Lee v YOUth OK Pty Ltd

[2022] NSWSC 1356

Supreme Court

New South Wales

Medium Neutral Citation:

Lee v YOUth OK Pty Ltd [2022] NSWSC 1356

Hearing dates:

21, 22 & 23 February, 17 March, 27 April and 20 May 2022.

Date of orders:

17 October 2022

Decision date:

17 October 2022

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Declaration made that the lease was validly terminated for breach on 16 July 2020. Judgment for rent, mesne profits and damages to be entered on 2 November 2022. Directions made for the ascertainment of damages and the calculation of interest. Cross-Claim dismissed. Defendants/cross-claimants ordered to pay the plaintiff’s/cross-defendant’s costs of the proceedings. The question of indemnity costs are reserved.

Catchwords:

LEASES AND TENANCIES – termination – grounds for – two parcels of land demised by the plaintiff to the first defendant – obligations of the first defendant under the lease guaranteed by the second defendant – plaintiff sues for possession of the property, for arrears of rental to the date of termination, and for damages either under the terms of the lease or at common law – first defendant gives possession of the property to the plaintiff during the proceedings – first defendant claims that rent is not payable under the lease because the property did not comply with certain notices to demolish structures on the property that had been issued by the local council under the Environmental Planning and Assessment Act 1979 (EPA Act) – whether the terms of the lease allow for non-payment of rent by the tenant upon breach of the lease – whether non-payment of rent was the breach of an essential term of the lease – calculation of damages under the lease for the period after the tenants vacated the property – whether the RetailLeases Act 1994 applies to the lease – to the lease come within the operation of the Retail and Other Commercial Leases (COVID-19) Regulation2020.

MISLEADING AND DECEPTIVE CONDUCT – misrepresentation – negligent – pre-contractual misrepresentation – defendants/cross-claimants allege that either by the plaintiff/cross-defendant making positive statements as to local council approvals, or by the non-disclosure of a non-approved structure on the property, that the plaintiff/cross-defendant engaged in misleading and deceptive conduct, inducing the first defendant/cross-claimant to lease the property – whether the cross-defendant engaged in misleading or deceptive conduct – whether the cross-claimants were induced by the cross-defendant’s misleading or deceptive conduct to lease the property – if misleading and deceptive conduct were established, whether the cross-claimants have suffered loss or damage.

CONTRACTS – termination – frustration – self-induced frustration – whether the latent non-compliance of leasehold property with notices issued under the EPA Act constitutes frustration of the contract represented by the lease – whether the doctrine of frustration applies to leases – whether the cross-defendant ought to have known the property was non-compliant – whether intervention by the local council causing building works to cease but not otherwise prevent the use of the property, amounts to frustration of the contract represented by the lease.

RESTITUTION — expenditure by tenant on the fit out of the premises – tenant claims landlord unjustly enriched at the expense of the tenant by the tenant’s expenditure on the fit out – whether a claim in restitution available to the tenant or whether it is covered by the contract represented by the lease – whether a clause in the lease allowing the landlord to take ownership of anything not removed from the premises by the tenant, displaces any right of the tenant to restitution for expenditure on fit out of the premises.

Legislation Cited:

Civil Procedure Act2005

Conveyancing (General) Regulation 2018, Schedule 5

Environmental Planning and Assessment Act 1979

Real Property Act 1900

Retail Leases Act 1994, Part 7A, ss 3, 70, 71, 75, 76A, 87, 88, Schedule 1, 3

Retail and Other Commercial Leases (COVID-19) Regulation2020, rr 3,4,5, 6, 7

Retail and Other Commercial Leases (COVID-19)Regulation2021

Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth), rr 7, 8

Cases Cited:

Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No. 2) (1998) NSWSC 414

Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344

Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24

Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696

Firth v Halloran [1926] HCA 24

Mann v Paterson Constructions Pty Ltd [2019] HCA 32

Nobarani v Mariconte (2018) 265 CLR 236

Progressive Mailing House Pty Ltd v TabaIi Pty Ltd [1985] HCA 14

Smith Bros Trade & Transport Terminal Pty Ltd v Pacific Power [1998] NSWCA 212

Sumpter v Hedges [1898] 1 QB 673

Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29

Texts Cited:

K Mason and J W Carter, Restitution Law in Australia (1995, LexisNexis) at 528, 531

Category:

Principal judgment

Parties:

Plaintiff: Annie Lee
First Defendant: YOUth OK Pty Ltd ACN 634 484 674
Second Defendant: David Charles Hawkins

Representation:

Counsel:
Plaintiff: D. Smallbone; A. Smyth

Solicitors:
Plaintiff: George Li, Advance Lawyers Group Pty Ltd
Defendants: Mr D. C. Hawkins in person

File Number(s):

2020/239512

Publication restriction:

No

Judgment

1. The plaintiff, Ms Annie Lee is the registered proprietor of two parcels of land on Barrenjoey Road in the commercial district of the Sydney beachside suburb of Newport (“the Newport property”). By an unregistered lease dated 26 September 2019, Ms Lee demised the Newport property to the corporate first defendant, YOUth OK Pty Limited (“YOUth OK”), for a term of three years commencing on 1 October 2019 (“the lease”). The second defendant, Mr David Hawkins, the principal of YOUth OK, guaranteed the obligations of YOUth OK under the lease.

2. Ms Lee claims she terminated the lease on 16 July 2020. She brings these proceedings against the defendants for possession of the Newport property, for recovery of arrears of rental alleged to be due up to the alleged date of termination, for damages under the lease or at common-law, and for loss of the balance of the lease term expiring on 30 September 2022.

3. The plaintiff claims that she terminated the lease by notice on 16 July 2020 on the grounds of non-payment of rent and non-payment of a security deposit required by the lease. Ms Lee’s attempts to change the locks on 21 July 2021 were resisted and YOUth OK remained in physical possession until the proceedings commenced in February 2022. Ms Lee claims a notional re-entry into the premises as at 21 July 2021 for the purposes of calculating mesne profits. Ms Lee commenced proceedings by Statement of Claim on 17 August 2020. She claims this date as an alternative notional date of re-entry into the premises.

4. During the first few days of the principal hearing on 21, 22 and 23 February 2022 Mr Hawkins offered to vacate the premises the following Saturday, 26 February 2022. On 23 February the proceedings were adjourned part heard to 9 March 2022 to allow for the surrender of possession before final submissions. That date was rescheduled to 17 March 2022. During final submissions on that day, issues emerged as to the state of the evidence in relation to YOUth OK’s reliance in its Amended Defence upon the provisions of clause 7.4 of the lease, which requires the landlord to undertake structural work on the property or other work needed to make the property safe to use.

5. It became clear during submissions that the parties had not properly engaged with one another on the issues pleaded in relation to clause 7.4 of the lease. Experts had already been retained by each side. Directions were made for the experts to address the clause 7.4 issues. As a result, the proceedings came before the Court for short periods on 27 April and 20 May 2022 for further evidence and submissions.

6. YOUth OK and Mr Hawkins resisted Ms Lee's claim on the basis that YOUth OK's obligation to pay rent was suspended when the Northern Beaches Council ("the Council") issued stop work orders preventing refurbishment of the premises to enable them to be used for the purposes provided for in the lease as a community youth centre.

7. By their Cross-Claim, YOUth OK and Mr Hawkins maintained that they had been induced to enter the lease due to Ms Lee's misleading and deceptive conduct. Their misleading and deceptive conduct case is propounded in their Amended Defences which the defendants filed on 18 February, the week before trial. They attempt to put that case two ways: first, that Ms Lee actively misrepresented to the defendants that no improvements had been made to the property which had not been approved by the Council, and alternatively, that Ms Lee had engaged in misleading and deceptive conduct by silence by failing to disclose that there were unapproved works on the property. The second way of putting the case was contentious, as Ms Lee contended it was not clearly articulated in the pleadings and that she was not ready to meet it. These reasons conclude that the alternative misrepresentation case was sufficiently pleaded. Other legal and factual issues were argued on the claim and the cross-claim, but this is the substance of the dispute.

8. Throughout the pre-lease negotiations Mr Hawkins acted for himself and YOUth OK without engaging a legal practitioner to advise or represent him. He took the same approach during this litigation. Pre-trial the Court encouraged Mr Hawkins to consider obtaining legal representation. He decided to conduct the proceedings himself. After YOUth OK passed a resolution authorising Mr Hawkins to appear for it, the Court granted him leave to represent it throughout the proceedings. Mr D. Smallbone with Mr A. Smyth, instructed by Mr G. Li of Advance Lawyers Group Pty Ltd acted for the plaintiff.

9. Before commencing a narrative of the Court’s findings, it is appropriate to record the Court’s observations about the credibility of the parties and their witnesses.

Credibility of Parties and Witnesses

10. Ms Annie Lee. Ms Lee was an honest witness with a reasonably good recollection of the events in which she was involved. She made concessions in cross-examination when she believed that she may have been mistaken and she was prepared to accept that there were limits to her recollection. During her evidence she made a genuine effort to recall all the events that took place before the lease was signed and during the early months of its operation. The Court generally prefers her account of events to the account given by Mr Hawkins. Her account was internally consistent and agreed more closely with the course of objectively verifiable events than did the account of Mr Hawkins.

11. Mr Yue Jun (Adrian) Lin. Mr Lin, the plaintiff’s husband gave evidence through a Mandarin interpreter. His evidence was clear, honest, and direct. He was not seriously challenged in cross-examination. His evidence partly recounted the taking of photographs on his mobile phone. These photographs are in evidence and are not controversial. Mr Lin’s evidence related to an alleged conversation between Mr Hawkins and Ms Lee. He denied that conversation took place in his presence and the Court accepts that denial. His evidence about not being involved in this conversation is objectively probable. His English is so poor that had he been present at this conversation he would only have been able to understand it if the conversation had been translated to him by Ms Lee.

12. Simon Au. Mr Au was the real estate agent who introduced Mr Hawkins to the Newport property in July 2019. His evidence is wholly accepted. He had a precise and reliable recollection of events. Mr Au says he only had one meeting with Mr Hawkins. That is probable because of Mr Au’s role. He was not, nor was he to become, the managing agent for the property. He had sold the property to Ms Lee and others (as the vendor’s agent) in 2013 and was providing later assistance to let it, solely to do her a favour. Because Mr Lin’s English was so poor, Mr Au thought it would be difficult for Mr Lin to find a tenant, so he volunteered to help Mr Lin and Ms Lee. Mr Au was not paid for his work by Ms Lee and acted in a gesture of goodwill.

13. Mr Au was cross-examined. But the cross-examination did not damage his credibility. Mr Au denied telling Mr Hawkins that Ms Lee had all necessary building approvals. That denial is accepted. He did not know in July 2019 what approvals were in place for what parts of the property and was in no position to make any commitment about operative building approvals for the Newport property.

