Brisbane City Council v Council Club Inc [1994] QSC 349

IN THE SUPREME COURT OF QUEENSLAND Writ No. 1840 of 1994 BETWEEN BRISBANE CITY COUNCIL Plaintiff and THE COUNCIL CLUB INC Defendant JUDGMENT - DERRINGTON J. DELIVERED: 23 December 1994 CATCHWORDS: Landlord and Tenant - Tenant entering and paying rent on annual basis during negotiations for long term lease - Agreement never reached - No agreement relating to tenancy - Tenant continuing to occupy on same basis - Period required for notice to quit - Property Law Act 1974 s.129(1) Estoppel - Substantial improvements made by tenant in reliance on representation by landlord of long term lease - Tenancy at nominal rent lasting in excess of 18 years - No prejudice Estoppel - Representation that long-term lease would be granted - Estoppel not defeated by imprecision of period of leave in representation Mistake - Landlord demanding increased rent and threat of termination of tenancy in default of agreement - Landlord's agents mistakenly sending invoice for and accepting rent for new term at old rate - Mistake known to tenant - Not entitling tenant to new term COUNSEL: P.J. Lyons Q.C. for the Plaintiff A.J.H. Morris Q.C. for the Defendant SOLICITORS: N. Boge Solicitor for the Brisbane City Council for the Plaintiff Corney Neumann Turnour for the Defendant HEARING DATE: 6 December 1994 -- 1 of 8 -- IN THE SUPREME COURT OF QUEENSLAND Writ No. 1840 of 1994 BETWEEN BRISBANE CITY COUNCIL Plaintiff and THE COUNCIL CLUB INC Defendant JUDGMENT - DERRINGTON J. Judgment delivered 23 December, 1994 In 1976 the Brisbane City Council entered into discussions with representatives of its employees concerning the provision to them by the Council of premises in its building for a club. The Council thought at that time that it had some legal obligation to provide such an amenity. The discussion centred on a long term lease at an annual rent of $100 plus a share of the club's profits to be determined from time to time, and there was a general consensus, but an agreement was never concluded. In the meantime in anticipation that the lease would eventually be granted the Club was permitted to go into occupation and it paid the first year's rent at the primary rate proposed for the anticipated lease, that is, $100. The Club has continued to occupy the premises ever since, paying only the same annual rent of $100. No agreement as to any proportion of profits has ever been requested Despite the absence of any concluded lease, the Council met promises which it had proposed in the preliminary negotiations by refurbishing and furnishing the premises. It also provided the Club with an interest free loan of $20,000 for wages and other purposes. The Club purchased stock and obtained suitable licenses, and entered into the usual obligations associated with the conduct of such an institution. It also repaid the loan. The premises are valuable, occupying the entire floor of the Council's city administration -- 2 of 8 -- 2 building, and in June 1994 it demanded a substantially increased rent from the Club threatening early termination of the tenancy in the absence of agreement. However, although the Council's intent to the contrary was manifest, an invoice for $100 for the 1994/95 year's rent was sent by it to the Club on 30 June 1994. Despite that it was not payable for a month, the Club hastened to pay it immediately on its receipt on 1 July. On the same day and within hours, the Council wrote saying that the invoice had been sent in error and that the payment would be refunded. This was attempted soon after, but the Club refused to accept the repayment. As the Club has since refused to meet the Council's demand for the increased rent, the Council served a Notice to Quit on 4 October giving one month's notice in accordance with s.129(1) of The Property Law Act 1974. When this period expired, a writ was issued and the Council now applies for summary judgment for recovery of possession of the premises and for mesne rent. The Club resists this, claiming a yearly tenancy and claiming further that as it has paid its rent for the current year it is entitled to remain in possession at least until the termination of that period: Munro v Dare (1934) St. R. Qd 332 at 337; Turner v. York Motors Pty Ltd (1951) 85 CLR 55,67. The evidence indicates clearly that the Council's invoice for and acceptance of the rent was a mistake as the Club must well have known, and in fact probably knew, and it appears that it deliberately tried to take advantage of it. In this context it cannot rely on its advantage: cf Taylor v. Johnson (1983) 154 CLR 106; Hartog v Colin and Shields (1939) 3 All ER 566; McMaster University v Wilcher Construction Ltd (1971) 22 DLR (3d) 9. The Club also raises estoppel because it undertook a substantial capital expenditure in upgrading, refurbishing and air-conditioning the premises in January 1981 at a cost of $85,000. It claims to have done this with the Council's approval after and in reliance on the Council's original assurance that a long term lease would be granted. However, having regard to the benefits which it has received by way of payment of only a nominal rental and by way of the tenancy of fourteen years which it has since enjoyed, no estoppel could arise. It has substantially received the benefit which it was led to expect. Further, the effect of the estoppel which it seeks to invoke would be out -- 3 of 8 -- 3 of all proportion to any prejudice which it might still suffer and the doctrine would not be applied: The Commonwealth v Verwayen (1990) 170 CLR 394. Further still, by the time of this work, five years after the original discussion, it is doubtful if the Club could still validly rely on a