Darzi Group Pty Ltd v Nolde Pty Ltd - [2021] NSWSC 774

Supreme Court

New South Wales

Medium Neutral Citation: Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774
Hearing dates: 8 to 14 April 2021
Decision date: 28 June 2021
Jurisdiction: Equity - Real Property List
Before: Robb J
Decision:
See pars [139], [142], [211], [234], [239], [242], [247], [252], [262], [266], [285], [291]-[295]. The parties should confer and forward to my Associate draft short minutes of order to give effect to these reasons as required by [295].

Catchwords:
LEASES AND TENANCIES — Renewals and options — Exercise of option — Where lessee commenced original proceedings seeking declaration that the parties had entered into a retail lease — Where Court of Appeal held the parties had entered into a retail lease — Where lessee now seeks specific performance of lessor’s agreement to renew the lease pursuant to lessee’s exercise of option — Where lessor pleads that the Court should use its discretion to withhold specific performance on account of the inability of the parties to cooperate, the toxic interpersonal relationship between the principals of the lessor and lessee, and because damages would be an adequate remedy — Where the Court found that a breakdown in personal relations between principals of parties to the lease is not a proper basis for the Court to deny the lessee its proprietary right to a renewal of the lease — Where the Court found that damages are not an adequate remedy — Where the Court grants specific performance of lessor’s agreement to grant a renewed lease to lessee
LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to pay rent in circumstances where lessee paid less than the rent due under the lease on its interpretation of the operation of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) — Where COVID-19 regulatory regime required rent to be renegotiated in good faith by lessor and lessee — Where lessor failed to renegotiate in good faith — Where the Court found that the lessor will never be entitled to take a prescribed action against lessee in respect of the short payments in rent
LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to pay insurance premiums in relation to outgoings pursuant to the lease — Where lessor and lessee disputed the meaning of ‘insurance’ — Where lessor claimed lessee must pay a share of product and public liability insurance — Where lessee held its own insurance in that regard — Where the Court held that the lessee did not breach the lease by failing to pay the share of premiums claimed by the lessor
LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to maintain the premises in good condition — Where lessor sought order requiring lessee to perform a list of maintenance tasks — Where it is unclear on the evidence whether the rectification of the alleged breaches are the responsibility of the lessor or lessee under the lease — Where the Court held that it should make an appropriate order that will facilitate the Court being able to make an order in relation to the cleaning, repair and maintenance of the Premises
LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to provide access to the premises for inspection — Where no evidence lessor sought to access premises for purpose of inspection — Where the Court refused to make the orders sought by the lessor
TORTS — Trespass to land — Damages — Where lessor claimed damages against lessee for trespass on parts of property outside leased premises — Where lessor has not proved that it suffered any loss — Where lessor has not establish that it had title to bring a claim in trespass against lessee — Where the Court found that if the lessor has title to bring a claim in trespass, the damages awardable would be nominal in any event

Legislation Cited:
Competition and Consumer Act 2010 (Cth)
Conveyancing Act 1919 (NSW)
COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW)
COVID-19 Recovery Act 2021 (NSW)
Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020 (NSW)
Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (NSW)
Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (NSW)
Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW)
Retail Leases Act 1994 (NSW)
Supreme Court Act 1970 (NSW)

Cases Cited:
Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522
Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210
Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141
Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68; [2008] NSWSC 744

Texts Cited:
DK Derrington and RS Ashton, The Law of Liability Insurance (3rd ed, 2013, LexisNexis Butterworths)
D Kelly and ML Ball, Principles of Insurance Law (2001, LexisNexis Australia, looseleaf)
RP Balkin and JLR Davis, Law of Torts (5th ed, 2013, LexisNexis Butterworths)

Category: Principal judgment
Parties: Darzi Group Pty Ltd (plaintiff)
Nolde Pty Ltd (defendant)
Representation:
Counsel: WG Muddle SC/ E Peden SC (plaintiff)
CD Wood SC/ DW Robertson (defendant)
Solicitors: Pigott Stinson (plaintiff)
Brown Wright Stein (defendant)

File Number(s): 2019/316670

Judgment

The plaintiff, Darzi Group Pty Ltd (Darzi), has, since 2014, operated a restaurant (Restaurant) on part of the ground floor of a property located at Forster owned by the defendant (the Property), Nolde Pty Ltd (Nolde). The balance of the building erected on the Property is a hotel (the Hotel) that at all relevant times has been operated by a company related to Nolde.
The principals of Darzi and Nolde are Omid Darzi and Maurice John Koorey respectively.

Agreement to lease and lease

On 30 August 2019, the New South Wales Court of Appeal published reasons for judgment in an appeal in proceedings between Darzi and Nolde: Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210.
As found by the Court of Appeal, on 13 October 2014, Darzi and Nolde signed a heads of agreement pursuant to which Darzi would obtain a lease of the premises from which it now operates the Restaurant (the Premises). Darzi entered into possession of the Premises on 20 October 2014, and the parties thereafter engaged in negotiations with respect to the terms of the lease. On 27 May 2016, Nolde advised Darzi of its agreement to the final outstanding issue, being that Nolde agreed to a lease commencing on 1 December 2014 to run for five years with an option for a further five years and three months. On 31 May 2016, Darzi agreed to a lease on those terms. On 15 June 2016, Darzi sent to Nolde a form of lease that embodied the agreed terms executed by Darzi, and asked for the delivery of a counterpart executed by Nolde. Nolde did not execute the 15 June 2016 document. Consequently, Darzi commenced proceedings in this Court seeking relief, including a declaration that the parties had entered into a retail lease on the terms contained in the 15 June 2016 document.
The Court of Appeal held that the parties had entered into a retail shop lease, pursuant to s 8 of the Retail Leases Act 1994 (NSW), on 20 October 2014, when Darzi entered into possession of the Premises. Further, it was held that a binding and enforceable agreement for the lease of the Premises came into existence on 31 May 2016 on the terms contained in the 15 June 2016 document, and that the agreement for lease replaced the heads of agreement of 13 October 2014.
Paraphrasing the relevant orders made by the Court of Appeal, that Court ordered:

4. Declare that, on 31 May 2016, Nolde as landlord and Darzi as tenant entered into an agreement for the lease of the premises in terms of the 15 June 2016 document.
5. Order that Nolde execute the 15 June 2016 document, attend to the stamping and registration of that document under the Real Property Act 1900 (NSW), and furnish to Darzi a certified copy of the registered instrument as evidence of Darzi’s title.

Nolde did not promptly comply with order 5 made by the Court of Appeal.
The lease that the Court of Appeal had declared to exist between Nolde and Darzi (Lease) had an initial term of 1 December 2014 to 30 November 2019 with a single option to renew (the Option) for a further term of five years and three months. The Option could be exercised between six months and three months prior to the expiration of the Lease, namely between 1 June 2019 and 31 August 2019.
Darzi exercised the Option within the stipulated period, on 27 August 2019.
On 10 September 2019, Nolde’s then solicitors served upon Darzi a notice that purported to be a prescribed notice for the purposes of s 133E of the Conveyancing Act 1919 (NSW). The notice specified three alleged breaches of the Lease by Darzi, being the making of alterations to the Premises without Nolde’s consent, the failure to pay outgoings and the failure to open the Restaurant for the purpose of serving breakfast for guests of the Hotel seven days per week.
Section 133E of the Conveyancing Act has the effect that a lessee’s entitlement to exercise an option can only be extinguished by the lessor on the ground of breach of the lease if the lessor serves on the lessee a notice as prescribed by the section, and the lessee does not seek within one month after service of the prescribed notice an order for relief against the effect of the breach, or that relief is not granted in proceedings in which it is sought.

Proceedings

On 10 October 2019, Darzi filed the summons by which it commenced these proceedings. Darzi sought a declaration that it had exercised the Option to renew the Lease found by the Court of Appeal to have been made on the terms of the 15 June 2016 document, a declaration that the 10 September 2019 notice was not a prescribed notice for the purposes of s 133E of the Conveyancing Act, or alternatively, an order granting relief under s 133F in respect of any breaches that were established and an order that Nolde specifically perform its obligation under the Lease to grant a renewed lease for a term of five years and three months commencing on 1 December 2019.
By letter dated 6 November 2019, Nolde’s present solicitors formally and irrevocably withdrew the purported s 133E notice and advised Darzi that Nolde would not dispute that, on 27 August 2019, Darzi validly exercised the Option to renew the Lease. Nolde also acknowledged in accordance with s 133G of the Conveyancing Act that the Lease would continue in force until the proceedings were determined.
The 6 November 2019 letter also advised that Nolde was in the process of executing the Lease, the subject of order 4 made by the Court of Appeal. The executed Lease was provided to Darzi’s solicitors under cover of a letter dated 8 November 2019 written by Nolde’s solicitors. A window on Nolde’s attitude to compliance with order 5 made by the Court of Appeal is found in the following paragraph of the solicitors’ letter:

Nolde has executed the instrument because it was compelled to do so by the Order. Nolde does not admit that the instrument is accurate or that it otherwise reflects terms that have been agreed by Nolde.

The validity of the purported notice under s 133E of the Conveyancing Act has therefore ceased to be an issue in the proceedings. Nolde has subsequently served on Darzi various other notices and demands that will be considered in due course.
One such notice was a further purported notice under s 133E of the Conveyancing Act (the second s 133E notice) that was served on 12 December 2019, and claimed that Nolde was not required to grant Darzi the renewed Lease because Darzi had breached the Lease by failing to pay Nolde $36,398.53 for outgoings, as allegedly required by clause 5.1.2 of the Lease. The notice recorded that clause 4.5 of the Lease provided that Nolde was entitled to treat any failure by Darzi to continue to pay all rents and outgoings on time after the exercise of the Option as a breach of the new lease as well as the Lease.
Darzi responded to the service of the second s 133E notice by filing an amended summons on 20 December 2019 to add to its prayers for relief a claim for a declaration that the notice is not a prescribed notice for the purposes of the section, and in the alternative, an order pursuant to s 133F of the Conveyancing Act giving effect to the exercise of the Option.
The prayers for relief in Darzi’s amended summons are now embodied in its amended statement of claim filed on 2 October 2020 which, allowing for claims deleted from the original statement of claim, seeks the following additional relief to the prayers relevant to the enforcement of the exercise of the Option:

Unconscionable conduct
18. A declaration that the defendant has engaged in conduct that is in all the circumstances unconscionable within the meaning of section 62B(1) of the Retail Leases Act 1994 (NSW) (the RLA) and/or section 21 of the Australian Consumer Law (ACL), in any or all of:
(a) refusing to comply with the defendant’s obligations to renegotiate the rent and other terms of the Lease as required by the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation); and/or
…
(d) wrongfully demanding as a Lease outgoing expense from the Plaintiff a portion of the defendant’s product and public liability insurance; and/or
…
19. A declaration or in the alternative an order under section 72 of the RLA that the rent payable by the plaintiff to the defendant during the “prescribed period” as defined in s 3 of the Regulation is to be calculated in accordance with Principles 3 and 4 of the “National Code of Conduct” as defined in section 3 of the Regulation.
20. A declaration or in the alternative an order under section 72 of the RLA that the plaintiff is not liable to the defendant for any portion of the defendant’s product and public liability insurance in respect of the defendant’s hotel premises.
…

