Lontav Pty ltd v Pineross Custodial Services Pty Ltd (No 2)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 4124 of 2011

LONTAV PTY LTD (ACN 112 630 190)	Plaintiff
v
PINEROSS CUSTODIAL SERVICES PTY LTD (ACN 097 434 145)	Defendant

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JUDGE:	DIXON J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	8, 9, 12, 20 SEPTEMBER 2011
DATE OF JUDGMENT:	28 SEPTEMBER 2011
CASE MAY BE CITED AS:	LONTAV PTY LTD v PINEROSS CUSTODIAL SERVICES PTY LTD (NO 2)
MEDIUM NEUTRAL CITATION:	[2011] VSC 485

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Landlord and Tenant – Lease of hotel premises – Lessee parted with licence of leased premises – Whether licence transferred by wilful breach or mistake – Whether mistake made by lessee or licensing authority – Continuing breach of an essential term which has not been remedied – Lease term about to expire – Option to renew exercised when in breach of essential term – Whether lessee entitled to further term – Lessee previously relieved from forfeiture on conditions including application for re-transfer of licence – Whether relief from forfeiture futile – Whether landlord unconscionably enforcing forfeiture rights – Whether lessee should have relief against forfeiture – Property Law Act1958 (Vic) s 146(2) – Liquor Control Reform Act 1998 (Vic) ss 32, 90(1), 93, 96B, 106, 107.

Retail Leases – Lease of hotel to subsidiary of public company – Whether a retail lease – Whether option to renew governed by statutory provisions – Jurisdiction of VCAT – Retail Leases Act 2003 (Vic) ss 3, 4, 11, 27, 28, 89.

Estoppel – Issue estoppel – Previous application for relief from forfeiture – Condition of relief in first proceeding was remedy of a breach not the subject of a default notice – Whether findings fundamental to decision to grant relief – Principles applying.

Practice and Procedure – Leave to re-open after judgment reserved – principles applying.

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Appearances:	Counsel	Solicitors
For the Plaintiff	Mr A Klotz	Lewenberg & Lewenberg
For the Defendant	Mr M Robins	Nathan Kuperholz

TABLE OF CONTENTS

Parties and issues............................................................................................................................... 1

General principles.............................................................................................................................. 4

Developments since the decision in the first proceeding........................................................... 6

Lontav re-opens its case after judgment is reserved.................................................................. 11

Was there breach of clause 17 of the lease and has breach been remedied?........................ 15

The Liquor Control Reform Act..................................................................................................... 15
Lontav remains in breach of clause 17..................................................................................... 16

In circumstances of continuing breach of an essential term, should equity intervene?..... 20

Was Lontav’s breach of clause 17 of the lease deliberate or does it arise out of a mistake or accident which Pineross is exploiting unconscionably?........................................................................... 22

Is there an issue estoppel arising from the first proceeding?.............................................. 23
There are not exceptional circumstances warranting equitable intervention.................... 28
Was there conduct disentitling Lontav to equity?................................................................. 33

Is relief from forfeiture futile in any event?................................................................................ 34

Is the lease a retail premises lease?.......................................................................................... 36
Is Lontav entitled to relief from ‘forfeiture’ of an option to renew the lease?................... 39

Conclusion......................................................................................................................................... 44

HIS HONOUR:

Parties and issues

On 23 June 2011, Hargrave J granted the plaintiff, Lontav Pty Ltd, relief from forfeiture of the lease of The London Café Bar & Restaurant in Beach Street, Port Melbourne (the premises).[1] The defendant, Pineross Custodial Services Pty Ltd, is the owner and lessor of the premises. In that first proceeding, Pineross contended that Lontav was in material breach of the lease in four respects: failure to pay rent, failure to pay interest, failure to provide an increased bank guarantee and parting with possession without prior consent of Pineross. The fourth ground of breach arose out of dealings between Lontav and Jamal Mohammad and/or a company controlled by him, Melbourne Entertainment Corporation Pty Ltd (MEC). On 21 April 2011, Pineross terminated the lease by re-entry. The central issue for determination in the first trial was the capacity in which Mr Mohammad and MEC occupied the premises.
[1]Lontav Pty Ltd v Pineross Custodial Services Pty Ltd [2011] VSC 278 (23 June 2011).

After about 6 weeks, Lontav forfeited the lease on different grounds. It again seeks relief from forfeiture.

Justice Hargrave ordered relief against forfeiture for the established financial breaches on conditions, most of which have been met. Conditions (4) and (6) required Lontav to apply for re-transfer of the liquor licence for the premises to Lontav and for the appointment of Mr Mohammad as its nominee for the balance of the trial period specified in MEC’s current liquor licence. Justice Hargrave stated that this condition was necessary to restore the position intended at all times by the parties: one which would have obtained but for mistake by the lawyers acting for MEC and Mr Mohammad on the one hand or the Director on the other hand, unwittingly formalised by consent orders made by VCAT.

It is not in issue that Lontav was, and remains, in breach of clause 17 of the lease. In summary, clause 17 requires the lessee lawfully to carry on a liquor supply business at the premises, but that breach was not then the subject of a notice to remedy. The condition imposed by the court to cure the lessee’s breaches of clause 17, was envisaged as an apparently straightforward matter of rectification, for his Honour said:[2]

If the re-issue of the licence to the lessee on these terms can be achieved promptly, about which I see no difficulty on the material available to this Court, it is likely that a multiplicity of proceedings will be avoided in respect of the breaches relating to the transfer of the liquor licence.

[2]Ibid [107].

Regrettably, a multiplicity of proceedings has not been avoided. On 1 July 2011, when Pineross served a notice to remedy breach in respect of the default under clause 17, transfer of the licence to Lontav had not been achieved. The breach was not remedied in the period allowed by the notice. The licence had not been transferred from MEC to Lontav when Lontav closed its case. Pineross has not physically re-entered the premises and is presently restrained from taking possession by Almond J’s injunction granted on 19 August 2011 until trial and extended by me.[3] Lontav does not put in issue that the lease was validly forfeited on its terms on 3 August 2011 following its failure to have the licence transferred to it as required by the Notice. Lontav seeks relief from that forfeiture.
[3]On 4 August 2011, Pineross served notice of termination and re-entry.

The lease term expires on 30 September 2011. On 18 June 2011, Lontav served a Notice of Exercise of Option under clause 26 of the lease. The validity of this exercise of option is challenged by Pineross, primarily as Lontav was in breach of clause 17 when it exercised the option. Lontav does not seek relief in respect of the option notice in this proceeding and does not seek generally to enforce in this court any rights to a further term of the lease. I was told Lontav has commenced the process necessary to bring the matter before VCAT, where Lontav will seek the necessary relief should the forfeiture be relieved.

The following issues arise on the question of relief from the forfeiture of the lease:

1.What were the breaches of clause 17 of the lease and has breach been remedied?
2.In circumstances of continuing breach of an essential term, should equity intervene?
3.Was Lontav’s breach of clause 17 of the lease deliberate or does it arise out of a mistake or accident, which Pineross is exploiting unconscionably?
4.Was there conduct disentitling Lontav to equity?
5.Is relief from forfeiture futile in any event, as the lease term has virtually ended? This issue raises two questions.
a) Is the lease a retail premises lease, affording protection of the option to renew for a further term by provisions of the Retail Leases Act 2003 (Vic)?
b) Is Lontav entitled to relief from ‘forfeiture’ of an option to renew the lease?

The essence of Lontav’s contentions is that it is not fair and just to permit Pineross to enforce the forfeiture when the essentials of its bargain, the lease, can be secured and delivered to it, at least to the end of the term. The rent is paid up and Pineross has not, and will not suffer appreciable damage, pending re-transfer of the licence to Lontav. Pineross has, it was submitted, benefited well from the lease, receiving an above-market rental for some time. In addition, significant fit-out and refurbishment undertaken by the occupying manager MEC, and of some unidentified, appreciable value, would revert to Pineross. Lontav, if it obtains a renewed term, is entitled to a rent review to market, with a prospect of significantly reduced rent and an opportunity to trade its business profitably.

The essence of Pineross’ contentions is that clause 17 is an essential term, wilfully and deliberately breached, and default remains. Pineross is entitled to its bargain. It would be unjust to hold Pineross to a lease that Lontav cannot or will not honour. Not only is it futile to relieve the forfeiture, as it was on the prior occasion, but the lease term has all but ended. Moreover, Lontav is by its conduct disentitled to equity.

For the reasons that follow, relief form forfeiture will be refused.

General principles

Where, as here, forfeiture is for breaches of covenant other than for the payment of rent, jurisdiction to grant relief against forfeiture is conferred by s 146(2) of the Property Law Act1958 (Vic). The court has a broad unfettered discretion to grant or refuse such relief, in addition to, and not in derogation from, its inherent jurisdiction. The court may grant relief on such terms as to costs, expenses, damages, compensation, penalty and otherwise as it thinks fit.

Forfeiture involves the loss or determination of an estate or interest in property or a proprietary right, for example, a lease by an agreed right of termination and re-entry in consequence of a failure to perform a covenant. Courts of equity have long granted relief against the forfeiture of a proprietary interest. The modern restatement of the principles governing relief against forfeiture is that of Lord Wilberforce in Shiloh Spinners Ltd v Harding:[4]

It remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the rights of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word ‘appropriate’ involves consideration of the conduct of the applicant for relief, in particular where his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach. (Citations omitted)

[4][1973] AC 691, 723–724.

As will be explained, due to the breach by the tenant being of an essential term of the lease (and other than for the payment of money), insistence by Pineross on strict legal rights will not ordinarily result in an unconscionable forfeiture of the lease of the premises. The test applied here is whether enforcement of strict legal rights by Pineross is unconscionable or inequitable, because that conduct is taking unjust or unfair advantage of circumstances of mistake or accident in Lontav’s breach of that essential term. In Legione v Hateley, Mason and Deane JJ explained that:[5]

The critical question then is: Should specific performance ever be ordered when the purchaser is in breach of an essential condition? The argument in favour of a negative answer is forceful. If parties expressly or impliedly stipulate that performance of a term is essential to their bargain then it would ordinarily be unjust to the innocent party to require him to complete notwithstanding a breach of that term. Generally speaking equity expects men to carry out their bargains and ‘will not let them buy their way out by uncovenanted payment’ (Shiloh Spinners Ltd v Harding, per Lord Wilberforce). Nor will it remake the parties’ contract simply because it transpires that as things have happened one party has made a bad bargain. But if there be fraud, mistake, accident, surprise or some other element which would make it unconscionable or inequitable to insist on forfeiture of the purchaser’s interest under the contract because he has not performed in strict accordance with its terms there is no injustice to the innocent party in granting relief against forfeiture by means of specific performance with or without compensation. (Citations omitted)

In equity, circumstances of wilful default must be exceptional when examined for unconscionability on the part of the party strictly asserting contractual rights. It is not usually unconscionable to enforce strict legal rights where the breach is deliberate or wilful; enforcing legal rights is appropriate, for the innocent party is not taking advantage of another’s misfortune in exercising legal rights on deliberate breach. In exercising the discretion conferred by s 146(2) of the Property Law Act1958 (Vic), whether breach is deliberate or wilful is a matter to be taken into account.[6]

[5](1983) 152 CLR 406, 447.

