Liristis Holdings Pty Ltd v Wallville Pty Ltd - [2001] NSWSC 428

No judgment structure available for this case.

CITATION: Liristis v Wallville [2001] NSWSC 428

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 3318/00

HEARING DATE(S): 04/04/01, 05/04/01, 06/04/01

JUDGMENT DATE:
25 May 2001

PARTIES :

Liristis Holdings Pty Limited - Plaintiff
Wallville Pty Ltd - Defendant

JUDGMENT OF: Barrett J

COUNSEL : Mr P.J. McEwen SC - Plaintiff
Mr R.J. Powell/Mr I. Archbold - Defendant

SOLICITORS: Marsdens - Plaintiff
Bowring Stone - Defendant

CATCHWORDS: CONTRACTS - General contractual principles - Termination of contract by common intention - Formation of contract by correspondence - Repudiation - Non-acceptance of repudiation by promisee - Affirmation by promisee - Estoppel not created - LANDLORD AND TENANT - Covenants - Effect of covenants in registered lease before registration of transfer of lease - Termination by landlord for breach of "essential" term of lease - Circumstances where consent to assignment causes landlord to be estopped from relying on lease covenant against assignee - EQUITY - Relief against forfeiture

LEGISLATION CITED: Crown Lands Consolidation Act 1913
Conveyancing Act 1919
Crown Lands Act 1989

CASES CITED: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Masters v Cameron (1954) 91 CLR 353
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd [1986] ANZ Conv Rep 681
Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310
Geebung Investments Pty Ltd v Varga Investments Pty Ltd (1995) 7 BPR 14,551
Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27
Johnstone v Milling (1886) 16 QBD 460
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313
Lewis v Cook [2000] NSWSC 191
Commonwealth v Verwayen (1990) 170 CLR 394
Shevill v The Builders Licensing Board (1982) 149 CLR 620
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632
Federal Airports Corporation v Makucha Developments Pty Ltd (1993) 115 ALR 679
Legione v Hateley (1983) 152 CLR 406
Stern v McArthur (1988) 165 CLR 489
Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562
Courtney Creche Pty Ltd v Okko's Fine Art and Custom Framing Pty Ltd (Young J, unreported, 22 June 1995)
Cicinare Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139
Tannous v Cipolla (No 2) [2001] NSWSC 296

DECISION: See paragraphs 132 and 133

66

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

FRIDAY, 25 MAY 2001

3318/2000 - LIRISTIS HOLDINGS PTY LIMITED v WALLVILLE PTY LIMITED & ANOR

JUDGMENT
HIS HONOUR:

1 These proceedings concern premises at Cronulla consisting of a two-storey building on the shores of Gunnamatta Bay with fixed and floating moorings and pontoons extending into and over the waters of that bay. The whole is generally known as the Cronulla Marina.

2 The bulk of the property is held under a special lease originally granted under the Crown Lands Consolidation Act 1913, which is now lease number 1988/2 Torrens Title reference 12224/729324. The holder of the special lease is the first defendant Wallville Pty Limited (Wallville) which also holds an occupation licence issued under the Management of Water and Waterside Land Regulations in June 1997 in respect of certain moorings forming part of the marina. The special lease is referred to below as “the head lease”.

3 By a sub-lease number 5180224Q dated 13 December 1996, Wallville sub-let to Cronulla Marine Services Pty Limited (“CMS”) the building, slipway, 28-berth floating marina and 41 swing moorings. CMS then became the operator of the marina business. This sub-lease is referred to below as “the CMS sub-lease”.

4 In January 1998, Mr Tony Liristis who, with members of his family, owns Liristis Holdings Pty Limited (LHPL) received from an estate agent information about the Cronulla Marina which was then for sale. On 9 February 1998, solicitors acting for Mr Liristis and a business associate of his, Mr Christofidellis, wrote to Mr Robert Grounds, a director and, it appears, the controller of Wallville, expressing their clients’ interest in acquiring the marina and outlining terms on which they were prepared to do so. Discussions subsequently took place between Mr Liristis and Mr Grounds (Mr Christofidellis having decided not to proceed) about a possible basis for the purchase of the marina from Wallville by Mr Liristis or his interests. A document of 18 April 1998 in Mr Grounds’ handwriting details a possible financial basis for a purchase. On 20 April 1998, Mr Liristis wrote to Mr Grounds setting out a proposed basis which, in structural terms, was the same as that in the document written by Mr Grounds but, as to financial aspects, differed to the extent that, although the total net price remained the same ($2,857,500), that price was to be paid initially to the extent of $2,200,000 (instead of $2,400,000) with $657,500 (instead of $457,500) being dealt with according to one of three options which were set out in both the handwritten document and the letter. In each case the subject matter of the purchase was the head lease and the occupation licence, with an allowance to the purchaser (that is to say, a deduction in arriving at the effective price of $2,857,500) of $100,000 described as “allowance to buy out tenant”. In the letter, but not the handwritten document, that tenant was identified as “Greg Young”, a principal of CMS.

5 It was common ground at the trial that Mr Liristis intended, as Mr Grounds was fully aware, that LHPL should acquire not only the head lease and associated occupation licence but also the business of CMS, including the CMS sub-lease and the physical assets employed in the conduct of the marina business. Both parties foresaw that LHPL would be an owner-operator of that business, not merely a passive landlord holding the head lease. The “allowance to buy out tenant” referred to in the document of 18 April 1998 and the letter of 20 April 1998 (the latter with its reference to Mr Young of CMS) confirmed this common view of matters.

6 Pursuit of the overall proposal thus involved LHPL entering into two separate transactions - one with Wallville and one with CMS - in such a way that both would come to fruition and thereby provide the total ownership of the marina Mr Liristis had in mind. In fact, the two elements (together with a third, involving possible extension of the marina by Sea-Slip Marinas Pty Ltd, another company controlled by Mr Grounds) were undertaken separately and in a way which could not ensure co-ordination.

7 There is in evidence what purports to be the first page of a contract dated 11 August 1998 for sale of the head lease by Wallville to LHPL. It is common ground that such a contract was entered into but there is no agreement as to its content beyond that first page and its special conditions. The contract shows a purchase price of $2,400,000 and a deposit of $200,000, leaving a balance of $2,200,000. The completion date is described as “See Special Condition 5”. Special Condition 5 says that the price is to be paid as to $200,000 upon exchange of contracts (with the purchaser authorising that sum to be accounted for forthwith to the vendor), as to the sum of $1,800,000 within six weeks from the date hereof and as to $400,000 “to be secured by” security which is then described including “a second mortgage back over the special lease the subject of this contract”. As I construe this clause, the $200,000 first referred to was the deposit, the next $1,800,000 was to be paid in cash on completion (with completion occurring within six weeks from the date of contract) and the balance of $400,000 was to be paid after completion with payment being secured by the security mentioned.

8 By 15 October 1998, the solicitors for Wallville had obtained the consent of the Land and Water Conservation Authority to the transfer of the head lease. They informed Mr Liristis of this by a letter of that date which continued:

“Pursuant to the provisions of special condition 5 of the contract we call upon you to complete the transaction and we look forward to receiving the Transfer and to your making an appointment for settlement by return.”

9 On 24 November 1998, CMS lodged a caveat against the head lease claiming an interest under the sub-lease.

10 On 9 December 1998 Wallville’s solicitors wrote again to Mr Liristis following up on their letter of 15 October requesting that he submit a transfer. They said that they had not received the transfer “which is an essential part of the Conveyancing process and which under the terms of the contract should have been submitted no later than 22 October last”. They went on to say that the purchaser was in breach under the contract and that the vendor had instructed that a notice to complete be served. Notwithstanding that, the purchaser was given an opportunity to comply with the contract and to submit a transfer and make arrangements for settlement, failing which the vendor intended to serve a notice to complete.

11 Further correspondence ensued from which it is clear that Mr Liristis who, at that point, did not have the assistance of any solicitor, did not understand the requirement that the purchaser tender a transfer. There is no evidence that he ever complied with this requirement. On 14 January 1999, the vendor’s solicitors sent a notice to complete by post nominating a place for settlement at 3 pm on 5 February 1999 failing which the vendor could by further notice forfeit the deposit and terminate the contract and thereafter either sue for breach or re-sell the property and would recover any deficiency as liquidated damages.

