Guangrui Investment Pty Ltd v Nguyen
[2024] VCC 1793
•13 November 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised (Not) Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-23-03339
| Guangrui Investment Pty Ltd (ACN 637 807 599) | Plaintiff |
| v | |
| Tony Tan Nguyen & Ors (according to the schedule attached) | Defendants |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 October 2024 | |
DATE OF RULING: | 13 November 2024 | |
CASE MAY BE CITED AS: | Guangrui Investment Pty Ltd v Nguyen & Ors | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 1793 | |
RULING
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Subject:PRACTICE AND PROCEDURE
Catchwords: Practice and procedure – Defendants’ application to file amended defence – Defendants guaranteed commercial lease – Lease of premises used for showroom for bathroom fittings – Tenant’s business affected by restrictions imposed due to COVID-19 pandemic – Whether lease frustrated and guarantors discharged – s35(1) Australian Consumer Law and Fair Trading Act 2012 (Vic) – Cao v ISPT Pty Ltd [2024] NSWCA 188 followed
Legislation Cited: Australian Consumer Law and Fair Trading Act 2012 (Vic), s 35(1)(a), s 35(1)(b); Frustrated Contracts Act 1959 (Vic) (repealed by s 53 of the Fair Trading and Consumer Acts Further Amendment Act 2008); Frustrated Contracts Act 1978 (NSW)
Cases Cited:Ooh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; Cao v ISPT Pty Ltd [2024] NSWCA 188; Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd [2021] NSWSC 504; Scanlon’s New Neon Ltd v Toohey’s Ltd (1943) 67 CLR 169; ISPT Pty Ltd and AWPF Management No 2. Pty Ltd v Cao and Zhao [2023] NSWSC 1115; Re Willmott Forests Ltd (in liq) [2012] VSCA 202
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms Z Anderson | Hunt & Hunt |
| For the Defendants | Mr S Fisher | Francom Legal |
HIS HONOUR:
1The defendants issued a summons on 18 September 2024 seeking leave to file an amended defence and for certain adjustments to the pre-trial timetable.
2The four defendants are the guarantors of a retail lease entered into on 25 September 2018 by Allure Bathrooms Shared Services Pty Ltd (“the tenant”) in respect of premises at 367-375 Bell Street, Preston (“the premises”).
3The term of the lease was 5 years and six months, commencing 1 October 2018. The rent for the first year was $225,000.00. The premises were to be used for a “Retail showroom of bathroom fittings and associated products”.
4The plaintiff purchased the premises by contract of sale dated 29 November 2019. The tenant defaulted in the payment of the rental between July and September 2022. The plaintiff terminated the lease by notice dated 3 November 2022 and re-let the premises on 15 November 2022. The rental amount of the new lease was $232,000.00 for the first year, with a rent-free period of 7 months.
5The plaintiff claims $306,488.24, essentially for the non-payment of rent by the tenant in 2022 and for the rent-free period of the new lease.
6The defendants filed a defence settled by Mr Fisher of counsel on 28 February 2024. The defence denies all liability for the amounts claimed by the plaintiff. The principal issues raised by the defence are:
(a) the validity of the assignment of the lease to the plaintiff by reason of the failure by the lessor and the plaintiff to give certain notices required by the lease; and
(b) the failure by the plaintiff to provide rent relief pursuant to regulations enacted during the COVID-19 pandemic.
7The proposed amended defence raises certain matters pursuant to “Part 3.2 – Frustrated contracts” of the Australian Consumer Law and Fair Trading Act 2012 (Vic) (“the Act”). These issues include:
(a) a defence based on s 35(1)(a) and (b) of the Act, that the lease was “discharged from further performance” because its “performance” had become “impossible”, or the lease was “otherwise frustrated”; and
(b) a set-off and counterclaim for the recovery, including by the defendants as guarantors, of “all amounts paid [to the plaintiff under the] discharged contract before the time of discharge”, being a total of $413,108.00 as rent and outgoings between March 2020 and July 2022. These portions of the proposed amended defence were abandoned during argument.
8In the proposed amended defence, the defendants rely upon circumstances relating to the downturn of the tenant’s business conducted at the premises, as the reason the “performance of the Lease became impossible”.