[6]Ladies Sanctuary Pty Ltd v Parramatta Property Investments Ltd (1997) 7 BPR 15, 156 (4 March 1997) 15, 161. See also the discussion in Adrian J Bradbrook, Clyde E Croft and Robert S Hay, Commercial Tenancy Law (LexisNexis Butterworths, 3^rd ed, 2009) 631 [19.4].

In Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd,[7] Hollingworth J reviewed the principles applying on relief from forfeiture noting, relevantly to this application, that:

· The court must be satisfied, in relieving against forfeiture, that there is a reasonable expectation that the tenant will honour the lease obligations in the future. Where the tenant is guilty of conduct, beyond the notified default, of such gravity that, even accepting the notified default has been remedied, it would not be unconscionable on the landlord’s part to insist on strict legal rights, relief may be declined.
· Much of the court’s consideration of whether or not to grant relief will focus on the conduct of the tenant.
(i)A tenant must, so far as possible, attempt to remedy the breach or breaches alleged in the notice served and pay reasonable compensation for the breaches that cannot be remedied.
(ii)A tenant must come to court with clean hands and ought not to be relieved if evincing an intention to continue or to repeat the breach of covenant.
(iii)Where the conduct of the tenant reveals a clear history of wilful breaches of more than one covenant, a case of contumacious disregard by the tenant of the landlord’s rights over a period of time, and a total lack of evidence as to the tenant’s ability to speedily and adequately make good the consequences of the default, relief against forfeiture will not be granted.
[7][2005] VSC 236 (1 July 2005) [442]–[443].

Developments since the decision in the first proceeding

In the first proceeding, Hargrave J set out the material terms of the lease and the relevant background facts and circumstances. This series of events ended when Pineross terminated the lease on 21 April 2011. I will not restate these matters except where it is necessary to place the issues to be resolved in proper context.

The trial of the first proceeding was on 6 and 7 June 2011; judgment was reserved. On 18 June 2011, Lontav purported to exercise an option to renew the lease. When that notice was given, the lease was terminated.

On 23 June 2011, Hargrave J granted relief against forfeiture. The effect of that order was to restore the lease without the need for any formal re-grant, as if it had never been forfeited.[8] Lontav is entitled to rely upon the notice of exercise of option notwithstanding the relieved forfeiture.
[8]Chelsea Estates Investment Trust Co Ltd v Marche [1955] Ch 328; Maryland Estates Ltd v Joseph [1999] 1 WLR 83 (23 April 1998) 90–91, citing Dendy v Evans [1910] 1 KB 263, 269, 270–271; Sparta Nominees Pty Ltd v Orchard Holdings Pty Ltd [2002] WASC 54 (28 March 2002).

Clause 26 of the lease required that renewal of the lease for a further term be by written request, no later than 30 June 2011. The lease could be renewed for a further term ‘so long as there shall not as at the date of the serving of the written request be any existing breach or non-observance of any of the conditions, covenants, agreements and provisos on the part of the lessee herein contained’. Pineross disputed that Lontav was entitled to a further term because:

·Lontav was trading in the premises without being the licensee, in breach of the Liquor Control Reform Act 1998 (Vic) and clause 17.2 of the lease;
·Lontav transferred the licence to MEC and was therefore in breach of clause 17.5 of the lease; and
·Lontav failed to provide either a new bank guarantee or a supplementary bank guarantee and was in breach of clause 19 of the lease.

Lontav intends to enforce the option to renew in proceedings in VCAT. Pineross required that Lontav peaceably and quietly yield and deliver up possession of the premises on 30 September 2011, unless the lease was determined sooner. On the same day, 1 July 2011, Pineross served a notice requiring Lontav remedy the breach of clause 17. Lontav failed to remedy the breach of clause 17 within the time permitted. At trial it still had not done so. The lease was forfeited upon the expiry of the notice on 3 August 2011. The following day Pineross served notice of re-entry.

In accordance with Hargrave J’s order, Lontav applied for re-transfer of the licence on 30 June 2011. The application was lodged by solicitors acting for Mr Mohammad and MEC. On 5 July 2011, Lontav’s solicitors wrote to the Director of Liquor Licensing (the Director), providing an explanation and a copy of the reasons for judgment of Hargrave J, requesting urgent consideration of the application and offering to immediately provide any further information required. This letter crossed in the mail with the response from the office of the Director to the application, which was addressed to the solicitors for MEC and forwarded to Lontav’s solicitors. The need to resolve the application ‘within the shortest possible timeframe’ was recognised, although a period of six weeks was permitted for supply of further documents in support of the application.

At this point, it was clear that the application would not be determined within the time allowed by Pineross’ notice to remedy the clause 17 breach. As the Director had requested confirmation of the settlement of the sale of business, it was equally clear that the director did not then appreciate Lontav’s obligations, which conditioned the relief from forfeiture. On 15 July 2011, Lontav’s solicitors wrote again, receiving a prompt response confirming receipt of the application and stating it was currently ‘under consideration’.

During July, neither Lontav’s solicitors nor any officer of Lontav made any further, or more direct, contact with the office of the Director to press for expeditious consideration of the application to re-transfer the licence. Neither was any application made to the court. It is not an issue that Lontav’s director, Mr Tenuta, is seriously ill and unable to give proper attention to his business affairs. However, from at least 5 April 2011, Lontav was represented by solicitors who had also acted for MEC and Mr Mohammad since at least early November 2010. Those solicitors acted for Lontav in the first proceeding. It is inconceivable that the need to remedy the breach of clause 17 during July was not plainly understood. Consequently, the lease was again forfeited. Why Lontav again forfeited the lease on 3 August 2011 was not explained.

Stung into action by the notice of re-entry, the process that culminated in the hearing before me began. Meanwhile, licensing Inspector Blencowe had objected to the application for re-transfer on the ground that Lontav was not a suitable person to hold the licence. A Licensing Panel was convened on 17 August 2011 due to this objection.[9] The Panel reserved its recommendation and it was, when I reserved my decision, yet to be provided to the Director. Once received by the Director, full consideration of those Panel recommendations precedes any decision to re-transfer the licence.
[9]Under s 45 of the Liquor Control Reform Act 1998 (Vic), the Director must refer a contested application and each objection to it to a panel for consideration and report. The panel is to consider each contested application giving the parties a reasonable opportunity to be heard. It must report its findings to the Director, making a recommendation as to whether the application should be granted, with any other relevant recommendation.

Evidence was led from Michael Francis Scully, a solicitor specialising in liquor licensing law. Mr Scully explained the procedures for determining applications under the Liquor Control Reform Act. Annexed to his report was a submission made to the Panel on behalf of the objectors, licensing Inspector Blencowe and the Chief Commissioner of Police. Lontav submitted that I should not accept this annexure because the allegations within it were unproven hearsay. I reject this submission. The purpose of the document is to render more transparent Mr Scully’s reasoning about the procedures applying on the application for re-transfer. Whether the allegations made by the police are true, is not a matter that concerns me. Save in that respect, Mr Scully’s evidence was unchallenged. Mr Scully was also provided with written submissions made on behalf of Lontav. He had no detail concerning what occurred at the Panel hearing. I accept Mr Scully’s assessment that the allegations, that Mr Tenuta and Lontav are not suitable persons to hold the liquor licence, raise a number of important issues that need careful consideration by the Panel in its recommendation to the Director. A finding of unsuitability as licensee against Lontav and/or Mr Tenuta would have significant commercial implications for Lontav and Mr Tenuta, perhaps affecting reputations, characters and livelihoods. Given the significance of any finding, the matters are necessarily complex.

Mr Scully suggested that from his experience and in the normal course, the Director could be expected to take between four to six weeks to make a decision on the re-transfer application. Mr Scully’s assessment is based on the significance of any adverse findings against the proposed transferee and the complexity of the matters before him. Once the Panel has made its recommendation, the Director will carefully consider both the Panel’s recommendation and the evidence that founds it. Mr Scully did not express a view as to how long the Panel might take to make its recommendation in the normal course, noting that at the Panel hearing, the Panel member stated that he would endeavour to provide his recommendation to the Director by Friday, 26 August 2011.

On 2 September 2011, licensing police executed a search warrant at the premises seeking documentation in relation to the provision and supply of liquor at the premises since November 2010, and in relation to the arrangements between MEC, Mr Mohammad, Lontav and Mr Tenuta. The warrant identifies the suspected offences to be the control of a business of liquor supply and the unlicensed selling of liquor. The evidence did not extend to what actually occurred on the execution of the warrant, including what, if anything, the police took into their possession.

However, during final submissions the defendant, by leave, re-opened its case and tendered notice received that day (12 September 2011) of an application to VCAT under s 90(1) of the Liquor Control Reform Act against MEC. The application, made by licensing Inspector Blencowe, for an inquiry at VCAT alleged the licensee, MEC:

·has contravened the Act;
·has obtained the licence by fraud or false representation; and
·is otherwise not a suitable person to conduct a licence.

The inquiry is in respect of the licence for the sale of liquor at the premises. It may be that the execution of the search warrant has assisted licensing Inspector Blencowe to form a view to proceed with a s 90(1) inquiry.

If VCAT is satisfied, after conducting that inquiry, that any of the grounds set out in s 90(1) exist, it may, by order, cancel, suspend or vary the licence, or impose a fine on the licensee. It may also make an order endorsing the licence under s 93 of the Liquor Control Reform Act. Section 93 permits endorsement of the licence to the owner of the premises or their agent if, among other things, the owner is in possession or has the legal right to possession of the premises. Irrespective of the outcome of this application, it is probable that Pineross will apply to the tribunal for an order under s 93 of the Liquor Control Reform Act.

