Croc's Franchising Pty Ltd v Alamdo Holdings Pty Ltd

[2023] NSWCA 256

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Croc’s Franchising Pty Ltd v Alamdo Holdings Pty Ltd [2023] NSWCA 256

Hearing dates:

14 and 15 August 2023

Date of orders:

27 October 2023

Decision date:

27 October 2023

Before:

Payne JA at [1];
Stern JA at [187];
Basten AJA at [199]

Decision:

(1)    Appeal allowed.

(2)    Set aside orders 1 and 2 of Stevenson J dated 28 February 2023 and all orders dated 8 March 2023 and in lieu thereof order:

(a)    The Amended Commercial List Statement filed 19 August 2021 is dismissed.

(b)    First respondent to pay the appellants’ costs of the Amended Commercial List Statement.

(c)    The Commercial List Cross-claim Statement filed 15 November 2022 remitted to the Equity Division to deal with damages, if any, to which the first appellant is entitled.

(d)    Costs of the cross-appeal to be costs in the cause of the remitted hearing.

(3)   First respondent to pay the appellants’ costs of the appeal.

Catchwords:

LEASES AND TENANCIES – retail lease –executed agreement for lease and lease for period of 10 years – whether lessor entitled to terminate lease – whether termination prohibited by COVID-19 pandemic regulation – whether lessor elected to waive certain grounds for terminating lease – where lease not registered – whether parties bound by contractual force of agreement for lease – proper construction of guarantee – whether guarantors liable for obligations of lessee – where tenant’s entitlement to damage not sufficiently litigated – whether appropriate for appeal court to determine entitlement to damages

STATUTORY INTERPRETATION – subordinate legislation – schedule to regulation – application of principles of statutory interpretation – schedule replaced by second version – schedule containing blanket prohibition on terminating lease during “prescribed period” – separate provisions permitting termination subject to conditions – whether specific exceptions prevailed over general prohibition – coherent reading in light of extrinsic materials

EVIDENCE ­– privileges – settlement negotiations – privilege under Small Business Commissioner Act 2013 (NSW) s 19 over discussions during mediation – whether privilege waived by party’s conduct and communications

Legislation Cited:

Civil Procedure Act 2005 (NSW), Pt 6

Conveyancing Act 1919 (NSW), ss 127–129

Criminal Code 1899 (Qld), ss 659, 673

Government and Related Employees Appeals Tribunal Act 1980 (NSW), s 20

Interpretation Act 1987 (NSW), ss 21, 32–35

Ombudsman Act 1974 (NSW), s 32

Real Property Act 1900 (NSW), ss 41, 53

Retail Leases Act 1994 (NSW), ss 87, 88

Small Business Commissioner Act 2013 (NSW), s 19

Conveyancing (General) Regulation 2018 (NSW), Sch 5

Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth), ss 5–8, 8B

Cases Cited:

Agricultural & Rural Finance v Gardiner (2008) 238 CLR 570; [2008] HCA 57

Alamdo Holdings Pty Ltd v Croc’s Franchising Pty Ltd [2022] NSWSC 1746

Alamdo Holdings Pty Ltd v Croc’s Franchising Pty Ltd (No 3) (unreported, NSW Supreme Court, 8 March 2023)

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27; [2009] HCA 41

Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 406 ALR 632

Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389; [1996] HCA 36

Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390

Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297; [1981] HCA 26

DTR Nominees Pty Ltd v Mona Pty Ltd (1978) 138 CLR 423

Environment Protection Authority v Orchard Holdings (NSW) Pty Ltd (in liq) (2014) 86 NSWLR 499; [2014] NSWCA 149

Foran v Wight (1989) 168 CLR 385

Hall v Jones (1942) 42 SR (NSW) 203

Harrison v Melhem (2008) 72 NSWLR 380; [2008] NSWCA 67

Kuruv State of New South Wales (2008) 236 CLR 1; [2008] HCA 26

Lazaris v R [2014] NSWCCA 163

LeitzLeeholme Stud Pty Ltd v Robinson [1977] 2 NSWLR 544

Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101; [2008] HCA 38

No 20 Cannon Street Ltd v Singer & Friedlander Ltd [1974] 1 Ch 229

Owendale Pty Ltd v Anthony (1967) 117 CLR 539

Panayi v Deputy Commissioner of Taxation [2017] NSWCA 93; (2017) 319 FLR 228

Patman v Fletcher’s Fotographics Pty Ltd (1984) 6 IR 471

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28

Ross v The Queen (1979) 141 CLR 432; [1979] HCA 29

Sargent v ASL Developments Ltd (1974) 131 CLR 634

Seltsam Pty Ltd v McGuinness (2000) 49 NSWLR 262; [2000] NSWCA 29

Smith v The Queen (1994) 181 CLR 338; [1994] HCA 60

The Ombudsman v Laughton (2005) 64 NSWLR 114; [2005] NSWCA 339

Todarello Property Investments Pty Ltd v GJA Kalra Pty Ltd [2021] NSWSC 1678

Texts Cited:

“National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles during COVID-19”

DC Pearce and RS Geddes, Statutory Interpretation in Australia (9th ed, LexisNexis Butterworths, 2019)

Explanatory Note to the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW)

Explanatory Note to the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (NSW)

Perry Herzfeld and Thomas Prince, Interpretation (2nd ed, 2020, Thomson Reuters)

Category:

Principal judgment

Parties:

Croc’s Franchising Pty Ltd (first appellant)
Brett Christopher Aldons (second appellant)
Lawrence John Cusdin (third appellant)
Alamdo Holdings Pty Ltd (first respondent)
State of New South Wales (second respondent)

Representation:

Counsel:

M Ashhurst SC; D Meyerowitz-Katz (appellants)
JAC Potts SC; AR Langshaw (first respondent)
Submitting appearance (second respondent)

Solicitors:

Newhouse & Arnold Solicitors (appellants)
Speed & Stracey Lawyers (first respondent)
Crown Solicitor’s Office (second respondent)

File Number(s):

2023/90820

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Commercial List

Citation:

[2023] NSWSC 60

Date of Decision:

9 February 2023

Before:

Stevenson J

File Number(s):

2021/136164

HEADNOTE

[This headnote is not to be read as part of the judgment]

The first appellant, Croc’s Franchising Pty Ltd, is the operator of a children’s play centre franchise. The second and third appellants are its founders and directors. The first respondent, Alamdo Holdings Pty Ltd, is registered proprietor of a property in Castle Hill, Sydney. In 2017, Alamdo agreed to grant Croc’s a commercial lease over the Castle Hill property. Croc’s and Alamdo executed an Agreement for Lease (“AfL”) and a Lease Document in registrable form which purported to create a 10-year lease with the second and third appellants guaranteeing Croc’s obligations. Because Alamdo failed to register the Lease Document, the parties agreed that Croc’s only legal proprietary interest in the premises was a tenancy at will. In June 2018, Croc’s entered into possession, but the real occupant was its franchisee who traded from the premises.

In March 2020, the World Health Organization declared COVID-19 a worldwide pandemic. In April 2020, the Commonwealth enacted the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (“Jobkeeper Rules”), creating the Jobkeeper benefits scheme. By December 2020, a business was eligible for Jobkeeper benefits if it satisfied various tests, including, relevantly, the “decline in turnover” test (cl 8). This test was met if, “at or before the end of the fortnight” in which it applied for Jobkeeper, the business showed a year-on-year fall in projected GST turnover either for any calendar month after 30 March 2020 or for any of the three quarters in 2020 except the first.

In March 2020, Australia’s “National Cabinet” issued the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles during COVID-19 (“National Code”), designed “to impose a set of good faith leasing principles” for commercial tenancies where the tenant was eligible for Jobkeeper.

To reflect the National Code, New South Wales enacted Sch 5 to the Conveyancing (General) Regulation 2018 (NSW), which came into force on 24 April 2020 and expired on 24 October 2020 (“the First COVID Regulation”). On 24 October 2020, a new form of the regulation was enacted, to expire on 24 April 2021 (“the Second COVID Regulation”). Under both versions of the Regulation, commercial tenants could invoke certain protections if they were eligible for Jobkeeper benefits and therefore “impacted lessees”. Central to both regulations was the term “prescribed period”. Under the First COVID Regulation, the prescribed period was the entire lifespan of the regulation. Under the Second COVID Regulation, the prescribed period ran from 24 October 2020 to 31 December 2020, leaving almost four months until the regulation expired on 24 April 2021.

Under both regulations, cl 4 prohibited landlords from taking “prescribed action” for, inter alia, non-payment of rent during the prescribed period. Prescribed action included terminating the lease. Clause 5, in terms, prohibited a landlord from taking prescribed action for, inter alia, non-payment of rent unless there had been good faith rent negotiations. Clause 6 prohibited a landlord from, inter alia, terminating the lease unless the Small Business Commissioner certified that a mediation attempt had failed.

In March 2020, Croc’s fell behind on its rent to Alamdo. Croc’s and Alamdo corresponded about possible rent relief. On 28 April 2020, Alamdo’s director, Mr Anthony Maurici, offered Croc’s a 50% rent waiver and 24 month deferral on the balance. Croc’s did not respond to the offer. Negotiations continued until November 2020. Croc’s position was that, under the National Code, it was entitled to rent relief in proportion to its franchisee’s business downturn, rather than its own.

On 1 October 2020, Croc’s paid its rental arrears for 1 April to 24 April 2020. No rent due after 24 April was paid. On 3 December 2020, Alamdo took possession of the premises and purported to terminate the lease. Alamdo then commenced proceedings seeking damages for, inter alia, unpaid rent and outgoings. Croc’s cross-claimed, alleging that Alamdo’s termination was prohibited by the Second COVID Regulation and seeking loss of bargain damages.

The primary judge found that Alamdo was entitled to terminate because Croc’s was not eligible for Jobkeeper at the date of termination and therefore not an “impacted lessee” under the Second COVID Regulation. In the event this analysis was wrong, the primary judge also found that cll 5 and 6 of the Regulation created a “gateway” through the prohibition in cl 4, and that Alamdo had satisfied both cll 5 and 6. The primary judge also held that, although the Lease Document was unregistered, the parties were bound by the AfL. He awarded loss of bargain damages to Alamdo.

Croc’s appealed. Alamdo filed a notice of contention.

The issues on appeal were:

(i)    Was Croc’s eligible for Jobkeeper benefits and therefore an “impacted lessee” under the Second COVID Regulation?

1. Did cll 5 and 6 of the Second COVID Regulation create a gateway through the prohibition in cl 4, or did cl 4 act as a “blanket” prohibition during the prescribed period?

2. Did Alamdo comply with cl 5 of the Second COVID Regulation?

3. Did the Retail Leases Act 1994 (NSW), s 88(2) extend the operation of the COVID Regulation beyond its expiration?

4. Although there was no registered lease, did the AfL create contractually binding obligations whose breach by Croc’s could sound in damages?

5. By sending a tax invoice for rent due in December 2020, did Alamdo affirm the lease?

6. Despite the Second COVID Regulation, was Alamdo entitled to terminate because of Croc’s failure to pay rent before that regulation came into force?

7. Was the primary judge wrong to find the second and third appellants guaranteed all of Croc’s obligations under the AfL, and remained guarantors despite the terms of a “guarantor release” clause in the AfL?

8. On its cross-claim, was Croc’s entitled to damages for Alamdo’s repudiation by wrongfully terminating the lease?

The Court of Appeal (Payne and Stern JJA agreeing, Basten AJA dissenting) held, allowing the appeal and remitting the matter to the Equity Division:

On issue (i) (Payne JA at [39]-[53], Stern JA at [187], Basten AJA at [199]):

1. Alamdo conceded it had led the primary judge into error when construing the Jobkeeper Rules. This concession was correct: an entity was eligible for Jobkeeper, so long as it satisfied the “decline in turnover” test in cl 8 at some point before the end of the fortnight (but not necessarily during that fortnight) in which it first applied for Jobkeeper benefits. Eligibility did not fluctuate from fortnight to fortnight: at [46]-[50].

