B and D Gippsland Investments v Lay
[2021] VCC 993
•26 July 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-20-05054
| B & D Gippsland Investments Pty Ltd (ACN 006 481 803) as trustee of Marley Street Unit Trust | Plaintiff |
| v | |
| Ronald Edwin Lay & Anor | Defendants |
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JUDGE: | Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 July 2021 | |
DATE OF JUDGMENT: | 26 July 2021 | |
CASE MAY BE CITED AS: | B & D Gippsland Investments v Lay & Anor | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 993 | |
REASONS FOR JUDGMENT
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Subject:Directors - tenant company - terms of the guarantee provisions – lease – COVID-19 rent relief
Catchwords: Guarantee – lease - whether intention to give personal guarantee – test for intention is objective not subjective - whether valid request for rent relief – COVID-19 rent relief – compliance with code requirements – whether court jurisdiction evoked
Legislation Cited: Limitations of Actions Act 1958 (Vic) s5(1)(a) - Property Law Act 1958 s 146 - COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) s 13- COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) reg 5, 9, 10, 22
Cases Cited: Tao Yang v Finder Earth Pty Ltd [2019] VSCA 22; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160; Sleaford v Worthing & Saunders [2020] NSWDC 231; Harris v Burrell & Family Pty Ltd [2010] SASCFC 12; Alonso v SRS Investment (WA) Pty Ltd [2012] WA.SC 168; Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13; Druin Pty ltd Atf the Druin (No 3) Trust v Corbin [2014] NSWSC 510; Temperzone Australia Pty Ltd v Amabile [2016] NSWSC 1197; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Tzilantonis v S & C Thomas Holdings Pty Ltd (Building and Property) (Corrected) [2021] VCAT 486; Filomeno Nominees Pty Ltd v Crown Group Pty Ltd (Building and Property) [2021] VCAT 81; CF R & D Health Clubs Pty Ltd v Lin Wang Pty Ltd (Building and Property) (Corrected) [2021] VCAT 349; Lopes v Taranto [2017] VCC 1613
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr L Virgona | Sullivan Braham Pty Ltd |
| For the defendants | Mr G Lubofsky | Coulter Roache |
HER HONOUR:
1 This proceeding concerns a lease of Lots 3 & 4, 13-17 Princes Highway, Sale (“the Premises”). The tenant of the Premises was Gippsland Bolts and Fasteners Pty Ltd (“GBF”), which traded as Relay Industrial. GBF sold high-end bearings, bolts and fasteners and related industrial tools and equipment. The defendants, Ronald and Pauline Lay (“the Lays”) were the sole directors and shareholders of GBF. On 30 September 2020, GBF was placed into voluntary liquidation.
2 This proceeding turns on whether the Lays intended to enter the Lease for the Premises in their personal capacities as guarantors, or only in their capacities as directors of GBF under the Lease.
3 If the answer to question one is “yes” then there is a second issue as to whether GBF made a valid request for rent relief under regs. 10(1) and 10(2) of the COVID-19 Omnibus (Emergency Measures)(Commercial Leases and Licenses) Regulations 2020 (“the Regulations”).
4 The plaintiff, B & D Gippsland Investments Pty Ltd as trustee of Marley Street Unit Trust (“B&D”), relies on the terms of the Lease, which provided for a guarantee of GBF’s obligations as the tenant of the Premises, as well as an agreement to indemnify B&D for all loss and damage it may suffer by reason of having entered into the Lease.
5 The Lays say that they did not sign the execution block in the Lease which provided for their entry into the Lease as guarantors and only signed the Lease in their capacity as directors of GBF. The Lays further submit that they are not personally parties to the Lease and did not guarantee GBF’s obligations under the Lease, and that B&D’s claim against them ought to be dismissed with costs.
6 In the event that this Court does not accept that defence, the Lays say they are entitled to a reduction in any loss or damage for which they are liable by reason of the operation of the Regulations.
7 There was a preliminary housekeeping matter. Under cl 15.1.2 of the guarantee, a demand is required. The initial breach notices sent out under the Lease were directed towards GBF. After B&D made an application to the Victorian Small Business Commissioner (“VSBC”), a series of informal demands were made of the guarantors that they meet the liabilities of GBF under the lease. No formal demand was made under the guarantee. However, a formal demand was issued on 14 July 2021. The indemnity clause, however, does not require the issuing of a demand.
8 The recent Court of Appeal decision in Tao Yang v Finder Earth Pty Ltd [2019] VSCA 22 is a timely reminder to properly characterise a claim, whether for a recovery of debt or damages, to ensure that a judgment in default of appearance or defence is not irregularly entered. The Court also gave guidance on how to plead a recovery of debt claim against a guarantor.[1] One would expect the following five allegations to be contained in a statement of claim:
[1][2019] VSCA 22 at [28]-[30].
(a) an event of default under each of the loan agreements, rendering the loan amounts repayable;
(b) a demand for repayment from each of the borrowers;
(c) a failure by each borrower to repay;
(d) a demand to the Guarantor under the guarantee and indemnity; and
(e) a failure by the Guarantor to perform their obligations under the guarantee and indemnity.
9 Leave was granted at the hearing to file an amended statement of claim to reflect this latest demand. No updated defence was required as the amendments were uncontroversial.
10 I am satisfied that objectively viewed, the Lays intended to enter into the Lease in their personal capacities as guarantors. Further, I find that GBF did not comply with the Regulations and therefore was not entitled to any rent relief.
11 Therefore, I will order that there be judgment for the plaintiff against the defendants in the sum of $319,081.54 plus interest and that the defendants pay the plaintiff’s costs of and incidental to the proceeding on the standard basis, to be taxed in default of agreement, unless either party can show a basis for seeking a different order to costs. I invite the parties to prepare draft orders to give effect to these reasons, and any further issue as to costs will be determined on the papers.
