Greek Macedonian Club Ltd v Pan Macedonian Greek Brotherhood NSW Ltd

[2007] NSWSC 92

CITATION:	Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited [2007] NSWSC 92
HEARING DATE(S):	23-24 August, 28-29 August 2006
JUDGMENT DATE :	16 February 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
DECISION:	(1) Declare plaintiff entitled to a leasehold estate in the premises for a term of ten years from 1 July 2003 to 30 June 2013 at a rent of $40,000 per annum. (2) Order that defendant execute and deliver to plaintiff a lease in registrable form complying with the declaration in order 1 and containing such other usual and reasonable terms and conditions as may be agreed by the parties and failing agreement determined by the court. (3) Upon undertaking of plaintiff to Court to pay to defendant all arrears of rent under the lease, order by way of relief against forfeiture that the defendant be permanently restrained from exercising any power of re-entry granted by or under the lease, in reliance upon any default of the plaintiff in respect of payment of rent to date. (4) Cross claim for possession dismissed. (5) No order as to costs, to intent that each party bear its own costs.
CATCHWORDS:	EQUITY – Estoppel – Proprietary estoppel – where plaintiff with encouragement of defendant transfers property to defendant in reliance upon assumption known to defendant that plaintiff will have lease of other property of defendant at reduced rental – held, equitable proprietary estoppel made out resulting in equitable leasehold estate – CONVEYANCING - Leases – termination – default in payment of rent - EQUITY – Relief against forfeiture - whether lessee entitled to relief against forfeiture – where aspect of wilfulness in default – where previous flexible relationship between parties – where long history of reliable payment of rent – where lessor amply protected against future default – where forfeiture would produce great windfall benefit to lessor – where lessee did not admit breach – whether admission of breach essential precondition to grant of relief against forfeiture – COSTS – Relief against forfeiture.
LEGISLATION CITED:	(NSW) Landlord & Tenant Act 1899, ss 8, 9
CASES CITED:	Australian Crime Commission v Gray [2003] NSWCA 318 Batiste v Lenin [2002] NSWCA 316 Cicinave Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139 Crabb v Arun District Council [1976] Ch 179 Flinn v Flinn [1999] 3 VR 712 Galaxidis v Galaxidis [2004] NSWCA 111 Grundt v Great Boulder Gold Mines Limited (1937) 59 CLR 641 Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd (1995) 7 BPR 14,326 Hayes v Gumbola (1986) 4 BPR 9247 Jam Factory v Sunny Paradise Pty Ltd [1989] VR 584 Langley v Foster (1909) 10 SR (NSW) 54 Legione v Hateley (1983) 152 CLR 406 Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203 O’Neill v Williams [2006] NSWSC 707 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Limited (1970) 2 BPR 9562 Shiloh Spinners Limited v Harding [1973] AC 691 Steiper v Deviot Pty Ltd (1977) 2 BPR 9602 T Hyland Enterprises Pty Limited v Alliance Acceptance Co Limited (Powell J, 2 October 1984, BC8400245) Taylors Fashions Limited v Liverpool Victoria Trustees Co Limited [1981] 1 All ER 897 Thompson v Palmer (1933) 49 CLR 507 Tutita Pty Ltd v Ryleaco Ltd (1989) NSW ConvR 55-486 Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 Woodhouse AC Israel Cocoa Limited SA v Nigerian Produce Manufacturing Co Limited [1971] 2 QB 23 World by Nite Pty Ltd v Michael [2004] 1 QdR 338 Wynsix Hotels (Oxford St) Pty Ltd v Toomey, [2004] NSWSC 236 Young v Lalic [2006] NSWSC 18 Meagher, Gummow & Lehane, Equity: Doctrines & Remedies, 4th ed
PARTIES:	Greek Macedonian Club "Alexander The Great" Limited (plaintiff) Pan Macedonian Greek Brotherhood "Alexander The Great" NSW Limited (defendant)
FILE NUMBER(S):	SC 6302/05
COUNSEL:	Mr W Terracini SC w Mr G Newton (plaintiff) Mr J Miller (defendant)
SOLICITORS:	H Danalis & Co (plaintiff) Dibbs Abbott Stillman (defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Friday 16 February 2007

6302/05 Greek Macedonian Club “Alexander The Great” Limited v Pan Macedonian Greek Brotherhood “Alexander The Great” NSW Limited

JUDGMENT

1 HIS HONOUR: The plaintiff Greek Macedonian Club “Alexander The Great” Limited claims an injunction restraining the defendant Pan Macedonian Greek Brotherhood “Alexander The Great” NSW Limited from taking possession of premises occupied by the Club at 160-164 Livingstone Road, Marrickville, of which the Brotherhood is the registered proprietor, asserting that it has an equitable leasehold estate in the premises. The Brotherhood cross-claims for possession, on the alternative bases that there is no such lease, and that if there is, the Club is in default in respect of payment of rent. The issues are:

· Is the club is entitled in equity to a lease of the club premises for a term ten years from 1 July 2003 at a rent of $40,000 (inclusive of GST) per annum? I conclude that it is;

· If so, as at 16 November 2005 when the notice of termination was served by the Brotherhood, was the Brotherhood entitled to possession by reason of the Club’s default in payment of rent according to its obligations under that equitable lease? I conclude that the Club was in arrears of rent to the extent of $32,000, and that the Brotherhood was entitled to possession;

· If so, should the Club be granted relief against forfeiture? I conclude the Club should be granted relief against forfeiture, upon condition that it pay the arrears;

· In those circumstances, what costs order should be made? I incline to the view that each party should bear its own costs, but I will hear the parties if either wishes to contend for a different costs order.

2 A number of key personnel, who feature in the evidence, have at times been officers of both organisations, which have a largely overlapping membership. Mr Achilles Constantinidis has been a director of the Club and/or the Brotherhood at various times over the last fifteen years. In 2002, when many of the events which give rise to these proceedings occurred, he was (and since about 1998 has been) president of the Brotherhood. When these proceedings were instituted, however, he was a director and secretary of the Club, and a director of the Brotherhood; he gave evidence in the Club’s case. Mr Bill Papadopoulos is and has since 1997 been President of the Club, and he was Vice-president from 1995 until 1997; he is also a director of the Brotherhood, and for six years, including during 2002, he was Treasurer of the Brotherhood. Mr Papadimitriou has been President of the Brotherhood since late 2004; he was previously a director in 1985 and President from 1986 until 1989. Mr George Cosmidis, who gave evidence for the Brotherhood, was the secretary and a director of the Club from about 1997 until June 2003, and the secretary and a director of the Brotherhood from about 1998 until June 2003. Mr Con Kristallis, who gave evidence for the Brotherhood, is a chartered accountant who rejoined the board of the Brotherhood in September 2005, having previously been a member of the board between 1994 and 1998; he was also auditor of the Club from 1990 to 1998.

The origins of the Brotherhood and the Club and their assets

3 The Brotherhood, which was incorporated in or about 1993, is the corporate successor of the former unincorporated association known as Pan Macedonian Greek Brotherhood Alexander the Great established in about 1960, when it operated from premises in Newtown. The Club was incorporated in or about 1972 as Marrickville Businessmen’s Club Limited and operated a registered club under that name at 160-164 Livingstone Road, Marrickville. On 3 February 1984, several members of the Brotherhood purchased from the liquidator of Marrickville Businessmen’s Club Limited the assets of that company, including its property at 160-164 Livingstone Road, the assets, furniture, fittings and effects of the licensed club and restaurant operated by the Marrickville Businessmen’s Club, and the share capital in Marrickville Businessmen's Club Limited, and shortly thereafter the Brotherhood resolved to ratify the actions of the Committee and pay all expenses in relation to the purchase; the property at No 160-164 Livingstone Road was transferred to trustees for the Brotherhood. Marrickville Businessmen's Club Limited was reconstituted as a company limited by guarantee, and renamed as Greek Macedonian Club “Alexander the Great” Limited. Since then, it has operated a club from No 160-164 Livingstone Road, and has paid rent to the Brotherhood (initially the unincorporated association, and since 1993 its incorporated successor), initially at the rate of $7,500 per month. This was reduced in late 1985, during an early period of financial difficulty, to $3,333.33 per month, but by early 1989 the Club had brought the rent account up to date at the original rate of $7,500 per month, and from about 1990 until the events in 2003 which precipitated this litigation, the Club was paying rent at the rate of about $9,000 per month.

