BMG SP Pty Ltd v YFG Strathton Pty Ltd
[2023] QSC 52
•24 March 2023
SUPREME COURT OF QUEENSLAND
CITATION:
BMG SP Pty Ltd v YFG Strathton Pty Ltd [2023] QSC 52
PARTIES:
BMG SP PTY LTD
ACN 651 189 221(Applicant)
v
YFG STRATHTON PTY LTD
ACN 655 715 647
As trustee under instrument no. 72131488(Respondent)
FILE NO:
SC No 11778/22
DIVISION:
Trial Division
PROCEEDING:
Originating Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
24 March 2023
DELIVERED AT:
Brisbane
HEARING DATE:
1 December 2022
JUDGE:
Crowley J
ORDER:
1. I declare that clause 3.1(b) of the Incentive Deed and clause 4.1 of Part B of the Lease are penalties and are therefore unenforceable.
2. The application is otherwise dismissed.
CATCHWORDS:
CONTRACTS – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – REPUDIATION AND NON-PERFORMANCE – REPUDIATION – APPLICATION TO LEASES – where the Applicant entered into a lease in respect of a commercial premises – where the Applicant and the original landlord were each required to perform works at the premises – where there were delays in completing the works – where the original landlord assigned its interest in the lease to the Respondent – where the Applicant refused to complete its part of the works unless the Respondent performed additional works and made additional contributions – where the Respondent concluded the Applicant had repudiated the lease – where the Respondent purported to accept the Applicant’s repudiation and terminate the lease – whether the Applicant repudiated the lease – whether the Respondent’s purported termination was valid
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – PENALTIES AND LIQUIDATED DAMAGES – GENERAL PRINCIPLES – where the Applicant and the original landlord also entered into an incentive deed whereby the landlord agreed to provide the applicant with a fitout contribution – where repayment clauses in the lease and the incentive deed required the Applicant to repay to the landlord a portion of the fitout contribution if the lease was terminated due to a default by the Applicant – where the original landlord also assigned its interest in the incentive deed to the Respondent – whether the repayment clauses are a penalty
Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30, applied
Browne v Dunn (1893) 6 R 67, cited
Carr v JA Berriman Pty Ltd (1953) 89 CLR 327; [1953] HCA 31, cited
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, applied
Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237; [2008] HCA 10, cited
GWC Property Group Pty Ltd v Higginson [2014] QSC 264, followed
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61, applied
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23, applied
Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11, cited
O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; [1983] HCA 3, cited
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; [2016] HCA 28, cited
QNI Resources Pty Ltd v North Queensland Pipeline No 1 Pty Ltd [2022] QCA 169, cited
Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71, citedShevill v Builders Licensing Board (1982) 149 CLR 620; [1982] HCA 47, cited
COUNSEL:
A J H Morris KC, with C M Thwaites, for the Applicant
M May and J A Penrose for the Respondent
SOLICITORS:
Gibbs Wright Litigation Lawyers for the Applicant
Cooper Grace Ward Lawyers for the Respondent
Introduction
The Applicant, BMG SP Pty Ltd (‘BMG’), operates a business known as ‘Birdies Mini Golf’ (‘Birdies’). BMG currently has two Birdies venues, one in Victoria and another in New South Wales.
BMG wished to open a further Birdies venue in Queensland. To that end, BMG entered into a lease (the ‘Lease’) with Swordfish Australia Sub TC Pty Ltd (‘Swordfish’) in respect of premises at the Strathpine Centre, 295 Gympie Road, Strathpine (the ‘Centre’). Although Swordfish was the owner of the Centre, it retained 151 Property Services Manager Pty Ltd (‘151 Property’) to manage the Centre on its behalf.
For the purposes of the Lease, Swordfish and BMG were each required to perform works at the premises in advance of the commencement of trading by the new Birdies. The works to be undertaken by Swordfish (the ‘Landlord Works’) included structural modifications to the premises, electrical and mechanical works and the installation of fire protection and exhaust fan facilities.
The works to be undertaken by BMG (the ‘Tenant Fitout Works’) were in respect of the fitout of the premises and included the installation of an 18-hole mini golf course and the construction of a reception, a kitchen, a bar and dining areas.
Concurrently with the execution of the Lease, BMG and Swordfish also entered into an incentive deed (the ‘Incentive Deed’). Under the Incentive Deed, Swordfish agreed to provide BMG with certain incentives, including a ‘Fitout Contribution’ of $1,250,000. The Fitout Contribution was to be paid in four instalments.
BMG was originally required to complete the Tenant Fitout Works by 6 December 2021 and to commence trading on 7 December 2021 (the ‘Commencement Date’). The Lease was to begin on the Commencement Date. Swordfish granted BMG a licence to access the premises earlier, from 2 September 2021, so that it could perform the Tenant Fitout Works. The Lease provided for a ‘Rent Waiver Period’, whereby BMG would not be required to pay rent until three months after the Commencement Date.
BMG retained Shopfit Co Pty Ltd (‘Shopfit’) to carry out the Tenant Fitout Works. Although the quote given by Shopfit was subject to and conditional upon the parties entering into a building contract, BMG refused to execute the contract. Nevertheless, Shopfit commenced work at the premises on about 13 October 2021.
Swordfish engaged Sedatech Pty Ltd, a mechanical contractor, to complete some of the Landlord Works.
Due to various delays in the completion of the Landlord Works, the Tenant Fitout Works had not been completed by 6 December 2021 and Birdies did not open for trade on the Commencement Date.
On 22 December 2021, the Centre was purchased by the Respondent, YFG Strathton Pty Ltd (‘YFG’). Swordfish assigned its interest in both the Lease and the Incentive Deed to YFG as the new landlord. YFG engaged Retail First Pty Ltd to manage the Centre (‘Retail First’).
By this time, Swordfish had already paid BMG three instalments of the Fitout Contribution, totalling $1,000,000. The final instalment of $250,000 was due to be paid 30 days after Birdies opened for trade.
Unfortunately, delays in the completion of the works at the premises were not the only problem. Even before YFG had taken over ownership of the Centre, the relationship between BMG and Shopfit had begun to sour as a result of business disputes and what might best be described in neutral terms as ‘personality clashes’ between Shopfit’s employees and one of BMG’s representatives, Mr David Walls. BMG accused Shopfit of slow progress and poor-quality workmanship. It apparently refused to make previously agreed payments to Shopfit.
For a period of time, no works were carried out and progress on the Birdies tenancy stalled.
Things only became worse after YFG took over.
As a result of the various delays and the declining relationship between BMG and Shopfit, the relationship between BMG and YFG also deteriorated.
Although works eventually recommenced at the Birdies tenancy in January 2022, a major impasse arose when, in March 2022, BMG requested YFG perform additional landlord works and contributions (the ‘Additional Works and Contributions’). It claimed Swordfish had previously agreed to these matters when it was the landlord. It refused to progress the Tenant Fitout Works until YFG also agreed. It instructed Shopfit to cease all works until further notice.
YFG doubted whether Swordfish had in fact agreed to these matters. However, it eventually did agree to perform the Additional Works and Contributions. BMG and YFG later entered into a Deed of Variation to the Lease (‘Deed of Variation’) to document what had been agreed. A new Commencement Date, being the earlier of Birdies’ first day of trade or 8 August 2022, was also agreed.
For a time, Shopfit returned to the site and continued to undertake the Tenant Fitout Works. However, tensions between BMG and Shopfit again surfaced and the relationship faltered once more. Shopfit refused to complete further works on the premises unless and until BMG paid for the works completed to date and signed a building contract.
Retail First unsuccessfully attempted to facilitate a meeting between BMG and Shopfit to resolve the issues that had led to Shopfit ceasing the Tenant Fitout Works. Retail First wanted the ‘obvious communication problems’ between the parties to be one of the agenda items. BMG took issue with this, and Retail First ultimately called the meeting off.
BMG installed a lock at the Birdies tenancy, preventing Shopfit from accessing the premises and inhibiting YFG’s ability to progress the Landlord Works. Shopfit did not return after this time.
Thereafter, Shopfit unsuccessfully attempted to negotiate with BMG to enable it to return to the site to complete the Tenant Fitout Works. BMG eventually gave notice to Shopfit that its contract was formally terminated due to it not having resumed work on the project. Although BMG had apparently engaged a new shopfitter to complete the remaining works, no further Tenant Fitout Works were ever carried out.
