Hruska v Maxcem Pty Ltd (No 2)
[2023] SADC 80
•5 July 2023
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
HRUSKA & ANOR v MAXCEM PTY LTD & ANOR (No 2)
[2023] SADC 80
Judgment of his Honour Judge Slattery
5 July 2023
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - CONSTRUCTION AND INTERPRETATION
In 1976 the applicants became the owners of a property at Verdun in the Adelaide Hills which now comprises broad acre land with improvements consisting of driveways, a house converted to a restaurant, sheds, dams, vineyards and fencing. A portion of the property was transferred to the applicants’ son Scott Hruska’s company Hafelekar Pty Ltd (Hafelekar) in satisfaction of their son’s claims against them arising out of the management of the restaurant by Scott Hruska. He and his company were joined to these proceedings by the respondents and are hereafter called the third parties.
In November 2012, the applicants entered into a lease of portion of the property to Maxcem Pty Ltd (Maxcem) a company owned and controlled by the respondent Mr Friebe together with a right in common with other users over a portion of the land marked A, B and C which was a common driveway. Maxcem was also liable to pay all outgoings as defined and to observe other terms and conditions of that lease connected with repairs, improvements, insurance and other such terms. Mr Friebe gave the guarantee of the obligations of Maxcem under that lease.
In 2015, the parties agreed for the creation by Maxcem of a golf tee off area in that area designated as the right of way at a point to the north of the restaurant building. Users of that area were able to hit golf balls from a tee off point onto a landing spot in a dam on another portion of the applicants’ property which was not part of the lease demised premises. Maxcem paid a licence fee to the applicants under this arrangement.
After 2015, Hafelekar wished to subdivide and redevelop a portion of the land owned by it to the south of the leasehold land. In order to get access to that land, it lodged development plan D115527 for the creation of what came to be known as the Car Park Right of Way. Maxcem eventually objected to that application and in August 2017, lodged a caveat prohibiting the registration of any interest over the leasehold land which was inconsistent with the interests of Maxcem as lessee under the lease. The applicants did not, in turn, consent to D115527 after the filing of the caveat upon the property by Maxcem. The taking by Maxcem of portions of land not demised under the lease for a marquee area and other improvements and the advent of D115527 was also the genesis of a legal dispute between the applicants and the respondents that led the respondents to commence an action in the Court in early 2017 for injunctions and other orders.
That action proceeded to a mediation settlement conference, the product of which was a Deed (of Settlement) dated on or around 10 December 2017 to which was attached a new draft lease and a new draft licence agreement for the golf tee off area. The demised leasehold area for the draft 2017 lease was expanded to include a portion of the right in common with other users over portion of the land marked Area B and Access C with the result that this further demised land was developed as an outdoor dining area, a marquee area and a further area for use a sublease of a wine cellar proprietor. This expansion commenced from the outset and without the execution of the Deed lease. The use of the golf tee off area as an adjunct to the expanded demise of the leasehold area similarly commenced without the execution of the Deed licence.
Under the Deed there was to be established over the property owned by the applicants at its eastern boundary a new ‘Eastern Right of Way’. The applicants and the respondents agreed that this Eastern Right of Way was to be created by an amendment to D115527. Under the Deed, the third parties agreed to bring an application for the creation of an Eastern Right of Way.
Under the settlement Deed, the applicants and the respondents agreed for the appointment of a valuer as an expert to determine the new rent for the demised premises. During 2018, Mr Richard Pledge of the firm Knight Frank was appointed as an expert valuer and on the 19th December 2019, Mr Pledge provided his expert opinion. Under clause 2 of the Deed and following the preparation of this expert rental determination and after some further survey work, the applicants and the respondents were obligated to execute a lease and a licence not dissimilar to the forms annexed to the Deed and to cooperate and take all steps necessary to give effect to the right of way by registration by Hafelekar of a new deposited plan. Under clause 2.7 of the Deed this required the respondents to lift the caveat lodged in September 2017 and the third parties to renounce some rights under clause 2.12 of the Deed in the event that permission was not granted for the Eastern Right of Way and it became necessary for the third parties to apply for the registration of a Car Park Right of Way. That did not eventuate.
The third parties did not apply for an amendment of D115527 but separately applied for an obtained permission for the Eastern Right of Way whilst D115527 lapsed. The caveat of Maxcem remained registered over the property owned by the applicants, including the demised leasehold land.
Under paragraph 2.20 of the Deed, the respondents and the third parties agreed to enter an unregistered Vine lease for a portion of Hafelekar’s land to be used by Maxcem in conjunction with a wedding ceremony area. Under clause 2.21 of the Deed, an independent property manager was to be appointed and remunerated in equal proportions by the applicants and the respondents. In 2018 an independent property manager was appointed and the Deed provisions were applied.
By May 2019 the property manager had negotiated and prepared the form of lease and licence as contemplated under the Deed. The applicants agreed to execute those documents and the respondents refused to do so, contending that the requirements of the Deed in relation to D115527 had not been satisfied and it was not obliged to execute the Deed or the licence proffered by the property manager, notwithstanding the continuance of the operation of its protective caveat.
The valuation prepared by the valuer was that the annual market rent for the demised leasehold premises was $130,000 plus outgoings and so, under the terms of the Deed, a back payment of rent in the sum of $74,543.20 cents was payable by Maxcem. Half of that sum was paid. The assessed rent was paid by Maxcem until April 2020 at which time Maxcem announced to all parties that it challenged the expert rental determination, that it was only required to pay a reasonable but as yet undetermined rent and that upon a proper accounting, it was not obligated to pay any rent to the applicants. At the same time, it refused to pay any further outgoings notwithstanding that it maintained exclusive possession of the demised premises and operated its restaurant and associated businesses there from including subleasing portion of the premises. It has behaved in all things, apart from the payment of rent and outgoings and other monetary obligations as if the lease and the licence contemplated under the Deed had operative effect.
The applicants contend and the respondents deny that the Deed lease in the form negotiated to May 2019 by the property manager is the operative lease between the parties and the obligations of the respondent to execute that lease should be specifically enforced and that Mr Friebe is obligated to sign a guarantee. In the alternative, the applicants contend that an equitable lease with an associated equitable obligation to execute the guarantee arises between the parties. The applicants make the same contention in relation to the licence.
Whether the expert determined the rent in accordance with the terms and requirements of the lease.
Held:
1.The expert determination was made in accordance with the requirement of the Deed and the applicable lease and the challenge of the respondents to that valuation is dismissed.
Whether the applicants are entitled to orders under the Deed for the specific performance of the obligations of Maxcem to execute the Deed lease or alternatively the lease and licence or alternatively or whether an equitable lease and licence arises between the applicants and the respondents where the respondents contend that because of the failure of the third parties to comply with the Deed it has no obligation at law or in equity to the applicants.
Held
2.Maxcem has failed to comply with its contractual obligations under the Deed to execute the lease proffered to it in May 2019.
3.The third parties were not in breach of the Deed by separately applying for the Eastern Right of Way and the action of the third parties did not provide a basis justifying the refusal by Maxcem to execute the lease and the licence.
4.By virtue of the substantial part performance by the applicants and the respondents of the Deed lease and licence as negotiated, an order for specific performance of the obligations of Maxcem to execute the lease and the licence is available, and so an equitable lease and licence in the same terms exists between the same parties.
5. The failure of Maxcem to pay rent is a breach of the equitable lease.
6. The failure of Maxcem to pay outgoings is a breach of the equitable lease.
7. The failure of Maxcem to pay the licence fees is a breach of the equitable licence.
8.The respondents are liable to pay to the applicants the outstanding rent due and payable pursuant the lease subject to the operation of the COVID regulations.
9. The lease stands terminated.
10. The licence stands terminated.
11.The respondents are liable to pay to the applicants the outstanding outgoings due an payable pursuant to the lease.
12.The respondents are liable to make good the alterations and additions made to the structures and the exterior of the premises under the equitable lease.
13. The applicants are entitled to re-enter the premises.
14.The applicants are entitled to an assessment of their damages on account of the breaches of the lease and licence to be assessed.
15.The costs of the proceedings shall be determined in accordance with the provisions of the lease.
The respondents brought a cross claim against the applicants seeking orders and declarations that the applicants wilfully neglected to observe the terms of the Deed by failing to comply with the obligations under clauses 2.2.2 to 2.2.4 of that Deed.
Whether the applicants are in breach of any of the clauses of the Deed.
Held
16.The applicants are not in breach of any of the clauses of the Deed and have done everything in their power to fulfill the requirements of the Deed and have complied with their obligations under it.
The respondents cross claim against the applicants for orders that the applicants failed to fully observe and perform the material terms of the Deed lease and, are in turn, entitled to an order for specific performance of the Deed.
Whether the applicants have failed to fully observe and perform the material terms of the Deed lease.
Held
17. The applicants observed all of the terms of the Deed lease applicable to them.
18. The cross claim of the respondents against the applicants is dismissed.
The respondents bring a cross claim against the third parties alleging that, properly construed, clause 2.8 of the Deed records an agreement between the applicant, the respondents and the third parties to create the Eastern Right of Way by amending D115527.
Whether the first third party or the second third party is in breach of the Deed; whether the third parties have performed their obligations under the Deed; whether the third parties are obligated to execute the vine lease.
Whether the respondents have any claim for damages against the third parties.
Held
19. The third parties are not in breach of the Deed.
20. The third parties have performed the whole of their obligations under the terms of the Deed.
21. The application by the respondents that the third parties execute the vine lease is dismissed.
22. The respondents’ claim for damages against the third parties is dismissed.
On the claim of the third parties against the respondents for damages for a lost opportunity to establish the Eastern Right of Way and to subdivide the Hafelekar land.
Held
23. In the absence of proof of damage, the third parties claim against the respondents is dismissed.
24. The terms of the Deed have been breached by the first and second respondents.
25. The court will hear the parties further in relation to costs.
26.The court will hear all parties generally in relation to costs and any consequential orders including in relation to the liability of Mr Friebe as a guarantor.
Real Property Act 1886 (SA) s.64, s.64, s 191., referred to.
Shoalhaven City Council v Firedam Civil Engineering Pty Ltd [2011] HCA 38; TX Australia Pty Ltd v Broadcast Australia Pty Ltd [2012] NSWSC 4 ; AGL Victoria v SPI Networks (Gas) Pty Ltd [2006] VSCA 173 ; Khayat Investments Pty Ltd v Winston Holdings Pty Ltd (No.2) [2011] WASCA 196; Holt v Cox (1994) 15 ACS.R 590 ; Beevers v Port Phillip Sea Pilots Pty Ltd [2007] VSC 556; Candoora (No.19) Pty Ltd v Freixenet Australasia Pty Ltd (No.2) [2008] VSC 478; Kenros Nominees Pty Ltd v Tipperary Group Pty Ltd [2009] VSC 524; McGrath v McGrath [2012] NSWSC 578; Barclays Bank Plc v Nylon Capital LLP [2011] EWCA Civ 826; WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WIR ; Belchier v Reynolds (1754) 3Keny87 at 91:96ER 1318 at 1319.; Email Ltd v Robert Bray (Langwarrin) Pty Ltd [1984] VR 16; Belchier v Reynolds (1754) 3Keny87; Manchester, Sheffield and Linconshire Railway Co v Anderson [1898] 2CH 394 ; Nitschke Nominees v Hahndorf Golf Club (2004) 88 SASR 334; WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489; Wilden v Green [2009] WASCA 38; Walsh v Lonsdale (1882) 21Ch D 9; Chan and Credson (1989) 168 CLR 242 ; Manchester, Sheffield and Lincolnshire Railway Co v Anderson [1898] 2 CH 394 ; Legal General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 ; Arenson v Arenson & Ors [1973] Ch 346; Chief Commission of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 ; R v Rich (Ruling No.21) (2009) VSC 32 ; Lahoud v Lahoud [2010] NSWSC 1297 ; Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] 157 CLR 17 ; Patti v Belfiore (1958) 100CLR 198; Baltic Shipping Co v Dillon (1993) 176 CLR 344 ; Hoenig v Isaacs [1952] 2 All ER 176 ; Bolton v Mahadeva [1972] 1 WLR 1009 , considered.