4 Mr Cosmidis deposed that, notwithstanding the close relationship between the two entities, there had always been a clear division between the functions of each, with the Brotherhood focussing upon social and cultural matters (including for example the observance of Greek tradition, promotion of the Greek language and maintenance of links between members of the wider Greek community in Australia) and management of the real estate, and the Club operating a Greek social club with licensed premises and restaurant facilities.

5 There is no formal written lease between the Brotherhood and the Club. The Club has never paid the Brotherhood for the furniture, fittings and effects (which in the contract of purchase had a value attributed to them of $44,000). It is not clear whether the lease of the premises by the Brotherhood to the Club included a lease of the furniture, fittings and effects, but the Club had plainly had the use of them, and it is more likely that it was simply assumed that the right to use them was included in the lease. However, I am unpersuaded – as was suggested from time to time in the course of the Brotherhood’s evidence and argument – that the Club holds its assets and undertaking upon trust for the Brotherhood. First, although the Club and the Brotherhood have an overlapping membership, their memberships are not identical. Secondly, if - as the Brotherhood suggests - the underlying purpose of the acquisition was to set up a club facility for the cultural group served by the Brotherhood, the benefits conferred on the Club are no less likely to have been intended to be a gift, than to be held on a resulting trust for the Brotherhood. Thirdly, the accounts of the Club and the Brotherhood reflect that they are separate entities, each with its own assets; they contain no suggestion that the Club’s assets are held upon trust for the Brotherhood.

6 In aid of the contention that the Club’s assets were held upon trust for the Brotherhood, reference was made to the circumstance that the Brotherhood expended its own moneys on the renovation and repair of the club premises. However, this does not in fact assist the contention: the Brotherhood was the registered proprietor of the land, and such expenditure on the premises maintained or improved its own real property. Nor is the Brotherhood’s contention advanced by the circumstance that a concessional rent was accepted for a while in the mid-1980s, nor later in 1996: that there were negotiations in respect of the arrears, and an insistence on part-payment, with the payments ultimately being brought up to date, is at least as consistent with an arm’s length relationship, as it is with a trust.

7 Mr Cosmidis was one who had asserted that “the Brotherhood owns the Club”. At a meeting of the directors of the Brotherhood on 4 August 1999, the president Mr Constantinidis mentioned that the Club had purchased No 170. As a separate item, relating to the lease of the Club premises, the minutes record (emphasis added):

G. Cosmidis enquired the Club’s lease. A. Constantinidis answered that the lease is ready. It consists of 70 pages and he is trying to reduce it to 25 pages. G. Cosmidis replied and asked A. Constantinidis the reason he didn’t bring the lease in the meeting so it could be discussed. A. Constantinidis answered that first he wants to make sure that the Brotherhood is covered in every detail. G. Cosmidis then said to A. Constantinidis that “if you want to protect the interest of the Brotherhood I want to protect the interest of the Club”. Then G. Cosmidis asked A. Constantinidis what will happen if the Club pays for example $1000000 to extend the premises which will be owned by the Brotherhood? Isn’t the Club going to have any share in the property? And if this is the case then the Club will have to ask for its property share .

8 This is quite inconsistent with Mr Cosmidis’s current position that the Brotherhood owns the Club. Mr Kristallis was another who asserted that the Brotherhood owned the Club, but he was at times the accountant or auditor for both, and never prepared the accounts on the footing that the Club held its assets and undertaking upon trust for the Brotherhood, or that the Brotherhood owned the Club. While there is no basis for the assertion that the Brotherhood owns the Club, but it is informative of the state of mind of the defendant in its recent endeavours to eject the plaintiff.

Acquisition of 170 Livingstone Road

9 At a meeting of the Board of Directors of the Club held on 8 March 1999, according to the minutes which are signed by Mr Papadopoulos as president and Mr Cosmidis as secretary of the Club, it was “resolved to propose to the Brotherhood a ten year lease with a ten year option. Monthly rental will be $9,000”. It was at about this time that the rental appears to have increased to $9,000 per month. It is not without significance that what was then contemplated was a ten-year term.

10 The lease was discussed at meetings of the Brotherhood’s directors on 4 August 1999 (referred to above) and 4 October 1999.

11 In early 1999, Mr Cosmidis was a director and secretary of both the Brotherhood and the Club, Mr Constantinidis was president of the Brotherhood, and Mr Papadopoulos was a director of the Brotherhood and president of the Club, and all three were regular attendees at meetings of the board of the Brotherhood and the management committee of the Club.

12 Mr Papadopoulos and Mr Cosmidis became aware in or about April 1999 that No 170 Livingstone Road was available for purchase. Mr Papadopoulos says that the Club required the property to house visiting entertainers who were performing at the club, rather than having to provide hotel, apartment or rental accommodation for them. Mr Cosmidis says that because the Brotherhood owned the properties on either side of No 170, its directors agreed that it was desirable to purchase No 170 and add it to the Brotherhood’s portfolio; but that because the acquisition had to be made quickly for fear of losing the opportunity, and the Brotherhood’s Articles of Association restricted the authority of the board to real estate transactions of less than $100,000, they agreed that No 170 should be purchased by the Club. He says that the members of the Club’s management committee agreed and purchased No 170, using funds derived from the Club’s trading activities, together with borrowed funds secured by mortgage over No 170.

13 At a meeting of the directors of the Club on 22 March 1999, the minutes of which are signed by Mr Papadopoulos as president and Mr Cosmidis as secretary, Mr Papadopoulos “strongly proposed the Club to purchase the 170 Livingstone Road, Marrickville property. Resolved unanimously.”. At a meeting of the directors of the Club held on 31 March 1999, The minutes of which are signed by Mr Papadopoulos as president and Mr Cosmidis as secretary, it was “resolved to purchase the 170 Livingstone Road, Marrickville NSW. Resolved that the price of the above property will be $292,000 and to exchange contract as soon it is available”. A meeting of the directors of the Club held on 12 April 1999, the minutes of which are also signed by Mr Papadopoulos and Mr Cosmidis, confirmed the minutes of the meetings held on 22 March and 31 March, and resolved “to get a loan from Commonwealth Bank Marrickville to secure the property purchase 170 Livingstone Road, Marrickville NSW. The loan will be arranged by the executive committee B Papadopoulos, G Cosmidis, A Biskitzidis”.

14 The Club purchased No 170 for $292,000, paying a deposit of $29,200 from its own funds (generated from its trading activates), and also provided $120,800 of the balance from its own funds, borrowing $150,000 from the Commonwealth Bank. After the purchase was completed, the Club renovated No 170, spending about $100,000 on the renovations.

15 There is no support in the evidence for the proposition that the Club purchased No 170 on behalf of or as trustee for the Brotherhood. The Club used its own moneys and its own borrowings to fund the purchase. The subsequent accounts of the Club and of the Brotherhood do not reflect any such trust.

Proposal to transfer No 170 to the Brotherhood

16 Between 2000 and 2003 there were discussions between the Club and the Brotherhood about the possible transfer of No 170 to the Brotherhood, which would then own the line of properties from No 160 to No 172 Livingstone Road, having acquired No 172 on 12 July 1979, No 160-164 as previously described in 1984, No 168 on 14 September 1989, and No 166 on 11 June 1991. The Club wanted, in return, to be permitted to use No 170 to accommodate visiting entertainers, and to be granted a reduced rent for the lease of the club premises at No 160-164.

