In the matter of Fearndale Holdings Pty Limited

[2019] NSWSC 645

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Fearndale Holdings Pty Limited [2019] NSWSC 645
Hearing dates:	17 May 2019
Decision date:	04 June 2019
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Declare that the First Plaintiff has validly and effectively issued and served notices of termination on, and terminated the Lease with, the Defendant. Judgment for the First Plaintiff against the Defendant in the specified amounts. Order that specified caveats lodged by the Defendant be withdrawn forthwith.
Catchwords:	LEASES AND TENANCIES – requirements of s 129 of the Conveyancing Act 1919 (NSW) – where lease required lessee to obtain all relevant development consents or approvals for specified use of land – where lessor issued notice to remedy breach of lease – where lessor later issued notice of termination of lease – whether time given to remedy breach of lease was reasonable – whether lease was validly terminated.
Legislation Cited:	- Civil Procedure Act 2005 (NSW) s 98(1)(c) - Conveyancing Act 1919 (NSW) ss 129, 129(1), 129(1)(a)-(c), 129(8), 129(9), Sch 6 - Environmental Planning and Assessment Act 1979 (NSW) - Evidence Act 1995 (NSW) s 136 - Mining Act 1992 (NSW) - Protection of the Environment Operations Act 1997 (NSW) - Uniform Civil Procedure Rules 2005 (NSW) rr 42.2, 42.5
Cases Cited:	- Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344 - Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 - Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 - Construction Technologies Australia Pty Ltd v Doueihi (No 3) [2015] NSWSC 1850 - Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 - Debonair Nominees Pty Ltd v J & K Berry Nominees Pty Ltd (2000) 77 SASR 261 - Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (admin apptd) [2018] NSWSC 1895 - Glebe Administration Board v Tasker [1964] NSWR 1307 - Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 - Hovan’s Hotels Pty Ltd v Cherry (Unreported, Supreme Court of New South Wales, Bryson J, 14 March 1994) - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324 - Leichhardt Municipal Council v Green [2004] NSWCA 341 - Lizzio v Council of the Municipality of Ryde [1983] HCA 22; (1983) 155 CLR 211 - Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd (1998) NSW ConvR ¶55-861 - Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 - Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 - Re Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 456 - Westbrook Holdings Pty Ltd v Roseramble Pty Ltd (1994) 13 WAR 273 - Westpac Banking Corporation v Ollis [2007] NSWSC 1008
Texts Cited:	- B Edgeworth, Butt’s Land Law (7th ed, Lawbook Co, 2017) - W D Duncan, Commercial and Retail Leases in Australia (Thomson Reuters, 2012)
Category:	Principal judgment
Parties:	Fearndale Holdings Pty Ltd (admin apptd) (First Plaintiff) Timothy James Cook in his capacity as administrator of Fearndale Holdings Pty Ltd (admin appointed) (Second Plaintiff) Drama Unit Pty Ltd (Defendant)
Representation:	Counsel: S Golledge (Plaintiffs) M W Sneddon (Defendant)   Solicitors: William James (Plaintiffs) Dettmann Longworth (Defendant)
File Number(s):	2019/91205

Judgment

Background and affidavit evidence

1. By Originating Process filed on 22 March 2019, the Plaintiffs, Fearndale Holdings Pty Ltd (admin apptd) (“Fearndale”) and its administrator, Mr Cook, sought a declaration that Fearndale had validly and effectively issued certain termination notices to Drama Unit Pty Ltd (“Drama Unit”) and, as from 22 March 2019, had terminated a lease between Fearndale and Drama Unit over certain property at Luddenham in New South Wales (“Lease”). The Plaintiffs also sought judgment for Fearndale against Drama Unit in the amounts of $341,890.72 for rent due and payable under the Lease for the period 25 June 2018 to 15 May 2019 and of $34,157.10 for outgoings due and payable under the Lease under a Statement of Outgoings dated 12 February 2019. The Plaintiffs also sought an order that Drama Unit withdraw two caveats over the relevant land and an order for costs.

2. The Plaintiffs relied on two affidavits of Clinton Portors dated 30 January 2019 and 25 March 2019. The first of those affidavits related to service of several notices dated 29 January 2019 under s 129 of the Conveyancing Act 1919 (NSW) on Drama Unit. The second of those affidavits related to service of notices of termination of the Lease dated 22 March 2019 on Drama Unit. The Plaintiffs also relied on the affidavits of Mr Cook dated 22 March 2019 and 15 May 2019. Mr Cook’s first affidavit sets out the chronology of the administration of Fearndale and background to the proceedings to which I refer below. Mr Cook’s second affidavit annexed a calculation of the rent claimed by Fearndale for the period 25 June 2018 to 15 May 2019, which was admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as a calculation of that rent and not as proof of the content of any invoices issued to Drama Unit or that such invoices were issued. That evidence was ultimately no more than a calculation of the amount owing, having regard to the terms of the Lease and the period on which it has been on foot, and Drama Unit did not raise any challenge to the accuracy of that calculation. Drama Unit did not lead evidence in response to the application.

