NLS Pty Ltd v Hughes [1966] HCA 63; (1966) 120 CLR 583 (14 October 1966)

HIGH COURT OF AUSTRALIA

Town Planning (W.A.) - Landlord and Tenant

CATCHWORDS

Landlord and Tenant - Deposit of sum as assurance of observance of covenants and payment of rent - Whether limit of lessee's liability on repudiation of lease.

HEARING

Melbourne, 1966, October 14. 14:10:1966

APPEAL from the Supreme Court of Western Australia.

DECISION

The following written judgments were delivered:-

BARWICK C.J. By memorandum of lease dated 15th October 1962, Property certain shop premises in Fremantle for a term of ten years from 19th November 1962 at the calendar monthly rental of 164 pounds 13s. 4d. On 15th March 1963 the respondent became the registered proprietor of the demised premises and took an assignment of all the lessor's benefit and interest of and under the lease, notice of the transfer and assignment being given to the appellant on 8th May. (at p585)

2. On 4th January 1964 the appellant repudiated its obligation to pay rent under cl. 2 (a) of the lease and otherwise to perform the covenants of the lease and vacated the demised premises, which were re-let by the respondent on 10th February 1964 for the unexpired balance of the ten-year term at a weekly rental of 13 pounds, which sum the parties agree was the best rent then procurable. (at p585)

3. The respondent sued in the Supreme Court of Western Australia (Hughes v. N.L.S. Pty. Ltd. (1966) WAR 100 ) for rent and for certain minor charges due to 10th February 1964 amounting to 244 pounds 1s. 8d. and this part of the claim was upheld in full. In addition, the sum of 11,407 pounds 2s. 10d. was claimed as damages for loss of future rent after 10th February 1964 for the balance of the agreed term of the lease and for two small items, the amounts of which were not in dispute. The learned trial judge found for the respondent on this claim also and awarded damages for the repudiation by the appellant of its obligations under the lease, but only in the sum of 9,935 pounds 14s. 3d., an appropriate discount having been agreed upon by the parties to take account of the immediate payment of the future periodic loss. It is from the decision in respect of the second claim that the present appeal is brought. (at p586)

"20. (1) (a) A person shall not, without the approval of the

Board, lay out, grant or convey a street, road or way, or subdivide,

or either lease or grant a license to use or occupy land for any

term exceeding ten years including any option to extend or renew the

term or period, or sell land or grant any option of purchase of land

except as a lot or as lots; and the Board may give its approval

under this paragraph subject to conditions which shall be carried

out before the approval becomes effective." (at p586)

6. The appellant contends that, having regard to the policy of the Act, this section should be read as providing that a person may not, without the permission of the Town Planning Board, by lease or by licence, or by a combination of lease and licence, give to another person the right to use and occupy land, not being a "lot" within the meaning of the Act, for a total term of more than ten years. The relevant policy of the Act is said to be the prevention of the disposal of land whether by lease, licence or sale otherwise than in areas precisely corresponding to the areas of lots as defined, which in substance means otherwise than in accordance with divisions or subdivisions approved by the Town Planning authority. The appellant submits that this policy would be frustrated if a lessor of land could by separate instruments, or by separate clauses of the one instrument, grant a term of years in land not exceeding ten years and also grant a licence to use or occupy the same land for a period whether before or after the commencement or expiry of that term of years which, if added to the length of that term, would exceed the period of ten years. (at p586)

7. The appellant, therefore, says, and with this the primary judge seems to have agreed, that the section must be construed in the manner which the appellant has submitted. But, with due respect, the section, in my opinion, is not susceptible of such a construction. It provides expressly for the various dealings in or with land which are prohibited. Whatever its policy, the legislature has selected and described these specific dealings and, in my opinion, there is no room to reform or supplement its language so as to better effect the policy which may be discovered from other parts of the statute. Rather should the limitations sought to be imposed upon rights of alienation or dealing with private property be confined to the precise limits set by the language of the statute. (at p587)

8. The section relevantly provides in terms that a person may not lease land for a term exceeding three years including an option to extend or renew that term and that a person may not grant a licence to use or occupy land for any such period, unless in either case the land leased, or in respect of which the licence is granted is a lot, or lots as defined. The section treats the dealings thus described as separate alternatives. It makes no provision, in my opinion, for the case of a dealing of the one kind preceded or followed by a dealing of the other kind. (at p587)