Further attempts to negotiate the completion of the Tenant Fitout Works were unsuccessful. BMG refused to resume the Tenant Fitout Works until the Commencement Date was again varied and YFG agreed to further concessions. YFG refused to extend the Commencement Date and would not agree to further concessions without an assurance and evidence that a new shopfitter had been engaged and that they could complete the works in a suitable timeframe. BMG refused to provide such evidence and assurance until its demands were met.
YFG concluded that BMG had repudiated the contract. On 19 August 2022, YFG purported to accept BMG’s alleged repudiation and gave BMG notice that the Lease was terminated (the ‘Notice of Termination’).
YFG subsequently demanded BMG pay $993,607.29, being a proportion of the Fitout Contribution, calculated in accordance with provisions of the Incentive Deed and/or the Lease (the ‘Repayment Clauses’).[1] BMG refused to repay the amount demanded.
[1]Although provision was made for repayment of the Fitout Contribution by both cl 4.1 of Part B of the Lease and cl 3.1(b) of the Incentive Deed, given that the respective clauses are in substantially the same form and each agreement was entered into at the same time so as to effectively comprise one agreement, it is convenient to simply refer to these clauses as the ‘Repayment Clauses’.
BMG denies it repudiated the Lease. It claims it remained willing and able to proceed with the Lease and asserts YFG’s service of the Notice of Termination was invalid and amounts to YFG’s own act of repudiation. If, contrary to BMG’s position, the Lease was validly terminated by YFG, BMG further contends that the Repayment Clauses amount to a penalty and are therefore unenforceable.
By Originating Application filed 29 September 2022, BMG seeks:
(a) a declaration that YFG’s purported termination of the Lease is invalid and of no effect; and
(b) a declaration that Repayment Clauses, pursuant to which YFG demands repayment of part of the Fitout Contribution, are unenforceable as a penalty.
The issue of what damages may be payable or what other remedies may be available are not matters that I am required to resolve in determining this application. I am told by the parties they may, in due course, resolve such matters as between themselves or pursue those matters in a separate a proceeding on another occasion, following my determination of this application. [2]
[2]Various other orders, including an assessment of damages, were also initially sought. However, at the hearing of the application, BMG confirmed that it only pursued the declaratory relief.
The two issues that arise for consideration therefore are:
(a) Did BMG repudiate the Lease?
(b) If so, are the Repayment Clauses a penalty and therefore unenforceable?
The Lease and the Deed of Variation
Before considering whether BMG repudiated the Lease, it is convenient to first set out relevant provisions of the Lease and the Deed of Variation.
The schedule to the Lease contains an information table, which includes the following details about the clauses in the lease:
Item
Description
Details
…
…
…
5
Term of Lease
(clause 1.1)
12 years
…
…
…
8
Base Rent
(clause 5.1)
year 1 - $312,400.00 per annum
…
…
…
10
(a) Turnover Rent
(b) Agreed Percentage for Turnover Rent
(c) Turnover Threshold (clause 6)
Yes
7%
$4,462,857.14
…
…
…
12
(a) Bank guarantee
(b) Bank guarantee amount
(clause 9.1(a))
Yes
$300,000.00
…
…
…
15
Permitted Use
(clause 1.1)
The operation of a an indoor mini golf venue and bar and food and beverage offerings (including liquor for on-premises consumption)…
…
…
…
22
Fitout Provisions
(Part B clause 2)
Fitout Provisions apply:
(Part B clause 2)
Yes
Estimated Handover Date:
(Part B clause 2)
2 September 2021
(subject to Part B clause 2.18)
Fitout Period:
(Part B clause 2)
95 days
Pre-Paid Rent
(Part B clause 2)
Not applicable
Design and Consultant Review Fee
(Part B clause 2)
Not applicable
…
…
…
Part B of the lease contains ‘Special Provisions that apply only to the Tenant’:
…
2. Fitout and early access
2.1 Access
Subject to clause 2.2:
(a)the Landlord grans the Tenant a licence to enter the Premises to undertake the Fitout and to stock the Premises for trade for the period from the Handover Date to but not including the Commencement Date (License Period);
(b)the Landlord and Tenant agree that during the Licence Period the provisions of this lease will apply except that:
(i) the Tenant will not be required to pay instalments of Base Rent, Turnover Rent, the Tenant’s share of Outgoings and the Promotion Levy; and
(ii) the period of the Licence and the Term will be treated as one continuous term.
…
2.7 Standard of Fitout
The Tenant must make sure that the Fitout is carried out:
(a)by Fitout Contractors who are approved by the Landlord (acting reasonably) and have undergone the Landlord’s site induction;
(b) diligently, continuously and with all reasonable speed, but in any event, before the day before the Commencement Date;
(c) in a proper and workmanlike manner; and
(d)in accordance with:
(i)this lease, the Fitout Manual and the approved Fitout Plans;
(ii)the terms of each Approval obtained from the authority and the Landlord; and
(iii) each applicable law.
…
2.17 Commencement Date
(a) The Commencement Date of this Lease will be the earlier of:
(i) the day after the end of the Fitout Period; and
(ii) the date after the Tenant commences trading from the Premises.
(b)The Tenant authorises the Landlord (and the Landlord’s solicitors) to complete this Lease and insert the Commencement Date and Expiry Date on the front cover sheet of this Lease and in Items 6 and 7 of the information table.
2.18 Handover Date
(a) The Handover Date is the date that the Landlord notifies the Tenant the Premises are ready for the Tenant to commence the Fitout.
(b) The Landlord will endeavour to keep the Tenant advised of the Handover Date and any changes to it.
2.19 Essential term
This clause 2 is an essential term for the purpose of clause 18.3 of this lease.
…
3. Rent Waiver Period
3.1 Notwithstanding the provisions of clause 3.1, it is agreed by the parties that:
(a) for the period of three months beginning on Commencement Date (Base Rent Waiver Period) the Tenant shall not be obliged to pay the Base Rent; and
(b)upon expiration of the Base Rent Waiver Period the Tenant shall commence payment of the instalments of the full amount of Base Rent payable pursuant to this lease.
For the avoidance of doubt, the Tenant acknowledges that its obligation to pay the Promotion Levy, Turnover Rent and the Tenant’s Share of Outgoings commences on the Commencement Date.
4. Fitout Contribution Repayment
4.1 If the Lease is terminated due to a default by the Tenant, BMG SP Pty Ltd ACN 651 189 221 must repay to the Landlord (on demand) the amount calculated as follows:
AP = (Fitout Contribution ÷ DT) x DE
Where:
AP = the amount payable by the Tenant
DT= the number of days in the Term of the Lease
DE = the number of days from the Trigger Date to the Expiry Date
Any Landlord works that are paid for from the Fitout Contribution will be excluded from the calculations set out in this clause.
…
4.3 For the purposes of this clause:
(a)Trigger Date means the date either of the events in clause 4.1 occurs.
(b)Fitout Contribution is the fitout contribution paid to the Tenant under the Fitout Contribution Deed.
(c) Fitout Contribution Deed means the fitout contribution deed entered into between the Tenant and the Landlord in relation to the Premises.
…
Clause 11.12 of the ‘Standard Provision’ of the Lease provides:
11.12 When this lease ends
(a)When this lease ends the Tenant must:
(i) remove from the Premises and the Centre all the Tenant’s Property;
(ii)restore the Premises to their condition as at the date the Premises were handed over to the Tenant to be fitted out or the commencement of occupation (whichever occurred first);
(iii)make good any damage caused by removing those items and the Tenant’s Property;
(iv)demolish and remove all partitions, fixtures, joinery, installations;
(v)disconnect and remove all redundant power, data and lighting, including cabling installed by the Tenant or Landlord for the Tenant’s use;
(vi)remove non-standard floor and ceiling finishes; and
(vii)comply with clause 11.7and [sic] the Centre Rules when carrying out its obligations under this clause 11.12.
(b)Any of the items referred to in clause 11.12(a) which are left on the Premises after this lease ends, and which have not been removed by the Tenant after the Landlord has given the Tenant 14 days’ notice to remove the items, become the property of the Landlord and the Landlord may keep them or, at the Tenant’s cost, dispose of them.
(c)Despite clause 11.12(a), when this lease ends the Landlord may require the Tenant, by notice, to leave the shopfront and/or the ceiling, which then become the property of the Landlord for no cost.
