Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd - [2018] NSWSC 1586

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2018] NSWSC 1586
Hearing dates: 27 October and 1 December 2017 and 7 March 2018
Date of orders: 22 October 2018
Decision date: 22 October 2018
Jurisdiction: Common Law
Before: Walton J
Decision:
The Court makes the following directions as to possession, rental arrears, mesne profits and damages:

(1) The plaintiff shall file and serve short minutes of order reflecting this judgment within 7 days of the publication of this judgment;

(2) The plaintiff shall file and serve a submission in relation to the calculation of mesne profits and the plaintiff’s entitlement to damages within 14 days of the publication of this judgment; and

(3) The defendant shall file and serve any submission in reply as to mesne profits and damages within 28 days of the publication of this judgment.

The issue of mesne profits and damages shall be determined upon the papers (that is, without further oral hearing) unless either party seeks an oral hearing.

As to costs, the Court makes the following order and directions:

(1) Costs are reserved.

(2) The plaintiff shall file and serve upon the defendant and Mr Shang a submission and further evidence in relation to costs including the order for costs sought by the plaintiff within 21 days of the publication of this judgment.

(3) The defendant and Mr Shang shall file and serve any submissions and further evidence in reply within 42 days of the publication of this judgment.
(4) The further disposition of the issue of costs will be assessed after receipt of the submissions of the respective interests and any evidence. The parties are at liberty to make submissions as to the procedure to be adopted in the resolution of any application for costs made by the plaintiff.
Catchwords: POSSESSION – commercial lease – agreement to lease – child care statutory framework – approvals for child care services – credibility of witness – whether a valid lease existed – pre-conditions within agreement to lease – construction of clauses within agreement to lease – principles regarding construction of a commercial contract – words within clause may be corrected to avoid absurdity – pre-conditions of the agreement to lease were satisfied – alternative submission – the defendant waived its right to insist on satisfactions of pre-conditions in agreement to lease before the lease was registered – the defendant breached the agreement to lease – no verbal agreement found regarding no payment of rent until approval was received – a valid lease existed which was operative from the date of registration – breaches of the lease by the defendant – failure to pay rent – breach of covenants as to use – failure to comply with laws regarding use of the premises – the plaintiff’s entitlement to relief – plaintiff entitled to possession of the premises – plaintiff entitled to rental arrears – plaintiff entitled to mesne profits – plaintiff claimed further damages – claims by the defendant – defendant not entitled to damages nor compensation for fit-out expenses – nature of child care operation did not permit the defendant to occupy the premises without paying rent – directions – costs are reserved
Legislation Cited: Children (Education and Care Services National Law Application) Act 2010 (NSW)
Children (Education and Care Services) Supplementary Provisions Act 2011 (NSW)
Civil Procedure Act 2005 (NSW)
Conveyancing Act 1919 (NSW)
Education and Care Services National Regulations (NSW)
Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57
Bowler v Hilda Pty Ltd (2001) 112 FCR 59; [2001] FCA 342
Cherry v Steele-Park (2017) 351 ALR 521; [2017] NSWCA 295
Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39
Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53
Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (2014) 17 BPR 33,047; [2014] NSWSC 792
Re United Pacific Transport Pty Ltd [1968] Qd R 517
Secretary, Department of Education v Joys Child Care Ltd [2017] NSWSC 749
Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290
Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924
Category: Principal judgment
Parties: Medi-Aid Centre Foundation Ltd (Plaintiff)
Joys Child Care Ltd (Defendant)
Representation:
Counsel:
J E Lazarus with M E Sheldon (Plaintiff)
Solicitors:
Storey & Gough Lawyers (Plaintiff)

File Number(s): 2017/101154

Judgment

HIS HONOUR: By an amended statement of claim filed 11 July 2017, Medi-Aid Centre Foundation Ltd (“the plaintiff”) brought proceedings for vacant possession of its property, being the ground floor, level 1 and level 2 of 60 Campbell Street, Parramatta (“the premises”), together with claims for rental arrears, mesne profits (pursuant to an express contractual right and at law) and damages against Joys Childcare Ltd (“the defendant”). The defendant operated a child care centre on the premises called “Joys Child Care” (“the centre”). The plaintiff also sought orders for rectification of the terms of the clause of an agreement to lease, interest and costs.
The relief was predicated upon two fundamental considerations. The first was that the plaintiff and defendant were parties to a valid registered lease for the premises (the lease relied upon was given registration number AJ578972 and hereafter called “the registered lease”). The second was that the defendant, as lessee, had committed breaches of the lease consisting of a failure to pay rent for more than two years, using the premises contrary to its permitted use as a childcare centre by allowing people to live at the premises and using the premises in a matter contrary to law, by operating a childcare centre without the relevant approvals and by failing to keep them current.
By a cross-claim filed on 3 July 2017, the defendant sought a declaration that the lease had no legal force and effect and that rent was not owing or outstanding to the plaintiff. The defendant also sought that the plaintiff “remove from the [lease] register managed by Land and Property Information” registration of the lease, a declaration that the plaintiff had breached a contractual licence held by the defendant and had wrongly excluded the defendant from its lawful occupation of the premises.
It might be noted in that last respect that, on 23 March 2017, the plaintiff re-entered the premises and changed the locks. The defendant then re-entered the premises and remained in occupation at least for the period extending up to the hearing of this matter.
What lies at the centre of the controversies exposed by those applications was an agreement to lease which was executed by the directors of the defendant on 27 October 2014 (“the agreement to lease”); one of whom was Mr Jan Shang who was given leave to appear as a director on behalf of the defendant in the proceedings.
By the agreement to lease, the parties agreed that they would enter into a lease in a form attached to the agreement to lease subject to certain pre-conditions being met. The attached lease was in identical terms to the registered lease. The abiding issue in these proceedings was whether those pre-conditions were met, and in the result, whether the registered lease was or was not valid. This was expressed in the joint statement of matters of fact and law, filed in the proceedings, as being an issue as to whether the defendant was bound by the registered lease and if so, whether the defendant breached the lease. (I will set out the terms of that document momentarily, although it should be noted it received little attention as such in the submissions of the parties).
That above issue connects to the intended use of the premises under the lease, namely, “childcare” or, in terms of the agreement to lease, the operation of a “Child Care Centre”. As the nature of the regulation of the operation of childcare centres is a material consideration in the proceedings, that matter will receive attention below before turning to the factual background incorporating the relevant terms of the agreement to lease and the registered lease.
An alternative contention was advanced by the plaintiff that, if the lease was invalid, the defendant breached the terms of the agreement to lease. A contention advanced by the defendant, but not reflected in the amended defence or cross-claim filed by it, was that a verbal agreement had been reached between the parties for the defendant not to pay rent until the defendant had obtained approval to operate as a service provider for centre-based childcare.
The joint statement of matters of fact and law in dispute, referred to above, was produced in the Court Book in the proceedings and is extracted below:

The following items are the matters that are in dispute in these proceedings:
1.Whether Joys Child Care Limited (the Defendant) is bound by Registered Lease AJ578972 being a lease between Medi-Aid Centre Foundation Ltd (the Plaintiff) and the Defendant of the premises being the Ground Floor, Level 1 and Level 2, 60 Campbell Street, Parramatta (the Premises), and if so, whether the Defendant breached the lease on the following grounds:
(a) By failing to pay rent to the Plaintiff on and from 1 September 2015;
(b) By permitting parts of the Premises to be used for purposes other than for the operation of a child care, namely permitting persons to reside within the Premises; and
(c) By continuing to operate a child care centre following the suspension of the Defendant's Provider Approval on or around 23 December 2016 and later cancellation of the Defendant's Provider Approval on or around 12 April 2017.

2. Whether the Agreement to Lease between the Plaintiff and the Defendant is still operative or not and whether the Defendant has a right to occupy and operate a business from the Premises free of rent pursuant to the Agreement to Lease.
3. Whether the Defendant received the required Service Approval pursuant to Part 3 of the Education and Care Services National Law contained in the Education and Care Services National Law Act 2010, from the Department of Education.
4. Whether the Defendant is liable to the Plaintiff for rent from 1 September 2015 to 23 March 2017 (the date of re-entry) and mesne profits from 24 March 2017 until the Defendant gives up possession of the Premises.
5. Whether the Court should order a Writ of Possession.
6. Whether Mr Jan Shang as director of the Defendant company, and as the person having carriage and control on behalf of Defendant should, in the event that the Defendant is unsuccessful in these proceedings, be personally liable for the Plaintiff's costs in the running of these proceedings.

RELEVANT STATUTORY PROVISIONS

Children (Education and Care Services National Law Application) Act 2010

Pursuant to s 4 of the Children (Education and Care Services National Law Application) Act 2010 (NSW) (“the Act”), the “Education and Care Services National Law”, as in force from time to time, set out in the Schedule to the Education and Care Services National Law Act 2010 (Vic), applies as law in New South Wales and may be referred to as the Children (Education and Care Services) National Law (NSW) (“the National Law”). It applies as if it were part of the Act.
The objective of the National Law was to establish a national education and care services quality framework for the delivery of education and care services to children (s 3).
Under the National Law, a person or entity seeking to operate as an education or care service is required to hold a provider approval and a service approval. A childcare service is required to hold a provider approval or service approval.
The following definitions are found in s 5 of the National Law:

approved education and care service means an education and care service for which a service approval exists.
…
education and care service means any service providing or intended to provide education and care on a regular basis to children under 13 years of age…
Example. Education and care services to which this Law applies include long day care services, family day care services, outside school hours services and preschool programs including those delivered in schools, unless expressly excluded.
…
family day care service means an education and care service that—
(a) is delivered through the use of 2 or more educators to provide education and care to children; and
(b) operates from 2 or more residences;
Note.
A family day care service that is an approved family day care service may provide education and care to children from a family day care residence or an approved family day care venue.
…
provider approval means a provider approval—
(a) granted under Part 2 of this Law or this Law as applying in another participating jurisdiction; and
(b) as amended under this Law or this Law as applying in another participating jurisdiction—
but does not include a provider approval that has been cancelled.
…
service approval means a service approval—
(a) granted under Part 3 of this Law or this Law as applying in another participating jurisdiction; and
(b) as amended under this Law or this Law as applying in another participating jurisdiction—
but does not include a service approval that has been cancelled;

By Pt 2 Div 1 s 10(1) of the National Law, a person other than a prescribed and eligible person, may apply to the “Regulatory Authority” for provider approval. The “Regulatory Authority” is defined in s 5 as meaning:

a person declared by a law of a participating jurisdiction to be the Regulatory Authority for that jurisdiction or for a class of education and care services for that jurisdiction.

