MI Design Pty Ltd v Dunecar Pty Ltd

[2000] NSWSC 996

Reported Decision: (2000) 35 ACSR 551
(2001) NSW ConvR 55-969

New South Wales

Supreme Court

CITATION:	MI Design P/L v Dunecar P/L & 1 Ors [2000] NSWSC 996
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4011/00
HEARING DATE(S):	22/09/00, 25/09/00, 26/09/00, 05/10/00, 06/10/00, 10/10/00
JUDGMENT DATE:	27 October 2000
PARTIES :	MI Design Pty Limited (Plaintiff/Second Cross-Defendant) Dunecar Pty Limited (ACN 083 651 781) (First Defendant/First Cross-Defendant) Commonwealth Bank of Australia (ACN 123 123 124) (Second Defendant/Cross-Claimant) Sean Patrick O'Connell (Third Cross-Defendant)
JUDGMENT OF:	Santow J

COUNSEL :	M Pesman (Plaintiff/Second Cross-Defendant) L J Aitken (First Defendant/First Cross-Defendant) F Kunc (Second Defendant/Cross-Claimant)
SOLICITORS:	Ian D Elvy & Associates (Plaintiff/Second Cross-Defendant) Colbron & Associates (First Defendant/First Cross-Defendant) L E Taylor (Second Defendant/Cross-Claimant)
CATCHWORDS:	REAL PROPERTY — Mortgages — Lessee ousted without the notice required under lease, contract with bank and s129 of Conveyancing Act — Consequences — Relevance of breaches of Liquor Act — Relief against forfeiture — Specific performance of agreement between lessor and bank — Discretionary aspects — Damages not adequate remedy — Lessee insolvent — Would reinstatement involve a futility.
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) s127; s129 Corporations Law Pt 5.3A Gaming and Betting Act 1912 Law and Property Act 1925, s86 Liquor Act 1898 Liquor Act 1982, s67(1); s68; s69; s101; s143A Real Property Act 1925, s55A
CASES CITED:	Chaka Holdings Pty Ltd v Sunsim Pty Ltd (SCNSW, Young J, 3 September 1987, unreported) Chan v Cresdon Pty Limited (1989) 168 CLR 242 Coghlan v Peel (1906) 6 SRNSW 560 Commonwealth Development Bank of Australia v Eagle Hotels Pty Limited (1990) NSW ConvR 55-506 Hayes v Gumbola Pty Limited (1988) NSW ConvR 55-375 Montague v Pooley [1951] StRQd 291 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) BPR 9562 Shiloh Spinners Limited v Harding (1973) AC 691
DECISION:	Lessee entitled to be reinstated.

_

IN THE SUPREME COURT
OF NEW SOUTH WALES
IN EQUITY

SANTOW J

No. 4011/00
MI Design Pty Limited
Plaintiff

Dunecar Pty Limited (ACN 083 651 781)
First Defendant
Commonwealth Bank of Australia (ACN 123 123 124)
Second Defendant

Commonwealth Bank of Australia (ACN 123 123 124)
Cross-Claimant

Dunecar Pty Limited (ACN 083 651 781)
First Cross-Defendant
MI Design Pty Limited
Second Cross-Defendant
Sean Patrick O’Connell
Third Cross-Defendant


JUDGMENT

27 October 2000

Table of Contents
Page
INTRODUCTION
OVERVIEW OF FACTS AND CONTENTIONS
AGREED FACTS
LEGAL QUESTIONS
MI DESIGN
Question 1
Conclusion
Statutory Notice
Conclusion
Summing up in relation to the lessor’s re-entry
Question 2
Question 3
THE BANK
Question 4
Conclusion
Question 5
Question 6
OVERALL CONCLUSION AND ORDERS

introduction

1    This is a challenge to the purported re-entry by a lessor without notice to the lessee or the lessee’s bank. In the alternative relief against forfeiture is sought. It occurred in circumstances where the lessee, now insolvent, was in breach of the lease, and where the lessee’s bank claims entitlement to notice under a separate agreement with the lessor. What follows is a broad overview of facts and contentions.

OVERVIEW OF FACTS AND CONTENTIONS

2    A licensed hotel is leased by the First Defendant Dunecar Pty Limited (“Dunecar”) to the Plaintiff tenant MI Design Pty Limited (“MI Design”). It in turn has charged its leasehold interest to the Commonwealth Bank of Australia (“the Bank”), now joined as the Second Defendant. Contemporaneously with entering into the lease (“the lease”) and financing arrangements, the Bank, the lessor and the lessee entered into a Deed of Consent to Security over the lease (“the Deed of Consent”). It (by clause 7) precludes the lessor exercising any power under the lease to terminate the lease or take possession due to the lessee’s default under the lease without giving twenty-one day’s notice requiring the Bank either to rectify the default or if the default cannot be rectified and the lessor’s damages from the default are reasonably quantifiable, to pay the reasonable compensation claimed by the lessor. 3    Subsequently, though after the Bank had given notice to call up its money, the lessor claiming entitlement so to do, re-took possession. It did so without notice to either the tenant or the Bank and gave no opportunity to remedy or pay compensation. The lessor relies on breaches of the lease as entitling it to retake possession. The only breaches established are unpaid rent, since tendered, and breaches of the Liquor Act elaborated in 12(11) and (12) below. 4    Subsequently, the hotel has been managed by managers appointed by the lessor. The lessee had an administrator appointed to it on 6 October 2000. The Administrator applied for and was granted, against opposition from the lessor, an extension of time pursuant to s439A(6) to hold the second creditors’ meeting to 10 December 2000; see my judgment of 25 October 2000. 5    The Plaintiff lessee submits relief should be granted as:

(a) the First Defendant lessee had no right to take possession without giving the notice required by s129(1) of the Conveyancing Act 1919 (NSW), on the basis that s129(3) of the Conveyancing Act 1919 (NSW) is not applicable, despite the breaches admitted of the Liquor Act 1982;

(b) the consequence of (a) above is that the lessor is obliged to reinstate the lessee as the purported taking of possession was invalid;

(c) that if, nonetheless, there was no right to receive notice as required by s129(1) of the Conveyancing Act 1919 (NSW) on the basis that s129(3) of that Act was applicable, by reason of the breaches admitted of the Liquor Act 1982, the lessee should be granted relief against forfeiture on the basis that:

(i) any breaches of the Liquor Act have been rectified,
(ii) any rent owing will be paid forthwith,
(iii) the lessee will suffer very substantial hardship should relief not be granted, and
(iv) the lessee by reason of the Bank’s proffered guarantees and undertakings in 8 below is able to meet its financial commitments under the lease, at least for such time as they continue.

