Kumaragamage v Rallis

[2001] NSWSC 466

CITATION:	Kumaragamage v Rallis [2001] NSWSC 466
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2677/01
HEARING DATE(S):	21, 28, 30 May & 1 June 2001
JUDGMENT DATE:	6 June 2001
PARTIES :	Prabha Ranjanee Kumaragamage and Don Kumaragamage (P1, P2) Charles Silva Rallis and Agnes Rallis (D1, D2)
JUDGMENT OF:	Austin J

COUNSEL :	Plaintiffs in person D L Warren (D)
SOLICITORS:	Slade Manwaring (D)
CATCHWORDS:	LANDLORD AND TENANT - whether lessee can seek interlocutory relief by denying breach and also seek relief against forfeiture
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) ss 85(1)(d), 129
CASES CITED:	Commissioners of State Revenue (Victoria) v Price Brent Services Pty Ltd (1994) 94 ATC 4672 David Jones Ltd v Leventhal (1927) 27 SR(NSW) 350 Hayes v Gumbola Pty Ltd (1988) NSW ConvR para 55-375 Islam v South Sydney City Council (1989) NSW ConvR para 55-888 Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 Langley v Foster (1909) 10 SR(NSW) 54 Lock v Pearce [1893] 2 Ch 271 MI Design Pty Ltd v Dunecar Pty Ltd [2000] NSWSC 996 Tomara Holdings Pty Ltd v Pongrass [1999] NSWSC 1191 Tooth & Co Ltd v Coombes (1925) 42 WN 93
DECISION:	Interlocutory application for orders to restore lessees to possession refused

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

WEDNESDAY 6 JUNE 2001

2677/01 PRABHA RANJANEE KUMARAGAMAGE & 1 ORS v CHARLES SILVA RALLIS & 1 ORS

JUDGMENT (Ex tempore; revised 7 June 2001)

HIS HONOUR:

The proceedings

1 These proceedings were commenced by a summons filed on 17 May 2001. The plaintiffs, who are litigants in person, seek declarations that the defendants ‘were not entitled to right of re-entry and forfeiture’ of leases for premises at 186 and 180-182 Terminus Street, Liverpool. They also seek declarations under s 129 (2) of the Conveyancing Act 1919 that the first plaintiff is entitled to relief against the forfeiture of those leases. They seek other declarations, injunctions, ‘specific performance’ of various provisions of the leases, and damages. Additionally, they seek interlocutory relief in the following terms:
‘6. An interlocutory order that until further order that the plaintiffs are entitled to possession of demised premises to conduct the business known as The Liverpool Motel.
7. An order in the nature of injunction that lessors are not entitled to operate the business duly owned by the First Plaintiff, and plaintiffs are entitled to immediate possession of business, furniture, Linen, Laundry equipment, tools, telephone systems and other things and services within the demised premises.’

2   After the plaintiffs obtained orders for abridgment of service, the matter came before me as Equity Duty Judge on 21 May 2001. The second plaintiff, appearing for himself and the first plaintiff, his wife (who was present in court), informed me that he wished to have an urgent determination of the claims to interlocutory relief in paragraphs 6 and 7 of the summons. The defendants did not object to an order on the lines of paragraph 7 permitting the plaintiffs to remove their equipment from the premises, but they contended that there should be no order restoring the plaintiffs to possession.

3   The second plaintiff also wished to prevent the defendants from demolishing some alterations to the buildings and from disposing of furniture and other chattels on the premises, but counsel for the defendants stated that his clients would not do so pending the interlocutory hearing sought by the plaintiffs, and it was therefore unnecessary for the plaintiffs to proceed with their foreshadowed application for that relief. Eventually the defendants gave undertakings to the Court, upon the plaintiffs giving the usual undertaking as to damages, that until further order they would immediately cease demolishing and not carry out any further demolition work, and immediately cease removing room furniture and other items from the premises. Those undertakings will continue after the present interlocutory application has been dealt with.

4   After I was informed by counsel for the defendants that they had not had time to put on their evidence, I made orders for the defendants to file and serve their evidence by 25 May and I stood the matter over to Monday 28 May for hearing of the interlocutory application. The hearing in fact commenced on 30 May 2001 and was adjourned to 1 June 2001, when it was concluded. With the consent of the parties, I announced my decision on the morning of Monday 4 June 2001. The delivery of my reasons for judgment was deferred until today.

Interlocutory application


5   The plaintiffs come to court for interlocutory relief that would restore the first plaintiff to possession of the demised premises, pending final determination of the proceedings or further order. In assessing any interlocutory application, the Court must consider whether the plaintiffs have shown that there is a serious question to be tried, and whether the balance of convenience favours their interlocutory claim. It is relevant to the balance of convenience that the plaintiffs seek a mandatory order: Meagher, Gummow and Lehane, Equity Doctrines and Remedies (3rd ed, 1992), p 601. It will often be the case that the balance of convenience requires preservation of the status quo until the final hearing, and in such cases a mandatory order that will disturb the status quo is inappropriate. But this is not necessarily so. In a case such as the present one, where the removal of the plaintiffs from the motel has deprived them of their livelihood and may destroy the goodwill of their business, the Court may conclude that the balance of convenience favours a mandatory order.

6   In some cases it is appropriate to go beyond determining whether there is a serious question to be tried, and to deal with the substantial dispute between the parties, at any rate on a prima facie basis: Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533. This may be a suitable approach, for example, where the dispute between the parties relates to a question of construction of an instrument. It may also be a suitable, even a practically necessary approach, where the resolution of the interlocutory dispute will inevitably determine the proceedings. In the present case it is not appropriate, in my view, to seek to resolve any part of the substantial dispute between the parties. Here the issues between the parties turn on disputed questions of fact, which should be tried after adequate time has been allowed for preparation of the case and attendance to interlocutory processes such as discovery and the issue of subpoenas. It seems to me unlikely that my decision on the interlocutory application will have the practical effect of determining the proceedings. Therefore I must address the ‘serious question to be tried’ and ‘balance of convenience’ criteria in the normal way.

