Needlegrove Investments Pty Limited & Anor v Thakral Brighton Hotel Pty Limited

[2007] NSWSC 89

CITATION:	Needlegrove Investments Pty Limited & Anor v Thakral Brighton Hotel Pty Limited & Ors [2007] NSWSC 89
HEARING DATE(S):	19.09.05, 20.09.05, 21.09.05, 21.03.06, 22.03.06, 23.03.06, 24.03.06, 13.07.06, 14.07.06, 21.07.06, 17.08.06, 07.09.06
JUDGMENT DATE :	16 February 2007
JUDGMENT OF:	Nicholas J
DECISION:	para 93
CATCHWORDS:	Landlord and tenant – mortgage of leasehold – whether lessor entitled to forfeiture without the notice required under agreement with mortgagee – whether lessor’s notices of termination to lessee valid – construction of deed of consent to mortgage of lease – meaning of “successors” and of “assigns”
LEGISLATION CITED:	Conveyancing Act 1919, s 129 Retail Leases Act 1994, s 41
CASES CITED:	Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1985-1986) 160 CLR 226 Caradine Properties Ltd v Aslam (1976) 1 All ER 573 Egerton v Jones [1939] 2 KB 702 Kestrel Coal Pty Limited v Construction, Forestry, Mining and Energy Union [Unreported, QldSC, 11 November 1999] McCann v Switzerland Insurance Australia Ltd & Ors (2000) 203 CLR 579 O’Callaghan & Ors v Custom Credit Corporation Limited & Ors [Unreported, WASC, 7 December 1997] Project Blue Sky Inc & Ors. v Australian Broadcasting Authority (1998) 194 CLR 355 Retravision (NSW) Limited v Copeland [Unreported, NSWSC, 8 October 1997] Taylor v Dexta Corporation Limited & Ors [2006] NSWCA 310 United Starr-Bowkett Co-operative Building Society (No. 11) Limited v Clyne (1967) 68 SR (NSW) 331 Willkie v Gordian Runoff Ltd [2005] HCA 17
PARTIES:	Needlegrove Investments Pty Limited – first plaintiff Z Restaurant & Bar Pty Limited – second plaintiff Thakral Brighton Hotel Pty Limited – first defendant Thakral Operations Pty Limited – second defendant Provident Capital Limited – third defendant
FILE NUMBER(S):	SC 2622/05
COUNSEL:	N Cotman SC/G Thomas - plaintiffs M Neil QC/R J Carruthers – first, second defendants C E Adamson SC/B Zipser – third defendant
SOLICITORS:	Konstan Lawyers - plaintiffs Blake Dawson Waldron – first, second defendants Tiernan & Associates – third defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

16 February 2007

2622/05 Needlegrove Investments Pty Limited & Anor v Thakral Brighton Hotel Pty Limited & Ors

JUDGMENT

1 His Honour: The first plaintiff (Needlegrove) is the sub-lessee from the second defendant (Thakral Operations) as sub-lessor of the premises of nos. 56 and 57 Bayside Plaza, Brighton Le Sands (the premises) at which the second plaintiff (Z Restaurant) operates a licensed bar and restaurant. The third defendant (Provident) is the mortgagee of Needlegrove’s interest in the premises. The first defendant (Thakral Hotel) is the owner of the Novotel complex which includes a hotel and the Bayside Plaza in which the premises are situated. I refer to the first and second defendants collectively as Thakral.

2 These proceedings challenge the claim by Thakral Operations to a right of re-entry pursuant to notices of termination of sub-lease to Needlegrove dated 23 April 2005 and 22 June 2005. Neither notice was given to Provident which claims entitlement to prior notice under a separate agreement with Thakral Operations.

3 On 23 April 2005 Needlegrove obtained from Palmer, J, ex parte, an order until 26 April 2005 restraining Thakral Hotel and Thakral Operations from taking possession of the premises. On 26 April 2005 Young, CJ in Eq ordered that the injunction continue until further order.

4 Needlegrove and Provident seek a declaration that the notices of termination are invalid and an order that Thakral be restrained from taking possession of the premises. In the alternative, relief against forfeiture is sought. On the other hand, Thakral seeks orders that the summons be dismissed, that the injunction be dissolved, there be judgment for Thakral Operations for possession, and that all sums paid into court be paid to Thakral Operations as mesne profits.

Background

5 The following is a brief history of relevant events which are not in dispute.

6 In May 1994 Thakral Hotel, as lessor, and Thakral Operations, as lessee, entered into the lease of the property known as Bayside Plaza, Brighton Le Sands for a term of seven years with three six year options to renew (the first head lease). The options to renew in this lease were for the following periods:

(a) 4 May 2001 to 3 May 2007;

(b) 4 May 2007 to 3 May 2013;

(c) 4 May 2013 to 3 May 2019.

7 During 1999 there were negotiations for the lease of the premises to The Warren Holdings Pty Limited (Warren) for the purpose of conducting a licensed restaurant under the name “Bad Dog Bar and Grill”. On 8 October 1999 Provident agreed to lend Warren $520,000.00 for fit out costs to be secured by a mortgage over the lease and a charge over assets.

8 On 17 November 1999 Thakral Operations, Warren, and Provident executed a number of documents including:

(a) three consecutive sub-leases signed by Thakral Operations as sub-lessor and Warren as sub-lessee, namely:

(i) for the period 1 October 1999 to 3 May 2001 (the first sub-lease);
(ii) for the period 4 May 2001 to 2 May 2007 (the second sub-lease);
(iii) for the period 4 May 2007 to 30 September 2009 with three options to renew for the further periods of 1 October 2009 to 3 May 2013, 4 May 2013 to 30 September 2014, and 1 October 2014 to 30 September 2019 (the third sub-lease), and


(b) a mortgage over the first sub-lease signed by Warren and Provident, and

(c) a deed of consent to mortgage of lease signed by Thakral Operations, Warren and Provident.

