Ell v Cisera
[2000] NSWSC 768
•3 August 2000
Reported Decision: [2000] 10 BPR 18,045
[2001] ANZ ConvR 439
[2001] NSW ConvR 55-991
New South Wales
Supreme Court
CITATION: Ell v Cisera [2000] NSWSC 768 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 2016/00 HEARING DATE(S): 24 & 25 May and 1 June 2000 JUDGMENT DATE: 3 August 2000 PARTIES :
Richard Ell t/as GNP Printing (P)
Dino Cisera (D)JUDGMENT OF: Hamilton J
COUNSEL : H Thurairajah, Sol (P)
D L Oliveri, Sol (D)SOLICITORS: Thurai Rajah Lawyers (P)
Oliveri Solicitors (D)CATCHWORDS: CONTRACTS [120] - General contractual principles - Construction and interpretation of contracts - Commercial contract - Construction to make commercial sense of contract - LANDLORD AND TENANT [41] - Covenants - For renewal - Right to exercise option - Relief against loss of option for renewal - Principles applicable. LEGISLATION CITED: Conveyancing Act 1919, ss 133E, 133F & 133G
Supreme Court Rules 1970, Pt 39CASES CITED: Bay Marine Pty Ltd v Clayton Properties Pty Ltd (1984) 9 ACLR 780
Best and Less (Leasing) Pty Ltd v Darin Nominees Pty Ltd (1994) 6 BPR 13,783
Brown v Gould [1972] Ch 53
Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380
Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122
Hammond v Vam Ltd [1972] 2 NSWLR 16
Henderson v Ross [1981] 1 NZLR 417
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
JDM Investments Pty Ltd v Todbern Pty Ltd [2000] NSWSC 349
Murphy v Wright (1992) NSW ConvR par 55-652
Re a Lease Kennedy to Kennedy [1935] NZLR 564
Reilly v Liangis Investments Pty Ltd [2000] NSWSC 47
Shevill v The Builders Licencing Board (1982) 149 CLR 620
Stellar Mining NL v Evanel Pty Ltd (1983) NSW ConvR 55-118
Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429
Westpac Banking Corporation v Tanzone Pty Limited [2000] NSWCA 25
Carter & Harland, Contract Law in Australia, 3rd ed, 1997 [704]DECISION: Landlord not justified in reentering. Discretion exercised against grant of renewed term to tenant.
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISIONHAMILTON J
THURSDAY, 3 AUGUST 2000
2016/00 RICHARD ELL trading as GNP PRINTING v DINO CISERA
JUDGMENTHis Honour:
1 These proceedings arise from a lease of premises at 3 Liverpool Lane, Darlinghurst (“the premises”). They are owned by the defendant, who also owns adjacent premises in which he conducts various businesses in conjunction with his twin sons, Robert Cisera and Rudy Cisera. The premises are old premises going back to about 1910, essentially in the form of a warehouse or garage. They were once used by the sons to conduct a business a motor mechanics. Thereafter they were let to a firm of architects as an office. After the architects left a new steel trowel finished concrete floor was put in and the premises were then let to the plaintiff for use as a printing works. He installed in them an offset press which he owns. The arrangement between the plaintiff and the defendant was embodied in a commercial lease dated 15 January 1999 which stipulated a term of 18 months from 18 January 1999 to 17 July 2000 (“the commercial lease”). The rent under the commercial lease was $1,390 per calendar month. A rental bond of $1,390 or one month’s rent was to be and was paid under the lease. The lease provides that unless either party gives the other at least one month before the end of the term a notice that vacant possession shall be given on that day the lease shall continue as a periodic lease from month to month at the same rent. The commercial lease provides for an option for a further term of one and a half years subject to clause 32. The use for which the premises were let was for use only as a printing workshop. By clause 12 the tenant is obliged to “take care of the premises and to keep them in a clean condition”. The commercial lease also contains the following terms relevant to termination and to the exercise of the option.
“29(a) Where the lease has become a periodic lease from month to month, either party may terminate it by giving one months written notice.
(b) The landlord shall have the right to re-enter the premises peacefully or to continue the lease as a periodic lease from week to week:-(c) If the landlord intends to exercise his right to re-enter, he shall serve the tenant with a written notice stating the reason and demanding immediate possession.