12 On 29 January 1999, John Orford & Associates wrote to Wallville’s solicitors saying that they had received instructions from LHPL to act on the completion of the purchase of the head lease and in relation to financing thereof. They acknowledged that a notice to complete had been issued and asked for an extension of time for settlement “if we are unable to settle by 5 February 1999”.

13 It is common ground, as I understand it, that the contract of 11 August 1998 was not completed at the nominated place and time on 5 February 1999 or at all. Three days later, on 8 February 1999, Wallville’s solicitors wrote to Mr Liristis the first of what I shall call “the February Letters”:

“We are instructed that our client is prepared to grant you an option to purchase the above property. The option fee will be the $200,000.00 that you have already paid as preliminary deposit under the terminated contract and the term of the option will expire on 30th June 2000. The price for the property will be $2,400,000.00, cash on completion. Our client will allow a $200,000.00 rebate if the option is exercised and your purchase concluded before 30 June 2000.

Our client would require the Construction Agreement which you have in your possession to be signed in its current form and the existing Development Application for an extension to the Marina to proceed. It would be necessary as part of the Option Agreement for your purchase of Cronulla Marine Services to be concluded at the earliest possible date and for the rights of the existing sub-lessee to be preserved. Our client would be prepared to lease the upper level office and lower level workshop of the marina for an additional $40,000.00 per annum.

This offer will remain open for acceptance until 5.00 pm tomorrow the 9th instant. If accepted the documents evidencing the new agreement must be signed and returned to us with a certificate pursuant to the provisions of Section 66ZF of the Conveyancing Act within five days of their submission.

We look forward to hearing from you.”

14 Although there is little evidence about events of late January and early February 1999 which caused Wallville’s threat of termination in the absence of compliance with its notice to complete to be replaced by the offer of an option notified by the letter of 8 February 1999, it became common ground towards the end of the trial that there had been, in effect, a consensual abandonment of the 11 August 1998 contract on the footing that the deposit of $200,000 paid thereunder by LHPL would be applied as a non-refundable fee for the grant of the option referred to in the letter of 8 February 1998. The practical result of this was that the parties ceased to be bound by the original contract but Wallville kept the $200,000 in its new guise of a non-refundable option fee.

15 On 9 February 1999, the solicitors for LHPL replied with the second of “the February Letters” as follows:

We refer to the above matter and confirm that the contents of your facsimile dated 8 February 1999 are agreed upon.”

16 The effect of the February Letters is one of the main matters in contention between the parties and will be considered in detail presently.

17 The third element of Mr Liristis’ overall proposal - purchase by LHPL of the CMS business, including the CMS sub-lease - was contemplated by the February Letters, in that completion of that purchase was stated to be “necessary as part of the Option Agreement”. Those two elements were thus tied together.

18 An agreement for the sale of the CMS business to LHPL had in fact been executed on 13 November 1998 but was uncompleted when the February Letters were written. The agreement contemplated assignment of the CMS sub-lease to LHPL and contained provisions requiring the purchaser to accept sub-sub-tenancies of Creative Cutting Pty Ltd and Spilsbury Enterprises Pty Ltd.

19 LHPL proceeded to complete the purchase from CMS on 23 April 1999 after obtaining an order for specific performance compelling the vendor to complete. As part of that completion, LHPL took a transfer of the CMS sub-lease. The transfer is dated 23 April 1999 and, after being stamped on 12 November 1999, that transfer was registered on 6 December 1999. Written consent to the transfer was given by Wallville by means of a letter dated 23 April 1999 signed for Wallville by Mr Grounds as managing director and sent to LHPL’s new solicitors, Marsdens. It reads as follows:

20 There is, however, subsequent correspondence suggesting that consent to the assignment had not been given and stating conditions which Wallville required to be satisfied before it would be given. I should make it clear that I accept that consent to assignment was given by the letter of 23 April 1999 and that the subsequent correspondence proceeded on a misunderstanding.

21 After the purchase from CMS had been completed, tensions began to emerge between LHPL and Wallville or, more particularly, between Mr Liristis and Mr Grounds. More will be said presently about particular events and matters. It is sufficient to say here that Mr Grounds became concerned about the financial capacity of LHPL; that frictions arose between Mr Liristis and certain sub-sub-tenants; that Mr Liristis’ actions in making certain alterations to the premises (seen by him as positive) caused concern to Mr Grounds and to other occupiers; that through either a misunderstanding or knowingly, LHPL fell into arrears in the payment of rent; and that Mr Grounds became worried that the marina as a whole might be adversely affected by Mr Liristis’ continued association with it.

22 As this atmosphere developed, Wallville took two particular actions. On 27 July 1999, Wallville’s solicitors wrote to LHPL’s solicitor saying that all contracts were terminated and all offers were withdrawn. Almost a year later, on 14 July 2000, Wallville gave LHPL a notice purporting to terminate the CMS sub-lease for non-payment of rent. Matters then further deteriorated to a point where LHPL commenced these proceedings.

23 LHPL sues Wallville on several bases. Its claims are, in essence, that the contract of 11 August 1998 is still on foot and should be performed, alternatively that it was wrongly terminated; also that an option contract was created by the February Letters and should be performed, alternatively that it was wrongly repudiated. There is also a claim that a new contract arose by virtue of a cash payment of $100,000 and a claim based on estoppel.

24 Wallville, in turn, denies the entitlement of LHPL to the relief sought and claims that the CMS sub-lease has been effectively terminated by it as against LHPL.

25 I should refer briefly to the question whether the contract of 11 August 1998 was effectively and validly terminated in consequence of the service of the notice to complete dated 15 January 1999, although in doing so I am conscious of the fact that that issue had lost virtually all of its importance by the end of the trial. This is because the plaintiff eventually conceded that there had been a consensual termination of the contract and re-allocation of the deposit money paid under it.

26 It seems to me, however, that the notice to complete was ineffective because, at all material times, there was a caveat on the title to the head lease (being a caveat lodged by CMS, claiming an interest as sub-lessee under its then unregistered sub-lease and prohibiting the recording of any dealing other than a plan or a sub-lease to the caveator) but no evidence that arrangements were made or could have been made for the caveat’s removal at or before the time stipulated for completion. But even if the notice to complete had been effective, it was not shown on the evidence that Wallville as vendor ever took the action the notice itself foreshadowed:

“If you fail to comply with this notice the Vendor shall by notice in writing to you forfeit the deposit paid by you and terminate the Contract for Sale ….”

27 The most there is on the question whether any such notice in writing was given is an assertion by Mr Grounds in a letter of 27 July 1999 to John Orford & Associates, the Liristis solicitors, supplemented by answers he gave in cross-examination. The assertion forms part of a list of events completed by Mr Grounds in a recitation of the history of the parties’ relationship. But it is noteworthy that, with two exceptions, all specific events in the list are identified by a fixed date. One of the exceptions (offer of option (conditional)) is of such a nature that it spanned several days, being at least 8 and 9 February 1999. The other (notice of termination) obviously occurred, if at all, on a particular day. The fact that that item is labelled merely “February 1999” leads me to conclude that Mr Grounds has merely assumed that notice of termination some time in February was given. This is borne out by the following part of Mr Grounds’ cross-examination referring to the list:

28 In addition, the evidence about the deposit does not show that it suffered the fate that such a notice of termination would have produced, namely, forfeiture to the vendor. Rather, the deposit was, by agreement of the parties, made available for the benefit of LHPL in connection with a subsequent arrangement between Wallville and LHPL. Mr Grounds made this clear in cross-examination when he said, referring to the $200,000 paid under the August 1998 contract:

“No, that money, way I see it, was given back to him to allow him to enter into the option.”

29 The February Letters show a clear acceptance by both parties that the contract of 11 August 1998 was, by then, regarded by them as “the terminated contract”. How it came to be terminated is not clear but the way in which the deposit was dealt with (as already described) is inconsistent with an assertion that the termination resulted from the unilateral action of Wallville as vendor founded on its Notice to Complete. No other event or series of events causing the contract to become “the terminated contract” as referred to in the letter of 8 February 1999 has been advanced. The inference I draw, based particularly on the content of that letter, is that the contract of 11 August 1998 was terminated as a result of the common intention of the parties that it should no longer bind them and that the deposit paid under it should be freed so as to play a part in a new arrangement upon which they were then embarking.