Nolde filed its defence to the amended statement of claim on 19 October 2020. It is not necessary to refer to Nolde’s specific responses to Darzi’s allegations at this stage, but it is to be noted that in par 4(c) Nolde asserted that the Hotel is owned and operated by SRI Publishing Pty Ltd. This allegation was repeated in par 4 of Nolde’s cross claim.
At the hearing, in addition to defending Darzi’s claim, Nolde prosecuted its own claim as pleaded in its further amended statement of cross claim filed in court on 13 April 2021 (the cross claim).
In its final oral submissions, Nolde formally abandoned its claims for relief in prayers 1 and 3 of the cross claim, being for declarations that Nolde is not obliged to grant Darzi a renewal of the Lease pursuant to the exercise of the Option to renew, or alternatively a declaration that Nolde is entitled to terminate the Lease, as well as an order that Darzi give up possession of the Premises or alternatively that Nolde is entitled to re-enter and take possession: T 267.23 - T 267.38.
Consequently, it appeared that the only claim for relief that remains in effect concerning Darzi’s entitlement to a renewal of the Lease is that made by prayer 2 of the cross claim, which is in the following terms:

2. In the alternative to prayer 1, declare that Darzi is not entitled to an order that Nolde specifically perform its obligation to grant Darzi a renewal of the Lease between the parties for a further term pursuant to Darzi’s purported exercise of the option to renew the Lease, and instead order that Nolde is to pay damages to Darzi for its refusal to renew the Lease, such damages to be assessed by a referee appointed by the Court or, in the alternative, in an inquiry into damages.

By this change of position, it appeared that Nolde abandoned its claim that Darzi does not have a valid contractual right to the execution by Nolde in its favour of a renewed Lease for a further period of five years and three months from the date of expiration of the Lease. Consequently, it also appears that Nolde does not maintain a claim that it is entitled to terminate the Lease and that it does not have a contractual obligation to grant a renewal of the Lease by reason of the breaches alleged in the second s 133E notice. This understanding is consistent with the fact that Nolde did not mention the second s 133E notice in its final submissions or argue that it was not contractually obliged to execute a renewed Lease.
If prayer 4 of the amended statement of claim is still sought by Darzi, the Court should make a declaration in those terms, being a declaration that the notice is invalid. As such, relief in respect of the breach alleged in the notice under s 133F of the Conveyancing Act will not be necessary.
Nolde’s opposition to prayer 6 of Darzi’s amended statement of claim for an order that Nolde specifically perform its obligation to grant Darzi a renewed Lease of the Premises is now limited to a claim that the Court, in the exercise of its discretion in granting equitable relief, should not order that Nolde specifically perform its admitted contractual obligation, but instead should declare that Darzi is not entitled to an order for specific performance. Nolde submits that the Court should only order Nolde to pay damages to Darzi to compensate it for losing the benefit of the renewed Lease.
As was pointed out by senior counsel for Darzi in opening, by this approach Nolde asks the Court to make an order in favour of Darzi that Darzi has not sought, and is irregular in so far as it involves a request by a defendant that the Court make an order against it in lieu of the one sought by the plaintiff.
There is some uncertainty concerning the case as finally put by Nolde in its cross claim.
It is necessary to analyse the cross claim as pleaded. In addition to prayers 1 to 3, Nolde sought further relief, by prayers 4 to 7, on the assumption that the Court made an order that had the effect that Darzi had to give up possession of the Premises. That relief was, in substance, an order that Darzi reinstate the Premises to their former condition (prayer 4); an order that Darzi pay all outstanding rent plus interest (prayer 5); an order that Darzi pay all outstanding outgoings as specified (prayer 6); an order that Darzi pay damages for breach of the Lease (prayer 6A); and an order for costs (prayer 7).
The balance of the relief sought by Nolde was set out under the heading “Alternative relief”. The chapeau to these claims was: “If the Court does not make the orders above, and instead finds that the Lease between the parties is subsisting (which Nolde denies), Nolde seeks the following orders…”. The prayers that followed assumed that the Court had made an order that Nolde specifically perform its agreement to grant a renewed Lease to Darzi.
In outline, the alternative relief claimed was a declaration as to what areas were included in the Premises (prayer 9); an order restraining Darzi from using or accessing parts of the Property outside the Premises (prayer 10); a declaration that Nolde is entitled to permanently lock or seal off the lobby door between the Premises and the rest of the building (prayer 11); an order restraining Darzi from using the car park or the storage area (prayer 12); an order requiring Darzi to provide Nolde with access to the Premises for the purpose of carrying out an inspection (prayer 13); an order requiring Darzi to undertake certain specified maintenance of the Premises (prayer 14); a declaration with respect to the proper construction of the Lease as to the meaning of the term “insurance” in the obligation to pay outgoings (prayer 15); a declaration that Darzi is to pay for its water usage (prayer 16); a declaration that Darzi is required to pay fire callout fees (prayer 17); damages for breaches of the Lease (prayer 17A); and costs (prayer 18).

I note that, in pars 12 to 14 of its final written submissions, Nolde said that it no longer presses the relief sought concerning the door between the lobby and the Premises (as Darzi had also abandoned its claim on that point), and that it abandons its claims that the following matters fall within Darzi’s obligation to pay outgoings; namely fire monitoring fees, alarm maintenance fees, water use, fire callout fees and repairs to the bin room doors allegedly damaged by Darzi. Consequently, Nolde has abandoned its claims in prayer 6(b) to (e) and prayers 16 and 17 of the cross claim.
There is no prayer in the primary relief claimed in the cross claim for a declaration that Nolde is entitled to terminate the Lease on the ground of breach by Darzi. However, in the pleadings and particulars section of the cross claim, Nolde included the following allegations:

15.   Nolde has refused to extend the Lease pursuant to Darzi’s purported exercise of the option to renew, on the basis that Darzi has breached its obligations under the Lease and therefore Nolde is not under any obligation to extend the Lease.
Particulars
i.   Failure to pay rent (as pleaded in paragraphs 25 - 30 below);
ii.   Failure to pay outgoings (as pleaded in paragraphs 31 - 57 below);
iii.   Failure to maintain the Premises in a good condition (as pleaded in paragraphs 58 - 61 below);
iv.   Failure to provide Nolde access to the Premises to carry out an inspection (as pleaded in paragraphs 62 - 66 below);
v.   Unlawful use by Darzi of non-leased parts of the Building, and committing wilful trespass onto Nolde’s property (as pleaded in paragraphs 70 - 89 below);
vi.   Darzi’s failure as lessee to act in good faith towards Nolde as lessor;
vii.    Darzi’s conduct in permitting a strip show to take place on its premises in or about 2016 (as pleaded in paragraph 67 below);
viii.   Darzi’s conduct in abusing and threatening Hotel staff (as pleaded in paragraph 68 below);
ix.   Darzi’s refusal to communicate directly with Nolde and conduct in banning its staff from communicating with staff of the Hotel (as pleaded in paragraph 69 below).

In pars 18 to 19A of the cross claim, Nolde alleged that, on 12 December 2019, 17 July 2020 and 14 December 2020, it had served notices on Darzi under s 129 of the Conveyancing Act (s 129 notices) specifying breaches of the Lease and requiring those breaches to be remedied by Darzi.
Section 129 of the Conveyancing Act has the effect that, in respect of breaches of leases other than for the non-payment of rent, a right of re-entry or forfeiture for breach of a lease shall not be enforceable unless and until a notice in the prescribed form is served on the lessee by the lessor specifying the breach and requiring the lessee to remedy the breach if capable of remedy, and the lessee fails within a reasonable time to remedy breaches capable of remedy. The section also vests jurisdiction in the Court to make orders on the application of the lessee in the nature of relief against forfeiture.
Then, the cross claim pleaded the following allegations:

21.   In the premises, by reason of Darzi’s breaches of the Lease committed prior to 30 November 2019, Nolde was not obliged to grant Darzi a renewal of the Lease between the parties for the further term of 5 years and 3 months.
22.   In the alternative, by reason of Darzi’s breaches of the Lease committed after 30 November 2019, in the event that the Lease commenced for the further term of 5 years and 3 months on 1 December 2019, nevertheless Nolde is entitled to terminate the Lease.
23.   In the further alternative, by reason of Darzi’s breaches of the Lease and other conduct, Nolde is not obliged to specifically perform its obligation to grant Darzi a renewal of the Lease for the further term pursuant to Darzi’s purported exercise of the option to renew the Lease, and instead Nolde is to pay damages, such damages to be assessed in an inquiry into damages.
24.   By reason of the matters pleaded above, the Court should order that Darzi give up possession or occupation of the Premises forthwith, or alternatively declare that Nolde is entitled to re-enter and take possession of the Premises forthwith.

Nolde’s maintenance of the claims in pars 15 and 21, in so far as they alleged an entitlement not to renew the Lease, is not consistent with the abandonment of prayer 1. I will proceed on the basis that Nolde no longer resists an order that it grant a renewed Lease to Darzi on the basis of alleged breaches of the Lease committed prior to 30 November 2019.
Further, paragraphs 22 and 24 are not consistent with the abandonment of prayer 3, as the paragraphs allege grounds for Nolde to terminate the renewed Lease and re-enter the Premises. The alleged breaches of the Lease that would remain relevant are breaches committed after 30 November 2019.
The relationship between par 23 and prayer 2 of the cross claim is not clear. As I understand the case put by Nolde at trial, it was that, even though Nolde was contractually obliged to grant a renewed Lease to Darzi, the Court should not order specific performance of that obligation because damages is an adequate remedy and should be ordered to be paid instead. That is a different case to a claim that it is Darzi’s breaches of the Lease that enliven the discretion to order Nolde to pay damages rather than to make an order for specific performance.
The uncertainty to which I have referred above arises out of the following part of Nolde’s written submissions provided to the Court during Nolde’s closing address:

1.   Darzi Group has been in breach of its lease at various times throughout the relationship. That relationship has now descended into personal hostilities and the Police and the MidCoast Council have been involved.
2.   The Court should not order that this toxic relationship continue.
3.   Therefore, by its Amended Statement of Cross-Claim (ASOCC), Nolde relevantly seeks the following relief:
(a)   a declaration that Nolde is not obliged to grant Darzi a renewal of the Lease for the further term of 5 years and 3 months, or alternatively a declaration that Nolde is entitled to terminate the Lease;
(b)   alternatively, a declaration that Darzi is not entitled to an order that Nolde specifically perform its obligation to grant Darzi a renewal of the Lease, and instead an order that Nolde is to pay damages to Darzi, such damages to be assessed by a Court-appointed referee or alternatively in an inquiry into damages. Essentially, Nolde says that the Court should refuse to grant specific performance, both for the reason that Darzi is in substantial breach, and because of the dysfunctional relationship between the parties;
(c)   damages for trespass, and damages for breach of the Lease (essentially for the non-payment of rent and outgoings); and
(d)   an order that Darzi give up possession of the Premises.