Clause 22.5 provides that the Lease, the Incentive Deed and the ‘Disclosure Statement’[3] are the full agreement between the Landlord and the Tenant. Clause 9.7 of the Incentive Deed reiterates that the Lease and the Incentive Deed express and incorporate the entire agreement between the parties.
[3]The disclosure statement required under the Retail Shop Leases Act 1994 (Qld).
The relevant provisions of the Deed of Variation to the Lease are as follows:
1. Variation
1.1 The Landlord and the Tenant agree that the Lease is varied as follows with effect on and from the date of this amendment:
These amendments are to Part B- Special Provisions that apply only to the Tenant
…
(5) In Item 22 (Fitout Provisions) - (Part B Clause 2)
Fitout Period:
(Part B clause 2)
95 days
is replaced with:
Fitout Period
(Part B Clause 2)
The period from the Handover Date to the earlier of:
(a) The Tenant’s first day of trade; and
(b) 8 August 2022
(6)Clause 3 Rent Waiver Period
Clause 3.1 is deleted and replaced with the following:
“3.1 Notwithstanding the provisions of clause 3.1, it is agreed by the parties that:
(a)for the period (Gross Rent Waiver Period) expiring on the date 5 months after the expiry of the Fitout Period the Tenant shall not be obliged to pay the Base Rent Promotion Levy, Turnover Rent and the Tenant’s Share of Outgoings otherwise payable; and
(b)upon expiration of the Gross Rent Waiver Period the Tenant shall commence payment of the instalments of the full amount of Base Rent Promotion Levy, Turnover Rent and the Tenant’s Share of Outgoings payable pursuant to this lease.
For clarity, the Tenant acknowledges that its obligation to pay for Services under clause 8 of this lease applies from this Commencement Date.”
Did BMG repudiate the Lease?
Background to YFG’s purported termination of the Lease
In order to consider whether BMG repudiated the Lease and whether the Notice of Termination was valid, it is first necessary to set out in further detail the sequence of key events and the content of relevant correspondence between the parties.
On 8 December 2021, the day after the original Commencement Date, Mr Walls instructed Shopfit to cease work due to the impending change in the landlord. Mr Walls expressed that his rationale for ceasing the works was to stop incurring further costs while he confirmed that all the Lease conditions sought by BMG would be agreed to by YFG.
By this time, BMG had refused to pay Shopfit the next instalment due under the payment terms of its contract with BMG. Mr Walls told the Operations Manager of Shopfit, Mr Stephen Wilson, that BMG did not have to pay the amount due because Shopfit was behind the planned building schedule due to delays to the Landlord Works.
Although Shopfit did not agree that BMG could legitimately withhold payment on this basis, Shopfit nevertheless decided that the best course forward was for it to continue with the works in the hope that BMG would return to agreed payment terms once further progress was made. As a result, Shopfit began bearing the cost of the works at the site from about six weeks after commencement of the Tenant Fitout Works.
Shopfit resumed works on 24 January 2022. By this time, the issues relating to the outstanding Landlord Works had been resolved.
Following the resumption of works, good progress was made on the project throughout the remainder of January and February 2022.
However, Mr Walls engaged in abusive behaviour directed at Shopfit. He criticised Mr Wilson and Shopfit’s workers regarding the progress of the works and the quality of the work performed. He attended the Birdies Tenancy site, often shouting and swearing at workers.
On 4 March 2022, Mr Walls emailed Mr Darren Hitchon, the Centre Manager employed by Retail First, requesting YFG install an in-ceiling air conditioner for the storage area at the premises. The email also attached two email chains which apparently related to the previous landlord’s commitment to instal two unisex toilets in return for Birdies agreeing to fund the installation of a mezzanine area at the premises, as well as the landlord contributing towards external signage and launch initiatives for Birdies.
The attached email chains contained emails purportedly sent to BMG by employees of 151 Property (the ‘151 Property emails’). The first was purportedly sent by Victoria Miller, Senior Leasing Executive – Retail, on 4 May 2021. The second was purportedly sent by Tasha Adam, National Marketing Manager – Retail, on 4 October 2021.
On 7 March 2022, Mr Walls sent an email to Mr Hitchon in which he stated:
I have spoken to Stephanie just now, and we are getting close to completion and have a lot of outstanding issues. [unfortunately]
If the items (toilets & signage) cannot be provided for any reason, then Birdies formally request that the alternative proposal of six (6) months additional “gross rent-free” be provided in lieu of Birdies installing the mezzanine. The mezzanine cost was estimated at $130,000, the actual cost was $165,000.
We need an answer this week (either way). I hope you understand, as this has been an expensive build.
According to Mr Wilson, Mr Walls had said he was seeking to apply pressure to the new landlord to make them pay for the installation of additional toilets at the Centre.
Mr Wilson also recalled that during a site visit attended by Mr Walls and Stephanie Doyle, Director, for BMG, Mr Walls bragged about he was going to get YFG to pay for various items and how he was going to push YFG for toilets and to have the fans relocated. Mr Wilson further recalled that Mr Walls made ‘all sorts of claims’ as to what he was going to get the landlord to pay. At that time, Ms Doyle turned to Mr Wilson and said, ‘It is like a sport to him to try get more money out of them,’ and laughed it off.
Between 9 and 11 March 2022, ahead of a planned meeting between Retail First and Mr Walls at the Birdies tenancy site, Mr Hitchon and Mr Walls exchanged various emails in which Mr Walls raised further issues which BMG claimed required attention by the landlord. The final email, sent by Mr Walls on 11 March 2022 at 10.28 am, relevantly stated:
And finally, if I don’t hear back today on the other items I will be forced to shut the site indefinitely.
So Monday meeting is suspended pending finalisation of all major outstanding items.
…
A short time later, at 10.46 am, Mr Hitchon was copied into an email from Mr Walls to Mr Wilson, in which Mr Walls advised Mr Wilson that he had not heard back from the landlord on many outstanding items, that the site would be shut indefinitely as of 5 pm that day and that the landlord would be responsible for the delay costs.
At 4.18 pm that day, Mr Hitchon sent an email to Mr Walls, stating that the Centre was unaware of any matters that were causing delay to the Tenant Fitout Works.
On 12 March 2022 at 2.08 pm, Mr Walls sent an email to Mr Hitchon in which he confirmed that as at 3.46 pm on 11 March 2022, BMG had instructed Shopfit to cease work at the premises and to keep a daily log of delay costs that would be forwarded to YFG for payment in due course. The email further stated:
…
We will also be invoicing the landlord for launch activities as previously agreed:
- SEN campaign for Birdies for 14 weeks (approx. $25,000 plus GST)
- Sponsorship of sporting clubs in the area for Birdies to the value of $20,000 plus GST.
We were not prepared to sign a lease based on the license conditions. Without a mezzanine we would have had to carve out a party room. This would have meant that we could not fit mini golf and seating. The tenancy was not commercially viable without it. We explained that to 151 Property and we would NOT have signed the lease, and this is why such agreements were made.
As per clause 18.4, we are notifying you formally of a breach of our lease and have specified what you need to do to remedy this breach.
We are not interested in wasting more time and any further games. We have a business to launch based on an agreement with the landlord. The agreed 6 months gross free rent, or the installation of toilet facilities & signage requirements is not acceptable any further.
In lieu of the above, we will forward one (1) invoice for a total of $243,465 plus GST for our out of pocket expenses.
We are NOT funding this build for the landlords [sic] benefit any further.
If the invoice (which will be sent shortly) is not paid within 5 business days, we will commence legal proceedings.
The site will be closed until the invoice is paid.
On 13 March 2022, BMG invoiced YFG for an amount of $300,811.50, including GST, in respect of ‘Mezzanine costs for Strathpine Centre’ and ‘Landlord agreed external signage’.
On 15 March 2022, Mr Clive Nichol of Cooper Grace Ward Lawyers, acting on behalf of YFG, emailed Mr Walls advising that YFG had only become aware in the last week of the previous email correspondence between BMG and 151 Property, in which the landlord supposedly agreed to various matters. Mr Nichol asked for further information in relation to the requested Additional Works and Contributions.
At this time, YFG did not know whether the previous owner, Swordfish, had actually agreed to perform the Additional Works and Contributions. YFG was taking steps to verify those matters with 151 Property and had forwarded to them the 151 Property emails that Mr Walls had provided to YFG.
