When will there be a concluded lease, and what compensation will be payable if the landlord wrongfully breaches the lease?
Risi Pty Ltd v Pin Oak Holdings Pty Ltd – was there a concluded lease?
Decision at VCAT – Risi Pty Ltd v Pin Oak Holdings  VCAT 1112
The issue before Senior Member Walker at VCAT was whether there was a concluded oral agreement for a lease of part of a three-storey building used by the Applicant to conduct a restaurant business.
The background was that the landlord forwarded a written lease to the tenant for execution; the tenant executed and returned the lease; the tenant then spent considerable sums of money in the belief that there was a lease on foot. The landlord did not sign the lease, and alleged that there was no lease on foot. The landlord denied that an agreement had in fact been reached, and sought to evict the tenant.
The tenant raised issues of unconscionable conduct and estoppel.
Counsel for the tenant submitted that there was at least an agreement for lease, as the three essential ingredients for an agreement were set out in the email exchange that is, parties, premises and price (It should be noted that there is arguably a fourth requirement: period, dealt with below).
He also submitted that the landlord is estopped from denying that the tenant was a tenant of the Premises and relied upon the principles of equitable estoppel set out in the case of Waltons Stores (Interstate) Ltd v Maher  HCA 7. In particular, he referred to the judgement of Brennan J in that case where his Honour said at para 12 of his judgment):
The nature of an estoppel in pais is well established in this country. A party who induces another to make an assumption that a state of affairs exists, knowing or intending the other to act on that assumption, is estopped from asserting the existence of a different state of affairs as the foundation of their respective rights and liabilities if the other has acted in reliance on the assumption and would suffer detriment if the assumption were not adhered to.
And at paragraph 34 of Brennan J’s judgment:
In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.
In the same case in the joint judgement of Mason CJ and Wilson J their Honours said (at para 30 of the judgment):
One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has "played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it": per Dixon J. ...Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption”.
The Member in the Risi case found that by:
(a) Agreeing to grant a lease;
(b) Providing … lease documents which he had approved of and which were in the agreed terms and asking her to sign and return them;
(c) Receiving them back … without any indication that he did not intend to execute them,
the landlord’s director induced the tenant to make an assumption that the tenant had a lease of the Premises for the term set out in the lease document together with two five-year options.
The landlord’s director became aware that the tenant believed that she had the benefit of the lease and knew that, on the faith of that assumption, she expended a large sum of money on extensive renovations to the Premises and to forego any income from the restaurant business for the period of the renovations. In these circumstances, he was under a duty to correct her mistaken assumption but he did not do so. By not doing so he caused the tenant to act to its detriment on the basis of the assumption that he induced. The Tribunal concluded that it would be unfair and unjust to allow the landlord to ignore his conduct and its consequences. The director sat on the executed documents without informing the tenant that they were unexecuted, possibly waiting on the outcome of his dealings with the Council and the extent to which the landlord would need to encroach upon the Premises for the purposes of its own proposed development.
As a result, the Tribunal found that the claim based upon promissory estoppel was established and then turned to what was the appropriate remedy.
The Tribunal concluded (in paragraph 78) that it does not make “any sense to talk in terms of a minimum equity. The … purpose of the award is to remove the inequity that the [landlord] has brought about. It is not an award of damages or the enforcement of the promise. However the fact that the award is confined to removing the inequity and no more does not mean that the tribunal or a court should be parsimonious. In some cases … it might be necessary that the promise be made good in order to avoid the inequity that the [landlord] has created.
The Member found in this case the tenant was induced to temporarily close her business, deprive herself of income for several months (there was a factual dispute about that issue which becomes relevant later) and invest the money she was able to borrow in carrying out substantial renovations on the Premises. She also invested her time and effort since late 2014 in building up her business in the Premises. In doing so she had forgone the opportunity that she had to establish a business elsewhere and to invest her time and money in establishing a goodwill in premises where she had security of tenure.
In the circumstances, the Tribunal concluded that to fully compensate the tenant for the inequitable situation that the landlord created it was necessary to direct the landlord to grant the lease that it agreed to grant.