By the Children (Education and Care Services) Supplementary Provisions Act 2011 (NSW), the Regulatory Authority for the purposes of s 5 of the National Law is the Director-General of the Department of Education and Communities (now, the Department of Education) (“the Department”).
By s 12(1) of the National Law, an applicant who is an individual must satisfy the Department that the applicant is a fit and proper person to be involved in the provision of an education and care service. Similar requirements apply with respect to persons in the management and control of an entity that is not an individual (s 12(2)).
Section 15(1) of the National Law provides:

15 Grant or refusal of provider approval
(1) On an application under section 10, the Regulatory Authority may—
(a) grant the provider approval; or
(b) refuse to grant the provider approval.

Section 21(1) of the National Law provides:

21 Reassessment of fitness and propriety
(1) The Regulatory Authority may at any time assess—
(a) whether an approved provider continues to be a fit and proper person to be involved in the provision of an education and care service; or
(b) whether a person with management or control of an education and care service operated by an approved provider continues to be a fit and proper person to be involved in the provision of an education and care service; or
(c) whether a person who becomes a person with management or control of an education and care service operated by the approved provider after the grant of the provider approval is a fit and proper person to be involved in the provision of an education and care service.

By Pt 2 Div 4 of the National Law, provider approval may be cancelled (see s 33).
The requirement to obtain a service approval is contained within Pt 3 of the National Law. An application for a service approval may be made by an approved provider to the Department (s 43(1)).
The grant or refusal of a service approval governed by s 48 of the National Law which is in the followings terms:

48 Grant or refusal of service approval
(1) On an application under section 43, the Regulatory Authority may—
(a) grant the service approval; or
(b) refuse to grant the service approval.

Note.
A service approval is granted subject to conditions in accordance with section 51.
(2) Subject to subsection (3), the Regulatory Authority must make a decision on the application within 90 days after the Regulatory Authority received the application.
Note.
If further information is requested under section 45(2), the period between the making of the request and the provision of the information is not included in the 90 day period.
(3) The period referred to in subsection (2) may be extended with the agreement of the applicant.
(4) The Regulatory Authority may grant a service approval solely for an education and care service if—
(a) the application includes an application for an associated children’s service; and
(b) that associated children’s service does not comply with the criteria referred to in section 47(3).

(5) The Regulatory Authority is taken to have refused to grant a service approval if the Regulatory Authority has not made a decision under subsection (1)—
(a) within the relevant time required under subsection (2); or
(b) within the period extended under subsection (3)—
as the case requires.

(6) A service approval cannot be granted solely for an associated children’s service.

Section 51 of the National Law relates to conditions on service approval. Section 51(1) and (2) is extracted below:

51 Conditions on service approval
(1) A service approval is granted subject to the condition that the education and care service is operated in a way that—
(a) ensures the safety, health and wellbeing of the children being educated and cared for by the service; and
(b) meets the educational and developmental needs of the children being educated and cared for by the service.

(2) A service approval for a family day care service is granted subject to a condition that the approved provider must ensure that each family day care educator engaged by or registered with the service is adequately monitored and supported by a family day care co-ordinator.

Section 103(1) of the National Law provides the following:

103 Offence to provide an education and care service without service approval
(1) A person must not provide an education and care service unless —
(a) the person is an approved provider in respect of that service; and
(b) the education and care service is an approved education and care service.

Counsel for the plaintiff correctly submitted: “[i]t is common ground that, as of 1 January 2012, that is more than 2 years before this agreement was entered into, the Department of Community Services was no longer the relevant regulatory body governing the approvals process for childcare operations in New South Wales. That responsibility, under the new National Law, had been transferred to the Department of Education”.
The aforementioned legislative schemes for childcare services became effective on 1 January 2012. All material events in this matter occurred after its passing.
The Education and Care Services National Regulations (NSW) (“the regulations”) contains a definition in s 4 of “centre-based service” as follows: “an education and care service other than a family day care service”.
The regulations contain provisions as to provider approval and service approvals. Service approvals are regulated by Pt 2.2. Regulations 24 and 25 govern applications for service approval for centre-based services. In the additional information required for such applications in reg 25, there is a requirement to provide “a statement that the applicant has the right to occupy and use the premises and any document evidence” (the example is given of a lease of the premises).
In contrast, reg 26 deals with an application for service approval for a family day care service. The same information requirement vis-à-vis occupancy of premises is required under that provision.

FACTUAL BACKGROUND

The evidence

The plaintiff relied upon the following evidence of the following witnesses whose evidence-in-chief was primarily by affidavit:

Mr Christopher Calvert Gough, senior partner of the plaintiff’s firm of solicitors (affidavit dated 17 August 2017);

Mr David John Knight, the joint Chief Executive Officer of the plaintiff (affidavit dated 16 August 2017);

Mr Anthony Khoury, director of the leasing agent company engaged to lease the premises (affidavit dated 16 August 2017);

Ms Lyn Tamsett, property manager for the premises (affidavit dated 22 August 2017);

Mr Edward Issa, manager of the Compliance and Investigations Unit, Early Childhood Education at the Department (affidavit dated 13 September 2017);

Ms Ran Bing, a woman who worked at the centre as a receptionist for about a year (affidavit dated 13 October 2017); and

Mr Rosario Nicholas Russo, solicitor employed at the plaintiff’s firm of solicitors (affidavits dated 9 October 2017 and 24 October 2017, respectively).

Mr Gough, Mr Knight, Mr Khoury, Ms Tamsett, Mr Issa and Ms Bing were required for cross-examination. Mr Russo gave evidence-in-chief with regard to service of affidavits but was not required for cross-examination on either that question or on his evidence in his affidavits.
My general impression of the plaintiff’s witnesses was that they were honest and reliable. They gave their evidence frankly and to the best of their recollection.
The defendant relied on the affidavit of Mr Shang dated 17 November 2017. Mr Shang was cross-examined by counsel for the plaintiff.
There were significant areas of conflict between the evidence given by Mr Shang and the plaintiff’s witnesses. The conclusion I have reached as to Mr Shang’s evidence is such that, where there is a conflict between the evidence of a witness for the plaintiff and his evidence, I prefer the evidence given by the witness for the plaintiff. His evidence may only be accepted, in my view, where corroborated by another witness or documentary evidence.
My overall impression of Mr Shang’s evidence was that he was unreliable, evasive and disingenuous. I would not go so far as accepting the plaintiff’s submission that he was mendacious but he was certainly an unimpressive witness.
Mr Shang was evasive in answering questions, often making speeches from the witness box and his evidence often lacked plausibility such as his contention that the agreement to lease gave the defendant a right to occupy the premises and carry out child care services without paying any rent whatsoever for the entirety of the lengthy occupation by the defendant. Similarly, his evidence that there was a verbal agreement between the parties allowing the defendant not to pay rent whilst the defendant’s application for a service approval for a centre-based service was pending (a proposition he advanced for the first time in the cross-examination of Mr Knight and Ms Tamsett), as I will discuss below, lacked plausibility.
There are some further particular illustrations relevant to my overall observations: the defendant’s refusal to accept responsibility for any communication not personally written by him or his refusal to acknowledge that he was aware of communications unless it could be conclusively proved that he had received them such as communications between the plaintiff’s solicitors and his lawyer Mr Szeto, which it may be inferred were actually sent to him. He used the words “show me the evidence” and “I demand proof” during the course of his evidence.
Another relevant illustration was Mr Shang’s assertion that he did not receive evidence served on him by Mr Russo (Mr Russo gave evidence that he did in fact serve the evidence on Mr Shang).
A further illustration is the berating by Mr Shang of his former employee Ms Bing at some length about whether she was a paid employee or volunteer rather than addressing what was the substance of her evidence which was whether she did or did not observe persons living at the premises.

Overview of relevant events: Chronology

The following summary is based upon the chronology, provided during the course of proceedings and treated as part of the plaintiff’s submissions, which drew upon the evidence. No contrary contention was raised by the defendant with respect to the chronology.

June to November 2014

On 3 June 2014, the defendant submitted an application for a provider approval to the Department. The defendant’s provider approval was granted on 20 June 2014 with the following reference number “PR-40002094” (“provider approval”).
On 13 October 2014, the plaintiff and the defendant entered into heads of agreement for the lease of the premises (see as discussed below).
On 24 October 2014, the agreement to lease with an attached lease were provided by Storey & Gough Lawyers (“Storey & Gough”), the solicitors for the plaintiff, to Access Legal, the solicitors for the defendant (at that time). On 3 November 2014, Storey & Gough received a letter from Access Legal with the agreement to lease and the attached lease executed by the defendant.
On 17 November 2014, the defendant lodged a development application with Parramatta City Council for the operation of the Child Care Centre.
The copy of the agreement to lease in evidence was not dated, however a letter from the plaintiff to Storey & Gough forwarding the executed agreement for lease was dated 25 November 2014.

April to November 2015

On 23 April 2015, Parramatta City Council approved the defendant’s development application. The defendant advised that it would lodge the application for service approval with the Department the next day.
On 29 April 2015, Storey & Gough , sent an email to Access Legal advising that the executed lease could now be registered. That same communication requested the provision of a bank guarantee and evidence of insurance currency.
On 30 April 2015, the defendant submitted two applications for service approval as follows:

APP-40058080 – service approval for family day care (“the family day care application”); and

APP-40058068 – service approval for centre-based care (“the first CBC application”).

(The two applications shall hereinafter be collectively referred to as “the service approval applications”).

On 21 May 2013, Mr Khoury received a bank guarantee from the defendant. That same day the defendant was granted access to the premises.
On 1 June 2015, the first CBC application was invalidated for failure to provide further information within the specified time period. The same application was re-opened by the Department the following day.
On 27 July 2015, the lease was registered as “AJ578972”. Mr Chris Gough, Senior Partner at Storey & Gough, forwarded the defendant’s copy of the registered lease to Access Legal together with a letter dated 7 August 2015.
On 26 August 2015, the defendant received email communication from two separate divisions within the Department with respect to the service applications:

Ms Pamela Gray, Approvals Officer within the External Affairs and Regulation Division of the Department, notified the defendant that the first CBC application (as well as a separate application for service or temporary waiver with reference “APP-40060928”) had been closed by the Department “because we did not receive the documentation requested”. (Ms Gray had previously contacted Mr Shang, requesting evidence of right to occupy, proof of insurance, building compliance certification, plans and information concerning the simulated outdoor space, by email on 29 July 2015. Both emails included the following warning: “Please note that you must not commence operating until you receive a service approval from us”).

Mr Edward Okulicz, Approvals R/Team Leader with the Early Childhood Education and Care Division of the Department, wrote with respect to the family day care application and advised “an insurance policy document” was required to complete the application. (That document was provided by the defendant by way of reply email on 11 November 2015).