Between 16 and 18 March 2022, 151 Property provided responses to YFG’s enquiries about Swordfish’s supposed agreement to perform the Additional Works and Contributions. 151 Property advised that there was no agreement with BMG in respect of any of the items that had been set out in 151 Property emails. 151 Property further advised that it did not believe that the forwarded emails were legitimate.
At the further request of Retail First, 151 Property accessed their emails accounts to search for and retrieve the original subject emails stored on their server. 151 Property was unable to locate any email of 4 May 2021 from Victoria Miller regarding the purported agreement by the landlord to install toilets and provide $30,000 in signage costs.
However, 151 Property was able to retrieve the original 4 October 2021 email from Tasha Adam. There is an obvious discrepancy between the content of that email and the version forwarded by Mr Walls to Mr Hitchon on 4 March 2022.
The version forward by Mr Walls was in the following terms:
Hi Stephanie
Absolutely, please see the proposed updated mural design, which now includes partial wayfinding as we discussed. I believe Albert was setting up a quick session with you to discuss.
The Gallery have included the Birdies brand and added in surrounding imagery for “drinks” (beer glass, wine bottle, cocktail), to further enhance the Birdies offering.
We have also discussed launch support. In addition to the usual EDMs, social media (including paid advertising), way finding within the centre and significant signage across the centre (doors to carparks, posters and other brand awareness), I can confirm the following additional support will be provided by the landlord:
-SEN campaign for Birdies for 14 weeks (approx. $20-25,000)
-Sponsorship of sporting clubs in the area for Birdies to the value of $20,000. Birdies to match this investment.
I am finishing up this week on maternity leave and hope Albert can introduce you to my successor within a week or so to help see this through to fruition.
Any thoughts in the meantime please let me know.
Many thanks
Tasha
In contrast, the version of the email retrieved by 151 Property is in the following terms:
Hi Stephanie
Absolutely, please see the proposed updated mural design, which now includes partial wayfinding as we discussed. I believe Albert was setting up a quick session with you to discuss.
The Gallery have included the Birdies brand and added in surrounding imagery for “drinks” (beer glass, wine bottle, cocktail), to further enhance the Birdies offering.
I am finishing up this week on maternity leave and hope Albert can introduce you to my successor within a week or so to help see this through to fruition.
Any thoughts in the meantime please let me know.
Many thanks
Tasha
On 22 March 2022, Mr Hitchon sent an email to both Mr Walls and Ms Doyle, forwarding the correspondence Retail First had received from 151 Property about the alleged previous agreements between BMG and Swordfish. Mr Hitchon’s email also advised that YFG could not make decisions about the Additional Works and Contributions until it could ascertain what had actually been agreed.
Later that day, Mr Hitchon received an email from Mr Walls which stated:
That’s ok Darren, as we are more than happy to sit it out for the foreseeable future.
Enjoy 2022.
At about this time, BMG and YFG were also in discussions concerning other variations to the terms of the Lease. BMG sought an amended Commencement Date and an extension of the Rent Waiver Period from 3 months to 5 months.
Ultimately, YFG agreed these changes and, after discussions with Retail First, to give BMG the ‘benefit of the doubt’ with respect to the email discrepancies and to perform the Additional Works and Contributions. To that end, on 23 March 2022, Rebecca Leahy, General Manger – YFG, employed by Retail First, informed Mr Walls that she had instructed Mr Nichol to prepare a Deed of Variation.
On or around 31 March 2022, Shopfit recommenced works. By this time, Shopfit had still not been paid outstanding amounts owing under its contract with BMG. Mr Walls advised Shopfit that BMG would not pay Shopfit until further work was completed.
In early April 2022, Mr Wilson advised Mr Walls that BMG needed to pay Shopfit for the works done so far, provide a director’s personal guarantee, and execute a Master Builder’s contract, so both parties would have certainty in their dealings with each other moving forward.
On 3 April 2022, Mr Nichol sent a draft of the Deed of Variation to Mr Walls and Ms Doyle. In reply, on 5 April 2022, Mr Walls sent an email in reply in which he asked for the draft to include that the owner had agreed to extend the rent-free period from 3 months to 5 months.
On 8 April 2022, Mr Walls sent an email to Mr Hitchon, in which he stated:
Further to our discussion this morning, I want to be clear, our five (5) months gross rent-free period is from when we open.
On 11 April 2022, Shopfit’s workers on site at the Birdies tenancy called Mr Wilson and advised him that Mr Walls had attended the site and become extremely abusive towards them, that he had sworn at them and was physically threatening them and had flipped over a table. As a result, Mr Wilson instructed the Shopfit’s workers to evacuate the site to ensure their personal safety.
A short time thereafter, Mr Wilson advised Mr Walls that Shopfit would not continue to perform any work until BMG had paid for the works completed to date and also signed the Master Builder’s contract.
On 12 April, Mr Wilson directed Shopfit’s workers to cease works due to non-payment by BMG and the hostile behaviour of Mr Walls. At that time, BMG owed Shopfit $96,861.14 for the work it had already done.
On 19 April 2022, BMG changed the locks at the Birdies tenancy site, thereby preventing Shopfit from entering. Upon discovering this, Mr Wilson sent an email to Ms Doyle, in which he stated:
…
By taking this action you have terminated our business arrangements.
Following this we will issue a statement of accounts by the end of month for your payment on works done to date.
I have cc’d the center [sic] in for the sole purpose of declaring that as of the 13th of April the construction site no longer has a licensed principle [sic] contractor controlling this site and we formally relinquish our responsibility to occupational health and safety performance of this site.
…
Later that day, Ms Doyle sent an email in reply to Mr Wilson in which she stated:
We needed access for an inspection we have not terminated the contract
I will be in touch.
In response, Mr Wilson sent a further email to Ms Doyle in which he stated:
…
Your response does not fit with your actions. You have excluded us from the site and by changing the locks, taken control of the site. We can think of no clearer repudiation of our business relationship.
We understand there are settlement negotiations to take place and trust that all differences can be resolved to our respective satisfaction.
…
In the following weeks, Shopfit unsuccessfully attempted to negotiate a potential return to the site.
On 14 April 2022, Ms Leahy received a telephone call from Mr Walls. During that call, Mr Walls spoke loudly in an angry and frustrated tone and swore. He told Ms Leahy that Shopfit had left the premises and that Retail First had to do something about this. He requested Ms Leahy call Shopfit and tell them if they do not go back to the site, they will not get any future work from Retail First. Ms Leahy told Mr Walls that she could not do that and that she was reluctant to get involved in any dispute between Birdies and Shopfit. Mr Walls again asked her to contact Shopfit. Eventually, Ms Leahy reluctantly agreed to call Shopfit to see if the situation could be salvaged.
Later that day, Ms Leahy spoke with Mr Wilson on the phone. Mr Wilson advised that he would never deal with Mr Walls again due to unacceptable verbal abuse that he and his employees had received from Mr Walls and his behaviour at the work site. Despite his reluctance, Ms Leahy was able to convince Mr Wilson to agree to meet with BMG one last time to try to resolve their breakdown in their relationship. Mr Wilson advised that he did not want to have Mr Walls present at any such meeting.
Ms Leahy then called Mr Walls and told him that Mr Wilson had agreed to one final meeting to see if the situation could be salvaged, but that he would not tolerate any abusive or aggressive behaviour. In response, Mr Walls yelled at Ms Leahy and said words to the effect that she had ‘fucking taken their side’ and further abused her.
A short time later, Ms Doyle telephone Ms Leahy and attempted to play down Mr Walls’ aggressive behaviour, saying words to the effect ‘there’s no issue – that’s just how blokes speak’. The pair eventually agreed that it would be in everybody’s best interest to have a meeting and agreed to a video conference on 19 April 2022. Mr Leahy reiterated to Ms Doyle that Mr Wilson did not want Mr Walls present at any meeting.
On 18 April 2022, Ms Doyle circulated the video conference meeting invitation and draft agenda by email to Ms Leahy, Mr Hitchon, Mr Wilson and also to Mr Walls.
In response, Ms Leahy sent a reply email to the meeting invitation in which she stated that:
…
The first item agenda needs to be obvious communications problems that have been experienced to date. Unless the tantrums, abuse and threats stop I cannot see that any of the agenda items will be discussed and resolved successfully.
I sincerely hope that we can all to move forward respectfully and get on with finishing the project to everyone’s satisfaction.