In the light of pars 1 and 2 of the written submissions, Nolde’s claim in par 3(b) that Nolde should be ordered to pay damages rather than that an order for specific performance be made against it, because of the combined effect of Darzi’s alleged breaches of the Lease and the existence of a toxic relationship between the parties, is reasonably intelligible. However, it is not clear why it is put that Darzi is “not entitled” to an order for specific performance, rather than that the Court should exercise its discretion not to grant that relief.
The confusing aspect of the submission is principally par 3(a), which appears to involve a continuation of the claim for the relief in the abandoned prayer 1 of the cross claim.
On the subject of the s 129 notices, senior counsel for Nolde said in final submissions that it was sufficient to focus on the third s 129 notice dated 9 December 2020 (the third s 129 notice), as that notice was intended to “capture all the relevant breaches”: T 274.30. As I read the third s 129 notice, it alleges conduct on the part of Darzi that has taken place after 30 November 2019 and that are capable of being breaches of the Lease if that lease has continued on a holding over basis pending the determination of these proceedings, and also breaches of the renewed Lease if Nolde is ordered to specifically perform its agreement to renew the Lease. As required by s 129 of the Conveyancing Act, the third s 129 notice required Darzi to remedy alleged breaches that were capable of remedy within 14 days of receipt of the notice.
Senior counsel for Nolde also directed the Court’s attention to a letter from Nolde’s solicitors to Darzi’s solicitors dated 17 December 2020 that responded to a demand made on behalf of Darzi that Nolde withdraw the third s 129 notice. The letter contained the following:

However, we are instructed that notwithstanding your client’s breach of the Expired Lease as set out in the Notice, our client undertakes that it will not take any “prescribed action” and will allow your client to remain in possession of the premises pending the outcome of the Proceedings between the parties.

The “prescribed action” referred to in this extract from the letter consists of the actions capable of being taken by a lessor specified in the definition of “prescribed action” in clause 3 of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (COVID-19 Regulation) as in force at the date of the letter. I will consider the significance of this Regulation below.
As I understand the extract from the letter set out above, by referring to the “Expired Lease” and to alleged breaches of that lease by Darzi, and by undertaking not to take any “prescribed action”, Nolde was acting consistently with the position that it had adopted, until it abandoned prayers 1 and 3 of its cross claim, that Darzi was in breach of the lease that has continued on a holding over basis with the consequence that Nolde could terminate the Lease and refuse to grant the renewed Lease following the exercise of the Option.
I have interpreted the effect of Nolde’s change of position to be, in the light of its closing submissions, that it no longer claims that breaches by Darzi of the Lease during the currency of that Lease have entitled Nolde to refuse to grant the renewed Lease to Darzi following the exercise of the Option. However, as the third s 129 notice alleges conduct by Darzi that breaches the renewed Lease, on the assumption that it becomes effective with retrospective effect by reason of an order for specific performance against Nolde, Nolde can rely upon the alleged breaches as a basis for terminating the renewed Lease. Further, as Darzi has accepted the moratorium offered by Nolde in par 6 of the 17 December 2020 letter that is extracted above, Nolde will be entitled to terminate the renewed Lease and re-enter the Premises if it establishes, by means of these reasons for judgment, that the right to do so exists because of Darzi’s breaches.
If that understanding of Nolde’s present position is correct, then the uncertainty in its position to which I have referred above should be resolved in the following way.
First, Nolde’s abandonment of prayer 1 in its cross claim is effective. Nolde no longer claims that it does not have a contractual obligation to grant a renewed Lease to Darzi. To the extent that it is inconsistent with this position, par 3(a) of Nolde’s written closing submissions is superseded.
Secondly, prayer 1 in the cross claim and par 3(b) of Nolde’s closing submissions are intended to have the following effect. Nolde does not claim that the alleged breaches of the Lease by Darzi extinguished Nolde’s contractual obligation to grant the renewed Lease. Rather, Nolde claims that the Court should exercise its discretion by refusing Darzi’s claim for an order that Nolde specifically perform its agreement to grant the renewed Lease. That is both because an award of damages would be an adequate remedy in the circumstances, and because the relationship between the parties has been so “toxic” for a long period that it would be an inappropriate remedy for the Court to force the parties to engage in a continuing legal relationship by reason of the renewal of the Lease. On that issue, the conduct of Darzi in committing the alleged breaches of the Lease is relevant to demonstrating that Darzi is not willing to perform its obligations and that it antagonises Nolde, those being matters relevant to the exercise of the discretion more than the strict consequences of breach of the Lease.
Finally, Nolde maintains that, if it is ordered to specifically perform its agreement to grant a renewed Lease, it has a right to terminate that lease on the ground of the breaches of the Lease notified to Darzi in the third s 129 notice that are still maintained by Nolde.
If this final conclusion is correct, it means that Nolde’s abandonment of prayer 3 of the cross claim was too widely stated. Nolde intended only to abandon its claim that it is entitled to possession of the Premises on the basis that the Lease has terminated by effluxion of time and Nolde is under no obligation to grant a renewal of the Lease because the exercise of the Option was ineffective. Nolde continues to seek the relief in prayer 3 on the basis either that the Court, in the exercise of its discretion, rejects Darzi’s application for an order for specific performance of the agreement to grant the renewed Lease, or that notwithstanding that the new Lease is granted, Nolde establishes a right to terminate it for breach by Darzi.

Darzi’s breaches of the Lease

The cross claim substantially reflects the assertions made in the third s 129 notice, although sometimes in different terms, and with the odd claim made in one but not made in the other. The appropriate way for the Court to proceed is to adopt the formulation of Nolde’s claims in the cross claim. It will be convenient to deal with the claims in the order in which they are found in the cross claim. I will use the headings in that document.
I note that in final submissions senior counsel for Nolde said: “For the reasons we advanced in writing [referring to Nolde’s closing submissions], we’d invite your Honour to find that there have been some breaches. We don’t make good every breach that we alleged in the pleading, and I accept that”: T 288.39.
While being mindful of the allegations in the cross claim that were not explicitly withdrawn by Nolde, I have relied upon Nolde’s closing written submissions as a guide to the allegations of breach that Nolde considers have substance.

Darzi’s failure to pay rent

Clause 5.1.1 of the Lease obliged Darzi to pay to Nolde the rent stated in item 13A in the Schedule. Nolde pleaded in par 27 of the cross claim that, for the period 1 December 2019 to 27 July 2020, the latter being the date of filing of the cross claim, the rent payable under the Lease was $12,064.16 (incl GST), which would have increased to $12,546.74 (incl GST) on 1 December 2019 if the Lease had been renewed for the further term. It pleaded in par 28 that Darzi only paid Nolde $1,304.86 (incl GST) for rent for the month of May 2020 and $2,942.21 (incl GST) for rent for the month of June 2020. Nolde claimed that Darzi owes Nolde $16,985.45 (incl GST), or alternatively $20,846.41 (incl GST), plus interest.
In its defence to the cross claim, Darzi admitted the basic facts alleged by Nolde and responded as follows (omitting references to correspondence in the particulars):

28.   In response to paragraph 28, the cross-defendant:
a.   admits it paid the amounts for rent for May 2020 and June 2020 as set out in the paragraph;
b.   says that the cross-defendant is an “impacted lessee” as defined in cl 4 of the COVID Regulation;
c.   says that the amounts which the cross-defendant paid to the cross-claimant were calculated in accordance with Principle No 3 of the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19;
d.   says that the cross-claimant provided evidence to the cross-defendant that it was an impacted lessee;
e.   says that the cross-defendant provided a statement to the cross-claimant that it is an impacted lessee;
f.   says that the cross-defendant made a request to renegotiate the rent payable under the Lease;
g.   says that the cross-claimant refuses to negotiate the rent and other terms under the Lease despite its obligation under section 7 of the COVID Regulation to do so;
h.   says that in the premises, it is not in breach of the Lease;
i.   says that the cross-claimant is barred by the COVID Regulation from seeking relief against the cross-defendant to the extent that the cross-claimant relies on a failure to pay rent; and
j.   otherwise denies the paragraph.

Darzi’s defence to the admitted claim that it did not pay the whole of the rent due under the Lease for the months of May and June 2020 was that it is an impacted lessee as defined in the COVID-19 Regulation, and the amounts that it paid were in accordance with Principle No 3 of the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (the Code). Darzi then claimed that Nolde had refused to renegotiate the rent and other terms of the Lease despite its obligation under clause 7 of the COVID-19 Regulation. Darzi pleaded that it was therefore not in breach of the Lease.
I have set out above the prayers in Darzi’s amended statement of claim that are relevant to the application of the COVID-19 Regulation to the rent payable by Darzi in May and June 2021. Darzi alleged in prayer 18 that Nolde had refused to renegotiate the rent as required by the COVID-19 Regulation, and that that constituted unconscionable conduct under s 62B(1) of the Retail Leases Act and also s 21 of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth).
Darzi also sought a declaration that the rent payable to Nolde during the prescribed period, as defined in clause 3 of the COVID-19 Regulation, is to be calculated in accordance with Principles 3 and 4 of the Code.
The present case is likely to be unusual as, following the restrictions on the operation of restaurants that were initially introduced by the State government in response to the COVID-19 pandemic which interrupted their operation and led to dramatic declines in turnover, the income of the Restaurant operated by Darzi substantially declined in the months of May and June 2020 relative to the same months in the previous year. Darzi initiated a renegotiation of its rent under the COVID-19 Regulation with Nolde, and only paid Nolde the amounts for May and June 2020 that Darzi calculated were appropriate on its view of the operation of the COVID-19 Regulation. Then, the turnover of Darzi’s Restaurant in June 2020 recovered to the extent that Darzi ceased to qualify as an impacted lessee, and Darzi has paid to Nolde the full amount due for rent under the Lease since June 2020. Therefore, the dispute about the shortfall in rent payments and the operation of the COVID-19 Regulation is for a closed period of two months in this case. That unusual feature may impact on the consideration of how the COVID-19 Regulation applies to the present case, and may have consequences that are not relevant generally.

Communications concerning renegotiation of rent

It will be appropriate to preface the consideration of the application of the COVID-19 Regulation in this case by an examination of the communications between the parties concerning the application of the Regulation.
Darzi first made a request of Nolde for a reduction in rent in response to the COVID-19 pandemic in a letter from its solicitors to Nolde's solicitors dated 23 March 2020. The letter stated that Darzi's business had been severely affected, noted that Darzi currently employed around 25 people and said:

5. Presently the restaurant remains open to provide take-away but it may be that the Government will force our client to close permanently for a period of time.

6.   In the meantime, our client remains committed to keeping as much of its staff employed as is financially viable for so long as it can, for the benefit of those employees and for that of the local community in Forster.
7.   In these circumstances, and to allow our client to continue employing at least some of its employees, our client would be grateful if you would discuss with your client the possibility of your client offering our client a reduction in rent and deferral of rent under the Lease over the next 3 months.
8.   Please seek your client's urgent instructions. Our client has requested a response by no later than 3pm tomorrow (24 March 2020).