On 1 October 2015, the defendant sent a letter of complaint to the Ms Michele Bruniges, Secretary of the Department. The purpose of the letter was “to lodge a formal complaint in relation to the unfair treatment of our service approval application for centre-based care by the Approvals Officers from the Early Childhood Education and Care Directorate (ECECD)”. The six-page letter included, inter alia, a lengthy account of events from the perspective of Mr Pan Wayne, Director Assistant of the defendant, followed by the request below:

We are requesting you, the Secretary to look into the facts we raised and respond accordingly.
Please be noted of the following point:
Currently we are paying nearly $20,000 per month for the property rental starting from 1 September 2015.

As noted above, in an effort to satisfy the Department’s requirements with respect to a right to occupy the premises, the defendant forwarded a copy of the certificate of currency (“an insurance policy document”), as well as a copy of the lease, by email to Mr Okulicz on 11 November 2015.
On 13 November 2015, the defendant was granted service approval under s 48 of the National Law for the family day care application (approval number “SE 40004519”). The “[l]ocation of education and care services” listed on the service approval was “2301/138-140 Church Street, PARRAMATTA NSW 2150”. The conditions of the approval were as follows:

Conditions
The approved provider must:
• Operate in compliance with the conditions of Section 51 of the Children (Education and Care Services) National Law, and the requirements of the Education and Care Services National Regulations.
Additional Conditions
The approved provider must:
• Ensure that no more than 60 family day care educators are employed or engaged by the service during the first twelve months after the service commences operating. An application to amend or remove this condition will not be considered until the service has been operating continuously for at least one year and can demonstrate compliance with the National Law and Regulations during that time.
• Employ at least 1 full time family day care co-ordinator for every 15 family day care educators providing education and care to children.

February to December 2016

On 12 February 2016, Storey & Gough issued a letter of demand to the defendant for unpaid rent.
On 29 February 2016, Mr Wayne sent an email to Mr Nadal Hammoudi, Approvals Team Leader within the Early Childhood Education and Care Division at the Department, that confirmed an intention to use the premises as “our community day care venues”. That same day, Mr Hammoudi informed Mr Wayne that the defendant, as approved provider, “is required to notify the regulatory authority of each family day care venue”.
On 2 May 2016, the defendant submitted a second application for service approval for “Centre-based Care” with reference number “APP-40078547” (“the second CBC application”). The service location listed on the second CBC application was the premises.
On 30 June 2016, the second CBC application was invalidated on account of the defendant failing to provide the required information, as requested by the Department, on time. That same day, the defendant submitted a further service approval application with respect to the premises with reference number “APP-40082131” (“the third CBC application”). The third CBC application was refused by the Department on 18 October 2016.
On 23 December 2016, Mr Graham Humphreys, Director within the Early Childhood Education and Care Division of the Department, advised the defendant that, pursuant to s 28 of the National Law, its provider approval was suspended for a period of six months. The reasons for the suspension, in summary, included:

“[c]ircumstances have shown that you may not be a fit and proper person to be involved in the provision of an education and care service” (reference, in that respect, was made to a site visit by the Department to the premises on 13 December 2016);

failure “to ensure that every reasonable precaution has been taken to protect children being educated and cared for by the service from harm and from any hazard likely to cause injury, as required by section 167(1) of the National Law”;

“several” previously identified breaches of National Law “remain of concern”; and

“the Regulatory Authority is continuing investigations into the events from 22 April 2016, where a child was found unsupervised in the lift of Joys Child Care premises. This may constitute a breach of section 165 of the National Law relating to inadequate supervisions of children”.

March to September 2017

On 9 March 2017, Storey & Gough issued the directors of the defendant with a letter of demand with the heading: “Notice of Intended Termination of Lease between Medi-Aid Centre Foundation Ltd and Joys Child Care Limited” (“the letter”). The letter constituted notice pursuant to s 129(1) of the Conveyancing Act 1919 (NSW). First, it specified the particulars of each alleged breach as follows:

1. You have failed to pay rent from 1 September 2015 to date with the total rental in arrears amounting to $379,811.36. In accordance with clause 12.5.1 of the Lease, the failure to pay rent after 14 days of its due date is a breach of an essential term of the Lease;
2. The Premises is strictly to be used as a childcare centre and no other purpose. We are advised that people have been residing within the Premise contrary to clauses 6.1.1 and 6.3.2 of the Lease; and
3. Clause 6.1.4 of the Lease requires you to comply with all laws regulating the use of the Premises. The regulation of education and care services for children is governed by the Education and Care Services National Law Act2010 (the Act) and its regulations. Under the Act you are required to hold a provide approval to operate a child care centre. It is apparent that your provide approval was suspended on 23 December 2016. You have since continued to operate the child care centre contrary to the Act. Such contravention of the Act puts you in breach of Clause 6.1.4 of the Lease, being an essential term of the Lease.

Secondly, Storey & Gough advised that, if the breaches were not remedied within 14 days from the date of the letter, the plaintiff would exercise the following rights pursuant to the lease:

1. Terminate the Lease by taking possession of the property pursuant to Clause 12.2 of the Lease and change the locks;
2. Claim the monies owing from the bank guarantee held by our client; and
3. Commence proceedings against you to recover all monies owed, damages for loss of rent for the balance of the term of the Lease or until our client is able to find another tenant for the Premises on reasonable terms.

On 29 March 2017, Mr Humphreys advised the defendant that, pursuant to s 33(1)(a)(i) of the National Law, the Department had decided to cancel the defendant’s provider approval effective as of 12 April 2017. The six-page letter set out the Department’s reasons for cancellation under the following sub-headings:

“Fitness and propriety”;

“Continued provision of education and care services by the approved provider would constitute an unacceptable risk to the safety, health or wellbeing of any child or class of children being educated and cared for by an education and care service operated by the approved provider”; and

“The approved provide has breached a condition of the provider approval”.

By the same letter, Mr Humphrey’s also advised that:

Under section 34(1) of the [National] Law, your service approval for JOYS Child Care, which is held by your provide approval, is also cancelled.

On 13 June 2017, Parker J gave judgment in Secretary, Department of Education v Joys Child Care Ltd [2017] NSWSC 749 (“Department of Education v Joys”). The Secretary of the Department initially sought ex parte interlocutory relief in the form of injunctions against Joys Child Care Ltd (the first defendant in those proceedings and the defendant here – referred to as “JCC” in those proceedings), Chinese Students Association Inc (the second defendant in those proceedings and referred to as “CSA” in those proceedings) and Mr Shang (the third defendant). His Honour declined, however, to grant relief on that occasion on the basis that relief was sought ex parte. The Department’s case was that “the continued operation of the Centre is a breach of the National Law which should be restrained by the Court in its equitable jurisdiction” (Department of Education v Joys at [23]).
The matter was heard over three days, 17-19 May 2017. During the course of proceedings, the issues in dispute narrowed and the Department sought to treat the application as being one for summary judgment (Department of Education v Joys at [25]). Mr Shang consented to the Department seeking summary judgment as part of the application. In that light, his Honour set out the possible outcomes to the application before the Court (at [26]-[29]):

[26] … First, I may be satisfied that the Department’s case is sufficiently clear to justify summary judgment in its favour in the form of final relief (certainly declaratory, and possibly injunctive as well). Second, I might refuse summary judgment but grant interlocutory injunctions as initially sought by the Department. Third, I might refuse both summary judgment and any interlocutory relief, leaving all issues to be determined at a final hearing.
[27] It is well known that the test for the grant of summary judgment is a very demanding one. The Court must be satisfied to a degree of virtual certainty that if the matter were to proceed to a final hearing, final relief would be granted. In the present case, in order to accede to the Department’s application, I would need to be satisfied to the requisite degree that the Department would obtain injunctive relief (or at least declaratory relief) at the final hearing.
[28] This means that I would need to be satisfied to the requisite degree that the operation of the Centre pursuant to the terms of the Service Agreement constituted a breach of the National Law. In addition, I would also need to be satisfied that the Department had standing to obtain the relief sought and that it was appropriate to grant relief as a matter of discretion.
[29] If I were not satisfied that summary judgment is appropriate then, if I were to grant an interlocutory injunction I would need to consider whether a sufficient prima facie case had been established and that, having regard to the balance of convenience and other relevant circumstances, an interlocutory injunction should be granted.

His Honour ultimately found in favour of the Department and granted declaratory relief with liberty to apply for final injunctive relief, in the following terms (at [63]):

[63] The Court orders are as follows:
1. Declare that the operation by the first defendant or the second defendant (including pursuant to the Service Agreement dated 2 February 2017 between the second defendant and Divine Family Day Care Pty Ltd) of the child care centre known as “Joys” at Campbell Street, Parramatta, has since 12 April 2017 constituted an unlawful contravention of Children (Education and Care Services) National Law (NSW), s 103.
2. Grant liberty to the plaintiff to apply for injunctive relief with respect to the continued operation of the Centre.
3. Grant liberty to the parties to apply with respect to costs, such liberty to be exercised within 28 days.

His Honour also noted the following with respect to the initial relief sought;

[59] In view of my conclusions on final relief, it is not necessary to deal fully with this issue. I should indicate, however, that had I considered summary judgment inappropriate for some reason, I would have granted an interlocutory injunction against CSA. This is because, for reasons which I have given, I consider it to be sufficiently clear that the operation of the Centre by CSA is a contravention of the law.
[60] I would not, however, have granted an injunction against JCC on this basis. There is no satisfactory evidence that it is still operating the Centre and Mr Shang asserts it is not.
[61] Nor would I grant an interlocutory injunction against Mr Shang personally. I asked counsel for the Department why it was necessary to make an order against Mr Shang personally when any order against any of the corporate entities would bind him in his capacity as an officer or agent of those corporate entities. Counsel argued that such an order was necessary because, so it was contended, Mr Shang was seeking to evade the operation of the National Law. For reasons which I have given, I do not consider that the evidence on this application establishes that this is so.

Heads of agreement

Prior to entering into the agreement to lease, the parties executed heads of agreement on 13 October 2014. The heads of agreement was executed by the plaintiff and defendant and provided for the making of a lease for the premises with a term of 5 years with an option of a further 5 years upon the specified rental plus GST. The lease was expressed as commencing on 1 March 2015 “with early access provisions to facilitate fit-out and relevant approval”. The heads of agreement also referred to an incentive consisting of 6-months’ rent free from lease commencement. Reference was also provided to the need to insert a “make-good clause” in the lease.

Agreement to lease

Clause 1.1 of the agreement to lease contained an interpretation provision in the following terms:

1.1 In this Agreement unless there be something in the subject or context inconsistent therewith the expressions following shall have the respective meanings hereinafter mentioned:
"Annexed Lease" - the form of lease annexed hereto.