2. Croc’s was an “impacted lessee” under the Second COVID Regulation: at [51].

On issue (ii)

1. The general principles for interpreting Acts of Parliament are applicable when interpreting delegated legislation: at [82], [202].

Interpretation Act 1987 (NSW) ss 21, 32, 33 applied;

Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 398; Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101; [2008] HCA 38 at [19] applied.

1. Subordinate legislation should, however, be construed bearing in mind that often it will not have been drafted with the same care as an Act of Parliament: at [84], [197], [202].

Environment Protection Authority v Orchard Holdings (NSW) Pty Ltd (in liq) (2014) 86 NSWLR 499; [2014] NSWCA 149 at [44]-[45] applied.

On issue (ii) (Payne JA at [54]-[110], Stern JA at [187]-[198]):

1. The National Code and the commercial leasing principles it contained were available extrinsic material when construing the COVID Regulations: at [103], at [190]. Both COVID Regulations in terms permitted the Court to take the leasing principles into account: at [103], [195].

Interpretation Act 1987 (NSW) s 34(1)(b)(i); Conveyancing (General) Regulation 2018 (NSW) Sch 5 cl 7 applied.

1. The leasing principles prohibited termination of a commercial lease for non-payment of rent during the COVID-19 pandemic period and a reasonable subsequent recovery period: at [59].

2. Unlike in the First COVID Regulation, cl 4 in the Second COVID Regulation applied only if the landlord sought to terminate during the prescribed period itself. Further, while the First COVID Regulation’s “prescribed period” covered its entire lifespan, the Second COVID Regulation’s “prescribed period” covered only two months of its six month duration. Because of this significant change, the Second COVID Regulation’s meaning should not be tied to that of the First COVID Regulation: at [98], at [196], [198].

3. Under the Second COVID Regulation, the cl 4 prohibition applied during the two-month prescribed period, equivalent to the “COVID-19 pandemic period” in the leasing principles. Clauses 5 and 6 were not temporally limited to the prescribed period and could operate for the four months after the prescribed period: at [104]-[107], [109], [197]. For the prescribed period, cl 4 created a blanket prohibition, while for the remaining four months, cll 5 and 6 created narrower restrictions and gateways through those restrictions. This construction was coherent and consistent with the leasing principles and National Code: at [108], [197].

4. Because 3 December 2020 fell within the Second COVID Regulation’s prescribed period, cl 4’s blanket prohibition prevented Alamdo from terminating: at [110]. The prohibition applied to both Croc’s tenancy at will and to the agreement created by the AfL, since the AfL was an “agreement for a lease” where the lessee was entitled to have the lease granted (Conveyancing Act 1919 (NSW) s 128): at [63], [148].

(Basten AJA contra):

1. A coherent application should be given to cll 4, 5, 6 and 7 of the second version of Schedule 5, consistent with the leasing principles in the National Code, by reading them as a package. Clauses 5 and 6 contained internal indications that expressly permitted the taking of action otherwise prohibited by cl 4(2); it was not possible to give them effect unless they qualified so much of the prohibition in cl 4 as fell within their compass: at [273]. Clause 5(1), while repeating one of the prohibitions in cl 4, did so in order to qualify it, in part. Clause 6 was not so limited, but imposed its own separate condition, cumulatively on cl 5: at [284].

2. It would be contrary to principle, inconsistent with authority and defy common sense to interpret cl 4, in the second version of Schedule 5, as a blanket prohibition during the “prescribed period” and cll 5 and 6 as limited prohibitions only applying after the prescribed period. No such conclusion was tenable while the first version of Schedule 5; the amendments to the scheme made by the second version demonstrated no change to the underlying purpose or objects of the Schedule. The mere fact that, for a limited period, cl 5 operated when cl 4 did not, does not warrant the conclusion that cl 5 was to operate only during that period: at [289], [286]-[287].

On issue (iii) (Payne JA at [111]-[119], [125]-[130], Stern JA at [187], Basten AJA at [199]):

1. The primary judge was correct to find Alamdo satisfied cl 5. Its rent relief offer of 28 April 2020 was never withdrawn: at [116]. None of Croc’s communications amounted to a “second or subsequent request” for negotiation, but were re-assertions of its claimed entitlement to have its rental relief calculated by reference to its franchisee’s turnover: at [117]-[119].

2. Privilege under the Small Business Commissioner Act 2013 (NSW) s 19(3) over evidence of the offer made by Alamdo during mediation was waivable by either party, and Croc’s correspondence and conduct of the proceedings amounted to a waiver: at [127]-[129].

On issue (iv) (Payne JA at [121]-[124], Stern JA at [187], Basten AJA at [199]):

1. Section 88 of the Retail Leases Act 1994 (NSW) preserved the accrued operation of the COVID Regulations for the period that they were in force. It did not indefinitely extend the Regulations’ effect beyond that period: at [123].

On issue (v) (Payne JA at [131]-[149], Stern JA at [187], Basten AJA at [199]):

1. The primary judge was correct that, by operation of the AfL, contractual rights arose between Croc’s and Alamdo, in the terms of the AfL and Lease Document, and in parallel to any separate equitable or legal estate in the premises: at [144]. Croc’s breach of this agreement could sound in damages: at [147].

Leitz Leeholme Stud Pty Ltd v Robinson [1977] 2 NSWLR 544 at 54 applied; Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 252 cited.

On issue (vi) (Payne JA at [150]-[156], Stern JA at [187], Basten AJA at [199]):

1. The primary judge was correct that Alamdo did not affirm the lease on 30 November 2020 by sending Croc’s a tax invoice for rent due in December 2020. There was no inconsistency between Alamdo insisting on its right to receive rent and retaining its right to terminate: at [154].

Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 656; Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 (2022) 406 ALR 632 at [48]-[53] applied.

On issue (vii) (Payne JA at [157]-[166], Stern JA at [187], Basten AJA at [199]):

1. The primary judge was correct to find that Alamdo was not entitled to terminate for Croc’s non-payment of rent between 1 and 24 April 2020 because its stated ground for termination was solely breaches arising after 24 April 2020: Payne JA at [163].

Todarello Property Investments Pty Ltd v GJA Kalra Pty Ltd [2021] NSWSC 1678 at [75]-[76] applied.

1. Additionally, by in October accepting Croc’s late payment of rent up to 24 April 2020, Alamdo waived its entitlement to terminate on the basis the rent had gone unpaid: Payne JA at [164]-[165].

Owendale Pty Ltd v Anthony (1967) 117 CLR 539 at 556-557 applied.

On issue (viii) (Payne JA at [167]-[180], Stern JA at [187], Basten AJA at [199]):

1. The primary judge was correct that, by cl 11 of the AfL and cl 20.1 of the Lease Document, the second and third appellants agreed to guarantee all of Croc’s obligations under the AfL. In cl 20.1 of the Lease Document, any reference to a “Lease” should be read as a reference to the “AfL”: Payne JA at [173].

1. There was no error in the primary judge’s construction of the terms “minimum guarantee period” and “guarantee release period” in cl 20.1 of the Lease Document, with the effect that the guarantors were not released if Croc’s breached an essential term of the agreement created by the AfL at any point during the lease period: Payne JA at [177]-[179].

On issue (ix) (Payne JA at [181]-[185], Stern JA at [187]):

1. Croc’s entitlement to damages for Alamdo’s termination on 3 December 2020 was not properly litigated at first instance. A remitter was necessary to determine this issue: Payne JA at [185].

JUDGMENT

1. PAYNE JA: The present dispute concerns the termination of a commercial lease during the COVID-19 pandemic. The lessor and respondent to the appeal, Alamdo Holdings Pty Ltd (“Alamdo”), was the registered proprietor of Unit 5 of a property in Hudson Avenue, Castle Hill. Mr Anthony Maurici is Alamdo’s sole director. The lessee of the Castle Hill property was Croc’s Franchising Pty Ltd (“Croc’s”), the first appellant. Croc’s is the franchisor of a chain of child play centres, which operate across Australia. The second appellant is Mr Aldons, one of Croc’s founders and directors. Mr Aldons agreed to guarantee Croc’s obligations under its lease agreement with Alamdo. The third appellant is Mr Cusdin, Croc’s other founder and director, who also acted as guarantor of Croc’s lease obligations.

2. On 16 November 2017, Alamdo and Croc’s executed the following documents:

1. An Agreement for Lease of the Castle Hill premises (“AfL”);

2. A Memorandum of Lease in registrable form which purported to create a lease for 10 years (“the Lease Document”); and

3. An Incentive Deed by which Alamdo agreed to pay Croc’s a $250,000 contribution towards fit out.

3. Alamdo did not register the lease^[1] . Its failure to do so gave rise to issues below and on appeal. On 18 June 2018, Croc’s “entered into possession”. However, the actual occupant of the Castle Hill premises was Croc’s franchisee, Golden Rock & Hope Pty Ltd. Under a licence agreement, the franchisee was required to pay Croc’s the full amount of rent due to Alamdo.

   1. As explained when dealing with issues 7 and 8 at [131]-[149] below, the primary judge concluded that by reason of non-registration and ss 41 and 53 of the Real Property Act 1900 (NSW), the Lease Document conveyed no legal leasehold estate to Croc’s. Croc’s enjoyed a monthly tenancy at will implied by s 127 of the Conveyancing Act 1919 (NSW). Alamdo’s claim for loss of bargain damages relied on cll 3.1 and 3.3(a) of the AfL which created a separate agreement.

4. On 3 December 2020, Alamdo purported to terminate the lease and re-entered into possession of the Castle Hill premises. On 14 May 2021, Alamdo brought proceedings against the appellants, claiming damages for unpaid rent and outgoings, loss of bargain damages and a refund of part of the incentive payment it had made to Croc’s. The appellants filed a cross-claim, alleging that Alamdo’s termination was wrongful and amounted to repudiation, and that Croc’s was entitled to loss of bargain damages as a consequence of the wrongful termination.

5. The primary judge (Stevenson J) delivered three judgments:

1. Challenge to COVID regulation: In Alamdo Holdings Pty Ltd v Croc’s Franchising Pty Ltd [2022] NSWSC 1746, the primary judge rejected Alamdo’s argument that Sch 5 to the Conveyancing (General) Regulation 2018 (NSW) was not authorised by the legislation under which it was made. There was no appeal from that judgment. The State of New South Wales intervened in that aspect of the proceedings, and filed a submitting appearance as second respondent to this appeal.

2. Primary judgment: In Alamdo Holdings Pty Ltd v Croc’s Franchising Pty Ltd (No 2) [2023] NSWSC 60, the primary judge found that Alamdo was entitled to terminate the lease and that it was entitled to damages for unpaid rent and loss of bargain. The primary judgment was delivered on 9 February 2023. Orders were made on 28 February 2023 as follows:

TERMS OF ORDER MADE BY THE COURT

1. Judgment for the plaintiff against the first, second and third defendants in the amount of $1,076,869.33.

2. The cross-claim is dismissed.

3. The State of New South Wales is to bear its own costs.

4. Reserve all other questions of costs, to be determined in accordance with the directions made on 16 February 2023.

3. Costs: In Alamdo Holdings Pty Ltd v Croc’s Franchising Pty Ltd (No 3) (unreported, NSW Supreme Court, 8 March 2023), the primary judge ordered the appellants to pay 90% of Alamdo’s costs on an indemnity basis. In this appeal, the only challenge to those costs orders was derivative, and turned on the outcome of the challenge to the primary judgment.

