Gabo Island Investments Pty Limited v Barea

[2015] NSWSC 1675

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Gabo Island Investments Pty Limited v Barea [2015] NSWSC 1675
Hearing dates:	4, 5 and 6 November 2015
Decision date:	11 November 2015
Jurisdiction:	Common Law
Before:	Adamson J
Decision:	(1) Judgment for possession of the land described as part of lots 282 and 283 in Deposited Plan 16051 (Folio Identifier Auto Consol 4346-72), being lock-up shop 1B, service station premises.  (2) Judgment for the plaintiff against the defendant for damages as assessed.
Catchwords:	CONVEYANCING – construction of lease – implied covenants – breach of implied covenant requiring parties to co-operate to obtain rental determination – whether breach of implied covenant entitled lessor to terminate lease   CONVEYANCING – relief against forfeiture – considerations relevant to determination of whether relief against forfeiture ought be granted for non-monetary default – breach substantial and not inadvertent – failure to comply with Notice of Breach – no explanation for failure – no evidence that forfeiture “excessively punitive” – no basis to conclude that plaintiff’s insistence on forfeiture was unjust or unconscionable – relief against forfeiture refused
Legislation Cited:	Conveyancing Act 1919 (NSW), ss 116, 117, 125, 129
Cases Cited:	Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 Batiste v Lenin [2002] NSWCA 316 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd [2008] NSWSC 1123 Commercial Union Assurance Co of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Gumland Holdings v Duffy Bros.[2008] HCA 10; 234 CLR 237 Gollin & Co. Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 Legione v Hateley (1983) 152 CLR 406 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 Progressive Mailing House v Tabali (1985) 157 CLR 17 Shepherd v Felt and Textiles Pty Ltd (1931) 45 CLR 359 Shevill v Builders Licensing Board (1982) 149 CLR 620 Steel Supplies Bega v Shoveller [2014] NSWSC 1612 Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 97311
Category:	Principal judgment
Parties:	Gabo Island Investments Pty Limited (Plaintiff) Antonio Barea (Defendant)
Representation:	Counsel: M F Newton (Plaintiff) S Haddad (Defendant)     Solicitors: Simmons & McCartney Lawyers and Attorneys (Plaintiff) LBC Lawyers (Defendant)
File Number(s):	2014/38564

Judgment

Introduction

1. The plaintiff, Gabo Island Investments Pty Ltd, seeks possession of property on Five Islands Road, Cringila in New South Wales (the Premises) leased to the defendant, Antonio Barea, and damages for breach of contract, or, in the alternative, loss of rent or mesne profits. The Premises, which do not have a separate title, are located on a larger property (the Property) on Five Islands Road.

2. On the second day of the hearing, the defendant sought and was granted leave to discontinue his cross-claim (for damages against the plaintiff) with costs. On the third day of the hearing the defendant conceded that he had breached the implied term of the lease for which the plaintiff contended.

3. The issues in the proceedings are:

1. The construction of the lease from 1 March 2013 to 1 March 2018 (the 2013 Lease) and how the rent ought be calculated under that lease.

2. Whether the defendant’s breach of the covenant implied in the 2013 Lease that required the parties to co-operate to obtain a rental determination from the President of the Real Estate Institute of New South Wales (the President) entitled the plaintiff to terminate the 2013 Lease.

3. If the plaintiff had validly terminated the 2013 Lease, whether relief against forfeiture ought be granted to the defendant.

4. The amount of damages to which the plaintiff is entitled arising from the defendant’s breach or breaches.

The facts

The 2008 Lease

4. By registered lease dated 5 March 2008, Enviro Energy Australia Pty Ltd (Enviro) leased the Premises to the defendant for a period of five years commencing 1 March 2008 and terminating on 28 February 2013 (the 2008 Lease). The defendant is the sole director and shareholder of Abar Pty Ltd (Abar), which operated the service station business on the Premises. Abar also operated a service station at Corrimal until September 2014.

5. Clause 2 of the 2008 Lease provided for the payment of rent, which was to be reviewed every year. The rent for the first year was to be $120,000 exclusive of GST: cl 2.1.3. The rent for subsequent years was to be calculated by reference to the formula, A x C2/C1, where A was the annual rent for the last review date; C1 was the consumer price index (CPI) for Sydney in respect of the quarter ended just before the last review date; and C2 was the CPI for Sydney in respect of the quarter just before the review date. This formula was subject to a rider which, in effect, meant that the rent would not decrease.

6. I accept the plaintiff’s calculations of the rental under the 2008 Lease as follows:

Year of lease	Annual rental
Year 1 (1 March 2008- 28 February 2009)	$120,000 (as per cl 2.1.3)
Year 2 (1 March 2009- 28 February 2010)	$124,444,44
Year 3 (1 March 2010- 28 February 2011)	$127,138.05
Year 4 (1 March 2011- 28 February 2012)	$130,235.69
Year 5 (1 March 2012- 28 February 2013)	$134,410.77

The liquidation of Enviro

7. By letter dated 5 March 2010, Bruce Gleeson wrote to the defendant informing him that he had been appointed as liquidator of Enviro by order of the Supreme Court on 1 March 2010. Mr Gleeson sought confirmation from the defendant that all payments of rent would be made to him.

