corp 267 SW 2d 327 (1954), the
Court held that to permit a promisor under the original agreement to
recover a bonus by merely agreeing to do what he was bound to do, was to
offer “a premium upon bad faith”. Section 1-203 and s 2-302 of the Uniform
Commercial Code expressly recognise the increased role of a doctrine of
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good faith over consideration in respect of contract modifications: see also
§§89, 205 and 208 of the Restatement of the Law, Contracts (2d) (1979).
Hooley (at 33-34) puts it thus:
“… If a demand for increased remuneration stems from extrinsic and
unanticipated circumstances it may be held to be evidence of good faith.
But this will not always be the case as the demand may exceed that
which is necessary to deal with the circumstances that have arisen.
However, even an unjustified demand creates a new circumstance for its
recipient to consider. In the light of such a change the performance of,
or promise to perform, an existing contractual duty may generate its
own consideration. This will apply whether the change of circumstances
was brought about by extrinsic and unanticipated factors or otherwise.
The distinction is not between the presence or absence of consideration
but between the presence or absence of good faith.”
I consider that the notion of “good faith” is better replaced by the more
precise and apposite one of “unfair pressure” on A's part inducing B's
promise in element (v). Economic duress, as the cases demonstrate, cover
many examples of unfair pressure, but by no means all. Furthermore, where
the circumstances giving rise to the re-negotiation were unforeseen by A at
the time of the original contract, possibly reflecting unanticipated hardship in
future performance by A, these still do not justify a demand for renegotiation backed by unfair pressure. But such circumstances giving rise to
that demand, may nonetheless have some influence on the court in judging
fairness, by reference to proportionality of any pressure brought to bear.
Thus such a reformulation of element (v) might read as follows:
“(v) B's promise is not given as a result of economic duress or fraud, or
undue influence or unconscionable conduct on the part of A nor is
it induced otherwise by unfair pressure on the part of A, having
regard to the circumstances.”
The second reason cited by Treitel (at 89) why the new promise should not
be enforced, is that the promisee suffered no legal detriment in performing
what was already due from him. Nor did the promisor receive any legal
benefit in receiving what was already due to him. He answers that this way:
“… But this reasoning takes no account of the fact that the promisee
may in fact suffer a detriment: for example, the wages that a seaman
could earn elsewhere may exceed those that he would earn under the
original contract together with the damages that he would have to pay
for breaking it. Conversely, the promisor may in fact benefit from the
actual performance of what was legally due to him: in Stilk v Myrick the
master got his ship home and this may well have been worth more to
him than any damages that he could have recovered from the crew.”
Indeed the very fact that a concession is extended by B, without extortion,
supports an inference, though by no means conclusively, that consideration
from A, in a real and practical sense, has moved that concession. The law is
increasingly tending away from the artificial towards the substantive. Such a
practical notion of consideration reflects that trend. It is a notorious fact,
that concessions are made to avoid the necessity for enforcing a contract
whose performance is in jeopardy. It would indeed be far more artificial to
treat such concessional modification to the contract as moved by a
consideration consisting of cancellation of the old contract in return for the
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new, an approach which the Court of Appeal in Williams v Roffey expressly
and correctly disclaimed.
That leads to the third possible reason for why such a promise should not
be enforced. It is expressed in the proposition that a benefit which is merely
the hoped-for end result of performance cannot constitute consideration:
Brian Coote. “If these matters are capable of being regarded as
consideration the reality is that the existing duty rule no longer applies, for in
every case these types of benefits will be present”; Carter and Harland,
Contract Law in Australia (at 109). The authors of that text go further:
“Indeed, it is because contracting parties regard such matters as benefits that
the argument can be made that existing rule should be abolished.” But that
assumes the existing rule has not even residual utility and I do not accept
that proposition.
Thus, Williams v Roffey and subsequent cases such as Anangel Atlas
Compania Naviera SA v ishikawajima-Harima heavy Industries Co Ltd
(No. 2) [1990] 2 Lloyd's LR 526 per Hirst J, have been at pains to treat
Stilk's case as still good law, though only “where there is a wholly gratuitous
promise” (at 545). But it should be apparent that Stilk's case involved no less
a practical benefit than was upheld as sufficient for consideration in Williams
v Roffey.