17 Accordingly to Mr Constantinidis, who was at the time the president of the Brotherhood, he forwarded a letter to the Club setting out the proposal and then had a conversation with Mr Papadopoulos (then president of the Club), Mr Cosmidis (then secretary of the Club) and Mr Biskitzidis (then treasurer of the Club), in which Mr Cosmidis said that the matter had been discussed with the board of the Club which required some sort of compensation or payment for the transfer, as the Club had paid $150,000 of its funds and spent a lot of money in extensions and renovations to No 170, and on reducing the bank loan; Mr Constantinidis responded that the Brotherhood could reduce the future rent for a certain period; and Mr Cosmidis expressed agreement, adding that the Club would need the use of No 170 to accommodate visiting entertainers. However, Mr Cosmidis denies that he was party to any conversation with Mr Constantinidis in which a proposal to reduce rent payable by the Club in consideration for the transfer of No 170 was discussed.

18 On 3 June 2002, a market appraisal of No 170 was obtained, apparently for $380,000 at which value it was subsequently recorded in the accounts of the Brotherhood. In October 2002, the Brotherhood obtained an approval from the Commonwealth bank for an increase of $50,000 in its facilities to assist it to repay the loan for No 170, the balance of which was $50,000.

19 An Annual General Meeting of the Club was held on 10 November 2002; Mr Cosmidis was the secretary. The minutes record that the president (Mr Papadopoulos):

… also told the members that the house at 170 Livingstone Road was being transferred to the Brotherhood during this current financial year and the Club would have a reduced rental for its premises as well as the benefit of the house by leasing it and housing its entertainers from overseas and interstate.

20 Mr Cosmidis was present and acted as secretary at the meeting, but says that the minutes have been altered; he could not explain how, and he did not suggest that they were incorrect at the 2003 AGM, at which he said he was present. Mr Papadimitriou, who gave evidence for the Brotherhood, was also present, but suggested that he might have been outside for that item of business. His evidence on this was variable and inconsistent and quite unpersuasive. Moreover, at the 2003 AGM, he seconded the motion for the adoption of the minutes of the 2002 AGM. It is far more probable that reference was made to a reduced rent.

21 The Annual General Meeting of the Brotherhood was held on 1 December 2002. Mr Cosmidis was the secretary of that meeting, and the minutes record:

The president [Mr Constantinidis] suggested that the committee will bring young people into the committee for a change. He also thanked the Club’s committee for transferring the property at 170 Livingstone Road, to the Brotherhood.
… Mr Papadimitriou did congratulate the committee for transferring the property to the Brotherhood. …

22 According to Mr Constantinidis, at the Annual General Meeting of the Brotherhood, his report was to the following effect:

The Club has agreed to transfer the house to the Brotherhood. The Brotherhood will take over the balance of the loan to the Commonwealth Bank. The house will be used by the Club to house the entertainers and we will reduce the rent that the Club is paying.

23 I do not regard the absence of specific reference in the minutes to the terms of the transfer as telling strongly against Mr Constantinidis’ version, which I accept, given that reference to a reduced rent was recorded in the minutes of the Club’s AGM only three weeks earlier, and my general acceptance of Mr Constantinidis for reasons explained below.

24 A transfer of No 170 from the Club to the Brotherhood, expressed to be for a consideration of $1, signed on behalf of the Club by Mr Papadopoulos as president and Mr Cosmidis as secretary, and on behalf of the Brotherhood by Mr Papadopoulos as treasurer and Mr Cosmidis as secretary, was stamped with duty on $380,000 on 17 December 2002, but not registered until 26 May 2003. Negotiations as to the detail of the arrangements continued in the interim. Mr Constantinidis - then on behalf of the Brotherhood - had conversations with the Club executive headed by Mr Papadopoulos, in which Mr Constantinidis proposed a rent following transfer of No 170 of $48,000 per annum for a term of ten years. Mr Constantinidis explained the theory underlying this as being that the house was regarded as being worth $550,000, subject to a mortgage of $50,000 to the bank, so that ten years at a concession of $50,000 a year would pay for the equity in the house. [Given that the Club was paying $90,000 rent for 2002-2003, discounted from $108,000 per annum, the mathematics of this is not precise, but the rationale is clear enough]. Mr Papadopoulos pointed out that another $100,000 had been spent by the Club on extensions and renovations and suggested $40,000 a year; Mr Constantinidis said that that sounded pretty fair, and also agreed to the use of the house for entertainers, but only for five years.

25 In May 2003, the transfer was registered. Subsequently, the Brotherhood paid out the balance of the mortgage on No 170.

26 Mr Papadopoulos thereafter instructed the solicitor Mr Danalis to draw up a lease in respect of No 170, and a lease for a term of five years was prepared and submitted by Mr Danalis to Mr Papadopoulos on 19 June 2003.

27 The financial statements of the Club for 2003 record in a note (which is repeated in the financial statements for 2004) the following:

The company incurred an extraordinary loss of $377,732 in the financial year ended the 30th of June 2003, in relation to the transfer of the title of the property at 170 Livingstone Road, Marrickville NSW 2204 to Pan Macedonian Brotherhood Alexander the Great. The property was transferred to Pan Macedonian Brotherhood Alexander the Great, as per the AGM resolution, directors’ resolution and legal advice. Pan Macedonian Brotherhood Alexander the Great repaid the company’s outstanding loan of $44,624 with Commonwealth Bank and received the title of the property as a gift. A registered valuer valued the property and stamp duty was paid on the market value of the property.

28 At a meeting of the board of directors of the Brotherhood held on 2 July 2003, the minutes of which were prepared by Mr Cosmidis, it was noted that No 170 had been transferred from the Club to the Brotherhood.

After the transfer

29 From September 2003, the Club ceased to pay rent at the previous rate of $9,000 per month. It paid $10,000 on 4 February, $5,000 on 11 August, $10,000 on 15 November 2004, $15,000 on 21 February 2005, $10,000 on 3 August, and $20,000 on 5 December 2005. There is no sign of any protest at the time at the Club’s ceasing to pay $9,000 per month.

30 The Club’s Annual General Meeting for 2003 was held on 23 November 2003. Amongst those present was Mr Papadimitriou, who as has already been noted seconded the motion for the adoption of the minutes of the previous year’s AGM. The president, Mr Papadopoulos, reported:

The house at 170 Livingstone Road has been transferred to the Brotherhood and an agreement reached so that the Club rental will be reduced to reflect this value passed across, plus the rear of the house will be used for the Club for its entertainers. He thanked the board for their assistance and thanked the Brotherhood for its help as a result of Mr Cosmidis resigning from the board and causing a disruption to the Club’s operations.
… Mr Halkias asked about the Club lease and when it would be finalised and at what cost. Mr Biskitzidis advised that the Club lease and rental matter has been agreed with the Brotherhood and as a result of the loan and house being transferred Mr Cosmidis had instructed the solicitor to prepare the leases.
Mr Constantinidis advised that as president of the Brotherhood he was pleased with the Club members transferring the house to consolidate all the property in the name of the Brotherhood. He thanked the directors on behalf of the Brotherhood board.

31 The Brotherhood’s Annual General Meeting was held on 1 December 2003. Mr Cosmidis was secretary. The minutes record that the president announced that No 170 had now been transferred to the Brotherhood.

32 Mr Constantinidis presided, and Mr Cosmidis and Mr Papadopoulos were amongst those present, at a meeting of the board of directors of the Brotherhood held on 4 February 2004. The minutes, which were prepared and signed by Mr Cosmidis, record that the president [Mr Constantinidis] had agreed with the committee [of the Club] to review the Club’s rent from $9,000 monthly to $40,000 annually and to draw up a “license lease”, and that a letter would issue to the Brotherhood to the effect that the Club would give some donation to the Brotherhood during the financial year. The minutes further recorded receipt of a donation of $10,000 from the Club, which was in effect payment of three months’ rent.

33 Mr Papadopoulos says that Mr Constantinidis said: “I recommended that the rent for the Club should be $48,000 a year over ten years. Bill said that he thought that this was too much in view of the money put in by the Club for the purchase and the renovations and suggested $40,000 a year and we should accept $40,000 and the Club to continue to pay all the council rates, water rates and insurance on the building”. Mr Papadopoulos says he responded: “My board has agreed to this and because the house was transferred in May the new rent should start from 1 July 2003”, that there was no contrary view expressed, and that Mr Cosmidis was instructed to contact Mr Danalis to draw up a lease. That part of Mr Papadopoulos’ evidence was unchallenged.