6    The lessee also relies upon the Bank’s claimed entitlement to notice, pursuant to clause 7 of the Deed of Consent, on the basis that it is a party to that Deed of Consent and the clause is also for its benefit. 7    The Bank adopts the submissions of the lessee and in addition contends the First Defendant lessor had no right to take possession without first giving the notice required by clause 7 of the Deed of Consent and following the procedure there laid down. 8    Without prejudice to its submission that no such undertaking or guarantee could be required as a condition of the relief it seeks, but goes to any discretionary considerations, the Bank proffers the following if the lessee is reinstated:

(i) the Bank will guarantee to the lessor during such reinstatement payment by the lessee and its administrator of rent and other outgoings in accordance with the lease as varied by the Variation of lease (PX9) (“the Variation”), such payment commencing from the date on which the lessee re-enters into possession of the lease and continuing until the date of the second creditors’ meeting to be held on 10 December 2000, and thereafter continuing only for a further 30 days but contingent upon the Administrator deciding either to sell the business or trading on;
(ii) the Bank undertakes to grant an indulgence to the lessee not to require repayment of its loan facility, or interest thereon (but in either case without waiving these) for that same period.

9    The Bank in giving the foregoing guarantee and undertaking states that it is without prejudice to the Bank’s contention that the Variation was not valid or binding as against the Bank, as the consent was never obtained to it as required by the Deed of Consent. 10    The lessor contends, firstly that it was entitled to re-take possession without notice to the lessee or the Bank. So far as the lessee is concerned this is on the basis that

(a) Section 129(3) of the Conveyancing Act 1919 precludes any statutory notice being required by that section; and

(b) The terms of the lease were varied so as to remove any contractual requirement for notice by the terms of the lease.

So far as the Bank is concerned, this is on the basis that clause 7 of the Deed of Consent properly construed in the circumstances that have occurred, is not applicable to require notice or otherwise should not be enforced or could not be enforced by a mortgagee with no lease term itself. On the construction point, it is contended that this is a situation where the default cannot be rectified and where the lessor’s damages from the default are not reasonably quantifiable, such that clause 7.1(h) of the Deed of Consent could not be satisfied, such sub-paragraph (it is contended) being a pre-condition for any right to notice on the Bank’s part.

11    In addition, the lessor contends that to the extent any discretion to grant relief against forfeiture arises, the Court should decline to do so both because such reinstatement would be futile given the insolvency of the lessee and because of the seriousness of the breaches of the lease pertaining to the Liquor Act.

AGREED FACTS

12    What follows are agreed facts. This is save in the case of (15) below, where I state each party’s competing contentions.

(1) On 8 September 1998, the plaintiff ("MI Design") purchased from the defendant ("Dunecar") a business known as the Rutherford Hotel, near Newcastle for a consideration of $735,000 comprising goodwill of $505,000 and plant of $230,000. As part of that transaction MI Design took a registered lease over the property from Dunecar which retained the hotel freehold ("the lease") [PX2 pp 4-23]. The lease was originally for a term of 12 years commencing on 28 August 1988 with rent of $230,000 per annum. At about the same time as the lease was executed the parties entered into an unregistered Deed Concerning Lease which increased the term to 20 years and the rental to $280,000 per annum [PX2 pp 24-30].

(2) Mr Sean O’Connell, a director of MI Design, became the licensee of the hotel.

(3) MI Design borrowed the bulk of the purchase price from the Commonwealth Bank ("the Bank"); $600,000 by way of a bill discount facility together with a contingent liability limit of $10,000 to enable the issue of security deposit bank guarantees. That borrowing was secured by:

(a) a registered first equitable mortgage over the assets of MI Design, including a charge over the liquor licence;
(b) a registered first mortgage over the lease;
(c) a joint and several guarantee by the directors of MI Design; and
(d) a registered first mortgage over a property belonging to a Mr Ross.


(4) The Bank, MI Design and Dunecar also entered into a Deed of Consent to Security over lease ("the Deed of Consent"). No dated copy of that agreement is in evidence, however it is clear that it was executed by MI Design and Dunecar at about the same time as the other transaction documents.

(5) Sometime after MI Design purchased the hotel business, it and Dunecar entered into an agreement entitled "Variation of lease" ("the Variation") [PX9]. That document is undated and unregistered, however the parties agree that it was executed prior to the events relevant to these proceedings. It is also clear that, contrary to its obligations to the Bank under the Deed of Consent, Dunecar did not seek the Bank’s consent to the Deed Concerning lease or the Variation.

(6) On 16 September 2000, Dunecar retook possession of the Hotel, without notice to MI Design or the Bank. In the course of doing so it provided to MI Design a letter from Dunecar’s solicitors alleging, inter alia, the following breaches of the lease:

(a) unpaid rent;
(b) conduct on the part of MI Design amounting to breaches of the Liquor Act 1982.


(7) By Summons dated 20 September 2000, MI Design commenced proceedings seeking orders restoring MI Design to possession of the hotel or, alternatively, relief against forfeiture. On 6 October 2000, I made orders on the Bank’s application joining it as a defendant for the purpose of bringing a cross-claim against MI Design and Dunecar by which the Bank seeks a number of orders. Those relevant for present purposes are in identical terms to those sought by MI Design, with the addition of claims that the Bank was entitled to possession or relief against forfeiture in its own right. The Bank seeks other relief which has not yet been the subject of any hearing and to which I need not refer.

(8) Each of MI Design and the Bank assert a right to notice of Dunecar’s intention to re-enter.

(9) On 6 October 2000, MI Design went into voluntary administration pursuant to Pt 5.3A of the Corporations Law .

(10) Two breaches of the Liquor Act 1982 have been admitted by MI Design.

(11) As to the first, on 15 June 2000 the licence was suspended for non-payment of Gaming Device Duty. MI Design came to an arrangement with the Department of Gaming and Racing for the amounts due and the licence was reinstated on 22 June 2000. By facsimile dated 5 October 2000 the Department confirmed that the breach had been resolved. [O’Connell affidavit 6 October 2000, Annexure SO3].

(12) As to the second, MI Design also admits a breach of s101 of the Act. The circumstances of that breach were that in July 2000 the bottleshop attached to the hotel was "sub-leased" to a Mr Harley. The precise nature of that arrangement is unclear but it appears that Mr Harley was to pay to MI Design 6% of turnover. At the commencement of that arrangement Mr Harley also paid to MI Design approximately $56,000 for the existing stock in the bottleshop. Mr O’Connell gave evidence that Mr Harley had operated the bottleshop as an employee for a number of years [T, 17.40], a fact that is not disputed by Dunecar.

(13) By letter dated 4 September 2000 [PX2 p88] the bank demanded payment of $622,047.81 (the outstanding balance of the facility). That letter stated:

"Unless the above mentioned sum…be paid to the Bank…within 28 days from the date of this notice, the Bank will take action to recover payment of the total amount payable".

(14) Also in evidence was an Investigative Accountants Report dated 4 October 2000 prepared by Ferrier Hodgson [CX14].

(15) There is some dispute about whether Gaming Device Duty was taken into account in Annexure M to that report. This is when calculating the cash surplus incurred by the business before any cost of capital. That cash surplus shown in Annexure M is $3,547 per week. That figure Dunecar disputes as overstated, though acknowledging a small surplus ($823.75) before deducting that tax. The tax is estimated on a weekly basis at $1,214 per week. If that figure were deducted from the $3,547 it would still leave a modest surplus of $2,333. On Dunecar’s calculation there would then be a small loss.

(16) While the relief sought by MI Design and the Bank is substantially similar, because different legal and discretionary considerations may apply it is convenient to set out the questions which I must determine by reference to each of those parties separately.