9The defendants claim that, although during the COVID-19 pandemic prior to July 2020, rent relief had been offered by the plaintiff and the Commonwealth Government’s JobKeeper support was provided, the tenant’s business had:
(a) “experienced a turnover decline of greater than 55%” (46% in April, 59% in May and 64% in June 2020) that meant that the business continued “to run at a loss, therefore making it impossible to meet rent or any other commitments”;
(b) ceased trading by 2 August 2020; and
(c) required the taking of professional advice in November 2022 about the tenant being placed into “voluntary administration”.
10Alternatively, the defendants alleged that the lease and guarantee were frustrated, as the circumstances referred to above:
(a) “were radically different” and “outside the contemplation of the parties” from the circumstances when the lease was executed; and
(b) as the tenant and the guarantors “were deprived of substantially the whole benefit under the lease” as the tenant was unable “to operate its business from the premises … sustainably and profitably and meet its legal obligations including the payment of rent under the lease”.
11The defendants allege that the legislation introduced during the COVID-19 pandemic, and the 262 days of mandated lockdowns had resulted in restriction to the mobility of members of the public and their ability to purchase goods and services causing “a significant decrease in turnover and profit”, including of the tenant’s business.
12Paragraph 1.4 of the defendants’ solicitors’ written submissions in support of the summons asserted the following further consequences of the pandemic and the legislative response:
“(c) The effect on the tenant’s business at the store was directly impacted by the COVID-19 lockdown restrictions, particularly during the second lockdown between July to October 2020 (Second Lockdown);
(d) The Second Lockdown was classified with stage (4) restrictions wherein non-essential businesses, for example retail and hospitality were to pause operations until otherwise directed by the Victorian Government;
(e) The closure of the tenant’s business was impacted in that the premises was unusable for staff and consumers, hence, unsaleable for the period of the Second Lockdown. The impact of the following lockdown restrictions continued to limit the number of persons within the premises and as a result decrease the amount of consumers to make a profit of the sales from the tenant’s business;
(f) Following the tenant’s business’ sales turnover decline from June 2020, the tenant’s business after the Second Lockdown was unlikely to recover.”
13Paragraph 1.10 of the submissions further expanded the matters relied upon:
“A raft of enacted restrictions derived from the COVID – 19 Omnibus (Emergency Measures) Act 2020 and the COVID – 19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 and the Public Health and Wellbeing Act 2008 limited the movement of persons, including (but not limited to):
a. COVID – 19 Omnibus (Emergency Measures) Act 2020.
b. COVID – 19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020.
c. Pandemic (Open Premises) Order 2021 (No. 1).
d. Pandemic (Movement and Gathering) Order 2021 (No. 1).
e. Pandemic (Detention) Order 2021 (No. 1).
f. Pandemic (Visitors to Hospitals and Care Facilities) Order 2021 (No. 1).
g. Pandemic (Additional Industry Obligations) Order 2021 (No. 1).
h. Pandemic (Quarantine, Isolation and Testing) Order 2021 (No. 1).
i. Pandemic (Workplace) Order 2021 (No. 1).
j. Pandemic (Public Safety) Order 2022.
These instruments had the effect of significantly curtailing the free movement of persons throughout the State of Victoria and the region of Melbourne, thus reducing significantly pedestrian traffic or potential for pedestrian traffic to, near or in the locality of the Premises. The Defendants submit that these enactments and subordinate legislation produced the effect that the performance of the Lease became impossible within section 35(1)(b) of the Australian Consumer Law and Fair Trading Act 2012.”
14Part 3.2 of the Act essentially re-enacts the provisions of section 3 of the Frustrated Contracts Act 1959 (Vic). Counsel were unable to refer to any authority on s 35(1)(a) of the Act. During submissions, it was generally agreed by the parties that s35(1)(b) should be construed as referring to the common law’s application of the principles in relation to the frustration of a contract and the discharge of the parties from further performance.
15Reading s35(1) as a whole, it seems that “impossible” performance of a contract is a species of frustration, presumably at the upper end of the circumstances which might frustrate the performance of a contract.
16Both parties relied upon the statement of principle by the New South Wales (“NSW”) Court of Appeal in Cao v ISPT Pty Ltd [2024] NSWCA 188 (“Cao - appeal”) at [24], where the Court of Appeal stated:
“In summary, the doctrine [of frustration] arises where the contract in question has continued operation and some new circumstance arises in which it falls to be performed. Frustration applies if that circumstance renders the context of performance so different from what the parties had assumed as to render the contract a fundamentally or radically different thing from what had been contracted for. Any relevant assumption of the parties is to be found from what is contemplated in the contract as understood in the surrounding circumstances in which it was made. The change in the assumed context must be such as to take it outside those risks for which either party had assumed responsibility.”
