Galaxy Catering Pty Ltd v Trust Company of Australia Ltd

[2006] NSWADT 182

CITATION:	Galaxy Catering Pty Ltd v Trust Company of Australia Ltd [2006] NSWADT 182
DIVISION:	Retail Leases Division
PARTIES:	APPLICANT Galaxy Catering Pty Ltd RESPONDENT Trust Company of Australia Ltd
FILE NUMBER:	065068
HEARING DATES:	18/05/06, 23/05/06, 29/05/06
SUBMISSIONS CLOSED:	05/29/2006
EXTEMPORE DECISION DATE:	05/29/2006
DATE OF DECISION:	06/16/2006
BEFORE:	O'Connor K - DCJ (President)
CATCHWORDS:	Application for Relief against Forfeiture
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994
CASES CITED:	Love v Gemma Nominees Pty Ltd (1983) ANZ Conv R 68 Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837 McGregor v Henry [2006] NSWSC 368 Sabri v Selby [2004] NSWADT 252 Direct Food Supplies (Victoria) Pty Ltd v DLV Pty Ltd [1975] VR 358 Belgravia Insurance Co v Meah [1963] 3 All ER 828 Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49 Canberra International Airport v Ansett Australia (2002) 41 ACSR 309; [2002] FCA 329 Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584 Ell v Cisera [2000] NSWSC 768 Shiloh Spinners Ltd v Harding [1973] AC 691 Tannous v Cipolla [2001] NSWSC 236
REPRESENTATION:	APPLICANT K Grinberg, Grinberg Young Lawyers RESPONDENT D Hassan, Raj Lawyers
ORDERS:	Application for Order for relief against forfeiture granted subject to the following conditions; 1. Rent. The applicant/lessee be permitted to re-enter on payment of one-half of the rent and other charges due for June 2006 ($4524), such payment to be made not later than 1 June 2006; with the balance of the monthly rent and other charges to be paid not later than 10 June 2006; the whole of the monthly rent for July to be payable on 1 July 2006; such payments to be made by cash or bank cheque; and subject to the following further conditions; 2. Steps to Terminate. The lessee be permitted to continue in possession so as to enable it to sell the business, until 31 July 2006 or for such further time as the lessor permits if the lessor is satisfied that a purchaser has been found who will be approved as an assignee of the lease; 3. Costs. That the lessee pay the costs of the lessor in respect of the proceedings in the Tribunal, the quantum to be determined in accordance with a determination of the Tribunal, such determination to be made, after consideration of submissions, not later than 31 July 2006.

1 On 2 May 2006 the applicant lodged with the Tribunal under the Retail Leases Act 1994 (the Act or Retail Leases Act) a retail tenancy claim and an unconscionable conduct claim. The applicant immediately sought an urgent interim order for relief against forfeiture. After hearing submissions on 5 May 2006 and being informed of the background to the dispute, the Tribunal dispensed with the requirement that any application made to the Tribunal for relief be accompanied by a certificate of failed mediation from the Registrar of Retail Tenancy Disputes, as it was satisfied that mediation was unlikely to resolve the dispute (s 68). The Act gives the Tribunal a discretion to make an order of the kind sought: s 72(1)(d) read in conjunction with s 72(4).

2 The applicant is Galaxy Catering Pty Ltd trading as Zodiac Restaurant. The sole director of the company and operator of the business is Mr John Yacco. The restaurant serves Middle Eastern cuisine and is situated near the Hoyts Cinema Complex in the Wetherill Park Shopping Centre. It seats, indoors, about 70. There is also an outside area with seating.

3 There is no dispute that the premises and the lease are subject to the Act. The lessor is the respondent. The centre is managed on its behalf by Stockland (Properties) Pty Ltd.

Circumstances

4 The applicant agreed to lease the premises from the respondent in March 2004, effected a fit-out and began paying rent in late April 2004. The business officially opened on 1 July 2004. There were some unexpected complications with the fit-out, in particular the need to raise the floor to allow for underground piping and the like.