Are the plaintiffs prevented from asserting that they are not in breach, by also seeking relief against forfeiture?


7   The plaintiffs' claim for interlocutory relief is based on an assertion that the first plaintiff's conduct as lessee did not amount to breach of any covenant of the leases. However, the summons also seeks relief against forfeiture of the leases. The defendants say that the plaintiffs are precluded, as a matter of law, from claiming alternate relief in this way. They say there is an inconsistency between asserting that there has been no breach of covenant, on the one hand, and seeking relief against forfeiture on the other hand, because relief against forfeiture implies an admission that there has been a breach leading to forfeiture of the leases.

8   Counsel for the defendants raised this point at the beginning of the interlocutory hearing. I gave the second plaintiff the opportunity to explain, on behalf of his wife and himself, whether he put his case for interlocutory relief on the basis of relief against forfeiture. He made it clear that the sole basis for the plaintiffs' claim to interlocutory relief was the contention that there had been no breach of the covenants in the leases sufficient to justify the issue by the defendants of notices of breach of covenant.

9   In their written submissions the defendants say that since the plaintiffs have elected to proceed in this manner, it is not thereafter open to them to seek relief against forfeiture. In a sense, this submission does not need to be considered in the present interlocutory circumstances. Both parties agreed at the beginning of the hearing that the Court should resolve the interlocutory question by considering only whether there have been breaches justifying forfeiture and re-entry. The position asserted by the defendants will, if correct, affect the subsequent conduct of the proceedings, by preventing the plaintiffs from relying on that part of their case that seeks relief against forfeiture. However, some of the cases on the question say that by seeking relief against forfeiture, a lessee necessarily admits that there have been breaches justifying forfeiture. If this is correct, the simple answer to the plaintiffs' claims for interlocutory relief based upon the proposition that there have been no breaches, is that they have admitted breaches by also seeking relief against forfeiture.

10   In my opinion the cases establish that a lessee must elect between seeking relief on the basis that there has been no breach, and seeking relief against forfeiture. Having elected to conduct the interlocutory hearing on the former basis, the plaintiffs were not in a position to invite the Court to grant interlocutory relief on the latter basis. Indeed, they did not seek to do so until final submissions. In my view, they were not precluded, simply by seeking relief against forfeiture in the summons, from putting their interlocutory case solely on the basis of the contention that there had been no breach. A real problem will arise for them if they go to the final hearing seeking the two inconsistent forms of relief. They will have to decide, before that time, whether to admit that there have been breaches and offer to remedy them, as the price for obtaining relief against forfeiture, or to deny breaches and thereby jettison their relief against forfeiture case.

11   The inconsistency between denying breach and seeking relief against forfeiture was noted by A H Simpson CJ in Eq in Langley v Foster (1909) 10 SR(NSW) 54. That was a relief against forfeiture case. His Honour decided to grant relief against forfeiture subject to various conditions, which were designed to require the lessee to make good his breaches of the lease. Turning to the question of costs, he said (at 62):
‘By coming into Equity to ask for relief against forfeiture, and by paragraph 6 of the Statement of Claim, the plaintiff admits he has committed a breach of covenant, and asks the Court to relieve him against forfeiture. Prima facie one of the terms imposed should be the payment of all costs, for the plaintiff's own breach of his agreement has given rise to the litigation.’
12   Tooth & Co Ltd v Coombes (1925) 42 WN 93 was a case about the jurisdiction of the Supreme Court in Equity prior to the introduction of the judicature system. The principal question related to the scope of the Court's power to grant declaratory relief. Harvey CJ in Eq held that the Equity Court had no power to entertain a suit for a declaration on behalf of a plaintiff lessee that he had not committed a breach of his covenant and to restrain the lessor from taking proceedings to eject him, because such relief relied upon legal rather than equitable principles, and was not appropriate to be sought in an equity suit. It was unnecessary to decide whether the lessee could both deny breach and seek relief against forfeiture, but his Honour observed (at 94):
‘Relief, as I understand it, under the Forfeiture of Leases Act, and the provisions of the Conveyancing Act which now replace the Forfeiture of Leases Act, can only be obtained on the suit of a lessee who alleges that he has incurred forfeiture and asks for relief; it is not open to him to come to the Court and ask first for a declaration that there has been no forfeiture, and secondly that if there has been he be relieved of it.’
13   The question was squarely raised, however, in David Jones Ltd v Leventhal (1927) 27 SR(NSW) 350. In that case the lessee's statement of claim asked for a declaration that there had been no breach of covenant and an injunction to restrain ejectment proceedings, and alternatively, relief against forfeiture under s 129 (2) of the Conveyancing Act. The defendant lessors demurred to this pleading. Long Innes J held that the Court had no jurisdiction under s 129 (2) to grant relief to a lessee who was asserting that he had not committed a breach of covenant, and so the demurrer was upheld to that extent. He quoted the passage from Tooth & Co Ltd v Coombes which is set out above, and said that he regarded Harvey CJ in Eq's statement as correct and established by the language of the Act and the authorities (at 356). He continued:
‘the question is: does the plaintiff come before the Court admitting that he is in the wrong, or does he come before the Court maintaining that he has throughout been in the right? If he comes into Court claiming that, either on the facts, or law, or both, he has committed no breach of covenant, the necessary foundation for the statutory jurisdiction under s 129 (2) of the Conveyancing Act, 1919, does not, in my opinion, exist.’

14   This statement of opinion is categorical. It is interesting for present purposes, however, that the consequence of the lessee taking inconsistent positions was that he could not pursue his claim to relief against forfeiture, rather than being treated as abandoning his denial of breach because of an admission implied by pleading relief against forfeiture.

