Kearsley Hotel Hunter Valley Pty Ltd v Iwaszkiewicz

[2025] NSWSC 412

Supreme Court

New South Wales

Medium Neutral Citation:

Kearsley Hotel Hunter Valley Pty Ltd v Iwaszkiewicz [2025] NSWSC 412

Hearing dates:

11, 17, 28 April 2025

Date of orders:

17 April, 1 May 2025

Decision date:

01 May 2025

Jurisdiction:

Equity - Expedition List

Before:

Parker J

Decision:

See [62] and [93]

Catchwords:

REAL PROPERTY — Leases — re-entry by landlord — covenant for tenant to reimburse landlord’s outgoings — alleged breach — whether notice required under s 129 of the Conveyancing Act 1919 — adequacy of pleaded allegation of breach — summary judgment for tenant

Legislation Cited:

Conveyancing Act 1919 s 129, (1), (8)

Cases Cited:

Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd [2019] NSWCA 312

Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1

General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125

Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 3) [2024] NSWSC 1483

Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401

Category:

Procedural rulings

Parties:

Principal proceedings
Kearsley Hotel Hunter Valley Pty Ltd (Plaintiff)
Christine Mary Iwaszkiewicz (First Defendant)
Katerina Sofia Skarbek (Second Defendant)

Notice of Motion filed 14 March 2025
Kearsley Hotel Hunter Valley Pty Limited (Applicant)
Christine Mary Iwaskiewicz (First Respondent)
Katerina Sofia Skarbek (Second Respondent)

Representation:

Counsel:
J J Young/A Lim (Applicant/Plaintiff)
A Gauja (Respondents/Defendants)

Solicitors:
Brooklyn Bennett Law Firm (Applicant/Plaintiff)
CMI Law Firm (Respondents/Defendants)

File Number(s):

2024/373696

Publication restriction:

Nil

JUDGMENT

1. These proceedings concern a lease of commercial premises which was purportedly terminated by the landlords, who re-entered the premises. The tenant applied for summary judgment in the form of a declaration that the purported termination was invalid, or alternatively relief against forfeiture. The application was made on the basis that the landlords have no defence to the relief sought.

2. The property which is the subject of the proceedings is a hotel in the Hunter Valley known as the Kearsley Hotel. The defendants, Christine Mary Iwaskiewicz and Katerina Sofia Skarbek (“the Landlords”) are the registered proprietors of the property.

3. The property is the subject of an unregistered RPA lease (“the Lease”) to the plaintiff, Kearsley Hotel Hunter Valley Pty Limited (‘the Tenant”). The Lease was granted in January 2022 for a six-year term, with options to renew for four further periods of five years each.

4. I heard the application on 11 April. On 16 April I issued to the parties in draft form a judgment setting out my conclusion. I invited the parties to consider the form of orders required to give effect to that conclusion and to deal with consequential matters. A hearing on this question took place on the following day, 17 April.

5. When I issued the draft judgment to the parties, I invited them to identify any errors or omissions in the draft and I have taken their comments into account in the published version, which also deals with the matters debated on 17 April. I have also made further changes of my own. These changes are not confined to matters of expression. On reflection I think that the reasoning on one of the points in the draft was inadequate. I have reconsidered that point and altered the reasoning accordingly. This has had no effect on my ultimate conclusion.

Background and procedural history

6. The Landlords and the Tenant have been in dispute since last year about the performance of their respective obligations under the Lease. The Landlords have alleged numerous breaches of the terms of the Lease by the Tenant over the period of the dispute. Those alleged breaches have included monetary breaches resulting from the failure to pay outgoings allegedly due under the Lease. They have also included non-monetary breaches, including the failure to carry out various works which the Tenant was allegedly obliged to undertake under its repair covenant. At various stages it has also been alleged that rent has not been paid, although, as I understand it, it is not alleged that the rent is now in arrears. For its part, the Tenant alleges that the Landlords have failed to undertake works which they were obliged to undertake pursuant to the terms of the Lease.

7. On 13 August last year, the Landlords issued what purported to be a notice under s 129 of the Conveyancing Act 1919 (“CA”) requiring the Tenant to remedy various alleged breaches (both monetary and non-monetary), failing which the Landlords would forfeit the Lease and re-enter the premises. A second notice was issued on 18 September, which identified no less than 32 separate alleged (non-monetary) breaches. On 9 October the Landlords purported to terminate the Lease on the ground of breach and re-entered the premises, appointing a third-party manager to operate the Hotel business.

8. These proceedings were commenced in the Duty List on the same day. An interlocutory regime was established by Hammerschlag CJ in Eq whereby the Tenant was to obtain a safety report on the premises and was permitted to go back into occupation and manage the Hotel business in conjunction with the Landlords’ manager. Both the Tenant and the Landlords gave the usual undertakings as to damages. The proceedings were later transferred to the Expedition List.

9. In its statement of claim, the Tenant seeks a declaration that the purported termination of the Lease on 9 October last year was invalid, or, alternatively, relief against forfeiture. The Tenant disputes the allegations of breach in the s 129 notices, and contends that in any case, to the extent established, they do not justify forfeiture of its leasehold interest. The Tenant also seeks orders in the nature of specific performance which would require the Landlords to undertake the works on the premises which they are allegedly obliged to undertake under the Lease.