What then is a sufficient practical benefit to B, so asto take the situation
beyond a wholly gratuitous promise by B? The answers lies in the proposition
put by Treitel (at 90) quoted above. It is indeed inherent in the situation
posed by Williams v Roffey itself (and indeed in Stilk's case itself, despite the
decision). There the subcontractor A's performance was worth more to B
(the principal contractor) than likely damages, even taking into account the
cost of any concession to obtain greater assurance of the performance. This
suggestes that should be an additional to element (iv) of gildewell LJ's
formulation by adding this proviso at the end: “provided that A's
performance having regard to what has been so obtained is capable of being
viewed by B as worth more to B than any likely remedy against A (allowing
for any defences or cross-claims) taking into account the cost to B of any
such payment or concession to obtain greater assurance of A's performance”.
Nor should the alternative and indeed original basis of consideration be
ignored, namely detriment to A, the promisee for this prupose. It is of course
long settled that detriment to the promisee suffices an consideration —
indeed it better reflects the origins of contract in the action of assumpsit.
Thus element (iv), as I have expanded it, should be divided into two parts,
the second as follows:
(iv) (a) …, or
(b) As a result of giving his promise, A suffers in practice a
detriment (or obviates a benefit), provided that A is thereby
foregoing the opportunity of not performing the original
contract in circumstances where such non performance, taking
into account B's likely remedy against A (and allowing for any
defences or cross-claim) is being capable of being viewed by
A as worth more to A than performing that contract, in the
absence of B's promised payment or concession to A.
To all this it might be said that such a relaxation of the doctrine of
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consideration, if adopted, will discourage concessions, since they would then
too readily become legally binding throughout the term of the contract. But
the answer to that is simply enough. The courts should be alert to distinguish
promises intended by their terms to be no more than temporary, or truly ex
gratia, concessions, for example fi expressly limited to a period of difficult
circumstances for performance by the other party, which may not be
permanent. And “care must also be taken not to inefr anterior promises
from conduct which represents no more than an adjustment of their
relationship in the light of changing circumstances”: per MCHugh JA in
Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust)
Pty Ltd (1988) 5 BPR 11,110 at 11,117.
It remains to note two recent examples, one in Australia and one in the
United Kingdom, where Williams v Roffey has been applied. In each the
practical benefit was to B as an employer, in avoiding potential workplace
disruption, in return for B increasing severance payments or posting a
redundancy package. The first, Lee v GEC Plessey Telecommunications
[1993] IrLR 383 was the English case, in which Connel J stated (at 389):
“The situation is similar with an increase in severvance payments made
to those who lose their employment due to redundancy, for a
redundancy payment is part of the remuneration package. The
employee continues to work for the employer, thereby abandoning any
argument that the increase should have been even greater an removing
a potential area of dispute between employer and employee. The
employer has both secured a benefit and avoided a detriment.”
The second, Ajax Cooke Pty Ltd t/a Ajax Spurway fastners v Nugent
(Supreme court of Victoria, Phillips J, 29 November 1993 unreported),
though obiter, concluded in a victorian case of a redundancy package
(at 12):
“… The benefit to the plaintiff [the employee] is obvious. As for the
defendant [the employer], was it not open to infer that, in posting notice
of the redundancy package, and thereby announcing the benefits to be
paid during the relevant period, the defendant acted to secure some
benefit or advantage to itself, whether by inducing its employees to
refrain from further industrial disputation or by encouraging them to
continue in their present employment? After all, as was said by Lord
Hailsham, LC, in Woodhouse Ac Israel Cocoa Ltd v Nigerian Produce
Marketing Co Ltd [1972] AC 741 at 758 (quoted by Purchas LJ in
Williams at 21):
‘Businessmen know their own business best even when they
appear to grant an indulgence’.”
An example of avoidance of a very substantial practical disbenefit held as
sufficient consideration arose in Anangel Atlas Compania Naviera SA v
Ishikawajima-Harima Heavy Industries Co Ltd (No 2). There the disbenefit
avoided arose through the fact that at the time of delivery of a ship, the
market was very bad and the plaintiffs were the core customers of the
defendants. If they took delivery of a ship (induced by a concession) then
other customers were likely to follow suit. As well the plaintiffs would cease
their efforts to postpone delivery of the boat.