14. Mr Hawkins. Mr Hawkins was ever confident in his own opinions and recollections of events. But that confidence was not always warranted in the Court’s assessment. He was understandably keen to argue his point of view and was able to do so effectively from the Bar table. But he tended to argue his case from the witness box rather than attending to precisely answering the questions asked of him. Whilst giving evidence he frequently corrected his cross-examiner’s questions as to detail. His evidence was often accurate but always argumentative and weighed towards preserving what he perceived to be in his own his own self-interest. But on important contentious issues his evidence was unreliable and at times evasive. Despite his self-confidence in the quality of his own memory of events, some of Mr Hawkins’ recollections on critical issues did not accord with the evidence of other reliable witnesses and objectively verifiable events and has not been accepted by the Court. All his evidence was firmly influenced by his strong conviction as to the righteousness of his position in every respect in the proceedings.

15. The following is a narrative of the relevant history. This narrative represents the Court’s findings on the matters covered, except to the extent that the context indicates that only the parties’ allegations are being recorded in these reasons. For reasons of economy this narrative does not include reference to versions of the facts that have been rejected.

Ms Lee, YOUth OK and the Newport Property

Use of the Newport Property Prior to July 2019

16. Ms Lee engaged Mr Simon Au of Leaders Real Estate to market the Newport property for lease. Mr Au and Ms Lee had been friends for some time. Mr Au volunteered for his role as Ms Lee’s real estate agent out of friendship for her. He did not charge her for his services. Mr Au introduced Mr Hawkins to the Newport property in July 2019, and showed Mr Hawkins through the property on 26 July 2019.

17. Ms Lee had been involved with the Newport property for some years prior to July 2019. For a five-year period commencing on 22 June 2013 and terminating on 21 June 2018, Ms Lee and two other persons, who then co-owned the Newport property with her, leased it by registered lease to a Mr Qui Hur Zhou for the permitted use as a restaurant. She bought out her co-owners in the freehold of the Newport property in 2018 before leasing it to YOUth OK.

18. A Chinese restaurant had been operated on the site for at least some of the period between June 2013 and June 2018. By the time Mr Au introduced Mr Hawkins to the Newport property some material residue of the restaurant’s operations was still evident at the premises. Mr Hawkins says that the Newport property had long ago been operated as the “Man Wah” Chinese restaurant but that it had closed in 2010 and had remained closed until 2019.

19. But Ms Lee says the Newport property was operated as a Chinese restaurant during the term of the previous lease between 2013 and 2019. The Court accepts her evidence as correct. The existence of recent restaurant operations can readily be inferred from the considerable amount of restaurant related equipment and furniture which remained at the premises in July 2019. Moreover, it is commercially improbable that the Newport property would have been unutilised by a rent paying tenant between 2013 and 2019. And the Court prefers Ms Lee's testimony about events in which she was personally involved before 2019, over the testimony of Mr Hawkins who was not directly involved with the Newport property at that time.

20. Moreover, at least from the time that Ms Lee bought out her co-owners in the Newport property in 2018, she and her husband Mr Lin were involved in operating a Chinese restaurant at the Newport property until June 2019. It was in 2018 during this period of their closer involvement together in the property that they constructed an awning, supported by timber columns over a yard area at the rear of the Newport property.

21. Neither Ms Lee nor her husband Mr Lin sought or obtained approval from the Council for erecting this structure, which became the focus of the controversy in these proceedings. For convenience the awning and associated timber columns over the yard area are referred to in these reasons as “the awning structure”.

The Buildings and Awning Structure on the Newport property

22. In the commercial precinct of Newport, Barrenjoey Road runs approximately in a north-south direction. The Newport property is situated on the western side of Barrenjoey Road. At the time Mr Au introduced Mr Hawkins to the Newport property, it consisted of two parcels of land which had been developed into a single property. The combined parcels of land comprising the Newport property have a relatively narrow frontage to Barrenjoey Road relative to their long east-west boundaries.

23. The Newport property consists of two buildings. A building was situated at each end of the property: one at the eastern end of the property facing Barrenjoey Road (“the Barrenjoey Road building”); and the other building at the far western end or rear of the property (“the rear building”). The Barrenjoey Road building allows for both commercial and residential uses. The rear building is configured solely for residential use.

24. The Barrenjoey Road building features a commercial restaurant area on the ground floor and two additional residential areas, described as “flats”. These flats were commonly referred to in the proceedings by numbers to distinguish them from one another. Flat No. 1 is situated above the restaurant area at the front of the building, facing Barrenjoey Road. Flat No. 2 is above the restaurant area at the rear of the Barrenjoey Road building. These two flats in the Barrenjoey Road building were occupied in July 2019, which resulted in the insertion of special conditions in the lease to accommodate the late vacation of the tenants.

25. The rear building is accessible on foot, across land sloping upwards towards the west from the rear of the Barrenjoey Road building. In the rear building, Flat No. 3 is situated on the ground floor and flat No. 4 on the first floor.

26. The yard area over which the awning structure was erected was approximately 240 m² at the rear (or western end) of the Barrenjoey Road building. The awning structure was supported at its western end by a brick wall. On its southern side the awning structure opens onto a laneway running east-west, which separated the Newport property from the neighbouring property to its immediate south. The western end of this laneway also facilitates access from Barrenjoey Road to the rear building on the Newport property without the requirement to traverse the Barrenjoey Road building.

27. At the ground level, the awning structure covers less than 15% of the gross area of the property (this is without accounting for any floor area above the ground level).

28. Photographs of the yard area show a very basic structure of timber uprights and cross members supporting a corrugated roofing. No finishes have been applied to the raw timber. On the laneway side wooden fencing is erected to approximately chest level between the wooden uprights. A rudimentary and unsuccessful attempt has been made to cover the fencing with an attached façade, but over time this has begun to crumble away. The overall picture presented by the awning structure is of basic workmanship on an unsophisticated temporary structure.

Mr Hawkins is Introduced to the Newport Property – July 2019

29. When Mr Hawkins first inspected the Newport property on 26 July, he says and the Court accepts, that he could not move freely within the premises due to the volume of used restaurant furniture and equipment on the site. Mr Hawkins says, which the Court also accepts, that Mr Au said to him at their meeting that if Mr Hawkins wished to lease the premises, then an allowance would be made for the owner/registered proprietor to remove this restaurant furniture and equipment out of the premises. Mr Hawkins offered to lease the property during this inspection.

30. After Mr Hawkins inspected the property, Mr Au emailed him thanking him for his offer to lease the property and stating that “owner is keen to lease whole block to you. Conditions as below” those conditions were:

“$165k plus GST (whole block)

3+3+3

Owner pay council and land tax.

Tenant pay water and private rubbish bin (Council already have standard bin for whole block).

Front house two units lease finish at Sept 2019”

31. Mr Hawkins replied on 28 July to Mr Au, showing an interest in proceeding and stating as follows:

“If we agree to the higher figure that is for the whole property, when will the two apartments become available after September, then we need an agreed timetable for the owner to remove all the rubbish, and then a rent-free fit out. – so if we sign a lease by Monday 12 August that allows owner to remove rubbish by Monday 2 September, and then we have until Monday 30 September to fit out, and rental commences on 1 October.”

32. Mr Hawkins continued, explaining that the lease would be in the name of YOUth OK and he accepted the lease term Mr Au had offered. He then concluded:

“Normally owner pays council rates, water rates and land tax and tenant pays excess water and rubbish removal.

Please send me the floor plan that you thought you had in your office.”

33. It can be inferred from this email that there had been discussion between Mr Hawkins and Mr Au about a floor plan for the Barrenjoey Road building and that Mr Au thought he had such a plan back in his office. Mr Hawkins followed up this email with a reminder email the following day that he wanted an option to purchase “with right of first and last refusal, as we discussed” as well. The Court infers from this email such an option to purchase had been discussed at the site visit on 26 July. There was an early discussion between Mr Hawkins and Mr Au about a floor plan but no later discussions, as will be seen.

34. On 9 August 2019 Mr Li sent a draft lease agreement to Mr Hawkins for his consideration. Mr Li reminded Mr Hawkins of three matters:

“I note that since this property is no longer offered to lease as a retail premises, the originally required disclosure statements will no longer become necessary.

Further the landlord or her representative invites you to attend the premises together prior to signing the lease and agree on the scope of fixture removal therein.

After the terms and conditions have been agreed on by both parties, we require that the incoming tenant to provide us: signed Lease in duplicate, payment of the first months rent, evidence of the insurance policies as required under the Lease, original bank guarantee, and relevant Lease registration fees.”

35. Mr Hawkins replied by email the same day, 9 August 2019, to Mr Li:

“Dear George,

Thank you so much for this email and the draft lease, especially when you are very busy on other more demanding matters.

Please advise the landlord that I will meet her and her representatives on site at a time that suits her convenience, this weekend or next week, either works for me.

All your other requirements (insurance, rental in advance, bond, lease fees) are noted and will be provided as agreed.

I await your advice or that of the agent as to when to meet on site.”

36. Shortly afterwards Mr Li responded suggesting that the parties meet at the Newport property on Sunday, 11 August 2019 between 2:30 pm and 4:30 pm.

The Meeting on 11 August 2019

37. The meeting took place. Aspects of the 11 August 2019 meeting are contentious and are dealt with below in an analysis of the defendants’ misrepresentation case. But the contemporaneous communications suggest that it went well. And it is common ground that this is the first time that the parties met and that Ms Lee gave Mr Hawkins keys to the premises on this occasion, to facilitate access by his architect and builder.

38. Mr Hawkins sent a text message to Ms Lee the following day, 12 August.

“Hello Annie,

Thank you for your time yesterday, it was good to meet you and Adrian and view the property together.

I am happy with the lease, your lawyer has done a good job following instructions.

As I said I will get the lease back to your lawyer this week with rent, bond and insurance.

I visited the site again today with my architect and builder and I confirm that no structural works are required. My architect is preparing a change of use application to Council and we will bring it to you for consent signature of the owner once lease and payment have been made.”

39. In the text message Mr Hawkins then gives advice to Ms Lee about a range of topics but mostly the removal of the rubbish which is on site. He advises about contractors who could possibly remove the rubbish by truck to the Kimbriki Tip at Terrey Hills. He notes that “the biggest job is removal of the stoves and old stainless coolers and fridges” but that “your husband seemed to want these, but if not I can see if I can get a second-hand dealer or scrap metal person to take them away, thus saving at least one full day” he then offers assistance to make a builder available on site and a caretaker.