8. By further letter dated 28 June 2010 Mr Gleeson wrote to the defendant and noted that he was yet to receive a formal response to his letter of 5 March 2010. The letter also contained the following paragraph:

“Would you please respond to my letter as a matter of urgency and note for your reference that all future payments in respect of rent will be paid to my office and not to Mr Michael Ayoub [a director of Enviro].”

The sale of the Property to the plaintiff

9. On 22 November 2012 the plaintiff entered into a contract with Perpetual Trustee Company Ltd, the mortgagee exercising its power of sale, to purchase the Property.

The 2013 Lease

10. When the 2008 Lease expired, a further lease was entered into between Enviro and the defendant, for a term of five years commencing 1 March 2013 (the 2013 Lease). Its terms as to rent differed from those under the 2008 Lease, principally because the rent was to be determined by reference to the market rather than by reference to a stipulated sum with CPI increases on rent review dates.

11. The terms of the 2013 Lease included the following:

“2.   RENT, RATES AND TAXES

2.1.   Rent

2.1.1.   The annual rent reserved by this lease shall be paid by equal monthly instalments over the lease year in respect of which such annual rent is payable, such instalments to be paid in advance on the first day of each month (and proportionally for any part of a month), the first such instalment to be paid on the commencement date. All such instalments shall be paid to the Lessor free of exchange and all deduction.

2.1.2.   In any lease year comprising less than a complete year the annual rent payable in respect of such lease year shall be that fraction of the annual rent otherwise payable if that lease year were a complete year which is equivalent to that fraction which that lease year bears to a complete year.

2.1.3.   The rent from the commencement date to the first rent review date shall be the current market rent as determined pursuant to clause 14.1.9. The rent will be payable by equal monthly instalments of 1/2th of the annual rent plus GST in advance.

2.1.14.   Subject to Clause 2.1.5, the rent hereby reserved shall be reviewed during the term of this lease or any extension thereof, at each anniversary from the date of commencement of the term of this Lease (“review date”) and the annual rental payable hereunder for the next year during the term of this Lease or any extension thereof or holding over hereunder shall be varied and the rent payable for each such year shall be determined in accordance with the following formula:

A x C2

C1

where:

A   Annual rental as of the last review date (one year prior);

C1   Refers to the consumer price index for Sydney (all groups) published by the Australian Bureau of Statistics in respect of the quarter ended just before the last review date.

C2   the consumer price index for Sydney (all groups) published by the said Bureau in respect of the quarter just before the review date

PROVIDED ALWAYS that the rent payable for any year during the currency of this Lease or any extension thereof or holding over hereunder shall in no case be less than the rent payable for the year immediately prior to the relevant review date, and notwithstanding anything contained in this clause, in the event that on a rent review date if the rent as reviewed is less than the rent for the year immediately prior to the date of review and an additional five (5%) per centum thereof then the rent for the year following the review shall be the rent for the year immediately prior to the date of review and an additional five (5%) per centum thereof.

2.1.5.   The rent so determined shall become the rent reserved by this Lease on and from the relevant review date whether or not such determination shall be made before or after such review date and pending determination of the rent as aforesaid the Lessee shall continue to make payments on account of rent at the rate applicable immediately prior to the review date and forthwith after the making of the determination shall pay to the Lessor all arrears (if any) calculated to the end of the then current quarter.

…”

12. Clause 14 defines “fair market rental” as follows:

“14.1.9   ‘Fair Market Rental’ means the annual open market rental value of the demised premises on the assumption of vacant possession and that the Lessor is a willing but not anxious Lessor and the Lessee is a willing but not anxious Lessee PROVIDED THAT that in no circumstances shall the fair market rental be less than the annual rental payable during the last year of the previous lease immediately preceding the day upon which such fair market rental is to be determined. In the event that the parties are unable to agree on the fair market rental within six (6) weeks of any day requiring such a determination, the fair market rental shall be deemed to be that determined by the President of the Real Estate Institute of NSW.”

13. Clause 9 of the 2013 Lease relevantly provided:

9.   DEFAULT, TERMINATION ETC

In case:

. . .

9.1.2.   the Lessee neglects or fails to perform and observe any of the covenants conditions or agreements contained in this Lease which on the part of the Lessee are to be or ought to be performed within one (1) months of receiving written notice from the Lessor to do so; or

….

then and in any of the said cases the Lessor may immediately thereupon or at any time thereafter and without any notice or demand re-enter (forcibly if necessary) the premises or any part thereof and thereby determine the estate and interest therein of an expel and remove the effects of the Lessee and those claiming under the Lessee without being guilty of any manner or trespass and thereupon this Lease shall determine and cease but without releasing the Lessee from liability in respect of the breach or non observance of any covenant agreement condition or stipulation herein contained or any non-payment of rent hereunder,

. . .”

14. On 7 March 2013 the contract for the sale of the Property settled. The plaintiff was registered as the proprietor of the Property and thereby became the lessor under the 2013 Lease: ss 116 and 117 of the Conveyancing Act 1919 (NSW).

The dispute between the plaintiff and the defendant regarding the 2013 Lease

15. The plaintiff made no contact with the defendant until about July 2013. Accordingly, there was no agreement relating to rental in the six weeks after 1 March 2013, being the day on which determination of the rental was required within the meaning of cl 14.1.9 of the 2013 Lease.