promise or misrepresentation, if any, that had still not been performed. Its only claim must necessarily have been to seek to estop the Council's denial of the existence of a long term lease, but it is argued that the terms of any such relationship would be too uncertain to uphold by estoppel; Legione v Hateley (1983) 152 CLR 406, 435-436. That would not have been sufficient to have prevented the court's enforcement of a suitable lease by construction of the representations, if estoppel had been available. The remaining and most important question is whether the Council was right in giving only one month's notice to quit. The Club claims that it has a yearly tenancy so that six months' notice to quit is required. The Council claims that there is no such tenancy for that period; that the tenancy was implied by law by the payment of rent; that there was no agreement as to the duration of the tenancy; and that therefore s.129(1) of the Property Law Act applies. The onus of establishing these matters lies on it. The only direct evidence as to the facts from which the relevant implications can be discerned is to be found in Exhibit L of Mr Warren's affidavit, he being a representative of the Club. This shows that there was no express or formal arrangement between the parties as to the period of the tenancy, and the Club does not challenge this. It appears to be common ground on the evidence that it entered into occupation in anticipation of the lease and remained there. Its payment of rental at the rate which had been agreed to by the parties in anticipation of the lease carries no implication that the parties agreed to a yearly tenancy. It is irrelevant that a council officer, while referring to the absence of any concluded arrangement, later expressed the opinion in an internal memorandum that the Club had the tenancy from year to year upon the basis of the rate at which it paid its rent. As it turns out, that would have been correct as a matter of law but for the section of the Property Law Act. -- 4 of 8 -- 4 There are cases of where a tenancy has been agreed to but its duration is not expressed in direct terms. It would be necessary then for the court to determine its duration by construction of the words used in the factual context, or by the determination as to the common intention of the parties, and reference might be made to the rate of payment of rent for those purposes. But such a tenancy arises from the agreement, and is not implied by the payment of rent. This is not one of those cases. There is no evidence whatever to support the Club's claim, and all the evidence supports the factual conclusion that the entry and payment of rent were intended to be temporary only, pending a formal lease. The legal result of this is now a mixture of the old common law. It should be understood that the Club, having no other basis for its tenancy, is also thrust into reliance on this source of it. The former common law that would have supported such a tenancy was based on an implication by law arising from the payment of rent after entry and not on any alleged agreement for a yearly tenancy said to be an implication of fact from the acceptance of rent on a yearly basis. It implied a yearly tenancy that was rebuttable in a number of ways not relevant here. It is this implication of law from the mere payment of rent after entry that was the target of the section. The following extract from Dockrill v. Cavanagh (1945) 45 S.R. (N.S.W.) 78 at 83 concerning the equivalent legislation there explains it: "The general framework into which this section was inserted by the Act was similar to that which obtained in England upon the passing in 1845 of the Statute 8 & 9 Victoria, chap. 106, s. 3. Prior to the introduction of s. 127, if there was a lease but no agreement between the parties operative at common law to incorporate as part of it a provision that it was to continue for a term of years, or to be at will or for a periodic tenancy, then, in the contemplation of a court with jurisdiction to enforce only common law rights, although upon entry by the lessee the lease became a lease at will, upon payment of rent it ceased to be a lease at will and became a lease for the periodic tenancy of from year to year. It was to this that s. 127 was addressed, and what it provides is that where this state of things exists, the conditions which would previously have brought into existence a lease from year to year shall instead bring into existence a lease at will terminable by a month's notice expiring at any time. The phrase 'and no agreement as to its duration' means no agreement as to its duration which, at common law, is incorporated in the lease for all purposes: Larke Hoskins & Co. Ltd. v. Icher [(1929) 29 S.R. 142; 12 Austn Digest 916]; Burnham v. Carroll Musgrove Theatres Ltd [(1927) 28 S.R. 169 at 179-180; (1928) 41 C.L.R. 540 at 565- 6; 12 Austn Digest 915]. But there is nothing to indicate that it was intended to alter -- 5 of 8 -- 5 in any other respect the rules of the common law applicable in courts administering only that law. Hence, where the common law would previously have incorporated into the lease such of the terms of an agreement dehors the lease as were applicable to a lease from year to year, it will now incorporate such as are applicable to a lease at will terminable by a month's notice, and where the agreement dehors the lease provides for a term of years, then, if when the period of that term comes to an end, the lease at will has not already been terminated by a month's notice, it is now that lease which becomes automatically terminated without notice. I quite agree with Mr Saddington that it was illogical that the common law, being