9 The fit out of the premises took place between about December 1999 and September 2000.

10 In September 2000 the Bad Dog Bar and Grill restaurant opened. It was operated by Warren under the supervision of Mr Lance Melbourne. Its on-licence included a dine-or-drink authority. The restaurant was also subject to a “Place of Public Entertainment” (POPE) licence issued by the Rockdale Council which approved the provision of live entertainment and music to customers. Until July 2002 the restaurant was open seven days a week. On different nights of the week there was after-dinner entertainment. On Friday and Saturday nights dance music was provided from between 10pm until 3am next day.

11 On 10 April 2001 Warren and Provident executed the mortgage of the second sub-lease.

12 On 1 March 2002 Warren, with the consent of Thakral Hotel, applied for a POPE licence. The proposed entertainment was described as “live entertainment, pianist, and cabaret style vocalist”. The Rockdale Council granted the licence for the period 8 March 2002 to 8 March 2003.

13 In April 2002 the second sub-lease was registered as dealing no. 8467962 and the mortgage over it was registered as dealing no. 8467963.

14 Warren experienced financial difficulty in the conduct of its business and it was wound up on 11 July 2002. By letter of 5 July 2002, Provident informed Thakral Corporation Pty Limited that it had exercised its rights as mortgagee in respect of the premises. By letter of 10 July 2002, Provident proposed Needlegrove as lessee and sought approval of the assignment to it of the second and third sub-leases.

15 By letter of 16 August 2002 from Provident’s solicitors to Thakral Operations’ solicitors, information was given about Needlegrove including its business plan, budgets, assets and liabilities, trading and business experience, and financial standing. It included the following:

“The assignee will be subject to a mortgage debenture and fixed and floating charge from Provident Capital Limited. The amount secured under the charge will be $2,200,000.00 at 8.5% for a 5 year term.
Please deal expeditiously to the request for consent”.

16 By letters of 1 October and 15 October 2002 to Thakral’s solicitors, the plaintiffs’ solicitors asserted compliance with the procedure under s 41 Retail Leases Act 1994 for obtaining consent to the assignment, and that, accordingly, consent was deemed to have been given. That this was so was ultimately accepted (e.g. T p 562).

17 During October and November 2002 arrangements were made whereby Provident, in exercise of its rights under the mortgages and charges from Warren, assigned the second sub-lease and third sub-lease and sold the assets of the restaurant business to Needlegrove for the price of $2.2 million, which amount Provident agreed to lend Needlegrove. It was also arranged that the restaurant would be operated under the name “Zythos Greek Restaurant” by Zythos Restaurant Night Club Pty Limited (Zythos). Needlegrove and Zythos agreed to provide security to Provident for the loan.

18 On 28 November 2002 the following took place referable to these transactions:

(1) the transfer of the second sub-lease no. 8467962 from Provident as mortgagee under mortgage no. 8467963 to Needlegrove;

(2) the mortgage of the second sub-lease no. 8467962 between Needlegrove as mortgagor and Provident as mortgagee;

(3) the mortgage of the third sub-lease with options to renew between Needlegrove as mortgagor and Provident as mortgagee;

(4) the mortgage of the second sub-lease and the third sub-lease from Warren to Provident was discharged; and

(5) Provident’s solicitors informed Thakral’s solicitors that the assignment had taken place on that day, and requested the records be noted accordingly.

19 From about February 2003 until March 2005 Thakral denied that Provident had assigned the second sub-lease to Needlegrove. Rent was demanded from Provident although invoices were sent to Zythos. On numerous occasions during this period rent was in arrears.

20 In early 2004 Mr Ignatios Hilellis, a director of Needlegrove, took over the business carried on by Zythos. From April 2004 the business was operated under the name “Z-Bar” by Z Restaurant and Bar Pty Limited of which Mr Hilellis is the sole director and shareholder.

21 In early 2004 the 900 issued shares in Needlegrove were acquired by Hock-a-Car Pty Limited. On 9 August 2004 it transferred 300 shares to Nomy Pty Limited.

22 By letter of 16 March 2005 to Needlegrove, Thakral’s new solicitors (Blake Dawson Waldron) demanded payment of unpaid rent due on 1 February and 1 March 2005 in the total amount of $23,020.27. Payment was demanded by 31 March 2005, failing which the sub-lease would be terminated without further notice. With the letter was enclosed a notice under s 129 Conveyancing Act 1919 (the Act) to remedy breach of covenant by payment of the amount to Thakral Operations. It was sent to Needlegrove’s registered office which was the office of its accountants, Belos & Kolovos.

This was the first occasion on which demand for the payment of rent was made directly to Needlegrove.

23 On 29 March 2005 Thakral’s solicitors provided a copy of the notice to Provident which, on 31 March 2005, paid the amount claimed in full.

24 On either 7 or 8 April 2005 a letter dated 16 March 2005 was sent by Thakral’s solicitors to Needlegrove’s registered office. With the letter was enclosed a notice under s 129 of the Act to remedy breach of covenant dated 7 April 2005 (the 7 April notice) by payment of the amount to Thakral Operations. The letter demanded payment of outstanding rent due on 1 March and 1 April 2005 in the total amount of $15,035.94 by 22 April 2005, failing which the sub-lease would be terminated without further notice.