Nolde's solicitors replied by letter dated 24 March 2020. In the subject heading, they referred to Darzi's lease as being one "expiring on 30 November 2019". The letter said:

We are instructed as follows:
1. Our client has also been significantly impacted by the COVID-19 crisis and faces economic uncertainty.
2. Given these circumstances, unfortunately our client is not in a position to agree to a rent reduction or deferral of rent under the Lease.

This letter was written the day before, on 25 March 2020, the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) came into force. That Act amended the Retail Leases Act by inserting a new s 87, which authorised the making of regulations to respond to the effect of the COVID-19 pandemic on the businesses of tenants whose leases were subject to the Act.
On 7 April 2020, the National Cabinet adopted the Code.
On 24 April 2020, the New South Wales Government promulgated the COVID-19 Regulation, which gave legal effect to the Code.
Following the promulgation of the COVID-19 Regulation, Darzi's solicitors wrote a further letter to Nolde's solicitors on 28 April 2020. The letter included the following:

…
6.   We are instructed that our client satisfies the requirement in clause 4(1) of the Regulation in that it carried on a business in Australia as at 1 March 2020 and satisfies the decline in turnover test as set out in rule 8 of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the Rules).
7.   We also enclose a copy of a confirmation issued by the ATO regarding our client's registration for the JobKeeper scheme.
8.   We have reviewed our client's end of financial year statements prepared by its accountants for the year ending 30 June 2019, and confirm that according to those statements, our client's annual turnover is less than $50 million. We have enclosed an extract from that statement showing the annual turnover. Please note that this includes turnover not just from [the Restaurant], but other hospitality businesses which our client operates.
9.   Accordingly, our client is an "impacted lessee" as defined in clause 4 of the Regulation.
10.   Pursuant to principle 3 of the leasing principles set out in the Code (the Principles), landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals based on the tenant's reduction in trade during the COVID-19 period.
11.   Furthermore, at least 50% of the offer which the landlord must make under Principle 3 must be comprised of a rental waiver. Any deferred rent is to be paid back over the balance of the lease term and for a period of not less than 24 months.
12.   In accordance with the principles for calculating reduction in turnover as set out in the Rules, our client has provided its revenue figure for April 2019, which was $195,203.62 and estimates that its turnover for April will be $20,238.26.
13.   We enclose figures our client's accountants have extracted which shows the turnover for the [Restaurant] in April 2019, and the turnover for the period 1-26 April 2020.
14.   The estimate for April 2020 is comprised of $17,539.82 in actual turnover up [to] 26 April 2020 (as shown in the enclosed figures). The estimated component for the remaining days up to the end of April 2020 is based on the daily average of actual turnover for April to date.
15.   Accordingly the reduction of revenue our client has suffered is 89.6%.
16.   This letter constitutes a request under clause 7 of the Regulation, which requires the parties to re-negotiate the rent for the Premises, having regard to the economic impact of COVID-19 and the Code.
17.   Our client requests that your client offer to reduce the rent in proportion to the reduction in revenue our client has suffered, with the effect that 50% of that reduction will be waived and the other 50% be paid to your client in instalments after the end of the COVID-19 period.
18.   We look forward to your client's response. In the meantime, our client will pay rent for the month of May 2020 in accordance with the reduction it considers is applicable under the Code, being an amount of $1,304.86 inclusive of GST.
19.   We note that clause 6 of the Regulation prohibits your client from taking any "prescribed action" against our client in the "prescribed period" for non-payment of rent or outgoings.
…

Enclosed with the letter was a printout from the website of the Australian Taxation Office (ATO) that demonstrated that Darzi was enrolled for JobKeeper wage subsidies.
Also enclosed was an income statement for Darzi for the year ended 30 June 2019 that showed that Darzi had sales of $3,035,948 and a gross profit from trading of $2,198,776. The income statement gave figures for the same variables for the 2017 and 2018 financial years.
Finally, the letter attached a brief document, apparently prepared by Darzi's accountants, that set out the income for the Restaurant for the months of April 2019 and 2020 as $195,203.62 and $17,539.82 respectively.
By this letter, Darzi initiated the negotiation process under the COVID-19 Regulation, and provided to Nolde the information that appeared to Darzi and its solicitors to be appropriate to satisfy Nolde that Darzi was an impacted lessee. Darzi explained its calculation that, on the basis of its forecasted turnover for April 2020, it would be entitled to an 89.6% reduction in rent for that month. Darzi made a request that Nolde would offer to reduce the rent in proportion to the reduction in revenue, with 50% of the reduction waived and the other 50% to be paid in instalments after the end of the COVID-19 period. The letter stated that Darzi’s solicitors looked forward to Nolde’s response and then said “[i]n the meantime, our client will pay rent for the month of May 2020 in accordance with the reduction it considers is applicable under the Code, being an amount of $1,304.86 inclusive of GST”.
Darzi’s decision to pay to Nolde a reduced amount of rent for May 2020, based upon the reduction in its turnover in April as against 12 months previously, was a unilateral one, in the sense that it was implemented without Nolde’s prior agreement. But it was not described in final or non-negotiable terms. It was to apply “in the meantime”, while the negotiations between Darzi and Nolde were taking place. It was open to variation by subsequent agreement. This consideration is relevant to the significant question raised by Nolde as to whether the implementation of the COVID-19 Regulation requires the lessee to continue to pay the stipulated rent until an agreement is reached with the lessor that the rent should be reduced to a lesser amount in the implementation of the Code.
On 12 May 2020, Mr Koorey on behalf of Nolde wrote a letter to Darzi at its solicitors' address. The letter stated:

In reference to your correspondence dated 28^th April, 2020.
Insurance in the expired lease outgoings requirements states Insurance. There is no requirement pertaining to your letter and in this regard disregard your claim. The lease expired on the 30th November, 1919, your actions of deduction on 28^th April 2020 is unwarranted.
Further in regard to the present Covid 19 Code of conduct.
This code applies to all tenancies that are suffering financial stress, you need to supply this information.
The objective of the code is to share, in a proportionate way. You are expected to negotiate where possible.
Any AGREED arrangements will take into account revenue, expenses and profitability.
Your client's proposal of a rent of $1,304.86 per month including GST is unacceptable.
Your client's request for deferred payment of any form is rejected based entirely on past actions.
You are requested to fulfil your obligations.

In stating that Darzi needed “to supply this information” concerning the financial stress from which it was suffering, Mr Koorey implicitly rejected the adequacy of the information supplied with Darzi’s solicitors’ letter. Mr Koorey stated that the payment made by Darzi for May 2020 was “unacceptable”, without challenging the explanation that the amount had been calculated in accordance with the Code. His rejection of the request for a deferral of payment was expressed in absolute terms. The basis of the rejection, being “based entirely on past actions”, can only be understood as being that Mr Koorey had declined to entertain the application based upon his personal view of the significance of Darzi’s conduct as lessee, which may reasonably be understood as including Mr Koorey’s reaction to the proceedings instituted by Darzi against Nolde and its ultimate success in the Court of Appeal.
Darzi made a submission that the Court should act upon the penultimate paragraph in Mr Koorey’s letter as proof that Nolde had an obdurate resistance to good faith negotiations with Darzi as required by the COVID-19 Regulation and the Code. As will shortly be seen, Nolde must have relented to some extent, because its solicitors made a new response to Darzi’s solicitors’ letter that was more amenable to negotiation with Darzi. That makes it difficult to justify a finding that Nolde’s resistance to negotiations was obdurate. However, there is no room for doubt that Mr Koorey was the sole guiding mind of Nolde, and that his response to Darzi’s request for negotiations is strong evidence of Mr Koorey’s underlying attitude and justifies suspicion that he was unwilling to accord Darzi any indulgences.
On 18 May 2020, Nolde's solicitors wrote a letter to Darzi's solicitors on the issue of the request for a negotiated rent reduction. In the subject heading, the letter referred to the lease as being "expired 30 November 2019 (Expired Lease)”. The letter made no reference to Mr Koorey's 12 May 2020 letter. It will be appropriate to set out the relevant parts of this letter in full, as follows:

…
Qualification under the Code/ Regulation
3.   Darzi has not provided Nolde with sufficient information to determine whether it is an "impacted lessee" under the Regulation. To be an impacted lessee:
(a)   Darzi must qualify 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)   have turnover in the 2018-2019 financial year that was less than $50 million (being the turnover for all business conducted by Darzi, not just in respect of the Premises).
4.   Darzi has provided confirmation that it has enrolled in the Jobkeeper scheme but not confirmation that it has qualified for the scheme. Please provide confirmation from the ATO that Darzi has qualified for the scheme, including all necessary supporting information to show that it has qualified for the scheme and continues to qualify for the scheme. The MYOB extract provided which alleges to show the [Restaurant] turnover for April 2019 and April 2020 is not sufficient to satisfy this requirement.
5.   Darzi has provided a brief extract from an income statement of "gross profit from trading". It is not clear which business this relates to. Our client requires a full copy of the financial statements for the 2018 and 2019 financial years setting out all turnover for all business conducted by Darzi for these financial years.
Obligation to renegotiate rent
6.   If Darzi is in impacted lessee under the Regulation (which is not admitted), then in accordance with regulation 7(3) of the Regulation: "A party to a commercial lease must, if requested, renegotiate in good faith the rent payable under, and other terms of, the commercial lease."
7.   We note that Darzi has made no request to renegotiate the rent payable under the Lease in accordance with the Regulation.
8.   Rather, Darzi has unilaterally decided to reduce the rent it is willing to pay to Nolde to an amount of $1,304.86 (inclusive of GST), which it claims is a reduction of 89.6%, without engaging in any negotiation whatsoever with Nolde.
9.   In unilaterally purporting to reduce its rental payments under the Expired Lease and not acting in good faith to negotiate a rental reduction with Nolde, Darzi has not complied with the Code, and further, is currently in breach of its obligations under the Expired Lease to pay rent.
Renegotiation of rent
10.   Provided that Darzi can satisfy Nolde that it is an "impacted lessee" under the Regulation (which it has not done to date), then Nolde is ready and willing to renegotiate the rent payable under the Expired Lease in accordance with its requirements under the Regulation and the Code.
11.   In accordance with clause 7(4) of the Regulation, provided that Darzi can show that it is an impacted lessee, the parties are to renegotiate the rent payable, and other terms of, the 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.
Further information required and Nolde's proposal
12.   Nolde requires that Darzi provide it with all information requested in paragraphs 4 and 5 above to satisfy Nolde that Darzi is an "impacted lessee" in accordance with the Regulation, and if so the magnitude of any downturn in its business [the Restaurant] at the [Hotel] (and not its other businesses) has suffered as a result of the COVID-19 pandemic.
13.   Provided that Darzi is an impacted lessee, given that the restrictions on trade for Darzi's business have been partially lifted since Friday 15 May 2020, and therefore it is likely that the business' turnover will increase, Nolde considers that it is appropriate to review Darzi's trade on a monthly basis during the COVID-19 pandemic period to determine the appropriate monthly percentage rental reduction and/or deferral that must be offered under the Code.
14.   In order to assess the impact of COVID-19 on your client, our client is required to have specific regard to your client's revenue, expenses and profitability.
15.   To do this, Nolde will require the following information about Darzi's business [the Restaurant] at the [Hotel] (and not its other businesses) in order to determine the applicable reduction in trade and financial hardship suffered by Darzi caused by the COVID-19 pandemic (and any corresponding rental deduction):
(a)   a statement of financial performance (or "income statement"), outlining income, expenses, assets and liabilities (preferably audited or certified by a chartered accountant), for the month of April 2020, and for the corresponding period in April 2019;
(b)   a year to date statement of financial performance (or "income statement") for the business, and a statement of financial performance (or "income statement") for the business for the 2019 and 2018 financial years;
(c)   other relevant information which shows how circumstances have changed as a result of the COVID-19 pandemic, including:
(i)   monthly turnover reports, profit and loss reports and balance sheets for the business from 1 April 2020 to date, generated from an accounting system including all supporting sales reports;
(ii)   monthly turnover reports, profit and loss reports and balance sheets for the business for the corresponding period from 1 April 2019, generated from an accounting system and relied upon to prepare Darzi's relevant taxation returns, including all supporting sales reports;
(d)   any information as to whether Darzi holds business interruption insurance that covers the payment of rent and outgoings and if the circumstances for a claim on that insurance have been triggered.
16.   Nolde will require the above information on a monthly basis from Darzi for the applicable period under the Code in order to determine the necessary percentage rental deduction to offer to Darzi in accordance with the Code.
17.   Could we please have your response within the next 14 days. In accordance with the Code our client does not wish to prolong the facilitation of a resolution and accordingly if the parties cannot come to an agreement, our client would like to proceed to have the matter determined in accordance with the Regulation.
18.   In the meantime until there is a resolution, our client expects your client to abide by the terms of the Expired Lease.

