Bettervale v Warehouse Solutions International (No 3) - [2015] NSWSC 1356

Supreme Court

New South Wales

Medium Neutral Citation: Bettervale v Warehouse Solutions International (No 3) [2015] NSWSC 1356
Hearing dates: 24 August 2015, 25 August 2015, 26 August 2015, 28 August 2015 and 31 August 2015
Date of orders: 09 September 2015
Decision date: 16 September 2015
Jurisdiction: Equity - Real Property List
Before: McDougall J
Decision:
Plaintiff has judgment for possession against both defendants; orders for withdrawal of caveats; and judgment against first defendant for arrears of rent.

Catchwords:
LEASES – claim by landlord under a sublease for vacant possession – where subleases over three warehouses contained options to renew – where defendant sublessees claim they exercised that option – failure to exercise option in writing as required by the contract – whether options exercised orally – absence of satisfactory evidence to that effect – where four principal witnesses found to be lacking in credibility – issues of fact to be determined on the probabilities regarded objectively – conclusion that options never exercised
ESTOPPEL – whether plaintiff estopped from denying that options had been exercised or that new leases had been entered into – where that case depends upon uncorroborated and unreliable witness evidence – where in any circumstances no detriment – result that no estoppels arise
Legislation Cited: Conveyancing Act 1919 (NSW)
Cases Cited: Jones v Dunkel (1959) 101 CLR 298
Category: Principal judgment
Parties: Bettervale Pty Ltd (Plaintiff)
Warehouse Solutions International Pty Ltd (First Defendant)
WSI International Pty Ltd (Second Defendant)
Representation:
Counsel:
S A Lawrance (Plaintiff)
DR Pritchard SC / A Cornish (Defendants)
Solicitors:
Arnold Bloch Leibler (Plaintiff)
Spinks Eagle Lawyers (First Defendant)

File Number(s): 2015/202245

Judgment

HIS HONOUR: The plaintiff (Bettervale) is the lessee of premises at 11 Bumborah Point Road, Port Botany (“the premises” or “11 BP Road”). It subleased part of those premises, known as Warehouse 1, to the first defendant (WSI), and other parts of those premises, known as Warehouse 2 and Warehouse 3, to the second defendant (WSII).
Bettervale says that each of the subleases has expired by effluxion of time; that it has served on the defendants valid notices to quit; and that it is entitled to possession.
The defendants say that they are entitled in equity to new subleases, on a variety of grounds including that they exercised options for renewal in their subleases (or that Bettervale is estopped from denying exercise); or that they entered into fresh agreements for new subleases, effectively on the terms of the options, with Bettervale. The defendant have lodged caveats to protect their asserted interests.

Urgent hearing and urgent decision

The hearing was brought on in circumstances of some urgency, for reasons that will become apparent. It occupied some five days, from 24 to 31 August 2015. At the conclusion of the hearing, I reserved my decision.
After the reasons that follow had been prepared in draft, I notified the parties that I was in a position to deliver brief oral reasons, and to make final orders (subject to hearing the parties on the form of the orders). They acceded to that course.
Accordingly, on 9 September 2015, I gave reasons ([2015] NSWSC 1358) that were a summary of what follows and heard argument on the form of orders to be made. I directed the parties to bring in draft orders.
On 10 September 2015, I heard further although briefer argument on the form of the orders, and then made final orders. I gave very brief reasons for doing so ([2015]) NSWSC 1351).
I said to the parties that I would deliver my detailed reasons as quickly as possible. What follows are those detailed reasons.

The real issues in dispute

Mr Lawrance of Counsel, who appeared for Bettervale, stated that the real issues in dispute were (slightly reworded):

whether Bettervale is estopped from denying that the options were validly exercised;

whether Bettervale engaged in misleading or deceptive conduct that caused the defendants to exercise the options other than as prescribed by the subleases;

whether the parties entered into new agreements for sublease in 2014 and, if so, whether there is a sufficient memorandum in writing of any of those agreements for the purpose of s 54A of the Conveyancing Act 1919 (NSW);

whether WSI was in default of its obligation to pay rent in respect of Warehouse 1 at the time it purported to exercise its option and, if so, whether WSI is entitled to relief against forfeiture.

Mr Pritchard of Senior Counsel, who appeared with Mr Cornish of Counsel for WSI and WSII, accepted that the issues stated by Mr Lawrance arose and required decision. However, Mr Pritchard submitted, the following further issues arose on the pleadings:

whether Bettervale is estopped from denying that the plaintiff entered into new agreements for lease with each of the defendants.

Whether Bettervale is estopped from denying that it would grant new or renewed subleases to each of the defendants.

In the event that the Court finds that the parties entered into new agreements for lease in 2014, but considers that those agreements (or any of them) were not the subject of a note or memorandum capable of satisfying the requirements of s.54A of the Conveyancing Act 1919 (NSW), whether those agreements (or any of them) were supported by part performance.

The existence and terms of the agreement made in or about August 2012 between WSl and Bettervale.

In the event that the Court finds (in the case of either defendant) that there was no new agreement for lease, and that Bettervale was not estopped, whether Bettervale engaged in misleading and deceptive conduct that induced the defendants to remain in the property on a month-to-month lease terminable on one month’s notice.

What is the appropriate form of relief, including, in the event that the Court is against the defendants with respect to their claims for relief in the form of the declaration or grant of new subleases, whether the defendants should be afforded time to vacate the property in an orderly fashion.

Mr Lawrance accepted that the further issues stated by Mr Pritchard did arise, and required decision.

Background; the head lease and the subleases

Parties

Bettervale is a company effectively controlled by Mr Brian Toohey. An entity associated with him owns 93% of the issued shares in Bettervale. Mr Tom Temelkov, or an entity associated with him, holds the remaining shares.
The issued shares in WSI are now held by Mr Andrew Costi. He is the son-in-law of the late Mr Terry Panayi, and the nephew-in-law of Mr Terry Panayi’s brother Mr Peter Panayi. Mr Peter Panayi is involved with the business of WSI, although he is not a director. Mr Peter Panayi’s son Mr Tom Panayi is the General Manager of WSI’s business.
The shares in WSII are now held equally by Mr Temelkov, Mr Tom Panayi and Mrs Patricia Panayi (the widow of the late Mr Terry Panayi). Mr Temelkov is the sole director of WSII and effectively runs its business, although, I have no doubt, Mr Peter Panayi and Mr Tom Panayi have input into its operations.

The head lease

On 15 September 2003, Sydney Ports Corporation (now known as “NSW Ports”) leased 11 BP Road to WSI for a term of 21 years commencing on 1 September 2003 and expiring on 31 August 2024. That lease (which I will call the head lease) was assigned to Bettervale on 30 September 2014.
The head lease provided for a “Further Term” in cl 2.2, and for holding over in cl 2.3. Although the expression “Further Term” gained its meaning from the “Commercial Terms Schedule” forming part of the head lease, and although that schedule said that the “Further Term” was “Nil”, the provisions of cl 2.2 are important, for reasons that will become apparent.
I set out cls 2.2 and 2.3:

2.2   Further Term
The Tenant can renew this Lease for the Further Term only if the Tenant:
(a)   gives the Landlord a written notice requesting a Lease for the Further Term between 18 months before the Terminating Date and 12 months before the Terminating Date; and
(b)   is not in breach of a term of this Lease at the date of the notice and the Terminating Date,
then the Landlord must grant and the Tenant must accept a lease of
the Premises for the Further Term on the same terms as this Lease
except:
(i)   the front page and the Commercial Terms Schedule will be amended to reflect the new term, commencing date, terminating date and options and this option clause will be deleted;
(ii)   the Rent will be determined as provided in this Lease on the basis that the date of commencement of the Further Term is a Market Review Date; and
(iii)   the Landlord may update the renewal lease to conform with the Landlord’s then current standard lease.
2.3   Holding Over
If the Tenant continues to occupy the Premises after the Term with the Landlord’s consent then:
(a)   the Tenant occupies the Premises under a monthly tenancy which either party may end by giving 1 months notice expiring on any day; and
(b)   this tenancy will be on the same terms as this Lease so far as they apply to a periodic tenancy with Rent being the Rent payable immediately prior to the Terminating Date reviewed as provided in this Lease except that the Landlord may prior to the Terminating Date or subsequently on not less than one month’s notice vary the rent.

Clause 3 provided for rent and rent reviews. By cl 3.3, there was to be a market review of rent (called a “Market Review”) on each “Market Review Date”. Those dates (by reference to the Commercial Terms Schedule) were the first of July in the years 2008, 2013, 2018 and 2023. There were definitions of “Market Rent”.
Clause 3.4 provided, relevantly:

3.4 Dispute Notice and Market Procedure
The Market Rent from the Market Review Date will be the amount specified in the Market Review Notice given by the Landlord to the Tenant unless the Tenant gives the Landlord a Dispute Notice within 14 days after service of the Market Review Notice, in which respect time is of the essence. If a Dispute Notice if given in accordance with this clause the following procedure applies. …

The various expressions with initial capital letters were defined. Their meanings appears sufficiently from what I have set out. It is not necessary to set out also the definitions.

The subleases

The subleases for Warehouse 1 and Warehouse 3 were made on 15 October 2009. In each case, the commencement date was agreed to be 1 July 2009 and the term was five years.
I do not think that there was any material difference between the wording of those two subleases. Accordingly, in what follows, I quote only from the sublease for Warehouse 1.
Clause 1 of the sublease made it clear that the sublease was subject to the terms of the head lease. By cl 2, WSI as sublessee agreed to perform the tenant’s covenants in the head lease. I set out cls 1 and 2(a):

1.   SUB-LEASE
The Sub-Lessor sub-leases to the Sub-Lessee the Demised Premises in its present state and condition but subject to the reservations terms and conditions contained in the Head Lease for the Term commencing on the Commencement Date at the rental and upon the terms and conditions contained in this Sub-Lease.
2.   SUB-LESSEE’S COVENANTS
The Sub-Lessee convenants with the Sub-Lessor as follows:
(a)   From the Commencement Date and during the continuance of the Term to pay as when due to the Sub-Lessor the annual rental as defined in Item 7 of the Schedule and observe and perform all the convenants and conditions contained in the Head Lease on the part of the Sub-Lessor to be observed and performed in the same manner and in all respects to the extent that all such conditions are applicable to the Demised Premises and are not excluded or modified by this Sub-Lease and the provision of the Head Lease are incorporated in and regarded as contained in this Sub-Lease; …

Clause 3(a) was effectively Bettervale’s reciprocal covenant to cl 2(a):

3. SUB-LESSOR COVENANTS
The Sub-Lessor covenants with the Sub-Lessee that:
(a) The Sub-Lessor will observe and perform each and all the covenants and conditions contained in the Head-Lease to the extent to which those covenants and conditions are not imposed upon the Sub-Lessee by the terms of this Sub-Lease.