prevented by statute from giving effect to an agreement, should nevertheless not only give full force and effect to most of the details of the agreement, but also treat one of its provisions as operating to terminate an independent legal relationship which it had itself brought into existence; but this argument was addressed to the Court in Doe dem Tilt v. Stratton [(1828) 4 Bing. 446; 130 E.R. 839], and did not prevail." It reads as follows: "129(1) [TENANCY DETERMINABLE AT WILL] No tenancy from year to year shall, after the commencement of this Act, be implied by payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time." First it must be observed that on the authorities the two parts of the subsection must be read together and even the second part applies only to cases where at common law a tenancy from year to year would be implied from the payment of rent: Turner v. York Motors Pty Ltd (1951) 85 CLR 55 per Dixon J. (as he then was) at 71, citing with approval Burnham v. Carroll Musgrove Theatres Ltd (1927) 28 S.R. (NSW) 169. Consequently, the question whether this is a case where a tenancy from year to year would be implied merely from payment of rent as described in the section becomes the only essential point. This section was designed to defeat the rebuttable implication at law of a yearly tenancy by the simple payment of rent, as described above, such as where a party entered under an agreement for lease which was unenforceable or a void lease. On entry, the tenant first held a tenancy at will which, on payment of rent, was converted to a tenancy from year to year, subject to rebuttal: Palmdale Insurance Limited v. Sprenger [1988] 1 Qd.R. 414; Leitz Leeholme Stud Pty Ltd v. Robinson [1977] 2 N.S.W.L.R. 544; Progressive Mailing House Pty Ltd v. Tabali Pty Ltd (1985) 157 C.L.R. 17 at 26; Australian Provincial Assoc. Assurance Ltd v. Rogers (1943) 43 S.R. -- 6 of 8 -- 6 (N.S.W.) 202 at 205-6. In discussing these the old texts do not mention any case where a tenant enters prior to but in anticipation of an agreement which is never consummated. However, as might be expected, this is the same in principle, and this is acknowledged by Dixon J. in Turner v. York Motors Pty Ltd (supra) at 365 where, after discussing the more usual cases he says:- "The case where the parties have not actually reached an agreement for a future lease depends upon the same principle, that is upon the implication from the receipt of a compensation for the use of the land, but the inference to be drawn from the circumstances may be less certain." By this he meant that among other things the inference that the tenancy will be from year to year may be less certain as a matter of implication by law, but that is not a difficulty in the present case, for here such an implication by law would not have been rebutted because, for example, the accord between the parties had included the term that the rental under the proposed lease was to be at a yearly rate, and the payment of the rent, when it was paid, was made on a yearly basis. In Turner's case as in this, the tenant went into possession on the mutual expectation of a formal lease that was never entered into. It was held that the section did not apply but only because the tenancy that would have been implied by law was from month to month in accordance with the facts of that case. It was predicated by this reasoning that the tenancy was of the kind referred to by the section except for that feature. As all the circumstances in the present case would have led to the implication of a tenancy from year to year, the feature that excluded the tenancy in Turner's case from the operation of the section is missing. It was also found in that case that an actual agreement for a tenancy was later entered into in respect of a larger area, and that it was this tenancy that was in existence at the time of the notice to quit. This too distinguishes that case, but it can be disregarded as a totally separate and irrelevant matter. Accordingly, the arrangement in the present case would seem to come within that class of circumstance that would have led to a tenancy from year to year by reason of payment of rent. It -- 7 of 8 -- 7 follows that the whole of s.129(1) has application and the Notice to Quit, which is not otherwise under attack, was good. As this, despite suitable caution, is sufficiently straightforward and clear [cf Theseus Exploration NL v. Foyster (1972) 126 C.L.R. 507, 515] the plaintiff is therefore entitled to summary judgment for possession of the premises, though it is agreed that there is a triable issue as to mesne damages, and leave to defend should be granted in respect of that issue. IT IS THEREFORE ORDERED That there be final judgment for the plaintiff against the defendant for possession of the land described as the 21st floor, Brisbane Administration Centre, 69 Ann Street, Brisbane being part of the building erected on the land described as lot 2 on R.P. 52036, lots 3 and 4 on R.P. 90089, lot 1 on R.P. 83994, lot 28 on R.P. 18823, lots 1,2,3 and 20 on R.P. 57137, lot 17 on R.P. 90508 and lot 1 on R.P. 52036 County of Stanley, Parish of North Brisbane contained in Certificate of Title Volume 8308 Folio 144. And That the defendant have leave to defend the action in relation to the plaintiff's claim for mesne profits and interest thereon pursuant to the Common Law Practice Act 1867 (as amended). And That the defendant pay the plaintiff's costs of and incidental to this application and that part of the action relating to the plaintiff's claim for possession and that the costs of the application and of the action relating to the claim for mesne profits and interests be reserved. -- 8 of 8 --