"Demised Premises" - the land and premises described in Schedule 1 hereto.

Part 2 was described by the heading “Impediment to Leasing”. Clause 2.1 set out the pre-conditions for entering into the annexed lease. Because of the importance of this provision, I shall extract it in full:

PART 2 Impediment to Leasing
2.1 The parties are unable to enter into a lease of the Demised Premises until Development Consent for the proposed use of the Demised Premises as a Child Care Centre has been obtained from Parramatta City Council and a Licence to operate the Child Care Centre has been received from DOCs.
2.2 The parties agree that they shall enter into a Lease in the form attached hereto once the Development Consent and DOCs Licence have been received.
2.3 The Lessee shall upon the execution of this Agreement, prepare and lodge with Parramatta City Council a Development Application to use the Demised Premises for a Child Care Centre ("the Development Application"). All costs associated with the Application and lodgement shall be paid by the Lessee. The Lessor shall provide owners consent for the Application to be made.
2.4 The Lessee agrees to keep the Lessor informed as to the progress of the Development Application and Service approval.
2.5 In the event that a development consent to use the premises as a Child Care Centre is not issued within six (6) months from the date hereof then the Lessor may rescind this Agreement whereupon any sums of money paid within the last three months shall be refunded and neither party shall have any claim or right of action against the other.
2.6 The Lessee shall have access to the premises for fit-out purposes following receipt of the Development Consent or as soon as practicable after this time subject to provision of an insurance certificate of currency.

Part 3 was entitled “Lease”. Clause 3.1 was in the following terms:

3.1 The Lessor will grant and the Lessee will accept a lease ("the Lease") of the Demised Premises for the term and at the rent and upon and subject to the covenants, terms and conditions contained in the annexed lease.

Clause 3.4 was in the following terms:

3.4 The Lease shall be in the form of the Annexed Lease and shall be completed by inserting therein:-
(a) the encumbrances if any;
(b) details sufficient to complete any other blanks which occur therein.

The Lease shall be submitted by the Lessor to the Lessee no later than thirty (30) days prior to the commencement date and shall be executed by the Lessee and returned to the Lessor's Solicitors within fourteen (14) days after receipt thereof. The Lease shall be duly executed and registered by the Lessor forthwith following its commencement (subject to payment of the costs and disbursements mentioned above) and the registered counterpart delivered back to the Lessee as soon as possible thereafter.The schedule to the agreement to lease referred to the premises.

The annexed lease to the agreement to lease was executed by Mr Shang and Mr Mark Choo Jianzhong on behalf of the defendant.

The registered lease

The registered lease had a 5 year term operating from 1 March 2015. Annexure A to the lease provided an option to renew over two 5 year periods with a maximum period tenancy of 15 years. That annexure also provided for an interest rate of 10% and permitted use as “Childcare”.
A bank security and security deposit were provided in items 19 and 20 respectively of Annexure A. Annexure A also provided for an alteration in addition to the lease covenants in Annexure B to the lease by providing that the lessee was entitled to a rent free period of 6 months from the commencement date.
Annexure B provided in clause 5.1.1 that the lessee must pay to the lessor the rent stated in item 13A of the schedule to the lease together with other payments. The first month’s instalment of rent was to be paid by 1 March 2015. Each later month’s instalment of rent was to be paid in advance.
Clause 6 of Annexure B was entitled “Use: How must the property be used?” and was in the following terms:

CLAUSE 6 USE
How must the property be used?
6.1 The lessee must —
6.1.1 use the property for the purpose stated in item 17 in the schedule and not for any other purpose;
6.1.2 open for business at times usual for a business of the kind conducted by the lessee;
6.1.3 keep the property clean and dispose of waste properly; and
6.1.4 comply with all laws relating to strata schemes and all other laws regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent, and keep current any licences or registrations needed for the use of the property or for the conduct of the lessee's business there.
6.1.5 where the property is a lot in a strata scheme:
6.1.5.1 use the lessor's common property only in connection with the use of the property;
6.1.5.2 co-operate with all other permitted users of the common property;6.1.5.3 comply with so many of the provisions of the Strata Schemes Management Act 1996 and the Strata Schemes (Freehold Development) Act 1973 and the by-laws and all lawful orders, motions and directives under these Acts as may be applicable to the exercise of the lessee's rights and obligations under this lease.

6.2 The lessor can consent to a change of use and cannot withhold consent unreasonably.
6.3 The lessee must not –
6.3.1 do anything that might invalidate any insurance policy covering the property or that might increase the premium unless the lessor consents in which case the lessee must pay the increased premium; or
6.3.2   use the property as a residence or for any activity that is dangerous, offensive, noxious, illegal or immoral or that is or may become a nuisance or annoyance to the lessor or to the owner or occupier of any neighbouring property; or
6.3.3   hold any auction, bankrupt or fire sale in the property; or
6.3.4   display signs or advertisements on the outside of the property, or that can be seen from the outside, unless the lessor consents (but the lessor cannot withhold consent unreasonably);
6.3.5   overload the floors or walls of the property; or
6.3.6   without the prior written consent of the lessor and/or the owners corporation, use the common property for any purpose other than for access to and egress from the property.

Clause 12 dealt with forfeiture and end of the lease. Clauses 12.1, 12.2, 12.3, 12.5, 12.6 and 12.7 are extracted below:

CLAUSE 12 FORFEITURE AND END OF LEASE
When does this lease end?
12.1   This lease ends –
12.1.1   on the date stated in item 3 in the schedule; or
12.1.2   if the lessor lawfully enters and takes possession of any part of the property; or
12.1.3 if the lessor lawfully demands possession of the property.

12.2 The lessor can enter and take possession of the property or demand possession of the property if -
12.2.1   the lessee has repudiated this lease; or
12.2.2   rent or any other money due under this tease is 14 days overdue for payment; or
12.2.3 the lessee has failed to comply with a lessor's notice under section 129 of the Conveyancing Act 1919; or
12.2.4 the lessee has not complied with any term of this lease where a lessor's notice is not required under section 129 of the Conveyancing Act 1919 and the lessor has given at least 14 days written notice of the lessor's intention to end this lease.
12.3 When this lease ends, unless the lessee becomes a lessee of the property under a new lease the lessee must –
12.3.1   return the property to the lessor in the state and condition that this lease requires the lessee to keep it in; and
12.3.2   have removed any goods and anything that the lessee fixed to the property and have made good any damage caused by the removal.

Anything not removed becomes the property of the lessor who can keep it or remove and dispose of it and charge to the lessee the cost of removal, making good and disposal.

12.4 If the lessor allows the lessee to continue to occupy the property after the end of the lease period (other than under a new lease) then -
12.4.1 the lessee becomes a monthly lessee and must go on paying the same rent and other money in the same way that the lessee had to do under this lease just before the lease period ended (apportioned and payable monthly);
12.4.2 the monthly tenancy will be on the same terms as this lease, except for –
• clause 4;
• clauses 5.4 to 5.21 inclusive; and
• clause 6.2 unless consent has previously been given;

12.4.3 either the lessor or the lessee can end the monthly tenancy by giving, at any time, 1 month written notice to the other expiring on any date; and
12.4.4 anything that the lessee must do by the end of this lease must be done by the end of the monthly tenancy.

12.5 Essential terms of this lease include -
12.5.1   the obligation to pay rent not later than 14 days after the due date for payment of each periodic instalment (and this obligation stays essential even if the lessor, from time to time, accepted late payment);
12.5.2   the obligations of the lessee in clause 5.1.2 (dealing with outgoings);
12.5.3   the obligations of the lessee in clause 6.1 (dealing with use);
12.5.4   the obligations of the lessee in clause 7 (dealing with repairs);
12.5.5   the obligations of the lessee in clause 10 (dealing with transfer and sub-lease); and
12.5.6   the obligations of the lessee in clause 15 (dealing with GST).

12.6 If there is a breach of an essential term the lessor can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to tease the property to another lessee on reasonable terms.
12.7 The lessor can recover damages even if-
12.7.1 the lessor accepts the lessee's repudiation of this lease; or
12.7.2   the lessor ends this lease by entering and taking possession of any part of the property or by demanding possession of the property; or
12.7.3   the lessee abandons possession of the property; or
12.7.4   a surrender of this lease occurs.

Clauses 16 and 17 dealt with the bank guarantee and security deposit.

CONSIDERATION

Existence of a valid lease?

By cl 2.1 of the agreement to lease, two pre-conditions for a lease were specified. First, there must exist development consent for the premises as a “Child Care Centre” from the Parramatta City Council. Secondly, the agreement required that “a Licence to operate the Child Care Centre… [be] received from DOCS” (“the second pre-condition”).
The defendant contended that it was entitled to have access to the premises for fit-out purposes from 5 August 2015 and there was no requirement to pay a licence fee for the licence to enter and occupy the premises. It ultimately contended that the second pre-condition for the lease was never met and that the lease was thereby invalid.
It was from that foundation that the defendant’s case appeared to be that, because the plaintiff’s case was governed by the agreement to lease, the defendant was entitled to occupy the premises rent free until the second pre-condition was met. It was also submitted that there was a separate verbal agreement to the effect that no rent was payable until that condition was satisfied.
The plaintiff did not dispute that invalidity would arise if the second pre-condition was not met, but denied that the second pre-condition of the agreement for lease was not met. (The plaintiff made further submissions as to whether the agreement to lease had nonetheless been breached if no valid lease existed).
The plaintiff contended that all necessary approvals for child care services at the premises were obtained by the defendant and, hence, the agreement to lease was at an end and the lease was operative. That submission was predicated upon the construction of the agreement to lease including, in the alternative, by a process of rectification. However, it should be noted the plaintiff advanced two alternative submissions by which it was contended that the lease was validly entered into and was then terminated upon the plaintiff’s exercised of a power of entry on 23 March 2017:

in the alternative, the pre-condition relating to the obtaining of a licence (a service approval under the current regime) was waived by the defendant; and

in the further alternative, an estoppel by convention operates so as to preclude the defendant from denying the validity of the lease;

The construction of the agreement to lease

In its cross-claim and defence, the defendant (when legally represented) contended:

despite applications by the defendant for a “DOCs Licence” for approval to operate a child care centre, the Department of Community Services (“DOCS”) had never issued such a licence enabling the defendant to operate a child care centre from the premises; and

in the circumstances the plaintiff and the defendant had been unable to enter into a lease of the premises within the meaning of cl 2.1 of the agreement to lease and, therefore, the provisions of the lease did not apply.