…
In reply, Ms Doyle sent an email in which she stated:
With all due respect, this reads very one sided and is disappointing and not at all in the spirit of moving forwards. You’re setting up this meeting to fail by supporting our shopfitter who has not made any meaningful progress in 6 weeks and is now holding all of us to ransom even though they are significantly behind (some twelve weeks late already with no end in sight).
I set an agenda to ensure that the moving stays on topic and doesn’t get distracted by rats and mice issues.
…
I see no point in participating in a meeting that is not focused on the issue here. Start building, finish building and open. Everything else is a distraction.
On 19 April 2022, Ms Leahy sent an email to Ms Doyle in which she stated:
I want reasonable and respectful communication between all parties as an agenda item.
A few minutes, Mr Walls sent an email to Ms Leahy in which he stated:
We have heard you, stop you’re [sic] behaviour.
Where are we with the Deed?
A short time later, Ms Leahy sent an email to Mr Walls and Ms Doyle, advising that she and Mr Hitchon would not be attending the meeting scheduled for later that day. As a result, the meeting did not go ahead.
From about mid-April to May 2022, YFG and BMG negotiated the final terms of the Deed of Variation. On 30 May 2022, the parties executed the Deed of Variation. The amendments to the Lease included YFG agreeing to complete the Additional Works and Contributions and a new Completion Date of the earlier of Birdies’ first day of trade or 8 August 2022.
Notwithstanding the execution of the Deed of Variation, progress of the Tenant Fitout Works remained in a state of limbo because of the breakdown in the relationship between Shopfit and BMG.
On 16 June 2022, Ms Doyle sent an email to Mr Hitchon in which she stated that a quantity surveyor engaged by BMG had inspected the site and estimated that only 50% of the work had been done at the site, yet Shopfit had been paid almost 80%. She further advised Shopfit’s contract had been terminated.
Matters between Shopfit and BMG culminated with Mr Walls making an abusive and threatening phone call to Mr Wilson on 23 June 2022. Mr Wilson was with Shopfit ’s CFO, Ms Danielle Tewkesbury, at the time. He placed the phone call on speaker and, because Mr Walls was acting aggressively, he started recording the call part-way through the conversation.
During that call the following exchange occurred:
David Walls: You're a fucking hero.
Steve Wilson: Dave, this is business.
David Walls: You're a fucking hero mate, you’re a fucking hero.
Steve Wilson: This is business Dave.
David Walls: Sorry?
Steve Wilson: This is business. You made a commitment to make a payment, you...
David Walls: I make nothing, I’m not fucking paying you $1.00 cunt, you owe me money.
Steve Wilson: No you’re not.
David Walls: So you can go and fucking get fucked... and mate, somebody is gonna fucking rape your fucking girlfriend cause you are a fucking dog cunt.
Danielle Tewkesbury: Right-io, that’s enough thanks Dave.
David Walls: That’s all you fucking are, you’re a fucking dog cunt.
Danielle Tewkesbury: We're gonna... we’re gonna end it there.
David Walls: You can get fucked, ya fucking whore.
Danielle Tewkesbury: Yep okay, cool, no worries. Thanks so much for the call.
This was the last communication Mr Wilson had with Mr Walls. Mr Wilson was so concerned by Mr Walls’ behaviour that he reported the matter to police.
On 23 June 2022, Shopfit submitted a further invoice to BMG for $93,000, being the value of works assessed by a quantity surveyor in March 2022.
As of 9 November 2022, Shopfit claimed that BMG owed it the sum of $183,537.62 (including GST) for works done at the site for which it had not been paid.
On 28 June 2022, BMG sent a letter to Shopfit, giving notice of termination of their contract. The stated reasons for termination were as follows:
You were obliged by our contract to complete the works within 12 weeks from mid October 2022, meaning the finish date was to be early -mid February 2022, allowing for the Christmas shutdown.
In April 2022 you stopped work. The termination of the contract is due to your failure to proceed with the works diligently or more likely an abandonment of the works.
By July 2022, no Tenant Fitout Works had been done for months, BMG no longer had a shopfitter, and the amended Commencement Date was looming.
On 14 July 2022, Ms Doyle sent the following email to Mr Hitchon and Ms Leahy:
An update for you further to David’s call of this morning.
As foreshadowed, the shopfitter Shopfit Co had not advanced the project and was significantly behind. This has been confirmed by the Quantity Surveyor. Reports attached. They were overpaid by around $200k (paid close to 80%) and were only at about 65% progress.
We have our Sydney shopfitter coming to Strathpine on Monday to workout [sic] next steps. He is an amazing builder and I sent you the photos of the Sydney project.
I need to give you a heads up that there will be a meeting on site on Monday with the building that would be good for you to attend. It’s disappointing that so many months have been wasted. In April this could have been resolved, if we had worked together rather than you siding with the shopfitter which effectively gave them confidence not to come back to site. We need to work together on a solution to get Birdies open as soon as possible as that’s in everyone’s best interests – yours, other tenants and ours.
Please confirm your availability.
On 19 July 2022, Mr Walls sent an email to Mr Steven Bridges, Retail First’s Managing Director. The email read:
We will not be commencing on site until we have your support, and the commencement date is extended from 8 August to 8 October.
This was your team that caused the delay(s), more specifically Rebecca.
Until we hear from you on these issues, the site will remain closed. We are significantly out of pocket financially because of your team and their actions.
We also have interest from four (4) other landlords on other sites in NSW/Vic, so this site is very low priority. NSW has been a huge success over the last 5 weeks.
On 20 July 2022, Mr Nichol sent an email to Ms Doyle, copied to Mr Walls, in which he set out a proposal to progress the project. Ms Doyle replied by email the same date, adding her own comments to Mr Nichol’s email. The content of this email exchange is set out below:[4]
[4]Ms Doyle’s comments are underlined. In the original response, Ms Doyle’s comments were in red text.
Stephanie
I’ve been copied in on the recent exchanges on this matter.
Future Contact with Owner and Retail First
Things have reached a stage where again I’ve received instructions to require that (at least for the moment) all further contact with the Owner or Retail First on the issue of the Lease and the fitout comes in writing via CGW.
That’s disappointing after the successful outcomes we achieved earlier this year.
I ask that you respect that and don’t contact Retail First personnel directly. Ok
Where are we now?
Accepting your entitlement to your view on the causes of the delay, it is not one shared by the Owner or Retail First, or one that the Owner or Retail First are very likely to be persuaded to agree, whatever you say. Understood – but that’s our view.
So my view is that we need to leave that a moot argument and deal with the real issue – getting the tenancy open and trading asap. Agreed, that is the priority.
Getting the tenancy open and trading
I’ve been told that:
1.your new shopfitter was on site earlier this week; and We are in discussions with two shopfitters, which is only possible now there is a QS report.
2.(no doubt you’ve more across the issue as part of the negotiation of the Contract with the new shopfitter but) from where the Owner currently stands 2.5 months is considered adequate time to complete the fitout including allowances for builder or materials delays.
So hopefully that would take us to an early October opening. Correct. A mid October opening.
Are you prepared to commit to that and provide something I can give the Owner to evidence that (this time) things really are going to happen eg send me a copy of a signed fitout contract? Happy to provide you with a contract once I have one. I am fast tracking this as much as I can, but as you can appreciate without a QS Report shopfitters could not quote. Am hoping to have a signed contract within a week.
If so, without giving any guarantees until we see how you respond and evidence what [sic] you provide, I’ve been told that the Owner will commit now to at least agreeing to consider deferring the Commencement Date and/or offering additional rent free, I am requesting, for the previously stated reasons, a Commencement date of 17 October 2022.
At the moment, the Owner’s position is somewhat naturally that you have a legally binding lease and that (regardless of whether you are open) rent will become payable 5 months from 8 August 2022 ie 5 February 2023.
Again, I know you don’t agree with that position – and again I ask that we leave that as a moot argument, and work on ways to change that position. Agreed
I have to make it clear though that if I go to the Owner with your threats of legal action and/or of walking away as the rationale as to why further concession [sic] should be agreed – there is nil prospect that the Owner will agree.
Way Forward
Can we start please with you:
1.confirming that you are prepared to commit to an early October opening – or at least the date projected in your contract with the new shopfitter; and Projected date is 17 October 2022, which allows for shopfitting works and setup of venue. Soft open and promoted launch 21 October 2022.