16. In July 2013 the plaintiff, which had not yet received any rent under the 2013 Lease, instructed its solicitor, Duncan McCartney, to recover rent from the defendant. By letter dated 16 July 2013 Mr McCartney wrote to the defendant, informing him that the plaintiff had purchased the Property on which the Premises were located and that the rent was outstanding. A demand was made for arrears of rent.

17. On 22 July 2013 the defendant telephoned Mr McCartney, acknowledged that rent was outstanding and confirmed that it would be paid “in the next week”. Later that day, Anthony Canvin, a director of the plaintiff, wrote to the defendant, confirming the conversation with Mr McCartney. At about this time, the defendant retained Maria Di Gregorio, a solicitor at Macree Law, to act on his behalf. By letter dated 27 July 2013, Ms Di Gregorio wrote to Mr Canvin denying that the defendant had made any such acknowledgement. By letter dated 29 July 2013, Mr McCartney wrote to Ms Di Gregorio reiterating the defendant’s acknowledgement that rent was outstanding, demanding payment of arrears and threatening termination of the 2013 Lease for non-payment of rent.

18. By letter dated 16 August 2013 Ms Di Gregorio denied that the defendant was in arrears of rent. She referred to an agreement dated 14 December 2007 between the defendant and Enviro which she annexed to the letter, (the Enviro Agreement) and contended that it led to an abatement of rent. Ms Di Gregorio listed the works said to be required on the Premises and alleged that the defendant had already carried out works at a total cost in excess of $100,000.

19. The Enviro Agreement provided for work to be performed at the Premises by Enviro. Clause 5 of the Enviro Agreement provided:

“The lessee will continue to pay a rental of $4098.80 (inclusive of GST) every month until the lessor has satisfactorily completed the work and has concreted the surface area of the service station where work has been carried [sic, out] and tanks have been removed.”

20. By letter to the defendant dated 20 August 2013, the plaintiff made a further demand for arrears of rent and threatened to take possession of the Premises if satisfactory arrangements were not made. Ms Di Gregorio wrote to Mr McCartney on 21 August 2013 and requested that all communications with the defendant be directed to her.

21. On 22 August 2013 Mr McCartney wrote to Ms Di Gregorio. He contended that: there was no requirement to serve a notice of attornment (as alleged in her letter); the Enviro Agreement did not bind the plaintiff and, in any event, pre-dated the 2008 Lease; and reiterated the plaintiff’s claim for rent. Mr McCartney foreshadowed that the plaintiff would exercise its rights to re-enter unless a satisfactory arrangement was made by 23 August 2013.

22. By letter of 23 August 2013 Ms Di Gregorio proposed that the defendant would pay the following amounts: $25,000 by close of business that day; the balance of outstanding rent ($51,507.20, being $76,507.20 less $25,000) in equal instalments over the next year; and the monthly rent in accordance with the 2013 Lease. This proposal was expressed to be conditional on the plaintiff’s acknowledgement that certain repairs were required to be conducted and its undertaking to carry out such repairs. Mr McCartney responded that day to communicate his instructions that: the plaintiff would accept $25,000 “as an indication of good faith”; any work to be conducted would be subject to the 2013 Lease; and failure to make payments would result in termination.

23. The defendant paid $20,000 to the plaintiff on 23 August 2013 and $5,000 on 26 August 2013. He did not make any further payments of rent until July 2015 (see below). The following paragraph of the defendant’s affidavit sworn 28 August 2015, which was allowed solely as a submission, contains his justification for not paying rent, as follows:

“The plaintiff made no attempt to carry out any works on the defects as notified in Annexures “B” [the letter of 16 August 2013] and “D” [the letter of 23 August 2013]. As there was no attempt to rectify any of these defects I did not pay any further rent, those defects were the responsibility of the plaintiff and the defects were effecting [sic] the profitability of my business in running the service station on the property.”

24. On 12 September 2013 the plaintiff wrote to the defendant foreshadowing that possession of the Premises would be taken unless the sum of $65,358.40 in cleared funds was paid by 13 September 2013.

25. On 13 September 2013, Mr Badarbne, a new solicitor instructed by the defendant from the firm Good Legal, wrote to Mr Canvin. Although the letter was expressed to be “without prejudice except as to costs”, it does not contain any element of compromise and does not appear to be part of any without prejudice communications. Mr Badarbne refuted the plaintiff’s entitlement to rent, alleging, variously, that the plaintiff had not “demonstrated” that it was the registered owner of the Premises; that any payment already made was “made under duress and protest” and may be subject to a claim that it be refunded; and that repairs to the Premises were required. On 16 September 2013 Mr McCartney responded to the letter on behalf of the plaintiff.

26. By letter dated 17 September 2013 from Mr McCartney to Mr Badarbne, the plaintiff purported to terminate the 2013 Lease for non-payment of rent. Neither the plaintiff nor the defendant contended that this notice was effective to determine the 2013 Lease.

27. By letter dated 18 September 2013 Mr Badarbne responded in part as follows:

“Our client rejects your termination of the said lease, Suffice it to say that your client is not a party to the said lease and it is not the “lessor” in so far as he said lease is concerned. Therefore, your client has no standing to terminate the said lease.

We note that despite your client’s assertions of rights in respect of the Premises and/or the said lease, so far, our client has not been served with any notice of attornment. In this regard, we draw your attention to s 125 of the Conveyancing Act 1919 (NSW).”

