Diakou Nominees Pty Ltd v Gouger Street Pty Ltd; Gouger Street Pty Ltd v Diakou Nominees Pty Ltd

[2020] SASC 124

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

DIAKOU NOMINEES PTY LTD v GOUGER STREET PTY LTD & ANOR; GOUGER STREET PTY LTD v DIAKOU NOMINEES PTY LTD

[2020] SASC 124

Decision of The Honourable Justice Nicholson

3 July 2020

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - MOTIONS, INTERLOCUTORY APPLICATIONS AND OTHER PRE-TRIAL MATTERS

Trials for these two matters were listed to be heard concurrently commencing 27 July 2020 for seven days.  The claims and counter claims of the principal parties (Diakou and GSPL) raise complex issues of fact and law and relate to a lengthy history of disputation between them.  Within months of the trial date, Diakou, being the applicant in matter No 420 and also the respondent in matter No 802, had to obtain new legal representation through no fault of its own.  As a consequence, late interlocutory applications were brought to amend pleadings and to be relieved from (rules based) deemed admissions as a consequence of failing to file, within the time required by the rules, responses to notices to admit filed by GSPL  The applications were opposed and it became apparent that to allow the applications would necessarily lead to a vacation of the trial date.

Held: both applications allowed in part and the following orders made.

1.  That Diakou has leave to file and serve a second revision of its statement of claim in No 420 so as to include the following amendments as shown in exhibit HJG 1 to the affidavit of Hamish John Gillis sworn on 1 June 2020:

(a)  paragraphs 30 and 30A;

(b)  paragraph 36A;

(c)  paragraphs 30A, 30B, 30C, 31A and 33;

(d)  paragraphs 36A, 38A, 38B and 38;

(e)  paragraphs 40A, 40B and 40C;

(f)  paragraphs 42A, 42B and 45AA;

(g) paragraphs 50 and 50.7 to 50.9 inclusive; and

(h) such consequential amendments arising solely from the amendments in (a) to (g) above.

2.  That leave for Diakou to include in its second revision of its statement of claim the following proposed amendments as identified in exhibit HJG 1 be refused:

(a)  paragraphs 40D, 40E and 40F;

(b)  paragraphs 40G to 40L inclusive; and

(c)  such consequential amendments arising solely from the amendments in (a) and (b) above.

3.  That Diakou has leave to include in its second revision of its statement of claim the following proposed amendments as identified in exhibit HJG 1:

(a)  the paragraphs pleaded in its case against the second respondent identified in paragraph [4] of these reasons;

(b)  the paragraphs pleaded in its case against GSPL identified in paragraph [71] of these reasons; and

(c)  paragraphs 17 and 18 of exhibit HJG 1.

4.  That Diakou has leave to file and serve an amended defence in No 802 so as to include the following amendments as shown in exhibit HJG 2 to the affidavit of Hamish John Gillis sworn on 1 June 2020:

(a)  paragraphs 13, 15 and 26B;

(b)  the paragraphs identified in paragraph [71] of these reasons (paragraphs 19 and 20B); and

(c)  such consequential amendments arising from the amendments in (a) and (b) above and such consequential amendments as are necessary to harmonise the defence with those amendments to the statement of claim in No 420 for which leave has been given.

5.  That leave for Diakou to include in its amended defence the following proposed amendments as identified in exhibit HJG 2, be refused:

(a)  paragraphs 26A, 26A.1 to 26A.4 inclusive; and

(b)  any consequential amendments arising solely from the amendments in (a) above.

6.  That Diakou pay GSPL’s and the second respondent’s costs thrown away as a consequence of leave having been granted to amend its statement of claim and defence.

7.  That Diakou not be taken to have admitted by operation of rule 156(7) of the Supreme Court Civil Rules 2006 any of the assertions contained in GSPL’s notices to admit filed in No 420 and No 802.

8.  That Diakou have leave to file and serve within 21 days of today responses to the notices to admit referred to in 7.

9.  That reserved to GSPL is the right to bring before a Master any such application as it might be advised objecting to the form or content of any of the responses provided in accordance with order 8.

10.  That reserved to GSPL is the right to bring before a Master any such application as it may be advised seeking further particulars of Diakou’s amended statement of claim and amended defence once filed.

11.  That Diakou pay GSPL’s costs thrown away as a consequence of the leave granted in 7 and 8 above.

12.  That Diakou file its amended statement of claim in accordance with 1 to 3 above and its amended defence in accordance with 4 to 5 above within 21 days of today.

13.  That the trials listed to commence on 27 July 2020 for both No 420 and No 802 be vacated.

14.  That Diakou pay GSPL’s and the second respondent’s costs thrown away as a consequence of the vacation of the trials in 13 above.

15.  That both No 420 and No 802 be remitted to a Master of this Court for further management to trial.

16.  Liberty to apply as to the form of or clarification of the above orders and as to any other orders that ought to be made as a consequence of these reasons.

Retail and Commercial Leases Act 1995 (SA) s 4, s 22, s 30, s 77; Retail and Commercial Leases Variation Regulations 2010 (SA); Uniform Civil Rules 2020 (SA) r 1.5, r 3.1, r 69.2, r 117, r 151.12; Supreme Court Civil Rules 2006 (SA) r 156, referred to.
Diakou Nominees Pty Ltd v Gouger Street Pty Ltd & Ors [2017] SASC 72; Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; Channel Seven Adelaide Pty Ltd v Manock [2010] SASCFC 59; Aldridge v Johnston [2020] SASCFC 31; PPG Development Pty Ltd v Capitanio (2016) 126 SASR 307; Australian Financial Services and Leasing Pty Limited v Hills Industries Limited & Anor (2014) 253 CLR 560; Saadat v Commonwealth of Australia & Ors [2019] SASC 28; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, discussed.

DIAKOU NOMINEES PTY LTD v GOUGER STREET PTY LTD & ANOR; GOUGER STREET PTY LTD v DIAKOU NOMINEES PTY LTD
[2020] SASC 124

Civil: Application

NICHOLSON J.

Introduction

1. Diakou Nominees Pty Ltd (“Diakou”) owns the Talbot Hotel in Gouger Street, Adelaide.  The present lessee is Gouger Street Pty Ltd (“GSPL”).  They have been engaged in litigation in this Court since early 2015 and have been in dispute over the subject matter of that litigation for quite some time before then. 

2. Diakou is the applicant and GSPL is the first respondent in proceedings SCCIV 420 of 2015 (“No 420”) and GSPL is the applicant and Diakou is the only respondent in proceedings SCCIV 802 of 2015 (“No 802”) which comprises, effectively, a cross-claim arising out of the same subject matter.  The second respondent in No 420 is a partnership of solicitors (now dissolved) who acted for Diakou prior to and during 2006 at which time it advised Diakou and drafted the form of lease for the Talbot Hotel which is at the centre of Diakou’s dispute with GSPL.

3. Both matters are listed for trial to be heard concurrently over seven days, commencing 27 July 2020.  On 2 June 2020, Diakou filed an interlocutory application to amend its statement of claim in No 420 and its defence in No 802 (FDN 67 of No 420).  The amendments sought are those set out in marked up versions of Diakou’s second statement of claim in No 420 and Diakou’s defence in No 802, being exhibits HJG 1 and HJG 2 respectively to the affidavit of Hamish John Gillis (a solicitor for Diakou) sworn on 1 June 2020 (FDN 68 in No 420).  Hereafter, references to proposed amendments will be references to the proposed amendments identified in exhibits HJG 1 and HJG 2.  Diakou also filed an interlocutory application seeking permission to withdraw a large number of admissions, deemed to have been made by Diakou as a result of its failure to respond to GSPL’s notices to admit and seeking permission to file responses outside the time required under the relevant Supreme Court rule (FDN 65 of No 420).  Both applications are opposed by GSPL and were argued before me over one and a half days on 24 and 26 June 2020. 

4. As part of the first application, Diakou also sought a number of relatively minor amendments to its claim in No 420 against the second respondent solicitors.  Following discussions between Diakou and the second respondent, further particulars were sought and provided.  The amendments, as particularised, are not opposed by the second respondent and are not such as would interfere with the trial listing.  I allow that aspect of the application, FDN 67 of No 420, which seeks permission to amend Diakou’s second statement of claim as against the second respondent in accordance with the agreed amendments.  They are: the penultimate paragraph and the paragraphs D and E under the heading “Introduction” and paragraphs 3, 16.2, 16.3, 17, 18, 19.1.1, 19.1.3, 19.2.6, 19.2.7, 19.2.8, 20.1, 20.2, 20.2.3 (and 20.2.3.1 to 20.2.3.5), 20A (and its particulars), 53, 53A and 54.

5. GSPL has submitted that the amendments to paragraphs 17 and 18, whilst primarily pleaded as against the second respondent may bear on Diakou’s case against GSPL and opposes these amendments to that extent.  The main objection is to the effect that these paragraphs may relate to Diakou’s proposed “mistake” and “estoppel” cases against GSPL (referred to below).  For reasons to be given, the proposed amendments relating to Diakou’s proposed mistake and estoppel cases against GSPL will not be allowed.  GSPL’s other concerns with paragraphs 17 and 18 relate to matters of proper particularity.  Those concerns, if they remain, can be pursued at a later time.

6. At the hearing of the argument, the material before me included: two affidavits sworn on 1 June 2020 and 29 June 2020 by Hamish John Gillis, a solicitor for Diakou (FDN 68 and 76 of No 420); an affidavit sworn on 29 May 2020 by Stephen Hagi-Diakou, a director of Diakou (FDN 66 of No 420); an affidavit affirmed on 19 June 2020 by Thomas Alexander Walker, a solicitor acting for GSPL (FDN 44 of No 802) to which was exhibited some 200 pages of documentary evidence; a document summarising the parameters of GSPL’s monetary claim; and written submissions by both Diakou and GSPL.  During the hearing, I was referred to various documents in the proposed trial tender book and was provided with other documents including those attached to these reasons as appendices A to D inclusive (see further below). 

7. After the hearing, I received (at my request) the following further documents: an affidavit of Hamish John Gillis sworn on 29 June 2020 explaining Diakou’s delay in instructing CCK Lawyers; a note from Diakou’s solicitors dated 29 June 2020 summarising the parameters of Diakou’s monetary claim; an email, dated 30 June 2020, from the second respondent’s solicitors identifying Diakou’s proposed amendments which relate to the second respondent and indicating those consented to; an affidavit of David James Rostron, solicitor for the second respondent, sworn on 30 June 2020 estimating the second respondent’s costs thrown away in the event the trial were to be adjourned; an affidavit of Thomas Alexander Walker, solicitor for GSPL, affirmed on 30 June 2020 estimating GSPL’s costs thrown away in the event the trial were to be adjourned; an email dated 30 June 2020 from Mr Walker indicating which of the proposed amendments which relate to and are consented to by the second respondent but which GSPL perceived to be relevant to the case against GSPL and why, and to which it does not consent; a note from Diakou’s solicitors, CCK Lawyers, dated 1 July 2020 containing a submission responding to GSPL’s and the second respondent’s claims for costs to be thrown away; and a note from Diakou’s lawyers dated 2 July 2020 containing a further submission concerning moneys held in the trust account of Diakou’s former solicitors, Griffins.