15   In Hayes v Gumbola Pty Ltd (1988) NSW ConvR para 55-375, Young J considered a lessor's defence to a claim for relief against forfeiture. The defence provided for three categories of reasons why the lessor contended that relief should not be given. The third category ‘involved the proposition of law that there was no distinct admission of facts giving rise to the forfeiture as it was claimed was required’ (at 57,457). His Honour said (at 57,458):
‘As to the third category, the mere asking for relief against forfeiture constitutes an admission that there is a forfeiture ...’.

16   Taken literally, this proposition would imply that lessees in the position of the plaintiffs will be taken to have admitted breach of covenant as soon as they include in their originating process some prayers for relief based on relief against forfeiture. I do not believe, however, that his Honour would put the proposition so highly. He had in mind a case where the lessee was vigorously prosecuting a claim for relief against forfeiture, rather than merely filing a summons seeking orders for relief against forfeiture.

17   In MI Design Pty Ltd v Dunecar Pty Ltd [2000] NSWSC 996 Santow J said (at paragraph 56):
‘It is established that the mere asking for relief against forfeiture constitutes an admission that there is a forfeiture; see Young J in Hayes v Gumbola Pty Ltd ... citing, inter alia Langley v Foster ... . But it is less clear if that be so, where the relief is asked for in the alternative. I do not yet need to decide that question but if I did, subject to hearing further argument, I would incline to the view that no forfeiture is admitted if the relief is not ultimately required.’
18   I respectfully agree with the qualification expressed by his Honour to Young J's statement of principle. Indeed, Young J himself indicated, subsequently to Hayes v Gumbola , that the proposition which he asserted in that case is not absolute. In Islam v South Sydney City Council (1989) NSW ConvR para 55-888, p 56,935 he said:
‘Another matter that must be noted is that traditionally, asking for relief against forfeiture is an admission that there is a forfeiture: Lock v Pearce [1893] 2 Ch 271, 275 and see also Langley v Foster (1989) 10 SR (NSW) 54, 62. ... . However, care should be taken with respect to such passages because if one looks at Lock's case there was already a County Court judgment for possession and in Langley's case para 6 of the statement of claim filed in equity admitted the breach of covenant. Now that there are no such pleadings, the Court may in the suit for relief against forfeiture find that there is no forfeiture and mould orders accordingly.’

19   In my opinion there may be cases where an admission, having the effect of defeating a subsequent denial of breach, can be taken to have arisen prior to the hearing, but the conclusion that an admission has been made will always depend on the particular facts and circumstances. It may be, for example, that a properly drawn statement of claim would necessarily expose the inconsistency between the two positions and require the pleader to make a choice. However, when a litigant in person, possessing only a sufficient level of legal knowledge to put his own interests at risk, files a summons which seeks relief on the basis of denial of breach and also seeks relief against forfeiture, that fact alone is unlikely to constitute an admission of a kind that would prevent the litigant from subsequently denying breach.

20   Although the plaintiffs clearly stated, at the beginning of the interlocutory hearing, that they sought relief only on the ground that there had been no breach justifying re-entry or forfeiture, their written submissions at the end of the hearing purported to resuscitate the claim for relief against forfeiture. The conduct of the interlocutory hearing clearly excluded them from doing so. I shall therefore not comment further on their submissions on that point.

The disagreements between the parties

21   Disagreements emerged between the plaintiffs and the defendants concerning work carried out on the premises without the Council's specific consent, and the first plaintiff's non-payment of rates levied on the premises by the Council. They led to the defendants serving a ‘Notice of Breach of Covenant’ on the first plaintiff in respect of each of the two leases, on 23 March 2001. When the first plaintiff did not comply with the demands made in those notices, the defendants re-entered the premises on 8 May 2001, and the plaintiffs consequently took the present proceedings.

The leases and sale of business


22   The defendants are lessors to the first plaintiff of motel premises at 186 Terminus Street, Liverpool, being part of the land in folio identifiers 1/741869 and 2/741869. The lease, dated 11 July 1996, is for a term of five years, commencing on 11 July 1996 and terminating on 10 July 2001. It contains an option to renew for five years, and incorporates Memorandum U512868. I shall call this ‘the first lease’. The lessee is permitted to use the premises only as a motel and serviced rooms (clause 12.1 of memorandum U512868, and item 13 of the Reference Schedule to the lease).

23   On 15 March 1997 the defendants leased the shop premises at 180-182 Terminus Street, the balance of the premises contained in the folio identifiers that I have mentioned, to the first plaintiff. I shall call this ‘the second lease’. The premises at 180-182 are adjacent to the premises at 186. The second lease is for a term of the four years and 105 days, expiring on the 10 July 2001. There is an option to renew the lease for five years, and the lease also incorporates Memorandum U512868. The permitted use is stated in Item 13 of the Reference Schedule as ‘any use subject to Council approval’. On 30 March 1997 the defendants signed a document headed ‘Authorisation’ in which they purported as owners of the properties to grant permission to the first plaintiff ‘to carry out any changes to the building(s) for the purpose of improvement of her businesses subject to the approval of the Liverpool City Council’.

24   The second plaintiff is a guarantor of the first plaintiff's obligations under the first lease (item 16 of the Reference Schedule to the lease and clause 67 of the Memorandum), but he is not a guarantor under the second lease.

25   At the time of entry into the first lease the defendants sold their motel business, carried on at 186 Terminus Street, to the first plaintiff for $300,000. The sum of $100,000, including the deposit, was payable on completion of that agreement and the balance of $200,000 was payable by instalments of $40,000 each. The first instalment was due on 1 August 1998, and thereafter instalments were due on 1 August of each of the ensuing four years. The outstanding balance was secured by a bill of sale and a mortgage of the lease.

26   The dispute between the parties relates to the first plaintiff's obligations with respect to payment of Council rates and alterations and additions to the premises. I shall therefore set out the provisions of the leases relevant to those matters.