LEGAL QUESTIONS

13    These are as formulated by the parties.

MI Design

14    Question 1: Was Dunecar’s re-entry invalid for want of notice to MI Design under any of:

(a) The lease; or
(b) The Variation; or
(c) Section 129 of the Conveyancing Act ?

15    Question 2: If Dunecar’s re-entry was invalid:

(a) What, if anything, was the effect of that purported re-entry on the lease? and
(b) Depending on the answer to (a) above, what is the appropriate relief for MI Design?

16    Question 3: If Dunecar’s re-entry was valid, is MI Design entitled to relief against forfeiture and, if so, what is the appropriate form of order(s) including any terms?

The Bank

17    Question 4: Was Dunecar’s re-entry invalid for want of notice to MI Design under any of:

(a) The lease; or
(b) The Variation; or
(c) Section 129 of the Conveyancing Act ;
or for want of notice to the Bank under Clause 7 of the Deed of Consent?

18    Question 5: If Dunecar’s re-entry was invalid:

(a) What, if anything, was the effect of that purported re-entry on the lease? and
(b) Depending on the answer to (a) above, what is the appropriate relief for the Bank?

19    Question 6: If Dunecar’s re-entry was valid, is the Bank entitled to relief against forfeiture and, if so, what is the appropriate form of order(s) including any terms?

MI DESIGN

Question 1

Was Dunecar’s re-entry invalid for want of notice to MI Design under any of:
(a) The lease; or
(b) The Variation; or
(c) Section 129 of the Conveyancing Act?

20    Question 1 is concerned with the validity of Dunecar’s re-entry from the viewpoint of the lessee MI Design. 21    Under clause 12 of the original lease of September 1998 it is provided that the landlord can enter and take possession of the property or demand possession of the property if —

“…
12.2.2 rent or any other money due under this lease is fourteen days overdue for payment; or
12.2.3 the tenant has failed to comply with the landlord’s notice under s129 of the Conveyancing Act 1919; or
12.2.4 the tenant has not complied with any term of this lease where a landlord’s notice is not required under s129 of the Conveyancing Act 1919 and the landlord has given at least fourteen days written notice of the landlord’s intention to end this lease.”

22 Thus it can be seen that subject to any effective variation to the lease being made, there is a mandatory fourteen day’s notice, either statutory under s129 if applicable (with its concomitant obligatory opportunity to the tenant to remedy, if capable of remedy, or pay claimed compensation) or else contractual. The original lease makes clear that such notice is an essential pre-condition for taking possession of the property, irrespective of the nature of the breach (apart from the tenant repudiating the lease as provided in 12.2.1). 23 However, the lessor relies upon a variation of lease (PX9) (“the Variation”) as removing the contractual notice requirement for certain breaches including those non-rental ones involved here. The Variation is undated and unregistered though the parties agree that it was executed prior to the events relevant to these proceedings. It is also common ground that the lessor did not seek the Bank’s consent to the Variation. The separate unregistered Deed Concerning Lease does not affect the right to re-enter or re-take possession, being concerned only with an increase in the term to twenty years and in the rental to $280,000 per annum. That document likewise was not submitted to the Bank for approval, contrary to the terms of the Deed of Consent. 24 The Variation contains clause 23.1 headed “Re-entry Conditions”. That clause provides:

“PROVIDED ALWAYS and these presents are executed upon the express condition that if at any time during the term of the lease:
(a) if the lessee shall close or threaten or attempt to close the said premises for a longer period than allowed by law or shall do or suffer or permit any act or thing whereby the Licence may be suspended withheld or cancelled; or
(b) if the premises shall be declared a Common Gaming House; or
(c) if the lessee shall be convicted of any offence against the Gaming and Betting Act 1912 or any of the law affecting Publicans or licensed victuallers, including the Liquor Act 1982
Then and in such case it shall be lawful for the lessors or any person or persons authorised by it or them to re-enter with force if necessary the premises or any part thereof …”

25    It was accepted by the lessee that, though the Variation was not registered, it was binding as between lessor and lessee, though clearly it could not be binding as against the Bank. However, even were the breaches of the Liquor Act such “that the Licence may be suspended, withheld or cancelled” within clause 23.1(a), a question to which I will return, I do not consider that the proviso for re-entry removes the earlier requirement for a fourteen day notice. There is no express statement to that effect in the Variation. Moreover clause 23.1, in adding these additional grounds of re-entry, was doing so not to get rid of notice requirements but to have recourse to these additional grounds, not expressly or fully covered by the unvaried lease. 26 Significantly, the clause in question was not added by way of a specific variation, in contrast to the various deeds referred to in clause 2 of the Variation which were expressly added by way of variation. Rather they were added solely by way of addition, being described as “the following additional clauses are inserted into the lease”. That is made clear by page 1 of the Variation where it is first stated that “the provisions of the lease are varied/omitted/added to as set out in Annexure A hereto”. Then the words “varied/omitted” are actually crossed out; clearly that was to underscore what was being done was not to vary, as by removing an existing safeguard for either party, but solely to add. Indeed one so fundamental a right on the lessee’s part to a fourteen day’s notice could not be removed without clear language to that effect; certainly not by a clause merely adding to the lease and which did not in express terms take away that fundamental notice requirement. A construction of that clause which would have it remove that safeguard has no support either in its express language or its context. Accordingly, even were the relevant breaches such as to trigger clause 23.1(a), I do not consider that either the original lease or the Variation or indeed any of the associated documentation obviates the requirement of a fourteen day notice to the lessee as a condition precedent to re-entry, whatever the breach. This applies equally to breaches taken outside s129(1) by s129(3), as the contract is wider than the statute. It follows that the lessor’s purported re-entry was unlawful for lack of prior notice and not in accordance with the lessee’s obligations under the lease and its accompanying documents and the Variation. 27 If I were wrong in so construing the Variation, the question then is whether the particular breaches would satisfy clause 23.1 of the Variation so as, on this construction of clause 13.1, to obviate the requirement for notice as between lessor and lessee. But even if it did as this Variation was never registered by the lessor, that is “a factor which would require to be taken into consideration in deciding whether to award or refuse specific performance” (Chan v Cresdon Pty Limited (1989) 168 CLR 242 at 256), here of clause 23.1 invoked by the lessor. For it is the lessor which relies on the Variation. The First Defendant concedes this in its penultimate undated written submissions (para 3). The lessee can of course rely on the original registered lease, unless terminated, though the Variation is binding as a matter of contract between the parties. 28 The breaches relied upon comprised firstly unpaid rent which, under the original lease or the Variation, would have required prior notice if that were the sole basis for the lessor’s re-entry. However, according to the letter of 16 September 2000 (“Agreed Bundle, PX1, p72) from the solicitors for the lessor to the lessee sent at the time of re-entry, there were actions by the lessee relied upon which were said to be either in breach of the Liquor Act or such as to endanger the Licence and render such Licence liable to be suspended or cancelled, being in the former case those in (d) below and in the latter case those in (c) below. I quote the relevant paragraphs of the letter so far as relevant:

“(c) In June 2000 our client was served with notice from the Liquor Administration Board that your licence to operate approved gaming devices had been revoked because of your failure to meet your Approved Gaming Device Duty obligations as prescribed by the Liquor Act 1982 and the associated regulations. Subsequently you assured our client that you would resolve the matter to the satisfaction of the Liquor Administration Board and had continued entitlement to operate gaming devices in the licensed premises, distinct from removing the same from play, selling or destroying same. Notwithstanding such assurances your representative Sean O’Connell has now confirmed to our client that the duty obligations have not been met and further action is now being taken by the Liquor Administration Board.
(d) Your representative Sean O’Connell has also admitted to our client that your company has “sublet” the bottleshop (forming part of the premises owned by our client and subject to the Hotelier’s Licence applicable to the premises) to a named former employee and is being paid a rental equivalent to 6% of liquor sales.”