8. In determining Diakou’s applications, I have had regard to the pleadings and the documentary material placed before me and relied upon by the parties during and after submissions although I do not propose to refer to all of it.  However, none of this material has been tested or examined in the context of all of the evidence that will be adduced at trial.  To the extent I indicate findings of fact in these reasons, I do so only for the purpose of deciding Diakou’s interlocutory applications.  They are not intended to be binding on the parties at any subsequent trial where all of the evidence will be adduced and properly tested in the usual way.

9. The dispute arises out of a series of quite complex interactions between the parties and between Diakou and Schillvest, an earlier lessee from Diakou, concerning the leasing of the Talbot Hotel commencing in 2006, although GSPL only became directly involved in 2013.  Diakou’s pleaded case against GSPL and its former solicitors, as it presently stands, is at a level of complexity.  Should the amendments be allowed, that complexity will increase substantially.

10. The hotel was first leased by Diakou for five years commencing 1 November 1999 with four rights of renewal (each for five years).  Following the entry into a replacement lease and two purported assignments of the lease the current position, as asserted by GSPL, is that it has been the tenant, as from 2 July 2013, initially pursuant to a lease that expired 31 August 2016 and now pursuant to a lease entered into upon GSPL’s purported exercise of an option to renew.  The present five year term is due to expire on 31 August 2021 and contains four further options to renew, each for a period of five years.  Accordingly, on GSPL’s case, if all options were to be taken up Diakou and GSPL would be in a landlord and tenant relationship for approximately 28 years until 2041, with more than 20 years still to run as of today.

11. Prior to 4 April 2011, subsection 4(2)(a) of the Retail and Commercial Leases Act 1995 (SA) (“RCLA”) provided that the RCLA did not apply to a retail shop lease if the rent payable under the lease exceeded $250,000 per annum. The rent under the lease which was assigned to GSPL in July 2013 was $250,500 and was not within the purview of the RCLA prior to 4 April 2011. However, on 4 April 2011 the Retail and Commercial Leases Variation Regulations 2010 (SA) commenced with the effect that the RCLA now applied where the rent payable was an amount less than $400,000.

12. At the time in early 2013 when the parties were negotiating with respect to the proposed assignment of the lease to GSPL, both Diakou and GSPL were aware of the legislated change in rental threshold for the purpose of the application of the RCLA. However, they were diametrically opposed as to the effect this would have on the lease that had been entered into on 1 September 2006 and subsequently renewed. At the time of the assignment to GSPL on 2 July 2013, both expressly reserved their positions. In short, Diakou contended that the RCLA did not apply to the lease and any renewals because they represented existing rights between the parties in force prior to the relevant amendments coming into effect, whereas GSPL contended that the RCLA did apply. If the RCLA were to apply, it would have a very significant effect on the periodical rent review provisions (section 22 of the RCLA) and Diakou’s contractual right to pass on to the tenant any liability for land tax (section 30 of the RCLA).

13. Sections 22 and 30 of the RCLA are in these terms.

    22—Restrictions on adjustment of base rent

    (1)In this section—

    base rent means rent, or that component of rent, that comprises a specified amount (whether or not there is provision for the amount to change).

    Note—

    Turnover rent (rent determined by reference to the lessee's turnover) is not base rent because turnover rent is not a specified amount of money (it varies according to the lessee's turnover).

    (2)A retail shop lease must not provide for a change to base rent less than 12 months after the lease is entered into and must not provide for a change to that rent less than 12 months after any previous change to that rent, but this subsection does not apply to a change to base rent by a specified amount or specified percentage.

    For example, subsection (2) prevents a lease providing for an increase to current market rent more than once in 12 months. It does not prevent a lease providing for the rent to increase by $100 every six months. Nor does it prevent a lease providing for the rent to be increased to current market rent after 12 months and then to be increased by two per cent every six months after that.

    (3)A provision of a retail shop lease is void to the extent that it—

    (a)     reserves or has the effect of reserving to one party a discretion to decide which of two or more methods of calculating a change to base rent is to apply on a particular occasion; or

    (b)     provides for a method of calculating a change to the base rent but reserves or has the effect of reserving to one party a discretion to decide whether or not the base rent is to be changed in accordance with that method on a particular occasion; or

    (c)     provides for base rent to change on a particular occasion in accordance with whichever of two or more methods of calculating the change would result in the higher or highest rent.

    (4)If a retail shop lease provides for a change to base rent in a way that may result in a decrease of rent1, a provision of the lease is void to the extent it prevents or enables the lessor or any other person to prevent the decrease.

    Example—

    1       A provision for the rent to change to current market rent.

    .  .  .  .

    30—Land tax not to be recovered from lessee

    (1)A retail shop lease cannot require the lessee to pay land tax or to reimburse the lessor for the payment of land tax.

    (2)However, the lessor's liability for land tax in respect of the premises may be taken into account in the assessment of rent.

    (3)This section does not apply to a retail shop lease entered into before a date fixed by regulation for the purposes of this section.

14. This issue was determined against Diakou on 26 May 2017 when a Judge of this Court answered a preliminary question arising out of the extant litigation.[1]  This decision was not appealed and remains binding on the three parties.  Stanley J expressed the following conclusion.[2]

    In the circumstances, I would answer the preliminary question as follows:

    The lease was subject to the operation of the Retail and Commercial Leases Act 1995 (SA) on and from 4 April 2011, and as renewed from 1 September 2011, with the consequence that:

    (a)Section 22 operates upon the September 2011 rent review, which is the subject of Clause 4.10(a) of the lease; and

    (b)Section 30 operates to preclude Diakou from recovering payment for or reimbursement for land tax levied on and from 4 April 2011.

    [1]    Diakou Nominees Pty Ltd v Gouger Street Pty Ltd & Ors [2017] SASC 72.

    [2]    Diakou Nominees Pty Ltd v Gouger Street Pty Ltd & Ors [2017] SASC 72 at [67].

15. Thereafter, Diakou has continued to press various claims against GSPL including for asserted underpayment of rent and GSPL has continued to press its claim against Diakou for asserted overpayment of rent and land tax, according to their respective contentions as to the effect the RCLA has on the proper construction of the terms of the lease. Diakou also presses claims as against its former solicitors for, inter alia, negligence in advising as to and drafting the terms of the lease. 

16. Following a change of legal advisers, late in the procedural history of the matters, Diakou filed its application to amend directed to raising additional claims.  Diakou maintains that the substantial number of proposed amendments can be divided or grouped into a series of substantive changes but that they all merely identify, for the assistance of GSPL and the Court, arguments or conclusions of law that inevitably follow from the facts as presently pleaded.  As such, they will require little more by way of further document discovery or other evidentiary exploration.  Diakou contends that the amendments would cause little, if any prejudice to GSPL that could not be remedied by an order for costs thrown away and ought not interfere with either the length of the trial (at least not substantially) nor the trial date.

1. But for some relatively minor amendments, GSPL opposes the application to amend on three broad bases:

   (i)none of the substantive proposed amendments raise an arguable case;

   (ii)even if an arguable case is raised, permission ought to be refused, given the proximity of the trial, on discretionary grounds; and

   (iii)the proposed pleading is in any event inadequate.

2. Before considering the issues further, it will be helpful to provide a short chronology of the parties’ leasing relationship and a short chronology of the procedural history of this matter.

   Lease chronology

   (i)Diakou conducted the business of the Talbot Hotel between approximately 1979 and 1999.

   (ii)Diakou entered into a lease of the Talbot Hotel with an entity referred to as THG for a five year period commencing 1 November 1999 and expiring 30 (or 31) October 2004 (the “Old Lease”).

   (iii)The Old Lease was renewed with THG for a further five years from 1 November 2004 to 31 October 2009.

   (iv)For reasons unnecessary to explain, Diakou and THG terminated the Old Lease and entered into a new lease for five years commencing 1 September 2006 and expiring 31 August 2011 (the “New Lease”) with multiple rights of renewal.[3]

   (v)On 8 July 2007, THG assigned the New Lease to a company known as Schillvest.

   (vi)On 4 April 2011, the RCLA commenced to apply with respect to the New Lease.

   (vii)As it happened, Schillvest fell into breach and was unable to exercise the right of renewal available for the five years commencing 1 September 2011.  Following negotiations, an “extension” of the New Lease was entered into, notwithstanding the failure by Schillvest to exercise the available option.  The New Lease was “extended” for a further five years from 1 September 2011 to 31 August 2016.  The extended lease was on the same terms and conditions as the New Lease including the remaining multiple options for renewal.

   (viii)On 2 July 2013, Schillvest, now in liquidation, purportedly assigned its interest in the New Lease to GSPL by way of a tripartite written agreement purportedly executed by or on behalf of each of Schillvest (in liq), GSPL and Diakou.  Schillvest and GSPL also purportedly entered into an Hotel Asset Sale Agreement (dated 10 April 2013) for a purchase price payable by GSPL of $1,325,000 plus the price of stock.

   (ix)By a document entitled Deed of Assignment and dated 18 December 2014, Schillvest also purported to assign to GSPL a chose in action, said to enure in Schillvest, to claim from Diakou land tax and rent purportedly overpaid by Schillvest.

   (x)The New Lease was purportedly renewed in favour of GSPL for five years commencing 1 September 2016.

   [3] According to Diakou, it expressly instructed the second respondent in No 420, its then solicitors, to draft the New Lease with rent review provisions that would ensure that the rent never went down. Later legislative changes meant that the RCLA (referred to below) operated to modify or avoid the second respondent’s attempt to implement these instructions. This has proved to be the seeds of Diakou’s claim against the second respondent.

3. According to GSPL, a fundamental change in Diakou’s case that would follow, should Diakou be allowed to amend its pleading at this late stage, is to the effect that the retrospective application of the RCLA to the New Lease rendered it void. Schillvest had nothing it could assign to GSPL[4] and at all times GSPL has only been a tenant at will holding over from month to month.  GSPL’s understanding of the dispute between the parties, both prior to and following the determination by Stanley J of the preliminary question in May 2017, has been that a lease with renewals that, if exercised by GSPL, would take the total period of the tenancy to 2041 was in place but the parties were divided as to the manner by which rent reviews were to be determined.

   [4]    Nemo dat quod non habet.