2.providing the evidence to back that up that I need to give the Owner to support any recommendation that the Owner should (ex gratia) agree to defer the Commencement Date and/or offer any additional rent free. Happy to do that to show we are all on same page. I also need the correct contacts at the Centre – for example, my signage company (who I engaged separate to the shopfitter) called the Centre as they wanted to start the induction steps and plan the installation of external signage. The feedback they received was that the Centre knew nothing about signage. We need to work together on this. We will deliver an amazing fit out, but need cooperation for that to happen.
Stephanie, I hope you see this correspondence as constructive and purposeful toward achieving the real goal here - getting the tenancy open and trading (and you making $ from its successful trading) asap. We all want the same thing – a successful business at Strathpine.
We are moving as quickly as possible to confirm the shopfitter. I am requesting that the same happens at your end so we can all work together. Would you please speak with the Owner as you noted and assuming we are all on the same page with the deferred Commencement Date I will have the shopfitter contract to you next week.
On 26 July 2022, Mr Nichol sent the following email to Ms Doyle:
I have instructions that if you provide evidence that your estimate of mid/late October opening is “real” – the Owner will agree a further (final) concession.
What is meant by that is you providing a copy of a signed contract for completion of the balance of the fitout – of (if your fitout document works that way) a copy of the signed acceptance of quote that has created a contract that binds the parties to do and pay for the work respectively.
In terms of the final concession, the Owner’s preference is that we keep the commencement at 8 August 2022 and simply add one month’s rent free (6 months total).
If you open by 31 October 2022, that still gives you 3 months and one week trade without having the overhead of the rent.
Way Forward
Please provide the signed contract/quote acceptance referred to above.
We can then discuss what (if any) further paperwork we need to put in place to document the extra month’s rent free.
…
In response, Ms Doyle sent the following email to Mr Nichol on 26 July 2022:
Re a builder, no worries re evidence. We are in final discussions with two builders to close this out. Whichever supplier we proceed with, the contract will have a commencement date as well as a completion date. Note that we need 2 weeks from completion to fit out the venue and be ready for trade but that has been allowed for in the mid October date.
Whilst I appreciate you said this is a moot point, it is relevant to the discussion – your client has contributed to the delay as well as increased construction costs due to having to change builders. This could have been avoided if Retail First had made it clear to the builder that they were supporting their tenant.
We know from past experience and also from feedback from other tenants at Strathpine, that we will need every week of the 5 months rent free period to establish Birdies and a clientele at Strathpine.
We are doing everything we can to open in October and as a result of the above, this cost us an extra investment of close to $500k to make this happen. With all due respect, extending the rent free period (in lieu of changing the commencement date) to the same date in October is a very small adjustment to make.
I’ll leave it to you but we are not accepting anything less than that or we will be seeking additional funds to complete the project – and your client was the major cause.
On 27 July 2022, Mr Nichol emailed Ms Doyle, seeking clarification on BMG’s requests. In particular, he sought confirmation of his understanding that BMG was requesting YFG agree to a full five months rent-free from the earlier of either the first day of trade or 31 October 2022. Mr Nichol also again requested a copy of the Shopfit contract.
That same day, Ms Doyle sent an email to Mr Nichol confirming his understanding was correct. She added ‘more than happy to provide the shop fitters contract once it is signed shortly.’
Mr Nichol then replied later that same day, advising Ms Doyle that BMG’s proposal was with the owner for consideration.
On 2 August 2022, Mr Nichol emailed Ms Doyle, again asking whether a fit-out contract had been signed. Mr Nichol added:
I really need to be able to tell the Owner that I’ve seen evidence that it is in place (and when the works will re-commence) before I ask him to dip his hand in his pocket again, as you’ve asked him to do.
On 10 August 2022, Mr Walls sent an email to Mr Nichol in the following terms:
It is time for me to get involved again.
I’ll keep it simple.
We require 10-11 weeks for a signed contract. We will be in a position to sign the contract without 48 hours. We are however not commencing until our 5 months gross rent free is guaranteed. We are not providing a copy of the contract unless your client wishes to provide funds for the $200,000 shortfall that Rebecca has caused – our builder did a runner. We reserve our rights to claim these costs at a later date.
We are busy enough with our newly opened venue, and have continued discussions with two other venues. One has moved to a HOA.
I will leave it to you to respond in a prompt manner.
In response, on 11 August 2022, Mr Nichol sent an email in the following terms to Ms Doyle:
I have specific instructions to deal only with you. I ask that David respects that.
I need things to be both clear and simple before I seek instructions.
Please confirm that the proposal is:
1. 11 weeks fitout period from commencement of the fitout period
2. fitout period commences on signing of fitout contract ie on 12 August 2022
3. 5 months gross rent free from commencement of the fitout period
4. a reservation of the right to seek $200,000 in damages from the Owner - for actions of the owner’s representative that you allege caused the original shopfitter to terminate the contract.
If I’m wrong, please outline what the proposal is.
Later that same day, Mr Walls emailed Mr Nichol, stating:
I am the Birdies Mini Golf Representative for the construction phase and setting up the operation, as I have done in Sydney. Please respect this also.
See below in red.
The comments made by Mr Walls in response to Mr Nichol’s email of 11 August 2022 are set out below:[5]
[5]Mr Wall’s comments are underlined. The comments in Mr Wall’s original reply email were in red text.
I have specific instructions to deal only with you. I ask that David respects that.
I need things to be both clear and simple before I seek instructions.
Please confirm that the proposal is:
1. 11 weeks fitout period from commencement of the fitout period
Yes.
2. fitout period commences on signing of fitout contract ie on 12 August 2022
It won’t be commencing on 12 August as you have not got instructions and based on experience to date will take a few more days. As soon as we have agreement from the landlord, our 11 weeks will commence.
3. 5 months gross rent free from commencement of the fitout period
No - it is from opening of the venue. If we get on with it, I anticipate opening date of 31 October.
4. a reservation of the right to seek $200,000 in damages from the Owner - for actions of the owner’s representative that you allege caused the original shopfitter to terminate the contract.
Correct.
If I’m wrong, please outline what the proposal is.
A short time later that day, Mr Walls sent a further email to Mr Nichol, stating:
One other small point, as I am finalising payments with the builder.
The final contribution of $250,000 plus GST must be paid on the day of opening.
We are about to spend an additional $350,000 plus legal costs to finish this project. This is on top of the building contract whereby the builder walked away.
In response, Mr Nichol emailed Mr Walls later that evening:
When you say:
“The final contribution of $250,000 plus GST must be paid on the day of opening”
are you proposing a variation of the Incentive Deed?
That document relevantly provides:
(iv) Fourth instalment. 20% of the Fitout Contribution within 30 days upon the last to occur of the following:
(A) completion of the Fitout and rectification of all defects and omissions in the Fitout to the Landlord’s reasonable satisfaction;
(B) all necessary Authority approvals for the Fitout and Permitted Use have been obtained by the Tenant and provided to the Landlord;
(C) all payments required to be made by the Tenant under this deed and the Lease have been paid;
(D) the Premises being fully stocked and open for trade;
(E) the Tenant giving the Landlord an itemised tax invoice for the third instalment of the Fitout Contribution; and
(F) the Tenant satisfying its obligations under clause 2.1(b)(i), 2.1(b)(ii) and 2.1(b)(iii).
Again – I’m asking purely so that when the Owner makes his decision, he knows the full extent of the concessions that he’s being asked to make.
In response, a few minutes later, Mr Walls emailed Mr Nichol stating:
That is correct Clive – we are not waiting 30 days for the payment.
Alternatively, we are happy to do nothing and go to court (commence litigation).
That’s not the preferred option, but we must put this on the table as we have put significant funds into the site as of today, with substantial funds required to complete the project.
There are not concessions.
On 15 August 2022, Mr Walls sent a further email to Mr Nichol stating:
Please advise timing for a response – we have signed a contract BUT will not be commencing until negotiations are closed to our satisfaction.
If you do not advise by Friday COB we will be putting our effort into another site and will not be in a position to commence until next year.
The ball is in your court.
On 17 August 2022, Ms Doyle sent a follow up email to Mr Nichol in the following terms:
Can you please urgently provide and update [sic] and resolution on this.
I have just spoken with the builder and if he doesn’t have an answer today the likelihood of opening before Christmas is slim. The cut off for items such as steel is now.
Please advise.
Later that day, Mr Nichol responded to Ms Doyle’s email, advising that he expected to receive final instructions, to enable him to give a complete response, by the end of the week.