Chronology

3. I first set out a chronology of events, drawing largely upon Mr Cook’s affidavit dated 22 March 2019, and partly upon uncontentious matters as summarised in my earlier judgment in proceedings brought by Drama Unit against Fearndale ([2018] NSWSC 1895) (“Earlier Judgment”). Both parties referred to the Earlier Judgment as background to these proceedings, but neither party contended that it created any issue estoppel as to relevant issues in the proceedings.

4. Fearndale owns land at Luddenham, New South Wales, which contains a quarry from which clay and shale can be mined, and historically has been mined, and that land may have significant value. On or about 23 March 2017, Drama Unit and Fearndale entered into the Lease (Cook 22.3.19 [11], Ex P2) over that land. Clause 4.1 of the Lease dealt with the payment of rent. Clause 5 dealt with the payment of outgoings, including the proof of the amount of outgoings. Clause 7.1 and item 10 of the reference schedule identified the “Permitted Use” for the land as “Mining operation and as prescribed by”, although that provision was incomplete, and cl 7.2 identified restrictions as to use.

5. Clause 7.3(4)(a) of the Lease provided that Drama Unit was deemed to have accepted the Lease with full knowledge and subject to any prohibitions or restrictions on the use of the relevant premises under any Law or Requirement (as defined). Clause 7.3(4)(b) provided that:

“at [Drama Unit’s] cost, and prior to entering into this Lease [Drama Unit] must obtain and comply with all the Laws and Requirements and obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for [Drama Unit’s] business (including, without limitation, development approval from the local council for [Drama Unit] to occupy and use the Premises for the Permitted Use). During the term, [Drama Unit] must at its cost, maintain and comply with the requirements of any such consent or approval of any such authority”.

6. Clause 7.3(4)(c) in turn required that Drama Unit must not, by any act or omission, cause or permit any consent or approval to lapse or be revoked, and cl 7.3(4)(d) required Drama Unit to provide a copy of any consent or approval to Fearndale prior to the occupation of the premises. Clause 15.2 of the Lease provides a mechanism for termination of the Lease and for Fearndale to take possession of the land, if Drama Unit defaults in a manner specified in cl 15.1. The defaults specified in cl 15.1 include a failure to perform or observe any of Drama Unit’s covenants or obligations under the Lease. Clause 16.7 of the Lease provided that the requirement that Drama Unit provide Fearndale with a copy of all relevant development consents or approvals was deemed to be an essential term of the Lease.

7. Clause 25 of the Lease dealt with the “Permitted Use” of the land and stated that the land had the benefit of an approval for a clay/shale quarry dated 23 May 2004, amended 20 January 2010, and that Drama Unit would comply with all conditions of that approval. As I noted above, item 10 of the reference schedule to the Lease also identified the “Permitted Use” of the land. The approval to which cl 25 of the Lease refers is an approval under the Environmental Planning and Assessment Act 1979 (NSW) given (at the relevant time) by the Minister for Planning and Environment, which provides development consent for the development and operation of a clay/shale quarry on the relevant land and the construction and use of an access road and service facilities. Clause 25.2(a) of the Lease stated that Drama Unit “Will be entitled to the benefit of the approval and will be entitled to extract from the property any materials (being clay, shale, sandstone, top soil)”, including specified activities. Clause 25.2(b) of the Lease required Drama Unit to at all times observe and comply with all statutes, regulations and ordinances governing or relating to those activities.

8. At the time of entry into the Lease, another entity, Epic Mining Pty Ltd (“Epic”) was in occupation of the land and it was contemplated that Drama Unit would take occupation of that property after Epic ceased to occupy it. By late June 2018, Epic vacated the land (Cook 22.3.19 [16]–[17]) and Fearndale claims rent against Drama Unit from that later date, rather than the earlier date of commencement of the Lease.

9. By letter dated 29 June 2018, the then solicitors for Drama Unit advised Mr Cook that Drama Unit would be taking possession of the land in accordance with the Lease and enclosed a bank cheque in the sum of $28,000 in favour of Fearndale, representing the first month’s rental pursuant to the Lease, and requested bank account details for payment of future monthly rental payments (Ex D1). By letter dated 3 July 2018, the solicitors for Mr Cook responded that:

“… [Mr Cook] has made no determination as to the validity or otherwise of [Drama Unit’s] claimed lease. … he does not propose to bank or otherwise deal with the cheque for $28,000 sent to him under cover of your letter dated 29 June 2018. We propose to return that cheque to your office in the coming days.”