The application for inquiry also gives notice that the applicant intends to seek cancellation of the licence, that MEC be disqualified from holding a licence, that Mr Mohammad, Lontav and Mr Tenuta be joined into the proceeding, and that like disqualification orders will be sought against Mr Mohammad and Lontav.[10]
[10]Concerning the procedure on such an inquiry, see Casey v Galimberti and Others [2006] VSCA 232 (1 November 2006).

From the chronology of events, it appeared likely that the Panel’s recommendation to the Director might have been deferred until the completion of the s 90 inquiry. Alternatively, the Director’s determination might have been deferred for that reason. When the application for an inquiry was produced by Pineross, the trial was stood over to enable Lontav to obtain instructions. The Director’s solicitors have responded to Lontav’s request for further information, stating that while the Director’s consideration of the transfer application is a function to be exercised independently of the s 90 inquiry in the tribunal, the allegations made in that inquiry have potential relevance to the proper determination of Lontav’s application. Apart from foreshadowing a conference by the Director with counsel, no further information about this sequence of events was forthcoming at trial. The Panel had not made any recommendation when I reserved my decision.

Lontav re-opens its case after judgment is reserved

On 20 September 2011, Lontav applied for leave to re-open its case in order to tender a letter from the Director. Pineross opposed the application to re-open. The application was limited to the tender of the letter from the Director, which informed of the decision to re-transfer the licence to Lontav, and the enclosed copy of the licence, now transferred to Lontav. Lontav confined its application to that tender and Pineross informed me it would not call any evidence in response if the letter and enclosure were admitted into evidence.

Pineross contended that I should refuse leave, as the primary consideration should be that of embarrassment or prejudice to Pineross.[11] Pineross contended there was good reason, particularly once a trial concludes and judgment is reserved, to approach such applications with caution and with considerable rigour against the moving party. Invited to identify its embarrassment or prejudice, Pineross drew on the observations of the High Court in Aon Risk Services Australia Ltd v Australian National University.[12] Pineross contended that questions of prejudice are not simply arid exercises in arithmetic assessment of the costs consequences to a party, as delay or a shift in emphasis in a case caused by late evidence can cause prejudice, which does not sound in costs.
[11]See Smith v NSW Bar Association (1992) 176 CLR 256, 267.
[12](2009) 239 CLR 175, 182 [5], 202 [63], 213 [99], 213 [102], 217 [114].

While costs are a matter for later consideration, I am persuaded that in the circumstances Pineross would not be prejudiced or embarrassed by the tender of the letter and enclosure. I permitted submissions directed not just to the issue of leave to re-open but also directed to how the further evidence is relevant to the issues in the proceeding. I accepted the tender of the letter and enclosure, reserving my decision whether to grant leave to re-open. Each party took the opportunity to address both issues. It is clear that Pineross was not prejudiced or embarrassed in these circumstances, as I received a 6-page outline of its contentions on both issues, which was then developed in submissions.

The parties each directed me to a recent decision of a judge of this court in NCON Australia Limited v Spotlight Pty Ltd [No 4],[13] where the court reviewed the cases about leave to re-open and observed (citations omitted):[14]

111The Court has a discretion to allow a party to re-open its case before or after judgment has been given. The overriding principle that guides a court in exercising its discretion in deciding whether to grant an application to re-open is whether the interests of justice are better served by allowing or rejecting the application, as the case may be. An application to re-open may be based on accident, mistake or want of foresight.
112Justice Kenny of the Federal Court of Australia says there are, “broadly speaking, ... four recognised classes of case in which a court may grant leave to re-open although these classes overlap and are not exhaustive”: fresh evidence; inadvertent error; mistaken apprehension of the facts; and mistaken apprehension of the law. An important factor for the Court to consider is the reason or explanation for the evidence now sought to be led not being led at the trial. Where evidence has not been called for some tactical reason that will tell against an application to re-open to call that evidence. Also where an unsuccessful litigant is seeking a back door method to reargue a case, that will tell against an application. Prejudice to the other party is an important consideration. Whether the application is made before or after judgment is of relevance. There is a public interest in the finality of litigation.

The Court of Appeal granted leave to appeal from this decision,[15] although it is clear from the Court of Appeal’s reasons that the circumstances justifying the grant of leave are well removed from the circumstances on this application and it is in those circumstances, not in the general statement of principle, that concern lies.

[13][2011] VSC 271 (23 June 2011).

[14]At [111]–[112]. The court cited in support of the passage quoted Brown v Petranker (1991) 22 NSWLR 717 (Brown) at 728 (Clarke JA with whom Hanley and Waddell JJA agreed - application to recall a witness). See generally Hughes v Hill [1937] SASR 285; Betts v Whittingslowe (No 1) [1944] SASR 163; Butts v O’Dwyer (1952) 87 CLR 267; Watson v Metropolitan (Perth) Passenger Transport Trust [1965] WAR 88; Henning v Lynch [1974] 2 NSWLR 254; Murray v Figge (1974) 4 ALR 612 (4 October 1974); Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Smith v NSW Bar Association (1992) 176 CLR 256; Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471, 478 (Clarke JA with whom Mahoney JA and Meagher JA agreed); Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300; ICI Chemicals & Polymers Ltd v Lubrizol Corp Inc [1999] FCA 662 (20 May 1999); LED Builders Pty Ltd v Eagle Homes Pty Ltd [1999] FCA 1141 (19 August 1999); Manwelland Pty Ltd v Dames & Moore Pty Ltd (2001) ATPR 41-845 (16 October 2001); Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 (31 January 2006); Brown v Dream Homes SA Pty Ltd [2008] SASC 295 (4 November 2008); Bing! Software Pty Ltd v Bing Technologies Pty Ltd (No 2) [2008] FCA 1761 (25 November 2008) and Ross Ambrose Group Pty Ltd v Renkon Pty Ltd (No 2) [2010] TASSC 19 (16 April 2010); Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust v Lenard’s Pty Ltd [2004] FCA 1310 (13 October 2004) [22], [25] (Mansfield J); Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 (31 January 2006) [24] (Kenny J).

[15]Spotlight Pty Ltd v NCON Australia [2011] VSCA 267 (2 September 2011).

I am satisfied that the interests of justice are better served by allowing the application and receiving the further exhibit for the following reasons. First, the fact that re-transfer of the licence has been obtained is material, possibly critical, to the issues under consideration. I have set out the evidence about the prospects of the re-transfer of the licence at the time I reserved my decision. It would be absurd for the court to ignore evidence that the licence had been re-transferred on an application of this nature and attempt to draw inferences about the prospects of that occurring.

Second, that evidence was not available at trial and Lontav’s application to re-open its case and tender the evidence has been made without delay. The letter and enclosure are fresh evidence. It is not evidence discoverable earlier by reasonable diligence, which is not to be confused with the issue of whether the re-transfer could have been obtained prior to the conclusion of the trial using reasonable diligence.

Third, there is not prejudice to Pineross, such that the interests of justice are better served by rejecting the application. Pineross would not have put to the witnesses called for Lontav the matters evident from the letter and enclosure. Such matters may have influenced the opinions of Mr Scully but Pineross did not seek the opportunity, when invited to do so, to take further instructions or call further evidence. Moreover, there was no attempt to seek or tender an opinion from Mr Scully about the Notice received by Pineross of an application under s 90(1) of the Liquor Control Reform Act, when that document materialised during final submissions. I do not consider that the shift in emphasis, brought about by the licence having now been transferred to Lontav, causes Pineross any real prejudice that cannot be compensated for in costs and the opportunity to make further substantive submissions, which was afforded to Pineross.

On 16 September 2011, Lontav was granted licence No. 31908201. The Director has stated to Lontav that the recommendation of the Panel was to grant the application to re-transfer. That recommendation was not produced to the court. The Director has noted the objections of licensing Inspector Blencowe and the Chief Commissioner of Police and their application to VCAT under s 90(1) of the Liquor Control Reform Act, which is yet to be determined, and has reserved the right to take further action under Part 6 of the Liquor Control Reform Act.

Was there breach of clause 17 of the lease and has breach been remedied?

Clause 17 of the lease is explicitly identified as an essential term of the lease. It obliges Lontav to ‘at all lawful times during the said term carry on the business of the supply of liquor on the said premises’. Lontav has covenanted not to transfer, apply for nor concur in a transfer of the liquor licence without first obtaining Pineross’ consent in writing. Lontav has also covenanted not to do, commit, omit or suffer to be done anything by which the liquor licence ‘shall be allowed to expire or become void or shall or may be rendered liable to be forfeited, suspended, taken away or refused or whereby the lessee or the licensee for the time being shall be disqualified for any period or permanently from receiving or having a [liquor licence] in respect of the premises’.

It is not in issue that Lontav was in breach of clause 17 when the lease was forfeited. Lontav has been in breach of clause 17 since 22 September 2009, when Mr Tenuta signed an application to transfer the existing liquor licence No. 31908201 to MEC. The signing and lodging of that document constitutes applying for or concurring in an application for transfer of the licence in breach of clause 17.5 of the lease, it being common ground that Pineross had not consented. The transfer of the licence to MEC followed and Lontav remained in breach of clause 17 for a year by the fact of the transfer.

The Liquor Control Reform Act

The importance of a liquor licence in the context of a lease of licensed premises can hardly be gainsaid. Here the licence is a general licence, which authorises the licensee to supply liquor on the ‘licensed premises’.[16] ‘Licensed premises’ means the premises in respect of which a licence is granted. A licence is, by the Liquor Control Reform Act, plainly attached to premises and necessarily involves a licensee having the lawful right to occupy such premises. A licence cannot ordinarily be transferred against the express wishes of the licensee unless the licensee is evicted or has properly authorised others to transfer the licence on his or her behalf. Where the licensee is not the owner of the premises, the licence ceases to be exercisable if the licensee loses possession of the premise. The licensee is unable to transfer the licence to other premises. Rather, the Director may, on the application of the owner and the proposed transferee, grant a transfer of the licence to the proposed transferee.[17]
[16]Liquor Control Reform Act 1988 (Vic) s 8.
[17]Ibid s 32.

