Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd

[2008] NSWSC 1123

CITATION:	Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd [2008] NSWSC 1123
HEARING DATE(S):	22 and 23 October 2008
JUDGMENT DATE :	23 October 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
EX TEMPORE JUDGMENT DATE:	23 October 2008
DECISION:	Orders as sought by Plaintiff; Defendant’s Cross Claim dismissed.
CATCHWORDS:	LEASES – CONSTRUCTION – ELECTION – FORFEITURE – Lessor continued to accept rent after knowledge of breaches – breaches conferred substantial benefit on lessor – lessor had ulterior motive in wishing to terminate. - HELD: Lessor elected to affirm lease - relief against forfeiture would have been granted.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) – s 129 Trade Practices Act 1974 (Cth) – s 51AC, s 52
CATEGORY:	Principal judgment
CASES CITED:	- Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Ltd [2007] NSWSC 92 - Legione v Hateley (1983) 152 CLR 406 - Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203 - Owendale Pty Ltd v Anthony (1967) 117 CLR 539 - Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837
PARTIES:	Byron Bay Retirement Villages Pty Ltd (Plaintiff) Zandata Pty Ltd (Defendant)
FILE NUMBER(S):	SC 3307/08
COUNSEL:	J.W.J. Stevenson SC, N. Kabilafkas (Plaintiff) S.D. Epstein SC, H.P.T. Bevan (Defendant)
SOLICITORS:	Colin Biggers & Paisley (Plaintiff) Hosie & Partners (Defendant)

3307/08 Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd

JUDGMENT – Ex tempore

23 October, 2008

Introduction

1 The facts of this case are not complex and the law to be applied is clear. I may, therefore, proceed to judgment immediately. 2 The Plaintiff, Byron Bay Retirement Villages Pty Ltd ("BBRV"), presently carries on the business of a caravan park on land owned by the Defendant Zandata Pty Ltd ("Zandata") in Broken Head Road, Byron Bay (“the Land”). BBRV asserts that it holds the Land under a lease from Zandata. The lease is for a term of five years, but it provides options for renewal which, if exercised, would extend the Plaintiff's tenancy of the Land until 2048. 3 At the time the lease was granted, Zandata sold to BBRV some sixty-two caravans, cabins and mobile homes, which were situated on the Land. I will refer to these items as the "dwellings". The lease contains a covenant that BBRV may not make additions or alterations to the caravan park without the prior consent of Zandata. Since the commencement of the original lease in 1998, BBRV has removed all but a few of the dwellings which were on the Land at the time that it entered into the lease with Zandata. It has replaced those dwellings with new dwellings. BBRV did not obtain Zandata's consent before doing so. 4 On 8 May 2008, Zandata served on BBRV a purported notice under s 129 Conveyancing Act 1919 (NSW) which terminated the lease with effect from 30 June 2008 on the ground that BBRV, in removing and replacing the dwellings, was in breach of the covenant not to make additions or alterations to the caravan park without Zandata's consent. The notice alleged, also, that BBRV was in breach of the covenant to keep the demised premises in good repair.


By its Amended Statement of Claim, BBRV seeks:

– a declaration that the s 129 notice is of no effect;

– a declaration that BBRV has not committed the breaches alleged in the s 129 notice;

– a declaration that Zandata has waived, or has elected against, or is estopped from relying upon the breaches alleged in the s.129 notice;

– a declaration that Zandata has engaged in unconscionable conduct in contravention of s 51AC Trade Practices Act 1974 (Cth) (“TPA”), or misleading or deceptive conduct, in contravention of TPA s 52.

Alternatively it seeks relief against forfeiture of the lease, or damages under TPA s 82, or equitable compensation.

