Chittick v Galea

[2007] NSWSC 38

CITATION:	Chittick v Galea [2007] NSWSC 38 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	31 January 2007
JUDGMENT DATE :	6 February 2007
JURISDICTION:	Equity
JUDGMENT OF:	Hammerschlag J
DECISION:	Relief against forfeiture granted
CATCHWORDS:	LEASE - Notice to quit - breach of covenant to pay rent and discretion to refuse the grant of relief against forfeiture.
CASES CITED:	M.K. & J.A. Roche Pty. Ltd v Metro Edgley Pty. Ltd [2005] NSWCA 39 Leonida v Scotson Pty Limited (1984) NSW ConvR Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9652 Bank of Baroda v Panessar [1987] 1 Ch 335
PARTIES:	Ronald John Chittick & Warren Michael Chittick (Plaintiffs) Paul Galea (First Defendant) Mary Galea (Second Defendant)
FILE NUMBER(S):	SC 006001/2006
COUNSEL:	Mr B DeBuse (Plaintiffs) Mr L Ellison SC (Defendants)
SOLICITORS:	Reimer Winter Williamson (Plaintiffs) Blunden & Montgomery (Defendants)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Hammerschlag J

6 February 2007

2006 / 06001 Chittick & Ors. v Galea & Ors.

JUDGMENT

1 The plaintiffs, Ronald John Chittick and his son Warren Michael Chittick, are lessees from the defendants Paul Galea and Mary Galea, under a registered lease AB963737U (“the lease”) of a property being Lot 1 in Deposited Plan 776645 otherwise known as Lot 1 Greendale Road, Greendale (or Wallacia). The commencement date of the lease is 1 December 2003 and it will expire on 30 November 2008. The lease was entered into after the plaintiffs had exercised an option pursuant to a predecessor lease (“the old lease”) (number 6635484E) cl 22 of which provided for the option and for the parties to agree upon a new rent following its exercise.

2 The uncontested evidence is that the plaintiffs have been the lessees of the land since 1992, have made improvements to it and currently have on the land over 60 holstein cows. No dairy in the sense of the production of milk has been operated on it for a number of years.

3 The process of agreeing the new rent took some months. After the exercise of the option, which occurred on about 27 February 2003, the rent apparently increased from $31,992 per annum ($2,662 per month) being paid under the old lease to $35,300 per annum pursuant to cl 18 of the lease for the period of 1 December 2003 to 30 November 2004, with provision in the lease for an annual Consumer Price Index (CPI) increase effective at the expiration of every year during the currency of the lease. Clause 18 requires the rent to be paid monthly in advance. Clause 1(c) under Sch 2 provides that if the rent: “…shall not be paid at any time within fourteen (14) days of the same becoming due as aforesaid (whether) any formal demand therefore (sic) shall have been made or not…” the lessor shall immediately, or at any time thereafter, be entitled to re-enter.

4 Clause 24 of Sch 2 requires the lessee each month to pay in addition to rent the amount of any GST which may apply in respect of the rent.

5 The commencement date of the lease is expressed to be 1 December 2003, notwithstanding that it was executed by both parties in May 2005.

6 The rent was being paid by direct debit.

7 The plaintiffs, however, notwithstanding the execution of the lease, continued to pay rent at the old rate.

8 On 17 February 2006 the defendants’ solicitors wrote to the plaintiffs’ solicitors requiring them to settle up the arrears forthwith, referring to the fact that pursuant to the lease rent was to be paid at the rate of $35,300 per annum for the period 1 December 2003 to 30 November 2004 and was to increase thereafter on each anniversary.

9 On 30 May 2006 the plaintiffs’ solicitors in a letter to the defendants’ solicitors asked for a statement of the calculation of the CPI as claimed.

10 A further letter from the defendants’ solicitors to the plaintiffs’ solicitors dated 15 June 2006 referred to the fact that the plaintiffs had only increased the payment once the lease was entered into and had not paid the arrears commencing 1 December 2003.

11 On 12 July 2006 the plaintiffs themselves wrote to the defendants’ solicitors asking for further information about the CPI increase.

12 The defendants’ solicitors wrote to the plaintiffs’ solicitors on 20 September 2006 providing that information and advising that if the shortfall representing the period to 30 September 2006 of $11,801.46 was not paid on or before 30 September 2006 and the adjusted rent of $3,093.60 paid commencing 1 October 2006, the defendants would require the plaintiffs to vacate the premises forthwith and would exercise their rights pursuant to cl 1(c) under Sch 2 of the lease.