9. It is, in my opinion, impossible to hold that the lease, of which for this purpose I assume cl. 2 (c) forms an integral part, does create a term exceeding the permitted maximum. Consequently, there is neither a lease for a term exceeding ten years nor the grant of a licence for such a term. This conclusion is sufficient to dispose of the appellant's claim to judgment in its favour. (at p587)

10. But, in my opinion, in any case cl. 2 (c) of the lease does not grant a licence to use or occupy the land within the meaning of s. 20 (1) of the Act. Certainly it gave to the appellant no estate or interest in the land. The permission to go upon the land which it did give was not even to do so exclusively of any other person, including the lessor. It was a permission for the appellant to go upon the land freely, that is to say, without hindrance on the part of the lessor, for a specific limited purpose, namely, to prepare for occupation under the lease and the performance of its covenants. This was not, in my opinion, in any relevant sense a licence to use the land or a licence to occupy the land. It was in no different case, in my opinion, to that of a workman who is given access to premises to effect repairs or the like. Consequently, I agree with the primary judge when he said that "the right of access granted by the lease does not fall within the prohibition of the section": Hughes v. Fresh Pack Fruit and Vegetable Market Pty. Ltd. and Levis (1965) WAR 199, at p 202 . (at p587)

"2. (p) The Lessee having deposited with the Lessor on or prior to

the execution of these presents an amount of THREE HUNDRED POUNDS

(300 pounds) HEREBY AGREES that the Lessor shall during the term of

the Lease or any extension or renewal thereof retain the said sum of

THREE HUNDRED POUNDS (300 pounds) as an assurance that the Lessee

will duly comply with observe and perform all the Lessee's covenants

herein contained or implied and that the Lessee will pay the rentals

hereby reserved on their due dates with an absolute right to the

Lessor to forfeit the said sum of THREE HUNDRED POUNDS (300 pounds)

or such lesser sum as the Lessor may require to be forfeited in case

the Lessee shall fail to enter and take possession of the demised

premises as soon as the same are completed and fit for occupation as

aforesaid but no later than the Nineteenth day of November One

thousand nine hundred and sixtytwo or in case the Lessee shall fail

to pay any rent or other moneys hereinbefore made payable to the

Lessee or if the Lessee shall neglect or fail to observe and perform

all and singular the covenants terms and conditions of this Lease to

be observed and performed by the Lessee and/or in the event of the

Lessee's failing to surrender the premises at the termination of

this Lease in clean condition and a proper state of repair and/or if

at any time the Lessee shall fail to conduct its business on the

premises in the most modern and up to date approved manner possible

the Lessor to be the sole judge as to whether or not any default

occurence or omission has occurred which would justify forfeiture of

the said sum of THREE HUNDRED POUNDS (300 pounds) or of any part

thereof".

"3. (f) The Lessor hereby agrees that provided the Lessee shall

have duly observed and performed all the covenants conditions and

stipulations hereinbefore to be observed or performed by the Lessee

and shall have paid all rentals and other moneys hereby made payable

then the Lessor will refund to the Lessee the aforesaid sum of THREE

HUNDRED POUNDS (300 pounds) together with interest at the ruling

Bank rate from the date hereof to date of refund deposited by the

Lessee unless the whole or any part thereof shall have previously

been forfeited to the Lessor by reason of any breach on the part of

the Lessee." (at p588)

12. The argument is that the amount of 300 pounds mentioned in these clauses is either a penalty or a genuine pre-estimate of damages made by the parties. Its amount, so the argument runs, is not so great as to be punitive. Therefore, so it is said, it must be a pre-estimate of damages, and being such a pre-estimate, there must be implied a limitation upon the amount the respondent could recover for breach of any covenant of the lease. (at p588)