Relevant facts

6. On 11 March 2020, the World Health Organization declared COVID-19 a worldwide pandemic. After that date, the NSW government pursued various public health measures, which restricted the size of mass gatherings and prohibited or, at times, restricted indoor recreation centres like Croc’s playcentres from operation. The Commonwealth and NSW governments also introduced various measures to address the economic effects of the pandemic which are at the heart of this appeal.

7. Until March 2020, there was no controversy between the parties about the lease. In March 2020, Croc’s fell behind on rent. It paid $8000 of the $26,083.20 in rent payable for March 2020, before paying no further rent until July 2020.

8. On 14 March 2020, Mr Aldons and Mr Cusdin wrote to Mr Anthony Maurici asking for a two month rent abatement. Rent was due for the month of April, payable in advance on April 1 2020. Croc’s originally paid none of that rent, but in October 2020 paid rent up to 24 April 2020 (see [18] below).

9. On 24 April 2020, Sch 5 of the Conveyancing (General) Regulation 2018 (NSW), headed “Commercial leases—COVID-19 pandemic special provisions”, came into force (“the First COVID Regulation”).

10. On 28 April 2020, Mr Anthony Maurici wrote to Mr Aldons, making the following offer:

1. A 50% rent waiver from 24 April 2020 for the “period during which your business remains closed by Government mandate”;

2. Deferral of the balance until 24 months after the “lifting of the government ban on operation of your business”.

11. Mr Aldons and Mr Cusdin did not respond to this offer. The primary judge found that the offer remained open throughout 2020.

12. On 21 May 2020, Mr Maurici’s son, Mr Sebastian Maurici, asked Mr Aldons to pay outstanding rent from before the commencement of the “COVID legislation”. He also asked for Croc’s financial documents so he could process the rent abatement request:

• The last 12 months of BAS Statements.

• Copy of Business Bank Statement(s) for previous 12 months.

• Trading figures or financial reports for FY 2019 (audited and certified reports)

• Trading figures or financial reports for the current Financial Year (certified by an accountant).

• Most up to date financials available for Jan to present showing your loss of income.

13. On 16 June 2020, Mr Aldons replied, sending a Business Activity Statement for the franchisee occupying the premises. In exchanges with Alamdo during early August, Mr Aldons insisted that it was the franchisee’s business information, rather than Croc’s, which would be provided. Mr Anthony Maurici maintained that he needed Croc’s financial information, not that of the franchisee.

14. For example, on 7 August 2020, Mr Aldons wrote to Mr Sebastian Maurici:

The following information relates to the sales for Castle Hill so that you can apply the code of conduct accordingly for rent payable, deferred and waived :

July sales $19,960 versus last year July of $95,431

Sales achieved = 20.92%

Deferred amount = 39.54%

Waived amount = 39.54%

Sales achieved (%) is what is payable by my franchisee for rent ie 20.92% for July. (Emphasis in original)

15. In cross-examination, Mr Aldons agreed that he “didn’t want to give Alamdo what it had been asking you for”. He also agreed that he had insisted Croc’s was “entitled to a rent reduction measured exactly in proportion to the reduction in sales” by the franchisee and that “All I have to show Alamdo is how much my franchisee’s sales have reduced”.

16. On 11 August 2020, Mr Aldons forwarded to Alamdo a copy of Croc’s Jobkeeper application, which had been lodged with the ATO on 24 April 2020. Attached was a “monthly revenue summary” for the financial years ending 30 June 2019 and 30 June 2020. Those summaries showed total income for the period April to June 2019 of $623,455 and for the corresponding period in 2020, $172,566.21.

17. On 29 September 2020, the parties submitted their dispute to mediation before the Small Business Commissioner (“the Commissioner”). The primary judge found that records of what was said at the mediation could not be admitted into evidence.

18. On 1 October 2020, Croc’s paid Alamdo $29,963, discharging its rental arrears for the month of April 2020, but only up to 24 April 2020, the date the First COVID Regulation came into effect.

19. On 13 October 2020, Mr Aldons sent Mr Anthony Maurici a request for a rent reduction for the period from 24 April 2020 to 30 September 2020. Mr Aldons included with this request more sales information about the franchisee’s performance and again asserted that Croc’s was entitled to a rent reduction in proportion to the franchisee’s drop in revenue. Attached to this correspondence was a letter from Mr Penn, Croc’s accountant, concerning Croc’s “[t]urnover as per accounting records”. The letter asserted that Croc’s total income for the period July to September had fallen from $656,604.33 in 2019 to $375,124.36 in 2020.

20. In cross-examination, Mr Anthony Maurici explained that he thought there was no “v[e]racity” in this material as it was “the accountant’s information … based on information provided by Croc’s, and the information provided by Croc’s was not presented, it was only tabulated, as if that’s something that I have to accept”.

21. On 24 October 2020, a further version of Sch 5 to the Conveyancing (General) Regulation came into force (“the Second COVID Regulation”). Clause 10 of the First COVID Regulation had provided that the version of Sch 5 which it brought into effect was repealed 6 months after its commencement. That limitation necessarily flowed from s 87(4) of the Retail Leases Act 1994 (NSW) which provided that regulations made thereunder expire on either a day that is six months after the day on which the regulation commences, or any earlier day decided by resolution of either House of Parliament.

22. Mr Aldon sent further emails on 5 November 2020 and 10 November 2020 asking for updates about his rent reduction request and again setting out the franchisee’s financial position.

23. On 10 November 2020, Alamdo sent Croc’s a notice under s 129 of the Conveyancing Act 1919 (NSW). The notice stated:

I give you notice that you are in breach of your undertakings given in clause 4.1 by not paying Rent amounting to $187,785 including GST from 25 April 2020 to 30 November 2020.

Your request for rent relief, which you claim is due to financial distress caused to your company by the coronavirus pandemic, is refused. Despite repeated requests for you to provide verifiable evidence of this financial distress, you have not done so. Therefore, Alamdo relying on the Lease and Schedule 5 of the Conveyancing (General) Regulation 2018 reacts to your breach by this notice.

In particular:

1.   You have not paid any rent since 24 April to be now in arrears for $187,785 plus interest;

2. you have not provided evidence that you are an impacted lessee as required by section 5(5)(b) of Schedule 5 of the Conveyancing (General) Regulation 2018;

3. you have not negotiated in good faith having regard to section 6 of Schedule 5 of the Conveyancing (General) Regulation 2018 …;

…

As a result of the above, my company is free of the prohibition to take this prescribed action as provided in section 5(7) of the Regulation. You have fourteen (14) days) to remedy this breach after which the Landlord, reserving all of its rights under the Lease, will re-enter the Premises, repossess them and terminate the Lease.

24. On 17 November 2020, Mr Aldons replied:

In response to your notice of breach we provide the below information:

We are entitled to rent relief as per the NSW code of conduct. The information relating to Croc’s Franchising downturn in sales as well as jobkeeper eligibility has previously been sent and re-confirmed as at October this year as has the franchisees (business operating out of your premises under a license agreement) sales information, P+L’s, participation in jobkeeper etc. We also sent a letter outlining our eligibility under the code.

Nonetheless we are still waiting for you to provide the rental amounts due and payable based on the proportionate drop in sales (as provided). Can you please recalculate the rental due from April 24^th to end November based on the information we have sent (sales)?

We feel that we can get this business back to where it was before Covid and require your assistance until the end of the recovery period as per the code.

We believe that both Croc’s and our franchisee are entitled to the protections provided under the code and that your notice of breach is unlawful.

Please advise the rent payable so that we can work with our franchisee to arrange prompt payment and work with our franchisee to keep the store open and get it profitable again.

25. At this point, Croc’s engaged a solicitor, Ms Lauren Smyth. On 24 November 2020, she wrote a letter and forwarded some of Croc’s financial information to Mr Maurici, including Business Activity Statements for each quarter from September 2018 to June 2020. However, she in effect repeated the assertion that Croc’s was entitled to a rent reduction in proportion to the franchisee’s reduction in turnover.

26. Ms Smyth also attached a 9 October 2020 confirmation by the ATO that Croc’s satisfied the decline in turnover requirements and was eligible for Jobkeeper.

27. Correspondence between Ms Smyth and Mr Maurici continued into December 2020. Ms Smyth maintained that the position of the franchisee, rather than Croc’s itself, was what mattered.

28. The primary judge found at [118]-[121]:

118   Ms Smyth’s reference, in the first three rows of her table, to “rent waived” and “rent deferred” of 50% appears to bespeak her understanding, and thus that of Croc’s, that Mr Maurici’s 28 April 2020 offer had remained on the table for at least April to June 2020.

119   By reference to Croc’s Business Activity Statements, Mr Potts SC and Mr Langshaw, who appeared for Alamdo, produced a calculation that showed that, despite a fall in income from 2019 to 2020, Croc’s nonetheless made a profit, excluding GST, of $19,690 for the quarter ending June 2020 and $79,120 for the quarter ending September 2020.

120   On 27 November 2020 Ms Smyth sent Mr Maurici a further email, again focusing on the position of the Franchisee. Ms Smyth said:

”Covid-19 has had a severe impact on the business. As an indoor playcentre, the franchisee was required to cease trading immediately. Unlike many other businesses, it had no opportunity to pivot its model or adjust its operations to generate an income. In circumstances where it has had no or minimal sales, it has not been in a position to pay rent, which is precisely why our client contacted you in March for rent relief.”

121   Again, the focus of Ms Smyth’s contentions was on the position of the Franchisee, rather than Croc’s itself.

29. Alamdo took possession of the premises on 3 December 2020 and purported to terminate the lease. The proceedings below were commenced on 14 May 2021. Alamdo eventually granted a new lease for the Castle Hill premises on 7 June 2022.

Factual challenge

30. Before the primary judge, relying on Croc’s Business Activity Statements, Alamdo produced a calculation that showed that, despite a fall in income from 2019 to 2020, Croc’s nonetheless made a profit, excluding GST, of $19,690 for the quarter ending June 2020 and $79,120 for the quarter ending September 2020. The primary judge accepted as much:

242   As Mr Maurici sought to emphasise in his correspondence during that period, it was the impact of the COVID-19 pandemic on Croc’s financial position, rather than that of the Franchisee, that was the matter that required attention. As it turned out, the information ultimately provided by Croc’s to Alamdo concerning Croc’s financial position, sent under cover of Ms Smyth’s 24 November 2020 letter, showed that Croc’s had continued to make a profit throughout 2020.

31. This was the only fact now relevantly challenged by the appellants under UCPR r 51.36(2) ^[2] . For the purposes of the appeal, the appellants created a table identifying additional liabilities and submitted that it showed that Croc’s “traded at a substantial loss if the wages and tax paid by Croc’s and the rent payable to Alamdo were taken into account” in the quarters ending June and September 2020.

    2. Facts relevant to the primary judge’s findings that Croc’s was not an “impacted lessee” under the relevant regulation were also challenged. As I will explain, that matter is no longer controversial.