Section 106 of the Liquor Control Reform Act prohibits a licensee from permitting any other person to carry on a business of supplying liquor on the licensed premises without the prior consent of the Director. Breaches of the Act can constitute offences capable of incurring significant fines or terms of imprisonment. A person who is not a licensee, unless an employee or agent of a licensee and acting in accordance with the licence and the Act, must not sell liquor or offer liquor for sale.[18] A licensee or permitee must not, except in accordance with the licence and the Act, supply liquor, or permit or cause liquor to be supplied, or permit liquor to be consumed on the licensed premises.
[18]Ibid s 107.

When MEC was the licensee, it was the only person lawfully able to supply liquor from the premises, but MEC was not the tenant of the licensed premises nor is it a subtenant of Lontav with any possessory rights to the premises. In such circumstances, if the licensee does not obtain approval to remove the licence to other premises, the licence ceases to be exercisable by the licensee. The licence is ‘derelict’ until an order is made for its transfer to some other person.[19] Lontav has appointed MEC or Mr Mohammad as its nominee by the management agreement. But s 106 of the Liquor Control Reform Act requires that a licensee must not permit any other person to carry on a business of supplying liquor on the licensed premises except in accordance with the consent of the Director. No such consent was sought.
[19]See the discussion in the commentary on s 32 of the Liquor Control Reform Act in LexisNexis, Bourke’s Liquor Laws – Victoria, 1758 [LCR 32.40].

Lontav remains in breach of clause 17

It is of primary significance that Lontav has already had relief from forfeiture, an opportunity to ensure that it regularised performance of its obligations under the lease so that Pineross received what it had bargained for. In fact, Pineross has been denied the benefit of compliance with clause 17 since 22 September 2009. What is significant is that the breach had not been remedied. It is not a breach for which reasonable compensation might be paid. At its highest, Lontav contended at trial that it has some prospects of re-transfer of the licence to it and of approval of Mr Mohammad to act as its nominee. I was prepared to accept the first limb of this submission.

However, Lontav obtained the re-transfer of the licence to it on 16 September 2011, after I reserved by decision. At least in part, it has now remedied its breach of clause 17. The licence re-transfer also partly satisfies the condition originally contemplated by Hargrave J. The second part of the condition contemplated that the Director consent to appointing Mr Mohammad as Lontav’s nominee for the balance of the trial period specified in MEC’s current liquor licence. It was not put, and nor would I have accepted, that Lontav will satisfy the second limb of the conditions imposed on relief from forfeiture in the first proceeding by 30 September 2011.

I do not accept in any event that Lontav is no longer in breach of clause 17. It is only now that it is once more the licensee that Lontav could apply for s 106(1) consent for MEC or Mr Mohammad to be its nominee. There is no evidence that Lontav has done so, and the evidence points to MEC or Mr Mohammad continuing as manager or nominee.

At no stage did Lontav offer to cease trading in liquor at the premises pending the resolution of the application to re-transfer the licence. The evidence suggests a slowly mounting campaign, as yet unresolved, against MEC and Mr Mohammad by licensing inspectors. Lontav submitted that it had not been required to cease trading, which is beside the point. I infer, there being no evidence to the contrary from witnesses within Lontav’s camp, that Lontav intends to continue trading in the same manner in which it has been trading for as long as it is able to do so or until it obtains consent or changes the manner in which it carries on its licensed business.

Pineross contends that Lontav cannot lawfully conduct the sole permitted business use of the premises under the lease. For Lontav to continue to sell liquor when it does not hold the licence and/or where MEC or Mr Mohammad is not an authorised associate of Lontav or its approved manager under s 106(1) of the Liquor Control Reform Act or where Mr Mohammad (the sole director of MEC) is not the approved nominee under the Act, is conduct in contravention of ss 106 and 107 of the Act. The consequence is twofold. Should I grant relief from forfeiture, Lontav could continue to trade illegally, in breach of the Act, and in continuing breach of the essential term. Further Lontav’s failure to ‘during the said term duly perform and observe all and singular the provisions and requirements of the Liquor Control Reform Act affecting or relating to the licence’ is a breach of clause 17.2 of the lease. It was an ‘existing breach or non-observance of any of the conditions, covenants, agreements and provisos on the part of the Lessee’ on 18 June 2011, and continuing past 30 June 2011 relevant to the option to renew the lease under clause 26. I shall return to the issue of the option in due course.

Pineross submitted that it is far more likely that Lontav’s application for the Director’s consent to the management agreement under s 106 of the Liquor Control Reform Act will be refused. Alternatively, following the application under s 90(1) of the Liquor Control Reform Act to VCAT, the Director’s reservation of an entitlement to act under s 96B of the Liquor Control Reform Act may result in loss of the licence or a failure to gain the Director’s consent to trading arrangements. Accordingly, Lontav’s continuing breach of clause 17 is not likely be rectified prior to expiry of the lease, or if circumstances otherwise permitted, within a reasonable time. Events have moved on with the re-transfer of the licence on 16 September 2011. However, events have not moved far.

I am not satisfied that it is probable that Lontav will obtain from the Director, either by 30 September 2011 or within a reasonable time, approval of Mr Mohammad as its nominee for the balance of the trial period specified in MEC’s current liquor licence.

In making the finding, I accept that the matters referred to in the application under s 90(1) that are in evidence, are unproven allegations. They may never be established. Lontav invites me to draw that inference from the decision of the Panel, as it is apparent from the material Mr Scully says was before the Panel that there is considerable overlap with the allegations made in the application under s 90(1). I will not accept that invitation. The Panel’s recommendations are not in evidence. They relate to the question of re-transfer of the licence and there is no indication that the Panel needed to, or did, form any view about Inspector Blencowe’s allegations. To the contrary is the Director’s reservation of its position pending the outcome of the VCAT inquiry. It is a matter for Lontav to establish that it can obtain the Director’s consent to the management agreement or that it can and will make arrangements to conduct the business at the premises in a manner which does not contravene s 106(1) of the Act.

Of course, now that Lontav has the licence other arrangements, apart from approval of a management agreement with MEC and Mr Mohammad, might be possible but there was no evidence about such matters. In final submissions, the following exchange occurred:

HIS HONOUR: Is it currently engaging in unlawful activity, the plaintiff?
MR KLOTZ: I don’t have instructions on that, Your Honour.
HIS HONOUR: What view do you submit I should find?
MR KLOTZ: I’m not going to make a submission on that. I will let Your Honour draw his own inferences.
HIS HONOUR: Should I make it a condition, if I grant relief from forfeiture, that the plaintiff strictly observe clause 17.1 and only engage in lawful activity in conjunction with the business of the London Bar and Restaurant?
MR KLOTZ: I would urge Your Honour not to do that.

It needs to be recalled that the issue - whether in granting injunctive relief against Pineross taking possession of the premises it was likely that Lontav will continue to sell or supply liquor from the premises in breach of the Liquor Control Reform Act - was central to the issues before Almond J. Justice Almond received a strong submission that the court would, if it restrained Pineross from taking possession, be permitting or condoning the illegal sale of liquor. I was surprised by Lontav’s attitude evident in the exchange. Lontav was not in any doubt that the issue was an important and critical matter. Moreover, the point is before me and considered below. From disclosure of Pineross’ outline of submissions, there was ample time for Lontav to formulate and put to the court its position on this issue. I will discuss the issue of illegality in due course.

I am not satisfied that the Director’s consent to the management agreement is probably forthcoming or that Lontav will duly perform and observe all and singular the provisions and requirements of the Liquor Control Reform Act affecting or relating to the licence. The Notice of Default that caused the present forfeiture particularises only the breach constituted by the transfer away of the licence by Lontav and does not particularise any other breaches of clause 17 as are now put. That is not the issue, for the forfeiture consequent upon that notice is admitted.[20] I am not satisfied that Lontav has shown that it will honour the lease obligations under clause 17 if relieved of the forfeiture. I consider it probable that Lontav would continue to trade in liquor as it has done to date.
[20]The general rule is that it is not open to a landlord, when opposing the exercise of the discretion of the court to grant relief against forfeiture, to adduce evidence of other breaches by the tenant which have not been the subject of a statutory notice: Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co NSW Ltd (1970) 2 BPR 9,562 (23 October 1970); Cicinave Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139 (2 March 1989); Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 9,635 (27 June 1989). However, extraneous breaches of covenant may be taken into consideration when there are ‘special’ or ‘exceptional’ circumstances: Lo Giudice v Biviano (No 2) [1962] VR 420; Platt v Ong [1972] VR 197.

In circumstances of continuing breach of an essential term, should equity intervene?

In the great majority of cases, by the hearing of the application, an applicant for relief from forfeiture will have remedied the breach or paid compensation for an unremediable breach and be demonstrating a reasonable expectation it will honour the lease obligations when the lease is reinstated. That is not this case. Were I to reinstate this lease, Lontav would remain in breach of clause 17, an essential term. It is probable that it will remain in breach of clause 17 for at least 30 days. I am not satisfied Lontav will remedy the breach.

Unremediated breach may not be fatal to an application. The cases recognise that relief can be granted on conditions that will ensure, despite existing breach, that the lease will be observed or at least broadly directed to ensure that the parties are in the position they would have been in had the lease been observed.

In a number of cases, forfeiture has been relieved despite continuing breach. In Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd,[21] McGarvie J was dealing with a breach constituted by subletting without consent. He said:

I do not regard it as appropriate to require AMP to terminate at this stage the periodical subtenancy of the fourth floor held by Lynliss. It is not contested that Lynliss is a suitable subtenant. In a number of cases courts have regarded it as fair in relieving against forfeiture to allow consequences of a breach of covenant which are an advantage to the tenant and no practical disadvantage to the landlord to continue for various times up to but not beyond the end of the tenant’s term: see, for example, Hyman v Rose [1912] AC 623 and Duke of Westminster v Swinton [1948] 1 All ER 248. If 400 desires it I would require an undertaking from AMP to terminate the tenancy of Lynliss before 14 June 2039.

[21][1990] VR 646, 672.

In Hyman v Rose,[22] the landlord was entitled to possession under a proviso for re-entry for breach of covenant; the tenant had neglected to comply with a notice to repair. The notice related to various alterations to the premises for a permitted change of use from a house of worship to a movie theatre. The tenant offered, as a condition of obtaining relief, to deposit a sum of money to secure the restoration of the premises to their original condition at the end of the lease. The House of Lords said there is no doubt that breaches of covenant must be remedied as a condition of relief from forfeiture but considered a deposit by the appellants of a sufficient sum appropriate to secure the restoration of the building to its former condition at the end of the lease.
[22][1912] AC 623.