13 Mr Ronald John Chittick, one of the plaintiffs, gave evidence that that letter did not come to his notice until a meeting with his solicitors on 30 October 2006. There is no dispute that the plaintiffs’ solicitors received it. The plaintiffs’ solicitors had requested the CPI information on 30 May 2006 and the plaintiffs themselves had written for further information on 12 July 2006. The respective solicitors had been involved throughout and there is no suggestion that the plaintiffs’ solicitors did not have authority to receive the letter of 20 September 2006. The plaintiffs’ solicitors in their letter dated 30 October 2006 referred to previous correspondence. In my view, receipt of the 20 September 2006 letter by the plaintiffs’ solicitors was receipt of it on the plaintiffs’ behalf.

14 In the meantime, the evidence reveals, in mid September 2006 there was a meeting between Mr Chittick and Mr Paul Galea, one of the defendants. The parties’ versions of that meeting differ, but it is clear that there was raised between the parties the fact that the plaintiffs were in arrears and that the defendants wanted to be paid. Mr Chittick’s version is that he said he would send a cheque to clear the base rent and that any outstanding moneys would be paid when the requested information arrived from his solicitor, and that Mr Galea agreed by saying that that was fine. Mr Galea’s version is that he raised the arrears and the fact that money was long overdue and denies that Mr Chittick said he would send a cheque but said, rather, that he would look into it. Mr Galea also denied that he agreed as asserted by Mr Chittick. The versions of the parties both refer to the fact that Mr Galea’s solicitors were involved in the process.

15 Mr Chittick says he sent a letter dated 28 September 2006 to the defendants enclosing a cheque representing the shortfall at that point, but without any CPI adjustment. His affidavit says the cheque was for $9,360.26; the letter, which is in evidence, refers to a cheque for $9,350.26. The defendants deny receipt of that letter and any cheque. It is common cause that no such cheque was ever presented and that ultimately Mr Chittick placed a stop on it on 30 October 2006.

16 Mr Chittick was cross-examined by Mr Ellison SC for the defendant about the fact that the counterfoils of the cheque book from which that cheque was written reflect that cheque 2452 (the cheque in question) has a counterfoil dated 28 September 2006 but cheque 2451 which preceded it has a counterfoil dated 18 October 2006. Mr Chittick gave an explanation for this which was not the subject of any adverse submission by Mr Ellison. In the event, I find that the plaintiffs have not established that the defendants received that money.

17 On 23 October 2006 the monthly automatic debit amount was changed from $2,666.66 (the old amount) to $2,941.67. The amount was further increased by 29 November 2006 to $3,093.60.

18 On 17 October 2006 the defendants gave to the plaintiffs a Notice to Quit and Notice of Exercise of Right of Re-Entry (“Notice to Quit”). That notice relies on the breaches of the covenant in the lease to pay rent. It states that:

“… we hereby give you notice and require you to quit the premises for failure to comply with your covenant to pay rent pursuant to clause 18 of schedule 2 of the lease registration number AB963737U and you are to quit the premises on or before 30 November 2006… The Lessors shall re-enter the premises on 30 November 2006.”

19 The amount of $11,953.39 was tendered by cheque under cover of a letter from the plaintiffs’ solicitors to the defendants’ solicitors on 30 October 2006 representing $11,801.46 in accordance with the 20 September 2006 letter together with the balance for the month of October of $151.93.

20 On 6 December 2006 the defendants’ solicitors by letter raised with the plaintiffs’ solicitors, apparently for the first time, the plaintiffs’ failure to pay GST, by that time totalling $10,864.10. On 21 December 2006 the plaintiffs’ solicitors responded by saying that if a proper invoice was provided the amount would be paid. An invoice dated 22 December 2006 was provided and a cheque for the outstanding GST claimed ($10,864.10) was sent under cover of a letter dated 24 January 2007.

21 Ms Azzopardi, Mr Galea’s daughter, gave evidence. She looks after his paper work. She was cross-examined briefly by Mr DeBuse. She herself said she did not know about the GST and was not aware whether GST had to be paid or not. The defendants only raised the GST issue in December 2006.

22 As at the date of this hearing it is accepted by the defendants that any outstanding rent has either been paid or proffered. This includes any GST component which the defendants say is payable under the lease.

23 The defendants have not presented the cheques for outstanding rent and GST.

24 The plaintiffs seek declaratory relief that the Notice to Quit is void and of no effect and that there is a valid and subsisting lease between the parties. In the alternative they seek relief against forfeiture.

25 Mr DeBuse of Counsel, for the plaintiffs, put that there was no breach of the lease with respect to the non-payment of rent because:

a the old rent applied until the lease was executed so that the covenant to pay rent monthly in advance could not have been performed during the period 1 December 2003 to the execution of the lease;

b by that time, one annual CPI increase had become applicable but the obligation rests on the lessor to advise the lessee, under cl 18 of the lease, on or as soon as practicable after each variation date of the amount of rent payable as from the variation date. In order to enliven the obligation to pay any arrears, demand was necessary;

c the conversation between the parties in September 2006 represented a waiver of any breach to pay the rent reflected in the lease then subsisting or gave rise to an estoppel precluding the defendants from relying on it; and

d the defendants had waived any breach by holding on to the plaintiffs’ cheques and not returning them, albeit that they have not been banked.