(i) Where the tenant has failed to pay rent for a period in excess of fourteen days, whether formally demanded or not, or
(ii) Where the tenant has seriously or persistently breached any of the conditions of the lease, or
(iii) Upon the tenant being declared bankrupt or insolvent according to the law or making any assignment for the benefit of creditors or taking the benefit of any Act now or hereafter to be in fore [sic] for the relief of bankrupts or insolvents. (Sections 85(1)(d) of the Conveyancing Act, 1919, as amended, is hereby varied accordingly.……
32(a) The tenant shall give to the landlord or his agent not more than six (6) months and not less than three (3) months prior to the expiration of the term granted in this lease notice in writing if he wishes to take a renewal of the lease for the further term offered. Provided he has duly and punctually paid the rent and shall have duly performed and observed on his part all the conditions and agreements contained in this lease up to the expiration of the term granted, then the landlord will at the cost of the tenant grant to him the further term at a rent which would at such time be current market rental of the premises.”
2 The history of the payment of rent under the lease was as follows. So far as the first 11 payments due in advance from January to November 1999 are concerned, these were duly paid by cash or by cheque and no later than 10 or 11 days after the due date with four notable exceptions. The rent due on 18 March 1999 was paid on 29 March 1999 by a cheque drawn on the plaintiff’s personal account at the Martin Place branch of the Commonwealth Bank. This cheque was dishonoured. It was replaced by a cheque that was honoured on 23 April 1999, more than a month late. The rent due on 18 July 1999 was paid on 26 July 1999 by a cheque drawn on the business account of the printing business (in the name of Get Noticed Printing) at the Martin Place branch of the Colonial State Bank. That cheque was dishonoured, but the rent was paid by a replacement cheque which was met on 30 July 1999, only some 12 days after the due date. The rent due on 18 August 1999 was paid by cheque on 23 August 1999 but that cheque was also dishonoured. It was replaced by cash on 1 September 1999 about 14 days after the due date for the rent. The rent due on 18 September 1999 was paid on 22 September 1999 by a cheque on the business account which was dishonoured. It is not clear on the evidence when this payment was replaced although it is not disputed that it was. In relation to the March payment, although the replacement of the dishonoured cheque was about a month late, the plaintiff says that he was not informed until that time that the cheque had been dishonoured and that he made the replacement payment immediately upon being notified. Statements of the plaintiff’s accounts at relevant times during 1999 show the dishonour of a considerable number of cheques. On the personal account, between 5 February and 7 June 1999, that being the whole period during which that account was conducted, there appear to have been 14 cheques dishonoured. On the business account between its opening on 5 July and 3 December 1999 there were at least 20 cheques dishonoured and there may have been more.
3 The plaintiff’s attempts to explain the reason for the dishonour of the cheques were not impressive. The best he could do was as follows. He had previously said that difficulties in payment of the rent had arisen from the landlord’s non issue of receipts. He gave the following evidence:
“Q. What to your recollection did you say yesterday about the difficulty created by lack of receipts?
A. If I could answer it the way that I - I don’t exactly know what I said yesterday but the - the problem occurred in that, without documentation the cheques were not issued from the correct party, which was Investment Ell Pty Ltd.
When I did become aware that rent was outstanding - I basically don’t have access, I don’t keep an Investment Ell cheque book with me. I picked up whichever cheque book I found and paid it as quickly as possible because the rent was late and I wanted to get it fixed up.
Unfortunately on several occasions I didn’t check to see what the situation was as far as funds in that particular account”
The explanation is not an impressive one. No payment of rent, so far as the evidence goes, was ever made on an account of Investment Ell Pty Limited. Furthermore, it is clear, as I have indicated above, that the minimum number of cheques on the two accounts dishonoured in relation to this business during 1999 was more than 30. One would think the plaintiff must have been aware of the parlous state of his accounts and not simply been drawing cheques accidentally on the wrong account.
4 No cheque of the plaintiff’s in payment of rent was dishonoured after September 1999, but the rent due on 18 December 1999 was not paid until 18 January 2000, when it was paid by cheque. The rent due on 18 January was paid on 28 January 2000 in cash. The plaintiff says that at the relevant time he was on holidays and before going on holidays he instructed the accountant of a family company to pay the rent in his absence, which instruction was not carried out. The replacement rent was paid immediately he discovered the lack of payment on his return. All rent since that time was paid or tendered substantially on time
5 On 16 February 2000 Messrs Oliveri, the solicitors for the defendant, sent to the plaintiff at the registered premises by registered post a letter in the following terms:
“We act for Dino Cisera, the registered proprietor of the above property. We are instructed that due to your serious and persistent breach of the terms and conditions of the lease dated 15 January 1999, our client terminates the lease.