29    While other breaches were mentioned in general terms in the letter of 16 September 2000 by reference to specific clauses but not specific conduct, it appears common ground that the breaches specifically relied upon are those described in (c) and (d) above. It is contended that these are the breaches which would come within clause 23.1 of the Variation and in particular paragraph (a) thereof. The admitted breaches are those described in 11(10) to 11(12) above. No others were substantiated. 30    Paragraph (c) of clause 23.1 of the Variation can be put aside straight away, as it is clear that the lessee has not been “convicted of any offence against the Gaming and Betting Act 1912 or any of the law affecting Publicans or Licensed Victuallers, including the Liquor Act 1982”. 31 Subsequently, there has been greater clarity about the nature of the breaches of the Liquor Act. The Plaintiff submits, and I accept, that the evidence discloses two breaches of the Liquor Act in terms of conduct, though pertaining to a number of overlapping sub-paragraphs of s101 thereof. The first breach is in relation to gaming devices in failing to pay the Gaming Device Duty, which has been rectified since 22 June 2000 and the Department of Gaming and Racing have confirmed that there is no threat to the Licence in relation to the Gaming Device Duty matters (Annexure SO3 to O’Connell affidavit of 6 June 2000). The licence was suspended for a week only in June 2000 as a result and then reinstated. 32    The lessee concedes that there has been a breach of s101(4A) of the Liquor Act which provides as follows:

“If a person (other than a licensee or a financial institution) becomes interested in the business or the conduct of the business, of the licensed premises, it is a condition of the licence that the licensee must, within twenty-eight days after the other person becoming so interested, produce to the Registrar an affidavit stating:
(a) that the licensee has made all reasonable enquiries to ascertain the information required to complete the affidavit, and
(b) the name and date of birth of the person so interested, and, in the name of a proprietary company, the names of the directors and shareholders.”

33    The breach arose because in July 2000 the bottleshop attached to the hotel was “subleased” to a Mr Harley. Indeed even in the lessor’s letter of 16 September 2000, the expression “sub-leased” appears in quotation marks, suggesting no allegation of an actual sub-lease, but a more informal arrangement. While the precise nature of that arrangement is unclear, it appears that Mr Harley was to pay MI Design 6% of turnover. At the commencement of that arrangement Mr Harley also paid to MI Design approximately $56,000 for the existing stock in the bottleshop. Mr O’Connell gave evidence that Mr Harley had operated the bottleshop as an employee for a number of years (T, 17.40) a fact that is not disputed by the lessor. 34    It appears that these arrangements would independently constitute a breach of s101(1)(a1), permitting in relation to licensed premises a person to have supervision and management of the business under licence, s101(1)(c) prohibiting letting or sub-letting the right to sell liquor, or (d) prohibiting the letting or sub-letting of any part of the licensed premises, or (e) without the previous consent of the Liquor Administration Board letting or sub-letting any other part of the licensed premises. However, none of these have been established as other than variations of the basic breach of s101. They do not gather additional gravity by identifying a multiplicity of sub-paragraphs breached by the same conduct. 35    However, the question this poses is whether any of these matters would lead to a situation “whereby the licence may be suspended, withheld or cancelled”. 36    It is indubitably the case that while each of these provisions may lead most directly to a fine, s143A of the Liquor Act is an additional penalty provision empowering the licensing court to do any of the things set out therein, including suspend a licence for up to twelve months or cancel it. Likewise under s212 of the Liquor Act “disciplinary action” including the cancellation or suspension of the licence may in theory occur. But no notice in writing, as is the essential precursor, has been served by the Minister to show cause “why disciplinary action should not be taken against the licensee on the grounds specified in the notice”. There is also s68 of the Liquor Act referred to below. But dealing first with the gaming duty, the licence was long since reinstated following payment of the gaming duty and there is no evidence of any continued breach. To suppose in those circumstances the licence “may” be cancelled or suspended by reason of the gaming duty, is totally unreal. In any event, the earlier suspension of the licence for one week between 15 June 2000 and 22 June 2000 for non-payment of Gaming Device Duty probably no longer comes within clause 23.1(a). That clause is not directed to a circumstance where the licence was suspended and then reinstated but relates to a set of events which “may” lead to that outcome. Clearly there is no further outstanding issue regarding the unpaid Gaming Device Duty that led to the earlier suspension. 37    Similarly, the facts constituting a particular breach of overlapping sub-paragraphs of s101 of the Liquor Act may of themselves be sufficient to ground a complaint under s68 of that Act with the possible consequences set out in s69 including the exercise by the licensing court of the disciplinary power of either suspending or cancelling the licence. The potential complainants are those referred to in s67(1) of the Liquor Act and include, inter alia, the owner of the licensed premises or the Director of Liquor and Gaming appointed under the Act. Or in theory s212 may be invoked. 38    The “subleasing” to Mr Harley was however the subject of evidence by way of expert opinion from Mr Bruce Bulford a solicitor with a substantial experience in the licensing jurisdiction from a firm not otherwise involved in these proceedings. His evidence is to the effect that the relevant breach is not a breach of s101(8) of the Liquor Act or s101(1)(c) or (d) of the Liquor Act but rather is a breach of the provisions specifically relating to the conduct in question, namely s101(4A). However, the reasoning of his opinion does not appear to depend on there being no breach of the other overlapping sub-paragraphs of s101. What is significant is that his evidence is this: “[B]ased upon my experience in the licensing jurisdiction, I believe that if prosecuted under s101(4A) of the Liquor Act the licensee of the relevant hotel would be convicted of an offence and fined about $750.” He adds that, “I am also of the opinion that a prosecution of a licensee of the Rutherford Hotel, in the present circumstances especially when the third party was only involved for about six weeks, would not be regarded by the Licensing Court as a serious matter. The prosecution proceedings (if brought) would not result in the suspension or cancellation of the Hotel Licence, nor would conditions, restricting the operation of the business of the hotel be imposed.” He then states as his opinion that, “the conduct of the Plaintiff has not in my view imperilled the Hotel Licence in any manner.” 39    Mr Bulford was not required for cross-examination and I have no reason to doubt his evidence. The question of construction is simply whether clause 23.1(a) in referring to the doing of an act of thing “whereby the licence may be suspended, withheld or cancelled” contemplates a situation where there is no practical likelihood of that consequence occurring in relation to the licence but only a theoretical one. In my view, clause 23.1(a) would not apply in such circumstances of the relevant breach. That would be so even were the relevant breach dealt with not under the more specifically applicable s101(4A) but instead under the other overlapping provisions of s101. To assume now some further disciplinary or complaint procedure leading to suspension or cancellation of the licence for a past relatively minor breach now rectified is quite unreal.