5    By its Cross Claim, Zandata seeks a declaration that it has validly rescinded the lease, an order for possession of the Land and damages, or mesne profits, in respect of BBRV's continued occupation of the Land since 30 June 2008.
The issues


The issues may be summarised thus:

– whether the s 129 notice is of no effect for failure to comply with the requirements of s 129 or by reason of other defects;

– if the answer is no, on the true construction of the lease, was BBRV required to seek Zandata's consent to the removal and replacement of the dwellings;

– if such consent was required, did Zandata give its consent to such removals and replacements, or is it estopped by its conduct in accepting rent under the lease with knowledge of such removals and replacements from asserting that BBRV has breached the lease;

– in the alternative, has Zandata elected to affirm the lease by accepting rent under that lease with knowledge of the relevant breaches;

– is Zandata precluded from relying on any such breach by its own conduct in contravention of s 51AC or s 52 TPA;

– if Zandata is otherwise entitled to terminate the lease, should the Court in its equitable jurisdiction grant relief against forfeiture.



The undisputed facts

6    By an agreement in writing which is undated, but which required completion on 30 June 1998, Zandata sold to BBRV the business of a caravan park previously conducted by Zandata on the Land for the price of $675,000 ("the Business Sale Agreement"). 7    At the same time, Zandata granted to BBRV a lease over the Land for a term of five years with nine options to renew, each for a term of five years. The Business Sale Agreement provided that BBRV purchased all the plant, fittings and chattels listed in the Agreement, including sixty-two caravans, cabins and mobile homes then situated on the Land, being the items which I have previously referred to as the dwellings. 8    Shortly after commencement of the lease and progressively from about 1999 onwards, BBRV began to remove old and dilapidated dwellings from the Land and to replace them with new dwellings. It did so in order to comply with the requirement of the lease that it keep the dwellings in good repair and that it maintain a three star rating for the caravan park. 9    There is no dispute that by means of these removals and replacements BBRV did, in fact, maintain a three star rating for the caravan park. The removals and replacements were effected, also, for the purposes of improving the holiday rentals which could be charged for the dwellings, thereby increasing the profit of the caravan park business, of which Zandata had a share, pursuant to a formula provided in the rent provisions of the lease, although, that share was an indirect one. 10    The following are the relevant provisions of the lease:

“ 12.1 Obligation to maintain and repair

The Tenant must:–

(a) keep the Tenant’s Business and the Landlord’s Property in good and substantial repair as a high quality caravan park and, if applicable, conference and/or licensed facility; …

…

12.6 Tenant’s alterations

The Tenant must not make any additions or alterations to the caravan park without the prior consent of the Landlord, which consent shall not unreasonably be withheld, nor without complying in a proper and workmanlike manner with any condition imposed by the Landlord in granting its consent. The Tenant in seeking the Landlord’s consent to a proposed addition or alteration must provide the Landlord with plans, specifications and information with respect to the proposed work as the Landlord may reasonably require.

…

22.1 Consent in writing
Wherever the Tenant is required to obtain the consent, authority or approval of the Landlord or any mortgagee of the Landlord in this Lease the consent, authority or approval must be obtained in writing. The Landlord agrees to act reasonably with regard to any decision it is required to make under this Clause.”

“Caravan park” is defined as:
“… the premises described in Item 16 of the Schedule of Items to this Lease including:
the Land; and
the Building.”

The “Land” is defined as:
“… the property leased herein and includes any part of the lot.”

The “Building” is defined as:
“… the fixed improvements, other structures and improvements from time to time erected or existing on the Land and includes the Landlord’s Property and any modifications, extensions or alterations from time to time of the Building or the Landlord’s Property.”

“Tenant’s Business” is defined as:
“… the caravan park business and any other business conducted by the Tenant in the caravan park including, but not limited to, any licensed restaurant or entertainment facility or any conference, tourist or hospitality related facility.”

“Tenant’s Property” is defined as:
“… the Chattels and all fixtures, fittings, plant and equipment of the Tenant including, but not limited to, carpets or loose floor coverings, curtains and blinds, the telephone handsets and system (excluding wiring and wall plugs), individual air conditioning units (excluding, if applicable the Air Conditioning Equipment) light fittings, and other property in, or fixed to the caravan park that is not the Landlord’s Property.”