40. On 12 August 2019 Mr Hawkins attended the site with his architect, Ms Sarah Blacker and his builder. He informed Ms Lee of this after the event by text message. On 14 August 2019, he had arranged a building certifier, Private Building Certifiers Pty Ltd, who addressed a fee proposal to the architect, Ms Blacker. Ms Blacker deleted her own name and wrote in the name of Blaxland Investment Group, one of Mr Hawkins' companies. Ms Blacker seems to have given this document to Mr Hawkins about 15 August, 2019.

41. Mr Hawkins was interested in getting a plan of the premises as early as his visit to the premises on 11 August. He wanted a floor plan of the premises to assist his own architect and builder. He could not easily create one himself because of the rubbish in the premises. For his architect to do a plan the original idea was that the premises would be cleared of rubbish in August, before he took possession on 2 September.

42. On Thursday, 15 August Mr Li followed up Mr Hawkins about his attitude to the lease that he had forwarded on 9 August. Mr Li explained to Mr Hawkins that Ms Lee “wishes to have your understanding that she will proceed to notifying the existing tenants after confirming YOUth OK’s commitment.”

43. Mr Hawkins replied that same day reaffirming that he was committed to proceeding, saying as follows:

“Yes, we are 100% committed to the lease as proposed and the terms and conditions of the lease as prepared by you that reflect the agreement reached with Annie and her husband.

Our trades are ready to start work once Annie advises if she and her husband want to remove the rubbish themselves, or if she wishes us to handle that task on her behalf due to the limited time availability due to her business commitments.

I understand that both tenants are substantially in arrears of rental, and that Annie was to instruct you to take the proceedings in NCAT for possession – as we do not need immediate possession of the two existing tenancy spaces, we can work around them in both rubbish removal and refurbishment.

As advised to Annie, once we are agreed, I will return the signed Lease by hand to your office together with the rent, bond and insurances.

I will call Annie today to finalise her wishes regarding rubbish removal.”

44. It is unclear whether Mr Hawkins and Ms Lee spoke about the subject of rubbish removal. But the draft lease which had been forwarded at that stage did contain a provision in relation to rubbish removal.

A meeting on 15 or 16 August 2019?

45. On the second day of his oral evidence Mr Hawkins gave an account of a meeting with Ms Lee in which he proffered to her a “complying development application her signature”. This was not in relation to the awning structure but, Mr Hawkins said he was seeking her consent to the change of use, probably in accordance with lease clause 6.2. The complying development application that had been issued by the certifier for this project required the owner’s consent to be endorsed on it.

46. But it is unlikely that this meeting took place on this occasion, as he claims, because his architect, Ms Blacker only had her plans and specifications ready on 19 September 2019, the date they bear. Moreover, as a practical matter it is difficult to see how Ms Blacker could have had sufficient time by 15 August to access the Newport property and draw up plans to a sufficiently complete stage to seek Ms Lee’s endorsement. Ms Blacker had only first come to the property on 12 August and the lease was not signed for about another four weeks. Added to this, there is no email correspondence planning a meeting on 15 August or referring to it having occurred on that day.

47. Mr Hawkins began to explain that draft plans may have been available from Ms Blacker before 15 August, but no draft plans were discovered, and the Court does not accept that any plans of the proposed development of the Newport existed as early as 15 August. Moreover, at one point Mr Hawkins conceded that he would not have had Ms Blacker’s drawings until 19 September. His change of position on this issue damaged his credit considerably and leads the Court to the conclusion that no meeting took place on or about 15 or 16 August 2019 between Mr Hawkins and Ms Lee.

48. A meeting on 15 or 16 August is improbable for another reason. The complying development application that Mr Hawkins says he gave Ms Lee is not signed by her. Mr Hawkins explains this by saying that upon the seeing documents Ms Lee said to him, “I will talk to George [Mr Li]”. Two matters are inconsistent with that explanation, that make it impossible to accept. The Court does not accept that Mr Hawkins followed up with Ms Lee whether she had spoken to Mr Li. And strangely Mr Hawkins did not give a copy of the complying development application to Ms Lee to take away because he only had one copy.

49. The significance of this to the defendants’ misrepresentation case is that Mr Hawkins agrees that on 11 August 2019 he met Ms Lee for the purposes of picking up the keys from her, but he denies that on that occasion there was any discussion of the awning structure. He briefly suggested to Ms Lee in cross examination that such a discussion might have taken place, contrary to his own affidavits. Thus, for him to make a misrepresentation case based upon Ms Lee making statements directly to him, he needed to posit the existence of another meeting before the lease is signed. This is that meeting. But the Court does not accept that it took place. Thus, the Court does not accept there was any meeting before the lease was signed at which Ms Lee was present and she made representations directly to Mr Hawkins that the structures on the Newport property had development approval and there were “no surprises”.

50. On Monday 19 August Mr Li enquired by email of Mr Hawkins, “please advise of a solicitor is assisting in your leasing process” and seeking a timeframe for the next steps. This provoked a quick and firm response from Mr Hawkins.

“Dear George,

Thank you for your email.

We do not require a lawyer to assist with this Lease, and we have agreed to the Lease Terms as per our previous advice.

We are ready to proceed and as per the timeline set out in the Lease, we will be looking at taking possession on 2 September by returning the Lease, insurance, bond and rent, before 30 August.

We were waiting for Annie to advise if she was removing the rubbish or wanted our assistance because that is a huge job likely to take a week. However today and he said that she had started removing the rubbish.

As also advised, the two tenants who are in rental arrears were to receive notices from you to give vacant possession before the end of September – so please advise status of that issue. We will take possession of the remainder of the property regardless as we want to start work in our rent-free period.”

Please call me tomorrow if you need to clarify any other matter, as we want to accommodate the owner where possible.”

51. Ms Lee had contacted Mr Hawkins earlier that day by text message and indicated that she had started to move the material out of the premises “a couple of days ago”. Mr Hawkins replied by text message, promising to return the lease to Ms Lee’s lawyer “this week as we discussed” and promised:

“As per the lease, we will pay the rent and bond before the end of August, so that we take over on 1st September.

Please confirm that you agree with this timeline which is in the lease.”.

52. Mr Hawkins requested early occupation of the premises. Ms Lee recalls, and the Court accepts, that early occupation was requested on the basis that Mr Hawkins was arranging public liability insurance. Ms Lee agreed to Mr Hawkins’ occupying the premises in advance of the lease being executed on that basis. Ms Lee says that Mr Hawkins was provided keys to the premises in about mid-August 2019 and that he remained in occupation prior to execution of the lease from then, through until his execution of the lease in mid-September. The Court accepts this evidence. Indeed, Mr Hawkins commenced building works during this period, which are discussed in more detail later in these reasons.

53. Mr Hawkins emailed Mr Li again on Thursday 22 August, reaffirming that he had signed the lease as director of YOUth OK and as guarantor, and that the lease in its present form was acceptable save for the need to insert a special condition covering the option to purchase, which he wanted. He noted that “the majority of” the rubbish was still in the building. He noted that as he was intending to get the money and insurance back to Ms Lee before 1 September, as the rent-free period was to start on 2 September “by which time all the rubbish was to have been removed” he repeated his offer to assist Ms Lee with rubbish removal.

54. Mr Hawkins did not receive a reply to this email, so he resent it to Mr Li on Monday 26 August. On 28 August Mr Hawkins wrote again complaining that some of the workers removing fixtures at the property had left water leaks which may cause damage to the structure. He then expressed doubts that the premises would be ready for occupation by Monday 2 September, stating:

“As an observation, there is still a huge volume of materials and rubbish in the property and I doubt if it will be ready for us by Monday 2 September as planned – from our viewpoint, this is not a critical date if Annie needs more time, and we will be working in with her on the date of possession.

Please send me the Option to Purchase page/clause as this is all that is missing from the Lease, and I would like to return it to Mr Li to complete the paperwork.”

55. There was delay in the paperwork for including the proposed option to purchase in the Lease. Ms Lee had probably not yet given firm instructions to Mr Li to include it in the lease. Mr Hawkins wrote again to Mr Li on 29 August following up the need to include the option to purchase saying that Ms Lee “was open to a sale if we could agree price and settlement details”. All the while the clock was running down on the commencement of the rent-free period.

56. Monday 2 September passed; the discussed rent-free period had started but the lease was still not signed. On Tuesday 3 September Mr Hawkins followed up with an email to Mr Li, recording that Mr Hawkins had inspected the property “last Sunday” (1 September) and there was still “a lot of old cooking and car equipment on site, plus a lot of rubbish”. He estimated it would take about three days to remove the material that was there unless the owner intended to finish off the removal work. He sought advice from Mr Li about the situation. And he then finished as follows, proposing that the rent-free period be adjusted by a week:

“Therefore, I intend to return the Lease, insurance, bond and rental to your office on Friday so that we can commence on Monday 9 September, meaning that a four-week rent free period will run from nine September to 14 October, so please confirm that this is acceptable to the owner”.

57. There was no other email correspondence between the parties about these subjects before the lease was signed on 12 September. The email correspondence and the text messages between Mr Hawkins and Ms Lee’s representatives set out here do not record any of the representations that Mr Hawkins says that Ms Lee and Mr Au made to him about the Newport property complying with the Environmental Planning and Assessment Act 1979 (EPA Act).

58. The draft lease that Mr Li forwarded to Mr Hawkins on 9 August contained two provisions relevant to the discussions that had taken place with Mr Hawkins. Item 20 of the draft lease provided for a rent-free fit out between 2 September 2019 and 30 September 2019, but the period was qualified by the words “if this lease is signed by 01/09/2019.” The draft lease also contained in clause 6.7 which provided “The lessee must arrange for the removal of all rubbish from the premises.” The same provisions appeared in the final lease that Mr Hawkins executed on 12 September. Mr Hawkins did not ask for either of these provisions to be changed. He signed the form of lease presented to him with these provisions in it.

59. By the time the lease was signed the qualification to the rent-free fit out period was operative and no free fit out applied under the lease. Mr Hawkins seems to have thought that a free fit out period still applied but was deferred. But Mr Hawkins did not seek legal advice and continued to maintain in writing to Ms Lee that the draft lease was acceptable to him. They were entitled to assume that he had read the lease and that he was willing to be bound by what he signed.

60. The case that YOUth OK and Mr Hawkins presents does not seek to rectify the lease on the basis that the real agreement between the parties was not reflected in the lease. Nor do they seek to maintain a case in unilateral mistake: that they were actively misled about the contents or legal effect of the lease document that they were given either on 9 August or 12 September. Some conversations to a different effect of the lease are alleged but the Court does not accept they occurred.