The factual background
12 There have been written submissions and witness statements filed on behalf of both parties. This proceeding involves two country families who have known each other for some 40 years. Both family businesses have been negatively affected by the downturn in the Gippsland economy, for example, the closure of the Hazelwood Mine and by COVID-19. The two families have experienced financial hardship during very difficult times.
13 It is common ground between the parties that in mid-2016, Greg Coleman, George Coleman, Ronald Lay and Rohan Lay (the defendants’ son, not a party to the proceeding) commenced discussions for a company controlled by the Lays to take the Lease over the Premises.
14 In August 2016, Greg Coleman provided a document titled “Allied Bearings Lease Proposal” to Rohan Lay.
15 On 1 September 2016, Rohan Lay emailed Greg Coleman an acceptance of his proposal, subject to certain further conditions.
16 On 2 September 2016, Greg Coleman emailed Rohan Lay accepting Rohan’s counter-proposal.
17 On 26 October 2016, a copy of the proposed Lease prepared by Sullivan Braham (B&D’s solicitors) was provided to Ronald and Pauline Lay.
23 On 14 November 2016, Rohan Lay returned a draft schedule to the Lease to the offices of Sullivan Braham with handwritten amendments to Items 2, 3 and 6.
24 On 7 December 2016, an amended version of the Lease was provided to Ronald and Pauline Lay, together with a cover of a letter notifying the changes to the documents.
25 On 8 December 2016, George Coleman executed the Lease and Disclosure Statement on behalf of the plaintiff. The Lays were provided with a copy of the Lease and Disclosure Statement executed by B&D.
26 On 21 December 2016, the Lays executed the Lease and Disclosure Statement on behalf of GBF.
27 On 12 May 2018, Greg Coleman sent an email to Rohan Lay noting that no rental payment had been made that week, and requesting a payment of $7,500. Greg and Rohan engaged in numerous email exchanges over the ensuing 12 to 18 month period regarding non-payment, or late payment, of rent.
28 On 10 October 2019, Sullivan Braham sent a letter of demand to GBF, seeking unpaid rent in the amount of $64,150.30, being half of the rent then owing.
29 On 3 December 2019, B&D caused to be served on GBF a notice pursuant to s 146 of the Property Law Act 1958 (Vic).
30 On 23 December 2019, B&D served on GBF a second notice pursuant to s 146 of the Property Law Act 1958 (Vic).
31 In July 2020, B&D lodged an application at the offices of the VSBC. On 16 September 2020, the VSBC confirmed that a mediation was to take place on 30 September 2020.
32 On 18 September 2020, GBF emailed the VSBC requesting that the landlord of the Premises grant relief in accordance with the Regulations.
33 On 23 September 2020, B&D offered rent relief under the Regulations, on the basis that GBF paid all outstanding rent and outgoings owing to B&D, as at 31 March 2020.
34 On 30 September 2020, the solicitors for GBF advised B&D and the VSBC, on the morning of the mediation, that GBF was to be placed into liquidation later that day, which ultimately occurred.
35 The parties attended an unsuccessful mediation at the VSBC on 9 November 2020.
36 On 1 April 2021, a new tenant entered into occupation of the Premises.
Analysis
The Guarantee
37 The Lays submit that the primary question for the Court to address is whether, in spite of not signing the execution block as guarantors, Ronald and Pauline Lay somehow otherwise evinced an intention to be bound personally as guarantors of GBF’s obligations under the Lease. The onus of proof lies on B&D.
38 The question of intention relevant to the present dispute is in light of 'the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances’.[2] The parties were in agreement as to the applicable legal principles.
[2]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [105]-[106].
39 In Harris v Burrell & Family Pty Ltd,[3] Doyle CJ, Bleby J and Sulan J agreeing, discussed the relevant considerations as follows at [19]:
It is a matter of considering what the parties did, in the light of the surrounding circumstances, and then considering what that would have led a reasonable person in the position of the other party to believe.
[3][2010] SASCFC 12 at [19].
40 B&D submits that the Lays have placed considerable emphasis on their subjective intentions, however those subjective intentions are entirely irrelevant.[4]
[4]Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160 at [174].
41 In Alonso v SRS Investment (WA) Pty Ltd[5] (“Alonso”) Edelman J found that a guarantee was still effective despite the absence of the director's signature in the guarantee block. Relevantly, his Honour noted at [50]:
The absence of signature does not preclude a finding that there is a manifest intention to be legally bound by the instrument. Indeed, most contracts are binding without signature. And even if a signature is omitted from a place where it might have otherwise appeared an intention to create legal relations can nevertheless be manifest.
[5][2012] WA.SC 168 cf Sleaford v Worthing & Saunders [2020] NSWDC 231 at [37].
42 Therefore, B&D submit that the failure to place a signature on the line designated for a guarantor is not, of itself, determinative of the issues presently in dispute. B&D acknowledged that out of the seven factors relied on by the Lays in support of their position as set out below, the absence of the signature was the primary ground which they proffered, but was only one of many to be taken into account by the Court.
43 B&D rely on the following matters in favour of finding that the Lays intended to provide the Guarantee and Indemnity as it was expressed in the Lease:
a) firstly, the construction of the document as a whole itself lends unequivocally to the conclusion such an intention existed. The Lease is headed "Lease of Real Estate with Guarantee & Indemnity", and contains at cl. 15 an extensive guarantee and indemnity provision. Item 3 of the Schedule to Lease names each of the defendants as parties to the Lease, in their capacities individually as guarantors under the Lease in accordance with cl. 15;
b) secondly, the Lays turned their minds to the specific terms of the Lease, making a number of handwritten amendments and deletions. The most fundamental of these changes were the amendments made to the defendants' personal details as set out in Item 3;
c) thirdly, the defendants sought amendments, or struck out, a number of the standard form general conditions which were contained in the Lease. Despite cl. 15 being one such standard condition, no attempts were made by the defendants to strike-through, or amend in any way, this provision.