The defendant contended that the reference to a “Child Care Centre” in cl 2.1 of the agreement to lease should be construed as a reference to “centre-based care” rather than a family day care service. Hence, the acquisition of a family day care service approval did not satisfy that condition. Reliance was also placed, in that respect, upon the heads of agreement.
There was no limitation in the time in which the pre-condition was to operate under the agreement, and, in that respect, the defendant was, other than three prior refusals, now in a position to make a fresh application for a centre-based service.
It was also submitted there was provision for a trial operation. In the absence of a centre-based licence, the defendant would not be able to obtain a Child Care Benefit and Child Care Rebate which were essential not only from a commercial viewpoint but having regard to the fact that the centre was run for a public good - a charitable model for a child care centre (for low income families) where a unique vertical integration service model was offered.
Further, the premises for which family day care service approval was given were not the premises the subject of the present proceedings. A family day care service approval had not been provided for the premises, namely, the family day care service approval dated 13 November 2015 was provided for 2301/138-140 Church Street, Parramatta. The licence address was not changed and “another address” had been used to apply for a family day care service (that licence did not permit a child care centre to operate).
The principles governing the construction of commercial contracts was recently discussed by this Court in Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924 at [89]-[91] as follows:

[89] As to the question of construction of the contract, reference should be made to the judgment of Gleeson CJ in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3 at [8] where his Honour stated:
[8] In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market. This is a case in which the Court’s general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning. Before considering that history, it is necessary to explain, by reference to the text, how the issue of construction arises.
[Footnotes omitted.]

[90] In Johnson v America Home Assurance Co (1998) 192 CLR 266; [1998] HCA 14 at [19], Kirby J (in dissent) stated, “the primary duty of a court is to discern from the language, structure and apparent purpose of the document what it means”.
[91] Commercial contracts should be given a businesslike interpretation. In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22], Gaudron J observed: “[i]nterpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure”.

In order to determine whether the second pre-condition was satisfied, it is necessary to construe within the context of the entire agreement the meaning in that requirement of the agreement that “a licence to operate the Child Care Centre… [be] received from DOCS”.
At the time of the execution of the agreement to lease, the relevant authority was no longer DOCS but the Department. As previously mentioned, that change commence on 1 January 2012.
I accept the submission of the plaintiff that reference to “DOCS” in the agreement to lease is a minor and technical defect and of no substance. It apparently arose from a mistake by the plaintiff’s lawyers in the preparation of the agreement to lease (Mr Gough was of the understanding that the Department of Community Services was the relevant government authority that issued the service approval for the operation of child care centres in New South Wales based on his previous experience in preparing lease documents).
Given that the reference to “DOCS” was incorporated within the agreement to lease at a time of its execution when that agency no longer had authority for the regulation or administration of child care services, a literal construction of the agreement to lease would have the effect of rendering the agreement nugatory at its outset as the condition of cl 2.1 could never be met from the inception of the agreement. An agreement, however, is looked at as a whole, it is clear that the reference to “DOCs” concerned the relevant government agency which provided approvals for the operation of a child care centre. That much is clear from the clause referring to “a licence” and the purposes of the licence being to operate a child care centre.
Where a court can discern the intention of the parties from an examination of the document as a whole, words may be corrected where it is necessary to avoid absurdity: Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 at 299 (per Santow J); Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53 (in such cases rectification of the document is not required: Re United Pacific Transport Pty Ltd [1968] Qd R 517 at 523 (per Campbell J); Bowler v Hilda Pty Ltd (2001) 112 FCR 59; [2001] FCA 342 at [11] (per Drummond J)).
The word “Licence” appearing in cl 2.1 and 2.2 attracts similar considerations. It was common ground that a system of licences had been replaced by a system of provider approvals and service approvals from 1 January 2012. The intention of the parties, as evidenced by the terms of the agreement to lease, was not that the word “Licence” was intended to operate literally to mean a designated “licence” issued by an authority by the use of the capital letter “L” but rather the expression was intended to refer to a permit from an authority to do a particular thing in the context of the National Law. That construction is supported by cl 2.4 of the agreement which provides that the “Lessor” be informed, inter alia, of the progress of the “Service Approval”.

That conclusion is affirmed by reference to surrounding circumstances, namely, the heads of agreement. Evidence of surrounding circumstances known to the parties, may be used to construe a contract in contrast to the subjective intention of the parties: Cherry v Steele-Park (2017) 351 ALR 521; [2017] NSWCA 295 at [57]-[67] (Leeming JA, with whom Gleeson JA agreed). Thus, the heads of agreement may be used in accordance with these principles to construe the contract. Under “Conditions”, the heads of agreement provides that the lease was subject to receiving, inter alia, a “Service Approval”.
I agree with the submission of the plaintiff that the expression “Child Care Centre” in cll 2.1 and 2.2 of the agreement to lease is not a defined term, nor a term of art. The words take their meaning from their ordinary meaning of the text when read in context and by means of construing the words in accordance with commercial common sense. That context includes the whole of the instrument including the draft lease which is annexed to the agreement to lease. The lease which is attached to the agreement to lease provides that the permitted use of the premises was “Child Care”. This would suggest the reference to a “Child Care Centre” is a place which child care services are permitted to be carried out. There is nothing in the ordinary reading of the expression which would convey any narrower or more restrictive interpretation.
The purpose of the second pre-condition must be seen in that context that is, in this case, approval by the Department to operate child care from the premises.
When cll 2.1 and 2.2 are read in the light of the aforementioned principles and, in particular, an examination of the language, structure and apparent purpose of the document (which includes the context in which the words are used), the clause refers, when properly construed, in my view, to whatever licence or approval was required from a government agency responsible for the operation of child care services from the premises.
A question arises as to whether that meaning is confined by the operation of cl 2.4 such that the licence or approval contemplated was a “service approval”. However, that question is largely redundant as the National Law would require the holding of both a provider approval and service approval to provide a child care service.
Upon that construction of the agreement to lease, the second pre-condition for the lease was satisfied for the following reasons:

The second pre-condition was met because the defendant had obtained the provider approval on 20 June 2014 and the service approval on 13 November 2015.

The service approval refers to an address in Church Street, Parramatta, the address for the service approval was subsequently change to the premises on about 29 February 2016, a fact confirmed by a letter dated 27 April 2016. (It may be noted that Mr Pan wrote to the Department on behalf of the defendant by email on 29 February 2016 indicating that the defendant intended to use “Level 1 and Level 2 of 60 Campbell Street Parramatta as our community day care venues”. This was acknowledged by the Department on 29 February as the location “for family day care venues”.

Both the provider approval obtained 20 June 2014 and the service approval obtained 13 November 2015 permitted the operation by the defendant of child care services at the premises.

There was no dispute that child care services were carried out on the premises as there was no approval other than the approval of 13 November 2015, which authorised the carrying out of such activities. It is immaterial for the purposes of the clause that the child care services were carried out on a trial basis or on a continuing basis.

It is true that the lease was registered before the pre-condition was satisfied (a period of approximately 3 and a half months). However, the defendant abandoned the right not to enter into the lease before the approval was obtained, in my view, when it committed an intentional act with knowledge, namely, acting as if the lease were on foot, which was inconsistent with maintaining that alternative right: Commonwealth v Verwayen (1990) 170 CLR 394 at 407; [1990] HCA 39. I agree with the submission that this conduct must be reached when the defendant’s conduct is viewed objectively, particularly having regard to the facts and circumstances to which I will return when considering the question of waiver. In any event, as at 13 November 2015, the second pre-condition was satisfied as the defendant obtained approval to carry out child care services at that time.

The defendant contended that the pre-condition had not been met because the defendant had not obtained approval for centre-based care. It is true that there is a clear distinction in the legislative scheme between a family day care service (being an education and care service delivered through the use of two or more educators to provide education and care to children in residences whether or not the service also provides education and care to children at a place other than the residence): see s 5 of the National Law and a centre-based service (which is an education and care service other than a family day service): see reg 4 of the Education and Care Service National Regulations. However, I do not consider that cll 2.1 and 2.2 of the agreement to lease may be read down so as to restrict the operation of the provisions to approval for centre-based service.

Both kinds of service approval could have authorised the carrying out of child care services at the premises. There is no limitation of the kind proposed by the defendant in the text of cll 2.1 and 2.2. Further, the attached lease which must be construed with the agreement to lease contains no such limitation. Reference may also be made to the heads of agreement. The “Conditions” on page 7 referred to the lease being subject to “receiving a development application and service approval”. There was no specificity concerning the type of “service approval”. There is a reference in the “Usage” section to “child care” on page 6, which supports the proposition that the parties’ intention at the time the agreement to lease was executed was that service approval for child care services was required but not limited to service approval for centre-based care.

In the light of these conclusions, it is strictly unnecessary to consider the plaintiff’s alternative contentions regarding rectification. However, I would observe there is considerable substance in the following submission advanced by the plaintiff in that respect:

48. The Defendant well knew that the law had changed, and that the licensing authority had become the Department of Education. Mr Shang accepted that he knew at the relevant time that it was the Department of Education, and not DOCs, that was the relevant authority, and also that the old system of issuing of licences had been replaced by the new regime of provider and service approvals. "Childcare" was the permitted use under the draft Lease annexed to the Agreement to Lease. It is but a small step for the Court to conclude that it was the parties' mutual intention that the entry into the Lease was dependent on the obtaining of a service approval to operate child care services at the Premises. Mr Shang's own evidence was he applied for both types of approvals. That is consistent only with him believing he could operate under the Lease both a "centre-based service" and a "family day care service". The Agreement to Lease should be rectified to accord with that mutual intention.
[Footnotes omitted.]

Waiver

The plaintiff advanced an alternative submission as to why the agreement to lease was at an end and the lease was valid and operative. That alternative submission was predicated on the assumption, contrary to the above conclusion, that the second pre-condition operated in the manner contended for the defendant.
It follows that is strictly unnecessary to resolve that question. However, for completeness, and if a contrary view was formed as to the aforementioned construction, I observe that I accept the plaintiff established, by its submissions, the defendant had waived its right to insist on satisfaction of both pre-conditions before the lease would be registered upon the foundation that both parties acted on the basis that service approval was no longer a pre-condition to the registration operation of the lease. In Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57, Gummow, Hayne and Kiefel JJ observed that a waiver is “an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right” (at [56]). I note the defendant made no submissions in this respect.
The plaintiff’s submissions in this respect are of real substance for the reasons which follow.
First, I accept the first proposition advanced by the plaintiff in this respect:

[D]espite being aware that registration of the Lease would mean that payment of the rent would be due, the Defendant made no objection when its solicitor was informed on 29 April 2015 that the Lease would be registered, or when he was provided with the registered Lease. The fact that those communications were with the Defendant's solicitors, and not the Defendant itself, does not matter, because the Defendant's solicitors were the Defendant's agents for the purpose of these communications, and thus the Defendant is fixed with its solicitors' knowledge.