4. GSPL has always contended that the rent review provisions in the lease (clause 4.10) should be read down to conform with the requirements of the RCLA such that the rent is to be reviewed to market periodically (save that it could not go down) and that the essence of the parties’ dispute concerns a resolution of past arrangements for the payment of rent adopted by the parties pending the completion of this litigation.

5. Whilst, Diakou has contended that the effect of the RCLA is that the rent review provisions in clause 4.10 of the lease are void, its primary case to date has been its application, pursuant to section 77 of the RCLA, for the grant of an exemption from the provisions of the RCLA such that the New Lease will have operated and will continue to operate according to its terms. Section 77 provides as follows.

   77—Exemptions

   (1)The Minister may, on application by an interested person, grant an exemption from all or any of the provisions of this Act in relation to—

   (a)     a particular retail shop lease or proposed retail shop lease; or

   (b)     retail shop leases of a particular class; or

   (c)     a particular retail shop or retail shops of a particular class.

   (2)The Magistrates Court may, on application by an interested person, grant an exemption from all or any of the provisions of this Act in relation to—

   (a)     a particular retail shop lease or proposed retail shop lease; or

   (b)     a particular retail shop or proposed retail shop.

   (3)An exemption may be granted on conditions the exempting authority considers appropriate.

   (4)A person must not contravene a condition of an exemption.

   Maximum penalty: $500.

6. However, one of the consequences now articulated by the proposed amendments is that the whole lease has by virtue of the RCLA been rendered void. This modification of Diakou’s case plainly is of concern to GSPL who at all times has been operating on the assumption that it has a lease with rights of renewal potentially extending to 2041 and as to which it paid Schillvest more than $1.3 million.

   Brief procedural chronology

   (i)The statement of claim by Diakou in No 420 was filed on 10 April 2015.

   (ii)The statement of claim by GSPL in No 802 was filed on 20 May 2015.[5]

   [5]    Initially, the claim was brought in the Magistrates Court.  The matter was subsequently transferred to the District Court and then to the Supreme Court.

   (iii)From 10 April 2015 to 3 June 2019, Griffins Lawyers represented Diakou.

   (iv)From 13 June 2019 to 19 March 2020, a different firm of solicitors (the second firm) represented Diakou which at some stage during that period engaged a (senior) junior counsel to appear at the trial.

   (v)On 19 September 2019, the two matters were listed for trial before another Judge of this Court commencing 18 November 2019.

   (vi)On 1 October 2019, that trial listing was vacated and the trial relisted to commence 6 April 2020.

   (vii)Shortly prior to 19 March 2020, the relationship between Diakou and the second firm and counsel broke down such that the solicitors and counsel both withdrew from the file.  I do not know precisely why that occurred and am unable to attribute fault.  In particular, I make no adverse finding against Diakou or its directors in this respect.

   (viii)On 12 March 2020, Diakou spoke to another, experienced, commercial litigation firm of solicitors to see if it would act for Diakou.

   (ix)At a directions hearing on 19 March 2020, after allowing the application by the second firm to withdraw from the file, I adjourned the matter to 25 March 2020 for further directions.

   (x)At the directions hearing on 25 March 2020, I was informed by a director of Diakou of the following matters as recorded by me in the transcript (confirmed by a letter from the proposed new firm of solicitors, which I sighted).

   The letter … is from a firm of solicitors, a well-known Adelaide firm. It confirms that the firm is prepared to consider terms upon which they will act for the plaintiffs. The understanding of the law firm is that the court actions are complex and have been underway for some time and it will be necessary for them to review a significant volume of documents before they can confirm engagement and provide advice, or act on behalf of the plaintiffs.

   Based on their limited knowledge of the matter at this stage they are suggesting they would require at least eight weeks to review the court documents, expert reports, and other relevant documents. Having done that, they would be able to let the plaintiff know what further matters need to be addressed prior to being ready to prepare for a final hearing.

   That's not verbatim but it is the full context of the letter. I'll return the letter to you Ms Diakou.

   At this directions hearing, on the application of Diakou, I vacated the trial listing for 6 April 2020 and relisted the trial to commence on 27 July 2020.

   (xi)On 26 March 2020, Diakou was advised by the proposed new firm of solicitors that it had a conflict and would not be able to act for Diakou.

   (xii)At some stage, during the period 26 March to 6 April 2020, a director of Diakou obtained from a family member who worked at another commercial law firm a list of recommended law firms.

   (xiii)Following 6 April 2020, discussions took place with the firm of solicitors now on the record for Diakou, CCK Lawyers.  A retainer to act offered to Diakou was accepted on 30 April 2020.

   (xiv)On 1 May 2020, a director of Diakou provided to the firm approximately 16 archive boxes of documents relating to the dispute.

   (xv)At a directions hearing on 4 May 2020, I was advised that CCK Lawyers were now acting and adjourned the matter for further directions to 12 May 2020.

   (xvi)At the directions hearing on 12 May 2020, I was informed by Diakou’s legal representative that an application to amend the pleadings and to seek permission to file an answer to GSPL’s notice to admit out of time was under consideration.  It was Diakou’s view that any such applications, once resolved, would not give rise to a need to vacate the July trial date.

   (xvii)On 2 June 2020, Diakou’s applications by FDN 65 and FDN 67 in No 420 having been filed, I made directions for the two applications to be readied for argument and listed the applications for argument on 24 June 2020.

7. On the affidavit evidence before me, together with the assurances given by Diakou’s counsel:

   (i)I cannot be satisfied that Diakou was at fault in losing its representation by the second firm in March 2020.  Plainly, the matter had not been made ready for trial as far as Diakou was concerned, at that time;

   (ii)I am satisfied that, in the circumstances, Diakou diligently pursued the obtaining of alternative representation; and

   (iii)I am satisfied that the amount of work required to be done by the new representation in order to be in a position to offer a retainer, and to arrive at a position where proper advice could be provided and the matter made ready for a trial in late July, was very substantial.

   Diakou’s and GSPL’s contentions in more detail

8. As I have indicated, the pleadings are complex and the parties’ history of interactions since 2011, oral and documentary, is lengthy and detailed.  At my request, Diakou and GSPL provided the following relatively short documents.

   (i)A summary of Diakou’s contentions of law and fact arising from the pleadings as they currently stand.

   (ii)A summary of GSPL’s contentions of law and fact arising from the pleadings as they currently stand.

   (iii)A summary of Diakou’s contentions of law and fact in the event that it is permitted to amend its pleadings as proposed.

   (iv)A summary of GSPL’s likely contentions of law or fact in the event that Diakou is permitted to amend its pleadings as proposed.

9. I attach to these reasons these four documents as appendices A to D respectively.  They are not intended to alter or vary the parties’ pleaded cases, nor is appendix D intended in any way to restrict GSPL as to the case it may seek to agitate in response should Diakou obtain permission to amend.

   The proposed amendments to Diakou’s second statement of claim in No 420 as against GSPL

10. The rules of court governing consideration of Diakou’s application to amend are rules 1.5 (objects), 69.2 (amendment with consent or leave), 3.1 (overarching obligations of parties and lawyers) and 151.12 (restrictions on interlocutory processes once matter listed for trial) of the Uniform Civil Rules 2020.  I do not stay to set out these rules.  Insofar as leave is required for Diakou to bring its application to amend (rule 151.12), I give that leave.

11. The matters to be considered when deciding whether or not to allow a late amendment to pleadings, particularly where an existing trial date might thereby by imperilled, have been discussed at length by the High Court in Aon Risk Services Australia Ltd v Australian National University[6] and the Full Court in Channel Seven Adelaide Pty Ltd v Manock[7] and Aldridge v Johnston[8] (which concerned an extension of time within which to appeal).

    [6] [2009] HCA 27; (2009) 239 CLR 175.

    [7] [2010] SASCFC 59.

    [8] [2020] SASCFC 31.

12. A helpful summary of those matters has been provided by Doyle J in PPG Development Pty Ltd v Capitanio.[9]

    [9] [2016] SASC 169; (2016) 126 SASR 307 at [39].

    By way of summary, the High Court decision in Aon Risk Services, and the authorities that have applied it, have now made it plain that in exercising its discretion upon any application to amend, the court must take into account a number of factors.  The factors include:

    •    The nature and importance of the proposed amendment, including the extent to which it raises new issues of fact or law.

    •    The merits of the proposed amendment, at least in the sense that the proposed amendment is arguable or tenable.

    •    The stage of the litigation at which the application to amend is made, and the likely impact upon, or disruption to, the progress of the proceedings (and in particular the trial).

    •    The explanation for the application to amend and its timing, and the fact and extent of any undue delay in this regard.

    •    Whether the party has had a sufficient opportunity to plead their case earlier.

    •    The time, cost and inconvenience associated with any delay or disruption of the proceedings.

    •    The uncertainty and strain of litigation on the parties and their witnesses as a result of any disruption or delay likely to be occasioned by the amendment.

    •    The impact of any delay and disruption upon judicial and court resources, and the access of other litigants to those public resources.

    •    The impact upon the public’s confidence in the just and efficient administration of justice.

    (Footnote omitted)

13. As earlier noted, GSPL resisted the application to amend on the basis that most if not all proposed amendments were not arguable and also on discretionary grounds.  Much of the argument focussed on the former issue.

    A. The nature and importance of each proposed amendment and whether arguable or tenable

14. I will deal with the first two issues together but relatively briefly and paradoxically so given the amount of time they occupied during argument.  These two issues took up most of the one and a half days of argument which, alone, suggests that to dismiss them as untenable in limine might be seen as problematic. 

15. The history of the parties’ dealings with each other from 2013 to date and the role played by Schillvest was explored at length as was an analysis of GSPL’s understanding of Diakou’s case according to the existing pleadings. A number of arguments and counter arguments were propounded with respect to difficult issues concerning the proper construction of the RCLA, particularly, section 22, the proper construction of the terms of the New Lease, particularly, clause 4.10 (the periodic rent review provisions) and clause 4.9 (the options to renew provisions) and the effect of the RCLA properly construed on clauses 4.9 and 4.10 of the New Lease properly construed.

16. I have considered whether to attempt a final resolution of these various questions of construction in order for the trial to be able to proceed on that firm basis.  However, I have taken the view that it would be unwise to attempt to do so in the absence of final findings of fact made at trial.  Further, to determine such questions outside the confines of the trial would likely lead to further delay and the vacation of the trial in any event whichever of the competing positions I were to adopt.  Alternatively, there would be a real possibility of the trial proceeding on a fundamental premise that may later be found, on appeal, to be false and with the waste and delay that would thereby ensue.[10]

    [10] It might be different if the trial listing were to be significantly further distant in which case additional preliminary questions might be formulated and answered and any appeal processes completed before the trial was to proceed.

