Steel Supplies Bega v Shoveller

Supreme Court

New South Wales

Medium Neutral Citation: Steel Supplies Bega v Shoveller [2014] NSWSC 1612
Hearing dates: 14/10/2014 and 3/11/2014
Decision date: 14 November 2014
Jurisdiction: Equity Division
Before: McDougall J
Decision:
Plaintiff entitled in principle to relief under ss129, 133F of the Conveyancinig Act. Parties to put written submissions on terms of relief, form of orders and costs.

Catchwords:
LANDLORD AND TENANT - termination of the tenancy - provisions giving right to terminate in named circumstances - service of section 129 notice in relation to breaches of lease - alleged breaches of the lease - where alleged breaches in relation to car parking spaces - where clause in lease that lessee must comply with any conditions of consent - where car parking does not comply with conditions of development consent - where council has taken no action in relation to breach of conditions and has issued occupation certificate irrespective of development consent - where alleged breach in relation to insurance - where occupant of the premises had insurance of the kind required in place in relation to the premises for duration of occupancy - where insurance amended to name lessor as an insured - where alleged breach in relation to parting with possession or assignment of lease - where consent to sublease sought and given by lessor - where sublease effective only in equity and not at law - where sublease not formalised - whether continued breaches of the lease - whether lessor entitled to terminate lease on basis of breaches

LANDLORD AND TENANT - termination of the tenancy - application for relief against forfeiture - general principles in relation to relief against forfeiture - exercise of discretion - where breach incapable of causing loss to lessor - where breach trivial - balancing exercise - where lessor seeking to take advantage of the benefits which would accrue by forfeiture - whether to grant relief against forfeiture
LANDLORD AND TENANT - renewals and options - relief against loss of option for renewal - where notice served under section 133E - whether breaches of lease were "de minimis" - whether breaches of lease subsisting at time of service of notice - where breaches caused no loss to the lessor - whether to grant relief under s 133F - discretionary considerations - where breaches not current or continuing at the time the lessee sought to exercise the option - no evidence that the lessor suffered any loss or damage due to breaches of lease - whether lessor had commercial interest in property and therefore whether lessor would suffer loss by forfeiture
Legislation Cited: Conveyancing Act 1919 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)
Environmental Planning and Assessment Regulation 2000 (NSW)
Public Health Act 1991 (NSW)
Retail Leases Act 1994 (NSW)
Cases Cited: Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504
Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646
Beaudesert Metal Fabricators Pty Ltd v Beaudesert Shire Railway Support Group Inc [2005] QSC 017
Legione v Hateley (1983) 152 CLR 406
Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380
Hyman v Rose [1912] AC 623
Re Denny's Restaurants Pty Ltd [1977] Qd R 92
Shiloh Spinners Ltd v Harding [1973] AC 691
Category: Principal judgment
Parties: Steel Supplies Bega Pty Ltd (Plaintiff)
Carmen Maree Shoveller (Defendant)
Representation: Counsel:
P M Lane (Plaintiff)
A Vernier (Defendant)
Solicitors:
David Griffiths Lawyers (Plaintiff)
A R Walmsley & Co (Defendant)

File Number(s): 2014/245619

Judgment

HIS HONOUR: The defendant (Ms Shoveller) is the proprietor of land at Bega ("the property", or "the leased property"). That land is leased to the plaintiff (Steel Supplies). The improvements, including associated car-parking spaces, are used by a company known as United Fitness Studio Pty Ltd (UFS) for the purposes of its business.

Ms Shoveller claims to have terminated the lease. She relies on what she says were unremedied breaches specified in a notice under s 129 of the Conveyancing Act 1919 (NSW). Steel Supplies denies that there were any unremedied breaches, and that the termination was effective.

Steel Supplies has given notice exercising an option of renewal under the lease. Ms Shoveller says that Steel Supplies was not entitled to exercise the option because, at the time it did so, the lease had been terminated; and in any event, Steel Supplies was (and had been) in breach of various of its obligations under the lease.

Further, and to the extent that it may be necessary, Steel Supplies seeks relief against forfeiture (including relief under s 129(2) of the Conveyancing Act) and relief under s 133F of the Conveyancing Act.

The real issues

Both because (for reasons that do not require examination) there were no pleadings and because the hearing was conducted in a way that tended to obscure rather than expose the issues, it is not easy to articulate what are the real issues for decision.

Based on the submissions that were provided, the issues seem to be:

(1) what (if any) of the breaches specified in Ms Shoveller's s 129 notice have been proved, and what (if any) of those defects were remedied within the time allowed by the notice?