30 I refer, in this connection, to the decision of the High Court in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 and, in particular, to the following passage from the judgment of Stephen, Mason and Jacobs JJ at 434:

Summers v The Commonwealth

A consequence of this abandonment and abrogation was held by Isaacs J (1918) 25 CLR at p.153 to be that the deposit was returnable. Likewise the deposit is returnable by the appellant to the respondents in the present case.”

31 This case bears some similarity to that situation. Although it cannot be said here that there was abandonment (in the sense that the contract was, as it were, disowned and cast off by both parties), there was a consensus which treated it as abandoned. The consequence, in relation to the deposit, would therefore be as stated in the above passage.

32 LHPL claims in its Statement of Claim:

33 These claims are based on an alleged agreement constituted by the February Letters. Mr McEwen SC, counsel for LHPL, submitted on behalf of LHPL that the first of the February Letters (the letter of 8 February 1999 from Wallville’s solicitors to LHPL’s solicitors) was an offer to grant to LHPL an option to purchase on the following conditions:

34 Mr McEwen further submitted that the second of the February Letters (the reply by LHPL’s solicitors dated 9 February 1999) was an acceptance of this offer, so that a contract thereby came into existence.

35 There can be no doubt that the letter of 9 February 1999 expressed unequivocal assent to what was proposed in the letter of 8 February 1999. The real question, therefore, is whether, despite their reference to a subsequent document, the parties intended a legally binding contract with respect to the option to be brought into existence by the February Letters.

36 The well known analysis in Masters v Cameron (1954) 91 CLR 353, supplemented by observations of McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd [1986] ANZ Conv Rep 681 based on Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310, shows that a case such as this, where a contract may or may not emerge from correspondence contemplating a further document, must be brought within one of four classes:

Class 1: Where the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.

Class 2: Where the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.

Class 3: Where the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

Class 4: Where the parties are content to be bound immediately and exclusively by the terms which they have agreed upon whilst expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.

37 That these are the relevant possibilities here is borne out by the fact that the letter of 8 February 1999 refers in two places to a further document. There is reference to an item that “would be necessary as part of the Option Agreement” and a reference to future signing and return of “the documents evidencing the new agreement”.

38 Whether an immediately binding contract came into existence (and, if so, the class to which it belongs) is to be determined by reference to the intentions of the parties as gathered from the documents themselves and from the evidence of surrounding circumstances. Reference may be made, in this respect, to the eight general propositions enumerated by Kirby P in Geebung Investments Pty Ltd v Varga Investments Pty Ltd (1995) 7 BPR 14,551 and to the judgment of Gleeson CJ in Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540. The judgments of Ipp J and Anderson J (who reached different conclusions on the application of the relevant principles) in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27 also provide recent and useful guidance.

39 For reasons already mentioned, there can be no doubt that a further document was envisaged by the parties when they reached the consensus evidenced by the February Letters. At the same time, however, it must be the case that the February Letters were intended to have some immediate and binding contractual force, if only because they dealt specifically with the status of the deposit which had been paid under the 11 August 1998 contract. The February Letters do not purport to be the contractual vehicle by which the August contract was terminated: they proceed on the footing that its status as “the terminated contract” is an already established reality. But they do make specific provision about the status of the $200,000 then still in the hands of Wallville. In the absence of some immediately binding contractual stipulation as to rights in respect of that sum, it would have been open to whichever party was entitled to the $200,000 in consequence of the termination of the August contract (that is, LHPL according to my conclusions stated above as to the termination of that contract or, if those conclusions are wrong, Wallville) to assert sole ownership of those moneys. It is only by means of a contractually binding concession that whichever of the parties had that sole ownership following termination of the August contract could give it up in favour of the other and, as it were, earmark the moneys as having a particular status and purpose in the context of the new relationship.

40 I am therefore satisfied that the February Letters were intended to have and did have immediate contractual force between LHPL and Wallville at least insofar as they dealt with the status of and entitlement to the $200,000. But if that is so, does it necessarily follow that the February Letters have the same immediate contractual force in respect of the other matters with which they dealt? I think it does. The parties were emerging from a pre-existing contractual relationship and, in the process of doing so, were carrying moneys over into a new relationship and my conclusion is that, in so doing, they intended to retain the legally binding nature of their relationship. This is borne out by the fact that the further documents envisaged by the 8 February letter were referred to as documents “evidencing the new agreement” (rather than, for example, creating it) and this reference to “the new agreement” followed immediately after the words “If accepted” which referred to the possibility that LHPL would accept “This offer” (being, clearly enough, the offer conveyed by the 8 February letter) by the nominated deadline of “5.00 pm tomorrow the 9th instant”. The distinct impression created by the surrounding circumstances of an intention to be immediately bound is thus confirmed by the fact that the February Letters themselves contemplate that the acceptance by LHPL created “the new agreement” which was to be evidenced by further documents.

41 The February Letters thus fell within Class 1 of the four classes derived from Masters v Cameron and Baulkham Hills Private Hospital.

42 It is clear that LHPL never attempted to rely on the option contract constituted by the February letters by exercising the option. What then was the fate of that contract: was it effectively discharged by performance when 30 June 2000 came and went without any attempted exercise, or was it terminated before that date?

43 It is necessary to look at the evidence of the parties’ statements about the head lease and their relationship with respect to it following the exchange of the February Letters.

44 On 19 January 1999, some ten days after the February Letters, Wallville, through its solicitors, submitted to LHPL a form of option agreement with a covering letter setting out pre-conditions to execution and exchange by Wallville. These overlapped to a significant extent with the conditions in the February Letters but there was one additional condition:

“You have in place a financial which in the opinion of yourself and/or your Solicitor and/or your Accountant will allow you to exercise the option within the option period.”

45 LHPL responded by executing and returning the option agreement submitted by Wallville’s solicitors. By letter dated 25 February 1999, Wallville’s solicitors acknowledged receipt and reiterated that Wallville would not execute and exchange the option agreement until the conditions precedent in the letter of 19 February 1999 were satisfied. That letter also said:

“Our instructions are that if an acceptable response to that letter and its contents is not received by 5.00 pm on Monday next the 1st March then our client will not continue negotiations for the proposed option.”

46 On 3 March 1999, the solicitors for LHPL sent a reply to the solicitors for Wallville which dealt with the several conditions specified in the letter of 19 February 1999. With respect to the new condition introduced by that letter, the reply said:

“A financial plan is now in place, which will allow our client to exercise the option.”

47 LHPL thereafter changed solicitors. A letter from Wallville’s solicitors to LHPL’s new solicitors dated 16 April 1999 enclosed, at the latter’s request, a copy of the option agreement executed by LHPL. The letter also enclosed “for your information” the letters of 19 January 1999 and 25 February 1999 sent by Wallville’s solicitors to LHPL’s former solicitor Mr Orford. It also confirmed that Wallville had not executed the option agreement.

48 On 14 July 1999, Wallville wrote direct to Mr Orford referring to Wallville’s solicitors’ letter of 19 February 1999 and giving an update on where Wallville saw the several conditions. It concluded by suggesting that urgent attention be given to them “to allow this matter to be resolved”.

49 On 27 July 1999, Wallville again wrote to Mr Orford setting out Wallville’s appreciation of whether the various matters stood. Under a heading “Present Status”, Wallville said:

“All contracts have terminated; all offers are withdrawn, as the relevant conditions have not been met by your client.”

50 On 30 July 1999 Mr Orford sent to Mr Grounds a letter prepared by Mr Liristis with the intention that it should form the basis of a letter from Mr Orford to Mr Grounds. This contained a comprehensive explanation of his position by Mr Liristis. Among the points he made were that he had had to obtain an order for specific performance to complete the purchase of the CMS business including the CMS sub-lease (which had cost him a lot of money); and that, while sources of finance were available to him, he wanted four months in which to “negotiate the best possible way to restructure or refinance our loans”. It is clear from what Mr Liristis said in cross-examination that he was seeking bank finance on more attractive terms than those attaching to finance from other sources which was already available.

