Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) - [2019] NSWCA 312

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) & Anor [2019] NSWCA 312
Hearing dates: 10 September 2019
Date of orders: 17 December 2019
Decision date: 17 December 2019
Before: Meagher JA at [1]
Brereton JA [70]
Emmett AJA [93]
Decision:
(1) Appeal allowed in part.
(2) Vary the declaration made by order 1 of 4 June 2019 to provide:
Declare that on 22 March 2019 the first plaintiff validly terminated the lease with a commencing date 23 March 2017 between it and the defendant for breaches of cl 7.3(4)(b).
(3) Set aside the judgment for the first plaintiff against the defendant in the amount of $341,890.72 for rent for the period 25 June 2018 to 15 May 2019.
(4) Appellant pay 30% of the respondents' costs of the appeal.

Catchwords:
LEASES AND TENANCIES – eviction by landlord – suspension of obligation to pay rent – characteristics of eviction – whether common law rule displaced by lease contract – whether covenants other than for rent suspended during eviction

LEASES AND TENANCIES – construction of lease contract – where contract imposed obligations to obtain, maintain, comply with and provide the landlord copies of consents or approvals necessary or appropriate for mining business – time for compliance with obligations – no question of principle
LEASES AND TENANCIES – termination of lease by landlord – termination notices – s 129 Conveyancing Act – whether notices required to specify reasonable time in which to remedy breach
Legislation Cited: Conveyancing Act 1919 (NSW), ss 120A, 129
Corporations Act 2001 (Cth), pt 5.3A
Mining Act 1992 (NSW)
Protection of the Environment Operations Act 1997 (NSW)
Real Property Act 1900 (NSW)
Cases Cited: Booker Industries Pty Limited v Wilson Parking (Qld) Pty Limited (1982) 149 CLR 600; [1982] HCA 53
C H Bailey Limited v Memorial Enterprises Limited [1974] 1 WLR 728
Commonwealth v Anderson (1960) 105 CLR 303; [1960] HCA 85
David Jones Ltd v Leventhal (1927) 40 CLR 357; [1927] HCA 53
Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906
Dogan and Another v Morton (1935) 35 SR (NSW) 142
Drama Unit Pty Limited v Fearndale Holdings Pty Limited (Administrator Appointed) [2018] NSWSC 1895
Edge v Boileau (1885) 16 QBD 117
Glebe Administration Board v Tasker [1964] NSWR 1307
Hovan’s Hotels Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep)
Matthey v Curling [1922] 2 AC 180
Morrison v Chadwick (1849) 7 CB 266; 137 ER 107
Neale v Mackenzie (1835) 2 C M & R 84; 150 ER 36
Nina’s Bar Bistro Pty Ltd v MBE Corp (Sydney) Ltd [1984] 3 NSWLR 613
Orleans Investments Pty Ltd v MindShare Communications Ltd (2009) 254 ALR 81; [2009] NSWCA 40
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14
Salmon v Smith 1 Wms Saund 202; 85 ER 205
Smiley v Townshend [1950] 2 KB 311
Taylor v Webb [1937] 2 KB 283
Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 97,333
Udhe v Asche (1887) 8 NSWR 472
United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904
Upton v Townend (1855) 17 CB 30; 139 ER 976
Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
Texts Cited: Bridge et al, Megarry & Wade: The Law of Real Property, (9th ed, 2019, Sweet & Maxwell)
Coke, The First Part of the Institutes of the Laws of England or; A Commentary Upon Littleton (16th Ed, 1809, Luke Hansard & Sons)
Foa’s General Law of Landlord and Tenant (8th ed, 1957, Thames Bank Publishing Company)
Halsbury’s Laws of England, (2nd ed, 1936, Butterworth & Co) Vol XX
Halsbury’s Laws of England, (5th ed, 2016, Butterworths LexisNexis) Vol 62
Heydon, Heydon on Contract: The General Part (2019, 1st ed, Lawbook Co)
Holdsworth, A History of English Law (1st ed, 1925, Methuen & Co) Vol VII
Lang, Leases and Tenancies in New South Wales (1976, Law Book Company)
Lee and Lewis, Hammond and Davidson’s Law of Landlord and Tenant (4th ed, 1953, Butterworths)
Wellings, Woodfall’s Law of Landlord and Tenant (1978, 28th ed, Law Book Company)
Category: Principal judgment
Parties: Drama Unit Pty Ltd (Appellant)
Fearndale Holdings Pty Ltd (administrator appointed) (First Respondent)
Timothy James Cook (in his capacity as administrator of Fearndale Holdings Pty Ltd (administrator appointed) ) (Second Respondent)
Representation:
Counsel:
B W Walker SC and M Sneddon (Appellant)
S Golledge (First and Second Respondents)
Solicitor:
Dettman Longworth Lawyers (Appellant)
William James (First and Second Respondents)

File Number(s): 2019/193139
Publication restriction: Nil
Decision under appeal

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

[2019] NSWSC 645

Date of Decision:

04 June 2019

Before:

Black J

File Number(s):

2019/91205

HEADNOTE

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

Drama Unit leased a clay and shale quarry from the respondent landowner Fearndale. The contract required the tenant to obtain and comply with any consents or approvals which may be necessary or appropriate for the tenant’s business “prior to entering this Lease”; maintain and comply with any such consent or authority “during the Term”; and provide the landlord with copies of any consent or approval “prior to occupation of the Premises”.

The tenant did not obtain either an authorisation under Mining Act 1992 (NSW); or a licence under Protection of the Environment Operations Act 1997 (NSW). The landlord did not allow the tenant into occupation, relying on the tenant’s failure to provide copies of those consents/approvals as justifying its denial of possession.

On 29 January 2019 the landlord served four notices requiring the tenant to remedy breaches relating to the consents and approvals. On 19 February 2019 the landlord also served a written demand for payment of outgoings due under the lease.

On 22 March 2019 the landlord issued six notices of termination – four in respect of breaches said to arise from the failure to obtain, maintain, and provide copies of required consents or approvals, one in respect of failure to pay rent and one in respect of failure to pay outgoings. On the same day the landlord sought, in the Supreme Court of NSW, a declaration that it had effectively terminated the lease as well as money judgments for rent and outgoings.

The primary judge upheld the validity of each of the termination notices and entered judgment for the landlord in respect of both rent and outgoings.

The issues in the appeal were:

(i) Whether the landlord was entitled to recover rent and outgoings where it had refused to give possession of leased premises to the tenant.
(ii) Whether the tenant was in breach of the lease for failing to hold the consents and authorities in January 2019, and to provide copies of them to the landlord.
(iii) Whether notices under Conveyancing Act 1919 (NSW), s 129(1) must specify the reasonable time within which the tenant must remedy the asserted breach.

Held, allowing the appeal in part (per Meagher JA, Brereton JA and Emmett AJA):

As to issue (i), per Meagher JA, Brereton JA and Emmett AJA:

1. The landlord’s wrongful refusal to give the tenant possession of the premises constituted an eviction which suspended the tenant’s obligation to pay rent: at [52], [53], [63] (Meagher JA), [71] (Brereton JA), [116] (Emmett AJA).

Upton v Townend (1855) 17 CB 30; 139 ER 976; Salmon v Smith 1 Wms Saund 202; 85 ER 205; Neale v Mackenzie (1835) 2 C M & R 84; 150 ER 36; Udhe v Asche (1887) 8 NSWR 472; Matthey v Curling [1922] 2 AC 180 applied; Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 97,333; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14; C H Bailey Limited v Memorial Enterprises Limited [1974] 1 WLR 728; United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904; Booker Industries Pty Limited v Wilson Parking (Qld) Pty Limited (1982) 149 CLR 600; [1982] HCA 53 discussed; Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906; Edge v Boileau (1885) 16 QBD 117; David Jones Ltd v Leventhal (1927) 40 CLR 357; [1927] HCA 53; Taylor v Webb [1937] 2 KB 283; Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277; Nina’s Bar Bistro Pty Ltd v MBE Corp (Sydney) Ltd [1984] 3 NSWLR 613 referred to.

2. The fact of the eviction did not suspend the tenant’s obligations under covenants other than that for the payment of rent, with the result that the tenant remained liable to pay outgoings: at [21], [22], [64] (Meagher JA), [78] (Brereton JA), [118] (Emmett AJA).

Morrison v Chadwick (1849) 7 CB 266; 137 ER 107; Matthey v Curling [1922] 2 AC 180; Smiley v Townshend [1950] 2 KB 311 applied.

As to issue (ii), per Meagher JA, Brereton JA and Emmett AJA:

3. The obligation to provide copies of consents or approvals prior to occupation was directed to consents which had in fact been obtained. Since no consents or approvals were obtained and the tenant never went into occupation, there was no breach of cl 7.3(4)(d) and the termination notices in respect of breaches of that clause were not effective: at [48], [65] (Meagher JA), [81] (Brereton JA), [134], [135] (Emmett AJA).

4. The obligation to maintain and comply with consents or approvals that were necessary or appropriate during the term is not directed only to consents which had in fact been obtained at the commencement of the lease, with the result that the termination notices in respect of cl 7.3(4)(b) were effective: at [43], [44], [66] (Meagher JA), [87] (Brereton JA), [128], [129] (Emmett AJA).

As to issue (iii), per Meagher JA, Brereton JA and Emmett AJA:

5. A notice under s 129(1) Conveyancing Act need not specify the reasonable time within which the tenant must remedy the asserted breach: at [59] (Meagher JA), [71] (Brereton JA), [130] (Emmett AJA).

Glebe Administration Board v Tasker [1964] NSWR 1307; Hovan’s Hotels Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep); Dogan and Another v Morton (1935) 35 SR (NSW) 142 referred to.

Judgment

MEAGHER JA: The appellant (Drama Unit) appeals from (1) an order declaring the lease between it and the respondent landowner (Fearndale) to have been validly terminated by Fearndale on 22 March 2019 and (2) judgments in favour of Fearndale for unpaid rent ($341,890.72) and outgoings ($34,257.10): In the matter of Fearndale Holdings Pty Ltd [2019] NSWSC 645.

The quarry lease and Fearndale’s attempts to terminate it

The leasehold land is at Luddenham on the western outskirts of Sydney and consists principally of a quarry from which clay and shale can be mined. Under cl 7.1 of the lease the permitted use was as a “mining operation”, and cl 25.1.0 recorded that the property had an approval for “a clay/shale quarry dated 23 May 2004, amended 20 January 2010”, to the benefit of which the lessee was entitled.
The lease was entered into following an earlier agreement for lease between the same parties, made in December 2016. It was for a term of 14 years, with options to renew for two further periods of ten years. The Commencement Date and first date for payment of rent was stated to be 23 March 2017. However what is common ground, but not fully explained in the evidence, is that the parties agreed that the term of the lease would not commence until the right to possession of the previous tenant, Epic Mining Pty Ltd (Epic), had been terminated. That occurred on about 25 June 2018. Thus Drama Unit maintained that it was entitled to possession at least from 1 July 2018 and accepted that the first rent payment, a monthly instalment payable in advance, was due on that date.
Although in registrable form the lease was not registered and Drama Unit has never gone into actual possession. However, it was not necessary that it do so in order to obtain an interest in the land, the doctrine of interesse termini having been abolished (Conveyancing Act 1919 (NSW), s 120A(1)) (Conveyancing Act). Whilst the registrable instrument was not effective to create a legal interest in the land, the proceedings at first instance were argued and determined on the basis that each party was to be treated as having the same rights and obligations as if a legal lease had been granted, presumably because specific performance could have been obtained of their underlying agreement.
When the land became available for occupation in late June 2018, Fearndale was in administration under Pt 5.3A of the Corporations Act 2001 (Cth). Since his appointment in May 2018 the administrator, Mr Cook, has maintained that Drama Unit is not entitled to possession because it has not complied with its obligations under cl 7.3(4)(b) and (d) of the lease.
On 29 June 2018 Fearndale served notices under Conveyancing Act, s 129 requiring Drama Unit to remedy breaches of cl 7.3(4)(b). On the same day the solicitors for Drama Unit advised that their client proposed to take possession of the land on 1 July 2018 and enclosed a bank cheque for $28,000 representing the first month’s rent. That cheque was later returned, and on 3 July 2018 Fearndale’s solicitors advised the solicitors for the tenant:

As stated in our letter dated 1 June 2018, [Mr Cook] has made no determination as to the validity or otherwise of your client’s claimed lease. It is in those circumstances [that] the notices issued on 29 June 2018 were issued. Further to this end, he does not propose to bank or otherwise deal with the cheque for $28,000… [and proposes] to return that cheque to your office in the coming days.