It appeared to be common ground, that the effect of cls 2(a) and 3(a) was to import into the subleases all the terms of the head lease, subject to specific exclusions and modifications. Mr Lawrance so submitted. Mr Pritchard did not submit to the contrary. In my view, that is the plain meaning and effect of cls 2(a) and 3(a).
Clause 6 of the sublease dealt with rent and rent review, and cl 7 dealt with options for renewal. I set out those clauses:

6.   RENT AND RENT REVIEW
(a)   Clauses 3.1A and 3.2 of the Head Lease shall not apply to this Sub-Lease.
(b)   The annual rent on the commencement of Year 2, Year 3 and Year 4 of the Sub-Lease shall be increased by 2.5% or by the same percentage rate as the annual percentage rate increase, if any, between the Consumer Price Index published immediately prior to the anniversary date of the Sub-Lease, whichever is the greater.
(c)   The annual rent on the commencement of Year 5 (which date shall be a Market Review Date) of the Sublease shall be Market Rent to be determined in accordance with clauses 3.3, 3.4, 3.5 and 3.6 of the Head lease.
7.   FURTHER TERM
The conditions contained in Clause 2.2 of the Head-Lease shall apply to any further term as stated in Item 9 of the Schedule of this Sub-Lease except that the words and numerals “18 months” and “12 months” shall be replaced by the words and numerals “6 months” and “3 months” respectively.

Clause 11 provided in terms that certain further provisions of the head lease (in addition to those specified in cl 6) should not apply:

11. DELETIONS
Clauses 2.1 A, 4.1, 4.2, 7.12, 7.12A, 7.13, 7.14, 17.1-17.8 inclusive and clause 18 (d) of the Head Lease and the paragraph immediately following clause 18(d) shall not apply to this Sub-Lease.

By reference to the schedule, the options of renewal were for two further terms, each of five years.
The sublease for Warehouse 2 was made between Bettervale as sublessor and WSII as sublessee on 20 August 2010. Its commencement date was agreed to be 15 August 2010, and its term to be four years. The terms of the Warehouse 2 sublease were effectively the same as those of the subleases for Warehouses 1 and 3, with two significant exceptions. First, the Warehouse 2 sublease did not include any provision for market rent review equivalent to cl 6(c) of the other two subleases. Second, it contained a subclause, cl 7(b), not found in the other subleases. That subclause read:

(b) It is further provided that the Landlord may request the Tenant to renew the sub-lease for any further term as stated in Item 9 of the Schedule provided that the Sub-Lessor gives the Sub-Lessee written notice requesting that it renew the Sub-lease for such further term between 6 months before the terminating date and 3 months before the terminating date and in all other respects clause 2.2 of the Head-Lease shall apply.

As with the other two subleases, the Warehouse 2 sublease contained provision for two further terms each of five years. That renewal provision did include the rent review mechanism imported from cl 2.2(iii) of the head lease.

The businesses

After WSI assigned the head lease to Bettervale, WSI (then controlled by Mr Toohey) moved into Warehouses 1 and 3. A little later, a company known as International Air Freight Services (IAFS) moved into Warehouse 2.
The business conducted by WSI in Warehouses 1 and 3 was that of a free store, or warehouse. In August 2006, WSI (still controlled by Mr Toohey) and Mr Peter Panayi agreed to incorporate a new company to carry on the business of a bonded warehouse at Warehouse 3. That new company was WSII, which from August 2006 took over Warehouse 3 and ran a bonded warehouse business from it.
In October 2009, the company through which Mr Toohey held the issued shares in WSI sold them to Mr Terry Panayi and Mr Peter Panayi. At the same time, Bettervale entered into the Warehouse 1 and Warehouse 3 subleases with WSI.
In August 2010, IAFS vacated Warehouse 2. Bettervale then entered into the Warehouse 2 sublease with WSII.

An application for leave to amend

The evidence concluded shortly before lunch on Friday, 28 August 2015. I said to counsel that I proposed to hear submissions on Monday, 31 August 2015. One of the reasons for doing so was that I wished them to consider a tentative view that I had formed as to the credibility (or lack of it) of the principal witnesses of fact. I explained that view to them.
When the hearing resumed, Mr Pritchard made an application for leave to amend his client’s statements of defence. Some of the applications were uncontroversial, and I gave leave accordingly. However, Mr Lawrance opposed others of the proposed amendments.
I start with WSI. The structure of its defence (so far as it is presently relevant) was to allege that:

there was an oral agreement for a new lease for WSI made at the “tennis club meeting” (see at [88] and following below) in August 2012;

alternatively, WSI gave oral notice of its intention to exercise its option for renewal for sublease 1 and Bettervale expressly accepted that oral notice as sufficient;

in the further alternative, Bettervale accepted the oral notice by conduct;

in the further alternative, Bettervale is estopped from denying that there was an effective exercise of the option.

The amendment that was opposed sought to say that, by reason of the rent review in May 2014 (see at [148] and following below), and by reason of advices that a new lease was being prepared, Bettervale expressly and by conduct agreed to grant WSI a new sublease of Warehouse 1 for a further term of five years on the terms of the existing option.
Mr Lawrance accepted that, in so far as this was based only on evidence that had been given (and Mr Pritchard had made it clear that no further evidence was to be adduced), he could meet it in submissions. However, Mr Lawrance submitted, he could well have cross-examined differently had he understood, at the time he conducted his cross-examinations of the relevant witnesses, that it was to be argued that there was a fresh agreement for lease arising from the matters particularised.
Mr Pritchard submitted that it was unlikely that there would have been any such further cross-examination, or that it would have added anything to the relevant universe of facts.
In my view, in the absence of any explanation for the delay in seeking to amend, the application ought not be granted unless I can be comfortably satisfied that to grant the leave sought would not prejudice Bettervale. I cannot be so satisfied. I accept that Mr Lawrance could well have sought to cross-examine differently, or additionally, in relation to the alleged agreement.
Specifically, in my view, Mr Lawrance could well have cross-examined the relevant witnesses of WSI as to their understanding of the events from which the agreement was said to arise. Whilst I accept that subjective understandings are irrelevant to the question of whether, objectively, a contract has come into existence, I think it is at least possible, and in the real world likely, that truthful answers on this area could well have produced admissions inconsistent with the case sought to be argued through the proposed amendment.
In relation to WSII, the structure of the relevant paragraph of the defence is slightly different. Nonetheless, one of the amendments sought was to allege the making of an agreement expressly and by conduct arising out of the rent review and the payment of adjusted rent.
The case sought to be made by that amendment was that the payment of the adjusted rent was referable to the agreement said to have been made expressly and by conduct. That is certainly a matter on which, in my view, Mr Lawrance would have been entitled to cross-examine Mr Temelkov (and would have done so).

In relation to one of the warehouses, there was a slight reduction in rent. In relation to the other, WSII refused to pay the increased rent for some seven months until, in February 2015, it realised that its prospects of gaining a favourable hearing from a court of equity might be harmed if it did not appear to be willing to do equity. I have no doubt that Mr Lawrence would have cross-examined more closely on those matters at least.
Thus, in relation to this proposed amendment, there was in my view a very real likelihood of prejudice.
The other amendment sought was based on cl 7(b) of the Warehouse 2 sublease. It sought to argue that, by giving the rent increase notice, Bettervale had exercised the right that cl 7(b) gave to the “Landlord” to request the “Tenant” to enter into a fresh lease. It alleged that WSII had accepted that request, and thus that there was an enforceable agreement for lease.
There was an obvious question as to whether cl 7(b) of the sublease had the effect suggested. I would not have refused leave for that reason alone. However, again, it is in my view clear that Mr Lawrance would have cross-examined Mr Temelkov in relation to this suggested issue. Specifically, since the purported act of acceptance was payment of the new rents (one a decrease and one an increase), I think it likely that Mr Lawrance would have cross-examined to seek admissions that Mr Temelkov (as the guiding mind of WSII) had no intention in July 2014 and later (up until February 2015 at least) of paying the increased rents. If that were Mr Temelkov’s state of mind, it could strengthen the point that refusal to pay the rent demanded could hardly have amounted to acceptance of a “request” constituted, in part at least, by a demand for that increased rent.
For those reasons, I rejected the applications for leave to amend, to the extent that they were opposed.

The witnesses; credibility

Mr Toohey gave evidence for Bettervale. The defendants called Mr Peter Panayi, Mr Tom Panayi, Mr Temelkov and Mr Costi. The principal witnesses of fact – Mr Toohey, Mr Peter Panayi, Mr Tom Panayi and Mr Temelkov – were cross-examined extensively. I have come to the firm conclusion that none of those men ought be accepted as a witness of truth.
Mr Toohey, by his own admission, was prepared to tell lies. One occasion when he did so was in June 2014, to Mr Tom Panayi. He did that when Mr Tom Panayi sent him an email asking for “the New Lease Agreement as previously requested”. Mr Toohey responded, saying that “lawyers are the hold up”; that he would send it as soon as he had it; and that he was “pushing lawyers now”. Each of those statements was false at the time it was made. The lawyers had prepared a lease. Mr Toohey had no intention of sending the draft lease to Mr Tom Panayi at that particular time. And he was not pushing the lawyers to produce the draft.
Mr Toohey agreed that the statements were made to fob off Mr Tom Panayi, so as to protect the financial interests of Bettervale. He accepted, reluctantly, that the financial interests of Bettervale were closely aligned with his own interests (because he held 93% of the issued shares in Bettervale).
The other occasion on which Mr Toohey is shown to have lied (this time, to Messrs Peter and Tom Panayi, as well as to Mr Temelkov) occurred on 5 May 2014 when he sent emails to them on the topic of rent increases. The email said, among other things:

We have had a market assessment done which is in line with recent increases we have had from our landlords on the head lease.

Plainly, the emails suggested, and were intended to suggest, that Mr Toohey, or Bettervale, had procured an independent assessment of the market rent for the three warehouses. Equally plainly, he or it had done no such thing. It was Mr Toohey himself who formulated what he thought would be an appropriate figure for the market rent. In my view, Mr Toohey acted in that way in an attempt to give an air of verisimilitude to the new rents that he proposed to demand if the subleases were (to use a neutral term) renewed. He knew, I think, that it was more likely that the recipients of the emails would object if he had been truthful, and said that the new rents were no more than his own estimate of what might be the current market rent. His attempts to explain away what he had said were, in my view, dishonest.
There were other problems in Mr Toohey’s evidence. I do not propose to go through them all. I do however note one matter. Mr Toohey agreed at the outset of his cross-examination that, in his affidavit in reply, he had been careful to go through the defendants’ affidavits and identify and comment on any paragraphs with which he disagreed, and that it would be reasonable to assume that where he did not comment he accepted what they said. Nonetheless, in the course of cross-examination, he sought to disagree with many matters that were put to him that were the subject of paragraphs in the defendants’ affidavits on which he had not commented.
Mr Lawrance submitted that this was a common problem with affidavits drawn by lawyers for witnesses. Whether or not there is such a common problem, it is not in my view a relevant observation in the present case. It is clear that the affidavits had been very carefully drafted, to identify the paragraphs with which Mr Toohey did not agree, and thus (by exclusion) those on which he did not wish to comment. I do not accept that someone as careful as Mr Toohey was to advance what he perceived to be Bettervale’s and his own interests through this litigation would have let slip the opportunity to comment on anything with which he did not agree.
In my view, Mr Toohey’s attempts in the witness box to change his mind, and take issue with paragraphs which, clearly, he had not hitherto thought were objectionable, were dishonest.
Mr Peter Panayi’s evidence was marked by inconsistencies, non-responsive answers, and dissembling answers. In my view, he resorted to those mechanisms when he perceived that the truth might not assist his (or the defendants’) case.
At [88] and following of these reasons, I deal with the “tennis club meeting” that occurred on 13 August 2012 (the tennis club meeting). Mr Peter Panayi’s evidence in respect of that meeting sought to suggest that he, or more accurately WSI, had a prior legitimate grievance with Mr Toohey in relation to the sale of shares in WSI from Mr Toohey’s company to the Panayi interests. In my view, that evidence was false. It was fabricated in order to suggest that WSI’s consistent failure to pay rent on time (or at all) in respect of Warehouse 1 was justified because it had been “dudded” by Mr Toohey. However, as is clear (and I deal with this later), there was no misrepresentation of the financial position. Mr Peter Panayi and his late brother were as much aware of WSI’s financial position, at and before the time of sale, as was Mr Toohey.
Mr Peter Panayi said in his affidavit that on a number of occasions Mr Toohey had said to him that the WSI business “is making between $40,000.00 and $60,000.00 a month”. He was forced to concede that no such words had been said. In my view, he must have known when he swore his affidavit that this aspect of it was false.
Mr Temelkov’s evidence was no more satisfactory than the evidence of Mr Toohey or of Mr Peter Panayi. It, too, was marked by inconsistencies, retractions, non-responsive answers (on quite an amazing scale) and dissembling.
Perhaps the high-water mark of those aspects of Mr Temelkov’s evidence came in relation to an email of 12 February 2014 that he had received from Mr Michael Crombie. Mr Crombie was an officer of Colliers International, and apparently responsible for the sale and leasing of industrial properties in the South Sydney area. Colliers International, and in particular Mr Crombie, had had extensive dealings both with Mr Toohey (in relation to the proposed sale of the head lease) and the defendants, in relation to what, I am satisfied, were their searches for alternative premises from 2013 to 2015. In the email, Mr Crombie identified various available properties that might be suitable for WSII’s needs. He concluded by saying (his emphasis):