Accordingly, I m satisfied to conclude that, subject to the earlier recasting of the five elements of Glidewell LJ, Williams v Roffey should be
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followed in allowing a practical benefit or detriment to suffice as
consideration. For convenience, I set out below the re-cast elements, changes
indicated by italics. I recognise that they will be further refined in light of
experience. One particular issue is the extent to which a benefit or detriment,
said to be “practical”, as distinct from explicitly bargained for, must
nonetheless be consistent with, and not extraneous to, the bargaining
process, as at least its intended result if not necessarily its moving force:
“The present state of the law on this subject can be expressed in the
following proposition:
(i) If A has entered into a contract with B to do work for, or to
supply goods or services to, B in return for the payment by B,
and
(ii) At some stage before A has completely performed his
obligations under the contract B has reason to doubt whether
A will, or be able to, complete his side of the bargain, and
(iii) B thereupon promises A an additional payment or other
concession (such as reducing A's original obligation) in return
for A's promise to perform this contractual obligation at the
time, and
(iv) (a) As a result of giving his promise B obtains in practice a
benefit, or obviates a disbenefit provided that A's
performance, having regard to what has been so obtained,
is capable of being viewed by B as worth more to B than
any likely remedy against A (allowing for any defences or
cross-claims), taking into account the cost to B of any such
payment or concession to obtain greater assurance of A's
performance, or
(b) as a result of giving his promise, A suffers a detriment (or
obviates a benefit) provided that A is thereby foregoing the
opportunity of not performing the original contract, in
circumstances where such non-performance, taking into
account B's likely remedy against A (and allowing for any
defences or cross-claims) is capable of being viewed by A
as worth more to A than performing that contract, in the
absence of B's promised payment or concession to A.
(v) B's promise is not given as a result of economic duress or
fraud or undue influence or unconscionable conduct on the part
of A nor is it induced as a result of unfair pressure on the part of
A, having regard to the circumstances, then,
(vi) The benefit to B or the detriment to A is capable of being
consideration for B's promise, so that the promise will be
legally binding.”
Application of William v Roffey to present circumstances:
Applying that reasoning to the present circumstances, the practical benefit
that the lessor gained from the concession of lower future rental, was argued
to be the enhanced capacity of the plaintiffs to stay in occupation, able to
carry out their future reduced lease obligations, notwithstanding substantial
newly introduced competition from the other tenant. What this practical
benefit consists of therefore is enhanced capacity for the lessor to maintain a
748
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full shopping centre with another competing tenant, when the original tenant
is no longer at so great a risk of defaulting and more likely to stay. That is a
practical benefit, even though legally there be no inhibition on the lessor to
introduce new competition.
I should add that I have no reason to treat the threat of claim under, inter
alia, the Contracts Review Act 1980 as other than bona fide or as evidence of
duress. Equally I am in no position to determine whether such claim would
have succeeded, this not being a matter before me. Furthermore, there is
nothing in the evidence before me to indicate that the plaintiffs were not
genuine at the time the new tenant was introduced, about the serious threat
this posed to their viability. Certainly I can infer that the lessor must have
thought so. Landlords are not in the habit of extending such rent concessions
for purely altruistic reasons. More likely, there was a strong element of
enlightened self-interest.
It must also be remembered that two years have passed, during which the
lower rent has been paid and received (though without prejudice to the
lessor's rights). Thus the plaintiffs' present capacity to pay the original rent,
put in its case for relief against forfeiture, is by no means inconsistent with a
much more fragile capacity when the new competition was first introduced in
1992. From the lessor's viewpoint, it evidently came to have other
alternatives than the plaintiffs, as tenants, certainly when it commenced
proceedings for possession culminating in the steps of January this year. But
none of this precludes a practical benefit to the defendant from the plaintiffs'
continued possession at the earlier point of time, when those possibilities had
yet to emerge.