The Pre-Lease Alleged Representations by Ms Lee and Mr Au

61. Ms Lee strongly contested that she or her agent Mr Au made any positive pre-contractual representations inducing YOUth OK to lease the Newport property. Mr Hawkins gave several different accounts of his pre-contractual interactions with Mr Au and Ms Lee. The plaintiff used the differences between these accounts to challenge Mr Hawkins’ credibility. It is useful to discuss this contest at this point in the narrative of findings.

62. The starting point is the affidavit evidence of Mr Hawkins. He read three affidavits containing material supporting his misrepresentation case. Mr Hawkins’ principal affidavit of 2 June 2021 deposed that at his first meeting with Mr Au, Mr Au made two representations to him that he relied upon. Neither of these representations related to an assurance that there were no unauthorised works on the Newport property. Mr Hawkins deposed to what Mr Au said to him, as follows:

“(10)   I was advised by the managing agent Simon Au that all of these four Flats would be included in the leased premises, and that vacant possession of Flats No 1 & 2 would be provided once the tenants had vacated as these Flats were occupied at this time (July 2019).

(11)   I was also advised that a lengthy rent-free period would apply once vacant possession of the whole property was available due to the poor condition of the property, and after all of the restaurant furniture and equipment had been removed.

(12)   On the basis of those representations made to me by the managing agent I agreed to proceed with the Lease in late July 2019.”

63. Mr Hawkins filed a second affidavit on 23 June 2021 in which he did not elaborate upon Mr Au making any positive representations before YOUth OK entered into the lease, that the building work on the Newport property was compliant with Council regulations. This second affidavit describes the representations that the defendants rely upon in the following general terms.

“(4)   The First and Second Defendants maintain that the Plaintiff seriously mislead the First and Second Defendants by concealing from them that she had undertaken structural work at the premises without the approval of Northern Beaches Council as the designated Consent Authority in any of the pre-lease or post-lease discussions.

(5)   The First and Second Defendants maintain that the Plaintiff has subsequently made false and misleading representations to them that she had obtained development approval when no such approval had been obtained.”

64. The timing of this second affidavit only three weeks after the first affidavit indicates that Mr Hawkins was seeking to complete his evidence to ensure that any gaps were covered. The way he expresses the representations he relies upon at this point should be closely scrutinised. This second affidavit adds material that supports a case of concealment of information from YOUth OK before the lease was executed. It does mention positive assurances about development approval in relation to the Newport property but only what it describes as “subsequently”. The inference readily to be drawn from the affidavit evidence filed on behalf of the defendants up to this point, is that any positive assurances about the Newport property having development approval were made after execution of the lease. Other parts of Mr Hawkins’ evidence support this inference.

65. The other feature of both of Mr Hawkins’ early affidavits is that they both rely upon representations made by Mr Au. In neither affidavit does Mr Hawkins assert that Ms Lee directly made representations to him about the state of development approval of the premises before he signed the lease. This position did not change after he was given leave to file an additional affidavit shortly before the hearing.

66. The Court considered pre-trial directions on Friday, 11 February 2022. At this hearing the Court granted liberty to Mr Hawkins to file a further affidavit, as it appeared to the Court that some of the assertions that Mr Hawkins was making from the Bar table about the course of events relevant to the lease had not been included in his evidence. The Court considered that placing the matters he was asserting in affidavit form would allow the hearing to be conducted more efficiently. Mr Hawkins filed another affidavit on 17 February 2022. In that affidavit Mr Hawkins described in more detail his interactions with the agent, Mr Au. He described meeting Mr Au on Tuesday, 23 July 2019 at the Newport property and then a series of telephone calls that he had with Mr Au between 23 and 26 July 2019.

67. That this contact took place can be accepted. Mr Hawkins deposed to having the following telephone conversation with Mr Au on the morning of 26 July 2019 in the following terms:

(12)   During the last of these telephone calls with Mr Au on the morning of 26 July 2019 we discussed the following: -

(a)   The number of separate properties to be leased.

(b)   The term of any lease.

(c)   When all of the properties would be available as some were occupied.

(d)   The NCAT proceedings against one tenant of the shop top floor above 317 Barrenjoey Road who refused to vacate.

(e)   The reasons why the former tenants of the Man Wah Restaurant vacated when they had a thriving business.

(f)   The mountain of rubbish at 317 Barrenjoey Road and whether the other properties being offered were in a similar condition.

(g)   Individual rentals for the various properties.

(h)   The possibility of leasing the entire area at 317 - 321 Barrenjoey Road.

(i)   Whether there were any approvals to operate businesses in place given that the Man Wah Restaurant had left many years ago.

(j)   Whether any work had been done on the property.

(k)   Whether any work was required to be done on the property.

(13)   Although these several conversations with Mr Au were nearly three years ago, I do recall clearly the gist of what we discussed as being: -

(a)   That I could lease any or all of the properties.

(b)   The owner wanted at least three years on the restaurant and one year for all other properties.

(c)   That he was not sure as to when all would be available due to the NCAT proceedings.

(d)   He was told that the NCAT proceedings were being finalised in September.

(e)   He was told that there was a falling out between the owner and the restaurant owner, and they moved to another location.

(f)   The owner's husband would remove the rubbish as he was responsible for it.

(g)   He would check the new rentals with the owner for either the whole property or part and get back to me.

(h)   Leasing the whole property to one lessee was the owner's preferred position as less 'headaches'.

(i)   He did not know about any existing approvals and would check with the owner, but as Man Wah had gone some time ago, any approval would have lapsed after 12 months vacancy - and he assumed that the residential occupancies were approved and would check with the owner.

(j)   He said that his instructions were that nothing had been done to the property for years, and that he would check with the owner.

(k)   He said to me words to the effect "as you can see it requires a lot of work" and that he would check if any work had been ordered by council.”

68. But Mr Hawkins’ affidavit of 17 February 2022 still did not refer to his having any direct contact with Ms Lee before the signing of the lease.

69. According to Mr Hawkins’ 17 February 2022 affidavit, he had further contact with Mr Au on 29 July 2019, when Mr Au telephoned him. Mr Hawkins says he relied upon those further telephone conversations in the following paragraphs of his 17 February 2022 affidavit:

“(17)   Sometime after lunch on 29 July 2019 I received a call from Simon Au who advised: -

(a)   He could not find the floor plan and the owner said she did not have one, or if she did have one then she could not find it.

(b)   The owner had no approvals from previous tenants of the restaurant, and she did not need approvals for the residential tenancies as those leases had all been registered with Fair Trading.

(c)   The owner had no building approvals as she had not done any work on the property.

(d)   Her husband Adrian would remove all the rubbish within a week.

(e)   That I should contact the owner's lawyer George Li as he was now in control as his services as managing agent had been terminated by the owner.

(18)   I relied upon the statements by the managing agent for the Plaintiff in forming my intention to proceed with the lease, and that this time (29 July 2019) it was still not possible to undertake an inspection of the whole property due to the mountain of rubbish stored in every section of the property, and due to existing tenancies.”

70. This completes Mr Hawkins’ affidavit evidence about the pre-contractual representations he alleges were made to him. None of this affidavit evidence included Ms Lee making any statement to Mr Hawkins about the premises.

71. But when the hearing commenced Mr Hawkins added oral evidence, which implicated Ms Lee in making positive pre-contractual representations as to whether all the building structures at the Newport property had Council approval.

The Linoleum Meeting

72. Mr Hawkins said in oral evidence that he met Ms Lee at the Newport property between 11 August 2019 and 12 September 2019, the latter-date being when he signed the lease. He said that conversation took place in the context of the parties together with the architect and the builders inspecting some linoleum which had been made directly onto the dirt floor in the restaurant area of the Barrenjoey building. The meeting thus became known in the proceedings as “the linoleum meeting”. But the date it occurred became controversial.

73. For convenience it is placed here in the narrative of findings where Mr Hawkins says it occurred, but it probably occurred in October 2019, well after the signing of the lease. Investigating the dirt floor under the linoleum with Ms Blacker and other builders being present most probably places the meeting after the lease, when all of these persons had been engaged and major investigations of the premises were possible and underway. Therefore in the outset, anything said at this meeting cannot be relied upon as a pre-contractual representation.

74. Mr Hawkins states the following conversation took place between himself and Ms Lee on this occasion:

Mr Hawkins:   “I still haven't got the floor plan, where is it? I was promised it by your agent and I haven't got it.

Ms Lee:      "I don't have a floor plan".

Mr Hawkins:   "You can see the work we're doing. This floor doesn't comply. It's linoleum on dirt, there's no floorboards. We've had to take that up. Is there anything else that doesn't comply?”

Ms Lee:   "No it's all okay. Yeah, all good. I haven't been here, prior tenants, not me."

75. The relevant substance of this conversation has Mr Hawkins allegedly asking, “is there anything else that does not comply?” To which Ms Lee allegedly replies “no it is all okay. Yeah, all good.” Mr Hawkins also gave a slightly different version during his evidence. Mr Hawkins said that instead of him asking "is there anything else that does not comply" that he may have asked in different words, "any more surprises…that doesn't comply?"

76. Mr Hawkins said that this was a natural conversation for them to have had at that moment because they were standing in the restaurant area of the premises looking at the floor, which he said was obviously non-compliant with Council regulations relating to restaurants. According to Mr Hawkins the floor consisted merely of linoleum attached directly to the earthen floor below, without underlying floorboards or concrete. Mr Hawkins said that that is not acceptable, especially in food premises, and would not have been approved by Council. He says this prompted him to raise the broader issue of compliance with Council requirements.

77. Mr Hawkins put the substance of this conversation in cross-examination to Ms Lee. She denied that the conversation ever occurred, either at that time, in that location or at all. She denied that she had any contact with Mr Hawkins before the lease was signed on 12 September 2020. Mr Hawkins says that at the linoleum meeting he complained to Ms Lee that he had still had not received the floor plan which Mr Au had promised him. But the Court does not accept that any conversation about Ms Lee not providing a floor plan took place at the linoleum meeting.

78. The Court accepts her denial. In addition to the Court’s general preference for the reliability of Ms Lee’s evidence over Mr Hawkins’ evidence, the Court has little confidence in Mr Hawkins’ version of a conversation with Ms Lee, which only emerged for the first time at the hearing after multiple opportunities to record it in affidavit form.

79. The conversation Mr Hawkins alleges that he had with Ms Lee about Council approvals at the Newport property is unlikely to have occurred, or to have occurred in August – September, for several reasons which will be discussed below.