28. By letter dated 20 September 2013 Mr McCartney wrote to Mr Badarbne and queried the relevance of s 125 of the Conveyancing Act.

29. On 7 November 2013 Mr McCartney wrote to Mr Badarbne foreshadowing proceedings in this Court for possession and arrears of rent. The letter read in part:

“To date we have not been able to grasp what your client’s opposition to paying rent is. There is a vague assertion that the Lessor is responsible for repairs but that has not been properly identified.

Your client previously paid $25,000.00 toward rent and arrears and accepted the rent charged by our client. If there is an unadvised dispute in this respect please advise and we will arrange the appointment of a valuer to conduct a rent assessment.

Our client is confident that any service station valuer will assess the rent to be higher than what is currently charged given the strong demand for independent non-aligned service stations in today’s market.

Having said that, our client does not wish to enter into the expensive exercise of taking possession by way of statement of claim if it can be avoided. The costs that follow will be considerable and in our view will be your client’s costs. Not only will he be left with the costs he will lose his business.

In a final attempt to settle this matter we ask your client to confirm that:-

1.   He accepts the rent as advised;

2.   He will pay the arrears by way of an acceptable payment arrangement; and

3.   He will pay the rent and outgoings as and when they fall due.

Subject to agreement on the above our client will give consideration to your client’s claims regarding repairs and maintenance. Where they are covered by the provisions of the Lease and not ambit they will rectify.

This is not an open offer. It needs to be responded to promptly.

If not accepted by 5.00pm 8 November, 2013 NSW time, it will be withdrawn.”

30. By letter dated 11 November 2013 to Mr McCartney, Mr Badarbne continued to reiterate his demand for a notice of attornment. By letter dated 14 November 2013, Mr McCartney wrote to Mr Badarbne suggesting an on-site meeting between the clients to discuss the repairs and maintenance issues, without prejudice to his client’s right to rent. A meeting eventually occurred on 29 November 2013.

31. On 29 November 2013, following the meeting, Mr McCartney wrote to Mr Badarbne complaining about his attendance at the meeting and the conduct of the defendant and Michael Ayoub (who accompanied the defendant) at the meeting. The letter continued:

“In our view neither you nor your client have any bona fides in this matter. We have previously warned you about the spurious nature of your objection and lack of legal basis, especially your demands for notices of attornment.

As there was no agreement on anything we will now proceed according to the lease.

We consider that there is no agreement on the level of rental to be paid and accordingly your client must follow the process for the determination of rent by the President of the Real Estate Institute of New South Wales.

In this respect we refer you to clause 14.1.9 of the lease.

If your client does not, within 2 days, agree to participate in that process, then our client will take that to be a breach of the terms of the lease and will accordingly commence proceedings against the tenant.

For the sake of complete clarity your client will not be further indulged. There will be no reinstatement of his lease. The termination will not be resiled from. For this your client has only himself to blame.

Nothing in this letter is intended to be nor should be taken to represent a waiver of, or election between, any of our client’s rights which remain fully reserved.”

32. Mr Badarbne responded by letter dated 4 December 2013. The wording of the letter is belligerent. It demands a notice of attornment. There is a reference to the Australian Constitution. It concluded:

“We wish to confirm that nothing in this letter can be regarded as recognition of your client’s right under the lease or an admission of any liability to your client.”

The notice of breach of covenant: 19 December 2013

33. Under cover of letter of 19 December 2013 to the defendant, Mr McCartney annexed a notice of breach of covenant pursuant to s 129(1) of the Conveyancing Act (the Notice of Breach). The notice alleged that it was an implied term of the 2013 Lease that the parties jointly co-operate and participate with obtaining a determination of fair market rental by the President; and that the defendant was in breach of the implied covenant. The notice stated that the plaintiff would be entitled to re-enter or forfeit the 2013 Lease if the defendant failed to comply with the Notice of Breach within a reasonable time and referred to s 129 of the Conveyancing Act.

34. The defendant failed to comply with the Notice of Breach.

The commencement of proceedings

35. The plaintiff filed the statement of claim on 6 February 2014. The relief claimed included an order for possession of the Premises. The plaintiff determined the lease on 10 February 2014 when it caused the statement of claim to be served on the defendant. The defendant filed a defence on 10 March 2014. The statement of claim was amended on 12 May 2014 to add a claim for rent from 7 March 2013 until 10 February 2014. The plaintiff claimed damages thereafter.

The appointment of Mr Newey as a single expert

36. On 24 April 2014 the plaintiff filed a notice of motion seeking the following order:

“1   Pursuant to rule 28.2 of the Uniform Procedure Rules 2005 (NSW), the following questions be decided separately from, and before, all other questions in the proceedings:

a.   whether it is an implied covenant of the Lease numbered AE209343C that if the rent for the period 1 March 2013 to 28 February 2014 was not agreed within six weeks of 1 March 2013, the parties would jointly participate and cooperate in seeking a determination of fair market rental by the President of the Real Estate Institute of New South Wales (Implied Covenant); and

b.   whether the Defendant breached the Implied Covenant.”