The alternative is a pre lease, yet I do not think you have the time for this with your current lease expiry?

The subleases for Warehouses 1 and 3 were to expire on 30 June 2014, and the sublease for W2 was to expire on 14 August 2014.
Mr Temelkov eventually agreed, as he was bound to do, that he had understood Mr Crombie to be saying that there was no security of tenure, for Warehouses 2 or Warehouse 3, beyond the expiry of their current leases. He accepted, eventually, that Mr Crombie must have formed this view based on information given to him by Mr Toohey. Yet Mr Temelkov did nothing in relation to the options. Instead, he intensified his searches for other premises – as I have said, in my view, for alternative accommodation.
If Mr Temelkov’s evidence were to be accepted, as at February 2014 he firmly believed that the options for Warehouses 2 and 3 had been exercised (even though the option “window” had not opened in respect of the Warehouse 2 sublease). He believed that WSII had security for the next five years, with further options for renewal. On that version of events, the understanding expressed by Mr Crombie (attributable to Mr Toohey) must have come as a tremendous shock to Mr Temelkov. It was then open to him to rectify the situation, by causing WSII to give written notice of exercise straight away for Warehouse 3, and a few days later for Warehouse 2. He did not do this. Nor did he speak to Mr Toohey, to find out exactly where the misunderstanding (on Mr Temelkov’s evidence) had arisen.
The whole of Mr Temelkov’s cross-examination on this subject, and on the related subjects of his searches for other premises, is unacceptable. In my view, Mr Temelkov is a man who was prepared to fabricate evidence on matters that he perceived as being essential to his company’s case.
In the course of cross-examination on the email of 12 February 2014, Mr Temelkov said that (as one might expect) he had communicated Mr Crombie’s views to Mr Peter Panayi and Mr Tom Panayi. Mr Peter Panayi did not recall any such conversation. I am satisfied that (as he accepted) he would recall such a conversation had it occurred. I shall turn to Mr Tom Panayi’s evidence on this topic in a moment.
In my view, Mr Temelkov fabricated his evidence of passing on to Messrs Peter and Tom Panayi what Mr Crombie had said. He did so because he understood that, on its face, Mr Crombie’s email was damaging to WSII’s case. I return to this topic later in these reasons.
Dealing with Messrs Toohey, Peter Panayi and Temelkov, I have come to the view that for each man, the principal consideration he had in mind, when giving both affidavit and oral evidence, was expediency. I do not think that any of them was concerned to tell the truth if to do so might (as he perceived it) damage his and his company’s financial interests. On the contrary, I think, each of them was prepared to tell the truth only in so far as he saw it as likely to advance his and his company’s interests.
I should note that, in coming to the view I have just set out, I have had regard both to the entirety of the evidence given and to the way in which it was given, over lengthy cross-examination. I have had regard to matters other than those that I have chosen to highlight above (and, indeed, other than specific matters to which I refer below, in discussing the relevant events). And I have had regard to the demeanour of each, whilst acknowledging that demeanour may be a less than sure guide to veracity.
There was evidence that each of Mr Toohey and Mr Peter Panayi suffered, or had suffered, from serious illness. I will not go into the details. The point is that there was no evidence to suggest that the illness from which either of them suffered or had suffered was such as to have any deleterious impact on his memory. In Mr Toohey’s case, that suggestion was put to him, and he disagreed. In Mr Peter Panayi’s case, there was no evidence at all.
I turn to Mr Tom Panayi. He was present in court for the whole of Mr Temelkov’s cross-examination. That was a deliberate forensic choice made by Mr Pritchard. Thus, Mr Tom Panayi heard Mr Temelkov’s evidence as to (among other things) Mr Crombie’s email of 12 February 2014, and the supposed conversations that Mr Temelkov had had with Messrs Peter and Tom Panayi about the sentence quoted above.
Mr Tom Panayi gave clear and precise evidence of other conversations, not always of central importance, that he said had occurred. But curiously, when it came to the supposed conversation in which Mr Temelkov (so he said) relayed what Mr Crombie had said and its source, Mr Tom Panayi’s memory failed him. He was not prepared to deny that such a conversation had occurred. But neither was he prepared to accept it had occurred. He retreated into a series of answers of the “I don’t recall” variety.
In my view, Mr Tom Panayi is an intelligent man. In my view, he perceived that to state (as his father was to do) that the conversation had occurred would be damaging to the interests of WSI, but that to deny it had occurred would be damaging to the credibility of Mr Temelkov. Thus, in my view, Mr Tom Panayi dissembled, and stated dishonestly that the did not recall the conversation in question. I have no doubt that, had such a conversation occurred, Mr Tom Panayi would have remembered it: the reasons why are obvious. The contrast between the purported clarity of his recollection on other matters and the asserted failure of memory on this matter is stark.
Mr Crombie’s email, and the statement from it that I have quoted, are of great importance in the case, because the clear inference from that statement is, as Mr Temelkov was forced to concede, that in Mr Crombie’s understanding gained from Mr Toohey, there had been no exercise of any of the options for renewal. In the face of that, the unexplained failure of the defendants thereafter to exercise the options in writing (a course of action then open for two of the warehouse, and shortly to become open for the third) must have been seen by Mr Tom Panayi to be very damaging to the defendants’ case. In my view, his willingness to dissemble, and to give false evidence on an issue of central importance, taints his credibility generally.
In relation to each of Mr Toohey, Messrs Peter and Tom Panayi and Mr Temelkov, I do not in general accept their evidence except where:

it is corroborated by other, acceptable, evidence;

it is consistent with contemporaneous documents (which themselves are not likely to have been self-serving);

it is consistent with the probabilities, regarded objectively; or

it is against interest.

I should note that Mr Pritchard submitted that the evidence of the defendants’ witnesses gained some force, or credibility, because each of them told substantially the same story. He noted, correctly, that it had not been put to any of those witnesses that he had colluded with the others to concoct his evidence. I do not however accept the submission.
Putting it plainly, I do not regard the evidence of one dishonest witness as providing any corroboration for the evidence of another. And in the case of Mr Costi (whom I do not find to have been dishonest), his involvement was so peripheral that it does not provide any meaningful degree of corroboration. To the extent that it does, it is corroboration of self-serving conversations, or observations, made at a time (during 2015) when the defendants were well aware that it was Bettervale’s and Mr Toohey’s view that their leases had come to an end, and that the options had not been exercised.
Mr Costi is of lesser importance in the evidentiary scheme. He was not involved in any of the discussions that are said to have amounted to, or to have included, oral “exercises” of the options. The highest Mr Costi’s evidence goes (leaving aside the conversation with which I deal at [111] and following below) is that he attended meetings in 2015, with Mr Toohey and others, in which various proposals for sale or lease were discussed. In the course of those discussions, according to Mr Costi, there were self-serving comments made such as “why are we going to sign these heads of agreement when we have current leases” or “we have a lease already… “or “we have long term leases here”.
At the time those meetings took place, WSI and its principals were well aware that Bettervale was looking to sell the head lease. In my view, those self-serving statements go nowhere. They were made at a time when the principals of WSI were keenly aware that they had failed to exercise the options either in accordance with their terms or at all. Thus, I do not regard Mr Costi’s evidence as providing any relevant corroboration of the evidence of the defendants’ other witnesses.

Approach to deciding the central questions of fact

Mr Pritchard submitted that the force of the defendants’ case could be best (indeed, I think, only) appreciated if the various alleged conversations that were said to amount to notifications of exercise of options were viewed in their chronological context, and in the light of such information as could be gained from contemporaneous documents passing between or created by the parties. To that end, Mr Pritchard relied on a chronology called, with disarming simplicity, “Defendants’ Objective or Undisputed Facts”. Mr Pritchard cross-referenced entries in this document to a detailed written outline of closing submissions that he provided, in which he sought to support or comment on the various matters listed in the chronology.
In those detailed submissions, Mr Pritchard identified some nine “central contests of fact” common to the case for each defendant, by reference to which he structured his submissions. They are (slightly reworded and in some cases expanded):

oral notices of intention to exercise said to have been given prior to 5 May 2014 (when Mr Toohey sent to the defendants the “market assessment” emails referred to at [28] above);

the parties’ understanding of the renewal provisions of the subleases;

the reasons for sending the “market assessment” emails of 5 May 2014;

oral notices of exercise of options thereafter;

oral requests for new subleases;

the preparation of draft new subleases

the failure to issue new subleases;

a conversation said to have occurred in November 2014 between Mr Toohey and Mr Temelkov; and

the defendants’ inspections of other premises.

In addition, as to WSI, Mr Pritchard raised as a central dispute of fact, the discussions at, and outcome of, the tennis club meeting in August 2012.
The approach that Mr Lawrance took in his submissions was to address individually each of the conversations in which, it was said, oral notice of exercise of the options had been given. Mr Lawrance addressed, separately, the contemporaneous documents.
I do not think that Mr Lawrance disputed (or would dispute) the proposition that assessments of what was said, and findings of fact as to what was said, should be undertaken in a vacuum, independently of context including such documents as were exchanged or generated at the time which might help to throw light on the disputes. And indeed, in my view, that is the correct approach to take. Thus, in principle, I accept Mr Pritchard’s submission, to the effect that the resolution of the disputes of fact depends critically on placing the disputed conversations in context. I accept, further, that the relevant context includes not only what was happening at the time when the disputed conversation was said to have occurred, but also what happened before and after, to the extent that those prior and subsequent events can be seen to be related to the particular conversation in dispute.
Finally, I propose to adopt Mr Pritchard’s approach, and to focus on the central disputes of fact. Since it is Mr Pritchard’s clients who bear the onus of proof on the questions of exercise of the options, fresh agreements, estoppel and the like, it is in my view appropriate to deal with their cases by reference to what they contend are the relevant factual disputes.

