FEDERAL COURT OF AUSTRALIA
Dibeek Holdings Pty Ltd v Notaras [2000] FCA 1212
APPEALS – appeal on question of law under s 58(1) of the Tenancy Tribunal Act 1994 (ACT) –whether “perversity” in fact-finding constitutes error of law – whether finding perverse.
Corporations Law, s 553C.
Tenancy Tribunal Act 1994 (ACT), s 58.
Land Titles Act 1925 (ACT), ss 58, 59.
Dibeek Holdings Pty Ltd v Notaras [2000] ACTSC 1, cited.
De Nicholls v Saunders (1870) LR 5 CP 589, cited.
Minister for Immigration & Multicultural Affairs v Epeabaka (1999) 84 FCR 411, cited.
Bruce v Cole (1998) 45 NSWLR 163, cited.
Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139, cited.
Hill v Green (1999) 48 NSWLR 161, cited.
Minister for Immigration & Multicultural Affairs v Eshetu (1999) 197 CLR 611, cited.
Minister for Immigration & Ethnic Affairs v Teo (1995) 57 FCR 194, cited.
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 231, cited.
Gye v McIntyre (1991) 171 CLR 609, cited.
In re Daintrey; ex parte Mant [1900] 1 QB 546, cited.
DIBEEK HOLDINGS PTY LTD v EMMANUEL NOTARAS & ORS
A 12 of 2000
MILES, SACKVILLE & KATZ JJ
30 AUGUST 2000
CANBERRA
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IN THE FEDERAL COURT OF AUSTRALIA |
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A 12 OF 2000 |
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
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BETWEEN: |
DIBEEK HOLDINGS PTY LIMITED APPELLANT
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AND: |
EMMANUEL NOTARAS FIRST RESPONDENT
HELEN NOTARAS SECOND RESPONDENT
STAMATINA KAROUZOS THIRD RESPONDENT
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DATE OF ORDER: |
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WHERE MADE: |
THE COURT ORDERS THAT:
1. The appeal be allowed.
2. The orders made by the trial Judge on 2 February 2000 be set aside.
3. In lieu of the orders made by the trial Judge, order that the cross-appeal from the decisions of the Tenancy Tribunal of the Australian Capital Territory made on 14 July 2000 and 1 October 1998 be dismissed with costs.
4. The cross-appeal be dismissed.
5. The respondents pay the costs of the appellant of the appeal and of the cross-appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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A 12 OF 2000 |
ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
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BETWEEN: |
APPELLANT
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AND: |
FIRST RESPONDENT
HELEN NOTARAS SECOND RESPONDENT
STAMATINA KAROUZOS THIRD RESPONDENT
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JUDGES: |
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DATE: |
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PLACE: |
REASONS FOR JUDGMENT
THE COURT:
1 This is an appeal from a judgment of a Judge of the Supreme Court of the Australian Capital Territory: Dibeek Holdings Pty Ltd v Notaras [2000] ACTSC 1. The trial Judge upheld a cross-appeal by the respondents to this appeal from a decision of the Tenancy Tribunal of the Australian Capital Territory (the “Tribunal”) constituted by the President. The trial Judge directed that the matter be remitted to the Tribunal for rehearing and, if appropriate, for the assessment of damages due to the respondents in accordance with his Honour’s reasons for judgment.
THE DISPUTE
2 The proceedings in the Tribunal were commenced by the respondents to the present appeal (to whom we refer as “the tenants”). The tenants were prompted to institute the proceedings because the present appellant (“Dibeek”) took possession of certain units at Tuggeranong Markets (“the Markets”) which the tenants had previously occupied. Dibeek entered into possession of most of the units on 7 October 1997 and the remaining units on 4 December 1997.
3 The tenants claimed to be entitled to occupy the units at the Markets pursuant to leases granted in June 1994 and October 1994 by the then registered proprietor of the Crown Lease of the Markets, Gahahan Pty Ltd (“GPL”). GPL was the family company of George Notaras. Mr Notaras is the brother of two of the tenants, Emmanuel Notaras and Stamatina Karouzos, and the son of the remaining tenant, Helen Notaras.
4 At the time GPL granted the leases to the tenants it was the registered proprietor of the Crown Lease, subject to a mortgage in favour of the Advance Bank Ltd (“Advance”). On 30 June 1995, Advance consented to the grant of the leases to the tenants. On 3 June 1996, Advance took possession of the Markets by reason of GPL’s default under the mortgage. On 5 February 1997, Advance, in exercise of the power of sale conferred by the mortgage, sold the Crown Lease to Dibeek, which duly became registered as proprietor. Advance also assigned to Dibeek its rights to recover rent for the period from 3 June 1996 (the date Advance took possession of the Markets) until the date of the sale.
5 In the Tribunal, the tenants sought declaratory relief and damages in respect of what they said was their wrongful exclusion from the units. Dibeek sought a declaration that it had lawfully retaken possession, orders for the payment of unpaid rent, and damages. Dibeek sought this relief on the basis that it had validly terminated the leases by reason of the tenants’ failure to pay rent and to observe other covenants in the lease.
6 The core of the dispute between the parties concerned an agreement which the tenants alleged they had made with GPL for the pre-payment of rent prior to the date Advance consented to the grant of the leases. The tenants’ case before the Tribunal was that they had paid large amounts of rent in advance to GPL and were entitled to have these prepayments credited against the rent as it fell due under the leases. They contended that the rental prepayment agreement bound both Advance as mortgagee and Dibeek as the purchaser from the mortgagee. It followed that they had never fallen behind in performance of the covenant to pay rent . They also denied that they had otherwise breached the leases.