It is apposite to cite the judgment in a Canadian case where rental was
alleged to have been reduced because of the impact of World War I. In
Western Transfer Co v Fry (1920) 55 DLR 291. The Chief Justice said
(at 293), though by way of dicta (having found that the oral agreement to
reduce rent was not made out):
“I am by no means satisfied that there was not consideration for this
promise. It is true the defendants were liable to pay the rent reserved by
the lease, but they were not bound to remain in the premises, and the
plaintiffs might well have considered it worthwhile to keep in occupation
a satisfied tenant especially one who would have cartage work for them
to do from time to time rather than have their reputation injured …
because the landlord refused to do what many people would consider
only the fair thing.”
While those factual circumstances were not on all fours with the facts
here, nonetheless in a shopping centre it is well-known that vacant shops are
not in the interests of the landlord whilst a reputation for fairness is. The
landlord/owner benefits from uninterrupted, successful trade overall in that
shopping centre, even if leases of themselves as here, do not confer on the
lessor a share of the tenant's profit. This is particularly when it comes to
renewing leases, or when vacancies otherwise arise and the landlord wants to
attract tenants.
Thus I find that the particular practical benefit here, was that the lessor
had greater assurance of the lessees staying in occupation and maintaining
viability and capacity to perform by reason of their reduction in their rent,
notwithstanding the introduction of a major, much larger competing tenant.
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The practical detriment to the lessees lay in risking their capacity to survive
against a much stronger competitor, by staying in occupancy under their
lease, rather than walking away at the cost of damages, if the lessees'
defences, including under the Contracts Review Act 1980, were unsuccessful.
From the lessees' actions, it is evident that without the rent concession, the
latter course was viewed as more likely to be in the lessees' interests than
staying in occupation.
I have already concluded that I am not satisfied that an actual release from
legal action was ever offered solely for the rent concession. Otherwise this
would be to treat as consideration that which was not only not bargained for
but was inconsistent with the bargain reached. That would be going further
in liberating consideration from the strict contractual notion of bargain than
is legitimate.
However I do accept that practical removal of the threat of litigation can
and should be treated as a part of the more general context earlier
described, and relevant for the purpose of testing fulfilment of the proviso to
element (iv) of the earlier formulation. Thus it is true that the lessees'
litigation, like industrial unrest in the cases referred to earlier, was, in the
events that happened, effectively removed as a risk, even if the actual
bargaining process in theory preserved this weapon for the lessees.
I am satisfied in the circumstances that the remaining elements set out
earlier are made out, including element (v), (or more precisely, absence of
any element of extortion in the sense there set out). The lessees' reaction to
the original introduction of a competing, powerful tenant, with the perceived
capacity to wipe them out, was to threaten redress to legal remedies. In the
circumstances that was not coercive, but a simply defensive, if fairly
aggressive, reaction designed to elicit a constructive response.
As to element (iv) which, in its proviso, is designed to eliminate “wholly”
gratuitous promises, there is evidence before me that the plaintiffs' goodwill
was at risk of destruction by the introduction of the much stronger
competitor on a concessional basis, unless the rent reduction were
forthcoming. That makes it a proper inference for me to draw that there was
indeed a sufficient practical benefit, procured by maintaining the plaintiffs as
viable tenants on the promise of reduced rental. This is compared to the
evidently less attractive alternative of finding another tenant and suing for
any rent shortfall, particularly where the lessees might plead a number of
foreshadowed defences and cross-claims.
Defendant's answers — the wording of the concession:
To this, the defendant seeks to put several answers. The first has to do
with the wording of the concession itself as contained in the letter written by
Mr Gellert dated 27 May 1992. That letter refers to the lessor as having
“given concession by way of reduction of the current rental for the time
being” (my emphasis).
The defendant relies on the word “for the time being” as establishing that
the reduction was always given “temporarily” or “for the time being”. Hence
it contended, the concession was, by its very terms, inherently revocable at
the pleasure of the lessor. However the plaintiff, in my view correctly,
answers this argument by relating the words “for the time being” to the
current rental as defined in the lease. It is clear from the terms of the lease
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that the current rental, or more precisely, “minimum annual rental” is itself
inherently capable of variation by reference to the Consumer Price Index:
see cl 24. The words “for the time being” immediately follow the words
“current rental”. Thus this interpretation is in my opinion a more natural
one.