13. No doubt relief can be given against the forfeiture of a sum lodged by way of a guarantee of performance on the footing that having regard to its amount relative to the circumstances of the case, it amounts to a penalty: see, for example, Public Works Commissioner v. Hills (1906) AC 368 where the Judicial Committee was "unable to come to the conclusion that the sum here can be taken as a genuine pre-estimate of loss". Of course in a case where the party holding the bond or a sum of money, or having the benefit of a promise to pay an agreed amount by way of assurance of performance is content to forfeit the amount of the money and take it or the performance of the promise to pay, as and for liquidated damages, and the other party is insistent that only the amount of actual damage be retained or paid, the question whether there is an implied limitation upon the amount of the damages recoverable does not arise for discussion because the underlying assumption of the contest between the parties is that the actual damages are less than the amount of the bond, or money held, or promised to be paid. But none the less, to hold that the amount of the bond or money is a genuine pre-estimate of the damages does involve an implied limitation upon the liability to pay damages. Thus, it seems to me that the appellant's counsel was right to pose the question whether the sum of 300 pounds was a pre-estimate by the parties of the damages likely to be sustained by the lessor on any breach, including a total repudiation, of the lease and its covenants. If it is, I think a limitation upon the amount recoverable for such breach is necessarily accepted. But it is not correct, it seems to me, that, if the amount agreed be not a penalty, it must be a pre-estimate of damages. So to reason overlooks the very case with which we are called upon here to deal, namely, the case of the deposit of a sum which is neither a penalty nor a pre-estimate of damages but an earnest of performance which, on default, may be retained and credited against the damage suffered. That the sum is not punitive is obvious. That it is not a pre-estimate of damages is to my mind just as obvious. For it covers, amongst other things, the non payment of rent. In amount it does not cover two months' rent. That the parties by fixing the sum of 300 pounds as the amount of the performance deposit agreed that, whatever arrears of rent accumulated, only that sum could be recovered more than strains credulity. (at p589)

14. In my opinion, the clauses in the lease which I have set out do not imply any agreement that no more than 300 pounds may be recovered for any breach of the lease or its covenants. They provide merely for an earnest of performance, being neither punitive upon forfeiture, nor a pre-estimate of damages. The right of forfeiture of this sum does not in this case indicate that the parties have agreed that no more than that sum can be recovered as damages for any breach of the lease. (at p590)

15. The learned primary judge did not deduct the sum of 300 pounds from the amount of damages which he fixed for the repudiation of the lease. In this, in my respectful opinion, he was right ; for the lessor has not as yet forfeited the sum which upon payment of the awarded damages will be repayable to the appellant. In practical terms this means that assuming the respondent still retains that money, the appellant will be able to deduct 300 pounds from the amount of the judgment when satisfying it. (at p590)

16. In my opinion, the appellant fails on both arguments advanced by it and the appeal should be dismissed. (at p590)

McTIERNAN J. I agree with the judgment of the Chief Justice. (at p590)

OWEN J. On 15th October 1962 the then owner of shop premises in Fremantle leased them to the defendant, the now appellant, for a term of ten years commencing on 19th November 1962, at a rental of 164 pounds 13s. 4d. per month. The lease provided that the lessee should have free access to the premises at least seven days prior to the commencing date of the lease for the purpose of erecting and installing such shelving and fittings as it might reasonably require for the conduct of its business. In March 1963 the plaintiff, the now respondent, purchased the freehold and by deed dated 15th March 1963 the vendor assigned to him all its benefit and interest under the lease. Notice in writing of the purchase of the premises and the assignment of the lease was thereupon given to the defendant. Early in 1964 the latter repudiated the lease and vacated the premises. Shortly afterwards the plaintiff re-let the premises for the balance of the ten-year term at a weekly rental of 13 pounds and this, it is conceded, was the best rent then obtainable. Thereafter the plaintiff brought an action against the defendant claiming to recover 244 pounds 1s. 8d. representing rent and other charges alleged to be due for the period ending on 10th February 1964 and 11,407 pounds by way of damages, this amount being based upon the difference between a rental of 164 pounds 13s. 4d. per month and 13 pounds per week for the balance of the original term of the lease. Jackson J. found in favour of the plaintiff and awarded him in all the sum of 10,232 pounds 17s. 3d. (1966) WAR, at p 102 (at p590)

"A person shall not, without the approval of the Board, . . .

subdivide, or either lease or grant a license to use or occupy land

for any term exceeding ten years . . . except as a lot or as lots. .