32. To the extent it matters, I find that Croc’s made a gross profit but a net loss in throughout 2020.

Conclusions of the primary judge

33. In circumstances I will explain in greater detail below, the primary judge found that:

1. Croc’s had not proven that it was entitled to payments under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) ("Jobkeeper Rules");

2. Croc's was not an "impacted lessee" within the meaning of the Second COVID Regulation as at 3 December 2020;

3. Clauses 5 and 6 of the Second COVID Regulation created pathways or exceptions by which a lessor might, by satisfying the preconditions contained in those clauses, be permitted to take "prescribed action" that was otherwise prohibited by cl 4 of the Second COVID Regulation;

4. Alamdo had satisfied the preconditions in cl 5 of the Second COVID Regulation prior to 3 December 2020 because it had renegotiated in good faith the rent payable under the lease; and, or alternatively, Alamdo was taken to have complied with cl 5 because Croc's had failed to provide Alamdo with evidence that it was an "impacted lessee";

5. Alamdo also satisfied the preconditions in cl 6 of the Second COVID Regulation prior to 3 December 2020, because there had been a mediation before the Commissioner and the Commissioner had given the requisite certificate; and

6. Alamdo was entitled to loss of bargain damages.

Notice of appeal and notice of contention

34. In its notice of appeal, Croc’s advanced the following 24 grounds of appeal:

Eligibility for Jobkeeper and Status as Impacted Lessee

1   The primary judge erred by finding at J[119] and [241]-[242] that the first appellant (“Croc’s”) traded profitably for the quarters ending 30 June and 30 September 2020, and ought to have found that the evidence indicated that Croc's traded at a substantial loss if the wages and tax paid by Croc's and the rent payable to Alamdo were taken into account.

2 The primary judge erred by finding at J[246] that the rent payable by Croc's for the entire period from 24 April 2020 had been “reduced, waived or deferred” for the purposes of cl 5(3) of the COVID Regulation, in circumstances where his Honour made no finding that there had been any reduction, waiver, or deferral of any such rent, no party contended for such a finding, and there was no evidence to support such a finding.

3 The primary judge erred by finding at J[164]-[166] that the expression ”at or before the end of the fortnight” in cl 7(1)(b) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (“Jobkeeper Rules”) should be interpreted as meaning “during the fortnight”, and ought to have found that it should be interpreted as meaning at the end of the fortnight or before that time.

4 The primary judge erred by finding at J[84] that the material provided with Mr Aldons' email of 11 August 2020 did not constitute evidence that Croc's was an “impacted lessee” within the definition of cl 2 and for the purposes of cl 5(3A) of the COVID Regulation, and ought to have found that the material did constitute such evidence because it demonstrated a year-on-year decline in turnover for the June 2020 quarter exceeding 30%.

5   The primary judge erred by finding at J[173] that Croc's had not shown that it qualified for jobkeeper payments as at 3 December 2020, and ought to have found that:

a.   Croc's had established that it qualified for jobkeeper payments as at 3 December 2020 because its turnover in the quarters ending on 30 June 2020 and 30 September 2020 had declined by more than 30% relative to the previous year; and

b. accordingly, as at 3 December 2020, Croc's was an “impacted lessee” within the definition of cl 2 of the Conveyancing (General) Regulation 2018 (NSW) (“COVID Regulation”).

6 The primary judge erred by failing to find that the financial information provided by Croc's to Alamdo on 11 August 2020, 13 October 2020, and 24 November 2020 demonstrated that Croc's was and remained entitled to the jobkeeper payment as at each of those dates and was therefore an “impacted lessee” within the definition of cl 2 of the COVID Regulation throughout the entirety of the “prescribed period” as defined in that Regulation.

COVID-19 Regulation

7 The primary judge erred by finding at J[194] that cll 5 and 6 of the COVID Regulation created “pathways” by which a lessor might, by satisfying the preconditions contained in those clauses, be permitted to take the "prescribed action" that would otherwise have been prohibited by cl 4(2).

8 The primary judge ought to have found that each of cll 4(2), 5, and 6 of the COVID Regulation were cumulative in operation, and nothing in cll 5 or 6 created an exception to the prohibition in cl 4(2).

9 The primary judge erred by finding at J[247] that Alamdo complied with its obligation under cl 5 of the COVID Regulation to engage in good faith negotiations concerning rent.

10   The primary judge erred by failing to find that Alamdo had not engaged in good faith negotiations concerning rent:

a.   at all; or, alternatively

b.   after receipt of the financial information provided by Croc's to Alamdo on 11 August 2020, 13 October 2020, and, or alternatively, 24 November 2020; or, alternatively

c.   after receipt of the further renegotiation requests in October and November 2020.

11 The primary judge erred by finding at J[226] that the Small Business Commissioner had given reasons for the failure of the mediation as required by cl 6 of the COVID Regulation, and ought to have found that the Commissioner had only certified the outcome of the mediation and had not given reasons for the failure. [Not pressed]

12 The primary judge erred by finding at J[260] that the COVID Regulation did not operate to prevent Alamdo from entering possession of the Premises on 3 December 2020 and terminating the Lease.

13 The primary judge erred by failing to find that Alamdo it was unlawful for Alamdo to enter possession of the Premises on 3 December 2020 and terminate the Lease, by reason of cll 4(2), 5(1) and, or alternatively, 6 of the COVID Regulation.

14 The primary judge erred by finding at J[257]-[259) that s 88(2) of the Retail Leases Act 1994 (NSW) had no effect in the proceedings, and ought to have found that it has the effect that the COVID Regulation continues to apply to the breaches of the Lease that occurred during the prescribed period, such that Alamdo remains precluded from taken prescribed action on the grounds of those breaches.

Unregistered Lease

15   The primary judge erred by finding at J[135]-[147] that the Agreement for Lease operated to create a lease of the Premises from Alamdo to Croc's for a term of 10 years on the terms of the unregistered Lease Document.

16   The primary judge erred by failing to find that:

a.   no obligation to pay rent arose under the Agreement for Lease;

b. Alamdo's failure to register the Lease Document had the consequence that no lease existed at law save for a monthly tenancy at will implied by s 127 of the Conveyancing Act 1919 (NSW);

c.   to the extent an equitable lease may have existed by reason of the Agreement for Lease and the unregistered Lease Document, no obligation to pay rent arose absent an order for specific performance;

d.   Alamdo was not entitled to an order for specific performance; and

e.   in those circumstances, Alamdo had no entitlement to damages for loss of bargain.

Guarantees

17   The primary judge erred by finding at J[309] that the guarantees in the Agreement for Lease applied to an obligation to pay rent, and ought to have found that the Agreement for Lease contained no obligation to pay rent to which those guarantees could apply.

18 The primary judge erred by finding at J[319]-[321] that the cl 20.10 of the Lease Document should be construed such that the Guarantors are released from the end of the Minimum Guarantee Period unless a notice under s 129 of the Conveyancing Act 1919 (NSW) is served any time within the term of the lease.

19 The primary judge ought to have found that cl 20.10 of the Lease Document should be construed such that the Guarantors are released from the end of the Minimum Guarantee Period unless a notice under s 129 of the Conveyancing Act 1919 (NSW) is served any time within that period.

20 The primary judge erred by finding at J[109] and [323] that the notice sent by Alamdo to Croc's on 10 November 2020 was, in effect, a notice under s 129 of the Conveyancing Act 1919 (NSW), and ought to have found that it was not a notice under s 129 because:

a.   it related only to a failure to pay rent; and

b.   it did not adequately explain the consequences of non-compliance with the notice.

21 The primary judge erred by failing to find that the Guarantors had been released pursuant to cl 20.10 of the Lease Document on and from the end of the Minimum Guarantee Period (on 18 June 2020), and the release remains in effect.

22   Alternatively, if the guarantees in the Agreement for Lease otherwise applied to an obligation to pay rent and the guarantors were not released from their obligations, the primary judge erred by failing to find that the guarantees had no application to any obligation to pay rent in circumstances where the Lease Document was unregistered.

Election

23   The primary judge erred by finding at J[274] that Alamdo's continual demands for Croc's to pay rent over the course of 2020 did not constitute elections to affirm the Lease, and ought to have found that each such demand was an unequivocal affirmation of the Lease with knowledge of the breaches comprising Croc’s failures to pay rent before those demands.

24 The primary judge erred by finding at J[268]-[269] and [271] that Alamdo's 30 November 2020 demand for payment of rent for the month of December 2020 did not constitute an election to affirm the Lease, and ought to have found that it was an unequivocal affirmation of the Lease with knowledge of the breaches comprising Croc's failures to pay rent before that demand.

35. Alamdo filed a notice of contention, containing the following four grounds:

1   The first appellant's (Croc's) continuing failure to pay rent for the entire month of April 2020 was a breach of an essential term of the lease that was unaffected by the operation of Schedule 5 to the Conveyancing (General) Regulation 2018 (NSW) (Covid Regulation), and the first respondent's (Alamdo's) termination of the lease was valid on the basis of that breach, regardless of any other effect of the Covid Regulation.

2 Evidence of communications made by Alamdo or Croc's at the mediation on 29 September 2020 was admissible and should have been admitted, because s 19(3) of the Small BusinessCommissioner Act 2013 (NSW) created a right to object to that material which Croc's had waived, and that further evidence, in addition to the evidence relied upon by the primary judge, further supported the finding that Alamdo had renegotiated in good faith the rent payable under the lease within the meaning of cl 5 of the Covid Regulation.

3   The offer made by Alamdo on 28 April 2020 was an offer to waive 50 per cent of the rent, which on its proper construction meant that if that offer were accepted, that waived rent would never be payable by Croc's.

4 If the Court were to uphold ground 11 in the notice of appeal, and conclude that the Small Business Commissioner had not given reasons for the failure of the mediation as required by cl 6 of the Covid Regulation, then Croc's was estopped from relying on any insufficiency in the reasons given by the Small Business Commissioner which might otherwise have prevented Alamdo from satisfying the requirements of cl 6. ^[3]

3. Ground 11 was not pressed. It is thus unnecessary to address ground 4 of the notice of contention.

36. In written submissions the appellants characterised the 24 grounds as relating to 13 discrete issues. The respondent dealt with the issues under the same headings as those adopted in the appellants’ submissions.

37. It is convenient to address the grounds of appeal by reference to those discrete issues, the first two of which travel together and were subject to a concession by Mr Potts SC, senior counsel for Alamdo.

Consideration

The appellants’ first and second issues: erroneous construction of cl 7(1)(b) of the Jobkeeper Rules and failing to find that Croc’s was an impacted lessee (appeal grounds 3-6)

38. On 9 April 2020, the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (Cth) came into effect, permitting the Commonwealth to prescribe the payment of benefits to respond to the COVID-19 pandemic.

39. On the same day the Jobkeeper Rules came into effect which created the “Jobkeeper” benefits scheme.

40. Whether an entity qualified for the Jobkeeper scheme depended on s 7(1) of the Jobkeeper Rules, which on 3 December 2020 provided:

7 When an entity qualifies for the jobkeeper scheme

(1)   For the purposes of paragraphs 6(1)(b), 11(1)(c) and 12A(1)(c), an entity qualifies for the jobkeeper scheme for a jobkeeper fortnight if:

(a)   on 1 March 2020, the entity:

(i)   carried on a business in Australia; or

(ii)   was a non-profit body that pursued its objectives principally in Australia; or

(iii)   was a deductible gift recipient that was, or operated, a public fund covered by item 9.1.1 or 9.1.2 of the table in subsection 30-80(1) of the Income Tax Assessment Act 1997 (international affairs deductible gift recipients); and

(b)   the entity has satisfied the decline in turnover test at or before the end of the fortnight (see sections 8 and 8A); and

(c)   for a fortnight beginning on or after 28 September 2020—the entity also satisfies the actual decline in turnover test (see section 8B) for the fortnight.

Note:   Qualifying entities must report monthly turnover information to the Commissioner for the duration of the scheme: see section 16.

41. There was no dispute that Croc’s satisfied pars 7(a) and 7(c). The dispute before the primary judge turned on whether it met par 7(b), the “decline in turnover test”.

42. The decline in turnover test was set out in s 8 ^[4] :

    4. Section 8A provided a modified test for certain group structures and is not presently relevant.

8 Decline in turnover test

Basic test

(1) An entity satisfies the decline in turnover test at a time (the test time) if:

(a)   the entity’s projected GST turnover for a turnover test period in which the test time occurs falls short of the entity’s current GST turnover for a relevant comparison period (the comparison turnover); and

(b)   the shortfall, expressed as a percentage of the comparison turnover, equals or exceeds the specified percentage for the entity (see subsection (2)).