The first plaintiff's obligation to pay Council rates


27   The lessee is obliged by clause 10.1 of the Memorandum to pay as additional rent the proportion set out in Item 11 of the Reference Schedule of various specified outgoings. The outgoings include all rates charged by the local council. Item 11 of the Reference Schedule of the first lease says ‘Proportion of Outgoings: three-fifths of outgoings of 180-186 Terminus Street, Liverpool’. In the case of the second lease, item 11 is identical except that the proportion is two-fifths. Consequently, by a combination of the provisions of the two leases the first plaintiff is obliged to pay all of the Council rates and other specified outgoings for the premises 180-186 Terminus Street. Clause 10.2 of the Memorandum stipulates that all such payments must be made by the lessee within 14 days after written notice from the lessor requesting such payment.

28   At the interlocutory hearing, and the plaintiffs placed some reliance on clause 10.4 of the memorandum, which is in the following terms:
‘10.4 The Lessee [scil, Lessor] may in January or July in any year notify the Lessee in writing of the Lessors [sic] estimate of the amounts payable by the Lessee under clause 9.1 for the ensuing year, and the Lessee will then pay that amount by twelve (12) equal monthly instalments over the ensuing year. At the expiration of that year the Lessor will provide to the Lessee a written statement of the exact amount payable by the Lessee for that year, and the amount payable by the Lessee for that year pursuant to the Lessors [sic] estimate, and any amount refundable to the Lessor or due by the Lessee shall be paid within fourteen (14) days after the Lessors [sic] statement is served on the Lessee.’
29   Relying on the second sentence of clause 10.4, the plaintiffs submitted that a written statement by the defendants of the exact amount payable was a condition precedent to their liability to pay Council rates under clause 10.1. This is an incorrect reading of clause 10.4. The clause is concerned only with the obligation of a lessee to make payments under clause 9.1. Clause 9.1 makes provision for the lessee to pay a proportion of increases in Council rates and certain other specified outgoings after a date specified in Item 9 of the Reference Schedule. However, Item 9 of both leases says ‘Base Date for Outgoings Increase: Not applicable’. This is evidently because the net effect of Item 10 and clause 10.1 of each of the two leases is that the lessee is obliged to pay all of the outgoings, rather than merely increases in them. Therefore clause 10.4 is irrelevant to the plaintiffs' obligation to pay all of the Council rates in this case.

The first plaintiff's obligations with respect to alterations and additions

30   Clause 18 of the Memorandum is as follows:
‘18. NO BREACH OF AUTHORITIES [sic] REQUIREMENTS
‘The Lessee will not do or permit or suffer anything to be done in the demised premises or the building which will breach or conflict with the laws relating to fires or with the by-laws regulations or requirements of the Board of Fire Commissioners of New South Wales or similar like authority or with any laws, by-laws regulations ordinances or proclamations in force affecting the demised premises or made by the local council, the Water Board or other relevant water and sewerage supply authority, the Health Department, the Department of Industrial Relations or any other public or local authority.’
31   Part of clause 20, which deals with the observance of regulations, is as follows:
‘20.1 The Lessee will at all times observe perform and give effect to any laws rules or regulations for the time being in force in New South Wales affecting of the demised premises or any part thereof or the Lessees [sic] business including those of the Health Department, the relevant local council, the Water Board or relevant water supply authority, the Department of Industrial Relations, the electricity supply authority or any other authority under any Act regulating the conduct of the Lessee's business or services supplied to it and will at his own expense duly and punctually comply with all requirements or notices of any such authority.’
32   The first plaintiff covenanted to comply with the terms of approvals or consents by public authorities in the following terms:
‘22. COMPLIANCE WITH CONSENTS
The Lessee shall at his own expense, obtain, keep in force and comply with all necessary approvals permits, licences or consents from the local council and any other relevant public or statutory authority for his use of the premises for the Lessee's business and will (subject to the provisions of Clause 36 hereof) do all such alterations or works as are required by such Council or authorities in connection with any such consent, licence or permit aforesaid or the use of the devised premises for the Lessee's business.’
33   Clause 36 deals with structural alterations. Clause 36.1 says:
‘36.1 The Lessee will not make or permit to be made any structural alterations or additions to the demised premises or any part thereof without the prior written approval of the plans and specifications for such alterations or additions by the Lessor and the prior written consent of the Lessor to such alterations and additions and the prior written approval of the local council and all public or statutory authorities whose approval thereof is required by law.’