Particulars:
Failure to pay rent monies on time
Cheques being persistently dishonoured
Failure to properly secure the premises
You are hereby given 14 days notice to vacate the premises and deliver vacant possession to our client. Please return the keys and remote controls to the roller door to our offices as soon as possible.”
This purports to be a termination under clause 29(b)(ii) for serious or persistent breach of a condition or conditions of the lease; it could not be a termination under 29(b)(i) because at the time the notice was given the rent was up to date.
6 There is a dispute as to whether the plaintiff ever received this letter. The evidence indicates that it was posted as a registered letter on 17 February 2000 and there seems to be no reason why it should not have been delivered. On the other hand, it was not an avis de reception letter, so there is no proof of its receipt at the premises. The plaintiff denies receipt of the letter. If it matters, I am not prepared to find that he received it.
7 On 7 March 2000 the defendant locked the plaintiff out of the premises. After entering the premises the defendant found that the floor had been substantially stained by ink and oil emanating from the offset printing machine. The printer stood on a metal plate, but the footprint of the plate was smaller than the overall size of the machine, so that ink and oil from the machine escaped on to the floor. It is apparent that the staining on the floor in the immediate vicinity of the machine emanated from the machine. There was other oil staining near a common wall between the premises and adjacent premises occupied by the defendant. This staining was caused by the blockage of a drain on the adjacent premises and it is common ground that it is not the fault of the plaintiff.
8 The matter came before Santow J sitting in the Duty List. The plaintiff sought orders to regain possession of the premises. On 6 April 2000 his Honour made orders in the matter which included the following:
“2 The Plaintiff shall on and from 9 am 7 April 2000 be given access to the premises, the subject of the said Summons, by the Defendant for an initial period of fourteen days commencing from the time that the expert hereinafter referred to has been appointed, during which the Plaintiff shall use all reasonable steps to reinstate the premises in the order in which they were initially made available save for such staining or disrepair as results from the leakage of sump oil, if any from adjoining premises at 222 Liverpool Street East Sydney owned by the Defendant, such latter staining or disrepair being as identified by agreement between the parties or failing agreement, by an expert chose by agreement between the parties or failing agreement, by the Professor of Chemical Engineering at the University of Sydney or his or her nominee.
3 The Plaintiff will not remove the equipment without first notifying the Defendant in writing with not less than one business day’s notice, and will only remove the equipment in the event that the Plaintiff is not able to reinstate the premises without such removal.
4 (a) If at the end of the fourteen days the parties agree that there has not been adequate reinstatement or failing agreement, the expert so determined, the Defendant shall have a lien upon the equipment for the cost of proper reinstatement. And the Defendant shall be entitled to recover the cost of employing the said expert.
(b) If at the end of the said fourteen days the parties agree that there has been adequate reinstatement, or failing agreement, the expert so determined, then the Defendant shall pay the cost of the said expert and the Plaintiff shall be entitled to continue in occupation subject to compliance with these orders and with the terms of the lease for the balance of the said term.
5 The Defendant shall be responsible for and shall promptly reinstate the premises to remove any staining from the sump oil if such be agreed to have occurred or if not agreed, the said expert determines such staining has occurred.
6 Provided the Plaintiff is not impeded in carrying out the said reinstatement by so doing, the Plaintiff may continue to operate the printing works, but if impeded such printing works shall be suspended from operation during the reinstatement.
7 The Plaintiff shall pay by bank cheque or solicitor’s trust account cheque in the sum of $1,500 being the Defendant’s legal costs in relation to the present application and the steps prior to it in terms of correspondence and the like, such to be done by the close of business 7 April 2000.”
9 There is not a complete transcript available of all that occurred before his Honour on that day and, in particular, there is not a transcript of what occurred at the time the orders were made. The orders are not indicated on their face to have been made by consent. However, the parties have agreed before me that the orders were all made by consent except order 7 as to costs, which was the subject of a dispute. That dispute his Honour determined and his Honour’s determination is embodied in order 7. It is probably by reason of the fact that not all the orders were made by consent that there is no notation of consent contained in the orders. But, apart from order 7, it is agreed that the orders embody an agreement of the parties.
10 After his Honour’s orders were made the plaintiff was allowed back into the premises. He did not at any time after his return operate the printing machine, since it was impossible to do so while the rectification work was going on, because of the dust created by the work. To do the cleaning work the plaintiff employed Eversafe Industries Pty Ltd (“the contractor”) and the work commenced on 14 April 2000, with two further visits envisaged as necessary to complete the work, one to be on Saturday, 15 April, and the other on Monday, 17 April 2000.