51 Wallville’s reply of 30 July 1999 read in part as follows:

“I am prepared to grant a stay on the sale of the marina for a period of three (3) months, at my sole discretion and reserve the right to rescind this undertaking should circumstances so dictate.

I am not prepared to grant an option as this would put me in a position where the property could be on sold beyond my control. Mr Liritsis has discussed that he has been approached by third parties for such a transaction”.

52 By letter dated 28 January 2000, the solicitors for LHPL sought from the solicitors for Wallville:

“Confirmation that he (Liristis) has the sole right to acquire the marina property up to and including 30 June 2000.”

53 By letter dated 17 July 2000, Wallville’s solicitors rejected the request for a 12 months option and, as to the $200,000, said:

“The option to which you refer never came into existence. The $200,000 to which you refer was forfeited to our client due to your client’s failure to meet its contractual obligations.”

54 In the light of this evidence, it seems to me to be clear that Wallville evinced an intention not to be bound by an option contract created by the February Letters. In the first place, Wallville’s solicitors’ letters of 19 February 1999 purported to add to the option arrangement a condition which had not been included in the February Letters, thereby showing that it did not see the February Letters as the source of obligations upon it. Second, Wallville’s letter of 27 July 1999 to Mr Orford said in blunt terms:

“All contracts have terminated; all offers are withdrawn ….”

55 This conduct on the part of Wallville amounted, in my judgment, to repudiation of the option contract constituted by the February Letters. Wallville renounced the promise it had made in the February letters to sell the head lease to LHPL if LHPL should, on or before 30 June 2000, require it to do so. But, as Bowen LJ observed in Johnstone v Milling (1886) 16 QBD 460, a repudiation “only becomes a wrongful act if the promisee elects to treat it as such”. It is therefore necessary to look at the reactions of LHPL to the statements of Wallville denying that it was bound by an option contract in the terms of the February Letters.

56 It is fair to say that LHPL did not take immediate issue with the statement by Wallville on 27 July 1999 that all contracts had terminated and all offers were withdrawn. In fact, it was not until six months later, on 28 January 2000, that LHPL sought Wallville’s confirmation that the Liristis interests - effectively LHPL - had “the sole right to acquire the marina property, up to and including 30 June 2000” and received no reply. But rather than pursuing the question, LHPL let it rest.

57 It seems to me that the correct characterisation of events following Wallville’s repudiation is that LHPL did convey to Wallville (albeit in the form of a request for confirmation) its understanding that it had “the sole right to acquire the marina property up to and including 30 June 2000” and that this was an assertion of the existence of such a “sole right”, being a right which could only be explicable by reference to a contract instituted by the February Letters. It follows that there was conduct on the part of LHPL which challenged the repudiation and, in so doing, recognised it as such. But LHPL at no time purported to treat the option contract as at an end because of this repudiation. It adopted the alternative course available to a promisee in such circumstances, namely, to wait.

58 There is no evidence that LHPL was ready, willing and able to exercise the option on or before 30 June 2000 or made any move to do so. In fact, it is clear that, as late as 20 June 2000, LHPL wished to extend the option rather than to exercise it. A letter of that date sent by Mr Liristis to Mr Gounds set out a number of matters apparently covered in discussions between them which Mr Liristis regarded as needing to be addressed. For the most part, they involved work to be done at the marina. Mr Liristis outlined a basis on which he (no doubt LHPL) would carry out that work. He then said:

“In consideration that the above work is done by me including all the work done, we would like the first option to purchase extended to 30 June 2001 and we then will pay a $30,000 option to be paid on completion.”

59 The words “we would like the first option to purchase extended to 30 June 2001” can only mean that, as at 20 June 2000 - ten days before its expiry - the option granted in February 1999 was acknowledged by LHPL to be still on foot. Such an acknowledgment could not co-exist with any assertion by LHPL that it had relied upon repudiation to terminate the contract. Thus no basis on which LHPL can say that because of the vendor’s disowning of the obligation to sell to it at the agreed price if and when asked to do so, it was deprived of the advantage of the opportunity thus to obtain ownership.

60 In summary, Wallville’s repudiation was acknowledged by LHPL in the sense and to the extent that, after the acts of repudiation, it asked whether the sole right represented by the option contract continued to exist and received no answer. But LHPL showed neither a desire to accept the repudiation and to rely on it as a bases for a claim for damages for breach nor a desire or ability to take advantage of the option contract by exercising the option on or before 30 June 2000. In other words, LHPL did not act in either of the ways made available by Wallville’s repudiation. In fact, it acknowledged as late as 20 June 2000 that the option was still on foot. It follows that the option contract continued to the nominated date of 30 June 2000 and, as it was not exercised, was then discharged. It also follows that the sum of $200,000 carried over from the terminated sale contract of 11 August 1998 in such a way that it became the option fee under the option agreement constituted by the February Letters must remain with Wallville, there being no basis on which LHPL may assert a right to repayment.

61 Mr Liristis gave evidence of having paid $100,000 in cash to Mr Grounds on 23 December 1999 with the result, as I understand it, that Wallville then re-affirmed the option contract constituted by the February Letters, thereby nullifying, as it were, its earlier statements that the contract was not on foot. For reasons about to be stated, that contention cannot possibly succeed.

62 This “earnest” of $100,000 was supposedly given by means of a cash payment made by Mr Liristis to Mr Grounds at the latter’s office at Taren Point. Mr Grounds denies that Mr Liristis paid him $100,000 in cash on that or any other day.

63 In his affidavit of 4 September 2000, Mr Liristis deposed that the meeting at Taren Point at which the $100,000 cash payment was made took place “on or about 23 December 1998”. He also deposed to a conversation with Mr Grounds on that occasion about difficulty Mr Liristis was having with his purchase of the CMS business, contracts in relation to which had been exchanged on 13 November 1998. The affidavit continued:

“At the conclusion of my meeting with Mr Grounds, I handed him $100,000.00 in cash.

‘What is this?’

‘Just put it down as payment as our original agreement in April.’

‘Thank you.

64 In cross-examination, Mr Liristis admitted that he was wrong in placing the meeting at 23 December 1998. It had, he said, taken place on 23 December 1999. When asked in re-examination about the purpose of the $100,000 payment - by then fixed at 23 December 1999 - Mr Liristis clarified that the reference in his affidavit to “payment as our original agreement in April” was a reference to the handwritten document prepared by Mr Grounds on 18 April 1998 as confirmed by Mr Liristis’ letter of 20 April 1998. He also clarified that the particular part of those documents to which the cash payment related was the $100,000 item “allowance to buy out tenant” (identified in the 20 April 1998 confirmation as “Greg Young”, a principal of CMS). Mr Liristis thus sought to tie the $100,000 cash payment made in December 1999 to the “allowance” in the original price related to the CMS purchase. Yet the purchase of the CMS business by LHPL had been completed in consequence of an order for specific performance made eight months earlier, that is, on 23 April 1999. There is thus no apparent connection between that transaction and the $100,000 payment; and there was no suggestion that it was somehow a reversal of the original “allowance”.

65 Mr Liristis was asked in cross-examination where he had obtained cash to the extent of $100,000. He said that it was his practice to keep about $40,000 or $50,000 in cash at his Kingsgrove service station. He explained that under petrol marketing arrangements which have prevailed for the last twelve or fourteen months, a service station operator who cannot, for any reason, source stock from his own company (in his case, BP) may obtain it from other suppliers, including suppliers in other States. These other suppliers, not having any established relationship with a particular service station operator, often want payment in cash. A tanker load of petrol costs between $40,000 and $45,000 and it is for that reason that cash of that order is habitually kept at Mr Liristis’ service station. The source of the remainder of the $100,000 cash (that is, the $50,000 or $60,000 not obtained from the service station), was the subject of the following exchange in cross-examination:

66 Mr Liristis thus invited the Court to believe not only that he kept $40,000 or more in cash at a service station against the possible need at some unforeseen time to pay cash to a tanker driver (including one who might be from another State) but also that it is a commonplace for him to have $50,000 or $60,000 in cash at home or otherwise readily at hand without any need to go to a bank.

67 Mr Liristis sought to support his allegation of the cash payment to Mr Grounds by putting in evidence a letter he sent to his accountant, Mr Kristallis, on 24 December 1999. Mr Kristallis confirmed by affidavit that he received the letter and I am satisfied that the letter was sent as Mr Liristis said it was. Mr Liristis said he wrote the letter in the early hours of 24 December 1999. The letter reads as follows:

“Further to our conversations regarding the payment to Mr Grounds, please find below what we have done.