In Duke of Westminster v Swinton,[23] premises were let by the plaintiff to Swinton on a long lease containing covenants not to use the premises other than as a private dwelling house and not to make structural alterations without consent, with a proviso for re-entry in the event of breach. Swinton sublet the premises to Adams who in turn sublet the premises to Williams, each sublease containing similar covenants and provisos for re-entry. Without obtaining any consent, Williams converted the premises into six flats, which were let to tenants. Denning J granted relief from forfeiture to Swinton and Adams, who were not guilty of any improper conduct, on condition that within two years, a period well within the term of the lease, the premises be restored to their previous condition and their use revert to that of a private dwelling house. Relief was refused to Williams because his breach was deliberate.
[23][1948] 1 All ER 248 (16 January 1948).

The proposition that relief from forfeiture may be granted, despite continuing breach, does not, in my view, extend any further than was stated by McGarvie J in 400 St Kilda Road. Circumstances where there is no practical disadvantage to the landlord for a breach of covenant to remain until, but not beyond, the end of the tenant’s term are not inconsistent with ensuring that the primary object of the bargain is secured for the landlord.

That is not what Lontav proposes here. I have found that it is not probable that, before the expiry of the term, Lontav can or will conduct the licensed business at the premises in strict compliance with an essential term of the lease. I am not satisfied that the primary object of the bargain is secured for Pineross. Even if Lontav could satisfy all of its obligations under the Liquor Control Reform Act and forfeiture was relieved, the existing arrangements would continue, Lontav having declined a proposed condition that it strictly observe clause 17 and only engage in lawful activity in conjunction with the business.

Accordingly, on this issue, I would refuse to relieve the forfeiture.

Was Lontav’s breach of clause 17 of the lease deliberate or does it arise out of a mistake or accident which Pineross is exploiting unconscionably?

As Lord Wilberforce observed in Shiloh Spinners Ltd, it is established and sound principle requires that wilful breaches should not, or at least should only in exceptional cases, be relieved against if only for the reason that the landlord should not be compelled to continue to deal with a tenant in deliberate breach of its obligations. Lontav contends there was not deliberate breach, rather there was a mistake or accident, which Pineross seeks unconscionably to exploit by insistence on its strict legal rights.

Lontav contends that Hargrave J determined in Lontav’s favour the question of whether breach of clause 17 happened by mistake or accident, and an issue estoppel arises. In the discussion that follows it is important to bear in mind the distinction between a mistake on the part of the Director made in the licence transfer procedure, and a mistake on the part of the tenant made in the performance of the covenants under the lease. To resolve this issue it is necessary to return to what was decided in the first proceeding.

Is there an issue estoppel arising from the first proceeding?

It was not in issue before Hargrave J that Lontav was, and remained, in breach of clause 17 of the lease. That breach was not the subject of a notice. It could not be relied on by Pineross to support its right to terminate the lease and re-enter. It is well established that a landlord, in opposing a tenant’s application for relief against forfeiture, cannot rely on breaches of covenant that are not the subject of notice under s 146 of the Property Law Act 1958 (Vic).[24] Relevantly, a breach that was the subject of the notice in issue in the first proceeding was that Lontav had, without Pineross’ prior written consent, parted with possession of the premises by giving possession of the premises to Mr Mohammad and/or MEC. This breach was denied.
[24]Batiste v Lenin (2002) 11 BPR 20,403 (27 September 2002); Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 79,311 (27 June 1989); World By Nite Pty Ltd v Michael [2004] 1 Qd R 338.

Justice Hargrave identified an issue to be whether the management agreement, if implemented according to its terms on their proper construction, would have the effect that Lontav retained legal possession of the premises. This is turn required consideration of the proper construction of the terms of the management agreement. Reasoning from the terms of the management agreement and the evidence of relevant surrounding circumstances, Hargrave J concluded that the commercial object of the management agreement was to preserve and develop Lontav’s business at the premises for the common interests of Lontav and Mr Mohammad/MEC. The management agreement provided that Mr Mohammad was only a manager and agent of Lontav. The agreement could be terminated if Mr Mohammad failed to obtain an assignment of the lease.

On this issue, Pineross placed significant weight upon Lontav’s breach of clause 17 of the lease. Pineross contended the breaches of clause 17 support a finding that Lontav had parted with possession because Lontav no longer had a right to conduct a business at the premises. Justice Hargrave found, rejecting the submission, that Mr Tenuta did not intend for the licence to be transferred before Pineross consented to assign the lease to MEC. Further, Hargrave J found that Lontav had a right to correct the premature, and thus mistaken, approval by the Director of a licence transfer and the issue of a liquor licence to MEC. His Honour said:

I will make it a condition of relief against forfeiture based upon the established financial breaches that the lessee, Mr Mohammad and MEC remedy this situation by applying to the Director to re-transfer the liquor licence to the lessee. Re-transfer will restore the position contemplated by the management agreement. If the condition is not complied with, the forfeiture will simply remain. For the avoidance of doubt, this Court expects that the Director will determine the application promptly and, without binding it to act in a particular way, will pay due regard to these reasons for judgment. If, for reasons which I cannot contemplate, the application is refused, the lessor has its rights under the lease to serve a notice to remedy for breach of cl 17.

Justice Hargrave, who had the benefit of seeing Mr Tenuta give evidence, rejected submissions that Lontav knowingly and deliberately breached clause 17 of the lease by signing the application for a transfer of the liquor licence to MEC; or that Mr Tenuta in any way misled the Director or the Liquor Licensing Panel by failing to specifically draw attention, in his reference for Mr Mohammad and MEC dated 8 April 2010 in support of the transfer or otherwise, to the fact that Pineross was yet to consent to an assignment of the lease. Justice Hargrave accepted Mr Tenuta’s evidence that it was not until recently that he first appreciated that a licence was issued to MEC.

On the proper construction of the management agreement, Lontav had not breached the lease by parting with possession of the premises without Pineross’ consent. The finding was that such breach was not proved. Pineross had contended unsuccessfully that the court could not be confident that Lontav would in future comply with its financial obligations under the lease. Justice Hargrave relieved the forfeiture on conditions. Conditions 1-3 of the relief granted were directed to outstanding matters concerning financial obligations, which were capable of remedy within 14 days or by the provision of an undertaking from Lontav and Mr Mohammad to the court. Condition 4 remains relevant on this application (with conditions 5 and 6 being ancillary to it). Condition 4 stated:

Within 14 days, the lessee apply to the Director for the re-transfer of the liquor licence for the premises to it and for the appointment of Mr Mohammad as its nominee for the balance of the trial period specified in MEC’s current liquor licence; and pursue that application with all reasonable expedition. (This condition is necessary to restore the position intended at all times by the parties, and which would have obtained but for the mistake by the lawyers acting for MEC and Mr Mohammad on the one hand and the Director on the other hand, and unwittingly formalised by the consent orders made by VCAT. This course of action will have the added benefit of curing the lessee’s breaches of cl 17 which have undoubtedly occurred, even though they are not yet the subject of a notice to remedy. If the re-issue of the licence to the lessee on these terms can be achieved promptly, about which I see no difficulty on the material available to this Court, it is likely that a multiplicity of proceedings will be avoided in respect of the breaches relating to the transfer of the liquor licence.)

Justice Hargrave continued, stating that if he was wrong in concluding that, notwithstanding the mistaken transfer of the liquor licence to MEC Lontav had not parted with possession of the premises, his Honour would have granted relief against forfeiture on the same conditions, as the breaches of clause 17 were, in his Honour’s view, remediable by the conditions that he had imposed. Further, he found in concluding, relief against forfeiture was appropriate on the conditions stated, that subject to compliance with those conditions, there would be no demonstrated loss to Pineross, a comment that he expressed to apply to the breaches of clause 17 as well as the financial breaches.

Thus, the issue of the breach of clause 17 was not fundamental to the decision to grant relief from forfeiture. Consideration of the circumstances of the mistake focussed on both the Director’s procedures and whether there was a reasonable expectation that Lontav could honour lease obligations in the future. By expeditious administrative rectification, Hargrave J expected the condition appropriately to secure the essential bargain between the parties represented by the lease.

To make good its claim with issue estoppel, Lontav must establish firstly that there is an identity of issue in the sense that the very issue that is now sought to be raised by Pineross has been determined by Hargrave J. Lontav submits that on the question of whether the breach alleged against it — that it parted with possession of the premises — was not made out, the findings of Hargrave J, set out above, were fundamental to his Honour’s decision to grant the plaintiff relief from forfeiture.

Secondly, Lontav must show that the findings expressed by Hargrave J,[25] set out above, were fundamental or ‘legally indispensable’ to the ultimate decision that Lontav be relieved from forfeiting the lease. In Blair v Curran,[26] Dixon J explained:

A judicial determination directly involving an issue of fact or of law disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, …
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded … Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived.

[25]Lontav Pty Ltd v Pineross Custodial Services Pty Ltd [2011] VSC 278 (23 June 2011) [97].

[26](1939) 62 CLR 464, 531.

On the first issue, there is not identity of issue between the two applications for these reasons. In this proceeding, the issue is whether Pineross is acting unconscionably by seeking to enforce its strict legal right to forfeit the lease by re-entry for breach of clause 17. A fundamental issue on this question is whether there is any mistake, accident or other element that would make it unconscionable or inequitable for Pineross to insist on forfeiture. A different issue faced Hargrave J. Justice Hargrave found that because of the management agreement, as properly construed, there was no parting with possession of the premises in breach of clause 18 of the lease. His Honour expressly noted that no breach of clause 17 was relevantly before him.[27] Although his Honour imposed a condition requiring application to be made to remedy the breach of clause 17 by securing re-transfer of the liquor licence, it is clear that his Honour formed the view that transfer of the licence by the Director occurred by an administrative procedural mistake. So much appears from his Honour’s observations, which I have set out.
[27]Lontav Pty Ltd v Pineross Custodial Services Pty Ltd [2011] VSC 278 (23 June 2011) [96].

Significantly, his Honour contemplated that Pineross retained its rights under the lease to serve a notice to remedy for breach of clause 17. In the first proceeding, the issue was relevantly what conditions ought to be imposed to ensure that, in the future, a lease reinstated in the context of financial breaches, would be substantially observed. Justice Hargrave’s essential finding was that Lontav has a right to correct a premature, and thus mistaken, approval of a licence transfer, coupled with an expectation that the exercise of that right was, apparently, uncomplicated and procedural. That this finding did not go to the fundamental question of relief from forfeiture is plain from his Honour’s statements:

·‘If the condition is not complied with, the forfeiture will simply remain’; and
·‘If, for reasons which I cannot contemplate, the application is refused, the lessor has its rights under the lease to serve a notice to remedy for breach of clause 17’.