“Landlord’s Property” is defined as:
“… all the plant and equipment, fixtures and fittings of the Landlord including, but not limited to, the Services, the toilet amenities and wash basins, the floor wall and bathroom tiles, bed heads and head boards, built-in cupboards and shelves, the swimming pool pump, salt-water system salt-water chlorinator and filtration equipment (if any), the hot water system, all paving and sealed driveways, the drainage, gas and electrical fittings, wires, conduits and other property in, or fixed to the caravan park that is not the Tenant’s Property.”
11 BBRV did not expressly seek Zandata's prior approval to the removal and replacement of any of the dwellings. Zandata never expressly gave such consent. BBRV says that, on a true construction of the lease, it did not need consent. Zandata submits to the contrary. I will return to the issue of construction in a moment. 12 By 8 May 2008, at least fifty-seven, possibly fifty-nine, of the dwellings had been removed and replaced. On that day, Zandata's solicitors sent a notice to BBRV, purportedly in accordance with s 129 Conveyancing Act , as follows:

“The Landlord hereby notifies you of the breaches of those covenants constituted by your demolition or removal from the caravan park of sixty-two (62) dwellings located at the caravan park as at the date of commencement of the lease and the failure by you in any case to seek or obtain the Landlord’s written consent for your actions, as required by Clause 12.6 and Clause 22.1.

Such breaches of covenant being incapable of remedy, the Landlord hereby notifies you of its termination and forfeiture of the lease, such termination and forfeiture to come into effect on 30 June 2008, upon which date the Landlord will exercise its right of re-entry under the lease.”
13    BBRV says that this notice was incurably bad in form and content, so that it did not operate to terminate the lease. I need not deal with this submission because there are other much more substantial grounds for the disposition of these proceedings.


The construction of Clause 12.6

14    Mr Stevenson SC, who appears with Mr Kabilafkas of Counsel for BBRV, submits that clause 12.6 of the lease did not require BBRV to seek Zandata's approval for removal and replacement of the dwellings because the clause applies to additions or alterations to "the caravan park" , which is defined as including "the Building" , which is, in turn, defined as including "the Landlord's Property" , which is, in turn, defined as excluding "the Tenant's Property" . There is no dispute that "the Tenants Property" includes the dwellings purchased by BBRV under the Business Sale Agreement. 15    Mr Stevenson says, further, that it would produce absurdity if clause 12.6 were construed so as to require a lessor's consent to any alteration to the lessee's own chattels, no matter how minor that alteration was, such as the replacement of a tap or a light-switch in one of the dwellings. 16    Mr Epstein SC, who appears with Mr Bevan of Counsel for Zandata, submits that, while the dwellings are “Tenant's Property” , they are, nevertheless, structures or improvements erected or existing on the Land within the first limb of the definition of "Building" . He says that the express inclusion in the definition of "Building" of “Landlord's Property” , is not an express exclusion of "Tenant's Property" . 17    While the construction of clause 12.6 which Mr Epstein urges would, in many cases, produce highly inconvenient consequences, such as in the examples which Mr Stevenson gives, I cannot conclude that it produces such absurdity as to lead to the conclusion that it cannot be what the parties intended. 18    Zandata, as lessor, has a financial interest in the profitability of the caravan park. If alterations or additions to the dwellings were to be carried out by BBRV which would substantially decrease the profitability of the caravan park, Zandata would suffer. There is some purpose in Zandata having a right to refuse consent to alterations to the dwellings. 19    While the construction of clause 12.6 is highly arguable and is one upon which minds may differ, I accept Mr Epstein's submission as to its construction: the dwellings are unquestionably an “improvement” or “structure” erected or existing upon the Land. 20    I find that BBRV was required by clause 12.6 of the lease to obtain Zandata's prior written consent to the removal and replacement of the dwellings. On each occasion upon which it failed to do so, it committed a breach of the lease.