10. The Landlords filed a defence maintaining the validity of last year’s notices. But the dispute about alleged breaches by the Tenant has moved on. The Landlords now rely on the safety report to support their claims of breaches of the Tenant’s repair covenants. The dispute about outgoings has also moved on, with some payments having been made but further alleged non-payments being raised.

11. Ordinarily in a case of contested re-entry such as the present one would expect the landlord to file a cross-claim seeking a declaration that the lease had been validly terminated, and damages for breach. The timetable originally fixed in the duty list provided for any cross-claim by the Landlords to be filed by November last year. No such cross-claim was filed. It appeared, based on statements made by counsel for the Landlords to the Court on 22 November and again 7 February, that the Landlords would not seek to support the grounds on which last year’s re-entry took place.

12. That position changed on 14 February when the Court was informed that the Landlords did wish to maintain that the re-entry on 9 October had been lawful. Directions were made for the filing of a cross-claim and an amended defence by 5 March, but this date was missed. Eventually, on 13 March, the notice of motion currently before the Court was filed on behalf of the Tenant. Meanwhile, on 27 February, against the possibility that its October re-entry was invalid, the Landlords issued a further s 129 notice, the time for which has now expired.

13. Originally the Tenant’s motion was to be heard on 21 March. But on that day counsel for the Landlords made an oral application to amend their defence and to file a cross-claim in accordance with proposed pleadings presented to the Court. The parties agreed that it was convenient for me to deal with this application first.

14. I refused the application as I considered that the proposed pleadings were not adequate. In particular, they sought to support termination of the Lease on every single one of the 32 alleged breaches in the September notice, which counsel conceded was not sustainable. The time spent in dealing with the application meant that there was insufficient time to deal with the Tenant’s motion and it was put over for hearing on 11 April.

Application for summary judgment

15. The Tenant’s motion sought orders striking out the whole of the defence on the ground of “want of due dispatch”. Alternatively, the motion sought to strike out specified paragraphs of the defence as embarrassing or failing to disclose a proper ground of defence to the Tenant’s claims.

16. The motion sought summary judgment on all of the Tenant’s claims, including the claim for specific performance of the alleged obligations of the Landlords to carry out works on the premises. At the hearing this was not pressed, and the application for summary judgment was confined to a declaration that the Landlords’ re-entry on 9 October had been unlawful, or alternatively, relief against forfeiture.

Invalidity of purported termination

17. CA s 129 relevantly provides:

(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.

…

(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. The Landlords may, of course, only justify their purported termination of the Lease on 9 October by reference to breaches which existed at that date. Furthermore, to the extent the Landlords need to rely upon a notice under CA s 129, the relevant breaches must have been properly notified and a reasonable time for remedying the breach must have passed before the purported termination.

19. Through counsel, the Landlords conceded that they did not rely, in support of their re-entry on 9 October, on any non-monetary breaches listed in last year’s s 129 notices. And so far as monetary breaches were concerned, the Landlords did not rely on any failure to pay rent as such, but only on failure to pay outgoings.

20. Counsel also conceded on behalf of the Landlords that the s 129 notices issued last year did not adequately specify the outgoings which were allegedly unpaid. The Landlords could therefore not rely upon the notices to support re-entry on the basis of failure to pay outgoings. Their contention was that it was not necessary to do so because, under the Lease (see cl 19.12, quoted below), payments of outgoings were deemed to be rent. Accordingly, so the argument ran, the exception in s 129(8) applied and all that the Landlords needed to show was that at the date of re-entry there were outgoings due from the Tenant which had not been paid.

21. This gave rise to two issues. The first was whether outgoings due under the Lease were “rent” for the purposes of s 129(8). The second was whether, if so, a defence based on there having been outstanding outgoings as at the date of re-entry had been validly pleaded.

22. Application of s 129(1): The Lease contained a definition of “Rent” (cl 1.1(bbb)) as meaning “the amount payable under cl 6.1”.

23. Clause 6.1 then provided:

6.1. Rates of Rent and method of payment

Rent is payable at the annual rate stated in Item 7 until varied under this Lease and is then payable at the varied rates by the method which the Landlord reasonably requires without set-off, counterclaim, withholding or deduction. If required by the Landlord, Rent must be paid by direct debit on the Tenant's bank.

24. The terms “Outgoings”, “Outgoings Estimate” and “Tenant’s Proportion of Outgoings” were also defined:

(nn) Outgoings means the total of all the Landlord's costs and expenses paid or payable in relation to the Building including, but not limited to, the following:

(i) Council Rates, Land Tax, Water Rates and any other rates, taxes, charges and assessments charged, assessed or imposed on the Building or on the Landlord because of the Landlord's interest in the Building except GST, income tax and capital gains tax;

(ii) the cost of providing and maintaining the Services to the Building;

(iii) the cost of operating, repairing, maintaining and servicing the Building and the Landlord's Equipment (but not including structural or capital works);

(iv) the cost of the management, control and administration of the Building including wages, on costs and consultancy fees;

(v) the cost of all premiums to insure the Building in its full insurable replacement value including demolition and debris removal with an escalation provision, broker's fees and duty, valuations required for insurance purposes, loss of rent insurance and such other insurances as the Landlord requires;

(vi) the cost of supplying towels, soap, sanitary units and other facilities in the washrooms and toilets of the Building;

(vii) the cost of statutory inspections and reports;

(viii) the cost of purchasing, hiring, maintaining, fencing, installing and servicing all plants and flowers, gardens, lawns, planted areas, artificial water courses, footpaths, signage and decorative features;