For these reasons, the findings expressed by Hargrave J in paragraph [96] of the judgment do not create any issue estoppel. However, his Honour went further in paragraph [97] where he rejected a submission advanced by Pineross. It might be thought that implicit in the rejection of that submission are the very issues now raised. In connection with the obligations under clause 17 of the lease, is Pineross seeking unconscionably or inequitably to take advantage of a mistake by Lontav, or is Lontav’s breach of clause 17 deliberate or wilful, disqualifying it from equitable relief?

Whether noting the rejection of a submission amounts to determining this issue in Lontav’s favour, is not an issue on which I need necessarily pronounce. Assuming that to be so, I do not consider that the finding in question was fundamental to Hargrave J’s decision. There can be no doubt that the principal issue in the first proceeding was whether the breach, allegedly constituted by parting with possession of the premises, had been proved. Hargrave J’s conclusion as to the proper construction of the management agreement disposed of this ground in Lontav’s favour. Even if it were assumed that Hargrave J resolved an issue sought to be raised in this proceeding in paragraph [93] of his reasons, I am not persuaded that this finding was fundamental to his decision to relieve the forfeiture.[28]
[28]Glen Eira City Council v Kingston City Council [2001] VSCA 150 (7 September 2001) [17]–[29].

For these reasons, the findings of Hargrave J touching upon the characterisation of the breach of clause 17 by Lontav do not bind the parties. Justice Hargrave expressed the proviso that re-transfer of the licence might not be achieved for reasons which he could not then contemplate. This is precisely what has occurred. The issue needs to be examined afresh.

There are not exceptional circumstances warranting equitable intervention

In undertaking an examination whether to characterise Pineross’ insistence on its strict legal rights as unconscionable where Lontav, if relieved from forfeiture, remains unable to honour an essential term of the bargain, and where the breach of clause 17 was deliberate or otherwise has invoked an entitlement to equitable relief through circumstances of fraud or mistake, requires exceptional circumstances.

Two respects preclude the current circumstances from being classified as exceptional. First, for the reasons I have given, any continued trading by Lontav at the premises is likely to be in breach of the Liquor Control Reform Act and likely to be illegal conduct attracting a significant penalty. Secondly, whatever is the root cause of Lontav’s licensing difficulties, Pineross is not unconscionably or inequitably taking advantage of the presumed mistaken or accidental transfer of the licence.

There are two reasons for this latter conclusion. The first is that whatever the true circumstances of the transfer of the licence away from Lontav, that transfer had nothing to do with Pineross. Making due allowance for Mr Tenuta’s serious illness and his inability to give proper attention to his business affairs, it remains a fact that those responsible for daily management of the business at the premises were aware of the relevant circumstances for at least three months prior to lodging the application for re-transfer. It cannot have escaped such managers and advisers that the transfer away from Lontav of the licence, or the failure to obtain consent to the management agreement was in breach of an essential term. Such persons did not enter the witness box. They have not explained this failure to act expeditiously to rectify the mistaken premature transfer of the licence prior to being required to do so as a condition of relief from forfeiture. Pineross contends that Lontav’s knowledge of the transfer of the licence extends back to November 2010 and that it breached clause 17 in signing the application for the transfer of the licence without Pineross’ consent in September 2010.

I do not propose to make any finding that Lontav was in a position to apply to have the mistaken transfer of the licence rectified any earlier than 1 April 2011, for two reasons. The first is that the state of the evidence before me is essentially unsatisfactory for that purpose. Mr Tenuta’s affidavit contains numerous self-serving statements, which were subject to objection. The statements objected to go to this issue. There was no cross-examination before me. Pineross invites me to go to extracts from the cross-examination of Mr Tenuta before Hargrave J. However, that evidentiary source raises difficult questions. For although I do not accept that the parties are bound by Hargrave J’s findings expressed at [97] of his judgment, for the reasons I have given, those findings are an expression of his Honour’s views after having Mr Tenuta cross-examined before him in the context of the issues in the first proceeding.

It cannot be said that Lontav did everything it could to remedy the breach of clause 17 in a timely way. Lontav did not act until Hargrave J specified application for re-transfer of the licence as a condition of relief in the first proceeding. Lontav then completed an application for re-transfer and left it to Mr Mohammad’s solicitors to file the application. Lontav’s own solicitors merely wrote a letter requesting an urgent consideration. Its solicitors were managing Lontav’s affairs, in this respect. Once it became apparent that re-transfer of the licence could not be achieved within the time specified by the default notice, an application ought to have been made in the first proceeding to extend the time for compliance with the notice of breach.[29]
[29]Chandless-Chandless v Nicholson [1942] 2 KB 321.

The imposition of a 30-day time limit by Pineross’ service of the notice of breach in respect of clause 17 was consistent with Hargrave J’s expectations that re-transfer of the licence was merely administrative rectification to restore the status quo. The essential difficulty was, and remains, that until re-transfer occurred, the conduct of Lontav’s business at the premises was not compliant with s 107 of the Liquor Control Reform Act and Lontav was not in a position to achieve compliance with s 106 of the Act.

Pineross also contended that Lontav, either by its director or by its lawyer, knew of ‘the mistake’ from a much earlier point in time, yet did nothing to remedy that essential breach when Lontav was aware it was in breach and Pineross was ignorant of the breach. At what point Mr Tenuta first knew that the licence had been transferred to MEC was in issue. Pineross permitted parts of Mr Tenuta’s affidavit to be tendered without objection, including Mr Tenuta’s statement that he first understood that the licence had in fact been transferred from Lontav to MEC earlier this year. Because he was unavailable for cross-examination, I permitted, over objection from Lontav, the tender of parts of the transcript of his cross-examination before Hargrave J. From that earlier examination, it appears that the expression ‘early this year’ refers to the period February or March 2011. I accept that at that time Mr Tenuta, incapacitated by his illness, did not give proper attention to this ‘discovery’.

However, by the beginning of April 2011, Mr Tenuta had instructed his present solicitors to act on his behalf. Ms Vivien Lewenberg was aware of the licence transfer to MEC by 31 May 2011, following what she described as a theatrical performance by Pineross’ solicitor, Mr Nathan Kuperholz at her office. Another partner of the firm, Mr Alex Lewenberg, took instructions from Lontav. Mr Lewenberg was plainly available to give evidence, but did not. Mr Lewenberg had earlier been involved in this matter on instructions received in late 2010 from MEC. There was clearly an opportunity to commence the process of re-transferring the licence to Lontav at least two months earlier than in fact occurred. MEC and Mr Mohammad also had retained their own solicitor in connection with issues under the Liquor Control Reform Act.

I infer in these circumstances that the Lontav camp, being Mr Tenuta, Mr Mohammad and Lontav’s solicitors, Lewenberg & Lewenberg, was aware that the licence had been transferred to MEC prior to 31 May 2011. I am satisfied that there was no impediment to making an application for re-transfer of the licence soon after 31 March 2011. That inference is open on the documents signed by Mr Tenuta and on his affidavit. Mr Tenuta has, in his affidavit, admitted to understanding the significance of that transfer and of being aware of the transfer having occurred by early this year. Mr Lewenberg, a senior practitioner, understands the significance of a breach of clause 17 of the lease, but he did not give evidence. I infer, from his absence from the witness box, that Mr Lewenberg was not in a position to give evidence that might contradict the inference that there was no impediment to an application being made soon after 31 March 2011 for re-transfer of the licence.

The application to re-transfer the licence, lodged on 30 June 2011, was granted on 18 September 2011. Prosecuted in the manner that occurred, without comment whether it was prosecuted reasonably or expeditiously, the application was determined in 80 days. I am satisfied that had Lontav not been dilatory in applying for re-transfer of the licence, Lontav could have obtained the re-transfer to it of the licence before the time came to exercise the option to renew the lease, which expired on 30 June 2011. However, even had that occurred, it does not follow that it would not have been in breach of clause 17 at that time, as it did not then have and still does not have approval of the Director for the management agreement with MEC and Mr Mohammad. Lontav remained in breach of s 106 of the Liquor Control Reform Act. The circumstances do not invoke other equitable doctrine, which might qualify the condition precedent to the acceptance of the irrevocable offer of a renewed term of the management agreement with MEC and Mr Mohammad.

I am satisfied that Lontav has been in breach of clause 17, at least in the sense of not holding a liquor licence for a year. The parties expressly agree clause 17 is an essential term. It is hardly surprising that the parties have so expressly declared themselves having regard to the location, nature and uses of the premises. To have failed expeditiously to remedy breach of clause 17 and to permit breach to continue for a year is, I consider, serious misconduct on the part of Lontav. This conclusion is strengthened by the fact that Lontav is yet to obtain the Director’s consent, if it was available at all, to MEC and Mr Mohammad being permitted to carry on the business of supplying liquor on the premises. True it is that Mr Tenuta has suffered very serious health issues but the state of his health does not wholly excuse or mitigate Lontav’s conduct. Mr Tenuta made alternative arrangements to deal with the management of his affairs in relation to the London Hotel in two respects: the management agreement with MEC and Mr Mohammad, and retaining solicitors in April 2011. It is plain from Ms Lewenberg’s evidence that Mr Tenuta’s illness did not prevent application for re-transfer once his managers and advisers decided to act.

I am satisfied that Lontav, whether through its manager or its advisers, had ample opportunity from 1 April 2011 to have acted to remedy its breach of clause 17. It was common ground that prior to 27 June 2011, Lontav had taken no step towards applying to re-transfer the liquor licence, nor had it applied for the Director’s consent to the management agreement. Taking the latter step must necessarily confront the application by licensing Inspector Blencowe for a s 90 inquiry, largely based on the conduct of MEC and Mr Mohammad at the premises.

As the moving party for equitable relief, Lontav bears the onus of showing that the court ought to relieve the forfeiture. Lontav’s only response to the contention that it deliberately breached clause 17 was that the parties are bound by Hargrave J’s decision on that issue. Having rejected that contention, there is no evidence on which I can be satisfied that signing the application for transfer and handing it over to Mr Mohammad was not a voluntary and conscious decision — a deliberate act. That conduct was in September 2009, at a time when there is no suggestion that Mr Tenuta’s illness affected his attention to his commercial activities, and constituted breach of clauses 17.5 and 17.6. Lontav did not have Pineross’ consent in writing when Lontav applied for or concurred in a transfer of the licence to MEC. Further, that conduct rendered the licence liable to be forfeited, suspended, taken away or refused, as is evident from the past and ongoing dealings with the licensing inspectors and the Director. Lontav has not discharged the onus of satisfying me that its conduct in signing the transfer form and presenting it to MEC was not voluntary and conscious in breach of clause 17.