Election

21 BBRV submits that Zandata has irrevocably elected to affirm the lease by accepting rent under the lease after knowledge of the facts constituting the breaches upon which it relies in the s 129 notice. Zandata says that it was never sufficiently aware of the facts constituting the breaches and, further, it says that its acceptance of rent after notice of breaches was not conduct unequivocally electing to affirm the lease. 22 It is clear from the evidence that BBRV commenced the removal and replacement of the dwellings from 1999 onwards. In 1999, Zandata's managing agent and, probably, Mr D'Agostino, Zandata's controlling director, inspected the site and had the opportunity of seeing what changes BBRV had made to the dwellings. It is quite clear, also, that regular inspections by the managing agent took place from 2002 onwards. 23 Mr Ryan, the managing agent, gave evidence that he inspected the site in company with Mr D'Agostino in March 2005 and February 2006. He says that in the February 2006 inspection changes to the dwellings, that is, removals and replacements, which had been made since the 2005 visit, were obvious to him. I conclude that they must also have been obvious to Mr D'Agostino on those occasions. 24 The most important evidence as to the knowledge of Zandata of the breaches is, however, contained in contemporaneous correspondence. In a letter dated 20 October 2003 from Zandata's solicitors to BBRV's solicitors, Zandata's solicitors referred to works, "which the lessee has carried out to the leased premises, or is proposing to carry out" , and refers to the assertion that such alterations require the lessor's consent, pursuant to clause 12.6. It is readily to be inferred from that letter that, at least by 20 October 2003, Zandata was aware that BBRV had already carried out additions to the dwellings of a kind which would require consent under clause 12.6. 25    However, the matter is put beyond doubt by a letter dated 19 December 2003 from Zandata's solicitors to BBRV's solicitors. In that letter, Zandata's solicitors say:
“Our client continues to be concerned that your client has removed some 12-15 cabins and replaced what appears to be about six of these. Please advise your client's plans in relation to this as the removal of cabins clearly has a downward effect on the gross income and therefore on one aspect of the rent calculation."
26    From this letter, it appears clear that Zandata was aware that by 19 December 2003 at least twelve and possibly fifteen of the dwellings had been removed and replaced without consent. The concern expressed in the solicitor's letter was not that consent had not been obtained from Zandata, so much as that the removal of up to fifteen cabins and the replacement of only six of them may have an impact on the rent payable to Zandata under the lease. 27    I am quite satisfied from the evidence of BBRV’s director, Mr Spencer, that throughout the period – certainly from 2002 onwards until 2008 – he had frequent meetings with Mr D'Agostino, many of which were on the site itself, during which Mr Spencer discussed with Mr D'Agostino his plans for developing the caravan park site. In the course of those discussions, it is clear that Mr Spencer showed Mr D'Agostino various plans or proposals for the removal or rearrangement of dwellings on the site. I conclude that, at all times from 2002 to 2008, Mr D'Agostino was aware that dwellings were being removed and replaced on the site. At all times during that period BBRV continued to pay the rent punctually, and Zandata continued to accept that rent without demur. 28    However, of decisive and critical importance is the fact that, on 29 February and 6 March 2008, Mr D'Agostino visited the caravan park site and saw that major changes had been made to the dwellings. There can be no question but that he was then fully aware that virtually all of the sixty-two or so dwellings which had been on the site at the time that the original lease was granted had been removed and replaced. 29    The undisputed fact is, however, that having such knowledge, Zandata continued to accept rent under the lease. It accepted payments of rent on 11 March 2008, 1 April 2008, 1 May 2008 and 2 June 2008. As I have said, the notice terminating the lease was given on 8 May 2008, after three payments of rent had been received since the two inspections of the site by Mr D'Agostino. 30    BBRV submits that the acceptance of rent in the knowledge of the facts such as Zandata possessed is a clear and unequivocal election on its part to affirm the lease, notwithstanding the breaches of clause 12.6 committed by BBRV. 31    Mr Epstein submits that the knowledge of those breaches on the part of Mr D'Agostino, the controlling mind of Zandata, was not so clear as to require him to elect. Secondly, the acceptance by Zandata of rent from December 2003 onwards and, particularly, from March 2008 onwards, was not a sufficiently clear and unequivocal act of affirmation such as would constitute an irrevocable election. 32    It is very well established in the law that continuing to accept rent under a lease after knowledge of a fact constituting a breach which would entitle termination, constitutes an irrevocable election to affirm the lease. There may be some cases in which the lease itself provides that acceptance of rent after knowledge of a breach does not constitute an election. The result in such a case is, of course, a matter of express contract between the parties: see Owendale Pty Ltd v Anthony (1967) 117 CLR 539. However, that is not the present case. In this case, in my view, the law makes it perfectly plain that the continued acceptance of rent by Zandata, particularly, after Mr D'Agostino's inspections in February and March 2008, was an unequivocal act effecting an election. 33 It matters not, of course, what Mr D'Agostino's subjective intent in accepting the rent may have been. It is clear, however, that by October 2003 his solicitors had advised him that alterations to the dwellings without Zandata's consent constituted breaches of clause 12.6. His solicitors had said that much to BBRV's solicitors on several occasions. I infer that they had given the same advice to Zandata. 34 This is not a case in which Zandata and Mr D'Agostino could have been in any real doubt as to the existence of facts entitling termination of the lease, nor could they have been in any doubt as to the legal ground upon which such termination could be effected. In those circumstances, it seems to me clear that the continued acceptance of rent up to and including the payments made in 2008 constituted an election, irrevocable in its effect, to affirm the lease. For that reason, I would hold that the lease was not validly terminated by the s 129 notice given on 8 May 2008. 35 Mr Epstein submits that in this case election is precluded by clause 25.1 of the lease. I am unable to accept that submission. The clause provides as follows:

“ 25.1 Exercise of rights
The Landlord may exercise a right, power or remedy at its discretion, and separately or concurrently with another right, power or remedy. A single or partial exercise of a right, power or remedy by the Landlord does not prevent a further exercise of that or an exercise of any other right, power or remedy. Failure by the Landlord to exercise or delay in exercising a right, power or remedy does not prevent its exercise. The Landlord is not liable for any loss caused by the exercise, attempted exercise, failure to exercise or delay in exercising a right, power or remedy whether by reason of the Landlord’s negligence or otherwise.

25.2 Waiver and variation
A provision of or a right created under this Lease may not be waived or varied except in writing signed by the party or parties to be bound.”
36    Clause 25.1 does not directl­y address the common law principle of election. It merely provides that failure or delay in exercising a right, power or remedy does not prevent further exercise of that right or remedy. Failure to exercise, or delay in exercising, a right may or may not constitute and election or estoppel: it depends on the circumstances attending such failure or delay. Clause 25.1 deals only with the consequence of failure or delay alone, so that failure to exercise a right without knowledge of the facts giving rise to the right cannot found an election, waiver or estoppel. In that regard, the clause merely restates the law; it goes no further than that. 37    Clause 25.2 deals with a variation of contractual rights: it does not attempt to negate the operation of the common law principles of election or estoppel. Both clauses are part of a contract, the whole of which must be terminated, or affirmed, if a breach entitling recision has been committed. 38    Neither clause contains an express provision which would operate to defeat the common law principle of election in the circumstances of this case.