I did advise you that the $100,000.00 was supposed to be given to Mr Grounds after the settlement but I was advised by John that Mr Grounds is getting impatient and I must give it to him now to sweeten him up, otherwise he will be causing further problems.

I understand it is against your advice but I had no choice.

Yesterday I went to his office and gave him a $75,000 cheque of all rent up until the 1st of December, he would not give us four months rent relief he would only give us two months, well its better than nothing, so this brings us up to the 1st of December 1999.

I then gave him the $100,000.00 in cash as discussed, I had no choice.

I am under extreme pressure on this deal and things are not getting better at the marina.

Please ring me if you need any further information.”

68 This is an odd letter. It discloses on its face no apparent purpose other than a purpose of informing Mr Kristallis that a cheque for $75,000 had been given to Mr Grounds on account of rent and that the $100,000 cash payment had been made to Mr Grounds “to sweeten him up” and to avoid him “causing further problems”, with no reference to the “allowance to buy out tenant” in the documents of 18 and 20 April 1998. (The written submissions of counsel for LHPL described the $100,000 as “an earnest” in relation to the alleged option contract.)

69 Mr Liristis admitted in cross-examination that the statement concerning handing over of a cheque for $75,000 was untrue insofar as it stated the date of delivery as 23 December 1999. Such a cheque had in fact been given to Mr Grounds some three months earlier, on 21 September 1999.

70 Mr Powell, counsel for the defendant, invited me to infer that this letter had been sent by Mr Liristis merely to create a false paper trail supporting his story about the cash payment.

71 Mr Grounds, as I have said, denied that he had received the cash payment from Mr Liristis on 23 December 1999 or at all. He also denied meeting with Mr Liristis on 23 December 1999. He could be certain that there was no such meeting at Taren Point on that day because he was then in Queensland. A Qantas invoice issued to Mr Grounds’ company was in evidence and showed the purchase of a ticket in his name for travel from Sydney to Brisbane on 22 December 1999.

72 The final piece of evidence about the alleged cash payment concerned a meeting in early July 2000 at Cronulla Marina attended by Mr Liristis, Mr Grounds and their respective solicitors, Mr Bowring and Mr Alcorn. Evidence of what happened at the meeting was given by Mr Liristis, Mr Alcorn and Mr Grounds. All agreed that the meeting lasted for more than three hours and became heated at times. Its purpose was to review generally the state of the parties’ relationship and to see whether a solution to their problems could be found. Mr Liristis and Mr Alcorn both gave evidence that at one point Mr Liristis addressed Mr Grounds and demanded loudly and in forceful terms the return of “my $100,000”. Mr Grounds agreed that such a demand was made at the meeting. He also gave evidence about what happened immediately afterwards:

“Q. When he did that, you did not reply, did you?

McEWEN: May it be recorded that the witness laughed at that point, your Honour? That was his reaction, your Honour.

WITNESS: That ….

HIS HONOUR: Just answer the question.

73 Mr Alcorn confirmed that Mr Liristis made a demand for the return of “my $100,000” and that Mr Grounds spoke words to the effect stated by Mr Grounds, although he could not say that those words were spoken by Mr Grounds immediately after Mr Liristis made the demand.

74 The task of the Court here is to decide whether, on the balance of probabilities, Mr Liristis did pay $100,000 in cash to Mr Grounds. In other words, does the evidence make it more probable that he did make the payment than that he did not? In reaching this conclusion, the Court is entitled to pay some attention to the characteristics of the competing witnesses as it discerns them from their evidence and from their demeanour in the witness box.

75 Mr Liristis, in my estimation, is not as sophisticated a businessman as Mr Grounds; nor is he as commercially experienced. Mr Grounds, in his correspondence and writing, shows a precise and a systematic approach. He is, I apprehend, accustomed to noting important things in writing in an organised way. Several examples of such written notes are in evidence. Mr Liristis, on the other hand, is less precise and less structured in his writing. At the same time, Mr Liristis showed in the witness box that he has a particularly high regard for the written word as a mechanism for validating things. After answering a question, he often said that the answer could be corroborated by reference to some document or other, as if things recorded in documents are inherently more reliable than things merely spoken.

76 It is improbable that Mr Grounds would do business involving a sum as large as $100,000 by means of an oral agreement made in the absence of other persons and on a basis involving the receipt by him of cash. There is also a distinct air of improbability about Mr Liristis’ explanation of how he came to have $100,000 in cash. Furthermore, the apparent lack of objective purpose in informing his accountant of the matters in the letter of 24 December 1999 lends credence to the suggestion that the letter was created by Mr Liristis with a deliberate purpose of substantiating something which had not happened. These factors, coupled with the fact that Mr Liristis was firm in fixing the date of the supposed payment as 23 December 1999 (as he had to if the letter to Mr Kristallis was to assist him), his firmness in maintaining an apparently illogical connection between the cash payment and the CMS purchase completed eight months earlier, the evidence of the purchase of a Sydney-Brisbane Qantas ticket in Mr Grounds’ name for 22 December 1999 and Mr Grounds’ evidence that he was in Queensland on 23 December 1999 further undermine Mr Liristis’ account of events.

77 I find that Mr Liristis did not pay $100,000 in cash to Mr Grounds on 23 December 1999 or otherwise.

78 This aspect of the claim by LHPL may be shortly dealt with. LHPL says that Wallville effectively made representations to LHPL that it would become the owner of the head lease in due course and that, in reliance upon these, LHPL acted to its detriment by not challenging the retention of the $200,000 by Wallville and by undertaking expenditure at the marina over and above that referable to the sub-lessee position, that is, expenditure explicable only by an expectation of ownership of the head lease.

79 The essence of this claim, in accordance with approaches articulated by members of the High Court in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, is that a cause of action arises where the recipient of a non-contractual promise relies on it and thereby acts to his detriment in such a way that it is unconscionable for the promisor not to be held to the promise.

80 Such a claim would succeed here if Wallville had led LHPL to believe that, come what may, it would ensure that LHPL came to own the head lease. The evidence does not justify a finding of any such promise or representation on the part of Wallville. There can be no doubt that Wallville, through Mr Grounds, was for quite some time keen to conclude a sale or option arrangement with LHPL. This is borne out by Wallville’s willingness to enter into the option arrangement when the original sale contract failed. But there was never any “come what may” element to this. Wallville showed itself to be concerned, virtually from the beginning, that LHPL might not be able to obtain the finance to purchase. That concern developed in a period of five months, between February and July 1999, to a point where Wallville wrote the letter stating that all contracts had terminated and all offers had been withdrawn. From that point, there were encouragements from Wallville to LHPL to find some means of pursuing an acquisition of the head lease. As will be related presently, there is evidence that Mr Grounds used a promise of a two months’ rent holiday as an incentive for LHPL to crystallise its position as a purchaser by 1 December 1999.

81 From July 1999, LHPL had no reasonable grounds for regarding Wallville as the author of any representation or promise that the head lease would be transferred to LHPL. Expenditure LHPL incurred on and about the marina after that time, beyond expenditure referable to the sub-lease position, could not have been induced by any such representation or promise. In making such expenditure, LHPL undertook a gamble.

82 Mr Powell, counsel for Wallville, pointed to three alleged breaches of the terms of the CMS sub-lease by LHPL. The first arises under clause 3(1) which, by reference, imports the covenant to pay rent contained in Schedule IV to the Conveyancing Act 1919. The second arises under clause 11 which is a covenant by the lessee to maintain certain public risk insurance and contains specifications which the insurance policy must meet. The third concerns clause 23 which requires that the lessee “is and remains during the duration of the lease a member of the Boating Industry Association” and also requires that the marina and slipway operations be “run strictly in accordance with the Boating Industry Association Code of Practice”. This clause 23 professes itself to be “an essential term of this lease”. The other two (clause 3(1) and clause 11) are identified by clause 12(a) as “essential terms of this Lease”.