For these reasons, I am not satisfied that exceptional cases exist as would permit relief from forfeiture in circumstances of a wilful breach. In addition, even if that breach of clause 17 has continued by accident or mistake on the part of the Director, there is nothing unconscionable or inequitable in Pineross enforcing its right to terminate this lease for breach of an essential term.

Was there conduct disentitling Lontav to equity?

Pineross cites Lord Mansfield’s statement that no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.[30] In a related submission, Pineross contends Lontav does not come to court with clean hands and I ought to refuse equitable relief on these grounds.
[30]Holman v Johnson (1775) 1 Cowp 341, 348.

There was no evidence of any specific sale or supply of liquor from the premises. At best, I might infer that Lontav through its management agreement with MEC and Mr Mohammad engages in such activity but, for my purposes, it is unnecessary that I make specific findings in this regard. Indeed, it is undesirable that I do so given both the impending inquiry in VCAT and the limits of the evidence led before me in this respect. I am, however, satisfied that Lontav’s purpose in seeking relief from forfeiture is to enable it to continue to supply liquor from the premises by trading its business under the management agreement in circumstances that may well constitute a breach of the Act. Lontav was invited to cease trading on the premises until re-transfer of the licence to Lontav and approval of Mr Mohammad’s appointment as its nominee. Lontav refused.

Were I otherwise minded to consider Lontav to be entitled to relief from forfeiture, it may have been necessary to make findings to the appropriate standard about the legality of Lontav’s liquor trading activities, and to consider whether I would refuse that relief because Lontav will likely continue to sell or supply liquor from the premises in breach of the Liquor Control Reform Act.[31] I consider that Hargrave J would have done likewise, had the circumstances in relation to compliance with the terms of the Liquor Control Reform Act developed to the point they have presently reached. As I have stated, it is clear that his Honour regarded the re-transfer of the licence and approval of Mr Mohammad as nominee as merely the correction of an administrative error, capable of expeditious resolution. As matters have developed, it is not a view I take of the ‘error’. Lontav has not availed itself of the opportunity to remedy its breach of clause 17, as afforded by Hargrave J. Further, there is no basis to suggest any unconscionable or inequitable conduct on the part of Pineross in the loss of that opportunity. It is a matter entirely within the control of Lontav.
[31]See Nauru Local Government Council v Australian Shipping Officers Association (1978) 34 FLR 281 (26 September 1978); Epitoma Pty Ltd v Australasian Meat Industry Employees Union (No 1) (1984) 54 ALR 713 (16 July 1984) 728–9.

Is relief from forfeiture futile in any event?

There are two issues put by Pineross. First, Lontav is guilty of serious misconduct, having been in breach of an essential term for a substantial time, and there is no reasonable prospect that it could comply with the next notice to remedy default. For the reasons I have given above, Lontav has not persuaded me that it can honour the essential terms of the lease.

Second, Pineross contends that relief from forfeiture of the lease is futile, as the term expires on 30 September 2011. Lontav responds that, far from being futile, it has exercised an option to renew the lease for a further term of five years. Pineross counters that the exercise of the option was invalid, as Lontav was in breach of clause 17 when it attempted to exercise the option. Lontav accepts this is so, but contends that either clause 17 does not apply in terms, or it may be relieved of the ‘forfeiture of the option’. Lontav’s first contention is that the lease is a retail premises lease, governed by the terms of the Retail Leases Act 2003 (Vic). The following are the consequences if that contention, which Pineross disputes, is accepted.

A retail premises lease that contains an option, exercisable by the tenant, to renew the lease for a further term must state:[32]
[32]Retail Leases Act 2003 (Vic) s 27(1).

· the date until which the option is exercisable;

· how the option is to be exercised;

· the terms and conditions on which the lease is renewable under the option; and

· how the rent payable during the term for which the lease is renewed is to be determined.

There are two circumstances in which the option is not exercisable: where the tenant has not remedied any default under the lease for which the landlord has given the tenant written notice; or where the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults. Lontav contends that these provisions effectively modify the operative effect of clause 26. Prior to the service of the clause 26 notice to renew, Pineross did not give written notice of breach of clause 17. By operation of statute, the failure to give that notice precludes Pineross from contending that Lontav cannot exercise the option due to the breach of clause 17.

Lontav submits there is a further statutory impediment to the position adopted by Pineross. Under s 28 of the Retail Leases Act, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable, at least six months and no more than 12 months before that date. Where the landlord is required to notify the tenant but fails to do so within the time specified, a retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead six months after the landlord notifies the tenant as required. If that date falls after expiry of the term of the lease, the lease continues until that date (on the same terms and conditions as applied immediately before the lease term ends).

Lontav contends that Pineross gave no such notice. Thus, Lontav did not exercise the option within the statutory period.[33] The date after which the option is no longer exercisable is six months after Pineross notifies Lontav as required. Notice is yet to be given. Consequently, the lease continues on the same terms and conditions as applied immediately on 30 September 2011 until a date six months after Pineross gives the notice required under s 28 of the Act.
[33]For this reason, a proviso, that the landlord is not required to do so if the tenant purports to exercise the option before being notified of the date, is not applicable.

Is the lease a retail premises lease?

As I have stated, Pineross disputes that the lease is a retail premises lease. Pineross developed their submission in this way. The lease is a ‘lease’ as defined by the Retail Leases Act,[34] but the definition of ‘retail premises’ does not include premises of which the tenant is a subsidiary of a listed corporation. Pineross contends that it is to the original lease that regard is had, as s 8 provides that for the purposes of the Act, an assignment of a retail premises lease is taken to be a continuation of that lease (and not the entering into of a new lease).
[34]See s 3 – definitions ‘lease’.

Lontav does not contest that the original tenant, Lion Nathan Australia Pty Ltd, is a subsidiary of a listed corporation[35] or that when the lease was originally made, it was not a retail premises lease under the Retail Tenancies Reform Act 1998 (Vic), which contained a provision affecting leases to public companies and their subsidiaries to like effect. Lontav disputes that the lease always retained that character. It submitted that assignments of the lease to private companies brought the lease within the Act.
[35]Retail Leases Act 2003 (Vic) s 4(2)(c) – as the terms are defined in the Corporations Act 2001 (Cth) s 9.

Lontav contended a tenant is defined as the person who under the lease is entitled to occupy the premises.[36] A retail premises lease is entered into or assigned when, under the lease or assignment, the tenant enters into possession of the premises with the consent of the landlord or begins to pay rent, or the lease (or assignment) has been signed by all of the parties to it. The change in the character of the relations between the parties arises as a lease encompasses both privity of contract and privity of estate. An assignment destroys the privity of estate between the landlord and the original tenant, while contractually the original tenant remains liable to the landlord. The new tenant and the landlord have privity of estate created by the assignment from that date. If the date of the assignment is, as here, after the commencement of the Retail Leases Act, the Act applies.
[36]Ibid s 3 – definitions ‘tenant’.

Section 11 determines the application of the Retail Leases Act to a lease. It provides:

11.      Application generally
(1)       This Act applies to a retail premises lease that is-
(a)       entered into after the commencement of this section; or
(b)renewed after the commencement of this section, whether the lease was entered into before or after that commencement.

(2)Except as provided by Part 10 (Dispute Resolution), this Act only applies to a lease of premises if the premises are retail premises (as defined in section 4) at the time the lease is entered into or renewed.

The Retail Leases Act2003 (Vic) commenced on 1 May 2003. The lease of the premises commenced on 1 October 2001, for a term of 10 years with three options of five years each. The initial assignment on 22 July 2004 was to Open Door Pub Company Pty Ltd, a private company that is not a subsidiary of a public company. The subsequent assignment on 29 July 2005 was from that assignee to Lontav.

Lontav submitted this result was supported by the reasoning in Bradburn Pty Ltd v Bobo Nominees Pty Ltd,[37] where O’Bryan J was concerned with the application of the Retail Tenancies Act 1986 (Vic), which is not in similar terms to the current Act. O’Bryan J held, following Haidar v Bendale Pty Ltd,[38] that the fact of assignment brings to an end the relationship of the landlord and tenant, as an assignment by the tenant destroys the privity of estate between the landlord and the original tenant, although privity of contract remains. If a new landlord and tenant relationship is created by an assignment after the commencement of the Act, the whole of the Retail Tenancies Act 1986 applies. Thus, Bradburn became a tenant when it entered into possession of the premises.
[37][1994] V Conv R 54-501.
[38](1993) 2 VR 524, 526–527.

I reject Lontav’s submission. The decision in Bradburn is confined to its own facts, including the terms of the statute there being considered. Section 11 of the Retail Leases Act2003, set out above, resolves the issue of whether the Act applies to the lease. Section 11(1)(a) is inapplicable as the lease was entered into before commencement of the Act. Section 11(1)(b) is also inapplicable as there has not been any renewal of the lease, for that is not the effect of an assignment. Section 9 of the Act defines renewal in terms that refer to renewal by exercise of an option for a further term or under an agreement to renew the lease for a further term between all of the parties to the lease on substantially the same terms and conditions. The initial term of the lease has not concluded (ignoring forfeiture or its relief, which could not be renewal). The Act may apply on a forthcoming renewal of the lease, should that occur. That is not a question I need decide. Section 11(2) makes clear that the Act only applies to a lease of premises if the premises are retail premises (as defined in s 4) at the time of entering into the lease. It is not in issue that the premises were not included in ‘retail premises’, as defined by s 4 of the Act, when the lease commenced because the tenant was a public company subsidiary.

The Retail Leases Act does not apply to the lease and ss 27 and 28 of the Act cannot assist Lontav.

Is Lontav entitled to relief from ‘forfeiture’ of an option to renew the lease?

Lontav’s remaining contention is that it may be entitled to relief from forfeiture of the option. It does not seek that relief from this court. It contends such relief is either a retail tenancy dispute that is not justiciable before this court,[39] or if it is an application for relief against forfeiture for which the court and VCAT each have jurisdiction, the issues necessarily include a retail tenancy dispute that is not justiciable before this court. Lontav points, for the latter submission, to the claims that Pineross has failed to comply with ss 27 and 28 of the Act. This submission is misconceived and is rejected.
[39]Retail Leases Act 2003 (Vic) s 89(4).