Promissory or equitable estoppel of a temporary character?
Nor is this a case of promissory or equitable estoppel. While in the High
Trees case (Central London Property Trust Ltd v High Trees House Ltd [1947]
KB 130) the reduction of rent clause was held to apply only during the
relevant period of difficulty, namely the war, that was a case where the court
was proceeding on the basis that there was no consideration and the issue
was one of promissory estoppel. It is well-settled that in equity, equitable
estoppel based on a gratuitous promise of forbearance, generally ceases to
apply for the period after a gratuitous promise is revoked, following a period
of reasonable notice: see Hughes v Metropolitan Railway Co (1877) 2 App
Cas 439. This is on the basis that the intention is merely to suspend, not
terminate the original rights so forborne. While it would be inequitable to
enforce those strict rights when the parties have acted on the assumption
induced by the promise, that inducement ceases when the assumption is
removed by reasonable notice. Treitel (at 121) argues that where the
intention was to extinguish, not merely suspend, the original rights and the
party relying on the gratuitous promise acted on that basis — for example in
the case of a tenant making substantial expenditures — the position might be
otherwise.
However those circumstances are not present here, were I dealing with a
claim based solely on promissory estoppel. In any event, I have concluded
that consideration was provided, albeit in the form of practical benefits
secured to the landlord by its promise. Hence the need for estoppel does not
arise.
No offer and acceptance?
The defendant then seeks to avoid this result by arguing that there was
never an offer accepted by the landlord which in terms led to this result.
Rather the parties were still in a state of negotiation so that the stipulation
was never a contractual one. However I am satisfied that the correspondence
reflected concluded arrangements, even if it does not fit neatly “into the
common lawyers' analysis of a contractual arrangement”. As McHugh JA
put it in Integrated Computer Services Pty Ltd v Digital Equipment
Corporation (Aust) Pty Ltd (at 11,117):
“… Commercial discussions are often too unrefined to fit easily into the
slots of ‘offer’, ‘acceptance’, ‘consideration’ and ‘intention to create a
legal relationship’ which are the benchmarks of the contract of classical
theory.”
That observation is entirely apposite here.
I should deal briefly with the argument which relies on cl 10(3) of the
lease. This provides that the lease can only be amended by an instrument in
writing. But it does not follow that modification by the correspondence is
ineffective, assuming it satisfies the necessary elements of contract. That is
sufficient to give rise to a specifically enforceable agreement obliging the
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lessor to execute the necessary instrument for that purpose: see Chan v
Cresdon Pty Ltd (1989) 168 CLR 242.
Breach by the lessees?
Finally, the defendant contends that, even if there be a contract for
consideration varying the lease, it has been breached by the plaintiffs'
subsequent refusal to pay outgoings in full. That issue, I deal with below,
under question 2.
Question 2:
Was the concession, in the context of the actual Lease terms, one which
encompassed outgoings?
The starting point must be the lease itself, for what the parties intended by
the term “rent” or “current rent” in their correspondence and particularly
the letter requesting a reduction of rental of 14 April 1992 and the reply
from the defendant's solicitor agreeing to it.
The lease provides that rental is divided between “minimum annual rent”
(par 9 of lease schedule and cl 3) and “additional rent” to cover the lessee's
proportion of outgoings (cl 5). It is significant that the minimum annual rent
is payable on the first day of each calendar month (cl 3(3)) as is the
additional rent referable to outgoings (cl 5(2). The latter is based on the
lessor's reasonable determination as its estimate of the amount to become
payable. There are other payments required of the lessee such as the
promotion fund in cl 26. But these are clearly not treated as rent. This is
recognised by the distinction in, for example, cl 21(7) and cl 13. There a
distinction is drawn between “all payments of rent” and “all other monies
payable by the Lessee to the Lessor pursuant to this Lease”, with the former
covering outgoings and the latter not being rent at all.
Clause 21(11) refers to the “rent hereby reserved” drawing no distinction
between “minimum annual rent” and “additional rent”.
It is clear from the formula for the calculation of additional rent that in
the nature of things it will vary over the term of the lease. Thus it, like
minimum annual rent, can be spoken of in terms of “current” since both are
subject to adjustment over time. Minimum annual rent is of course adjusted
by reference to the Consumer Price Index.