The validity of the termination notice subsequently issued by Fearndale on 16 July 2018 was determined in proceedings in which Drama Unit sought to uphold the validity and enforceability of the lease, and its entitlement to possession. The primary judge (Black J) held that at the time that termination notice was served Drama Unit had not been given a reasonable time to remedy the alleged breach. Accordingly, the landlord’s right under cl 15.2 to re-enter and take possession was not enforceable (s 129(1)): Drama Unit Pty Limited v Fearndale Holdings Pty Limited (Administrator Appointed) [2018] NSWSC 1895.
On 29 January 2019 Fearndale issued four further breach notices under s 129 in respect of “presently” existing non-rent defaults under cl 15.1. Later on 19 February 2019, Fearndale made a written demand for the outstanding outgoings due as at 12 February 2019. On 22 March 2019 Fearndale issued six notices of termination under cl 15.2, a notice for each of the four non-rent breaches, a notice for the failure to pay rent for the period from 25 June 2018 to 22 March 2019, and a notice for the failure to pay outgoings “on and from” 25 June 2018 to 12 February 2019. No earlier breach notice had been served in relation to that failure to pay outgoings.

Issues in the appeal

The primary judge upheld the validity of the four non-rent termination notices. In doing so he rejected Drama Unit’s contention that the breach notices under s 129 were required to specify the “reasonable time” in which the breach was to be remedied (Judgment [16]-[28]). He also rejected Drama Unit’s argument that it had not breached cl 7.3(4) because its obligation to hold a mining or other consent or licence did not arise until it commenced the activity to which the consent or licence applied (Judgment [29]-[35]). Finally, his Honour rejected Drama Unit’s argument in response to the claims for non-payment of rent (and it would seem outgoings) that Fearndale had waived the requirement for payment of rent, and alternatively could not maintain that claim there being a total failure of the consideration for that payment in circumstances where it had been denied possession (Judgment [36]-[43]).
There are three principal issues in the appeal. It is convenient to identify them in the order in which they were addressed in argument.

Whether Fearndale was entitled to recover unpaid rent and outgoings, where it had refused to give possession of the leased premises to Drama Unit (ground of appeal 4). The questions raised by this issue are whether the denial of possession was an “eviction” capable of suspending Drama Unit’s obligation to pay rent; whether Drama Unit’s right to possession was subject to its having complied with cll 7.3(4)(b) and (d), making Fearndale’s conduct in denying possession “lawful”; and whether any unlawful “eviction” also suspended Drama Unit’s obligation to pay outgoings.

Whether as at 29 January 2019 Drama Unit was in breach of cll 7.3(4)(b) or (d) for failing to hold, and provide to Fearndale copies of, an authorisation under the Mining Act 1992 (NSW) and a licence under the Protection of the Environment Operations Act 1997 (NSW) (ground of appeal 3). The question of construction raised by this issue is whether the obligation to obtain and maintain those consents and approvals only arises at the time Drama Unit commences the mining or other activity to which they relate.

Whether the breach notices served on 29 January 2019 did not satisfy Conveyancing Act, s129, because they did not specify the “reasonable time” in which Drama Unit was required to remedy any relevant breach (grounds of appeal 1 and 2).

I propose to consider the first and second of these issues together because they involve a common question of construction. I will then deal with the third issue. Although the same or a similar question of construction was dealt with by the primary judge in his first judgment, in the argument before this Court neither party relied on any issue estoppel arising from that judgment.

Issues 1 and 2

The principles relating to the suspension of rent by denial of possession

The position under the English common law is shortly stated in Halsbury’s Laws of England, (2nd ed, 1936, Butterworth & Co) Vol XX, at 175, para 193:

The lessee is not liable for rent accruing due after he has been evicted from the premises … by the landlord… so long as the eviction continues.
To constitute an eviction for this purpose… any act of a permanent character done by the landlord or his agent with the intention of depriving the tenant of the enjoyment of the demised premises, or any part thereof, will operate as an eviction.

The cases and commentary cited in support of this statement include Upton v Townend (1855) 17 CB 30; 139 ER 976 and Salmon v Smith 1 Wms Saund 202; 85 ER 205 at 204; 207 n 2. In that note, Sir Edward Vaughan Williams wrote in 1841 “to occasion a suspension of the rent, there must be an eviction or expulsion of the lessee, out of all or some part of the demised premises; he must be put out of possession … A trespass by the lessor will be no suspension of the lease”, in turn citing the following statement, published in 1628, in Sir Edward Coke’s, Commentary Upon Littleton, at 148b:

… So it is if the lessor enter upon the lessee for life or yeares into part, and thereof disseise or put out the lessee, the rent is suspended in the whole, and shall not be apportioned for any part.

Noting Windeyer J’s warning in Commonwealth v Anderson (1960) 105 CLR 303 at 322 against unnecessary consideration of the “nice distinctions and the mysterious, in some ways almost mystical, doctrines of the early common law concerning possession and seisin”, I do so briefly and with some hesitation.
The doctrine described above is explained by the understanding of rent which developed in the late mediaeval period as a “thing” or proprietary interest in the demised land. Coke at 142a described rent as “reserved out of the profits of the land, and … not due till the tenant or lessee take the profits”.
Because the rent was regarded as “issuing out of every part of the land” (Coke at 292b, 147b), if the grant was not made of the land in its entirety, the rent would not issue at all; and the rent was not due until the end of the relevant “term”. The general, but inconvenient, rule was that no apportionment of rent was allowed. However various exceptions were recognised. They included “if the reversion was severed, or the lessee surrendered part of the premises to the lessor, or the lessee was evicted from part of the land by title paramount”: Holdsworth, A History of English Law (1st ed, 1925, Methuen & Co) Vol VII at 269-270, and more generally on the obligations of the lessee to pay rent at 261-270. See also Foa’s General Law of Landlord and Tenant (8th ed, 1957, Thames Bank Publishing Company) at 100-102 as to the nature of rent, and at 109-111 as to apportionment of rent in respect of estate.

This explanation of the “modern” common law rule was confirmed by Lord Chief Baron Abinger, delivering the judgment of the Court of Exchequer Chamber, in Neale v Mackenzie (1835) 2 C M & R 84; 150 ER 36, a case in which the tenant entered into possession of the whole of the demised land at the commencement of the lease, and was then unlawfully kept out of part of that land (at 100; 42):

…the principle upon which eviction is a defence is this, that rent issues out of the land, and is to be paid out of the profits; and, if the land be taken away, the rent is discharged…and we cannot see that there is any difference between [a case in which the lessee had entered into the whole and been evicted the instant after… from part] … and one in which the lessee never did get possession of the whole, but was kept out of part from the very commencement of the lease until the rent day. In each case the lessee has been deprived of the profits, and therefore in each he should be exonerated, either altogether or in part, from the payment of the rent. (emphasis added)

In Udhe v Asche (1887) 8 NSWR 472, an appeal from the District Court’s dismissal of a claim for rent, an issue was whether the evidence justified a finding of wrongful or “tortious” eviction by the landlord Mr Udhe of Mr Asche’s sub-tenant. In allowing the appeal, Darley CJ (at 476) and Innes J (at 477) accepted that the legal meaning of “eviction” for the purpose of this rule was authoritatively stated by Jervis CJ in Upton v Townend (at 64;991) as follows:

It is extremely difficult at the present day to define with technical accuracy what is an eviction. Latterly, the word has been used to denote that which formerly it was not intended to express. In the language of pleading, the party evicted was said to be expelled, amoved, and put out. The word eviction,—from evincere, to evict, to dispossess by a judicial course,—was formerly used to denote an expulsion by the assertion of a title paramount, and by process of law. But that sort of eviction is not necessary to constitute a suspension of the rent, because it is now well settled, that, if the tenant loses the benefit of the enjoyment of any portion of the demised premises, by the act of the landlord, the rent is thereby suspended. The term “eviction” is now popularly applied to every class of expulsion or amotion. Getting rid thus of the old notion of eviction, I think it may now be taken to mean this,—not a mere trespass and nothing more, but something of a grave and permanent character done by the landlord with the intention of depriving the tenant of the enjoyment of the demised premises. If that may in law amount to an eviction, the jury would very naturally cut the knot by finding whether or not the act done by the landlord is of that character and done with that intention. (emphasis added)

The House of Lords in Matthey v Curling [1922] 2 AC 180 accepted the correctness of this statement of the rule. There two questions arose. The first and relevant question for present purposes was whether the tenant, who had been evicted in January 1918 by “the military authorities” acting under the Defence of the Realm Regulations, remained liable for rent and under covenants to repair, insure and deliver up the demised premises in good repair. Lord Buckmaster (Lords Wrenbury and Carson agreeing) said at 227:

Eviction by the lessor himself is with equal reason an answer to the claim upon the covenant [to pay rent], and in such a case, as Jervis C.J. said in Upton v. Townend , the question is whether there is an eviction in fact, and whether the plaintiff [that is, the lessor] was a party to it, and again, later on in the judgment, he repeats "it is for the jury to say whether the act was done by the landlord, and whether it was done with the intention of depriving the tenant of the enjoyment."

Lord Atkinson (Lords Sumner and Carson agreeing) added at 235:

…another instance in which the lessee is deprived of the enjoyment of part of the demised premises, is where the lessor tortiously evicts the lessee from that part. The effect of such an act was dealt with in Morrison v Chadwick and it was decided that such an eviction creates a suspension of the entire rent during its continuance, but that the tenancy is not thereby put to an end, nor is the tenant thereby discharged from the performance of his covenants other than the covenant for the payment of rent. (emphasis added)

As his Lordship observed, the question whether the tenant is discharged from the performance of covenants other than for payment of rent, was decided by the Court of Common Pleas (per Coltman J, for the Court) in Morrison v Chadwick (1849) 7 CB 266; 137 ER 107 as follows (at 283-284;113-114):

It may be urged, that the landlord may have evicted the tenant from the possession of a part of the demised premises, the possession of which part was the main inducement to him to enter into the covenants of the lease, and therefore that he ought not any longer to be bound by them. But it is to be borne in mind, that, in addition to the suspension of the rent, the lessee may maintain his action against the lessor for the eviction; by which, it is to be presumed that he will obtain satisfaction for any inconvenience or loss which he may suffer…
If the eviction of a part by the landlord will not discharge the tenant from the performance of the covenants of his lease, other than the covenant to pay rent, will the relinquishing the possession of the land, and the landlord's taking possession, have that effect? We think it will not; for, the allegations do not shew a dissolution of the tenancy by mutual consent. The tenancy, therefore, continues; and, whilst the tenancy continues, the obligation to perform the covenants continues. We think, therefore, the plea is bad.

In Smiley v Townshend [1950] 2 KB 311 at 317 Denning LJ (Bucknill LJ agreeing) described the question whether the tenant is discharged from the performance of any covenant other than that for payment of rent as “settled” ever since the decision in Matthey v Curling.
The position under the common law of Australia in relation to the suspension of rent in the face of an eviction by the landlord is not relevantly different, although apart from Udhe v Asche there has been little consideration here of the underlying principles: see J A Lee and E C Lewis, Hammond and Davidson’s Law of Landlord and Tenant (4th ed, 1953, Butterworths) at para 336; A G Lang, Leases and Tenancies in New South Wales (1976, Law Book Company) at [909]; and V G Wellings, Woodfall’s Law of Landlord and Tenant (1978, 28th ed, Law Book Company) Vol 1 at [1-0760], [1-0779].
Consistently with that being the position, in Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 97,333 Powell J (at 11,175) described the “respective rights and liabilities” of the parties to an agreement for lease as including that:

…if the tenant is evicted by the landlord, or by a person lawfully claiming by title paramount, the obligation to pay rent accruing after the eviction is suspended so long as the eviction continues.