44 The Lays say that they are not bound by the guarantee for the following reasons:
a) the only signatures that the Lays placed on the Lease were in the execution block for GBF. Despite there being a block for execution as guarantors, the Lays did not sign that block. That alone manifests an unequivocal objective intention that they did not intend to be bound by the terms of the Lease or the guarantee and indemnity in their personal capacities;
b) the question of a guarantee was simply never raised or discussed between any of the parties – and it therefore cannot have been their objective intention that such guarantees had been granted;
c) Greg Coleman and B&D’s solicitor, Mr Braham, both gave evidence that the only two documents that Greg Coleman provided to Mr Braham, by way of instructions as to what the agreed terms of the Lease were to be (for the purposes of Mr Braham drafting the Lease), were the aforementioned August offer and the September counter-offer. Greg Coleman did not give evidence of any instructions to his solicitor about a personal guarantee (or, indeed, any other instructions at all), meaning he too did not objectively consider those to form part of the parties’ bargain;
d) the only reason the guarantee provision was included in the Lease at all, was because it was Mr Braham’s standard practice. Had that not been Mr Braham’s standard practice, a guarantee would not have been included and the parties would not be in the position that they are presently in;
e) the cover page of the Lease itself (prepared by B&D’s solicitors) refers to the agreement as a “Lease of Real Estate” only. Unlike the standard LIV document, it does not refer to a lease “and guarantee” and it does not refer to the Lays as parties to the agreement;
f) despite having received a Lease in which the Lays refused to sign the guarantee block, neither B&D nor its solicitors required that the guarantee be signed or said anything to either Mr or Mrs Lay with respect to their refusal to sign the guarantee. Had the guarantee been a matter of any importance to the parties, or that B&D considered it to form part of the parties’ agreement, Mr Braham naturally would have checked that the guarantee was signed and Mr Coleman would have ensured that to be the case;
g) both parties gave evidence in their witness statements with respect to their longstanding relationship and the informality of dealings between them. The parties had all grown up in Sale, a small town, and had known one another for over 40 years. Greg Coleman gave evidence that he trusted the Lays and wanted to assist them as he could. Those matters all support the notion that the parties were not concerned to adopt formal practices;
h) the parties both gave evidence that suggested it was common practice in Sale (and other small towns) that leases are entered into informally. The Lays gave evidence that they had, for some 40 years, only ever entered into informal leases;
i) following the entry into the Lease and accumulation of arrears of rental, none of the parties’ extensive correspondence with respect to the rental arrears referred at all to the Lays’ prospective liability for those arrears as guarantors. B&D never issued any demand under the guarantee (until 14 July 2021). The application made by B&D to the VSBC did not include the Lays personally. The very first reference to a guarantee by B&D after the Lease was entered into arose in an email from Greg Coleman’s solicitors on 23 September 2020;
j) the only substantive evidence which points towards the parties’ intention that the Lays grant a guarantee is the handwritten amendments by Rohan Lay to the Lease Schedule updating the address of the Lays. Rohan Lay gave evidence that he was simply updating addresses to ensure that they were correct and was not reflective of any acceptance or understanding that the Lays were, in fact, guarantors.
45 The Lays provided evidence that in 2014 they also leased a building in Sale for Relay International to operate from. The landlord for that lease, Anson Equities Pty Ltd as trustee for Taylor Made Family Trust, L & M Centra Pty Ltd as trustee for L & M Centra Family Trust and Centra Developments Pty Ltd as trustee for R & L Centra Family Trust (Anson Equities and Centra Developments), initially sought personal guarantees from the Lays and their son. Ronald Lay gave evidence that they informed the landlord (through Rohan Lay, who dealt with the landlord on behalf of the Lays) that they would not give personal guarantees. The landlord agreed that the Lays were to pay a higher security deposit instead.
46 In the Lease the subject of the present case, there was no provision for GBF to provide a security deposit. Greg Coleman says this was because the Lays were personally guaranteeing the obligations of GBF as tenant of the Premises. Mr Braham stated that it is his usual practice that; where the tenant is a company, personal guarantees are obtained from the directors of the tenant company. This is even more critical where a lease does not provide for security deposit. The only exception to this practice is if there were express instructions from the client.
47 Counsel for the Lays conceded that there were factors in the present case objectively pointing to a finding that the Lays intended to be personally bound by the guarantee, for example, the correspondence sent by Mr Braham that refer to the provision of a guarantee in the Lease. It was acknowledged that the Court must undertake a balancing act of the factors; where B&D relies on the correspondence of 26 October 2016 and 7 and 8 December 2016 and the construction of the Lease as a whole and the Lays rely on the absence of signatures, the surrounding circumstances of the discussions between the parties in late August and November 2016, the informality of their dealings and the status of the parties. The factors must be considered cumulatively.
48 In Alonso, Eldelman J at [50] found that despite the absence of a signature in the guarantor execution clause, the guarantor was nevertheless bound in her personal capacity, as she had an objective intention to be legally bound by the Lease as the guarantor of the lessee’s obligations.
49 Alonso involved a lease in respect of a commercial property in Wangara, between Mr Alonso (the plaintiff), as lessor, SRS Investments (WA) Pty Ltd (the first defendant) as lessee and Ms Elliot (nee Sandford) (the second defendant) a director of the lessee, as guarantor. Eldelman J considered whether the guarantor had an objective or manifest intention to be legally bound by the Lease, noting that Ms Elliot’s subjective beliefs and intentions were irrelevant.[6]
[6]Alonso v SRS Investment (WA) Pty Ltd [2012] WA.SC 168 at [3], [46] and [48].