34 Mr Constantinidis says that he said to the meeting: “Following the discussions with Bill [Papadopoulos] and the executive of the Club, the rent for the Club premises should be reduced to $48,000 over ten years. This will enable the Club to be repaid for the money it has spent. Bill proposed $40,000 and I think it’s reasonable in view of the fact that the Club would also be paying the council rates, water rates and insurance for the Club’s premises”. He says that this was carried unanimously at a vote. In re-examination, Mr Constantinidis said that (although it does not appear in the minutes) reference was made to the term of the proposed lease, as a ten-year lease with a ten-year option.

35 Mr Cosmidis says that the rent review was based upon a proposition raised by Mr Constantinidis that the Club was in short term financial difficulty and required temporary rent relief. In cross examination, Mr Cosmidis acknowledged that this was not a short term arrangement of weeks and months, but envisaged at least more than one year. He accepted that the amounts recorded as donations were really rent.

36 Mr Cosmidis’ evidence that the Club was in financial difficulty in February 2004 and sought rent relief for that reason was denied by Mr Kristallis, who said that it would be impossible for the Club to have been in a desperate financial position in February 2004. Indeed the Club had $304,958 to its credit at that time in the bank.

37 Mr Danalis, the solicitor, received a telephone call from Mr Cosmidis, who asked what it would cost to prepare a lease of the Club premises for a term of ten years at a particular rent – Mr Danalis does not recall the amount of rent mentioned - and he made a calculation of the stamp duty. Mr Cosmidis said that he would let him know further. While Mr Danalis was cross examined to the effect and accepted that in this respect some enquiries were made about a lease but the matter was not taken any further, there was no challenge to that part of his evidence insofar as it went, which tends in favour of the view that there was then a contemplation of a ten-year lease of the Club premises at a specified rent. [Without a specified rent, no stamp duty calculation could have been performed]. Ten years is not consistent with short term rent relief.

38 Mr Cosmidis’ suggestion that the Club would transfer its property to the Brotherhood for no consideration - notwithstanding his insistence (at a board meeting of the Brotherhood on 4 August 1999) to Mr Constantinidis that “if you want to protect the interest of the Brotherhood I want to protect the interest of the Club”, and in particular his assertion that if the Club paid $1 million to extend premises that would be owned by the Brotherhood, the Club should have some share in the property - defies credulity.

39 On the other hand, the evidence of Mr Constantinidis was substantially corroborated by documentary material. It was not undermined in cross-examination. The evidence of Mr Papadopoulos was substantially consistent with that of Mr Constantinidis, although there were unsurprising and relevantly insignificant differences and inconsistencies as to dates. I accept that there were conversations between Mr Papadopoulos on behalf of the Club and Mr Constantinidis on behalf of the Brotherhood in which they reached a mutual understanding that in return for the Club transferring No 170 to the Brotherhood, the Brotherhood would reduce the Club’s rent, and that subsequently greater precision was reached to the effect that the Club would pay $40,000 per annum for a term of ten years. First, it tells strongly in favour of that conclusion that both principals to the negotiations, Mr Papadopoulos for the Club and Mr Constantinidis for the Brotherhood, substantially agree that that is what was discussed and agreed, although the strength of that factor is somewhat diminished by their present common interest on behalf of the Club. Secondly, the substance of such an arrangement accords with what is recorded in the minutes of the Club. Thirdly, such an arrangement is recorded in substance in the minutes of the Brotherhood, signed by Mr Cosmidis; his explanation that this was a short term rent review is in the circumstances implausible, particularly given the contemporaneous proffer of a donation and the absence of any reference to the Club being in difficult circumstances.

40 Fourthly, there is no indication of any complaint or protest about non-payment of $9,000 a month until October 2005, during which period the Club paid reduced amounts, much more consistent with $40,000 per annum. Between 4 February 2004 and 5 December 2005, the Club paid a total of $70,000 to the Brotherhood. Finally, the minutes of the Club’s Annual General Meeting on 12 December 2004, at which Mr Papadopoulos presided, record:

Mr Pantzouris asked about the loss for the year and why the rental paid was so low. Mr Biskitzidis explained that the loss of $60,000 was about the same as the depreciation costs. The rental with the Brotherhood is at $40,000 per year now that the house had been transferred and the lease agreed. The Club has also paid for all the maintenance costs, fencing and legal fees. Also the security costs had doubled as it was now compulsory at the Club door.
The president informed the members that the board had agreed to a further donation of $30,000 to the Brotherhood since the 30th June making it a total of $40,000 to date.

41 Although this post-dates the transfer, it records the then understanding of the arrangements. Mr Papadimitriou deposed that at a board meeting of the Brotherhood on 28 November 2004 there was a vigorous discussion between Mr Cosmidis and Mr Constantinidis about the Club’s “unpaid rent”, and that Mr Constantinidis made no mention of the transfer of No 170 or any proposition that the Club pay a lower rental at that meeting. No minutes of that meeting have been produced. Mr Cosmidis gave no evidence of any discussion about alleged arrears of rent at that meeting. The Brotherhood did not produce minutes of that meeting, despite a notice requiring their production. In light of the minutes of 4 February 2004 of the Brotherhood’s directors, and the Club AGM minutes of 12 December 2004, in each of which reference was made to a reduced rent for the Club premises, Mr Papadimitriou’s version is implausible, and I do not accept it.

The emergence of the dispute

42 On 28 November 2004, the current members of the board of directors of the Brotherhood were elected. This resulted in a change in the relationship between the Brotherhood and the Club.

43 At a meeting of directors of the Brotherhood on 6 July 2005, at which Mr Constantinidis and Mr Papadopoulos were present, Mr Papadopoulos reported that the Club was not doing well and would likely be closed down, that it had no money and could pay only $10,000 immediately against its rental arrears. At a directors meeting on 3 August 2005, at which Mr Papadopoulos was present, he replied to a question about the Club’s rent to the effect that he could not give any money as the Brotherhood would spend it on solicitors; further that the Club was not doing well.

44 When he returned to the board in September 2005, Mr Kristallis - who had not been involved in the dealings with No 170 - noticed that rent had not been paid by the Club. He was shown the minutes of February 2004 and sought some legal advice, which was apparently to the effect that there was not an effective resolution reducing the rent. It appears to have been largely at his instigation, which was uninformed by knowledge of the dealings between the Club and the Brotherhood about No 170, that on 5 October 2005, the new directors of the Brotherhood resolved to issue a tax invoice to the Club for the period 1 July 2004 to date for outstanding rental of $9,000 per month plus GST. Mr Kristallis’ conclusions as to the state of the rent account in late 2005 were based on assumption as to what he believed should have happened, rather than knowledge of what had happened.

45 The Club received the Brotherhood’s demand dated 13 October 2005 in mid-October. This was the first occasion on which any claim was made by the Brotherhood for rent at the old rental of $9,000 per month. At a meeting of directors on 19 October 2005, at which Mr Papadopoulos and Mr Constantinidis are recorded as present, Mr Papadopoulos replied to a question about outstanding rents to the effect that he would be having a board meeting (of the Club) on 24 October 2005 to discuss the issue.

46 On 26 October 2005 the directors of the Brotherhood resolved to take legal action to collect all outstanding rents owed by the Club. On 2 November 2005 the directors of the Brotherhood resolved that if the Club failed to pay the outstanding rent within seven days the Brotherhood would without further notice issue a notice to quit and seek to take possession of the club premises and commence proceedings to recover all outstanding rent from the Club. A purported notice of termination of the lease was served by the Brotherhood on the Club on 16 November 2005. Mr Constantinidis says that he first became aware of the claim by the Brotherhood in December 2005. At a meeting of the directors of the Brotherhood on 7 December 2005, Mr Constantinidis on behalf of the Club offered to pay an amount of $30,000 on account of outstanding rent owing by the Club, within seven days. On 5 December 2005, the Club deposited into the Brotherhood’s account a sum of $20,000 said to represent rent to 31 December 2005. On 13 December the Brotherhood replied that it could not accept those moneys on the basis that they had been tendered, and returned them.