(ix) the cost of pest control;

(x) the cost of Outgoings audits;

(xi) all costs for marketing and promotion including radio and/or media advertising; and

(xii) any payments in relation to car spaces in the Building under the Taxation Administration Act 1996 (Cth) or of any other levy, charge or fee imposed by any competent Authority in relation to such car spaces or the use of such car spaces;

(oo) Outgoings Estimate means a written estimate given by the Landlord to the Tenant of the Tenant's Proportion of Outgoings for any period up to 1 year in advance;

…

(ppp) Tenant’s Proportion of Outgoings is the proportion of the Outgoings payable by the Tenant which, as at the date that the Tenant first occupied the Premises, is the proportion stated in Item 14;

25. Item 14 of the Lease Schedule provided:

Tenant's Proportion of Outgoings

90% of all building and land outgoings. 100% of all outgoings related to the Bistro, the Convenience store, the areas from which liquor is sold and any area where the tenant has exclusive occupation where outgoings are severable from the common area.

26. Clause 6.6 then provided:

6.6. Outgoings

(a) The Tenant will pay the Tenant's Proportion of Outgoings.

(b) The Landlord is entitled at any time to give to the Tenant written notice detailing the Tenant's Proportion of Outgoings not then paid by the Tenant. Within 14 Business Days of the notice the Tenant will pay the Tenant's Proportion of Outgoings detailed in the notice.

c) The Landlord is entitled to give the Outgoings Estimate to the Tenant. The Tenant will pay the Outgoings Estimate by equal monthly instalments in advance on the same days and in the same manner as Rent.

(d) As soon as reasonably practical after the end of the period to which an Outgoings Estimate relates, the Landlord will give to the Tenant a written statement in reasonable detail of all expenditure by the Landlord on the Outgoings for the relevant period.

(e) Within 1 Month after the date on which the Landlord gives to the Tenant the written statement detailing expenditure on Outgoings any necessary adjustment will be made of any underpayment or overpayment by the Tenant of the Tenant's Proportion of Outgoings.

27. Clause 6.6 established two regimes for the payment of outgoings under the Lease. One was the procedure identified in cl 6.6(b) for payment of the Tenant’s Proportion of specific Outgoings in fact incurred by the Landlords (“outgoings reimbursements”). The other was payment of a monthly instalment of an Outgoings Estimate previously given by the Landlords (“outgoings instalments”).

28. Clause 16.1 dealt with re-entry on default and forfeiture. It relevantly provided:

16.1. Re-entry on default and forfeiture

The Tenant will be in default under this Lease and the Landlord can lawfully re-enter the Premises if:

(a) Rent is unpaid for 14 days after the due date;

(b) any other monies are unpaid for 7 days after the due date;

29. Clause 19.12 provided:

19.12. Deemed rent

The Landlord and the Tenant agree that any money[s] due by the Tenant under this Lease but unpaid are deemed to be rent for the purposes of this Lease.

30. Counsel for the Tenant referred me to the decision of the Court of Appeal in Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd [2019] NSWCA 312. The question in that case was, relevantly, whether a liability to pay an amount by way of outgoings was a liability for rent for the purposes of the rule that the tenant’s obligation to pay rent ceases to apply for any period during which the landlord wrongfully excludes the tenant from the demised premises. The Court held that it is not.

31. That question does not arise in the present case. But the members of the Court touched in passing on whether the non-payment of outgoings was a non-payment of “rent” for the purposes of CA s 129.

32. Meagher JA (with whom Emmett AJA) stated (at [64]):

Secondly, the fact of that unlawful “eviction” did not suspend Drama Unit’s [the tenant’s] obligation to pay outgoings. Accordingly the judgment for [unpaid outgoings] should be upheld. However the breach of that obligation could not found the exercise of the right of re-entry and termination under cl 15.2 because that right was not enforceable, a notice under Conveyancing Act, s 129 not having been given for that breach.

33. Brereton JA stated (at [75]-[76], [78]):

The touchstone seems to me to be whether the obligation to pay outgoings is in the nature of rent. The distinction between rent and non-rent obligations is well established. Thus, for example, the case of non-payment of rent is excepted from the requirement to give a notice of breach under Conveyancing Act, s 129, before a lessor exercises a right of re-entry or forfeiture for breach of covenant but the exception does not apply to a breach of a covenant to pay or contribute to outgoings.

In this respect, some assistance may be gained from the historical origin of the rule, as explained by Meagher JA, in the notion that rent was a thing that issued from the land. A covenant to pay or reimburse outgoings is not of that nature, but (at least unless expressed to be part of the rent) is an additional obligation of the tenant. In cl 5.2 of the lease, the obligation of the tenant to pay or reimburse a proportion of the outgoings is expressed to be “in addition to the Rent”; it is therefore not part of the rent. That conclusion is reinforced by the circumstance that the outgoings are not payable by the tenant at the same time as instalments of rent, but annually after 30 June each year of the term within 14 days of receipt by the tenant from the landlord of a statement of the outgoings.

…

For those reasons, I agree with Meagher JA that the unlawful exclusion of Drama Unit did not suspend its obligation to pay outgoings, with the consequence that the judgment for $34,257.10 should stand; but the breach of that obligation did not justify re-entry and termination under cl 15.2 because that right was not enforceable in the absence of a notice under Conveyancing Act, s 129, in respect of that breach.