The plaintiff referred to an email from Mr Gough to the defendant’s solicitor which said:

We are advised that the Development Approval for the use of the subject premises has now been issued. Accordingly, the Lease may now be registered.
In accordance with the terms of the Lease, would you please arrange for the provision of the following:
1. Bank Guarantee in the sum of $57,986.50.
2. Cheque in the sum of our fees – please see our Tax Invoice attached.
3. Evidence of insurance currency noting the interests of the Lessor.

I accept the submission of the plaintiff that the defendant’s solicitor was the defendant’s agent. In any event, Mr Shang’s denial that he had received these communications was inherently implausible because it is unlikely that the defendant’s solicitor was acting on a whim without instructions and without informing his client. Further, the defendant had the opportunity to call his solicitor to give evidence but he failed to do so,
Secondly, I accept the following further submission advanced by the plaintiff:

[T]he Defendant complied with the terms of the Lease by providing a bank guarantee, taking out the necessary public liability insurance and paying the Plaintiff's solicitors' fees. These were all contractual requirements of the Lease, and the Defendant's conduct was consistent only with the conclusion that it regarded the Lease as being on foot notwithstanding the absence of any service approval at that time

Thirdly, I accept, the defendant’s advice to the Department on 1 October 2015 that the defendant was paying nearly $20,000 per month for the property rental starting from 1 September 2015 was an acknowledgment by the defendant that the lease was on foot. Mr Shang’s attempts to explain why this might not be so were unconvincing and further diminished his credit.
Finally, I do not accept Mr Shang’s denial that the registered lease was not sent to the Department by the defendant. The explanation by Mr Shang as to how the Department came to have a copy of the lease – namely, that they obtained it from a search warrant – cannot be correct in light of the fact that the search of the premises, pursuant to the search warrant, was conducted after the date the subpoena was answered.

Breach of agreement to lease in providing childcare services at the premises

The conclusion reached by the Court as to the construction of the agreement to lease must result in the conclusion that the lease was validly entered into and was only terminated upon the plaintiff’s exercise of the power of entry on 23 March 2017.
The plaintiff advanced a further alternative submission in the event that a conclusion was reached that the lease was not validly entered into and that the parties’ relationship was governed by the agreement to lease. Whilst that is not the finding of the Court, consideration will be briefly given to the plaintiff’s submissions, in that respect, particularly as it has some connection to the relief sought.
The defendant pleaded that it had a right to enter and occupy the premises for fit-out purposes pursuant to cl 2.6 of the agreement to lease. That provision, it was contended, gave the defendant the right to access the premises. However, that right was exercisable only for the purposes of fit-out. It did not extend to the conduct of child care services. The only document that gave the defendant any such right was the lease.
On this basis, the operation of child care services from the premises by the defendant must be viewed as a fundamental breach of the agreement to lease. It is unnecessary to pass any further upon that consideration as the ultimate question is whether, upon the aforementioned construction of the agreement to lease, and subject to the defendant’s contention as to the existence of a verbal agreement, whether there had been a breach of the registered lease which has been found to be valid.

The verbal agreement

The defendant also submitted that, after receiving a letter of demand on 26 February 2016, Mr Shang met with Ms Lyn Tansett, the building manager, and Mr David Knight for the plaintiff and reached a verbal agreement that no rent would be payable until there was a service approval for the centre-based services at the premises.
This was evidenced, it was contended, by the fact that the plaintiff stopped issuing tax invoices for the rent thereafter. It was also evidenced by the fact that the defendant was not barred from lift access, which access was ultimately only denied in March 2017. If there was not a verbal agreement, it was submitted, the plaintiff would have prevented the defendant from operating the service by means of removing access to the lift over the 13 month period the defendant did not pay rent (until March 2017).
It was said this agreement was reached because “they knew we are running as a charity” and not receiving government rebates in the absence of service approval for centre-based services. Without this verbal agreement, it was known that the trial operation which had been started would not be viable.
The defendant’s case on the existence of a verbal agreement between the parties allowing the defendant not to pay any rent while the defendant’s application for a service approval for centre-based service was pending first emerged in the cross-examination of Ms Tansett and Mr Knight.
The plaintiff was correct to submit that the contention may only be properly advanced upon the footing that a lease existed, contrary to the defendant’s primary pleadings.
The plaintiff was also correct in submitting that there was, on the evidence, no consideration for any such agreement. Forbearance to sue for rent not paid, or an agreement not to require the payment of rent which is lawfully due until a specified event, requires consideration, if it is advanced, as appears to be the case here, that there was an oral contract to that effect: see Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (2014) 17 BPR 33,047; [2014] NSWSC 792, where Young AJA considered there was no consideration in the foregoing of rent (at [123]).
However, the question should be ultimately resolved, in my view, upon the basis that the evidence does not demonstrate there was such an agreement.
At the outset, it should be noted that Mr Shang did not directly put to the witnesses that they had had a conversation with Mr Shang in which they agreed that the defendant would not have to pay rent until it was granted approval. However, I consider that having regard to the circumstances in which Mr Shang was embarking upon that course, a conclusion should be reached that he did effectively challenge the plaintiff’s witnesses, Ms Tamsett and Mr Knight, as to the existence of such an agreement. The questions asked by Mr Shang occurred in the context of strenuous objections from counsel for the plaintiff. That said, the gravamen of Ms Tamsett and Mr Knight’s evidence was that no verbal agreement was made.
Ms Tamsett, the building manager, gave evidence that she stopped issuing invoices when she was instructed to by Mr Knight. Her evidence was that every time she chased the defendant for rent, Mr Shang said he would not pay the rent because of the conditions he asserted existed in the agreement.
Mr Knight, when questioned on why he instructed Ms Tamsett to stop issuing invoices and whether there was a discussion about attempts to get service approval, gave the following explanation:

Q. Have you instructed Lyn not to issue rental invoices?
A. We discussed with Lyn your particular matter on a monthly basis. We seemed to receive every time - in most cases, the reasons why we should not issue a rental invoice was because you had what seemed to be a valid excuse as to why you shouldn't receive one. I was appearing at work two or three hours a day, and spending the rest of my time attending the palliative care of my late wife.
…
[His Honour] Q. … Why did you give an instruction not to issue the rental invoices. That's the question you were asked.
A. The reason that I asked Lyn not to issue a rental invoice, at the time I was conducting palliative care on my wife, I was not focused on your matter. I was more focused on my wife. I was attending work about two to three hours a week.
…
[Shang] Q. That's why you are - are you aware that we are trying our best to get the service approval from Department of Education, continuously from day one?
A. I've only met you twice, and we've not had that discussion.
Q. We met twice. On which condition?
A. You have not explained to me face to face that you are trying to get your service approvals. That information has come from - …
Q. But that service approval application has been sent to you by email and has been passed to you by Lyn. You are aware that why this February someone from your organisation called the Department. It all adds up that you're aware that we do not have a service a valid service approval for 60 Campbell Street to operate as a child care centre.
A. What is your question?
OBJECTION

The plaintiff also drew attention to Mr Shang’s evidence as to the existence of the verbal agreement. I note, in this respect, my earlier findings as to Mr Shang’s credibility. In cross-examination, Mr Shang gave the following evidence:

Q. When do you say the lessor gave you approval to carry out child care services at the premises?
A. That is after 12 February, 2016.
Q. How did they give you what approval?
A. They have been to the venue a few times and I met with David Knight. I met with Lyn Tamsett and annual we worked with the Parramatta City and the Fire Department to resolve the issue. Each occasion we met, they know we were having a trial operation. After, they asked me to ignore the letter they sent to me on 12 February, 2016. Lyn Tamsett said, "Ignore the letter," and she decided not to issue the rental receipt in the hope that we will be able to finalise our application for service approval.
…
Q. There is nothing in the agreement for lease that gives you the right to carry out child care services, do you agree?
A. Only with exception, if the owner agreed for us to go ahead for that 13 months. Please do not forget; it is after we get the confirmation from both the owner and their agent that we can, and we should, have a trial operation in order to satisfy the requirement for the service approval application. So, my question to you is clear; we operate the trial on the basis of this verbal agreement between the two parties.

Q. Mr Shang, go to CCG 1?
A. Yes.
Q. If you go to tab 5, that is a copy of the signed agreement to lease?
A. Yes.
Q. You seem to be having some difficulty with this proposition that I am putting to you; that there is nothing in the agreement to lease that gives you the right to carry on child care services at the premises. That is all I am asking you to agree to?
A. There is nothing here that says that we cannot, or should not, have a trial operation. Can you point out to me which clause says that under the consent from both parents we will be forbidden to have a trial operation for the purposes of getting the service approval? They are verbal agreements.
…
Q. Do you say so I understand that the agreement for lease gave you the right to carry out what you say are trial operations for 13 months and doing whatever else the agreement for lease provides for, without paying a cent for rent?
A. Yes. What I am saying with this trial operation, we are losing money every month, because the children that we are looking after, we looking after 10 children at a time. How can you justify a child care centre, which have received zero child care benefit or rebate from the Government? For the record, child care benefit and child care rebate are the entitlement of parents. The Federal Government has helped the parents to pay for child care benefits and child care rebate. That trial period, which is over a year, we have not, I repeat, we have not received one cent of child care benefit and child care rebate. If I am operating a child care service, there are over six thousand child care centres in this state you can check, each. They are receiving child care benefit and child care rebate, because that is the bulk of the income which is at least 70 percent of the income of a child care centre, which deprives from child care benefit and rebate.
So can you answer me the question; when you know the fact that when both the owner and the agent knows, we have not received a single cent for the child care benefit and rebate, and now you are saying that I am having a normal operation. That is ridiculous.
Q. Do you remember the question I asked you?
A. You were asking me if I am having
HIS HONOUR: Mr Shang, I need to ask you to lower your voice…
…
[Counsel] Q. So you say that that gives you the right to occupy the premises, including carrying out childcare services on a trial basis, for years without paying any rent?
A. No, no, that gives us – that gives us the option – I only say "option". You want me to move out of the place to discontinue our – our application for service approval, then we should get properly compensated because we have already spent all the money on your premises.
Now, with the sudden pull of string of such an agreement, which has been lasting for 13 month from the very letter we received on 12 February 2016, to the last letter we received on 9 March 2017, they have 13 month, they have 13 month to put this as argument to the Court, but they did not do that because we have this verbal agreement for us to continue trying to improve the condition of the premises by installing simulated office space.
Q. Now, Mr Shang, I want to suggest to you that there was no verbal agreement whatsoever with anyone representing Medi-Aid allowing you not to pay rent while your application for service approval was pending?
A. We have argued that in the last hearing. You hear both what David and Lyn Tamsett
Q. No, Mr Shang, I am suggesting to you there was no such verbal agreement?
A. I do not. There are verbal agreements, clearly.
Q. And I want to suggest to you that you have fabricated evidence of a verbal agreement in order to assist your case; what do you say to that?
A. That's rubbish.