I shall start with the tennis club meeting, and then to turn to the common central disputes of fact outlined by Mr Pritchard.

The tennis club meeting

On 13 August 2012, Mr Peter Panayi and Mr Terry Panayi met Mr Toohey at the Kooyong Tennis Club in Melbourne. WSI was significantly behind in its payments of rental under the Warehouse 1 sublease. The apparent purpose of the meeting was to come to an agreement as to the arrears.
Mr Toohey and Mr Peter Panayi gave evidence of what was said at the meeting. Mr Peter Panayi said that, in the course of the tennis club meeting, he had a conversation with Mr Toohey to the following effect (affidavit sworn 13 August 2015, [38], [39]:

38.   At that meeting, Brian and I had a conversation:
Me:   You told us before we bought it that this business was making between 40 and 60 thousand a month when in fact its losing money. You sold us a white elephant. We need a substantial rental reduction for us to continue.
Brian:   No, I am not changing the rent.
39.   We discussed the issue for another 15 minutes or so and Brian said:
Brian:   Look, I will give you a rental reduction to $75,000.00 a month if you agree now to take up the option in the lease at the same rental.
Me:   We agree to that. We will definitely be sticking around. What about the arrears?
Brian:   I can agree to discount them for you.
Me:   They should be written off, and we should start again fresh. The only reason they exist is because the business wasn’t doing anywhere near what you told us.
Brian:   I can’t just write them off, but I can discount them. And, we’ll just worry about the current rent for the time being. I won’t chase you for the back rent for now.

I do not accept that evidence (save as to the agreement to reduce rent). As I have said already, I do not regard Mr Peter Panayi as a witness whose evidence can be relied upon. There is no independent (let alone acceptable) corroboration. On the contrary, as Mr Peter Panayi agreed in cross-examination, Mr Toohey sent an email to him after that meeting. The email is inconsistent with the conversation that Mr Panayi alleges.
Confronted with this email in the witness box, Mr Peter Panayi dissembled. He said, first of all, that the email he was shown was not the one he had referred to. However, by reference to the exhibit to his affidavit (specifically, tab 6), I am satisfied that the email he was shown was indeed a copy of the email he referred to in para 40 of his affidavit. Once this had become clear, Mr Peter Panayi sought to dissemble further, suggesting that he had exhibited the wrong email to his affidavit. He was unable to say what was the correct email to which he referred, and no other email of 13 August 2012, that could answer the description given in para 40 of the affidavit, was proved.
In my view, Mr Peter Panayi realised that the email was inconsistent with his sworn evidence. He sought to dissemble, when the email was put to him. And when it became clear that the email put to him was indeed the email to which he had referred in his affidavit, he fabricated the suggestion that he had exhibited the wrong email.
I think that the best evidence of what was said and agreed at the meeting is to be found in the email just referred to. That was an email Mr Toohey sent to Bettervale’s in-house accountant, Ms Joyce Lam, on 13 August 2012, and thereafter copied to Mr Peter Panayi. That email stated:

Terry and Peter, this is the basic level of our Agreement today.
Bettervale will credit Warehouse Solutions International Pty Ltd (WSI) with the difference in rent (not Outgoings) for the period since they have been paying $65k (including GST).
They continue to pay that rent of $65,000 plus outgoings plus outgoings [sic] until the end of their lease period (30th June 2014).
The credits are conditional upon
1.   Peter and Terry Panayi get an agreement by 1st of September 2012 whereby WSI International Pty Ltd (WSII) will pay for a minimum of 1500 sqm and a max of 2000 sqm of warehouse 1 which WSI leases from Bettervale.
2.   The rent of the above aforementioned 1500 to 2000 sqm is paid at the full value of the current lease held by WSI ($132.69 psm per month plus GST) and paid directly to Bettervale Pty Ltd by WSI on 1st week of each month beginning on the 1st of September 2012 and ending on.
3.   WSI pay their newly discounted monthly rent ($65,000 including GST) by the 20th of each month up to the December 2012 and thereafter in the first week of each month until a new lease is agreed and signed beginning 1st of July 2014 after which the non discounted rent of the current lease applies.
4.   WSII pay rent directly to WSI for the period and beyond (01/07/2015) on the understanding that all rent received by WSII to WSI (FOR THE MIN 1500SQM AND MAX 200 [sic] SQM) be paid directly to Bettervale Pty Ltd until all the lease arrears of WSI to Bettervale are paid in full.
5.   If for any reason any of the above conditions and undertakings are not completed and adhered to in full, all monies owed to Bettervale by WSI revert to the non discounted rate as per the original 5 year lease of WSI which ends in June 30th 2014.
6.   That the directors of WSI give their full personal guarantees to the terms of this agreement.
REPAYMENT PROGRAME: AFTER ORIGINAL CREDIT AND ASSUMPTION WSI CONTINUES TO PAY & MAINTAIN RENT OF $65,000 Including GST Plus OUTGOINGS AND RESIGNS A LEASE AT CURRENT LEASE CONDITIONS in 2014.

The email may have been sent also to Mr Terry Panayi (I say this because one of the email addresses of the addressees is [email protected]). Mr Peter Panayi did not reply to the email controverting that it did indeed set out “the basic level of our Agreement today”. Nor, if it were sent to him, did Mr Terry Panayi do so.
In my view, the email of 13 August 2012 should be accepted as an accurate statement, or at least summary, of what was discussed and agreed at the tennis club meeting. To the extent that Mr Peter Panayi’s evidence goes further, I do not accept it.
The topic of rent was also the subject of an email from a Mr John Harrower of WSI to Messrs Toohey, Peter Panayi and Terry Panayi dated 26 October 2012. Mr Harrower was the General Manager of WSI’s business, appointed to that position by the Panayi brothers.
Mr Harrower’s email said (omitting formal parts):

Hi Brian,
Based on the figures below from Joyce Lam – less payments made to date and then taking into account the credits agreed at the meeting in Melbourne with Peter & Terry Panayi, we believe $402,064.21 is the balance owing

Owing as per below

$656,332.88

Less paid to 26/10/12

$ 75,000.00

Less credit as agreed in Melbourne 4 months x $25,609.81

$102,439.24

Less credit for post Melbourne meeting to date 3 months x $25,609.81

$ 76,829.43

Less total paid + Credits

$254,268.67

Balance owing

$402,064.21

Please confirm
Regards
John

Mr Toohey replied later on the same day, in the following terms:

I will agree to this amount as long as we have an agreement in writing, that the amount outstanding is supported by the various family trusts and assets of Panayi families. I also want the latest financials of the various Panayi trusts which are currently guaranteeing the lease.
Once these are all in order I will draw up an agreements [sic] with above conditions and that WSI will pay an adjusted rent of $75,000 per month including all outgoings but plus GST which can be offset by your BAS and has a neutral cash effect and WSI pays one months rent in advance as a security deposit, and failure to pay rent by the 20th of each month will result in an immediate default notice on the lease.
This agreement would be applicable only until the current lease period is complete and the rent is renegotiated. please agree to all this and I will prepare the paperwork and credits accordingly.
This is a one off offer and non negotiable… you have 5 working days to reply.

I do not understand how the figure of $65,000.00 referred to in the email of 13 August 2012 morphed into the figure of $75,000.00 referred to in Mr Toohey’s email of 26 October 2012. Regardless, the position is that, thereafter, Bettervale invoiced WSI for $82,500.00 per month (including GST), apparently without any protest (although, as will become clear, WSI continued to be inattentive to and tardy in payment).
The excuse given by Mr Peter Panayi for not paying rent was that Mr Toohey had misrepresented the profitability of WSI when he offered its shares for sale to the Panayi brothers. I do not accept that evidence. Although my view of Mr Toohey’s commercial morality is such that I think that he would not hesitate to make such a misrepresentation if it would suit him to do so, the simple fact is that Mr Harrower had explained the true financial position of WSI to the Panayi brothers and to Mr Toohey well before the sale took place. I think that Mr Panayi’s “reason” for not paying rent was fabricated, and dishonestly so; and that it was done to justify what, Mr Panayi well appreciated, would otherwise be damaging to WSI’s case.
Whilst I am talking of those matters, I should record that Mr Peter Panayi agreed in cross-examination that WSI would pay the admitted arrears of rent only if its claim to be entitled to a renewed sublease were vindicated, and orders made in its favour accordingly, but not otherwise. I do not regard that conditional approach to the performance of admitted obligations as reflecting a standard of commercial morality that would justify this Court’s intervening to give equitable relief to the company, WSI, whose stance was so represented.

Conversations prior to May 2014 concerning renewal of leases

Mr Temelkov said in his affidavit that he had one or two conversations with Mr Toohey in late 2013 concerning renewal of the subleases. He said that in that or those conversations, in answer to a question from Mr Toohey about WSII’s intentions, he said (in effect) that WSII “of course” intended to stay as a tenant after its sublease expired.
Mr Toohey denied that there had been such conversations. He said (correctly) that Bettervale had received from NSW Ports a letter dated 4 October 2013, notifying Bettervale of substantial increases in rent under the head lease. Mr Toohey said, and in this respect I accept his evidence, that he was concerned that if the head lessor could not be dissuaded from imposing those increases, Bettervale might not be able to pay them, because it might not be able to recover the increased rents from the sublessees. This aspect of Mr Toohey’s evidence is credible, because as I have pointed out already, WSI had been a bad tenant, which required a reduction in rental and which in any event remained in substantial arrears. The emails and events to which I refer at [154] and following below support acceptance of this part of Mr Toohey’s evidence.
Mr Toohey said, and again I accept, that after October 2013, he began to think about selling the head lease. Thus, at least after October 2013, it was a matter of some importance to Mr Toohey to know whether the defendants would exercise their options for renewal. It is thus likely that he sought to make some inquiries about their intentions.
Mr Toohey said that, up to and during what he understood to be the option “windows”, he was very concerned to avoid mentioning the question of renewal. He said, in effect, that he had formed the view that it would be better to sell the head lease unencumbered by subleases, and thus was hoping that the sublessees would not exercise their options for renewal.
This last aspect of Mr Toohey’s evidence is totally unsatisfactory. He was cross-examined on it. He said, contrary to what he had put in his affidavit, that in his view, the price that he might receive for the head lease would be the same whether or not it was encumbered by further subleases. To my mind, that evidence was dishonest.
However, and returning to the conversations asserted by Mr Temelkov, the fact is that Mr Toohey was concerned to know, late in 2013, what were the defendants’ intentions with regard to renewal of their subleases. Thus, I think, it is likely that he might have made some inquiries about the topic. In turn, I think, it is likely that a conversation or conversations, of the kind to which Mr Temelkov deposed in his affidavit, may well have taken place after 4 October 2013. However, for present purposes, the point is that, putting matters at their highest, the conversation went no further than (quoting from [83] of Mr Temelkov’s affidavit sworn 11 August 2015):

Brian: Do you intend to stay on with your leases after they expire?
Me: Yes, of course we do.