5 The applicant was not required at the start to furnish a security bond, the amount of which is the equivalent of three months rent.

6 The respondent locked the applicant out of the premises on 28 April 2005 for default in the payment of rent. There were proceedings in the Tribunal. The dispute was settled and the applicant was reinstated in the premises. In November 2005 the bond was requested, and paid by the applicant.

7 There has been a long history of late payment of rent. For some time, management was agreeable to receiving payment in weekly and fortnightly instalments, rather than the usual monthly in advance. The applicant has routinely been late in payment of the rent, though as at 31 December 2005 it was completely up to date.

8 The present proceedings arise from a further lockout which occurred exactly a year after the first lockout, on 28 April 2006.

9 The applicant fell behind again during January, February and March. The respondent pressed for rent to be brought up to date during March and April. Various promises were made, and not honoured by the applicant. This led to a notice of breach of covenant being issued on 19 April 2006. The applicant did not bring the arrears up to date, resulting in the lockout. The applicant then chose to take Supreme Court proceedings applying for various orders. As the Tribunal understands the matter, this course of action resulted from advice given by a person describing herself as an ‘independent advocate’, Jenni Marshall. The relevant process was served on the respondent on Saturday 29 April 2006. The proceedings in the Supreme Court were withdrawn by the applicant on Wednesday 3 May 2006, on terms which included payment of the respondent’s costs. The applicant has now received a statement of fees incurred from the respondent’s solicitor, in the amount of (approximately) $18,000. The bill lists various activities, uses time-costing with a charge out rate that would appear to be about $400 per hour.

10 The applicant then, in line with the Supreme Court settlement, made the present interim application to the Tribunal. The applicant’s principal applications allege various types of misconduct by the respondent, and make retail tenancy and unconscionable conduct claims. By this time it was represented by Grinberg Young Lawyers. The urgent relief application was first heard on 5 May 2006.

11 On that occasion there was much discussion of actions that had occurred in relation to the bond. The applicant wanted the bond to be applied towards the rent default. The applicant believed that the respondent was happy with that course. The Tribunal was not satisfied that the default had been remedied; and did not consider it appropriate to allow the amount held by way of bond to be counted towards the rent default. The application was dismissed.

12 A cross-application by the respondent was adjourned (proceedings no. 065070), as were the applicant’s principal applications and an application by the respondent for costs.

13 The present proceedings arise from a second application for an order for relief against forfeiture. By 18 May 2006, the applicant had brought the rent up to date to 31 May 2006. (The security bond remained intact.)

14 In these circumstances the applicant’s submission is that the ordinary approach of the law of equity, and the usual approach of this Tribunal, should be adopted, i.e. the lessee should be returned to possession

15 On 18 May 2006 and 23 May 2006, the Tribunal held further hearings. At the main hearing on 23 May 2006 Mr Yacco gave evidence, as did the shopping centre manager, Mr Hammon. The matter was unable to be resolved on that day, and the Tribunal adjourned the proceedings with a view to delivering its decision at 3 pm on Monday 29 May 2006.

16 There are thirteen documents before the Tribunal, marked MFI 1 to 13. The MFI marking was used to indicate that formal objections to their contents had not been heard, and as yet they were not admitted for the purposes of the principal applications for relief filed by both parties. However this material has been taken into account for the purposes of these proceedings. In addition to the material marked MFI 1 to 13 the respondent handed up detailed written submissions at hearing on 23 May 2006 opposing relief being granted.

17 The making of the order sought involves the exercise of a discretion.

18 The applicant has for some time been looking to leave the business. There was evidence given by Mr Yacco of contact with a Mr Kezez, a prospective purchaser, in January and early February 2006. There was evidence of further contact with Mr Kezez in the last few days. Separately, there is evidence of contact between a Mr Hallil and shopping centre management reflecting discussions between those parties as to future occupation of the premises (letter 2 February 2006).