Nor is that position displaced by (relatively) recent shifts in emphasis relating to the juridical nature of rent. The current edition of Halsbury’s Laws of England (5th ed, 2016, Lexis Nexis) Vol 62 whilst noting at para 236 (277) that the “modern conception of rent is a payment which a tenant is bound by contract to make to his landlord for the use of the property let” continues to state the common law rule in respect of the suspension of rent in the same terms as do the earlier editions. And in Megarry & Wade, The Law of Real Property, (9th ed, 2019, Sweet & Maxwell) it is said at para 18-089 in relation to the suspension of the contractual obligation to pay rent (as to which see paras 16-006 and 18-081):

Effect of eviction by landlord. If the tenant is wrongfully evicted from any part of the premises by the landlord or by any person claiming under the landlord, the whole of the rent (but not liability under the other covenants) is suspended while the eviction lasts. However where the eviction is by some person lawfully claiming by title paramount, only an apportioned part of the rent is suspended.

Thus, although “in modern law, rent is not conceived of as a thing, but rather as a payment which the tenant is bound by his contract to make to his landlord for the use of the land” (Holdsworth at 262) the common law rule in relation to the suspension of rent continues to apply. At 274, Holdsworth gives the following explanation for that being so:

The only mitigations allowed to the lessee’s liability were in the cases where the lessor had himself evicted the lessee from the whole or a part of the premises, or where the lessee had been evicted from the whole of the premises by someone claiming by title paramount to that of the lessor. In these cases the rent was suspended during the continuance of the eviction… The authorities cited by Coke show that these mitigations of the lessee’s liability had been established in the Middle Ages. They were obviously fair; and since they were as applicable to the mediaeval conception of rent as a thing issuing from the land, as to the later idea of rent as depending upon a contract between lessor and lessee, they have become part of our modern law.

This so-called modern conception of rent is in essence a recognition that ordinary general principles of contract law apply to leases: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 29 (Mason J), 40-41 (Brennan J) and 51-52 (Deane J); [1985] HCA 14. The continued adoption of the common law rule in question here is to be contrasted with other consequences which have followed from that recognition. For example it is no longer an objection to the effectiveness of a grant of lease that the rent is not fixed at the time of grant because now the time and manner for the payment of rent is to be ascertained according to the “true construction of the contract, and not by reference to out-dated relics of mediaeval law”: per Lord Denning MR in C H Bailey Limited v Memorial Enterprises Limited [1974] 1 WLR 728 at 732; approved by the majority of the House of Lords in United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904 and applied by Brennan J in Booker Industries Pty Limited v Wilson Parking (Qld) Pty Limited (1982) 149 CLR 600 at 610-612; [1982] HCA 53.
This lease, properly construed, does not exclude the application of that common law rule. Principally that is because it does not entitle Fearndale to withhold possession from Drama Unit in the manner which it did (as to which see below at [46] to [54]). Dispossession in the relevant sense being the necessary and sufficient condition for the application of this rule, that alone is enough to conclude that the lease does not exclude its application.
No other terms of the lease affect that conclusion. Clause 4.1(1) provides that the tenant must pay the rent “without demand, deduction or right of set-off” at the rate stated in item 7 of the Reference Schedule. Should the premises become unfit for occupation and use, or inaccessible by reason of damage or destruction to any part of them, cl 6.2 provides that the obligation to pay rent and other money payable by the tenant and the covenant to repair and maintain “will abate according to the nature and extent” of the damage or destruction sustained. The lease does not otherwise address the circumstances in which the obligation to pay rent may be suspended. Nor does it provide that cl 6.2 or any other provision describes the only circumstances in which the obligation to pay rent may be suspended.
And cl 1.8 does not have that effect. It includes a “whole agreement” clause and provides that “no further terms will be implied or arise between the landlord and the tenant under any collateral or other agreement made on or prior to execution” of the lease. The common law rule, rooted as it is in the feudal conception of the relationship between landlord and tenant, is not properly understood as a “further term”. Nor could it be suggested that it arises from any agreement.
Finally cl 2.1(2) excludes to the extent permitted the application of any “Law” which “has the effect of … reducing or postponing the payment of Rent” or which “otherwise affect[s]” the operation of any covenants in the lease. This clause is to be understood as limited in scope to statutory provisions. So much is clear from cl 1.1(14) which defines “Law” as including “the provisions of any statute, rule, regulation, proclamation ordinance or by-law present or future, whether state, federal or otherwise”. Because cl 1.9(1) of the agreement provides that headings are for guidance only and do not affect the construction of the lease I have not taken into account the headings of either cll 2 or 2.1 in construing this clause (those headings being, respectively, “Exclusion of Statutory Provisions” and “Statutory Provisions Excluded”): see Orleans Investments Pty Ltd v MindShare Communications Ltd (2009) 254 ALR 81; [2009] NSWCA 40 at [67]-[68] (Giles JA, Spigelman CJ and Allsop P agreeing); J D Heydon, Heydon on Contract: The General Part (2019, 1st ed, Lawbook Co) at 277.

Drama Unit’s obligations under cl 7.3(4)

The Permitted Use under the lease (cl 1.1(20)) is described in item 10 of the reference schedule as “Mining operations and as prescribed by” with no further elaboration. With respect to that use, cl 25.1.0 provides that the property has the benefit of an approval “for a clay/shale quarry” and cl 25.2.0 includes that the lessee will be entitled “to the benefit of [that] approval and will be entitled to extract from the property any minerals (being shale, clay, sandstone, topsoil) including: letting, digging, winning, raising, processing and carrying away the minerals”. Those clauses also contain covenants by the lessee to comply with that “approval” and with all statutes, regulations and ordinances governing the various stages of the process of extraction and carrying away.
Clause 7.2 contains restrictions on use which must be read taking account of that Permitted Use. By cl 7.2(1) Drama Unit covenants to “conduct the Tenant’s business in the premises as permitted under this lease”. The expression “Tenant’s business”, although not defined, is to be understood as referring to the business activity to be conducted on the premises, namely that of extracting materials from the quarry.
Despite its heading (see below), cl 7.3 deals with two subjects related to the Permitted Use, in each case with a view to protecting the interests of the landlord. The first is the suitability and adequacy of the premises for that permitted or any use. Clauses 7.3(1), (2) and (3) seek to make clear that no such warranty or representation has been given or is relied on. The second is the existence of prohibitions and restrictions on the Permitted Use imposed directly by law or by competent authorities, and specifically consents or approvals required for the carrying on of any mining activity on the land.
In relation to that subject cl 7.3 provides:

7.3 No warranty as to use
…
(4) The Tenant:
(a) is deemed to have accepted this Lease with full knowledge of and subject to any prohibitions or restrictions on the use of the Premises under any Law or Requirement;
(b) at its cost, and prior to entering into this Lease must obtain and comply with all the Laws and Requirements and obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for the Tenant's business (including, without limitation, development approval from the local council for the Tenant to occupy and use the Premises for the Permitted Use). During the Term the Tenant must at its cost, maintain and comply with the requirements of any such consent or approval of any such authority;
(c) must not by any act or omission cause or permit any consent [or] approval referred to in clause 7.3(4)(b) to lapse or be revoked; and
(d) must provide a copy of any consent or approval to the Landlord prior to occupation of the Premises.

The issue between the parties is as to the time for performance of the obligation under cl 7.3(4)(b) to obtain or maintain “the consents or approvals of any authority which may be necessary or appropriate for the Tenant’s business”. Fearndale’s position is that satisfaction of this obligation required the tenant to have the consents or approvals answering that description from the beginning of the lease and irrespective of whether it had commenced, or then proposed to commence, the activities that made the obtaining of them “necessary or appropriate”. Drama Unit submits that an obligation to obtain or maintain consents or approvals “which may be necessary or appropriate” is satisfied by the securing of the consents and approvals answering that description before the activities or actions making them “necessary or appropriate” are to be undertaken. It follows that it could not be in breach of that obligation before it had gone into occupation and commenced any relevant activity on the land.
The consents or approvals which are the subject of the cl 7.3(4)(b) breach notices are:

an “in-force authorisation” under the Mining Act 1992 (NSW) in respect of the business of mining clay and shale

a current licence pursuant to the Protection of the Environment Operations Act 1997 (Cth) in respect of one or more of “land-based extractive activities”, “waste disposal by application to land” or “waste storage” in respect of the quarry and mining of clay and shale.

There was no issue before the primary judge or this Court as to either of these consents or approvals being within the scope of cl 7.3(4)(b) properly construed. Although the four breach notices in issue are in respect of obligations under cl 7.3(4)(b) or (d), Drama Unit’s argument as to the time for performance is only directed to the obligation under cl 7.3(4)(b), the obligation under para (d) being to “provide” before a specified time “a copy of any consent or approval”.
Clause 7.3(4)(b) purports to impose two temporally different obligations on the tenant with respect to the same subject matter, namely “consents or approvals of any authority which may be necessary or appropriate for the Tenant’s business”. The substance of each obligation is the same, namely to obtain and comply with such consents or approvals. The first sentence of para (b) purports to impose an obligation to be performed “prior to entering into this Lease”. The second imposes an obligation to be performed “during the Term”, which, by reason of the agreement of the parties and the termination of the earlier lease, did not commence until the end of June 2018.
To the extent that the first sentence purports to impose an obligation to be performed before the lease agreement is entered into or made, it cannot be legally effective to do so. Such a requirement could be made in an agreement for lease where the obligation to grant or enter into the lease is executory, as might have been the position under the earlier agreement for lease between the parties. In the context in which the parties found themselves – executing a lease, having previously executed an agreement for lease, in circumstances where the tenant was not to be given immediate possession because an existing lease had to be terminated – this first sentence is to be read and understood either as a promise that at the time the lease was entered into the lessee held the relevant consents and approvals, or as a warranty to that effect.
In either case the subject matter to which it is directed is consents or approvals that “may be necessary or appropriate for the Tenant’s business”. The expression “Tenant’s business” is to be understood in the sense in which it is used in cl 7.2(1) and refers to the tenant’s proposed activity of undertaking mining operations at the quarry. That is made plain in cl 7.3(4)(b) by the immediately following example of a consent which would answer the description “necessary or appropriate for the Tenant’s business”, namely a “development approval from the local council for the Tenant to occupy and use the Premises for the Permitted Use”. In describing the subject matter of the obligations in cl 7.3(4)(b) in this way the adjectival phrase “necessary or appropriate” says nothing as to the time for performance of those obligations.

Turning then to the obligation imposed by the second sentence of cl 7.3(4)(b), it requires that during the term of the lease the tenant at its cost maintain “any such consent or approval of any such authority”, as well as comply with its requirements.
That obligation to maintain or keep in force “such” consents or approvals is to be satisfied by having or, obtaining and continuing in force consents or approvals required or warranted to be in place at the commencement of the lease. It is not directed only to consents or approvals which were in fact in place at that time. The temporal element of the continuing obligation to “maintain” a state of affairs is supplied by the words “During the Term”. Drama Unit’s construction of cl 7.3(4)(b) as imposing obligations to be complied with only at the point where the tenant has gone into actual possession and is about to commence a mining or other relevant activity would deny cl 7.3(4)(d) any efficacy or utility in requiring that proof of such consents or approvals be provided to the landlord “prior to occupation of the Premises”.
In support of its argument as to the time for performance of the obligations in cl 7.3(4)(b), Drama Unit also referred to the obligations imposed by cl 7.17(2), in respect of compliance with Environmental Laws, and cl 25.2.0, in respect of compliance with public laws, emphasising that in each case they required observance by, or at, the time the relevant activity was to be undertaken. That may be so. However, there is no necessary inconsistency or incongruent operation between those provisions and cl 7.3(4) as construed above, and by the primary judge. The latter clause is directed to consents or approvals required for the conduct of the business of mining on the premises. The former clauses are directed to compliance with laws governing activities within the range of activities which might be undertaken in the conduct of that business. If, there is nevertheless an overlap in the operation of the clauses, the specific provision in cl 7.3(4) would continue to apply.
In the result I agree with the primary judge’s conclusion (Judgment [33]-[34]) that the effect of the continuing obligation in cl 7.3(4)(b) is that Drama Unit was required from late June 2018, when the term of the lease commenced, to have in place the consents and approvals necessary for it to conduct its proposed mining business on the land. It follows, it not being in issue that the relevant consents otherwise satisfied the description in cl 7.3(4)(b), that as at 29 January 2019 Drama Unit was in breach of that provision in the respects particularised in the two breach notices directed to that clause, as the primary judge held.