11 On 14 April 2000 while the work was being carried out there was a confrontation or a series of confrontations at the premises between representatives of the opposing parties. The evidence of the witnesses concerning this was quite confused and not very satisfactory. The plaintiff’s case is that the defendant forbade him from continuing with the work. The defendant’s case appears to be that there was no prohibition as such on continuation of the work, only a request that it be suspended until information could be supplied to the defendant as to the precise nature of the finish proposed to be placed on the floor; if the work did not resume thereafter, that was the plaintiff’s fault because this request was never complied with. The witnesses who attempted to convey this case on the defendant’s part were his sons, Robert and Rudy. They were quite unsatisfactory witnesses, particularly Rudy Cisera. An illustration of the unsatisfactoriness of his evidence arose in answers that he gave as to a later conversation when a Dr Roper was present. He denied, on the one hand, that anything that could described as an argument took place and, on the other hand, he volunteered that at one stage during the exchange, the plaintiff was screaming.
12 I regard as significant written communications which passed at that time concerning what had happened. On 14 April the defendant’s solicitors in a fax to the plaintiff’s solicitor stated that the work on the floor observed on that day was “a destructive process not consented to by our client”. The same fax required the determination of this question by the expert pursuant to Santow J’s orders. On 8 May 2000 the contractor wrote to the plaintiff stating that the “schedule could not be followed as on Friday, 14 April, I was informed by my employee Robert Devlin that he ceased work at 3 Liverpool Lane, Darlinghurst prematurely by being forced to stop the works at the insistence of the landlords”. Furthermore, Rudy Cisera deposed that on 14 April after seeing a man with a large grinding machine working on the floor:
“I made a telephone call. I contacted a friend of mine, Dennis Legallant, concrete technician for Canterbury Council, and asked him words to the effect: ‘What do you think of grinding the top of the cement of [sic] to fix up my place?’ He replied with words to the effect: ‘That will seriously compromise the integrity of the floor, get him to stop! The floor will never be flat again!’”
13 I accept the version contended for by the plaintiff. In light of all the evidence I find that on 14 April 2000 the defendant unequivocally forbade the plaintiff from continuing with the work that was being carried out. The advice which the defendant’s sons had, as deposed to in Rudy Cisera’s affidavit and set out above, was that the work should be stopped. The defendant’s solicitor’s letter written that day is consistent with an unequivocal requirement that the work be stopped. The belief of the contractor was that the work had been brought to a halt at the landlord’s insistence. No mention is made in any of those early accounts that the requirement was merely for the work to be suspended and that the plaintiff might procure its recommencement by giving the defendant some further information concerning the process.
14 There was some further incident on or about 26 April 2000 where one of the defendant’s sons believed he heard a noise emanating from the premises and sent his son to investigate. It is not entirely clear whether there was further grinding work occurring on that day and what occurred in relation to it. On 28 April 2000 the defendant’s solicitors again wrote to the plaintiff’s solicitors. They referred to their earlier communication of 7 April 2000 and stated:
“We noted that the purported cleaning process was further damaging the floor, and we requested that this stop. It did not stop and the floor is now more damaged than before the process began.”
The plaintiff deposed:
“In the interim I attempted to once again commence cleaning the said leased premises, when the Defendant entered the premises and demanded in words to the effect that:
‘… if you don’t stop it, I’ll have you arrested for damaging the floor …’”
15 There is no doubt that the work commissioned by the plaintiff to clean the floor was not completed. I find on the evidence that whether on 26 April 2000 or some other day at about that time the plaintiff did attempt to resume the cleaning operations and was again stopped by the defendant. I accept the plaintiff’s evidence as to what occurred on that occasion.
16 On 2 May 2000 Dr Harold Roper, who was the expert appointed pursuant to Santow J’s orders, attended at the premises. Unfortunately, his attendance turned into a debacle. This was an occasion on which I have no doubt, despite the defendant’s witnesses attempts to say otherwise, there was heated argument among those involved. Furthermore, whilst it is not necessary for me to make any determination about this, the situation was not improved by Dr Roper, for whatever reason, attempting to play some general role as mediator, rather than carrying out the function stipulated by the orders of the Court. The debacle ended in Dr Roper withdrawing from his appointment without any conclusion being reached.