The defendants' right of re-entry

34   The defendants emphasise that under clause 10.1 Council rates are payable as ‘additional rent’. They refer to the following clause of the Memorandum:
‘2.4 The power implied by Section 85 (1) (d) of the Conveyancing Act is hereby modified by omitting therefrom the words ‘one month’ and inserting in lieu thereof the words ‘fourteen days’ and by omitting therefrom the words ‘two months’ and inserting in lieu thereof the words ‘twenty-eight days’.
35   The following clauses are also relevant to the Lessor's right of re-entry:
‘60. DEFAULT
The Lessor may re-enter and terminate this lease:-
60.1 if the Rent due under this lease or any instalment of rent or part thereof or other payment in the nature of rent due by the Lessee to the Lessor is unpaid for a period of fourteen days after the day on which the same ought to have been paid in accordance with the covenant for payment of Rent or other moneys contained in this lease (although no formal or legal demand has been made therefor);
‘60.2 if the Lessee commits permits or suffers to occur any breach or default in the due and punctual observance and performance of any of the covenants obligations and provisions on the part of the Lessee expressed or implied in this Lease and such breach or default continues unremedied for 28 (twenty-eight) days after notice to remedy the same has been given by the Lessor to the Lessee in writing (unless the non-performance or non-observance has been specifically waived or excused by the Lessor in writing); ...’.
‘61. RE-ENTRY AND TERMINATION
61.1 On the happening of any of the events specified in clause 60, the Lessor at any time or times thereafter made re-enter into and upon the demised premises or any part thereof in the name of the whole and may again repossess and enjoy the same and thereupon this Lease will absolutely determine and the Lessor may give written notice to the Lessee of the termination of this lease and call for an immediate surrender of the Lessee's estate and interest under this lease. ...’
‘62. NOTICE OF BREACH
Except where the Lessee's default is the non-payment of rent, and notwithstanding anything expressed or implied in this lease but without prejudice to the provisions of clause 63 hereof [not relevant here] the Lessor will not re-enter the demised premises or terminate or require a surrender of this lease unless the Lessor has first given to the Lessee and to the Guarantor, and to any registered mortgagee of this Lease at the address in Australia shown in such mortgage, written notice of the breach, default, or non-observance on which the Lessor will rely in seeking to re-enter the demised premises or terminate this lease and if:
62.1 in the case of a breach, default or non-observance remediable by the payment of moneys other than rent, if the Lessee, or the Guarantor or such mortgagee pays to the Lessor within 14 (fourteen) days of service of such notice all moneys necessary to remedy such breach or non-observance; or
62.2 in the case of a breach default or non-observance remediable by means other than the payment of moneys if the Lessee, or the Guarantor or such mortgagee within 14 (fourteen) days of the service of the Lessor's notice undertakes in writing to the Lessor to remedy the breach default or non-observance and so remedies the same within a reasonable time having regard to the nature and extend [sic] thereof and in any event within 2 (two) calendar months of the service of the Lessors [sic] notice or such longer period as the Lessor may reasonably agree to having regard to the nature of the breach, default or non-observance; or
62.3 in the case of a breach default or non-observance which cannot be remedied, if the Lessee or the Guarantor or such mortgagee within 28 (twenty-eight) days of the service of the Lessors [sic] notice pays to the Lessor compensation to the reasonable satisfaction of the Lessor in respect of such breach default or non-observance having regard to the nature and extend [sic] thereof;
THEN the Lessor will not be entitled to rely upon the breach default or non-observance set out in the notice to the Lessee as a ground for re-entry, determination, forfeiture or requiring surrender of this lease and the same will be absolutely waived by the Lessor and this Lease will continue in full force and effect as if that breach default or non-observance had not occurred.’
36   It is not contended that the first plaintiff as Lessee, or the second plaintiff as Guarantor under the first lease, made any payment or took any steps towards compliance, under the provisions of clause 62.1, 62.2, or 62.3.

The defendants' notices of breach of covenant


37 On 23 March 2001 a process server on behalf of the defendants served the first plaintiff with two notices, one relating to each of the two leases. Each notice was headed ‘Notice of Breach of Covenant Section 129 Conveyancing Act 1919’, and was addressed to her. The second plaintiff as guarantor has also received the notices. The mortgagee is also entitled to receive notice of breach under clause 62 of the Memorandum, but here the mortgagees are the defendants themselves.

38   The notice relating to the first lease set out part of clause 10.1, and clauses 36.1 and 35.1 of a lease, and asserted a breach by the first plaintiff of those covenants. The notice proceeded:
‘WE HEREBY GIVE YOU NOTICE and require you to remedy that breach as follows:
1. By paying to us or to Liverpool City Council within 30 days the amount of $ 9,627.38 being three-fifths (3/5ths) of the amount owing to the Liverpool City Council for rates and charges and arrears and interest now owing to and claimed by the Council in respect of the premises 180-186 Terminus Street, Liverpool, being rates and charges accrued during the term of the Lease, and payable by you under the terms of this covenant referred to in (A) above [that is, clause 10.1].
2. Replace the metal safety handrailing which has been removed from one side of the stairs leading to the upstairs portion of the premises without our consent, and make good in workmanlike manner.
3. Remove the wooden structure which has been erected between those stairs and the shop premises 180-182 Terminus Street, Liverpool, over one of the car parking spaces of the Motel premises.
4. Replace missing screen doors in upstairs front residential section fronting Terminus Street.
You are required to make these payments and carry out this work within thirty (30) days after the date of service of this notice on you.
Note: The Lessor will be entitled to re-enter and 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.’
39   The notice relating to the second lease set out part of clause 10.1, and clauses 18, 20.1, 22 and 36.1, and asserted a breach by the first plaintiff of those covenants. The notice proceeded:
‘WE HEREBY GIVE YOU NOTICE and require you to remedy that breach as follows:
1. By paying to us or to Liverpool City Council within thirty days the amount of $ 6,418.25 being two-fifth (2/5ths) of the amount owing to the Council for rates and charges and arrears and interest now owing to and claimed by the Council in respect of the premises 180-186 Terminus Street, Liverpool, being rates and charges accrued during the term of the Lease and payable by you under the terms of the covenant referred to in (A) above.
2 Cease the use of the ground floor premises 180 and 182 Terminus Street, Liverpool for the accommodation of any person or as a residence for any person as such use has not been approved by or given development consent by Liverpool City Council.
3 Demolish and remove the board internal walls, electrical wires and fittings, plumbing fixtures and fittings, doors and ceilings in ground floor premises No 180 and 182 Terminus Street, Liverpool, which have been erected without the consent of the Liverpool City Council.
4 Restore the ground floor shops 180 and 182 Terminus Street, Liverpool to their condition prior to authorised [scil unauthorised] building works, by bricking up the openings between the two shops, removing the shower facilities and restoring of the water closet to each area.
You are required to make these payments and remedy these breaches within thirty (30) days after the date of service of this notice on you.
Note: The Lessor will be entitled to re-enter and 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.’
40 The notices purport to be notices of demand under s 129 of the Conveyancing Act. Section 129 (1) stipulates (to the extent relevant) that a right of re-entry or forfeiture under a provision of a lease for breach of covenant shall not be enforceable unless and until the lessor serves on the lessee a notice
(a) specifying the particular breach complained of, and
(b) if that breach is capable of remedy, requiring the lessee to remedy the breach,
and the lessee fails within a reasonable time thereafter to remedy that breach.