I accept the submission of the plaintiff that it is implausible that the plaintiff, as the landlord of the premises, would have agreed to put off the payment of rent whilst the defendant was endeavouring to obtain service approval when there was no benefit to be gained by the plaintiff, especially considering it could have been for an indefinite period of time. Further, the evidence of the verbal agreement proceeds for the most part upon the false premise that the agreement to lease permitted the defendant to carry on child care services as opposed to effecting a fit-out.
As to the period of delay or inaction by the plaintiff in issuing rental notices or taking further action against the defendant, the explanation on the evidence lies, in my view, not upon the existence of a verbal agreement, as relied upon by the defendant, but on Mr Knight’s preoccupation with his wife who had been placed in palliative care.
I reject the contention of the defendant that a verbal agreement was reached with Mr Knight or Ms Tamsett, on or around 12 February 2016, that the defendant would pay no rent until a service approval for centre-based service was approved.

Conclusion regarding the lease

The agreement to lease was an agreement between the plaintiff and the defendant to enter into a lease of the premises. Clause 2.6 of the agreement to lease provided that the defendant was to have access to the premises for fit-out purposes following the receipt of a development consent or as soon as practicable after that time subject to the provision of an insurance certificate of currency. There was no rent or licence payable under the agreement to lease whilst the defendant used the premises for fit-out purposes. That provision gave no right to the defendant to occupy the premises, as it did, for the purposes of conducting child care services. The only document that gave the defendant any such right was the lease.
I have rejected the contention of the defendant that the parties’ relationship was governed by the agreement to lease and not the lease itself. Upon the proper construction of the agreement to lease, the pre-conditions for the lease operating were met, albeit at a time after the lease was registered.
For the reasons I have given, I consider that the lease operated from the date of its registration on 27 July 2015. It was unnecessary to consider the plaintiff’s alternative submission that the lease would operate from 13 November 2015 when all pre-conditions were satisfied including an approval to carry out child care services.
Hence, a lease was validly entered into on and from 27 July 2015 and, as discussed, was terminated upon the plaintiff’s exercise of the power of entry on 23 March 2017.

Breach of the lease

The plaintiff relied upon three breaches of the lease, two of which represented breaches of an essential term of the lease, namely, a failure to pay rent and breach of covenants as to use, and the third concerned the covenant to comply with all laws regulating the premises. I will now address each breach in turn.

Failure to pay rent

Under the lease the defendant covenanted to pay monthly rent to the plaintiff in the sum of $19,328.83 (including GST) per month, with fixed rental increases of 5% on each anniversary of the commencement date (see cl 5, item 13 of Annexure A, cl 5.7 and item 16 of Annexure A of the lease). By reason of an amendment to cl 5.2 of the lease, the defendant was entitled to a rent-free period of 6 months, with monthly rent scheduled to commence on 1 September 2015 (see additional cl 5.2.1 on page 5 in Annexure A of the lease).
By cl 12.5 of the lease, the obligation to pay rent no later than 14 days after the due date was an essential term. The defendant did not pay rent after occupation of the premises and did so upon the aforementioned contention that there was no valid lease and a right to occupy the premises under the agreement to lease without rent. This was notwithstanding that the defendant sent a copy of the lease to the Department as part of its application for a service approval.

Breach of covenants as to use

Under the lease, the defendant covenanted to use the premises for the purposes of "Childcare" and not for any other purpose (see cl 6.1.1 and Item 17 of Annexure A of the lease). That was an essential term of the lease.
The evidence of Ms Bing was largely uncontradicted and, in any event, I accept her evidence. Ms Bing gave evidence that she was working in the reception area of the premises from February 2016 to February 2017. She had the opportunity to observe the comings and goings at the premises. She gave evidence that Mr Shang allowed Chinese student educators to live in rooms located on levels 1 and 2 of the premises, including Yu Yan and Sun Yi Gun; Ji Yun Lu and Cao Yin Yin; Weng Chun Yi and her daughter, Jingying Yu; and Shao Qian Tong and Peng Hao Wen. The students lived, worked and ate at the premises and did not get paid any wages.
Mr Issa gave evidence that in the execution of a search warrant at the premises on 17 August 2017, he observed areas being used as bedrooms or sleeping areas on levels 1 and 2.
I do not accept Mr Shang’s denials as to the fact that various educators did not reside on the premises. I accept the evidence of Ms Bing and Mr Issa and reject Mr Shang’s evidence to the contrary based on their evidence and on my earlier adverse findings as to credit.
In particular, I reject his explanation that the defendant offered an overnight service for its welfare group for children who were misplaced in light of evidence given by Ms Bing that the people residing at the premises were offered free accommodation in exchange for working at the centre.
I find, on the balance of probabilities, that the defendant, contrary to cl 6.1.1 of the lease, permitted persons to reside at the premises.

Breach of covenant to comply with all laws regulating the premises

Under the lease, the defendant covenanted to comply with all laws regulating how the premises were to be used, including obtaining the essential licences needed and keeping current any licences or registration required for the use of the premises or for the conduct of the defendant's business there (see cl 6.1.4 of the lease).
Mr Issa gave evidence that the defendant had its provider approval suspended and subsequently cancelled, effective from 12 April 2017.
Mr Shang conceded that child care services are being carried out of the premises from the end of February 2016 to mid-2017 involving up to 20 children at a time with at least three or four educators. The defendant operated, therefore, the child care centre without provider approval, ultimately resulting in the Department seeking injunctive relief against the defendant to which I have earlier referred in this judgment.
The defendant contended that it was engaged in trial services but there is no exception in the National Law for such purposes.
It follows that the carrying on of such services whilst the relevant approvals were suspended or cancelled was a breach of the lease.

The plaintiff’s entitlement to relief

On the final day of the proceedings, the plaintiff provided a schedule titled “Quantum Calculations of Plaintiff’s Entitlement of Relief” which calculated the rental arrears and interest on late payment of rent and mesne profits (“the quantum schedule”). This supplemented the written submissions of the plaintiff on that topic.

Possession

On 9 March 2017, the plaintiff served on the defendant a notice for the purposes of s 129 of the Conveyancing Act. To the extent that the breaches related to the non-payment of rent, a s 129 notice was not required: see s 129(8).
The breaches were not rectified as required by the notice and on 23 March 2017, the plaintiff re-entered the premises and changed the locks.
On 24 March 2017 the defendant damaged the locks to the premises, re-entered and remained in unlawful occupation as at the date of hearing of this matter.
The above breaches, including of essential terms, gave the plaintiff the right to bring the lease to an end pursuant to cl 12 of the lease. The plaintiff is therefore entitled to an order for possession from this Court.
In addition to being entitled to possession of the premises, the plaintiff is entitled to rental arrears, mesne profits (pursuant to an express contractual right and at law) and damages.

Other remedies

Rental arrears

The defendant covenanted to commence paying rent from 1 September 2015 (see cl 5 on page 8 and additional cl 5.2.1 on page 5 of the lease). No rent has been paid by the defendant. The base rent at the commencement of the lease was $231,946.00 per annum (including GST) to be paid by equal monthly instalments of $19,328.83 (including GST) (see cl 5.1.1 on page 8 and item 13A in Annexure A of the lease). The plaintiff submitted that the fixed rental increases of 5% pursuant to cl 5.4 and item 16 of the lease increased the rent on each anniversary of the commencement date and, in effect, the rent was increased as follows (assuming the lease was on foot during the whole period):

between 1 March 2016 to 28 February 2017, the rent increased to $243,543.12 per annum (including GST) payable by equal monthly instalments of $20,295.26 (including GST); and

from 1 March 2017 to 28 February 2018, the rent increased to $255,720.36 per annum (including GST) payable by equal monthly instalments of $21,310.03 (including GST).

As at 23 March 2017 (the date of re-entry), the rent that was due and owing was $355,997.96 (inclusive of GST), noting that the one month security deposit of $19,328.83 paid by the defendant on 13 October 2014 was put towards the first month's rent payable from 1 September 2015. Further, as to the rent for the period referred to in [155(2)] above, it is clear from the quantum schedule, that the calculation of arrears only included the rent payable up to the date of re-entry.
Pursuant to cl 5.1.5 of the lease, interest at a rate of 10% is payable when payment of monies are more than 14 days overdue. At 23 March 2017, the interest owed by the defendant was $27,429.
On 3 April 2017 the plaintiff called upon the bank guarantee that had been provided by the defendant in accordance with cl 16.3 of the lease. A cheque was received from the bank on 21 April 2017 in the amount of $57,986.50, being the bank guarantee amount which had already been applied to reduce the defendant's rental obligations to the plaintiff.
I accept the calculation of outstanding rental within the quantum schedule as follows:

(Rent Due from 1 October 2015 to 23 March 2017) – (Bank Guarantee) + (Interest)
∴ $355,997.96 – $57,986.50 + $27,429.00
= $325,440.46

Therefore, the plaintiff is entitled to $325,440.46. That order and relief in relation to possession should be immediately available, subject to the directions below.

Mesne profits

The plaintiff made the following submissions in regard to mesne profits:

23. As the Defendant has remained in unlawful occupation of the Premises since 24 March 2017 and has not paid any rent, the Plaintiff seeks mesne profits for that period of time between the date the Lease was terminated until the date that the Defendant gives up possession of the Premises.
24. Anthony Khoury, an experienced property leasing agent in Parramatta has given unchallenged evidence estimating that the current market rent for a premises of the same grade in Parramatta as the leased Premises would be in the vicinity of $336,350.00 to $384,400.00 per annum plus GST. That evidence should be accepted.
25. The Plaintiff claims mesne profits calculated on that basis.
[Footnotes omitted.]

I accept the submission of the plaintiff that mesne profits are payable to the plaintiff until the defendant has given possession having regard to the defendant’s unlawful occupation of the premises.
However, there was a tension between the quantum schedule, the pleadings and the plaintiff’s written and oral closing submissions as to the calculation of mesne profits.
The quantum schedule included two calculations as to the calculation of mesne profits. They were as follows:

the first was in relation to calculations to the same rate of rent payable under the lease at the date of termination – on page 5; and

the second was based on Mr Khoury’s evidence on market rent – on page 6.

The quantum schedule appeared to suggest that the calculation on page 5 should be used (see para 2 on page 5). However, the oral closing submissions by counsel for the plaintiff suggested that the calculation on page 6 should be used; that submission did not explain the apparently different positions as to calculations in the quantum schedule. The plaintiff’s written submissions were, in this respect, also productive of some uncertainty as to what basis mesne profits should be calculated.
It is appropriate that those issues be resolved, together with any further submissions being obtained from the defendant, before final orders are made awarding mesne profits in favour of the plaintiff.