Note 1:   See subsection (7) for the meanings of turnover test period and relevant comparison period.

Note 2:   Current GST turnover and projected GST turnover are modified for the purposes of this section and section 8A: see subsection (8).

Note 3: For provisions about contrived schemes, see section 19 of the Act.

Example:   Patrick Enterprises assesses its eligibility for jobkeeper payments on 6 April 2020 based on a projected GST turnover for April 2020 of $6 million. It considers that the comparable period is the month of April 2019 for which it had a current GST turnover of $10 million. The April 2020 turnover falls short of the April 2019 turnover by $4 million, which is 40% of the April 2019 turnover. This exceeds the specified percentage, so the decline in turnover test is satisfied.

…

Meaning of turnover test period and relevant comparison period

(7)   For the purposes of this section and sections 8A and 8B:

(a)   unless paragraph (aa) applies—the turnover test period must be:

(i)   a calendar month that ends after 30 March 2020 and before 1 January 2021; or

(ii)   a quarter that ends on 30 June 2020, 30 September 2020 or 31 December 2020; and

(aa)   if the entity is a Table A provider—the turnover test period must be a period of 6 months starting on 1 January 2020; and

(b)   the relevant comparison period must be the period in 2019 that corresponds to the turnover test period.

Note:   When applying this subsection for the purposes of the actual decline in turnover test there is a different turnover test period: see paragraph 8B(1)(a).

…

43. The “actual decline in turnover test” was as follows. There was no dispute that Croc’s satisfied that test:

8B   Actual decline in turnover test

(1)   An entity satisfies the actual decline in turnover test for a jobkeeper fortnight if the entity would satisfy the decline in turnover test (see sections 8 and 8A) at a time in the quarter applicable to the fortnight under subsection (2) if:

(a)   the turnover test period were the quarter, instead of the period determined under paragraph 8(7)(a) or (aa); and

(b)   instead of projected GST turnover, current GST turnover were used (including in subsection 8A(3), and in applying an alternative decline in turnover test determined by the Commissioner under subsection 8(6)).

Quarter in which actual decline in turnover test must be satisfied

(2)   For the purposes of subsection (1), the quarter applicable to a jobkeeper fortnight beginning on or after 28 September 2020 is as set out in the following table.

Quarter for which actual decline in turnover test must be satisfied
Item	If the fortnight begins:	the quarter is the quarter ending on:
1	before 4 January 2021	30 September 2020
2	on or after 4 January 2021	31 December 2020

44. The primary judge concluded:

160   There is a dispute as to whether Croc’s qualified for JobKeeper at the relevant time, namely on 3 December 2020 when Alamdo took possession of the Premises.

161 The JobKeeper Rules provided, in cl 7, that an entity qualified for the JobKeeper Scheme for a JobKeeper fortnight if, relevantly, it:

(a)   was carrying on business in Australia; and

(b)   “has satisfied the decline in turnover test at or before the end of the fortnight”; and

(c)   satisfied the “actual decline in turnover test” for a fortnight beginning or after 28 September 2020.

162   There was no dispute that, on 3 December 2020, Croc’s satisfied requirements (a) and (c).

163   As to the requirement at (b), it was common ground that “the fortnight” was that commencing on Monday 23 November 2020 and concluding on Friday 6 December 2020, being the fortnight in which 3 December 2020 fell.

164 There was a dispute as to the meaning of the expression “at or before the end of the fortnight” for the purpose of cl 7(1)(b) of the JobKeeper Rules.

165   In my opinion, looking at the expression in the context of the JobKeeper Rules as a whole, those words must mean during the fortnight. They cannot mean any time “before” the end of the fortnight as, otherwise, once a lessee became an “impacted lessee”, it would retain that status no matter how its turnover improved in the relevant “fortnight”.

166   I agree with Alamdo that it was necessary that, here, Croc’s showed that it satisfied the turnover test at some time during the period 23 November to 6 December 2020. I agree that this construction is consistent with the concept of qualification for the JobKeeper Scheme being tied to a specified fortnight and to be subject to the point in time test in cl 8.

167   Clause 8(1) of the JobKeeper Rules provided that an entity satisfied the decline in turnover test at a time (called the “test time”) if:

“The entity’s projected GST turnover for a turnover test period in which the test time occurs fall short of the entity’s current GST turnover for a relevant comparison period.”

168   I agree with Alamdo’s submission that the “test time” must be within the applicable JobKeeper fortnight; that is, here, within the period 23 November 2020 to 6 December 2020. That is made clear by the reference in cl 8(1) to the relevant entity’s turnover for the “turnover test period in which the test time occurs”.

169   Clause 8(7) of the JobKeeper Rules provided that the “turnover test period”:

“Must be:

(i)   a calendar month that ends after 30 March 2020 and before 1 January 2021; or

(ii)   a quarter that ends on 30 June 2020, 30 September 2020 or 31 December 2020.”

170   The only “turnover test period” that could be relevant to Croc’s eligibility for JobKeeper as at 3 December 2020 are the months of November or December 2020 (as “the” fortnight occurred in both of those months) or the quarter ended December 2020.

171   Croc’s only adduced evidence of its decline in turnover for the preceding quarter ending September 2020.

172   Croc’s has not adduced any evidence of its decline in turnover in November or December 2020 or in the quarter ending December 2020. Nor has Croc’s adduced evidence of its GST turnover for the corresponding periods in 2019.

173   For those reasons, I accept Alamdo’s submission that Croc’s has not shown that it qualified for JobKeeper at the relevant time, and thus it has not shown that it was an “impacted lessee” at the relevant time.

45. On appeal Alamdo accepted that, contrary to the primary judge’s finding, the first appellant was, in fact, an “impacted lessee” as at 3 December 2020 within the meaning of the regulation:

POTTS: … we now accept that we led inadvertently the trial judge into error on this. … we now accept, in light of how one looks at the conjunction of the definition of JobKeeper fortnight and the prescriptive nature of the turnover test period … - we accept that when we urged his Honour to find in r 7(1)(b) of the JobKeeper Rules that the words "at or before the end of the fortnight" meant during the fortnight, that can't work for the reasons Mr Ashhurst explained …. The effect of that on the appeal is we now accept factually that the appellant had shown for the September 2020 quarter that they'd suffered a reduction in turnover of more than 30% and therefore they are, for that purpose, an impacted lessee.

PAYNE JA: As at 3 December?

POTTS: As at 3 December 2020…

46. This concession was correctly made. As originally enacted, the Jobkeeper scheme applied in the period from 30 March 2020 to 27 September 2020: see Jobkeeper Rules (as made) cll 5-6. On 16 September 2020, the scheme was extended to 28 March 2021 by the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No 8) 2020 (Cth). That instrument introduced par 7(1)(c) and s 8B into the Jobkeeper Rules. Paragraph 7(1)(c) required that “for a fortnight beginning on or after 28 September 2020—the entity also satisfies the actual decline in turnover test (see section 8B) for the fortnight”. The “actual decline in turnover test” as defined in cl 8B required that the entity’s current GST turnover for the specified quarter fell short of its current GST turnover for the corresponding quarter in 2019. The specified quarter was the quarter ending on 30 September 2020 for a fortnight beginning before 4 January 2021, and the quarter ending on 31 December 2020 for a fortnight beginning on or after 4 January 2021.

47. The explanatory statement for the amending instrument said ^[5] :

To qualify for JobKeeper payments for JobKeeper fortnights beginning on or after 28 September 2020 and ending on or before 3 January 2021, entities must satisfy the original decline in turnover test (now extended) and an additional test. Under this additional test, entities must demonstrate that their actual GST turnover has declined by the required percentage for the quarter ending 30 September 2020, relative to the entity’s comparable quarter for this period. An entity that can demonstrate a fall in actual GST turnover in the quarter ending 30 September 2020 will also satisfy the original decline in turnover test, meaning that most entities enrolling for the first time will only have to demonstrate that their actual turnover has significantly declined in the previous quarter. (Emphasis added)

5. Explanatory Statement, Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No 8) 2020 (Cth).

48. When the Jobkeeper scheme was first created, a qualifying entity would receive the payments each fortnight for the remainder of the scheme. So long as an entity satisfied the “decline in turnover” test in cl 8 at some point before the end of the fortnight in which they applied for Jobkeeper, they were eligible. There was no requirement that the relevant “test time” fall within the fortnight in question. There was no machinery for revoking eligibility for Jobkeeper payments. This was because the scheme created an emergency short-term measure designed to mitigate the severe impacts on businesses, and ultimately employment, of the COVID-19 pandemic and associated lockdowns.

49. When the Jobkeeper scheme was extended in September 2020, par 7(1)(c) and s 8B were inserted in order to revoke eligibility for the payments for entities whose actual income had recovered in the previous quarter. Eligibility would only be revoked if the entity’s income had in fact recovered over a sustained period. The construction advanced below by Alamdo, which was adopted by the primary judge, could result in an entity’s eligibility for the Jobkeeper scheme fluctuating from fortnight to fortnight. It is clear that this was not how the Jobkeeper scheme was intended to operate.

50. It follows that the primary judge was led into error by Alamdo. On 3 December 2020, Croc’s was entitled to Jobkeeper as it had suffered a decline in turnover exceeding 30% in the quarter ending 30 September 2020 compared with the same quarter of the previous year.

51. The primary judge’s findings at [166]-[173] (set out at [44] above) about whether Croc’s was an “impacted lessee” derived from the finding about Croc’s eligibility for Jobkeeper.

52. By reason of the conclusion on the appellants’ first issue, the respondent correctly accepted that the primary judge should have concluded that Croc’s proved it was an “impacted lessee”.

53. Grounds 3-6 of the appeal should be allowed.

The appellants’ third issue: erroneous construction of cl 4(2) of the COVID Regulation (appeal grounds 7, 8, 12 and 13)

54. The issue at the heart of this appeal is the correct construction of the Second COVID Regulation, which was the applicable regulation at the time Alamdo terminated the lease on 3 December 2020. The Second COVID Regulation must be interpreted alongside the First COVID Regulation, which it replaced. As explained below, both Regulations were designed to reflect the “National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles during COVID-19” (“the National Code”). A court, when making a decision relating to the termination of a commercial lease must have regard to the leasing principles set out in the National Code: cl 7 of the Second COVD Regulation.

The National Code

55. On 7 April 2020, the so called “National Cabinet” adopted the National Code and State and Territory governments, including New South Wales, committed to implement legislative measures giving effect to it. This commitment was recorded in the National Code:

PARTIES TO THE CODE

The Code will be given effect through relevant state and territory legislation or regulation as appropriate. The Code is not intended to supersede such legislation, but aims to complement it during the COVID-19 crisis period.

56. The National Code’s purpose, in brief, was to impose a “set of good faith leasing principles for application to commercial tenancies … where the tenant is an eligible business for the purpose of the … JobKeeper programme”.

57. The National Code contained the following “leasing principles”:

In negotiating and enacting appropriate temporary arrangements under this Code, the following leasing principles should be applied as soon as practicable on a case-by-case basis:

1. Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).

2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.

3. Landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals (as outlined under ‘definitions’, below) of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period.

4. Rental waivers must constitute no less than 50% of the total reduction in rent payable under principle #3 above over the COVID-19 pandemic period and should constitute a greater proportion of the total reduction in rent payable in cases where failure to do so would compromise the tenant’s capacity to fulfil their ongoing obligations under the lease agreement. Regard must also be had to the Landlord’s financial ability to provide such additional waivers. Tenants may waive the requirement for a 50% minimum waiver by agreement.

5. Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties.

6. Any reduction in statutory charges (e.g. land tax, council rates) or insurance will be passed on to the tenant in the appropriate proportion applicable under the terms of the lease.