17. One thing of which I am satisfied is that the case Diakou now wishes to present is additional to its existing case and of a nature fundamentally different from that with respect to which GSPL has prepared.  It would be manifestly unfair to allow the more significant of the proposed amendments without allowing GSPL a substantial period of time within which to investigate the factual basis for a new defence or defences (in particular, but not limited to, a foreshadowed defence of estoppel by convention) and to formulate an amended defence.  I am also satisfied that the period remaining prior to trial would not be sufficient for this purpose.

18. I turn now to indicate which of Diakou’s substantive amendments I consider to be arguable and which I do not.  I will adopt the categorisation provided for by Diakou in its written argument.

    First category – proper construction and effect of section 22

19. This category is comprised of a proposed amendment to paragraph 30 and a proposed new paragraph 30A. These paragraphs make explicit the contention that section 22 of the RCLA rendered the annual rent review and the fifth anniversary rent review provisions (clause 4.10) void with the consequence that as at 1 September 2011 (the fifth anniversary of the New Lease) there was no agreement between Diakou and Schillvest on the rent payable or on a mechanism for determining the rent payable.

20. GSPL maintains that the effect of section 22 is not to render the clause 4.10 of the New Lease void but requires it to be read down to conform with the requirements of section 22. In any event, even if the rent review provisions were void, the rent would remain as initially stated when the New Lease was entered into in 2006, $250,500.

21. There are a number of arguments in support of both positions and the construction issues are not at all straightforward.  Diakou’s proposed amendments are reasonably arguable.

    Second category – the effect of the preliminary hearing decision

22. This category is comprised of a proposed new paragraph 36A.  It, again, asserts that clause 4.10 is rendered void and raises similar difficult issues of construction as does the first category.  It is reasonably arguable.

    Third category – the effect of the purported renewal by Schillvest

23. This category is comprised of proposed new paragraphs 30A (already referred to), 30B, 30C and 31A and a proposed amendment to paragraph 33. These proposed amendments plead as a further consequence that because an essential term (the rent) was not agreed to by Diakou and Schillvest, as a result of the retrospective application of the RCLA after 4 April 2011, they could not have agreed and did not agree to the purported extension of the New Lease (proposed paragraphs 30A, 30B). As a further consequence, on and from 1 September 2011, Schillvest remained in occupation and paid rent under a tenancy at will from month to month terminable on one month’s notice (proposed paragraphs 30C, 31A).

1. It is pleaded in proposed amendments to paragraph 33 that by virtue of a side agreement purportedly reached between Diakou and Schillvest, Schillvest paid Diakou, on account of occupation and use for the period following 1 September 2011 and dehors the New Lease, an amount each month calculated by reference to an amount of $309,546.94 per annum.

2. Again, these contentions turn largely on the questions of construction already identified together with further construction issues concerning clause 4.9 of the New Lease (the option renewal provisions). Again, as to the latter, the parties exchanged arguments and counter arguments. The question of the proper construction of clause 4.9 and whether Diakou’s contention as to the effect of section 22 of the RCLA on clause 4.10 (rent review provisions) necessarily means that the option renewals in paragraph 4.9 of the New Lease have been rendered ineffective and unavailable to the tenant, is by no means straightforward.

3. The proposed pleadings in paragraphs 30A, 30B, 30C, 31A and 33 are reasonably arguable.

   Fourth category – the effect of the purported assignment to GSPL

4. This category comprises proposed paragraphs 36A, 38A and 38B and proposed amendments to paragraph 38. These proposed pleadings depend on Diakou’s contended for construction of and application of section 22 to its contended for construction of clauses 4.9 and 4.10 of the New Lease. Diakou contends as a consequence, that as at July 2013 the term of the New Lease had expired, there was no agreement between Diakou and Schillvest on rent or a mechanism to ascertain rent, the memorandum of extension was of no effect, Schillvest had no leasehold interest capable of assignment to GSPL, GSPL acquired no right title or interest in a lease of the hotel and the registration of the purported transfer to GSPL was void.

5. It is further pleaded that the above consequences (as only briefly summarised) came about notwithstanding the parties’ understanding at the time that Schillvest had rights capable of being assigned to GSPL (paragraph 38B).

6. The viability of these pleadings again turns on the construction issues earlier identified.  As such, they are reasonably arguable.

   Fifth category – the effect of the purported renewal by GSPL

7. This category comprises proposed paragraphs 40A, 40B and 40C.  Diakou contends, in effect, that because GSPL acquired no rights under the New Lease or its extension following the purported assignment from Schillvest to GSPL, as earlier pleaded, GSPL acquired no option or right of renewal.  As such, its purported renewal for a further five years for the period 1 September 2016 to 31 August 2021 is of no force or effect.  Again, the proposed new plea turns on the issues of construction earlier identified.  It is reasonably arguable. 

   Sixth category – the four common mistakes

8. This category comprises proposed new paragraphs 40D, 40E and 40F.  Diakou’s plea here focusses on the times that: Diakou and THG agreed and executed the New Lease; Diakou and Schillvest executed the memorandum of extension; Diakou, Schillvest and GSPL agreed and executed the purported assignment; and Diakou and GSPL entered into the purported further renewal of the New Lease.  In each case, Diakou contends, by way of alternative plea, that the respective transactions are “vitiated” or alternatively voidable at the instance of Diakou because the respective parties thereto shared the same common fundamental mistake.

9. The common mistake asserted by Diakou was that each of the rent review provisions and the land tax provision contained in the New Lease was and would continue to be binding between Diakou and the other relevant party to each transaction in circumstances where they were, in fact, void.

10. A shared common mistake, if operative, will render the transaction void at common law.  I will assume for present purposes that it is this outcome that Diakou intends by its use of the word “vitiated” in proposed paragraph 40F.  Cases where a contract has been found void at common law for a shared common mistake are extremely few and far between.  The issue between the parties most often is more readily resolved by the proper construction of their bargain and applying the objective theory of contract formation and construction.  For a shared common mistake to render a contract voidable in equity (proposed paragraph 40F) something more is required such as an inducement, misrepresentation or unconscionable conduct giving rise to one party labouring under the mistake.  No such additional element has been pleaded and the proposed amendments must fail at least to this extent.

11. However, there is a more fundamental concern with the plea of common mistake. I agree with the submission of GSPL that Diakou has not pleaded a mistake common to the respective parties with sufficient precision. All of the parties (or at least, Diakou, Schillvest and GSPL) at the material times were aware of the changes to the RCLA and the potential for them to apply to the New Lease. The relevant question is what was the belief held by each as to the nature of the impact that the RCLA would have on the New Lease rent review and land tax provisions. Only then can the question be asked whether the respective parties shared a common misunderstanding. Plainly, for example, at least until the decision of Stanley J was delivered in May 2017, Schillvest and GSPL held a view different from that held by Diakou as to whether the RCLA even applied. In addition, the parties have maintained different positions as to the manner in which the RCLA would operate.

12. The common mistake pleas are not reasonably arguable in the pleaded form as presently proposed.

    Seventh category – estoppel

13. This category is comprised of proposed paragraphs 40G to 40L inclusive. In summary, Diakou wishes to plead that, at all relevant times prior to Stanley J’s decision in May 2017, it believed and understood that its rights to rent review and recovery of land tax payments were protected by a valid and enforceable lease and that the RCLA did not take away that protection. It is also contended that GSPL at all times in its dealings with Diakou prior to May 2017, knew that this was Diakou’s belief and understanding whilst itself intending to argue a contrary position. As such, it would be inequitable for GSPL to claim the benefit of the New Lease without being estopped from denying the protections which GSPL knew that Diakou assumed it had.

14. There is no plea to the effect that GSPL acted in a way that induced Diakou to take a position that ultimately led to it suffering a detriment nor that GSPL stood by and watched Diakou take such a position in circumstances where GSPL had a duty to speak up and disabuse Diakou of its belief. To the contrary, GSPL and Diakou were both legally advised at all material times and both took their respective positions as to the application or non-application of the RCLA and the manner by which it might apply, with full knowledge of the other’s position. Both attempted to reserve their rights and protect their positions while at the same time wishing to proceed with a long term lessor and lessee relationship. Diakou has not adequately pleaded or particularised any behaviour by GSPL said to be unconscionable or inequitable nor has it adequately particularised its detrimental reliance.

15. I agree with GSPL’s submission that the claimed estoppel is inconsistent with a number of incontrovertible facts, namely:

    (i)In August 2011, Diakou was alive to the issue of whether the RCLA applied to the lease and any renewal. It is addressed in Mr Ryan’s (Diakou’s then solicitor) letter of 30 August 2011.

    (ii)At the time of the renewal, Diakou knew that Schillvest was asserting the application of RCLA and its consequence that rent would be reviewed down to a current market rent of $208,140. Schillvest did so by letter of 24 November 2011.

    (iii)Subsequent to Schillvest making known its position as to rent applying by virtue of the RCLA, Diakou served a notice of default on 28 November 2011. In other words, it had an ability to bring the lease to an end but made a commercial decision not to.

    (iv)The appointment of receivers and managers, and a liquidator, was a default under clause 4.1 of the lease. Diakou did not terminate the lease. Again, it had an opportunity to bring to an end a lease in which it knew the lessee asserted that the effect of the application of the RCLA would be that rent was to be reviewed down to market.

    (v)GSPL was clear in its dealings with Diakou as to its position that the RCLA applied and that the consequence was that rent was to be reviewed down to market rent and land tax was not recoverable. Diakou chose to enter into the deed of assignment, a deed which expresses the reservation by GSPL of its rights.

16. The proposed estoppel plea as presently drafted is not reasonably arguable.

    Eighth category – ineffectual appointment of experts

17. This category comprises proposed paragraphs 42A, 42B and 45AA in relation to an expert rent review determination provided by a Mr Pledge which is otherwise challenged by Diakou and paragraphs 45E, 42F and 45G in relation to an expert rent review determination provided by a Mr Nobes which is also otherwise challenged by Diakou.  In these pleas Diakou contends that, on the basis that the rent review provisions (clause 4.10) are void according to the construction issues earlier identified, there was no power to appoint either Mr Pledge or Mr Nobes to do a market review of rent and their appointments and determinations were ineffective for this reason.

18. The pleas depend on the construction issues earlier identified and to that extent are reasonably arguable.

    Ninth category – grounds for statutory exemption

19. By paragraph 50, Diakou seeks an order pursuant to section 77 of the RCLA (set out earlier) that the RCLA or alternatively sections 22 and 30 not apply to the New Lease. The bases for or grounds supporting the claim are presently as pleaded in subparagraphs 50.1 to 50.4. Diakou wishes to amend by amplifying paragraph 50 so that the claim for exemption applies not just to the New Lease but also to any extension or renewal or purported extension or renewal of the New Lease. Diakou also wishes to plead as further grounds various matters in proposed subparagraphs 50.5 to 50.9 inclusive. Subparagraphs 50.5 and 50.6 are consequential on the earlier pleas concerning common mistake and estoppel respectively and are not reasonably arguable. Subparagraphs 50.7 to 50.9, whilst they arguably present difficulties of form and lack of particularisation, are reasonably arguable.