25 On 8 April 2005 the letter and notice were sent by facsimile transmission by the accountants to Mr Peter Kay and Mr Theo Kotselas. Mr Kotselas was said to be the sole director of Needlegrove.

26 Neither a copy of the 7 April notice nor of the letter dated 16 March 2005 with which it was enclosed was given to Provident.

27 On 23 April 2005 the rent the subject of the 7 April notice remained unpaid. That day Thakral Operations served a notice of termination of the second sub-lease (the 23 April notice) effective immediately which included a demand that the premises be vacated by “6pm today”. Upon receiving the notice Needlegrove successfully applied, ex parte, to the court for an interlocutory order restraining Thakral Operations from taking possession from the premises, having informed the court that all outstanding rent and other outgoings had been paid. The 23 April notice was served on Needlegrove without notice to Provident.

28 On 26 April 2005 the injunction was continued until further order. The court was informed that Needlegrove had tendered a cheque for the amount of $15,005.67 on the contingency that rent was outstanding as claimed. The cheque was dishonoured on presentation on 28 April 2005. The next day Provident sent Thakral a replacement cheque and advised that Needlegrove’s cheque was not met on presentation due to uncleared deposits.

29 On 6 May 2005 Provident sent Thakral Operations a cheque for $15,000.00 in payment of the May rent. By letter of 10 May 2005, Thakral’s solicitors returned the cheque, stating that the sub-lease was terminated by notice on 23 April 2005.

30 By letter of 24 May 2005 to Thakral, Provident stated:

“Should your assertions be correct that you have validly terminated Needlegrove’s sublease by notice 23 April 2005, Provident Capital will seek relief against forfeiture protecting our rights as mortgagee.
In any event, payment for rent and outgoings will be due. We again enclose payment for May 2005 rent and outgoings”.

The cheque was returned by Thakral’s solicitors on 1 June 2005.

31 On 28 May and 4 June 2005 Mr Stephen Hanna, a private enquiry agent engaged by Thakral Operations, attended the premises and recorded his observations of the conduct of the business there.

32 By letter of 23 June 2005 to Needlegrove, Thakral’s solicitors stated that the activities of the business Z-Bar as observed on 28 May and 4 June 2005 were in breach of several covenants of the sub-lease, and endangered the liquor licence for the premises. It asserted that Thakral Operations was entitled to terminate the sub-lease by notice without prior notice. It included the following:

“Without prejudice to Thakral’s position that it validly terminated the Sublease by notice on 23 April 2005, in the event that the Court finds otherwise, Thakral now terminates the Sublease by the enclosed notice signed by Thakral’s Managing Director”.

With the letter was enclosed a notice of termination dated 22 June 2005 (the 22 June notice) effective immediately, which demanded that the premises be vacated by “6pm today”. The 22 June notice was served on Needlegrove without notice to Provident.

33 On 1 July 2005 the trading name of the business at the premises was changed from “Z-Bar” to “XES”. Needlegrove held a private function there to launch the new name. Mr Hanna attended and recorded observations of activities.

34 On 5 July 2005 Hock-a-Car Pty Limited transferred 300 shares in Needlegrove to Tahlee Holdings Pty Limited without the knowledge or approval of Thakral Operations.

35 On 29 July 2005 the court ordered that the hearing be expedited. Needlegrove was ordered to pay all rent owing and payable to that time and thereafter into court, and that all outstanding amounts were to be paid into court by 4pm 8 August 2005.

36 On 8 August 2005 Provident paid into court the amount of $59,266.82 for rent due from Needlegrove for May, June, July, and August. However, Needlegrove failed to pay rent when due for each month thereafter until January 2006.

37 On 13 August 2005 the POPE licence expired. Needlegrove continued to trade as before.

38 By letter of 8 September 2005, Needlegrove’s solicitors informed Thakral’s solicitors to the effect that Miss Catherine Townsend had replaced Miss Helen Pilikidis as the licensee of the premises. No prior consent had been sought from, or given by, Thakral Operations to the transfer of the licence to Miss Townsend.

39 The first stage of the hearing of these proceedings before me took place between 19 and 21 September 2005.

40 With their letter of 20 September 2005 to Needlegrove, Thakral’s solicitors enclosed notices of the same date under s 129 of the Act to remedy breach of covenant as follows:

(a) a notice concerning Needlegrove’s failure to obtain Thakral’s consent before changing its shareholding so that a different group of persons control more than 50 percent of the shares giving a right to vote at general meetings;

(b) a notice concerning Needlegrove’s failure to obtain Thakral’s consent prior to the transfer of the liquor licence in respect of the premises on or about 13 September 2005 from Miss Pilikidis to Miss Townsend.

41 By letter of 4 October 2005 to Thakral’s solicitors, Needlegrove sought to remedy the alleged breaches by seeking consent to the share transfers, and to the transfer of the liquor licence from Miss Pilikidis to Miss Townsend. Consent was refused by Thakral’s solicitors’ letter of 26 October 2005.

42 Needlegrove and Provident contended that Thakral Operations had no right to terminate and take possession without first giving to Provident the notice required by cl 4.1(b) of the deed of consent of 17 November 1999 (the deed). They submitted that as no such notice had been given the notices of termination of 23 April and 22 June were ineffective and invalid. It was accepted that no such notice was given to Provident.

43 With respect to the 7 April notice to remedy non-payment of rent it was also contended that it was invalid in that it was misleading because the covering letter was erroneously dated 16 March with the consequence that it could not found the notice of termination of 23 April.