47 The Club instituted the current proceedings by summons filed on 14 December 2005. As a result of interlocutory arrangements made consensually, the Club has remained in possession of the club premises on a “without admissions” basis and upon the usual undertaking as to damages; since at least July 2006 that has been on the additional basis that it would pay rent or occupation fees at the rate of $3,333 per month (which corresponds to $40,000 per year).

Is the Club entitled to a lease?

48 The Club contends that it transferred No 170 to the Brotherhood in reliance upon an expectation or assumption, of which the Brotherhood knew, that the Club would have the benefit of a ten year lease of the club premises at a concessional rent, being $40,000 per annum. The Brotherhood denies that there was any such arrangement, in October 2002 or at any other time, and contends that the transfer was, as recorded in the Club’s financial statements, by way of gift.

49 The basis in equity of the Club’s claim is properly to be seen as falling in the rubric of equitable proprietary estoppel. Equity comes to the relief of a plaintiff who has acted to its detriment on the basis of a fundamental assumption in the adoption of which the defendant has played such a part that it would be unfair or unjust if the defendant were left free to ignore it; equity intervening on the footing that it would be unconscionable for the defendant to deny the assumption [Grundt v Great Boulder Gold Mines Limited (1937) 59 CLR 641, 675; Thompson v Palmer (1933) 49 CLR 507, 547; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 404 (Mason CJ and Wilson J)]. It is essential to an equitable estoppel that the defendant knows or intends that the party who adopts the assumption will act or abstain from acting in reliance on it [see Crabb v Arun District Council [1976] Ch 179, 188; Waltons v Maher, 423 (Brennan J)]. Such knowledge or intention may easily be inferred where the adoption of the assumption or expectation is induced by the making of a promise, though it may also be found where the defendant encourages a plaintiff to adhere to an assumption or expectation already formed, or acquiesces in an assumption or expectation when in conscience, objection ought to be stated [Waltons v Maher, 423 (Brennan J)]. The unconscionability which attracts the intervention of equity is the defendant’s failure, having induced or acquiesced in the adoption of the assumption or expectation, with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion [Waltons v Maher, 423 (Brennan J)].

50 Generally speaking, the matters that a plaintiff must establish to found such an equitable estoppel may be characterised as including certain conduct of the plaintiff, certain conduct of the defendant, and certain qualities of the subject matter which may be sufficiently summarised as follows [cf Young v Lalic [2006] NSWSC 18, [74]; O’Neill v Williams [2006] NSWSC 707, [40]]. First, as to the conduct of the plaintiff, that the plaintiff acted, or abstained from acting, in reliance upon an assumption or expectation that a particular relationship existed, or would exist, between the plaintiff and the defendant, or that the plaintiff had or would acquire some interest in the defendant’s property. Secondly, as to the conduct of the defendant, that the defendant induced the plaintiff to adopt the assumption or expectation and encouraged the reliant activity of the plaintiff, or at least failed to deny the assumption or expectation with knowledge that the plaintiff was relying on it to the plaintiff’s potential detriment and that the expectation could be fulfilled only by transfer of the defendant’s property, a diminution of the defendant’s rights, or an increase in the defendant’s obligations. Thirdly, as to the subject matter, that the assumption or expectation in respect of it was one that the defendant could lawfully satisfy [see generally Waltons v Maher, 428-429 (Brennan J); Meagher, Gummow & Lehane, Equity: Doctrines & Remedies, 4th ed, [17-105]].

51 The doctrine has been applied in the context of leasehold interests. While Waltons v Maher is perhaps the paradigm in this context, in Taylors Fashions Limited v Liverpool Victoria Trustees Co Limited [1981] 1 All ER 897, specific performance was granted of a contract to renew a lease, an option to renew being unenforceable due to lack of registration, where, both parties not appreciating that the option was invalid, the lessor had improved the premises in expectation of exercising the option and the lessor knew of the lessee’s activities.

52 Although it is often said that to found an estoppel a representation must be clear and unequivocal [Woodhouse AC Israel Cocoa Limited SA v Nigerian Produce Manufacturing Co Limited [1971] 2 QB 23, 60; Legione v Hateley (1983) 152 CLR 406, 436-437 (Mason & Deane JJ)], a representation that is insufficiently precise to give rise to a contract may nonetheless found an estoppel [Australian Crime Commission v Gray [2003] NSWCA 318, [184]-[200] (Ipp JA); Galaxidis v Galaxidis [2004] NSWCA 111, [81]-[93] (Tobias JA)]. As Brooking JA said in Flinn v Flinn [1999] 3 VR 712, 738, “a promise may be definite in the sense that there is a clear promise to do something even though the something promised is not precisely defined, and this has always been recognised in the cases”.

53 In the present case, the relevant reliant activity of the Club was the transfer to the Brotherhood of No 170. The negotiations between Mr Constantinidis for the Brotherhood and Mr Papadopoulos for the Club to which I have referred demonstrate that the Club assumed or expected that it would have a lease of the Club premises at a concessional rent to compensate it for the transfer. The negotiations between Mr Papadopoulos and Mr Constantinidis, and the Club AGM minutes for 2003 and the Brotherhood’s director’s minutes of 4 February 2004, tell against the proposition that the transfer was as a gift. In a sense there was a “gift”, in that the consideration was expressed to be $1.00 and no price was payable on the transfer; but that is not inconsistent with an accompanying representation, expectation or assumption that the Club would be granted a concessional lease.

54 The better view is that at least since early 1999 it was always contemplated that the Club would have a ten-year lease, that by the two AGMs of late 2002 it was mutually accepted that in return for a transfer of No 170 the Club’s rent would be reduced, and that by the time Mr Papadopoulos instructed Mr Danalis to proceed to register the transfer in May 2003, Mr Constantinidis and Mr Papadopoulos had agreed on $40,000 per anum. On the view of the evidence which I prefer, Mr Papadopoulos and Mr Constantinidis had agreed to a ten year term at $40,000 prior to May 2003 when the transfer was registered, but even if they had not and the expectation was in that respect “not precisely defined”, there was an assumption or expectation that there would be a ten year lease at a concessional rent, which was further defined by the parties - not later than the meeting of 4 February 2004 - as $40,000 a year.

55 Although Mr Papadopoulos acceded in cross examination to suggestions that his discussions with Mr Constantinidis in late 2001 and late 2002 were of an informal nature, that does not detract from their capacity to create the relevant expectation. He made clear that it was “after the Brotherhood agreed, and the president promises me the rent going to reduce after we transfer, I gave instructions to Mr Danalis to transfer the house”. The February 2004 meeting gave effect to the pre-existing understanding made before the transfer. While Mr Papadopoulos seems to have appreciated that the board of the Brotherhood had not formally approved until February 2004, and that until that point he simply relied upon the promise of its president Mr Constantinidis, the Board was content for Mr Constantinidis to negotiate the acquisition of No 170, who therefore had authority to make representations in connection with that acquisition; alternatively, the meeting of the Brotherhood’s directors on 4 February 2004 ratified what Mr Constantinidis had earlier done purportedly on behalf of the Brotherhood.

56 At the conclusion of Mr Papadopoulos’ cross-examination, the following exchange occurred:

Q. Can I take you back to just briefly the point in time at which 170 Livingstone Road was transferred, that is May 2003, and do you agree with this proposition: At that time your expectation was that if the Club transfers this property for a dollar …
A. Yes.

Q. … that what the Club should reasonably expect in return from the Brotherhood is a continuation of the cooperation that existed between the two entities over a very long time, including financial cooperation; do you accept that?
A. Yes.

Q. That is what your expectations were in May 2003 when the property was transferred?
A. Oh, well, from 2003 we start pay rent from $9,000, we pay $40,000 a year.

Q. You as the president of the Club and as a member of the board of directors, you took the step of paying a reduced rent on the basis that, given that the property had been transferred, that the Brotherhood would be prepared to provide financial accommodation of that type to the club as the need arose?
A. Yes.