Conclusion

40    None of these identified breaches of the Liquor Act would in my opinion come within clause 23.1 of the Variation. This is on the basis that the word “may” does not include cases where there is no real possibility of suspension or cancellation.

Statutory Notice

41 The foregoing evidence is also relevant to the notice provisions of s129 of the Conveyancing Act 1919. Section 129(1) provides that,

“a right of re-entry or forfeiture under any proviso or stipulation in the lease, for breach of any covenant, condition or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:
(a) specifying the particular breach complained of; and
(b) if a breach is capable of remedy, requiring the lessee to remedy the breach; and
(c) in case the lessor plans compensation in money for the breach, requiring the lessee to pay the same,
and the lessee fails within the reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation of the satisfaction of the lessor for breach.”

42 Section 129(1) is qualified by subs(3) which is in the following terms:

“The provisions of subsection (1) shall not extend to a covenant or condition or agreement against doing, committing, or suffering anything whereby or by means whereof either alone or with other circumstances any licence under the Liquor Act 1982 is or may be endangered, or is or may be liable to lapse or be suspended, cancelled or refused.”

43 Provided subs(3) does not preclude the application of s129(1), the effect of the statute is that the lessor’s right of re-entry on breach of covenant is not capable of being exercised against the lessee, until the notice and other conditions of subs 1 have been complied with; that is so irrespective of the terms of the lease (s129(10)). 44 It will be apparent that subs(3) covers similar but not identical ground to clause 23.1(a) of the Variation. However, though subs(3) includes the situation where the licence “is or may be endangered” and also refers to the situation where the licence “is or may be liable to expire or be forfeited, suspended ….”, the opinion of Mr Bulford relevantly bears upon each of those situations as well. I am satisfied that the expression “may be endangered” would exclude the situation where there was no practical possibility of the licence being put in danger. I would similarly conclude in relation to the reference “may be liable” to suspension, etc. 45    It is put against the foregoing reasoning that the decision of Young J in Chaka Holdings Pty Ltd v Sunsim Pty Ltd (SCNSW, Young J, 3 September 1987, unreported) is squarely against it. However, closer analysis of the decision indicates that this is not so, as far as s129(3) of the Conveyancing Act is concerned. The relevant potential breaches in that case were, “(b) assigning and parting with possession to Sunsim” and “(d) failing to keep the licensed premises open for business during ordinary business hours”. Young J was considering whether to allow relief against forfeiture in relation to an unregistered lease covered by s127 of the Conveyancing Act and where breach of s101 of the Liquor Act by sub-letting had occurred. Young J concludes:

“Again it is not proved relevant in this case to refer to s129(3) of the Conveyancing Act which provides that the statutory provision against forfeiture of leases shall not extend to the case of the breach of covenant where any licence under the Liquor Act 1982 may be endangered. Of the breaches I have found established, breach (d) is in my view in this category so could be considered even in connection with statutory relief against forfeiture notwithstanding the general rule prohibiting a landlord relying on breaches not specified in the proper notice under s129 of the Conveyance Act (see Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd [1970] 2 BPR 9562). ….”

46    Earlier in his judgment, he states:

“One of the main objections to granting specific performance of this lease is the problem there is with the Liquor Act with any subletting of premises licensed under that Act especially s101. That section it will be remembered makes an offence to sublet the right to supply any services in premises that are licensed under the Liquor Act .”

47    The assigning and parting with possession to Sunsim referred to earlier was not considered by Young J to be material in the context of s129(3). So far as breach of the lease by the sub-letting was concerned, he was “not satisfied that there was a breach or if there was one it has not been waived”. He refers of course to breach of the lease as distinct from breach of the Liquor Act in that context. Thus it follows that decision is not authority for the proposition that the offence of subletting of premises under the Liquor Act invariably enlivens s129(3) of the Conveyancing Act, even if, as no doubt would be the case, it may indeed do so. Here, as I have said, the infraction of the Liquor Act is according to the expert evidence, quite unlikely to yield any suspension of the licence let alone cancellation. 48 However, Young J did earlier deal with the significance of the subletting in the context of granting specific performance of the lease where he said: “Indeed evidence was led to show that even this penalty was not sought in most case because of higher priorities with the Liquor Administration Board staff. This however in my view is quite irrelevant.” Clearly Young J is referring to the irrelevance of that matter in the context of specific performance of the lease and not whether s129(3) is applicable. 49 Young J cites the decision of P W Street J in Coghlan v Peel (1906) 6 SRNSW 560 where at 567 His Honour says in relation to the Liquor Act 1898:

“I entertain no doubt that the intention of the Legislature in passing the Liquor Act 1898 was not merely to impose penalties on persons who sold liquor without holding the necessary licence. That the statute was one passed primarily for the safety and protection of public morals and the suppression and prevention of crime, and that in the interests of the community what was intended was to control and regulate the sale of liquor by preventing any person from trafficking in such sale without having first obtained a licence authorising him to do so.”

50    Young J then adds, “I must confess I can find no difference in purpose between the Liquor Act 1898 and the Liquor Act 1982”, in concluding that more recent cases did not affect what was said about the Liquor Act 1898 by P W Street J. He cites the full court in Queensland in Montague v Pooley [1951] StRQd 291 as being to the same effect as the reasoning of P W Street J, it being a case where the full court refused to enforce a contract breaching the Queensland legislation, by reason of its illegality. 51    When one looks at the facts in Coghlan v Peel (supra), the breach was a far more serious one. By what P W Street J referred to as a “device of the plaintiffs who knew that he could not obtain a licence in his own name” (at 556) the plaintiff used that subterfuge thereby secretly to obtain the benefit of a licence through another. In the present case the subletting was simply to an employee who had operated the bottleshop for a number of years and, insofar as the breach pertained to s101(4A), simply involved a failure to file an affidavit. Of course one can imagine circumstances in which the subletting would be much more serious, indeed of the Coghlan v Peel variety, but this not was such a case. 52    Whatever view one might reasonably have of the Liquor Act in 1906, there can be no doubt that it gives rise to a whole spectrum of offences ranging from the trivial to the serious. I would not accept an interpretation of s129(3) of the Conveyancing Act 1919 that caught within its embrace breaches where there was no practical likelihood of a licence being endangered or liable to be suspended or cancelled.

Conclusion

53 Section 129(3) does not apply in the circumstances to preclude the application of s129(1) of the Conveyancing Act 1919, with the consequence that the Plaintiff is entitled to the statutory protection afforded by that section. It operates additionally to, and not so as to be read down by, any protection afforded to the lessee by the lease itself or the lease as subject to the Variation. In effect the tenant has two shields, the statutory notice shield under s129(1), unless taken away by s129(3) (I conclude it was not) and any further shield conferred by the lease documentation (as I conclude also applied).

