Novasource Consulting Pty Ltd v Primelife Property Holdings Pty Ltd
[2002] VSC 568
•13 December 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 7077 of 2002
| NOVASOURCE CONSULTING PTY LTD (ACN 095 682 787) | Plaintiff |
| v | |
| PRIMELIFE PROPERTY HOLDINGS PTY LTD (ACN 010 622 901) | Defendant |
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JUDGE: | Ashley J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 6 and 9 December 2002 | |
DATE OF JUDGMENT: | 13 December 2002 | |
CASE MAY BE CITED AS: | Novasource Consulting P/L v Primelife Property Holdings P/L | |
MEDIUM NEUTRAL CITATION: | [2019] VSC 568 | |
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Landlord and tenant – relief from forfeiture – non-payment of rent – discretionary considerations – earlier defaults by lessee – use of premises designated by lease proscribed by Planning Scheme – provision for reading down or severing illegal provisions of lease.
Costs – solicitor and client costs – reprehensible conduct of defendant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Best | Maddocks |
| For the Defendant | Mr J.D. Wilson | Arnold Bloch Leibler |
HIS HONOUR:
The Nature of the Proceeding; a brief chronology
Novasource Consulting P/L (Novasource), the lessee of part of the ground floor of premises at 210 Kings Way South Melbourne under written lease dated 4 June 2001 seeks relief from forfeiture. Relief is sought against Primelife Property Holdings Pty Ltd (Primelife)[1], the purchaser of the freehold of the property from Air Media Holdings Pty Ltd (Air Media). Air Media was the lessor under the Lease.
[1]I shall so describe the defendant and as well Primelife Corporation Ltd, the principal company in the Primelife group of companies.
The basis upon which Primelife terminated the lease was set out in a letter dated 30 August 2002 signed by Mr Gregory Flood, described as General Counsel for Primelife. This is what the letter pertinently said:
“Please be aware that Primelife Property Holdings Pty Ltd this afternoon became the owner of the building at 210 Kings Way, South Melbourne.
Under the terms of our Purchase Agreement we have had assigned to us all the rights of Air Media Holdings Pty Ltd together with the Lease between Air Media Holdings Pty Ltd and your Company.
Pursuant to clause 7 of that Agreement, you are more than 14 days in default of your rent and we have exercised our right to re-enter the premises and end the Lease.
Notwithstanding that we have exercised this right and ended the Lease under cl. 7.2 of your Lease, the Landlord retains the right to sue you for unpaid moneys and for damages for breach of your obligations under the Lease.
Your Lease is now terminated."[2]
[2]Exhibit GDF10 to Mr Flood’s affidavit sworn 12 September 2002.
According to Mr Flood's first affidavit sworn 12 September 2002 the letter was hand delivered to the plaintiff's company secretary on the afternoon of 30 August 2002. According to the affidavit of Mr Geller sworn 3 September 2002 on behalf of the plaintiff, the letter was attached to the premises after the plaintiff was locked out. In cross-examination Mr Flood said that the letter was served on the premises by the security guards who effected re-entry. He agreed that this was at 5 am on Saturday 31 August. That evidence is compatible with the import, though not the timing, of Mr Geller's account. I am satisfied that it represents the fact.
The critical rent fell due on 9 August 2002.[3] Evidence was given for the plaintiff seeking to show why it was not paid. It was said that, contrary to the established regime, no invoice was received with respect to that month's rent and outgoings. This evidence was challenged, at least insofar as the defendant called evidence that an invoice had been electronically produced by the letting agent on or about 1 August; and that in the ordinary course of business it could be expected that the original was sent to the tenant at about that time.
[3]That was, I think, the import of Additional Clause 4 of the Lease; but this matter is not of critical importance.
The evidence adduced for the defendant did not exclude the possibility that the particular invoice had not been sent; or, if it had, that for some reason the plaintiff had not received it. According to the evidence, the invoice wrongly stated that there was a substantial arrears of rent. That may be a reason why the property manager responsible for the particular premises did not dispatch it. But whether or not that be so, I accept the evidence that the plaintiff did not by its agent receive an invoice for the August rent. I further conclude that this is the probable reason why the rent was not paid. There is no suggestion that the plaintiff did not have an ability to pay the rent; and the situation was such, as I shall later explain, that the plaintiff would not have wished to be in default when Primelife completed the purchase of the property.
Primelife settled the purchase of the property around mid-day on Friday 30 August. The re-entry letter was dated that day.
I referred a few moments ago to the attendance of security guards at the premises about 5.00 am on Saturday 31 August 2002. The premises being then unoccupied, security guards re-entered, changed the locks, and affixed the re-entry letter. They had been instructed by Mr Flood to take possession of the premises at 5.00 pm on the Friday; but they had not done so because, as it seems, Novasource employees were still in the building.
On Monday 2 September, the plaintiff tendered the outstanding rent, and rent for the month of September, together with amounts for estimated outgoings, to Primelife’s solicitors. The plaintiff also offered to pay all costs incurred by Primelife in connection with the taking of possession. On instruction, the solicitors rejected tender. A direct debit arrangement arranged by the plaintiff on the following day was equally unsuccessful in bringing about a change of position by Primelife. That sequence of events led on to institution of the present proceeding.
Before the Master on 5 September and before Beach J on 12 September the plaintiff reiterated its willingness to pay outstanding rent and outgoings, Primelife’s costs of re-entry, and its legal costs. But that did not lead to resolution of the matter. Beach J was told by counsel for Primelife that factual disputes required resolution; and his Honour referred the proceeding out of the Practice Court for trial.
Between 5 and 12 September this year, that is, in the period from commencement of the proceeding until the matter was sent for trial, the plaintiff occupied the premises under a licence, and paid an appropriate amount. That occupation ended on 12 September. Thereafter the premises have been unoccupied.
On 25 September the matter was fixed for trial. The trial date set was 5 December. The matter could not be heard that day, but came on before me on Friday 6 December.
Until the evening of Wednesday 4 December there seemed to be a single issue (other than the question of legal costs) in dispute between the parties: should the court grant the relief sought by the plaintiff having regard to its failure on earlier occasions to pay rent due, such failure constituting – according to the defendant’s case – an intentional breach of the terms of the lease.
Sometime between 6 and 7.00 pm on 4 December the defendant’s solicitors served four further affidavits on the plaintiff’s side. The affidavits raised what came to be called at trial the planning issue. The gist of the issue was that the lease by cl. 2.2.1 required the tenant not to use, or permit the use of, the premises except for a use stated in Item 15 in the schedule to the lease. Item 15 described the permitted use as “offices”. According to the pertinent Planning Scheme (the Scheme), however, the permitted use of the ground floor of the premises was warehouse/showroom. The premises, therefore, could not be used for the only purpose permitted by the lease. Relief should be refused for a number of reasons connected with the tension thus existing between the lease and the Scheme.
An ambush?
The plaintiff was content to proceed with the trial despite the changed content of the litigation. A question did arise, distinct from the merits of the new issue, whether the defendant had known of and kept it secret until the last moment so as to secure the greatest possible forensic advantage. All the direct evidence concerning that matter was given by witnesses for the defendant.
Mr Flood said by a second affidavit, sworn 5 December, that he was the sole officer in the employ of the defendant responsible for the care and conduct of the litigation. He said that in August and September he had discussion with Ms Thies, manager, town planning at Primelife about planning issues concerning the property at 210 Kings Way. She told him that there were planning scheme restrictions. He sought details. She provided them on 26 November. The same day he met with the defendant’s external solicitors on an unrelated matter. He mentioned Ms Thies’ report. That led on to the external solicitors considering the issue. The augmented defence developed out of that sequence of events.