7 For its part, Dibeek contended that no agreement for pre-payment of rent had ever been made between the tenants and GPL. Accordingly, the alleged pre-payments of rent made by the tenants to GPL were simply unsecured advances to GPL. In any event, according to Dibeek, any agreement between GPL and the tenants for the prepayment of rent could not bind Dibeek as the registered proprietor of the Crown Lease.
8 The Tribunal found that no rental prepayment agreement of the kind alleged by the tenants had been made. While the tenants had paid large sums to GPL, they were advances to the company designed to keep it afloat and had been treated as such by GPL. The Tribunal therefore found that the tenants had been in arrears of rent due by them under the leases and that Dibeek had been entitled to take possession of the units.
9 The Tribunal further held that, even if there had been an agreement as alleged by the tenants, it could not have satisfied the tenants’ obligation to pay rent to Advance or to Dibeek as and when it became due. According to the Tribunal, a payment of rent in advance is treated by the general law as an advance to the lessor with a collateral agreement that the lessor will use the sum, or part thereof, to discharge the lessee’s obligations to pay rent as and when it falls due: De Nicholls v Saunders (1870) LR 5 CP 589. The collateral agreement may bind a subsequent mortgagee or purchaser who has notice of it. But here the mortgage to Advance pre-dated the alleged agreement and Advance, in any event, had no notice of it. Dibeek, as purchaser from Advance, was likewise not bound.
10 In the event, the Tribunal made a declaration that the tenants had no possessory interest in the units after the dates Dibeek had taken possession. It also gave judgment in favour of Dibeek in the sum of $302,684.85, being rental under the leases and other amounts due until the dates on which Dibeek had taken possession of the units. Consequential orders for the payment of interest and costs were made in favour of Dibeek. These included orders made in a decision handed down on 11 October 1998. In addition, ancillary orders were made relating to certain sums held in trust by an agent.
THE APPEAL TO THE SUPREME COURT
11 Dibeek filed an appeal to the Supreme Court of the Australian Capital Territory against the ancillary orders made by the Tribunal, apparently in order to correct an error. That appeal was ultimately withdrawn. In the meantime, however, the tenants cross-appealed against the orders made by the Tribunal in favour of Dibeek. The notice of cross-appeal identified what was said to be a number of errors of law made by the Tribunal.
12 It was necessary for the tenants (the cross-appellants in the proceedings before the trial Judge) to identify errors of law in their appeal to the Supreme Court because of the terms of the Tenancy Tribunal Act 1994 (ACT) (“Tenancy Tribunal Act”). Section 58(1) of the Tenancy Tribunal Act provides as follows:
“A party to a Tribunal hearing may appeal to the Supreme Court on a question of law from a decision of the Tribunal in that hearing”.
The powers of the Supreme Court on an appeal on a question of law are set out in s 58(3) of the Tenancy Tribunal Act:
“(3) The Supreme Court shall hear and determine the appeal and may make any of the following orders:
(a) an order affirming or setting aside the decision of the Tribunal;
(b) an order remitting the case to be heard and decided again, either with or without the hearing of further evidence, by the Tribunal in accordance with the directions of the Court;
(c) such other order as the Court considers appropriate.”
13 The learned trial Judge held that the Tribunal had erred in law in a number of respects. We examine the trial Judge’s reasons in detail later. It is enough to note at this stage that his Honour held that it was not open to the Tribunal to conclude that the tenants and GPL had not entered into an agreement for the pre-payment of rent by 15 June 1995. According to the trial Judge, a crucial letter of 15 June 1995 sent by GPL’s solicitors to Advance evidenced an agreement for the prepayment of rent and made it legally impossible for the parties to the agreement to deny its existence. The Tribunal was said to have erred in law because, inter alia, it had failed to appreciate the significance of the letter.
14 The trial Judge considered that the agreement created equitable rights in the respondents against GPL, the then registered proprietor of the Crown Lease of the Markets. These equities were enforceable against Advance as the mortgagee in possession and against Dibeek, notwithstanding its registration as proprietor of the Crown Lease. It followed that the tenants were entitled to have their prepayments of rent applied to the rental and other amounts as they became due and payable under the leases. Accordingly, Dibeek was not entitled to terminate the leases and was liable in damages to the tenants.
THE APPEAL TO THIS COURT
15 Dibeek appealed to this Court against the orders made by the trial Judge, pursuant to s 24(1)(b) of the Federal Court of Australia Act 1976. The tenants were given leave at the hearing to file a notice of cross-appeal which sought to vary the orders made by the trial Judge so as to remit the matter to the Tribunal, not merely to assess damages, but to consider the tenants’ entitlement to possession of the units.
16 Dibeek put at the forefront of its submissions the contention that the learned trial Judge had erred in concluding that the Tribunal was obliged to find that a rental prepayment agreement had been entered into between the tenants and GPL no later than 15 June 1995. Dibeek argued that
· the Tribunal had fully appreciated the significance of the letter of 15 June 1995 and that its findings of fact were not only open but were overwhelmingly supported by the evidence; and
· even if the Tribunal had not appreciated the significance of the letter, the failure would have amounted to a mere failure to give due weight to a particular piece of evidence and could not constitute an error of law reviewable by the Supreme Court pursuant to s 58(1) of the Tenancy Tribunal Act.