44 Additional grounds for the challenge to the claim for termination and re-entry under the 22 June notice were:

(1) the failure of Thakral Operations to give notice under s 129(1) of the Act in circumstances where the exemption under s 129(3) did not apply in that the conduct alleged was not such as to endanger the licence or to render it liable to be suspended or cancelled;

(2) Needlegrove was not in breach of the various provisions of cl 28.1A (sic) of the sub-lease as alleged in the notice;

(3) alternatively, if Needlegrove was in breach as alleged:

(a) such breach did not amount to a repudiation of its obligations within the meaning of cl 24.2(a) of the sub-lease;
(b) clause 28.1A of the sub-lease was not an essential term within the meaning of cl 24.2(b) or under the general law;
(c) any such breach did not attract the application of cl 24.2(c) of the sub-lease;

(d) any such breach was waived by Thakral Operations.

Did the deed apply to the second sub-lease?

45 The first issue for consideration is whether, under the deed, Thakral Operations was required to give Provident prior notice before exercising its powers to terminate the lease and take possession of the premises. Its determination turns on the proper construction of the deed.

46 The parties to the deed were Thakral Operations as lessor, Warren as mortgagor, and Provident as mortgagee. Relevantly, it provides as follows:

“RECITALS:
A. The Lessor and the Mortgagor have entered into the Lease for the purpose of leasing the Premises to the Mortgagor.
…
C. As security for the Funds, the Mortgagor has agreed to mortgage to the Mortgagee, amongst other things, the Mortgagor’s estate and interest in the Lease by the Security.
D. The Lessor has agreed to consent to the Security on the terms and conditions set out below, and acknowledges the Mortgagee’s interests in the lease under the Security.
…
1.1 …
“Lease” means the lease described in item 2 of the schedule to this deed granted by the Lessor to the Mortgagor in respect of the Premises; [item 2 described the first sub-lease]
…
“Security” means the security described in item 4 of the schedule to this deed granted by the Mortgagor in favour of the Mortgagee over the Mortgagor’s estate or interest in the Lease.

1.2 In this deed unless the contrary intention appears:
…
(d) a reference to this deed or another instrument includes any variation or replacement of them;
(e) a reference to a person includes a reference to the person’s executors, administrators, successors, substitutes (including, without limitation, persons taking by novation) and assigns.
…
2. Lessor’s consent to the Security
2.1 The Lessor consents to the Mortgagor mortgaging to the Mortgagee the Mortgagor’s rights and interest in, to and under the Lease pursuant to the Security.
3. Assignment by Mortgagee
3.1 The Mortgagee is permitted to sell, assign or sub-let the Mortgagor’s interest in the Lease in exercise of its power of sale under the Security to any respectable, responsible or solvent person with the written consent of the Lessor, such consent to be determined in the same manner as set out in the Lease, and in accordance with Section 41 of the Retail Leases Amendment Act 1998 that person agreeing by deed to be bound by the terms and conditions of the Lease.
3.2 The Lessor agrees that should the Mortgagee sell, assign or sub-let the Lease to a new Lessee, then the Mortgagee will not be under any obligation to the Lessor as to the due and punctual observance and performance of the purchaser’s, assignee’s or sub-lessee’s obligations under the Lease.
4. Notice to Mortgagee
4.1 The Lessor covenants with the Mortgagee to:
…
(b) give the Mortgagee at least fourteen (14) days notice, or any longer period expressly or impliedly required to be given to the Mortgagor, before exercising any of the following powers:
(i) to terminate the Lease;
(ii) to take possession of the Premises;
…
5. Lessor’s Exercise of Powers Under Lease
5.1 The Lessor will not exercise any of the powers referred to in clause 4.1(b) if within the time specified in the notice referred to in such paragraph, the Mortgagee:
(a) remedies the act, omission, default or circumstance specified in the notice;
…
(c) exercises its power under the Security to take possession of the Premises or to conduct the business of the Mortgagor and remedies the act, omission or default specified in the notice;
(d) in the case of a breach not capable of remedy, the Lessor has despatched to the Mortgagee with the said notice a claim for compensation in money for the breach and the Mortgagee has paid the amount so claimed at the expiration of fourteen (14) days from the date of service of the notice”.

47 Prior to execution of the deed and other documents Thakral’s solicitors wrote to Warren the letter of 22 October 1999 which included the following:

“I refer to previous correspondence and enclose leases (x6). These are three (3) consecutive leases as agreed between the parties, whose terms are effectively divided to take into account the terms and option periods of the Headlease between Thakral Brighton Hotel Pty Limited and Thakral Operations Pty Limited.
The total of the terms is a period of 20 years which is as originally agreed. The three leases have been treated as consecutive leases with the third lease incorporating three further option terms.
As to the issue of a mortgage being granted over the Lease, this is already provided for in Clause 21.8 of the memorandum which terms are incorporated into the leases. A further copy of Memorandum O290632 is enclosed for your convenience …”

48 The second sub-lease and the third sub-lease incorporated Memorandum O290632 referred to in the abovementioned letter. Relevantly, cl 21.8(a) provided:

“21.8 You may only create or allow to come into existence:
(a) a security over your interest in this lease with our approval;”

49 As earlier mentioned, the second sub-lease and Warren’s mortgage to Provident were registered in April 2002. On 28 November 2002, in exercise of its rights under the mortgage from Warren, Provident transferred the second sub-lease to Needlegrove. On the same day the mortgage from Warren was discharged and Needlegrove provided mortgages to Provident over the second sub-lease and the third sub-lease.