41 Section 129 (2) authorises the lessee to bring proceedings for relief against the lessor's exercise of a right of re-entry or forfeiture, and gives the Court a discretion to grant or refuse relief, making it clear that the Court may grant relief on terms. Section 129 (8) states that s 129 shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

42   The plaintiffs contended that if they could show that any one of the demands made in a notice was unfounded, then that notice as a whole would be invalid. They relied on Tomara Holdings Pty Ltd v Pongrass [1999] NSWSC 1191, which was a case about a notice of default given pursuant to the conditions contained in the grant of a right of way. In that case Hodgson CJ in Eq declared that a notice of default was invalid as regards one paragraph in it. However, he did not declare that the notice was invalid as a whole. Indeed, subject to that declaration, he dismissed the summons. The case is not authority for the proposition that a notice given on several grounds is wholly invalid if one of the grounds cannot be sustained. On the contrary, the defendants' notices of demand will be valid if any of the breaches upon which they rely are made out.

43 The fact that the notices purport to have been given under s 129 does not, in my opinion, prevent them from being regarded as notices given for the purposes of the leases. Specifically, the notices are capable of being notices of breach for the purposes of clause 62 of the Memorandum. In my opinion, the notices are notices of breach of the clause 62, upon their proper construction. Although the heading of each notice refers to s 129, it is also described, on a separate line, and as a ‘notice of breach of covenant’. Each notice requires a specified payment to be made and work to be done within thirty days. Each notice makes it clear that the breaches specified will be relied upon by the Lessor in seeking to re-enter the demised premises and terminate the leases. The fact that the notices give the lessees thirty days to comply, whereas clause 62 stipulates that certain responses must be made by the lessees within 14 days of service, and does not prevent the notices from being regarded as notices for the purposes of clause 62.

44 Both 129 and clause 62 contain an exception from the notice requirement in the case of non-payment of rent. The lessees' obligation under clause 10.1 is to pay Council rates ‘as additional rent’. Clause 60.1 of the Memorandum refers to ‘any instalment of rent or ... other payment in the nature of rent’. The defendants submitted that the effect of these provisions is to make it unnecessary for them to give notice under s 129 or clause 62 before re-entering for non-payment of Council rates. I disagree. In my opinion the exception from the notice requirement given by clause 62 of the lease is available only in respect of non-payment of rent, strictly so called. Clause 62.1 distinguishes between the obligation to pay rent and the obligation to pay money other than rent, clearly confining the exception to the case of an obligation to pay rent. Clause 60.1 distinguishes between an instalment of rent and payment ‘in the nature of rent’, and clause 10.1 merely treats the obligation to pay outgoings as if it were an obligation to pay rent, and does not convert it into a rental obligation. It is true that the parties can stipulate that payment of an outgoing is rent ( Commissioners of State Revenue (Victoria) v Price Brent Services Pty Ltd (1994) 94 ATC 4672, 4676), but in the present case the Memorandum has not unambiguously purported to do so. If that is true as a matter of construction of the Memorandum, it must follow that the obligation to pay outgoings cannot be treated as an obligation to pay rent for the purposes of the exception to the statutory requirement of notice.

Overall conclusions


45   The plaintiffs seek to attack each of the specific grounds set out in the two notices of breach of covenant, contending that each ground is inaccurate or invalid. I shall examine these arguments in turn. However, I should say at the outset that in my view, having regard to the evidence presented at the interlocutory hearing, the plaintiffs have not established that there is a serious question to be tried that the grounds set out in the notices of breach of covenant do not disclose at least one valid ground for re-entry for breach. For that reason, in my opinion the plaintiffs are not entitled to the interlocutory relief which they sought at the hearing. There was some evidence about whether the option to renew the leases has been validly exercised, but it is unnecessary for me to deal with that evidence in light of the conclusion I have reached.

46   It is also unnecessary for me to consider the question of balance of convenience. As to that, if it were necessary for me to decide I would probably favour the view that the balance of convenience would be best satisfied by restoring the plaintiffs to possession, if they had established a serious question to be tried. Although it appears that the motel business is being continued by the defendants, and there is some prospect of preserving whatever goodwill the plaintiffs had in the business pending hearing, the plaintiffs' evidence is that they have valuable equipment and furnishings in the premises which would be best protected if they were allow back into possession. But I would only have reached this conclusion if I was satisfied that the plaintiffs could and would immediately pay the full amount claimed for arrears of rates, interest and costs. If it turns out that there is an excessive charge because some small part of the amount claimed is not recoverable under clause 10.1 of the Memorandum, the matter can be addressed by money order in favour of the plaintiffs made after the final hearing.

47   I shall now turn to consider the plaintiffs' critique of the specific grounds relied upon in the notices of breach.

Non-payment of Council Rates


48   In each of the two notices of breach of covenant a claim is made for payment to the defendants or Liverpool City Council within 30 days of an amount owing for rates, charges, arrears and interest. With respect to the demand concerning the premises at 186 Terminus Street the amount claimed is $9,627.38. With respect to the demand concerning the premises at 180-182 Terminus Street the amount claimed is $6,418.25.

49 The plaintiffs do not deny that by virtue of clause 10.1 of the Memorandum, they have an obligation to pay the whole of the rates levied by the Council with respect to 180-186 Terminus Street. However, they say that part of the amount claimed may not be recoverable from them because it relates to interest and costs incurred by virtue of the defendants' negligence. They say they have consistently demanded a full statement setting out the amounts claimed for rates payable under clause 10.1, but that the defendants have failed to supply them with any such statement. They draw attention to s 129(1) of the Conveyancing Act, which as I have said, requires that a notice under that section must ‘specify the breach’ complained of, and they contend that the notices of breach of covenant fail to do so because they do not give a detailed account showing how the amount claimed for rates is calculated.

50   The evidence indicates that the plaintiffs have adopted the stand of refusing to make any payment in respect of the amount now claimed for rates until the statement which they want is supplied, even though they acknowledge that a substantial part of the amount claimed is properly claimed for rates payable to the Council.