Whether compliance with cl 7.3(4)(b) was a condition precedent to Drama Unit’s right to possession

The two provisions on which Fearndale relies as entitling it to withhold possession of the premises from Drama Unit are cl 7.3(4)(d) and cl 14.1, the latter being the covenant for quiet enjoyment:

14.1 Quiet enjoyment
If the Tenant performs and observes all its obligations under this Lease, it may use the Premises without interruption or disturbance from the Landlord or any person claiming by, through or under the Landlord.

The lease provides by cl 3.1 that it commences, and accordingly that exclusive possession is given, on the Commencement Date being 23 March 2017, which is also the “Rent Commencement Date” (cll 1.1(5), 1.1(23), 3.1 and items 4 and 7 in the Reference Schedule). By the agreement of the parties the term of the lease did not commence until the right to possession of the previous tenant, Epic, was terminated. That occurred on about 25 June 2018 and Drama Unit was entitled to possession from that time absent some provision of the lease saying otherwise, or having that effect.
Clause 7.3(4)(d) does not in terms or otherwise alter that position. It fixes the time by which Drama Unit must provide a copy of any consent or approval obtained in accordance with cl 7.3(4)(b). In its terms it only requires the provision of copies of consents or approvals that exist, and accordingly that have been obtained and are capable of being provided “prior to occupation”. It does not require the provision of consents or approvals which have not been obtained in breach of cl 7.3(4)(b). Nor does it make compliance with that paragraph a condition precedent to the entitlement to possession or the continuance of possession. The latter subject is dealt with by cll 15.1 and 15.2 which define events of default and, subject to the application of Conveyancing Act, s 129, provide for the circumstances in which the landlord might re-enter and take possession.
Nor does the covenant for quiet enjoyment have that effect. Although that covenant is introduced by the words "If the Tenant performs and observes all its obligations under this Lease", the purpose of the qualification is to ensure that if there is a breach by the tenant of any obligation under the lease the enforcement by the landlord of its rights in relation to that default (for example by proceeding for possession under cl 15.2) does not constitute, or result in, a breach of the covenant for quiet enjoyment. That qualification does not have the result that the covenants in cl 7.3(4) and cl 14.1 are interdependent or that from the tenant's perspective the benefit of the latter (and possession) is conditional upon the performance of the former. This explanation for the presence of the qualification and its consequences for the construction of the clause was accepted in Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906; applied in Edge v Boileau (1885) 16 QBD 117 at 120 (Pollock B) which is cited with approval in David Jones Ltd v Leventhal (1927) 40 CLR 357 at 386 (Rich J); [1927] HCA 53; and briefly but clearly explained by du Parcq J in Taylor v Webb [1937] 2 KB 283 at 290 in a decision which was reversed on appeal (at 290ff) but not in this respect.

Was there an “eviction” by Fearndale and suspension of the obligation to pay rent

This mixed question of fact and law was not addressed by the primary judge because the argument underlying it was not made to his Honour. There being no objection to that argument being made for the first time on appeal, this Court must address the question it raises.
Drama Unit rightly asserted that it was entitled to and proposed to take possession of the leased premises on 1 July 2018. The undisputed evidence of the administrator, Mr Cook, was that Drama Unit was never in possession of the land and that since his appointment in May 2018 he had "refused" to give it possession, relying upon cl 7.3(4)(d) as requiring compliance with cl 7.3(4)(b) as a condition precedent to the entitlement to possession. That refusal was enforced by securing the land "to ensure that no person obtained unauthorised access ... including by erecting fencing and locked gates at various access points".
In my view this conduct constituted an “eviction” in the sense described by Jervis CJ in Upton v Townend. His Lordship’s statement that eviction “may now be taken to mean … something of a grave and permanent character done by the landlord with the intention of depriving the tenant of the enjoyment of the demised premises” is to be understood in the context of his earlier observation that it “is now well settled, that if the tenant loses the benefit of the enjoyment of any portion of the demised premises, by the act of the landlord, the rent is thereby suspended”.
Here the tenant was deprived of the benefit of the enjoyment of the demised premises by the landlord’s refusal of possession from the outset. However that did not prevent the creation of an equitable leasehold interest although there was no entry into possession. In Neale v Mackenzie there was held to be no difference between a case in which the lessee never got possession of the whole of the land and a case in which it entered into possession of the whole and an instant later was evicted from part of it. In each case the lessee was deprived of part of the land, and because in the mediaeval conception of rent there was no apportionment, it followed that it was deprived “of the profits” issuing from whole of the land. The interesse termini doctrine having been abolished, there can no longer be a difference between a case in which the lessee obtained a leasehold interest but never got actual possession of any of the land, and one in which it was dispossessed of the whole of it the instant after entering into possession.
It is also irrelevant that Fearndale's reliance on cl 7.3(4)(d) may have proceeded from a bona fide but erroneous construction of the lease (cf Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 at 283 (Lord Wilberforce); Nina's Bar Bistro Pty Ltd v MBE Corp (Sydney) Ltd [1984] 3 NSWLR 613 at 615 (Glass JA)).Fearndale nevertheless intended by its conduct to deny the tenant the benefit of the enjoyment of the whole of the demised premises.

Issue 3

Whether breach notices required to specify the “reasonable time” in which to remedy

This question is relevant to the efficacy of the breach notices dated and served on 29 January 2019. The relevant notices are the two alleging breaches of cl 7.3(4)(b). No breach notice was required or served before the giving of the notice of termination for failure to pay rent. However a breach notice was required to be served in relation to any breach of the covenant to pay outgoings (cl 5.2). No such notice was served and Fearndale could not rely on any breach of that covenant as founding an entitlement to terminate under cl 15.2, which is expressed to be subject to the giving of any “prior demand or notice required by any law”.
Conveyancing Act, s129 provides:

129 Restrictions on and relief against forfeiture of lease
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:
(a) specifying the particular breach complained of, and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and
(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.
…
(8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.
(9) The notice mentioned in this section shall be in the form set out in the Sixth Schedule or to a similar effect.
(10) This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary.

The form of notice set out in the sixth schedule is as follows:

Schedule 6
(Section 129 (9))
Notice of breach of covenant
To
The lessee of [here describe premises with reasonable certainty, as for instance, “No. 369, George-street, Sydney.]
With reference to the lease of the abovementioned premises, dated the ______ day of , from A.B. to C.D., and the covenant by the lessee therein contained [here state concisely the nature of the covenant or covenants breach of which is complained of, as for instance, “to repair,”] and the breach by you of that covenant I hereby give you notice and require you to remedy that breach by [here set out the remedy as, for instance, “by putting the said premises in repair by doing and executing the repairs in and upon the said premises which are specified in the Schedule hereto annexed.” Add if compensation is claimed.] And I further require you to pay to me the sum of , as compensation for the breach already committed.
Dated this day of 19 .
Lessor.
Note.
The lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time—see section 129 of the Conveyancing Act 1919.

Each of the relevant breach notices complied with the express requirements of s 129 and was in, or substantially in, the form set out in the sixth schedule. In particular each specified the breach complained of and required the tenant to remedy that breach (it being accepted that each breach was capable of being remedied); and each concluded with a note the effect of which is to advise the lessee to whom the notice is addressed that in the event of a failure to comply with it “within a reasonable time” the lessor will be entitled to re-enter or forfeit.
The primary judge rejected the contention that for a notice to be valid under s 129 it must specify the “reasonable time” to which s 129(1) refers (Judgment [22]-[28]). In my view his Honour was correct to do so for the reasons he gave. Section 129(1) specifies the information to be included in the notice but does not stipulate that any “reasonable time” for compliance be specified. To do so would be inconsistent with the terms of s 129(1), which requires that a reasonable time has in fact elapsed, and irrespective of whether some other time has been specified in the notice.
Drama Unit’s contention is also inconsistent with earlier decisions of this Court. His Honour referred to Glebe Administration Board v Tasker [1964] NSWR 1307 at 1309-1310 (Collins J) and to Hovan’s Hotels Pty Ltd v Cherry (unreported, Supreme Court of New South Wales, 14 March 1994) (Bryson J), where his Honour observed:

Neither s129 nor the form in Schedule VI of the Conveyancing Act 1919 requires the time during which a breach must be remedied to be stated in the notice. No particular consequences flow, in my opinion, if a time is in fact specified, or if there is a miscalculation in the time so that something is required to be done within 14 days but less than 14 days are given. What a notice must contain is prescribed by para(a), para(b) and para(c) of subs 129(1), and the matters prescribed do not include any statement of the time for compliance. Similarly, the body of the notice in Schedule VI does not include any statement of the time required.

To these cases should be added the decision of the Full Court in Dogan and Another v Morton (1935) 35 SR (NSW) 142 at 149-150 (Davidson, Stephen and Street JJ).

Conclusions

The foregoing analysis supports the following conclusions.
First, the obligation to pay rent was suspended from 25 June 2018 to 22 March 2019 because Fearndale wrongly refused to give possession of the premises to Drama Unit during the whole of that period. That refusal was not justified by the terms of the lease, Drama Unit’s right to possession not being conditional upon its compliance with cl 7.3(4)(b) or cl 7.3(4)(d). It follows that the money judgment in favour of Fearndale for that amount should be set aside, and that the order for termination could not be justified by the termination notice which relied on Drama Unit’s failure to pay that rent.
Secondly, the fact of that unlawful “eviction” did not suspend Drama Unit’s obligation to pay outgoings. Accordingly the judgment for $34,257.10 should be upheld. However the breach of that obligation could not found the exercise the right of re-entry and termination under cl 15.2 because that right was not enforceable, a notice under Conveyancing Act, s 129 not having been given for that breach.
Thirdly, there was no breach of cl 7.3(4)(d) in circumstances where Drama Unit never went into “occupation of the Premises”, and did not hold either of the consents or approvals relied on as not produced in breach of para (d). The latter basis for this conclusion depends on para (d) being construed as only engaged in relation to existing consents or approvals. It follows that there was no default under cl 15.1 in relation to cl 7.3(4)(d) which entitled Fearndale to terminate the lease.
Finally, there were breaches of cl 7.3(4)(b) in the respects specified in the relevant breach notices served on 29 January 2019. Those breach notices complied with Conveyancing Act, s 129 and Drama Unit failed within a reasonable time to remedy those breaches, entitling Fearndale to terminate the lease under cl 15.2.
In the result I propose the following orders:

Appeal allowed in part.

Vary the declaration made by order 1 of 4 June 2019 to provide:

Declare that on 22 March 2019 the first plaintiff validly terminated the lease with a commencing date 23 March 2017 between it and the defendant for breaches of cl 7.3(4)(b).

Set aside the judgment for the first plaintiff against the defendant in the amount of $341,890.72 for rent for the period 25 June 2018 to 15 May 2019.

Appellant pay 30% of the respondents’ costs of the appeal.