Despite the apparently reasonable nature of the Tribunal’s decision, the landlord was unhappy with that outcome and as a result, it appealed to the Supreme Court.
Decision at first instance in Supreme Court – Pin Oak Holdings Pty Ltd v Risi Pty Ltd  VSC 773
The Honourable Justice Croft heard the appeal in the Supreme Court.
Croft J noted that any appeal is dependent upon two important qualifications. First, that the appeal be on a question of law, and secondly, that the Court gives leave to appeal. He concluded (in paragraph 6) that:
The legislative policy underlying these provisions is that “VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal. It follows that the Supreme Court is not entitled to enter into the fact finding exercise which the legislature has deliberately entrusted to a specialist tribunal.
Quoting Pagone J in Commissioner of State Revenue v Frost (2011) 83 ATR 832 at 833–4 :
The requirement for leave under s 148(1) of the VCAT Act “is a safeguard that the appeal is on a pure question of law and that the grounds supporting the question of law articulated for determination by the Court do found the subject matter of the appeal”. It also confers a discretion about whether to grant leave which an applicant must persuade the Court to exercise in its favour. What must be shown will depend upon the particular case bearing in mind the statutory criteria being a grant of leave and not special leave. It will ordinarily be necessary (in addition to a clearly articulated question of law) for an applicant to make out a prima facie case and in an appropriate case it may be necessary for the applicant to show that the question upon which leave is sought has public or general importance.
Croft J concluded that the landlord both established a question of law which warranted the grant of leave to appeal and, further, was successful in the appeal.
Croft J noted that the Tribunal found, among other things, that no agreement to lease had been concluded, and that any such agreement would have been unenforceable by virtue of s 126(1) of the Instruments Act 1958. According to the Tribunal, this was because the emails did not stipulate the commencement date of the lease, and it was impossible to conclude from the evidence that any commencement date had in fact been agreed by the parties (this is the fourth requirement for an agreement to lease to be valid).
The Honourable Justice Croft noted that the finding regarding the existence of the additional lease has not been appealed by the landlord and although the tenant did appear to seek that the finding be overturned, a cross-appeal was not filed in this proceeding and this issue was not pressed.
In dealing with the appeal, Croft J noted (at paragraph 21) that in Rugolino v Howard  VSC 590, Bell J set out the principles which the Court applies in the exercise of its appellate jurisdiction in relation to findings of fact. As the Tribunal is not bound by the rules of evidence and can base its findings on any probative material, those principles apply equally in the appeal. The principles may be summarised as follows:
(a) The question whether there is any evidence of a particular fact is a question of law. Therefore, a finding of fact is open to challenge as erroneous in law, but only if there is no probative evidence to support it;
(b) The question is not whether the finding was ‘reasonably open’, for that implies the appeal court could test the finding against a reasonableness standard. The question is whether the finding was open at all. Put another way, there is no error of law unless it can be shown that there was no evidence to support the finding; and
(c) Whether a finding is open on the evidence, or whether there is any or some evidence to support it, are different ways of expressing the same test.
In analysing the evidence given by the parties at the Tribunal, Croft J concluded that there was in fact no evidence to support a finding that the tenant’s restaurant business had been closed for a number of months. He then found that finding was of critical importance to the reasoning and conclusions that followed. This vitiating error compromised the fairness of the hearing received by the landlord.
The Honourable Justice Croft found that the Tribunal misconstrued the evidence and reached the erroneous conclusion that the Restaurant had been shut for a period that was grossly in excess of the actual period of closure thus affecting subsequent reasoning and findings.
Croft J concluded that the finding at paragraph 37 of the Tribunal’s Reasons is a conclusion with no apparent reference to evidence or evidence based reasoning with respect to the value of the works. Moreover, this conclusion, thus afflicted with no basis, is repeated in the Reasons for the purpose of dealing with the estoppel claim in particular at paragraph 66.
Croft J noted that it was conceded by the landlord that had the Restaurant been closed for a lengthy period such as six months, the extended closure would have been obvious to the landlord’s director and caused him to enquire further regarding the extent of the renovations being undertaken by the tenant and the potential loss of income stemming from such a closure.