50 There were four cumulative basis for Edelman J’s conclusion:
a) First, the lease in Alonso contained guarantee provisions and made specific reference to Ms Elliot as guarantor of the lessee’s obligations under the lease.[7]
[7]Alonso, above n 6 at [58].
b) In the present case, the Lease is headed "Lease of Real Estate with Guarantee & Indemnity", and contains at cl. 15 an extensive guarantee and indemnity provision. Item 3 of the Schedule to Lease names each of the defendants as parties to the Lease, in their capacities individually and as guarantors under the Lease.[8] More weight is given to these matters over the cover page of the Lease itself (prepared by B&D’s solicitors) which refers to the agreement as a “Lease of Real Estate” only, however in the present case, the document must be read as a whole.
[8]Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 at [60].
c) Second, in Alonso, the lease’s execution page included separate execution clauses for the lessee and the guarantor. The execution clause for the lessee was signed by Ms Elliot above the word “Director” and her full name was printed above the words “Full Name”. The guarantor’s name was printed next to the words “Signed as a deed by” in the guarantor’s execution clause. There was no signature next to the guarantor’s printed name and the guarantor denied having printed her name next to the words “Signed as a deed by”. However, the witness signed his signature and printed his name and address below the handwritten words 'Signed as a Deed by Sara Sandford'. [9]
[9]Alonso, above n 6 at [59]-[61].
d) In the present case, both defendants have placed their signature on the execution page of the document, but have not repeated that signature in the guarantor block. However, the signature block for execution as guarantors has been witnessed by Kelly Murphy, an employee of Sale Bearings, and there is no dotted line set out in the guarantee block which names the individuals as guarantors. Ms Murphy put her signature in that block in order to witness the Lays’ signatures. Ronald Lay said he was unaware that signatures of directors did not need to be witnessed and Ms Murphy put her signature there as it was the only place in the document for her to do so. Ronald Lay also said he did not think he needed to cross out the refence to “Ronald Edwin Lay (as Guarantor)” in the Lease. Pauline Lay said that she did not sign in the guarantor box which provided for “Pauline Mary Lay (as Guarantor)” and only signed in the director’s block only.
e) B&D said that the Lays had previously signed personal guarantees (item 2) as evidenced by the ASIC Notification of Details of a Charge signed on 7 April 2011[10]. The Lays also signed ASIC Notification of Details of a Charge dated 19 January 2006[11]. The signatures of the Lays in these documents are not witnessed and the Lays signed in their capacity as directors.
[10]Plaintiff exhibit ‘P6’.
[11]Plaintiff exhibit ‘P7’.
f) If the Lays’ signatures as directors were not evidence of an intention to be bound personally, then there would have been no purpose for Ms Murphy to have signed as a witness, in the Lays presence, under the words 'Signed Sealed and Delivered by [the Lays] (as Guarantor)’.
g) The purpose of the witnesses’ signature was further explained in Sullivan Braham’s letter to the Lay’s dated 8 December 2016 enclosing the Lease and Disclosure Statement for execution. At (b)(ii) of the instructions for execution, Sullivan Brahms states:
Both copies of the Lease to be:-
i. dated where indicated;
ii. signed by the Director(s) of your Company where shown; and
iii. signed where indicated in your capacity as Guarantor.
Please note that your signature as Guarantor should be witnessed by an adult independent witness who should complete his/her full name and usual address where shown.
h) A reasonable person in B&D’s position would have inferred that the signature of the Lays as directors served also to be a signature in their personal capacity, in circumstances where; the guarantee provisions had not been deleted in the Lease nor the execution clause and Ms Murphy’s name and signature attested to her presence at the signing of the Deed in the guarantee signature block for the Lays.
i) Third, the Alonso lease required all parties to initial any changes to the documents and Ms Elliot did this. She left the guarantee and indemnity provision unaffected.[12]
[12]Alonso, above n 6 at [62].
j) The Lease the subject of this proceeding similarly notes it is a standard form lease and any changes need to be made with appropriate deletions, alterations and additions. No attempts were made to modify the guarantee obligations.
k) Fourth, two days before the Alonso lease was expressed to commence, Ms Elliot wrote to Mr Alonso stating that the lease had been signed on the condition of the completion of the purchase of a business. The letter was signed with her unqualified signature without distinction as to whether she was signing in her capacity as a director or a guarantor. There was no suggestion that she did not agree to the term of the lease that she be guarantor.[13]
[13]Ibid, at [63]-[65].
l) In the present case, there is no equivalent acknowledgement as in Alonso however, the Lays made a number of handwritten amendments and deletions, including the amendments made to the defendants' personal details as set out in Item 3, naming each of the defendants as parties to the Lease, in their capacities individually as guarantors under the Lease in accordance with cl. 15.
m) After an exchange of proposals between Greg Coleman and Rohan Lay in late August/early September 2016, a copy of the proposed Lease was prepared by Sullivan Braham and was provided to the Lays through Rohan Lay on 26 October 2016. The Lays had a copy of the proposed Lease for 2 months prior to signing the final document.
n) On 14 November 2016, Rohan Lay attended the offices of Sullivan Braham and delivered a Schedule of Lease with a number of handwritten amendments that had been made to that document on behalf of the defendants, including amendments to the General Conditions in the standard LIV lease and the personal details of the defendants as set out in Item 3 of the Schedule; being the item headed "Guarantor" (as defined in clause 1.1).
o) On 7 December 2016, an amended version of the Lease was provided to the Lays, together with a cover letter notifying the Lays of changes which had been made to the documents. In the course of his evidence Ronald Lay stated that he never read the 7 December 2016 letter as he does not read letters; he only has conversations with people and he trusted his son to make all the necessary changes to the Lease. I accept B&D’s submission that the Sullivan Braham 7 December 2016 letter is not “boilerplate” (as suggested by the Lays). That letter noted:
General Condition 3.2.1 …. has been deleted at the request of the Tenant … [repaint every 5 years]
In Item 3 of the Schedule the address of the Guarantors has been changed to 69 Andrews Road, Longford, Victoria.