I have assumed that the respects in which the appeal has been allowed do not affect the costs order (order 4) made by the primary judge. If that is not the position, under the rules each party has liberty to apply, within 14 days of the making of these orders, for that order to be set aside or varied.
As to the order for the costs of the appeal that I propose, in my view an allowance should be made for the appellant’s success in setting aside the judgment for rent, that being a significant and separate outcome from the remaining issue between the parties which was whether the lease had been validly terminated. I consider a fair allowance is made for that success by ordering the appellant to pay 30% of the respondent’s costs of the appeal.
BRERETON JA: I have had the considerable benefit of reading, in draft, the judgments to be delivered by Meagher JA and Emmett AJA, in the light of which it would be superfluous for me to describe the factual background, to set out (except to a very limited extent) the terms of the lease, or to identify the issues.
As to grounds of appeal 1 and 2, I agree with their Honours, for the reasons given by Meagher JA, that the breach notices served on 29 January 2019 did not fail to conform with Conveyancing Act 1919 (NSW) s 129, by reason that they did not specify the “reasonable time” in which Drama Unit was required to remedy any relevant breach: there is no requirement under s 129 or otherwise that the time for compliance with a notice to remedy be specified in the notice. As to ground of appeal 4, I agree with their Honours, for the reasons given by Meagher JA, that Drama Unit’s obligation to pay rent was suspended from 25 June 2018 to 22 March 2019, because neither non-compliance with cl 7.3(4)(d), nor cl 14, entitled Fearndale to refuse to give possession of the premises to Drama Unit, who was wrongly excluded for the whole of that period. It follows that the money judgment in favour of Fearndale for that amount should be set aside, and that termination of the lease by Fearndale could not be justified by reference to the termination notice which relied on Drama Unit’s failure to pay that rent. Save for recording my agreement on those issues, these reasons are confined to:

Ground 3, and in particular when the obligation of Drama Unit as Tenant to obtain and maintain requisite consents and approvals under cl 7.3(4)(b) of the Lease arose; and

in respect of Ground 4, whether Drama Unit’s obligation to reimburse outgoings, as well as its obligation to pay rent, was suspended by its wrongful exclusion from possession.

It is convenient to deal first with the second of those issues, because the principles that inform its resolution are also relevant to the first.

Obligation to pay outgoings

As to whether the wrongful refusal to give possession also suspended Drama Unit’s obligation to pay outgoings, the authorities referred to by Meagher JA establish that while a wrongful eviction suspends the obligation to pay the entire rent during its continuance, it does not terminate the tenancy and the tenant is not discharged from performance of the lessee’s covenants other than to pay rent; and that the rationale for this is that, in addition to the suspension of the rent, the lessee may maintain an action against the lessor for the wrongful eviction and in that way be compensated for any loss or damage incurred.[1]

The cases have limited the operation of the “suspension” to rent. No authority has been found which deals specifically with whether an obligation to pay or reimburse the landlord in respect of outgoings is also suspended. Matthey v Curling concerned covenants to keep the demised premises in repair and yield them up in repair on the determination of the term, to keep the premises insured against fire in the joint names of the lessor and lessee, and, in case of destruction or damage by fire, to lay out all insurance money received in re‑building, repairing, and reinstating the premises. Morrison v Chadwick concerned a covenant to use the demised premises, during the continuance of the tenancy, in a tenant-like manner. Smiley v Townshend was concerned with a covenant to repair.
The touchstone seems to me to be whether the obligation to pay outgoings is in the nature of rent. The distinction between rent and non-rent obligations is well-established. Thus, for example, the case of non-payment of rent is excepted from the requirement to give a notice of breach under Conveyancing Act 1919 (NSW) s 129, before a lessor exercises a right of re‑entry or forfeiture for breach of covenant;[2] but the exception does not apply to a breach of a covenant to pay or contribute to outgoings.
In this respect, some assistance may be gained from the historical origin of the rule, as explained by Meagher JA, in the notion that rent was a thing that issued from the land. A covenant to pay or reimburse outgoings is not of that nature, but (at least unless expressed to be part of the rent) is an additional obligation of the tenant. In cl 5.2 of the lease, the obligation of the Tenant to pay or reimburse a proportion of the outgoings is expressed to be “in addition to the Rent”; it is therefore not part of the rent. That conclusion is reinforced by the circumstance that the outgoings are not payable by the Tenant at the same time as instalments of rent, but annually after 30 June each year of the term within 14 days of receipt by the Tenant from the Landlord of a statement of the outgoings. Although, as Emmett AJA observes, the promise to pay or reimburse outgoings is of a different character from the other Tenant’s covenants, in that that obligation is part of the benefit derived by the Landlord from the grant of exclusive occupation and possession for the term of the lease, while the other covenants generally have the object of preserving and maintaining the premises for the benefit of the reversion, that does not make the obligation to pay or reimburse outgoings an obligation in the nature of rent.
The rationale for limiting the suspension to rent (namely, that the lease remains on foot and the lessee has a remedy in damages for the wrongful exclusion), the historical origin of the rule in the notion that rent was something that issued from the land, and the recognised distinction between rent and other obligations of the tenant (including the obligation to pay or contribute to outgoings), support the view that the obligation of a tenant under a covenant to pay or contribute to outgoings, at least where it is not expressed to be part of the rent, is not suspended by a wrongful eviction or exclusion.
For those reasons, I agree with Meagher JA that the unlawful exclusion of Drama Unit did not suspend its obligation to pay outgoings, with the consequence that the judgment for $34,257.10 should stand; but the breach of that obligation did not justify re-entry and termination under cl 15.2 because that right was not enforceable in the absence of a notice under Conveyancing Act, s 129, in respect of that breach.

Construction of cl 7.3(4)(b)

As to ground of appeal 3, the essential question is whether the obligation of Drama Unit under cl 7.3(4)(b) of the lease to obtain and maintain an authorisation under the Mining Act 1992 (NSW) and a licence under the Protection of the Environment Operations Act 1997 (NSW) had crystallised by 29 January 2019, when the s 129 Notices issued. It was not in dispute that those were necessary or appropriate consents or approvals of an authority for the business of conducting mining operations, which was the permitted use of the premises for the Tenant’s business under cl 7 of the Lease, which relevantly provided:

7.1       Permitted Use
The Tenant must not use, occupy or permit the Premises to be used or occupied for any purpose other than as stated in Item 10 of the Reference Schedule.
7.2       Restrictions on use
The Tenant must:
(1)        conduct the Tenant’s business in the Premises as permitted under this Lease;
…
7.3       No warranty as to use
(1)        The Landlord gives no warranty as to the suitability of the Premises for any purpose or the use to which the Premises may be put.
(2)        …
(3)        To the fullest extent permitted by Law all warranties and all representations howsoever made as to suitability and as to adequacy otherwise applicable to the Lease or the Premises are hereby expressed in negative.
(4)        The Tenant:
(a) is deemed to have accepted this Lease with full knowledge of and subject to any prohibitions or restrictions on the use of the Premises under any Law or Requirement;
(b) at its cost, and prior to entering into this Lease must obtain and comply with all the Laws and Requirements and obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for the Tenant’s business (including, without limitation, development approval from the local council for the Tenant to occupy and use the Premises for the Permitted Use). During the Term the Tenant must at its cost, maintain and comply with the requirements of any such consent or approval of any such authority;
(c) must not by any act or omission cause or permit any consent to approval referred to in clause 7.3(4)(b) to lapse or be revoked; and
(d) must provide a copy of any consent or approval to the Landlord prior to occupation of the Premises.

Clause 7.3(4) thus refers to three relevant times in connection with obligations pertaining to the requisite consents and approvals:

prior to entering into this Lease, to obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for the Tenant’s business (the first limb of cl 7.3(4)(b));

during the Term, to maintain and comply with the requirements of any such consent or approval of any such authority (the second limb of cl 7.3(4)(b)); and

prior to occupation of the Premises, to provide a copy of any consent or approval to the Landlord (cl 7.3(4)(d)).

Drama Unit contended that the obligation to obtain or maintain “necessary or appropriate” consents and approvals was only breached if a relevant consent or approval was not held when the activities for which it was “necessary or appropriate” were undertaken. If so, there could be no breach before Drama Unit had actually commenced any relevant activity on the land, which never occurred. This argument cannot be accepted. First, it would be inconsistent with cl 7.3(4)(d), which provides that the Tenant must provide a copy of any consent or approval to the Landlord prior to occupation of the premises, and thus assumes that the consents and approvals must be available prior to the Tenant going into occupation. Secondly, it would be inconsistent with the circumstance that cl 7.3(4)(b) creates an obligation to have the requisite consents and approvals at the commencement of the lease as well as to maintain them during the term of the lease. Thirdly, the existence of such a consent or approval – for instance, to use an example included in cl 7.3(4)(b), a “development approval from the local council for the Tenant to occupy and use the Premises for the Permitted Use” – is typically of interest to a lessor, regardless of whether the business is actually carried on, because it enhances or at least conserves the value of the land to which it applies. Finally, the words “necessary or appropriate” do not have the effect that there can be no breach unless the Tenant commences the business so as to identify what consents and approvals “may be necessary or appropriate for the Tenant’s business”; what consents or approvals are necessary or appropriate is to be determined by reference to the expression “Tenant’s business” as used in cl 7.2(1) which, by reference to cl 7.1 and Item 10 of the reference schedule, means the Tenant’s proposed activity of undertaking mining operations at the quarry, quite independently of whether that business is actually commenced or undertaken.
But rejection of that argument still leaves unanswered the question, when did the obligation to hold the requisite consents and approvals crystallise. At first sight, the plain words of the first limb of cl 7.3(4)(b) – referring as they do to “prior to entering into this Lease” – favour the view that the obligation arose upon execution of the lease. However, as Meagher JA explains, insofar as the first limb of cl 7.3(4)(b) purports to impose an obligation to be performed before the agreement is made, it cannot be legally effective to do so; it follows that it cannot be construed literally, and in my view, the significance to be attached to its plain words is reduced in circumstances where they are not legally capable of being given literal effect. I would not construe it as a warranty that, upon execution of the lease, the Tenant held the requisite consents and approvals (which would have the consequence that Drama Unit would have been in breach from the date of execution of the lease) because, expressed as it is, cl 7.3(4)(b) contemplates an obligation to be performed in the future: “The Tenant … must obtain”. Those words do not favour treating the clause as a warranty of an existing state of affairs at the date of execution of the lease. Thus in cl 7.3(4)(b), the reference to “entering into this Lease” must be to something that happens after execution of the lease.
Leases are commonly executed before the commencement of the term, which is when the lessor becomes obliged to give, and the lessee entitled to enter into, possession. Under clause 3.1 (Term), the Term commences on the Commencement Date, which in the Schedule is specified to be 23 March 2017. However, this is complicated by the fact that the parties had agreed that the term of the lease would not commence until the right to possession of the previous tenant, Epic Mining Pty Ltd (“Epic”), had been terminated, which did not occur until on about 25 June 2018. Although this lease is not dated, and there is no evidence as to the date of its execution, it may be inferred that it was before the commencement date specified in it (23 March 2017), and it was in any event before the time when the parties had agreed the term would in fact commence, being once Epic was no longer entitled to possession. In that context, the potential candidates for an event after execution of the lease upon which the obligation to hold the requisite consents and approvals would crystallise are:

the date specified in the lease as the commencement of the term, being 23 March 2017;

the date upon which the term actually commenced, being 25 June 2018; and

the date upon which the Tenant went into occupation, which in the event has not yet occurred.