17 On 4 May 2000 the defendant again locked the plaintiff out of the premises. Whilst the reinstatement had proceeded long beyond the 14 days originally stipulated in the orders, no complaint about the time was made on behalf of the defendant until the letter of 28 April 2000 mentioned above, by which time hostilities had already broken out about the nature of the process. On 17 April 2000 the plaintiff’s solicitors had written to the defendant’s solicitors a letter giving notice of the exercise of the option to take a further term pursuant to condition 32 of the commercial lease. On 18 April 2000 the defendant’s solicitors wrote to the plaintiff’s solicitors as follows:18 Division 4 was inserted in Part 8 of the CA in 1972. Sections 133E and 133F provide as follows:
“We hereby give your client notice, pursuant to section 133E of the Conveyancing Act 1919, that the lessor proposes to treat the tenant’s breaches of the covenants of the lease as precluding him from exercising the option thereunder, subject to any order of the Court under section 133F of the Conveyancing Act 1919.
Particulars of breaches of covenants:
Failure to take care of premises and to keep them in a clean condition
Defacing and damaging premises
(Cl 12 of the lease)
Failure to pay rent as and when it falls due
(Cl 9 and 36.3 of the lease)”
No objection has been taken that the contents of this letter are inadequate as a notice under s 133E of the Conveyancing Act 1919 (“the CA”).
19 The matter first came before me as Duty Judge on an application by the plaintiff, in effect, to reverse the lockout of 4 May 2000. I declined to reverse the lockout, but instead have held an early final hearing of the proceedings. A number of questions have arisen which it may be necessary to determine finally to dispose of the proceedings. They are as follows:
“133E (1) In this Division ‘prescribed notice’ means a notice in writing that:
133F (1) Relief referred to in section 133E may be sought:
(a) specifies an act or omission, and
(b) states that, subject to any order of the court under section 133F, a lessor giving the notice proposes to treat that act or omission as having precluded a lessee on whom the notice is served from exercising an option contained in the lease.
(2) Where an act or omission that constituted a breach by a lessee of the lessee's obligations under a lease containing an option would, but for this section, have had the effect of precluding the lessee from exercising the option, the act or omission shall be deemed not to have had that effect where the lessee purports to exercise the option unless, during the period of fourteen days next succeeding the purported exercise of the option, the lessor serves on the lessee prescribed notice of the act or omission and:
(a) an order for relief against the effect of the breach in relation to the purported exercise of the option is not sought from the court before the expiration of the period of one month next succeeding service of the notice, or
(b) where such relief is so sought:
(i) the proceedings in which the relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or
(ii) where relief is granted upon terms to be complied with by the lessee before compliance by the lessor with the order granting relief, the lessee fails to comply with those terms within the time stipulated by the court for the purpose.
(a) in proceedings instituted in the court for the purpose, or
(b) in proceedings in the court in which:(2) The court may, in proceedings in which relief referred to in section 133E is sought:
(i) the existence of an alleged breach by the lessee of the lessee's obligations under the lease, or
(ii) the effect of the breach from which relief is sought, is in issue.
(a) make such orders (including orders affecting an assignee of the reversion) as it thinks fit for the purpose of granting the relief sought, or
(b) refuse to grant the relief sought.
(3) The court may, in proceedings referred to in subsection (2), take into consideration:
(a) the nature of the breach complained of,
(b) the extent to which, at the date of the institution of the proceedings, the lessor was prejudiced by the breach,
(c) the conduct of the lessor and the lessee, including conduct after the giving of the prescribed notice,
(d) the rights of persons other than the lessor and the lessee,
(e) the operation of section 133G, and
(f) any other circumstances considered by the court to be relevant.
(4) The court:
(a) may make an order under subsection (2) on such terms as to costs, damages, compensation or penalty, or on such other terms, as the court thinks fit, and
(b) may make any consequential or ancillary order it considers necessary to give effect to an order made under that subsection.”
Section 133G operates to keep the lease in force while the dispute is dealt with.
(1) Was the defendant entitled to reenter the premises on 7 March 2000 and did it by that reentry terminate the lease?(2) Was the work which was being carried out by the plaintiff and which was, as I have found, stopped by the defendant, work that fell within the plaintiff’s right or entitlement to “use all reasonable steps to reinstate the premises in the order in which they were initially made available” and was the defendant entitled to stop the plaintiff from carrying out that process?
(3) Is the plaintiff entitled again to have access to or be permitted to resume occupation of the premises and is he entitled to an inquiry, as to damages, in respect of any damage he has suffered by reason of his exclusion?
(4) Is the plaintiff entitled to exercise the option in the face of the objections taken by the defendant?
(1) Was the commercial lease terminated by reentry on 7 March 2000?