P.S. The deletion of Clause 2.1.9(a) on Page 6 of the Lease is in order; we have requested our client to confirm that the deletion of Clause 2.1.8(b) on the same page is acceptable. [costs for preparation of the lease]
These were changes made at the request of the Lays.
p) Item 22 of the Lease included the deletions requested by GBF and the inclusion of additional provisions negotiated by the Lays, as evidenced by their correspondence and dealings between late August and November 2016. This included fit out works of around $200,000 at the Landlord’s expense, 20 year lease terms, an option to purchase and a right of first refusal. Rohan Lay gave evidence that he did not want GBF to pay the legal costs in respect of the preparation of the Lease and gave instructions to Greg Coleman about same. Rohan Lay was aware of the aforementioned clauses 2.1.8(a) and (b) being deleted based on previous experience in negotiating leases, and thus made a specific request to not cover the costs of drafting the Lease. B&D say that the timing of the commencement of the $200,000 fit out before execution of the Lease is not determinative of the issue of informality of dealings between the parties and the ultimate question that the Court must answer.
q) Ronald Lay’s evidence outlined, that in his view the terms of the Lease were as set out in the late August and 1 September 2016 documents and he otherwise left all negotiations with Rohan Lay. Ronald Lay acknowledged that it was very important to the Lays that the Lease included terms in relation to the commencement date (item 8) and access to the premises from the Princes Highway (item 6), and that these changes were made to the document. Ronald Lay says that he saw the Lease for the first time on 21 December 2016 as he trusted his son to make all the necessary changes. He acknowledged that it was a significant Lease given the $200,000 fit out requested by the Lays, the 20 year term and the $100,000 a year rental, however, Ronald Lay said that he only “flicked” through the Lease to check that the discussed changes had been made before signing it and he did not actually “read” it.
r) Pauline Lay gave evidence to the effect that she recalled discussions about the “price of the Lease” and the rent being negotiated down to $100,000 per annum and regarding access to the property. She further deposed that Rohan Lay only gave her a general overview of the discussions with the Colemans and did not give a detailed account. She had very minimal involvement in the negotiations in relation to the Lease.
s) B&D submits that the late August and 1 September 2016 documents could not possibly be the entire agreement as, for example, the commencement date and the named tenant subsequently changed. Negotiations between the parties did not stop at the conclusion of the 1 September 2016 document. A formal document evidencing the fleshing out of the terms of the Lease needed to be drafted. Rohan Lay provided his handwritten amendments to the clauses on 14 November 2019.
t) Further, B&D rebuts the Lays’ claim that they had an informal relationship. Greg Coleman stated that over the course of 40 years, the parties engaged in one commercial dealing and apart from one or two occasions when he relaxed leasing arrangements with old friends, the Unit Trust (of which the Premises forms a part) always engaged a lawyer to prepare lease documentation.
u) In her evidence, Pauline Lay deposed that she saw the front page titled “Lease of Real Estate” and without reading the document, immediately turned to the last page. She went on to say that she did not read the Lease before signing it, including checking whether the changes to the rent had been made. No one discussed guarantees with her. She accepts that Rohan Lay had seen drafts of the document since late October 2016. Pauline Lay saw the entry “Pauline Mary Lay (as Guarantor)” in the Lease but did not cross out that section at the time she signed the Lease and requested Ms Kelly to witness her signature.
51 The Lays relied on the case of Druin Pty ltd Atf the Druin (No 3) Trust v Corbin[14] (“Druin”) to distinguish Alonso and submit that having Ms Murphy witness the guarantee clause cannot be demonstrative of any intention to be personally bound. In Druin, the plaintiff did not make a request of anyone to guarantee the company’s debt[15]. In the present case, the letters of 26 October 2016 and 7 and 8 December 2016 from Mr Braham clearly requested the provision of a guarantee from the defendants. Rohan Lay received these letters on behalf of his parents and notice of the guarantee was given by means of the documents.[16]
[14][2014] NSWSC 510 at [54]
[15]Ibid at [43].
[16]Temperzone Australia Pty Ltd v Amabile [2016] NSWSC 1197 at [90(8)].
52 Given the cumulative factors set out above and applying the principles in Alonso, on weighing up all the considerations, I accept B&D’s argument that the evidence objectively viewed leads to the conclusion that the Lays understood the Lease contained the Guarantee and Indemnity, understood that it applied only to them as the named guarantors under the Lease and crucially made no attempts to modify this obligation as they knew, and accepted, their obligations as set out in cl. 15.
53 It is common ground between the parties that post contractual conduct is relevant to the question of whether a contract has been formed at all[17]. The Lays contend that given the delay in any call on the guarantee until an informal demand was made after GBF went into liquidation, and upon their being joined to the VSBC amended application on 9 November 2020 and the subsequent formal demand issued on 14 July 2021, the parties knew no guarantee was on foot. I do not accept the Lay’s position for the following reasons.
[17]Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-4 ([25]-[26])
54 The plaintiff contends that they were negotiating with Rohan Lay and gave GBF various accommodations from 12 May 2018 with the opportunity to pay instalments, while awaiting sale of 6 allotments from a subdivision in Longford. However, when the sale on the subdivision occurred there were no surplus funds after the payment of reduction in debt.
55 Similarly, on 31 July 2019, the promise of new finance from Westpac fell through when a deed of priority was not forthcoming. Again, on 22 September 2019, a purported contract with Esso did not proceed[18] and Westpac did not allow the settlement of a new facilities deposit; agreeing rather to a proposed arrangement of another bank providing the working capital component to GBF.