Mr Ross Williams, general manager, finance and administration of Primelife also gave evidence for the defendant. He said that:
“When we were doing our due diligence… there was a query as to whether it could be used as offices or whether it could be used for a showroom.”
and
“Primelife’s understanding was that it wanted to use the ground floor for offices but we had to get clarification whether that was permitted under the planning zones.”[4]
Asked whether the planning scheme required the [ground floor] to be used as a warehouse/showroom, he replied:
“That was the existing requirement when we did our due dil.”[5]
[4]T136.
[5]T136.
He reiterated that state of knowledge in answer to questions which I asked him in order to clarify the situation.[6]
[6]T141.
It seems very strange that the defendant’s general counsel did not know until late November something the substance of which had been known to the finance and administration manager six or seven months before. Regrettably, Mr Williams gave his evidence after Mr Flood had done so; and there was no opportunity to take up the revelations of the former with the latter.
All in all, whilst I am suspicious of the accuracy of Mr Flood’s evidence about this matter, I do not reject it. But I do reject the submission of counsel for the defendant that there was nothing untoward about the issue not being flagged until the evening of 4 December. Counsel argued that there was a need for the defendant’s external solicitors to investigate and validate the point which seemed to arise; and that not until that had been done was it necessary to advise the plaintiff’s solicitors of the matter. Assuming that there was a need to investigate and validate, and that it took between 26 November and 4 December to complete the task – about the second of which matters there was no evidence – I cannot accept that the plaintiff’s advisors should not have been alerted, on about 26 November, at least informally, to the emerging issue. The matter being listed for trial on 5 December, I regard the defendant’s conduct as having the stigmata of an ambush.
More about the lease
The lease is in the Law Institute of Victoria form, as revised in May 2000.
The seal of Air Media was affixed in the presence of two directors, Mr Joseph Gutnick and (probably) his wife.
The seal of Novasource was affixed in the presence of a director, Ms Julia Kukuy, the sister of Mr Henry Kaye – of whom more later; and of the secretary, Ms Melinda Reiter. The signatures of Ms Kukuy and Ms Reiter were witnessed by Mr Geller of Group Corporate Services – of which more later.
The lease, executed on 4 June 2001, commenced on 9 April 2001. The term of the lease was four years, with a single four year option. It was of part of the ground floor of the property; according to the evidence, in excess of 775 square metres in area. The lease provided for the giving of a security bond, or the like, equivalent to six months’ rental plus GST and car park charges. The plaintiff provided security in an amount of $111,038.28.
According to the lease, rent was payable monthly in advance, and without the requirement for any demand.
Clause 1.3 of the lease was in the terms following:
“1.3This lease must be interpreted so that it complies with all laws applicable in Victoria. If any provision of this lease does not comply with any law, then the provision must be read down so as to give it as much effect as possible. If it is not possible to give the provision any effect at all, then it must be severed from the rest of the lease.”
By cll. 2.2.1 and 2.2.2:
“The tenant must not, and must not let anyone else:
2.2.1 Use the premises except for the permitted use stated in Item 15.
2.2.2 Use the premises for any illegal purpose.”
Clause 1.2 said this:
“References to laws include regulations, instrument and by laws and all other subordinate legislation or orders made by any authority with jurisdiction over the premises. Illegal means contrary to a law as defined in this sub-clause.”
Item 15 of the Schedule defined the permitted use of the premises as “offices”.
By cl. 7.1.1 the landlord was empowered to re-enter the premises and end the lease if the tenant did not pay the rent for 14 days. No demand was necessary.[7]
[7]That is compatible with s. 146(12) of the Property Law Act 1958.
Clause 9 was relied upon by counsel for the plaintiff in support of one of the arguments which he pursued. This is what it said:
“9.1The landlord must not unreasonably withhold its consent to any act by the tenant which needs consent unless any other clause provides otherwise, but -
9.1.1the landlord may impose reasonable conditions before consenting and
9.1.2the tenant must reimburse the landlord’s reasonable expenses resulting from an application for its consent, including fees paid to consultants.”
Something about the plaintiff
No officer or employee of the plaintiff gave evidence. All that is known about its existence is what emerged from the evidence of Mr Geller and Mr Henry Kaye. I take Mr Kaye to have spoken about the plaintiff and its activities with considerable authority. Although he is neither an office holder in nor a shareholder of the plaintiff, the major witnesses in this litigation evidently treated him as being the person who spoke for the company. In that connection I refer, for example, to the evidence of Messrs Waterson, Kiper & Williams.
According to Mr Kaye’s affidavit sworn 4 September 2002 he is a director of Group Corporate Services Pty Ltd “which provides administrative services to the plaintiff and its related entities including administration services”. In viva voce evidence he said that:
“…Novasource is a distributor or licensee of some of our products. They help distribute the educational products which we create.”[8]
Novasource, he said, has a number of “partners”: his sister, Julia Kukuy, her partner, Ms Reiter and her partner.[9]
[8]T53.
[9]T55.
Speaking about negotiations to enter into the lease, he said that these were undertaken by Mr Geller, a manager of Group Corporate Services. Mr Geller, he said, reported to him with respect to any lease. He constantly referred to uses to which “we” could put the ground floor.[10]
[10]For example, at T56, 57.
I asked Mr Kaye a number of questions in an attempt to understand what each of the plaintiff and Group Corporate Services do, and as to the relationship between the plaintiff and other companies in what may be called the Kaye group. I should set out those questions and answers:
Q.Mr Kaye, the company of which you are a director, Group Corporate Services Pty Ltd, what do you say it does?
A.Group Corporate Services?
Q.Yes.
A.Group Corporate Services was set up to take care of different office leases between the different buildings.
Q.I am sorry?
A.It was established to take care of the different office leases and the functions relating to the leases in our group of companies because we have different leases all around Melbourne and Sydney.
Q.What is the group of companies?
A.We are involved in property, sourcing property, we are also an RTO body, we provide different educational courses for business and investment.
Q.You say, “We’re involved in property, sourcing property, what does that mean?
A.Sourcing property on behalf of clients in property advocacy transactions.
Q.You say you provide different education courses for business and investment?
A.Yes for business and different educational courses for investors, investment education courses.
Q.In what, property investment?
A.Property investment and finance.
Q.How many companies are there in the group?
A.I don’t know off the top of my head. We have different companies for different property projects. From what I understand, there is over 10 active companies and I think we have close to 100 companies altogether.
Q.For the purposes of securing premises in which to operate, does Group Corporate Services act generally for all these companies?
A.Your Honour I don't know right now what the structure is because we have a CEO running the company, but at one stage it did.
Q.You give your address in the first affidavit as Level 3, 210 Kings Way, South Melbourne. Is that the third level of the premises about which there is the present dispute?
A.Yes.
Q.Does Novasource Consulting have any leased space in that building?
A.Yes, they do.
Q.On what floor is that, other than the ground floor?
A.On level 2.
Q.What do you say Novasource does?
A.Novasource distributes the different education courses, so we run three different educational courses and what they do is they have consultants who promote and sell those courses, so they are like the distributor of the educational packages that we create, the educational courses.
Q.What are these educational courses? I am sorry, I don't understand?
A.Okay, we teach people how to do property investment. We teach people how to invest their money through finance, through property, and also different business strategies, so business education, marketing based education and sales courses.
Q.You engage, in this instance, Novasource to use its employees to actually do the marketing of the courses?
A.Yes. That is correct, the marketing and the sales.