Thus in the context of the lease itself, a reference to reduction of rent
would naturally embrace both the “minimum annual rent” and the
“additional rent”. Each is paid at the same time and both termed “rent”,
with the customary periodicity; contrast for example, a contribution to
repairs.
The cases on the meaning of “rent” do not, to my mind, alter that
conclusion. It is true that Mahoney JA, in Commissioner of Stamp Duties v
J V (Crows Nest) Pty Ltd (1986) 7 NSWLR 529, drew a distinction between
payments “for the use of” the land in question and payments such as for
contribution to repairs or improvements or by way of reimbursements of
obligations initially met by the lessor such as rates or other payments. The
latter, he concludes, are “not for but merely in respect of the use of the land
by the lessee” (at 532). On the other hand, in that same case McHugh JA
took a broader definition of rent declining to follow Yanchep Sun City Pty
Ltd v Commissioner of State Taxation (WA) (1984) 15 ATR 1165; 84 ATC
4761 and preferring, as he put it, the approach in the modern cases, for
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example, Sidney Trading Co Ltd v Finsbury Borough Council [1952] 1 All ER
460 where money paid by the lessee to the lessor for rates was held to be
rent. McHugh JA concluded (at 539) that:
“… It is immaterial that the payment may reimburse the lessor in
respect of one of his obligations if the payment is part of the
consideration for the use of the property. In most, if not all, cases a
payment by a lessee of rates and taxes owing by the lessor is made as
part of the consideration for the use of the premises and for no other
purpose.”
In Price Brent Services Pty Ltd v Commissioner of State Revenue (Vic)
(1993) 26 ATR 560; 93 ATC 4,953, the court held that the word “rent” in the
particular context of the Victorian Stamps Act 1958 did not encompass
contribution to outgoings as the word “rent” meant “rent reserved” and not
“contractual rent”. I do not find that case of any assistance in the present
context although it is true that the lease in cl 13 referred to the “rent hereby
reserved”.
Thus I do not find the cases compel me to a different conclusion than that
which is dictated by the terms of the lease itself and what may be taken
therefore to have been in the minds of the parties when referring to a rent
concession in the first place. I am satisfied that concession was intended to
include outgoings.
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Question 3:
Are the lessees entitled to an additional head of damages arising from the
breach of contract for mental distress?
This contention was put by the plaintiffs on the basis of a breach of the
contract of lease. (I declined in the circumstances to permit a late
amendment at the trial to the pleadings to add a claim for trespass as the
basis of such alleged damage.)
In my opinion those damages are not recoverable, even if suffered and
even if following and caused by the lessor's entry on January 1994. (The
psychiatrist's evidence did not attempt to apportion the extent to which any
mental distress might have been caused by earlier events, but I am assuming,
without determining, in the plaintiffs' favour that the precipitating factor was
the events of 17 January 1994.)
I consider the matter is settled by Baltic Shipping Co v Dillon (1993) 176
CLR 344. The covenant for quiet enjoyment in the lease is very different
from the notion of providing “pleasure or enjoyment or personal
protection”. As was put by McHugh J (at 405), though with some
reservation, damages for disappointment and distress are not recoverable
unless they proceed from physical inconvenience caused by the breach or
unless the contract is one, the object of which is to provide enjoyment,
relaxation or freedom from molestation. That is not the case here.
I am satisfied the other claims for loss and damage are made out,
particularised as loss of profit from 17 to 19 January 1994 and the other
items earlier referred to. The parties may wish to attempt to formulate an
agreed calculation of these items of damage.
Question 4:
Should relief against forfeiture be allowed?
Given the conclusions I have earlier reached, this question does not arise.
D
E
F
G
34 NSWLR 723]
A
MUSUMECI v WINADELL P/L (Santow J)
Orders:
I award costs to the plaintiffs.
I direct the parties to submit orders giving effect to this judgment within
twenty-one days.
Questions so answered
Solicitors for the plaintiffs: Kalaf & Damianos (La Perouse).
B
Solicitors for the defendants: Lang Gellert & Noonan (Bondi Junction).
C SAKKAS,
Solicitor.
C
D
E
F
G
753