By letter dated 5 July 2018, Mr Cook returned that cheque to the solicitors for Drama Unit (Ex D1).

10. In the meantime, on 29 June 2018, Fearndale, then under the control of Mr Cook as its voluntary administrator, served notices to remedy several breaches of the Lease on Drama Unit, including a notice to remedy a breach of the requirement under cl 7.3(4)(b) of the Lease (to which I referred above) that Drama Unit, at its cost and prior to entering into the Lease, obtain and comply with the consents and approvals of any authority which may be necessary or appropriate for its business. That notice was directed to a requirement to obtain those consents and approvals prior to the entry into the Lease and, in that respect, properly reflected the requirements of that clause. That notice allowed Drama Unit 14 days to remedy that breach. Subsequently, on 13 July 2018, Fearndale served two notices of termination of the Lease, the first for non-payment of rent and the second on the basis that Drama Unit had not, at its own cost and prior to the entry into the Lease, obtained the relevant consents or approvals of any authority which may be necessary or appropriate for the business, within the time to remedy set out in the earlier notice. On 16 July 2018, Fearndale served further termination notices in substantially the same terms.

11. Drama Unit then brought proceedings seeking a range of relief in respect of these notices of termination of the Lease. The proceedings were heard on 29–30 November 2018 and I delivered an ex tempore judgment on 30 November 2018 and more detailed reasons in the Earlier Judgment. I held that Fearndale had not effectively terminated the Lease, because a reasonable time to remedy the alleged breach of covenants under the Lease, as required by s 129 of the Conveyancing Act 1919 (NSW) had not elapsed prior to the purported termination of the Lease.

12. By letter dated 21 December 2018 (Cook 22.3.19 [20]), after delivery of the Earlier Judgment, Fearndale again required Drama Unit to pay rent, and also outgoings due under the Lease. Those amounts were not paid by Drama Unit.

13. On 29 January 2019, Fearndale issued further notices of breach of the Lease to Drama Unit (Portors 30.1.19, Annexures B–E; Cook 22.3.19 [22]). The first of those breach notices related to Drama Unit’s failure, prior to entry into the Lease, to obtain and comply with consents or approvals of any authority necessary or appropriate for its business and to maintain such consents or approvals during the term of the Lease, under cl 7.3(4)(b) of the Lease, and identified the relevant breach as involving a failure to obtain an in force authorisation pursuant to the Mining Act 1992 (NSW) in respect of the business of mining of clay/shale on the land. That notice of breach was in substantially the same terms as the earlier notice of breach considered in the Earlier Judgment. A second notice of breach was in similar terms, again in respect of cl 7.3(4)(b) of the Lease, and related to Drama Unit’s failure to obtain a current licence pursuant to the Protection of the Environment Operations Act 1997 (NSW) (“PEOA”) in respect of “land-based extractive activity”, waste disposal or waste storage in respect of the land. A third notice of breach related to Drama Unit’s failure to provide an in force authorisation as provided under the Mining Act pursuant to cl 7.3(4)(d) of the Lease. A fourth breach related to Drama Unit’s failure to provide a copy of a current licence under the PEOA to Fearndale in breach of cl 7.3(4)(d) of the Lease.

14. On 12 February 2019, Fearndale made a further demand for rent and outgoings by Drama Unit, which again were not paid (Cook 22.3.19 [26]).

15. On 22 March 2019, Fearndale issued further notices of termination of the Lease to Drama Unit (Porters 25.3.19, Annexures A–F; Cook 22.3.19 [31]) and commenced these proceedings seeking the relief to which I referred above. The first termination notice relied on Drama Unit’s failure to remedy the alleged breach of cl 7.3(4)(b) of the Lease in respect of failing to obtain the authorisation under the Mining Act. The second termination notice relied on Drama Unit’s failure to remedy the breach arising from the failure to obtain a licence under the PEOA. The third termination notice related to Drama Unit’s failure to provide Fearndale with a copy of an in force authorisation under the Mining Act and the fourth to its failure to provide Fearndale with a copy of the licence under the PEOA. The fifth termination notice related to Drama Unit’s failure to pay rent for the period from 25 June 2018 to 22 March 2019, in the amount of $279,985.36, and the sixth related to its failure to pay outgoings as specified in an attached Statement of Outgoings dated 12 February 2019 in the amount of $34,157.10 inclusive of GST.

Drama Unit’s first contention – whether a notice under s 129 of the Conveyancing Act is required to specify the “reasonable time” to remedy the breach

16. Ultimately, the contest between the parties as to the validity of the termination of the Lease and as to Drama Unit’s liability for rent was in narrow scope. Drama Unit did not contest the validity of the notices of termination of the Lease, or its liability for rent, other than for three matters, two of which were raised in its initial outline of submissions and the third of which was raised in oral submissions at the hearing.