The first of those can, in the events which have happened, be rejected. Even if otherwise it was the relevant date, the agreement of the parties that the term would not commence until the Epic lease had been terminated would preclude reliance on it as the commencement date of the Term.
The second is favoured by the phrase in the second limb of clause 7.3(4)(b) “During the Term”. Although, when Epic vacated on or about 25 June 2018, Fearndale refused to allow Drama Unit into possession, it has never been argued that the Term never commenced. Indeed, Drama Unit tendered the rent – albeit that it was rejected. Drama Unit’s argument, on which it succeeded on ground 4, is not that the Term never commenced, but that the obligation to pay rent was suspended by its wrongful exclusion from possession after it became entitled to possession from 25 June 2018, and when it would have become liable to pay rent but for its wrongful exclusion. That supports the view that the Term commenced on 25 June 2018. This construction also leaves work to be done by both limbs of cl 7.3(4)(b) – to hold the requisite consents upon the commencement of the Term, and to maintain them thereafter during the Term. So construed, in the context of a lease executed before its commencement date, as this one was, cl 7.3(4)(b) makes literal and commercial sense.
Although the terms of cl 7.3(4)(d), which requires production of evidence of the requisite consents or approvals before going into possession, might lend some support to the third possible construction, its subject matter is the time for provision of evidence of compliance, rather than the time for compliance. Moreover, it cannot have been intended that, by not going into possession, the Tenant could have avoided indefinitely the obligation to have and maintain the requisite consents – or allow one to lapse – given their importance to a landlord in maintaining the value of the property. As explained elsewhere, while a wrongful eviction suspends the obligation to pay the entire rent during its continuance, it does not terminate the tenancy, and the tenant is not discharged from performance of the lessee’s covenants other than to pay rent. This construction is also supported by the lessor’s interest in the maintenance of all relevant approvals, as affecting the value of the reversion, whether or not the lessee actually uses them. Thus the obligation to hold and maintain the requisite consents and approvals was not affected by the wrongful refusal of possession, once the Term had commenced.
Accordingly, I conclude that the obligation to obtain and maintain the relevant consents arose upon the deferred Commencement Date – being 25 June 2018 – and the obligation to maintain and comply with the requirements of any requisite consent or approval commenced from that date and continued during the Term. That obligation was therefore in force on 29 January 2019, when the s 129 breach notices issued. As Drama Unit held no authorisation under the Mining Act, nor any licence under the Protection of the Environment Operations Act as at that date, and did not thereafter obtain one, the Landlord was entitled to terminate the Lease on that ground.

Conclusion and Costs

It follows that Fearndale was entitled to terminate the Lease, for breach of cl 7.3(4)(b), and validly and effectively did so on 22 March 2019. The declaration that on 22 March 2019 Fearndale validly terminated the lease should stand, as should the order that Drama Unit withdraw its caveats. However, the claim for rent ought to have failed, and there should have been a judgment only for the unpaid outgoings of $34,257.10.
The grounds on which the rent claim ought to have failed were not agitated before the primary judge, although no objection was taken to their being raised on appeal. In those circumstances, I would be disinclined to interfere with the primary judge’s costs order, save insofar as it included an order for indemnity costs. However, as this was not argued, I would reserve leave to apply for a different costs order.
As to the costs of the appeal, although the appellant has not succeeded on every issue, it has achieved a very considerable improvement in its position, and could only do so by bringing and prosecuting this appeal. My provisional view is that the respondent should pay half the appellant’s costs of the appeal, but again, leave should be reserved to apply for a different costs order.
I would make the following orders:

Allow the appeal in part.

Set aside the judgment for the first plaintiff against the defendant in the amount of $341,890.72 for rent for the period 25 June 2018 to 15 May 2019, contained in order 2(a) of 4 June 2019.

Vary order 4 (the costs order) of 4 June 2019 by omitting the provision for costs on an indemnity basis from 6 May 2019 to 13 May 2019 inclusive.

Order that the respondent pay 50% of the appellant’s costs of the appeal.

Reserve liberty to the parties to apply within 14 days for costs orders different to those contained in orders (3) and (4).
EMMETT AJA:

Introduction

This appeal concerns a lease (the Lease) from the first respondent, Fearndale Holdings Pty Ltd (the Landlord), to the appellant, Drama Unit Pty Ltd (the Tenant), of a property situated in Luddenham, New South Wales (the Premises). The Premises comprise a clay and shale quarry. The Lease was granted pursuant to an agreement for lease dated 19 December 2016 (the Agreement to Lease). The Landlord purported to terminate the Lease for breach of covenant and for non-payment of rent and outgoings (Rent and Outgoings). Proceedings were then brought against the Tenant seeking a declaration that the lease had been validly and effectively terminated as well as judgment for the unpaid Rent and contribution to Outgoings under the Lease, and an order that the Tenant withdraw two caveats over the Premises.

Before dealing with the questions raised in the appeal, it is necessary to describe the relevant provisions of the Lease in some detail. In particular, it is necessary to set out the provisions of cl 7.3(4), on which the purported forfeiture is founded, together with cll 4 and 5, dealing with Rent and Outgoings.

Relevant Clauses of the Lease

The Lease consisted of a cover page prima facie in a form that is capable of registration under the Real Property Act 1900 (NSW), together with Annexure “A”, containing covenants of the Landlord and the Tenant. The first page of the Lease contained the pivotal demise as follows:

“The lessor leases to the lessee the property referred to above.”

Section (A) on the front page identified the Premises as “Property leased”. Section (C) identified the Landlord as “LESSOR” and section (E) identified the Tenant as “LESSEE”. Item 7 of section (G) incorporated “the provisions or additional material set out in ANNEXURE(S) A”. The Lease purports to be executed as a deed on behalf of both the Landlord and the Tenant although it is not dated and there is no evidence as to the date of its execution. While the Lease may be capable of registration, it has not been so registered.

Clauses 1 and 2 of Annexure “A” were concerned with interpretation. The successive clauses then dealt with the following topics:

3.         Term and holding over
4.         Rent and rent review
5.         Outgoings
6.         Damage and destructions
7.         Use of the Premises
8.         Assignments and Subletting
9.         Utilities
10.       Maintenance and Repair
11.       Occupational Health and Safety Act
12.       Alterations
13.       Insurance and indemnities
14.       Landlord’s covenants
15.       Default and termination
16.       Termination of Term
17.       Restoration of Premises
18.       Notices
19.       Guarantees
20.       Option of renewal
21.       Goods and Services Tax
22.       Car parking and access
23.       Tenant’s consent to Consolidation or Subdivision
24.       Royalty
25.       Permitted Use
26.       Exclusion

A Reference Schedule followed containing 16 items.

Clause 3 of Annexure “A”, dealing with “Term and holding over” relevantly provided as follows:

“3.1      Term”
The Landlord leases to the Tenant and the Tenant takes a lease of the Premises for the Term commencing on the Commencement Date and terminating on the Termination Date subject to the provision of this Lease.
3.2       Holding over
If the Tenant continues to occupy the Premises beyond the Termination Date with the Landlord’s consent except under a lease arising from the valid exercise of an option to renew the following provisions apply:
(1)        Monthly tenancy
…
(2)        Provisions of Lease to apply

…
(3) Rent Review
…
(4) Termination
…”

Term was defined in cl 1.1 and the Reference Schedule as 14 years, Commencement Date was defined in cl 1.1 and the Reference Schedule as 23 March 2017 and Termination Date was defined in cl 1.1 and the Reference Schedule as 22 March 2031.

Clause 20.1 of Annexure “A” provided that, if the Tenant wished to lease the Premises for the further two terms of 10 years and gives written notice to that effect to the Landlord, the Landlord must grant a further lease of the Premises and the Tenant must accept the further lease of the Premises upon the same terms and conditions as the Lease.
Clause 4 of Annexure “A”, dealing with “Rent and Rent Review”, relevantly provided as follows:

“4.1      Rent
(1)        The Tenant must pay the Rent to the Landlord without demand, deduction or right of set-off at the rate stated in Item 7 of the Reference Schedule by equal monthly instalments in advance on the first day of each month.
(2)        If necessary, the first and last instalments must be apportioned on a daily basis.
(3)        The first instalment must be paid on the Commencement Date.
(4)        All instalments must be paid as the Landlord directs.
…”

Clause 5 of Annexure “A”, dealing with “Outgoings”, relevantly provided as follows:

“5.1      Clause applies
This clause 5 applies if a percentage or proportion is stated in Item 9 of the Reference Schedule.
5.2       Tenant to pay outgoing
In addition to the Rent the Tenant must pay or reimburse to the Landlord in respect of each year ending 30 June or part of a year, the Tenant’s Proportion of Outgoing.
5.3       Definition
Outgoing means the total sum of all Costs and expenses of the Landlord assessed or assessable or paid or payable in respect of the [Premises] in relation to the control, management and maintenance of the [Premises].
…
5.4       Statement of Outgoings
As soon as practicable in each year during the Term … after 30 June in each year, the Landlord will furnish to the Tenant a statement giving reasonable details of the Outgoings recoverable by the Landlord under this clause 5…
5.5       Payment of Outgoings
Within 14 days of receipt by the Tenant from the Landlord of the Statement, the Tenant shall pay the Tenant’s Proportion of Outgoings to the Landlord…”

The term Tenant’s proportion of outgoings was defined in cl 1.1 as the percentage, if any, stated in Item 9 of the Reference Schedule. Item 9 of the Reference Schedule provided that the Tenant was to pay 100% of electricity, water usage charges, waste costs and charges, air conditioning service costs, land tax, statutory charges and all other outgoings related to the Premises.

Clause 7 of Annexure “A”, dealing with “Use of the Premises”, relevantly provided as follows:

“7.1 Permitted Use
The Tenant must not use, occupy or permit the Premises to be used or occupied for any purpose other than as stated in Item 10 of the reference schedule.
7.2 Restrictions on use
The Tenant must:
(1) conduct the Tenant[’s] business in the Premises as permitted under this Lease;

…
7.3 No warranty as to use
(1) The Landlord gives no warranty as to the suitability of the Premises for any purpose or the use to which the Premises may be put.
(2) …
(3) To the fullest extent permitted by Law all warranties and all representations howsoever made as to suitability and as to adequacy otherwise applicable to the Lease or the Premises are expressly negatived.
(4) The Tenant:
(a) is deemed to have accepted this Lease with full knowledge of and subject to any prohibitions or restrictions on the use of the Premises under any Law or Requirement;
(b) at its cost, and prior to entering into this Lease must obtain and comply with all the Laws and Requirements and obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for the Tenant’s business (including, without limitation, development approval from the local council for the Tenant to occupy and use the Premises for the Permitted Use). During the Term the Tenant must at its cost, maintain and comply with the requirements of any such consent or approval of any such authority;
(c) must not by any act or omission cause or permit any consent to approval referred to in clause 7.3(4)(b) to lapse or be revoked; and
(d) must provide a copy of any consent or approval to the Landlord prior to occupation of the Premises.” (emphasis added)

Item 10 of the Reference Schedule is in the following terms:

“USE OF PREMISES (clauses 1.1(17) and 7.1)
Mining operation and as prescribed by ”

Item 10 was incomplete in containing a blank space. Clause 1.1(17) is clearly an incorrect reference to cl 1.1(20), which stated that “Permitted Use” meant the use referred to in cl 7.1 and as stated in Item 10 of the Reference Schedule.

Clause 15 of Annexure “A”, dealing with “Default and termination”, relevantly provided as follows:

“15.1 Default
The Tenant will be in default if:
(1) the Rent or any money payable by the Tenant is unpaid for 14 days;
…
(3) the Tenant fails to perform or observe any of its covenants or obligations under this Lease;
…
(5) the Tenant enters into any form of bankruptcy, liquidation, administration, is wound up or dissolved, enters into a scheme of arrangement for creditors, is placed under official management or a receiver and/or manager of any of its assets is appointed.

15.2 Forfeiture of Lease
Subject to giving any prior demand or notice required by any Law … if the Tenant defaults as specified in cl 15.1, the Landlord may:
(1) re-enter and take possession of the Premises (by force if necessary) and eject the Tenant and all other persons and this Lease will terminate;
(2) by notice to the Tenant, terminate this Lease from the date of giving the notice; and/or
(3) by notice to the Tenant, convert the unexpired portion of the Term into a tenancy from month to month and, after the notice and until the tenancy is terminated, the Tenant will occupy the Premises as tenant from month to month.”

Clause 15.6 provided that the Landlord may charge daily interest to the Tenant on any late payment by the Tenant at the rate of 9% per annum calculated and compounded daily.