17It is necessary to examine Cao in some detail as the facts are similar to the present case. Whilst, Mr Fisher, relied upon the statement of principle I have quoted above, he sought to distance himself from the facts of Cao and the application of the principles to those facts. Defendants’ counsel, Mr Fisher, did not address any submission seeking to distinguish the facts, or the legislative background in NSW, from those applicable to the tenant in the present case.
18It is principally for this reason that I have determined that the proposed amendments to the defendants’ defence should not be permitted as, accepting the facts pleaded in the proposed amendments (which I have discussed above), the proposed pleaded defence based on the frustrated performance of the lease would, in my view, have no real prospect of success.
19At first instance, Cao was decided by Nixon J in ISPT Pty Ltd and AWPF Management No 2. Pty Ltd v Cao and Zhao [2023] NSWSC 1115 (“Cao - trial”). At [1], Nixon J said the claim was for “unpaid rent and damages in respect of a commercial lease of a large Chinese restaurant in the Sydney Central Business District. The principal issue is whether the lease, which was entered into in early 2020, was frustrated as a result of the lockdown imposed in late March 2020 in response to the COVID-19 pandemic”.
20The lease was “for a term of three years, with a commencement date of 1 October 2019” Cao-trial [3]. The base rent was $1.2m for the first year, subject to rent abatements of 50% for the first four months and 25% for the following two months. The two defendants also executed the lease as guarantors of the tenant’s obligations. At the commencement of the lease, the tenant was carrying on a pre-existing Chinese restaurant business.
21When the first lockdown occurred in NSW on 23 March 2020, the tenant was already in arrears of rent for January, February and March 2020. The tenant shut the restaurant on 23 March 2020 and did not reopen the business for take-away, although this was permitted and had been offered when the restaurant was open. Later, when restrictions eased from May 2020, the restaurant did not reopen.
22The tenant paid $100,000.00 towards the rental arrears on 14 July 2020. In May 2021, the tenant went into liquidation after receiving a breach notice claiming $1.661m in unpaid rent and other amounts. The lease was terminated shortly after.
23The earlier lease with the tenant was entered into in August 2017. There had been arrears under the earlier lease. The average turnover of the business from 1 October 2019 to 31 January 2020 was approximately $350,000.00 per month, decreasing to $180,000.00 for February 2020 and $90,000 up to 22 March 2020.
24At [54], it was noted that “Mr Cao attributed this reduction in turnover to the COVID-19 pandemic. That is, the restaurant’s turnover had fallen off significantly due to public concern about the spread of coronavirus in the community, before any public health order restricting the restaurant’s operations was issued”.
25Justice Nixon examined the provisions of the lease and the restrictions imposed by the NSW COVID-19 legislation. He examined the terms of the Frustrated Contracts Act 1978 (NSW) and noted that the legislation “does not contain any provisions regarding the circumstances in which frustration occurs”. He concluded that the legislation was “of no assistance in resolving the issue whether the Lease was frustrated by the imposition of the lockdown restrictions from 23 March 2020. This is an issue to be determined by the application of the common law” [69].
26Justice Nixon comprehensively examined and discussed authorities relevant to the factual issues before him. I shall briefly refer to the conclusions he reached on two critical areas. In this regard, his conclusions were confirmed on appeal and appear to be consistent with relevant Victorian authority:
(a) Whether a lease can be frustrated? The debate on this issue appears to have clearly decided that the doctrine of frustration can apply to a lease. In Victoria, the Court of Appeal in Re Willmott Forests Ltd (in liq) [2012] VSCA 202 at [41] expressly stated so. It may be an open question as to whether the application of the principles would be “extremely rare”. Nixon J at [90] concluded that “the issue as to the applicability of the doctrine to leases should be approached on a case-by-case basis, rather than by a blanket and inflexible rule [that the doctrine of frustration is incapable of applying to a lease]”;
(b) Principles governing frustration of contracts. Nixon J quoted with approval at [93] the statement of the relevant principles by Nettle JA (with whom Redlich and Weinberg JJA agreed) in Ooh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255 at [70] that:
“a contract is not frustrated unless a supervening event:
(a) confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and
(b) in so doing has the effect that, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.”