    Amendments to Diakou’s defence in No 802

20. Diakou seeks to amend its defence in No 802 in a number of ways that apparently achieve no more than to harmonise the defence with the proposed new pleadings in the statement of claim in No 420.  To that extent, the proposed amendments to the defence will stand or fall according to the decision ultimately made with respect to the proposed amendments to the statement of claim.

21. In addition, Diakou wishes to amend the defence to raise four new “special” defences – proposed amendments to paragraphs 13 and 15 and proposed new paragraphs 26A and 26B.

22. The proposed amendment to paragraph 13, whilst it may lack adequate particularisation, and to paragraph 15 are both reasonably arguable.  Proposed new paragraph 26B is not challenged by GSPL.

23. However, proposed new paragraph 26A purports to raise a defence of change of position with respect to GSPL’s claim to recover overpayments of rent and payments on account of land tax and there are a number of difficulties on the face of this plea as presently drafted.

24. By proposed paragraph 26A.1, Diakou contends that the moneys were received by Diakou in the belief and understanding that they were properly payable. Even if this belief be assumed, Diakou was at the relevant times on notice of the existence of the RCLA and of GSPL’s contentions concerning its application. Diakou was legally represented and must be understood to have assumed the risk of an adverse outcome in its dealings with GSPL.

25. In proposed paragraph 26A.2, Diakou contends that “in reliance on that belief, Diakou acted on the faith of the payments and on the faith of its entitlement to receive the payments” so as to meet its expenses in connection with the ownership of the hotel.  Diakou goes on to contend that the amounts received were wholly paid away in meeting its proper expenses with respect to the hotel and that it would be inequitable to require Diakou to repay the money because it “will have suffered detriment relevant to a change of position”.  According to proposed paragraphs 26A.4.1 to 26A.4.3 that detriment would include the lost opportunity at various stages of its relationship with Schillvest and GSPL to vary the terms of the New Lease so as to permit it to recover and retain the amounts of overpayment of rent and payment of land tax now claimed by GSPL.

26. The defence of change of position, where it operates, does so as a defence to a claim made for restitution of money paid under mistake of fact or law. The claim by GSPL in No 802 is based on its contractual rights under the terms of the New Lease as GSPL would construe them following the operation of the RCLA or, in the alternative, is for money had and received to the use of Diakou. GSPL does not plead payment of rent or land tax under a mistake of fact or law.

27. Furthermore, in order to make out the defence of change of position Diakou must establish at least two conditions.[11]  First, that Diakou has done something it otherwise would not have done or not done something it otherwise would have done in good faith on the assumption that it was entitled to deal with the payment received. The proposed plea does not satisfy the first part of this first requirement.  Diakou maintains that it used the money to meet its expenses of ownership.  However, there is no plea that those expenses would not otherwise have been met or what else Diakou would have done if it had not been in receipt of the additional (on its case) rent or reimbursement for land tax paid.  Further, the notion that Diakou when using the disputed funds to pay its expenses of ownership in good faith on the assumption that it was entitled to deal with the payments, runs up against the same difficulties arising out of the parties’ historical relationship that rendered the mistake and estoppel pleas not reasonably arguable.  At all material times, Diakou knew that GSPL claimed an entitlement to those moneys.

    [11] Australian Financial Services and Leasing Pty Limited v Hills Industries Limited & Anor [2014] HCA 14; (2014) 253 CLR 560 at [157].

28. The second condition or requirement is that Diakou would be placed in a worse position if ordered to make restitution than if it had not received the payment at all.  The issue that arises, and which is not answered by the pleading, is the reality that Diakou would have been responsible for the expenses of and in connection with its ownership of the hotel in any event and most likely would have met them in the absence of receiving the disputed moneys in any event. 

29. In short, underlying the two conditions is the notion that a defence of change of position ought not operate where at the time of spending the money the recipient was on notice of a claim such that the money might need to be repaid or where the recipient would have been obliged to spend other moneys in the way complained of in any event.

30. Finally, the relationship between the so called detriments contended for in proposed paragraph 26A.4 with the pleadings in 26A.1 to 26A.3 is not at all clear.

31. The change of position defence as presently proposed to be pleaded is embarrassing and not reasonably arguable. 

    Other proposed amendments not opposed

32. GSPL, whilst reserving its position as to prejudice caused and what may be required to alleviate such prejudice, does not oppose the proposed amendments in paragraphs 3.2, 16.2, 16.3, 18.4.2, 18.4.3, 18.6, 18.7, 19.1.1, 19.1.3, 19.2.3, 19.2.6, 19.2.7, 19.2.8, 20, 20A, 35 and 53A of the second statement of claim in No 420 and the proposed amendments in paragraphs 19 and 20B in the defence in No 802.

    B.  Impact of Diakou’s new pleaded case on the action(s) and trial listing

33. I am satisfied that in the event Diakou’s substantive proposed amendments, in particular these referred to in the first, second, third, fourth, fifth, eighth and ninth categories above, were to be allowed, significant disruption to the trial process and delay in the resolution of the dispute would follow.  I accept GSPL’s written submission under this heading to the following effect.

    49.The proposed amendment will require:

    49.1  A new pleading by GSPL, in particular alleging an estoppel by convention against Diakou.  GSPL paid about $1.325 million plus stock for the lease which was assigned by deed to which Diakou was a party.

    49.2  Most likely, a further responding pleading by Diakou.

    50.In order to deal with the proposed amendments, GSPL needs to investigate significant matters, not least of which are:

    50.1  Whether Diakou and THG, in 2006, engaged in their contract labouring under a common mistake, and if so, the consequences, if any, of that mistake.

    50.2  Whether Diakou and Schillvest, between the time of the 2011 renewal and the appointment of receivers and managers to Schillvest, acted under a common mistake, and if so, the consequences, if any, of that mistake.

    50.3  Whether Diakou and the receivers and managers of Schillvest, acted under a common mistake, and if so, the consequences, if any, of that mistake.

    50.4  What steps were available to Diakou to extract itself from the renewed lease when it knew that there was a real issue as to the application of the RCL Act to the lease and why it did not act on those steps.

    50.5  The basis upon which an estoppel by convention is available against Diakou by reason of its dealings with Schillvest and then in turn the receivers and managers of Schillvest, in respect of the period between the renewal in 2011 and the assignment to GSPL in 2013.

    50.6  The basis upon which an estoppel by convention is available against Diakou by reason if its dealings with GSPL since the time GSPL engaged with it with a view to taking an assignment of the lease in 2013 and now.

    50.7  Whether or not a defence of change of position may be available to Diakou, if it ever properly pleads that defence.

    51.Diakou will need to reconsider its disclosure.  For example:

    51.1  Its communications with Rockwell Olivier (as third respondent in Act 420 or [sic] 2015) in furtherance of the claim against it, and in respect of its settlement negotiations and final settlement agreement would become discoverable.

    51.2  The communications between the three principals of Diakou since 2011, when the issue of the potential for the RCL Act applying to the lease arise, are discoverable.

    52.GSPL will need to:

    52.1  Consider and plead the circumstances which support an estoppel by convention defence against Diakou’s new case as to the lease being void.

    52.2  Track down the directors of THG in order to deal with the proposed allegation at [40D] as to the belief, understanding and assumptions of THG when the lease was executed in 2006.  This might require applications for non party discovery.

    52.3  Track down the directors of Schillvest, and its then adviser Mr Battiston, in order to deal with the proposed allegation at [40D] as to the belief, understanding and assumptions of Schillvest when the lease was renewed in 2011.  This might require applications for non party discovery.

    52.4  Make enquiries of the receivers and managers of Schillvest in order to deal with the proposed allegation at [40D] as to the belief, understanding and assumptions of Schillvest, through its receivers and managers, when the lease was assigned in 2013.  This might require applications for non party discovery.

    52.5  Make enquiries of the receivers and managers and the liquidator of Schillvest in order to deal with the proposed allegation at [13] of Diakou’s defence in Action No 802 of 2015 that the chose in action which was assigned to GSPL was subject to the interests of the secured creditor and therefore incapable of assignment by the liquidator by deed dated 18 December 2014.

    53.It would be wholly inappropriate for GSPL to be placed in a position of having to deal with a new case in a rushed way.

    (Footnote omitted)

1. On any view, the application has been made very late in the history of the proceedings.  However, I accept that it was brought with sufficient expedition once the new legal representation was obtained.  Nevertheless, the additional work to which GSPL will be put will necessarily require a vacation of the trial date.

   C.  Explanation for the delay and opportunity to earlier plead the new case

2. I will deal with these two matters together.  Diakou has been represented by various solicitors throughout the litigation and by various counsel for specific periods or tasks.  The fact that Diakou’s additional case[12] could and probably should have been identified, advised upon and pleaded at a much earlier time, cannot be gainsaid.  However, I am not satisfied that fault for this should be attributed to Diakou or its directors.  Whilst I am in no position to make firm findings in this respect, the procedural history and the approach taken to directions hearings in the second half of last year and earlier this year have left me with a real concern that the matter did not receive appropriate attention and preparation for trial by Diakou’s former solicitors during at least the nine months or so prior to the engagement of CCK Lawyers.

   [12] If not a new case, a substantially modified case which had caught GSPL by surprise.

3. I am satisfied that Diakou changed solicitors because it genuinely lost confidence in its previous representation.  I am not prepared to find it was not justified in arriving at this position.  I am also satisfied that Diakou moved diligently to obtain new representation. It was the obtaining of new representation that was the catalyst for a close study of Diakou’s case and the decision taken to seek to amend.  Even so, in this respect I am mindful of Stanley J’s observation in Saadat v Commonwealth of Australia & Ors.[13]

   While courts are reluctant to visit parties with the consequences of oversight by the legal representatives, the Court should not be too willing to permit amendments simply because they are the product of further or more detailed consideration being given to an issue by a party’s legal representative or the product of a fresh set of eyes.  The retention of new counsel should not operate to re-set the litigation clock or otherwise give the party in question a licence to amend.  To do so would be to undermine the approach required by Aon. 

   [13] [2019] SASC 28 at [37].

4. It is plain that following their engagement, CCK Lawyers have committed a very significant amount of time and expertise in getting to understand the matter and in reaching the conclusion that the pleadings were, in their view, so deficient as to preclude Diakou from presenting its best case at trial.

5. Notwithstanding the above, the delay in bringing forth the amendments, particularly given that there has been an apparent history of delay in this matter largely attributable to Diakou and its earlier representation, is a very significant factor weighing against exercising the discretion to allow the application to amend.