[18]Court Book p.165
56 Further negotiations took place around 11 December 2019, following a lump sum payment of $10,000 by GBF towards its arrears after the issuing the first s 146 Property Law Act demand on 3 December 2019 (which can only be issued on the tenant). A meeting took place on 16 December 2019 between Greg Coleman and Rohan Lay to negotiate a plan to pay the balance of the arrears and a preferred payment plan moving forward. A draft agreement was prepared on 31 January 2020, which was never executed, despite Greg Coleman chasing Rohan Lay up about the Lay’s intention to ratify the agreement around 19 February 2020. This agreement was referrable to the Lease obligations. On 19 March 2020, Rohan Lay informed Greg Coleman that he was meeting with a financier.
57 On 5 May 2020, Rohan Lay told Greg Coleman that he was seeking funding from his own company to acquire GBF. If successful, he would have enough funds to cover the 50% amount owing in full settlement of the outstanding account and commence a new lease at $3,000 per month for factory 4 for an initial 12 month period. On 5 June 2020, Greg Coleman advised Rohan Lay that he had tried to be supportive while the Lays were pursuing appropriate finance. The arrears were now dated back over 12 months.
58 On 11 July 2020, Greg Coleman wrote to Rohan Lay that no payments had been received in the last 2 weeks and no updates had been provided regarding financial restructuring. Thus, GBF had fallen behind on its promises to make regular payments towards the arrears of the lease.
59 B&D then issued a complaint with the VSBC on 28 July 2020 against GBF for arrears.
60 On 23 September 2020, Sullivan Braham made a request of GBF and the Lays that it would seem appropriate that both guarantors to the Lease also attend the mediation scheduled on 30 September 2020, so that all parties to the dispute were represented. This email was sent before the B&D knew of the voluntary liquidation of GBF.
61 In my view, the evidence shows a patient and understanding landlord who had given its tenant indulgences in hard times. The call on the guarantee did not occur until around September 2020 as the plaintiff was giving accommodation to GBF and GBF had been giving the landlord assurances right up until it went into voluntary liquidation. It is not indicative that the parties did not contemplate that the Lays may have been guarantors to GBF’s obligations.
62 Ground 1 is made out.
The Regulations
63 The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 were made on 1 May 2020, with retrospective effect from 29 March 2020. This was initially in place until 29 September 2020. The COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020[19] received Royal Assent on 22 September 2020 and allowed for the extension and amendment of the Regulations up to 31 December 2020 (from the date of the request rather than the commencement of the regime on 29 March 2020.)[20]
[19]Under s 15 of the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic)
[20]Extension of the rent relief period (for each of the following periods: from 29 March 2020 to 29 September 2020, then for 30 September 2020 to 31 December 2020 and again for 1 January 2021 to 28 March 2021).
64 The second reading speech to the COVID-19 Omnibus (Emergency Measures) Bill 2020 made plain that the Bill was being introduced to achieve the purposes in the National Cabinet Mandatory Code of Conduct, which took effect from 3 April 2020. Relevant principles from that Code include that:
a) landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis;
b) landlords and tenants will act in an open, honest and transparent manner; and
c) the parties will assist each other in their respective dealings.
65 The objectives of the Regulations are set out in reg 1 as follows:
a) to implement temporary measures to apply to tenants and landlords under certain eligible leases to mitigate the effect of measures taken in response to the COVID-19 pandemic; and
b) to implement mechanisms to resolve disputes concerning eligible leases.
66 The Regulations are therefore not just designed to provide rent relief for tenants affected by COVID-19, but also to facilitate resolution of disputes of eligible leases.
67 Under the Regulations, an “eligible lease” means:[21]
[21]s 13 COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic)
a) a retail lease under the Retail Leases Act 2003 (Vic) or a lease or licence under which the premises are let or licensed for the sole or predominant purpose of carrying on a business at the premises.
b) under which the tenant is, on or after 29 March 2020, an SME entity (defined in s 5 of the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Rules 2020 (Cth)).
c) under which the tenant is an employer who qualifies for and is a participant in Jobkeeper.
68 Tenants under eligible leases are entitled to the protections described above if and only if those tenants follow a prescribed process pursuant to the Regulations. Regulation 10 is prescriptive.
69 The process that tenants must follow is to request rent relief from the landlord, and that request must be accompanied by:
a) a statement that the lease is an eligible lease, and the lease is not excluded from the application of the Regulations;
b) evidence that the tenant is an SME entity;
c) evidence that the tenant qualifies for and is a participant in JobKeeper.
70 The landlord must keep such information confidential, with usual exceptions for disclosure, and the tenant subsequently enters into negotiations with the landlord, in good faith, with a view to agreeing the rent relief.
71 The Regulations at the relevant time did not make clear what financial information a tenant was required to provide the landlord. There was guidance material given by the VSBC in its frequently asked questions which stated that tenants were to provide evidence of their decline in turnover associated with the premises with the initial request for rent relief.
72 The VSBC further suggested tenants consider supplying to their landlord, in support of their request for rent relief:
a) Extracts from the tenant’s accounting records
b) The tenant’s business activity statement(s)
c) Bank statements that relate to the tenant’s account
d) A statement prepared by a practising accountant.
73 It is important for tenants to ensure that they have provided their landlord with all of the necessary information, documents and evidence to satisfy the requirements under the Regulations. It is not what their landlord has requested from the tenants, but rather what is required of the tenant under the Regulations.
74 Pursuant to the Regulations, a landlord has 14 days, or a longer period as agreed, to offer rent relief which has regard to all circumstances of the eligible lease. However, at the relevant time of this VSBC application, there was a “lacuna” in relation to the consequences of a failure to comply with reg. 10(3), which has subsequently been addressed in the September amendments.