Q.Do they teach the courses?
A.No, they don't.
Q.They just get clients for the courses?
A.That’s correct, and also back-up as well, some back-up support.
Q.During the time that Novasource was the lessee of the ground floor, did you go into the Novasource ground floor section of the building either at all or regularly?
A.Not very regularly, but I definitely would have gone in there for a number of different meetings or if ever there was a seminar held.
Q.Where were the seminars held?
A.Just open space. There is a large open space on the ground floor and from time to time there were groups of people there that we would hold a small seminar for – a “workshop” is probably a better word to describe it.
Q.So if Novasource got together a group of people who were potential clients, property investors or investors in equities, from time to time they would hold a meeting attended by such persons on the ground floor and you’d be present and address the people. Is that it?
A.That’s correct.
Q.On other occasions you addressed meetings of Novasource staff only?
A.That’s correct.
Q.Was that for the purpose, for example, of saying, “Well, these are our new products”?
A.That’s correct.
Q.Novasource, having its own directors and being an entity legally, if not commercially discrete from Group Corporate Services, how is it that you gave the direction that rent wasn’t to be paid for a period of months?
A.What happened is this: in a commercial deal between us and Novasource, sometime in late 2001 I agreed with Novasource that part of our companies, which are not related to them would take that lease, and we wanted to go and build a showroom for the video equipment and for the seminar and also a property display unit and what I told them was that I will take over the lease, meaning I will go and pay for the lease in these times." [11]
[11]T59, 60, 61, 62 and 63
Something about the defendant and its acquisition of the property
Primelife Property Holdings Pty Ltd is a wholly owned subsidiary of Primelife Corporation Ltd. According to Mr Williams the Primelife group:
“Design, construct and then manage aged care and retirement homes for the over – 55 age group.”[12]
[12]T126.
He said that the property development is only an interim step. Primelife had something like 6,000 residents and “we like to classify ourselves as a management company.[13]
[13]T126-127.
The chief executive officer of Primelife Corporation Ltd – and perhaps of its subsidiaries, that was not made clear – is a Mr Ted Sent. He was referred to a good deal in the evidence, but did not give evidence.
As at early 2002 the group had four offices in and around Melbourne. It wished to acquire a building and consolidate its business to a single location.
On 6 March 2002, Primelife Corporation entered into a memorandum of agreement with Air Media with respect to purchase of the premises. A completion date of 30 June was specified.
A contract of sale dated 16 May was substituted for the memorandum of agreement. It stipulated a completion day of 1 August this year.
On 9 August Primelife Corporation nominated the defendant as substitute purchaser.
The settlement date was extended on several occasions: first to 27 August and then to 30 August.
I should mention two of the special conditions of the contract dated 16 May. First, by condition 15(A) the purchaser covenanted to reimburse or pay to the vendor any rent outstanding by Novasource, Investment Source Consulting, or under any other tenancy. The vendor, for its part, covenanted to provide the purchaser with, in substance, the legal authority to sue any defaulting tenant. Second, by condition 15(B) the vendor in substance authorised the purchaser “to make and/or negotiate with the existing tenants after prior consultation with the vendor in relation to their respective tenancies”.
The property: planning permits; the current planning scheme
The property at 194-210 Kingsway consists of a ground floor and four upper floors. It was apparently built in about 1973, a planning permit having issued on 26 October 1972. The permit[14], by reference to plans attached thereto, specified the purpose of the building which was to be erected as office, showroom and warehouse. The plans depicted the Kings Way ground floor frontage principally as “showroom”, with a “warehouse” to the rear. Other floors were depicted as “office”.
[14]Exhibit AMC2 to the affidavit of Andrew Clarke sworn 4 December 2002.
On 15 July 1996 a permit issued with respect to the refurbishment and extension of the building.[15] According to the endorsed plans the whole of the ground floor was designated “warehouse/showroom”. Other floors were designated “office”.
[15]Exhibit AMC4 to Mr Clarke’s affidavit.
Further planning permits issued on 9 October 1997, 6 May 1998 and 27 July 2001.[16] The second and third of them pertained to business identification signage – apparently referable to car dealerships which successively operated from the entirety of the ground floor and then from so much of the ground floor as was not leased to the plaintiff.
[16]According to paragraph 3(f) of Mr Clarke’s affidavit they are exhibit AMC6 thereto; in fact they are Exhibit AMC5. Exhibits 5 and 6 are transposed.
There is nothing to indicate that the responsible authority ever granted consent to use of the ground floor for purposes other than those stated in the permit of 1972 and reiterated in 1996.
The Port Phillip planning scheme began on 29 October 1998. The land in question is zoned Industrial 3. According to cl. 33.03 of the scheme, “office” and “place of assembly” are uses for which a permit is required. In the case of “office", the "leaseable floor area must not exceed 500 square metres”. I mention “place of assembly” as well as “office” because Mr Clarke, the planning expert engaged for the defendant, expressed the opinion that the use to which the plaintiff put that part of the ground floor which it leased was “office or place of assembly or both”.[17]
[17]Paragraph 5 of his affidavit.
Each of “office” and “place of assembly” is defined by the Scheme”. Thus, in the case of “office”:
“Land used for administration, or clerical, technical, professional or other like business activity. No goods or materials intended for manufacture, sale, or hire may be stored on the land. Other than electoral office and medical centre, it does not include any other defined use.”
and, in the case of “place of assembly”:
“Land where people congregate for religious or cultural activities, entertainment or meetings.”
The Scheme contains existing use provisions. Unless and until rights expire, they would operate to authorise use of the ground floor as warehouse/showroom.
Mr Clarke opined[18] that to use the premises which were leased to the plaintiff as an office or place of assembly would breach the Scheme. If that be so, both lessee and lessor would face penalties under the provisions of the Planning and Environment Act 1987 in the event that the premises were so used.
[18]paragraph 22 of his affidavit
It remains to note three matters: first, the area of the part ground floor leased by the plaintiff was some 777 square metres. If application was made for a permit to use that part of the premises for the purposes of office, the condition that the leasable area not exceed 500 square metres would come into play. Second, if the lease was reinstated, the plaintiff could not hope to obtain a permit to use the premises for office or place of assembly if the defendant would not consent; and the defendant made it crystal clear at trial that it would not consent. Third, if the defendant applied for such a permit, as owner it could avoid the problem of area; and it would not face the problem of consent which would confront the plaintiff.
Occupation of the property by the plaintiff and related entities
The plaintiff only leased that part of the ground floor now the subject of dispute from April 2001. But there was evidence that it had already leased and continues to lease space on level 2; though according to paragraph 5 of Mr Flood’s first affidavit the sub-lessee of level 2 is Serviced Offices Australia Pty Ltd, another company in the Kaye group.
The plaintiff and Services Offices apart, all of level 3 is sub-leased to Investment Source Consulting. That is also a Kaye group company.
In substance, so far as I can see, immediately before 30 August this year companies over which Mr Kaye had at least some measure of influence were the tenants of a substantial part of the ground floor, all of level 2 and all of level 3 of a building into which the Primelife Group wished to consolidate its administration.
Partitioning and use of the ground floor by the plaintiff
The evidence shows that the plaintiff erected partitioning, though not to ceiling level, so as to create some 40 or 50 rooms in that part of the ground floor which it leased. The cost of the partitioning, labour included, is said to have been $240,000. The partitioning remains the property of the plaintiff.
Apart from the rooms which were thus constructed, there remained a large open space in which, according to evidence given by Mr Kaye, meetings were held with potential investors, and occasionally with Novasource staff.