(2) To the extent that there were any unremedied breaches, should Steel Supplies have relief against forfeiture?

(3) What (if any) of the breaches specified in Ms Shoveller's s 133E notice have been proved?

(4) To the extent that any of those breaches have been proved:

(a) is relief against forfeiture available?

(b) If it is, has Steel Supplies made out a case for it?

The witnesses in the case

Mr Philip Moffitt, a director of Steel Supplies, gave evidence. Steel Supplies appears to be a family company; the other director is Mrs Alison Moffitt. Mr and Mrs Moffitt are also directors of UFS.

Mr Shaun Ruzicka, a director of UFS, also gave evidence. Mr Ruzicka and his partner Ms Kelly-Ann Hayes are directors of UFS, along with Mr and Mrs Moffitt.

Each of Mr Moffitt and Mr Ruzicka was cross-examined. Each of them gave evidence in a forthright way. I thought that each of them sought to tell the truth to the best of his ability.

It was apparent that Mr Moffitt's recollection of matters of detail, particularly in relation to insurance (which was the subject of great attention in the submissions for Ms Shoveller) was less than perfect. That, I think, reflects the fact that Mr Moffitt was not directly involved in the day to day business operations of UFS. In particular, he had little to do with organising insurance.

Mr Ruzicka seemed to me to have a clear recollection of matters relating to the business of UFS. I thought he was an impressive witness: one whose evidence could be relied upon.

Ms Shoveller gave evidence and was cross-examined. There were aspects of her evidence that concerned me. In particular, she displayed from time to time a marked tendency to avoid answering questions, and to take the opportunity to foist irrelevant and self-serving material upon the cross-examiner.

In general, to the extent that there is a conflict between the evidence of Ms Shoveller on the one hand and that of Mr Moffitt and Mr Ruzicka on the other, I prefer the evidence given by Mr Moffitt and Mr Ruzicka.

There are two qualifications to that statement. One is obvious. Where Ms Shoveller's evidence on a particular point seems to me to accord with the probabilities, viewed objectively, I would accept it even if it is in conflict with the evidence of Mr Moffitt or Mr Ruzicka.

The other qualification is more limited. From time to time, Ms Shoveller made contemporaneous notes of her discussions with Mr Moffitt or Mr Ruzicka (or both). Where Ms Shoveller made such notes, I accept them as accurate so far as they go, and thus I accept her evidence based on them. I say "so far as they go" because it became clear, in the course of cross-examination, that when Ms Shoveller gave her version of various discussions, she did not attempt to state everything that was said. That reflected, in some cases, the way that underlying notes were prepared.

In a related vein: some of Ms Shoveller's evidence of observations and the like was supported by photographs that she took at the time. Although the photographs corroborate the observations of which Ms Shoveller gave evidence, from time to time her evidence seemed to me to seek to put a "spin" on what she saw (and on what was photographed), apparently with the intention of advancing her case. Thus (by way of example), Ms Shoveller took photographs of some of the contents of a storeroom which, she said, had been used for administering beauty treatments, including waxing procedures. It is apparent from the whole of the evidence that the photographs taken by Ms Shoveller focused on individual details that supported her case, and did not give a true impression of the state of the room as a whole.

Even if one were to accept the general truism that "the camera does not lie" (and anyone with even a nodding acquaintance of photography would beg to differ), it has to be said that the camera is an instrument well adapted to selective observation and recording. From time to time, in my view, Ms Shoveller exploited that facility.

Background

Steel Supplies carries on its business, which involves the wholesale and retail sale of fabricated steel products, from premises in an industrial complex next to the leased property. When the lease was granted, Mr Peter Walden was the proprietor of the property. Mr Walden was a joiner by trade. He had used the property for the purposes of his business "Bega Joinery".

When Mr Walden retired, Mr Moffitt offered to lease the property, for the purpose of a business opportunity that he was then considering. That business opportunity did not develop.

Regardless, the lease was made for a period of three years commencing on 31 January 2010. There was an option for renewal for a further period of three years. The permitted use of the land was:

Warehousing of steel supplies or such other use as may be permitted under local zoning and planning

At or about the time the lease was signed, Mr Moffitt started to discuss with Mr Ruzicka the possibility of using the improvements on the leased property for the purposes of a fitness centre. That would allow Mr Moffitt to use the undeveloped portion of the property for storage. Mr Moffitt discussed the idea with Mr Walden, and Mr Walden agreed.