…

11. Landlords must not draw on a tenant's security for the non-payment of rent (be this a cash bond, bank guarantee or personal guarantee) during the period of the COVID-19 pandemic and/or a reasonable subsequent recovery period.

…

13. Landlords agree to a freeze on rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, notwithstanding any arrangements between the landlord and the tenant.

14. Landlords may not apply any prohibition on levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic.

58. Whilst the National Code contained goals which had by themselves only aspirational significance, as I have said, cl 7 of the First and Second COVID Regulations provided that a court “is to have regard to the leasing principles set out in the National Code of Conduct” when considering, relevantly “the termination of an impacted lease by a lessor”.

59. Whilst the principles in the National Code were overlapping, and to some extent potentially inconsistent, it is clear that the Code expressly prohibited the termination of a commercial lease due to non-payment of rent during the COVID-19 pandemic period and during a reasonable subsequent recovery period. This matter was set out in leasing principle 1, which is the only paragraph of the National Code to address termination of a commercial lease due to non-payment of rent during the COVID-19 pandemic period.

60. I will return to the terms of the National Code when addressing the critical questions of construction.

The First and Second COVID Regulations

61. To give effect to the National Code, the NSW government created the First COVID Regulation, which took effect on 24 April 2020. Whether or not a commercial tenant qualified for Commonwealth Jobkeeper assistance determined whether it was an “impacted lessee” under the NSW COVID Regulation. The First COVID Regulation had effect until 24 October 2020, being the maximum six month period for a regulation of this kind pursuant to s 87 of the Retail Leases Act 1994 (NSW). Clause 4 of the First COVID Regulation provided:

4   Prohibitions and restrictions relating to commercial leases

(1)   If a lessee is an impacted lessee, a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease during the prescribed period consisting of—

(a)   a failure to pay rent, or

(b)   a failure to pay outgoings, or

(c)   the business operating under the lease not being open for business during the hours specified in the lease.

Note—

See leasing principles No. 1, 11 and 14 in the National Code of Conduct.

(2)   If, during the prescribed period, a lessee under a commercial lease is an impacted lessee, the rent payable under the commercial lease (other than rent or a component of rent determined by reference to turnover) must not be increased.

Note—

See leasing principle No. 13 in the National Code of Conduct.

(3)   If, during the prescribed period, a lessee under a commercial lease was an impacted lessee, a lessor must not, after the prescribed period, take any prescribed action against the lessee on the grounds of a breach of the commercial lease consisting of a failure to pay an amount equivalent to or representing the rent increase amount referred to in subclause (2).

Note—

See leasing principle No. 13 in the National Code of Conduct.

(4)   If an impacted lessee is required by a provision of a commercial lease to pay a fixed amount that represents an amount of land tax or any other statutory charge (such as local council rates) or insurance payable by a lessor and the amount of the land tax or other statutory charge or insurance payable is reduced, the impacted lessee is exempted from the operation of the provision to the extent of the reduction.

Note—

See leasing principle No. 6 in the National Code of Conduct.

(5)   An act or omission of a lessee required under a law of the Commonwealth or the State in response to the COVID-19 pandemic—

(a)   is taken not to amount to a breach of a commercial lease, and

(b)   does not constitute grounds for termination of the lease or the taking of any prescribed action by the lessor against the lessee.

(6)   Nothing in this clause prevents a lessor and lessee agreeing to the parties taking any action in relation to the commercial lease (including the lessor taking any prescribed action or the parties agreeing to terminate the commercial lease).

62. An “impacted lessee” was defined as:

2  Meaning of “impacted lessee”

(1) A lessee is an impacted lessee if—

(a) the lessee qualifies for the jobkeeper scheme under sections 7 and 8 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth, and

(b) the following turnover in the 2018–2019 financial year was less than $50 million—

(i) if the lessee is a franchisee—the turnover of the business conducted at the premises or land concerned,

(ii) if the lessee is a corporation that is a member of a group—the turnover of the group,

(iii) in any other case—the turnover of the business conducted by the lessee.

...

63. Under cl 1, a “commercial lease” was any agreement to which the Conveyancing Act applied relating to the leasing of premises or land for commercial purposes. Pursuant to s 128 of the Conveyancing Act that included “an agreement for a lease where the lessee has become entitled to have his or her lease granted”. Thus as I explain at [131]-[149] below, the AfL and, the unregistered Lease Document together were an agreement under which Croc’s was entitled to have its lease granted. Because the Lease Document was unregistered, Croc’s leasehold interest in the premises was a tenancy at will implied under s 127(1) of the Conveyancing Act. Both the agreement for a lease and the tenancy at will were “commercial leases” for the purposes of the COVID Regulation.

64. The “prescribed period”, under the First COVID Regulation, was six months after the day on which the regulation commenced, namely the period from 25 April 2020 to 24 October 2020: cl 1. The prescribed period was thus co-extensive with the entire life of the First COVID Regulation.

65. On 3 July 2020, amendments to the First COVID Regulation commenced which effected changes to subcll 4(5) and (6). The parties referred to this as Regulation 1A. Neither party suggested that Regulation 1A affected the outcome of the appeal.

66. On 24 October 2020, the First COVID Regulation expired. That same day, the Second COVID Regulation commenced, in substance replacing the First COVID Regulation but with some important changes in drafting. The relevant operative prohibition remained cl 4 which provided:

4  Prohibitions and restrictions relating to impacted leases

(1)   This clause applies if, during the prescribed period, a lessee is an impacted lessee.

(2)During the prescribed period, a lessor must not take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting of—

(a)   a failure to pay rent, or

(b)   a failure to pay outgoings, or

(c)   the business operating under the lease not being open for business during the hours specified in the lease.

Note—

See leasing principles No. 1, 11 and 14 in the National Code of Conduct.

(3)   The rent payable under the impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover.

Note—

See leasing principle No. 13 in the National Code of Conduct.

(4)   A lessor must not, after the prescribed period, take any prescribed action against the impacted lessee on the grounds of a breach of the impacted lease consisting of a failure to pay an amount equivalent to or representing the rent increase amount referred to in subclause (3).

Note—

See leasing principle No. 13 in the National Code of Conduct.

(5)   If an impacted lessee is required by a provision of an impacted lease to pay a fixed amount that represents an amount of land tax or any other statutory charge, such as local council rates, or insurance payable by a lessor and the amount of the land tax or other statutory charge or insurance payable is reduced, the impacted lessee is exempted from the operation of the provision to the extent of the reduction.

Note—

See leasing principle No. 6 in the National Code of Conduct.

(6)   An act or omission of an impacted lessee required under a law of the Commonwealth or the State in response to the COVID-19 pandemic—

(a)   is taken not to amount to a breach of the impacted lease to which the impacted lessee is a party, and

(b)   does not constitute grounds for termination of the impacted lease or the taking of any prescribed action by the lessor against the impacted lessee.

(7)   Nothing in this clause prevents a lessor and impacted lessee agreeing to the parties taking action in relation to the impacted lease, including the lessor taking prescribed action or the parties agreeing to terminate the impacted lease.

(Emphasis added)

67. There was a significant change in language between the First COVID Regulation and the Second COVID Regulation. The First COVID Regulation provided that "If a lessee is an impacted lessee, a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease during the prescribed period consisting of”, inter alia, a failure to pay rent.

68. The temporal consideration “during the prescribed period” appears at the end of the clause and, from its position, grammatically limits the phrase “breach of the commercial lease”. In the First COVID Regulation, the only temporal restriction is that the breach of lease must be during the prescribed period.

69. In the Second COVID Regulation, the language is quite different: “During the prescribed period, a lessor must not take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting of”, inter alia, a failure to pay rent.

70. The phrase “During the prescribed period” was inserted at the start of the subclause. But it still appeared, as in the First COVID Regulation, at the end of the clause as well. The second appearance conveys the same meaning as in the First COVID Regulation. The first appearance of the phrase, at the start of the clause, however, is significant. It limited the prohibition to prescribed action taken during the prescribed period. That limitation did not appear in the First COVID Regulation, which prohibited prescribed action whenever it occurred (so long as the breach took place during the prescribed period). Importantly, under the Second COVID Regulation, the prescribed period was defined as only the first two months of the Regulation’s lifespan. The clause 4 prohibition had work to do only for those two months. That temporal restriction makes the Second COVID Regulation quite different to the First COVID Regulation.

71. An impacted lease was defined as follows:

2  Meaning of “impacted lessee”

(1) A lessee is an impacted lessee if—

(a)   the lessee qualifies for the jobkeeper scheme under sections 7, 8, 8A and 8B of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth, and

(b)    the following turnover in the 2018–2019 financial year was less than $50 million—

(i)    if the lessee is a franchisee—the turnover of the business conducted at the premises or land concerned,

(ii)    if the lessee is a corporation that is a member of a group—the turnover of the group,

(iii)    in any other case—the turnover of the business conducted by the lessee.

Note—

See amendments made to the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 of the Commonwealth by the Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 8) 2020 of the Commonwealth.

Note—

For a lessee who was an impacted lessee during the period from 24 April to 23 October 2020 but does not meet the definition of impacted lessee under this clause—see clause 12.

72. The prescribed period was:

prescribed period means the period beginning on the commencement of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and ending at the end of 31 December 2020.

73. It was common ground that the lease between Alamdo and Croc’s was an impacted lease and that Alamdo’s termination of the lease on 3 December 2020 amounted to “prescribed action”.

74. Following Alamdo’s concession that Croc’s was an “impacted lessee” as at 3 December 2020, the principal remaining issue in dispute was whether, as Croc’s submitted, Alamdo was prohibited by cl 4 from taking “prescribed action” by terminating the lease during the prescribed period (which included 3 December 2020) or whether, as Alamdo submitted, and the primary judge found, by complying with cll 5 and 6 of the COVID Regulation, Alamdo was permitted to take prescribed action on 3 December 2020 against Croc’s. Accordingly, the terms of cl 5 of the COVID Regulation must be considered.

Clause 5 of the COVID Regulation

75. In the First COVID Regulation, cl 5 imposed on lessors an obligation to “renegotiate” rent and other terms of their leases with impacted lessees:

5   Obligation to renegotiate rent and other terms of commercial leases before prescribed action

(1)   A lessor under a commercial lease must not take or continue any prescribed action against an impacted lessee on grounds of a breach of the commercial lease consisting of a failure to pay rent during the prescribed period unless the lessor has complied with this clause.

Note—

This clause does not prevent parties to a commercial lease coming to agreements relating to the lease. For example, an impacted lessee may voluntarily agree to pay full rent during the prescribed period. The clause prevents the lessor taking unilateral prescribed action without complying with the requirements set out in subclauses (2)–(4).

(2)   If an impacted lessee is a party to a commercial lease, any party to the lease may request the other parties to renegotiate the rent payable under, and other terms of, the commercial lease.

(3)   A party to a commercial lease must, if requested, renegotiate in good faith the rent payable under, and other terms of, the commercial lease.

(4)   The parties are to renegotiate the rent payable under, and other terms of, the commercial lease having regard to—

(a)   the economic impacts of the COVID-19 pandemic, and

236. Clause 2 was also definitional, providing a meaning for the term “impacted lessee”, again by reference to the economic effects of the Covid-19 pandemic.

237. It remains to identify the content of the four operative provisions of the Schedule, namely cll 4, 5, 6 and 7. In accordance with the principle that the document should be read in the order in which it is written, relevant parts of these provisions are set out in that order below.

238. The first operative provision, cl 4, relevantly provided:

4   Prohibitions and restrictions relating to commercial leases

(1)   If a lessee is an impacted lessee, a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease during the prescribed period consisting of—

(a)   a failure to pay rent, or

(b)   a failure to pay outgoings, or

(c)   the business operating under the lease not being open for business during the hours specified in the lease.