The Dispute

Under cl 3, the Term of the Lease was to be 14 years commencing on 23 March 2017. However, an arrangement was apparently made between the Landlord and the Tenant whereby the Lease was not to become operative and the Tenant was not to enter into possession of the Premises until an earlier lease of the Premises to Epic Mining Pty Ltd (Epic) had been terminated. The arrangements were referred to in the reasons for judgment published by the primary judge on 10 December 2018 in earlier proceedings between the Landlord and the Tenant (the First Reasons).[3] On that day, his Honour declared that purported termination of the Lease by the Landlord by reason of breach of covenants in the Lease was ineffective because the Tenant had not been given a reasonable time to remedy the breach as required by s 129 of the Conveyancing Act 1919 (NSW) (the Conveyancing Act).
Section 129(1) of the Conveyancing Act relevantly provides that a right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice specifying the particular breach complained of and, if the breach is capable of remedy, requiring the lessee to remedy the breach and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy.
In the First Reasons, the primary judge said that the Agreement to Lease contemplated that the Landlord would terminate the existing lease of the Premises to Epic and would grant a lease to the Tenant. His Honour said that the Agreement to Lease recorded that the parties were then unable to enter into a lease of the Premises because the Landlord did not have possession of it and that they had entered into the Agreement to lease “in the expectation that possession will be available by the commencement date of the lease”. The Agreement to lease required the Landlord “to do all things required to obtain possession of [the Premises]” by the proposed Commencement Date. Notwithstanding that the Landlord did not obtain possession of the Premises by the proposed Commencement Date, the Lease was apparently entered into on 23 March 2017. At that time, the lease to Epic remained on foot and Epic remained in occupation of the Premises.
On 2 May 2018, the second respondent, Mr Timothy Cook (the Administrator), was appointed administrator of the Landlord. It appears that, at a point prior to that appointment, steps had been taken by the Landlord to terminate the lease to Epic. On 25 June 2018, the Administrator received an email from the lawyers acting for Epic saying that Epic accepted that the Lease between it and the Landlord had been terminated. Nevertheless, the Tenant has not entered into possession of the Premises, since entry into possession has been refused by the Landlord, acting through the Administrator, purportedly in reliance on cl 7.3(4)(d) of the Lease.
The Administrator says that he has taken the view, without prejudice to any entitlement or right of the Landlord to recover rent under the Lease from the date of commencement of the Term on 23 March 2017, that the Tenant had been required to pay rent under the Lease from 25 June 2018 at the latest. On 29 June 2018, the Tenant tendered to the Administrator a cheque payable to the Landlord in the sum of $28,000, purporting to be for one month’s rent. On 5 July 2018, the Administrator returned the cheque unbanked. Subject to that matter, the Tenant has not made any payment to the Landlord under the Lease, whether for Rent or Outgoings or any other amount payable under the Lease.
On 29 January 2019, the Landlord, acting through the Administrator, gave four notices to the Tenant (the s129 Notices) requiring the Tenant to remedy alleged breaches of the covenant contained in cl 7.3(4) of the Lease. The s 129 Notices were served under cover of a letter dated 29 January 2019, which said that the following documents were enclosed by way of service on the Tenant:

“1. two notices of breach of covenant with respect to cl 7.3(4)(b) of the Lease …; and
2. two notices of breach of covenant with respect to cl 7.3(4)(d) of the Lease…”

The letter drew attention to cl 15.7(b)(iv) of the Lease, which said that the covenant in cl 7.3(4)(d) of the Lease was deemed to be essential.

Two of the s 129 Notices referred to cl 7.3(4)(b) of the Lease. One then said:

“… you are presently in breach of that covenant, in that you have failed to obtain an in force authorisation as provided for under the Mining Act 1992 (NSW) (the Act) in respect of the business of mining of clay/shale on the Land. I hereby give you notice and require you to remedy that breach by obtaining an in force authorisation as provided for under the Act in respect of the business of mining of clay/shale on the Land.”

The other said as follows:

“… you are presently in breach of those covenants in that you have failed to obtain a current licence pursuant to the Protection of the Environment Operations Act 1997 (NSW) (the Act) in respect of one or more of “land-based extractive activity”, “waste disposal by application to land” or “waste storage” in respect of the abovementioned premises, within the meaning of those words as defined in Schedule 1 to the Act. I hereby give you notice of and require you to remedy that breach by obtaining a current licence pursuant to the Act in respect of one or more of “land-based extractive activity”, “waste disposal by application of land” or “waste storage” in respect of the Land, within the meaning of those words as defined in Schedule 1 to the Act.”

The other two s 129 Notices referred to cl 7.3(4)(d) of the Lease. One said as follows:

“You are presently in breach of that covenant in that you have failed to provide to the Lessor a copy of an in force authorisation as provided for under the Mining Act 1992 (NSW) (the Act). I hereby give you notice of the breach and require you to remedy that breach by providing to the lessor a copy of an in force authorisation as provided for under the Act in respect of the business of mining of clay/shale on the Land.”

The other said as follows:

“… you are presently in breach of that covenant by failing to provide to the Lessor a copy of a current licence issued or transferred to the lessee pursuant to the Protection of the Environment Operations Act 1997 (NSW) (the Act) in respect of one or more of “land-based extractive activity”, waste disposal by application to land” or “waste storage” in respect of the Land, within the meaning of those words as defined in Schedule 1 to the Act. I hereby give you notice and require you to remedy that breach by providing to the Lessor a copy of the current licence issued or transferred to the lessee pursuant to the Act in respect of one or more of “land-based extractive activity”, “waste disposal by application to land” or “waste storage” in respect of the abovementioned premises, within the meaning of those words as defined in Schedule 1 to the Act.”

On 22 March 2019, the Landlord served six notices on the Tenant purporting to terminate the Lease (the Termination Notices). Four of the Termination Notices were based on the failure to remedy the breaches of covenant described in the s 129 Notices. The fifth termination notice was based on failure by the Tenant to pay Rent under the Lease for the period from 25 June 2018 to 22 March 2019 in the amount of $279,985.36. The sixth termination notice was based on failure to pay the money payable by the Tenant to the Landlord in a statement of outgoings dated 12 February 2019 attached to that Termination Notice. The statement, expressed to be given pursuant to cl 5.2 of the Lease, showed the sum of $34,157.10 as the total amount payable.

The Proceedings

By originating process filed under the Corporations Act 2001 (Cth) on 22 March 2019, the Landlord and the Administrator sought a direction that the Administrator was justified in causing the Landlord to give the Termination Notices and a declaration that the Landlord had validly and effectively terminated the Lease as and from 22 March 2019. The originating process also claimed judgment against the Tenant for Rent and Outgoings alleged to be due and payable under the Lease. On 4 June 2019, for reasons published on that day, a judge of the Equity Division sitting in the Corporations List (the primary judge) declared that the Landlord had validly and effectively terminated the Lease and directed the entry of judgment for the Landlord against the Tenant in the sum of $341,890.72 for Rent and $34,157.10 for Outgoings.
By notice of appeal filed on 21 June 2019, the Tenant appeals from the orders made by the primary judge. Three questions are raised by the appeal as follows:

Whether the Tenant is liable for Rent and Outgoings in circumstances where it has not been afforded possession of the Premises.

Whether the Tenant was in breach of covenant 7.3(4)(b) or 7.3(4)(d) in the Lease.

Whether the s 129 Notices were ineffective by reason of their failure to specify a reasonable time within which the alleged breaches of the Lease were to be rectified.

The third question does not arise if the Tenant is successful on the first and second questions.

Liability for Rent and Outgoings

The Tenant says that, since the Landlord has never granted possession of the Premises to it, it has no liability to pay the Rent reserved by cl 4 of the Lease or to pay Outgoings under cl 5 of the Lease. It contends that those obligations are the consideration for the grant of possession and there has been a total failure of consideration in that regard.
It is necessary to distinguish between the obligation to pay the Rent, under cl 4 of the Lease, and the obligation to pay the Outgoings, under cl 5 of the Lease. For the reasons proposed by Meagher JA, whose reasons I have had the advantage of reading in draft form, the obligation to pay Rent is interdependent with the obligation to grant possession.[4] However, the position may not be as clear in relation to the obligation to pay Outgoings. The question is whether the promise to pay Outgoings can be construed as being part of the consideration for the grant of possession.
Clause 5 of Annexure “A” follows immediately after cl 4. Clause 5.2, which is the pivotal part of cl 5, provides that the Tenant must pay or reimburse to the Landlord a proportion of Outgoings “in addition to the Rent”. That promise is of a character slightly different from the other covenants by the Tenant in Annexure “A”, which have the object of preserving and maintaining the Premises for the benefit of the reversion of the Landlord at the end of the Term. The obligation to pay or reimburse Outgoings, on the other hand, is part of the benefit derived by the Landlord from the grant of exclusive occupation and possession of the Premises to the Tenant for the Term.
The question is whether the reasons proposed by Meagher JA, for concluding that there was no liability for the Tenant to pay Rent in circumstances where the Tenant was excluded from occupation and possession of the Premises, apply equally to the liability of the Tenant to pay or reimburse Outgoings. While there may be some basis for distinguishing between the covenant in cl 5.2, on the one hand, and the other non-rent covenants by the Tenant, on the other hand, the obligations of the Tenant under cl 5.2 are more akin to the other covenants by the Tenant than to the obligation to pay Rent. I agree with Meagher JA in that regard.

Breach of Covenant

There are two limbs of cl 7.3(4)(b) and the first limb itself has two parts. Clause 7.3(4)(b) can be restated as follows:

• The Tenant at its cost, and prior to entering into the Lease, must:

ᵒ obtain and comply with all the Laws and Requirements, and
ᵒ obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for the Tenant’s business (including, without limitation, development approval from the local council for the Tenant to occupy and use the Premises for the Permitted Use).

• During the Term the Tenant must, at its cost, maintain and comply with the requirements of any such consent or approval of any such authority.

The word “Law” is defined in cl 1.1(14) of the Lease as including:

“the provisions of any statute, rule, regulation, proclamation, ordinance or by-law, present or future, whether state, federal or otherwise.”

The word “Requirement” is defined in cl 1.1(24) as meaning:

“any requirement, notice, order or direction received from or given by any statutory, public or other competent authority, present or future.”

120 There may be a question as to whether the adjectival clause “which may be necessary or appropriate for the Tenant’s business” in the first limb qualifies both the phrase “all the Laws and Requirements” and the phrase “the consents or approvals of any authority”. Having regard to the generality of the definitions of “Laws” and “Requirements”, the preferable construction is that the adjectival clause qualifies only the phrase “the consents or approvals of any authority”.
While the second limb of cl 7.3(4)(b) requires the Tenant to do certain things “during the Term”, the first limb is a promise in the Lease that the Tenant will do certain things prior to entering into the Lease. In effect, the Landlord contends that, because the Tenant had failed to obtain and comply with certain approvals and consents at the time when the Lease became binding, whenever that might have been, it was in breach at that time and was not entitled to enter into possession and occupation of the Premises. That is to say, the effect of the contention appears to be that, until certain consents and approvals had been obtained, or if consents and approvals had been obtained but had not been complied with, the Tenant was not entitled to occupation and possession of the Premises. Thus, the Landlord, through the Administrator, has maintained that the Tenant is not entitled to possession because it has not complied with its obligations under cl 7.3(4)(b) and cl 7.3(4) (d) of the Lease.