Lontav accepted that whether the lease term forfeited was for a period of approximately three weeks or a period extended by five years, recognising a prospect of enforcing the exercise of the option to renew the lease, was a matter relevant to Lontav’s application to be relieved from forfeiture. Lontav contended that the court ought to regard the period effectively forfeited as five years and three weeks. I reject this contention as I do not consider that Lontav is entitled to enforce against Pineross the exercise of the option to renew the lease by notice on 18 June 2011.

The terms of the option are paramount. Unless the construction of the option term requires a different conclusion, which is not this case, an option clause will usually be properly characterised as an irrevocable offer, which the offeree (the tenant) may accept, provided it has performed any condition precedent. Once in breach of a condition precedent, a tenant’s purported exercise of the option amounts, at best, to a counter offer by the tenant to extend the lease, subject to acceptance or non-acceptance by the landlord. In the context of this lease the condition precedent is in these terms. The tenant is not entitled to exercise an option to renew so long as there is at the date of serving the written notice of exercise of the option ‘any existing breach or non-observance of any of the conditions, covenants, agreements and provisos on the part of the Lessee herein contained’.

The principle applying is well settled. In MacDonald v Robins,[40] Dixon CJ, considered a covenant in a lease that conferred an option by the words ‘the lessees having duly observed performed fulfilled and kept all the covenants conditions agreements and stipulations herein contained or implied on their part to be observed performed fulfilled and kept’. Dixon CJ had no doubt these words made it essential to the right to exercise the option that the ‘lessees’ covenants in the lease “have been so observed and performed that there is no existing right of action under them at the time when the” option comes to be exercised’.[41] Moreover, it is immaterial that the forfeiture arising from the breach of covenant had been waived as a breach of condition.
[40](1954) 90 CLR 515, 519.
[41]Citing Finch v Underwood (1876) 2 Ch D 310, 316 (Mellish LJ); Bastin v Bidwell (1881) 18 Ch D 238; and Wilson v Stewart (1889) 15 VLR 781.

In Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd,[42] the New South Wales Full Court was concerned with a clause granting the tenant an option to renew the lease, subject to the punctual payment of rent and the due performance of covenants by the tenant. In issue was whether performance of the term relating to payment of rent was a condition precedent to the tenant being able to accept the offer contained in the option clause to renew the lease. The Full Court[43] held that an option to renew a lease is no more than an offer to make a contract. Because the lessee was required to perform the conditions stated in the option clause before it could accept the offer to renew the lease, performance of the conditions was the only way by which the lessee could accept the offer. The court said:[44]

In the present case the lessor irrevocably offered to grant a lease. Its offer prescribed the time and manner for acceptance. Only by performing the conditions prescribed could it be accepted and result in an agreement for a lease. A purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would in reality be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result. If a conditional offer is made and the offeree without performing the condition purports to accept it, that is to say makes a counter offer and that counter offer is accepted, it is a loose although not uncommon use of language to say that the original offeror has waived performance of the condition which was prescribed by his offer as being the manner of accepting it. In contemplation of law the original offeror has done no such thing. What he has done is to accept a counter-offer and in the result an agreement is made but it is not an agreement consisting of the original offer and an acceptance of that offer.

[42][1957] WN (NSW) 72.

[43]Owen J, Roper CJ in Eq and Herron J.

[44]Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd [1957] WN (NSW) 72, 74.

In Sperry Rand Australia Ltdv Arrandale Properties Pty Ltd,[45] Lush J considered the principle to be ‘so well established by such high authority that it is not possible for me to depart from it’. The essential question was a question of construction of the particular clause before the court. Lush J observed that the cases from Finch v Underwood[46] onwards show that a consideration relevant to the question whether there is a right of forfeiture or whether there has been a waiver of a right of forfeiture, is not relevant to the consideration of the question of whether there has been compliance with the condition precedent to the exercise of an option. In that case, the court was considering a covenant conditioned as follows: ‘[the lessee] shall in the meantime duly and punctually pay the rent reserved by this Lease at the times herein appointed for payment thereof and shall duly perform and observe the covenants and agreements by and on the part of the Lessee contained in this Lease …’. The tenant was held to be in breach of this essential condition. The principle as explained in Gilbert J McCaul and Birch v Prouse[47] — that a plaintiff in breach of an essential condition precedent to its exercise of the option and was not entitled to exercise the option — was applied.
[45][1979] VR 409, 415.
[46](1876) 2 Ch D 310.
[47][1922] NZLR 913.

In BS Stillwell and Co Pty Ltd v Budget Rent-A-Car System Pty Ltd,[48] the court held that the option for a renewed term of the lease under consideration could be exercised, provided that there was no subsisting breach or non-observance by the tenant of any of the covenants, obligations and provisions contained in the lease at the date of exercising the option and at the date of expiry of the said term; and the tenant had regularly paid the rental reserved and paid all other payments due under the lease punctually on demand during the said term. The Appeal Division of this court,[49] following Gilbert J McCaul, held that the exercise of the option was subject to, in this instance, a double condition precedent in the terms of the proviso. The tenant did not observe the covenant as to payment of rent at the date of exercise of the option. An essential condition precedent to its entitlement to exercise the option was not satisfied at the date of exercise of the option. The purported exercise of the option was ineffectual.
[48][1990] VR 589.
[49]Crockett, O’Bryan and Gray JJ.

The difficulty in Lontav’s contentions lies in the characterisation of the rights under an option clause, which enters on the controversy or academic riddle (as it has been judicially described) of the juristic nature of an option. Lontav needs to show that the loss of the opportunity to exercise the option should be classified as forfeiture. The authorities show the nature of a contractual right to a further term to be an irrevocable offer by the landlord that is not a proprietary right. The loss of such a contractual right will not involve unconscionable or inequitable conduct by a landlord in taking a benefit, by exercising strict legal rights, which might attract an equity to relief against forfeiture. That is not to say that in other circumstances when the condition precedent to acceptance of the irrevocable offer of a renewed term has not been met, other equitable doctrine may be invoked.[50] That is not a matter I need consider.
[50]For example, where the loss of the opportunity to exercise the option is a consequence of fraud or unavoidable accident, but not mistake: Hillier v Goodfellow (1988) V Conv R 54-310 (19 April 1988) (Murphy J). See the review of the cases by Russell LJ in Samuel Properties (Developments) Ltd v Hayek [1972] 1 WLR 1296 (24 July 1972) 1302-1305 (that decision was overruled by the House of Lords in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 in other contexts); Lennox v Cameron (1997) 8 BPR 15,939 (2 December 1997) (Bryson J). Russell LJ said of the principles in such cases ‘I decline to extend them to a case such as the present, in which the party is given an option to improve his financial position if he chooses to take particular steps laid down.’

In Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd,[51] Hollingworth J assumed in order to deal with other arguments that such an option, if forfeited, can be the subject of relief against forfeiture and thus did not need to decide whether an option to renew a lease creates an equitable interest in land. Justice Hollingworth proceeded to deny the application for relief from forfeiture on other grounds. One of those contentions concerned the fact that the optionee was still in breach of covenant at the time of its purported exercise (or on the last day available for exercising) of the option. Justice Hollingworth doubted that equity would intervene to grant relief against forfeiture, citing Amev Investments Pty Ltd v Eighty Fifth Tribute Pty Ltd.[52]
[51][2005] VSC 236.
[52](Unreported, Supreme Court of Victoria, Brooking J, 19 December 1986) 10.

In Amev Investments, the tenants of an unexpired lease sought relief from forfeiture for non-payment of rent. The lease was due to expire in two months and contained an option to renew exercisable at least three months before expiration of the lease. The tenants also sought relief against loss of the right of renewal by failure to exercise the option in time. Brooking J refused that relief:

As to the option, there are a number of matters. The defendant company is out of time so far as exercise is concerned. My strong impression is that performance of the covenants is a condition precedent to the exercise in that there must be no breach at the time of exercise and so, had the company tried to exercise its option, it would very likely have been unable to do so. If relief is to be sought the lessee will have to address itself to two matters: its failure to apply in time and the question of breaches, performance being, as I have said, as it presently seems to me, a condition precedent. Moreover there is nothing in the material before me to suggest that any ground could be established for the intervention of equity, assuming equity can relieve against a failure duly to exercise an option of this kind.

In the present case, Lontav’s inability to satisfy the condition precedent to exercising the option was a matter entirely within its control, not that of Pineross. Pineross was ignorant of the relevant circumstances until shortly prior to the hearing before Hargrave J, because Lontav failed to inform Pineross of its dealings with MEC and of the application to transfer the liquor licence that Lontav had completed and handed to MEC. Pineross did not seek to enforce any legal rights under the lease arising by reason of the breach of clause 17 until after this court had afforded Lontav an opportunity to be relieved of the first forfeiture on conditions. It was not contended, and in the circumstances it could not reasonably be contended, that there might be circumstances of fraud or unavoidable accident in the transfer of the liquor licence to MEC.

In the light of the findings I have expressed earlier in these reasons, I am satisfied that on 18 June 2011, when Lontav gave notice purporting to exercise an option to renew the lease under clause 26, it was in breach of clause 17 of the lease. There was an existing breach or non-observance of a condition, covenant, agreement or proviso on Lontav’s part and the condition precedent to exercising the option was unfulfilled and remained unfulfilled at all material times. The Notice of 18 June 2011 could not be the acceptance of an irrevocable offer of a further term, for failure of the condition precedent. It was, at best, an offer by Lontav for a further term, which Pineross was at liberty to reject, as it did. The condition precedent remained unsatisfied when, on 30 June 2011, the time to accept the offer of a renewed term of the lease expired.

For these reasons, I find that Lontav cannot show that it has any prospect of renewing the lease for a further term of five years from 30 September 2011. The remaining term of the lease that was forfeited was 58 days, although Lontav has retained possession of the premises for almost all of that time by agreement or interlocutory injunction. Lontav’s application for relief from forfeiture, were I minded to grant it, would be futile.

Conclusion

For all of the foregoing reasons, Lontav’s application to be relieved of the forfeiture of the lease on 3 August 2011 is dismissed.

I will hear counsel as to the form of the orders and costs.

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[2011] VSC 485

28 SEPTEMBER 2011