   D.  Time, cost and inconvenience caused by the late amendment

6. I accept GSPL’s submission that some work will need to be repeated or revised and new work will need to be undertaken and that this will necessarily add to the delay, cost and inconvenience associated with the proceedings.  However, I have before me some information, albeit quite limited, concerning Diakou’s asset position in addition to its ownership of the Talbot Hotel (provided at an earlier directions hearing).  I have no reason to believe that Diakou will not be in a position to meet an order for costs thrown away or, ultimately, to meet any adverse costs order should it lose this litigation.  GSPL has not suggested otherwise.

   E.  Uncertainty and strain of the litigation on GSPL

7. I accept GSPL’s submission that it has a substantial claim perhaps in the order of $1 million and that if successful, GSPL will have been out of its funds for some years.  I accept that further delay will increase the stress to individuals that naturally arises in the context of civil litigation.

   F.  Impact of any delay and disruption upon judicial and court resources

8. As I have indicated, and notwithstanding submissions from Diakou to the contrary, I agree with GSPL that if the substantive amendments are allowed the trial date will be lost.  I would not be in a position to offer another trial date in my list until late next year, although other Judges likely will be available earlier.  Nevertheless, there will be an impact on judicial and court resources if the trial is delayed.

   G.  Impact upon the public’s confidence in the just and efficient administration of justice

9. I agree with GSPL that further delay (in the context of an apparent history of delay by Diakou) in these proceedings might cause some reasonable members of the public to question their confidence in the system.  However, such persons would also be keen to ensure that both parties were allowed to present their whole case and that one party was not disadvantaged because potentially important aspects of what is in any event a complex matter had not been appreciated by its legal representation until late.

10. Further, the parties at the outset have anticipated being in a lessor and lessee relationship for as long as 28 years and there is still potentially 20 or so years to run.  Diakou now wishes to raise the issue whether such a relationship exists at all, a matter fundamental to the parties’ long term commercial interests.  If the trial were to proceed without this issue being ventilated with an outcome adverse to Diakou (or even in any event), it may well be open to Diakou to commence fresh litigation seeking to agitate its proposed amended case.  It is no answer, at this stage of the proceedings, to observe that Diakou might be met with some form of Anshun[14] estoppel plea, particularly if it were to have been shut out from its amended case in these proceedings at GSPL’s insistence.  I am in no position to form a view whether such a plea would or would not succeed.

    [14] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589.

    Conclusion as to whether to allow the amendments

11. I do not have before me a formal application to adjourn the trial listed to commence 27 July 2020.  However, I have heard submissions from the parties as to whether if I were to allow the substantive amendments such necessarily would lead to a vacation of the trial date. 

12. Notwithstanding that it has presented a new pleading with a sea of double underlining, Diakou maintains that it has only raised legal conclusions from factual matters already in issue and that the trial can proceed.  I do not accept the premise but even if it were to be accepted, the submission overlooks the likely response from GSPL. An amended defence raising an estoppel by convention will necessarily involve a lengthy factual enquiry extending over many years and involving not just the parties but Schillvest.  There may be other defences to the new pleadings available to GSPL.  It would be most unjust to require GSPL to make the necessary enquiries, procure and complete further discovery, obtain advice, amend its defence and proceed to trial on 27 July 2020. I have approached the application to amend on the basis that to allow it would inevitably lead to the vacation of the trial date and an adjournment for an indefinite period to enable the parties to ready themselves for a new trial listing.  This, of course, is a factor that must be given significant weight when deciding whether or not to allow Diakou to amend.

13. I have weighed the various considerations as summarised in sections A to G above.  Whilst there are a number of factors that militate against allowing the application to amend, there are strong factors in favour.  On balance, I have reached the view that the interests of the parties and the interests of justice will best be served by allowing the application to amend to the extent that I have found the proposed amendments reasonably arguable, together with any consequential non-substantive amendments. 

14. The proposed new pleadings contain many changes being either consequential on the substantive amendments or matters of clarification or tidying up.  I have not reviewed these.  I expect the parties to take a pragmatic approach when new pleadings are filed.  If any further dispute of real significance arises, it can be resolved following my proposed remitter to a Master. 

15. I am satisfied that any prejudice suffered by GSPL can largely, if not entirely, be ameliorated by an adjournment of the trial and orders for costs thrown away as a result of the application to amend succeeding and as a result of the adjournment of the trial and by orders for payment of interest and costs generally in the event GSPL, ultimately, were to succeed.

16. Finally, I have not reviewed all of the proposed amendments as to matters of form and adequate particularity.  I will reserve to GSPL the right to bring before a Master any application seeking further particulars as it may be advised.

    The application concerning GSPL’s notices to admit

17. The rules of court governing consideration of Diakou’s application concerning the notices to admit are rules 117 (notices to admit and response thereto) and 151.12 (restrictions on interlocutory processes once matter listed for trial) of the Uniform Civil Rules 2020.  Again, I do not stay to set out these rules.  Insofar as leave is required for Diakou to bring its application concerning the notices to admit (rule 151.12), I give that leave.

18. The notices to admit are extensive.  Many of the propositions to which an admission is sought apparently derive from discussions and agreement reached at an earlier time between GSPL and former representatives for Diakou.  Diakou’s counsel, during argument acknowledged in open court that if that were so, Diakou would honour any previous agreement reached. I am satisfied that neither Diakou nor either of its directors was at fault in failing to file an answer within the time required by the rules of court.  Diakou quite justifiably relied on its former solicitors to consider and advise with respect to the notice to admit which advice does not appear to have been forthcoming.  Diakou only realised it had a problem relating to deemed admissions when advised of this by its new solicitors.

19. GSPL’s main objections to Diakou’s application to be permitted to file an answer out of time are:

    (i)that a number of the answers appear to depart from the agreement earlier arrived at;

    (ii)that prejudice to GSPL’s preparation for trial will result given the late notice that a large number of matters thought not to be in issue would now be in issue; and

    (iii)that Diakou’s proposed answers in many respects are objectionable as to form or otherwise are not answers properly available under the rules.

20. The matters in (i) should largely be resolved following discussions between the respective legal advisers which they have agreed will take place, directed at identifying and confirming any agreement previously reached.  The matter in (ii) will be of little weight now that I propose to vacate the trial date and if GSPL were to be entitled to an order for costs thrown away.

21. As far as the issue in (iii) is concerned, I have not and do not propose to review each of the many matters of fact sought to be admitted and the respective proposed answers as to matters of form or compliance with the rules.  Many of the proposed answers object to the form of the matter sought to be admitted on the basis that it is not a fact but a conclusion sought to be arrived at from unarticulated intermediate facts.  There may be some force in this criticism.

22. There is a further issue.  As I understand the position, some of Diakou’s proposed responses are predicated on aspects of its proposed amendments to the pleadings.  Given that I will be allowing some but not all of the proposed amendments, some of these answers may need to be reconsidered.

23. In the circumstances, I propose to allow Diakou’s application to withdraw its deemed admissions and to grant permission to file a response to GSPL’s notice to admit within 21 days of today.  Hopefully that will give Diakou sufficient time to revise its proposed new pleadings in accordance with these reasons and to identify, following discussions between the parties, those aspects of the notice to admit that are the subject of any prior agreement.  Reserved to GSPL will be the right to bring any application objecting to the responses ultimately provided as it may be advised.

    Costs

24. There will be an order that Diakou pay both GSPL’s and the second respondent’s costs thrown away as a consequence of Diakou’s application to amend its statement of claim in No 420 and defence in No 802 being allowed.  There will be an order that Diakou pay both GSPL’s and the second respondent’s costs thrown away as a consequence of the trial being adjourned.

25. I have given consideration to whether I should attempt to assess the costs thrown away on a lump sum basis and order that such amounts be paid forthwith.  I have also considered whether any other orders of a monetary nature might be made in order to assist in alleviating any unresolved prejudice that GSPL might suffer.

26. To these ends, I obtained further information from the parties.  However, in the circumstances, I have decided against making such orders. I cannot be satisfied as to the proper extent of any costs thrown away at this stage nor the extent of any prejudice that might be suffered by GSPL, if any, that would not be compensated by orders for costs thrown away, and orders for costs generally and for interest, were GSPL ultimately to succeed.

    Orders

27. I make the following orders in both No 420 and No 802.

    Diakou’s interlocutory application FDN 67 in No 420

    (i)That Diakou has leave to file and serve a second revision of its statement of claim in No 420 so as to include the following amendments as shown in exhibit HJG 1 to the affidavit of Hamish John Gillis sworn on 1 June 2020:

    (a)paragraphs 30 and 30A (first category above);

    (b)paragraph 36A (second category above);

    (c)paragraphs 30A, 30B, 30C, 31A and 33 (third category above);

    (d)paragraphs 36A, 38A, 38B and 38 (fourth category above);

    (e)paragraphs 40A, 40B and 40C (fifth category above);

    (f)paragraphs 42A, 42B and 45AA (eighth category above);

    (g)paragraphs 50 and 50.7 to 50.9 inclusive (ninth category above); and

    (h)such consequential amendments arising solely from the amendments in (a) to (g) above.

    (ii)That leave for Diakou to include in its second revision of its statement of claim the following proposed amendments as identified in exhibit HJG 1 be refused:

    (a)paragraphs 40D, 40E and 40F (sixth category above);

    (b)paragraphs 40G to 40L inclusive (seventh category above); and

    (c)such consequential amendments arising solely from the amendments in (a) and (b) above.

    (iii)That Diakou has leave to include in its second revision of its statement of claim the following proposed amendments as identified in exhibit HJG 1:

    (a)the paragraphs pleaded in its case against the second respondent identified in paragraph [4] of these reasons;

    (b)the paragraphs pleaded in its case against GSPL identified in paragraph [71] of these reasons; and

    (c)paragraphs 17 and 18 of exhibit HJG 1.

    (iv)That Diakou has leave to file and serve an amended defence in No 802 so as to include the following amendments as shown in exhibit HJG 2 to the affidavit of Hamish John Gillis sworn on 1 June 2020:

    (a)paragraphs 13, 15 and 26B;

    (b)the paragraphs identified in paragraph [71] of these reasons (paragraphs 19 and 20B); and

    (c)such consequential amendments arising from the amendments in (a) and (b) above and such consequential amendments as are necessary to harmonise the defence with those amendments to the statement of claim in No 420 for which leave has been given.

    (v)That leave for Diakou to include in its amended defence the following proposed amendments as identified in exhibit HJG 2, be refused:

    (a)paragraphs 26A, 26A.1 to 26A.4 inclusive; and

    (b)any consequential amendments arising solely from the amendments in (a) above.

    (vi)That Diakou pay GSPL’s and the second respondent’s costs thrown away as a consequence of leave having been granted to amend its statement of claim and defence.