It is not possible to judge the reasonableness of this response without considering it in the context of the requirements of the COVID-19 Regulation and the Code. However, it is appropriate to make a number of comments on the contents of the response in the context in which it was made.
Paragraph 7 of Darzi’s solicitors’ 28 April 2020 letter enclosed a copy of a confirmation issued by the ATO regarding Darzi’s registration for the JobKeeper scheme. The document appears on its face to be authentic and states (by means of a tick besides the word “Enrolled”) that Darzi had been enrolled for wage subsidies as an eligible business that had been significantly affected. In my view, it was not reasonable for Nolde’s solicitors to acknowledge in par 4 of their letter that Darzi had “provided confirmation that it has enrolled in the Jobkeeper scheme but not confirmation that it has qualified for the scheme”. A reasonable lessor acting in good faith would have accepted that, if the ATO was satisfied that Darzi qualified for the scheme to the extent that the ATO would acknowledge that fact, then the ATO’s acknowledgement was adequate proof. Nolde’s solicitors sought “all necessary supporting information to show that it has qualified for the scheme and continues to qualify for the scheme” without explaining what additional information was required, if the ATO’s acknowledgement was insufficient. The reference to the MYOB extract for the turnover of the Restaurant as being insufficient to satisfy Nolde’s requirement is in one sense correct, but that information was not provided to prove that Darzi qualified for the JobKeeper scheme, but rather to show the proportionate reduction in its turnover between April 2019 and April 2020.
In par 5 of their letter, Nolde’s solicitors stated that it was not clear to which business the extract from the income statement related. While the extract is brief, it is an apparently professionally created extract from a computer database that specifically referred to the name of the Restaurant and the address of the Restaurant, and included the name of the Restaurant in the description of the computer file. While it may have been reasonable for Nolde to request additional financial information from Darzi for consideration during the process of negotiation, a reasonable lessor in the position of Nolde would have treated the extract as being prima facie accurate. As it was clear from the nature of the extract that Darzi’s financial records were maintained electronically, the only available source of financial information was likely to be a printout of selected information from the database.
There appears to be no justification for Nolde’s solicitors to have required a full copy of the financial statements for the 2018 financial year, setting out all turnover for all business conducted by Darzi. The trading period to 30 June 2018 is too remote from the commencement of the COVID-19 pandemic. It was not unreasonable, in my view, for Nolde’s solicitors to have requested the 2019 financial year statement, as that information may have provided relevant background to the judgments that Nolde was entitled to make during the process of negotiation.

In par 6 of the letter, Nolde’s solicitors exposed Nolde’s resistance to the negotiation process by their express reservation that Darzi’s status as an impacted lessee was not admitted, when the information that had been provided by Darzi’s solicitors was sufficient to establish that fact for the purposes of good faith negotiations, given the nature of the information and the seriousness with which Darzi’s solicitors had conveyed that information to Nolde.
Nolde’s solicitors’ claim in par 7, that “Darzi has made no request to renegotiate the rent payable under the Lease”, flies in the face of par 16 of Darzi’s solicitors’ letter, which stated: “This letter constitutes a request under clause 7 of the Regulation, which requires the parties to re-negotiate the rent for the Premises…” Furthermore, par 17 was expressed in polite terms, as a request, and par 18 was a statement that the solicitors looked forward to Nolde’s response.
I also consider that Nolde’s solicitors’ claims, in pars 7 to 9 of their letter, misstate the quality of Darzi’s request for a re-negotiation of the rent. While Darzi did pay a reduced amount of rent for May 2020, in accordance with its understanding of the effect of the COVID-19 Regulation and the Code, it is an oversimplification to characterise Darzi’s position as having “unilaterally decided to reduce the rent it is willing to pay”. As I have explained above, the proper characterisation of the stance taken by Darzi is that, in the face of the relative collapse of its turnover, it had paid to Nolde for May 2020 an amount of rent pending the outcome of the negotiation. It was unwarranted and inflammatory for Nolde’s solicitors to accuse Darzi in par 9 of “not acting in good faith”, and being “currently in breach of its obligations under the Expired Lease to pay rent”.
Darzi's solicitors responded to this letter on 27 May 2020. In response to the assertion in par 7 of Nolde’s letter that Darzi had made no request to renegotiate the rent payable under the Lease in accordance with the Regulation, Darzi's solicitors referred to par 16 of their 28 April 2020 letter, which stated that the letter constituted a request under clause 7 of the Regulation for a renegotiation of the rent for the Premises.
The letter continued:

Allegation that our client has breached the Lease
5.   In paragraph 9 of your letter, you allege that our client has unilaterally purported to reduce the rent payable under the “Expired Lease” and is currently in breach of its obligations under the "Expired Lease" to pay rent.
6.   Those allegations are misconceived, for the following reasons.
7.   The Regulation does not require a tenant who is an "impacted lessee" to pay the normal rent under a lease until the parties have re-negotiated the rent in accordance with the principles under the Code. To suggest such a thing ignores the entire purpose of the Regulation and the Code, and the fact that:
(a)   a landlord may not take any "prescribed action" against an impacted lessee during the "prescribed period"; and
(b)   a landlord must not take or continue any "prescribed action" against an impacted lessee for failure to pay rent unless the lessor has complied with clause 7 of the Regulation.
8.   Furthermore, our client made its request to renegotiate the rent payable under the Lease pursuant to clause 7 of the Regulation before the rent for May fell due. As a sign of good faith, it paid the rent that it calculated would be payable having regard to your client's unavoidable obligation to reduce the rent in accordance with the Code, an obligation you have acknowledged in paragraph 16 of your letter.
9.   Accordingly our client denies any breach of the Lease as alleged.

Darzi's solicitors' letter then addressed the issue of the information that Darzi was required to provide to Nolde, as follows:

10.   The information your client has requested our client to supply goes well beyond what is required for your client to comply with its obligations under the Regulation.
Darzi's qualification as an "impacted lessee"
11.   Firstly, regarding the allegation in paragraph 3 of your letter that Darzi has not provided sufficient information to determine whether it is an impacted lessee, although you state it is not clear to which business the income statement relates to, there is an ABN listed at the top of the statement.
12.   To assist, we have enclosed an extract of the ABN obtained from which shows Darzi is the entity linked to that ABN, as well as the businesses registered to that ABN. Accordingly, the extract we enclosed with our letter clearly demonstrates that the turnover for our client, across all businesses, is less than $50 million.
13.   Please also explain why your client requires (as requested in paragraph 5 of your letter), a full copy of the financial statement for our client for the 2018 financial year, when the requirement under the Regulation is only for the 2018-2019 financial year, i.e., the financial year ending 30 June 2019.
14.   With respect to our client's qualification for the JobKeeper scheme, please refer to the enclosed letter dated 26 May 2020 from our client's accountants which encloses a report from our client's ATO portal confirming our client's enrolment in and qualification for the JobKeeper scheme.
Evidence required to calculate reduction in rent
15.   In paragraph 14 of your letter, you state that "In order to assess the impact of COVID-19 on your client, our client is required to have specific regard to your client's revenue, expenses and profitability."
16.   No such requirement subsists in the Regulation.
17.   The requirement on your client so far as rent is concerned is that it must offer a rent reduction in proportion to our client's reduction in turnover, and in this regard we refer you to clause 7(4) of the Regulation and the note thereunder, which provides "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."
18.   Accordingly your client does not require any of the information your client seeks are set out in subparagraphs 15(a) to (d) of your letter.
19.   We are however instructed that our client's insurance does not cover any interruption of business as a result of a pandemic. No doubt your client would be aware that this is a common exemption for contracts of insurance so far as business cover is concerned.

Darzi's solicitors' letter also dealt with the consequences of a reduction in Darzi's turnover for the month of May 2019 in the following terms:

20. Our client agrees that the rent reduction required under the Regulation should be calculated on a monthly basis, to take account of variation in turnover. To that end, we refer you to the turnover comparison for May 2020/May 2019 enclosed with the letter from our client's accountants, which demonstrates a decline in turnover of 76.55% for May 2020 compared to May last year.
21. Accordingly, the rent payable by our client for June in accordance with the Code is $2,942.21 including GST, which our client will pay at the end of this month.

In par 22 of their letter, the solicitors stated that they awaited Nolde's proposal with respect to the reduced portion of the monthly rent, noting that at least half of this must be waived. In par 23, the solicitors also requested an extension of the term of the Lease equal to the period for which rent waivers and deferrals were provided, in accordance with Principle 7 of the Code and clause 7(4) of the COVID-19 Regulation.
The letter enclosed a record extracted from ABN Lookup which included the details of Darzi's ABN registration referred to in its solicitors' letter.
It also enclosed a letter from Alpha Consulting Group dated 25 May 2020, on the subject of Darzi's request to negotiate rent due to COVID-19. The letter explained that Alpha acted as the external accountants and tax agents for Darzi. The letter provided confirmation that Darzi was eligible and had enrolled in the JobKeeper program with the ATO.
The letter included the statement:

We attach to this letter the revenue data for the Company as extracted from the Company's accounting records which shows the Revenue Reduction percentage, by month for the past three months as compared to the same month of the prior year.
In estimating the revenue for the full month of May, we have relied upon the actual revenue received for the period 1^st May 2020 to the date of this letter and extrapolated this to arrive at the Estimated revenue for the full month ended 31^st May 2020. Based on this, you will note that the Business has experienced a reduction in turnover of 76.55% in comparison to May 2019.