HRUSKA & ANOR v MAXCEM PTY LTD & ANOR (No 2)
[2023] SADC 80Overview and result
On 17th December 2021, I published judgment No.1 in this action. That judgment concerned the operation of the COVID – 19 Emergency Response (Commercial Leases No.2) Regulations 2020 adopted under the COVID-19 Emergency Response Act 2020. This judgment [2021] SADC 153 may only deal with the legal issues arising between the parties both before and after the period in which those regulations operate.
To the extent necessary, any orders made in this action in favour of the applicants concerning rent, outgoings and other amounts payable under any lease with the respondent Maxcem Pty Ltd are to be read subject to the limitations upon the jurisdiction of this Court under the operation of those regulations. During the period of the operation of the regulations, the Magistrates Court has exclusive jurisdiction to hear and determine any claims between the parties upon those issues. This is explained in my judgment No.1 in this action.
In 1976, the applicants, both of whom were born outside of South Australia, established a business called Maximilian’s Restaurant at Verdun.
The property on which the business was established was largely broad-acre farming land in the Adelaide Hills district. Improvements comprised a stone cottage, some minor sheds and fencing. On its southern side, the property was contiguous with the South Eastern freeway. The restaurant business was conducted from the stone cottage. Over time there were a number of improvements to the land and, the cottage, which led to the enlargement of the restaurant premises.
In 2012, the applicants entered into a lease with a company Maxcem Pty Ltd for a period of five years commencing on 7 November 2012 and ending on 6 November 2017. The initial rent was $70,000 per annum excluding GST payable in monthly increments. The terms were contained in a formal Deed of lease and the area leased was the portion of the land marked [A] in FX57153 being the portion of the land in Certificate of Title Register Book Volume 6060 Folio 644, together with a right in common with other users over that portion of the land marked ‘Area B’ and ‘Access C’, a copy of which provides:
Under the 2012 lease, Maxcem was also liable to pay the outgoings specified in the first schedule of the lease to maintain and repair the premises, to insure the premises, amongst other obligations. Andrew Cranage Friebe (Mr Friebe) gave a guarantee of the obligations of Maxcem under the lease. A copy of this lease forms part of exhibit ACF 2 to the witness statement of Mr Friebe, Exhibit R21.
The 2012 lease provided four rights of extension, each of five years duration and rent was to be adjusted yearly to CPI and to market every five years. Maxcem has been in possession of these premises since 2012.
In 2017, the parties fell into dispute. An action was commenced By Maxcem and Mr Friebe in the District Court of South Australia. The dispute was settled by mutual agreement and as part of which, the parties entered into a Deed of Settlement.[1] The Deed is undated but is executed by the parties thereto. The respondents contend that the Deed dated 10 December 2017. Two parties to the action and the Deed are interested parties, Scott Hruska and Hafelekar Pty Ltd. The recitals to the Deed record the pertinent history and they provide:-
[1] Exhibit A1, volume 1, pages 183 et seq.
A Mr Friebe is the sole director and shareholder of Maxcem.
B On 1 February 2017, Maxcem commenced proceedings against Louise Hruska, Max Hruska and Scott Hruska in District Court Action (98 of 2017) (the action).
COn 3 February 2017, Maxcem obtained an interim injunction order against Louise Hruska, Max Hruska and Scott Hruska (the injunction).
DThe Defendants had defended the Action and brought a cross claim by counterclaim against the plaintiff in District Court action 98 of 2017 (the Cross Action).
EOn 8 August 2017, Maxcem registered caveat number 12773502 over a portion of the land in Certificate of Title Register Book Volume 6060 Folio 644 (the caveat).
FScott Hruska is the sole director and shareholder of Hafelekar Pty Ltd ACN 139 275 602 (Hafelekar).
GHafelekar is the registered proprietor of the whole of the land in Certificate of Title Volume 5405 Folio 396 and more particularly described in Allotment 7, Deposited Plan 28709 in the Area named Verdun, Hundred of Noarlunga and Onkaparinga (Hafelekar’s Land) which adjoins land that is leased from Maxcem from Louise Hruska and Max Hruska.
H…
Under the agreement reflected in this Deed, there was to be a new lease in the form of an annexure A, and the enlargement of the leasehold is for the creation of an area called the (licence area) for golf activities by restaurant users and other invitees of the respondents onto the (leased premises). The further leasehold area was to be included and it is reflected in the map which follows.
A comparison of the leasehold areas under the 2012 lease and under the 2017 Deed lease discloses that the lessee took a greater leasehold area in 2017. From 10 December 2017, Maxcem took this extra area as if the 2017 Deed lease had been executed. To that extent, at least, it was partially performed.
There was to be established a new right of way to be called the ‘eastern right of way’ for the benefit of the interested parties. The intention was to give Scott Hruska and Hafelekar access to land owned by them adjoining the southern boundary of the leased property.
Under the settlement Deed clause 2, a licenced valuer was to determine the current market rent, there was to be some additional survey work done, and upon completion of that work, the parties undertook to do the following:-
‘2.2.3execute documents in a form not materially different to the form of the annexed lease and licence; and
2.2.4co-operate and take all steps necessary to give effect to the Rights of Way including but not limited to consenting to the application to DAC or any other relevant Statutory Authority, of an amended Plan of Division incorporating the Eastern Right of Way, or in the alternative, the Car Park Right of Way and the subsequent deposit of any approved DAC (or any other relevant Statutory Authority) Plan of Division for registration at the Lands Titles Office giving effect to such rights of way.’
The premises to be leased were described in paragraph 2.3 of the document which provides:-
2.3Max Hruska, Louise Hruska and Maxcem agree that the premises to be leased under the lease will constitute the land identified and described as Area A Encroachment Area E, Tee Off Area in the attached lease area survey prepared by Alexander Symons Surveying Consultants annexed as appendix C (Premises). Maxcem agrees that Max Hruska and Louise Hruska are entitled to erect a fence and gate at the northern area of Area B adjacent to Common Access C and the Premises. Maxcem, Max Hruska and Louise Hruska shall all retain access through the gate to Area B at all times.
At the time of the settlement Deed, one of the points of contention between the parties was a caveat lodged over the land by Maxcem. The issue surrounding that caveat is dealt with at paragraph 2.7. It provides:-
Maxcem and Friebe agree forthwith upon approval by the Lands Titles Office showing an amended plan of division giving effect to the Eastern Right of Way or failing that, in accordance with the terms of this Deed, the Car Park Right of Way, it will take all necessary steps to withdraw the Caveat.
The caveat was lodged by Maxcem over the whole of the land of the applicants and the interested parties and, purported to protect the proprietary rights of Maxcem as lessee against the applicants and the third parties. (I will hereafter call the interested parties, collectively the third parties).
Clause 2.8 of the Deed is a record of an agreement between applicants and the respondents which purports to bind the third parties. In turn, they agreed to the amendment by the third parties of the deposit plan approved by the DAC, namely D115527. The Deed also provided for the possibility of the ‘Car Park Right of Way’ on the western side of the property. This was to be reflected in an amended plan that is described in the amended plan showing the demise to Maxcem of further leased land to the North and West of the premises. The third parties renounced any right to that further demised land under clause 2.12 of the Deed. However, clause 2.12 does not stipulate that the third parties must act in the way described in clause 2.8.2 as that clause only reflects the agreement between the applicants and the respondents. Clause 2.12 of the Deed contemplates a plan of division for the Eastern Right of Way, not the plan envisaged under clause 2.8.2 (my emphasis).
Each of Maxcem, Mr Friebe, Max Hruska and Louise Hruska agree to create a benefit of the Eastern Right of Way for Scott Hruska and Hafelekar under this clause.
There had earlier been a resolution of a number of disputes between Scott Hruska and Max and Louise Hruska (his parents) which in the main, was resolved by Max and Louise Hruska transferring to Scott Hruska a portion of the land on the southern boundary of their land holding which is contiguous with the leasehold land. At the time this occurred, there was an existing right of way over the property marked ‘A and B’ which provided a right of way over the whole of the land including any leasehold land to the land owned by Scott Hruska to the south of the leased area. That right of way is obviously very unsuitable because Scott would be continuously taking access across the leasehold land and potentially interfering with the business of Maxcem conducted upon that leasehold land.
The solution to that conundrum was to create a new right of way called the ‘eastern right of way’ which ran from the principal entrance to the land directly to the south and along the eastern boundary of the leasehold land and contiguous the Onkaparinga Valley Road.
The obligations associated with this right of way are recorded in paragraphs 2.8, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 2.15 and 2.16 of the agreement. Those subparagraphs provide:-
2.8Maxcem, Friebe and Max Hruska and Louise Hruska agree to:
2.8.1 grant Hafelekar a right of way through the entrance to the “Access C” via Onkaparinga Valley Road, turning south and running parallel with Onkaparinga Valley Road to Hafelekar’s Land, as shown on Appendix E to constitute the Eastern Right of Way; and
2.8.2 Hafelekar applying to the DAC to amend the deposit plan approved by DAC on 30 March 2017 to incorporate the Eastern Right of Way.
2.9If the DAC, or any other relevant Statutory Authority approves a plan of division incorporating the Eastern Right of Way or the Car Park Right of Way, Maxcem and Friebe and Max Hruska and Louise Hruska agree to take all steps necessary to give effect to the Eastern Right of Way and Car Park Right of Way, including but not limited to consenting to the deposit of an amended plan of division in the Lands Titles Office giving effect to such right(s) of way.
2.10If the DAC or any other Statutory Authority does not approve the Plan of Division incorporating the Eastern Right of Way, Maxcem and Friebe and Max Hruska and Louise Hruska agree to take all steps necessary to support and consent to the application to DAC for approval of a plan of division in the same form as that already approved by DAC, save that it will incorporate the Car Park Right of Way. Such steps shall include Maxcem and Friebe consenting to the deposit and registration of any DAC approved plan of division incorporating the Car Park Right of Way, at the Lands Titles Office.
2.11Scott Hruska and Hafelekar agree to bring and genuinely prosecute the application to DAC for a plan of division incorporating the Eastern Right of Way, prior to bringing and prosecuting an application to DAC for a plan of division incorporating the Carpark Right of Way. Further, they will not bring the application to DAC for approval of a plan of division incorporating the Carpark Right of Way unless and until they have taken all reasonable steps in relation to the application to DAC for approval of the plan of division incorporating the Eastern Right of Way.