19 The concern facing the Tribunal is that there has been much evidence placed before it as to the difficult financial situation Mr Yacco finds himself in. On the material before the Tribunal, the business is running at a loss. Annual rent is around $104,000, and full year turnover is running at around $126,000. (These are the first year figures for the period 1 July 2004 to 30 June 2005. We do not have the second year figures yet.) Then allowance must be made for food costs (put by Mr Yacco at $4,000-5,000 per month) and other expenditures plus any drawings in the nature of wages. The business is open approximately 14 hours a day, 7 days a week; Mr Yacco is the chef, and various family members provide staffing.

20 Mr Yacco put $198,000 into the business by way of fit-out. He is anxious to sell the business at a price that compensates him for the fit-out at least. In the Tribunal’s view his expectations are unrealistic.

21 Other financial information presented showed that Mr Yacco’s estimate of the value of his home and the amount borrowed against it by way of mortgage shows that he (and his wife) have little or no net equity. In order to meet the default that gave rise to the present lock-out he borrowed by way of personal loan $30,000. The documents suggest that the expressed basis for the loan was to enable him to do home improvement, but he has applied most of the money to business purposes (the overdue rent).

22 The Tribunal acknowledges that there remains some likelihood that the applicant will again fall into default. The evidence strongly points to the conclusion that the business is running at a loss. The applicant has little or no independent means for raising money. He has already borrowed against his mortgage to support his business (he says to the extent of $60,000) and been provided with substantial amounts by relations. As to the relations’ monies, he sees himself as morally bound to repay, but only if the business comes good.

23 The Tribunal has during the course of these proceedings canvassed with the parties, to no avail, some kind of amicable resolution that might have allowed the applicant back into possession. One possibility was that it gives the respondent an undated deed of surrender, the effect of which (as I understand it) is that the respondent would be able to go into the market and solicit interest in taking over the premises. If a replacement tenant is found, the lessor would have control over the date of entry into possession; and hopefully any ongoing rent and other liabilities of the applicant under the current lease would be ameliorated or extinguished. Under such an arrangement, the applicant would have to keep the rent up to date, otherwise it might again be locked out.

24 In favour of the applicant, it is pointed out that the lease has four years to run, and the only practical source of income for the applicant is from the business. The applicant will be put even further behind if it is left to pay rent, pending the obtaining by management of any replacement tenant, and other costs (restoration of space to shell, for example), and does not have any income to draw on. It will lose entirely the benefit of his fit out and his investment in the business. It faces the possibility of being required to pay rent for another four years.

25 The strongest factor in favour of the applicant is the traditional approach of the courts to granting relief against forfeiture. The case-law clearly indicates that a tenant will be returned to possession if the default is remedied. It is not critical that the tenant is a bad or slow payer. In the courts of equity, relief has traditionally been given if the default in payment of the rent is remedied, together with interest and costs. The degree of toleration shown by the courts of equity is reflected in the following passage from Megarry and Wade, The Law of Real Property (6th ed. Harum (ed)), [14-141] (footnotes omitted):

‘Save in very exceptional circumstances, the court will grant the tenant relief against forfeiture … on payment of all arrears of rent and costs. Relief will be granted to the tenant even if he is insolvent, he has been a bad payer in the past, or the landlord has other grounds of complaint against him. This approach follows from the fact that equity regards the right of re-entry as mere security for the payment of rent. There are, however, limits to equity’s indulgence, as where the conduct of the tenant has been sufficiently shocking to disqualify him from claiming any relief or assistance whatever, or where no rent has been paid for years and the tenancy has been treated as at an end. …

Because relief is discretionary, in addition to requiring payment of all arrears and costs, the court may impose further terms on the tenant, e.g., that he should execute outstanding repairs.’

26 The courts in Australia have taken a similar approach. See Sackville and Neave, Property Law (6th ed, Neave, Rossiter, Stone (eds)) at [9.2.149] & ff. See, for example, Love v Gemma Nominees Pty Ltd (1983) ANZ Conv R 68 at 69-70 per Burt CJ.