17. First, Drama Unit raises a contention as to the scope of s 129 of the Conveyancing Act. That section relevantly provides that:

“(1)    A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a)    specifying the particular breach complained of, and

(b)    if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c)    in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach. …

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

(9)    The notice mentioned in this section shall be in the form set out in the Sixth Schedule or to a similar effect.

(10)    This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary.”

18. It is convenient here also to set out the form of notice set out in the Sixth Schedule to the Conveyancing Act, as follows:

“Notice of breach of covenant

To

The lessee of [here describe premises with reasonable certainty, as for instance, "No. 369, George-street, Sydney.]

With reference to the lease of the abovementioned premises, dated the        day of         , from A.B. to C.D., and the covenant by the lessee therein contained [here state concisely the nature of the covenant or covenants breach of which is complained of, as for instance, “to repair,”] and the breach by you of that covenant I hereby give you notice and require you to remedy that breach by [here set out the remedy as, for instance, “by putting the said premises in repair by doing and executing the repairs in and upon the said premises which are specified in the Schedule hereto annexed.” Add if compensation is claimed.] And I further require you to pay to me the sum of              , as compensation for the breach already committed.

Dated this         day of           19  .

Lessor.

Note 

The lessor will be entitled to re-enter or forfeit the lease in the event of the lessee failing to comply with this notice within a reasonable time — see section 129 of the Conveyancing Act 1919.”

19. Drama Unit submits that a notice under s 129 of the Conveyancing Act must specify the “reasonable time” after service of a notice to remedy a breach of a lease, to which s 129(1) refers. Mr Sneddon, who appeared for Drama Unit, referred to Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 where Hodgson JA referred (at [323]) to the requirements of that section as follows:

“In my opinion, the above authorities clearly indicate that a notice under s 129 must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant’s actual or constructive knowledge, and whether the landlord claims reasonable compensation. To use the example of Lord Buckmaster LC, where there are several options open to a tenant to waterproof a leaking ceiling, then that choice is at the tenant’s discretion. Thus s 129 is, in my opinion, directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture.”

20. Mr Sneddon also referred to an observation in Casquash Pty Ltd v NSW Squash Ltd (No 2) [2012] NSWSC 522 that a period of 14 days for remedying the breach, which was there stipulated in the relevant notice, was reasonable as a matter of fact.

21. Mr Sneddon submits that the notices under s 129 of the Conveyancing Act given by Fearndale on 29 January 2019 do not afford to Drama Unit the “time required” for compliance, which would be a “reasonable time” and are silent as to when compliance with the notices was required. Mr Sneddon submitted that the reference, in the form of notice, to the note in Schedule 6 of the Conveyancing Act did not inform Drama Unit of the time required for compliance. I have set out the form of that note, which was reproduced in the form of notices given by Fearndale, above.

22. There are several reasons why this submission cannot be accepted. The first is that it seems to me to be inconsistent with the terms of s 129(1) of the Conveyancing Act, which I have quoted above, which first specifies (in s 129(1)(a)-(c)) the information to be included in a notice of termination and then, and separately, requires that a reasonable time in fact have elapsed after delivery of the notice and prior to termination of the relevant lease. Drama Unit did not here contest the fact that a reasonable time had in fact elapsed, nor could it have done so given the period of time on which it has been on notice of the relevant breaches.

23. Second, Mr Sneddon’s submission is inconsistent with earlier decisions of this Court, which I should follow unless I am satisfied that they are plainly incorrect. In Glebe Administration Board v Tasker [1964] NSWR 1307 at 1309–1310, Collins J rejected substantially the same argument that is now put by Mr Sneddon. His Honour there noted that it had been put that notices issued under s 129 of the Conveyancing Act did not comply with the requirements of that section because no time was stated as being a reasonable time. His Honour noted that, as was the case then and now, s 129(9) of the Conveyancing Act required that a notice under the section be in the form set out in the Sixth Schedule to the Act. His Honour noted that the form of notice given in that case (as also in this case) had followed the form set out in the Sixth Schedule. He then observed that:

“I think it is impossible to hold that a notice in the prescribed form laid down by a statute does not comply with the provisions of that statute. The legislative intention appears to be that a precise time was not required to be fixed, but merely a reasonable time allowed, and if there was any dispute on the facts of a particular case as to whether or not a reasonable time had in fact been allowed for compliance with the notice, this was to be resolved as a question of fact in the particular case.”