The letter attached a statement of the revenue for Darzi’s Restaurant for the months of March to May 2020 in comparison to the equivalent months for 2019. The revenue reductions were 52.41%, 89.88% and 76.55% respectively. The actual income for April 2020 was shown as $19,755.75 (compared to the estimate of $17,539.82 in the attachment to Darzi's solicitors' 28 April 2020 letter), as the figure in the attachment to the earlier letter was only an estimate in respect of the last few days of the month.
I consider Darzi’s solicitors’ letter to be a reasonable and temperate substantive response to Nolde’s solicitors’ 18 May 2020 letter.
Nolde's solicitors responded to this letter on 5 June 2020. Relevantly, the letter stated:

2.   We disagree with your analysis of the Regulation at paragraph 7 as a justification for your client unilaterally determining what rent it will pay under the Expired Lease for the following reasons:
(a)   as outlined in our letter dated 18 May 2020, our client has not received sufficient information from your client to be satisfied that your client is an "impacted lessee" under the Regulation. If your client is not an "impacted lessee", the Regulation does not apply and our client is entitled to lawfully undertake action.
(b)   if Darzi is an "impacted lessee", we agree that the protections and prohibitions under the Regulation apply. The Regulation requires parties to have regard to the leasing principles under the Code during any rent renegotiations (under clause 7 of the Regulation). Leasing principle 2 of the Code states that "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 under this Code." Further, one of the overarching principles of the Code is that "[l]andlords and tenants will be required to discuss relevant issues, to negotiate appropriate temporary leasing arrangements, and to work towards achieving mutually satisfactory outcomes."
Darzi's decision to unilaterally pay less rent is not in accordance with the overarching principles nor the leasing principles of the Code.
Even if Darzi is an "impacted lessee", the Code requires Darzi to abide by the terms of the Expired Lease, including making payment of rent, until such time that the parties agree to an alternate arrangement in accordance with the Regulation (and the Code).
3.   It is clear that:
(a)   the parties are not reaching an agreement;
(b)   our client is unable to properly assess your client's request for a rental reduction without provision by your client of the documents sought; and
(c)   in circumstances where your client has made a unilateral decision to pay less rent, the issue needs to be determined as soon as possible.
4.   Given this, we put you on notice that our client will contact the Small Business Commissioner to organise a mediation between the parties in relation to this issue pursuant to clause 6 of the Regulation (although, for the avoidance of doubt, our client does not admit that your client is an "impacted lessee" and entitled to any protections under the Regulation until it receives the documents requested in the letter dated 18 May 2020).

As will be seen below, the issue of whether a lessee is an impacted lessee is not an inherently complicated one. The test will be satisfied, in a case such as the present, where the lessee has qualified for the JobKeeper scheme and had a turnover of less than $50 million in the 2018 to 2019 financial year. More complicated financial information may be required to enable the terms of the rent reduction, waiver and deferral to be negotiated.
It will be necessary to defer the consideration of the validity of Nolde’s solicitors’ claim that the COVID-19 Regulation and the Code required lessees to continue paying the rent stipulated in the lease, unless and until the lessor has agreed to a reduction in the rent, until after I have set out and considered the relevant parts of those instruments.
There is no evidence that Nolde initiated any contact with the Small Business Commissioner to organise a mediation between the parties, as foreshadowed in par 4 of the letter.
On 16 July 2020, Darzi’s solicitors advised Nolde’s solicitors that Darzi did not suffer any decline in revenue in June 2020, compared with June 2019, so that, in accordance with the principles in the Code, Darzi paid the full rent under the Lease for the month of July 2020. As already mentioned, Darzi has continued to pay the full rent since that time.
The very next day, on 17 July 2020, Nolde served on Darzi its second s 129 notice under the Conveyancing Act. The operative part of the notice was:

3.   Pursuant to clause 5.1.1 of the Lease, the Lessee is due to pay to the Lessor the total amount of $19,880.93 (incl GST) less the overpaid amounts, identified in paragraphs 2(a)-(e) and (h), making the current amount of rent due and payable in accordance with the Lease $16,985.45 (incl GST).
4.   The Lessee unilaterally decreased the payments of rent to the Lessor as set out in the Lease without:
a.   providing sufficient evidence that the Lessee was an “impacted lessee” as defined in regulation 4 of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (COVID-19 Regulation); and/or
b.   obtaining the Lessor’s consent to the payment of a reduced rental amount; and/or
c.   renegotiating the rental amount payable under the Lease having regard to:
i.   the economic impacts of the COVID-19 pandemic, and
ii.   the leasing principles set out in the National Code of Conduct;
as required pursuant to regulation 7(4) of the COVID-19 Regulation.
5.   The Lessee is currently in breach of clause 5.1.2 of the Lease in not paying the outstanding rental amount due of $16,985.45 (incl GST) and the Lessor hereby gives the Lessee notice and requires the Lessee to remedy that breach by paying to the Lessor the sum of $16,985.45 (incl GST) within fourteen (14) days of receipt of this Notice.

Darzi’s solicitors responded to the second s 129 notice on 22 July 2020. In essence, Darzi asserted that it had provided evidence that it was an impacted lessee. The letter stated: “5. Our client can only assume that your client intends to take some form of “prescribed action” in reliance on the Purported Section 129 Notice if our client does not comply with it.” The letter further claimed that Nolde had not acted in good faith in issuing the notice, and added: “…your client’s issuance of the Purported Section 129 Notice is designed to bring financial pressure and undue stress to bear on our client, notwithstanding the protection our client is afforded under the Regulation.” The letter demanded that Nolde unequivocally and unconditionally withdraw the notice, and threatened that Darzi would seek interim injunctive relief.
Nolde’s solicitors responded to this letter on 23 July 2020. The letter asserted that Nolde had complied with the COVID-19 Regulation, and claimed that Darzi had failed, in particular, to comply with clauses 4 and 7(4) of the COVID-19 Regulation. The letter advised that Nolde undertook that it would not take any prescribed action, and would allow Darzi to remain in possession of the Premises pending the outcome of the present proceedings.
It appears that the parties let the dispute concerning the rent payable in May and June 2020 rest there, and there was no further effort to comply with the COVID-19 Regulation in accordance with either its terms or its spirit. That may in part have been because Nolde’s response in serving the second s 129 notice entrenched the dispute, and because its resolution ceased to be pressing because Darzi’s financial circumstances had improved and required it to pay the full rent, which it has done.

COVID-19 regulatory regime

The determination of the dispute between the parties concerning the underpayment of rent for the months of May and June 2020 requires a consideration of the administrative measures that were put in place to deal with the impact of the COVID-19 pandemic on the ability of business owners who operated their businesses from leased premises to survive the effect of the pandemic financially.

The Code

It will be appropriate to start by setting out the parts of the Code that are of particular relevance to the resolution of the present dispute. The Code provided:

PURPOSE
The purpose of this Code of Conduct (“the Code”) is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.
These principles will apply to negotiating amendments in good faith to existing leasing arrangements – to aid the management of cashflow for SME tenants and landlords on a proportionate basis – as a result of the impact and commercial disruption caused by the economic impacts of industry and government responses to the declared Coronavirus (“COVID-19”) pandemic.
This Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic as defined by their eligibility for the Commonwealth Government’s JobKeeper programme, with an annual turnover of up to $50 million (herein referred to as “SME tenants”).
The $50 million annual turnover threshold will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level).
…
The Code has been developed to enable both a consistent national approach and timely, efficient application given the rapid and severe commercial impact of official responses to the COVID-19 pandemic.
…
OVERARCHING PRINCIPLES
The objective of the Code is to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords.
It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis.
The following overarching principles of this Code will apply in guiding such arrangements:
• Landlords and tenants share a common interest in working together, to ensure business continuity, and to facilitate the resumption of normal trading activities at the end of the COVID-19 pandemic during a reasonable recovery period.
• Landlords and tenants will be required to discuss relevant issues, to negotiate appropriate temporary leasing arrangements, and to work towards achieving mutually satisfactory outcomes.
• Landlords and tenants will negotiate in good faith.
• Landlords and tenants will act in an open, honest and transparent manner, and will each provide sufficient and accurate information within the context of negotiations to achieve outcomes consistent with this Code.
• Any agreed arrangements will take into account the impact of the COVID-19 pandemic on the tenant, with specific regard to its revenue, expenses, and profitability. Such arrangements will be proportionate and appropriate based on the impact of the COVID-19 pandemic plus a reasonable recovery period.

Furthermore, the continuing existence of a right provided by clause 14.2.2 for Nolde to serve documents under or relating to the Lease by leaving them at the Premises is not inconsistent with a requirement by Darzi that personal communications between the parties during the currency of their dispute be conducted through their solicitors. Such communications are not generally by their nature required to be served, and even in the case of documents such as the ss 129 and 133E notices, a request (as that is all that it can be) for Nolde to serve the documents on Darzi’s solicitors does not in any material way prevent Nolde relying upon clause 14.2.2.
In any event, it was a common and sensible proposal for the parties during the pendency of the litigation to communicate through their solicitors to avoid the creation of any intimidating circumstances for the staff of either party.