Relief against forfeiture

39    Mr Bevan, on behalf of Zandata, submitted that it is not permissible for a lessee to seek a declaration that it has not committed a breach of a lease, or that a lease has not been terminated and, in the alternative, to seek relief in equity against forfeiture. 40    According to Mr Bevan, a lessee must elect prior to commencing proceedings whether or not to admit breach and thereby seek relief against forfeiture, or to deny breach and thereby eschew any claim for relief against forfeiture. In my view, this is no longer the position in equity – if it ever truly was the position. 41    It is quite common, indeed almost an everyday occurrence, that a plaintiff lessee denies having committed a breach of the lease entitling or justifying termination and, in the alternative to a declaration, claims relief against forfeiture. If the claim that the lease has not been breached is made bona fide and on reasonable grounds, then there can be no objection to a claim in the alternative for relief against forfeiture. Such, I think, is now made clear by a number of decisions at first instance, namely, Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Ltd [2007] NSWSC 92, at [73] per Brereton J; Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203, per Brereton J at [69]; and Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837, per White J. 42 Mr Bevan did not submit that in the present case the claim for a declaration that there had been no breach of the lease was not bona fide. 43 I turn now to the substance in the claim for relief against forfeiture. 44 The principles upon which such relief is granted are clear. The Court has regard to the nature and circumstances of the breach of lease committed, together with such damage as the lessor may suffer as a consequence of such breach, and also has regard to what the lessee stands to lose if the lease is forfeited. Where the forfeiture is excessively punitive as far as the lessee's breach is concerned, i.e. where the damage suffered by the lessor in consequence of the breach is far less in consequence than that which would be occasioned to the lessee if the lease were forfeited, or where the lessor would, if forfeiture were allowed, obtain a windfall or an unmerited benefit, then the Court usually grants relief against forfeiture: see, for example, Legione v Hateley (1983) 152 CLR 406 at 429, per Gibbs CJ and Murphy J, and at 449, per Mason and Deane JJ. 45 In the present case, the evidence is clear and undisputed that since the commencement of the lease in 1999 BBRV has expended some $2,460,000 on improving the dwellings in the caravan park and the buildings which are the property of Zandata, being fixtures to the Land and part of the Land. There is no dispute that the construction of the new buildings is of a high standard, as Mr D'Agostino himself admits. There is no question but that the revenue of the caravan park business has significantly improved. It is difficult to see upon what grounds Zandata could have reasonably refused its consent to the improvements to the dwellings made by BBRV, if such consent had been requested pursuant to clause 12.6. The lease expressly requires Zandata not to withhold consent unreasonably to such a request. It is clear beyond doubt that the improvements made at great expense by BBRV to the dwellings and to the caravan park site generally have been to the overall considerable benefit of Zandata. 46 There has been no suggestion that BBRV has ever been other than punctilious in paying the rent under the lease. No other breach was relied upon in the s 129 notice than the failure to comply with clause 12.6. 47 It is readily apparent that the real reason for the delivery of the s 129 notice was not any detriment to Zandata by reason of the breaches of clause 12.6 but, rather, the desire on its part to bring to an end, by any means whatsoever, a lease which, if renewed for all option periods, would grant to BBRV a tenure of some forty years, together with the opportunity on BBRV's part to derive a substantial income or profit from the redevelopment of the site. 48 The lease expressly contemplates that BBRV may change the permitted use of the site to any use permitted by the local council, and the evidence clearly shows that BBRV has been endeavouring to do that since at least 2002. 49 Zandata’s real grievance was expressed by Mr D'Agostino in the witness box in some closing remarks. He was complaining, in effect, that BBRV stood to make a great deal of money from the use of the site; Zandata would have a share of that gain but Mr D’Agostino did not regard that share as sufficient. The evidence is that Zandata has received an offer to purchase the site in the sum of at least $26 million. Mr D'Agostino says he has received another offer for a sum even larger than that. 50 In my view, the inescapable conclusion in the circumstances of this case is that Zandata wishes to avail itself of any means possible to bring to an end the lease and to regain for itself the unencumbered freehold use and occupation of the Land so that it may either develop it itself, according to its own interests, or else sell it to a third party at a very considerable profit. In doing so, it would retain the benefit of the considerable sums which BBRV has expended on improving Zandata’s fixtures on the Land. This is precisely the sort of unmerited windfall to which the Courts have regard in forfeiture cases – referred to in Legione v Hateley – in granting relief against forfeiture. 51    In short, no damage of any relevant sort has been demonstrated as flowing to Zandata by the continuance of this lease. Considerable loss and damage would be occasioned to BBRV if the lease were forfeited – a loss quite disproportionate to the lack of gravity of the breaches of clause 12.6 which it has committed. Further, Zandata seeks to obtain an unmerited windfall by termination founded on those breaches. 52    In those circumstances, I would have had no hesitation in granting relief against forfeiture had I not come to the conclusion that Zandata had elected to affirm the lease. In these circumstances, I need not deal with the other bases for relief relied upon by BBRV.


Orders

53    I order that the Defendant pay the Plaintiff's costs of the proceedings. The Plaintiff will bring in Short Minutes of Order reflecting these reasons.
– oOo –