Thus the Tribunal’s reliance on the discredited findings that the real potential for loss of income ought to have been obvious to landlord’s director cannot be accepted. It simply has no basis in the evidence before the Tribunal.
The Honourable Croft J concluded that the critical nature of the discredited findings underpinned the ultimate conclusions made by the Tribunal and, moreover, by taking irrelevant considerations into account, the Tribunal deprived the landlord of a fair hearing.
Croft J accepted that it would be unlikely that the tenant would have spent $114,613.36 on renovating the Premises without the purported representation by the landlord of the Proposed New Lease. It also follows that the “minimum equity” to cure the detriment of that reliance would be for the landlord to pay $114,613.36 plus interest to the tenant to put the tenant into the position that it was in the first place; prior to any representation being made.
The Tribunal accurately summarised the cases dealing with the appropriate remedy for an equitable estoppel at paragraph 78 of the Reasons, where it stated:
The cases are clear that the purpose of the award is to remove the inequity that the Respondent has brought about. It is not an award of damages or the enforcement of the promise. However the fact that the award is confined to removing the inequity and no more does not mean that the tribunal or a court should be parsimonious. In some cases, such as Giumelli and Donis, it might be necessary that the promise be made good in order to avoid the inequity that the Respondent has created.
Croft J concluded that the Tribunal erred in applying this test to the facts as found. He further found that the tenant’s detrimental reliance could have been entirely ameliorated by an appropriate award of equitable compensation and interest which, in monetary terms, reflects the extent of the detriment suffered.
During the course of the appeal, the tenant purported to file and serve a notice of contention, seeking to upheld VCAT’s decision, but on grounds different to those found by VCAT to apply.
The landlord raised with the Court the question of whether on an appeal limited to questions of law, the tenant could rely on a Notice of Contention.
Croft J generally accepted the landlord’s submissions that the Respondent had among other things, no legal entitlement to file such a document.
(a) First, there is no legal entitlement for the respondent to an appeal under s.148 of the VCAT Act to file a notice of contention.
(b) Second, even if a notice of contention procedure does exist, it would assumedly be confined to seeking an affirmation of the precise orders made by the Tribunal.
(c) Third, whatever scope the notice of contention procedure may possess (assuming it exists at all), it could certainly not extend so as to allow a respondent to compel the wholesale reconsideration of the Tribunal’s factual findings by the Supreme Court.
(d) Fourth, the Tribunal’s relevant findings hinged on the absence of any agreed commencement date for the lease or agreement to lease (or the absence of that commencement date from the relevant ‘memorandum’ of the agreement). These conclusions were well supported by authority. It is clearly established that a memorandum capable of satisfying s.126(1) of the Instruments Act 1958 must specify the commencement of the term. It is also clear that the doctrines of contractual certainty and completeness require that a commencement date must be specified in the lease, or be capable of ascertainment. In this case, no such commencement date was specified in the emails. The Tenant had sought to argue that a 1 November 2014 commencement had been orally agreed between the parties, but the Tribunal was ‘unable to determine whether this starting date was actually discussed or was simply an assumption that the tenant made.’ In light of that finding, it would be very difficult indeed for the Tenant to argue that a commencement date should somehow be ‘ascertained’ from the circumstances so as to avoid uncertainty.
Croft J also stated that he thought the position is really beyond doubt given the language and structure of the Rules.
The rules regarding Notices of Contention are only to be found in the Supreme Court (General Civil Procedure) Rules 2015 under the heading of ‘Appeals and Applications to the Court of Appeal’. He concluded that the language and structure of the Rules indicates that this procedure is not available outside the appellate jurisdiction of the Court of Appeal.
The final conclusion reached by the court (at paragraph 71) was that the tenant had no lease at law and yet proceeded with the renovation works despite knowing that the additional lease had not been signed and returned by the landlord and while the tenant’s solicitors were making enquiries with the landlord’s solicitors to ascertain the whereabouts of the documentation. Although it might well be said that the tenant brought misfortune on itself equity will, nevertheless, intervene to relieve against consequences when it would otherwise be unconscionable in all the circumstances to allow the landlord to take advantage or otherwise benefit from the situation. Equity will, however, only address and ameliorate the unconscionability—but no more. Hence the outer limits of such relief are the “minimum equity”, not the conferral of some disproportionate advantage on a party such as the tenant.