27 Recently, see Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837 per White J at [30]:

‘It is only in special circumstances that relief against forfeiture for non-payment of rent will be refused, although the relief remains discretionary.’
Also, McGregor v Henry [2006] NSWSC 368 per White J at [64]. There is a useful survey of the principles as they have been applied in Australia in the Tribunal’s decision in Sabri v Selby [2004] NSWADT 252.

28 The only Australian superior court authority known to the Tribunal where the court has refused relief because of the parlous financial circumstances of the tenant is Direct Food Supplies (Victoria) Pty Ltd v DLV Pty Ltd [1975] VR 358 (Starke J), where the court was satisfied that the lessee’s financial position was hopeless and there was no or little prospect of the rent being paid in the future. The present case, in my view, clearly is not at that point. There is enough volume in the business to cover rent and, perhaps, consumables, but nothing more. The applicant’s financial position is not as bad as in Direct Food Supplies, but is clearly unsatisfactory from a normal trading viewpoint. I am not satisfied that the conduct of the applicant has been so bad as to deny him relief. This is not a case where the ‘conduct of the applicant is such as to make it inequitable that relief should be given’: see further Belgravia Insurance Co v Meah [1963] 3 All ER 828 at 832 per Lord Denning MR.

29 Despite being pressed, the solicitor for the respondent, Mr Hassan, was unable to point to any Australian or English case where relief against forfeiture had been granted against a tenant with a history of late payment who was trading in difficulty, the circumstances here. This, in the Tribunal’s view, underlines the degree of protection that equity has traditionally afforded tenants who fall into default in the payment of rent but rectify the breach. Relief has for example been afforded to a tenant who has entered into a scheme of arrangement to trade out of difficulties: see Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49 at 53. See also Canberra International Airport v Ansett Australia (2002) 41 ACSR 309; [2002] FCA 329. In Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584 the court held that a failure to pay rent does not constitute an exceptional circumstance (justifying refusal to grant relief) unless there are consistently lengthy defaults which lead to an inference that there is a reasonable likelihood that rent will not be paid in future.

30 Perhaps the strongest case favouring the respondent’s submission is Ell v Cisera [2000] NSWSC 768 (Hamilton J) where relief was refused. There was a history of late payment in that case. But the late payment was compounded in a number of instances by presentation of cheques which were dishonoured. But it is clear that this conduct was not the crucial factor for the judge. More important was the attitude evinced by the tenant towards the payment of rent, and the breach of the covenant to keep the premises clean.

31 While the Tribunal in this case has indicated some apprehensions about the applicant’s financial position, the point has not been reached where it should be denied relief.

32 This Tribunal should not, it seems to me, take any harsher an approach than that of the equity courts in exercising the statutory jurisdiction given by the Retail Leases Act. The Act was passed to afford a measure of protection to tenants beyond that which the ordinary law had, historically, afforded to them. This is most reflected in the various statutory warranties implied into leases. To minimise the possibility of difficult situations like the present arising, the Act imposes a number of requirements on the lessor and the lessee in relation to pre-contractual disclosure.

33 The evidence shows that the applicant has struggled for some time to make payments of rent on time. At least in the first year (for this purpose April 2004-April 2005), there is some evidence to indicate that the management made allowances for the fact that it was in the start-up phase by allowing payment of rent in weekly and fortnightly lumps often late. It is also the case that as between 16 March 2006 and 28 April 2006 the applicant received several warnings that it needed to bring the rent up to date and various promises were given by the applicant and not honoured, leading to the lock-out. Nonetheless I do not consider that the point has been reached where there is a history of deliberate and wilful breaches of obligations of sufficient gravity to warrant denying relief (as to which see Shiloh Spinners Ltd v Harding [1973] AC 691; Tannous v Cipolla [2001] NSWSC 236 per Barrett J at [26-27]).