17 Dibeek further submitted that, even if GPL and the tenants had entered a rental prepayment agreement as the tenants alleged, the agreement could not bind Dibeek. Assuming that the agreement created an equitable obligation binding on GPL and that Dibeek had notice of the agreement, by virtue of s 59 of the Land Titles Act 1925 (ACT), Dibeek as the registered proprietor of the Crown Lease was not affected by notice of the unregistered interest.
18 Both Mr Einfeld QC, who appeared with Mr Habib for Dibeek, and Mr Sullivan QC, who appeared with Mr Arthur for the tenants, agreed that if Dibeek’s contentions concerning the existence of the rental prepayment agreement succeeded, there was no need to consider whether the trial Judge had been correct in holding that the equities created by the alleged agreement bound Dibeek as the registered proprietor of the Crown Lease.
19 At the conclusion of the argument on the Tribunal’s factual findings, the Court announced that it proposed to allow the appeal and to dismiss the cross-appeal. We indicated that we would publish our reasons in due course. These are our reasons.
the tribunal’s reasons
20 The threshold question is whether the Tribunal’s finding that GPL and the tenants had never entered into the alleged rental prepayment agreement involved an error of law , thereby enlivening the jurisdiction of the Supreme Court conferred by s 58(1) of the Tenancy Tribunal Act. A convenient starting point is the Tribunal’s reasoning in support of its factual findings, given in its decision of 14 July 1998.
21 The Tribunal accepted that the tenants had paid large amounts of money to GPL between 26 May 1994 and 3 April 1996. The amounts paid totalled $544,365. The Tribunal remarked, in relation to these payments:
“Ordinarily, there would be little difficulty in inferring that, absent other transactions between the parties, payments made to a lessor by a lessee during the term of a lease would be by way of rent. Such a principle is not immutable, however, and becomes less persuasive the more it is established that the parties are not at arm’s length and are involved in other transactions.”
22 The Tribunal noted that the only direct evidence of the alleged rental prepayment agreement was that given by Emmanuel and George Notaras. Emmanuel Notaras had deposed in his affidavit that the tenants had provided funds to GPL since about 1992 to assist the company in meeting its financial obligations. He said that, in April or May 1994, he had a conversation with George Notaras in which it was agreed that the tenants would take sub-leases of the units. According to Emmanuel Notaras, in that conversation, or in one shortly thereafter, the following exchange had taken place:
“Emmanuel Notaras:‘We are happy to continue to help the company with the operation of the Markets, but any further payments to the company will have to be credited against our rent account under our leases.’
George Notaras: ‘That’s fine by me.’”
George Notaras deposed in his affidavit to a conversation to similar effect. Both Emmanuel and George Notaras were cross-examined.
23 The Tribunal pointed out that other evidence supported the account given by Emmanuel and George Notaras. This evidence comprised the following:
· a letter dated 15 June 1995 from solicitors on behalf of GPL to Advance;
· a letter dated 23 August 1995 from the solicitors for Advance to GPL’s solicitors; and
· a further letter dated 28 August 1995 from GPL’s solicitors to Advance’s solicitors.
24 In the letter of 15 June 1995, GPL’s solicitors sought consent from Advance as mortgagee of the Markets to the leases entered into between GPL and the tenants. The letter put forward considerations designed to persuade Advance to consent to the grant of the leases (as it did on 30 June 1995). The letter included the following passage:
“Although some of the rent levels shown are lower than the projections relied on by the valuer there are certain factors which militate in favour of these arrangements….
(a) The valuer proceeded on a longer take-up time; whilst these leases are immediate.
(b) Some rentals for these leases which are progressively paid in advance have attracted a modest reduction in gross rent levels.
(c) The family represents a particularly strong actual lessee…”.
(Emphasis added.)
25 In the letter of 23 August 1995, Advance’s solicitors referred to a notice that had been served on GPL requiring the company to repay the principal sum due under the mortgage within fourteen days. The letter also stated that GPL’s accountants had provided Advance with a document said to be the tenancy schedule for the mortgaged property. The notes accompanying that schedule claimed that the tenants had prepaid rental to various dates in 1997. The letter went on to assert that when GPL had sought the consent of Advance to enter into the various lease agreements, there had been no mention made of any intention to pre-pay rent. The letter requested evidence of such prepayment as a matter of urgency, and warned that if satisfactory evidence were not forthcoming, Advance would not accept the allegation that rents had been prepaid.
26 In the letter of 28 August 1995, GPL’s solicitors put forward a number of matters which were said to be sufficient to satisfy Advance that the rentals had in fact been prepaid. The matters referred to in the letter included the following:
· Advance had known of the actual dollar contribution since May 1994, since they had been deposited to the account of GPL.
· The rental payments under the leases were insufficient to enable GPL to meet its obligations. Accordingly, the family had made payments on “an as required basis”, thereby enabling Advance’s interest charges to be met.
· Specific reference had been made to these matters in the letter of 15 June 1995.
The letter of 28 August 1995 concluded with the following paragraph:
“It would be commercially unrealistic to view the nature and level of involvement without expecting leases to be formalised and that the financial commitment in part be applied to rent and outgoings.”
27 The Tribunal then asked itself what evidence there was to support Dibeek’s contention that the payments had not been prepayments of rent. The Tribunal identified five factors:
· The fact that, prior to the commencement of the leases in 1994, the tenants had provided funds to GPL on exactly the same basis as they continued to provide them after the leases had been executed. Both before and after the execution of the leases, the tenants had provided large amounts of money on an “as required” basis to assist GPL to meet its obligations, primarily interest due to Advance.
· The funds provided by the tenants to GPL from time to time bore no resemblance to the amounts of rent required to be paid under the leases.