57 Mr Miller, for the Brotherhood, submits that this is fatal to the Club’s claim. I disagree. First, the question that focuses on what the Club “should reasonably expect” in return from the Brotherhood is simply not relevant. The issue is what expectation or assumption the Club in fact entertained to the knowledge of the Brotherhood, not what it should reasonably expect. Next, Mr Papadopoulos did not assent to the proposition that mere continuation of financial and other cooperation were his expectations in May 2003; to the contrary, he referred specifically to the rent reduction from $9,000 a month to $40,000 a year. Thirdly, the cross-examiner never put, and Mr Papadopoulos never agreed, that he did not entertain at the relevant time an assumption or expectation that there would be a lease at a concessional rent. I do not regard the answers set out above as involving any departure from, let alone abandonment by Mr Papadopoulos of, the suggestion that he on behalf of the Club assumed that in return for the transfer the Club would be granted a lease at a concessional rent.

58 Accordingly, the Club transferred No 170 to the Brotherhood in reliance upon the expectation that it would be granted a lease at a concessional rent of $40,000 per annum for ten years. The only evidence as to the commencement date is that of Mr Papadopoulos, to the effect that the reduced rent would commence with effect from July 2003. Although in fact rent at $9,000 per month was paid until September 2003, the better view is that as July 2003 was discussed and apparently accepted on the basis that the transfer took place in May 2003, 1 July 2003 should be adopted as the commencement date.

59 As to conduct on the part of the defendant, the Brotherhood, through Mr Constantinidis, plainly induced the Club to adopt the relevant expectation, and promoted and encouraged the Club’s reliant activity namely the transfer of No 170. The negotiations between Mr Constantinidis and Mr Papadopoulos, and the statements made by him at the 2002 Brotherhood AGM, implicate the Brotherhood both in the creation of the expectation, and in encouragement of the transfer.

60 As to the subject matter, the grant of a lease at a concessional rent is plainly something that the Brotherhood could lawfully do.

61 Mr Miller advanced an argument that “in the light of the overall financial relationship between the two entities over relevant years”, as at June 2006 the Club had not suffered any material detriment from the transfer of No 170 to the Brotherhood albeit for nominal consideration. Elaborating this submission, it is said that there has been an overall cooperative relationship between the parties, with the Club guaranteeing borrowings of the Brotherhood, and the Brotherhood at times granting concessions to the Club. More particularly, it was submitted that - assuming rent of $9,000 per month - the Club had enjoyed the benefit of financial accommodation from the Brotherhood to the extent of (a) in the order of $330,000 uncollected rent, (b) $250,000 on renovations to the club premises; (c) $140,000 which the Club could have earned in rent from 170 Livingstone Road; and (d) $45,000 being the Club’s debt to the Commonwealth Bank secured on 170 which was discharged by the Brotherhood. In addition, it was said that the Club has had the benefit of the business assets of the registered club, which were purchased by the Brotherhood and for which the Club has never paid.

62 These submissions are misconceived. First, to the extent that in earlier years prior to the transfer of No 170 the Brotherhood has sometimes permitted rent concessions to the Club is simply irrelevant to the question of whether detriment would be occasioned to the Club now if the truth of its assumption or expectation were denied, and if since the transfer, rent has been paid only in conformity with the assumption as to a concessional rent, that is not to be offset against any potential detriment. Secondly, the renovations were to the Brotherhood’s premises, which it leases to the Club; that is not financial accommodation for the Club. Thirdly, the circumstance that the Club had the use of No 170 before the transfer, and after the transfer had use of part of it, in accordance with the understanding at the time of the transfer, is not financial accommodation provided by the Brotherhood for the Club. Finally, the circumstance that the Brotherhood paid the mortgage of about $45,000, which was the only encumbrance on No 170 at the time of its transfer to it when it was worth at least $380,000 and perhaps $550,000, is hardly equivalent to the benefit received by the Brotherhood from the transfer. While it is true that the Club has had the benefit of the business assets of the registered club which were originally purchased by the Brotherhood, that is to be explained either on the basis that they were given to the Club by the Brotherhood, or that they are leased with the premises. Much has been made by the Brotherhood of the circumstance that reduction of the rent from $108,000 to $40,000 per annum would impose a significant strain on the finances of the Brotherhood. So it might, but these arguments are not only irrelevant; they overlook that the transfer to the Brotherhood for nominal consideration of a property - for which a market appraisal had been obtained at $380,000, but the parties apparently regarded as worth $550,000 - was a very great benefit to the finances of the Brotherhood.

63 But the more important answer is that the true issue on detriment is whether the plaintiff would suffer detriment if the assumption on which it acted were now falsified. Plainly it would: it would have transferred No 170 to the Brotherhood absolutely, for nominal consideration, when but for its expectation of a concessional lease it would not have done so, yet it would not receive the “return” which it expected to receive for that transfer, namely a reduced rent for ten years. The historical evaluation and balancing of dealings between the Club and the Brotherhood is irrelevant to this exercise.

64 Accordingly, in my opinion, the Club has established the elements of an equitable proprietary estoppel the consequence of which is that it is entitled in equity to a leasehold interest in the club premises for a term of ten years from 1 July 2003 at a rent of $40,000 per annum.

Cross-claim for possession - arrears of rent

65 However, the Brotherhood contends that it is entitled to possession in any event, because the Club is in default even of the terms of such a concessional lease.

66 The minutes of the Brotherhood’s board meetings in July, August, September and October 2005 suggest that the Club was in difficulty and in arrears of rent. The Brotherhood contends that, as a result of overpayments in 1999 and 2000 and underpayments in 2001, 2002 and 2003, there were already arrears of $46,582 as at 30 June 2003. On the basis that the concessional rent commenced on 1 October 2003, the Brotherhood calculates that the arrears as at December 2005 amounted to $107,264. On the alternative basis that the concessional rent commenced from 1 July 2003, it calculates the arrears as at December 2005 as $88,562. If the rent outstanding as at 1 July 2003 is removed, those figures reduce to $59,782 and $41,070 respectively. Accordingly, the Brotherhood submits that even if credit is given for the payment of $20,000 tendered on 5 December 2005, on the scenario most favourable to the Club it would have been in arrears by at least $21,070, which is equivalent to more than six months of rent at the concessional rate.

67 However, these calculations invite a number of comments. First, in respect of the years 2001, 2002 and 2003, rents of $87,273, $96,545 and $90,000 respectively were paid, according to the annual audited accounts for those years, which show no outstanding rent. In addition, the accounts for each of those years contain a statement “the company charges the Club rent for use of the company’s premises. The amount charged for the year was $87,273 (2001) [$96,545 (2002), $90,000 (2003)]”. Mr Constantinidis gave unchallenged evidence that for those three years, and taking into account capital works performed by the Club on behalf of the Brotherhood, the rental was adjusted to ten payments of $9,000 per month instead of twelve payments. The financial statements apparently reflect that agreement. On the other hand, the financial statements also reflect that more than $108,000 was charged in some earlier years. On the available evidence, I am not satisfied that the rent should be regarded as either in arrears or in advance as at 30 June 2003, and the start point from that date should be a zero balance. This is particularly supported by the absence of any asset for unpaid rents or any liability for overpaid rent in any of the financial statements for that period.

68 Secondly, the Brotherhood’s original calculations from 1 July 2003 are based on rent of $9,000 plus GST until September 2003 and $40,000 per annum plus GST thereafter. The only evidence is that the rent was initially $9,000 per month, until it was reduced to $40,000 per annum. There is no evidence of any agreement or understanding that the Club would pay an additional $900 per month GST, or that the $40,000 was to be plus GST. And, as counsel for the Club point out, the minutes of the meeting of directors of the Brotherhood of 5 August 2001, signed by Mr Cosmidis, record “rent was now due from the Club, total $9,000 per month including GST. $818.18 being GST”. I therefore do not accept that the Club was obliged to pay GST in addition to the agreed rent, which was inclusive of GST.

69 The notice of termination was given on 16 November 2005. If one regards the rent as payable by quarterly instalments in advance of $10,000, then the rent payable for the period from 1 July 2003 until then was $100,000. The Club had paid a total of $68,000. Accordingly, the rent was $32,000 in arrears, and had been so to that or a greater extent for in excess of six months.