On 19 August 2022, Cooper Grace Ward Lawyers sent a letter addressed to Ms Doyle asserting that BMG was in breach of contract and had repudiated the Lease. The letter notified BMG that YFG had accepted BMG’s repudiation and had terminated the lease, effective immediately.
The letter contained the following particulars with respect to the asserted breach of contract and repudiation of the Lease:[6]
[6]Footnotes omitted.
Legal obligations
Breach of Contract
35. As set out above, Birdies has:
(a) failed to fitout the Premises by 6 December 2021, in accordance with the Lease;
(b)failed to fitout the Premises by 8 August 2022, in accordance with the Amendments; and
(c) failed to commence trade by either the Commencement Date and Amended Commencement Date.
36. This conduct is in breach of clause 2.1(a) of Part B of the Special Provisions of the Lease and the Amendments.
37. In addition, Birdies has continuously refused to carry out fitout works diligently, continuously and with all reasonable speed, as required by clause 2.7(c) of Part B of the Lease.
Repudiation of Lease
38. By the following conduct Birdies has evidenced an intention to no longer be bound by the terms of the Lease:
(a) failing to fitout the Premises by 6 December 201, in accordance with the Lease;
(b) failing to fitout the Premises by 8 August 2022, in accordance with the Amendments;
(c) failing to commence trading by either the Commencement Date or Amended Commencement Date;
(d) refusing to fitout the Premises in accordance with its obligations under the Lease; and
(e) demanding our client provide additional incentives before it will fulfil its obligations under the Lease.
39. This conduct shows a blatant and repeated disregard and distain [sic] for the terms of the Lease and Amendments and this continued conduct over an extended period of time clearly evidences an intention by Bridies to not comply with the terms of the Lease and Amendments.
40. This conduct amounts to a repudiation of the Lease by Birdies. The law recognises that landlords should not be compelled to remain bound by leases with tenants that have repudiated or are in deliberate breach of their lease obligations.
Loss and damage
41. As a result of Birdies’ repudiation our client is entitled to terminate the Lease and claim for the loss and damage suffered.
42. This includes (but is not limited to):
(a) the landlord works done for the benefit of Birdies;
(b) the incentives paid to Birdies; and
(c)our client’s loss of income from having an alternative tenant trade at the Premises.
Termination of the Lease
43. Birdies [sic] repudiation gives our client a clear right to terminate the Lease and claim damages.
44. Our client has acted reasonably in attempting to resolve this matter with Birdies.
45. Our client will not tolerate any further repudiatory conduct by Birdies.
46. Accordingly, we are instructed to advise that our client hereby accepts Birdies’ repudiation of the Lease and terminates the Lease effective immediately.
47. The locks will be changed at the Premises immediately and Birdies will no longer be provided any access to the Premises.
48. We reserve our client’s rights in all respects, including to claim damages against Birdies.
…
Given the importance of commercial certainty and freedom of contract, courts should not lightly invalidate a provision of a contract on the basis that it is a penalty.[27]
[27]Ibid 594–5 [220] (Keane J); Ringrow [32] (Gleeson CJ, Gummow, Kirby, Hayne, Callinan and Heydon JJ).
Consideration
In my opinion, the Repayment Clauses amount to a penalty. I consider the present case to be materially indistinguishable from GWC.
In GWC, Dalton J held that certain incentive clawback provisions relating to the landlord’s fitout contribution and rent and signage fee abatements, contained in an incentive deed that was executed at the same time as the relevant lease, and which were triggered by the tenant’s breach of the lease, were unenforceable penalties.
The relevant fitout contribution clawback provision in the incentive deed in GWC provided:
2.4 Repayment of Contribution
(a) If the Lease is terminated at any time during the initial Term (other than by expiry of the term or by reason of the Lessor’s default), or the Lessee otherwise parts with possession of the Premises by assignment or subletting without the consent of the Lessor as required under the Lease, then the Lessee will pay to the Lessor a sum calculated as follows:
DR x C
DT
Where:
(i) DR is the number of days between the date the Lease is terminated or the Lessee parts with possession (as the case may be) and the Expiry Date;
(ii) DT is the number of days between the Commencement Date and the Expiry Date; and
(iii)C is the Contribution.
(b) The amount in clause 2.4(a) is payable within five (5) business days after the date the Lease is terminated or the Lessee parts with possession (as the case may be).
(c) The Lessee’s obligations under clause 2.4(a) and 2.4(b) [sic] do not affect any other rights of the Lessor against the Lessee.
(d) If the Lessee assigns or transfers its interest in the Lease in accordance with its terms, then in lieu of having to comply with clauses 2.4(a) and 2.4(b), the Lessee must obtain a covenant from the assignee/transferee (as the case may be) in favour of the Lessor on terms acceptable by the Lessor to honour the obligations of the Lessee under this deed.
By cl 2.2 of the incentive deed, the landlord and tenant agreed that the landlord would own all items paid for with the fitout contribution.
The lease was terminated by the plaintiff landlord on the basis that the tenant had repudiated the lease by abandoning the premises in breach of the lease. The plaintiff sought repayment from the guarantor defendants of the various rent and signage fee abatements it had allowed and the fitout contribution it had made. The plaintiff contended that the repayments it sought were not punitive payments for breach of the lease but were instead ‘restitutionary repayments’. It argued that the incentives it offered to the tenant were conditional and that termination of the lease merely provided the occasion for the relevant repayment conditions to be activated. It argued that the conditional payment it had made was just part of the price or consideration for the parties’ bargain.
Dalton J rejected these arguments. In doing so, her Honour relevantly reasoned:[28]
[30]…it seems to me that all three payments contended for by the plaintiff share the characteristic that had the tenant not breached the lease agreement, or had it breached the lease agreement only in ways which did not move the landlord to terminate, the sums of money claimed in this proceeding would never have been payable. These sums are not analogous to the acceleration of a delayed payment of monies which will eventually be paid if the contract is fully performed. Nor do I think they are analogous to the types of payments discussed in Astley v Weldon where a higher price is paid if a payment is made at a later date, but nevertheless in the course of an ongoing contract. They are pecuniary obligations which will never arise except on termination.
[31]The payments pursuant to cll 3.3 and 4.3 lend themselves most closely to the type of argument advanced in O’Dea viz.,[29] that the higher rent and the signage fees were due pursuant to the lease, but for the conditional indulgence granted in the Incentive Deed, so that termination just brought about the withdrawal of that indulgence. The difficulty is, however, that unabated rent and signage fees could never have been said to be due while the lease and Incentive Deed remained on foot. In this respect the case for the defendants is a stronger one than the hirer’s case in O’Dea.
…
[33]The plaintiff’s argument was similar to that which was rejected in Talal El Makdessi v Cavendish Square Holdings BV. In that case a contractual provision that a party would pay a sum of money upon his breach of contract was described as ‘the paradigm case in which the law of penalties is engaged’ – [46]. Similar to that is the statement in Ringrow Pty Ltd v BP Australia Pty Ltd & Ors, ‘The law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum.' In that case the idea that the penalty doctrine did not apply because the impugned provision was part of the consideration was rejected by the High Court – see [37] and [38]. The Court said of this argument, ‘By itself, that point could not prevent a conclusion that a contractual term was a penalty, for in almost every case the impugned term will be part of the consideration for the innocent party’s promises, and it can be said that if it had not been so, the other elements of the consideration required by the innocent party would be more valuable’.
…
[36]…By the bargain contained in the lease and Incentive Deed, the landlord obtained abated rent and fees in consideration for its lease of the premises, together with the fit-out payment. Had the contract been performed according to its terms, that is all the landlord was entitled to. The repayment clauses at cll 2.4, 3.3 and 4.3 of the Incentive Deed sought to give the landlord an advantage which it would not have had if the lease were performed according to its terms. Before the lease and Incentive Deed were signed the landlord was in the position that its potential tenant would contract only on the basis that it received abatements and a fit-out. The impugned clauses do not restore the landlord to that pre-contractual position; they give it an advantage which it would never have had if the lease had uneventfully run its term.
[28]GWC [30], [31], [33], [36] (some footnotes omitted).
[29]O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 (‘O’Dea’).