· No documentary evidence of any kind was available to support the tenants’ contention that the parties had agreed that the amounts paid to GPL by the tenants were to be treated as prepayment of rent. The relevant cheque butts simply referred to GPL as the payee of the cheques and did not designate the payments as in respect of rent.
· GPL did not treat the payments in its own accounting records as rent. In each case, the cash books and cash book summaries showed the amounts as credited to the loan accounts for the respondents. George Notaras, in his evidence, accepted that the entries had been correct. While evidence had been adduced from an accountant to explain the absence of tax returns, no suggestion was made that the amounts had been wrongly recorded in GPL’s accounting records. The Tribunal acknowledged that, since the true nature of a prepayment of rent is an advance to a lessor by a lessee in conjunction with a collateral agreement that the lessor will apply the appropriate sum in discharge of the obligation to pay rent as and when it arises, the accounting treatment by GPL was technically correct. But if the payments were intended to be in respect of rent, it would
have been expected that the loan accounts would be reduced from month to month as GPL applied the prepayments to rent actually due. There had been no such entries.
· No records had been produced from the business enterprises conducted by the tenants to show that the payments in question had been treated in their records as rental payments. There had been no adequate explanation for the absence of the accounting records. Moreover, the only explanation proffered was not valid “and reflected poorly upon the credit of Mr Emmanuel Notaras”. The inevitable inference was that the contents of these records would not support the tenants’ case.
28 The Tribunal reaffirmed the general proposition that ordinarily a strong inference would exist that moneys paid by a lessee to a lessor during the term of a lease would be in respect of rent. But the Tribunal did not regard this as an ordinary case. The parties were far from arm’s length in their dealings. The tenants had been intimately involved in GPL’s management of the Markets and in George Notaras’ attempts to save the family’s investment. The payments made to GPL prior to the execution of the leases could not possibly have been rent, and therefore must have been made for other purposes, most likely to prevent losses to a close family member. All of the evidence suggested that the financial viability of the Markets had been deteriorating, at least from 1992 onwards.
29 According to the Tribunal, it must have been obvious that at some point GPL could lose the Markets to the mortgagee, Advance. The tenants must therefore have been aware, at some stage, that they might not be dealing with GPL in relation to rent, but with Advance. As the Tribunal stated:
“If the [tenants] and Mr George Notaras had truly reached an agreement that the payments in question were to be treated as rent, it is inexplicable why the parties, knowing that they may ultimately have to deal with a mortgagee in possession, did not either record their agreement in writing, or prepare their on-going financial records to reflect this agreement.”
The Tribunal then addressed the correspondence referred to earlier.
“The reference to ‘rentals…which are progressively paid in advance’ in the letter [of 15 June 1995] is cryptic. It may or may not refer to an agreement alleged between the [tenants] and GPL. But it is obvious that neither the letter of 15 June 1995 nor the letter of 28 August 1995 refer to a specific agreement for rent to be paid in advance in the terms of that now alleged by Mr Emmanuel Notaras and Mr George Notaras. Indeed, the letter of 28 August 1995 after reviewing the financial assistance provided by the [tenants] to GPL and the time spent by the [tenants] in attempting to revive the Markets, concludes not by asserting an agreement of the nature now alleged but by [making the statement in the concluding paragraph quoted in par 26 above].
However, even taken at its highest, all this evidence does is prove that as at June 1995, at the earliest, the applicants were asserting that the amounts they had paid to GPL were for rent. By that time GPL was under pressure from the Bank and the trading position of the Markets was deteriorating. By that time the [tenants] had provided very significant funds to GPL which were unlikely to be recovered if the Bank exercised its powers of sale of the Markets.” (Emphasis added.)
30 The Tribunal observed that the considerations supporting the tenants’ contentions were cogent only when the transactions between GPL and the tenants were viewed as taking place at arm’s length. That cogency was lost when the transactions were viewed “from the perspective that the parties shared a communion of interests”. In particular, the fact that there was no evidence that the tenants had paid any other sums to GPL by way of rent under the leases lost its force. It was unlikely that the tenants would ever be called to account for the rent owing under these leases.
31 The Tribunal concluded as follows:
“When one combines these considerations with the undoubted communal or family interest of the [tenants] and Mr George Notaras in maintaining a significant presence in the Markets should the Bank exercise its right of re-entry and sale, the proposition that the amounts paid by the [tenants] to GPL were by way of loan becomes just as plausible as the proposition that there was an agreement to pay the amounts as rent. When one then adds the facts that experienced business people such as Mr Emmanuel Notaras and Mr George Notaras apparently did not make (and certainly did not produce) one record supporting their claim and that they allowed others under their control to make records contrary to the present assertion, it becomes positively unlikely that there was any agreement to treat amounts paid by the [tenants] to GPL from early 1994 onwards as rent on the Units leased by the [tenants].
I am satisfied on the evidence that there was never any such agreement, and the assertion of such an agreement is an after-thought of Mr Emmanuel Notaras and Mr George Notaras to enable the applicants to continue as occupants of a significant portion of the Markets should the Bank take possession and/or sell the Markets, without the [tenants] having to risk further significant funds.” (Emphasis added.)
THE TRIAL JUDGE’S REASONING
32 The trial Judge recounted the evidence before the Tribunal, in particular the correspondence of June and August 1995. According to his Honour, the “correspondence set up a case the Bank could not deny”. Advance was aware and had accepted that the tenants had purported to pay rentals in advance. It could not complain if the sum so paid equalled the rental due for the balance of the lease.