34. In the present case, no separate argument was directed to the provision in cl 6.6(c) of the Lease for payment of outgoings instalments (as will be seen below, it is doubtful whether the Landlords validly invoked this procedure in the present case). The payment of an outgoings instalment pursuant to the provision was in some ways similar to the payment of an instalment of Rent. In particular, once an Outgoings Estimate had been given, the amount due by way of instalment could be calculated by the Tenant without the need for any further action from the Landlords. Even so, a payment under cl 6.6(c) was a payment “on the same [date] and in the same manner” as the Rent, not a payment “as part of” the Rent. It is unnecessary for the purposes of this judgment to discuss the provision any further.

34. I turn then to the payment of outgoings reimbursements pursuant to cl 6.6(b). The obligation to pay the Tenant’s Proportion of Outgoings in the present case was not expressed as being “in addition to” the Rent, as it was in Drama Unit. It was nevertheless a separate obligation under the Lease, which, like the obligation in Drama Unit, required payment of outgoings to be made independently of payments for Rent. This is not the hypothetical case suggested by Brereton JA of outgoings being paid “as part of” the Rent. Applying the reasoning in Drama Unit, non-payment of an outgoings reimbursement was, on the face of it, not a non-payment of “rent” for the purposes of 129(8).

35. Is this prima facie conclusion displaced by the deeming provision in cl 19.12? This first requires some consideration of how that clause operated.

36. The starting point is that the clause applied to any monies due under the Lease. That would include payments of Rent as well as other monetary obligations such as payment of outgoings reimbursements. Furthermore, such monies were deemed to be “rent” rather than “Rent”. But it is unclear whether this was deliberate, because the Lease did not contain any other provisions dealing with payment of “rent”.

37. Clause 6.6 contained a detailed procedure for quantifying and making payment of the Tenant’s Proportion of Outgoings. The procedure was quite different from the procedure for quantifying and paying Rent under cl 6.1 (which included in cll 6.2-6.5, provision for annual rent reviews). If one reads the reference in cl 19.12 as a reference to “Rent”, it would be nonsensical to say that Outgoings were deemed to be Rent for the purposes of cl 6.

38. Nor did cl 19.12 purport, on analysis, to do so. It only came into play once monies had fallen “due” under the Lease. I think the clause is best understood as only having provided, in effect, that all monies owing under the Lease, once they had fallen due, were to be deemed, for the purposes of the Lease, to be unpaid “rent”.

39. Even read in this way, there was still a difficulty with cl 16.1. That clause expressly created a distinction between payments of Rent, which, under subclause (a), had to be unpaid for 14 days before the Tenant was in default, and other monetary payments, for which the period of time before default was 7 days under subclause (b). To read cl 19.12 as applying to cl 16.1 would, as counsel for the Landlords accepted, mean that no default would arise for failure to pay an outgoings reimbursement until 14 days after the due date. Subclause (b) would effectively be read out of the Lease.

40. In the end, it is not necessary to decide these questions of interpretation. I am prepared to deal with the Landlords’ argument on the assumption that the effect of cl 19.12 was to deem overdue outgoings reimbursement payments to be overdue payments of Rent.

41. The ultimate question for the Court is whether non-payment of an outgoings reimbursement due under the Lease was a non-payment of “rent” within the meaning of that term in CA s 129. Obviously to answer that question the Court must have regard to the terms of the Lease. But the question remains one of statutory construction: whether, on the proper construction of those terms, such a payment fell within the statutory term “rent”.

42. For this purpose, I think that the Court must focus on the operative provisions of the Lease. If, on the proper construction of those provisions, a payment was not a payment of “rent” under s 129, the parties could not make it one by including some other term to that effect in the Lease. I think this is a consequence of the prohibition on ‘contracting out’ in s 129(10).

43. In this regard, the very fact that cl 19.12 was a deeming provision is significant. Deeming is a process whereby, for particular purposes, something is given a legal attribute that it does not actually have. The very fact that outgoings have to be deemed to be “rent” underlines that actually they were not.

44. For these reasons, I think that the non-payment of outgoings was not a non-payment of “rent” for the purposes of CA s 129. This means that, on the concessions made by the Landlords, they are unable to justify their re-entry under s 129(1). The Tenant’s application for summary judgment must succeed.

45. Adequacy of pleadings: In case I am wrong in my conclusion about s 129(1), however, I will consider the Tenant’s application on the assumption that it was sufficient for the purpose of the Landlords’ defence for the Tenant to have in fact been in default of its obligation to pay its Proportion of Outgoings at the time that re-entry took place.

46. I do not propose to strike out the Defence as a whole for “want of due dispatch”. The Tenant’s claim for a mandatory injunction for the carrying out of works by the Landlords remains in issue. Nothing in the Landlords’ conduct of the proceedings would justify their being deprived of an opportunity to mount their pleaded defence to that claim. The question is whether their pleaded defence concerning their purported termination is tenable.

47. The relevant paragraphs in the pleadings are as follows:

Statement of Claim [36]

The Plaintiff was and is not in breach of its obligation to pay the Tenant's Proportion of Outgoings as alleged by the Defendants or at all.