2.12Forthwith upon approval by DAC of a plan of division based upon either the Eastern Right of Way or the Car Park Right of Way, Scott Hruska and Hafelekar renounce any and all rights of way relating to the original route for “Access C” to the north and west of the Premises, and defined by the area marked “X” in the attached Appendix D.
2.13Without derogating from any legal rights relating to or associated with the Car Park Right of Way, Scott Hruska and Hafelekar agrees, on approval by DAC of a plan of division adopting the Eastern Right of Way to adopt the Eastern Right of Way as the preferred access to Hafelekar’s Land. This preferred use is solely for the purposes of aiding and accommodating a request of Friebe that Scott Hruska prioritises the Eastern Right of Way and does not create any legal or equitable impediment to either Max Hruska and Louise Hruska’s ability to grant Rights of Way to Scott Hruska or Hafelekar or any other person, either in relation to the original “Access C” (but excluding the area marked “Area X” on Appendix D), “Alternate Access C”, “Area E” or any other land in respect of which they are the proprietary owners.
2.14Maxcem and Friebe, acknowledge and agree that they will not oppose any application by Max Hruska and Louise Hruska to be made to the Lands Titles Office or any other relevant authority with respect to registration of the Carpark Right of Way on the land comprised in Certificate of Title Register Book Volume 6060 Folio 644.
2.15Maxcem and Friebe, on the one hand, and Hafelekar and Scott Hruska, on the other hand, each agree not to take any unreasonable objection to the other parties’ application(s) for development approval in relation to the Premises and the Hafelekar Land Respectively.
2.16The Parties acknowledge and agree that Scott Hruska and Hafelekar will from the date of execution of this Deed continue to have full rights to use the Carpark Right of Way.
An amended plan of division is to be lodged for approval showing an eastern right of way or, failing that, a car park right of way. Both are contemplated as operating as alternatives. If Scott Hruska has the benefit of the eastern right of way, he logically no longer required the car park right of way and under clause 2.12, the third parties renounced their right to contend for the right of way for the original route, access C to the north and west of the premises.
Clause 2.9 of the Deed contemplates a plan of division incorporating the Eastern right of way or the car park right of way and the parties undertake to do all things necessary to give effect to one or other of these rights of way. An application is required to be made by Scott Hruska to achieve the eastern right of way or a car park right of way, and under paragraph 2.12, upon obtaining a plan of division based on the eastern right of way or the car park right of way Scott and Hafelekar renounce any rights of way to the area marked C on the attached plan D which did not formerly include a portion of the leased land but it is now to come within that leased property. This enabled the use of, inter alia, the outdoor entertaining area and use of the licenced area for golf. Vehicles of all types would be removed from access to that area so that it could be entirely devoted to the purpose to which the lessee may wish to put that land.
The apparent intention of the Deed is that Scott Hruska and Max and Louise Hruska are required first to create an eastern right of way and so clauses 2.12 and 2.13 of the Deed do not preclude Max and Louise Hruska from operating other rights of way. Maxcem and Mr Friebe argue, that clause 2.14 of the Deed is to be interpreted as preventing them from opposing an application by Max and Louise to register the car park right of way. They also contend that the rights of Scott Hruska and Max and Louise Hruska to use the car park right of way are preserved under clause 2.15 as described above. I think that this contention is incorrect.
In paragraphs 2.17 and 2.18 of the 2017 Deed, Scott Hruska and Max and Louise Hruska agree that they will not oppose an application by Maxcem for development approval for a number of matters:-
2.17Scott Hruska and Hafelekar will not oppose any application by Maxcem for development approval from the Adelaide Hills Council for those matters outlined in clause 5.10 of the lease including:
2.17.1a permanent Function Facility comprising the present Function Pavilion;
2.17.2the Pergola and the liquor licence planned for the Wedding Ceremony Area in a form not materially different to that shown in the document marked Appendix F; and
2.17.3obtaining development approval from the Adelaide Hills Council to expand the Restaurant, Cellar Door facility and outdoor areas, as permitted by the Liquor Licence for the time being, in accordance with, or any reasonable variation, of the concept drawings attached at Appendix G.
By paragraph 2.20, Scott Hruska and Hafelekar agree to enter into an unregistered vine lease for vines on its land. It provides:-
2.20Hafelekar offers, and Maxcem agrees to enter into an unregistered vine lease of the vines on Hafelekar’s Land the terms of which will include:
2.20.1rental of $20,000.00 plus GST per annum with CPI adjustments at the end of each year;
2.20.2a five (5) year term commencing from the date of execution of a Vine Lease plus an option of two years but immediately terminable if Maxcem’s lease of the Premises is determined early or at the end of the term for whatever reason;
2.20.3 rights to use the water on Hafelekar’s Land; and
2.20.4in-principle permission to erect three signs on Hafelekar’s Land along its boundary with Onkaparinga Valley Road subject to Council consent,
2.20.5Friebe to have access to the vineyard the subject of the Vine Lease as and from the date of execution of the lease.
2.20.6both parties will use their best endeavours to achieve an execution of the Vine Lease by 1 January 2018.
(“Vine Lease”).
Under paragraph 2.21 of the Deed, an independent property manager was to be appointed and that appointment was made. In 2018 Mr Brian Scarborough was appointed the independent property manager and he performed that work under the terms of the Deed. He was remunerated equally by the applicants and the respondents according to the requirements of the Deed.
Clause 19 of the Deed contained a dispute resolution mechanism. It provides:-
19Dispute Resolution
19.1Dispute and differences
19.1.1If a dispute, disagreement or difference between the Parties arises out of or in connection with this Deed, the Premises, the Lease, the Licence, the Right(s) of Way or the Vine Lease (“Dispute”), the Parties agree to first comply with this clause 19 before commencing any legal proceedings in respect of the Dispute.
19.2 Notice of Dispute
19.2.1A party must start the procedure in this clause 19 by giving written notice to the other Party, adequately identifying and providing details of the Dispute.
19.2.2The Party raising the Dispute and the Party with whom the Dispute is raises, must meet and confer in good faith as soon as possible after receipt by a Party of a notice under clause 19.2.1 and attempt to resolve the Dispute.
19.2.3If the Parties cannot resolve the Dispute within 14 days after receipt by a party of a notice under clause 19.2.1, (or any longer period agreed by them in writing), or if they fail to meet within the 14 day period, (“Initial Period”), then either party may refer the Dispute to mediation.
19.3 Mediation
19.3.1If the Parties are unable to agree on a mediator within 7 days after the end of the Initial Period, either Party may apply to the then current President of the Law Society of South Australia, or the President’s nominee to appoint a mediator. Each party must bear its own costs of complying with this clause and the parties must bear equally the costs of any mediator engaged.
19.3.2If the Parties have not resolved the Dispute within 20 Business Days after the appointment of the mediator (or any other period agreed in writing between the Parties), and have been unable to resolve the dispute, then and only then may either Party refer the matter to litigation.
19.4 Ongoing Compliance
19.4.1Notwithstanding the existence of a Dispute or commencement of the Dispute resolution process provided for under this clause 19, the Parties shall continue to perform all of their obligations under or in respect of the Deed, the Premises, the Lease, the Licence, the Right(s) of Way or the Vine Lease.
The Deed was executed by all of the parties. A lease was attached as Appendix A (the Deed lease). It was not executed. It is contended that the terms of this Deed lease govern the relationship between Max Hruska, Louise Hruska and Maxcem in relation to Maxcem’s occupation of the leased land. Despite the absence of execution by the parties, the Deed lease was implemented as a document conveying proprietary rights. For example, Maxcem operated as the lessee of the further leasehold areas. The 2012 lease conveyed no proprietary rights in those areas to Maxcem. In the alternative, it is said to be a form of equitable lease in the terms of the writing.
Appendix B to the Deed is a form of licence also undated and unexecuted which governs what is described as the golf licence area. This was the successor agreement to a golf licence that had first been executed in November 2015. In the same fashion, this licence agreement was fully implemented though it was unexecuted. It was similarly partly performed by all of the parties (absent their execution).
The evidence of Mr Scarborough is that by about May to June 2019, all of the negotiations were complete. The closest this appears to have reached is that Mr Scarborough held a copy of a lease notated on the first page in handwriting as follows:-
Mr Scarborough was the property manager under the Deed until his position became untenable in the 2020 year because of trenchant criticism made of his performance by a new director of Maxcem, Mr Fuller. This criticism was not justified and it was not reasonable. It had quite profound consequences.
Mr Scarborough had been conducting negotiations between the parties for the resolution of the issue of the rights of way, easements and caveats. Upon his retirement from that appointment, Mr Scarborough went on working for Mr and Mrs Hruska. The failure to resolve those issues of rights of way and caveats is largely the genesis of the action. So also is the dispute about rent payable by Maxcem. There are significant disputes about rent, unpaid rent and outgoings and the calculation of the quantum of those liabilities. I have dealt with some of these issues in my first judgment, Hruska & Anor v Maxcem Pty Ltd and Anor [2021] SADC 153.
Before I turn to the pleadings, there are some matters that are not in dispute and may be dealt with briefly.
The applicants and the respondents each admit the Deed lease, its terms and the method of calculation of rent. The respondents deny the quantum of rent payable by Maxcem and contend that it has overpaid rent because it challenges the rent calculation made by Mr Pledge as an expert. Mr Pledge was appointed under clause 2.2.1 of the Deed. The task of Mr Pledge is defined within the first schedule of the Deed lease or alternatively clause 1.1.1 (b) of the first schedule to the 2012 lease; there is no difference between the two clauses. After the expert determination in 2018, Maxcem paid the assessed rent for a period of time. It had not executed the Deed lease but had taken control and used the further leased land demised under the Deed and the Deed lease. The respondents contend that the expert retained has failed to observe the contractual terms which apply to and govegovernrned his valuation approach. They deny their liability to pay rent under the Deed lease.
In that background, the respondents admitted the obligations to pay rent, outgoings and make back payments of rent. The source of the ongoing obligation is the Deed and the Deed lease. Other agreed obligations included repair, no authorised alterations or additions, cleanliness and repair of plant and equipment, fixtures and fittings including air conditioning and the obligation of insurance.
Under clause 4.5 of the draft lease there was not to be a transfer of any beneficial ownership of a share in the capital of the corporate respondent. After 10 December 2017, Maxcem issued a share to its new director, Mr Fuller and this was said to be a breach of that obligation. I consider that this contention is not legally correct: the issue by the company of a share in its capital is not the transfer the beneficial ownership of a share in the issued capital of the company. The share subscribed by Mr Fuller only becomes a part of the issued capital upon subscription for the share. That is not a transfer of any beneficial ownership in a share of the capital of the company Maxcem.
The respondents agree that in the Deed lease the essential terms were the covenant to pay rent and to repair, maintain and not to alter, to insure and to pay licence fees and that if these essential terms are breached, then there is a right of re-entry and other money claimed.
Maxcem agrees that there was an agreement for a Deed licence of an established licenced area for a permitted use, namely one -hole golf. The licenced area was defined as Annexure B of the permitted use as defined in Annexure B. The Tee Off Area is similarly defined.
The respondents contend that the Deed licence is a proposed annexure to the agreement for lease and, the applicants must comply with clauses 2.2.2 to 2.2.4 of the Deed lease. Clauses 2.2.2 to 2.2.4 are not lease terms but of the Deed. Upon fulfillment of those conditions, the parties became obliged to execute the Deed lease.