37. When the matter came before Hall J on 5 May 2014, his Honour decided that it was preferable to list the matter for an early final hearing rather than to determine a separate question as sought by the plaintiff. To that end, orders were made which required the parties to take steps to obtain a rental determination from the President. The matter was listed for hearing on 23 July 2014. Because of delays in the appointment, this date was vacated. On 8 September 2014 the matter came before the Registrar for directions. The defendant foreshadowed an application to have the expert disqualified and was directed to file any such notice of motion by 22 September 2014, which was made returnable on 29 September 2014.

38. Subsequently, on 29 September 2014, the Court ordered by consent that Mr Newey, an expert valuer nominated by the President, be the parties’ single expert.

39. Ultimately Mr Newey provided a report to the parties dated 5 February 2015 in which he determined the market rental for the period 1 March 2013 to 28 February 2014 to be $84,000 exclusive of GST plus outgoings. It is common ground that Mr Newey’s determination is a determination of fair market rental for the purposes of cl 14.1.9 of the 2013 Lease.

The adjournment of the proceedings on terms

40. On 21 April 2015 the matter was listed for hearing for two days commencing 9 July 2015. On 9 July 2015 the defendant applied for an adjournment of the hearing to enable him to file a cross-claim for damages against the plaintiff. Ultimately the parties handed up short minutes of order, consenting to the adjournment on condition that the defendant make certain payments for rent on particular dates. Any breach of a condition of payment gave the plaintiff a right to file an order of consent judgment, which included a judgment for possession of the Premises.

41. On 16 July 2015 the matter was listed for hearing for two days commencing on 31 August 2015. The matter was subsequently adjourned to 4 November 2015 with an estimate of three days, at which time it was heard.

42. On 5 November 2015 the question arose whether the defendant had paid all the rent to date on the construction of the 2013 Lease for which he contended. Ms Haddad, who appeared on behalf of the defendant, responded that he had paid in accordance with the orders made by the Court on 9 July 2015, which fell short of the rent payable under the 2013 Lease (even on the defendant’s construction). On 6 November 2015 the defendant paid an amount of $36,391.82 to the plaintiff which represented the balance of the amounts of rent that would have been payable under the 2013 Lease had it not been terminated, if the defendant’s construction of cl 14.1.9 were found to be correct.

Other matters: payments made to Mr Ayoub in 2013

43. Mr Barea was cross-examined about various payments and benefits that Abar had conferred on Mr Ayoub in 2013. These payments and benefits were recorded in an invoice book which had the word “Michael” (a reference to Mr Ayoub) written across the edges of its pages opposite the spine. As the book containing the invoices reflecting those payments and transfers of benefit was not produced and because the pages from that book were not complete, it is not possible to make a finding that the payments of cash and transfers of other benefits to Mr Ayoub were limited to those shown in the invoices tendered. All of the pages from the invoice book that were produced were tendered but the first page in evidence bore the numeral ‘70’, which indicated that there were earlier invoices that were not produced.

44. Mr Barea accepted in cross-examination that, for the months from January to June 2013 inclusive, payments were made to Mr Ayoub either in cash or in kind (by way of goods taken from the shop in the Premises such as cigarettes, ice creams, dog food and other grocery items) of $11,000 per month. He denied that such payments constituted rent and maintained that they were for work done by Mr Ayoub on the Premises. He conceded that the payments to Mr Ayoub had begun some months before any work had been performed by him on the Premises.

45. Abar’s profit and loss statements for the year ended 30 June 2013 and the year ended 30 June 2014 (which Mr Barea deposed had been attached to the company’s tax returns that had been lodged) recorded rental payments of $120,000 per year in each of these two years. The tax returns were not produced, notwithstanding that their production had been required by notice to produce. The payments in cash and in kind to Mr Ayoub cannot be identified in these financial statements, unless they correspond with the so-called rental payments. Mr Barea admitted that he had sworn in an affidavit (which was not read in the proceedings) that Mr Ayoub had informed him that the plaintiff held the Premises on trust for Mr Ayoub’s benefit. However, the defendant consistently denied that the payments amounted to rent for the Premises.

46. Even if one assumes that Abar was paying the rent for Mr Barea under the 2008 Lease and the 2013 Lease, these financial statements do not accord with the facts, which are that the only payment of rent that was made in the year ended 30 June 2014 was the amount of $25,000 made in August 2013. Furthermore, the rental payable for those years was not $120,000. Although the rent for the first year of the 2008 Lease was $120,000 it was subject to annual reviews based on CPI increases. As at the date of the financial statements, the rent under the 2013 Lease had yet been determined.

47. It is difficult to know what to make of the evidence of the benefits conferred on Mr Ayoub in this period. Mr Newton, who appeared for the plaintiff, submitted that the benefits were “odd”. In light of the defendant’s denial I do not infer that he thought that the lease payments ought be made to Mr Ayoub; after all, the defendant had been instructed by Mr Gleeson in 2010 not to pay either Mr Ayoub or Enviro.

48. I do not accept the defendant’s evidence that cash was paid and goods transferred to Mr Ayoub in return for work done on the Premises.

49. In my view, all that can safely be inferred from this evidence is that the financial statements of Abar are unreliable. Accordingly, no inferences can be drawn from them unless corroborated. Thus, I would not infer that the business conducted on the Premises was profitable; or that there was a side-agreement (inconsistent with the 2008 Lease and the 2013 Lease) that the rent would remain at $120,000 as recorded in the financial statements. I am not satisfied that any work was actually done to the Premises or that, if it was done, it cost any particular amount or increased the value of the Premises.