26 Mr DeBuse put further that the Notice to Quit was not effective to terminate the lease because it gave the lessees until 30 November 2006 to quit the premises and informed them of the intention to re-enter on 30 November 2006. It did not convey that the defendants were terminating and by 30 November 2006 any default to pay rent had been remedied.

27 In my opinion:

a upon the execution of the lease, the plaintiffs became liable to pay the increased amounts to the defendants excluding any CPI increases. The lease is expressly made to operate from 1 December 2003, so that upon execution, the plaintiffs’ obligation to pay rent in respect of the period from that date arose. Clearly, they could not have been in breach before that time for failing to pay in advance or in any other respect, given that there was no lease. But as soon as the lease was executed, they had to pay all rent referrable to the period from 1 December 2003. At best they had a reasonable time to pay, which would have been close to immediately, being that time needed for implementing the mechanics necessary to pay: Bank of Baroda v Panessar [1987] 1 Ch 335. That is, from May 2005 the plaintiffs were obligated to pay the monthly amount of $2,941.67 retrospective to 1 December 2003. If demand was necessary, which I do not consider it was, the letter dated 17 February 2006 was in any event, sufficient demand for the arrears (excluding the CPI variation). Further demand was made on 15 June 2006;

b as to the CPI component, by cl 18 of the lease the defendants had to advise the amount before the plaintiffs had to pay. The obligation to pay the CPI variation arose no earlier than 20 September 2006 when the calculation was provided by the defendants’ solicitors to the plaintiffs’ solicitors. In my view, the obligation to pay the CPI variation by 30 September 2006 arose on 20 September 2006 when demand was made for it. By the time the Notice to Quit was given, the plaintiffs were thus in breach both with respect to the base rent deficit and CPI variation, and the defendants were entitled to give the notice;

c each of Mr Chittick and Mr Galea gave their honest account of what occurred during the September conversation. Mr Chittick was clearly conscious that arrears (leaving the CPI increase aside) were due. Nothing Mr Galea said or did could have been thought to relieve him of that obligation. Indeed on his version, he agreed to pay it. No waiver or estoppel with respect to that obligation can accordingly arise. Given that the CPI obligation arose, in my view, from 20 September 2006 and the plaintiffs have not established that the conversation occurred after that date, no waiver or estoppel can go. Mr Chittick’s evidence is that the conversation occurred in or about mid September 2006. There is also in my opinion no, or no sufficiently articulated, detriment established by the plaintiffs arising from anything said or done by Mr Galea to give rise to an estoppel: M.K. & J.A. Roche Pty. Ltd. v. Metro Edgley Pty. Ltd [2005] NSWCA 39 (at 72). The highest Mr DeBuse was able to put it was that Mr Chittick lost an opportunity to consider what he otherwise might have done; and

d the defendants have not banked the cheques, and their failure to return them does not, in my view, represent conduct consistent only with an election to affirm the lease and assuage any breaches of it by the plaintiffs.

28 In my view, the language of the Notice to Quit sufficiently conveys that the lease is at an end: M.K. & J.A. Roche Pty. Ltd. v. Metro Edgley Pty. Ltd. (at 56). There is no reasonable construction of it consistent with the lease being kept alive. The defendants gave the plaintiffs time to quit: Leonida v. Scotson Pty. Limited (1984) NSW ConvR 55-161.

29 Neither counsel put any oral submissions with respect to the failure by the plaintiffs to pay GST. It is not necessary to decide whether GST falls within the definition of rent under cl 1(c) because a failure to pay it, if due, would still be a failure to perform a covenant to be performed under the lease and be a breach.

30 From what is said above it follows that but for any relief which the Court may grant against forfeiture, the defendants would have effectively terminated the lease.

31 Turning to the question of relief against forfeiture, a lessee is not entitled to relief against forfeiture as of right. The Court has discretion in the matter. In exercising its jurisdiction to grant to relief against forfeiture for non-payment of rent the Court generally regards the power to re-enter or forfeit for non-payment of rent as a security for the rent, and provided the lessor and other persons concerned can be put in the same position as before the forfeiture or re-entry, the lessee is entitled to be relieved against forfeiture upon payment of rent, costs and, in appropriate cases, of interest and of other expenses to which the lessor may have been put. There may, however, be “very special circumstances” in which relief may be refused: Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co. of NSW Ltd (1970) 2 BPR 9652 (at 97145-97146).