The respondents deny the alternative allegations of the applicants of the existence of an equitable lease due to part performance and acts of affirmation. The respondents contend that the Deed licence is a proposed annexure to the agreement for lease and the applicants must comply with clauses 2.2.2 to 2.2.4 of the Deed lease. There is a level of inconsistency in the denials by the respondents of the existence of the equitable lease whilst maintaining that any such licence arrangement must comply with the terms of a lease.
The tasks required by clause 2.2.1 and 2.2.2 of the Deed are complete, but the parties have not executed the Deed lease but have proceeded to conduct themselves on the basis of its application. The applicants collectively contend that although the respondents took possession of the property and the licenced area, they have failed to comply with the obligations arising under each of those instruments.
In response, the respondents contend that the Deed lease contemplated that the applicants and their son, Scott Hruska, the second third party would comply with clauses 2.2.2 to 2.2.4 of the Deed as a condition precedent to the grant of a new registered lease and the application of any new or increased rental pursuant to clause 2.2.1 of the Deed lease.
Clause 2.1 of the Deed lease provides that the parties have agreed to the current terms of the lease and the annexed licence. The Deed then records the obligations of the parties to execute a form of lease not materially different to the form of the annexed lease and licence.
This subclause first requires cooperation and the taking of necessary steps to give effect to the rights of way. This expression is defined in clause 1.1.18 of the Deed to mean:-
“Rights of Way” mean the full, free and unrestricted right(s) of way to transit across land, by vehicle, foot or other means and includes the “Car Park Right of Way” as defined in the plan attached hereto at Appendix D and the “Eastern Right of Way” as defined in the plan attached hereto at Appendix E.
The expression ‘…The Car Park Right of Way’ is defined in clause 1.1.3 of the Deed to mean:-
1.1.3“Car Park Right of Way” means the right of way collectively comprising of the areas noted as “Original Access C”, “Alternate Access C” and “Area E” and expressly excludes the former route of the “Access C” and the west and north of the Premises, as defined and marked as “Area X” in the plan attached hereto as Appendix D;
The expression ‘Eastern Right of Way is defined in clause 1.1.9 of the Deed to mean:-
1.1.9“Eastern Right of Way” means the right of way shown as “Max’s Block Eastern Access” in the plan attached hereto as Appendix E;
I will refer later in detail to these definitions and the content of the annexures. My focus here is upon the wording of subclause 2.2.4 which binds all of the parties to cooperate and take the necessary steps to give effect to the rights of way.
The ‘Car Park Right of Way’ is an alternative to the Eastern Right of Way. There are no guidelines given about when the alternative may have application. The definition of the car park right of way specifically excludes the form of route of Access C to the west and north of the premises because it would otherwise include that area of land over which the patrons of the restaurant and the users of the deck area may take ingress and egress to those areas as well as traverse from those areas to the tee off area.
The following matters are therefore not disputed between the parties:-
1. The lease area is the property identified in attachment A to the Deed.
2. The lease period was for an initial term with four rights of renewal with the usual requirements about the renewal of the lease from time to time;
3. The rent and when it was payable, the payment of the outgoings (council and water rates) included; the determination of a new rent by a valuer first under the Deed and then every four years under the terms of clause 1.2 of the first schedule of the lease which is Appendix A to the Deed of Settlement. There is also an obligation to make back payments of the difference between rent paid and the rent assessed by the expert (making the initial assessment as an expert under the Deed) from commencement to the date of determination.
4. There be no alterations/additions without permission and the premises be maintained in good and substantial repair including all plant and equipment and, fixtures and fittings, air conditioning and that the premises be fully insured;
5. The essential terms were:-
.1Payment of rent and outgoings.
.2Maintenance and repair.
.3The obligation as of Friebe as a guarantor.
6. A right of re-entry arose if monetary obligations were outstanding for 14 days or if other essential covenants were breached or there was default in the observance of the essential terms of the lease.
7. There was agreement upon the terms of the Deed licence. The respondents contend that the obligation to enter into a Deed licence was always subject to the compliance with subparagraphs 2.2.2 to 2.2.4 of the Deed. The applicants permitted the first respondent to use the licence area to conduct a one hole game of golf for a term of five years at an agreed annual licence fee of $10,500 per annum. The usual obligations of the maintenance and upkeep of the area apply to the licence. The licence terminated upon termination of the lease or the failure to pay licence fees if the licence failed to observe the terms of the licence.
Maxcem maintained exclusive possession of the premises and the licence areas. Maxcem complains that there was a failure to give quiet possession of the premises. I am unable to accept that contention. A mere temporary inconvenience, for example, is not an interference with the estate of the lessee, and so is not a breach of a covenant for quiet enjoyment.[2] It is not necessary to prove that there has been a physical interference with the enjoyment of premises to constitute a breach of such obligation. An interference with a lessee’s enjoyment of light may, in circumstances, constitute an interference with quiet enjoyment. These are all questions of fact. Since the date of the Deed and the possession by Maxcem under the Deed lease and licence, there have been significant disagreements between the parties about the lease area and there have been some regrettable confrontations between them. The discourse between Maxcem as lessee and the applicants as lessors has become fraught for a variety of reasons. These include disappointment, perceived slights and wrongs, mishaps and the operation and functionality of businesses conducted on leased premises. I am satisfied that whatever has occurred between the parties does not satisfy any test of a failure to give quiet enjoyment. The parties have brought their dispute to the Court and have conducted their cases accordingly.
[2] Manchester, Sheffield and Lincolnshire Railway Co v Anderson [1898] 2 CH 394 at 401.
The respondents have since November 2017, occupied and maintained exclusive possession of the leased premises from the applicants and have conducted on the leased premises and the licenced area the business of a restaurant and other activities.
Between November 2017 and December 2018, the respondent paid rent at the rate of $6,667.00 per month. After the appointment of Mr Scarborough of the business SA Lease Management Pty Ltd as the independent property manager in early 2018, the parties jointly appointed Knight Frank as a valuer to determine a new market rent under the terms of the Deed lease, or alternatively the Deed.
The Deed lease has not been executed by the parties but each of them conducted themselves as if its terms operate and bind them. Clause 4.5 of The Deed lease prescribes the entitlement of a party of the parties to appoint a valuer to determine market rent. That is what has occurred. Mr Pledge reports that he performed his task under clause 1.1.1 (b) of the first schedule to the lease. The Deed lease does not contain such a clause and this is a reference to a clause in the 2012 lease.[3]
[3] The 2012 lease forms part of the witness statemen of Mr Friebe, exhibit R21.
The valuation performed by the appointed expert Knight Frank concluded that the market value of the rent for the premises was $130,000 per annum and so a back payment of rent in the amount of $74,543.20 was payable by Maxcem under the Deed half of that sum was paid. The respondents contend that the appointed expert has failed to comply with the terms of the Deed lease, that the rent amount is excessive, the rent paid under the valuation is, to the extent of the excess liable to be set off against the rent due and payable with the result that no rent is liable to be paid by the respondents to the applicants.[4]
[4] I discuss these issues later in the content of the challenge to the opinion of Mr Pledge.
Maxcem has also not paid to the applicants any rent or any amount for outgoings since the time that it refused to pay further rent.
The respondents contend that the payments made by Maxcem occurred in the background of their expectation that the applicants would comply with clauses 2.2.2 to 2.2.4 of the Deed. And so, it may be seen that even though I have described these as two separate issues for determination, the respondents contend that they are interdependent at least to an extent.
The result
The challenge of the respondents to the expert determination of Mr Pledge fails. There is no basis to interfere with that expert determination.
The respondent Maxcem has therefore failed to pay rent since May 2020. It has failed to pay outgoings during the same period.
Maxcem has failed to comply with the applicant’s notices of demand to pay rent and outgoings in accordance with its obligations. As a result of the failures by Maxcem to pay rent and outgoings and to observe other terms of the lease, the leasehold interests of Maxcem is terminated.
The lease which formed annexure A to the Deed, was negotiated by the parties through Mr Scarborough until October 2019. That form of lease was the document contemplated by the parties under the terms of the Deed. Maxcem has wrongly refused to execute that lease.
The applicants have complied with the whole of their obligations under the Deed and the Deed lease.
The third parties have complied with the whole of their obligations under the Deed.
The respondents have failed to comply with the whole of their obligations under the Deed.
The respondents’ cross-claims against the applicants are dismissed. The respondents claims against the third parties are dismissed.
The cross-claims of the third parties against the applicants are dismissed.
The cross-claims of the third parties against the respondents succeed in part.
There will be orders and declarations accordingly. These include that the parties are bound by an equitable lease in the form of the lease negotiated between the parties as at October 2019 and which has been breached by Maxcem.
The Court will hear the parties further in relation to the form of declaratory orders, other relief and costs.
In that general background I turn to the parties’ pleaded cases.
The pleadings
There are some important aspects of the parties’ pleadings that have very broad consequences for my decision in this action.
The applicants and the respondents largely admit the allegations of fact in the introductory paragraphs 1 and 2 of the claim. Any differences are immaterial.
Paragraph 3 of the applicant’s claim is directed towards Mr Friebe, the second respondent. Paragraph 3.2 of the applicant’s claim pleads that Mr Friebe:-
‘3.2 Is the sole guarantor of the obligations of the first respondents to the applicants under the first respondent’s current lease over the property.’
In paragraph 3 of the defence, the respondents admit paragraph 3 of the claim. At that point, there had not been any pleading of the ‘current lease’ over the property. The meaning of the pleadings is clear enough; the respondents accept that the lessee is Maxcem and Mr Friebe, a director of that lessee in its capacity as trustee of a trading trust and is a guarantor of its liabilities under the lease. A question is the ‘lease’ to which reference is made here.
The unchallenged evidence before me is that under an earlier registered lease commencing on 7 November 2012, Mr Friebe was a personal guarantor of the obligations of Maxcem as lessee.[5]
[5] Witness statement of Andrew Cranage Friebe, Exhibit R21, Exhibit ACF2; Lease dated 7 November 2012 between applicants and Maxcem: guarantee clause 21 reference schedule item 11.
As will become clear below, the parties fell into dispute prior to 2017 about a number of issues. The respondents commenced an application in this Court for injunctive relief against the actions of the applicants and the third parties connected with the leased land and land appurtenant to the leased land.
The 2017 dispute was resolved by a Deed of Agreement which the respondents contend was executed on 10 December 2017. That date is probably correct. Attached to that Deed were the annexures: ‘A’ being the proposed Deed lease and ‘B’ being the proposed Deed licence. These documents were not executed by the parties after the execution by them of the Deed. It is common ground that more work needed to be done to bring both documents into a final form. That became the task of Mr Scarborough and it was completed by October 2019 on the case of the applicants.
In paragraph 6 of the parties’ pleadings, there is an agreement that the 2017 proceedings were resolved by the terms of the Deed of Settlement.[6] This included mutual obligations on each of the parties named, including the third parties.
[6] Exhibit A1, volume 1, page 100 et seq.