Trespass claim

Nolde has made a claim for damages against Darzi for trespass on parts of the Property outside the Premises.
Nolde has not proved that it has suffered any actual loss by reason of the alleged trespass, and claims that it is entitled to an amount of damages simply assessed by the Court to vindicate its proprietary right as owner of the Hotel.
Nolde’s claim for damages for trespass is undermined by its pleaded assertion in par 4 of the defence and the cross claim that SRI Publishing Co Pty Ltd is the lessee of all parts of the Property, except for the Premises, and uses the Property to operate the Hotel. As is stated in RP Balkin and JLR Davis, Law of Torts (2013, 5^th ed, LexisNexis Butterworths) (Balkin and Davis) at [5.11] (citations omitted): “The plaintiff with a legal estate and exclusive possession may sue in trespass. Only a tenant and not the landlord can sue if a third party trespasses on the land demised”. I understand that principle to be uncontroversial. This defect in Nolde’s title to sue Darzi for trespass exists whether or not Nolde or Mr Koorey has some right of control or ownership of SRI Publishing Co Pty Ltd.
I make the following observations concerning Nolde’s trespass claim in case it be determined that, contrary to its pleadings, Nolde had title to maintain such a claim in respect of the Hotel or any other part of the Property owned by Nolde.
In its cross claim, Nolde pleaded trespass claims based upon the alleged unauthorised use of a doorway between the Premises and the lobby of the Hotel and the lobby itself: pars 70 to 82. This claim does not appear to be mentioned in Nolde’s written closing submissions. It is a strange claim, as the door between the Premises and the foyer of the Hotel was part of the Property at the inception of the Lease, and its use was, as a practical matter, necessary or convenient to enable Darzi to comply with its obligation under the Lease, as mentioned above, to provide breakfast to patrons of the Hotel and to give them preference for lunch and dinner bookings.
Furthermore, it is of the very nature of a hotel foyer that there is a standing implied invitation to all persons who may have some proper business in entering the foyer to do so.
The claim pleaded by Nolde in par 81 of its cross claim was that “the continued use of the Hotel Lobby and the use of the Lobby Door by Darzi’s staff and patrons constitutes an unlawful trespass onto Nolde’s Property, for which Nolde claims damages from Darzi”. Nolde did not actually allege that it published any prohibition against persons within these categories entering the Hotel lobby, whether via the door to the Restaurant or by other entrances. Nolde only pleaded allegations concerning exchanges between Nolde and Darzi that ultimately led to Darzi acquiescing in the door between the Restaurant and the Hotel lobby being permanently sealed by Nolde.
If this aspect of Nolde’s trespass claim remains a claim made by Nolde, I would reject it because there was no allegation that Nolde had prohibited any relevant persons from entering the Hotel foyer, and in any event, Nolde has not established any basis for Darzi being liable in trespass for Mr Darzi, its staff or its patrons entering and exiting from the Restaurant through the Hotel lobby. Even if those persons were individually guilty of trespass, it has not been established that their actions were done on the instruction or with the authority of Darzi, so that Darzi would be responsible for their conduct.
The second aspect of Nolde’s trespass claim concerned a lock-up storage area in the underground car park of the Building: pars 83 to 89.
Nolde submitted, in par 124 of its written closing submissions, that the evidence establishes that Nolde had exclusive possession of the storage area, not just ownership of the land. I do not understand how the authorities referred to in the footnote to that submission (fn 94) overcome the effect of the allegations in Nolde’s pleadings that it was only a lessor of the Hotel (with SRI Publishing Co Pty Ltd being the lessee), which causes me, in the absence of evidence to the contrary, to infer that Nolde was not in possession of the relevant land.
As pleaded, Nolde’s claim was that from the inception of Darzi’s occupation of the Premises in October 2014, Nolde permitted Darzi to use equipment contained in the storage area, namely post mix soft drink bottles and a CO2 gas canister, which had been used by SRI Publishing Co Pty Ltd when it had operated the Restaurant before Darzi. On 19 December 2019, Nolde’s solicitors on its behalf demanded that Darzi cease accessing and using the storage area. Darzi continued to use the area until about 1 September 2020. Nolde complained both that the continuing use by Darzi of the storage area without Nolde’s authority and Darzi’s entry into the storage area for the purpose of removing its equipment constituted trespass by Darzi.
I doubt that it could be trespass by Darzi to enter the storage area to comply with the demand by Nolde that Darzi remove its equipment. However, if Nolde had established that it had title to bring a claim in trespass against Darzi, the evidence properly would establish that claim in respect of Darzi’s continued entry into the storage area or storage of its equipment there, after Nolde had withdrawn its agreement to that conduct. Trespass is actionable per se, that is without proof of actual damage, but in the circumstances of this case the damages that would have been awarded would be nominal: see Balkin and Davis at [5.19].

Specific performance of the agreement to renew the Lease

As I have noted above, Nolde abandoned its claim that Darzi had not effectively exercised its Option for a renewal of the Lease. For the reasons considered above, I have also found that Nolde is not entitled to terminate the Lease on the ground of breach committed by Darzi. In those circumstances, the remaining and paramount issue between the parties is whether the Court should make an order against Nolde for specific performance of its agreement to grant a renewed Lease to Darzi that came into existence upon the effective exercise by Darzi of its Option to renew.
The parties accepted that specific performance is a discretionary remedy, and Nolde submitted that, in the particular circumstances of this case, the Court should in the exercise of its discretion decline to make an order for specific performance in favour of Darzi. As that would leave Nolde in breach of the Lease, Darzi's remedy would be limited to an award of damages.
Nolde's case as to why the Court should exercise its discretion in favour of Nolde was put in substance on three grounds. First, Nolde submitted that the circumstances of the present case are exceptional, in that the exercise by Darzi of its rights as lessee of the Premises requires continual cooperation between Darzi and Nolde as the owner of the Property of which the Premises form part, and the Court should not make an order that requires continuing cooperation between the operator of a restaurant and the operator of a contiguous hotel, when the evidence establishes that the ability of the parties to cooperate has broken down. Secondly, Nolde relied upon a consideration related to the first, being that the interpersonal relationship between the principals of Nolde and Darzi have now disintegrated to the point where the relationship is poisonous, so that an order should not be imposed upon Nolde that requires its principal to continue to suffer the disappointment and aggravation that he has endured for most of the duration of the Lease to date. Finally, Nolde submitted that, even if the first two considerations are not sufficient to determine the exercise of the Court's discretion against making an order for specific performance, having regard to those matters, damages in this case will provide an adequate remedy to Darzi.
Darzi's response to those submissions was to deny their validity as a matter of fact, and also to rely upon what it submitted was the generally accepted principle that the effect of the decision of the Court of Appeal was that Darzi has an existing proprietary interest in the Premises in the nature of a leasehold interest, and it is the practice of the Court to grant specific performance of agreements to renew such a leasehold interest because of its proprietary nature and the inherent uniqueness of individual parcels of land, particularly in cases where the party with the benefit of the agreement for renewal has established and conducts a business from the land.
I accept the submission advanced by Darzi that a lessee under an existing lease, who validly exercises an option for renewal, has a very strong claim for an order for specific performance of the agreement for renewal. Nolde did not dissent from this proposition in principle. In Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68; [2008] NSWSC 744 at [21], Bryson AJ said:

Although there is always a discretionary element in the decision to grant or withhold specific performance, the claim for specific performance of the entitlement to a renewal term is a very strong one; specific performance will give effect to an equitable interest which already exists.

Furthermore, the lessee will not usually be denied an order for specific performance of the agreement to renew the lease even if some breaches of the obligation to repair are established, at least where the lessee has the capability and wherewithal to carry out the repairs. Bryson AJ also said at [30]:

The end result is that I am now asked to compel the lessor to execute a renewed lease although, after he has been put to a great deal of trouble, three significant repair items have not been carried out. On one hand, I am reluctant to compel the lessor to grant the lessee its entitlements when he has not received his own. On the other hand, I regard it as disproportionate to refuse to enforce entitlement because of non-performance of repair obligations which, while they are not insignificant, are of relatively low value, in the scale of what must be the value of the property and of the leasehold entitlement. There is no reason to doubt that the lessee has the resources to meet its obligations.

In that case, Bryson AJ found at [26]: “… the need for repairs has given the lessor a great deal of unwarranted trouble and the lessee has not responded reasonably or promptly to needs to carry out significant repairs, or to requests from the lessor to comply. The lessor has been assiduous in seeking compliance”. It appears that the breach of the lessee’s obligation to keep the premises in good repair was more serious in that case than may be true in the present. His Honour resolved the issue by saying, at [31]: “I am of the view that I should order specific performance, but before I do I should require the lessee to conform with its outstanding repair obligation, and if this does not happen within a reasonable time, which I estimate at four months, specific performance should be withheld”.
In the present case, as I have recognised above, there is room for doubt that Darzi has entirely performed its obligation to keep the Premises clean and in good repair in this case, although the evidence has not positively satisfied me that serious breaches of that obligation have occurred. I have foreshadowed a process, whether by agreement between the parties or following a report by an independent expert to the Court, that appropriate specific orders be made if their necessity is demonstrated, for Darzi to carry out necessary repairs, and perhaps for an appropriate protocol to be laid down to clarify the respective responsibilities of the parties moving forward for the purpose of reducing the scope for further disputation. If an order for specific performance is to be made, I will decide the appropriate timing for that order in association with the resolution of the dispute concerning the repair and maintenance of the Premises.
On the basis that the lessee’s right to an order for specific performance is not absolute, and the Court retains a discretion as to whether or not to make that order, Nolde relied upon the decision of Pembroke J in Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 (Casquash). Relevantly, the question addressed by his Honour was whether the Court should exercise its discretion to make an order in favour of the plaintiff lessee for relief against forfeiture of the lease under s 129 of the Conveyancing Act. His Honour held:

[58] However the circumstances of this case, and in particular the conduct and attitude of Carin Clonda on behalf of the plaintiff, remove the necessity for the consideration of these distinctions. On any view, it would not be in the interests of justice to exercise my discretion in favour of the plaintiff. This is no ordinary commercial lease. The lessor and lessee are bound under this lease to co-operate with each other to an extent that is not always usual. Annexure B to the lease lists many aspects of the premises that require rectification and repair. The defendant is required to carry out the works over the 5 year period of the lease. Those works must be undertaken to the satisfaction of the plaintiff. The parties cannot therefore avoid each other. They are bound to remain in a proximate relationship during the term of the lease.
[59] I will not detail all of the unsavoury evidence that reflects the wholesale breakdown in the relationship or the wilful and obdurate conduct on behalf of the plaintiff. The relationship is poisonous, acrimonious and unsalvageable. At the hearing, Carin Clonda even instructed her counsel to attempt to introduce evidence of her sexuality and certain discrimination to which she said she was subjected. The parties are engaged in litigation on other fronts, not just in these proceedings. The plaintiff’s breaches were deliberate and recalcitrant. The monetary breach was the ultimate result of the insistence by Carin Clonda on a form of the lease that was procured by conduct that I have characterised as dishonest. The non-monetary defaults were the result of wholly unreasonable behaviour. There is no hope for the continuation of a stable commercial relationship. Carin Clonda said herself that the relationship between the plaintiff and the defendant was untenable. Some evidence suggested that she wanted to send the defendant “broke”. She refuses to deal with anyone on behalf of the defendant other than through a psychologist whom she has appointed as her representative. This is an extreme case. If I grant relief against forfeiture, there will only be more disputation. And there will likely be more litigation.