Construction of the deed

50 Provident and Needlegrove contended that the deed continues to operate in relation to the second sub-lease. It was submitted that as no notice was given under cl 4.1(b) before Thakral Operations purported to terminate the second sub-lease on 23 April and 23 June 2005 the notices of termination were invalid.

51 Thakral submitted that in the events which have happened the deed has no continuing application and is irrelevant. It contended that on its proper construction the deed had no application after the discharge of the mortgage from Warren. It was put that the mortgage from Needlegrove to Provident was an entirely different transaction to which no consent had been given. In the circumstances it could not be said that the Needlegrove mortgage was a substitute for, or replacement of, the Warren mortgage.

52 In the alternative to their submissions on the construction issue, Thakral argued that Provident was bound by an estoppel by convention which precluded it from asserting that the deed relates to the second and third sub-leases.

53 The proper approach to the construction of the deed accepts that as it is a commercial contract it should be given a business-like interpretation. Its interpretation 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. McCann v Switzerland Insurance Australia Ltd & Ors (2000) 203 CLR 579, p 589. As with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole. Project Blue Sky Inc. & Ors v Australian Broadcasting Authority (1998) 194 CLR 355, pp 381-382; Willkie v Gordian Runoff Ltd [2005] HCA 17, paras 15-16.

54 In Taylor v Dexta Corporation Limited & Ors [2006] NSWCA 310 Santow, JA pointed out (para 30) that “… A necessary corollary of that requirement for a commercial contract to be given a business-like interpretation is the frequent emphasis upon the need to arrive at an interpretation which is commercially sensible, and in accord with commercial reality”. He also said:

“33. The search for meaning must start with the text itself. From it one must ascertain what the words in their context would convey to a reasonable person in the position of the parties, … having all the background knowledge which would reasonably have been available to those parties; Maggbury Pty Limited v Hafele Australia Pty Ltd (2001) 210 CLR 181 per Gleeson CJ, Gummow and Hayne JJ at [11] quoting with approval Lord Hofmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-13.
34 The process of construction requires that one goes beyond merely internal linguistic considerations to ascertain what were the circumstances with reference to which the words were used ( Prenn v Simmonds [1971] 1 WLR 1381 at 1384). More particularly, one must, within the ambit of the words used, ascertain the genesis of the transaction and the purpose of the resultant contract, to determine what interpretation best accords with that genesis and purpose; Royal Botanic Gardens and Domain Trust v South Sydney Council (2002) 186 ALR 289 at 292-3”.

55 As is evident from recital D, the purpose of the deed is to provide Thakral Operations’ consent to the mortgage of Warren’s estate and interest in the lease and its acknowledgement of Provident’s interest in the lease as mortgagee. Clauses 4.1(b) and 5.1 give effect to the parties’ intention to protect Provident against the risk of losing the benefit of its security upon the exercise by Thakral Operations of its powers under the lease. This protection is achieved by affording Provident the opportunity to remedy the breach or otherwise pay Thakral Operations compensation for the breach. “It is to overcome the risk that “behind his back and without his knowledge the lessor will succeed in re-entering, and so determining the lease”. Egerton v Jones [1939] 2 KB 702, per Greene, MR (p 707)”. (O’Callaghan & Ors v Custom Credit Corporation Limited & Ors [Unreported, WASC, 17 December 1997], per Anderson, J).

56 It is also evident that application of the deed was not intended to be limited to the first sub-lease which is referred to in the definition of the term “Lease” in cl 1.1. In accordance with the arrangements proposed in the letter from Thakral’s solicitors to Warren of 22 October 1999, Thakral Operations and Warren signed the three consecutive sub-leases for a total term of 20 years expiring on 30 September 2019 on the same date the deed was executed by the parties. These leases included cl 21.8(a) of memorandum O290632 which allowed the sub-lessee to give a security over its interest in the sub-lease with approval. The evidence shows, and I find, that the parties intended that, upon its expiry, the first sub-lease would be replaced by the second sub-lease which, in turn, would be replaced by the third sub-lease. It was in these circumstances that the deed was executed on 17 November 1999.

57 Clause 1.2(d) provides, in effect, that where an instrument is referred to it includes any variation or replacement thereof. It follows that the term “Lease” should be understood to include any variation or replacement of the first sub-lease which, in my opinion, was intended by the parties to include the second and the third sub-lease when each came into effect. This interpretation is in accordance with the ordinary language of the deed. Furthermore, in circumstances where the parties contemplated that their relationship might endure for the total 20 year term of the consecutive sub-leases, it is an interpretation which is also commercially sensible and realistic. Acceptance of Thakral’s argument that the deed applied only to the first sub-lease would mean that the parties accepted that issues of consent and protection with respect to the other sub-leases should be subject to fresh negotiation with attendant risk and uncertainty pending any agreement. In my opinion such a result would not be the product of a business-like interpretation of the deed, and the submission is rejected. This conclusion is reinforced by the absence of any provision that the deed should cease to have effect upon the expiry of the first sub-lease or the discharge of Warren’s mortgage to Provident. In the circumstances it may be safely assumed that had the parties intended this to happen they would have included an appropriate provision in the deed.

58 Thakral admits that Provident assigned Warren’s interest in the second and third sub-leases to Needlegrove in the exercise of its rights as mortgagee. It accepts that under s 41(d) Retail Leases Act 1994 Thakral Operations was deemed to have consented to the assignment. Thakral stated (written submissions, 1 May 2006, para K440):

“There is now no dispute that Needlegrove is the successor in title to the original sub-lessee, The Warren Holdings Pty Limited, and that by operation of law on or about 28 November 2002 the second sub-lease was assigned from The Warren Holdings Pty Limited to Needlegrove”.