A conversation in those terms could be taken as a statement of intention, in due course, to exercise the options for renewal when it was possible (in terms of the relevant provisions of the subleases) to do so. It could not amount to notice of exercise, having regard both to the terms of the conversation as alleged by Mr Temelkov and to the fact that there was, at the time, no legal ability to exercise the options.
Mr Peter Panayi said that he had a conversation with Mr Toohey in January 2014 in which he confirmed that both companies would be “taking up” their options. He said that Mr Toohey agreed to provide fresh subleases when the time came. Mr Toohey denied that conversation.
The conversation is not reflected in any contemporaneous document (whether or not exchanged between the parties). Given Mr Peter Panayi’s expressed view, that the question of renewal had been dealt with as long ago as August 2012 at the tennis club meeting, there was no particular reason for him to revert to the topic in early 2014. In the absence of any corroboration or consistency with the probabilities, objectively regarded, I do not accept this aspect of Mr Peter Panayi’s evidence. I do not find that the asserted conversation took place.
Mr Costi said that he had a meeting with Mr Toohey (and Mr Tom Panayi) at a time which he could not recall but “believe[d]… was 2014” (affidavit sworn 13 August 2015, at [12]). According to Mr Costi, the conversation was to the following effect:

Brian: “How do you fit in here?”
Me: I am Terry’s son in law and Tom is Peter’s son, we want [sic] assure you that we are committed to staying here so it is going to be business as usual, we are the next generation, we are in our 40’s so we have 20 years working life left and we want to stay.”
Tom Panayi: “Anything to do with rent or leases I am the point of contact, you can talk to me or my dad”.
Brian: “I am totally over being a landlord, if you guys are interested in buying I am looking at renegotiating another lease with the Port”.
Tom Panayi: “We would be interested at the right price”.
Brian: “I would consider vendor finance”.

Mr Tom Panayi did not give any evidence of such a conversation in his affidavit sworn 12 August 2015. Mr Toohey denied it had occurred.
There is no contemporaneous document consistent with there having been such a meeting, or reflecting what Mr Costi alleged was said. In those circumstances, and bearing in mind that Mr Tom Panayi, who was said to have been at the meeting, did not given evidence of it, I do not regard this aspect of Mr Costi’s evidence as credible.
I have no doubt that, after the death of Mr Terry Panayi, Mr Costi did introduce himself formally to Mr Toohey. I have no doubt that they discussed Mr Costi’s role in the business of WSI. I have no doubt that Mr Costi, in the course of some such discussion, may have said words to the effect that he and Mr Tom Panayi (and, for that matter, Mr Temelkov) saw the businesses as important to their long-term futures. However, it could not be contended that, even on Mr Costi’s account of the conversation, there was any statement of desire or intention to exercise the options for renewal, let alone a statement (ineffective, because oral) of exercise.
Mr Temelkov gave evidence of conversations with Mr Toohey in about February and March 2014. On Mr Temelkov’s dating of those conversations, they occurred within the option windows for each of the subleases.
According to Mr Temelkov, those conversations were to the following effect:

conversation of late February or early March 2014 (affidavit, [85]):

Brian:   We are going to put up your rental and the rental for Warehouse Solutions International. I can’t keep subsidising the rental and the Panayi’s [sic] are behind in the rental
Me:   Sort it out with them. That’s not my issue
Brian:   Well, your own rent is your issue and that needs to be raised, as you are due to have your leases renewed.
Me:   Of course, we want our leases renewed, but I am not sure about any rent increase.

Conversation in mid-March (affidavit, [89]):

Me:   Brian, as I said, we do want to stay on here, so can we work out the rental situation for the new leases
Brian:   OK, we will send something through to you.

In between those conversations, Mr Temelkov said, he asked his (or WSII’s) accountant Mr Joe Zhou to “check the leases to see what they say about rent increases when we renew”. Thereafter, Mr Temelkov said, he and Mr Panayi reviewed the subleases “to see what they said about rental increases” and he “saw that there were provisions for rent review in both and a market review in one of them”. It is not credible that they could have reviewed the rent review provisions but overlooked the adjacent renewal provisions.
In those circumstances, I do not accept that, having had the benefit of Mr Zhou’s advice and having carried out his own review in conjunction with Mr Tom Panayi, Mr Temelkov would not have understood precisely what the renewal provisions required by way of notice of exercise of option. That is particularly significant bearing in mind that the conversations to which Mr Temelkov deposed are said to have occurred within 2 to 4 weeks after he received Mr Crombie’s email of 12 February 2014, including the statement as to expiry of the subleases set out at [62] above.
In his reply affidavit, Mr Toohey agreed that he had a conversation with Mr Temelkov in late February or early March 2014. He said that he (Mr Toohey) said words to the effect that he was going to put up the rentals, and could not keep subsidising them. He denied the balance of the conversation, and he denied the (second) conversation said to have taken place in mid March 2014.
Mr Toohey’s oral evidence on this point was different. He denied that there had been a conversation, even to the limited effect admitted in his affidavit, in late February or early March 2014 (T42.15-.25). When shown his affidavit, he was forced to retract that denial (T43.46-.48). However, he then, as it were, retracted the retraction, before retracting the retraction of the retraction (T43.50-44.40). That passage in his cross-examination did nothing to enhance my view of his veracity or credibility.
I think that there was some conversation, or were some conversations, between Messrs Temelkov and Toohey between late February and mid March 2014. I find that Mr Toohey did tell Mr Temelkov that Bettervale proposed to increase the rents on the warehouses, and that it could not afford to continue to subsidise the sublessees. However, I do not find that Mr Temelkov gave any unequivocal notice of exercise of the options for renewal as to warehouses 2 and 3.
I find that, by mid March 2014 at the latest, Mr Temelkov had reviewed, and understood, the provisions of the subleases for Warehouses 2 and 3 relating to increase of rental. I find, further, that by then (and indeed, as I have said before, at earlier times) he had read and understood the renewal provisions of those subleases. Certainly, by mid March 2014, Mr Temelkov was (as I find) aware that the option windows for each of those subleases was still open, and that, for there to be an effective exercise of option, written notice must be given before the applicable window closed.
However, I find, Mr Temelkov was not prepared to commit WSII unequivocally to renew the subleases without knowing what the increased rental would be. He was, I find, aware that the rental for Warehouses 2 and 3 could be increased by way of market rent review on renewal. He was, I find, concerned to ensure that any increase was acceptable. Accordingly, I find, he was not prepared to commit WSII without a full understanding of the monetary aspects of that commitment.

Thus, in my view, although it is likely that there was a second conversation, and likely that Mr Temelkov did ask for an indication of what the new rentals would be, that was done to enable him to decide whether or not to exercise the option for renewal.
Further, to my mind, even accepting Mr Temelkov’s account of the conversation at face value (and, having regard to my opinion of his veracity and credibility, that is not something lightly to be done), it cannot be regarded as notice, let alone unequivocal notice, of exercise of either of the options. Put in context, and informed by my findings as to Mr Temelkov’s state of mind, it was part of a process of negotiation designed to elicit from Mr Toohey a statement of what the new rents would be.
I repeat that the context for these conversations include Mr Crombie’s email of 12 February 2014. I repeat what I have said at [64] above as to Mr Temelkov’s understanding of the relevant sentence in that email. I repeat that, by mid March 2014, Mr Temelkov was well aware not only of the rental review provisions in the subleases but also of the renewal provisions. It is inconceivable, in those circumstances, that if Mr Temelkov had wished unequivocally and clearly to commit WSII to exercise of the options for renewal, he would have done it in the informal and equivocal language that, on his own account, was used in the conversations. It is inconceivable that he would have done anything other than give express written notice of exercise.
The context includes also the matters I deal with at [262] and following below, relating to inspection of other premises. In my view, Mr Temelkov was doing what a prudent businessman would in this situation. He was considering whether to stay or whether to move. Obviously, the rent if he were to stay would be a key element in his consideration.
I have spent some time on this conversation because it is to my mind a very important matter of background to consider when dealing with two of the key matters of fact on which Mr Pritchard depended: Mr Toohey’s emails of 5 May 2014, and the subsequent instruction that he caused to be given to Bettervale’s solicitors to prepare new subleases. The correct characterisation and understanding of those events is crucial to the defendants’ cases.
Mr Tom Panayi gave affidavit evidence of conversations that he claimed to have had with Mr Toohey in March 2014, “chasing up… the new leases for WSI and [WSII]” (affidavit, [31] to [34]). I set out those paragraphs:

31. Shortly after having this conversation [see at [132] below] with Peter, I received a call from Brian and had a conversation that included the following:
Me:   Dad has asked me to chase you up, as we want the new leases for WSI and warehouse solutions [sic].
Brian:   I am getting them prepared now, but when are going catch up with the rent.
Me:   I am working on that, but we want to get our new leases that you promised.
Brian:   You will be getting a rental increase and I will be sending you an email about that.
Me:   Ok send it through and we will look at it, but the leases are already agreed so please send it through.
Brian:   The new rent will be non-negotiable just so you know.
Me:   Ok send the leases through.
32.   I was speaking to Brian again a few weeks after this phone call and I said:
Me:   Brian my father is chasing me up to get the new leases. What’s going on?
Brian:   I’ll get them to you – but what are we going to do about the rent situation? It’s causing me real problems. I need to pay Sydney Ports. I need to see it fixed up.
Me:   I’m still working on it. I’m doing my best to get it sorted out as soon as.
33.   A week or so later, I still had heard nothing from Brian. I telephoned him and said:
Me:   Brian, my dad is getting very upset about you not sending me the new leases, he says that you agreed to this already now please send them through.
34.   I recall that Brian again mentioned issues to do with rental in the course of this conversation, but I do not now recall what was said.

Mr Toohey denied that any of those conversations occurred.
I do not accept Mr Tom Panayi’s evidence of those conversations. They are not corroborated in any way. They are not consistent with the probabilities, objectively regarded. On the contrary, in my view, they are inconsistent with those probabilities. I shall explain why.
The starting point is that Mr Tom Panayi claims to have been inspired, to have these conversations, by discussions with his father in which his father said in effect that he had “spoken to Brian and confirmed that we are taking up our options for both the bond store and the free store. We agreed we would take the option for the free store when your uncle and me went down to Melbourne to meet with Brian”. Mr Peter Panayi had given similar evidence of such conversations. That evidence was admitted (regardless of its source) to prove communication, but not the truth, of the asserted facts.
Mr Peter Panayi could not truthfully have had such a conversation with his son. First, on my findings, there was no conversation between Mr Peter Panayi and Mr Toohey in which Mr Peter Panayi confirmed that the companies were taking up their options. Second, and perhaps more important, it is self-evident from Mr Toohey’s email of 13 August 2012 (and the absence of any reply to it) that there was no agreement reached in Melbourne, as Mr Peter Panayi is said to have asserted to his son.
In my view, the evidence that each of Mr Peter Panayi and Mr Tom Panayi gave about those supposed conversations was dishonest.
Next, as a matter of context, Mr Tom Panayi agreed that he had met Mr Toohey for the first time at the funeral of Mr Terry Panayi in February 2013. Although Mr Tom Panayi said that he had had some discussions with Mr Toohey about rental arrears thereafter, it is plain from a subsequent email that, at the time these conversations were said to have taken place, the two men were not on terms of any familiarity.
On 8 July 2014, Mr Tom Panayi sent Mr Toohey an email which included the following:

Hi Brian,
Hope you are well.
I know over the years you have always discussed matters with either my father, my late Uncle Terry or Tom Temelkov. We have also briefly met in person but haven’t had the chance to chat.
I would like to organise a meeting to discuss the recent rent increases and also other matters that need to be addressed.
I suggest the meeting to take place her in Sydney.
Please let me know when you are available.