20 In my view the question of whether or not the reentry of 7 March 2000 was justified and the lease thereby forfeited is not at all an easy one. As has already been observed, there was no rental owing at the time of the reentry and the reentry could be justified only under clause 29(b)(ii). It would seem that clauses in this form have been inserted in commercial leases with increasing frequency since the decision of the High Court in Shevill v The Builders Licensing Board (1982) 149 CLR 620. However, there is little authority to assist in determining the ambit of the concepts of repetition and persistence by which the clause proceeds. But in this case, the question must be viewed in the light of Santow J’s orders made on 6 April 2000. I have already observed that these orders, with the exception of order 7, were made by agreement and, although clothed in the form of orders of the Court, they embody and must essentially be regarded as an agreement of the parties regulating their commercial relations. Their terms are far from entirely clear. Some of the lack of clarity arises from the words in which the plaintiff’s right to reoccupy the premises if reinstatement is successfully carried out is stated, namely, that the plaintiff (who by order 2 has been given “access to the premises” for the purpose of carrying out the reinstatement) “shall be entitled to continue in occupation subject to compliance with these orders and with the terms of the lease for the balance of the said term”. A second difficulty is that there is not stated in express terms the consequence to the relationship of landlord and tenant of failure of adequate reinstatement. Order 4(a) provides only that in such an event “the Defendant shall have a lien upon the equipment for the cost of proper reinstatement. And the Defendant shall be entitled to recover the cost of employing the said expert.” In my view, as with any other commercial agreement, the Court, where there are lacunae, must do its best to interpret the agreement so as to give it commercial operation. I gathered some of the authorities in this regard in my judgment in JDM Investments Pty Ltd v Todbern Pty Ltd [2000] NSWSC 349: see Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436-7; Brown v Gould [1972] Ch 53 at 57; Hammond v Vam Ltd [1972] 2 NSWLR 16 at 18; Murphy v Wright (1992) NSW ConvR par 55-652 at 59,733. And commercial agreements should be given where possible an interpretation which makes commercial sense: Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313 - 314; Westpac Banking Corporation v Tanzone Pty Limited [2000] NSWCA 25 [20] and [21]; and see Carter & Harland, Contract Law in Australia, 3rd ed, 1997 [704].
21 Bearing in mind the terms of the commercial lease, the terms of the agreement embodied in the orders and the context in which it was created, in my view the effect of the agreement between the parties was that, should adequate reinstatement take place, the plaintiff would return to occupy the premises pursuant to the terms of the commercial lease, but that, if adequate reinstatement were not effected, then it was agreed that the lease should be taken to have been validly terminated at the time of the reentry on 7 March 2000 and that, furthermore, the defendant should have a lien over the printing machine to secure the payment of the cost of the proper reinstatement which he would then have to carry out. It was thus agreed between the parties that there would be no determination of the validity of the reentry; the future of the plaintiff’s entitlement to occupy the premises would be determined according to the agreement. In my view, it is a term of that agreement that, although the right to occupy was suspended and replaced by only a right of access to carry out the work, the lease would continue in force between the parties and would come to an end only when it was determined by agreement or upon the decision of the expert appointed under the agreement that adequate reinstatement had not taken place. (Equally, there could be no lien on the printing machine until that time.) This, then, is the answer to Question 1.
(2) Was the defendant entitled to stop the plaintiff from carrying out the work it was having done to reinstate the floor?
(3) Is the plaintiff entitled to resume access to or occupation of the premises and is he entitled to an inquiry as to damages in respect of any damage that he has suffered by reason of his exclusion?
22 It is in this context that the next two questions arise for determination. These questions I shall deal with together. When the proceedings were before me on an interlocutory basis the evidence concerning the work done to the floor appeared to me to be in an unsatisfactory state. This led me to decide, after hearing the parties, to appoint a Court appointed expert pursuant to the recently revised provisions of Part 39 of the Supreme Court Rules 1970. The parties made inquiry and put forward two appropriate experts. Of these I appointed Roger Scerri, who was recommended by Unisearch Limited, as Court appointed expert:23 As I have said, at the commencement of the term the concrete floor had a new steel trowel finished surface which was free of all stains and marks. Mr Scerri had available to him, and there are in evidence before me, a statement by Mr Bates, the principal of the contractor, as to the work done and to be done. The work done was grinding the floor with a diamond headed three blade concrete grinder which removed only 1 - 2 mm of the surface. Mr Bates said that the surface could then be sealed with a sodium silicate hardening liquid “Everseal”. Mr Scerri confirmed that the floor appeared to have had a new finish before work commenced and the grinding appeared to have removed only about 1 mm of the surface. Despite the grinding that had taken place, Mr Scerri was able to observe some remains of contamination of the floor by oil (in the vicinity of the printing machine) and ink. His examination and testing of the ink stains that remained confirmed in his mind the view that the removal of the ink by solvents would not have been practicable and that grinding followed by recoating of the surface was the appropriate course. His conclusion was as follows:
“… to enquire into and report on the question of whether the steps taken by the plaintiff to remove stains from the floor of the printing workshop at 3 Darlinghurst Lane, Darlinghurst were reasonable steps to reinstate the premises to the order in which they were initially made available to the plaintiff.”