33 The trial Judge observed that before the Tribunal the debate had centred on whether the advances from May 1994 had been characterised as credits against rent, including future rent. His Honour accepted that the Tribunal was entitled to infer that the absent records would not have helped the tenants’ case. His Honour also accepted that the letter of 15 June 1995 did not specify the quantum of prepayments which had been made or proposed. Nonetheless, Advance had been put on notice that some arrangement for prepayment of rent as at 15 June 1995 had occurred.
34 His Honour then observed that it was necessary to consider the status of the Tribunal’s rejection of the Notaras brothers’ evidence that in 1994 they had entered into a rental prepayment agreement. He stated that this “conclusion was one of fact…not open to attack on this appeal”. But he considered that this factual issue was “irrelevant”. The reason was that if an agreement had been reached, even as late as 15 June 1995, it would be equally effective (or ineffective). His Honour continued as follows (at [54]):
“Nor, in the circumstances, could the [tenants], having assented to the making of the representation, deny the truth of it so far as it concerned or was made to any third party who had acted on that representation. Nor did they attempt to do so.”
35 The trial Judge accepted that, “in general terms”, it was open to the Tribunal to find that the assertion of an agreement was an “afterthought” of Emmanuel and George Notaras to enable the tenants to retain possession of the units. His Honour said (at [62]), however, that this left
“open the question as to when the ‘afterthought’ was first put into effect. It must have been before the letter of 15 June 1995 was sent to the Bank. The Tribunal must, therefore, have been taken to have found that such an agreement, if then made, was of no effect.”
According to his Honour, that raised a question of law.
36 Having stated these conclusions, the trial Judge then turned to the parties’ submissions. He noted that the tenants had conceded that the question of whether or not there was an agreement was a question of fact. They had contended, however, that the Tribunal had made errors of law in reaching that conclusion. In particular, the tenants had argued that, on the evidence, it was not open to the Tribunal to conclude otherwise than that there had been an agreement “such as that alleged by [the tenants] and Mr George Notaras”. His Honour said that he had already indicated that this issue was irrelevant, but in deference to the tenants’ submissions, he was prepared to consider it.
37 In support of their proposition, the tenants had relied on several matters.
· They accepted that their transactions with GPL were not at arm’s length. But they submitted that the fact that they were trying to keep the Markets afloat favoured characterising the payments as rent rather than as loans. Because the parties were related, there was less need to record the transactions. His Honour thought there was “considerable force in this contention”.
· The tenants argued that the fact that no other payments were recorded as rent actually favoured the view that the payments had been on account of rent. Given that GPL might be forced into liquidation, why would the tenants risk an allegation that rent had not been paid? Indeed, the Tribunal had incorrectly assumed that if GPL had been forced into liquidation, the tenants could have recovered their advances because they could have offset the advances against their indebtedness for rent. In truth, as unsecured creditors for the advances, the tenants risked recovering less than 100 per cent in the dollar if GPL were put into liquidation, yet would have to pay the full value of any outstanding rent. The trial Judge thought there was “some force” in this submission.
· The absence of records characterising the payments as rent was explicable because the records of GPL were never under the tenants’ control and GPL, by the time of the Tribunal hearing, was in liquidation. His Honour thought that this consideration would be relevant only if it was necessary to find that the agreement had occurred significantly before 15 June 1995. He thought it was “relatively neutral”.
· As the case was conducted, Dibeek had not seriously challenged the proposition that the agreement was made. His Honour thought this was not “quite accurate” because Dibeek did challenge the assertion that there was an agreement in place at the time the Notaras brothers alleged. His Honour said this:
“82. The terms of the letter of 15 June 1995 clearly asserted prepayment of rent. It could not be contended that, by then, there had been no such agreement. Indeed, it had been put forward by GPL as a representation favouring the grant of consent by the mortgagee to the registration of leases in question. It was open to the Tribunal, as I have noted, to have concluded that the agreement there asserted had been recently made, as an ‘afterthought’ prompted by GPL’s continuing financial difficulties.”
38 His Honour then turned to Dibeek’s contention that none of these matters, severally or in combination raised any question of law which had been erroneously decided. His Honour’s reasoning should be set out in full:
“84. The first question is whether the conclusion to which the Tribunal came, that the prepayment agreement was not made significantly prior to 15 June 1995 was in error. It was not. But it did fail to address the real question which was whether, after the mortgage was entered into, but by 15 June 1995, a prepayment agreement had been made between GPL and the [tenants] with a view to redefining the status of the balance of monies already advanced and applying those balances to rental payment including future rents. To my mind, the letter of 15 June 1995 establishes beyond doubt that, at least by then, and for whatever motive, GPL and the [tenants] had decided to characterise the payments made and to be made by the [tenants] to GPL as either rent or a prepayment of rent (as the case may be).
85. That the motive was to advantage the Notaras’ interests whether or not it disadvantaged the Bank is irrelevant. Even if that motive was to be assumed and characterised as a ‘sharp’ practice that does not deny its existence nor does it deprive it of such legal effect as it was capable of.
86. It seems to me that the Tribunal assumed that, unless it was accepted that the agreement asserted by the letter of 15 June 1995 was made in 1994, it had no legal effect. Of course, it was open to the Tribunal to be unpersuaded by the contention that the agreement was made as early as 1994. However, that does not mean that an agreement later reached, even if for an unmeritorious motive and as an ‘afterthought’ brought on by the perilous financial state of GPL, had no legal effect.