27In the context of the application of these principles, Nixon J discussed that a “frustrated lease would occur where the leasehold estate is rendered ‘unusable or unsaleable” [98]. He said at [99] that “the Public Health Orders issued from 23 March 2020 limited the uses to which the Premises could be put. Further, it remained the case at all times that the Premises could be used for at least one of the purposes expressly contemplated and permitted under the Lease”. The lease expressly provided that the premises could be used for an a la carte restaurant as well as for “take away offering”.
28At [102], Nixon J said that, “Even if the Public Health Orders had the effect that the Premises were not able to be used for any of the purposes permitted under the Lease (which was not the case), it would be necessary to consider how long that state of affairs lasted or was expected to last, and the length of time left to run on the Lease”. He noted at [106] that although “it was unclear how long the restrictions would last … they were expected to be temporary”, quoting from contemporary statements both NSW and Commonwealth government spokespersons and the 90 day expiry dates of Public Health Orders unless terminated earlier.
29At [109], Nixon J noted that, “As at 1 June 2020, the Lease still had two years and four months to run”. In these circumstances, the ban or severe restriction of dining on the premises was “not of such significance” as to conclude “that the leasehold estate had been rendered unusable”. At [112], a provision in the lease for sub-letting would make it very difficult to establish “that the leasehold estate was unsaleable”. At [113], Nixon J considered that negotiations between the tenant and the landlord “to reopen the restaurant, at a reduced rental” provided “some evidence that the leasehold estate remained valuable while restrictions were in place”. At [115], he said that frustration could be established “only if [the leasehold estate] was rendered both unusable and unsaleable”.
30In discussing the “radically difference test”, Nixon J at [129] said that the test:
“focuses on the specific obligations which the parties have undertaken, and asks whether ‘a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract’”.
31At [130], Nixon J said that the “radical difference” test could not be shifted “from the effect of the supervening events on the performance of the contractual obligations which the parties have undertaken, to the effect of those events on the business of one of the parties”.
32As Nixon J said at [132]:
“While the Defendants focussed on the economic impact of the Public Health Orders on the operation and profitability of the Tenant’s business, they did not explain how there was ‘a break in identity between the contract as provided for and contemplated and its performance in the new circumstances’”.
33At [134], Nixon J referred to a decision of Drake J in Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltd [2021] NSWSC 504 (“Dyco”), which involved a contract on 31 January 2020 for the sale of a hotel business in circumstances where it could be assumed that, “none of the parties contemplated that during the period up to completion, a public health emergency would arise and have the effect that at least for a time it would no longer be lawful to carry on the business in the usual and ordinary manner”.
34Justice Nixon used Dyco to illustrate that in the case before him, stating:
“While the Defendants focussed on the economic impact of the Public Health Orders on the operation and profitability of the Tenant’s business, they did not explain how there was ‘a break in identity between the contract as provided for and contemplated and its performance in the new circumstances’”.
35Justice Nixon noted at [136] that Drake J in Dyco had commented that in the contact of sale of the hotel business, “no warranties were given as to future financial performance [that] were wide enough to apply to the new situation that emerged”. Nixon J then undertook an analysis of the lease provisions relevant to “assumption of risk”. He referred to the following clauses of the lease:
(a) clause 22 which provided that the tenant “must obey all laws relating to and the directions of any authority that requires the tenant to do anything concerning the premises, the tenant’s use of the premises, or this lease” [120] “contemplated that the use of the Premises for the Tenant’s business might subsequently be affected by the introduction of legislation, or a direction given by a public authority, which either limited the times at which the business could be open for trading, or the type of business for which the Premises could be used” [137(a)];
(b) clause 49 which provided that “the tenant’s use or occupation of the premises and the Centre and the conduct of or ability to use the premises for the purposes described in Item 13 are each at the tenant’s own risk”. This clause “expressly contemplated that the Tenant might be unable to use the Premises for the purposes described in Item 13”. Item 13 stated under the heading, “Use of Premises”, “Franchise and licenced a la carte / take away offering in keeping with the agreed menu as attached to this lease as Exhibit A” [21] and [137(b)].