There was little evidence as to what use was made of the many rooms created by the partitioning. There was little evidence as to how many persons were employed by Novasource. My understanding is that the rooms were probably used by Novasource staff either to solicit business or to meet one to one with prospective investors.
Late payment of rent
Mr Geller, as an employee of Serviced Offices, and later Group Corporate Services, was responsible for authorising payments of rental to Air Media. So he deposed at paragraph 4 of his first affidavit.
The plaintiff, by Mr Geller, concedes that rent was late paid for the months of November 2001 and January 2002. According to paragraph 7 of Mr Geller's first affidavit, the default was occasioned by “administrative oversight”. That explanation was neither developed nor challenged at trial. The defendant did not contend that it provided reason why relief against forfeiture should be denied.
Rent was not paid for the months of April, May and June 2002 until July this year. That was no oversight. Mr Kaye directed that the rent be withheld. Mr Geller deposed that he was instructed so to act pending a response by Air Media to an application by the plaintiff to erect a display in the premises, the delayed response necessitating storage of the display items elsewhere. But Mr Kaye said that the landlord’s refusal to consent to the installation of audio visual equipment was a “minor reason” for his instruction. “It was not the reason”.[19] He also said:
“I knew Novasource’s obligation was to pay its rent and the landlord to deliver what they told us they will.”[20]
[19]T58.
[20]T58.
I do not believe that the full story why the rent was withheld was ever fully revealed. I think it likely that the business relationship between Mr Kaye and Mr Gutnick was central to the matter and that some of what was in issue was revealed in this question and answer in the course of Mr Kaye's evidence:
"Q.Do I understand you to say that what you as a representative of your group of companies wanted to do was, in substance, to take over part of the ground floor for your group of companies as distinct from its use by Novasource?
A.Yes, our idea was, that’s correct, for different companies within our group to be able to use the ground floor, or the idea was if Mr Gutnick would not allow us to do that, we were going to sublease the floor out and we had tenants who wanted to take that floor, so that is, either we could put all our group of companies on the bottom floor…"[21]
[21]T64.
Beyond that I do not go. It is not critical to resolution of this proceeding. What is critical, according to the defendant’s argument, is the circumstance that the plaintiff over the 3 month period deliberately breached its key obligation of paying rental. Counsel for the defendant submitted that this circumstance should, in the exercise of my discretion whether to grant the plaintiff relief, tell against such an exercise of discretion.
The course of events between early March and late August 2002
In the period between early March and late August 2002 there were two threads to events which took place concerning the leased premises and the building more generally. They had points of connection. The first was the plaintiff’s application to use the leased premises for display purposes. The second was Primelife’s concern to acquire possession of enough of the building to house its administration in one place.
As to the first, on 4 March “IS Asset Management” and “IS Design Pty Ltd” sent a letter to the landlord as follows:
“We have enclosed for your attention draft copies of the proposed alterations to the ground floor tenancy at AMH House.
The new layout provides accommodation for home theatre and furniture display and new office and auditorium facilities within the space.
The intention of the new layout to the area is to demonstrate design and technology items such as furniture and home theatre equipment to our customers. Our customers will generally be invited to this venue rather than a walk off the street retail space.
Naturally the application will be certified by our Building Surveyor to obtain the necessary Building permit and the appropriate compliance with the requirements of the Building Code of Australia.”
The signatories, noting their address and by reference to Mr Geller's evidence, were undoubtedly other Kaye group entities. Mr Geller referred to the subject matter of the application as “a display … for the purpose of display of audio visual equipment." [22] What that meant remains somewhat unclear to me.
[22]paragraph 8 of his affidavit.
It appears that response to the letter of request dated 4 March 2002 by the building facilities manager, Mr Waterson, was not wholly encouraging. Hence a second letter dated 21 March addressing the question of signage in the ground floor windows.
It was said by Mr Geller that the plaintiff went ahead and purchased audio visual equipment to a value of about $200,000.[23] Just when that occurred is not clear, but it may have preceded the plaintiff’s letter to Air Media, undated but said to have been delivered on about 1 May, by which the plaintiff proposed that the lease be terminated effective 31 March without penalty in light of a failure to reach agreement.
[23]Paragraph 8 of his affidavit.
A letter to similar effect[24] dated 9 May was delivered to Air Media. It claimed that the plaintiff was suffering losses, and that it had been necessary to secure an alternative lease on different premises.
[24]Exhibit MK4 to Mr Geller’s affidavit.
By letter of 12 May [25] Air Media replied that the matter would be discussed with Mr Gutnick on his return from overseas.
[25]Exhibit MK5 to Mr Geller’s affidavit.
According to Mr Geller, however, the alternative premises were not large enough; and in late June Mr Kaye instructed him that the plaintiff wished to retain the lease regardless that Air Media had not consented to the display of the audio visual equipment.
So far as I can see, the question of implementing the proposal made by the letter of 4 March then stalled. Nothing more happened in that connection before 30 August.
Before passing to the second thread of events I should mention that on 7 March Primelife was informed by Knight Frank, then the letting agents, that an area corresponding with the area leased by the plaintiff on the ground floor of the premises was available for immediate sub-lease.[26] Evidently the plaintiff – or more likely Mr Kaye – was prepared to sub-lease if it could not use the premises as it wished. Placed in context, I draw no more from Exhibit GDF6.
[26]See Exhibit GDF6 to Mr Flood’s first affidavit.
I turn to the second thread of events. As I have said, Primelife agreed to purchase the property on 6 March 2002.
On 21 March Mr Flood met with Air Media’s solicitors and its company secretary. He was shown the IS proposal. He told them that Primelife was not happy with the proposal. Exterior signage would dilute Primelife's own intended signage; and the use for combined offices, retail display rooms and auditorium facilities would both conflict with the use of the premises permitted by the lease – that is, offices – and would involve retail use, which Primelife did not want to happen.
It seems likely indeed that the IS proposal was stymied by Primelife’s intervention as early as 21 March. But the plaintiff did not know that.
Sometime late in May a meeting was held between Mr Kaye, Mr Williams and Mr Kiper. The last-mentioned is a real estate agent, a director of Talbot Birner Morley, now TBM. The meeting was convened by Mr Kiper, who had acted for Air Media in the sale, but who had also acted on behalf of Primelife on past occasions. He gave evidence that he acted as an honest broker to bring the leading players – Mr Kaye and Mr Sent – together; but unfortunately Mr Sent could not attend, hence Mr William’s attendance. Mr Williams, I add, said that he was asked to attend the meeting by Mr Sent.
According to Mr Kaye, Mr Williams said that Primelife had purchased the property and was interested in acquiring the ground, second and third floors. He asked whether the tenants were prepared to vacate. Mr Kaye said no; but that if they did it would only be if the purchaser would pay the costs of works done by them. He was told that this was fine; and to show Mr Williams the costs. Mr Kiper said that he could arrange alternative accommodation in properties occupied by Primelife.
Mr Williams gave a different account. His concern was only to know what intentions Mr Kaye had regarding the various leases. Mr Kaye said that he was not interested in vacating the second and third floors, but would consider vacating the ground floor if he could recover his costs. He, Mr Williams, said "fine" simply to acknowledge what had been said; and he asked for details of the costs.
Mr Kiper gave evidence about this meeting. I should refer only to one aspect of it. He said that Mr Williams asked Mr Kaye "whether he'd be happy to swap the second floor with the third floor so Prime could have continuation"; to which the reply was definitely in the negative.
That was the one and only meeting between Mr Kaye and Mr Williams. Mr Kaye never met any other officer or employee of the Primelife group before 30 August.