24. In supplementary submissions, by leave, Mr Sneddon noted that that decision was cited but not expressly applied in Westbrook Holdings Pty Ltd v Roseramble Pty Ltd (1994) 13 WAR 273. However, Mr Sneddon also, fairly, drew attention to a second decision that was contrary to Drama Unit’s contention. In Hovan’s Hotels Pty Ltd v Cherry (Unreported, Supreme Court of New South Wales, 14 March 1994), Bryson J observed that:

“Neither s129 nor the form in Schedule VI of the Conveyancing Act 1919 requires the time during which a breach must be remedied to be stated in the notice. No particular consequences flow, in my opinion, if a time is in fact specified, or if there is a miscalculation in the time so that something is required to be done within 14 days but less than 14 days are given. What a notice must contain is prescribed by para(a), para(b) and para(c) of subs 129(1), and the matters prescribed do not include any statement of the time for compliance. Similarly, the body of the notice in Schedule VI does not include any statement of the time required.”

25. It seems to me that the decision in Macquarie International Health Clinic above, to which Mr Sneddon referred is not inconsistent with this approach, since it identifies the need for an adequate description of the matters required to be disclosed under s 129(1)(a)–(c) of the Conveyancing Act rather than expending those matters to require the specification of a particular period of time as being a “reasonable” time in which to remedy the breach.

26. Far from thinking that the decisions in Glebe Administration Board above and Hovan’s Hotels above are plainly wrong, it seems to me that they are plainly correct. In particular, it seems to me that Collins J is correct in recognising that it would be surprising, to say the least, if a notice that followed the form that the legislature had specified did not comply with the requirements of s 129 of the Act. It also seems to me that Bryson J correctly recognised that there is a distinction between the requirements as to the content of the notice which are specified in ss 129(1)(a)-(c) of the Conveyancing Act and the additional requirement that a reasonable time in fact be given before a lease is terminated, which is not directed to the content of the notice, but to a subsequent requirement after a notice is given. Third, to the extent that Mr Sneddon invokes the desirability of a lessor informing a lessee information of what is required to remedy the breach, it seems to me that that extends to the matters specified for inclusion of the notice in s 129(1)(a)-(c) of the Conveyancing Act and not beyond the statutory requirements for the content of that notice.

27. Fourth, to the extent that matters of wider policy are relevant, it seems to me that the specification of a period of time as the “reasonable” time required to remedy a breach in a notice is at least as likely to mislead a tenant as to assist it. The question of the “reasonable” time that should be permitted to remedy the breach will depend upon all the circumstances, including circumstances that may not be known to the lessor, so a “reasonable” time to remedy the breach may be longer than the lessor would anticipate at the time of issuing the notice to remedy the breach. Circumstances may also change between the time of issue of the notice and when the lease is purportedly terminated, so that a longer time should be allowed than would originally have been anticipated by the lessor, and that time will be judged at the time of termination of the lease rather than when the notice was issued. A notice that specified a period of time as the “reasonable” time within which the breach might be remedied, but did not take into account matters not known to the lessor or matters that subsequently arose which would increase that time, would potentially mislead a tenant, particularly one without access to legal advice, to its disadvantage. For completeness, I note that Mr Sneddon also referred to an observation in W D Duncan, Commercial and Retail Leases in Australia (Thomson Reuters, 2012) at [130.3700], which suggests that it is “better” to express a reasonable time in days or months so that the lessee is aware of how much time would be given before the lease might be forfeited. Even if that course is practically desirable, it does not seem to be required by the terms of the section or the case law to which I have referred above.

28. For these reasons, I do not accept Drama Unit’s first contention that the notices of termination of the Lease for non-monetary defaults issued on 29 January 2019 were invalid for not specifying the particular time that constituted a reasonable time to remedy the breach. Drama Unit accepted that, by reason of s 129(8) of the Act, that section did not apply to the notices in respect of the defaults in payment of rent and outgoings.

Drama Unit’s second contention – whether Drama Unit’s ability to use the land for incidental purposes displaced the requirement for consents and approvals for mining

29. Second, Mr Sneddon refers to my observation in the Earlier Judgment at [24] that:

“… Mr Cook [who appeared for Drama Unit at the earlier hearing] contended that Drama Unit could not breach clause [7.3(4)(b)] of the [L]ease until it commenced mining operations on the land, which it has not yet done. I do not accept that submission. That construction of the clause would make a nonsense of it, so far as it imposed requirements to be satisfied prior to the entry into the [L]ease, in respect of the conduct of Drama Unit's business, where Drama Unit would likely not have conducted that business on the site until after it had entered into the [L]ease. That reading of the clause also has other fundamental difficulties, namely that it was plain enough what Drama Unit's business was, both in the terms provided by the [L]ease and as a matter of fact. Item 10 of the reference schedule to the [L]ease, to which I referred above, referred to the use of the land for a mining operation. That term was, in turn, adopted for the purposes of cll 1.1(17) and 7.1 of the [L]ease and, as Mr Golledge pointed out, cl 16.7 noted that it was an essential term of the lease that Drama Unit use the land for the use stated in item 10 of the reference schedule, namely for mining purposes. As a matter of fact, there is no suggestion in any of the earlier documents that Drama Unit intended to use the land other than for mining purposes, although there is a late suggestion that it would now consider using the land for other purposes. It is by no means apparent that that alternative use would, in fact, be authorised under the terms of the [L]ease. It seems to me, having regard to the terms of the [L]ease and the evidence as to what Drama Unit, in fact, intended to do, that there can be no doubt that Drama Unit's business was to conduct mining operations and it was required to obtain the approvals and consents that were required for such operations.”