(c) if the premises were damaged or destroyed, preventing access to the premises, the rent might be reduced “by a reasonable amount” (clause 47.1), but “otherwise the obligation to pay rent was unconditional” (clause 7.1).
(d) the tenant had an obligation to operate the “business at the Premises to the best advantage” (clause 28.4).
36From his examination of these and other provisions of the lease, and considering the way in which the clauses interacted, Nixon J stated at [139] that, “The terms of the Lease thus recognised that there may be restrictions imposed on the Tenant’s ability to use the Premises as intended, and that the Tenant’s ability to access the Premises and to use them for the intended purposes was at the Tenant’s risk … the terms of the Lease were wide enough to apply to the situation that emerged when the Tenant’s use of the Premises was restricted, even if the particular factual circumstances that emerged were not foreseen by the parties at the time they entered the Lease”.
37The Court of Appeal in Cao – appeal at [51] stated that one of the “overlapping reasons” the “primary judge was correct to conclude that frustration was not made out” was that “under the Lease the risk of [the public health orders] lay with the Tenant”. At [52] to [59], the Court of Appeal discussed the relevant provisions of the lease under the heading “Allocation of such a risk under the Lease”.
38At [52], the Court of Appeal stated that “the primary judge correctly discussed [that] the risk of disruption to the Tenant’s business by external events, including governmental action, was allocated to the Tenant under the Lease”.
39The Court of Appeal, also at [52], referred back to its statement of the relevant principles at [24], to the effect that “frustration does not apply if the supervening event is a risk for which one or other party had assumed responsibility under the contract”.
40The Court of Appeal noted the same provisions as Nixon J – clauses 47.1, 47.3, 22, 29, 50(b)(i), 50(g), 7.1 and 49. It concluded at [59] that, “The type of business interruption caused by the public health restrictions was a risk allocated to the Tenant under the Lease. That risk allocation precludes the operation of the doctrine of frustration when that risk eventuated”.
41It is appropriate to now examine the relevant clauses in the lease in the present case:
(a) Condition 2.1.1 provides that the tenant must “pay the rent without any set-off (legal or equitable) or deduction whatever to the landlord”. Condition 7.4 provides that this is an “essential term” of the lease;
(b) Condition 8.1 is similar to clause 47.1 of the Lease in Cao. By Condition 8.1, “If the premises or the building are damaged so that the premises are unfit for use for the permitted use or inaccessible … a fair proportion of the rent and building outgoings is to be suspended until the premises are again wholly fit for the permitted use, and accessible”;
(c) However, the lease otherwise appears to contemplate that the tenant’s inability to use the premises as contemplated by the lease is at the tenant’s risk:
“i.by clause 2.2.1, “the tenant agrees that the landlord has not represented that the premises may be used for [the permitted use] according to law or that the premises are suitable for that use”. This provision was repeated as clause 22.4.2 of the Variations to the General Conditions (and was therefore to be treated as an essential term). Further, clause 22.13.1(b) of the Variations to the General Conditions provided that, “The tenant acknowledges that no promise, representation or warranty was given by or on behalf of the landlord to the tenant and the landlord makes no warranty regarding the present or future suitability of adequacy for the tenant’s intended use for the business conducted by the tenant, of the premises, the building or the fixtures, fittings, furnishings, plant, machinery, equipment, services and facilities provided by the landlord”;
ii. by clause 5.3.1, the tenant “uses and occupies the premises at its own risk”
(d) pursuant to clause 6.2 of the General Conditions, the landlord has an obligation to “take out … and keep current policies of insurance for the risks listed in item 11”. However, by clause 22.12 of the Variation to General Conditions (an essential term that would “prevail over standard terms” and “Notwithstanding any other provision in this lease”), “the tenant must effect and maintain policies of insurance during the term” in respect of:
“i. by clause 22.12.1(a)(i), “the risks listed in item 11 against … damage to and destruction to the building;
ii. by clause 22.12.1(c), insurance in respect of loss of rent and outgoings for the period [of] 12 months”
(e) clause 4.2.1 provides that, subject to certain formalities, the landlord “must not unreasonably withhold consent to a transfer of this lease or a sub-lease of the premises”.
