Progressive Mailing House Pty Ltd v Tabali Pty Ltd

57 ALR 609

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Between: Progressive Mailing House Pty Ltd
And: Tabali Pty Ltd

Court:

Judges: Mason J
Wilson J
Brennan J
Deane J
Dawson J

Subject References:
LANDLORD AND TENANT
LEASE
Memorandum of
Breach of covenant to pay rent
Whether repudiation
Re-entry
Other rights of termination
Lessor's loss of benefit of covenants
Damages for loss
Applicability of ordinary principles of contract law
REAL PROPERTY
Torrens system
Unregistered memorandum of lease
Rights of parties thereunder
DAMAGES
Lessor's re-entry on repudiation
Loss of benefit of covenants
Whether damages recoverable
CONTRACTS
Breach
Fundamental
Leases
Applicability to

Case References:
Shevill v Builders Licensing Board - (1982) 149 CLR 620; 42 CLR 305
National Carriers Ltd v Panalpina (Northern) Ltd - [1981] AC 675

Hearing date: 24 February 1984
Judgment date: 12 March 1985

Canberra

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ORDER

Appeal dismissed with costs.

The respondent, Tabali Pty Ltd, was the owner of factory premises which comprised land registered under the Real Property Act 1900 (NSW). There was a memorandum of lease entered into between the respondent as lessor and the appellant as lessee, but the memorandum was not registered.

The appellant actually entered into occupation prior to 4 December 1978, the date of the memorandum of lease.

There was a dispute between the parties as to the completion of certain work to be carried out on the premises by the respondent and the appellant did not pay rent for the first two months of the lease and from May 1979 to October 1979.

Proceedings were commenced in the Supreme Court of New South Wales by the respondent. The statement of claim accepted the appellant's repudiation and sought damages accordingly.

The appellant was ordered to pay to the respondent the sum of $85,000 by way of damages in respect of the loss, as a consequence of re-entry, of the benefit of covenants contained in the memorandum of lease. An appeal from that decision, limited to the question whether his Honour had been correct in awarding damages, was dismissed by the Court of Appeal.

Held, per curiam: The appeal should be dismissed.

Per Mason, Wilson, Deane and Dawson JJ:-

(i)

The rights of the parties were to be determined on the footing that the memorandum of lease, although unregistered, brought into existence an equitable term of the duration which it specified and subject to the conditions which it contained.

(ii)(a)

Per Mason, Wilson and Dawson JJ: The ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases.

(b)

Per Deane J: As a general matter and subject to one qualification the ordinary principles of contract law are applicable to contractual leases. The qualification is where the tenant's rights are as a matter of substance more properly to be viewed by reference to their character as an estate in land with a root of title in the executed demise.

National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, applied.

(iii)

The mere presence of an express proviso for re-entry in a lease exclude any other right of termination of the lease by the lessor.

(iv)

Damages for loss of the bargain are recoverable only when the defendant can no longer be required to perform his contractual obligations in specie. This might be established by a common law rescission of the contract by the innocent party or by a termination of the contract in the exercise of a contractual power so to do. In either event, assuming repudiation or fundamental breach by the defendant, he can no longer be required to perform the contract and is liable for damages for loss of bargain.

(v)

On its true construction the memorandum of lease did not limit the respondent's right to recover damages on re-entry to damages for breaches which had already occurred.

(vi)

What needs to be established in order to constitute a repudiation is that the party evince an intention no longer to be bound by the contract or that he intended to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way. A fundamental breach involves such default in performance that the breach goes so much to the root of the contract that it makes commercial performance of it impossible.

(vii)

Repudiation or fundamental breach of the lease involves considerations not present in the case of an ordinary contract. Mere breaches of covenant on the part of the lessee does not amount to a repudiation or fundamental breach.

(viii)

Abandonment of possession is not necessary to constitute a case of repudiation by a lessee although it would be rare that facts falling short of abandonment would constitute repudiation by the lessee in the case of a long lease at either a nominal or very low rental.

(ix)

The evidence as to the breach of the covenant to pay rent, in association with other breaches, supported the conclusion that the appellant's conduct amounted to a repudiation of the lease or a fundamental breach of its obligations under the lease.

Shevill v Builders Licensing Board (1982) 149 CLR 620; 42 ALR 305, distinguished.

Per Brennan J:-

(i)

A lessor can recover damages for loss of the benefit of a lease only where the lessee has repudiated the lease before determination of the term. Such a repudiation is not necessarily established by proving a default in the payment of rent.

Shevill v Builders Licensing Board (1982) 149 CLR 620; 42 CLR 305, followed.

(ii)

In the present case the lessee showed an intention to act, and to act only, in a manner substantially inconsistent with his obligations under the lease and the lessee repudiated the contract embodied in the lease.

(iii)

The ordinary contractual principles relating to rescission for anticipatory breach and damages for the loss of benefit of a contract apply when a lessee repudiates his obligations under a lease but the character of a lease as a demise distinguishes the consequences of their application from their application to a contract that is not also a demise.

(iv)

Where the lease is liable to forfeiture, enforcing the forfeiture both determines the lessee's interest in the land and constitutes the lessor's election to accept the repudiation. Once the lessee's interest is determined, there is no reason why damages should not then be recoverable, provided the lessor has not previously made an election to keep the lease on foot.

(v)

In the present case it was conceded that the service of the statement of claim determined the lessee's interest in the land. The statement of claim clearly accepted the lessee's repudiation and sought damages accordingly. Thus the elements of the lessor's cause of action were established.

(vi)

Clause 10.1 of the lease did not limit the damages recoverable by the lessor to damages for past breaches of covenant.

Appeal

This was an appeal from a decision of the Court of Appeal of the Supreme Court of New South Wales dismissing an appeal from a decision of Mr Justice Lusher. Further facts appear from the judgments of the court.

Cur adv vult

R A Conti QC, M L D Einfeld and J E Zareski, for the appellant.

K Mason QC and A H Slater, for the respondent.