I accept Darzi’s submission that this case is distinguishable from the present one. Although the Court is required to exercise a discretion in each case, in Casquash the issue was whether the Court should relieve against forfeiture of a lease that had validly been terminated by the lessor for breach. In the present case, Nolde has not established any breach by Darzi that would justify termination of the Lease, and the only question is whether the Court should make an order for the specific performance of the agreement to renew the Lease. Although Equity favours relief against forfeiture, the basis upon which the discretion to grant that remedy exists is more at large than the case where an existing lessee seeks specific performance of an agreement to renew the Lease, which is almost as of right. Furthermore, in Casquash the lease imposed upon the lessor an onerous obligation to repair the premises over a number of years, which was an obligation that could not conveniently be performed without a substantial level of continuing cooperation by the lessee in giving the lessor the necessary access to the premises. Not only had the lessee committed serious breaches of the lease, but its conduct had been duplicitous. The relationship between the parties was found to be “poisonous, acrimonious and unsalvageable” because of the wilful and mendacious conduct of the lessee. There is no equivalence at all between Casquash and the present case.
In its attempt to establish that equivalence in respect of the need for Darzi and Nolde to co-operate harmoniously, Nolde drew attention to a number of terms in the Lease that it said required cooperation between the parties throughout the term of the Lease. I accept Darzi’s submission that the quality of the conduct of the parties that is required under the Lease is not of a nature that justifies the equation of the present case to contracts that depend upon the effectiveness of interpersonal relationships, or even to a case such as Casquash, where a positive and onerous obligation imposed by the lease on one party could not be performed without a significant and continuing amount of day-to-day cooperation between the parties.
Nolde submitted that the entitlement granted to Darzi by Item 22 of the Schedule to utilise the name of the Hotel in any information material giving directions to the Restaurant, and the requirement in Item 25 that Darzi must open the Restaurant for the purpose of serving breakfast for guests of the Hotel and to use its best endeavours to ensure that guests are given preferential treatment for lunch and dinner bookings, required the Restaurant and the Hotel to work harmoniously together. That may be so in a loose sense, but they are matters that would be attended to by the respective staff of the parties and would not involve their principals. It is true that clause 5.1.2 requires Darzi to pay a share of outgoings to Nolde, but in no real sense does the preparation and service of outgoings estimates or statements require cooperation between the parties. Clause 7 of the Lease requires the lessor to maintain aspects of the Property, and that may require communication between the parties in accordance with clause 9, to enable Nolde to arrange relevant persons to carry out works. Such works will be carried out by contractors and, although it will be necessary for appropriate arrangements to be made, that will not require a high level of personal cooperation between the parties. The position is the same in respect of the case, under clause 7.4, where an authority requires work to be done to the Property of a structural nature. Equally, if Darzi fails to do work required of it under the Lease, and Nolde becomes entitled to do that work under clause 7.5, the level of communication required between Darzi and Nolde to enable contractors retained by Nolde to carry out the work is not of a nature that requires substantial personal cooperation. The obligation imposed upon Darzi by clause 9.1 to give nominees of Nolde access to the Premises for the purpose of inspections permitted by the Lease can be implemented by means of giving appropriate notices. In so far as clause 9.4 imposes upon Darzi an obligation to give Nolde a copy of any notice relating to the Premises or the Property, that generally will be satisfied by Darzi forwarding the notice to Nolde.

It does not follow from the fact that the terms of a particular lease require ongoing communications and limited intercourse between the parties to the lease that a breakdown in personal relations between the principals to the lease is a proper basis for the Court to deny the lessee its proprietary right to a renewal of the lease.
Mr Koorey’s evidence established as plainly as could be that Mr Koorey personally finds Darzi’s entitlement to continue in occupation of the Premises for the remainder of the term of the renewed Lease intolerable. Darzi made a number of telling submissions as to why the Court should find that Mr Koorey’s stance was, in effect, no more than a tantrum of a wealthy man, who considered that it was his right to do what he wanted with property that he indirectly owned and who may have considered himself at times to be above the law. Perhaps there is some force in these submissions, but there is no purpose in the Court making detailed findings that might unnecessarily exacerbate the difficulties that may arise between the parties during the balance of the term of the renewed Lease.
It is sufficient for the Court to state its finding that, while the relationship has had its ups and downs and there have been squabbles, nothing that Darzi has done justifies the Court denying Darzi specific performance of its contractual right to the grant of a renewal of the Lease.
It is convenient at this point to note that I have not found it necessary to make any detailed findings concerning the credit of any of the witnesses. I am satisfied that all of the witnesses who gave evidence in cross-examination gave their evidence in a satisfactory way and honestly. However, all of the witnesses gave evidence on the basis of recollections that have been influenced by their own interests and their roles in the ongoing disputes between the parties. The perceptions of the witnesses must have been influenced by the ongoing legal dispute, which culminated in the commencement of the original proceedings for the enforcement of the agreement to grant the Lease on 29 May 2018. In any event, the competing credit of the parties’ witnesses was most relevant to the question of who was responsible for the small number of verbal altercations that occurred over the years. I have not found the fact of those altercations to have any real significance to the issues, and it is not practicable for the Court to make precise findings concerning the nature of those disputes and the responsibility for them, based upon insubstantial judgments about the relative credibility of the witnesses.
It is finally necessary for the Court to consider Nolde’s argument that the Court should deny Darzi specific performance of the Lease because damages are an adequate remedy.
My consideration of this issue must be prefaced by my recording that I do not accept, in the context of an application for an order for specific performance by an existing lessee, who is not in material breach of the lease, of an agreement for the grant of a renewed lease following the valid exercise of an option in that regard, that it is an available defence of the lessor that specific performance should not be granted because damages is an adequate remedy.
In my view, it is obvious on the evidence that damages would not be an adequate remedy for Darzi in this case.
Mr Koorey is a relatively rich man and he tendered detailed evidence to establish his wealth. I would infer that the value of the Hotel to Nolde is sufficient to enable Nolde to meet any order for damages that might be made in favour of Darzi.
Nolde did not come to court with any positive case to establish the quantum of the damages suffered by Darzi and an offer to pay those damages. Nolde’s case is simply that specific performance should be denied and an order for damages made against Nolde in favour of Darzi. Nolde’s case is that the Court should refer the assessment of damages to a referee. That course would leave Nolde free to conduct an unrestricted resistance to Darzi’s claim for damages, and subject Darzi to a continuing obligation to meet the costs of the assessment process.
There would also be an indefinite continuation of the litigation that must be a substantial cause of the hostile attitude of Mr Koorey to Darzi and its continuing operation of the Restaurant from the Premises.
Photographs of the Restaurant and its location depict an established and apparently attractive venue, with appealing and open views over the beach and the ocean, on a beachside road at Forster. That is self-evidently a favourable location for the operation of a restaurant. Nolde put in evidence a couple of potential alternative locations for the establishment of the Restaurant, but the evidence was not capable of establishing that Darzi would necessarily be able to secure those sites, or to establish a successful restaurant on those premises.
There is no feasible way that any process of assessing the damages suffered by Darzi could accurately determine the loss suffered by Darzi over the balance of the term of the renewed Lease on the basis of a comparison between the forecast future profits of the continued operation of the Restaurant from the Premises, compared with a forecast of the cost of re-establishing the Restaurant at another location, the potential loss of goodwill, the likely profits from the alternative venue, and the chance that the attempted relocation would fail.
Consequently, the Court will make an order for specific performance of Nolde’s agreement to grant a renewed Lease to Darzi.
That order will be made whether or not the process foreshadowed above whereby, through the agreement of the parties or by an independent expert report, a clearer protocol is able to be developed to deal with existing and future issues concerning cleaning and the repair and maintenance of the Premises.
I have not referred separately to each of the prayers for declaratory relief made by Darzi and Nolde. These reasons may support certain declarations being made but not others. The parties should consider each of the claims for relief in preparing short minutes of the orders to be made.
Darzi is entitled to an order that Nolde pay the costs of these proceedings. If there is any proper basis for argument as to the basis upon which the costs should be paid, I will hear the parties.
The parties should confer and forward to my Associate draft short minutes of order to give effect to these reasons for judgment.

**********

Decision last updated: 28 June 2021

Medium Neutral Citation:	Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774
Hearing dates:	8 to 14 April 2021
Decision date:	28 June 2021
Jurisdiction:	Equity - Real Property List
Before:	Robb J
Decision:	See pars [139], [142], [211], [234], [239], [242], [247], [252], [262], [266], [285], [291]-[295]. The parties should confer and forward to my Associate draft short minutes of order to give effect to these reasons as required by [295].
Catchwords:	LEASES AND TENANCIES — Renewals and options — Exercise of option — Where lessee commenced original proceedings seeking declaration that the parties had entered into a retail lease — Where Court of Appeal held the parties had entered into a retail lease — Where lessee now seeks specific performance of lessor’s agreement to renew the lease pursuant to lessee’s exercise of option — Where lessor pleads that the Court should use its discretion to withhold specific performance on account of the inability of the parties to cooperate, the toxic interpersonal relationship between the principals of the lessor and lessee, and because damages would be an adequate remedy — Where the Court found that a breakdown in personal relations between principals of parties to the lease is not a proper basis for the Court to deny the lessee its proprietary right to a renewal of the lease — Where the Court found that damages are not an adequate remedy — Where the Court grants specific performance of lessor’s agreement to grant a renewed lease to lessee LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to pay rent in circumstances where lessee paid less than the rent due under the lease on its interpretation of the operation of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) — Where COVID-19 regulatory regime required rent to be renegotiated in good faith by lessor and lessee — Where lessor failed to renegotiate in good faith — Where the Court found that the lessor will never be entitled to take a prescribed action against lessee in respect of the short payments in rent LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to pay insurance premiums in relation to outgoings pursuant to the lease — Where lessor and lessee disputed the meaning of ‘insurance’ — Where lessor claimed lessee must pay a share of product and public liability insurance — Where lessee held its own insurance in that regard — Where the Court held that the lessee did not breach the lease by failing to pay the share of premiums claimed by the lessor LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to maintain the premises in good condition — Where lessor sought order requiring lessee to perform a list of maintenance tasks — Where it is unclear on the evidence whether the rectification of the alleged breaches are the responsibility of the lessor or lessee under the lease — Where the Court held that it should make an appropriate order that will facilitate the Court being able to make an order in relation to the cleaning, repair and maintenance of the Premises LEASES AND TENANCIES — Retail leases — Retail shop lease — Lessee in breach of obligations — Where lessor claimed lessee failed to provide access to the premises for inspection — Where no evidence lessor sought to access premises for purpose of inspection — Where the Court refused to make the orders sought by the lessor TORTS — Trespass to land — Damages — Where lessor claimed damages against lessee for trespass on parts of property outside leased premises — Where lessor has not proved that it suffered any loss — Where lessor has not establish that it had title to bring a claim in trespass against lessee — Where the Court found that if the lessor has title to bring a claim in trespass, the damages awardable would be nominal in any event
Legislation Cited:	Competition and Consumer Act 2010 (Cth) Conveyancing Act 1919 (NSW) COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) COVID-19 Recovery Act 2021 (NSW) Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020 (NSW) Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (NSW) Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (NSW) Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) Retail Leases Act 1994 (NSW) Supreme Court Act 1970 (NSW)
Cases Cited:	Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 Darzi Group Pty Ltd v Nolde Pty Ltd [2019] NSWCA 210 Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68; [2008] NSWSC 744
Texts Cited:	DK Derrington and RS Ashton, The Law of Liability Insurance (3rd ed, 2013, LexisNexis Butterworths) D Kelly and ML Ball, Principles of Insurance Law (2001, LexisNexis Australia, looseleaf) RP Balkin and JLR Davis, Law of Torts (5th ed, 2013, LexisNexis Butterworths)
Category:	Principal judgment
Parties:	Darzi Group Pty Ltd (plaintiff) Nolde Pty Ltd (defendant)
Representation:	Counsel: WG Muddle SC/ E Peden SC (plaintiff) CD Wood SC/ DW Robertson (defendant) Solicitors: Pigott Stinson (plaintiff) Brown Wright Stein (defendant)
File Number(s):	2019/316670