30. Mr Sneddon draws attention to the principle stated by Gibbs CJ in Lizzio v Council of the Municipality of Ryde [1983] HCA 22; (1983) 155 CLR 211 at 216–217 that:

“Obviously a person who is entitled to use land for the purpose of a dwelling-house may use it for incidental purposes, such as garaging his car or housing his boat. No doubt in some circumstances a householder who on an isolated occasion used his land for the purpose of making sales from a stall might be held to be doing no more than using his land for the purposes of a dwelling-house. For instance, if a householder allowed his land to be used annually as the site for a fete to raise money for some charitable purpose, the use of the land in that way might be regarded as simply incidental to its use for the purposes of a dwelling-house. The question is one of fact and degree. Having regard to the regularity and extent of the activities involved in selling the flowers, and to the fact that some of the flowers were grown on other land, there is no reason to disagree with the decision reached in the courts below that the use of the land in the present case could not be regarded as merely incidental to its use for the purposes of a dwelling-house.”

31. Mr Sneddon also refers to an observation of White J in Construction Technologies Australia Pty Ltd v Doueihi (No 3) [2015] NSWSC 1850 at [51] that:

“The defendants submitted that it would be contrary to the terms of the lease if CTA used any part of the premises leased to CTA for car parking because the lease requires the leased premises to be used as “Manufacturing facility and ancillary offices and warehouseing [sic]. Clause 7.1 of the lease provides that CTA must not use, occupy or permit the premises to be used or occupied for any other purpose. However, that permission extends to a use for purposes incidental to the permitted use (Lizzio v Council of the Municipality of Ryde (1983) 155 CLR 211 at 216–217 per Gibbs CJ). The defendants are wrong in their submission to the council that CTA has no legal right to any car spaces on the property at all, including in the basement (except for four car spaces which it occupies with its plant and equipment). The use of any of the leased premises for car parking that is incidental to the permitted use under the lease is permitted.”

32. Mr Sneddon accepts that, consistent with the Earlier Judgment, Drama Unit was required to obtain and retain the requisite regulatory consents and approvals before it could carry on mining activities on the land, but says that Drama Unit could use the land for “incidental” purposes, such as car parking, or leave it vacant or idle, provided it paid rent as required by the Lease. Mr Sneddon submitted that, as Drama Unit did not take possession of the land so as to perform any mining activities without a requisite consent or approval, there could be no breach of the Lease for failing to hold the requisite consent or approval.

33. I do not accept that submission, as a matter of the proper construction of the Lease. As I noted in the Earlier Judgment, cl 7.3(4)(b) of the Lease required that Drama Unit obtain and comply with the consents or approvals of any authority which may be necessary or appropriate for Drama Unit’s “business” prior to entry into the Lease. As Mr Sneddon accepted, that provision at least required that Drama Unit have that approval at the moment at which the Lease became operative. That requirement is to be read in the context of cl 7.2(1) of the Lease, which required that Drama Unit “conduct the Tenant’s business in the Premises as permitted under this Lease”. It seems to me that the concept of the “Tenant’s business … as permitted under this Lease” is necessarily to be determined by reference to the “Permitted Use”, which is defined in the Lease as the use referred to in cl 7.1 and stated in item 10 of the reference schedule. Item 10 of the reference schedule in turn provides that the “Permitted Use” is “Mining operation and as prescribed by”, although (as I noted above) the balance of that item is not completed.

34. It seems to me that, on the proper construction of the Lease, Drama Unit was required, at the commencement of the Lease, to have the necessary consents and approvals to conduct its business, namely the mining business which it was required to conduct on the land. It is not to the point that Drama Unit might also conduct other activities, incidental to that business, on the land. It seems to me that result follows on the proper construction of the Lease. However, I would also accept Mr Golledge’s submission that the contrary construction for which Mr Sneddon contended would lead to significant uncertainty, at least from the lessor’s perspective, since it would not necessarily be aware of the point at which a tenant ceased, for example, to use the land only for incidental purposes and first complied with the requirement to use the land for the permitted use of mining, so as to trigger a requirement for the necessary approvals on Mr Sneddon’s construction of the clause.

35. For these reasons, it seems to me that Drama Unit’s ability to use the land for incidental purposes, if it had taken possession and wished to do so, is not an answer to the breach relied on by reason of its failure to obtain, and provide Fearndale with copies of, the necessary consents and approvals to use the land for mining.