Defence [36]

In answer to paragraph 36 of the [statement of claim], the Defendants:

a. deny the paragraph;

b. says that the Plaintiff is not entitled to relief against forfeiture or any other relief in these proceedings unless and until the Plaintiff brings its account with respect to the Tenant's Proportion of Outgoings out of default;

c. say that the Plaintiff was and continues to be in breach {and persistent breach) of its obligation to pay the Tenant's Proportion of Outgoings, because:

i. as at early July 2023, the Plaintiff was in arrears of his financial obligations to the Defendants, in respect of outgoings for the period up to and including May and June 2023, in the amount of $10,830.95;

…

xiv. on 26 August 2024, the Defendants issued an invoice for outgoings which brought the amount owing by the Plaintiff to $21,362.45 on account of actual historical outgoings, but, together with a claim in advance for payment of $16,000, in fact brought the amount owing up to an amount of $37,362.45; and

xv. on 30 September 2024, the Defendants issued an invoice for outgoings which brought the amount owing by the Plaintiff to $22,530.95 on account of actual historical outgoings, but, together with a claim in advance for payment of $16,000, in fact brought the amount owing up to an amount of $38,530.95, being the last balance owing in respect of invoices actually issued at the time of commencement of these proceedings.

d. further says that, since about the date of commencement of these proceedings, further amounts have been incurred by the Defendants (as set out in the subparagraphs below) and which amounts form, or will form, part of the Tenant's Proportion of Outgoings and thus will need to be paid by the Plaintiff to the Defendants in order to bring the Plaintiff's financial obligations up to date (at least as at about 18 November 2024):

in respect of October and part of November 2024, outgoings which totalled $14,815.76 and which will bring the total amount owing as at about 18 November 2024 to $53,346.71 (being $37,346.71 plus the amount of $16,000 referenced in sub-paragraph 36(c)(xiv) above of this Defence).

49. The Landlords’ defence is that they were entitled to terminate the Lease under cl 16.1. That makes it necessary for them to plead that alleged entitlement.

50. The outgoings allegedly due, as pleaded at [36(c)], include both “actual historical outgoings” and a “claim in advance” of $16,000. Presumably these components are intended to correspond with outgoings reimbursement and outgoings instalment obligations. I will proceed on that basis and assume for the sake of argument that it was permissible for the Landlords to rely simultaneously upon both regimes for outgoings recovery.

51. The allegation of breach by non-payment of outgoings reimbursements requires five elements to be established as at the date of the purported termination (9 October): (1) the relevant outgoings must have been incurred in fact; (2) the Tenant’s Proportion of the outgoings must have been ascertained (noting that the nature of the outgoings affected the proportion for which the Tenant was liable); (3) the Tenant’s Proportion must have been the subject of a notice under cl 6.6(b); (4) two weeks must have elapsed from the date of the notice for payment to fall due; and (5) there must have been a default for at least 7 days (cl 16.1(b), or, depending on the meaning of cl 19.12, 14 days (cl 16.1(a)).

52. The Landlords’ defence at [36] does not address these elements. Instead [36] combines allegations of past breaches going back to July 2023 with allegations of current breaches, including breaches expressly referable to events after 9 October last year.

53. The defence does refer to a notice given on 30 September that $22,000 was then due by way of “actual historical outgoings”. But notification on that date would have been too late to justify termination on 9 October, less than two weeks later. It is possible that amounts notified earlier remained outstanding on 9 October, but that is not specifically alleged and there may, for all the Court knows, have been payments in the meantime. Moreover, there is no pleading of material facts to establish that the outgoings had actually been incurred and what the applicable Tenant’s Proportions were.

54. Nor does [36] adequately plead an allegation of non-payment of outgoings instalments. The obligation is not an obligation to pay a lump sum in advance, but to pay an estimate for the period by way of monthly instalments. That would require pleading that an estimate had been given; the period over which the estimate extended (so that it was possible to identify the monthly instalment amount); and the failure to make the relevant payments. These elements are missing from [36], and the repeated reference to a single estimate figure of $16,000, rather than to instalments, suggests that the mechanism laid down in the Lease is unlikely to have been complied with.

55. For these reasons, [36(c)] is untenable as a defence. This leaves the non-admission in [36(a)], but that merely puts the Tenant to proof and the evidence clearly establishes the invalidity of the re-entry because of a failure to comply with s 129(1).

56. I accept that, as at 9 October last year, there may in fact have been outstanding outgoings. But in a case such as this where there is a dispute about the lawfulness of a re-entry by the Landlords, speedy determination of that dispute is important. The Landlords appear to have issued their notices, and then filed their defence, without paying proper attention to the actual terms of the Lease. They were given ample opportunity to reformulate their case, if they could, and failed to do so. It is also relevant that a proposed cross-claim which was provided to the Court on 11 April claimed the amount owing to be $8,000. This would only be a tiny fraction of the costs which have been expended on the case so far.

57. Given the procedural history of the case there would be no justification for permitting the Landlords a further opportunity to amend their defence so as to plead the necessary elements of a valid defence under the Lease. Indeed, I did not understand counsel to seek any such further opportunity.

58. Conclusions: Counsel for the Landlords emphasised that summary judgment should not be given except in cases where the lack of defence is clear without any doubt: General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125. But in the present case the question is one of statutory construction, based on the terms of the Lease which are before the Court. There was no suggestion that there was anything in the factual matrix which would affect the interpretation of the Lease and rectification was not pleaded. In my view the outcome is sufficiently clear.