This decision left the tenant unhappy; as a result, it appealed to the Court of Appeal of the Supreme Court of Victoria.
The decision in the Court of appeal
Risi Pty Ltd v Pin Oak Holdings Pty Ltd  VSCA 317 (3 November 2017)
Justices of Appeal Tate, Santamaria and Hansen dealt with the further appeal. They granted leave to appeal, but dismissed the appeal.
The Court noted (at paragraph 50) that the jurisdiction conferred by s 148 is confined to appeals on questions of law. The existence and identification of a question of law is not merely a precondition to the right to appeal, but also the subject matter of the appeal itself.
And at paragraph 52,
More recently, in Patsuris v Gippsland and Southern Rural Water Corporation, Garde AJA (with whom Tate and Kyrou JJA agreed) said:
Section 148 does not confer a general right of appeal on the merits of a case. If no threshold question of law can be identified, the case is not suitable for the type of restricted appeal that s 148 provides.
The ‘question of law’ requirement in s 148 confers a limited capacity on the Court to review findings of fact made by a Tribunal member. The requirement in s 148 to state a question of law is germane to the capacity of the Court to review findings of fact made by a Tribunal member. The identification of a question of law is not merely a precondition to the exercise of a right to appeal, but the subject matter of the appeal itself. It is not sufficient for the parties to identify a point of law between them on appeal that was not raised before the Tribunal. In Transport Accident Commission v Hoffman, Young CJ and McGarvie J said of the predecessor provision to s 148:
How then is it to be construed? It is not to be construed as limited to an appeal from a decision of the Tribunal on a question of law. Nor is it to be construed as granting an appeal from any decision which involves a question of law. The via media we think is to construe the section as granting a right of appeal from any decision of a Tribunal on a question of law which is involved in the Tribunal's decision.
At paragraph 53, the Court of Appeal noted that in Commissioner of State Revenue v Frost, Pagone J explained the policy considerations that underpin s 148 in the following terms:
The legislature has not provided an unqualified right of appeal from a decision of VCAT; on the contrary, the legislature has imposed two conditions upon the ability to appeal from decisions of VCAT: namely, the need for leave and the restriction of the subject matter of appeals to questions of law ... The legislative policy is that VCAT decisions should not generally be disturbed where cases have been decided in that forum other than on questions of law and where there is something about the decision bearing upon the question of law which warrants a grant of leave to appeal.
They then pointed out (at paragraph 54) as Mason J observed in Minister for Aboriginal Affairs v Peko-Wallsend Ltd, that one must constantly bear in mind the limited role of a court reviewing the exercise of an administrative discretion. Mason J continued:
It is not the function of the court to substitute its own decision for that of the administrator by exercising a discretion which the legislature has vested in the administrator. Its role is to set limits on the exercise of that discretion, and a decision made within those boundaries cannot be impugned.
At paragraph 55 the Court of Appeal noted that the landlord appealed to the trial division on the ground that there was no evidence to support certain findings made by VCAT: ‘A tribunal that decides a question of fact when there is “no evidence” in support of the finding makes an error of law’. … the application of this rule requires careful consideration in the case of a body, such as the Tribunal, that is not bound by the rules of evidence. An error of law will be established only where there is no probative evidence to support a finding of fact.
They agreed that a “finding of fact that is unsupported by evidence will vitiate a decision if the error materially affected the decision.”
They concluded that in the present case, the error of law was vitiating given that it was not possible to say that, if the error with respect to the … Finding had not been made (that is, the error that the restaurant was closed for approximately six months), the same decision would have been reached.
They noted that the finding that the restaurant was closed for six months is constantly repeated in the reasons of the Tribunal and used to support the other findings.