Mr and Mrs Moffitt applied to the local council, Bega Valley Shire Council, for development consent to change the use of the leased premises as follows:

Change use from joinery to recreation facility (gymnasium) and proposed addition to building.

The "proposed addition" was the construction of a shower block at the rear of the existing building.

The Council gave consent, subject to a number of conditions, on 27 October 2010.

In the meantime, the lease was varied. The variation is dated 21 October 2010. By the variation, the term of the lease was increased to five years, so as to expire on 30 January 2015; and there was provision for two options of renewal, each for a period of five years. There was no change to the statement of the permitted use.

USF commenced to operate its fitness business. Effectively, it was Mr Ruzicka (and from time to time Ms Hayes) who did that. Mr and Mrs Moffitt do not seem to have been involved in any active sense.

Mr Walden died on 14 April 2011. Ms Shoveller, his daughter, inherited the leased property. Ms Shoveller said, and I accept, that even before her father's death, she had been assisting him with the management of the property.

Mr Moffitt's and Mr Ruzicka's evidence, which I accept, is that Mr Walden agreed with the proposal for UFS to operate a fitness centre in the leased property. Mr Walden gave formal written consent on 14 September 2010. Ms Shoveller said, and I accept, that the letter was drafted with her input. It said, among other things:

We advise consent is granted for Steel Supplies Bega Pty Ltd to sublease the above Premises to United Fitness Studio P/L conditional upon Bega Valley Shire Council... granting full approval of requested change of permitted use and proposed works to the building.

It was that consent, coupled with the requirement for a longer lease and two options (which had been submitted as part of the application for consent) that led to the execution and registration of the variation of lease. However, despite the consent, no sublease has been prepared, executed or registered.

It is convenient to mention at this point that one of the issues raised by Ms Shoveller was that her consent to the sublease, and the Council's consent to the development application, related only to the improvements on the leased property. That is not correct. The letter of consent, to which I have referred, described the property by its full street address. So did the development consent given by the Council on 27 October 2010 (indeed, that letter also gave a title reference to the land). There is nothing in either document to suggest that it was limited to the improvements erected on the property. (There is a somewhat different point as to the ambit of the Council's consent. I deal with that at [163] to [167] below.)

Ms Shoveller plans to redevelop the property

It seems that when Ms Shoveller inherited the property, she formed an intention that she might redevelop it at some time in the future. However, that inchoate proposal did not take real shape until about September 2013. Ms Shoveller conceived the idea of redeveloping the property by constructing a building behind the existing building (i.e., behind the building occupied and used by UFS) and additional driveways to lead to and from the new building.

The property is a substantial block of land. The existing improvements are located towards the street frontage. There is ample space behind the existing improvements for the erection of a second building. However, since the land slopes from the rear to the street, it would be desirable (if not necessary) to excavate at the rear and to form retaining walls.

Ms Shoveller had some sketch plans prepared. She discussed them with Mr Moffitt and then with him and Mr Ruzicka. According to Ms Shoveller, Mr Moffitt said that he had no objection. Mr Moffitt appears to accept this.

However, Mr Ruzicka did object to the proposal. It appears that he discussed it with Mr Moffitt.

At some stage, Ms Shoveller refined her proposal, to provide for the subdivision of the property into two lots. Of necessity, since Steel Supplies held a lease over the whole of the property, that could not occur without its consent.

Ms Shoveller, Mr Moffitt and Mr Ruzicka discussed Ms Shoveller's proposal to subdivide and develop the property. They were unable to reach agreement. Negotiations appear to have come to an end in late March 2014.

On 20 March 2014, Ms Shoveller wrote to Steel Supplies. Her letter outlined her proposal, and attached some sketches and a draft plan of subdivision. It said, among other things:

As Steel Supplies has a registered interest in the property, your consent to the registration of the subdivision will be requested.

Once the new lots are created, our existing lease will be surrendered and a new lease can be drawn up between us. However if it is Steel Supplies [sic.] intention not to enter a new lease, as you have verbally indicated, a new lease for the front lot will be offered to United Fitness P/L.

The new lease for United Fitness can be drafted and agreed upon in anticipation of the registration of the plan of Subdivision so the surrender of our existing lease, the grant of a new lease and registration of the subdivision can happen concurrently.

Lawyers acting for Steel Supplies replied some four days later. Their letter, which purported to be written on behalf of both Steel Supplies and UFS, said among other things:

Our clients have reservations about this course of action as they had used the back portion of the land for outdoor classes, overflow parking and the like. They are also concerned about the impact that a road on either side of the premises will have on their business, including the impact that the building of a new structure may have on their business.