75 The explanatory memorandum of the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020 clarified that:
a) in reg. 5 of the Regulations, turnover does not include the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 explanatory receipt of any Coronavirus economic response payment.
b) in reg. 9 of the Regulations, that the protections against eviction for non-payment of rent require the tenant to comply with their obligations to request rent relief from their landlord.
c) in reg. 10 of the Principal Regulations, that a landlord is required to provide rent relief in proportion to the tenant's decline in turnover, and the information that must be supplied with an application for rent relief.
d) Evidence must include at least one of the following:
i) extracts from the tenant’s accounting records; or
ii) the tenant’s Business Activity Statements relating to the relevant turnover test period; or
iii) statements issued by an Authorised Deposit-Taking Institution in respect of the tenant’s account; or
iv) a statement prepared by a practicing accountant.
76 The Regulations require that the landlord’s offer:
a) relates to up to 100% of the rent payable during the COVID-19 Period, and may include a waiver, reduction, remission or deferral of rent.
b) takes into account the reduction in the tenant’s turnover, any waiver or other reduction of outgoings, whether failure to provide relief would compromise the tenant’s ability to fulfil its obligations under the lease and the financial ability of the landlord to provide rent relief (including whether the landlord has been provided any relief by lenders).
c) comprises a rent waiver of at least 50% of any rent reduction unless otherwise agreed.
77 If there is a dispute, either party can refer the dispute to the VSBC. Before a party can commence proceedings in VCAT or a court (other than the Supreme Court), that party needs a certificate from the VSBC that mediation has failed or is unlikely to resolve the dispute.
78 VCAT has recently heard a number of cases dealing with parties that have been unable to reach agreement on rent relief. VCAT has found in favour of the landlord in circumstances where a tenant should not be afforded the protections of the Regulations if it has not validly applied for rent relief.[22]
[22] Tzilantonis v S & C Thomas Holdings Pty Ltd (Building and Property) (Corrected) [2021] VCAT 486; Filomeno Nominees Pty Ltd v Crown Group Pty Ltd (Building and Property) [2021] VCAT 81; CF R & D Health Clubs Pty Ltd v Lin Wang Pty Ltd (Building and Property) (Corrected) [2021] VCAT 349.
79 The Lays contend that on 18 September 2020, GBF made an application for rental relief pursuant to reg. 10(1) of the Regulations and that the application was accompanied by the statement and information required by reg. 10(2). Therefore, the Regulations as at 18 September 2020 and before the Extension Bill are relevant. Any application for rent relief must be considered based upon the original requirements of reg. 10 and not based upon the additional requirements of the amendments to reg. 10 introduced in September 2020.
80 The Lays further submit that:
a) on 23 September 2020, B&D responded by offering (as it was obliged under the Regulations to do) a 50% reduction of rental for the period between 1 April 2020 and 31 December 2020; and
b) having done so, the parties had complied with their respective obligations under the Regulations and thereby caused GBF not to have been in breach of the Lease during the 6 month period set out in the Regulations in respect of the agreed rental; and
c) by virtue of, in the defendants’ view, a compliant rent relief application, this reduces the rental by $35,492.49, being 50% of the $70,984.98 otherwise payable during that period.
81 The plaintiff responds that:
a) No formal application was ever made directly to the plaintiff as landlord, sub-regulation 10(1) requires a tenant to make a written request for rent relief to a landlord. Failing that, no entitlement to rent relief under the Regulations arise.
b) GBF failed to comply with even this requirement as the only "request" which the Lays point to, is an email sent to the VSBC on 18 September 2020 in response to an enquiry from the VSBC as to whether GBF would be requesting rent relief.
c) Even if the email of 18 September 2020 is held to be a valid request, that ‘request’ was made at a time that a mediation had already been scheduled for 30 September 2020. A mediation which had been scheduled at the plaintiff’s request in order to recover the outstanding rent and outgoings then owed to it. Subsequently, twelve days after filing the ‘request', the defendants - as directors of the tenant - chose to place GBF into voluntary liquidation.
d) Under sub-reg. 10(2) of the Regulations, a landlord has 14 days in which to respond to a request for rent relief made by a tenant. Given this timeline, GBF cannot be said to have engaged in good faith negotiations as required under sub-reg. 10(5) of the Regulations. No relevant negotiations ever took place due to the defendants' decision to place GBF into voluntary liquidation.
e) The Lays claim they are entitled to all of the rent which was payable for the period 29 March 2020 to 29 September 2020, which totalled $70,948.98. However, any entitlement to rent relief is commensurate with a downturn in the tenant's business from the premises. The obligation is on the tenant to provide evidence of that downturn. No such evidence has been provided in this proceeding. In such circumstances, it stands that the Court cannot be in a position to determine what, if any, that amount of rent relief might be, even if it did have jurisdiction.
f) Under reg. 23 of the Regulations, an eligible lease dispute may only be the subject of a proceeding in the County Court if the VSBC has issued a certificate under reg. 20A of the Regulations. No such certificate has been provided. Therefore, the County Court does not have jurisdiction to hear the matters relating to the application of the Regulations.
82 The Lays say that reg. 10(1) does not include the words “direct” to the landlord. B&D claims that the requirement under reg. 10(1) is important as there are consequences that flow from when the request is made of the landlord. For example, when the 14 day time period commences for the landlord to make their mandatory offer to the tenant under reg. 10(3)(a). Further, if all requirements under reg. 10 are complied with then under reg 9 the landlord cannot evict the tenant for non-payment of rent (reg. 9(2)) and re-enter or otherwise recover possession (reg. 9(3)). It also does not require an agreement between the parties.
83 In the present case, a request was given to a third party who does not have any obligations to give the request to the landlord. There is no provision in the Regulations for a request to be given to the VSBC or another third party. A purposive interpretation of the phrase “[a] tenant under an eligible lease may request rent relief from the landlord …” (emphasis added), must mean that the tenant must give the valid request in the hands of the landlord and not a third party. There could be devastating effects on the landlord’s rights if the request is given to a third party and the request is not forwarded onto the landlord.