80. If the conversation did take place, it would have been after Mr Hawkins decided to proceed with the lease. This can be deduced from objective materials. Mr Hawkins’ building work on site only commenced about 20 September 2019. The builders’ invoices describe the work being charged as commencing no earlier than 20 September. The pulling up the floor linoleum is the backdrop to the claimed Hawkins – Lee conversation. It took about 3 weeks and could not have commenced earlier than 20 September. Mr Hawkins’ claimed conversation with Ms Lee is unlikely to have taken place before 20 September. But Mr Hawkins had already signed the lease on 12 September. Thus, any conversation between Mr Hawkins and Ms Lee could not have influenced his decision to sign the lease.

81. But quite apart from timing issues, the conversation is unlikely to have occurred for several reasons. First, Mr Hawkins did not include it in any of his affidavits despite including detailed accounts of conversations with some other persons.

82. Second, if Ms Lee had made the representations that Mr Hawkins claims, they would have been unforgettable when the Council first brought the non-compliance to attention. Mr Hawkins would have immediately appreciated that the representation was false. Strangely he did not assert in contemporaneous correspondence that this representation had been made to him and was not honoured within about two months of being made. He had all the information needed to make such an assertion but failed to do so.

83. Third, the conversation was implausible. Mr Hawkins had no basis to assume that Ms Lee knew of what approvals had been given or not given in relation to the works by Council. The linoleum floor was non-compliant and old work, possibly well before Ms Lee became the registered proprietor. Ms Lee only became sole registered proprietor in 2018 and had only been a co-owner from 2013. Mr Hawkins had no idea what work had been done before Ms Lee became a sole owner and what work after she was a co-owner. He had little knowledge of how familiar she was with the development history of the building. It is difficult to understand why he would even ask her the question or seek the assurance that he claims that he did. If he was really after that kind of assurance, a search of relevant development approvals at the Northern Beaches Council was the obvious course. By his own account Mr Hawkins is an astute and experienced property developer. Why he would even seek to rely upon Ms Lee about such a subject is a mystery.

84. Fourth, Mr Hawkins was unlikely to ask Ms Lee for her opinion about any Council approval of prior works, when he would have expected that she (or her solicitor) would hold planning approvals from Council clearly showing what was, and was not, approved work on the Newport property. He could easily ask for the documents showing what had been approved by the Council. As a developer he had all the background knowledge to make such a request an easy step. But he had not asked her for any planning approvals, nor had she produced any. It is improbable that he would have sought to rely upon her oral assurances without an accompanying question about planning approvals.

85. Fifth, Mr Hawkins had experts he could rely upon to ascertain whether there were unapproved works. He had a certifier, an architect, and a builder. It is implausible he, as an experienced developer of over 70 properties, would ask Ms Lee about what could easily be requested from these experts who were on hand for him.

86. Sixth, it is also improbable that Ms Lee would have answered Mr Hawkins’ question in the manner that he claims, “Is there anything else that doesn’t comply?” Her involvement with the property up to that point did not equip her to answer that question unequivocally, or the other alleged question that Mr Hawkins relied upon, “Any more surprises?” It is improbable objectively that she would have replied in the negative, the response that Mr Hawkins attributes to her. She did not strike the Court as someone who would make reckless statements about matters of which she had little or no knowledge. As to the compliance of the awning structure, the Court finds she did not know either way whether it was compliant prior to the Council’s November 2019 notice.

87. Finally, various other versions of the representation case were put in the defendants’ pleadings. These were different again to the versions in Mr Hawkins’ affidavit and oral evidence.

88. Several of the factors that make the Lee – Hawkins conversation improbable also are a basis to infer that even if the representations had been made, Mr Hawkins would not have relied upon them given his background and experience as a developer.

The Lease and the Architectural plans – 12 to 19 September 2019

89. Mr Hawkins signed the lease on behalf of YOUth OK and himself as guarantor on 12 September 2019. Ms Lee signed it with her solicitor Mr Li on 26 September 2019. The commencement date of the lease was 1 October 2019 and its termination date 30 September 2022. It provided for two options to renew for three years and an option to purchase. Annual rent for the first year was $165,000 plus GST payable by monthly instalments of $13,750 plus GST. Thereafter, a new yearly rent would begin on each annual review date and be payable by monthly instalments of 1/12 of the new yearly rent, which was fixed to increase at 5 per cent per annum.

90. The lease was in registrable form under Real Property Act 1900. But it was not lodged for registration and was never registered. The Lease itself is a two-page document signed by the parties which incorporates the provisions set out in two annexures, Annexure A and Annexure B. Annexure A provides a schedule of variable items such as the rent and Annexure B provides the more detailed covenants of the lease. Each of Annexure A and Annexure B to the lease is headed up with the words in capital letters “SEE A SOLICITOR ABOUT THIS LEASE”. Mr Hawkins did not consult a legal advisor before signing the lease.

91. Annexure A provided, in Item 15, for an interest rate upon overdue monies under the lease of 10 per cent. Item 17 identified the permitted use of the premises under the lease as a "Community Youth Centre (heavy cooking prohibited)”. Item 19 provided for a bank guarantee of "three months base rent increased by the rate of GST applicable from time to time".

92. And item 20 provided for a rent-free fit out period from 2 September 2019 to 30 September 2019, if the lease was signed by 1 September 2019. It is common ground the lease was not signed by 1 September 2019 but was first signed by Mr Hawkins on 12 September 2019. Therefore, the rent-free fit out did not apply.

93. Mr Hawkins engaged a Potts Point based architect and interior designer, Sarah Blacker, to draw up some architectural “concept design” plans for the ground floor of the Barrenjoey Road building. She did not yet have access to the Flat No. 1 or Flat No. 2 area. Some finishes she had chosen were available on 12 September 2019. Her concept design plans were available on 19 September 2019. These were in plan and elevation and were, qualified by her statement “Approximate general arrangement plan only: all dimensions to be verified on site. Wall thicknesses to be verified. Works STCA”.

The Terms of the Lease

94. The contest between the parties brings into focus several provisions of the lease. First the lease declares that it operates as a deed, even if it is not registered (clause 1.2).

95. The tenant must pay rent to the landlord as stated in Item 13 in the Schedule, which was the sum of $13,750 plus GST per month: clause 5.1.1. The tenant was also required to pay the landlord the reasonable cost to the landlord of remedying a default by the tenant: clause 5.1.3. If the tenant defaults the tenant must pay the landlord’s reasonable legal costs relating to the default, clause 5.1.8. The first month’s instalment of rent is to be paid by the commencement date – that is 1 October and each later month’s instalment of rent is to be paid in advance: clause 5.2. Each month’s rent was therefore due on the first of the month. Interest was payable on monies due under clause 5.1 at the rate stated in item 15 of the Schedule, namely 10%: clause 5.1.5. Rent reviews were regulated by clauses 5.4 to 5.19 and Item 16 of the Schedule and had the effect stated earlier in these reasons.

94. The lease required the tenant to use the property for the purposes stated in Item 17 – that is as a community youth centre and not for any other purpose (clause 6.1.1). The tenant must keep the property clean and dispose of waste properly (clause 6.1.3). And clause 6.1.4 provides that the tenant must:

“Comply with all rules relating to strata schemes and all other rules regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent, and keep current any licences or registrations needed for the use of the property or for the conduct of the tenant’s business there.”

97. The landlord can consent to a change of use but cannot withhold a consent unreasonably (clause 6.2). The lessee must arrange for the removal of all rubbish from the premises (clause 6.7).

98. Clause 7 of the lease relates to the condition of the premises and repairs. The landlord had an obligation to maintain the premises in a state of good condition and serviceable repair and must fix structural defects, maintain the property in a structurally sound condition and maintain essential services: clause 7.1.1 – 7.1.3. The tenant must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition. But the tenant is not obliged to alter or improve the property or to fix structural defects or repair fair wear and tear (clause 7.2).

99. Clauses 7.4 and 7.6 were the subject of contest and submissions and were as follows:

“7.4   If an authority requires work to be done on the property and it is structural work or work needed to make the property safe to use then the landlord must do the work unless it is required only because of the way the tenant uses the property. But if it is any other work or is required only because the way the tenant uses the property then the tenant must do the work.

…

7.6   The tenant must make any structural alteration to the property. Any other alterations require the landlord’s consent in writing (but the landlord cannot withhold consent unreasonably).”

100. Clause 7.5 authorised the landlord to do any work which the tenant had failed to do, after giving the tenant notice of the tenant’s default and requiring the tenant to do the work. There is no equivalent in the lease authorising the tenant to undertake work that the landlord must do under the lease, permitting the tenant to carry out the work at the cost of the landlord. The contest in these proceedings involved an allegation by the tenant that the landlord had failed to carry out her obligations to the tenant.

101. The lease requires the tenant to take out public liability and damage insurance (clause 8.1). If the property or the building of which it is part is damaged or destroyed then the clauses 8.2.1, 8.2.2 and 8.2.3 may apply:

“8.2.1   the tenant is not liable to pay rent, or any amount payable to the landlord in respect of outgoings and other charges, that is attributable to any period during which the property cannot be used under this lease or is inaccessible due to that damage;

8.2.2   if the property is still useable under this lease but its useability is diminished due to the damage, the tenant’s liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage;

8.2.3   if the landlord notifies the tenant in writing that the landlord considered that the damage is such as to make its repair impracticable or undesirable, the landlord or the tenant can terminate this lease by giving not less than 7 days notice in writing of termination to the other and no compensation is payable in respect of that termination”

102. The lease contains a form of covenant of quiet enjoyment. It provides that if the tenant does all things “that must be done by the tenant under this lease”, the landlord must allow the tenant to possess and use the property in any way permitted under the lease without interference: clause 11.1. The landlord must pay all outgoings for the land or buildings when they fall due: clause 11.2.

103. Clause 12 of the lease provides for the forfeiture and ending of the lease and the landlord’s entry into possession. Item 3 in the Schedule provides for the end date of the lease of 30 September 2022. Clauses 12.1 and 12.2 provide as follows:

“12.1   This lease ends -

12.1.1   on the date stated in item 3 in the schedule; or

12.1.2   if the landlord lawfully enters and takes possession of any part of the property; or

12.1.3   if the landlord lawfully demands possession of the property.

12.2   The landlord can enter and take possession of the property or demand possession of the property if –

12.2.1   the tenant has repudiated this lease; or

12.2.2   rent or any other money due under this lease is 14 days overdue for payment; or

12.2.3 the tenant has failed to comply with a landlord’s notice under section 129 of the Conveyancing Act 1919; or

12.2.4 the tenant has not complied with any term of this lease where a landlord’s notice is not required under section 129 of the Conveyancing Act 1919 and the landlord has given at least 14 days written notice of the landlord’s intention to end this lease.

12.3   When this lease ends, unless the tenant becomes a tenant of the property under a new lease the tenant must –

12.3.1   return the property to the landlord in the state and condition that this lease requires the tenant to keep it in; and

12.3.2   have removed any goods and anything that the tenant fixed to the property and have made good any damage caused by the removal.