Construction of the 2013 Lease

The parties’ submissions

50. The plaintiff contended that the effect of cll 2 and 14.1.9 of the 2013 Lease was that the rent for the year 1 March 2013 to 28 February 2014 was either:

1. the rent agreed between the parties; or

2. the higher of the following two figures:

1. the market rent as determined by the President or his or her nominee; and

2. $134,410.77, being the rent under the 2008 Lease for the period 1 March 2012 to 28 February 2013 (see above).

51. The defendant contended that the effect of cll 2 and 14.1.9 of the 2013 Lease was that the rent for the year 1 March 2013 to 28 February 2014 was either:

1. the rent agreed by the parties; or

2. the rent determined by the President.

52. As there was no agreement between the parties, the plaintiff contended that the rent for the year 1 March 2013 to 28 February 2014 was $134,410.77 and the defendant contended that it was $84,000 exclusive of GST plus outgoings (Mr Newey’s figure).

Consideration

53. I do not consider the construction of cl 14.1.9 for which the defendant contended to be reasonably open. In my view, the plain meaning of the clause is that the rent is to be the higher of the two amounts referred to: the amount for the previous year; or the amount as determined by the President for any given year. Although the proviso in cl 14.1.9 appears in the sentence preceding the provision of what is to occur if the parties cannot agree, its position does not have the effect that what follows supersedes it. The construction for which the defendant contended would, if accepted, deprive the words “in no circumstances” in cl 14.1.9 of their full force and effect. Moreover, the defendant’s construction would produce an absurdity; there would be no reason for the parties to limit the figure below which they could not form an agreement, but not place the same limitation on the rent if it were determined by the President, in the absence of agreement.

54. In my view, the proviso in cl 14.1.9 has the effect that the rent for the 2013 Lease cannot be less than the rent for the day immediately preceding the day on which the rental was to be determined. As the day on which the fair market rental was to be determined was 1 March 2013, the day preceding that day was 28 February 2013. The rent at that time was the annual rent for the fifth year of the 2008 Lease, which was $134,410.77. It follows that when the President determined the rental for the year commencing 1 March 2013 at $84,000 exclusive of GST, this figure was caught by the proviso and the rent became, by operation of cl 14.1.9, $134,410.77 for the year 1 March 2013 to 28 February 2014.

Whether the 2013 Lease was validly terminated

55. It is common ground that the implied term pleaded was an implied term of the 2013 Lease. No issue has been raised as to the form or validity of the Notice of Breach or its compliance with s 129 of the Conveyancing Act. The defendant did not co-operate within the period of one month stated in the Notice of Breach and therefore did not remedy the breach. Accordingly, the plaintiff was entitled to terminate the 2013 Lease pursuant to cl 9.1.2 after the Notice of Breach had expired. It did so by serving the statement of claim on the defendant on 10 February 2014.

56. Somewhat ironically, the defendant, in his oral submissions, criticised the plaintiff for not having initiated the process of appointing the President earlier than November 2013. This criticism was unwarranted. For the reasons given in Gollin & Co. Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 467, a party is not in breach of such a term unless and until the other party invokes the procedure that will lead to a rental determination.

57. I am satisfied that the plaintiff validly terminated the 2013 Lease pursuant to cl 9.1.2.

58. The plaintiff also claimed an entitlement to rescind the 2013 Lease for fundamental breach of contract on the basis that the principles of contract law apply to leases: Progressive Mailing House v Tabali (1985) 157 CLR 17 at 29 per Mason J. The breach relied upon as being a fundamental breach was the same breach as identified in the Notice of Breach.

59. The plaintiff is entitled to rely on any right to terminate available to it at the relevant time, whether or not it purported to exercise the right at the time or was aware of the circumstances giving rise to it: Shepherd v Felt and Textiles Pty Ltd (1931) 45 CLR 359 at 377-378 per Dixon J.

60. The 2013 Lease was relevantly breached at the beginning of December 2013 (based on the plaintiff’s letter to the defendant dated 29 November 2013, this being the first occasion on which the plaintiff had invited and required the defendant to participate in obtaining the rental determination). There is no evidence that the defendant even responded to the Notice of Breach. The defendant eventually consented to orders, which were made by Hall J on 29 September 2014, that Mr Newey be appointed as the single expert.

61. I am not satisfied that the implied term was an essential term, the slightest breach of which would entitle the plaintiff to terminate the 2013 Lease. I regard the term as an intermediate one (neither condition (essential) nor warranty (inessential)), breach of which leads to a right to rescind only where the breach is sufficiently serious. The defendant’s breach prevented the machinery for fixing the rental from operating and had the effect that the defendant’s obligation to pay rent was deferred because it had not been fixed in conformity with the 2013 Lease. Although the rent for the last annual period for the 2008 Lease provided the minimum rent that was payable, this amount was not fixed as the rent because it was possible that the President would determine a higher rent pursuant to 14.1.9 of the 2013 Lease, in which event, the higher amount would constitute the rent. The defendant’s breach deprived the plaintiff of the benefit of the 2013 Lease: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 at [49]-[55]. It was a fundamental breach which went to the root of the 2013 Lease, thereby entitling the plaintiff to rescind.