42At [116] to [125], Nixon J rejected the defendants reliance upon Special Condition 4 of the lease, that the “Tenant must open the premises for business during the following trading hours: Monday – Sunday 11:30am to 12am” as a basis for contending that performance of the lease had become “impossible”. The special condition was an “essential term” of the lease. The defendants submitted that “the Tenant was no longer able to perform this essential term when the first Public Health Order took effect on 23 March 2020, with the result that ‘the Lease was discharged’ …”.
43The Court of Appeal at [40] to [49] stated that the approach of the trial judge was “correct”, firstly because, “It was not established that the public health orders prevented the Tenant at any stage from opening the Premises for business during the identified trading hours” at [43], and secondly, even if that were not the case, Special Condition 4, and other clauses of the lease, properly construed, did not require “the Tenant to carry on the business unlawfully” at [45].
44In the present case, Condition 2.1.11 requires the tenant “to carry on the business of the permitted use efficiently, and subject to all applicable laws, keep the premises open during the business hours which are normal for the permitted use and not suspend or discontinue the operation of the business”. By Condition 7.4, breach of Condition 2.1.11 was a “breach of an essential term and constitutes repudiation”.
45However, the tenant’s obligation under the Condition “to keep the premises open” was “subject to all applicable laws”. Further, Condition 2.1.10 required the tenant “to comply with all laws relating to the use and occupation of the premises” and clause 22.4.2 of the Variations to General Conditions (an “essential term” that would “prevail over standard terms”) required that, “the tenant must at all times throughout the term of the lease, and any further term, comply with all laws, regulations and notices relating to the use and occupation of the premises” and by clause 2.2.2, the tenant “must not use … the premises for any illegal purpose”.
46I shall discuss the requirements of the Public Health Orders shortly. However, it is clear, to use the words of the Court of Appeal in Cao, that “the Lease made clear that there was no intention to require unlawful activity” at [46], and accordingly the tenant would not have been in breach of an essential term of the lease by failing to “keep the premises open during the [normal] business hours” if that were the effect of the Public Health Orders.
47At [240], Nixon J referred to the observations of Latham CJ in Scanlon’s New Neon Ltd v Toohey’s Ltd (1943) 67 CLR 169, 191-2 regarding the “constraints upon the doctrine of frustration”. Latham CJ stated that the application of the doctrine of frustration did not mean that a party to a contract “should be excused from performance because the contract did not work out in the manner expected by one or even by both of the parties”, and Nixon J said that, “To apply Latham CJ’s language to the facts of this case, the Tenant is not excused from performance simply because the Lease did not work out in the manner expected”.
48In Cao – trial, Nixon J concluded that “the evidence does not establish that compliance with the Public Health Orders would have required a radical transformation in the Tenant’s business, or would have rendered the Tenant’s business unviable for the remainder of the term of the Lease, or any significant part of it”.
49The evidence, in Cao, relating to the effect of the Public Health Orders, and whether they “required a radical transformation in the Tenant’s business”, was as follows:
(a) the “Tenant was restricted to a take away only business for a relatively limited period, of only some eight weeks” [142];
(b) there was no indication in the evidence of how the estimated amount that might have been earned from operating a take away business was arrived at, or what costs would have been incurred;
(c) when the restrictions were relaxed, the tenant was permitted to operate a restaurant business with one customer per 4 sqm, up to a maximum of 50 in each separate dining area;
(d) the evidence of the effect of these restrictions incorrectly made calculations on the basis of one person per 16 sqm;
(e) calculations by the defendants’ solicitor using the proper measurement were given “little weight” because of the uncertainty about the correctness of the assumptions made by the solicitor;
(f) further, the solicitor’s calculations showed that, with the restrictions, the restaurant could operate at “almost one half of its maximum capacity”, and there was no evidence for the period prior to the restrictions as to whether the “restaurant was operating at full capacity”;
(g) the restriction was relaxed from one person per 4 sqm to one person per 2 sqm “from late 2020”;
(h) this easing of the restrictions was likely to mean that from that time, the restaurant might have operated at full capacity;
(i) there was no evidence of the costs that “would have been incurred in operating the business from April 2020 onwards [or] whether the Tenant could, or did, seek to access the JobKeeper scheme” pursuant to Commonwealth Rules “which commenced on 9 April 2020 [and ensured that employees] continued to receive a salary even where the employer was unable to operate or to fund wages out of turnover”. It appeared “that the Tenant would have met the requirements of eligibility for the JobKeeper scheme” and there was no support the Tenant’s stated overheads that “related to labour costs”;
(j) there were NSW regulations commencing on 24 April 2020 that applied to “any impacted lessee”. If the tenant did not qualify for JobKeeper, the estimates of monthly turnover of the Tenant “would have met the definition of an ‘impacted lessee’”;
(k) these provisions required “good faith” negotiations between lessors and affected lessees about “the rent payable under, and other terms of, the commercial lease”. The Landlords (plaintiffs) had “indicated that they were willing to accept a 50% reduction in the rent payable” for a period of 12 months from April 2020; and
(l) the Tenant was “significantly in arrears in its rent before these Orders were issued” and therefore it was not possible to conclude that “the Tenant’s business was changed from being a viable to an unviable business by reason of the Public Health Orders”.