51   The dispute between the parties as to payment of rates has, unfortunately, a long history. The history shows, in my view, a degree of stubbornness and unreasonableness on the part of the second plaintiff. It also shows that the defendants have more than once supplied the plaintiffs with the information to which they were entitled concerning rates.

52   The evidence indicates that in 1997, an arrangement was made at the request of the second plaintiff that rate notices be sent direct to him at the demised premises. Prior to that time, rate notices were received by the defendants' accountants, who wrote to the second plaintiff requiring payment, and the evidence indicates that sometimes payments fell into arrears. Mr Grasso of the Liverpool Council deposed to the effect that the rate notices were thereafter sent addressed to Mrs Rallis ‘care of Mr Kumaragamage’ at 180 Terminus Street, Liverpool. The envelopes containing the notices were marked with the name of Liverpool Council and an address for return to the sender in the event of non-delivery was endorsed on them. The Council maintained a record of envelopes returned. None of those sent to Mrs Rallis, care of Mr Kumaragamage were returned. It therefore appears to me likely that the four letters regarding rates sent by the Council in 1998, and referred to in Mr Grasso's affidavit, and the four letters for 1999, and the correspondence regarding rates until 22 November 2000 were all received at 180 Terminus Street and not returned to the Council. On 22 November 2000 the address used by the Council was changed. The second plaintiff made a submission that the rate notices had not been received but there is no affidavit evidence by either of the plaintiffs to that effect.

53 In these circumstances the plaintiffs have not established, in my view, that on the evidence before me at the interlocutory hearing there is a serious question to be tried to the effect that the rate notices were not received by them pursuant to their prior arrangement with the defendants. The receipt of the rate notices by the plaintiffs would be sufficient, in my view, to satisfy any requirement that full particulars of moneys owing be provided to the plaintiffs, when coupled with the notices of breach of covenant, dated 7 March 2001, which specify the total amounts claimed. Together they constitute, beyond argument, an adequate demand for payment for the purposes of clause 62 of the Memorandum and s 129 of the Conveyancing Act. The notice of breach of covenant required payment within 30 days, and payment was not made. Thirty days is a reasonable period. Therefore, in my view, the plaintiffs have not shown an arguable case that the defendants were not entitled to re-enter upon the premises for non-payment of the amount demanded for rates, charges, interest and costs.

54   But it is unnecessary for the defendants to rely on receipt of rate notices sent to the second plaintiff by the Council. There is a great deal of correspondence which provides, in my view, adequate particulars of the amount claimed for rates. The evidence is set out principally in the affidavit of Mr Rallis, made on 25 May 2001, which annexes copies of correspondence. Thus, the defendants' solicitors wrote to the second plaintiff on 18 December 2001 enclosing a copy of clause 62 of the Memorandum and giving written notice of breach of covenant, with an accompanying notice advising arrears of rates of $13,714.44. The defendants' accountants also wrote on 19 December, enclosing a reminder notice for payment of rates $13,719.39. There was further correspondence including a letter from the defendants' solicitors, dated 12 January 2001 (a letter in fact sent on 22 February 2001 though wrongly dated 8 February), sending a certificate from the Council showing the amount outstanding, and correspondence from the second plaintiff indicating that these letters had been received. In my view, the correspondence provides ample particulars to support the notices of breach of covenant even if the plaintiffs had not been sent the rate notices by the Council itself.

55   My conclusion, therefore, is that the plaintiffs have not identified any serious question to be tried with respect to the issue of payment of rates. The information annexed to Mr Grasso's affidavit indicates that a small portion of the amount claimed relates to costs and a more substantial portion relates to interest. There may be some scope for argument as to whether the whole of the amounts claimed including those portions are properly recoverable under clause 10.1, except that, in my opinion, the evidence simply does not support the plaintiffs' claim that the defendants have been negligent in respect of the arrangements for the plaintiffs to discharge their obligation under clause 10.1 in respect of rates.

Alterations and Additions to Premises


56   One of the matters referred to in the notice of breach of covenant concerning 186 Terminus Street is replacement of missing screen doors in the upstairs residential section fronting Terminus Street. The plaintiffs have filed affidavits plausibly disputing the defendants' claim that there are any missing screen doors as alleged. In final submissions counsel for the defendants conceded that on the evidence there is a dispute as to fact on this issue and that in an interlocutory application, the Court could not come to any finding of fact. It could not, therefore, reach a conclusion adverse to the plaintiffs on this point.

57   The other matters relating to alterations appear to be more substantial. In the notice with respect to 186 Terminus Street, two of the grounds relate to replacing metal safety handrailings that had been removed from one side of the stairs and removing a wooden structure that had been erected between the stairs and the adjoining shop premises above one of the car parking spaces.

58   In the notice with respect to 180-182 Terminus Street there are requirements to cease to use the ground floor premises as accommodation or as a residence because use has not been approved by or given development consent of the Council; demolition and removal of internal walls, electrical wires etc in the ground floor of the premises, because alteration had been made without the consent of the Council; and restoration of the ground floor shops to their condition prior to unauthorised building works by bricking up the openings between the two shops, removing shower facilities and restoring water closets.

59   These various claims squarely raise the issue whether the plaintiffs have failed to obtain Council's consent as required by law. As I have mentioned, the defendants have permitted the plaintiffs to use the premises at 180-182 Terminus Street for any use permitted by Council. If, however, Council has not given an appropriate permission, then it follows that the defendants have not given consent. Consequently, it is appropriate and accurate for them to complain in the notices of work done without their consent (see paragraph 2 of the notice with respect to 186 Terminus Street).

60   On the question of Council's consent, as with the question of rates, there is a long history. Much of it is summarised in the affidavit of Mr Rallis and its annexures. The second plaintiff contends that the work carried out did not need Council approval and claims that Council officers have told him that no development consent was necessary. However, there is clear evidence to the contrary in the correspondence and in affidavits filed on behalf of the defendants. The second plaintiff's argument as to why no consent was needed is set out in detail in his letter to the Council, dated 4 October 2000, which is annexed to Mr Rallis' affidavit.