Anything not removed becomes the property of the landlord who can keep it or remove and dispose of it and charged to the tenant the cost of removal making good and disposal.”

104. Clause 12.5 provides that the obligation to pay rent not later than 14 days after the due date for payment of each periodic instalment is an essential term of the lease. Clauses 12.6 and 12.7 provide for the landlord’s right for recovery of damages for the breach of an essential term as follows:

“12.6   If there is a breach of an essential term the landlord can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms.

12.7   The landlord can recover damages even if -

12.7.1   the landlord accepts the tenant’s repudiation of this lease; or

12.7.2   the landlord ends this lease by entering and taking possession of any part of the property by demanding possession of the property; or

12.7.3   the tenant abandons possession of the property; or

12.7.4   a surrender of this lease occurs.”

105. The lease, clause 13 provides for the obligations of the guarantor, Mr Hawkins. The guarantor guarantees to the landlord, the performance by the tenant of all the tenant’s obligations under the lease: clause 13.2. If the tenant does not pay any money due under the lease the guarantor must pay the money to the landlord on demand: clause 13.3. The terms of the guarantee apply even if the lease is not registered: clause 13.8.

106. The lease, clause 16, provides for the provision of a bank guarantee if Item 19 of the Schedule in Annexure A to the lease is completed. Item 19 was completed and states a period of three months. Therefore, clauses 16.2 to 16.5 relating to the bank guarantee, as set out below, are applicable:

“16.2   On or before the commencement date of this lease the lessee will deliver to the lessor a guarantee by a bank trading in the State of New South Wales in the form of an unconditional and irrevocable undertaking to pay drawn in favour of the lessor (unlimited as to time) in a form acceptable to the lessor and for an amount equivalent to the number of months referred to in item 19 in the schedule.

16.3   The lessor is entitled to claim under the guarantee an amount equal to any moneys due but unpaid by the lessee to the lessor under this lease.

16.4   The lessee agrees to vary the amount of the guarantee immediately upon each rent review so that the amount at all times represents the equivalent of the number of months referred to in item 19 in the schedule.

16.5   The lessor will deliver the guarantee (or so much of it as is then held by the lessor) to the lessee on the last of:

16.5.1   the terminating date of this lease;

16.5.2   the expiry date of any holding over under this lease; and

16.5.3   the date that the lessee has not further obligations under this lease or at law.

107. Clause 20 was added to the lease in relation to representations concerning the suitability of the property:

“20.   NO REPRESENTATIONS CONCERING SUITABILITY OF PROPERTY

20.1   The lessee acknowledges and declares that no promise, representation, warranty or undertaking has been given by or on behalf of the lessor or its agents in respect of the suitability of the property for any business to be carried on therein or as to other businesses to be carried on in the property;

20.2   The lessee acknowledges and declares that it is the lessee’s obligation to obtain any approval required by Public Authorities for its use of the leased premises.”

108. Before execution of the lease the parties had disclosed the tenancies in Flat 1 and Flat 2. These were provided for in clause 23 of the lease as follows:

“23   EXISTING TENANTS AT LEASE COMMENCEMENT

The lessor discloses that at the time of executing this Lease agreement there are two existing tenants in the property leasing one two-bedroom unit (“Unit 1) and one one-bedroom unit (“Unit 2”) and that both these tenancies are due to end shortly. The lessor shall, within seven (7) days after both parties executing this Lease, give written termination notice for the existing tenants to vacate the property. The parties agree that in the event that any existing tenant fails to vacate the property by 1 October 2019, the lessee shall still pay rent and occupy the property except for the unit or units still occupied by the existing tenant(s) however the lessor shall allow a rent reduction to the lessee in the amount of $450.00 per week for Unit 1 and $350.00 for Unit 2, calculated on a pro rata and daily basis, until the lessee obtain[s] full possession of the property.”

109. The executed lease did not include an option to purchase.

Events After Signing the Lease – September to November 2019

110. YOUth OK’s building works at the Newport property probably commenced on Monday, 23 September 2019. YOUth OK seems to have been allowed into possession sometime between 12 September and 23 September 2019. Builders’ invoices from Liebke Projects Pty Ltd describing the earliest building work being billed is for the week ending Friday, 27 September 2019. The invoices for the supply of services mention dates as early as Monday, 23 September. Mr Hawkins says he was actively directing work on the premises from about this time, which was just under two weeks after he signed the lease. Some photographs taken before the building works commenced show the degradation and neglect on the site and the extent of the work that was required to make the premises usable. Some of the competing evidence about the execution and quantification of the value of the building work is examined later in these reasons.

111. On 18 October 2019 Ms Lee sent Mr Hawkins a text message complaining that another week had gone by and “still no sign of any money that you said will be in my account”. YOUth OK paid the first month’s rent on 28 October 2019. But on 1 November 2019 it was in default once again: rent being due on the first of the month.

112. The terms of the lease required the first instalment of rent and the bank guarantee to be paid by YOUth OK on the date of commencement of the lease, 1 October 2019. Mr Hawkins had discussions with Mr Li about their provision and said he would do so “as soon as possible”.

113. After execution of the lease Ms Lee chased the rent and bank guarantee due from Mr Hawkins through Mr Li, her solicitor. Mr Li reported back to her on several occasions in late September and early October 2019 that “I have contacted David, he asked me to wait and that he will be paying soon”.

114. By mid-October 2019 neither the bank guarantee nor the rent had been paid. Mr Li was continuing to chase Mr Hawkins. Finally on 28 October 2019 Ms Lee received the sum $15,125 on account of the first month’s rent. Due to the offset on account of the occupation of Flat No. 1 the amount due was less than this by $450 per week. The bank guarantee of three month’s rent ($41,250, calculated as $13,750 x 3) was then still outstanding and remained outstanding until termination of the lease.

115. On Ms Lee’s instructions Mr Li began corresponding with Mr Hawkins about his default in the payment of rent and the provision of the bank guarantee. Mr Hawkins refused to pay these amounts until the other issues in relation to the Council’s order had been settled. But even by the time the Council’s first order was issued on 13 November 2019, although YOUth OK had paid the first month’s rent, it was in default under its second month’s rent, due on 1 November 2019, and still had not provided the bank guarantee.

116. On 21 November Mr Li requested payment of the rent due and the outstanding bank guarantee by no later than 30 November. He followed up this request again on 5 December and 18 December 2019, and 20 January 2020 seeking compliance. But it is common ground that no rent was paid after 28 October 2019 and the bank guarantee was never paid. Mr Li also pursued Mr Hawkins about these payments by telephone.

The Council Issues a Stop Work Order – 13 November 2019

117. On 13 November 2019 the Council issued a “Stop Works Order” to Ms Lee under section 9.34 of the EPA Act and under clause 6 (2)(a) of Part 5 of Schedule 5 to the EPA Act in respect of the address of the southern parcel of the Newport property. Citing those statutory provisions, the order stated as follows:

“You are ordered to stop works immediately as directed in the order below as Northern Beaches Council (“the Council”) has formed the opinion that building work or subdivision work has been carried out in contravention of the EPA Act. Accordingly, the Council hereby gives a stop works order which will require that this unsatisfactory state of affairs be rectified and otherwise remedied by the carrying out of the action specified in the order.

The actions required in the relevantly applicable circumstances and the reasons for the stop works order are detailed below within the table description of the formal order made by Council.

Council advises you not to ignore this stop works orders and to attended to the matters immediately. Fines may be issued or court proceedings may be commenced without further notice if you fail to comply with this order. If the subject non-compliance has been complied with, it is your responsibility to advise Council in writing.”

118. The accompanying table entitled “Order 2 – Stop Works Order” specified what the orders given required. The table described the “applicable circumstances” as “building work or subdivision work is carried out in contravention of this act”. The table also describes what the order required of the recipient under the heading “to do what”, as follows:

Order No. 2 - Stop Works Order

To stop building work or subdivision work carried out in contravention of this Act, specifically:

1.   Immediately stop and cease all works associated with the part of the building at the north-west elevation of the property known as 317 Barrenjoey Road, Newport (as indicated in the attached Appendix 1), until such time that the relevant consents have been obtained for the works and/or further notice from Council. The associated works include the timber decking, roofed awning and associated supports, the south-west timber elevation and access openings.

119. The Stop Works Order provided reasons for the order, in compliance with EPA Act, pt 5, cl 5, including:

1.   Council received a complaint alleging that unauthorised building work has been undertaken at 317 Barrenjoey Road, Newport.

2.   An inspection undertaken by [a] Council Officer on 12 November 2019 revealed the following observations:

An awning over an open decked area at the rear, ground floor, section of the property appeared to have been previously constructed.

An additional timber framed elevation, currently under construction, on the south-west elevation of the ground floor roofed area.

Additional timber supports for the awning structure.

3.   The building work is not considered exempt from development consent under the provisions set out within the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008, and a further search of Council’s records identified that no prior approvals have been obtained for the building work to have occurred.

…

6.   It is in the public interest that this unsatisfactory state of affairs be remedied as soon as possible.

120. Council required that the order be complied with immediately. The remainder of the Stop Works Order dealt with matters including offences and penalties resulting from non-compliance, and rights of appeal against the order, as provided by the EPA Act, pt 8, div 8.5, cl 8.18, being 28 days after service of the order.

121. On 19 November 2019 the Council also issued a notice of intention to issue a development control order, which is referred to in the Council’s later correspondence.

122. After the 19 November notice of intention to issue a development control order, Mr Li emailed Mr Hawkins on 21 November, stating:

“It is Annie’s position that Council’s order must be complied with before it could be challenged, and if the challenge becomes successful, then works can be resumed. Another approach is for us to coordinate and lodge an application for the situation to be rectified with a fresh DA.

Also please attend to the payment of all your rent at your earliest convenience, and in any event no later than 30 November 2019. This timeframe also applies to the outstanding bank guarantee. Annie has been patient and we seek your understanding to make up the payment soon.

Thank you for your prompt attention to this matter.”

123. It is important to understand what positions the parties were taking immediately after the service of the first notice from Council. As earlier indicated, the 13 November 2019 order was clearly directed towards the awning structure and not the rest of the Barrenjoey Road building, or any other part of the Newport property. Ms Lee’s email of 21 November implies that Mr Hawkins will cause YOUth OK to stop work in that area at least, until any challenge to Council’s order is resolved, or a fresh DA retrospectively approving the work has been lodged and approved. She seems to be open to both.

After Mr Li’s 21 November Email – A Meeting on 25 November?