It seems to me likely that Mr Williams did tell Mr Kaye that the Primelife Group was interested in acquiring all those parts of the premises occupied by the Kaye group. That would be generally consistent with Primelife's desire to get all its administration into one building – albeit that, according to Mr Williams, Primelife required at the most two whole floors.[27]
[27]T 139 - 140
It is likely that Mr Williams said what Mr Kiper attributed to him in the evidence to which I referred a moment ago. It suggests that Primelife was seeking use of at least 2 floors of the building.
It is next clear that, whether or not Mr Williams said that the Primelife group was interested in acquiring the ground, second and third floors, Mr Kaye was asked about his intentions concerning each of those floors; and I am satisfied that his reply gave Primelife hope only of acquiring the ground floor.
I do not doubt that Mr Kaye stated the terms on which the plaintiff would vacate the ground floor. Why would he not be looking for recompense for money expended on a leased premises that, having regard to the lessor's attitude, had not proved to be entirely suitable?
Neither do I doubt that Mr Williams acknowledged the terms stated; but I do not accept that he agreed to them. No doubt he wanted to see what it would all mean in dollars.
Following the meeting Mr Geller did send costings to Mr Williams. There was no reply. Mr Williams deposed that any question of vacating the premises was a matter for the Kaye interests and Air Media.[28]
[28]Para 8 of his affidavit sworn 11 September 2002.
I have said that there was no meeting between Mr Kaye and any officer or employee of the Primelife group from the time of that meeting until 30 August. It was not for the want of trying by Mr Kiper, whom I am well satisfied, despite his denials, was acting as an envoy for Mr Sent in that period.
Mr Kiper gave evidence of contacting Mr Kaye; and of other unsuccessful attempts to contact him, both directly and through Mr Waterson.[29] In July he made contact by telephone and asked if Mr Kaye was able to attend a meeting. Mr Kaye said that he was busy. In mid August he spoke with Mr Kaye again. He requested Mr Kaye's attendance at a further meeting, on this occasion with Mr Sent. In response to his question about Mr Kaye's intentions with respect to the leases, Mr Kaye said that he had decided "to retain the premises as they are."[30]
[29]T 114, 115
[30]Para 7 of Mr Kiper's affidavit sworn 11 September 2002.
Mr Kaye's account of the second telephone conversation was somewhat different. [31] But in substance it was not much different. The main point is that by mid August Mr Kiper knew that the plaintiff was determined to hold onto the lease of the ground floor. That circumstance definitely became known to Primelife. Mr Kiper said that he reported it to Mr Sent.[32] Mr Williams gave somewhat qualified evidence that he knew of the situation[33] It was a sharp contrast with what Mr Sent had been told by Mr Kiper in the negotiating phase, that is, "that the ground floor will be available."[34]
[31]See para 9 of his first affidavit.
[32]T 117
[33]compare T 131 lines 5-8 with T 132 lines 24-27.
[34]T 105
Why did the defendant re-enter and terminate the lease?
By mid August 2002, in light of what Mr Kaye said were the plaintiff's intentions concerning the ground floor lease, the situation was this:
§ The ground floor was completely leased, in part to a Mercedes Benz dealership, in part to the plaintiff.
§ Level 2 was leased to QED Services Pty Ltd.
§ Levels 2 and 3 were subleased to entities associated with Mr Kaye.
§ Level 4, not set up as offices, but as an apartment, was available for use by Primelife.[35]
[35]See the s 32 Statement forming part of exhibit GDF 2 to Mr Flood's first affidavit.
So long as that situation obtained, it is at least very doubtful if Primelife was able to take occupancy of enough of the building as would satisfy its plans. In any event, even if it could make do with a single floor, level 4 was not set up in a suitable way. There would have been expense to gut it and set it up as an office.[36]
[36]T 140
I am satisfied that Mr Williams played no part in determining that the defendant would re-enter the premises on the date of settlement. The decision to do so was implemented by Mr Flood, who evidently knew that rent was outstanding, and who obtained a letter to that effect from the vendor's solicitors on the date of settlement. The defendant's response to the tender of outstanding rent was also directed by Mr Flood.
Mr Flood said in evidence that no notice was given to the plaintiff because it was over a month late in rent payment, that it had been late "many times" before, "and that's the way Primelife does business."[37] He said he had no express instructions not to give notice, it was his own decision. He denied that he did not want Novasource to pay the rent.[38] He told me that he had been 20 months employed by Primelife and could recall no instance of a tenant having been ejected for non-payment of rent so soon as that occurred.
[37]T 94
[38]T 95
Mr Flood was not asked in cross-examination whether he was given directions by Mr Sent to take the action which he did. His first affidavit was silent upon the question whether he acted with or in the absence of instructions. Mr Williams gave some evidence with a hearsay component, to which no objection was taken, of a belief that Mr Flood "was talking to the CEO and other senior managers", but he was not sure exactly whom it was.[39]
[39]T 134
In circumstances where I consider it certain that Mr Sent knew by mid August that the plaintiff would not give up its lease of the ground floor, where Primelife's plans to consolidate would be compromised, and where at least Mr Flood knew that there was a trigger for re-entry, I consider it very likely that the decision to effect re-entry was made by Mr Sent and communicated by him to Mr Flood. So far as the evidence of the latter might suggest to the contrary, I reject it. Mr Flood was not at all an impressive witness; though in that respect he was not alone in this litigation.
Knowledge of an unlawful use?
I am satisfied that neither the plaintiff nor Air Media knew when the lease was entered into that use of the premises as offices was in conflict with the provisions of the Scheme. It is really inconceivable that the parties would have specified an unlawful use had either of them known the fact.
Mr Geller gave vague evidence of referring the lease to a solicitor, asking if it was all right, and being told that it was. I do not conclude that the solicitor was asked to or did in fact compare the use designated by the contract with the provisions of the Scheme. Mr Geller's evidence needs to be read as a whole in this connection. [40]
[40]See particularly T 35 line 29 to T 41 line 13.
Mr Geller agreed that Mr Waterson had mentioned to him, after the lease had been entered into, that to erect partitions to ceiling height would require a permit. He said he replied that the partitions would not be erected to ceiling height, to which Mr Waterson responded that in such circumstances there was no problem, and that permits would not be needed.[41]
[41]T 44
It was put to Mr Geller, and he agreed, that he had seen the area which the plaintiff leased previously being used as a car showroom for Rolls Royce and Bentley vehicles. He said that he did not ask how it could be that the area could be put to use as offices.
"I had different question because we needed space for offices and they said 'That's fine.'"[42]
[42]T 42-43
Mr Waterson, by his second affidavit sworn 4 December 2002 did not aver that he had any knowledge that the leased area could not be used as offices under the Scheme. Rather, he referred to two conversations with Mr Geller concerning partitioning.
“I said to Mr Geller that segregating the floor space into fully partitioned office areas would require planning approval for air-conditioning and toilets."[43]
and
“He told me that … Klein Business Furniture… had come up with a modified plan… using portable partitioning …[and] that in Klein's opinion this avoided requirements for a planning permit and modification to services such as air conditioning."[44]
[43]para 7
[44]para 8
The evidence of Mr Geller and Mr Waterson was not identical concerning these conversations; but I am satisfied that Mr Waterson did not know and so did not tell Mr Geller – or, for that matter, Mr Kaye – that use of the area for offices was in conflict with the Planning Scheme.[45]
[45]See his evidence at T 77-79
I should add this: under the lease the lessor agreed to undertake fitout up to an amount of $50,000; and it apparently did so, carpeting the floor. It is improbable that the lessor would have committed itself to making such expenditure with respect to a use of premises which it knew would be unlawful.