83 Mr Powell’s contention is that Wallville was entitled to terminate on each of the three grounds. Moreover, there was no need for reliance on those grounds to be the subject of any prior notice under s.129 of the Conveyancing Act. This is because non-payment of rent is excepted from that section generally by sub-s.(8) and, in any event, all three breaches, being breaches of “essential” terms, do not involve, in terms of sub-s.(1), “re-entry or forfeiture under any proviso or stipulation in a lease …”.

84 The three alleged breaches will be considered in turn. First, however, it is appropriate to look at the way the sub-lease covenants operate.

85 The head lease was, as notified in the Government Gazette of 8 September 1989 Folios 6910 and 6911, granted to Wallville pursuant to the Crown Lands Consolidation Act 1913, being one of the Acts covered by the definition of “Crown Lands Acts” in s.3(1) of the Crown Lands Act 1989. Part 3 of the Real Property Act 1900 therefore came to apply to the land the subject of the head lease by operation of s.13 of that Act. The land was subsequently bought under the provisions of the Real Property Act pursuant to s.13D by the creation of a folio of the register recording “The State of New South Wales” as registered proprietor and, on 16 October 1989, the Minister for Natural Resources applied to the Registrar General under that section for the head lease to be recorded in that folio. By these processes, the Real Property Act came to apply to the land and the head lease with the result that, when the CMS sub-lease was granted in December 1996, it also was governed by applicable provisions of the Real Property Act.

86 The effect of the Real Property Act is a significant matter when it comes to the effect of the covenants of the CMS sub-lease as between Wallville as sub-lessor and LHPL as assignee from the original sub-lessee, CMS - particularly in the period between LHPL’s taking the assignment from CMS on 24 April 1999 and registration of the transfer on 6 December 1999.

87 The judgment of Giles JA (in which Handley and Stein JJA concurred) in Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 emphasises that, upon the grant of a lease, there is co-existent privity of estate and privity of contract between the lessor and the lessee. Giles JA continued:

Parker v Webb

Auscott Ltd v Panizza

Spencer’s

Hindcastle Ltd v Barbara Attenborough Ltd

88 The common law position is, however, modified by s.51 of the Real Property Act referred to in the following passage in the judgment of Giles JA:

“The effect of s51 is that the transfer of a lease creates privity of estate and privity of contract between the lessor and the transferee of the lease: a statutory replication of the privity of estate co-existent with privity of contract between the lessor and the original lessee. Its effect is not expressly restricted to creating privity of contract only for so long as there is privity of estate, that is, for so long as the transferee is registered as proprietor of the lease.”

89 Giles JA also said:

only while the lessee is registered as the proprietor of the lease

90 The result is that LHPL became directly bound by the covenants of the CMS sub-lease, in such a way that a contractual relationship came to exist between Wallville and LHPL, only when LHPL became the registered proprietor of the sub-lease on 6 December 1999. Until that time, the sub-lease itself was not a direct source of any contractual provisions binding as between Wallville and LHPL and Wallville had to look to CMS for performance.

91 It is common ground that the rent due under the CMS sub-lease for October and November 1999 was not paid and remains unpaid. Wallville says that there was therefore default warranting termination. LHPL says that, at least as far as LHPL is concerned, Wallville waived or excused the payment of rent for these months so that there were no arrears; and that if it is wrong on that, it stands ready, willing and able to pay the arrears and should be granted relief against forfeiture.

92 Some facts with respect to rent for these months emerge from the correspondence. On 1 September 1999, LHPL’s solicitors sent to Wallville’s solicitors a letter containing the following passage:

“If acceptable, our client proposes to pay the sum of $50,000 now towards leasing payments and the balance as agreed upon settlement.”

93 On 11 October 1999, Wallville’s solicitors wrote to LHPL’s solicitors saying, among other things:

“Without prejudice to our client’s rights, our client is prepared to allow your client till the 1st December next to pay rent for the months of October and November in the sum of $30,000.”

94 A letter of 28 January 2000 from LHPL’s solicitors to Wallville’s solicitors reads in part as follows:

“Fourthly, my client seeks confirmation that there are no arrears of rent. It is his understanding that the rent for the months of October 1999 and November 1999 was waived by your client. Please confirm.”

95 A letter of 21 March 2000 from Wallville’s solicitors to LHPL’s solicitors says:

“Fourthly: your client’s understanding in this connection is mistaken. Our client has bent (sic) every effort to assist your client during the two years that this matter has been running but denies that it has either by deed, or word of its representatives made any such concession as your client alleged.”

96 The difference of views on this matter comes from recollections of a conversation between Mr Liristis and Mr Grounds which took place on 21 September 1999. It is common ground that the question of rent was discussed and that Mr Liristis admitted that rent was outstanding and said that he would fix it up. Mr Grounds recalls having said words to the effect:

“You give me a cheque for $75,000 now, no bond at this stage, and I will allow you until 1 December 1999 to complete the purchase. If there is no purchase by that stage, all back rent, the bond and any other moneys are to be brought into line.”

97 If the words spoken by Mr Grounds represent the true position, the waiver of rent, if there was to be one, would occur only if “the purchase” eventuated by 1 December 1999. On Mr Liristis’ version, however, the waiver would apply in any event.

98 In the whole of the circumstances, it would not have made sense for Mr Grounds to have dispensed altogether and unconditionally with the payment of rent for the months in question. He was, at the time, still trying to discover whether a purchase arrangement could be concluded with Mr Liristis. It is quite likely that he would have used some form of rent holiday as an incentive to Mr Liristis on that front. In other words, there would have been good reason for him to say that if a purchase was completed by the nominated date, a rent concession would be given; but there is no apparent reason at all why he would have given a rent concession in any event.

99 For these reasons I accept the version of the conversation on 21 September 1999 given by Mr Grounds. It follows that, when a purchase had not eventuated by 1 December 1999, the requirement that all arrears of rent and other lease payments be “brought into line” came to apply and Mr Liristis no longer had any basis on which he could say that the payment of the two months rent in question was excused. It also follows that the arrears of rent alleged in the Notice to Quit did exist. But, for reasons I have already stated (related to s.51 of the Real Property Act), the rent covenant in relation to the instalments concerned was, at the due dates for payment of rent for the months in question, covenants binding between Wallville and CMS only. It did not become binding between Wallville and LHPL until 6 December 1999. The non-payment of rent for October and November 1999 therefore did not amount to a breach of the sub-lease covenants on the part of LHPL.

100 There is evidence that Marina Operator’s Liability insurance was effected by Mr Liristis through I.C. Frith & Associates, insurance brokers, for “Cronulla Marina, 2 Tonkin Street, Cronulla 2230”, the insurer being MMI General Insurance Limited. This insurance was for the period 12 May 1999 to 12 May 2000. There is also evidence of Marina Operator’s Liability cover being effected by Mr Liristis through Oceanic Insurance Brokers Pty Ltd in July 2000, again for “Cronulla Marina”, the insurer being Gresham Underwriting. A letter from Oceanic Insurance Brokers to Mr Grounds dated 12 December 2000 states that the policy had been cancelled. However, on 6 December 2000, steps had been taken by Mr Liristis to effect Marina Operator’s Liability cover through Associated Marine Insurers, described as “Agent for and owned by CGU Insurance Limited … and Zurich Australian Insurance Limited”, and a notification from that firm dated 21 December 2000 confirms cover from an inception date of 8 December 2000 in the names of “Mustang NSW Pty Ltd t/as Gunnamatta Bay Marina, Liristis Holdings Pty Ltd t/as Cronulla Marina”. A certificate of currency dated 4 January 2001 from Associated Marine Insurers confirms the continuation of that cover until 8 December 2001 in the names “Liristis Holdings Pty Ltd trading as Cronulla Marine noting Wallville Pty Ltd as interested party”. The sum insured is shown in all these insurance documents as $10 million.

101 It appears from this evidence that there was non-compliance with clause 11 of the CMS sub-lease in at least one respect, namely, that Wallville was not included as an insured in any document before the certificate of currency dated 4 January 2001. Wallville says (and I do not understand LHPL to deny) that there were two other non-compliances: the insurer had not been approved by Wallville; and Wallville had not been served with a copy of the policy within seven days of occupation of the premises. Even allowing for the fact that the sub-lease covenant concerning insurance did not become operative between Wallville and LHPL until 6 December 1999, LHPL did not comply strictly with that covenant in all respects.