. . " (at p591)

"a defined portion of land -

depicted on a plan or diagram publicly exhibited in the

public office of the Department of Lands and Surveys, or

deposited in the Office of Titles or Registry of Deeds and

for which a separate Crown Grant or Certificate of Title has

been or can be issued; or depicted on a subdivisional plan

or diagram, whether so exhibited or deposited or not, but

which is, whether before or after the coming into operation

of the Town Planning and Development Act Amendment

Act, 1956, approved by the Board and includes the whole

of the land the subject -

(a) of a Crown Grant issued under the Land Act, 1933; or

(b) of a Certificate of Title issued under the Transfer of

Land Act, 1893; or

(c) of a survey into a lot pursuant to a direction given

under section seventeen of the Land Act, 1933; or

(d) of a part-lot shown on a plan of subdivision or diagram

deposited in the Department of Lands and Surveys,

Office of Titles, or Registry of Deeds; or

(e) of a conveyance registered under the Registration of

Deeds Act, 1856." (at p591)

4. It is agreed that the land the subject of the lease was not a "lot" and that the Board's approval of the lease was not obtained. In these circumstances the argument for the defendant is that the transaction was in breach of s. 20 (1) (a) and that the lease was void. This submission depends upon whether, upon the true construction of the sub-section, the expression "either lease or grant a license to use or occupy land for any term exceeding ten years" is apt to include a case such as the present where, while the lease was for a term of ten years only, the lessee was granted a right of access to the subject premises for a short period prior to the commencement of the lease so that he might carry out some work preparatory to using them as a shop. The defendant's contention is that in applying the section the term of the lease and the period before its commencement during which he had a right of access to the premises should be added together and that the transaction, in these circumstances, was one forbidden by the section. In my opinion, it is impossible to construe the provision in this way. The prohibition against leasing for a term exceeding ten years and the prohibition against granting a licence to use and occupy for a period exceeding ten years without the Board's approval are expressed in the alternative and to construe the section in the way for which the defendant contends would involve a radical departure from its language. (at p592)

"The Lessee having deposited with the Lessor on or prior to the

execution of these presents an amount of THREE HUNDRED POUNDS (300

pounds) HEREBY AGREES that the Lessor shall during the term of the

Lease or any extension or renewal thereof retain the said sum of

THREE HUNDRED POUNDS (300 pounds) as an assurance that the Lessee

will duly comply with observe and perform all the Lessee's covenants

herein contained or implied and that the Lessee will pay the rentals

hereby reserved on their due dates with an absolute right to the

Lessor to forfeit the said sum of THREE HUNDRED POUNDS (300 pounds)

or such lesser sum as the Lessor may require to be forfeited in case

the Lessee shall fail to enter and take possession of the demised

premises as soon as the same are completed and fit for occupation as

aforesaid but no later than the Nineteenth day of November One

thousand nine hundred and sixty two or in case the Lessee shall fail

to pay any rent or other moneys hereinbefore made payable to the

Lessee or if the Lessee shall neglect or fail to observe and perform

all and singular the covenants terms and conditions of this Lease to

be observed and performed by the Lessee and/or in the event of the

Lessee's failing to surrender the premises at the termination of

this Lease in clean condition and a proper state of repair and/or if

at any time the Lessee shall fail to conduct its business on the

premises in the most modern and up to date approved manner possible

the Lessor to be the sole judge as to whether or not any default

occurrence or omission has occurred which would justify forfeiture

of the said sum of THREE HUNDRED POUNDS (300 pounds) or of any part

thereof."

"The Lessor hereby agrees that provided the Lessee shall have duly

observed and performed all the covenants conditions and stipulations

hereinbefore to be observed or performed by the Lessee and shall

have paid all rentals and other moneys hereby made payable then the

Lessor will refund to the Lessee the aforesaid sum of THREE HUNDRED

POUNDS (300 pounds) together with interest at the ruling Bank rate

from the date hereof to date of refund deposited by the Lessee

unless the whole or any part thereof shall have previously been

forfeited to the Lessor by reason of any breach hereof on the part

of the Lessee." (at p592)

6. For the defendant it was said that the intention of the parties, as evidenced by these clauses, was that 300 pounds should be the maximum amount for which the defendant could be held liable for any one or more breaches of covenant committed by him during the term of the lease whether the breach consisted of one or more failures to pay the rent reserved or a failure or a number of failures to perform other covenants sounding in damages. I am unable to agree that this is so. The amount of 300 pounds was deposited, as cl. 2 (p) says, "as an assurance" that the defendant would perform its obligations and for the purpose of enabling the plaintiff to have recourse to it in certain events. It was not a sum agreed upon as a pre-estimate of the damage that the plaintiff might suffer in case of a breach or breaches of covenant or of the amount of the debt that might become due by way of rent should the defendant make default under his covenant to pay rent. It is, in my opinion, impossible to regard the clauses in question as limiting the defendant's liability in the way suggested. (at p593)

7. I would therefore dismiss the appeal. (at p593)

ORDER