124. After Mr Li’s 21 November 2019 email controversy, exists as to whether a meeting took place, between Mr Hawkins and Ms Lee on or about 25 November 2019. Mr Hawkins affidavits do not refer to the meeting. But he stated in oral evidence that a few days after Mr Li’s 21 November email Mr Lin and Ms Lee came down to the premises.

125. Mr Hawkins was vague about this meeting having taken place. He also asserted that the only meetings that had occurred between himself and Ms Lee on site were on 15 August 2019 and January 2020. There is no contemporaneous email correspondence between the parties about a meeting on that day.

126. On 28 November 2019 Ms Lee asked Mr Hawkins if she could go “and have a look inside the shop that you lease in Newport tomorrow morning”. It is likely that she visited the Newport property the following day.

127. On 3 December 2019 Ms Lee sent a text message to Mr Hawkins about a neighbour’s complaint. He responded about an issue concerning a sewer line. Then in the same email on the issue of payment he held out hope of payment in the near term

“Regarding rent and bond, I am waiting on advice tonight and my transfer and will update you and George [Mr Li] tomorrow”

261. Second, YOUth OK has not adduced evidence that it qualifies as “an impacted lessee”: Covid Regulation, r 4. No evidence was adduced as to the turnover of YOUth OK. But it can probably be accepted that YOUth OK’s turnover was less than $50,000,000 in the 2018 – 2019 financial year. But YOUth OK did not adduce any evidence that it satisfied the other requirement, namely that it qualified for the “job keeper” scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (“Economic Response Package Rules”). To qualify for the Economic Response Package Rules would require YOUth OK to establish that it would satisfy the “decline in turnover test prescribed under Economic Response Package Rules, rr 7 & 8. The Court can overlook that satisfying this element of been pleaded. But evidence to show that this element has been satisfied is not simple. YOUth OK did not make any attempt to advance evidence to satisfy it and the Court cannot draw reliable inferences about that subject from the existing evidence.

262. Third, the Covid Regulation had a limited application in time, from its commencement on 24 April 2020 and its extended operation concluded on 13 January 2022. It can be accepted that Ms Lee’s July 2020 attempts to retake possession of the property and her commencement of these proceedings took place during the period when the Covid Regulation was operative. But the attempt to retake possession was unsuccessful and no further attempt to retake possession was initiated before the hearing of these proceedings in February 2022, when YOUth OK voluntarily gave up possession, after the expiry of all iterations of the Covid Regulation on 13 January 2022.

263. Although not pleaded by the defendants, Mr Smallbone of counsel drew the Court’s attention to Schedule 5 of the Conveyancing (General) Regulation 2018, a schedule which was created pursuant to the powers conferred in Retail Leases Act, s 87, a provision which gives additional regulation making power under “a relevant Act”, to deal with matters for the purposes of responding to the public health emergency caused by the COVID - 19 pandemic. A s 87 “relevant Act” includes any Act relating to the leasing of premises or land for commercial purposes and would therefore be wide enough to include, for example, the Conveyancing Act1919.

264. Conveyancing (General) Regulation 2018, Schedule 5 operated for the same period as the Covid Regulation, and continued further on a limited basis by reason of the Retail Leases Act, s 88, which continued the Covid Regulation to apply despite its repeal, “to anything occurring in relation to a lease while the lease was an impacted lease within the meaning of the Covid Regulation. The Conveyancing (General) Regulation 2018, Schedule 5 contains a wider definition of "commercial lease" than in the Covid Regulation, that could apply to the lease of the Newport property, because the lease is “the leasing of premises or land for commercial purposes”. But even accepting that the Conveyancing (General) Regulation 2018, Schedule 5 applies to the lease, YOUth OK has not established in these proceedings that it is an “impacted lessee” because it qualified for a COVID – 19 disaster payments made to the lessee by the Commonwealth of Australia. Thus, it is difficult to make any allowance in favour YOUth OK based on the application of these regulations.

265. It should be observed when consideration of the recovery of rent is underway and the calculation of the quantum of that rent in these proceedings that Covid Regulation, rr 6 and 7 prohibit the increase of rent and taking of prescribed action based for the recovery of rent against an “impacted lessee” on the increased rent. But a precondition for the application of the provision is that the lessee must demonstrate to the lessor in a statement and provide evidence that it is an “impacted lessee”. There is no evidence that YOUth OK demonstrated to Ms Lee that it was an “impacted lessee” within the meaning of Covid Regulation, rr 6 and 7, nor has it demonstrated that to this Court.

A Cross Claim in Restitution

271. In their Cross Claim, YOUth OK and Mr Hawkins claim the sum of $363,780.14 was expended in reliance upon Ms Lee’s alleged misleading and deceptive conduct. The claim is primarily put as one for compensation because YOUth OK relied upon Ms Lee’s alleged misleading and deceptive conduct and was disadvantaged by Ms Lee’s alleged unconscionable conduct. The claim fails, because the claims of misleading and deceptive conduct and unconscionable conduct are not made out against Ms Lee.

272. But the language of the Cross Claim also refers to Ms Lee being “unjustly enriched at the expense of [Mr Hawkins]” by alleged expenditure on the Newport property totalling the sum of $363,780.14, for what is described as “refurbishment work” on the Newport property. YOUth OK’s Amended Defence also refers to sums of $10,000 paid to the architect, Ms Sarah Blacker and $9,789.48 paid to Perla plumbing.

273. The Court will interpret this pleading broadly and treat the Cross Claim as including a claim in restitution, separate from a claim for compensation for misleading deceptive conduct and unconscionable conduct.

274. The Cross Claim pleads that refurbishment of the Newport property commenced on 23 September 2019, continued until 29 November 2019 and was undertaken by Liebke Projects Pty Limited (‘Liebke’). The amount of $363,780.14 claimed is represented in five invoices that Liebke issued between 9 October 2019 and 17 January 2020. The following were these invoices:

1. Liebke Invoice 0809 dated 09 October 2019: $34,139.09,

2. Liebke Invoice 0815 dated 21 October 2019: $76,317.45,

3. Liebke Invoice 0817 dated 13 November 2019: $145,266.21,

4. Liebke Invoice 0824 dated 22 November 2019: $37,701.52, and

5. Liebke Invoice 0829 dated 17 January 2020: $70,355.96.

275. Each of these invoices is issued to “Blaxland Investment Group”, which the evidence provides a basis to infer is a reference to a private company Mr Hawkins controls, Blaxland Investment Group Pty Ltd (“Blaxland”). The Court is satisfied that the refurbishment work recorded in these invoices was undertaken. The photographic evidence of the premises shows the progress of the work and the substantial nature of it, which appears to have significantly improved the premises from the disordered state in which Mr Hawkins found them. Mr Hawkins caused flooring to be installed, walls to be covered and finished, lighting and electrical fittings to be installed, and painting and finishes to be applied that very significantly improved the presentation of the property.

276. But there are legal and factual difficulties with this claim. As to the legal difficulties, a claim in restitution is not available in respect of this expenditure as it is covered by the terms of the lease.

277. A party in breach of a contract may be entitled to a claim in restitution where work is conducted outside the scope of the contract: K Mason and J W Carter, Restitution Law in Australia (1995, LexisNexis) (‘Mason and Carter on Restitution’) at 528 [1159]. The rule of reasonable remuneration to a plaintiff by way of restitution arises when it is established that the benefit conferred to the defendant was freely accepted independently of the contract: Sumpter v Hedges [1898] 1 QB 673 at [1155]; Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344 at 374; Mason and Carter on Restitution at 531 [1163]. The starting point for valuing a claim in restitution is at the market price of the services provided, and quantum meruit may be available to an innocent party, particularly for works conducted outside the project: Mann v Paterson Constructions Pty Ltd [2019] HCA 32 (‘Mann’) at [203] (per Nettle, Gordon and Edelman JJ).

278. But here the lease, clause 12.3 specifically deals with expenditure on fixtures and fittings such as this. The starting point is clause 12.3’s definition of when the lease “ends”. That is when the landlord “lawfully demands possession of the property”. For the reasons earlier stated that was in either July or August 2020. Once that occurs and the lease “ends”, unless a new lease is signed the tenant’s obligation is to return the property to the landlord and remove “any goods and anything that the tenant has fixed to the property and [to] have made good any damage caused by the removal”. And anything not removed “becomes the property the landlord who can keep it” or “remove and dispose of it and charged to the tenant the cost of removal, making good and disposal”. Ms Lee has not made a claim for making good, so it can be inferred that she is keeping what has been added to the property and left. But she is entitled to do that under the lease, clause 12.3. Because the contract represented by the lease covers the present circumstances restitution is not available to Mr Hawkins against Ms Lee.

279. But there are factual difficulties with the claim in restitution as well at several levels. It has not been established that the works were undertaken at Mr Hawkins’ or YOUth OK’s cost. The cost of the works was invoiced to Blaxland. The financial relationship between Blaxland and YOUth OK and Mr Hawkins is not sufficiently clear in the evidence for the Court to be able to say that this expenditure was to the account of Mr Hawkins or YOUth OK. For example, there was no evidence showing that Mr Hawkins or YOUth OK had an obligation to reimburse Blaxland for the expenditure. In the absence of a clear legally binding arrangement between these two entities, it is difficult for the Court to infer that what appears to be Blaxland’s expenditure was to the account of Mr Hawkins YOUth OK.

280. Moreover, Mr Hawkins has produced little documentary evidence to prove the monies invoiced by Liebke were spent as alleged in the Cross Claim. To prove payment Mr Hawkins relies upon an bank statement which initially did not indicate who is the owner of the bank account making the payments, but as a result of supplementary evidence the Court accepts that it was opened in the name of the Blaxland Investment Group. This bank statement records two transfers – one of $40,000 on 28 October 2019 and one of $60,000 on 07 November 2019 – each with the description of “Liebke Projects”.

281. But the connection between these payments and Liebke’s invoices is obscure. Liebke’s invoices record the receipt of prior payments, somewhat like a statement. Liebke’s invoices show that $100,000 was received prior to 21 October 2020 on account of this project. But the two payments made from Mr Hawkins’ bank statement in the name of Blaxland Investment Group are made commencing on 28 October 2020. These two payments cannot readily be appropriated to specific Liebke invoices. One inference from this material is that Liebke’s account was credited earlier with $100,000 from a separate bank account to that now relied upon by the defendants, possibly that of the company, Blaxland, and that this is a reimbursement of Blaxland. But the arrangement by which Mr Hawkins reimbursed Blaxland, if that be proper inference in the circumstances, is also obscure. Even if the Court were to infer that Mr Hawkins himself paid Liebke $100,000 through Blaxland Investment Group and Blaxland as his agents, the defendants have not produced evidence that Mr Hawkins paid the balance of the Liebke invoices, being approximately $263,780.14 although Ms Blacker was paid her $10,000.