In paragraph 7 of the statement of claim, the applicants plead the effect of the Deed as follows:-
‘The material terms of the Deed were as follows:
7.1 The Applicants agreed to lease a portion of the Property to the First and Second respondents on the terms set out in an unexecuted lease annexed as Annexure A to the Deed (“the Deed Lease”)(Deed Clause 2.1);
7.2 The Applicants agreed to licence portion of the Property to the Respondents on the terms of an unexecuted licence agreement annexed as Annexure B to the Deed (“The Deed Licence”)(Deed Clause 2.1);
7.3 The Deed Parties agreed to appoint an Independent Property Manager to manage the Lease (as defined in paragraph 8 here under) and the Licence Agreement (as defined in paragraph 13 hereunder) with the costs, fees and charges of the Independent Property Manager to be paid equally as between the Applicants and the Respondents;
7.4 In the event of a dispute between the Deed Parties (“Dispute”), the Deed Parties meet and confer in good faith, failing which the same proceed to mediation (Clauses 15.1, 19.1.1, 19.1.2 and 19.3);
7.5 Notwithstanding the existence of a Dispute, or the commencement of a Dispute Resolution Process, including a mediation, the Deed Parties continue to perform all of their obligations under or in respect of the Deed, the Lease (as defined in paragraph 7.1 herein) and the License Agreement (Clause 19.4.1).
Paragraph 7 of the defence is pivotal. It admits that the Deed lease contains the terms pleaded.[7] In paragraph 7.2 of the defence, the respondent purports (incorrectly) to plead material clauses of the Deed lease (clauses 2.2.1 to 2.2.4) but these are clauses of the Deed. Paragraph 7.2 of the defence provides:-
‘The Respondents plead the following material clauses herein of the Deed Lease:
7.2.1 Upon finalisation of:
7.2.1.12.2.1 – the completion of the determination of the current market rent by a licenced valuer; and
7.2.1.22.2.2- The completion of any additional survey work by a licensed surveyor to give effect to the Lease, the Licence and the establishment of the Rights of Way, the relevant Parties agree to:
7.2.1.32.2.3 – execute documents in a form not materially different to the form of the annexed Lease and Licence; and
7.2.1.42.2.4- Co-operate and take all steps necessary to give effect to the Rights of Way including but not limited to consenting to the application to the DAC or any other relevant Statutory Authority, of an amended Plan of Division incorporating the Eastern Right of Way, or in the alternative, the Car Park Right of Way and the subsequent deposit of any approved DAC (or any other relevant Statutory Authority) Plan of Division for registration at the Lands Titles Office giving effect to such rights of way.
[7] Defence paragraph 7.1.
Paragraph 7.3 of the Defence pleads a denial that subparagraph 7.1-7.5 inclusive of the statement of claim, pleads material terms of the Deed lease. I had initially thought that the reference to ‘Deed lease’ in this part of paragraph 7 of the defence was a typographical error. I think that view is wrong and that the respondents have intentionally pleaded terms of the Deed as if they were terms of the Deed lease. Paragraph 7.3 of the defence purports to suggest that the material terms of the Deed lease are those terms within the Deed. As I later explain, that cannot be correct. The Deed lease and Deed licence were not executed and their terms continued to be negotiated through the efforts of Mr Scarborough until about October 2019, by which time the final version of the lease had been achieved.
When read properly, clauses 2.2.1 and 2.2.2 of the Deed are conditions of the Deed which are precedent to the right of any party to call upon the other to execute the Deed lease and the Deed licence.
Paragraph 7.4 of the defence then provides:-
‘Say that the Deed Lease contemplated further agreements between the Applicants and the Respondents for the Agreement for Lease to have full force and effect as a registered lease in substitution for the 2012 Lease;’
There is no particularity about further agreements contemplated under the Deed lease. The pleading is also demonstrably incorrect. The Deed in paragraph 2.2.3 contemplates that the Deed lease and the Deed licence will be in a form not materially different to the annexures A and B to the Deed. That is what has occurred on the case of both of the parties. This negotiation was connected with the existing Deed lease and Deed licence agreement annexed to the Deed. Further agreements are contemplated and that is the nature of any Deed of settlement where a hallmark is, inter alia, flexibility of thought and action to bring the deal to fruition. In that background, it is correct to say that the fulfilment of the requirements of clause 2.2.1 and 2.2.2 of the Deed are conditions precedent to the settlement upon the new lease and licence. This is the effect of clause 7.5 of the defence which provides:-
‘The Deed contemplated performance by the Applicants and their son, Scott Hruska, to comply with Clauses 2.2.2 to 2.2.4 of the Deed as a condition precedent to the grant of a new Registered Lease and the application of any new or increased rental pursuant to Clause 2.2.1 of the Deed;’
The inclusion of clauses 2.2.3 and 2.2.4 of the Deed in this plea is slightly problematic because these are not unilateral but are bilateral obligations on all parties. It is also now quite apparent that the pleas in subparagraphs 7.1 – 7.5 of the applicant’s claim are correct and the contrary contention put by the respondents is an obvious error.
So much is apparent when regard is had to paragraph 8 of the statement of claim which pleads the material terms of the Deed lease. These comprise:-
The material terms of the Deed Lease were:
8.1The Applicants lease the areas of the Property identified in Attachment A to the Deed, including the Restaurant (“The Premises”), to the First Respondent for an initial term (“The Term”) of 5 years, with the First Respondent having three further rights of renewal each of 5 years duration (Deed Lease Clause 1.1.9, 2.3, 12.1, to 12.4, Item 4 Reference Schedule);
8.2the First Respondent pay to the Applicants rent at market value from 7 November 2017 (“the Rent”), which amount be determined by an independent valuer (“the Valuer”) appointed in accordance with Clause 1.2 (b) of the Deed Lease (Deed Lease Clause 3.1; Item 6 Reference Schedule and Clause 1.2 (b) First Schedule 3);
8.3The First Respondent pay the Rent monthly in advance on the first day of each calendar month (First Schedule Clauses 1.2 and 3.1 Item 6 of the Reference Schedule);
8.4The First Respondent pay outgoings of the Premises including on account of Council rates and water rates (Deed Lease Clause 3.2, First Schedule Clause 2);
8.5Following determination of the Rent by the Valuer, the First Respondent backpay the Applicants the difference between the rent paid to the date of the determination and the amount of the Rent as determined by the Valuer (“the Rent Back Payment Amount”)(Deed Lease, First Schedule Clause 1.2 (d));
8.6The First Respondent not permit any alteration or addition to the structure or exteriors of the Premises without the prior written consent of the Applicants (Clause 5.9);
8.7The First Respondent maintain and keep the whole of the Premises in good and substantial repair and condition (Clause 5.1);
8.8the First Respondent keep and maintain clean and in good and substantial repair, working order and condition all plant, equipment, fixtures, fittings and furnishings of the Applicants on the Premises (Clause 5.4);
8.9The First Respondent service and maintain the air-conditioning at its own cost (Clause 14.6);
8.10The First Respondent effect and keep current at all times during the Term building insurance for the full replacement costs of the improvements on the Premises, and the Applicants be named as joint insureds thereunder (Clause 7.1.6);
8.11The First Respondent not transfer any beneficial ownership of any share in the issued capital of the First Respondent without the consent of the Lessor (Clauses 4.5-4.7).
8.12The Following terms were essential terms of the Deed Lease (Clause 11.2):
8.12.1. The covenant to pay rent and additional payments (Clause 3);
8.12.2The covenants as to maintenance, repairs and alterations (Clause 5) and
8.12.3The obligations of the guarantor (Clause 6.10).
8.13In the event that any monies payable by the First Respondent not be paid for a period of 14 days after the amount outstanding was sought to be paid by the Applicants, or in the event the First Respondent committed any breach, default, performance or observance of any of the covenants, obligations and/or provisions of the Deed Lease, then the Applicants have the right to re-enter the Premises (Clauses 11.1.1-11.1.3);
8.14In the event the First Respondent by its conduct repudiated the Deed Lease, or breached any covenant therein, then the First Respondent compensate the Applicants for loss or damage by reason of the repudiation or breach, in addition to the Applicants’ entitlement to re-enter or determine the lease (Clause 11.3.1 and 11.3.2);
8.15The Second Respondent be named as Guarantor with the obligations set out in the Deed Lease (Clauses 6.10, 22 and Item 11 of the Reference Schedule).
In the defence, it is alleged by Mr Friebe that the issue of his obligation as a guarantor had already been litigated and that there was an issue of estoppel arising against any further litigation on that point. I think that his plea is internally contradictory as there was no evidence of any prior proceeding giving rise to any form of estoppel in relation to his liability as a guarantor. In the main, and any exceptions are immaterial, these obligations of the respondents are all admitted in paragraph 8 of the defence.
Paragraph 9 of the statement of claim pleads in the alternative an equitable lease. I consider that plea in detail later. The plea is denied in paragraph 9 of the defence. The Deed licence is pleaded in paragraph 10 of the statement of claim and admitted in paragraph 10 of the defence which pleads that the proposed annexure to the agreement for lease in clauses 2.2.2 to 2.2.4 are satisfied by the applicants. This pleading is equally confused. The Deed licence is an annexure to the Deed. Licence fees were established before 2017. Essential to the resolution of any issue on this point is that the applicants agree to make concessions about the leased property and the rights of way in favour of the respondents. This occurred. An equitable licence is pleaded at paragraph 11 of the statement of claim and is denied for the same reasons as for the plea of the equitable lease.
Allegations about the performance of the lease commence at paragraph 12 of the statement of claim which alleges the respondents took possession of the leased property. The possession by the respondents of the leased property is admitted. The respondents allege that the applicants failed to give them quiet enjoyment of the premises. I have already dealt with that plea. Paragraph 12 of the defence pleads:-
12The Respondents deny paragraph 12 of the Claim and say that the Applicants have failed and/or refused to provide the Respondent with quiet enjoyment of the Premises in that
12.1 The Second Respondent has suffered from poor mental health as a result of the stresses that the actions of the applicants have caused, suffered or permitted;
12.2 The Second Respondent has suffered significant financial strain therein impacting his ability to enjoy the lifestyle envisaged of running a business in the locality of the Subject land; and
12.3 The Second Respondent has suffered pain and anguish as a result of the actions of the Applicants has caused, suffered or permitted.
There is no evidence to support any of these pleas. As was their choice, the respondents were particularly careful not to disclose to the Court any financial information about Maxcem’s financial position. This defence is not established.
There are then a series of admissions of the allegations in paragraphs 12-28 of the statement of claim that may be summarised:-
13The Respondents took and maintained exclusive possession of the premises from November 2017.
14During that time the respondents undertook business activities as permitted under the lease.
15The Respondents held themselves out as occupying the premises and paid monthly rent until December 2018 pursuant to the terms of the 2012 lease.
16The parties jointly appointed SA Lease Management as independent property Management.
17In August 2018, the valuer was jointly appointed by the parties to determine the market value of the rent of the premises.
18On 19 December 2018, the valuer made a determination of market rent. The valuation is admitted but it is alleged that the valuer did not make the valuation under the terms of the lease and the valuation was performed where it was outside of the contract, it was valid and no rent was payable in any event pursuant to clause 2.2.2 to 2.2.4.
19For 15 months the respondents paid the rent in accordance with the valuation.
20Between November 2017 and March 2020, the licenced area was used and licence fees were paid.
21On 10 January 2019, half of the assessment of the back rent was paid.