62. The defendant’s persistent refusal to recognise the plaintiff as the lessor amounted, in my view, to a repudiation of the 2013 Lease, which would have provided a further and independent basis for termination: Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626 per Gibbs CJ. It is not clear from the pleadings that the plaintiff relied on this basis. Accordingly, it need not be further addressed.

63. In these circumstances, it is not necessary to address the plaintiff’s alternative submission that the 2013 Lease was frustrated.

Relief against forfeiture

The parties’ submissions

64. The defendant submitted that relief against forfeiture ought be granted for the following reasons.

1. His breach was not willful in that he acted on legal advice and should not be blamed for accepting poor legal advice.

2. He had been scrupulous in his adherence to his obligations since 9 July 2015.

3. He had improved the Premises by having works performed which had increased their value.

4. His business was valuable and it would be wrong to deprive him of the value by refusing relief (Simjanovski v Maribyrnong Views [2000] VSC 4 at [9] per Beach J).

5. The principles relating to relief against forfeiture for non-payment of rent applied since cll 2 and 14.1.9 were clauses in relation to rent.

6. He had paid all the rent to date based on the interpretation of the 2013 Lease for which he contended.

65. As to (1), Ms Haddad contended that the defendant ought not pay the price of the legal advice that he had received since July 2013, to the effect that he was not obliged to pay rent either because he had not received a notice of attornment; or because he had reached a separate agreement with Enviro; or because the plaintiff, as landlord, was required to do structural repairs on the Premises; or because the defendant had done works himself on the Premises the cost of which he was entitled to set off against rent.

66. As to (2), Ms Haddad also relied on the willingness of the defendant to pay outstanding rent since July 2015 and noted that his former solicitor had filed a notice of ceasing to act on 10 July 2015. On 8 July 2015 Mr Harb, the defendant’s present solicitor, filed a notice of appearance.

67. As to (3) and (4), Ms Haddad contended that I could draw such inferences although she was unable to point to admissible evidence of these matters.

68. As to (5) and (6), Ms Haddad contended that the defendant ought obtain relief against forfeiture because he had paid all the rent on his interpretation of cl 14.1.9. She submitted that, if the interpretation for which he contended was not accepted and the plaintiff’s interpretation was accepted, the relief ought be granted on condition that he pay the outstanding rent.

Consideration

69. Section 129 of the Conveyancing Act relevantly 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.

(2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.

. . .

(8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

. . .”

70. The statutory power to grant relief against forfeiture is co-extensive with the inherent power of a court of equity to grant such relief.

71. I reject the defendant’s submission that the relevant principles applicable in the instant case are those relating to relief against forfeiture for non-payment of rent. The relevant breach relied upon by the plaintiff was breach of the implied term to co-operate in obtaining a rental determination from the President. Until such rental determination had been made, there was no determination of rent for the period from 1 March 2013, since all that cl 14.1.9 provided, relevantly, was that the rent would not be less than the annual rent payable during the last year of the 2008 Lease: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 607 per Gibbs CJ, Murphy and Wilson JJ.

72. Accordingly, the general principle that a lessee is usually entitled to relief against forfeiture for non-payment of rent as long as the rent is paid up to date at the time of the hearing is not presently applicable. Where relief against forfeiture for breach of a non-monetary default is sought the relevant considerations include: the gravity of the breach; whether the breach was inadvertent or willful; the damage to the covenantee; and the relative loss if relief is not granted (Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 per Keane JA; cited with approval in Steel Supplies Bega v Shoveller [2014] NSWSC 1612 at [128] per McDougall J). In Byron Bay Retirement Villages Pty Ltd v Zandata Pty Ltd [2008] NSWSC 1123, Palmer J summarised the relevant matters as follows:

“The principles upon which such relief is granted are clear. The Court has regard to the nature and circumstances of the breach of lease committed, together with such damage as the lessor may suffer as a consequence of such breach, and also has regard to what the lessee stands to lose if the lease is forfeited. Where the forfeiture is excessively punitive as far as the lessee's breach is concerned, i.e. where the damage suffered by the lessor in consequence of the breach is far less in consequence than that which would be occasioned to the lessee if the lease were forfeited, or where the lessor would, if forfeiture were allowed, obtain a windfall or an unmerited benefit, then the Court usually grants relief against forfeiture: see, for example, Legione v Hateley (1983) 152 CLR 406 at 429, per Gibbs CJ and Murphy J, and at 449, per Mason and Deane JJ.”

73. For the reasons given above, I regard the breach as substantial. There is no basis on which I could conclude that it was inadvertent. Ms Haddad submitted that the defendant received poor advice from his then lawyers and that he ought not be judged by their advice since he was entitled to rely on it. I do not accept this submission. The defendant has given no such evidence. He has not given any explanation as to why he failed to comply with the Notice of Breach. Such statements, when made by the bar table and not supported by, or able to be inferred from, sworn evidence, cannot form the basis of findings. I am not prepared to draw inferences favourable to the defendant on matters going to whether his non-compliance with the Notice of Breach was as a result of legal advice, or inadvertent when no attempt was made to prove those matters by direct evidence, and, in particular, where no relevant questions were asked of the defendant.