59 It submitted, however, that no consent was given to Needlegrove’s mortgage which, being a new transaction, was not covered by the deed. Unsurprisingly, it was common ground there had been no assignment of Warren’s mortgage to Needlegrove. The issue raised by Thakral requires further consideration of the deed.

60 Clause 1.2(e) provides that a reference to a person is to be understood in wide terms. It extends the identity of those persons specifically referred to in the deed. The deed is to be understood to refer to, for example, the “successors” and “assigns” of a person specified, for example, the “Mortgagor”. These terms ordinarily have wide meanings, and are unqualified in the deed. There is no reason to give them a narrow or technical meaning. The text of the provision does not require consideration of some legal form of succession or assignment or other transaction.

61 In the Macquarie Dictionary (4th edition) the word “successor” is defined to mean “1. someone or something that succeeds or follows. 2. someone who succeeds another in an office, position, or the like”. The word “assigns” is defined to mean “9. a person to whom the property or interest of another is or may be transferred”.

62 In Retravision (NSW) Limited v Copeland [Unreported, NSWSC, 8 October 1997] Young, J (as he then was) observed:

“If one looks at Stroud’s Judicial Dictionary see e.g. 4th edition at page 2661, one can see a simple definition:
“a successor is “he that followeth or cometh in another’s place”.
That is a wide definition, but it tends to be the sense in which the word is used in the cases, though none of the cases that I have found are in pari materia”.

63 It follows that where the term “Mortgagor” is referred to it includes that person’s “successors, and assigns”. Having regard to the context, “successors” means those who succeed the mortgagor under the lease, and “assigns” means those to whom its interest under the lease is assigned which, simply, are successors in title under the lease (see e.g. United Starr-Bowkett Co-operative Building Society (No. 11) Limited v Clyne (1967) 68 SR (NSW) 331; Kestrel Coal Pty Limited v Construction, Forestry, Mining and Energy Union [Unreported, QldSC, 11 November 1999] per Muir, J).

64 The factual question arises whether Needlegrove is Warren’s successor or assign within the meaning of cl 1.2(e). Acceptance by Thakral that Needlegrove is the successor in title to Warren as original sub-lessee, and that on about 28 November 2002 it was assigned the second sub-lease from Warren, relieves me of the necessity to review the evidence which amply supports the finding, which I make, that Needlegrove was both Warren’s successor and assign of its interest under the second sub-lease. Accordingly, upon its proper construction a reference in the deed to “the Mortgagor” should be understood as a reference to Needlegrove.

65 This interpretation is consistent with the underlying purpose of the deed, and, in particular, of the provisions to which I now refer.

66 That the rights and obligations of the parties under the deed should survive the expiry of the first sub-lease and the discharge of Warren’s mortgage, and should continue to apply to Warren’s successor in title is all readily explicable by the agreements in cll 2 and 3. By cl 3.1 the parties permit the mortgagee, in the exercise of its power of sale, to sell, assign, or sub-let the mortgagor’s interest in the lease with the lessor’s consent. Clause 3.2 recognises the ordinary situation that the leasehold interest would be mortgaged, and it is intended to remove any basis for holding the mortgagee liable for a new lessee’s obligations under the lease.

67 The lessor’s consent to the provision by the mortgagor of its leasehold interest as security is given by cl 2. As I have held, once Needlegrove became Warren’s successor and/or assign under the sub-lease, the term “Mortgagor” where appearing in the deed refers to it. This enables cl 2 to be understood to mean that Thakral Operations consents to Needlegrove mortgaging to Provident its interest under the sub-lease. So understood, cl 2 complements, and is consistent with, the ordinary commercial process involved in the exercise of the mortgagee’s power of sale recognised in cl 3. In my opinion the effect of cl 2, in context, is that Thakral Operations has consented not only to Warren mortgaging its leasehold interest but also to Warren’s successor or assignee doing the same thing. The context includes cl 3.1 from which it may be understood that consent had already been given to succession by the mortgagor to the leasehold interest, presumably on the basis that it was a respectable, responsible, or solvent person. Provision of consent in this way facilitates the entry of the new lessee/mortgagor by avoiding the inconvenience involved in obtaining consent or approval for each new mortgage under cl 21.8(a) of the sub-lease. It accords with commercial common sense and reality that this was agreed.

68 Furthermore, in my opinion there is nothing to be found in the ordinary language of cl 2, or elsewhere in the deed, which supports Thakral’s argument that its consent was limited to the mortgage given by Warren and did not extend to that given by Warren’s successor or assign over the leasehold interest. Had such a limitation been intended one might reasonably suppose that an appropriate provision would have been included.

69 My conclusion is that, upon its proper construction, the deed continues to operate in relation to the second sub-lease and to the Needlegrove mortgage. It follows that the protections afforded to Provident under cll 4.1(b) and 5.1 remain. As a result Thakral Operations is not entitled to terminate the second sub-lease or take possession of the premises without giving Provident the notice required under cl 4.1(b).