34 In submissions, the respondent pointed to other breaches of the lease which, it was said, should bear disfavourably on the exercise of discretion.

35 The respondent referred to non-notification of changes in the directorships and shareholdings of the company after the lease took effect. The date upon which the lease took effect under the Act was, it was submitted, the date rent commenced to be paid – on or about 27 April 2004. The respondent referred to company searches showing that Mr Yacco’s wife, Ms Jacqueline Georges, ceased to be a shareholder and director in or around June 2004 and to provisions in the lease relating to notifications of such changes. In my view no certain conclusion can be reached at this stage as to whether there has been a breach, especially as their correspondence with the lessor in the June period would appear to show an awareness on the lessor’s part of internal changes in the directorship of the family company.

36 Another submission was to the effect that the precise terms of the lease as to the nature of the security to be provided, a bank guarantee, had not been observed. It is not disputed that the applicant has furnished by way of a security bond the cash amount of $23,000. It there is a breach, it is one that has not exposed the respondent, in my view, to any detriment.

37 The respondent referred to the failure, recently, of the applicant to have in place a current insurance certificate. This failure has since been rectified.

38 The hearing has drawn attention to the possibility that the applicant has not complied fully with his obligations to furnish exact information as to turnover. It is not possible, at this point, to form a view as to the extent or otherwise of any breach of the lease in this regard.

39 The respondent noted also that the applicant had an outstanding debt in respect of the consent costs order arising from the Supreme Court proceedings. In the Tribunal’s opinion the ultimate quantum of that debt has yet to be determined.

40 These matters were put forward as bearing on the discretion of the Tribunal. There is no evidence that until the occurrence of these proceedings that any of these matters (other than the recent Supreme Court costs order) were of any great concern to the respondent’s management. The respondent’s interest, understandably, is an economic one. It wants the rent paid on time and in an orderly way. It is accepted that the applicant has maintained the premises in good condition at all times.

41 The order which follows allows the applicant immediate re-entry into possession.

42 The statutory power being exercised by the Tribunal belongs to a regime where costs of proceedings in the Tribunal are subject to the rule that they should only be awarded if the Tribunal is satisfied that there are ‘special circumstances’ justifying an award of costs: s 88(1), Administrative Decisions Tribunal Act 1997, read in conjunction with Retail Leases Act, s 77A.

43 There remain before the Tribunal two principal applications, one by the applicant seeking damages and other orders and the other a cross-application by the respondent seeking various orders. The parties have already been involved in proceedings during 2005 in the Tribunal, in proceedings for a few days in late April and early May 2006 in the Supreme Court and now again here. The applicant has, it would seem, incurred significant legal and other assistance expenses. There was evidence in these proceedings suggesting that it may be indebted in the amount of $17,000 in respect of the first proceedings in the Tribunal, to the respondent in an unquantified amount (possibly as high as $18,000) in respect of the Supreme Court proceedings and for his costs in respect of those proceedings and the current proceedings.

44 It is highly desirable that the parties find a more sensible solution to their dispute.

Orders

Application for Order for relief against forfeiture granted subject to the following conditions.

1. Rent. The applicant/lessee be permitted to re-enter on payment of one-half of the rent and other charges due for June 2006 ($4524), such payment to be made not later than 1 June 2006; with the balance of the monthly rent and other charges to be paid not later than 10 June 2006; the whole of the monthly rent for July to be payable on 1 July 2006; such payments to be made by cash or bank cheque; and subject to the following further conditions.

2. Steps to Terminate. The lessee be permitted to continue in possession so as to enable it to sell the business, until 31 July 2006 or for such further time as the lessor permits if the lessor is satisfied that a purchaser has been found who will be approved as an assignee of the lease.

3. Costs. That the lessee pay the costs of the lessor in respect of the proceedings in the Tribunal, the quantum to be determined in accordance with a determination of the Tribunal, such determination to be made, after consideration of submissions, not later than 31 July 2006.