This question was formulated in terms of the requirement as to reinstatement of Santow J’s orders. Mr Scerri’s qualifications are not in evidence on the trial, but it was determined by the Court at the time of his appointment that he was well qualified as an expert to express an opinion upon this matter, and there was no contention to the contrary from either of the parties. I limited to one per side the additional expert witnesses who might be called. Mr Scerri’s report is in evidence and he gave oral evidence at the trial. His report was succinct and clear, as was his oral evidence, and the result was that in fact no other expert evidence was led at the trial by either party.
24 Bearing in mind the wording of the order which the work responded to and the evidence of Mr Scerri, I am of the opinion that it could not be said that the steps being taken by the plaintiff to remove stains from the floor of the premises were not reasonable steps to reinstate the premises to the order in which they were initially made available to the plaintiff. It was argued that the word “reinstate” required a restoration of the floor to exactly the state in which it had previously been and that nothing would do but a fresh steel trowelled surface. The word is defined thus in the New Shorter Oxford English Dictionary:
“We therefore draw the following conclusion that the method of mechanical abrasion taken to remove the ink is not, in the opinion of the author, considered to be excessive or inappropriate.”
Cross examined, Mr Scerri confirmed that once the surface had been abraded away its impermeability was diminished, but that this situation could be improved or cured by either the application of a 20 - 25 mm mini concrete topping or by the application of sealants. If the appropriate commercial sealant were selected the result, whilst not perhaps quite as good as a trowelled surface, would produce a surface which was reasonably serviceable, both from the point of view of impermeability and aesthetically.
“1 Bring or put back (a person etc) into a former position or condition, reinstall, re-establish, (in office etc) … 2 Restore (a thing) to a proper state; replace.”
In my view, in the commercial lease “reinstatement” means restoration to a state proper in the circumstances, rather than absolutely identical to a preexisting state. Bearing in mind the nature of the premises (whilst there was a clean new concrete surface on the floor at the commencement of the lease, the premises were not the Regent Hotel ballroom), the context in which the word was used and Mr Scerri’s evidence, I am of the opinion that it could not be said that the process which was being carried out, of grinding a thin layer from the surface and then treating that surface with an appropriate protective or sealant covering, did not constitute proper steps to reinstate the premises to the order in which they were initially made available to the plaintiff within the meaning of the commercial lease. It flows from this that the defendant was not justified in stopping the plaintiff from proceeding with the work as he did and again locking the plaintiff out of the premises. In those circumstances, it seems to me that the plaintiff must be allowed, if he chooses, to return to the premises to have the job completed. The time limit of 14 days had not been adhered to by the parties on the previous occasion, and it seems to me that what is appropriate in terms of the agreement in the events that have happened is that the plaintiff ought be allowed a reasonable time to have the job finished. If it is finished properly, so that it complies with the requirements of the agreement, then the plaintiff should be regarded as restored to holding the premises under the lease. If the plaintiff is entitled pursuant to his notice to exercise the option for the grant of a further term, it will be to that renewed term that he ought be restored. If he is not entitled to a new term pursuant to that notice of exercise, then the situation is that the original term has now expired, but he is entitled to hold over under the holding over clause, and that is the estate to which he ought be restored. He is entitled to damages in respect of any loss he has suffered as a result of the wrongful stopping of the work and his wrongful exclusion from the premises.
(4) Is the plaintiff entitled to exercise the option in the face of the objections taken by the defendant?