70 It follows that, notwithstanding the equitable lease to which I have concluded that the Club was entitled, the Brotherhood was entitled to possession when it purported to terminate the lease.

Is the Club entitled to relief against forfeiture?

71 However, the Club submits that in that event it is entitled to relief against forfeiture.

72 Relief against forfeiture is ordinarily given to a lessor whose sole breach is non-payment of rent, where the rent has now been paid, although the matter always remains discretionary [Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Limited (1970) 2 BPR 9562]. The burden of establishing that a forfeiture for non-payment of rent should not be relieved against, where all arrears of rent have been paid and where no interested third parties have intervened, is a very heavy one which normally involves demonstrating that, by reason of the conduct of the lessee, or otherwise, the grant of relief would be inequitable [Pioneer Quarries; Steiper v Deviot Pty Ltd (1977) 2 BPR 9602; Tutita Pty Ltd v RyleacoLtd (1989) NSW ConvR 55-486; Hayes v Gumbola (1986) 4 BPR 9247; Cicinave Pty Ltd v JascoPty Ltd (1989) 5 BPR 11,139; Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd (1995) 7 BPR 14,326, 14,329; Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203, [67]].

73 Although it was once the case that before relief against forfeiture would be granted, the relevant breaches and if need be the forfeiture must first be admitted by the plaintiff [Langley v Foster (1909) 10 SR (NSW) 54; T Hyland Enterprises Pty Limited v Alliance Acceptance Co Limited (Powell J, 2 October 1984, BC8400245)], there is no reason in equity why a tenant who bona fide disputes that it has been in breach of an obligation under a lease should be denied relief against forfeiture for that breach if it is ultimately established. This was illustrated by Helman J’s decision in World by Nite Pty Ltd v Michael [2004] 1 QdR 338, holding that where there was a genuine dispute between a landlord and tenant (in that case, as to the obligation to pay certain insurance premiums), and the tenant had undertaken to remedy its default and the landlord could be put in the same position as before forfeiture, the tenant would ordinarily be entitled to such relief. In that case, the disputed obligation to pay premiums was litigated in the proceedings for relief against forfeiture; the tenant failed on that dispute, and Helman J concluded that since the issue was resolved adversely to the applicant, its refusal to pay the premiums was contrary to its obligations under the lease, so that the respondents were entitled to re-enter, but his Honour nonetheless granted relief against forfeiture (at 343-344):

A tenant is not entitled to relief against forfeiture as a right. The Court has a discretion in the matter. The test is one of unconscionability. In a recent case in which there had been a forfeiture for non-payment of rent Barrett J put the test in this way: “whether, in the light of the tenant's remedying of the default in the payment of rent, resort by the landlord to his strict legal right of re-entry would be unconscionable; or, if I may put this another way, whether the tenant has been guilty of conduct over and above the remedied default in payment of rent which is of such gravity that, even accepting that the default for which the right of re-entry is security has been satisfied, it would not be unconscionable on the landlord's part to insist on his strict legal right.” ( Tannous v Cipolla Bros Holdings Pty Ltd (2001) 10 BPR 18,563, at 18,568). “If arrears of rent, costs and interest are paid and the lessor can be put into the same position as before forfeiture or re-entry, the lessee will ordinarily be entitled to relief absent ‘very special circumstances’.”: Meagher, Gummow and Lehane's Equity Doctrines and Remedies , (4th ed., 2002), para 18–025, p 581. Those statements of principle apply mutatis mutandis to the circumstances of this case in which the default relied on is in the payment for something other than rent and about which there was a genuine dispute, but which default the tenant has undertaken to remedy.

74 In Mineaplenty, I concluded that where the tenant had disputed its liability for certain alleged arrears of rent but indicated at the outset of the hearing that if the issue were resolved adversely to it it would pay those arrears, the circumstance that it disputed liability and whether there was any breach did not deprive it of a claim for relief against forfeiture, at least so long as the dispute was bona fide [Mineaplenty, [70]]. In World by Nite, Helman J granted relief against forfeiture on conditions, which included payment of the outstanding insurance premium. Ultimately, the applicant’s counsel informed the court that it could not pay the amount of the outstanding premium, whereupon the application was dismissed and an order for possession made.

75 I take it to be implicit in the Club’s submission that it should be granted relief against forfeiture that it undertakes to pay such arrears as I might find to be due.

76 Here, the Brotherhood submits that relief should be refused having regard to the long history of wilful disregard of the obligation to pay rent, particularly where the club knew that the Brotherhood was reliant upon the rent for a very substantial proportion of its revenue, and despite demands for payments repeated over a period of several months during 2005. The Brotherhood relies on the following matters:

· The Club was either unable or unwilling to pay its rent as it fell due at least through the second half of 2005, as appears from the statements made on its behalf at the Brotherhood’s board meetings referred to above;

· If, as appears to be the case, the Club had cash reserves of $200,000 or more in December 2005, or thereabouts, far from assisting the Club, that demonstrates that the failure to pay was wilful;

· The tender of $20,000 on 5 December 2005, 19 days after service of the notice, was too late, and in any event was an implied admission by the Club that rent was then at least six months in arrears;

· It follows that the $10,000 paid in August 2005 must have been at best for the months April, May and June 2005, and was itself late.

77 In considering whether relief against forfeiture should be declined, it is necessary to consider the conduct of the lessee, the nature and gravity of the breach, and its relationship to the value of the property that might be forfeited. Relief is granted in respect of wilful breaches only in exceptional cases, and is not granted where future compliance appears unlikely [Shiloh Spinners Limited v Harding [1973] AC 691, 725-6 (Lord Wilberforce)]. Thus in Shiloh Spinners, Lord Wilberforce concluded that the refusal of relief was justified by a case of clear and wilful breaches of more than one covenant which if individually not serious were certainly substantial, and of continuous disregard by the respondent of the appellant’s rights over a period of time, and a total lack of evidence regarding the respondent’s ability to speedily and adequately make good the consequences of default, and finally a failure to show any disproportion between the expenditure required and the value of the interest involved as to amount to a case for hardship. In Batiste v Lenin [2002] NSWCA 316, the Court of Appeal upheld a decision of Bryson J, as his Honour then was, refusing relief against forfeiture where there had been a failure to pay rent for long periods, in circumstances where the tenant failed to demonstrate any ability to pay rent up to date, in the light of other breaches of covenant which extended far beyond failures to pay money, and the absence of any expression of readiness to comply with a covenant relating to fire stairs.

78 Although it is sometimes said that relief should be given to a tenant whose rent is not in arrears for more than six months if the rent is paid [Wynsix Hotels (Oxford St) Pty Ltd v Toomey, [2004] NSWSC 236 [22]-[23]], the jurisdiction to grant relief against forfeiture is not limited to such a case and extends to one in which the arrears exceed six months. The “statutory flavour” for the proposition derived from (NSW) Landlord & Tenant Act 1899, ss 8, 9, referred to by Young CJ in Eq in Wynsix v Toomey, has to be seen in light of the express provision in s 8(3) and s 9 for application to be made for relief against forfeiture notwithstanding that the rent is six months in arrears. Indeed the effect of s 8 was that application for possession could only be made once the rent was six months in arrears, and notwithstanding even six months’ arrears, application for relief against forfeiture might thereafter be made. Generally speaking, relief against forfeiture for failure to pay rent is refused only in cases of consistently lengthy defaults which support an inference that even if relief be given it is reasonably likely that the rent will not be paid punctually in the future [Jam Factory v Sunny Paradise Pty Ltd [1989] VR 584, 591; Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd]. In World by Nite, there had been default for six of eight months in the last year of the currency of the lease, but relief was still granted.

79 The evidence establishes that at a time when the Club was protesting its inability to pay more than it had paid to the Brotherhood, it in fact had cash reserves of in the order of $200,000. To that extent, I accept that there was a “wilful” aspect to its default, and that is a matter of significance on an application for relief against forfeiture. Nonetheless, it has to be seen in the overall context, which includes the following:

· For very many years, since the mid-1980s, the Club paid rent to the Brotherhood in accordance with the arrangements made between the two entities from time to time. Those arrangements were flexible in the sense that in some years the Brotherhood accepted less than the full $9,000 per month, and in other years the Club paid more to make up the arrears from the past. But overall there was a very lengthy history of general compliance with the obligation to pay rent, albeit that there was a degree of flexibility.