Summing up in relation to the lessor’s re-entry

54 The lessor’s re-entry was invalid by reason of failure to comply with an essential integer of the landlord’s right to enter and take possession, or demand possession, of the relevant property. That essential integer or condition is imposed both by the lease with or without the Variation, and by s129(1) of the Conveyancing Act 1919. As the notice required both by the lease read with or without the Variation and s129(1) of the Conveyancing Act was never given to the tenant, the entry was unlawful and invalid. 55    Based on that conclusion, no issue of relief against forfeiture need arise, were it not sought. The purported re-entry by the lessor was invalid, notwithstanding breach of the lease by the lessee, because the necessary notice was never given with its concomitant requirements, thus breaching both statute and lease. On the authority of Hope J in Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) BPR 9562 at 9575 to 9577 (followed by Young J in Hayes v Gumbola Pty Limited (1988) NSW ConvR 55-375), where no notice under s129(1) was served and should have been, any other breach of that lease is not to be taken into account in considering whether to reinstate the lessee. That makes irrelevant the lessor’s evidence about past breaches. 56 It is established that the mere asking for relief against forfeiture constitutes an admission that there is a forfeiture; see Young J in Hayes v Gumbola Pty Limited (supra) at 55-458 citing, inter alia Langley v Foster (1909) 10 SR(NSW) 54 at 62. But it is less clear if that be so, where the relief is asked for in the alternative. I do not yet need to decide that question but if I did, subject to hearing further argument, I would incline to the view that no forfeiture is admitted if the relief is not ultimately required. I shall deal with relief against forfeiture generally in answering question 3 but make some brief observations below about the relevance of the lessee’s financial situation. 57 I am satisfied that the lessee is entitled to a declaration that the tenancy has not been validly terminated and there should be a mandatory injunction granted requiring the First Defendant lessor to restore possession forthwith to the Plaintiff tenant. However that restoration should be on the condition that the Plaintiff tenant do equity by paying through the Administrator or the Bank, all rent in arrears and in such a way as to ensure it could not be recovered as a preference. If that be relevant, it could not be said against that result that the restoration would be a futility given the Plaintiff’s current insolvency. Certainly not when the Bank’s guarantee and undertaking are taken into account. Indeed it is clear from the authorities, in particular Hayes v Gumbola Pty Ltd at 57-456 to 459 that a difficult financial situation, even insolvency, is not of itself a bar to relief though it clearly bears upon any discretion. But here, save where relief against forfeiture is sought, there is no discretion about reinstating the tenant invalidly ousted from possession without notice. As to the relevance of a difficult financial situation in forfeiture relief, Young J said (at 57-457) after a meticulous review of the authorities:

“In any event to give relief to an insolvent person may be in the public interest because the benefit of the valuable property in the lease will enure to the creditors generally should he become bankrupt …”

58    Any question of a preference for payment of rent does not arise during the period of the Bank’s guarantee. Thereafter it will depend upon whether or not a Deed of Company Arrangement can be entered into which underpins the Plaintiff’s viability. In any event, the lessor will have its remedies if the lease is later breached though it continues to remain subject to the notice requirements in that regard.

Question 2

If Dunecar’s re-entry was invalid:
(a) What, if anything, was the effect of that purported re-entry on the lease? and
(b) Depending on the answer to 2(a), what is the appropriate relief for MI Design?

59    It follows from what I have earlier concluded that the lease remains unforfeited, any purported forfeiture is effaced and the appropriate relief is as I have earlier described.

Question 3

If Dunecar’s re-entry was valid, is MI Design entitled to relief against forfeiture and, if so, what is the appropriate form of order(s) including any terms?

60    This question strictly only arises if my earlier conclusion is wrong and the lessor’s re-entry was valid. The question that then arises is whether the Plaintiff lessee is entitled to relief against forfeiture and, if so, what appropriate form of orders including any terms should be made. 61    I am satisfied that the tenant is entitled to relief against forfeiture notwithstanding the Plaintiff’s present insolvency. The reasons have to do with the tender of rent owing and the evidence as to the breaches of the Liquor Act in the context of the lease. While it is not correct to say that the insolvency results from the decision of the First Defendant’s re-entry, because the earlier decision by the Bank to call in its loan left the Plaintiff tenant insolvent, nonetheless there is no real doubt that any prospect the tenant has of salvaging its position would be completely lost if re-entry were not allowed. The circumstances of a difficult financial position, as I have already noted in relation to Young J’s review of the authorities in Hayes v Gambola Pty Ltd (supra) decided in a forfeiture context are directly applicable here. They are no absolute bar to relief against forfeiture, but a relevant consideration bearing on discretion. 62    However, were relief against forfeiture required to be given, I would again make it a condition of that relief that all outstanding rent be paid in a form whereby it was not subject to recapture as a preference. In reaching that conclusion, I have taken into account that there appears no apparent practical risk to the licence. 63    Given my earlier conclusion that the purported re-entry was invalid, I do not need to consider the appropriate form of order any further.

THE BANK

Question 4

Was Dunecar’s re-entry invalid for want of notice to MI Design under any of:
(a) The lease; or
(b) The Variation; or
(c) Section 129 of the Conveyancing Act;
or for want of notice to the Bank under Clause 7 of the Deed of Consent?

64 I have already concluded that the re-entry was invalid for want of notice to the lessee under the relevant lease documentation and s129 of the Conveyancing Act. Accordingly, I need now to only consider clause 7 of the Deed of Consent. 65    Clause 7 is in the following terms:

“7.1 The Lessor will not exercise any power it has under the lease to:
(a) terminate the lease
(b) take possession of the Premises ….
due to the Mortgagor’s default under the lease without serving a notice on the Bank giving the Bank not less than twenty-one days to:
(g) rectify the default: or
(h) if the default cannot be rectified and the Lessor’s damages from the default are reasonably quantifiable, pay the reasonable compensation claimed by the Lessor.
7.2 Any notice given by the Lessor to the Bank under clause 7.1 will specify:
(a) the act, omission, default or circumstance which the Lessor believes to entitle it to exercise its power under the lease; and
(b) the amount of compensation claimed by the Lessor (if any) for a default by the Lessee, where that default cannot be rectified.
7.3 If the Bank or a Receiver rectifies the default specified or pays the damages claimed in the notice given under clause 7.1, the Lessor will not exercise any of its powers referred to in clause 7.1.”