59. For these reasons, I am satisfied that the Tenant is entitled to summary judgment.

Relief against forfeiture

60. If I had been of the contrary view, I am not sure that I would have considered it appropriate to give summary judgment on the Tenant’s alternative claim for relief against forfeiture. Such relief is normally given at the end of the case, and on terms that any amounts then found to be owing by the tenant are paid. It is difficult to see how relief could be granted in relation to a default in the past, ignoring such other breaches as might have happened since. It is particularly difficult in the present case because the existence of the default is challenged as a matter of fact.

61. But in the end, it is not necessary to consider these questions any further. The plaintiff has succeeded in its principal claim and the alternative claim falls away.

Conclusions

62. At the hearing on 17 April, it was common ground that, in accordance with my conclusions, the Tenant was entitled to a declaration that the Landlords’ re-entry on 9 October last year was unlawful, and also to judgment for damages to be assessed for breach of the Lease. It was also common ground that the regime of interlocutory orders and undertakings established by Hammerschlag CJ last October should be discharged, and that the Tenant should have liberty to apply for the assessment of any damages payable under the Landlords’ undertaking as to damages.

63. My decision leaves to be determined the Tenant’s claim concerning the failure by the Landlords to undertake works allegedly required under the terms of the Lease. The parties agreed that this claim should proceed, at least in the first instance, in the Real Property List. The further proceedings will also include the quantification of any damages to which the Tenant may be entitled under the judgment for damages to be assessed, or under the Landlords’ undertaking as to damages. I was told that the Landlords did not propose, in the light of my conclusions, to rely on the further s 129 notice issued in February this year. If there is any further claim by the Landlords for breach on the part of the Tenant, that presumably could be pursued by way of cross-claim in the further proceedings as well.

64. The parties agreed on the form of orders required to reflect these conclusions and I thereafter made orders in the agreed form which disposed of all substantive matters in contest.

Costs

65. The parties were unable to agree about costs at the hearing on 17 April. At their request I directed a further hearing take place on this issue after they had exchanged written submissions and any supplementary evidence on which they wished to rely. The costs hearing took place on 28 April.

66. Counsel for the Tenant sought an order for costs on its motion for summary judgment. Counsel also sought an order in the Tenant's favour for the costs of the proceedings to date, apart from any costs solely referable to the Landlords’ works claim which remains to be decided.

67. Counsel recognised that any such costs orders would, pursuant to Uniform Civil Procedure Rules 2005 (“UCPR”) r 42.7(2), only be assessable and payable at the conclusion of the proceedings, unless the Court ordered otherwise. Counsel submitted that the present case was one where it would be appropriate to make a r 42.7 order, but then sought, in lieu of an assessment, an order for payment of a lump sum on account of costs (a type of order I have previously made in such circumstances: see for example Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401).

Form of costs order

68. Counsel for the Landlords pointed out that the Tenant’s application for summary judgment originally extended to the Landlords’ works claim, as well as the claim about illegality of the Landlords’ re-entry. But counsel accepted that the Tenant should obtain an order for its costs of the motion, except to the extent that those costs had been increased by including the claim for summary judgment on the Landlords’ work claim. This qualification was accepted by counsel for the Tenant.

69. Hammerschlag CJ ordered that the costs of the initial proceedings before him be costs in the cause. I have already ordered that the Landlords pay the Tenant’s costs of the oral application made on 21 March to amend their defence and obtain an extension of time to file a cross-claim. An earlier application by the Landlords, made by way of notice of motion filed on 13 February, was made for variation, and continuation, of the interlocutory regime established last October. That application was not in the end pursued and was dismissed. I did not, however, make a formal order on that occasion against the Landlords that they pay the Tenant’s cost of that motion.

70. Counsel for the Landlords accepted that, as a result of my decision, the Tenant had succeeded in its claim concerning the illegality of the re-entry, and that this success justified an order in its favour for the general costs of the proceedings to date, as well as for the costs specifically referable to that claim. It was also accepted that the general costs should include the costs of the proceedings before Hammerschlag CJ last October, as well as the costs of the defendant’s notice of motion dated 13 February and of the application of 21 March. All of this is subject to the qualification that the costs order in favour of the Tenant should not include any increased costs occasioned by the Landlords’ works claim.

71. In the end, the parties agreed on the form of order. The costs of the application of 21 March have already been the subject of an order and do not require any further order. Otherwise, there is to be an order for costs in favour of the Tenant for the whole of its costs of the proceedings up to 17 April (including the summary judgment motion and the other applications to which I have referred), except to the extent solely referrable to the Landlords’ works claim, up to 17 April. As will be seen, the Tenant has also achieved sufficient success on the costs application to justify also including its costs of that application within the order to be made.

Order for payment on account

72. The application made on behalf of the Tenant was that the Landlords be ordered to pay a lump sum on account of their costs liability in the proceedings to date (that is, the costs liability under the order to be made pursuant to this judgment, together with the existing liability under the order for payment of the costs of the Landlords’ oral motion of 21 March). In support of the application, counsel referred to the well-known judgment on the application of UCPR r 42.7 of Barrett J in Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1. In that judgment, his Honour identified three circumstances which had led the Court to make an order for payment of assessment and payment of an interlocutory costs forthwith: (1) that the subject matter of the order was a discrete part of the proceedings; (2) that the conduct of the proceedings had been oppressive or in some other way involved misconduct; and (3) that the final determination of the proceedings was some time off.