Estoppel

70 In the alternative to Thakral’s submissions on the construction issue, it was argued that Provident should be estopped from asserting that the deed relates to the second and third sub-leases. In para 9(d) of their points of contention, in response to Provident’s second further amended points of contention, it was pleaded that:

“9(d) alternatively say that if (which is denied) the Deed has any application in these proceedings and if (which is denied) the Deed on its proper construction relates to the Second and Third Subleases, Provident represented to the First and/or Second Defendants, or alternatively Provident and First and/or Second Defendants adopted as a convention between them, that the Deed did not relate to the Second and Third Subleases, in reliance upon which the First and/or Second Defendants agreed to compromise certain proceedings (referred to in paragraph 17 below) on about 1 March 2002, and accordingly it would be unconscionable for Provident to depart from such representation and/or convention, and accordingly Provident is or should be estopped from asserting that the Deed relates to the Second and Third Subleases”.

71 The submission to the court was that the parties operated upon the basis of a convention assumed between them that the deed did not apply to the second sub-lease (Thakral’s supplementary submissions on construction of the deed, 17 August 2006, para 49).

72 The evidence relied upon was the correspondence between the parties’ solicitors between 8 March and 25 March 2002, and the letter of 30 October 2000 from Thakral’s solicitors to Provident’s solicitors. It was put that it established that the parties conducted their relationship on the basis that Thakral and Provident had agreed or assumed that the deed did not extend to the second sub-lease and, as a consequence, they were bound by an estoppel by convention to proceed on that basis (Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1985-1986) 160 CLR 226, pp 244, 245).

73 In my opinion the correspondence does not support the case adumbrated in para 9(d) of Thakral’s points of contention or Thakral’s submissions in respect of it. There was no evidence in the correspondence or otherwise of the circumstances in which the agreement of 1 March 2002 was made or, in particular, of reliance by Thakral in making the agreement upon any representation, assumption, or agreement that the deed did not relate to the second and third sub-leases.

74 Analysis of the correspondence shows that on 1 March 2002 agreement was reached to dispose of the notice of motion filed by Warren on 20 February 2002 against Thakral Operations, and to enable registration of the second sub-lease between Thakral Operations and Warren. The correspondence dealt with the documentation required for the purpose of registration of the second sub-lease following the execution of the head lease for the term 4 May 2001 to 3 May 2007 between Thakral Hotel and Thakral Operations, which included the lodgement by Warren and Provident of withdrawals of caveats over the premises.

75 By letter of 20 March 2002, Mr Tom Suttie, solicitor for Provident, sent Thakral Operations’ solicitors a copy of the deed, and a form of variation of the deed which provided for the inclusion of the second and third sub-leases in the description of the term “Lease” in item 2 of the deed so that the deed applied to mortgages over them.

76 Later the same day Thakral Operations’ solicitors replied to the solicitors for Warren and Provident, Mr Phil Tiernan and Mr Suttie respectively. Relevantly the letter included the following:

“1. Our clients are only required to provide a letter addressed to the LPI consenting to the registration of Provident’s mortgage over the second sub-lease. During the negotiations in respect of the agreement on 1 March 2002, Mr Tiernan expressly stated to Ms Weisske (Thakral’s solicitors) that no deed of consent was required by Provident and the agreement was clearly made on that basis. Our client is therefore under no obligation to enter into any deed of consent or variation to deed of consent and is not prepared to do so”.

77 As I understand it, Thakral Operations relied on this passage as evidence that the agreement of 1 March 2002 was made on the basis that the deed did not apply to the second and third sub-lease. However, assuming it to be correct, I am not persuaded that the statement attributed in the letter to Mr Tiernan, Warren’s solicitor, that “… no deed of consent was required by Provident” supports such a finding. On the contrary, absent further explanation, I consider the statement to be consistent with Provident’s probable position, namely that no deed of consent referable to the second sub-lease was required because the existing deed covered it. Approaching the question another way, absent unambiguous evidence otherwise, I find it implausible that Provident had agreed to abandon the deed which included the valuable acknowledgements and protections secured from Thakral Operations in cll 3, 4, and 5. In my opinion the statement attributed to Mr Tiernan does not justify a conclusion to that effect.

78 The remaining relevant letters are one from Provident’s solicitors of 21 March 2002 to Thakral’s solicitors and the letter in reply of 25 March 2002. They establish that Thakral Operations refused to provide a letter to Provident confirming that the provisions of the deed apply to the second sub-lease because “… the provision of such a letter or any deed of consent or any variation to deed of consent was not a term of the settlement agreed on 1 March 2002 in respect of the registration of the second sub-lease nor is our client obliged to provide to Provident any such documents under the sub-lease or at all”.

79 In my opinion the correspondence, taken as a whole, does not establish the estoppel claimed by Thakral. Furthermore, the fact that the necessary documents were registered without the variation or confirmation sought by Provident from Thakral Operations does not assist in proving that the parties proceeded to implement the agreement on the basis that the deed did not operate in respect of the second sub-lease. Accordingly, I reject Thakral’s submissions on this issue.

80 By its failure to give Provident notice Thakral Operations acted in breach of its obligations under cl 4.1(b) to both Needlegrove and Provident. It was not entitled to terminate the second sub-lease or re-enter in reliance upon either the 23 April notice or the 22 June notice. I therefore hold that each of the notices to terminate of 23 April and 22 June 2005 were issued in breach of cl 4.1(b), and are invalid and of no effect.

81 Needlegrove and Provident are entitled to such declaratory relief and order as are appropriate to give effect to this conclusion.

82 The finding that Thakral Operations is not entitled to forfeiture in reliance upon the notices of termination makes it unnecessary to determine the outstanding issues under additional grounds of challenge to the 22 June notice, and under the alternative claims by Needlegrove and Provident for relief against forfeiture. Those issues raise complex questions of fact and law and, for the most part, are concerned with events which took place between about March and September 2005. If it was necessary to decide these issues judgment would be further delayed although the outcome would be the same. In all the circumstances it is preferable to deliver judgment on the question which finally disposes of the proceedings rather than postpone it pending determination of the additional and alternative questions.