74. Indeed I infer from the following that the defendant’s non-compliance was deliberate:

1. the lack of response to the Notice of Breach;

2. the circumstance that the defendant gave no evidence to explain the lack of response to the Notice of Breach, or the basis for his actions throughout: Commercial Union Assurance Co of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418E per Handley JA; and

3. the following passage from his affidavit of 28 August 2015 (which was sworn when the defendant’s current solicitor was acting for him) which was allowed only as a submission in which the defendant purported to justify his failure to pay rent and, I infer, his failure to remedy the Notice of Breach:

“The plaintiff made no attempt to carry out any works on the defects as notified in Annexures “B” [the letter of 16 August 2013] and “D” [the letter of 23 August 2013]. As there was no attempt to rectify any of these defects I did not pay any further rent, those defects were the responsibility of the plaintiff and the defects were effecting [sic] the profitability of my business in running the service station on the property.”

75. There is no evidence that forfeiture will be “excessively punitive” as far as the defendant is concerned. By the time of the breach the defendant had paid only a small fraction of the rent that would inevitably become owing for the period once the rent was determined. The immediate effect of the defendant’s refusal to participate in the joint approach to the President was to delay the determination of the rent for a considerable period.

76. There is no evidence that the plaintiff will obtain an unmerited windfall from the forfeiture of the 2013 Lease. Indeed, the evidence is that the rental under the 2013 Lease is greater than market. Further, the evidence as to the defendant’s expenditure on the Premises is, as appears from the summary of the payments made to Mr Ayoub, not such as would allow me to conclude that any works completed have added to the value of the Premises (even if I could accept that payments were made for work which was actually performed). Although Ms Haddad submitted that the defendant, through his shareholding of Abar, would lose valuable goodwill, there is no reliable evidence of any such goodwill. I regard the accounting statements that are in evidence as being insufficient to establish the profitability of the business; accordingly, it is questionable whether it has goodwill. In any event, the value of any such goodwill has not been established.

77. I am not satisfied that the defendant has established any basis for concluding that it would be either unjust or unconscionable for the plaintiff to insist on forfeiture of the 2013 Lease: see Legione v Hateley (1983) 152 CLR 406 at 429 per Gibbs CJ and Murphy J.

78. I regard the circumstances surrounding the defendant’s breach specified in the Notice of Breach, as well as the matters referred to above, as being such as make relief against forfeiture inappropriate. I do not consider that the plaintiff should be required to “remain in a relation of neighbourhood with a lessee in deliberate breach of [his] obligations”: Batiste v Lenin [2002] NSWCA 316 at [63] per Sheller JA.

79. In these circumstances, it is not necessary to address the question whether the present case is one in which breaches other than the breach nominated in the s 129 notice can be taken into account in the discretion whether to grant relief against forfeiture: Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 per Hope J, approved in Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 97311. Accordingly, it is not necessary to assess the significance of the defendant’s other conduct, including his insistence that the plaintiff had no right to the rent as it was not the lessor of the Premises; or that the plaintiff was not entitled to be paid rent at all unless and until it repaired the Premises or was prepared to set off the rent by reference to the sums the defendant had allegedly spent undertaking such repairs himself.

Damages

80. By the operation of s 117 of the Conveyancing Act, the plaintiff was entitled to recover from the defendant for loss of bargain damages even though there was no privity of contract between them: Gumland Holdings v Duffy Bros.[2008] HCA 10; 234 CLR 237 at [66]-[84]. Loss of bargain damages are to be calculated by reference to the amount of money required to put the plaintiff in the position it would have been in had the contract (the 2013 Lease) been performed: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J. Accordingly the claim for mesne profits or quantum meruit need not be considered.

81. The plaintiff is entitled to rent from 7 March 2013, being the day on which it became the registered proprietor of the Property, until 10 February 2014 when it served the statement of claim for possession on the basis of the Notice of Breach. Thereafter it is entitled to damages for loss of bargain (expectation damages). These damages will include rent as calculated by reference to the 2013 Lease up until the date on which the defendant vacates the Premises. Whether the plaintiff is entitled to any further damages, and if so, how they ought be calculated depends on the rent which it is likely to receive for any further leases of the Premises up until 20 February 2018, being the date on which the 2013 Lease would have expired had it not been terminated.

82. At the conclusion of the hearing, the parties asked me to defer making orders or assessing damages until after my reasons had been published in order to give them an opportunity to agree on short minutes of order, or refine their respective positions in light of my reasons. As the plaintiff has not had access to the Premises by reason of the 2013 Lease and the defendant’s continued occupation after its determination, the parties wish to adduce further evidence on the question of damages in light of my construction of the 2013 Lease.

Summary

83. For the foregoing reasons, the plaintiff is entitled to an order for possession of the Premises and to judgment for damages to be assessed. As indicated at the conclusion of the hearing, I will make directions for the provision of draft orders and any further evidence in order that the proceedings can be finalised.

Orders

84. I make the following orders:

1. Judgment for possession of the land described as part of lots 282 and 283 in Deposited Plan 16051 (Folio Identifier Auto Consol 4346-72), being lock-up shop 1B, service station premises.

2. Judgment for the plaintiff against the defendant for damages as assessed.

3. Stand the matter over for mention before me on 20 November 2015 at 9.15am, or such other date as may be agreed between the parties, in consultation with my Associate, for argument and evidence, if required, as to the quantum of the judgment referred to in (2) above and the appropriate order for costs.

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Amendments

12 November 2015 - paragraph [79] - typographical errors

Decision last updated: 12 November 2015