102 Clause 23 of the CMS sub-lease requires two things. The first is that the sub-lessee “is and remains during the duration of the lease a member of the Boating Industry Association”. It is reasonable to infer from this that the original sub-lessee, Cronulla Marine Services Pty Limited, was a member of that Association at the time the sub-lease was created. Otherwise, that company would have been in default immediately the sub-lease came into existence and it is reasonable to assume that it would not have put itself into any such predicament; also that the sub-lessor would not have granted the sub-lease to it.

103 But LHPL, of course, became party to the sub-lease by assignment. Reference has already been made to the way in which the lease covenants operated by virtue of the assignment. It is sufficient to say, for the moment, that the assignment was consented to by Wallville by means of its letter of 23 April 1999 to LHPL’s solicitors. That letter said, in quite clear terms, that Wallville consented to “the transfer of the lease from Cronulla Marine Services Pty Ltd to your client Liristis Holdings Pty Ltd”.

104 Mr Liristis gave evidence that an application for membership of the Boating Industry Association was lodged by LHPL in May 1999, with a Mr Blair of Detroit Diesel acting as nominator and Mr Grounds acting as seconder. Mr Liristis also gave evidence that he was notified in August 1999 that the application had been refused. When asked whether he told Mr Grounds about the refusal he replied “Mr Grounds told me”. It was put to Mr Liristis that a second application for membership was made in October 1999 and a document was produced to him which he identified as a membership application bearing that date. However he did not accept that a second application was lodged and was firm in his recollection that there was only one application.

105 The assignment of the CMS sub-lease by Cronulla Marine Services to LHPL took place on 24 April 1999. Wallville’s written consent was dated 23 April 1999. The application for membership of the Boating Industry Association, with Mr Grounds as seconder, was lodged in May 1999. I therefore infer that when Wallville’s consent to assignment was given, Mr Grounds knew that LHPL was not a member of the Association. Yet Wallville’s consent was in no way conditional. It was an out and out consent for the assignment of the lease to a person who, to Mr Grounds’ knowledge, did not satisfy the “essential” requirement of clause 23 of the CMS sub-lease. Furthermore, Mr Grounds must be taken to have known that the obtaining of membership would not be automatic and that there was always a possibility that, as in fact happened, an application by LHPL to be admitted as a member would be refused so that the “essential” requirement would continue unsatisfied indefinitely.

106 In these circumstances, it must be the case that Wallville ceased to insist upon the requirement or condition of the CMS sub-lease concerning membership of the Boating Industry Association, insofar as that requirement or condition would become part of the contractual relationship between Wallville and LHPL in consequence of the assignment of the lease. There was, in a loose sense, waiver by Wallville of the “essential” requirement of clause 23. As Austin J pointed out in Lewis v Cook [2000] NSWSC 191, however, “waiver” as such is today a quite limited concept in the field of contract, having yielded considerable ground to principles of estoppel developed by the High Court in Waltons Stores (Interstate) Ltd v Maher (above) and Commonwealth v Verwayen (1990) 170 CLR 394. According to those concepts, the relevant question is whether it would be unconscionable for Wallville to rely on clause 23, having given unequivocal and unconditional consent to assignment to LHPL which it well knew did not (and might never) satisfy the requirements of that clause. To my mind, there can be no doubt that an estoppel operates against Wallville here, with the result that Wallville is not entitled to rely on the apparent breach of clause 23.

107 The present status of the alleged breaches of the covenants of the CMS sub-lease is that those covenants have been binding on LHPL since 6 December 1999; that there was at that point a pre-existing breach of the covenant to pay rent because rent for the months of October and November 1999 had not been paid; that that breach with respect to rent continued; that there was a subsisting breach of the provision requiring public risk insurance to be maintained, which breach has since been rectified; and that, as I have found, Wallville is estopped from relying upon any breach of the covenant concerning membership of the Boating Industry Association.

108 There are therefore two issues for determination: first, whether the CMS sub-lease was validly and effectively terminated by Wallville as against LHPL (or might now be so terminated) in reliance on either or both of the available breaches and, if so, whether LHPL is entitled to relief against forfeiture.

109 Because the two relevant covenants (clause 3(1) as to rent and clause 11 as to insurance) are stated by the CMS sub-lease to be “essential”, Mr Powell submitted that it was and remains open to Wallville simply to point to breaches of those provisions in order to make good the contention that the sub-lease has been terminated or may be terminated.

110 In light of the decisions of the High Court in Shevill v The Builders Licensing Board (1982) 149 CLR 620 and Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, it is clear that the ordinary principles of contract law, including those as to termination for repudiation or fundamental breach, apply to leases. It follows that the law of contract with respect to “essential” terms and breach of such terms applies to the two lease covenants under consideration. The nature and significance of an “essential” term appear from the frequently cited dictum of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632:

“The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor … If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight.”

111 It may be questioned whether the mere fact that the contract labels a particular term “essential” is of itself sufficient to bring these principles into play, regardless of the objective or intrinsic importance of the term. Authority suggests that it is: see Shevill’s case per Gibbs CJ at p.627. But that issue is of academic interest only in this case. Payment of rent and the effecting of public liability insurance are, of their nature, important and significant matters in the context of any lease, with the result that classification of provisions on those matters as “essential” by the parties is sufficient to give those provisions “essential” status for the purposes of the principles of contract law about termination for serious breach.

112 In relation to the non-payment of rent, it is significant that, for reasons already canvassed, it was CMS, not LHPL, which was bound by the rent covenant at the time of default. The non-payment therefore did not represent a breach by LHPL. But, as the analysis made by Giles JA in Karacominakis (above) demonstrates, an unregistered assignee stands to suffer the consequences of breach of lease covenants by his assignor. The situation examined by the Court of Appeal in that case involved successive assignments. The original lessee was Wall Investments. It assigned to Hollingsworth by a transfer registered in July 1990. Hollingsworth assigned to Karacominakis by a transfer registered in May 1992. Karacominakis assigned to Chadlace by an assignment which was never registered. There was a failure to pay rent in respect of periods at the end of 1993 after Chadlace had taken the unregistered assignment from Karacominakis. The lessor relied on those breaches to terminate under an “essential” term similar in purpose and effect to those now under consideration.

113 After discussing the effects of the general law and s.51 of the Real Property Act in the ways already noted, Giles JA stated the following conclusions:

“The Hollingsworths were not liable under the lease to pay the rent falling due at the end of 1993, and accordingly Chadlace’s failure to pay the rent did not bring repudiation of the lease by the Hollingsworths.

On the transfer of the lease to him, Mr Karacominakis also became subject to its obligations by force of s.51 of the Real Property Act. He is in a different position from the Hollingsworths, because there was not a further transfer of the lease. Mr Karacominakis was obliged to pay the rent to Big Country, and the rent was not paid. It does not matter that, as between Mr Karacominakis and Chadlace, Chadlace was to pay the rent. Nor does it matter that Big Country knew of and was a party to the agreement for transfer of the lease from Mr Karacominakis to Chadlace, because nothing in that agreement took away Mr Karacominakis’ liability to pay the rent. Accordingly, and subject to the following paragraphs, there was repudiation of the lease (in the sense of breach of an essential term) by Mr Karacominakis.”

114 Later, he said:

“As I have said, he [Karacominakis] was obliged to pay the rent to Big Country, and it does not matter that, as between Mr Karacominakis and Chadlace, Chadlace was to pay the rent. Mr Karacominakis had no entitlement to notice of Chadlace’s default, and in order to fulfil his obligations to Big Country he had to ensure that Chadlace paid the rent. He was at risk, but that was the situation in which he had placed himself. Big Country did not prevent Mr Karacominakis from paying the rent. If by Chadlace’s failure to pay the rent Mr Karacominakis repudiated the lease and the repudiation was accepted, in the manner explained above, Big Country’s loss of bargain was caused by Mr Karacominakis’ breach of his obligations as lessee.”

115 In the present case, CMS as the registered proprietor of the CMS sub-lease before 6 December 1999, did not pay the rent for the months of October and November of that year. After 6 December 1999, LHPL did not comply strictly with the insurance covenant. There were therefore breaches of two “essential” terms on which Wallville was entitled to rely.