Note. See leasing principles No. 1, 11 and 14 in the National Code of Conduct.

(2)   If, during the prescribed period, a lessee under a commercial lease is an impacted lessee, the rent payable under the commercial lease (other than rent or a component of rent determined by reference to turnover) must not be increased.

Note. See leasing principle No. 13 in the National Code of Conduct.

(3)   If, during the prescribed period, a lessee under a commercial lease was an impacted lessee, a lessor must not, after the prescribed period, take any prescribed action against the lessee on the grounds of a breach of the commercial lease consisting of a failure to pay an amount equivalent to or representing the rent increase amount referred to in subclause (2).

Note. See leasing principle No. 13 in the National Code of Conduct.

…

(6)   Nothing in this clause prevents a lessor and lessee agreeing to the parties taking any action in relation to the commercial lease (including the lessor taking any prescribed action or the parties agreeing to terminate the commercial lease).

239. The following aspects of cl 4, in its original form, should be noted. First, cl 4(1) identified three categories of breach with respect to which the lessor must not take any prescribed action. The next provision, cl 5 was only concerned with one category of breach, namely (a), a failure to pay rent.

240. Secondly, the definition of “prescribed action” set out above was comprehensive, containing 12 paragraphs, including a final paragraph covering “any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State”. As will be seen, while cl 5 applied to “prescribed action”, cll 6 and 7 departed from this language in identifying conduct to which they applied.

241. Thirdly, although cl 4(1), consistently with cl 3, was limited to breaches which occurred during the “prescribed period”, the prohibition on action by the lessor with respect to such a breach, was not limited to action which might have been taken during the prescribed period. Reading the words in isolation, the prohibition could continue after the prescribed period, preventing the lessor from relying upon a breach, so long as the breach occurred during the prescribed period. However, because the prescribed period was six months, and the Schedule only operated for six months, that eventuality could not arise. ^[32]

     32. Although the “prescribed period” defined in the Schedule ended on the day six months after the day on which the Retail and Other Commercial Leases (Covid-19) Regulation 2020 commenced, that was in fact the same day as the commencement of the Schedule, namely 24 April 2020.

242. Fourthly, subcl 4(2) prohibited a rent increase. Although the phrase “during the prescribed period” qualified the time at which the lessee must be an impacted lessee, it may be inferred that the rent increase must not have occurred during that time either. In its terms, however, subcl (2) did not identify any temporal limit on the prohibition it imposed. That changed in the second version of Schedule 5.

243. Subclause (3) operated in tandem with subcl (2), and referred to the prohibited rent increase. It expressly prohibited prescribed action taken “after the prescribed period”. It appears to have been included from an abundance of caution, as it might have been inferred that a prohibited rent increase could not give rise to prescribed action. Further, by way of marked similarity with the provisions considered in No 20 Cannon Street, noted above, it is difficult to give subcl (3) any function which is not covered by subcl (1), unless, contrary to initial impressions, subcl (1) did not operate after the prescribed period. However, why the drafter thought that was relevant in circumstances where the Schedule and the prescribed period were coterminous is unclear. There is no need to resolve this issue in the present case: rather, its significance is that it suggests that a strict textual reading of the Schedule is inappropriate.

244. The second operative provision, cl 5, read as follows:

5   Obligation to renegotiate rent and other terms of commercial leases before prescribed action

(1)   A lessor under a commercial lease must not take or continue any prescribed action against an impacted lessee on grounds of a breach of the commercial lease consisting of a failure to pay rent during the prescribed period unless the lessor has complied with this clause.

Note. This clause does not prevent parties to a commercial lease coming to agreements relating to the lease. For example, an impacted lessee may voluntarily agree to pay full rent during the prescribed period. The clause prevents the lessor taking unilateral prescribed action without complying with the requirements set out in subclauses (2)–(4).

(2)   If an impacted lessee is a party to a commercial lease, any party to the lease may request the other parties to renegotiate the rent payable under, and other terms of, the commercial lease.

(3)   A party to a commercial lease must, if requested, renegotiate in good faith the rent payable under, and other terms of, the commercial lease.

(4)   The parties are to renegotiate the rent payable under, and other terms of, the commercial lease having regard to—

(a)   the economic impacts of the COVID-19 pandemic, and

(b)   the leasing principles set out in the National Code of Conduct.

Note. See leasing principles No. 3–5, 7–10 and 12 in the National Code of Conduct.

In particular, leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees’ reductions in turnover.

245. Four aspects of cl 5 are significant. First, the prohibition in cl 5(1), though not the order of the phrases, is identical to the prohibition contained in the chapeau to cl 4(1). The only difference from the prohibition in cl 4(1) is that in cl 5(1) it is limited to a ground identified in par (a) of cl 4(1), namely a failure to pay rent.

246. Secondly, the prohibition in cl 5(1), is qualified by the final words, providing an exception where the lessor has complied with this clause (the exception).

247. Thirdly, like cl 4(1), the first limb of cl 5(1) (the prohibition) is not temporally limited: both were to continue for the life of the Schedule. The two prohibitions being coterminous, if the general were to prevail, the specific would be rendered nugatory. However, that cannot have been the intention of the drafter, with the consequence that the specific provision should prevail and cl 4(1)(a) must be read down as subject to the specific exception set out in the immediately succeeding cl 5. As explained by the High Court in Smith, that conclusion is “dictated” by the principle that the general must be subject to the specific.

248. Fourthly, that conclusion is supported by a purposive approach to the question of construction. Although the notes contained in the respective clauses were not part of the Schedule, they were extrinsic material to which regard may properly be given. ^[33] Significantly, the “leasing principles” in the National Code of Conduct identified in notes within cl 4 (being No 1, 6, 11, 13 and 14) did not overlap with the principles identified in notes to cl 5 (being No 3-5, 7-10).

     33. Interpretation Act, ss 34 and 35.

249. Clauses 6 and 7 may be considered together. Clause 6 has been set out above in full and need not be repeated; cl 7 provided:

7   Court consideration of National Code of Conduct leasing principles

A court, when considering whether to make a decision or order relating to any of the following, is to have regard to the leasing principles set out in the National Code of Conduct—

(a)   the recovery of possession of premises or land from a lessee,

(b)   the termination of a commercial lease by a lessor,

(c)   the exercise or enforcement of another right of a lessor of premises or land.

250. Clause 6 differed from cll 4 and 5 in that the prohibition was not identified by reference to “prescribed action” but by reference to three categories of action, although the categories covered most of the defined prescribed actions. The significance for present purposes is the fact that the prohibition was subject to a qualification introduced by the phrase “unless and until”.

251. The prohibition in cl 6, although not stated by reference to the defined term “prescribed action”, effectively covered the field of conduct so defined. That this was intended may be inferred from cl 7, requiring the court to “have regard to the leasing principles set out in the National Code of Conduct”, in dealing with the same conduct as that identified in cl 6. Thus, although differently expressed, cl 6 reflected the full extent of the prohibition in cl 4(1), but rendered it subject to compliance with a condition. If cl 4(1) were to prevail, cl 6 would be deprived of effect and its purpose, and the relevant leasing principles, frustrated.

252. The significance of cl 7 was that, in circumstances which mirrored (and were relevantly identical with) the prohibited conduct covered by cl 6, it envisaged that there might be action taken in a court, and required the court to have regard to the leasing principles in the National Code. This clause did not constitute a direction as to how to construe the Schedule of which it formed part, but gave direction as to matters to be borne in mind in exercising a jurisdiction which it assumed existed with respect to conduct encompassed by some prescribed actions. That was not consistent with cl 4(1) being an absolute prohibition on the taking of any such action.

253. Clause 7 of the second version of Schedule 5 was to the same effect as cl 7 set out above.

Changes made in second version of Schedule 5

254. Because Croc’s contention that priority be given to cl 4(1) must have failed during the operation of the first version of Schedule 5, its case for giving priority to what became cl 4(2) in the second version required that there be a change in the language or structure sufficient to demonstrate an intention to reverse a major feature of the scheme in a manner not acknowledged, nor justified by any change to the National Code. To determine whether such a contention can be supported, it is necessary to identify the changes made.

255. First, some changes to the form of the first version were made while it was still operative, that is by way of amendments made on 3 July 2020. One such change was to insert in cl 5 a new subcl (1A) which read as follows:

(1A)   This clause applies to a commercial lease to which an impacted lessee is a party (an impacted lease).

256. The purpose of this change was entirely stylistic. Clause 5(1) had been awkward in referring generally to a “lessor under a commercial lease” who was not to take action against “an impacted lessee”. The inclusion of the defined term, “impacted lease”, permitted cl 5(1) to be simplified so that it referred to a “lessor under an impacted lease”. It was then possible to replace the generic term “commercial lease” with “impacted lease” in other parts of cl 5. When the second version of Schedule 5 was enacted, the definition of “impacted lease” was taken out of cl 5(1A) and given its appropriate position amongst the definitions in cl 1. Other changes to cl 5 were retained.

257. Because the newly defined term was placed in cl 5 and applied (initially) only to cl 5, the terms of cl 4(1) were not varied to limit the term “lessor” to a lessor under an impacted lease, but that fact had no relevant consequence. The form of cl 4 was simplified in the second version. The critical change relied on by Croc’s arose from the fact that the second version of Schedule 5 was to continue for a period of six months from the day it commenced (cl 10), but the “prescribed period” terminated “at the end of 31 December 2020”. The prescribed period was thus limited to a period of a few days more than two months, while the Schedule operated for six months. Clause 4 was changed so that the unqualified prohibition which had been contained in cl 4(1) was then contained in cl 4(2) and was limited to the prescribed period. Clause 4, as amended, commenced as follows:

4   Prohibitions and restrictions relating to impacted leases

(1)   This clause applies if, during the prescribed period, a lessee is an impacted lessee.

(2)   During the prescribed period, a lessor must not take prescribed action against the impacted lessee on the grounds of a breach of the impacted lease occurring during the prescribed period consisting of –

(a)   a failure to pay rent….

258. There were thus three changes, of which two did no more than tidy up the language: the words “if a lessee is an impacted lessee” were removed and the prohibition was varied so that it no longer prohibited action “against the lessee” but against “the impacted lessee”. Secondly, where the prohibition related to the grounds of a breach “of the commercial lease” under the former Schedule, the revised version picked up the newly defined term and referred to “a breach of the impacted lease”. It is clear that neither of these changes was intended to alter the operation of the provision.

259. The third change was to commence subcl (2) with the words “During the prescribed period”. On one view, that was a deliberate limitation on the earlier operation of cl 4(1), now cl 4(2); on another view, there was no effective change at all, because cl 4(1) had only ever operated during the prescribed period. The need to make that limitation express resulted from the prescribed period under the second version of Schedule 5 not being coterminous with the life of the Schedule.

260. The argument in favour of reading the new provision as making a significant variation was weakened by consideration of subsequent subclauses of cl 4. Thus, former subcll (2) and (3) (now (3) and (4)) read as follows:

(3)   The rent payable under the impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover.

Note. See leasing principle No 13 in the National Code of Conduct.

(4)   A lessor must not, after the prescribed period, take any prescribed action against the impacted lessee on the grounds of a breach of the impacted lease consisting of a failure to pay an amount equivalent to or representing the rent increase amount referred to in subcl (3).

Note. See leasing principle No 13 in the National Code of Conduct.

261. One change common to both these revised provisions was to omit the opening words in the former provisions namely, “if, during the prescribed period, a lessee under a commercial lease is an impacted lessee”, being words which were rendered otiose by the adoption of the definition of “impacted lease”.