50On the basis of this evidence, Nixon J found at [157] that there was no basis for “a finding that the Tenant’s business had been rendered ‘unviable’ by the introduction of the Public Health Orders, and would have remained unviable for the whole of the period in which those orders applied”.
51Justice Nixon referred to a number of authorities from England, Ireland and the United States “in which it had been held that leases of retail businesses had not been frustrated by the imposition of lockdown restrictions in response to the COVID-19 pandemic”. However, Nixon J did “not find these cases to be of much assistance” because of differences in the terms of the leases and the significant extent to which lockdown restrictions varied between different locations.
52At [166], Nixon J concluded his examination of the issues by stating that, “There will likely be significant obstacles to establishing [the defence of frustration] where the parties have entered a commercial lease, for a number of years, with terms dealing with the allocation of risk in the event that the premises cannot be used for their intended purposes and with an obligation to rent that is expressed in absolute terms”.
53The Court of Appeal in Cao examined the history of the NSW COVID-19 legislation and the particular restrictions imposed on the operations of the restaurant business at different times during the pandemic and the financial assistance offered to tenants by both the Commonwealth and NSW legislative provisions.
54At [71], the Court of Appeal stated:
“Assessing frustration is a practical matter. It is not to be approached in a one-sided fashion, focusing just on restrictive measures enacted in response to the pandemic without also taking account of governmental measures introduced to aid businesses through the crisis. The appellants’ evidence simply did not establish that, as claimed in appeal ground 2, the public health orders “would have rendered the Tenant’s business unviable for the remainder of the term of the Lease, or any significant part of it.”
55The Court of Appeal concluded at [72]:
“There is no reason to doubt that the Tenant’s business was adversely affected by the pandemic. But the restrictions imposed by the public health orders did not put the Tenant in breach of the terms of the Lease. The Tenant accepted liability for that type of risk under the terms of the Lease. And, in any case, the appellants have not shown that the effects were such as meet the high threshold for establishing frustration. The appeal should be dismissed, with the appellants to pay the respondents’ costs.”
56There are significant points of difference between the facts in Cao and the present case, including:
(a) the nature of the business conducted at the leased premises;
(b) how the government imposed restrictions specifically impacted on the business;
(c) the precise terms of the lease provisions;
(d) the financial relief available from governments, or as a result of negotiation with the landlord; and
(e) the pre-COVID defaults by the tenant in Cao and the continued payment of the rental until 2022 in the present case.
57The proposed amended defence does not address these, or other possible distinguishing matters, in sufficient detail or particularity for the Court to be satisfied that the proposed amendments would have any real prospect of succeeding.
58In any event, I am satisfied that the provisions of the lease in the present case are sufficiently similar to those in Cao to lead inevitably to the same conclusion as was reached in Cao, that under the terms of its lease, the tenant had accepted responsibility for the risks that arose as a consequence of the response by governments to the COVID pandemic.
59Accordingly, the defendants’ application by summons dated 18 September 2024 is dismissed. The plaintiff’s costs of the summons shall be costs in the cause.
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Certificate
I certify that these 18 pages are a true copy of the judgment of His Honour Judge Anderson delivered on 13 November 2024.
Dated: 13 November 2024
Alexandria Peck
Associate to His Honour Judge Anderson
SCHEDULE OF PARTIES
BETWEEN
| Guangrui Investment Pty Ltd (ACN 637 807 599) | Plaintiff |
| and | |
| Tony Tan Nguyen Vinh Thanh Luong Thuy Diem Luong Peter Chuong Luong | First defendant Second defendant Third defendant Fourth defendant |
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