In its written submissions, the tenant sought to base the finding that the landlord’s director knew that the restaurant was closed for a ‘considerable period of time’ upon (what it says is) the evidence that the restaurant was closed for ‘a period of four weeks’. The Court of Appeal noted at paragraph 60 that was not the finding of fact by the Tribunal: the … Findings were all based on the mistaken view that the restaurant was closed over a six-month period. [The director’s] knowledge was a matter of fact that was for the Tribunal to find; this Court has no jurisdiction in the present appeal to correct that finding by the Tribunal.
The Court of appeal accepted at paragraph 61 that, had the Tribunal appreciated the evidence as to the extent of the closure, there would have been strong grounds for a finding that the period of the closure was not ‘considerable’ and that the director could not have been aware that there was any such closure. The Court found that the primary judge was correct to find that the … Finding ‘was of critical importance to the reasoning and conclusions that followed’ and that the error was a ‘vitiating error [that] compromised the fairness of the hearing received by’ the landlord.
The Court of Appeal accepted the submission of the landlord that the question for the Court is not whether the Tribunal ought to have made the … Findings even if it had correctly understood that the restaurant was closed only for two weeks or even four weeks. That is not the function of the Court. Instead, the question for the Court is whether the decision of the Tribunal was vitiated by the error which lay at the heart of the reasoning leading to the impugned finding. The finding was an inference drawn from an anterior finding of fact for which there was no evidence.
In relation to the principles of equitable estoppel, in paragraph 65, the Court referred to the decision of Nettle JA in Donis v Donis, (Maxwell ACJ and Ashley JA agreeing). He said:
In such cases the remedy relates to the understanding of the parties and the expectation that has been encouraged. Prima facie the estopped party can only fulfil his or her equitable obligation by making good the expectation which he or she has encouraged. The estopped party, having promised to confer a proprietary interest on the party entitled to the benefit of the estoppel and the latter, having acted upon the promise to his or her detriment, is bound in conscience to make good the expectation. It follows that the detrimental reliance that supports the estoppel need not constitute in any sense a consideration moving to the party bound. It is a unilateral element of the estoppel and not the price paid for it.
The Court went on to note that Nettle JA qualified what he described as the ‘prima facie position’ in the following terms:
The prima facie position will yield to individual circumstances. Principle and authority compel the view that where a plaintiff’s expectation or assumption is uncertain or extravagant or out of all proportion to the detriment which the plaintiff has suffered, the court should recognise that the claimant’s equity may be better satisfied in another and possibly more limited way. … The object of the exercise is to do equity and for that purpose ‘detriment’ is no narrow or technical concept. … The requirement must be approached as part of a broad inquiry as to whether departure from a promise would be unconscionable in all the circumstances.
In Donis v Donis (No 2) in considering the relief to be awarded to the respondent, the trial judge adopted as a starting point the prima facie entitlement of the respondent to have the promise made good. Prima facie, this would have entitled the respondent to a one-quarter share of proceeds of the sale of property that had been promised to her. The trial judge then turned to consider all the circumstances of the case, including the bases of valuation of the property, the effect of a mortgage over the property and the allowance of interest. Taking into account these circumstances, the trial judge concluded that the full quarter share needed to be reduced to satisfy the equity that had arisen. On appeal, Nettle JA saw no error in that approach.
In the present case, the Court of Appeal concluded that the granting of a new lease for a period of three years with two further options of five years would have been out of all proportion to the detriment that the tenant had suffered in expending $114,613.36 on renovating the premises. As the primary judge said, the tenant’s detrimental reliance could have been entirely ameliorated by an award of equitable compensation and interest.
The Court of Appeal concluded (at paragraph 71) that the award of equitable compensation also restored the tenant’s ability to devote resources to any new restaurant business. The primary judge was correct in deciding that the tenant suffered no loss of opportunity.
Hayden Stark Chambers
The orginal post of this BLOG can be viewed here - https://melbournepropertylaw.blogspot.com.au/2018/04/when-will-there-be-concluded-lease-and.html
When will there be a concluded lease, and what compensation will be payable if the landlord wrongfully breaches the lease?Bill Stark Date: 23-05-2018