66    I should first deal briefly with the status of the Deed of Consent. The Agreed Facts record that while no dated copy of that agreement is in evidence, “it is clear that it was executed by MI Design and Dunecar about the same time as the other transaction documents”. A copy of the executed agreement signed by lessor and lessee is an annexure to the affidavit of Paul Collins on behalf of the Bank dated 26 September 2000. 67    As to any alleged lack of delivery, the sealing by the lessor and lessee, both corporations, prima facie imports delivery there being no evidence of any contrary intention express or implied. Moreover, it is expressed to be executed as a deed, reinforcing that delivery has occurred. Second, the evidence allows further inferences to be drawn. That evidence is CX15 and Mr Gianesi’s affidavit on behalf of the Bank of 10 October 2000. The first available inference is that irrespective of physical delivery, sealing was intended to constitute delivery because by reference to his practice Mr Gianesi must at least have been told all the requisite documents had been signed to allow the transaction to proceed. Second, CX15 and the letter attached to Mr Gianesi’s affidavit allow an inference of actual physical delivery to be drawn of the “CBA Bank Copy” attached to Mr Gianesi’s affidavit, even though the document cannot be located by the Bank after search. 68    The lessor does not deny that no notice was given to the Bank. 69    The lessor contends however that firstly the clause as a matter of its proper construction does not apply in the events that have happened and secondly that even if it were otherwise, the Court should not grant specific performance by reinstating the lessee in the circumstances that obtain including the insolvency of the lessee and the circumstances and gravity of the breaches. The lessor contends that the Bank is not entitled to possession as against the lessor who has validly re-entered because the Bank cannot obtain what is in effect ejectment in favour of the lessee, nor can it do so on its own account since the relevant security confers no term being not by way of under-lease but by way of charge. It appears that the lessor abandoned the specious argument that because the Bank’s Deed of Consent refers only to the original lease and not the Variation it was somehow never perfected, or applied to the wrong lease. To accept such an argument would allow the lessor to profit by its own wrong in failing, as required by clause 8(c) of the Deed of Consent, to “obtain the Bank’s consent prior to varying any provision of the lease.” It was not disputed that that consent was never sought or obtained. Indeed the Bank relies upon that as a further reason for contending that the lessor cannot rely, as against the Bank, upon a right of re-entry which depends upon a Variation that should have received the Bank’s consent and never did. While, in light of the conclusions I have earlier reached, it is not necessary for me to reach a conclusion on that last proposition, I would consider it well founded were the Variation, contrary to my view, capable of absolving the need for any notice in the circumstances. 70    Nor could any argument seriously be pressed that because the Variation was not registered, reference to “the lease” in the Deed of Consent could not, post Variation, refer to the present lease since that was a lease only in equity and not in law. It also involves the absurdity that a registered lease becomes a mere tenancy at will, if a subsequent variation to it is not registered as required by s55A of the Real Property Act 1925. 71    Returning to the first contention concerning the proper construction of clause 7 of the Deed of Consent, the lessor’s argument is essentially that because the default in relation to breach of the Liquor Act cannot be rectified, and because the lessor’s damages from the default are not reasonably quantifiable, clause 7.1 by reason of paragraph (h) thereof was not capable of application to the present circumstances. 72    The short answer to that argument is that the lessor’s damages from the relevant defaults are certainly reasonably quantifiable in circumstances where there is no practical likelihood of suspension or loss of the liquor licence. In those circumstances the lessor suffers no damage such that any reasonable quantification would not exceed a nominal sum to cover the lessor’s costs in investigating the breach and, if this were thought warranted, obtaining a no action letter from the licensing authorities. Were the licence really in jeopardy, the reasonable compensation could also accommodate that contingency if it occurred, by stating a value for the licence in the alternative based on an expert valuation. But as I have said, I do not consider it in jeopardy at the relevant time. 73    Clearly enough compensation for a default in payment of past rent is readily quantifiable, even if its lateness be treated as a default that cannot otherwise be cured. 74    It follows that I do not consider that the argument based on the construction of clause 7 has any validity. 75    The second argument turns on whether, accepting that the clause was breached, nonetheless specific performance of it now by ordering the reinstatement of the lessee should as a matter of discretion be denied, or else denied by reason of some inherent limitation based on the proposition that the Bank cannot obtain what is in effect ejectment in favour of the lessee. 76    Take discretionary aspects first. The starting point is the clear purpose of clause 7 of the Deed of Consent. The parties clearly recognise that unless the Bank is given an opportunity to rectify a breach or pay reasonable compensation otherwise for the lessor’s damages where reasonably quantifiable, the Bank is at risk of losing the whole benefit of its security. Damage in those circumstances would not be an adequate remedy because the value of that which had been thereby forfeited would be not only difficult of ascertainment but would deny the Bank the opportunity either to leave the existing tenant in occupation or exercise power of sale, doing so moreover in a situation where the Bank has incomplete knowledge about which option would best suit its commercial interests. Equity would expect the lessor to abide by the negative covenant, not attempt to buy its way out by breaching and then claiming damages would be an adequate remedy. As Lord Wilberforce said in Shiloh Spinners Limited v Harding (1973) AC 691 at 723: “equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payments”, though that did not preclude relief against forfeiture in appropriate cases. Clearly enough the negative covenant in clause 7.2 was intended to confer upon the Bank a protection against that very contingency which denial of specific performance would render nugatory. 77 It could not be said that to reinstate the lessee, which involves putting back in occupation an insolvent tenant, is a futility either for the lessor or indeed for the Bank. I have already referred to the guarantee which the Bank has proffered in relation to future rent and the temporary moratorium in relation to debt service. That bears heavily in the Bank’s favour as a discretionary consideration. This, as clause 7 no doubt intended, gives the Bank and the lessee the opportunity to assess whether there is a viable basis for it continuing in occupation pursuant to a Deed of Company Arrangement, if creditors adopt one. 78 Indeed to deny specific enforcement on the basis that it is a futility fails to recognise that, as Spry in “Equitable Remedies” Fifth Edition (LBC, 1997) at 133-4 points out, futility is a question of degree. As Spry puts it (at 134) “prima facie a party to a contract is entitled to performance of its terms and should not be denied relief on the ground that he will obtain little benefit thereby, unless some special discretionary consideration renders specific enforcement unjust.” 79 It could not be said that the Bank would obtain little benefit from reinstatement of the lessee. It is entitled to consider its options with the greater information it will derive as to the lessee/mortgagor’s viability once reinstated. The Bank faces on the one hand almost total loss of its security if the lessee is not reinstated whilst on the other it has the prospect of retaining the benefit of its security while seeing whether an appropriate arrangement can be made either to maintain the existing tenant or see that tenant replaced by exercise of power of sale. In that regard, clause 6 of the Deed of Consent provides a mechanism permitting such assignment by the Bank subject to the conditions there provided. 80 Spry at 137 puts the analogous case where the plaintiff seeks specific performance of the contract to enter into a lease that is determinable by the defendant, either through a breach by the plaintiff of the condition of the proposed lease or from any other cause. He says:

“In cases of this nature it was sometimes said that the intervention of courts of equity would not place the plaintiff in a better position than if he were left to remedies in damages.20 But if there was a substantial doubt, so that it could not be said with certainty that the lease in question could be terminated by the defendant after execution, then specific performance would be ordered and any questions as to breaches of covenant or condition or as to the determination of the lease could if necessary be dealt with in subsequent proceedings for damages, where any material facts could be finally determined in an appropriate manner.21 “

20 Jones v Jones (1803) 12 Ves. 186, 33 ER 71; Gregory v Wilson (1852) 9 HA 683, 68 ER 687; Swain v Ayres (1888) 21 QBD 289

21 Jones v Jones (1803) 12 Ves. 186, 33 ER 71. See also Pain v Coombs (1857) 1 De G & J 34, 44 ER 634, as to the requirement of undertakings to admit that execution of a lease took place at a time determined by the court, and also Lillee v Legh (1858) 3 De G & J 204, 44 ER 1247, and Rankin v Lay (1860) 2 De G F & J 65, 45 ER 546.