87. In so concluding, I do not accept the argument advanced by the [tenants] that the evidence supporting an ab initio agreement was ‘uncontradicted’, and so, must be accepted. That submission, though pressed by the [tenants] is not sustainable (see eg Ellis v Wallsend District Hospital (1989) 17 NSWLR 553).
88. Whether or not I might have concluded otherwise, it was open to the Tribunal to have rejected the evidence of the Notaras brothers as to when and in what terms they came to agree upon the application of the monies undoubtedly paid by the [tenants] to GPL towards rent, including future rent as it fell due.
89. It was not open to the Tribunal to conclude that there had not, as at 15 June 1995, been such an agreement. The Tribunal did not address that question. The letter of 15 June 1995 itself evidenced that agreement and made it legally impossible for the parties to it, even had they desired to do so, to deny the truth of it.
90. The distinction between error of law and of fact was discussed at length in Minister for Immigration v Teo (1995) 57 FCR 194, 199-202 (Black CJ, Gummow and Beazley JJ) – see also Minister for Immigration v Singh (1997) 144 ALR 284.
91. In my view, the Tribunal erred in law in failing to appreciate the significance of the objective fact constituted by the solicitors’ letter of 15 June 1995.” (Emphasis added.)
39 The trial Judge said (at [92]) that the next question was whether the
“effect of having characterised monies standing as a credit to the [tenants] in GPL’s loan account as ‘rent’ discharge[d] the [tenants’] liability to pay rent falling due after the entry into possession by the Bank as mortgagee.”
His Honour answered this question in the affirmative. Advance had consented to the leases on 30 June 1995 with notice of the tenants’ equities, including their entitlements under the rental prepayment agreement. Dibeek, as transferee from Advance, was also bound by the equities because of s 58(1)(d) of the Lands Titles Act (which provides that the estate of the registered proprietor is not paramount in relation to “any prior tenancy for a term not exceeding 3 years”).
THE TENANTS’ SUBMISSIONS
40 In this Court, the tenants relied on the trial Judge’s reasoning, especially in [84]-[91] of the judgment, to support his Honour’s conclusion that the Tribunal had erred in law. Mr Sullivan contended, initially at least, that his Honour had been correct in holding that the Tribunal had failed to address the “real question”. He also argued that the Tribunal had erred by its “incorrect and unreasonable” failure to infer from the letter of 15 June 1995 that the tenants and GPL had agreed to designate advances to GPL as an account of rent.
41 The tenants also contended that the Tribunal had erred in law because the process of reasoning leading to the finding that there had been no agreement applying the advances made by the tenants to GPL to rental as it fell due, was “illogical”, “perverse” or “unreasonable”. Mr Sullivan relied in substance on the criticisms of the Tribunal’s reasoning that had been made to the trial Judge. It will be recalled that, although his Honour commented on the criticisms, he regarded them as irrelevant to the real question in the case.
42 Mr Sullivan said that the expressions “illogical”, “perverse” or “unreasonable”, bore much the same meaning. He acknowledged that a Full Court of this Court, in Minister for Immigration and Multicultural Affairs v Epeabaka (1999) 84 FCR 411, expressed the view in considered dicta (at 420-421), that the adoption of an “illogical and contradictory” approach by an administrative tribunal does not of itself constitute an error of law justifying judicial review. Mr Sullivan also acknowledged that there is in New South Wales what Spigelman CJ in Bruce v Cole (1998) 45 NSWLR 163, at 188, described as a “well-established body of jurisprudence” that a perverse finding of fact does not constitute an error of law: see Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139, at 156, per Glass JA (with whom Samuels JA agreed). Nonetheless, Mr Sullivan contended that this line of authority had been weakened. In particular, he submitted that Fitzgerald JA (with whom Beazley JA agreed) correctly stated the position in Hill v Green (1999) 48 NSWLR 161 (a case decided by a bench of five). In that case, Fitzgerald JA (at 212), interpreted a majority of the High Court in Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 as having supported the proposition that “a perverse factual conclusion by a decision-maker involves an error of law”. Mr Sullivan submitted that the principle embraced by Fitzgerald JA has special force where the decision-making body is essentially judicial in character, as is the case with the Tribunal.
43 Finally, Mr Sullivan argued, contrary to a concession that had been made before the trial Judge, that the question of whether a legally binding agreement has been made is always a question of law. Such a determination involves not merely findings as to primary facts, but a decision as to whether they could constitute in law a binding agreement.
REASONING
44 Insofar as the tenants seek to uphold the trial Judge’s reasoning, they encounter two immediate obstacles. The first is that the trial Judge’s conclusion that the Tribunal erred in law depended on his Honour’s view that the Tribunal had failed to address “the real question” in the case. His Honour identified the real question (at [84]) as being whether an agreement had been made between GPL and the tenants, after the mortgage had been entered into but before 15 June 1995, with a view to redefining the status of the moneys advanced or to be advanced by the tenants to the company. This, his Honour said, was a different question to whether there had been an agreement entered into in 1994 between GPL and the tenants, as deposed to by Emmanuel and George Notaras.
45 In fact, the Tribunal found that “there never was any such agreement”, that is an agreement to treat amounts paid by the tenants to GPL from early 1994 as rent in respect of the units. It made that finding after considering the significance of the letter of 15 June 1995. The Tribunal took the view that the evidence, taken at its highest, merely showed that the tenants were asserting that the amounts they had paid to GPL were in respect of rent. The Tribunal found that the assertion of an agreement (not the making of an agreement) was an afterthought of Emmanuel and George Notaras designed to enable the tenants to continue in occupation of the units.