Drama Unit’s third contention – response to non-payment of rent

36. Mr Sneddon rightly accepted that notice under s 129 of the Conveyancing Act was not required in relation to non-payment of rent, by reason of s 129(8) of the Conveyancing Act. In response to the termination of the Lease relying on non-payment of rent, Mr Sneddon contended that Fearndale had waived the requirement for payment of rent, by its administrator’s return of Drama Unit’s tender of a cheque in payment of one month’s rent in June 2018. That contention does not affect the validity of Fearndale’s termination of the Lease, having regard to the findings that I have reached above, but potentially affects Fearndale’s entitlement to recover unpaid rent under the Lease.

37. In oral submissions, Mr Sneddon submitted that, from the time that Drama Unit sought to go into occupation of the land, Fearndale refused to accept rent, and cannot subsequently claim rent in respect of that issue. I have referred to the relevant correspondence in setting out the chronology of events above. It was not entirely clear whether Drama Unit advanced a submission in reliance on the construction of the Lease, and I will address that matter in case it did so. Mr Golledge draws attention to the observation in B Edgeworth, Butt’s Land Law (7th ed, Lawbook Co, 2017) at [7.1500] that a tenant’s obligation to pay rent is generally independent of the lessor’s obligations under a lease: see Lolly Pops (Harbourside) Pty Ltd v Werncog Pty Ltd (1998) NSW ConvR ¶55-861 at 56,751; Debonair Nominees Pty Ltd v J & K Berry Nominees Pty Ltd (2000) 77 SASR 261 at 271. In the latter case, Mullighan J observed that, where a lease provided that rent must be paid clear of all deductions, liability to pay rent did not cease merely because a lessor had breached a covenant, and the only deductions that could be made by a tenant were those authorised by statute or expressly permitted by the lease. Professor Edgeworth also recognises that a lease may be drafted to make the obligations of the lessor and the obligation to pay rent interdependent. The Lease at issue in this case does not seem to me to be drafted in that manner, for the reasons noted below.

38. It seems to me that Drama Unit’s obligation to pay rent, in cl 4.1 of the Lease, which required that rent be paid without demand, deduction or right of set-off, was not conditional upon the actual occupancy of the land by Drama Unit, as distinct from, for example, the grant of the rights pursuant to the Lease, including the grant of the right to occupy the land on the terms of the Lease. Under the terms of the Lease, Drama Unit was granted a right of quiet enjoyment subject to compliance with the Lease. In the relevant circumstances, it seems to me that Drama Unit had not complied with the Lease, at least in respect of the statutory approvals and consents necessary to conduct its business of mining on the premises. Mr Golledge also submits, and I accept, that any proposition that Drama Unit was not liable to pay the rent must depend upon a suggestion that it was wrongfully excluded from the premises. That proposition is not established where Fearndale was entitled to withhold possession by reason of the breach of cl 7.3(4)(b) of the Lease and the qualification to the covenant to quiet enjoyment to which I have referred above.

39. Mr Sneddon submitted that Fearndale could not make a contractual claim for rent where it had not given possession of the leased premises because that amounted to a total failure of consideration (T24). Mr Sneddon put that submission on the basis of the concept of a total failure of consideration applied by the High Court of Australia in Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344, where Mason CJ observed (at 350) that:

“When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.” [citation omitted]

40. Mr Sneddon was unable to draw attention to any authority that supported the proposition that a failure to permit entry onto leased premises gave rise to a total failure of consideration under a lease. Mr Golledge responded, and I accept, that there was no total failure of consideration where the Lease granted a bundle of rights, including a proprietary interest in the land on which, I should note, Drama Unit relied as against third parties by lodging caveats over the land.

40. Alternatively, Mr Sneddon submitted that there was a waiver of the obligation to pay rent on the basis that Fearndale had declined to accept that rent (T24). In Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 at 326, the concept of waiver was described as follows:

““A waiver must be an intentional act with knowledge” … First, “some distinct act ought to be done to constitute a waiver”; next, it must be “intentional,” that is, such as either expressly or by imputation of law indicates intention to treat the matter as if the condition did not exist or as if the forfeiture or breach of condition had not occurred; and lastly, it must be “with knowledge” an essential supported by many authorities …”

42. The question here is, of course, not a question of waiver of a breach of the Lease, by insisting on payment of rent after knowledge of the breach. It seems to me that no waiver by Fearndale (though Mr Cook) of an obligation to pay rent is established, where the letters on which Drama Unit relied did not, in their terms, indicate an intention on Mr Cook’s part permanently to release or not to insist upon Drama Unit’s obligation to pay rent. So far as the fact of breach of the Lease arising from non-payment of rent, Fearndale at least made clear from December 2018 that it required the payment of that rent, which Drama Unit did not then pay. Mr Sneddon fairly accepted that no argument by way of estoppel was put, where Drama Unit had led no evidence to support such an argument (T24).