· There was no formal lease specifying any particular date for payment of any particular instalment of rent, and there does not appear to have been any established pattern in the past.

· When the rent was changed from $9,000 per month to $40,000 per annum, the parties did not address whether it was payable in advance, or by any and if so what instalments. At least until the later half of 2005, payments on account of rent were made apparently sporadically without objection.

· At least until late 2004, there was a substantial overlap of persons involved in the management of the Brotherhood and those involved in the management of the Club. Their relations were on a basis that until that point had provided flexibility for the Club when its financial circumstances required it. Following the change in control of the Brotherhood in late 2004, there appears to have been a falling out in about mid-2005. To the extent that there was a wilful element in the Club’s non-payment of rent, that falling out initiated it, and the view that any moneys paid by the Club to the Brotherhood would be used to fund litigation against the Club. While that does not justify the Club’s position, the circumstance that it was an attitude adopted in the context of the breakdown of a previously harmonious relationship mitigates the severity of an intentional refusal to pay, particularly in circumstances where the Brotherhood had in effect repudiated the arrangement for reduction of rent. The context provided by the Brotherhood’s demand for arrears at the original rate, despite the parties’ arrangements for a concessional rent, also mitigates to some extent the severity of an intentional refusal by the Club to pay.

· When demand was made, the Club tendered $20,000 that was returned on 13 December 2005. While not entirely rectifying the default, this payment if accepted would have reduced the arrears to $12,000. The state of the rent account as at late 2005 was confused and unclear to the parties, given the dispute as to the applicable rate of rent, whether GST was payable, and the consequences of overpayments and underpayments in previous years.

80 When the notice purporting to terminate the lease was issued, the rent was approximately $32,000 in arrears. On the other hand, the Club had occupied the premises and paid rent reliably for 20 years. There was a bona fide dispute as to the balance of the rent account, and the Brotherhood had inflated its claim not only by ignoring the arrangement for a concessional rent, but by adding a claim for GST and failing to give credit for rent concessions in 2001, 2002 and 2003. At trial, there was a legitimate dispute as to whether or not there were arrears: if credit were given for the overpayments in 1999 and 2000, there would not have been any.

81 If relief against forfeiture were not granted, the consequences for the Club would be extreme. Not only would it lose its main asset, the benefit of the leasehold, but it would also lose the ongoing benefit for which it transferred No 170 to the Brotherhood. On the other hand, there would be an enormous windfall to the Brotherhood, in that it would retain No 170, freed of any obligation to return to the Club the benefit of a reduced rent for the Club premises for ten years. The circumstance that such a benefit would accrue to the Brotherhood is very telling on a question of relief against forfeiture [Wynsix v Toomey, [63]-[70]].

82 While judgment was reserved, the Brotherhood made an application to terminate the interlocutory injunction, upon the grounds that the Club had not complied with its obligation to pay rent of $3,333.33 per month. By the time that application was listed, the Club had remedied that default. Although that circumstance has caused me concern as to whether rent will be paid in the future, the practical protection which the Brotherhood has – that in the event of termination it will be freed of the obligation to grant a concessional rent – persuades me that it is nonetheless still appropriate to grant relief. In short, the Brotherhood is amply protected against the risk of future default, by the circumstance that in the event of a further default justifying re-entry, it will then hold No 170 freed of any obligation to give a concessional rent. Relief against forfeiture should be granted.

Costs

83 In Mineaplenty, I considered what order as to costs should be made in circumstances where the plaintiff succeeded on its principal case that it was entitled to a renewed lease, but required relief against forfeiture in respect of the arrears of rent, and failed on its argument that it was not obliged to pay the arrears. I concluded that as the cross-claim for possession was brought, not during the original term in response to a breach, but after the exercise of the option as an alternative defence to the lessee’s claim that the option had been validly exercised, at a time when the default had already been remedied, the circumstance that the lessee required relief against forfeiture to defeat the alternative defence was insufficient reason to deprive it, as the successful plaintiff, of its costs.

84 This case is somewhat different. Here, the Brotherhood was entitled to possession when it issued the notice of termination of the lease. The Club required relief against forfeiture. The breach remained (and remains) unremedied. However, a substantial part of the dispute between the parties, which occupied by far the greater part of the evidence and the hearing, was the issue as to whether there was an equitable lease, on which the Brotherhood failed. Balancing the prima facie entitlement of the Brotherhood to costs on the claim for possession and relief against forfeiture, with the prima facie entitlement to the Club on costs on the equitable lease issue, I am inclined to the view that there should be no order as to costs, to the intent that each party bear its own costs, but I will hear the parties if either wishes to contend for a different costs order.

Conclusion

85 My conclusions may be summarised as follows.

86 The Club transferred No 170 to the Brotherhood, in reliance upon an expectation or assumption that it would have the benefit of a ten-year lease of the club premises at a concessional rent, being $40,000 per annum. The Brotherhood knew of and encouraged the Club’s expectation and its reliant activity. The Club would suffer detriment if its expectation were now falsified, in that it would have transferred No 170 to the Brotherhood absolutely, for nominal consideration, when but for its expectation of a concessional lease it would not have done so, and yet would not receive the “return” which it expected to receive for that transfer, namely a reduced rent for ten years. On the basis of a proprietary estoppel, the club is entitled in equity to a lease of the club premises for a term of ten years from 1 July 2003 at a rent of $40,000 (inclusive of GST) per annum.

87 As at 16 November 2005 when the notice of termination was served by the Brotherhood, the Club was in arrears of rent to the extent of $32,000. The Brotherhood was entitled to possession by reason of the Club’s default in payment of rent according to its obligations under that equitable lease.

88 However, although there are some grounds for concern as to whether rent will be paid in the future, the Brotherhood is amply protected against that risk, because in the event of termination it will hold No 170 freed of the obligation to grant a concessional rent, and the Club should be granted relief against forfeiture, upon condition that it pay the arrears.

89 Balancing the prima facie entitlement of the Brotherhood to costs on the claim for possession and relief against forfeiture, with the prima facie entitlement to the Club of costs on the equitable lease issue, I am inclined to the view that there should be no order as to costs, to the intent that each party bear its own costs, but I will hear the parties if either wishes to contend for a different costs order.

90 Subject to any submissions which the parties may wish to make as to their form, my orders are:

1. Declare that the plaintiff Greek Macedonian Club “Alexander the Great” Limited is entitled to a leasehold estate in the premises 160-164 Livingstone Road, Marrickville being part of the land comprised in Auto Consol 12083-31 for a term of ten years from 1 July 2003 to 30 June 2013 at a rent of $40,000 per annum.

2. Order that the defendant Pan Macedonian Greek Brotherhood “Alexander the Great” NSW Limited execute and deliver to the plaintiff a lease in registrable form complying with the declaration in order 1 and containing such other usual and reasonable terms and conditions as may be agreed by the parties and failing agreement determined by the court.

3. Upon the undertaking of the plaintiff to the Court to pay to the defendant by 23 February 2007 all arrears of rent under the lease in accordance with this judgment as at that date, order by way of relief against forfeiture that the defendant be permanently restrained from exercising any power of re-entry granted by or under the lease, in reliance upon any default of the plaintiff in respect of payment of rent prior to 23 February 2007.

4. Order that the cross claim be dismissed.

5. No order as to costs, to the intent that each party bear its own costs.

6. Grant liberty to either party to apply by arrangement with my associate:


6.1 to dissolve the injunction in order 3 if the arrears are not paid in accordance with the undertaking contained in it;

6.2 to set aside order 5 and for some other costs order in its place;


6.3 in the event of any difficulty arising in determining the arrears under the lease payable in accordance with order 3 or otherwise in connection with the implementation of these orders including in determining the terms of the lease.

7. Direct that these orders not be entered before 1 March 2007.

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