25 The law before the insertion of Division 4 in Part 8 of the CA was that, if the option clause in a lease was subject to a precondition that the lease should have been fully complied with, then the slightest breach would preclude the exercise of the option and the Court had no power to excuse any such breach and enforce the grant of a renewed term: Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122. Since the enactment of that Part, the Court has taken the view that the requirements of s 133E as to notice must be strictly complied with if the landlord is to be entitled to rely upon a breach as negativing the right to exercise the option: Bay Marine Pty Ltd v Clayton Properties Pty Ltd (1984) 9 ACLR 780. The objections in this case were taken by the defendant in time. They are very general in form. However, as I have already said, no objection has been taken to the sufficiency of the notice. The breaches complained of are the irregularities in the payment of rent and the failure to keep the premises in a good and clean condition. The discretion conferred upon the Court to excuse or not excuse the breaches and allow renewal of the term is an absolutely general one to be exercised in the light of all the circumstances: Re a Lease Kennedy to Kennedy [1935] NZLR 564 at 567; Henderson v Ross [1981] 1 NZLR 417 at 424; Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380 at 388. In the last mentioned case Wootten J, whilst holding the discretion to be completely at large, found some analogy in the Court’s discretion to grant relief against the forfeiture of leases. His Honour’s decision was upheld by the Court of Appeal: Stellar Mining NL v Evanel Pty Ltd (1983) NSW ConvR 55-118. In Best and Less (Leasing) Pty Ltd v Darin Nominees Pty Ltd (1994) 6 BPR 13,783 McLelland CJ in Eq at 13,788 described the power as “a general discretionary power, which is to be exercised in the manner best calculated to achieve justice between parties in the circumstances of the particular case” and again alluded to the analogy of relief against forfeiture. Since all the breaches relied on antedate both the notice of exercise of the option and the prescribed notice under s 133E, there is no need to enter into the vexed question of the status of subsequent breaches: see Reilly v Liangis Investments Pty Ltd [2000] NSWSC 47 [37] and [38] and cases there gathered.
26 Turning to the facts of this matter, it is said that the breaches in relation to the rent are not of the gravest sort, and in one sense this is true. There was lateness on a number of occasions; on two occasions the rent was left unpaid for a period which would have justified forfeiture under the terms of the lease. But it must be borne in mind that the rent was always brought up to date. However, the seriousness of the breaches must be viewed in the light of the proffering to the landlord of a number of cheques subsequently dishonoured and, as has now been demonstrated, the spreading of a large number of dishonoured cheques around the town generally. Coupled with this is the attitude displayed by the plaintiff to these circumstances. In relation to the dishonoured cheques, he attempted the explanation, in effect, that he had picked up the wrong cheque book. If this were to be accepted as true, that would in itself (particularly as the conduct was repeated) demonstrate a cavalier attitude towards the payment of debts, including his rent. But the situation is made worse by the fact that the evidence appears to indicate that the true explanation was at best the foolish and optimistic sending of cheques when it was well known in truth that they would not be met. It is true that the last of the dishonoured cheques presented to the landlord was in September 1999. However, the rent was again not paid for more than a month in December/January while the plaintiff was on holiday. In some contexts this might not be a matter of seriousness, but, where acute problems as to the rent had already arisen, the plaintiff’s conduct was foolish and unsatisfactory in simply leaving some instruction to some company accountant to pay the rent and to make no follow up check that it had been done (if in fact the instruction were ever given, about which I have grave doubts). However, the actual infractions as to rent may be slight enough not in themselves to justify the exercise of the discretion to refuse the grant of a new term. I do not need finally to decide this, because, in addition, there is in fact the breach of the covenant to keep the premises clean. The premises were let as a printery. If it were inherent in the conduct of printing work that the floor would be dirtied, the staining of the floor might have to be regarded in that light despite the provision to keep the premises clean. However, there is no evidence from which the conclusion could be drawn that the floor had necessarily to be dirtied or that steps could not be taken by covering or otherwise to prevent the machine dirtying the floor. No such step was taken or considered by the plaintiff who appeared, from evidence he gave relating to an earlier letting to him, to think that a clean up operation at the end was sufficient. Even now, when the conflict has arisen, no offer has been made by him to take steps to keep the floor clean after the reinstatement occurs and if the lease be renewed. I have already said that these premises are not the Regent Hotel ballroom. They were for a long time used as a motor mechanic’s workshop and an alternative use that is now anticipated is as a motor garage. Nonetheless, the immediately preceding use was as an architect’s office, a comparatively clean use, and there was a new clean floor surface when the premises were let. I have come to the conclusion, bearing in mind the failures as to payment of rent, combined with the attitude evinced by the plaintiff towards the payment of rent and the meeting of his financial obligations generally, and with the breach of the condition relating to the state of the premises, that it is not a fair thing as between landlord and tenant that this tenant should be forced on this unwilling landlord for a further term. The Court’s discretion is exercised against compelling the renewal of the lease.
27 Short minutes ought be brought in to give effect to the decisions announced in these reasons. Costs may be argued at that time, or a time then appointed.
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