84 The Lays agree that the email to the VSBC was not a request for the purposes of reg. 10(1) as it would lead to the perverse outcomes set out above. However, once the request was in the hands of B&D, by the VSBC forwarding Pauline Lay’s email to Mr Braham, that was a valid request for the purposes of the Regulations.
85 In his evidence Rohan Lay admitted that he did not make a rent relief application to the landlord. The request was sent by Pauline Lay by email to the VSBC in response to its email of 15 September 2020 for the purposes of a scheduled mediation. In my view, reg. 10(1) requires that the tenant make the request for rent relief directly to the landlord. The Regulations do not provide that the tenant can make the request through the VSBC or other third party. If the sub-regulation was given such a broad interpretation it would result in uncertainties for both parties as to when the mandatory 14 day time period commences.
86 Counsel for the Lays submits that a strict construction would cut across the entire purpose of the regime which seeks to mitigate the impacts of COVID-19. However, given that the effect of the regime is to modify contractual rights of the parties, in order for tenants to invoke the mechanism for rental relief, there must be strict compliance with the provisions of the Regulations.[23]
[23]See for example the Building and Construction Security of Payments 2002 (Vic) regime which requires strict compliance with the statutory requirements set out is s. 14 of the Act for a valid payment claim in order for a claimant to take advantage of the “pay now fight later” progress payment procedure.
87 The Lays contend that Mr Braham’s email of 23 September 2020 was an offer made by a landlord under reg. 10(3), or alternatively, waives any irregularity under reg. 10(1). The emails of 18 and 23 September 2020 must be construed in context. The communications were exchanged in the lead up to the mediation in the VSBC by reason of B&D’s application for outstanding rental arrears and outgoings. The offers made on 23 September 2020 at 9.25am and then qualified at 9.29am that rent relief of 50% for the period 1 April 2020 to 31 December 2020 was conditional on GBF as tenant paying the arrears due under the lease up to 31 March 2020, were in the context of B&D as landlord’s application for payment of outstanding rent and not an application made by GBF for rent relief under the Regulations.
88 If there has been non-compliance under reg. 10(1), this cannot be cured by a step taken by B&D. The Regulations are prescriptive. If I am wrong, then the email from Mr Braham dated 23 September 2020, containing the qualification of the offer made by B&D at 9.29am is invalid for the purposes of the Regulations. However, there are then further difficulties for GBF as the 14 day time period for B&D’s offer did not expire until 2 October 2020 and the regime was frustrated by GBF entering into voluntary liquidation on 30 September 2020; there was no negotiation or concluded agreement.
89 The Lays argue that they made a request for rent relief of 50% of the rent payable under the lease for the period 29 March 2020 to 29 September 2020. This request was accepted by Mr Braham’s first email of 23 September 2020. Therefore, there was nothing further to negotiate or accept. However, Mr Braham’s first email is in terms of an “offer” to GBF of a 50% waiver of the rent payable for the period from 1 April 2020 to 31 December 2020. They are different terms to the request made by GBF. Reg. 10(3) mandates that the landlord must make an “offer” and that the parties negotiate in good faith with a view to agreeing on rent relief (reg. 10(6)). This did not occur in the present case and therefore there has been no crystallisation of the rights under reg. 10.
90 In evidence, Rohan Lay admitted that he did not communicate with B&D about the possibility of voluntary liquidation of GBF prior to 30 September 2020, despite meeting with the liquidator on 19 March 2020, responding to the VSBC about rent relief and B&D’s offer response on 23 September 2020. Pauline Lay, who sent the 18 September 2020 email to the VSBC did not enter into any negotiations with B&D after sending the rent relief request. Further, she did not respond to B&D’s offer of 23 September 2020. The next communication was on the morning of the scheduled mediation that GBF had resolved to enter into voluntary liquidation at lunch time that day and as such the mediation could not proceed. Such conduct is not entering into negotiations in good faith as required by reg. 10(5) of the Regulations and is contrary to the principles of the code of acting in an open, honest and transparent manner and assisting each other in their respective dealings.
91 Finally, B&D submit that under reg. 23 of the Regulations, an eligible lease dispute may only be the subject of a proceeding in the County Court if the VSBC has issued a certificate under reg. 20A of the Regulations (in the amended September Regulations).
92 No such certificate has been provided, nor does it appear any have been granted.
93 B&D say that the Lays seek to rely on the protections afforded an eligible tenant under the Regulations, in circumstances where no attempts have been made to enliven the jurisdiction of this Court.
94 The Lays contend that the jurisdictional point was not pleaded. However, this was a question for determination on the joint issues and submissions were made by both parties.[24]
[24]Lopes v Taranto [2017] VCC 1613.
95 The Lays say that the Court has jurisdiction because this is not an “eligible lease dispute”. The Court is not being asked to determine a dispute between B&D and GBF about rental relief to apply to the lease moving forward. Instead, the Court is asked to determine whether GBF had a right to rental relief at the time that it went into liquidation. That does not require a VSBC certificate or a referral to VCAT. In fact, no such referral could ever be made now that GBF is in liquidation.
96 B&D says that an eligible lease is defined as being a “dispute about the terms of the eligible lease arising in relation to a matter to which these Regulations apply” (reg. 20(1)).
97 In my view the Lays are seeking to rely on protections afforded an eligible tenant under the Regulations in circumstances where a reg. 20A certificate has not been issued by the VSBC in respect of the dispute. The condition precedent to invoking the Court’s jurisdiction has not been satisfied.
98 Ground two is rejected.
Conclusion
99 Accordingly, for the foregoing reasons, I am satisfied that there was an objectively manifested intention to be legally bound by the defendants and there was no valid request for rent relief under reg. 10(1) to 10(5) of the Regulations.
- - -
Certificate
I certify that these 30 pages are a true copy of the judgment of Judge Burchell delivered on 26 July 2021
Dated: 26 July 2001
Simon Bobko Associate to
Judge Burchell
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