    Diakou’s interlocutory application FDN 65 in No 420

    (vii)That Diakou not be taken to have admitted by operation of rule 156(7) of the Supreme Court Civil Rules 2006 any of the assertions contained in GSPL’s notices to admit filed in No 420 and No 802.

    (viii)That Diakou have leave to file and serve within 21 days of today responses to the notices to admit referred to in (vii).

    (ix)That reserved to GSPL is the right to bring before a Master any such application as it might be advised objecting to the form or content of any of the responses provided in accordance with order (viii).

    (x)That reserved to GSPL is the right to bring before a Master any such application as it may be advised seeking further particulars of Diakou’s amended statement of claim and amended defence once filed.

    (xi)That Diakou pay GSPL’s costs thrown away as a consequence of the leave granted in (vii) and (viii) above.

    General

    (xii)That Diakou file its amended statement of claim in accordance with (i) to (iii) above and its amended defence in accordance with (iv) to (v) above within 21 days of today.

    (xiii)That the trials listed to commence on 27 July 2020 for both No 420 and No 802 be vacated.

    (xiv)That Diakou pay GSPL’s and the second respondent’s costs thrown away as a consequence of the vacation of the trials in (xiii) above.

    (xv)That both No 420 and No 802 be remitted to a Master of this Court for further management to trial.

    (xvi)Liberty to apply as to the form of or clarification of the above orders and as to any other orders that ought to be made as a consequence of these reasons.

28. I will hear the parties on the question of the costs of Diakou’s two interlocutory applications.

    APPENDIX A

    (i) DIAKOU’S EXISTING CLAIM

    The contentions of Diakou and the relief which it seeks on the pleadings as they presently stand are summarised in this document.

    Action 420 of 2015

    1.In this action Diakou is the applicant, and sues both Gouger Street and Kelly & Co.

    Contentions and relief sought against Gouger Street

    2.Diakou seeks exemption from the operation of the Retail and Commercial Leases Act 1995 (SA) (‘the Act’), pursuant to section 77 of the Act, such that the rights and liabilities as between Diakou as Lessor and Gouger Street as Lessee are not subject to the Act: Introduction and paragraph [50]. Diakou contends that such exemption should be granted because of the conduct of each of Diakou, the earlier lessees and Gouger Street, and because of the hardship and unfairness which would result from those provisions operating as between Diakou and Gouger Street:

    3.Diakou seeks a declaration that the purported determination by Mr Pledge of the current market rent as and from 1 September 2011 is void, or otherwise not binding on Diakou: paragraph [60.4]. Diakou contends that it is entitled to that relief because:

    3.1 Schillvest (the previous tenant from whom Gouger Street derived its interest as tenant) had waived the provision in clause 4.10 of the lease which would otherwise have contemplated the appointment of an expert to determine the market rent: paragraph [48], [49] and [52][15]; and

    [15] Diakou also seeks a declaration to this effect: paragraph [60.3]

    3.2 the determination by Mr Pledge, in any event, was not in accordance with the requirements of the New Lease, and is therefore vitiated and not binding: paragraph [51].

    4. Diakou seeks a declaration that the purported determination by Mr Nobes of the current market rent as and from 1 September 2016 is void, or otherwise not binding on Diakou: paragraph [60.4A]. Diakou contends that it is entitled to that relief because:

    4.1 the determination of Mr Nobes was not in accordance with the requirements of the New Lease, and is therefore vitiated and not binding: paragraph [51A]; and

    4.2Mr Nobes purported to make his determination in a partial manner, in that he impermissibly received submissions from representatives of Gouger Street: paragraph [51A.2].

    5.Diakou seeks a declaration that Gouger Street did not receive from Schillvest any rights against Diakou in relation to rent or land tax plaid during the period before Gouger Street purported to take an assignment from Schillvest: Paragraph [60.5]. Diakou contends that, properly construed, the relevant Deed of Assignment did not convey those rights to Gouger Street: paragraph [52].

    6. Diakou seeks a declaration that the money, currently held in trust, which comprises the ‘agreed difference’ (that is, the difference between the amount of rent to which Diakou had claimed to be entitled, and the lower amount which Gouger Street had asserted that it owed) belongs to Diakou and ought be paid to it: paragraph [60.6]. Diakou contends that this entitlement arises as a consequence of the other relief it seeks.

    7. Diakou seeks damages:

    7.1 in relation to the amount of land tax it has paid in relation to the Talbot Hotel since Gouger Street became the tenant: paragraph [60.6A]; and

    7.2 in relation to underpaid rental amounts: paragraph [60.6B],

    on the basis that Diakou contends that, if Diakou is entitled to an exemption under s77 of the Act, then the land tax ought to have been paid by Gouger Street, and the rent would be higher.

    Contentions and relief sought against Kelly & Co

    8. Diakou seeks damages against Kelly & Co: paragraph [60.7]. Diakou contends that Kelly & Co was negligent, acted in breach of its obligation to exercise proper skill and care, and breached the terms of its contractual retainer with Diakou by:

    8.1 failing to advise Diakou of the risks presented by sections 22 and 30 of the Act, and in particular the risk that the threshold prescribed under s 4(2)(a) would be increased by regulation, with the effect that sections 22 and 30 of the Act would then apply to the New Lease, and thereby cause loss to Diakou: paragraphs [19], [20] and [53]; and

    8.2 failing to prepare a lease which would not be exposed to those risks: [53A] and [54].

    Action 802 of 2015

    9. In this action, Diakou is the defendant to a claim brought only by Gouger Street. Kelly & Co is not a party.

    10. Diakou seeks an order that the claim of Gouger Street be dismissed. Diakou contends:

    10.1 that Gouger Street did not acquire from Schillvest all of Schillvest’s right, title and interest in the lease: paragraph [11];

    10.2that Gouger Street did not, by a Deed of Assignment dated 18 December 2014, acquire any chose in action of Schillvest, or any entitlement to claim against Diakou: paragraph [13];

    10.3that the amounts alleged to be owing by Gouger Street are not correct because the particular amounts are incorrectly alleged and, or, calculated: paragraphs [14] and [15];

    10.4that the purported rental determination of Mr Pledge, given on or about 20 August 2015, is not binding for the reasons set out above in relation to Action 420 of 2015: paragraph [21];

    10.5that the purported rental determination of Mr Nobes, given on or about 20 April 2018 is not binding, for the reasons set out above in relation to Action 420 of 2015: paragraph [23A]; and

    that, accordingly, Gouger Street is not entitled to recover the amounts it seeks against Diakou.

    APPENDIX B

    (ii) DIAKOU’S PROPOSED AMENDED CLAIM

    The contentions of Diakou and the relief which it seeks on the pleadings as Diakou proposes they should be amended are summarised in this document.

    Action 420 of 2015

    Contentions and relief sought against Gouger Street

    11. Diakou applies to expand its claim by amendment. Diakou’s amended claim maintains claims to relief the contentions on the pleadings as they presently stand, and seeks also to include the following matters.

    12. Diakou seeks a declaration to the effect that the entirety of clause 4.10 (which includes both methods of calculating changes in rental) is void: paragraph [60.11]. Diakou contends that it is entitled to this relief because sub-s 22(3) operates to avoid a provision, such as clause 4.10, which provides for the rent to change in accordance with whichever of two methods would result in the higher rent: paragraph [30], [36A].

    13. Diakou seeks a declaration that Schillvest acquired no rights in terms of the New Lease when it sought to renew on 1 September 2011: paragraph [60.12]. Diakou contends that, by reason of the operation of s22(3) of the Act, the provision for the ascertainment or calculation of the rental was void, and therefore no new lease came into existence because there was no consensus between the parties as to an essential term of a renewed lease: paragraph [30A], to [30C] and [36A].

    14. Diakou seeks a declaration that Gouger Street has acquired no rights under the renewal of the New Lease: paragraph [60.13]. Diakou contends that because Schillvest had no right, title or interest as lessee, it therefore could not and did not assign any such right, title or interest to Gouger Street in July 2013: paragraph [38A] and [38B]. Diakou further contends that the purported further renewal in July 2016 by Gouger Street was likewise of no effect: paragraph [40A] - [40C].

    15. Diakou seeks a declaration that, by reason of there having been a number of common mistakes in relation to the application of the Act between various combinations of Diakou, Gouger Street and Gouger Street’s predecessors as lessee, the various transactions leading to and including Gouger Street’s asserted rights as lessee are vitiated and ineffective to confer any rights on Gouger Street: paragraph [60.14]. Diakou contends that these common mistakes were all to the effect that there was an agreement which was, and would continue to be, binding between Diakou and its lessee as recorded in the New Lease: paragraph [40D] to [40F].

    16. Diakou seeks a declaration that Gouger Street is estopped from maintaining or claiming the benefit of the rights recorded in the new lease without also bringing to account the countervailing rights of Diakou as to rent review and land tax which Diakou at all relevant times believed and assumed that it had: paragraph [60.14]. Diakou contends that it would be unconscionable and inequitable for Gouger Street to have the benefit of the bargain which conferred a lease for an extremely long term upon the lessee without also being subject to the burdens of paying the amount of rent and land tax which was bargained for as recorded in the new lease: paragraph [40G] to [40L].

    17. Finally, in support of the relief already claimed under s77 of the Act, Diakou seeks to contend that:

    17.1 by reason of the common mistakes, and the matters giving rise to the estoppel, inappropriate financial hadship and disadvantage would be caused to Diakou if it were to be bound by the terms recorded in the new lease but absent the benefit of the rights for which it bargained, namely rent review clauses and the right to recover land tax, which disadvantage and financial hardship would continue until 2041 when the lease would otherwise expire: paragraphs [50.5] to [50.7]; and

    17.2 exemption is appropriate because the corporators of Gouger Street were, from the time when they first dealt with Diakou and sought an interest in the Talbot Hotel, each sophisticated and highly experienced in the hospitality industry, and stand to derive a significant financial benefit from Diakou’s misfortune occasioned by the Act commencing to apply to the lease, and there is no imbalance of bargaining power or other reason for Gouger Street (and through it, its corporators) to be protected from Diakou in terms of the Act: paragraph [50.8] to [50.9].

    Contentions and relief sought against Kelly & Co

    18. The amendments in relation to the claim against Kelly & Co are elaborations rather than substantive new contentions.

    Action 802 of 2015

    19. The proposed amendments to the Defence to the case pleaded by Gouger Street in Action No 802 of 2015 are, subject only to four categories of special defences which ought be pleaded, intended to go no further than to harmonize the Defence with the amendments which Diakou seeks to make to the Claim in Action No. 420 of 2015.