43. It seems to me that Drama Unit was not released from its obligation to pay rent under the Lease by the terms of the correspondence in late June and early July 2018 to which I have referred or by the fact that it did not obtain the relevant approval under the Mining Act to conduct mining on the land or enter into occupation of the premises. There is otherwise no reason to doubt the correctness of Mr Cook’s calculation of the rent or outgoings payable. The calculation of rent is consistent with the terms of the Lease and is otherwise a matter of mathematics, and the calculation of outgoings is supported by the Statement of Outgoings under cll 5.2 and 5.4 of the Lease (Ex P1, p 137). Drama Unit did not advance any specific challenge to those calculations, as distinct from its wider contention that Fearndale had waived its obligation to pay rent.

Release of caveats

44. By a caveat dated 15 March 2017, Drama Unit claimed an interest in the land pursuant to an “Agreement to Lease” dated 19 December 2016 and, by a further caveat dated 20 November 2018, Drama Unit claimed a caveat by virtue of a “Lease Of Estate in Fee Simple” dated 23 March 2017 (Ex P4). Given the findings that I have reached above, an order that Drama Unit release those caveats must follow.

Costs

45. Mr Golledge submits that Drama Unit should pay the Plaintiffs’ costs on an indemnity basis from 8 April 2019, when Drama Unit sought and obtained time to file a Cross-Claim and evidence on which it relied, up to the date of the hearing. Drama Unit filed such a Cross-Claim, by Interlocutory Process filed on 6 May 2019, and Fearndale was put to the costs of preparing a defence to that Cross-Claim and preparing evidence in response to it. That Cross-Claim was subsequently dismissed when Drama Unit’s solicitors ceased to act and did not appear to pursue it on 13 May 2019. Although Drama Unit’s solicitors subsequently went back onto the record, Drama Unit did not seek to reopen that issue or pursue its Cross-Claim at the hearing of this application.

46. The circumstances in which an order for indemnity costs may be made are well-established. Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) permits the Court to order costs on an ordinary or an indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) provides that, unless the Court orders otherwise or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 of the UCPR deals with an order for costs on an indemnity basis. Costs are awarded on an ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant fully for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at 89; Westpac Banking Corporation v Ollis [2007] NSWSC 1008 at [6]. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324, McDougall J observed (at [24]) that there must usually be some special or unusual feature to justify departure from the ordinary rule as to costs, and that delinquency is not necessary for an order for indemnity costs, but is relevant to whether it should be made. The relevant principles were also considered by the Court of Appeal in Cabport Pty Ltd v Marinchek(No 2) [2013] NSWCA 131 at [6], where the Court observed that an order for indemnity costs may be made where conduct in proceedings is plainly unreasonable or involves an element of delinquency, and I summarised those principles in Re Bean & Sprout Pty Ltd (admin apptd) [2018] NSWSC 456 on which I have drawn for the summary that appears above.

47. It seems to me that Drama Unit’s conduct in raising that Cross-Claim, putting Fearndale to the costs of responding to it, and then not pursuing it, is such as to warrant an order for indemnity costs against it for the period on which that Cross-Claim was on foot, commencing when it was filed on 6 May 2019 rather than the earlier date on which leave to file it was granted, and continuing to the date on which it was dismissed on 13 May 2019. However, Drama Unit should pay Fearndale’s costs after the later date, including the costs of the hearing on 17 May 2019 on the ordinary basis, where Mr Sneddon conducted Drama Unit’s narrow defence of the claim efficiently and effectively on that date.

Orders

48. For these reasons, I make the following orders:

1.   Declare that, in the events that have happened, the First Plaintiff has validly and effectively issued and served upon the Defendant each of the termination notices being Ex P1, pages 127–137 and, as and from 22 March 2019, validly and effectively terminated the Lease being Ex P2.

2.   Judgment for the First Plaintiff against the Defendant in the amounts of:

(a)   $341,890.72 for rent due and payable under the Lease for the period 25 June 2018 to 15 May 2019; and

(b)   $34,157.10 for outgoings due and payable under the Lease under the Statement of Outgoings dated 12 February 2019.

3.   Order that the Defendant forthwith withdraw the caveats being dealing numbers AM234196V and AN872019.

4.   Order that the Defendant pay the Plaintiffs’ costs, on an ordinary basis up to and including 5 May 2019; on an indemnity basis from 6 May 2019 to 13 May 2019 inclusive; and on an ordinary basis from 14 May 2019, including the costs of the hearing on 17 May 2019, as agreed or as assessed.

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Decision last updated: 06 June 2019