It is, to put it mildly, unlikely that Mr Tom Panayi would have written to Mr Toohey in those terms, effectively introducing himself, if they had had the conversations to which Mr Tom Panayi deposed at [31] to [33] of his affidavit.
The other relevant matter of context is that Mr Tom Panayi sent no email following up the supposed oral requests until 5 June 2014. According to Mr Tom Panayi, he had told Mr Toohey that Mr Peter Panayi was “getting very upset about you not sending me the new leases… that you agreed to… already”. It is simply not credible that, if Mr Tom Panayi were truly reflecting his father’s state of mind, he would have waited for the best part of a month before sending any email following up the asserted verbal request.
The first such email, sent on 5 June 2014, simply asked Mr Toohey to “send me the new lease agreement for W1”. There being no reply, Mr Tom Panayi sent a further email 20 days later, on 25 June 2014, forwarding the earlier email and asking “please send lease agreement as per below email”.
On 1 July 2014, Ms Joyce Lam (the office accountant for Mr Toohey’s business interests) sent an email to Messrs Peter and Tom Panayi attaching an invoice “for July 2014 rent and outgoing [sic]”. Mr Tom Panayi replied:

Please send through the New Lease Agreement as previously requested, so we can allow our legal team to peruse”.

It will be noted that although Mr Panayi’s two later emails referred to previous requests – in context, those in the emails of 5 and 25 June 2014 – none of the emails made reference to any conversation said to have occurred in March or April or thereabouts, or at any time prior to 5 June 2014. Nor did any of those emails make any reference to anyone being “very upset” about the asserted delay in providing the new subleases.
Taking all those matters into account, and my view of Mr Tom Panayi’s credibility, I do not find that these conversations occurred.
It should be noted that while all this was happening, Mr Toohey sent emails to Messrs Peter and Tom Panayi requiring payment of rental arrears. Those emails were sent on 3 March and 1 May 2014. It appears that Mr Tom Panayi replied to the second only of these emails, giving the excuse of slow payment to WSI and promising to make further payments on account of the arrears. He said nothing about the supposed request for new subleases.

The parties’ knowledge of the rent review provisions in the subleases

Each of the principal witnesses of fact (Messrs Toohey, Peter Panayi, Tom Panayi and Temelkov) pretended that he was ignorant of the precise terms of the options in the early part of 2014. Indeed, the defendants’ witnesses suggested that they did not become aware of those matters until about May 2014. I regard that evidence as being, in each case, dishonest.
Mr Toohey said that he reviewed the head lease and the subleases once he had received the NSW Ports’ letter of 4 October 2013. It is inconceivable that he could have missed the option provisions in that review, particularly bearing in mind his admitted general familiarity with the topic of commercial leases.
As to Messrs Peter and Tom Panayi and Mr Temelkov, it is equally inconceivable that they proceeded in a state of ignorance, over the five or four years of the initial terms of the subleases, as to what they had to do to renew them. Each of them sought to give the impression that the total duration of the term (15 or 14 years, including both options) was a matter of great importance to him and to his company’s business. Each of them struck me as an intelligent and experienced businessman. The provisions of the subleases – specifically, the renewal provisions – are not complex. I do not accept that each of those men failed to look at the renewal provisions at a time when, according to each, he was keenly interested in the topic of renewal, and very keen to indicate his company’s desire to renew to Mr Toohey.
I am satisfied that, well before May 2014, each of Mr Toohey, Mr Temelkov, and Mr Tom Panayi, understood the renewal provisions in the subleases. The reasons for this conclusion are:

at a level of generality, I think it is highly unlikely that experienced and intelligent businessmen, such as each of the principal actors appeared to me to be, would not have satisfied themselves of the salient provisions of the subleases. From Bettervale’s perspective, the subleases, and particularly the options for renewal, were fundamental to its ability to deal with the head lease. From the defendants’ perspectives, the subleases provided the premises from which they carried on their business activities. I accept, of course, that the defendants could have sought other premises (and in my view, for reasons to which I shall come, that is precisely what they did from at least early 2014, and more likely early 2013). However, security of tenure remained central to their business interests.

At a more particular level, I am satisfied that Mr Toohey gained an understanding of the renewal provisions when he reviewed the head lease and the subleases after receiving NSW Port’s letter of 4 October 2013. It is not credible that he could have read and considered the market review provisions in isolation, without noticing the closely adjacent renewal provisions (and, of course, the obvious connection between them).

As to Mr Tom Panayi and Mr Temelkov, that knowledge came, at the latest, when (as I have found) they reviewed the subleases, as Mr Temelkov said they did, a short time after the conversations between Messrs Temelkov and Toohey in February and March 2014.

There is no direct evidence of Mr Peter Panayi’s having carried out any review of the subleases. Nonetheless, for the reasons I have given, I do not accept that he would not have done so. And, further, I think it more rather than less likely, given the way that the Panayi family and Mr Temelkov conducted the two businesses, that Mr Peter Panayi would have been kept up to date with, among other things, the conversations between Mr Temelkov and Mr Toohey in late February and early March 2014, and the review exercise undertaken by Mr Temelkov and Mr Tom Panayi thereafter.

The May 2014 market assessment emails

What the emails said

On 5 May 2014, Mr Toohey sent emails to Messrs Temelkov, Peter Panayi and Tom Panayi. One related to WSII and Warehouses 2 and 3. The other related to WSI and Warehouse 1.
I set out in full the text (omitting formal parts, salutations and the like) of the former email:

as per your lease arrangements, the market rent adjustment is due on 1st of July 2014.
There has been considerable increase on rental prices for properties in the Port Botany area.
We have had a market assessment done which is in line with recent increases we have had from our landlords on the head lease.
We have received notice of increased rent in excess of 50%.
WSII has enjoyed discounted rates for the last few years, especially for warehouse 2 and the new proposed rentals are still below what is available for this property in the current market for warehouse space.
We also draw your attention to the fact that the increases do not take into account that you enjoy the use of hardstand and hardstand storage areas free of charge.
We have not seen fit to increase our rentals to maximum market rental for the site, but believe the new market rents were propose in the attached document to be fair and reasonable under the circumstances.
The new rents will be effective from July 1st 2014.

The underlining and italics are mine. The words underlined do not appear in the email sent to Mr Peter Panayi and others concerning the proposed new rent for Warehouse 1. Nor do the italicised words, but the changed wording is not significant. Otherwise, the two emails are, substantively at least, identical.
There were two spreadsheets attached to the first (WSII) email: one for each warehouse. They showed (split up by reference to various uses) the proposed rate and the current rate for that warehouse, and the increase (decrease). For Warehouse 2, the increase was $111,333.55, or about 17% of the current rent of $643,676.45. For Warehouse 3, there was a small decrease, of $2,328.38 on the current rent of $564,717.38.
There was a similar spreadsheet attached to the second (WSI) email. It showed that, for Warehouse 1, the increase was $241,326.76, or 34% of the current rent of $711,513.24. That current rent does not equate to the agreed figure of $75,000.00 per month (plus GST), but nothing seems to turn on this.

Subsequent events

On 6 May 2014, Mr Zhou sent a “rental history chart” to Messrs Temelkov and Tom Panayi. It was apparently intended to explain the rent increases in some way. On 5 June 2014, when Mr Temelkov sent an email to Mr Zhou asking him “please work out the proposed increases”, Mr Zhou appears to have replied the same day, attaching another copy of that chart. No significance appears to attach to these exchanges of emails, except to note that there is no documentary evidence of any questioning of the proposed increases prior to 1 July 2014. Specifically, Mr Tom Panayi’s emails of 5 and 25 June 2014 and 1 July 2014 made no reference to the topic.
On 1 July 2014, Ms Lam of Bettervale sent out invoices to the defendants for rent at the new rates. There was no reaction until 8 July 2014, when Mr Tom Panayi sent Mr Toohey the email, introducing himself and referring to rent increases etc, set out at [136] above.
The principal reaction from the defendants appears to have been to ignore the increases (including by not paying rent at the increased rates) and, instead, to request the “new leases”. However, after some reminders about the outstanding invoices, Mr Zhou sent an email to Ms Lam and Mr Toohey on 15 July 2014. That email referred to a payment recently made on account of overdue rent and said:

We are still waiting for the new leases to be received
We also request a round table meeting to discuss the increase in rent for W2

Mr Toohey’s response, the next day, was to send an email pointing out that (in his view) the rent for Warehouse 2 “is now market” and that the previous “discount” had been reversed. He said “[i]t is non-negotiable”. He referred to the increase in rent on the ground lease. He also referred to “notice”:

Warehouse 2 is now market.
It was discounted under agreement that new lease period it went back to market.
It is non negotiable.
We had a 63% increase in our ground lease and have not passed that on but if you want to give notice please advise as we have to plan also.

On 18 August 2014, Ms Lam reported to Mr Toohey, in effect, that Bettervale could not pay rent to the head lessor until it received payments from WSI and WSII. Mr Toohey passed that advice onto Mr Tom Panayi:

Ms Lam’s email:

Hi Brian
Please be advised that we still not yet pay the Aug14 lease to NSW Port. It will be paid upon received payment from WSI and WSII. …

Mr Toohey’s email:

Tom, we have need for help here.
we are in jeopardy of forfeiting lease with big increases we got.
That puts us all in the shit!
please pay us substantial amount.. please Brian

Mr Toohey was also experiencing difficulties with other creditors. He forwarded a chain of emails to Mr Temelkov on 20 August 2014. Mr Toohey’s email to Mr Temelkov said:

Tom, if you don’t accept increase we will have to file to let you go, also with large increase we got, we only brought you back to market in W2 warehouse, which was heavily discounted previously.
If we can’t get increase we will possibly have to release the lease back to NSW ports [sic], who won’t be so forgiving. We are finding it really hard to break-even and cash flow is imperative.
Hope you understand this increase is non negotiable.
Regards
Brian

In the result, Mr Toohey appears to have advanced money to Bettervale, which used it to pay outstanding debts. Mr Toohey then asked Mr Temelkov to advance an equivalent pro-rata amount (that is, pro-rata according to their shareholdings). It does not appear that Mr Temelkov saw fit to do this. Instead, he requested a meeting.

Mr Toohey’s evidence

Mr Toohey was cross-examined closely about his emails of 5 May 2014. His evidence in cross-examination was less than impressive. It was in the course of cross-examination on this topic that he gave the evidence referred to at [51] above, which in my view was dishonest.
Mr Toohey agreed that the words “as per lease arrangements” in his email referred to the head lease and the subleases. He sought to suggest that the email “was… entirely unprompted by anything at all from either of the defendants” (T55.43-.45). He was then asked whether he “did a market rent adjustment”. Characteristically, his evidence on this was dissembling, because in my view he perceived that to acknowledge that this was what he had done (as, plainly, the email suggested) would be disadvantageous to Bettervale’s case. He gave the following evidence (T56.1-.50):

Q.    You did a market rent adjustment, correct?
A.    I adjusted their rent, yes.
Q.    You did a market rent adjustment, didn't you?
A.    I brought it up to market, yes.
Q.    Is there a problem in your saying you did a market rent adjustment?
A.    Looking back on this when - in 2013, everything was New South Wales Ports adjusting Bettervale's market rent. So what I was doing, was I was adjusting the rents to market. Now, I mean, the term market rent is something that is constantly in my mind because of Sydney Ports anyway, but I mean, I was adjusting the rents to market. So is there in problem in saying market rent; no, it's market rent.