46 Mr Sullivan conceded in argument that it was not correct to say that the Tribunal had failed to address the “real question” identified by the trial Judge. That concession was not surprising. Mr Sullivan accepted, and indeed asserted (as he had to), that the case put to the Tribunal by the tenants, although primarily based on the 1994 agreement deposed to in the affidavits, included an alternative claim that an agreement had been entered into, at the latest, by 15 June 1995. (The alternative claim appears to have been pressed notwithstanding that neither Emmanuel Notaras nor George Notaras gave evidence of any agreement other than the one allegedly reached in 1994). In view of the tenants’ “fallback” argument, the Tribunal’s reasons, which are expressed in general terms, should be read as intended to address that argument. Moreover, the considerations relied on by the Tribunal as suggesting that there had been no agreement to treat the payments as rental included the failure of either the tenants or GPL to record the payments as having been applied to rent. It must be remembered that the tenants continued to make payments to GPL as late as April 1996 (that is, well after the letter of 15 June 1995). Even so, there was no evidence that any of the later payments had been recorded as having been made on account of rent.
47 Mr Sullivan contended that, despite his concession, the primary Judge had not fallen into error. He submitted that his Honour had not intended to say that the Tribunal had failed to address the real question, but only that the Tribunal had not considered the question properly. It is true that the trial Judge took the view that the Tribunal had not appreciated the significance of the letter of 15 June 1995 and that this, according to his Honour, constituted an error of law. But his Honour twice stated, in unequivocal terms, that the Tribunal had failed to address the real question. Indeed the thrust of the judgment is that the Tribunal’s rejection of the 1994 agreement deposed to by Emmanuel and George Notaras was irrelevant to the real question in the case, namely whether the parties had agreed “not significantly prior to 15 June 1995” to characterise the payments made by the tenants to GPL as rent or prepayments of rent. It was the failure of the Tribunal to address the real question that constituted, in his Honour’s view, an error of law. But, as Mr Sullivan conceded, the Tribunal did address that question.
48 The second obstacle in the path of upholding the trial Judge’s analysis arises from his Honour’s holding (at [54]) that it was
“undeniable that, when the letter of 15 June 1995 was sent, the [tenants] had by then agreed with GPL that the monies due from GPL and to be advanced to it would henceforth be appropriated to rent due or to become due.”
Later in the judgment, his Honour said (at [89]) that the letter evidenced an agreement to characterise payments made by the tenants as rent or prepayments of rent and thus made it “legally impossible” for the parties to the agreement to deny its existence.
49 One significant difficulty with this analysis is that the Tribunal found that the letter was sent by solicitors on behalf of GPL to Advance, the mortgagee of the Markets. There was no finding that the letter was sent on behalf of or with the assent of the tenants. The Tribunal said that the evidence, taken at its highest, merely showed that as at June 1995, at the earliest, the tenants were asserting that the amounts they had paid were for rent. This falls short of a finding that the tenants had assented to the sending of the letter. In the absence of such a finding it is not clear how, on the basis of the letter, the tenants can be said to have assented to the representations in the letter, much less entered into an agreement shortly before 15 June 1995 to characterise the advances already made as rent or prepayments of rent.
50 In any event, the letter, as the Tribunal observed, was in cryptic terms and may or may not have been intended to refer to an agreement “of the nature alleged between the tenants and GPL”. Mr Sullivan himself acknowledged in oral argument that a reasonable observer could read the letter in a number of ways. This concession rather undercuts the contention that the letter could only be read as indicating that an agreement had been entered into between GPL and the tenants requiring the advances made by the tenants to be applied to rent due under the leases. It is certainly difficult to read the letter as implying (as his Honour seems to have done) that GPL and the tenants must have agreed shortly before the date of the letter to define the status of moneys previously advanced by them to GPL. Had such an agreement been made, the letter might have been expected to refer to its terms and not to have said that the rentals “are progressively paid in advance”. Moreover, the evidence did not explain the rather puzzling reference to the payments in advance having “attracted a modest reduction in gross rentals”.
51 It may be that his Honour was influenced in his assessment of the letter by the fact that, once the letter was written on behalf of GPL, it was but a small step for George Notaras, on behalf of GPL, to agree with the tenants to apply the advances made by them to past and future rental payments, thereby effectively protecting the family’s position. It is one thing, however, for the family members to have been able to take that step had they chosen or been advised to do so; it is another for them to have actually taken the step. Other fact-finders perhaps may have been prepared to infer from the evidence that, not only was the letter of 15 June 1995 written on behalf of GPL, but that GPL and the tenants had in fact agreed shortly before the letter was written, to apply the advances to past and future rental payments (despite the absence of evidence from the Notaras brothers that they had made an agreement other than in April or May 1994). But there was nothing “illogical” or “perverse” in the Tribunal taking the view that the letter was designed to bolster the untrue assertion that an agreement had been entered into in 1994. The Tribunal, by implication, found that the tenants had not turned their minds, prior to 15 June 1995, to the desirability of making an agreement with GPL that (with the benefit of hindsight) would have protected their commercial interests.
52 Mr Sullivan’s argument, that the Tribunal had used a “perverse” or “illogical” process of reasoning to reject the existence of the agreement deposed to by Emmanuel and George Notaras, did not advert to the fact that the authorities use the word “perverse” in different senses. It is sometimes used to describe a finding which is against the overwhelming weight of the evidence: see, for example, Azzopardi, at 156, per Glass JA. It is also used in the sense of acting without any probative evidence to support a material finding of fact: Minister for Immigration and Ethnic Affairs v Teo (1995) 57 FCR 194, at 199, per curiam. The authorities suggest that the latter is capable of constituting an error of law, but the former, of itself, is not: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 231, at 359, per Mason CJ.