22On or about 10 January 2019 the Applicants applied the Back Payment Amount to offset the arrears of Rent for the Back Payment of Rent.
23The May 2019 lease was provided by Mr Scarborough to the parties which incorporated the rent as determined by the valuer and was in a form not materially different to the form of the Deed lease Annexure A.
24There was a sublease of a portion of the premises.
25The licenced area was used in accordance with the terms of the Deed lease.
26The licenced area was used in conjunction with the business of the premises.
27After November 2017, the respondents took access to the licenced area to retrieve golf balls hit into the area.
28Licence fees were paid quarterly.
The respondents fell into breach by failing to pay rent, failing to pay licence fees and failing to pay outgoings. Other allegations are made which I will leave to one side. In paragraph 29.7, there is an allegation of breach of the license terms and breach of the licence agreement for failure to pay licence fees and other actions.
There are some qualifications to the respondents’ admissions. In relation to paragraph 18 and the rent valuation, the valuation is admitted in paragraph 18 of the defence but it is alleged that the rent determination was not based on comparable relative properties but was based on a market review which took into account goodwill and temporary improvements made by the lessee. It is alleged therefore to be invalid, not binding, and a declaration is sought as to the invalidity of the rental determination.
I deal below with the challenges to the methodology of the valuer. It is then said that no rent was payable until clauses 2.2.2 to 2.2.4 of the lease were observed. This is a confused pleading because clauses 2.2.3 and 2.2.4 of the deed are bilateral obligations and arise upon satisfaction of clauses 2.2.1 and 2.2.2 of the deed. There is no challenge that these clauses have been fulfilled except to the extent of the calculation of the rent by the valuer. And it would be a very strange and peculiar proposition that a lessee could continue to occupy a premise for many years without any lease obligation and after being asked to leave the premises. At the very least, after determination (for proper cause) a claim for mesne profits in favour of the lessors arises. Prior to that time, a claim for rent arises. It is not possible legally for the respondents to argue that such a rent claim is zero.
From paragraph 29 the applicants allege breaches of the Deed lease as I have set out. Each of these allegations are denied or are effectively denied by the respondents. The respondent claims a set off of the rent and says that no rent is payable for the reasons set out in paragraph 7 of the defence. They deny that they are in breach as a result. They do not deny that they have received notices of breach. This set off could only arise in relation to an established liability, which on the respondent’s case, arises under the Deed lease.
In paragraph 46 of the claim, the applicants set out the orders for relief sought by them, it provides:-
Orders/Relief sought
46The Applicants seeks the following Declarations and Orders from the Court:
46.1 That the First respondent has breached the terms of the Lease as pleaded in paragraphs 8 and 9
46.2 That the First Respondent has breached the terms of the Licence as pleaded in paragraphs 10 and 11
46.3 That the First and/or Second Respondent, are liable to pay to the Applicants the outstanding rent due and payable pursuant to the Lease as pleaded in paragraphs 29.1 and 29.2
46.4 That the First and/or Second Respondent are liable to pay to the Applicants the outstanding outgoings due and payable pursuant to the Lease as pleaded in paragraph 29.3
46.5 That the First and/or Second Respondent are liable to make good the alterations and additions made to the structure and exterior of the Premises as pleaded in paragraph 29.4
46.6 That the First and/or Second Respondent are liable to maintain and repair the Premises as pleaded in paragraph 29.5;
46.7 That the First Respondent remove Michael Fuller as Director and Shareholder as pleaded in paragraph 29.7
46.8 That the lease stands terminated;
46.9 That by virtue of the Declaration that the Lease stands terminated, that the Licence stands terminated
46.10 That by virtue of the Declaration that the Lease is terminated, the Applicants are entitled to re-enter the Premises
46.11 The Applicants are entitled to damages on account of the breaches of the Lease and Licence the amount of which damages are to be assessed;
46.12 An order that the First and Second Respondents by jointly and severally liable for damages suffered by the Applicants on account of the breaches including damages for consequential loss;
46.13 The costs of the within proceedings be determined in accordance with the provisions of the Lease.
46.14 That the Court makes an order for an expedited hearing.
All of these orders sought are denied. I deal with those matters at the end of this judgment.
At the commencement of this discussion, I raise the issue of the admission of the guarantee. Mr Friebe’s witness statement was filed on 15 February 2022. The redacted statement is exhibit R21. There are a number of attachments to the witness statement. Exhibit ACF2 includes a copy of the 2012 lease and the 2015 golf licence. The 2012 lease is dated the 7th November 2012 and bears number L11845506. It was lodged on the 7th November 2012. The guarantee clause is to be found on page 26 and 27 of the lease, pages 58 and 59 of the exhibit, as follows:
I refer in particular to paragraph 21.1.1 of the guarantee. Mr Friebe guarantees the payment of all monies to be paid under the 2012 lease by Maxcem as well as under any other agreement or arrangement express or implied at law or in equity under which Maxcem occupies or is entitled to occupy the premises. A largely identical term is to be found in paragraph 22.1.1 of the Deed lease and Mr Friebe is named as the guarantor. The term of the guarantee given under the 2012 lease, at least in part, explains the admission made by Mr Friebe in paragraph 3 of his defence. In any event, there were no submissions made on the topic by either party. It is apparent that the applicants have acted upon the admission contained within the pleadings. I turn then to the other pleadings of cross claim and other party pleadings.
The respondents have brought a cross claim against the applicants. In the body of the document, they repeat paragraphs 1 and 2 of the defence and then in paragraphs 3-7 repeat some of the background material already canvassed. At paragraph 8, they plead that they have incurred a capital costs of $50,000 to set up and improve the facility over time. There is no evidence to support this assertion. Then they plead the purchase by Maxcem of the business, the 2017 dispute, the injunction, the resolution of the proceedings and the execution of the deed. It is then alleged that the applicants have failed to comply with the Deed and allege wilful neglect on their part. They first allege that the applicant failed to comply with clause 2.2.4 of the deed by not cooperating to take all necessary steps to give effect to the rights of way. It is alleged that the applicants caused the failure of the Deed parties to comply with clause 2.7 and clause 2.8 of the deed and refused to take all steps necessary to give effect to the eastern right of way as required by clause 2.9 of the deed. It is then alleged that the applicants failed to comply with clause 10.1 of the deed in that they did not agree to cooperate in order to finalise the terms of the lease. Then in paragraph 16 the respondents plead the clauses in paragraph 7 of the defence to the claim about the material terms. I have earlier made reference to the pleading in paragraph 7 of the defence and its deficiencies. Then it is alleged that the respondents and the interested parties have neglected or refused to fully perform and observe the material terms of the deed since about 2008 and they are obliged and should be obliged to perform those terms and orders are sought accordingly. There is then a pleading about an air-conditioning unit but there is no evidence of that. Then, from paragraph 23 to paragraph 35, there is a repeat pleading in relation to the market review of rent. From paragraphs 35-42, the respondents plead a damages claim for loss of opportunity. It is said that the applicants have refused to execute the 2017 lease in a registerable form. On the evidence, I am unaware of any form of registerable lease apart from the deed lease as amended and developed by Mr Scarborough which was ready by May 2019 and was finalised by October 2019. There is no evidence before the Court of any refusal by the applicants to execute any documents; it was not executed following the refusal of the respondents.
From paragraph 40, there is a plea in relation to possible negotiations with Miss Emily Kneebone. Ms Kneebone gave evidence but she was unable to assist the Court upon any relevant topic. The claims at paragraphs 40, 41 and 42 are not sustained on the evidence.
The orders sought are then recorded at paragraph 53 of the cross claim as follows:-
53The Respondents seek the following Declarations and Orders from the Court:
53.1That the Applicants have breached the terms of the Deed
53.2 That the Applicants are liable to pay any outstanding payments required as a consequence of the relevant clauses of the Deed
53.3 That the Applicants are to perform the necessary work to comply with the Deed;
53.4That the Applicants are to undertake the Specific Performance of the Deed;
53.5 The Respondents are entitled to damages on account of the breaches of the Deed the amount of which damages are to be assessed:
53.6 An Order that the Applicants be jointly and severally liable for damages suffered by the Respondents on account of the breaches including damages for loss of opportunity
53.7 That the costs of the within proceedings be determined in accordance with the provision of the Deed.
53.8Any other order the Court sees it.
All of these are denied. I will deal with them in the content of this judgment generally.
I turn then to the cross claim against the interested parties.
In the first nineteen paragraphs, the same general material facts are pleaded. Then there are allegations of wilful neglect by the interested parties of the obligations under paragraph 2.1.1 to 2.2.4 of the Deed. The respondents rely upon the content of paragraph 2.11 of the Deed under which the interested parties are required to bring and genuinely prosecute the application to the DAC for a plan of division incorporating the Eastern Right of Way. It is then alleged that the interested parties have neglected or refused to fully perform and observe those terms since February 2018 and that the obligation is upon them to perform the material terms of the Deed.
Allegations are then made in relation to the Vine Lease and clause 2.20 of the Deed. At paragraph 26, the respondents plead the content of clause 2.20 of the Deed without further pleadings. Then from paragraph 27, the respondents plead that they cannot perform the requirements upon them for specific performance of the deed because of a caveat lodged by the third parties in absolute form claiming a beneficial entitlement to an estate or interest in fee simple in the property. The third parties have now abandoned that caveat. It is alleged that this caveat prevented specific performance of the deed. However, that leaves open the question of what document the respondents were seeking to register upon the certificate of tile.
Then from paragraph 34-40 the respondents plead damages for loss of opportunity by the registration of the caveat and the applicants refusal to execute the deed as a registerable form of lease. It is difficult to understand that pleading.[8] Generally it is alleged that the third parties have refused, since execution of the deed to comply with its terms. Loss is then alleged. In particular, the respondents plead they have incurred significant capital losses as a result of the failure by the third parties to remove the caveat. They seek the following orders:-
[8] Paragraph 36 of the Cross Claim by the Respondents against the Third Parties.
Orders sought
44The Respondents seek the following Orders from the Court:
44.1That the First Third Party has breached the terms of the Deed;
44.2That the Second Third Party has breached the terms of the Deed:
44.3An Order for Specific Performance of the Deed, in particular that:
44.3.1 The First and Second Third Parties are to remove the Caveat lodged of the Subject Land;
44.3.2The First and Second Third Parties are to prosecute the Application to the DAC for a plan of division incorporating the Eastern Right of Way, prior to bringing and prosecuting an application to DAC for a plan of division incorporating the Carpark Right of Way;
44.3.3First and Second Third Parties are to execute the Vine Lease.
44.4 That the First and Second Third Parties are liable for payment of damages entitled to the Respondents on account of the breaches of the Deed the amount of which damages are to be assessed;
44.5 An Order that the First and Second Third Parties be jointly and severally liable for damages suffered by the Respondents on account of the breaches including damages for consequential loss;
44.6 The cost of the within proceedings be determined in accordance with the provisions of the Deed; and
44.7 Any other Order the Court sees fit.
I am satisfied that the third parties provided to the respondents a form of vine lease as required under clause 2.20 of the Deed. That document contained what the interested parties contend to be the essential terms as recorded in the Deed and, consistent with the requirements of the Deed, the interested parties sought execution by the respondents by 1 January 2018. There were a number of extensions of time granted for that execution, and during that time, there was negotiation about amended terms proposed by the respondents. The unchallenged evidence of the interested parties was that they remained willing to execute a vine lease as contemplated under clause 2.20 of the Deed.