It might be said that the plaintiff was less than cautious in not checking to see that the use of the premises specified in the lease was not unlawful. Such a criticism would not lack foundation. But that is not to say that the plaintiff, Mr Kaye or Mr Geller knew at the outset, or at any time until very shortly before trial, that use of premises as offices was unlawful.[46]
[46]As to Mr Kaye's state of mind, see paras 3 and 4 of his second affidavit, sworn 6 December 2002; and his evidence at T 56-57.
Future use of the premises by the plaintiff
Faced with the planning issue at the last moment, Mr Kaye swore a second affidavit in which he deposed, inter alia, the following:
“The Plaintiff is prepared to use the Premises in accordance with any planning permit. In particular, the Plaintiff intends using the premises as a showroom with ancillary meeting rooms. Part of the Plaintiff’s business is selling residential apartments and it intends setting up a display showing a model of a proposed residential apartment building together with a display showing the various fixtures and fittings to be installed in the apartments. The Premises would also incorporate some ancillary meeting rooms where consultants of the Plaintiff can meet with prospective clients.”
Use in such a way would be broadly compatible, I think, with his intentions in late 2001 and early 2002.[47]
[47]As to which see T 63 lines 3-19 and T 64 lines 2-13
Mr Kaye was not cross-examined about what he pertinently said in his second affidavit. I accept that the plaintiff will, if it is able to do so, use the area for a purpose compatible with that specified by the Scheme. I am not called upon to decide, I should add, whether the presence of "ancillary meeting rooms" would cause use of the premises to fall foul of the Scheme. If it did, I take Mr Kaye to say that such rooms would not be persisted with.
Principles relating to relief from forfeiture
It was common ground that the Court has a wide discretion to grant or refuse relief against forfeiture; and, if it grants relief, then to do so on such conditions as it sees fit.
It was also common ground that at least ordinarily relief will be granted against forfeiture for non-payment of rent where the tenant offers to pay the rent in arrears. The question whether relief will only be denied in "exceptional" or "most exceptional" circumstances, or whether some like adjective or group of words is the ideal formulation, need not be explored. The overall thrust of the authorities is clear.
It remains the fact that in a case of forfeiture for non-payment of rent a question as to the exercise of a discretion does arise. In the exercise of that discretion earlier defaults of the tenant may be brought to account. At least that is so if the earlier default involved non-payment of rent. There is a question whether defaults otherwise may be considered in such a case.[48]
[48]Counsel for the plaintiff cited Cherry Lane Fashion Group Pty Ltd v Jam Factory Pty Ltd (1989) V Con R 54-354 at 64412 and 64413.
In the exercise of the discretion it is pertinent if breaches are deliberate, wilful, blatant. That is so both in the case of the breach triggering forfeiture and in the case of earlier breaches.
Failure to exercise due diligence may mean that a breach in consequence of such failure is to be described as wilful.
Should relief be refused because the plaintiff withheld rent for the months of April, may and June2002?
Counsel for the defendant submitted that the Court should refuse relief in its discretion because the plaintiff had deliberately, blatantly and wilfully withheld rent for the period April - June 2002. This conduct showed a disregard for its obligations under the lease; that it met its obligations only when it chose, and only when it had made whatever commercial use of its default as was available to it.
Accepting that deliberate, blatant and wilful breaches of any covenant by a lessee, whether in respect of the breach occasioning re-entry or otherwise, may be relevant to the exercise of discretion, and that this may be so even if the forfeiture is for non-payment of rent, even so I consider that an exercise of discretion favourable to the plaintiff should not be refused by reason of the withholding of rent. Looking at the matter overall, the breach leading to re-entry was recent. It was unrelated to the past instances of wilful withholding of rent. It was, for reasons explained, very likely an error by the plaintiff. It was not occasioned by want of resources. On the evidence, the plaintiff had the capacity to remedy the breach; and it speedily attempted to do so, as well offering to meet the defendant’s costs of re‑entry. The plaintiff had expended a considerable sum on fitout of the premises. Although the partitioning remained its property, there must have been a labour cost in its erection; and there would be a labour cost in its removal.[49] Again, the original lessor held a security deposit far exceeding the amount of the outstanding rent. The defendant was able to call upon it; but evidently did not do so. Further again, for reasons described the defendant’s re-entry was highly opportunistic. The defendant's failure to contact the plaintiff before the lockout, though contact was not required, is nonetheless a minor reflection in the particular circumstances of the opportunistic character of the defendant's conduct.
[49]Whether the partitioning itself would now be of lesser value if removed is a moot question. I take no account of that matter.
As against those considerations stands the plaintiff’s conduct in withholding rent: past blameworthy conduct in the past corrected; and the plaintiff's arguable want of reasonable diligence in ensuring that the use of the premises designated by the lease complied with the Scheme; that leading to use of the premises arguably proscribed by the Scheme.
As to the first of those matters criticism may legitimately attach – whether or not Mr Kaye considered that he had a legitimate grievance. As to the second, I doubt that any want of diligence in entering into the lease on particular terms should be brought into account; but it is the case[50] that the plaintiff committed unintended breaches of the lease by using the premises for a proscribed purpose. All in all, however, it seems to me that matters weighing in the exercise of discretion are overwhelmingly in the plaintiff’s favour.
[50]subject to an argument for the plaintiff that I must later consider
Should relief be refused by reason of the planning issue?
According to the defendant’s submission:
(1)The plaintiff failed to exercise reasonable diligence to ensure that the use of the premises designated by the lease complied with the Scheme. That led to use of the premises proscribed by the Scheme. The plaintiff's conduct was to be equated with wilful breach, entitling the court in its discretion to refuse the plaintiff relief.
(2)If the lease was reinstated, not only the plaintiff but also the defendant would be in breach of the Planning Scheme, and so liable to penalty for breaches of s. 126 of the Planning and Environment Act 1987.[51] That was because the use of the premises designated by the lease was proscribed by the Scheme. The only authorised use of the premises the subject of the lease was as warehouse/showroom. Remedy must be refused because its grant would compel the defendant to commit an illegal act; though the lease itself was not void for illegality.
(3)If relief was granted, it would be futile. The plaintiff would use the premises as an office, which would be illegal and so in breach of the lease. This would entitle the defendant to terminate the lease. Alternatively, the plaintiff would use the premises as a showroom or place of assembly. In either event, that would contravene the lease and entitle the defendant to terminate it. It would accordingly be futile for the court to grant the plaintiff relief.
(4)Severance of the lease, so as to omit reference to use of the premises as offices, was not possible. It would change the kind, not simply the extent only, of the contract.
[51]Counsel referred to large penalties specified by s. 127 of the Act. Those penalties would not necessarily apply; see s. 130. But the extent of possible penalty is not important.
According to the plaintiff’s submissions:
(1)It would be for the lessor in a future proceeding to strictly prove that the plaintiff’s use of the premises was in breach of the lease.
(2)The plaintiff’s use of the premises if relief was granted would be as deposed to by Mr Kaye. The dictionary definition of “office” was very wide, and compatible with such a use. “Offices” was not defined in the lease. The intended use of the premises might also properly be described as use as a showroom. The intended use would thus satisfy both cll. 2.2.1, 2.2.2 of the lease and the requirements of the Scheme.