    20. The four special defences are:

    20.1 the defence pleaded in paragraph [13] of the Defence to the effect that the document headed ‘Deed of Confirmation and Assignment’ was not a valid corporate act on the part of Schillvest and was not authorised, was purportedly executed without capacity and, or was not for a proper purpose of Schillvest;

    20.2 the defence pleaded in paragraph [15] of the Defence that any amounts calculated by reference to land tax were paid to RevenueSA, and not to Diakou;

    20.3 the defence pleaded in paragraph [26A] of the Defence that, even if Gouger Street would otherwise have a claim for money had and received (which is denied) then Diakou has defences of change of position that would render it inequitable for it to be ordered to restore money to Gouger Street; and

    20.4 the defence pleaded in paragraph [26B] of the Defence that even if Gouger Street would otherwise have a claim for money had and received, this still does not mean that it is entitled to recover compound interest from Diakou.

    APPENDIX C

    Gouger Street Supplementary Materials

    Responding to email from the Court of 23 June 2020

    This document has been produced at short notice and is intended as a guide only, and is not to be taken to be comprehensive or to exclude contentions that are available to Gouger Street

    A.(iii) From Gouger St, a statement of its likely contentions based on the pleadings as they presently stand together with the relief sought.

    A1.The effect of the application of s22 of the RCL Act is that:

    1.1 Clause 4.10(a) of the lease is void to the extent that it provides for rent to be reviewed at 4% over the existing rent if that produces a result that is higher than current market rent. Clause 4.10(c) is void in that it provides that rent may not decrease.

    1.2 This result arises from the application of s22(4) and in the alternative from the application of s22(3)(c).

    1.3 Clause 2.2(a) of the lease is void to the extent that it provides for payment of “Outgoings” as defined in clause 1.1 of the lease to include land tax.

    1.4 This result arises from the application of s30.

    A2. The rent payable under the lease as at 1 September 2011 is as determined by the rent valuation undertaken by James Pledge.

    A3. Schillvest did not waive its right to a rent review as at 1 September 2011.

    A4.The rent payable under the lease as at 1 September 2016 is as determined by the rent valuation undertaken by Andrew Nobes.

    A5. Diakou was not entitled to charge and receive rent in the amount it did, from Schillvest and the Gouger Street, from month to month from 1 September 2011 until the date of the Andrew Nobes rent determination for rent from 1 September 2016.

    A6. Diakou was not entitled to require land tax to be paid as an outgoing from April 2011 and, insofar as Diakou recovered land tax from Gouger Street or Schillvest, or its debt to Revenue SA for land tax was paid by Schillvest or Gouger Street, it is required to reimburse Gouger Street.

    A7. Schillvest and then Gouger Street paid rent as charged by Diakou and paid land tax on a conditional basis, namely subject to the condition of the determination of the issue as to whether the RCL Act applied to the lease and, if the RCL Act applied, the proper determination of rent.

    A8. Further, Diakou breached the lease by requiring payments of rent by Schillvest and then Gouger Street, and land tax by Schillvest and Gouger Street, under threat of termination for default.

    A9. The Liquidator of Schillvest assigned to Gouger Street its rights to recover overpaid rent, and payments on account of land tax, made by Schillvest.

    A10.Insofar as the difference between rent charged by Diakou and determined by James Pledge and Andrew Nobes is held in the Griffins trust account, it is held on trust for Gouger Street.

    APPENDIX D

    B. (iv) From Gouger St, a statement of its likely contentions based on Diakou’s proposed amended pleadings together with likely relief sought.

    Diakou’s new case as to the effect of the RCL Act

    B1. Diakou’s contention that the effect of the RCL Act is that clause 4.10 is struck from the lease in toto is wrong because:

    1.1 Section 22(4) is a specific section directed to market rent review clauses, and it operates by rending void only so much of a clause as would prevent rent decreasing upon a current market rent review.

    1.2 In the alternative, s22(3)(c) operates to render void a clause insofar as it provides for a second or alternative method of reviewing rent, and then provides that the method to be adopted is that which results in the highest rent. The effect of s22(3)(c) is to preserve only the primary method identified in the clause, in this case, current market rent.

    B2. Subject to GSPL having further opportunity to consider this point, obtain advice and give instructions as to any pleading, even if Diakou’s contention that clause 4.10 of the lease is to be struck from the lease is correct, it does not result in there being a renewal with no agreement as to rent because the right of renewal is not tied to the rent review. The renewal would occur at the then current rent, with no provision in the lease for rent review.

    Diakou’s new case that there is no lease

    B3. Diakou is estopped from contending that there is no lease because:

    3.1 from the time of the 2011 renewal Diakou and Schillvest and in turn the receivers of Schillvest; and

    3.2 from the time Gouger Street was negotiating an assignment of the lease and entered into the assignment,

    the Diakou and the then current lessee conducted their affairs on the conventional basis that:

    3.3 if the RCL Act was found not to apply to the lease, clause 4.10 would apply in its express terms; and

    3.4 if the RCL Act was found to apply to the lease, clause 4.10 would apply to the extent only that rent reviews would be to current market rent as agreed or determined by a valuer (including a decrease if so determined),

    subject however

    3.5 in the case of the term commencing on 1 September 2011, Diakou’s contention that Schillvest had waived its right to have the rent reviewed to market rent.

    B4. The creation of the conventional basis of the relationship as between Diakou and Schillvest in 2011 is to be inferred from, at least and subject to more circumstances being identified after further investigations are undertaken, the following:

    4.1 By letter dated 30 August 2011, Diakou, by its solicitors, sought a market review under cl 4.10 and asserted that the RCL Act did not apply to the lease. Diakou proposed an interim rent subject to adjustment following the determination by a valuer.[16]

    [16] The letter is p133 of Exhibit TAW 11

    4.2 By email of 12 October 2011, Schillvest by its solicitors, agreed to the interim rent figure pending finalisation of the rent issue.[17]

    [17] The email is p136 of Exhibit TAW 11

    4.3 By letter of 24 November 2011, Schillvest by its solicitors, asserted that the RCL Act applied and that rent should be revised down to $208,000 and proposed the joint appointment of a valuer.[18]

    [18] The letter is p136 of Exhibit TAW 11

    4.4 By letter of 30 November 2011, Diakou by its solicitors, maintained its position to be that the RCL Act did not apply and took the position that it would not engage in the appointment of a valuer until Schillvest had remedied alleged defaults.[19] Diakou did not deny that if the RCL Act applied, rent would be reviewed to market rent as determined.

    [19] The letter is p139 of Exhibit TAW 11

    B5. The continuation of the conventional basis of the relationship as between Diakou and the receivers of Schillvest is to be inferred from, at least and subject to more circumstances being identified after further investigations are undertaken, the following:

    5.1 By email of 19 September 2012, the receivers by their solicitors, stated that unless their offer for rent was accepted, they would invoke the independent review clause. This was referrable to the review that was due as at 1 September 2011.[20]

    [20]   The email is at p139 of the tender book produced by Gouger Street

    B6. The continuation of the conventional basis of the relationship as between Diakou and Gouger Street is to be inferred from, at least and subject to more circumstances being identified after further investigations are undertaken, the following:

    6.1 By letter of 28 May 2013, Gouger Street by its solicitors, in the context of seeking approval of an assignment of the lease to it, asserted that the RCL Act applied to the lease and sought a review to market as at 1 September 2011 to be undertaken.[21]

    [21]    The letter is at p44 of Exhibit TAW 6

    6.2 By email of 3 June 2013, Diakou, by its solicitors asserted that rent had been agreed as at 1 September 2011 (this assertion was contrary to Diakou’s own proposal of rent as an interim position) and asserted the next review was to be on 1 September 2016. Diakou asserted that the RCL Act did not apply.

    6.3 Diakou did not ever assert that if the RCL Act applied to the lease the consequence would be other than that rent would be reviewed to market rent as determined by the valuer.

    6.4 A deed of assignment was then agreed[22] which specifically noted:

    [22] The deed is Exhibit TAW 13, p148

    (i) Diakou’s contention that there could be no review as at 1 September 2011 because it asserted it had been agreed;

    (ii) Noted the dispute between the parties as to whether the RCL Act applied to the lease.

    B7. Thereafter, and in reliance on the conventional basis of their relationship:

    7.1 Gouger Street settled on the purchase of the business, including the lease, by paying to the receivers in excess of $1 million.

    7.2 Diakou and Gouger Street jointly appointed James Pledge on the basis that his determination would be binding subject to the issue of whether Schillvest had waived its right to a rent review as at 1 September 2011 and whether the RCL Act applied to the lease so as to permit rent to decrease if so determined.

    7.3 Diakou commenced and conducted Action 420 of 2015 as plaintiff and raising only the following issues:

    (i) Whether the RCL Act applied to the lease.

    (ii) If so, whether the court should exercise its discretion under s77.

    (iii) Whether Schillvest had waived its right to a rent review as at 1 September 2011.

    (iv) Whether the James Pledge rent determination was binding as an expert determination made in accordance with the contract between the parties.

    7.4 Thereafter, the parties appointed Andrew Nobes who made a rental determination. Diakou then put in issue only whether the Andrew Nobes determination was made in accordance with the contract.

    7.5 Diakou did not put forward a case that if the RCL Act applied to the lease, rent would not be reviewed in accordance with valid rental determinations (other than as to the asserted waiver of the 2011 rent review).

    Diakou’s application for an exercise of discretion under s77

    B8. The Court should not exercise its discretion under s77 of the RCL Act for reasons including that:

    8.1 Prior to the renewal on 1 September 2011, Diakou well knew that there was a possibility that the RCL Act would apply to the lease and that if it did apply the consequence would be that rent reviews were to be to market (even if the result was a reduction in rent) and that land tax would cease to be a recoverable outgoing.

    8.2 At about the time of the renewal, Schillvest made known that its position was precisely that.

    8.3 Diakou had multiple opportunities to terminate the lease for breach, but chose not to. It made a commercial decision, the effect of which was that it preferred to keep the renewed lease on foot in the hope that the RCL Act would not apply to it rather than terminate the lease, and then find itself having to go to current market rent with a new tenant.

    8.4 Prior to the assignment of the lease to Gouger Street, Diakou well knew that Gouger Street’s position was that the RCL Act applied to the lease and that rent was to be reviewed down to market as at 1 September 2011, and that land tax was not recoverable.

    8.5 Diakou could have declined to agree to the assignment but made a commercial decision to agree to the assignment.

    New cases as to common mistake and estoppel

    B9. Gouger Street cannot formulate a contention as to common mistake because the case proposed by Diakou does not identify the specific mistake said to have been a common mistake.

    B10. Gouger Street will contend that there can be no estoppel as claimed by Diakou because the proposed case does not establish grounds for an estoppel, and further by reason of the circumstances identified above as to estoppel by convention.

    Change of position

    B11. Gouger Street cannot formulate a contention on Diakou’s proposed change of position defence, as the facts of the asserted change of position are not properly pleaded.