The complaint of the respondents about the form of the vine lease that was tendered was that it did not contain additional terms and conditions which the respondents sought to negotiate and to have inserted within that lease. These terms involved greater use of the vineyard by invitees of the respondents than had been contemplated by the third parties within the form of lease proposed by them. There was an objection to invitees taking access to vineyard areas. Mr Friebe conceded in his evidence that the issue had not been the subject of any negotiations prior to the formation of the Deed. That did not prevent that issue from being raised by the respondents, and about which there may be negotiation however, that was a matter entirely for the interested parties.
A refusal by the third parties is not the equivalent of them behaving unreasonably. If there is a strong biological reason (Phylloxera) to refuse that request, it could not be said, reasonably, that such refusal was a breach of the manifest intention of the Deed at paragraph 2.20. I accept the submissions of the interested parties that negotiations occurred between the third parties and the respondents about the terms of the vine lease which had been tendered on 22 December 2017 and about which there were further negotiations after 1 January 2018, the date upon which the document was required to be executed. I am satisfied that the refusal by the third parties to include further terms as desired by the respondents within the terms of the vine lease was not conducted which amounted to the breach of the obligations upon the third parties under the terms of the Deed. The refusal to include those terms as required by the respondents was reasonable in all of the circumstances.
The respondents filed written submissions which did not address this issue.
There is no factual challenge that the Vine Lease was not executed by the respondents either in its original form or in any proffered amended form or in a form as agreed to or as in an amended form as agreed to by the interested parties. I am also satisfied that the interested parties were not in breach of clause 2.20 of the Deed in relation to the Vine Lease. The respondents are in breach of that contractual requirement.
S 191 of the Real Property Act relevantly provides as follows:-
Part 16—Caveats
191—Caveats
(1)Any settlor of land or beneficiary claiming under a will or settlement, or any person claiming to be interested at law or in equity, whether under an agreement, or under an unregistered instrument, or otherwise howsoever in any land, may lodge a caveat in the Lands Titles Registration Office:
(a) Purpose of caveat
a caveat may—
(i)prohibit absolutely the registration or recording of any instrument dealing with the land; or
(ii)provide that the registration or recording of an instrument dealing with the land may only occur subject to the claim
of the caveator, andprovided that, if any conditions are expressed in the caveat, the instrument complies with those conditions;(ab) Instrument subject to claim of caveator
if a caveator lodges a caveat providing that the registration or recording of an instrument dealing with land will be subject to the claim of the caveator, any instrument dealing with that land registered or recorded after the lodgement of the caveat will be taken to be registered or recorded subject to that claim;
(ac) Form of caveat
a caveat must—
(i) be in the appropriate form; and
(ii) be executed by the caveator or his or her agent; and
(iii)contain an address within South Australia to which notices may be sent or at which proceedings may be served; and
(iv)contain information (if any) prescribed by the regulations for the purposes of this paragraph;
(b) Registrar-General to make memorandum of receipt
upon the receipt of a caveat the Registrar-General shall make a memorandum thereon of the date and hour of the receipt thereof, and shall enter a memorandum thereof in the Register Book, and shall forthwith send a notice of such caveat through the post office to the person against whose title such caveat shall have been lodged, directed to his or her address appearing in the Register Book;
(c) Not to register or record instruments contrary to caveat
so long as a caveat remains in force, the Registrar General must not, contrary to the requirements of the caveat, register or record an instrument affecting the land in respect of which the caveat has been lodged; except that despite the receipt of a caveat, the Registrar General must, subject to the other provisions of this Act, proceed with and complete the registration or recording of any instrument affecting the land produced for registration or recording before the lodgement of the caveat in the Lands Titles Registration Office;
(d) Persons interested may summon caveator
the registered proprietor or any other person claiming estate or interest in the land may, by summons, call on any caveator, including the Registrar-General, to attend before the Court to show cause why the caveat should not be removed; and the Court may, after allowing the parties a reasonable opportunity to be heard, make such order as appears just in the circumstances; (if the caveator does not appear in response to the summons, the Court may, if satisfied that the summons was duly served, proceed to hear and determine the application in the caveator's absence);
(e) Caveatee may apply to have caveat removed
the caveatee may, except when the caveat is lodged by a settlor, or by a beneficiary under a will or settlement, or by the Registrar-General under Part 19 of this Act, make application in writing to the Registrar-General to remove the caveat, and shall in such application give an address in South Australia to which notices or proceedings relating to the caveat may be sent, and the Registrar-General shall thereupon give twenty-one days' notice in writing to the caveator, requiring that the caveat be withdrawn;
(f) Mode of removing or discharging caveat
the Registrar-General shall, after the lapse of twenty-one days from the posting of such notice to the address mentioned in the caveat, or of such extended time as may be ordered by the Court, remove the caveat from the Register Book by entering therein a memorandum that the same is discharged;
(fa) Action to establish validity of claim
a caveator may bring an action in the Court to establish the validity of the claim on which the caveat is based;
(g) Caveator may apply to Court for order to extend time
the Court may, on the caveator's application, extend the period of 21 days until an action under paragraph (fa) is determined or for any other period;
(h) May withdraw caveat: But Court may order payment of costs
any caveator may, by notice in writing to the Registrar-General, withdraw his or her caveat at any time; but the Court may, notwithstanding such withdrawal, order payment by the caveator to the caveatee or other person interested of any costs incurred by the caveatee prior to the receipt by him or her of notice in writing of the withdrawal of the caveat;
(i) Entry to be made
an entry shall be made by the Registrar-General in the Register Book of any order made by the Court relating to any caveat, or of the withdrawal, lapse, or removal of any caveat;
(j) Caveator, except Registrar-General, liable to make compensation
any caveator other than the Registrar-General who shall have lodged or refused or neglected to withdraw any caveat wrongfully and without reasonable cause, shall be liable to make compensation to any person who may have sustained damage thereby, and such compensation may be recovered by action: Provided that, if proceedings shall have been taken in the Court by the caveatee or other person interested, the amount of such compensation may be assessed by the Court acting in the same proceedings; or the Court may direct an action to be brought to ascertain and recover such amount;
(k) Not to lodge further caveat without permission
it shall not be lawful for any caveator other than the Registrar-General, or for anyone acting on behalf of such caveator, to lodge a further caveat relating to the same matter without the permission of the Court;
(l) Court may order costs if caveat by Registrar-General is removed by Court
where any caveat lodged by the Registrar-General shall be removed by the Court, such Court may order the costs sustained by the person at whose instance such caveat was removed to be paid out of the estate on behalf of which such caveat was entered.
(2)Despite subsection (1), the Registrar General may, after a caveat has been lodged in accordance with this section, register or record in respect of the land to which the caveat applies—
(a) another caveat or instrument that has the effect of a caveat; or
(b) another instrument of a kind prescribed by the regulations, unless the registration or recording of that instrument is specifically prohibited by the lodged caveat.
(3)To avoid doubt, a registered proprietor of land may lodge a caveat under this section in respect of land for which he or she is the registered proprietor.
(4) In this section—
record means make a record in the Register Book.
I accept that the applications before the Court are made under the terms of the cross-claim and pursuant to s 191(d) Real Property Act. An application is before me for the removal of the Maxcem caveat under s 191(d).
In light of the amendment of the pleadings and the reopening of the trial, I am satisfied that I have jurisdiction in this action to determine the issues arising between the parties concerning the Vine Lease and the claims made under the second Maxcem caveat.[404] This is because claims made in relation to the caveat are said to arise under the deed and the context and content of the Deed are matters pending before the Court. They are a lis for determination by me. I also accept that I have the power under s 191 RPA to order the removal of the second Maxcem caveat which is the remedy sought by the interested parties under their amended cross-claims.[405]
[404] S 191 (1)(d) Real Property Act 1996.
[405] cf s 191(1)(i) Real Property Act 1886.
It is not in dispute in the action that in December 2017, the third parties delivered to the respondents a form of Vine Lease. It was intended that the Vine Lease would be executed early in January 2018 in accordance with the requirements of the Deed. The third parties also contend that the Vine Lease provided was in standard terms consistent with the existing lease for the vines and that the existing Vine Lease was in the possession of the second respondent during 2017 at the time of the negotiation of the terms of the Deed.[406] The second respondent did not contend that at the time of the negotiation of the Deed, clause 2.20 of the Deed contained the essential terms for a new Vine Lease.[407] A weakness of the argument of the third parties is that the preamble of clause 2.20 is that Hafelekar offers and Maxcem agrees to enter into an unregistered Vine Lease, the terms of which will include (my emphasis) and what follows in six sub paragraphs is a description of the annual rental, the term, the water use rights on Hafelekar’s land, the right to erect signs on Hafelekar’s land, the right to have access to the vineyard subject to the terms of the vine lease and finally that both parties would use their best endeavours to achieve execution of the vine lease by 1 January 2018.
[406] T436.32-.36.
[407] T436.37-.38; T437.1-.6.
I have emphasised the expression ‘will include’ above. It is apparent that the parties anticipated that there would be other terms within the vine lease that would be the subject of the negotiations which is anticipated by the parties under the terms of the Deed. The contention of the third parties, is that, properly understood, the sub subparagraphs of paragraph 2.20 set out the essential terms of the Vine Lease. However, the essential terms do not define the area of the Vine Lease and the only reference to the area included is to be the existing Vine Lease which was in the control of the second respondent at the time of the negotiation of the Deed in 2017. Plainly enough, by reference, the parties understood the area to be the subject of the Vine lease and so the area of the intended demise.
If I am wrong about that, then an essential term of the vine lease has not been negotiated. If I am correct about that, then the absence of settled terms of the Vine Lease as contemplated under clause 2.20 means that neither party can call upon the other to execute any form of document absent the finalisation of the negotiations about, for example, the area which is the subject of the Vine Lease. In those circumstances, neither party could call upon the other to execute a document, one essential term of which had not been negotiated. It would be necessary for there to be some reference to the existing Vine Lease, of which the parties were aware at the time that they negotiated the Deed. There would then be an incorporation by reference. That did not take place. All that is known is that under clause 2.20.5, Mr Friebe is to have access to the vineyard the subject of the Vine Lease as and from the date of the execution of the lease. There is no annexure to the Deed identifying the area of the Vine Lease. It follows that there are two possibilities in contract. The first is that the parties have identified with sufficient certainty, by reference the area of the Vine Lease and so the document proffered in December 2017 identified that area of the Vine Lease which was in contemplation of the parties during the negotiation of the Deed. If that be the case, then as long as that area was understood by the parties, the only question that arises is whether that area is different from that which is stipulated by the respondents because of their need or want to increase the area. However, there is no point of reference upon which I may make a decision about that topic because of the absence of any information which could be relied upon as a certain point of reference. I put that to one side.
The second alternative is that, conversely, there is insufficient certainty about the area of the Vine Lease such that it could not be said that the parties have negotiated upon all of the essential terms of the agreement. In the absence of those essential terms, the parties have not reached an agreement on the essential terms such that, by reference, the parties would be bound by clause 2.20 of the agreement. In turn, those questions depend upon a consideration of the decision of the High Court in Masters v Cameron.[408] Where the High Court held:-
‘Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiations shall be dealt with by a formal contact, the case may belong to any one of three classes. It may be one in which the parties have reached finality in arranging all of the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not difference in any effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal document.’