116 These findings make it necessary to decide whether LHPL is entitled to relief against forfeiture, that being an aspect of equitable jurisdiction which is not confined to forfeiture of proprietary rights but applies also to deprivation by way of contractual termination: see, for example, Federal Airports Corporation v Makucha Developments Pty Ltd (1993) 115 ALR 679. As the judgment of Davies J in that case confirms, the jurisdiction to grant relief against forfeiture is today based on the principle that equity will prevent reliance on a legal right where that reliance is unconscionable: cf Legione v Hateley (1983) 152 CLR 406; Stern v McArthur (1988) 165 CLR 489. In the first of those cases, Mason and Deane JJ identified a number of questions the answers to which might assist in deciding whether the facts justify the intervention of a court of equity:

“In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser’s breach? (2) Was the purchaser’s breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage of other adverse consequences did the vendor suffer by reason of the purchaser’s breach? (4) What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?”

117 As to the first of the questions posed in Legione v Hateley, there are grounds for thinking that the conduct of the sub-lessor Wallville did contribute to the non-payment of rent, in that Wallville did grant a rent holiday, albeit in circumstances where LHPL misunderstood its nature and duration. The same cannot, however, be said if the default in relation to insurance.

118 Turning to question (2), a positive answer cannot be given in relation to the rent obligation. But the insurance irregularities should be classified as trivial or slight, particularly in light of the fact that they have been rectified and that some form of insurance, adequate in amount, appeared to exist at all material times.

119 In relation to question (3), it can be said at once that the sub-lessor has suffered no damage or other adverse consequence by reason of the insurance irregularities. As far as non-payment of rent is concerned, the sub-lessor has suffered the adverse consequence of being out of pocket, but that can be remedied by payment with interest.

120 Question (4) enquires about the magnitude of the sub-lessee’s loss and the sub-lessor’s gain if the forfeiture is to stand. The answer, as it seems to me, is that LHPL will effectively lose a business in which it has invested significant funds, while Wallville will, almost by windfall, be restored to possession which it would not in the ordinary course have expected until expiry of the term of the CMS sub-lease.

121 I do not think question (5) arises in the present context of landlord and tenant.

122 There is, in the present case, the additional point that, as Hope J (as he then was) observed in Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562, the power to terminate for non-payment of rent is regarded in equity as a security for payment so that, if the lessor and other persons concerned can be put in the same position as before termination, the lessee is entitled to be relieved upon payment of rent, costs and interest and other expenses. Hope J emphasised, however, that payment of rent does not produce an automatic right to relief. He said:

“Despite these general statements, it is clear that the lessee is not entitled as of right, and that the court has a discretion in the matter, even though it may only be in very special circumstances in which relief will be refused.”

123 When the insurance irregularities are added, it becomes necessary to look to the wider formulation of relevant principle in the following dictum of Young J, now Chief Judge in Equity, in Courtney Creche Pty Ltd v Okko’s Fine Art and Custom Framing Pty Ltd (unreported, 22 June 1995):

“The current state of the authorities is that before a tenant is refused the remedy of relief against forfeiture, the tenant’s attitude to the lease must be such that no reasonable landlord could expect the tenant to honour its obligations.”

124 Although tensions appear to be running high between Wallville and LHPL (or, more precisely, between Mr Grounds and Mr Liristis), I do not think that there are objective grounds on which Wallville as landlord could take this view of LHPL as tenant. It is true that there has been discontent among some sub-sub-tenants and that there was an issue (since apparently resolved) with WorkCover about the adequacy of flammable liquids storage precautions; also that Mr Grounds has been concerned about the messy appearance of the marina. But none of these, to my mind, should operate to deny relief against forfeiture if and when LHPL pays the outstanding two months rent with interest (which would appropriately be calculated in accordance with Schedule J to the Supreme Court Rules) as well as relevant costs. It is also significant that there has been no suggestion that conduct of LHPL as sub-lessee has in any way jeopardised the head lease held by Wallville from the Crown.

125 I have not so far mentioned occupation by LHPL of areas of the marina complex beyond those covered by the CMS sub-lease.

126 By a letter dated 19 February 1999, to Mr Liristis, Wallville’s solicitors, after referring to LHPL’s then impending purchase of the CMS sub-lease and business, sought to impose the following requirement:

“That when that purchase is completed you will take a special lease of the additional floor space on the upper and lower levels at the additional cost by way of rent of $40,000 per annum.”

127 LHPL’s solicitors replied on 3 March 1999:

“Our client confirms that when he purchases Cronulla Marine Services Pty Limited he will take a special lease of the additional floor space at a rental of $40,000 per annum.”

128 Wallville’s letter of 14 July 1999 to LHPL’s solicitors said:

“Item 3: Additional floor space: The additional cost of $40,000 per annum will be included as part of the transfer documentation.”

129 On 20 December 1999, however, the solicitors for Wallville wrote to the solicitors for LHPL making it clear that there was no permission for LHPL to occupy the additional areas:

enclosing

130 On 28 January 2000, the solicitors for LHPL wrote to the solicitors for Wallville requesting a “new sub-lease of the areas marked on plans A, B and C in your letter dated 20 December 1999”. On 20 March 2000 the solicitors for Wallville replied that no such sub-lease would be granted and that LHPL’s sole rights were in respect of the area on plan A.

131 In these circumstances, I hold that LHPL does not enjoy any right of occupation at Cronulla Marina except under and pursuant to the CMS sub-lease.

132 My conclusions in relation to the totality of the matters the subject of this litigation may be summarised as follows:

133 Having indicated my conclusions on the matters in contention between the parties and my reasons for those conclusions, I will stand the matter over to enable Short Minutes of Orders to be brought in reflecting those conclusions and, if necessary, I will hear submissions on them. I will also hear submissions on costs, noting that, in relation to the relief against forfeiture aspects, counsel might give consideration to the approach taken by Powell J (as he then was) in Cicinare Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139 which I had occasion to adopt in Tannous v Cipolla (No 2) [2001] NSWSC 296.

Last Modified: 05/30/2001

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Citations

Liristis Holdings Pty Ltd v Wallville Pty Ltd [2001] NSWSC 428

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CITATION:	Liristis v Wallville [2001] NSWSC 428
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 3318/00
HEARING DATE(S):	04/04/01, 05/04/01, 06/04/01
JUDGMENT DATE:	25 May 2001
PARTIES :	Liristis Holdings Pty Limited - Plaintiff Wallville Pty Ltd - Defendant
JUDGMENT OF:	Barrett J

COUNSEL :	Mr P.J. McEwen SC - Plaintiff Mr R.J. Powell/Mr I. Archbold - Defendant
SOLICITORS:	Marsdens - Plaintiff Bowring Stone - Defendant
CATCHWORDS:	CONTRACTS - General contractual principles - Termination of contract by common intention - Formation of contract by correspondence - Repudiation - Non-acceptance of repudiation by promisee - Affirmation by promisee - Estoppel not created - LANDLORD AND TENANT - Covenants - Effect of covenants in registered lease before registration of transfer of lease - Termination by landlord for breach of "essential" term of lease - Circumstances where consent to assignment causes landlord to be estopped from relying on lease covenant against assignee - EQUITY - Relief against forfeiture
LEGISLATION CITED:	Crown Lands Consolidation Act 1913 Conveyancing Act 1919 Crown Lands Act 1989
CASES CITED:	DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Masters v Cameron (1954) 91 CLR 353 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd [1986] ANZ Conv Rep 681 Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 Geebung Investments Pty Ltd v Varga Investments Pty Ltd (1995) 7 BPR 14,551 Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27 Johnstone v Milling (1886) 16 QBD 460 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 Lewis v Cook [2000] NSWSC 191 Commonwealth v Verwayen (1990) 170 CLR 394 Shevill v The Builders Licensing Board (1982) 149 CLR 620 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 Federal Airports Corporation v Makucha Developments Pty Ltd (1993) 115 ALR 679 Legione v Hateley (1983) 152 CLR 406 Stern v McArthur (1988) 165 CLR 489 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 Courtney Creche Pty Ltd v Okko's Fine Art and Custom Framing Pty Ltd (Young J, unreported, 22 June 1995) Cicinare Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139 Tannous v Cipolla (No 2) [2001] NSWSC 296
DECISION:	See paragraphs 132 and 133