282. Mr Hawkins has argued the case for restitution of this amount and may feel a sense of unfairness with this outcome. But the outcome is a direct result of the terms of the lease that Mr Hawkins signed, as well as the quality of the evidence that he relies upon.

283. The defendants also plead that no money is due under the lease by reason of Ms Lee’s breaches of the lease. But it is not necessary to consider any question of the availability of the pleaded set off, because Ms Lee’s breaches of the lease are not established, nor is any amount on YOUth OK’s Cross Claim.

The Second Defendant’s Liability

284. The liability of Mr Hawkins is the same as that of YOUth OK. Mr Hawkins guaranteed to the landlord, the performance by YOUth OK of all its obligations under the lease, clause 13. If the tenant does not pay any money due under the lease, Mr Hawkins is required to pay the money to Ms Lee on demand. The Statement Claim qualifies as a demand.

285. Mr Hawkins pleads in his Amended Defence that has not advanced a case that Ms Lee’s misleading and deceptive conduct induced (and deceived) him to provide his guarantee for the lease. But that misleading deceptive conduct case has failed. YOUth OK’s obligations otherwise automatically attract liability to Mr Hawkins as guarantor under clause 13. Mr Hawkins controls YOUth OK and was the principal of YOUth OK who was dealing with Ms Lee in respect of the entry into the lease, so any other challenge to Mr Hawkins liability as a surety would be difficult to maintain. Mr Hawkins pleads similar defences to YOUth OK in his Amended Defence but not in a way which would warrant the discharge of his liability as surety to Ms Lee under the lease.

The Conduct of the Proceedings

286. It is not practical both to keep these reasons within reasonable compass and to analyse every way that the defendants have propounded their case. The Court has attempted to select the most legally recognisable and maintainable arguments that the defendants have advanced.

287. But one issue among the defendants various contentions should be noted. Some parts of the defendants’ submissions are critical of Ms Lee’s legal representatives. The Court considers these submissions not to be maintainable against what has been the reasonable conduct of this case on behalf of Ms Lee. Her lawyers have been accused of delay. There has been some slippage of timetables during the proceedings but that is not uncommon in litigation, and the case has been presented to a high standard by the lawyers on behalf Ms Lee. Mr Hawkins submitted at various times that he was disadvantaged as he did not have legal representation. The Court encouraged him early to obtain legal representation. The evidence points to his decision to present his own case to be his own forensic choice.

Calculation of Loss and Damage and Issues of Costs

288. The three-year term of the lease from 1 October 2019 to 30 September 2022 has just been completed. Loss and damage accruing to Ms Lee can now readily be ascertained, subject to an inquiry as to whether the property has been re-leased since the proceedings were last before the Court. The plaintiff will be required to put on further affidavit evidence to verify Ms Lee’s claim from when the defendants vacated the property on 26 February 2022 to the end of the lease on 30 September 2022. This should include the costs and receipts, if any, on account of re-leasing of the property.

289. The essential facts relating to the calculation of Ms Lee’s loss and damage are uncontested. YOUth OK paid only one instalment of rent in October 2019. All other rental payments remain unpaid. As YOUth OK did not observe the obligation to pay rent “not later than 14 days after the due date for payment of each periodic instalment”, within clause 12.5.1 it breached an essential term and can recover rent and damages for losses over the entire period of the lease, subject to an obligation to mitigate loss and to attempt to release the property: lease, clause 12.6.

290. Ms Lee is entitled to rent under the lease up to 21 July 2020 when she attempted re-entry to the premises and was resisted by YOUth OK, notwithstanding she had legal entitlement to re-enter the premises. Thereafter YOUth OK became a trespasser and Ms Lee became entitled to mesne profits until YOUth OK vacated the premises on 26 February 2020. These mesne profits are measured by the prevailing rent under the lease. Thereafter Ms Lee is entitled to damages under lease clause 12.6 and 12.7 for loss of rental income for the balance of the lease up until 30 September 2022.

291. The rent from time to time under the lease is the measure of Ms Lee’s recovery for each of these periods. The recovery of damages for the period from 27 February 2022 to 30 September 2022 is subject to a proviso which is discussed below.

292. The quantum of that calculation can be briefly analysed. The rent for the first year of the lease up to 30 September 2020 is set out in the lease. The rent for the two subsequent years should be indexed upwards by 5% in each year in accordance with lease clause 5.7 and Annexure A, Item 13 by the nominated “Method 1”.

293. These reasons deal in turn with the rent, mesne profits and damages accruing during each of these periods of time. But the Court will not calculate interest and instead will require the plaintiff to calculate interest on the damages figure at which the Court has arrived, subject to the Court’s arithmetic being checked by the parties.

294. Under the lease, clause 5.1.1 and Annexure A, Item 13, Ms Lee is entitled to rent (and the equivalent of rent in the form of mesne profits) until 26 Feb 2022. When calculating the balance of rent owing in year 1 of the lease, the figure applied $15,125 per month (being $13,750 plus GST of $1,375). This will be subject to the calculation of an abatement of rent of $450 per week for Flat No. 1, as the tenant remained in possession for five weeks after the commencement of the lease: lease, Annexure A, Item 23.

295. Mr Hawkins paid $15,125 for the month of October 2019, which did not factor in the abatement. The abatement of $2,250 (calculated as 5 weeks rent at $450 per week) is subtracted from the first month owing, which is November 2019. Therefore, for year 1, the rent owing is $164,125 (calculated as ($15,125 – $2250) + (10 months at $15,125)). No allowance has been made for a rent-free period as YOUth OK did not qualify for this allowance under the lease and Court does not accept that any conversation took place between the parties varying the conditions under which the entitlement to the rent-free period would arise under the lease.

296. Commencing 1 October 2020 (at the anniversary of the lease) the first rent review occurs and the annual rent is increased by 5%. Therefore, in year two, after one round of 5% indexation, Ms Lee is entitled for the second 12 months of the lease from 1 October 2020 to 30 September 2021 to a monthly rent of $15,881.25 (inclusive of GST). The total rent owing in year 2 of the lease equates to $190,575 inclusive of GST.

297. Commencing 1 October 2021, after a second round of 5% indexation, Ms Lee is entitled to a monthly rent of $16,675.32 inclusive of GST. This includes four full months between 1 October 2021 and 31 Jan 2022, and the period of 01 Feb – 26 Feb 2022. The rent owing between 1 October 2021 and 26 February 2020 is $82,185.48 inclusive of GST (calculated as (4 months at $16,675.32 = $66,701.25) + ((26 days divided by 28 days = 0.929) x $16,675.32)).

298. Therefore, the total rent owing between 01 Nov 2019 and 26 February 2022 is $436,885.47 inclusive of GST.

299. The recovery of damages under clause 12.6 of the lease is subject to a proviso that the landlord must do every reasonable thing to mitigate losses and to try and lease the property to another tenant on reasonable terms. Assessing compliance with that proviso is relatively straightforward for most of the period in question in this case. It was impossible for Ms Lee to re-lease the property whilst YOUth OK was in possession and refusing to give up possession. YOUth OK did not surrender possession until about Saturday, 26 February 2022. Thus, questions of mitigation would only arise in the last seven months of the lease between 27 February 2022 and September 2022.

300. The Court will direct Ms Lee to file affidavit evidence as to whether the Newport property has been re-leased to another tenant since the Court reserved judgment in May this year. And if it has been re-leased the Court will direct Ms Lee to account for any rent that she has received pursuant to any fresh lease of the Newport property and the costs associated with this new lease. Once that has been undertaken, judgment can be entered for any net amount of unpaid rent mesne profits and damages, due to Ms Lee. Then Ms Lee will be directed to undertake an interest calculation up to the date of entry of judgment at the rate of 10% per annum, in accordance with lease clause 5.1.5 and Annexure A, Item 15.

288. The Court will enter judgment both for the principal claim for rent and damages for the whole term of the lease, once the correct amount has been fully ascertained and once a final interest calculation has been undertaken to the satisfaction of the Court or is agreed between the parties. The proceedings will be listed on Wednesday 2 November 2022 at 9:30 am for the entry of judgment provided Ms Lee has complied with the requirements to file and serve an affidavit verifying her claim for damages for the period between 27 February and 30 September 2022 and has undertaken the necessary interest calculations.

289. Ms Lee has been wholly successful and is entitled to recover her costs of these proceedings. She is at least entitled to costs on the ordinary basis and an order to that effect is made below. The lease, clause 5.1.8 allows Ms Lee to recover “the landlord’s reasonable legal costs relating to the default” if the tenant defaults. YOUth OK has clearly defaulted here, and Ms Lee will be entitled to her “reasonable legal costs relating to the default”. Whether or not that may entitle her to indemnity costs has not been debated in the proceedings. Ms Lee claims indemnity costs. Whether she is entitled to indemnity costs may be the subject of contest.

Conclusions and Orders

303. For these reasons the Court makes the following declarations, orders, and directions:

1. For the purposes of these orders the expression “the Newport property” means the premises described in the Statement of Claim filed in these proceedings on 17 August 2020 and “the lease” means the lease of the Newport property made on 26 September 2019 between the plaintiff as lessor and the first defendant as lessee and the second defendant as guarantor and commencing on 1 October 2019 for a term of three years expiring on 30 September 2022;

2. Declare that the first defendant first breached an essential term of the lease by failing to pay rent (inclusive of GST) due under the lease no later than 14 days after the first due date for payment, namely 1 November 2019 and by continuing to fail to pay rent due on the first day of each month thereafter;

3. Declare that the plaintiff validly terminated the lease on 16 July 2020;

4. Declare that the second defendant is liable to the plaintiff as guarantor under the lease for all amounts calculated as due and owing by the first defendant to the plaintiff;

5. Direct the plaintiff shall by 12 noon on Monday, 31 October 2022 file an affidavit giving an account of the following matters: whether the Newport property has been released to another tenant since the Court reserved judgment in May this year; and what is the quantum of any net rent that the plaintiff has received for any fresh lease of the Newport property;

6. Direct the plaintiff to calculate interest up to the date of entry of judgment, which the Court proposes to enter on 2 November 2022, at the rate of 10% per annum in accordance with lease clause 5.1.5 and Annexure A, Item 15;

7. Order the first and second defendants pay the plaintiff’s costs of these proceedings on the ordinary basis;

8. Reserve for further consideration on 2 November 2022, or such other date as may be arranged with the associate to Slattery J, the question whether the plaintiff’s costs of these proceedings should be paid on the indemnity basis; and

9. Direct the parties to provide written submissions to the Court and to one another by Friday, 28 October 2022 in relation to the issue of whether the plaintiff is entitled to the costs of these proceedings on the indemnity basis.

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Decision last updated: 17 October 2022