[408] Masters v Cameron [1954] 91 CLR 353 at 6360.
In the first two categories, the parties are immediately bound. Under the third, parties would not be immediately bound until they have reached finality in their negotiating the terms of their agreement and intend to be bound by it and intend to have those terms stated later in a form which is fuller or more precise. Under the first category, where there is, for example, a provisional agreement and the parties anticipate a further fully particularised agreement to be drawn up and signed, then the provisional agreement is fully effective until such time as a further agreement is drawn up and signed: Branca v Cobarro.[409] Under the second category, the execution of a formal contract is anticipated but it not made a condition of the existence of a binding contract. For example, a term of the initial agreement may be that both parties are bound by it irrespective of their anticipation of the execution of a formal contract. That is, their liability under the contract is not made subject to the execution of that formal contract. In those circumstances, the order of the Court will be to specifically perform the obligation of the original contract by the execution of the formal contract. In that case, it is necessary for the original contract to stipulate for all of the essential terms of the contract such that the formal second contract is merely a more fulsome expression of the parties’ bargain.
[409] [1947] 1 KB 854; See Lennon v Scarlett and Co [1921] 29 CLR 499; Lamont v Heron [1970] 45ALJR 102.
Under the third category, the parties would intend not to be bound until there is a formal contract which comes into force.
There are a number of cases which have suggested that there is a fourth category of case. It is suggested that this fourth category concerns cases where the parties intend to be bound immediately but expect to make a more formal document later which contains additional terms. On this topic, the learned author of the text Contract Law in Australia here opined contrary to the suggestion of a fourth category[410]:-
‘The High Court intended to identify three points on a continuum of transactions continuum. The initial agreement in situations where parties are bound by an agreement to execute a formal document containing additional terms falls within a second category because the first agreement will be enforceable unless superseded within a later agreement.’[411]
[410] JW Carter 6th Ed LexisNexis Butterworths.
[411] At [5-06]
I have postulated two possibilities in relation to the operation of clause 2.20.5. The first is that the parties have failed to identify the land over which the Vine Lease will operate. In the absence of that essential term, the Vine Lease is not enforceable between the parties. Further negotiation is necessary for the resolution of that essential term. Alternatively, the parties have, by clause 2.20.5 and by incorporation of other information about which they were certain as to the area of the vineyard lease, identified that the vineyard, the subject of the vine lease, should be available to Maxcem from the date of the execution of the lease. If that be the case, then the lease proffered to the respondents by the interested parties is enforceable under the second limb of Masters v Cameron. If not, then the Vine Lease is not enforceable between the parties and so no rights arising therefrom.
I consider that the preponderance of view is that the document which is being tendered to the respondents by the third parties is enforceable. That is because clause 2.20.5 provides that Maxcem shall have access to the vineyard, the subject of the Vine Lease from the date of execution. The vineyard, the subject of the Vine Lease, is by reference to the terms of the lease certain. That being so, and consistent with the opinion expressed by the learned author,[412] the initial agreement is enforceable absent the negotiation of any other terms. And, it may be said that no other terms are required to be negotiated in order for there to be a binding and enforceable agreement.
[412] Ibid.
If I am wrong about those views, then the parties have not acted upon the terms of the Deed lease, the terms of the Deed about the Deed lease operate only as an enforceable agreement ‘to agree’ and there is no legal or factual basis to sustain the second Maxcem caveat. There is no basis for any claim by the respondents for specific performance of a Vine Lease as pleaded or at all. On either view, there is no basis for the second Maxcem caveat lodged over the Hafelekar land and that registered caveat number X13648883 is without legal foundation. An order should be made for its removal. Pursuant to s 64 of the Real Property Act 1886, I order that the Registrar General remove caveat number X13648883 from Certificate of Title Register Book Volume [5405] Folio [396].
Orders on the relief sought
I turn then to the relief sought by each of the parties in the claims and cross-claim and I announce my decision about each of them.
I have found that the respondents defence at paragraph 18 about the valuation performed by Mr Pledge has not been sustained. I am satisfied that as an expert, Mr Pledge determined the rent in accordance with the Deed and the Deed lease terms. He complied with the terms of the contract in conducting the valuation. He did not take into account goodwill and temporary improvements on the site. Mr Wakeham for the respondents, agreed that the method and approach used by Mr Pledge was available to him. In the end, he disagreed with the calculation of the rental amount.
In these circumstances, Maxcem has failed to comply with the Deed and the obligations under it to pay rent. It is in breach of its obligations as well as the obligations under the equitable lease terms of which are operative and to be found in the lease prepared by Mr Scarborough in October 2019. It has breached s 9 of the Landlord and Tenant Act 1936 SA and is liable to forfeiture.
Notices of breach connected with the non-payment of rent were delivered by the applicants to the respondents. These are all gathered in exhibit A17. So also were notices of breach of covenant in relation to outgoings delivered. Maxcem admits receipt of these notices in paragraph 31 of its defence. The failure to pay is a deliberate breach on the part of Maxcem in light of its contentions about the quantum of the rent.
Notices of breach were also delivered in relation to the payment of the licence fees. Maxcem is liable to pay the outstanding amounts for the licence fees.
Maxcem is also liable to pay the outstanding amounts for rent and outgoings as at the date of these orders.
The lease arrangement under which Maxcem was in possession of the leased land is terminated. As a consequence, the licence is terminated.
The applicants are entitled to re-enter the premises and Maxcem is responsible to make good the premises in accordance with its contractual obligations.
I am not prepared to make any orders as sought under paragraphs 46.6, 46.7 of the Statement of Claim and without further submissions from the parties, under paragraph 46.12 of the statement of claim.
The respondent Mr Friebe has admitted is the guarantor of the obligations of Maxcem to the applicants under the first respondents current lease over the property. There is no further pleading in the defence about the ‘current lease’. Those words must be given their ordinary and usual meaning Maxcem has not contended that it is a tenant at will on a monthly tenancy. It has always sought to rely upon its entitlements as lessee and to argue that its rent and similar obligations are postponed in connection with its challenge to the assessment made by Mr Pledge as an expert. It has failed in that defence. I will therefore hear the parties further about claims made against Mr Friebe personally.
At paragraph 18.4 of its defence and by a cross-claim, Maxcem pleads that Mr Friebe, the second respondent seeks a declaration of the invalidity of the rental determination. I am unsure why Mr Friebe seeks such a determination apart from his position as a guarantor of the obligations of Maxcem. It is Maxcem which is affected by the determination. Be that as it may, for the reasons already stated, I refuse that application. The respondents are bound by the expert’s determinations.
On the applicants claim, I make the following declarations and orders:-
1. The first respondent has breached the terms of the lease.
2. The first respondent has breached the terms of the licence.
3. The respondents are liable to pay to the applicants the outstanding rent due and payable pursuant to the lease as pleaded in paragraphs 29.1 and 29.2 of the statement of claim.
4. The respondents are liable to pay to the applicants the outstanding outgoings due and payable pursuant to the lease as pleaded in paragraph 29.3 of the statement of claim.
5. The respondents are liable to make good the alterations and additions made to the structures and exterior of the premises pleaded in paragraph 29.4 of the statement of claim.
6. The lease stands terminated.
7. The licence stands terminated.
8. The applicants are entitled to re-enter the premises.
9. The applicants are entitled to an assessment of their damages on account of breaches of the lease and the licence to be assessed.
10. The costs of the proceedings be determined in accordance with the provisions of the lease.
The respondents cross claim (FDN 15) seeks orders and declarations. The first is that the applicants wilfully neglected to observe the terms of the Deed by failing to comply with the obligations under clauses 2.2.2 to 2.2.4 inclusive of the Deed. I have found that the applicants are not in breach of these clauses of the Deed. To the contrary, they complied with the whole of their obligations under the Deed and did everything in their power to fulfil the requirements of the Deed. They did not breach clauses 2.8, 2.9, 10.1, 14, 18 and 19 of the deed; I have found that they complied with their obligations under the Deed.
The respondents rely upon clause 7 of its defence which confuses the Deed and the Deed lease. They rely upon the Deed and the Deed lease as a source of Maxcem’s proprietary rights as lessee. Clause 7 of the defence pleads that clauses 2.2.2 to 2.2.4 of the Deed (lease) are material terms. That is correct insofar as it relates to the Deed and this contention it is not challenged by the applicants. The same allegations are made against the applicants of a failure to fully observe and perform the material terms of the Deed lease and claim that they are entitled to specific performance of the Deed. For the reasons already stated, I find that the applicants have performed their obligations under the Deed. I therefore refuse to make the orders and declarations as sought in paragraphs 53.1 to 53.7 of that cross- claim inclusive.
On the respondents cross claim against the applicants (FDN 13) I make the following orders:-
1. Each of the orders sought by the respondents in paragraphs 53.1 – 53.8 inclusive are dismissed.
In relation to the respondents claim against the third parties, I have found that, properly construed, clause 2.8 of the Deed is a record of an agreement between the applicants and the respondents to create the Eastern Right of Way and for Hafelekar to do so by amending D115527. As I have found, it is not and was not intended to be a record of a contractual promise by Hafelekar that it would achieve the eastern right of way only by that method. Clause 2.12 of the same Deed operates largely to the same effect. And the deposited plan proposed by Hafelekar and now registered pursuant to the orders of the Court made on 20 April 2022 over the objection of the respondents achieves the same results.
I am satisfied and I find that:-
1. The First Third Party is not in breach of the Deed.
2. The Second Third Party is not in breach of the Deed.
3. The obligations of the interested parties under the Deed have been performed.
4. Caveat number X13514546 lodged by the First and Second Third Parties shall be removed.
5. There is no basis for an order that the First and Second Interested Parties execute the Vine Lease, as I am satisfied that Maxcem is the party refusing to execute that lease.
6. There is no entitlement in the Respondents to claim damages.
7. There is no other entitlement in the Respondents.
8. I will hear the parties further in relation to costs.
I turn to the interested parties claims against the applicants and the respondents. The claim against the applicants is not pressed. The basis of the claim of the interested parties against the respondents is that because of the respondents refusal to consent to the December 2018 application to DAC it lapsed, it cannot be revived and an opportunity has been lost to establish the Eastern Right of Way and so to subdivide the Hafelekar land.
Damages of not less than $2,000,000 are claimed. No basis has been provided in the evidence before me about how such an assessment of damages could be made.
I am satisfied the following orders may be made on the application of the interested parties:
1. The First Respondent has breached the terms of the Deed.
2. The Second Respondent has breached the terms of the Deed.
3. No order.
4. No order.
5. Caveat no X13648883 lodged by Hafelekar Pty Ltd and Maxcem Pty Ltd be removed in accordance with the terms of this judgment.
6. The court will hear the parties further on the question of costs.
I will hear the parties further in relation to:
1. The liability of Mr Friebe under the guarantee claim pleaded in paragraph 3 of the statement of claim.
2. The calculation of rent claimed by the Applicants.
3. The calculation of outgoings claimed by the Applicants.
4. The damages claims of the applicants and the interested parties.
5. Costs.
6. Any other orders.
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