83 Nevertheless, it is appropriate to deal with Needlegrove’s contention that the 7 April notice was invalid because it was sent by Thakral Operations’ solicitors to Needlegrove under cover of a letter erroneously dated 16 March 2005.

84 As noted earlier, a notice under s 129 of the Act dated 16 March 2005 to remedy non-payment of rent and other charges in the amount of $23,020.27 was sent to Needlegrove with a letter of demand of the same date. A copy of these documents was sent to Provident on 29 March, which paid the amount in full on 31 March 2005.

85 The 7 April notice purported to be one under s 129 of the Act. It required payment of the amount of $15,035.94. The calculation was set out in the covering letter dated 16 March 2005. It was said to be for rent due on 1 April 2005 in the sum of $15,015.67, and for an amount due in March in the sum of $20.27, being a total sum of $15,035.94. The opening sentences of the letter referred to the notice of 16 March 2005 which required payment of outstanding arrears in the sum of $23,020.27, and to the fact of payment on 1 April 2005 of the sum of $23,000.00.

86 In evidence was the facsimile transmission coversheet of Belos & Kolovos dated 8 April 2005 which shows that the letter and notice were sent by this means to Mr Peter Kaye at his fax number, and to Mr Kotselas at his fax number. Mr Kotselas agreed that the number for him was correct (T p 230). No one from the accountant’s office or Mr Kaye gave evidence.

87 Mr Kotselas accepted that these documents had been sent to Needlegrove’s registered office which was where official documents were to be sent. There was an arrangement whereby the accountants would send onto Needlegrove by facsimile or mail documents of this kind (T p 218). In my opinion the uncontested evidence supports the findings, which I make, that proper service of the letter and 7 April notice was effected by sending it to Needlegrove’s registered office, and that a copy was sent by the accountants by fax to Mr Kotselas on 8 April 2005.

88 In his affidavit of 26 April 2005 (para 9) Mr Kotselas said he did not receive a notice dated 7 April 2005. This statement was corrected in his affidavit of 15 September 2005 which included the following:

“6. I recall that that letter and the notice was sent to me by the company’s accountants whose offices are also the registered office of the company. I saw the letter and its date and looked at the enclosure. I did not read the enclosure carefully because I assumed, because of the date of the letter and the apparent subject matter that the letter and the notice dealt with the matter of unpaid rent that I had just dealt with on 1 April 2005 by the payment of the money’s referred to my affidavit of 26 April 2005. As I said in paragraph 8 of that affidavit, I believed that the payment made on 1 April 2005 was for rental one month in advance for the premises and, therefore, there were no moneys owing in relation to April 2005. Therefore, it did not occur to me that the notice was a new notice or that there was a demand being made different from the one to which I refer in my first affidavit. I did not notice the date on the enclosure which I now know to be 7 April 2005.
7. Had I realised that the notice sent undercover of the 16 March 2005 letter was in fact a new notice on a new claim for rent I would have taken steps to query the claim, because of my belief that rent for April had already been paid in advance, and, when it became apparent to me that I was wrong in that belief, I would have caused payment to be made either from the company’s funds or from other sources, as I had done in relation to the earlier notice for payment of March rent which was also sent by cover of letter from Blake Dawson Waldron dated 16 March 2005”.

89 Under cross-examination, Mr Kotselas initially asserted he did not recall receiving the documents, but later stated he was quite clear that he did not receive them. When reminded of his affidavit evidence he appeared to return to the position that he could not recall receiving them. In my opinion the assertion that he did not receive the documents is entirely implausible and must be rejected. I find that Mr Kotselas did receive them. I find that the account given in his affidavit of 15 September 2005 is probably true, and that he did, in fact, read both the letter and the 7 April notice although, perhaps, not carefully.

90 Needlegrove’s submission that the notice was misleading by reason of its association with the erroneously dated letter and induced in Mr Kotselas the mistaken belief that it related to a claim which he had recently paid must be rejected. So, too, must be rejected its submission that the documents were inherently misleading.

91 The relevant test is whether the meaning of the documents would be quite clear to a reasonable person reading them. It is well settled that the meaning of a document is to be taken from a reasonable consideration of the whole of it (e.g., Caradine Properties Ltd v Aslam (1976) 1 All ER 573). In my opinion no reasonable reader of the whole of the 7 April notice and the letter could have been mislead by the fact that the date of the letter was stated to be 16 March 2005. It is self evident that the letter makes plain that the demand was for the payment due on 1 April 2005 which, in the opening paragraphs, was distinguished in clear terms from the claim made under the notice of 16 March 2005 and paid on 1 April 2005. It is equally plain that the notice requires payment of the sum as calculated in the letter.

92 I find that there is nothing in the letter which is capable of misleading a reasonable reader about the claim it describes, or as to the nature and effect of the 7 April notice. Accordingly, in my opinion, the 7 April notice was not invalid as misleading, and, in this sense, did not affect the validity of the 23 April notice.

Conclusion

93 I have held that each of the notices of termination of 23 April and 22 June 2005 were issued in breach of cl 4.1(b) of the deed, and are invalid and of no effect.

94 In the circumstances the parties should be given the opportunity to bring in agreed short minutes of the declarations and/or orders which are appropriate to give effect to this conclusion. Furthermore, failing agreement, the parties should have the opportunity to address me in relation to costs. Arrangements should be made with my associate by 28 February 2007 for the re-listing of this matter.

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