That question may depend upon the precise arrangements that were made between the Landlord and the Tenant as to the time of the commencement of the Term under the Lease. Thus, while the Lease specifies 23 March 2017 as the Commencement Date, the parties clearly agreed that the Term would not commence on that date. The question is whether the arrangement made between the Landlord and Tenant was that the Term would commence when the lease to Epic came to an end and the Landlord was in a position to give possession and occupation to the Tenant or whether the Term was to begin when the Tenant actually entered into possession and occupation of the Premises. The Tenant appears to have offered to enter into possession with effect from 1 July 2018. If the Term has not begun, and the arrangement made between the Landlord and the Tenant is that the Term was to commence when possession and occupation was granted to the Tenant, there can have been no breach of cl 7.3(4). On the other hand, if the arrangement between the Landlord and the Tenant was that the Term was to begin when vacant possession of the Premises had been obtained from Epic, the effect of cl 7.3(4) would be quite different.
The proceedings at first instance were argued and determined on the basis that each party was to be treated as having the same rights and obligations as if a legal lease had been granted, presumably because specific performance could have been obtained of their underlying agreement. That may be a recognition that the Term commenced when Epic vacated the Premises. It is by no means clear. For the reasons that follow, it may not matter.
The drafting of the first limb of cl 7.3(4)(b) is less than felicitous and its literal effect is nonsensical. The language of the first limb of cl 7.3(4)(b) would have been apt for the Agreement to Lease. The language of the first limb would be more intelligible if it were to be understood as referring to entering into occupation and possession of the Premises rather than entering into the Lease. That is to say, so long as the Tenant obtains and complies with “the Laws and Requirements” and “the consents or approvals of any authority which may be necessary or appropriate” before it enters into occupation possession, there would be no breach. The language of cl 7.3(4)(d) suggests that that is how the parties intended the first limb of cl 7.3(4)(b) be construed. Thus, the phrase “prior to entering into this Lease” in the first limb, should be construed as meaning “prior to occupation of the Premises”.
The first part of the first limb of cl 7.3(4)(b) requires the Tenant to “obtain and comply with all the Laws and Requirements”. In so far as the provision requires the Tenant to obtain all the Laws and Requirements, it is nonsensical. While it makes some sense to require the Tenant to comply with all the Laws and Requirements, there is no evidence that the Tenant has failed to comply with any Law or Requirement. In particular, there was no evidence that any “requirement, notice, order or direction” had been received from or given by any relevant authority.
The second part of the first limb of cl 7.3(4)(b) requires the Tenant “to obtain and comply with” the consents or approvals of any authority that may be necessary or appropriate for “the Tenant’s business”. While the Tenant’s business is not identified in the Lease, the use of the Premises is restricted by cl 7.1 to “Mining operation and as prescribed by [blank]”. As indicated above,[5] the provision was left incomplete. That may indicate that the business of the Tenant is mining and it appears to be common ground that the Premises comprise a clay and shale quarry. The inference should be drawn that the business of the Tenant intended to be conducted on the Premises is that of extracting clay and shale from the Premises. If the first limb is construed as indicated above, namely, that the phrase “prior to entering into this Lease” means “prior to occupation of the Premises”, the failure to obtain the consents or approvals of any relevant authority is not a breach in circumstances where possession and occupation have been refused to the Tenant. There is no suggestion that the Tenant failed to comply with any consent or approval of any relevant authority.
There was no breach by the Tenant of the first part of the first limb of cl 7.3(4)(b). Further, there was no breach by the Tenant of the second part of the first limb of cl 7.3(4)(b).
It was not in dispute that there were consents and approvals that were necessary or appropriate before the Tenant could commence carrying on the business of a mining operation. The next question involves a consideration of the meaning to be given to the word “such” in the second sentence. That is to say, under the second limb, the Tenant must, during the Term, maintain, and comply with the requirements of, any such consent or approval. If the phrase “any such consent or approval” (emphasis added) is to be construed as referring to any consents or approvals that were actually obtained in satisfaction of the promise contained in the first limb, there has been no breach because no consent or approval has yet been obtained by the Tenant.
However, the better view is that the phrase “any such consent or approval” refers to consents and approvals of the nature referred to in the first limb. Since the Tenant has not yet obtained any consent or approval that may be necessary for its business, it has failed to maintain any consent or approval that may be necessary for its business. The Tenant is therefore in breach of its promise to “maintain”, during the Term, consents and approvals necessary for its business and there has, therefore, been a breach of the second limb of clause 7.3(4)(b).

Section 129 Notice

The Tenant contends that the s 129 Notices are ineffective because they do not specify a fixed reasonable time by which the alleged breach must be remedied. However, the language of s 129 is clear in not requiring the specification of a date. Section 129 simply says that a right to terminate for breach of covenant does not arise unless a notice requiring remedy of the breach is given in the form prescribed in the section, and a reasonable time has expired, during which the lessee failed to remedy the breach, before the purported termination. There is no justification in the language of s 129 for concluding that the notice must specify a time that a landlord contends as reasonable. I agree with the observations of Meagher JA in that regard.
However, another question arises as to the effect of the s 129 Notices based on cl 7.3(4)(b). One of those s 129 Notices requires the Tenant to remedy a breach by obtaining an enforceable authorisation. The other s 129 Notice based on cl 7.3(4)(b) requires the Tenant to remedy a breach by obtaining a current licence. The question is whether those s 129 Notices can properly be construed as requiring the remedy of a breach of the second limb of cl 7.3(4)(b) as distinct from the first limb. That is to say, the first limb imposes an obligation to obtain consents or approvals whereas the second limb imposes an obligation to maintain and comply with the requirements of consents or approvals.
In so far as the s 129 Notices specify the approvals and consents that the Landlord, through the Administrator, asserts should have been obtained by the Tenant, it may be arguable that they only require the Tenant to remedy asserted breaches of the first limb of cl 7.3(4)(b). Thus, one s 129 Notice based on cl 7.3(4)(b) required the Tenant to obtain an authorisation as provided for under the Mining Act 1992 (NSW) in respect of “the business of mining of clay/shale” on the Premises. The other s 129 Notice based on cl 7.3(4)(b) required the Tenant to obtain a current licence pursuant to the Protection of the Environment Operations Act 1997 (NSW) in respect of “land-based extractive activity”, “waste disposal by application of land” or “waste storage” in respect of the Premises. There is no requirement in either of those s 129 Notices for the Tenant to remedy a breach by maintaining and complying with the requirements of any such authorisation or licence as is referred to in the s 129 Notices.
Of course, the only way in which the breach of the second limb of cl 7.3(4)(b), consisting of the failure to maintain the relevant authorisation or licence, is to obtain the relevant authorisation of licence. It is therefore equally arguable that the s 129 Notices based on cl 7.3(4)(b) require the Tenant to remedy the breaches of the second limb. Indeed, the Tenant did not advance any contention that the s 129 Notices did not require the remedy of breaches of the second limb. There has been a failure to remedy the breach specified in the s 129 Notices based on cl 7.3(4)(b). It follows that the Termination Notices were effective.
Two of the s 129 Notices called for the remedy of breaches of cl 7.3(4)(d) of the Lease. As indicated above, the requirement of that provision is that the Tenant must provide a copy “of any consent or approval” prior to occupation of the Premises. Since the Landlord, through the Administrator, has refused to allow the Tenant into occupation and possession of the Premises, there can have been no breach of cl 7.3(4)(d).

Conclusion

For the above reasons and the reasons proposed by Meagher JA, I agree with Meagher JA that the appeal should be allowed in part. I agree with the orders proposed by his Honour.

[1] Morrison v Chadwick (1849) 7 CB 266 at 283–284; 137 ER 107 at 113–114 (Coltman J, for the Court); Matthey v Curling [1922] 2 AC 180 at 235 (Lord Atkinson; Lords Sumner and Carson agreeing); Smiley v Townshend [1950] 2 KB 311 at 317 (Denning LJ; Bucknill LJ agreeing).

[2] Conveyancing Act 1919 (NSW), s 129(8).

[3] Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) & Anor [2018] NSWSC 1895.

[4] See reasons of Meagher JA at [50]-[54].

[5] See [102] of these reasons.

Decision last updated: 17 December 2019

Medium Neutral Citation:	Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) & Anor [2019] NSWCA 312
Hearing dates:	10 September 2019
Date of orders:	17 December 2019
Decision date:	17 December 2019
Before:	Meagher JA at [1] Brereton JA [70] Emmett AJA [93]
Decision:	(1) Appeal allowed in part. (2) Vary the declaration made by order 1 of 4 June 2019 to provide: Declare that on 22 March 2019 the first plaintiff validly terminated the lease with a commencing date 23 March 2017 between it and the defendant for breaches of cl 7.3(4)(b). (3) Set aside the judgment for the first plaintiff against the defendant in the amount of $341,890.72 for rent for the period 25 June 2018 to 15 May 2019. (4) Appellant pay 30% of the respondents' costs of the appeal.
Catchwords:	LEASES AND TENANCIES – eviction by landlord – suspension of obligation to pay rent – characteristics of eviction – whether common law rule displaced by lease contract – whether covenants other than for rent suspended during eviction LEASES AND TENANCIES – construction of lease contract – where contract imposed obligations to obtain, maintain, comply with and provide the landlord copies of consents or approvals necessary or appropriate for mining business – time for compliance with obligations – no question of principle LEASES AND TENANCIES – termination of lease by landlord – termination notices – s 129 Conveyancing Act – whether notices required to specify reasonable time in which to remedy breach
Legislation Cited:	Conveyancing Act 1919 (NSW), ss 120A, 129 Corporations Act 2001 (Cth), pt 5.3A Mining Act 1992 (NSW) Protection of the Environment Operations Act 1997 (NSW) Real Property Act 1900 (NSW)
Cases Cited:	Booker Industries Pty Limited v Wilson Parking (Qld) Pty Limited (1982) 149 CLR 600; [1982] HCA 53 C H Bailey Limited v Memorial Enterprises Limited [1974] 1 WLR 728 Commonwealth v Anderson (1960) 105 CLR 303; [1960] HCA 85 David Jones Ltd v Leventhal (1927) 40 CLR 357; [1927] HCA 53 Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906 Dogan and Another v Morton (1935) 35 SR (NSW) 142 Drama Unit Pty Limited v Fearndale Holdings Pty Limited (Administrator Appointed) [2018] NSWSC 1895 Edge v Boileau (1885) 16 QBD 117 Glebe Administration Board v Tasker [1964] NSWR 1307 Hovan’s Hotels Pty Ltd v Cherry (Supreme Court (NSW), Bryson J, 14 March 1994, unrep) Matthey v Curling [1922] 2 AC 180 Morrison v Chadwick (1849) 7 CB 266; 137 ER 107 Neale v Mackenzie (1835) 2 C M & R 84; 150 ER 36 Nina’s Bar Bistro Pty Ltd v MBE Corp (Sydney) Ltd [1984] 3 NSWLR 613 Orleans Investments Pty Ltd v MindShare Communications Ltd (2009) 254 ALR 81; [2009] NSWCA 40 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 Salmon v Smith 1 Wms Saund 202; 85 ER 205 Smiley v Townshend [1950] 2 KB 311 Taylor v Webb [1937] 2 KB 283 Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 97,333 Udhe v Asche (1887) 8 NSWR 472 United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904 Upton v Townend (1855) 17 CB 30; 139 ER 976 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
Texts Cited:	Bridge et al, Megarry & Wade: The Law of Real Property, (9th ed, 2019, Sweet & Maxwell) Coke, The First Part of the Institutes of the Laws of England or; A Commentary Upon Littleton (16th Ed, 1809, Luke Hansard & Sons) Foa’s General Law of Landlord and Tenant (8th ed, 1957, Thames Bank Publishing Company) Halsbury’s Laws of England, (2nd ed, 1936, Butterworth & Co) Vol XX Halsbury’s Laws of England, (5th ed, 2016, Butterworths LexisNexis) Vol 62 Heydon, Heydon on Contract: The General Part (2019, 1st ed, Lawbook Co) Holdsworth, A History of English Law (1st ed, 1925, Methuen & Co) Vol VII Lang, Leases and Tenancies in New South Wales (1976, Law Book Company) Lee and Lewis, Hammond and Davidson’s Law of Landlord and Tenant (4th ed, 1953, Butterworths) Wellings, Woodfall’s Law of Landlord and Tenant (1978, 28th ed, Law Book Company)
Category:	Principal judgment
Parties:	Drama Unit Pty Ltd (Appellant) Fearndale Holdings Pty Ltd (administrator appointed) (First Respondent) Timothy James Cook (in his capacity as administrator of Fearndale Holdings Pty Ltd (administrator appointed) ) (Second Respondent)
Representation:	Counsel: B W Walker SC and M Sneddon (Appellant) S Golledge (First and Second Respondents) Solicitor: Dettman Longworth Lawyers (Appellant) William James (First and Second Respondents)
File Number(s):	2019/193139
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2019] NSWSC 645 Date of Decision: 04 June 2019 Before: Black J File Number(s): 2019/91205