81    The present case is indeed stronger because while the tenant is insolvent, the Bank has given a guarantee for an defined period and the position will thereafter resolve itself either by a deed of company arrangement which gives sufficient prospect of continued viability or exercise of power of sale. In that regard, I should note the evidence given by Mr Alan Lewis the co-Administrator in his affidavit of 9 October 2000 where he says, “In my opinion the voluntary administrators of MI Design will, from the current revenues derived from trading the Rutherford Hotel, be able to meet the outgoings for rent, wages, food and liquor purchases, payments to the Gaming and Licensing authorities and other ongoing expenses (electricity, maintenance, etc) on a cash basis.” 82    Similarly, the other Administrator, Mr Shaw, in his letter of 4 October 2000 with accompanying report (CX14) provides in Annexure M the basis for such a conclusion. The lessor does not agree with these calculations. The lessor points out, correctly, that the cost of capital is not taken into account, though the extent that matters will turn on what discount the Bank decides to accept, if any, the degree of success in future trading by the reinstated lessee and the terms of any deed of company arrangement. All this establishes is that while it cannot be said with certainty that the lease in question will not be breached in the future, there is a sufficient basis for treating the reinstatement as more than a mere futility. 83    The final argument put is that to reinstate the lessee at the suit of the Bank pursuant to its Deed of Consent would be tantamount to the Bank obtaining what is in effect ejectment in favour of the lessee and that this is beyond the power of the Bank to do, it having no term itself. 84    There are several answers to that proposition. First, the Bank is not seeking ejectment of a lessor entitled to be in possession, but rather of a lessor whose failure to give the requisite notice to the lessee means that the purported entry into possession by the lessor was invalid, ipso facto entitling the tenant to be reinstated. That the Bank has independent right to seek an order to that effect does not mean that the Bank is required to seek ejectment against a lessor entitled to possession, since the lessor quite clearly was not. 85    Were I wrong in my earlier conclusion that as between lessor and lessee the lessee is entitled to reinstatement it still does not follow that the Bank is disentitled to specific performance because it is in effect seeking ejectment with no standing to do so. On the contrary, what the Bank is doing is simply enforcing a valuable right to have the lessee remain in possession unless the pre-conditions for removal of the tenant are satisfied, as laid down by clause 7 of the Deed of Consent. Thus even if the lessee were not entitled vis a vis the lessor to reinstatement, the Bank has an independent contract with the lessor, to which the lessee is also a party. 86    Indeed the lessor’s argument if correct, is incompatible with the mortgagee being entitled to invoke the doctrine of relief against forfeiture where the mortgagee has no such side agreement with the lessor. Yet a mortgagee in appropriate circumstances is so entitled, as illustrated by Commonwealth Development Bank of Australia v Eagle Hotels Pty Limited (1990) NSW ConvR 55-506. That case saw the mortgagor reinstated as lessee in circumstances where the breaches relied were not only failure to pay rent but also abandonment of the premises and the hotelier’s licence. That emerges from the full unreported version of that decision in Butterworth’s Unreported Judgments BCA 8901607 pp 5, 16-17, 19. 87 Cohen J was not deterred from providing the relief in question by the argument that, in contrast to what may have been the position of a mortgagee of a lease in England, where there was special registration provisions treating a mortgage as a sub-demise (s86 of Law and Property Act 1925), or under the old system where a mortgage took effect as a sub-demise, a mortgagee of a lease under the Torrens System was not an under-lessee. At 58,789 in the reported version of the judgment, he states:

“In the light of the modern attitude to granting that relief as instanced in the speeches in Shiloh Spinners is it to be said that the opportunity to obtain relief from the court is to be denied by equity only because the land and the plaintiff’s interest in the lease, are registered under the Real Property Act ? In my view the court would not properly be fulfilling its duty to apply equitable principles by differentiating the rights of parties according to the method of registration of their titles to land. It would seem to be a denial of justice to say that a mortgagee of leasehold land has a right to approach the court for relief if the land is under the old system title but, once an application is made to bring it under the Real Property Act, that right is thereupon lost.”

88    It follows, as I have said, that the present case is a fortiori in comparison to the position of a mortgagee with no such agreement as exists here between the mortgagee and lessor. The nature of the breaches are in each case closely analogous. It follows that I do not accept the argument from the First Defendant that Eagle Hotels is distinguishable by reason of the breach being merely the failure to pay rent or otherwise of lesser gravity.

Conclusion

89    The lessor’s re-entry was invalid for want of notice to the lessee and, so far as the Bank is concerned, the Bank is entitled to specific performance of clause 7 of the Deed of Consent. The failure to give that notice was a wilful and flagrant breach of the lessor’s promise to the Bank. It is one which, if left unremedied, would effectively destroy the Bank’s security leaving it with a virtually worthless charge against a few chattels.

Question 5

If Dunecar’s re-entry was invalid:
(a) What, if anything, was the effect of that purported re-entry on the lease? and
(b) Depending on the answer to 5(a), what is the appropriate relief for the Bank?

90    This question concerns whether, if the lessor’s re-entry was invalid, what was the effect of that re-entry on the lease and the appropriate relief for the Bank. The re-entry so far as the lease is concerned was invalid and the lease continues with the lessee entitled to reinstatement. That also is the appropriate relief for the Bank being in the Bank’s case relief by way of specific performance and in the lessee’s case, relief by way of enforcement of the lessee’s rights under the existing lease.

Question 6

If Dunecar’s re-entry was valid, is the Bank entitled to relief against forfeiture and, if so, what is the appropriate form of order(s) including any terms?

91    This question proceeds on the premise that the lessor’s re-entry was valid and asks whether the Bank in those circumstances is entitled to relief against forfeiture and if so on what terms. I have already concluded that the re-entry was not valid. However, if I were wrong in that conclusion, I would conclude that the Bank was entitled to relief against forfeiture, the case being analogous to Commonwealth Development Bank of Australia v Eagle Hotels Pty Limited. Clearly any terms would include that the past rent be paid without risk of being recaptured as a preference.

Overall conclusion and Orders

92 The lessee is entitled to reinstatement for the reasons earlier stated both at its own suit and at the suit of the Bank. The lessor has acted with flagrant, contumelious disregard of the express pre-conditions, both statutory and contractual, binding it to give notice to lessee and Bank prior to any re-entry. So far as the lessee is concerned, the lessor has breached both the contractual stipulations and s129(1) of the Conveyancing Act 1919. So far as the Bank is concerned, the lessor has breached its contractual stipulation. Relief against forfeiture would otherwise have been available but I take it will not be now sought. 93 While the lessee’s insolvent position is not the consequence of the lessor’s breach of its obligations with respect to re-entry, quite clearly that unauthorised re-entry has exacerbated the financial position of the tenant. Moreover the Bank’s security has been placed in unwarranted jeopardy and the lessee’s own quiet possession disrupted, with potential injury to his goodwill. That is why those breaches are so serious. They are not exonerated by the lessee’s own admitted or other breaches. 94 Costs should ordinarily follow the event, though I will hear the parties on costs if they wish. 95 Otherwise, I direct the parties to submit orders giving effect to this judgment as a matter of urgency so that the tenant is reinstated forthwith. **********

Last Modified: 10/30/2000