(3)If use of the premises as “offices” was illegal, then cl. 1.3 of the lease mandated the reading down of cl. 2.2.1 and Item 15 so as to give them as much effect as was lawfully possible. If they could not be given any effect, then cl. 1.3 mandated at least severance of “offices” from Item 15. Reading down or severance was something that the parties could agree upon. But if the parties could not agree, then the matter was one for the court. Insertion as well as deletion of words was possible. Reading down or severance would not leave user of the premises at large. User would be dictated by the operation of the Scheme, in particular the existing use rights of warehouse/showroom.
(4)The defendant should be ordered to consent to a change of designated use in Item 15 as follows: “Warehouse/Showroom or any other lawful use”. Such an order was authorised by the landlord’s obligation under cl. 9.1 of the lease, and consistent with common law obligations upon parties
§ to do all such things as are necessary to enable the other party to have the benefit of the contract, this requiring the taking of reasonable steps;
§ to take all necessary steps to render the contract efficacious in accordance with the presumed intention of the parties;
§ to act in good faith and fairly.
The defendant was not acting bona fide and reasonably. It was denying the plaintiff any commercial benefit of the lease as an unfair tactic to obtain possession of the premises. It was acting “capriciously or for some extraneous purpose”.[52]
[52]Citing Byrne J in Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310 at paragraph 120.
In my opinion the plaintiff should not be denied relief by reason of what I have compendiously described as the planning issue.
The defendant’s first submission was different in kind to the other submissions made on its behalf. It is convenient to deal with it straight away. I have touched upon it already in another context. It had recourse to the concept of wilful breach. The alleged breach in part was not a breach of the lease at all. As to the balance it was[53] an unintended breach of a provision of the lease, a consequence of – let it be assumed – want of diligence in concluding the terms of the lease.
[53]Subject to a submission for the plaintiff which must later be considered.
I am quite unpersuaded that either aspect of the plaintiff's conduct – I will assume in the defendant's favour that the first could be relevant – could singly, or in combination, require exercise of discretion against the plaintiff. I would not take that step, particularly bearing in mind the fact that both lessor and lessee, as I have found, entered into the lease bona fide not knowing that there was any problem vis a vis the Scheme; and bearing in mind also what I regard as the highly opportunistic character of the planning issue defence. They are not the only discretionary considerations, I add, which tell against the defendant’s submission. Matters which I have mentioned at paragraph [113] of these reasons are also pertinent.
The defendant’s second and third submissions equated reinstatement of the lease with use of the premises. That may not be correct. The defendant’s fourth submission in effect denied that the plaintiff could obtain relief against an obligation to use the premises as offices. It may be that if the lease was reinstated there would be no such obligation.
Speaking generally, the lease granted the plaintiff possession of the premises in return for payment of rent. It obliged the plaintiff, of course, not to use the premises otherwise than for a permitted use, nor use the premises for an illegal purpose. Many other covenants were imposed upon the parties. Most of them can be ignored for present purposes. I should refer, however, to cl. 3.3.17. It imposed certain obligations upon the tenant. But it is uncertain whether the clause would oblige the plaintiff, if the lease was reinstated, to substantially use the premises. In the event that the clause did have such an effect – that is, on the defendant’s case obliging the plaintiff to act illegally – there would be a powerful argument that it should be read down or severed. One way or another, if lease was reinstated and the plaintiff was not obliged to use the premises as offices, and could not otherwise use them, it might not suit the plaintiff, but I cannot see that there would be any conflict with the Scheme.
Simply on the analysis thus developed I would not deny the plaintiff relief by reason of the planning issue. But I do not rest my decision on that basis. That is so for two reasons. First, it was not the subject of submissions by counsel. Second, from a practical viewpoint the outcome would be stalemate. The plaintiff would have occupation of premises which it could not use, and for which it would have to pay rent; whilst the defendant would have rent but an unoccupied area of the building into which it wishes to consolidate its administration. I do not discount the potential for these litigants to cause themselves pain to make a point. Even so, for rational people such an outcome would be unsatisfactory. Particularly that is so if it is unnecessary. That takes me to the submissions which I have not yet considered.
The submissions made for the defendant as to the use of the premises focussed upon the past. In determining, however, whether the plaintiff should be denied relief by reason of the planning issue the focus is essentially on the future. The plaintiff has said how it will use the premises. Is it plain that such use will infringe either or both of the lease and the Scheme? In the event that use of the premises, in order to comply with the Scheme, must be a use not conforming with cl. 2.2.1 of the lease, can and should cl. 2.2.1 and/or Item 15 be read down or be severed; or should the defendant be compelled to rewrite one or both of those provisions?
I reject the submission for the plaintiff that the proposed use will satisfy both the lease definition of “offices” and the Scheme requirement of “warehouse/ showroom”; or, according to the plaintiff’s formulation, that the defendant would be able strictly to prove that the use did not satisfy both the lease and the Scheme. “Offices” is not defined in the lease. It is at least arguable that the meaning of the word is not confined by reference to the definition of “office” in the Scheme. I accept that “office” is a word of wide import, and that in common language today one speaks of offices as including display areas – the offices of estate agents, architects and developers were instanced in argument. But I do not accept that the intended use of the premises described by Mr Kaye could sensibly be described as use as offices. His description seems to me to be plainly a description of a showroom, albeit with some provision of offices.
It follows from what I have said that if the lease was reinstated and the plaintiff commenced the use of the premises described by Mr Kaye, that use – subject to any issue created by the “ancillary meeting rooms” – would not infringe the Scheme, and so would not infringe cl. 2.2.2 of the lease; but insofar as the use was as a showroom, it would infringe cl. 2.2.1 and Item 15. Further, if and insofar as the premises were used as “offices”, thereby complying with cl. 2.2.1, such use would be contrary to the Scheme and so illegal under the lease. It would subject both the plaintiff and defendant to risk of penalty.
It might be thought that, the defendant having raised the planning issue in an opportunistic way, it would be rough justice if the lease was reinstated, the plaintiff used the premises as offices, and the defendant in due course suffered a penalty. But it would be wrong to approach determination of the issue that way. The critical question, as I see it, is whether cl. 1.3 can be called in aid by the plaintiff; or whether the defendant may be compelled, by reference to cl. 9.1 or to common law principles, to rewrite Item 15 so that it conforms with the existing use authorised by the Scheme.
In my opinion, cl. 1.3 is able to assist the plaintiff. The obligation imposed on the tenant by cl. 2.2.1 and item 15 was illegal when regard is had to the meaning given the word illegal by cl. 1.2. Clause 1.3 is expressed in mandatory language. The verb “must” is used three times. The evident purpose of cl. 1.3 is to save the lease if at all possible. Why, then, should it not be possible in this case?
Notwithstanding the strong language of cl. 1.3, I consider that it would be impermissible to use the clause in a way that would change the kind of contract into which the parties entered. I do not consider, contrary to an argument advanced for the plaintiff, that the common law conception of severance is wholly irrelevant, cl. 1.3 being sufficient unto itself. In my opinion counsel for the defendant was correct in that connection.[54]
[54]As to the common law position, counsel cited Thomas Browne & Sons Ltd v Fazal Deen and Anor (1962) 108 CLR 391 at 411.
Neither do I accept the argument that the answer to an objection to severance is that a lease will always be fundamentally the same, simply because it must always be a lease – giving possession in return for rent paid. To take an extreme example, if a lease specified that a premises was to be used as a retail food outlet – say a fish and chip shop – and it later emerged that the only permitted use of the land under the relevant Planning Scheme was as a cinema, I do not think that at the instance of the lessor the illegal use required by the lease must be read down or severed, this committing the shop owner to conducting a cinema.