Q.    Mr Temelkov, the conversation that you set out in paragraph 83 did not happen, did it?
A.    Yes, it did, sir.
Q.    Because you see in the latter half of 2013 what Mr Toohey was saying was that he knew you were looking at alternative properties, wasn't he?
A.    Totally incorrect.
Q.    He was saying that to you, wasn't he?
A.    Brian was saying that to me?

In my view, Mr Temelkov was dissembling when he said “I haven’t corrected Brian on a lot of things, sir” and when he said that he did reply to the email. The only reply in evidence is the one that I have quoted. The obvious inference (and I draw it) from that email exchange is that, as Mr Toohey said and Mr Temelkov did not deny at the time of the email exchange, Mr Temelkov was indeed “looking at alternative properties possibilities”.
I do not propose to go through all of the emails and other material bearing on this dispute. There is nothing inconsistent with what to my mind is the inevitable conclusion, namely that, as I find, WSII was indeed looking for alternative (not additional) accommodation from at least March 2013 onwards.
The material supporting that conclusion includes:

Mr Toohey’s email of 5 August 2013 and Mr Temelkov’s very limited reply to it;

Mr Crombie’s email to Mr Temelkov of 12 February 2014;

Mr Crombie’s email to his colleague of 3 June 2014, setting out his understanding of Mr Temelkov’s requirements; and

the sheer implausibility of the proposition that WSII was financially and otherwise in a position to take on additional expenditures of the very substantial amount required, if in truth its searches were for additional rather than alternative accommodation.

There is no suggestion that Mr Temelkov was going on a frolic of his own, when he looked at alternative properties. On the contrary, Mr Temelkov said that he discussed many of the potential new premises with Messrs Peter and Tom Panayi, and indeed with Mr Costi. He said (T181.21-.43):

Q.    You see from 2012 onwards you were actively exploring new property options for WSI International?
A.    Yes, that's correct, yes.
Q.    You discussed them with Tom Panayi; do you agree?
A.    Yes, Tom was involved in some of them, not all of them.
Q.    You discussed them with Peter Panayi?
A.    Yes, Peter was involved in some of them as well; that's correct.
Q.    Let's see, doing your best, if you can recall which ones you discussed with Tom Panayi and Peter Panayi. Do you remember I showed you a communication about 1901 Botany Road?
A.    Yes.
Q.    Did you discuss that with Tom Panayi?
A.    That was discussed with Tom and several other people?
Q.    Who were the other people?
A.    Andrew and-
Q.    Andrew Costi?
A.    Yes.

He was then taken through all the many other properties comprised in Bettervale’s exhibit PX6. I do not think that it is necessary to set out or summarise the detail of that cross-examination.
In my view, the obvious – indeed inference inescapable – is that it was not just WSII, but also WSI, that was looking for alternative (not additional) premises from early 2013 onwards, and I so find.
Nor is it improbable that the defendants would have been looking at alternative premises, even as early as 2013. They must have realised that, subject to any exercise of the options, their subleases would expire in mid-2014. It would be prudent for businessmen in their situation to look at the question of alternative accommodation. The availability, suitability and price of alternative accommodation would be very important matters to take into account in deciding whether or not to exercise the options.
Further, as a chronology of the relevant inquiries would show, the searches and inspections intensified from April 2014 onwards. Significantly, they intensified after Mr Crombie had reminded Mr Temelkov (if he needed reminding) of “your current lease expiry” in the email of 12 February 2014. Again, it is entirely understandable that the defendants would do so. And it is equally understandable that (as the chronology shows) their inquiries intensified further following the “market assessment” emails of 5 May 2014.
In my view, those inquiries, and the purposes for which, I find, they were made, are entirely inconsistent with the proposition that, at the same time, the defendants had given oral notice of exercise of their options. As I have said already, I find that the defendants were not prepared to commit themselves to any further subleases at 11 BP Road unless and until they were assured that the rentals would be acceptable to them.

Conclusions on the evidence

My conclusions and findings on the central contests of fact identified by Mr Pritchard (see at [82]), and as to the tennis club meeting, are as follows:

The tennis club meeting

I find that the best record of what was said in the tennis club meeting is to be found in Mr Toohey’s email to Ms Lam of 13 August 2012, copied thereafter to Mr Peter Panayi. I do not find that there was any agreement, whether for a new lease or otherwise, other than as set out in that email.

Understanding of the renewal provisions of the sublease

I am satisfied that all relevant parties were aware of the renewal provisions in the subleases well before 5 May 2014. Further, I find that all were so aware before any of the option windows closed.
As to Mr Toohey, I find that he was so aware from 4 October 2013.
As to Mr Tom Panayi and Mr Temelkov, I find that they were so aware from February or March 2014.
As to Mr Peter Panayi, I find that he was so aware from, at the latest, early March 2014.

The market assessment emails

I find that Mr Toohey’s market assessment emails of 5 May 2014 were not sent in response to any notice (oral or otherwise) of exercise of the options. I find that neither WSI nor WSII was up to or at that time prepared to commit itself to the exercise of its option or options (even if exercise were still open) and that neither had given notice of exercise (orally or otherwise).
I find that Mr Toohey sent the emails to inform WSI and WSII of the rents that would be charged for the warehouses (as to Warehouses 1 and 3, if they wished to seek a new lease; as to Warehouse 2, if the option were exercised).

Oral notices of exercise of options after 5 May 2014

I do not find that Mr Temelkov gave any oral notice of exercise of option after 5 May 2014. I do not find that Mr Peter Panayi gave any oral notice of exercise after 5 May 2014. Nor did Mr Tom Panayi do so.
I find that Mr Peter Panayi gave instructions to Mr Tom Panayi to seek draft new subleases from Bettervale, as though there had been some agreement to grant them. I find that this was part of a plan concocted by the defendants to make it appear that there had been some prior agreement, although they knew full well that there had been no exercise of option.

Oral requests for new subleases

I find that Mr Temelkov did ask Mr Toohey on at least one occasion “where are the new leases” and that Mr Toohey replied suggesting that preparation of the new leases was in hand. I find however that Mr Temelkov was seeking to create the impression that there had been some prior dealings that might give rise to an entitlement to new subleases when in fact he knew that the options had not been exercised. I find that Mr Temelkov had no belief in fact that WSII had any entitlement to or agreement (whether enforceable in law or not) for the grant of renewed or fresh subleases.
I do not find that Mr Temelkov said to Mr Toohey in June 2014 that WSII would accept the new rent if it had no alternative.

The preparation of and failure to issue new subleases

I find that Mr Toohey instructed Ms Lam to instruct Mr Pederick to prepare draft new subleases, and that he did so upon receipt of Mr Tom Panayi’s email of 5 June 2014 asking for “the new lease agreement for W1”.
I find that Mr Pederick did prepare draft subleases, and that he sent them to Mr Toohey on 19 June 2014.
I find that Mr Toohey gave instructions for the preparation of the draft subleases because, at the time, he was prepared for Bettervale to grant them if the defendants would agree to the rents specified in the emails of 5 May 2014. I do not find that he gave instructions for the draft subleases to be prepared because he understood or believed that the defendants then had any agreement (whether or not enforceable) for them, whether by way of exercise of options or by way of agreement for new subleases.

The November 2014 conversation

I find that Messrs Toohey and Temelkov met on site at 11 BP Road in November 2014. I find that Mr Toohey told Mr Temelkov that Bettervale was going to sell the whole site.
I find that Mr Toohey did not tell Mr Temelkov at that meeting that Bettervale could sell the site because no one had exercised their options.
Nonetheless, I do find that by November 2014, both defendants, and their principals, well understood that they had not given notice of exercise of their options (oral or otherwise) and that there had been no agreements (whether enforceable in law or otherwise) for the grant of new subleases.

The defendants’ inspections of other premises

I find that the defendants had been looking at other premises, from which their businesses could be conducted, since March 2013. I do not find that any of those inspections were for the purpose of taking additional accommodation. I am not satisfied that at any relevant time the defendants had the desire, let alone the financial capacity or the business need, to take on additional premises.
I find that from mid-February 2014 at the latest, the defendants were actively searching for alternative business premises knowing that they had not exercised their options for renewal, whilst knowing that in each case it was still open to them to do so.

Resolution of the issues

In most cases, my conclusions on the real issues will be obvious from what I have just said. Accordingly, in most cases, I will state my conclusions in summary form. The summaries should be read against the detailed consideration of the individual factual disputes.

The tennis club meeting

There was no agreement reached at the tennis club meeting in relation to renewal of the subleases beyond their then expiry date. There was an agreement, documented in the email of 13 August 2012, to accept a reduced rental from WSI for Warehouse 1. That agreement did not enure past the then current expiry date of the sublease for Warehouse 1. There was no further agreement, whether or not enforceable.
In short, as I have said more than once, the best evidence of what was agreed is contained in that email.

Estoppel: exercise of options for renewal

Since I have found that none of the defendants gave oral notice of exercise of option, no question of estoppel can arise. In any event, given my views as to the credibility of the defendants’ witnesses and the absence of any corroboration, I do not find that there was any act or silence on the part of Bettervale that could ground an estoppel in relation to the purported oral exercises of option.
Nor is there any basis for finding detrimental reliance. The defendants understood from 12 February 2014 or shortly thereafter that Bettervale was asserting that they had not exercised their options for renewal. The defendants’ principals were well aware, by early March at the latest, of the terms of the options for renewal and of what was required for valid exercise.
The defendants’ failure to give valid notice of exercise of options after 12 February 2014 was not based on any reliance on anything said or done (or omitted to be done) by Mr Toohey. On the contrary, Mr Toohey’s position was clear to them, before the option windows closed. The defendants did not give valid (or any) notices of exercise of option, because they were not prepared to commit themselves to renewed leases, knowing (as I have found they did) that the rentals could be increased on renewal.

Estoppel: new agreements for lease

Since I have found that there were no oral agreements for new leases, again no question of estoppel could arise.
Further, given my findings as to the genesis of the market assessment emails of 5 May 2014, and my findings as to the subjective intentions of both Bettervale (through Mr Toohey) and the defendants (through their principals), there is no basis from inferring from the documentary evidence any agreements, whether or not enforceable, for the grant of new subleases.
For essentially the reasons I have given in relation to estoppel in the context of exercise of the options, there is no basis for finding any detrimental reliance on anything said or done (or omitted to be done) by Mr Toohey. Further, in the case of the asserted fresh agreements for lease, the defendants understood that Mr Toohey would only be prepared to grant new subleases on the basis of the rentals set out in his emails of 5 May 2014. The defendants were never prepared to pay those rentals. Their decision not to enter into new subleases was based on their attitude as to the rentals, not on reliance on anything said or done (or omitted to be done) on Mr Toohey’s part.

New agreements for sublease; part performance

Since I have found that there were no new agreements for sublease, the question of part performance does not arise.
I accept that Mr Toohey’s market assessment emails of 5 May 2014 set out the basis on which Bettervale would be prepared to grant new subleases. However, as I have said, the defendants did not accept any offer that might be construed from the terms of this email. Nor did they perform the offered terms. On the contrary, WSI declined to pay the rent demanded for Warehouse 1. WSII declined until February 2015 to pay the rent demanded for Warehouse 3. It accepted and paid the reduced rental for Warehouse 2, but that of itself could not be sufficient part performance to bind Bettervale to any contract that might have arisen. The offer made by Bettervale was not severable.