Damages

The plaintiff made a claim for relief in the form of damages. No written submissions were made as to that point. Nor were oral submissions received. The only material before the Court on damages was included on page 7 of the quantum schedule which was as follows:

Pursuant to clause 12.6 of the Lease, if there is a breach of an essential term of the Lease (which has been submitted by the Plaintiff), the Plaintiff is entitled to recover damages for losses over the entire period of the Lease but must do every reasonable thing to mitigate those losses and try to lease to property to another tenant on reasonable terms. Such damages shall be calculated from the date that the Defendant returns possession of the premises to the earlier of the Lease Expiry date, being 29 February 2020, and the date that the Plaintiff leases the premises to another tenant.
The rental rates are calculated as follows:
[Table omitted.]
An order should be made for the Defendant to pay to the Plaintiff damages calculated in accordance with the abovementioned rental rates from the date that possession of the Premises is returned to the Plaintiff to the earlier of (i) the Lease Expiry date, being 29 February 2020, and (ii) the date that the Plaintiff leases the premises to another tenant. (See paragraph 8 of relief claimed of Amended Statement of Claim filed 11 July 2017).

There are two problems that arise as a result of the above considerations. First, the plaintiff did not expand upon the basis on which a damages claim was payable by the defendant. Secondly, the quantum schedule was handed up on the final day of hearing which gives rise to a concern as to whether the defendant had an opportunity to respond to the plaintiff’s submission in that respect.
Hence, in addition to submissions on the calculation of mesne profits, the Court will require the parties to provide further submissions on the question of damages.

Claims by the defendant

Damages

For completeness, it should be noted that the defendant appeared to make a positive claim for damages for breaches of the agreement to lease. I accept the submission of the plaintiff that none of those alleged breaches relied upon by the defendant are supported by evidence nor is there evidence of loss or damage suffered as a result of those alleged breaches. It also follows from the aforementioned considerations that the defendant’s cross-claim should be refused. In particular, I note that the application for declaratory relief is refused.

Fit-out

At various points in the hearing, Mr Shang also sought to assert that the defendant should be compensated for money it spent on the premises. The same assertion was made at para 22 of his affidavit. The defendant did not plead a set-off and the evidence, in that respect, therefore, is not relevant to any pleaded issue in the proceedings.
The defendant cannot properly raise a claim for set-off in circumstances where the evidence was first introduced after the hearing was part heard and in circumstances where the plaintiff was deprived of the opportunity of leading any evidence about the question.
In any event, the evidence is irrelevant because cl 12.3 of the lease, a make-good provision, required the defendant to remove anything brought to or added to the premises. Further, the defendant led no evidence about the value of its contribution.

I accept the submission that the defendant had a contractual right pursuant to cl 2.6 of the agreement to lease to fit-out the premises as required for a child care centre. The cost of that fit-out was at the risk of the defendant, especially having regard to the make-good provision in cl 12.3 of the lease.

Nature of the centre and alternative solution

The defendant contended that the plaintiff should not be granted possession of the premises (and other relief) considering the nature of the centre. First, it was contended that the centre provided child care to children from low-income families who would otherwise not have equal access to a bilingual early childhood education program.
Secondly, it was contended that the centre, as a community project, was funded by the community and if the defendant lost possession of the premises, that money generated by the community would be lost.
The defendant proposed an alternative resolution to the proceedings. It was suggested that the defendant was willing to give up the 6 months’ rent free period from the lease commencement date. It was contended that once the service approval for a centre-based service was granted, the defendants would enter into a lease and start paying the rent from the date of approval.
The plaintiff was correct to submit that there was no evidence of the prospects of the defendant’s application being approached and in any event, the prospect of approval does not affect the plaintiff’s legal rights.
However commendable that objective of the defendant may be, that does not afford it a right to occupy the premises for over two years without paying rent contrary to a lease (and an agreement to lease).

COSTS

The plaintiff contended that, pursuant to s 98 of the Civil Procedure Act 2005 (NSW), Mr Shang should be jointly and severally liable for any order for costs in the proceedings. Reference was made to the affidavit of Mr Russo concerning, it was contended, “a lengthy history of delay and wilful breaches of the Court’s orders”. Reliance was placed on Mr Shang’s conduct during the trial to further delay the plaintiff’s right to access. It was submitted that Mr Shang’s conduct was not that of an ordinary self-represented litigant trying to do his best. These contentions raised serious issues to which Mr Shang should have a proper opportunity to reply.
In the course of argument, counsel for the plaintiff agreed that the question of costs should be deferred until the respective parties have the benefit of a judgment on the primary issues. Having regard to that fact and the nature of the relief sought by the plaintiff, I propose to reserve costs and in doing do make directions for the resolution of that issue in the proceedings.

CONCLUSION

The registered lease was valid and operative from the date of registration, namely, 27 July 2015. The defendant was in breach of the lease by a failure to pay rent, a breach of covenants as to use and a breach of a covenant to comply with all laws regulating the premises.
The first two of those breaches were breaches of essential terms of the lease.
The plaintiff had a right to bring the lease to an end pursuant to cl 12 of the lease. The plaintiff served an effective notice upon the defendant on 9 March 2017 and, in the absence of rectification as required by the notice (by 23 March 2017), re-entered the premises and changed the locks. On 24 March 2017, the defendant nonetheless re-entered the premises and remained in unlawful occupation.
The plaintiff is entitled to an order for possession together with rental arrears pursuant to an express contractual right and at law, and mesne profits. The Court shall make directions requiring the plaintiff to bring in short minutes of order reflecting this judgment, as well as providing for further submissions as to the quantification of mesne profits, damages and costs which shall be reserved.

ORDERS AND DIRECTIONS

The Court makes the following directions as to possession, rental arrears, mesne profits and damages:

The plaintiff shall file and serve short minutes of order reflecting this judgment within 7 days of the publication of this judgment;

The plaintiff shall file and serve a submission in relation to the calculation of mesne profits and the plaintiff’s entitlement to damages within 14 days of the publication of this judgment; and

The defendant shall file and serve any submission in reply as to mesne profits and damages within 28 days of the publication of this judgment.

The issue of mesne profits and damages shall be determined upon the papers (that is, without further oral hearing) unless either party seeks an oral hearing.
As to costs, the Court makes the following order and directions:

Costs are reserved.

The plaintiff shall file and serve upon the defendant and Mr Shang a submission and further evidence in relation to costs including the order for costs sought by the plaintiff within 21 days of the publication of this judgment.

The defendant and Mr Shang shall file and serve any submissions and further evidence in reply within 42 days of the publication of this judgment.

The further disposition of the issue of costs will be assessed after receipt of the submissions of the respective interests and any evidence. The parties are at liberty to make submissions as to the procedure to be adopted in the resolution of any application for costs made by the plaintiff.

Amendments

23 October 2018 - Details of counsel for the plaintiff added to cover sheet

Decision last updated: 23 October 2018

Medium Neutral Citation:	Medi-Aid Centre Foundation Ltd v Joys Child Care Ltd [2018] NSWSC 1586
Hearing dates:	27 October and 1 December 2017 and 7 March 2018
Date of orders:	22 October 2018
Decision date:	22 October 2018
Jurisdiction:	Common Law
Before:	Walton J
Decision:	The Court makes the following directions as to possession, rental arrears, mesne profits and damages: (1) The plaintiff shall file and serve short minutes of order reflecting this judgment within 7 days of the publication of this judgment; (2) The plaintiff shall file and serve a submission in relation to the calculation of mesne profits and the plaintiff’s entitlement to damages within 14 days of the publication of this judgment; and (3) The defendant shall file and serve any submission in reply as to mesne profits and damages within 28 days of the publication of this judgment. The issue of mesne profits and damages shall be determined upon the papers (that is, without further oral hearing) unless either party seeks an oral hearing. As to costs, the Court makes the following order and directions: (1) Costs are reserved. (2) The plaintiff shall file and serve upon the defendant and Mr Shang a submission and further evidence in relation to costs including the order for costs sought by the plaintiff within 21 days of the publication of this judgment. (3) The defendant and Mr Shang shall file and serve any submissions and further evidence in reply within 42 days of the publication of this judgment. (4) The further disposition of the issue of costs will be assessed after receipt of the submissions of the respective interests and any evidence. The parties are at liberty to make submissions as to the procedure to be adopted in the resolution of any application for costs made by the plaintiff.
Catchwords:	POSSESSION – commercial lease – agreement to lease – child care statutory framework – approvals for child care services – credibility of witness – whether a valid lease existed – pre-conditions within agreement to lease – construction of clauses within agreement to lease – principles regarding construction of a commercial contract – words within clause may be corrected to avoid absurdity – pre-conditions of the agreement to lease were satisfied – alternative submission – the defendant waived its right to insist on satisfactions of pre-conditions in agreement to lease before the lease was registered – the defendant breached the agreement to lease – no verbal agreement found regarding no payment of rent until approval was received – a valid lease existed which was operative from the date of registration – breaches of the lease by the defendant – failure to pay rent – breach of covenants as to use – failure to comply with laws regarding use of the premises – the plaintiff’s entitlement to relief – plaintiff entitled to possession of the premises – plaintiff entitled to rental arrears – plaintiff entitled to mesne profits – plaintiff claimed further damages – claims by the defendant – defendant not entitled to damages nor compensation for fit-out expenses – nature of child care operation did not permit the defendant to occupy the premises without paying rent – directions – costs are reserved
Legislation Cited:	Children (Education and Care Services National Law Application) Act 2010 (NSW) Children (Education and Care Services) Supplementary Provisions Act 2011 (NSW) Civil Procedure Act 2005 (NSW) Conveyancing Act 1919 (NSW) Education and Care Services National Regulations (NSW)
Cases Cited:	Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 Bowler v Hilda Pty Ltd (2001) 112 FCR 59; [2001] FCA 342 Cherry v Steele-Park (2017) 351 ALR 521; [2017] NSWCA 295 Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 Palermo Seafoods Pty Ltd v Lunapas Pty Ltd (2014) 17 BPR 33,047; [2014] NSWSC 792 Re United Pacific Transport Pty Ltd [1968] Qd R 517 Secretary, Department of Education v Joys Child Care Ltd [2017] NSWSC 749 Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 Zintix (Australia) Pty Ltd v Employsure Pty Ltd [2018] NSWSC 924
Category:	Principal judgment
Parties:	Medi-Aid Centre Foundation Ltd (Plaintiff) Joys Child Care Ltd (Defendant)
Representation:	Counsel: J E Lazarus with M E Sheldon (Plaintiff) Solicitors: Storey & Gough Lawyers (Plaintiff)
File Number(s):	2017/101154