53 Mr Sullivan did not suggest that there was no probative evidence to support the Tribunal’s findings. Rather, the thrust of his submissions was to point to a number of factors which he said were given no or insufficient weight by the Tribunal. It was for this reason that the Tribunal’s findings of fact were said to be “illogical”, “perverse” or “unreasonable”.
54 In our view, the Tribunal’s findings cannot be characterised as “illogical”, “unreasonable” or “perverse” even in the sense of being against the weight of the evidence. As the trial Judge remarked, some criticisms of the factual analysis adopted by the Tribunal may have some force. It is possible, for example, that a different fact-finder might have taken a different view of the significance of the absence of contemporary records, or of the fact that GPL and the tenants did not deal with each other at arm’s length. But the mere fact that different minds might attribute different weight to these factors does not demonstrate that the Tribunal’s acted against the weight of the evidence, much less that its reasoning was devoid of logic or irrational.
55 In addition to the considerations specifically relied on by the Tribunal, it must be remembered that the Tribunal had the benefit of observing Emmanuel and George Notaras when they gave their evidence. Although the Tribunal made only one express reference to the credit of the witnesses, it is clear that the Tribunal formed an adverse view of their credibility. This was a factor the Tribunal was entitled to weigh in the balance. The Tribunal was also entitled to take account of the absence of any direct evidence of an agreement having been entered into between GPL and the tenants shortly before 15 June 1995. (It will be recalled that on the trial Judge’s reasoning, if an agreement had been made it must have been a relatively short time before the letter of 15 June 1995 was sent.) Indeed, George Notaras, under cross-examination, asserted that he had had a discussion with his brother about the possibility of treating the general financial contributions to the company as prepayments of rent, but that this had occurred after Advance had taken possession.
56 Mr Sullivan criticised the Tribunal’s assumption that if GPL had been forced into liquidation, the tenants could have recovered their advances to the company, because they could have offset the advances against their indebtedness for rent. He said, without citation of authority, that the assumption was plainly wrong and that the error had infected the Tribunal’s reasoning.
57 It is by no means clear that the Tribunal’s assumption was incorrect. The position would depend on s 553C of the Corporations Law, which permits a creditor of an insolvent company to set off sums due by the company against those the creditor owes to the company if there are “mutual dealings”. That expression has been given a wide meaning: Gye v McIntyre (1991) 171 CLR 609, at 619 per curiam; In re Daintrey; Ex parte Mant [1900] 1 QB 546. It may well encompass dealings of the kind alleged to have occurred in the present case which (if the allegations were made out) would have been closely related. Section 553C(2) provides that the section does not apply where, at the time of giving credit to the company, the creditor had notice of the fact that the company was insolvent. Whether s 553C(2) operated to exclude a set off in the present case would depend on when, if at all, the tenants had notice of GPL’s insolvency.
58 In any event, the purpose of the Tribunal’s reference to the position on GPL’s insolvency was merely to provide a subsidiary reason for giving little weight to an otherwise cogent consideration in favour of the tenants, namely the absence of evidence that the tenants had paid amounts in respect of rent, other than the advances themselves. Even if the Tribunal had misunderstood the legal position on insolvency, there was a substantial body of evidence supporting its findings.
59 In Eshetu, Gleeson CJ and McHugh J observed (at 626) that
“[s]omeone who disagrees strongly with someone else’s process of reasoning on an issue of fact may express such a disagreement by describing the reasoning as “illogical” or “unreasonable”, or even “so unreasonable that no reasonable person could adopt it”. If these are merely emphatic ways of saying that the reasoning is wrong, then they may have no particular legal consequence.”
In our view, this is just such a case.
60 It follows that it is not necessary to consider whether Mr Sullivan was correct in his submission that recent authorities had accepted that perversity, in the sense of a finding made against the overwhelming weight of the evidence, constitutes an error of law for the purposes of statutory provisions such as s 58(1) of the Tenancy Tribunal Act.
61 The final contention advanced by Mr Sullivan was that the question of whether a legally binding agreement has been made is always a question of law. The question that the Tribunal addressed was whether, as a matter of fact, an agreement had ever been made between GPL and the tenants concerning the prepayment of rentals. That depended upon findings as to whether the conversations alleged by Emmanuel and George Notaras had taken place and, if not, whether it should be inferred from the evidence that similar conversations had taken place later. There were no issues as to consideration, unenforceability of a contract or the like. The question determined by the Tribunal was one of fact.
CONCLUSION
62 The following orders should be made:
1. Appeal allowed.
2. The orders made by the trial Judge on 2 February 2000 be set aside.
3. In lieu of the orders made by the trial Judge, order that the cross-appeal from the decisions of the Tenancy Tribunal of the Australian Capital Territory made on 14 July 1998 and 1 October 1998 be dismissed with costs.
4. Cross-appeal dismissed.
5. The respondents pay the costs of the appellant of the appeal and of the cross-appeal.
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I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. |
Associate:
Dated: 30 August 2000
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Counsel for the Appellant: |
Mr M Einfeld QC and Mr S Habib |
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Solicitor for the Appellant: |
Clayton Utz |
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Counsel for the Respondents: |
Mr A Sullivan QC and Mr R Arthur |
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Solicitor for the Respondents: |
Snedden Hall and Gallop |
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Date of Hearing: |
9 August 2000 |
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Date of Judgment: |
30 August 2000 |