32 Mr Ellison properly did not put that the lessor could not be put in the same position by the payment of the amounts in respect of which the defendants assert default.

33 In addition, he did not put that in the circumstances of the present case there were any matters concerning non-performance of covenants other than to pay rent in the lease which I should take into account in the exercise of the Court’s discretion. He addressed no oral submissions on the non-payment of GST.

34 There was no submission that any third party would be adversely affected by the grant of relief.

35 The thrust of Mr Ellison’s submission was that the plaintiffs had throughout adopted a cavalier attitude to the discharge of their payment obligations, being conscious of the fact that they were in default of the payment of arrears, to their knowledge, under the terms of the lease, from at least 17 February 2006. The non-payment of the arrears claimed had been wilful and deliberate, and not inadvertent and therefore, he submitted, the plaintiffs should not be granted relief against forfeiture.

36 Mr Chittick accepted under cross-examination that he chose not to pay the higher rent but to pay the lower rent and see what happened. He also accepted that he could have made his own CPI calculations but did not. Mr Chittick was aware that GST was applicable on the rent when the lease arrived in 2005. He said he would have assumed that the plaintiffs should have been issued with a tax invoice outlining what their rent payments with the CPI rises and their GST component was.

37 Mr Ellison made a submission that the plaintiffs’ cavalier attitude was displayed as late as 23 October 2006 when the direct debit was increased short of the amount of $3,093.60. He pointed out the fact that payments were made close to the end of the periods when they were demanded and that the plaintiffs apparently have not been keen to keep up to date with the lease and that the period of default by deliberate underpayment was long.

38 I approach the matter on the basis that the history and circumstances of non-payment are relevant matters in the exercise of discretion.

39 It is to be borne in mind that the plaintiffs have always paid rent albeit that there has been short payment.

40 So far as the CPI variations are concerned, the plaintiffs had asked for information which was ultimately supplied on 20 September 2006 to their solicitors, and the amount claimed was paid by 30 October 2006.

41 In September 2006 a cheque for some arrears was sent, although not received.

42 With respect to the CPI adjustment, the period of default was not long, after the appropriate information had been provided. The defendants were, under cl 18(b) of Sch 2 of the lease, obliged to furnish that information

43 Assuming the failure to pay GST, even absent a tax invoice, was a breach of the lease, I do not consider that either on its own or together with any other matters, the circumstances here warrant exercise of the Court’s discretion adversely to the plaintiff. Whether or not the issue of a tax invoice was a precondition to any obligation to make payment, it was not unreasonable on the part of Mr Chittick to expect one before payment was made. The defendants had a statutory obligation under the relevant legislation to issue such an invoice (s 29 – 70 of A New Tax System (Goods and Services Tax) Act 1999 (Cth)). Very soon after the GST issue was raised and an invoice provided, the amount was paid, albeit that these proceedings were already on foot.

44 Making a payment within a period demanded, even if right at the end of that period is not, it seems to me, a matter of significance in the present context.

45 Although the defendants, in my view, have a justified complaint that the plaintiffs did not meet certain of their obligations timeously and it is clear that the plaintiffs have not acted inadvertently, I do not consider the plaintiffs’ conduct to be sufficiently grave, exceptional, or special as to warrant the exercise of the discretion to deny them relief against forfeiture.

46 In addition, as Mr Ellison properly conceded, the fact that the plaintiffs have been on the property since 1992 and conduct their operation on the premises is relevant to the exercise of the discretion. The consequences of denying relief would be substantial and the defendants do not put, as I have said above, that the payments proffered do not restore them.

47 I would accordingly order that the plaintiffs have relief against forfeiture of the registered lease number 6635484E. Such relief will be granted conditional upon the non-presented cheques being honoured upon presentment.

48 I heard submissions from the parties on costs. Mr Ellison submitted that the plaintiffs should not have any, or at least part, of their costs. Mr DeBuse submitted that if there were to be an order that the plaintiffs should not have all of their costs, 50 per cent was an appropriate figure. The plaintiffs have succeeded only with respect to the claim based on discretion. Only on 24 January 2007, a week before the hearing, did the plaintiffs proffer payment of the GST claimed by the defendants. On the other hand, by the date these proceedings were commenced, the amount claimed in the 20 September 2006 letter had been proffered. In the circumstances I propose to order that the plaintiffs should not have all of their costs but only 50 per cent thereof. However, I will give the parties a further opportunity to be heard on the question of costs by directing written submissions by no later than 4:00pm on the day after this judgment is handed down. If no submissions are received, the order on costs shall be as I have indicated.

49 The parties should bring in short minutes.

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07/02/2007 - Incorrect judgement date amended - Paragraph(s) n/a