The example which I have just given, however, does not necessitate a conclusion that change of permitted use would necessarily change the kind of contract between the parties. That was the highwater mark of the pertinent submission made by counsel for the defendant.[55] In the end, I think, the answer to the question whether cl. 1.3 can operate is to be found by considering the consequence of its operation in the particular circumstances of the case, and not in generalisations.
[55]See para 28 of his outline of submissions and T 162-163.
In the present case the designated use was as offices. I have already accepted that office is a word of wide import; and that it embraces display areas. The parties should be taken to have understood those matters. There is certainly a shift in emphasis between office and showroom; but the two uses are not necessarily far apart in their practical application. It is not an answer to say that, according to the language of the lease, only use as "offices" was permitted. I consider that cl. 1.3 may properly be used in such a case. I should add that in my opinion it could be no objection to the application of cl. 1.3 that an aggrieved party might have some other remedy in contract, or under Trade Practices legislation.
Counsel for the plaintiff argued that there were a number of ways of reading down item 15: by interpreting "offices" as meaning or including warehouse/showroom; by (?) interpreting item 15 to read "offices or any other lawfully permitted use"; and by deleting "offices" from item 15. He submitted, alternatively, that cl. 2.2.1 could be altered to read "The tenant must not and must not let anyone else: use the premises except for any lawfully permitted use." His further alternative submission was that cl. 2.2.1 should be severed, in which case cl. 2.2.2 would operate to limit the use of the premises to warehouse/showroom.
The command of the cl. 1.3 is not to sever if the offending provision can be read down so as to comply with the law. What does reading down authorise? It at least includes giving words with alternative meanings a meaning which will avoid infringing a Victorian law. But does it, as counsel for the plaintiff submitted, have a more expansive application?
Whilst I am conscious of the fact that what has to be considered are the words of a deed and not a statute, I cannot accept that reading down should be given any aspect of the expanded operation contended for by counsel. Though stated in the particular context of a penal statute, I consider that the conception of reading down was relevantly expressed by Malcolm CJ in Palos Verdes Estates Pty Ltd v Carbon[56], citing R v Adams[57] , Beckwith v The Queen[58] and Tickle Industries Pty Ltd v Hann[59]. In my opinion, to give "offices" a meaning, sole or otherwise, which it does not ordinarily bear, or to add words either to cl. 2.2.1 or to item 15, would not be to engage in an exercise of reading down at all.
[56](1991) 72 LGRA 414 at 428-429
[57](1935) 53 CLR 563
[58](1976) 135 CLR 569
[59](1974) 130 CLR 321
In the event, I consider that it is impossible to read down cl. 2.2.1 and item 15 to give them an operation complying with Victoria law. It is necessary to sever both cl. 2.2.1 and item 15, by blue-pencilling them, in order to rid the lease of illegality. Cl. 2.2.1 would make no sense if item 15 was left blank. A completed item 15 in the absence of cl 2.2.1 would be meaningless.
In my opinion the blue pencilling of cl. 2.2.1 and item 15 would not leave the lease in substance without a permissible use of the premises. The effect of cl. 2.2.2 together with the operation of the Scheme would define permissible uses. Theoretically, the use of the premises would not be confined to warehouse/showroom. There are existing use rights in respect of such use. It was not suggested that such rights have expired. But beyond those rights, the property could be lawfully used for any section 1 use. Nonetheless, and introducing a note of reality, it is improbable indeed that the plaintiff would seek to use the premises for the purpose, for example, of a carnival, circus, crop raising or mining.[60]
[60]See exhibit AMC 7 to Mr Clarke's affidavit
The remedy sought by the Originating Motion is relief from forfeiture. Very late in the proceeding the defendant raised the planning issue defence. My conclusion that the particular defence should fail has necessitated consideration of the question whether cl. 2.2.1 and item 15 could and should be read down or severed. What now should be done? I consider that it would be unsatisfactory simply to conclude, as I have, that cl. 2.2.1 and item 15 should be severed. That conclusion should be expressed in a formal pronouncement of the Court. Counsel for the plaintiff submitted that I should make an appropriate declaration. Counsel for the defendant did not address that submission. He concentrated upon the substantive merits of the severance argument. In my view the plaintiff's submission should be accepted.
For two reasons, upon only one of which I rely, the planning issue defence should be rejected. I have recorded other submissions advanced for the plaintiff in that connection. It would be surplusage to decide their validity or otherwise. The prime object of litigation must surely be the expeditious resolution of the dispute between the parties, deciding what is necessary in all the circumstances of the particular case.
Conditions of relief
The defendant's conduct was opportunistic. But it was the plaintiff's default that permitted the defendant to re-enter. In my opinion, the plaintiff should pay the costs of re-entry as a condition of relief.
In my opinion the defendant had an extremely weak defence to the plaintiff's claim when the matter came before a Master on 5 September. Its defence was no better on 12 September when the matter came before Beach J. The defendant should have consented to the final disposition of the matter no later than 12 September, if not to orders in the plaintiff's favour. Although I am critical of the defendant's action in ejecting the plaintiff, it remains the case that the plaintiff was in default on 30 August. In the event, notwithstanding that the lease was terminated on 30 August, I consider that the plaintiff should be obliged to pay an amount equivalent to rent, proportionate outgoings and car park charges for the period from 31 August until the date on which the plaintiff commenced to pay a licence fee – apparently 5 September; but not beyond that date. The plaintiff's obligation to pay rent, outgoings and car park charges should resume on the day on which the defendant becomes obliged to deliver up possession of the premises to the plaintiff. That will be when the plaintiff has paid the rent, outgoings, car park charges and re-entry costs to which I have referred, and as well interest under cl. 2.1.10 of the lease up to but not beyond 2 September 2002, on which date a cheque was tendered for the August rent and for the estimated August outgoings.
Costs
Counsel for the plaintiff submitted that the defendant had acted in a manner that should attract not simply an order for costs against it, but an order for indemnity costs. Its actions, he submitted, had been high handed and reprehensible. If the plaintiff should not have all the costs, it should at least have its costs from 5 September, when the matter came before the Master and the defendant could and should have brought the proceeding to an end.
Counsel for the defendant submitted that
"With the benefit of the planning defence, what would otherwise have been an ordinary or pedestrian relief against forfeiture case to which a defence was unlikely, Primelife has advanced a defence with some substance."
Counsel further submitted that the reason why the planning issue had been raised at the last minute had been explained; and that his client should not be punished for late-raising an issue of substance.
Costs are in the discretion of the Court. The nature of this proceeding does not alter that fact.
In my opinion the plaintiff should pay the defendant's costs up to and including 12 September, notwithstanding my criticism of the defendant's conduct. It remains the fact, as I have said, that it was the plaintiff's default which gave the defendant the trigger which it sought.
In my further opinion the defendant should pay the plaintiff's costs after 12 September on a solicitor and client basis. In so concluding I take into account the defendant's conduct in maintaining a worthless defence between 12 September and trial, conduct which I consider can have had no substantial purpose other than to string the matter out; and the defendant's ambush of the plaintiff with the planning issue defence. In the last connection what I criticise is the ambush, not the substance of the defence.
There is some debate whether it is proper to put in the balance the conduct of a party before trial in deciding whether to make a special order for costs. Being cautious, I have not done so. But a party's prior conduct with respect to the subject matter of litigation may aid an assessment of its conduct as a litigant. In the present case I have given consideration to the defendant's pre-litigation conduct only in deciding whether my prima facie characterisation of its conduct as a litigant, founded on its conduct in the course of the litigation, was erroneous. I have not had occasion to change my opinion.
Orders
I ask counsel to prepare draft orders for my consideration.
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