73. Counsel submitted that all three factors were present in this case. Concerning the second, counsel referred to the conduct of the Landlords, who had earlier appeared to indicate that they would not attempt to defend the validity of the re-entry, and then later resiled from that position. Counsel also noted that the Landlords initially relied on all of the numerous non-financial alleged breaches of the Lease by the Tenant to support the s 129 notice, but at the hearing of the application this was abandoned, and the notice was defended only on the grounds of alleged financial breaches, namely alleged failure to pay outgoings.

74. In contesting the application, counsel for the Landlords referred in particular to this second factor. Counsel characterized the making of an order under UCPR r 42.7 (and, by parity of reasoning, an order for payment of a lump sum on account) as being effectively punitive, like an order for indemnity costs. Counsel submitted that the Landlords should not be punished for having adopted a responsible approach at the hearing of the application and narrowed their case accordingly.

72. I agree that the Court should be careful not to exercise its costs powers in a way which might dissuade parties from making sensible concessions at trial (or, in this case, at the hearing of a summary judgment application). But the second factor to which Barrett J referred is not a necessary condition for the making of an order under UCPR r 42.7. No criticism was, or fairly could have been, made of the way in which counsel for the Landlords conducted the application. But I do not consider that an application under UCPR r 42.7 is necessarily punitive in character, and I certainly do not accept that it is so in the present case. It is simply a particular application of the usual principle which governs the award of costs; it is compensatory in nature. It is a particular application of that principle in circumstances where, in the Court’s estimation, it is just for the party who has obtained an interlocutory cost order to obtain compensation immediately rather than waiting for the end of proceedings.

73. In the end, my decision rested on the application of Real Property Act 1900 s 129 in the light of the terms of the Lease. The invalidity of the re-entry, although it involved a breach of the Lease, raised quite different contractual (and no doubt factual) issues from those which arise under the Landlords’ works claim. The assessment of damages will also be an entirely different task from determining the validity of the re-entry.

74. The shape of future proceedings is unclear, but it seems to me likely that, if there is a contest, it is likely to involve both lay evidence and expert evidence, in the form of building reports and the like, and may be quite complex. The parties’ decision that the remainder of the case should be managed, at least in the first instance, in the Real Property List rather than the Expedition List, is a recognition of the fact that cannot be expected to reach hearing at the same pace it would reach hearing in the Expedition List. At the moment, completion of the case appears some time off, at least several months and possibly longer.

75. It follows, in my view, that both the first and the third factors mentioned by Barrett J are found in the present case. In my view, they would be sufficient on their own to justify an order under UCPR r 42.7, and, by parity of reasoning, an order for a lump sum cost payment on account. It is therefore unnecessary to find, and I do not find, that the conduct of the proceedings involved some form of misconduct in the relevant sense.

76. But the reversal of position by the Landlords is in my view of some relevance. Had the Landlords maintained what appeared to be their initial position, namely that they would not be defending the s 129 notices, the question of invalidity would have been resolved in the Tenant’s favour and would not have assumed any great prominence in the case. It was the Landlords decision to resile from that position (coupled with the attempt to maintain, and even expand, the interlocutory regime established last October) which turned the invalidity of the notices into a critical issue which spurned the various interlocutory applications on which the Landlords were ultimately unsuccessful. In short, the Landlords’ conduct tends to underline the point I have already made, namely that the costs so far expended in the proceedings have largely concerned a discrete issue on which the Landlords have been unsuccessful.

Quantum of payment

80. The application was supported by an affidavit from the Tenant’s solicitor, Mr Anthony Lin. Mr Lin quantified the total costs incurred by the Tenant in the prosecution of the proceedings from 9 October, the date of the first hearing, onwards, and included an estimate for the costs hearing.

81. Mr Lin recognised that allowance had to be made for reduction of these amounts on assessment. Mr Lin adopted a 30% reduction for solicitor’s fees and 10% for counsel, with no reduction for disbursements. The total was $143,000 (this figure, like all other figures in this section of the judgment, includes GST).

82. Mr Lin’s claimed figure was made up of $44,000 in solicitors’ fees, $79,000 in fees for the two counsel retained for the Tenant, and $18,000 in disbursements. Although no breakdown was provided in the affidavit itself, I was later informed that about three quarters of counsel’s fees were charged by leading counsel Mr Young, and junior counsel Ms Lim charged about one quarter.

83. Mr Lin also recognised that allowance had to be made for costs solely referable to the Landlords’ works claim. In the case of “mixed” costs such as the costs of drafting pleadings or affidavits relating to more than one claim, some form of apportionment was required (see Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 3) [2024] NSWSC 1483 at [178]). But the reduction applied by Mr Lin to take account for this was small: he made apportionments only for the statement of claim and one of the affidavits, resulting in a reduction of about $2,500. The net claim was left at about $140,000.

84. Counsel for the Landlords was only prepared to concede a much lower figure, $40,000. Counsel complained that full details had not been provided of the fees charged by leading counsel for the Tenant, which limited the Landlords’ ability to respond to the claim. Counsel submitted, by reference to decisions on the making of lump sum cost orders under s 98(4)(c) of the Civil Procedure Act 2005, that this was a reason not to make any lump sum order, or, alternatively, to do so on a highly discounted basis.

85. Without limiting the generality of this complaint, counsel for the Landlords raised the following specific points.

1. Counsel submitted that the costs order had to be confined to costs incurred in the conduct of the proceedings. For this reason, costs associated with the general administration of the contract, including advice on contractual steps taken by the parties, were not covered.