Misleading or deceptive conduct

As the case was run, and as in any event is quite clear, the defendants’ cases as to misleading or deceptive conduct, in relation to the asserted oral notices of exercise of option and oral agreements for new subleases, go nowhere, on the findings I have made.
The question of misleading or deceptive conduct does have some continued vitality, in relation to the continuing basis on which the defendants have occupied the warehouses. That is apparent from the way that Mr Pritchard formulated his fifth issue.
As to that, I find that the defendants remained in occupation from month to month not in reliance on anything said or done (or omitted to be done) by Mr Toohey, but rather, because it suited them to do so. The defendants did not accept the proposal (to use a neutral term) set out in Mr Toohey’s market assessment emails of 5 May 2014. They were not (in the case of WSI, at any time; and in the case of WSII, up until February 2015) prepared to pay the rentals demanded. Their subleases were terminable on a month’s notice. That was due not to anything said or done, or omitted to be done, by Mr Toohey. It was due to their own, as I find conscious and advertent, failure to exercise their options for renewal or to take up such offer as might be spelled out from Mr Toohey’s 5 May 2014 emails.

Relief against forfeiture

On the findings that I have made, this does not arise. If it did arise, I would hold that WSI should not have such relief.
On the evidence as a whole, there is no basis for thinking that WSI could pay the rent demanded in the relevant email of 5 May 2014. Indeed, it could not even pay the rent originally reserved under the sublease. That was the whole reason for the tennis club meeting, and the rationale for the agreement reached at that meeting. In my view, it would be quite extraordinary to order relief against forfeiture in favour of a defendant when the likelihood is that the defendant could not meet its obligations in any event.
Allied to that, there is the consideration that WSI has in effect sought to bargain with the Court. Mr Peter Panayi said that it would pay the arrears of rent due up to 30 June 2014 if granted a new sublease, but not otherwise. A defendant who seeks to trifle with the Court in that way should not have the exercise of the Court’s discretion, to grant relief against forfeiture, in its favour.
Further, and importantly, the rights of a third party, the purchaser of the head lease, have intervened. WSI knew through Messrs Peter and Tom Panayi, that Bettervale was seeking to sell the head lease. Indeed, WSI (and WSII) sought to bargain with the prospective incoming head lessee to take new subleases from it.
That knowledge must be imputed to WSI by late February or early March 2015 at the latest. It stood by and allowed the negotiations to continue. It did so, knowing (for all the reasons I have given) that Bettervale was selling, and Logos was buying, on the basis that Bettervale could give vacant possession. It did nothing then, or at any relevant time, to inform either company that it was not in a position to sell or buy on that basis.
In those circumstances, it seems to me, the intervening rights of the third party purchaser, acquired whilst WSI, having knowledge of the negotiations, stood by and failed to assert their claimed entitlements, is enough of itself to dictate the refusal of relief against forfeiture.
I should make it quite clear that I am talking both about the statutory discretion embodied in ss 133C–133G of the Conveyancing Act 1919 (NSW) and of relief on general equitable principles.

Orders

The remaining issue is that of the relief sought. It is clear from what I have said that Bettervale has made out its claim to judgment for possession, and an order that a writ of possession should issue. That conclusion raised the question of staying the execution of that writ for enough time to enable the defendants to vacate.
The defendants suggested that it would take three months for them to vacate in an orderly fashion. That may be so. However, in circumstances where they have known for more than a year that their tenancies are monthly (and where they have known for longer than that that there were no exercises, valid or otherwise, of their options for renewal), I did not think it proper to give them three months.
The first point, which I have adverted to already in connection with relief against forfeiture is that the rights of a third party, the purchaser of the headlease, have intervened. That contract is due for settlement on 30 September 2015. If the defendants do not vacate by then, the purchaser as I understand it would be entitled to terminate the contract. Whether or not it would do so (a question that Mr Pritchard raised) is beside the point. The point is that if such termination occurred, it would not only put Bettervale at risk of damages for breach, it would also mean that Bettervale lost the benefit of the contract.
The second point is that the situation is entirely of the defendants’ making. They have had more than ample time to move, including since July 2014 when, on any view, it must have been apparent to them that the need to move was likely to become insistent. There is no reason for the defendants to be rewarded for their own tardiness.
Next, the defendants’ assessment of the time required assumes a very orderly process. However, on the evidence, they would be able to clear out, and to safeguard their customers’ property, in a much quicker time. That might cause them some loss of business. But again, that is a consequence of their own inaction, and their own decision to remain rather than move. If the question is whether Bettervale or the defendants should bear the consequences of the defendants’ inaction, the answer to my mind is obvious. It must be the defendants who do so.
The remaining question is Bettervale’s claim against WSI for arrears of rent. There are two components to that claim. One is for arrears up until 30 June 2014. The other for arrears from 1 July 2014.

The former claim is effectively not disputed. Bettervale is entitled to judgment for the amount claimed by it.
There is a difficult question as to the second claim. Bettervale has sought judgment for arrears of rent, not for mesne profits. Its claim is based upon the proposition that the rent stipulated in the 5 May 2014 email addressed to WSI is recoverable. But even if that email were to be taken as making an offer on the terms set out, the simple fact is (as Mr Lawrance submitted in another part of his case) that the putative offer was not accepted. There has been no agreement as to rental for the period from 1 July 2014.
That is not the end of the question. The relevant sublease gave Bettervale the right to increase the rental payable during the period of any holding-over. See at [24] above, incorporating the terms and conditions of the head lease, including those set out at [18]. The email of 5 May 2014 referred to “market assessment”. It was not effective for that purpose. However, in my view, it should be characterised as an exercise of whatever power was available to Bettervale to increase the rent from 1 July 2014. On that basis, in my view, Bettervale has made good its claim for rent up until the date of judgment.

Conclusion

It was for those reason, which were summarised in my brief oral reasons, that I made the orders I did on 10 September 2015. Those orders were:

Pursuant to s. 74MA of the Real Property Act 1900 the First Defendant withdraw Caveat AJ573618C forthwith.

The Plaintiff has judgment for possession of that part of the land at folio identifier 20/1068292 the subject of the sub-lease dated on or about 15 October 2009 between the Plaintiff and the First Defendant (Warehouse 1 Sub-lease).

The Plaintiff has leave to issue a writ of possession forthwith for that part of the land at folio identifier 20/1068292 the subject of the Warehouse 1 Sub-lease in the form annexed to these orders and marked “A” (Warehouse 1 Writ).

Provided that the First Defendant pays into Court, no later than 14 September 2015:

the rent payable in respect of Warehouse 1 for the period from 18 July 2015 up to 30 September 2015;

execution of the Warehouse 1 Writ be stayed until 29 September 2015.

The Court directs that the Warehouse 1 Writ be executed by no later than 30 September 2015.
Judgment for the Plaintiff for $833,467.24.
The First Cross-Claim be dismissed with costs.
Pursuant to s. 74MA of the Real Property Act 1900 the Second Defendant withdraw Caveat AJ549272A forthwith.
The plaintiff has judgment for possession of that part of the land at folio identifier 20/1068292 the subject of the sublease dated on or about 20 August 2010 between the Plaintiff and the Second Defendant (Warehouse 2 Sub-lease).
The plaintiff has leave to issue a writ of possession forthwith for that part of the land at folio identifier 20/1068292 the subject of the Warehouse 2 Sub-lease in the form annexed to these orders and marked “B” (Warehouse 2 Writ).
The plaintiff has judgment for possession of that part of the land at folio identifier 20/1068292 the subject of the sublease dated on or about 16 October 2009 between the Plaintiff and the Second Defendant (Warehouse 3 Sub-lease).
The plaintiff has leave to issue a writ of possession forthwith for that part of the land at folio identifier 20/1068292 the subject of the Warehouse 3 Sub-lease in the form annexed to these orders and marked “C” (Warehouse 3 Writ).
Execution of the Warehouse 2 Writ and the Warehouse 3 Writ be stayed until 29 September 2015.
The Court directs that the Warehouse 2 Writ and the Warehouse 3 Writ be executed by no later than 30 September 2015.
The Second Cross-Claim be dismissed.
The Defendants pay the Plaintiff’s costs of the proceedings.

The Court declares that:

The notice to quit dated 12 June 2015 issued by the Plaintiff to the First Defendant is a valid notice of termination under the terms of the Warehouse 1 Sub-lease.
The notice to quit dated 12 June 2015 issued by the Plaintiff to the Second Defendant is a valid notice of termination under the terms of the Warehouse 2 Sub-lease.
The notice to quit dated 12 June 2015 issued by the Plaintiff to the Second Defendant is a valid notice of termination under the terms of the Warehouse 3 Sub-lease.

Otherwise the Court:

Directs that the Plaintiff negotiate in good faith with the purchaser of the lease the subject of Warehouse 1 sublease, Warehouse 2 sublease and Warehouse 3 sublease for an extension of the sunset date under the contract for sale of land between the Plaintiff and the purchaser for a further term beyond 30 September 2015 and to inform the defendants and the Court of the outcome of that negotiation as soon as practicable.
Grants liberty to apply in respect of orders 4, 5, 6, 13 and 14.
These orders be entered forthwith.

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Decision last updated: 21 September 2015

Medium Neutral Citation:	Bettervale v Warehouse Solutions International (No 3) [2015] NSWSC 1356
Hearing dates:	24 August 2015, 25 August 2015, 26 August 2015, 28 August 2015 and 31 August 2015
Date of orders:	09 September 2015
Decision date:	16 September 2015
Jurisdiction:	Equity - Real Property List
Before:	McDougall J
Decision:	Plaintiff has judgment for possession against both defendants; orders for withdrawal of caveats; and judgment against first defendant for arrears of rent.
Catchwords:	LEASES – claim by landlord under a sublease for vacant possession – where subleases over three warehouses contained options to renew – where defendant sublessees claim they exercised that option – failure to exercise option in writing as required by the contract – whether options exercised orally – absence of satisfactory evidence to that effect – where four principal witnesses found to be lacking in credibility – issues of fact to be determined on the probabilities regarded objectively – conclusion that options never exercised ESTOPPEL – whether plaintiff estopped from denying that options had been exercised or that new leases had been entered into – where that case depends upon uncorroborated and unreliable witness evidence – where in any circumstances no detriment – result that no estoppels arise
Legislation Cited:	Conveyancing Act 1919 (NSW)
Cases Cited:	Jones v Dunkel (1959) 101 CLR 298
Category:	Principal judgment
Parties:	Bettervale Pty Ltd (Plaintiff) Warehouse Solutions International Pty Ltd (First Defendant) WSI International Pty Ltd (Second Defendant)
Representation:	Counsel: S A Lawrance (Plaintiff) DR Pritchard SC / A Cornish (Defendants) Solicitors: Arnold Bloch Leibler (Plaintiff) Spinks Eagle Lawyers (First Defendant)
File Number(s):	2015/202245

Owing as per below	$656,332.88
Less paid to 26/10/12	$ 75,000.00
Less credit as agreed in Melbourne 4 months x $25,609.81	$102,439.24
Less credit for post Melbourne meeting to date 3 months x $25,609.81	$ 76,829.43
Less total paid + Credits	$254,268.67
Balance owing	$402,064.21