61   The plaintiffs urged me not to make a determination with respect to the second plaintiff's argument, contending that this was a matter for the Land and Environment Court. However, it is necessary for me to decide, in the present interlocutory circumstances, whether the plaintiffs have a serious question to be tried as to their contention that the notices of breach of covenant are wrong to the extent that they rely upon the plaintiffs’ failure to obtain Council's consent. I must, therefore, address the issue.

62 In my opinion, the second plaintiffs analysis is plainly wrong. His argument is based upon what constitutes ‘home occupation’ under the Liverpool Local Environmental Plan 1997, and ‘residential uses’ under the City Centre Development Control Plan No.30. The definition of ‘home occupation’ in the former instrument does not include use for motel accommodation. The definition refers to use of a dwelling ‘for the purpose of an office or business, but only if the use is undertaken by permanent residents of the dwelling …’. The premises at 180-182 Terminus Street are not for ‘home occupation’ within this definition. The second plaintiff also claims that the premises fall within a provision of the latter instrument which says that ‘residential uses are permitted throughout the entire [city] centre’. In my opinion, however, the premises at 180-182 Terminus Street are used for the purposes of a motel business rather than for ‘residential purposes’ within this provision.

63   The second plaintiff maintains, as I have said, that at least some Council officers support his view, and that having issued an order, the Council later disregarded it. However, the evidence indicates, to my mind, that the Council has not accepted the second plaintiff's views and had, in fact, been preparing to make an application to the Land and Environment Court, carrying out a search of the premises for that purpose on 26 April 2001.

64 It is unnecessary for me to reach a determination as to whether under ss 76 and 76A of the Environmental Planning and Assessment Act 1979 (NSW) a development consent was required in this case. This is because, on 21 December 1999, the Council issued emergency orders addressed to the second plaintiff under s 121B of the Environmental Planning and Assessment Act requiring him to cease to use the ground floor premises for accommodation and not to conduct any activity by which the premises would in future be used for accommodation or residence. The orders made by Council have not, it seems, been withdrawn or varied. By continuing to allow the ground floor premises at 180-182 Terminus Street for accommodation, the plaintiffs have therefore contravened clause 18 of the Memorandum and, consequently, the notice of breach of covenant with respect to 180-182 Terminus Street is valid on this point. As regards the hand rail and wooden structure referred to in the notice concerning 186 Terminus Street, the balance of evidence also indicates that this work was done without Council approval and, therefore, contrary to clause 36.

65   In all the circumstances, therefore, I conclude that the plaintiffs have not established a serious question to be tried with respect to these matters.

Rent

66   There is some conflicting evidence as to whether, as the plaintiffs contend, they have overpaid the rent, or whether they are in arrears, as the defendants contended in their affidavit evidence. I have received the benefit of an analysis of this matter in the written supplementary submissions for the defendants. Having considered paragraphs 25-29 of those written submissions, I am not able to conclude that the plaintiffs were in arrears of rent. Therefore, in my view, the notices of breach of covenant would not be supportable on the ground of arrears of rent.

Assessment of the Evidence

67   One of the points strongly asserted by the second plaintiff is that the affidavits filed on behalf of the defendants were prepared in bad faith and with the intention of misleading the Court. That is a very serious allegation, not to be taken lightly and not to be made without strong evidence. Having considered all of the evidence at the interlocutory hearing, I do not find any basis for the plaintiffs' allegations on this point. Clearly the plaintiffs disagree with some of the defendants' evidence and it is an understandable human reaction to suspect the motives of those who have provided that evidence. But it is intolerable that allegations of this kind be made simply on the ground of disagreement as to facts.

Conclusion

68   As I have indicated, the consequence of my reasoning is that the plaintiffs' application for the orders in paragraphs 6 and 7 of the summons is unsuccessful, except in one respect. As well as claiming an order in the nature of an injunction that the lessors are not entitled to operate the first plaintiff's business, an order to which the plaintiffs are not entitled, paragraph 7 seeks an order recognising their entitlement to possession of various chattels in the demised premises. The defendants have not resisted an order of that kind and I am prepared to make it.

Costs


69   This is a matter where I have found that there is no merit in the plaintiffs' case on the law and facts, even sufficient to cross the threshold of showing there is a serious question to be tried. It may be that at the final hearing of the matter other evidence will emerge and the process of cross-examination will put a different light on the matters contested in interlocutory circumstances. I have to say, however, that in my assessment the possibility of that occurring is a very weak one.

70   As I indicated in my reasons for judgment, the second plaintiff has behaved in some respects stubbornly and unreasonably. Additionally, he has made legal arguments which seem to me to be plainly wrong, for reasons I have given in these reasons for judgment.

71   It is unfair to require a litigant to respond to such allegations at considerable cost, and then to deny that litigant the prospect of recovery of costs because the matter must proceed to a final hearing. Although it is often appropriate after an interlocutory hearing to order that costs be reserved or that they be costs of the cause, in the present case where the litigants are private individuals and in the circumstances that I have described, the proper order is an order that the plaintiffs pay the defendants' costs of and incidental to the interlocutory hearing.

72   I make the following orders:
(1) The interlocutory application by the plaintiffs for orders in terms of paragraphs 6 and 7 of the summons is dismissed.
(2) I order the defendants to provide the plaintiffs with reasonable access to the premises at 180-186 Terminus Street, Liverpool for a reasonable time to enable them to recover possession of chattels belonging to them in the demised premises, on condition that:
(a) the plaintiffs first provide the defendants with a list of the chattels which they seek to recover; and
(b) the recovery of the chattels is carried out so as to minimise to the extent reasonably possible any disruption of the defendants’ conduct of business on the premises. I have already granted liberty to apply.
(3) I direct the plaintiffs to pay the defendants' costs of and incidental to the interlocutory hearing.
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Last Modified: 07/04/2001