2. For similar reasons the Tenant’s costs for preparing and lodging a caveat over the property should not be covered.

3. Counsel submitted that the allowance for costs solely referable to the Landlords’ works claim was too low. In particular, counsel pointed out that the bill included a disbursement of $5,000 to Mr Carl Strautins. Mr Strautins was the person who produced the safety report on the premises pursuant to the interlocutory regime established by Hammerschlag CJ. The order specifically provided that the costs of the report were to be borne by the Tenant “pending final determination of responsibility”. In addition, there appeared to be items in the bills referring to conferences or other communications with Mr Strautins about the preparation of his report.

4. Counsel also questioned the retainer of two counsel (junior counsel was not retained at the initial hearing in October but was retained from November onwards). Counsel submitted that there was likely to have been duplication (although because of the lack of information, it was not possible to give specific instances of this). Counsel submitted that the additional cost was unwarranted.

86. Counsel for the Tenant accepted that the first two categories of costs could not be claimed. Counsel maintained that there were no contractual costs but acknowledged that the fee notes included about $700 in caveat costs.

87. The authorities concerning the evidence required to quantify a lump sum costs claim to which counsel for the Landlords referred are not decisive in the present case. An order for payment of a lump sum on account of a costs liability is not the same as a lump sum assessment of that liability under s 98(4)(c). A s 98(4)(c) order finally determines the amount due. An order for payment on account does not. The principles which apply to making a lump sum assessment under s 98(4)(c) therefore only have a somewhat attenuated application in the present case. There must be some basis for the figure fixed by the Court, but the brush which may be used is even broader.

88. Nor was I impressed by the submission about the retainer of two counsel, at least at a level of principle. I do not think the Court should start from the assumption that a party in the Tenant’s position would have willingly incurred unnecessary additional costs. In an appropriate case, the retainer of an additional counsel to undertake more routine tasks reduces the overall costs burden rather than increasing it.

89. Counsel for the Tenant pointed out that at an earlier stage of the proceedings the Landlords were themselves represented by senior counsel. Counsel submitted that, even when added together, their charge-out rates compared favourably with the charge-out rate one might expect for a silk. Counsel for the Landlords made no response to these points.

90. Having said this, there is some force in the criticism about the lack of information concerning counsel’s fees. That was brought out when the initial bill by leading counsel was produced and was shown to contain $7,000 in fees for work done prior to 9 October. Counsel for the Tenant immediately accepted that these fees should be deducted, but the episode did reinforce the difficulty for the Landlords in responding to the claim without full information.

91. Counsel for the Tenant did not concede the point about Mr Strautins’ fees. Counsel submitted that the fees were properly characterized as disbursements associated with the conduct of the proceedings. In counsel’s submission, they were comparable to expert witness fees, which would be properly allowable as a disbursement.

92. I do not agree. In my opinion there is a clear distinction between the costs (which are necessarily legal costs) incurred in mounting an application for interlocutory orders, on the one hand, and expenses (which are not necessarily be confined to legal expenses) incurred in complying with those orders. Mr Strautins’ fees (and, probably, the costs of communications between the Tenant’s solicitors and Mr Strautins) fall into the latter category. If recoverable at all as a consequence of the orders which I have made, they would be recoverable under the undertaking as to damages. In my view they should be excluded from the calculation of any amount due by way of lump sum.

93. The result is, in my view, that $140,000 is too high. I have identified reductions of $13,000 but it is not possible to be precise. In the exercise of my judgment, I propose to order payment of $120,000. I repeat that this will only be a payment on account and there will need to be an adjustment when the costs of the proceedings are ultimately assessed.

Orders

94. The orders made on 17 April were:

1. Declare that the defendants’ purported termination of the lease between the plaintiff and the defendants entered into on or about 27 January 2022 of portfolio 9/19/785555 and 10/19/758555 on 9 October 2024 was invalid and the defendants’ re-entry to the subject premises was unlawful.

2. Judgment for plaintiff against the defendants for breach of the lease constituted by that re-entry, for damages to be assessed.

3. Order that the undertakings and orders noted and made on 11 October 2024 and numbered 1-7 and 10 be discharged.

4. Order that there be an enquiry as to the damages arising from the usual undertakings as to damages given by the defendant on 11 October 2024.

5. Order that any remaining monies paid into court by the plaintiff be released to the plaintiff forthwith.

6. Order that the cross-claim lodged on 9 April 2025 be removed from the court file.

7. Reserve costs for further consideration before me on 28 April at 2pm.

8. Order that the proceedings be removed from Expedition List and listed before the Real Property Judge on 2 May 2025.

95. The orders I now make as to costs are:

1. Order that the defendants pay the plaintiff’s costs:

1. of the proceedings down to 17 April 2025, including:

1. the costs referred to in Order 9 made by Hammerschlag CJ in Equity on 11 October 2024;

2. costs of the defendants’ notice of motion filed 13 February 2025;

3. costs of the plaintiff’s motion filed 13 March 2025;

2. of the hearing on 28 April 2025,

except to the extent of costs solely attributable to the claim for relief in prayer 4 of the plaintiff’s statement of claim.

2. Order that the defendants pay the plaintiff the sum of $120,000 on account of their liability under;

1. order 3 made by the Court on 21 March 2025; and

2. order 1 above.

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Decision last updated: 02 May 2025