262. Whether by intention or serendipity, subcl (4), with a prohibition limited to the balance of the life of the Schedule after the prescribed period, now had work to do, when formerly it appeared to be totally subsumed within subcl (1). Otherwise, each subclause of cl 4 was varied so as to take advantage of the definition of “impacted lease”, a step not taken when the first version of Schedule 5 was amended.

263. Croc’s submissions with respect to the effect of the change to cl 4(1) (now cl 4(2)) encountered significant obstacles. First, there is no doubt that a distinction was made when the second version of Schedule 5 was promulgated between the operation of the prohibition on taking prescribed action under cl 4, and other controls which were to continue to operate throughout the life of the Schedule. However, Croc’s focused on one consequence of the change, namely that, assuming the prohibition in cl 4 had previously rendered cll 5 and 6 (and arguably cl 7) nugatory, those clauses now had some work to do which they did not have available to them prior to the change.

264. However, the fact that the three later provisions (cll 5, 6 and 7) would have had work to do during a period when the prohibition in cl 4(2) did not operate, provides no basis for inferring an intention that they should have no work to do with respect to a period when cl 4(2) did operate. In other words, the fallacy in giving priority to the general provision over the specific is not removed by finding some other work for the specific provisions to do.

265. On the other hand, if it is to be assumed that cll 5,6 and 7 had work to do during the first version of Schedule 5, it was necessary for Croc’s to explain the dramatic change in the operation of provisions which were untouched in their terms in the second version of Schedule 5. The only remaining peg upon which Croc’s could hang its submissions was extrinsic material providing support for the limited operation (if any) of the specific provisions. As will be seen, there was no extrinsic material reflecting such a change and the existing material supported a contrary conclusion as to the intended hierarchy of the provisions.

Relevant purposes and objects

266. The purpose of legislation may be gathered from (i) the language of the statute, (ii) internal extrinsic material, such as headings to sections and notes,^[34] (iii) the legislative history, and (iv) contextual matters. In the present case, the inquiry must focus on the first version of Schedule 5; there is no new material relating to the changes in the second version beyond the change in language, which is neutral as to the underlying purposes of the key provisions.

     34. Interpretation Act, s 35.

267. The first version was accompanied by an “Explanatory Note to the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW)”, to which consideration may be given pursuant to s 33 of the Interpretation Act. The Explanatory Note indicated that the “object” of the Regulation was to give effect to the National Code, so that the Regulation:

“(a)   prohibits and regulates the exercise of certain rights of lessors relating to the enforcement of certain commercial leases during the COVID-19 pandemic period, and

(b)   requires, in response to the COVID-19 pandemic, that lessors and lessees renegotiate the rent and other terms of those commercial leases in good faith having regard to the leasing principles set out in the National Code of Conduct, before any legal enforcement action of the terms of those commercial leases can be commenced.”

268. Two aspects of this statement may be noted. First, the Explanatory Note identified a single generic “object” of the Schedule and identified, conjunctively, the quite separate and distinct purposes of (i) prohibition, (ii) regulation and (iii) a requirement to renegotiate rent and other terms of a lease. The Explanatory Note envisaged that the “prohibition” and “regulation” of the lessor’s enforcement rights would co-exist with a legislative purpose requiring re-negotiation of rent before legal enforcement action, thereby implicitly recognising that enforcement action for non-payment of rent would be permissible after a good faith negotiation. This description was undoubtedly reflected in the Schedule; it assisted in resolving the issue of construction to the extent that it demonstrated an intention to accommodate each of these purposes within the Schedule.

268. Secondly, the “leasing principles” set out in the National Code were themselves silent as to the intended interrelationship of the various principles. That is unsurprising: conflicting principles may coexist, and their resolution will require a weighing process. The same is true of matters to which regard should be had, as prescribed by cl 7. An analogous function is served by Pt 6 of the Civil Procedure Act 2005 (NSW), and in particular s 58, which requires the courts to “have regard to” the overriding purpose (set out in s 56) of facilitating the “just, quick and cheap” resolution of the real issues in proceedings. Those three elements will often be in tension, but all must be addressed. In contrast, a rule in the form of a prohibition cannot be given any effect in an area where there is an inconsistent licence or liberty to act, unless one can be read as qualifying the other. Neither the Explanatory Note nor the leasing principles in the National Code supported the contention that cl 4 in the first version of Schedule 5 was to be given an absolute operation so as to deprive (or even diminish the effect of) the subsequent clauses. The Explanatory Note thus identified several purposes, in support of a singular object, but did not put them in a hierarchy. Nevertheless, it denied the possibility that some were to be disregarded or given no effect.

269. The separate and distinct purposes of each of cll 5, 6 and 7 can be located in the leasing principles: each should be given effect in accordance with its own apparent purpose. The first leasing principle was that “[l]andlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period)”. The leasing principles 3-6, 11 and 13 all envisaged that landlords would be encouraged to engage in negotiations about the payment of rent. Exceptions to the prohibition on terminating commercial leases for those who undertook good faith negotiations about reducing rents (cl 5) and engaged in a mediation (cl 6) were consistent with the latter principles. If cl 5 failed to provide an exception to the operation of cl 4, a re-negotiated rent would remain unenforceable and the purpose of cl 5 would be substantially frustrated.

270. The internal intrinsic material also provided assistance in resolving the issue of hierarchy. Whilst, pursuant to s 35 of the Interpretation Act, headings to clauses and notes are not parts of the Schedule, they can be relied on as extrinsic material, pursuant to s 34. Consistently with the qualification of the specific prohibition in cl 5, namely termination of a commercial lease “unless” the identified condition had been satisfied, the heading to cl 5 referred to steps to be taken “before” prescribed action was taken. Further, the note to cl 5(1) stated that “[t]he clause prevents the lessor taking unilateral prescribed action without complying with the requirements set out in subclauses (2)–(4).” In other words, prescribed action would be available if the requirements of subcll (2)–(4) were complied with.

271. Clause 6 was also in the form of a prohibition subject to a condition introduced by the words “unless and until”. Clause 6 provided that a lessor must not take specified actions, including the termination of a lease, "unless and until" the Small Business Commissioner had certified that a mediation had been undertaken but failed to resolve the dispute. Like the heading to cl 5, the heading to cl 6 referred to steps to be taken “before” prescribed action “can be taken”.

272. Thus, both cl 5 and cl 6 contained internal indications that expressly permitted the taking of action prohibited by cl 4(1): it was not possible to give them effect unless they qualified so much of the prohibition in cl 4 as fell within their compass.

273. On the assumption that cll 4, 5 and 6 operated contemporaneously, as they undoubtedly did throughout the operation of the first version of Schedule 5, and for the period during which cl 4(2) operated under the second version, giving cl 4(1) and later cl 4(2) primacy would have rendered cll 5(1) and 6 nugatory.

274. Finally, cl 7, requiring the court to have regard to the leasing principles set out in the National Code of Conduct when considering action prohibited by cl 4, would also be rendered nugatory if there were an absolute prohibition on prescribed actions.

275. Accordingly, the only reading of cll 4-7 which would allow the provisions to operate coherently identifies cl 4(1) as a statement of the prohibition, followed by the qualifications expressed in cll 5 and 6, with a recognition in cl 7 that a court may be required to assess a prescribed action and, in doing so, should have regard to the leasing principles which gave rise to both the prohibitions and the qualifications thereon.

276. During periods when both operated, to give primacy to cl 4(1) (later cl 4(2)) would deprive cl 5(1) of effect and thus frustrate its purpose and the relevant leasing principles.

Absence of express qualification of cl 4

278. The appellants resisted the proposition that cll 5 and 6 qualified the absolute prohibition in cl 4(2) on the basis that, had that been the intention, the drafter could readily have so stated. That the drafter did not expressly take that course may be conceded: however, that does no more than identify the problem, namely that the drafter did not expressly identify in cl 4 the interrelationship of the three provisions. But that interrelationship is clear from the language of cl 5 and cl 6, as well as the internal extrinsic material. To read cl 4 in isolation from the provisions which follow it is an impermissible approach to its construction.

279. Indeed, it is not only the relationship with cl 4 which was in issue; the relationship between cl 5 and cl 6 also needed to be identified. Just as cl 4 can only be properly construed when read cumulatively with the succeeding provisions, and not in isolation, it would appear, as the respondent accepted, that cll 5 and 6 must also be read cumulatively, and the conditions attached to the prohibitions in each satisfied if the lessor were to be entitled to take a prescribed action.

Conclusions

280. Clauses 4, 5 and 6 all came into effect as part of the first version of Schedule 5. Clause 4, in terms, created a blanket prohibition upon terminating the commercial lease of an impacted lessee for non-payment of rent during the prescribed period. Clause 4 operated for the time the Schedule was in operation, which was six months, ending on 23 October 2020.

281. The fact that there was contemporaneity of operation throughout the first version of Schedule 5, required the conclusion, according to Croc’s submission, that cll 5 and 6 had no effective operation during that period. That construction of the first version of Schedule 5 is absurd and cannot be accepted. It follows that, on Croc’s case, the operation of cl 4(1), now cl 4(2), changed with the enactment of the second version. Thereafter, it must have obtained a new primacy merely because there would later be some work which cll 5 and 6 could do without qualifying cl 4(2); that is, not during the prescribed period, but after it terminated.

282. Croc’s’ submission ignored the first eight months during which the Schedule had effect and relied on the fact that during the last four months cll 5 and 6 would have had work to do, when cl 4(2) did not operate, to contend that therefore cl 4(1) (then cl 4(2)) should be given primacy at all times. Croc’s simply did not address the consequence that during the eight months of operation of the Schedule, cll 5, 6 and 7 had no operation.

283. Even if it were permissible to take the second version of Schedule 5 in isolation, the fact that cll 5 and 6 (and cl 7) could have work to do after the end of the prescribed period, when cl 4(2) had ceased to operate, did not demonstrate that they had no work to do during the prescribed period.

284. A coherent application can be given to cll 4, 5, 6 and 7 of the second version of Schedule 5, consistent with the leasing principles in the National Code, by reading them as a package. Thus, cl 5(1), while repeating one of the prohibitions in cl 4, did so in order to qualify it, but only in part. Clause 6, in contrast, was not so limited, but imposed its own separate condition, cumulatively on cl 5.

285. Thus, each of those provisions was in the form of a prohibition, subject to a condition. Specifically, cl 5(1) provided that a lessor must not take or continue prescribed action on grounds of a breach of the commercial lease consisting of a failure to pay rent during the prescribed period "unless the lessor has complied with this clause". The fact that cl 5(1) mirrored the prohibition in cl 4(2)(a), demonstrated that the element of overlap was intentional and was intended to isolate that aspect of the various prohibitions in cl 4 which was to be qualified.

286. This construction of the second version of Schedule 5 gives effect to the objects set out in the Explanatory Note and the leasing principles in the National Code of Conduct, which continued to be identified in the notes in the second version in precisely the same terms as in the first version.

287. Croc’s proposed operation of the second version of Schedule 5 would be contrary to principle, inconsistent with authority and would defy common sense. No such conclusion was tenable while the first version was in force; ^[35] yet the amendments to the scheme made by the second version demonstrated no change to the underlying purpose or objects of the Schedule.

     35. As accepted by Payne JA at [96] above.

288. The primary judge correctly held that, as at 3 December 2020, cll 5(1) and 6 of the second version of Schedule 5 created two qualified exceptions to the prohibition in cl 4(2). Clause 4(2) did not prohibit the termination of the lease by Alamdo for non-payment of rent, if the conditions in cll 5(1) and 6 were satisfied. Grounds 7, 8, 12 and 13 should be rejected.

Orders

289. It follows that the appeal should be dismissed; Croc’s and the individual appellants must pay Alamdo’s costs in this Court.

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Endnotes

Decision last updated: 27 October 2023