Dalton J further determined that the relevant clauses of the incentive deed were penal in nature and not a genuine pre-estimate of damages that may be suffered by the plaintiff. On this point, her Honour relevantly concluded:[30]
[39]…In my view the repayment clauses here do impose obligations which are substantially in excess of any genuine pre‑estimate of damages. In addition to contractual damages for breach of the lease, the landlord was entitled, by the repayment clauses, to recover monies to which it would never have been entitled had the lease run its course. In effect, it was entitled to recover as though the tenant had agreed to the rent and signage fees without any abatement, and as though it had not been necessary for the landlord to pay the fit‑out incentive in order to complete the bargain with the tenant. It is true that all three impugned clauses limit repayment to specified times, rather than require repayment for the whole period relevant to contractual damages. Nonetheless, the repayment clauses meant that on termination the landlord was entitled to damages for breach of the bargain it had made, and substantial additional payments by reference to a bargain it had not made.
[40]There was evidence on the application before me from a Mr Douglas on behalf of the plaintiff to the effect that the benefits given to the tenant by way of fit‑out contribution and abatement in the Incentive Deed reflected prevailing market conditions. This is the very point. Only with those substantial financial concessions did the landlord obtain the lease it did. It is entitled to damages for breach of that lease but it is not entitled to extra payments on the basis that it might have obtained a higher price for its premises had the market conditions been better for it. It is not to the point that Mr Douglas opines that the fit-out may not be attractive to future tenants, or that future tenants might also require incentives such as those contained in the Incentive Deed. The parties’ bargain was that the landlord would own the fit-out. If the landlord has difficulty in re-letting the premises, that fact will be adequately reflected in its contractual damages.
[30]GWC [39]–[40].
In my view, similar conclusions and reasoning apply in this case.
It is, of course, necessary to examine the Repayment Clauses by scrutinising the terms and inherent circumstances of the Lease and Incentive Deed to determine whether they are penal in nature.
Similar to the situation in GWC, the Repayment Clauses here impose a secondary obligation upon BMG to pay an amount of money to the Landlord in the event the Lease is terminated for BMG’s ‘default’.[31] Although the term ‘default’ is not defined in either the Lease or the Incentive Deed, it is plain, as I have found, that the Lease was terminated by YFG on account of BMG’s ‘default’ by its repudiation of the Lease.
[31]It is to be recalled that the Fitout Contribution amounts were actually paid by Swordfish and not by YFG. Whether, and how, the amounts of the Fitout Contribution paid by Swordfish were reflected in YFG’s purchase of the Centre and the arrangements for assignment of the Lease to YFG are not known. In any event, as the analysis is to be conducted prospectively as at the time the contract is entered into, rather than at the time of breach or default, I will use the term ‘Landlord’ rather than YFG where it is necessary to bear this distinction in mind.
I do not accept YFG’s argument that the Repayment Clauses simply operate to withdraw a conditionally-given benefit. The Fitout Contribution was not a conditional indulgence. Paragraph [31] of Dalton J’s judgment does not support YFG’s argument. Indeed, it seems to me to be contrary to YFG’s argument. This case is not of either kind identified by Gibbs CJ in O’Dea v Allstates Leasing System (WA) Pty Ltd.[32] The tenant's acknowledgments in cls 3.1(a) and 5 of the Incentive Deed do not make it otherwise.
[32](1983) 152 CLR 359, 366–7 (Gibbs CJ).
The Fitout Contribution was part of the consideration provided by the Landlord for BMG’s entry into the Lease. By the bargain contained in the Lease and the Incentive Deed, the Landlord obtained the benefit of the Lease, including the contractual right to receive rent (base rent and turnover rent, where payable), outgoings and other agreed amounts for the term of the Lease. Had the Lease been performed according to its terms, that is what the Landlord would have been entitled to receive. BMG would not have been required to repay any of the Fitout Contribution. The entitlement to claim repayment only arises on termination of the Lease due to BMG’s default.
Accordingly, the additional payment sought to be recovered by the Repayment Clauses may prima facie be considered as a penalty. Whether that is its proper characterisation in substance requires consideration of whether the Repayment Clauses provide for a payment that is extravagant or out of all proportion to the Landlord’s legitimate interests.
The Landlord’s interest is in the commercial leasing of its premises. No other legitimate interest was identified or evident. Upon termination of the Lease due to BMG’s default, the Landlord would lose the benefit of the Lease. It would therefore be entitled to recover damages for that loss. However, if enforced, the Repayment Clauses would confer additional advantages that would not otherwise have been received by the Landlord if the Lease had otherwise run its term.
I do not accept YFG’s contention that the Repayment Clauses provide a ‘rough and ready’ genuine pre-estimate of loss. If enforceable, the Repayment Clauses would allow the Landlord to recover money paid to BMG as part of the Landlord’s contribution to the Tenant Fitout Works. The formula employed by cl 3.1(b) of the Incentive Deed provides for a pro-rata recovery of the Fitout Contribution paid, which reduces over the lifetime of the Lease. It cannot sensibly be said to be a genuine pre-estimate of loss that would arise if the Lease was terminated early due to BMG’s default. The only potential loss that correlates with the Repayment Clauses is the loss of the money paid by the Landlord for the agreed Fitout Contribution.
The amount of rent payable under the Lease was no doubt agreed having regard to the Fitout Contributions to be paid by the Landlord. So much is apparent from cl 3.1(a) of the Incentive Deed and the submissions made by YFG.[33] If the Lease ran its course, the Landlord would effectively ‘recoup’ the Fitout Contribution amounts paid by it through the total rent received from the tenant. In that way, it may be considered that the rent payable would notionally include a component for repayment of the Fitout Contribution payments made by the Landlord.
[33]Transcript of Proceedings, BMG SP Pty Ltd v YFG Strathton Pty Ltd (Supreme Court of Queensland, SC No 11778/22, Crowley J, 1 December 2022) 1-59: 33–5.
Upon termination of the Lease due to BMG’s default however, the Landlord would be entitled to claim contract damages. This would include any loss of bargain damages. The Landlord would prima facie be entitled to damages to compensate it for any period of lost rent and, once the property is re-let, any difference there may be between the rent it expected to receive under the bargain it had struck with BMG and the rent it would be able to receive from the new tenant. The rent ‘shortfall’ reflected in such an award of damages would notionally include the component of the rent the Landlord expected to receive to recoup the Fitout Contribution payments it had made.
The Landlord would therefore be compensated for the ‘loss’ of the Fitout Contributions paid.
Irrespective, the Repayment Clauses would also allow the Landlord to demand repayment of the Fitout Contribution. This would provide the Landlord with an additional advantage. As was the case in GWC, the effect of the Repayment Clauses here would be that, upon termination of the lease, the Landlord would be entitled to damages for breach of the bargain it had made and a substantial additional payment by reference to a bargain it had not made. The Landlord would therefore be entitled to pursue contractual damages for what it had lost and also to recover part of the price it paid to acquire what it has lost.
Further, the Repayment Clauses permit the Landlord to demand the repayment of the Fitout Contribution payments as a lump sum, determined according to the pro-rata formula. There is no allowance made for discounting the amount payable to reflect the present value of money that would otherwise be received incrementally over the entire term of the Lease. This too would provide the Landlord with an additional advantage.
Further still, the Landlord could, at its election, assume ownership of the Fitout Works paid for by the Fitout Contribution, which would then become the Landlord’s property. The Repayment Clauses do not provide for any adjustment of the repayment amount calculated by application of the relevant pro-rata formula to account for the Landlord electing to assume ownership of the Fitout Works.
In my opinion, the Repayment Clauses impose a punishment for BMG’s default and do not serve to protect any legitimate interest of the Landlord. The proper construction and characterisation of the effect of the Repayment Clauses is that they instead operate to secure the tenant’s compliance with, and adherence to, its primary obligations under the Lease by a payment stipulation that is extravagant and out of all proportion with the Landlord’s legitimate interest in the commercial leasing of its premises.
Conclusion
I am satisfied that BMG repudiated the Lease. Accordingly, YFG was entitled to terminate the Lease. YFG did so by serving a valid Notice of Termination.
However, I am also satisfied that YFG’s subsequent demand for repayment of a proportion of the Fitout Contribution was made pursuant to Repayment Clauses that amount to unenforceable penalties.
Orders
Accordingly, with respect to the final orders sought in the Originating Application filed 29 September 2022, I make the following orders:
1.I declare that clause 3.1(b) of the Incentive Deed and clause 4.1 of Part B of the Lease are penalties and are therefore unenforceable.
2.The application is otherwise dismissed.
I will hear the parties on the question of costs.