The letter proposed a basis on which the existing lease would be surrendered and a new lease made.

In reply, Ms Shoveller pointed out that Steel Supplies was, and UFS was not, the existing lessee. She asked for confirmation as to who was intended to be the new lessee. She was told that it would be Steel Supplies.

Ms Shoveller then asked for a copy of the sublease and of "any other document that evidences United Fitness Studio Pty Ltd [sic] right to occupy the premises". She was told that there was no current sublease in place.

Ms Shoveller replied, referring to the chain of correspondence, and said:

The items raised within same are noted and are being reviewed.

The result of the review was that Ms Shoveller began to take an interest in details of the insurance in place, and of the use to which the property had been and was being put. I have the very clear impression from the evidence that Ms Shoveller decided to look for a reason to bring the lease to an end, and with it the option. I think she decided that this would be easier than dealing with the requests made by Steel Supplies as the price of its consent to the surrender of the existing lease and the grant of a fresh lease over a smaller part of the property. That impression was confirmed listening to Ms Shoveller give evidence in cross-examination.

The s 129 notice

Ms Shoveller requested copies of insurance policies in place. There was no doubt she was entitled to see these. She also conducted inspections of the leased premises. There is no doubt that she was entitled to do this. As a result, on 4 June 2014, lawyers acting for Ms Shoveller gave notice under s 129 of the Conveyancing Act. Omitting matters that were not pressed, that notice specified the breaches as follows:

1. Use of Premises

The Lessee has allowed the premises to be used for purposes other than the permitted use referred to in Item 17 (cl 6.1) of the Lease which allows for the property to be used for:

"Warehousing of steel supplies or such other use as may be permitted under local zoning"

Beauty Salon -

(i) An inspection of the premises carried out by the Lessor on 9 May, 2014 revealed that a beauty salon is being operated from the storeroom. The Lessor has not granted permission to vary the permitted use for this purpose.

(ii) Use of the part of the premises as a beauty salon is in contravention of Bega Valley Shire Council LEP 2013 for Zone IN1.

Overflow Car Parking -

(iii) Part of the rear of the premises is being used for overflow car parking (as referred to in letter dated 24 March, 2014 from the Lessee's solicitor to the Lessor).

(iv) Use of the rear of the premises for overflow car parking was not approved by the Lessor and is in contravention the Development Application 2010.0388 Conditions of Approval.

Outdoor Classes -

(v) Part of the premises is being used for Outdoor Recreation Facilities (referred to in the Lessee's solicitor's letter of 24 March, 2014 as "outdoor classes"). The Lessor has not granted permission to vary the permitted use for this purpose.

(vi) Use of the premises for Outdoor Recreation Facilities is in contravention of Bega Shire Council LEP 2013 and was not approved by Development Application 2010.0388.

Gymnasium -

(vii) Clause 6.1.4 requires the Lessee to "comply with any condition of consent" as to the use of the premises. The premises are currently being used as Gymnasium in contravention of the terms of Development Application 2010.0388 which also required.

(a) The issue of a Final Occupation Certificate before the commencement of the Approved Use;

(b) Detailed Landscape Plans;

(c) Minimum car parking spaces (21) and line marking in accordance with Council requirements;

(d) Disabled car parking space to be located in accordance with Approved Plan;

(e) Issue and display of Fire Safety Certificate;

(f) Flammability index certification;

(g) Works as executed drainage diagram;

(h) Compliance Certificate

(i) Certification by Chartered Professional Engineer.

An inspection by the Lessor of Bega Shire Council files and discussions with officer of the Council confirms the above matters remain outstanding.

The Lease is required to remedy the above breaches

by ceasing to use the property for any purpose not

permitted under the terms of the Lease.

...

4. Insurance

The Lessee has failed to comply with Item 18 (Clause 8.1.1) of the Lease as to the provision of Public Liability Insurance and Insurance covering damage or destruction to the plate glass in the windows and other portions of the property.

On 29 April, 2014, at the request of the Lessor, the Lessee provided to the Lessor a "Cover Summary-Renewal of Cover" the Schedule attached to which showed the insured as "United Fitness Studio Pty Ltd". The insured named in this document is not the Lessee.

The Lessee has failed to produce to the Lessor the policy and the receipt for the last premium in accordance with Clause 8.1 of the Lease.

The Lessee is required to rectify the breach by providing evidence of insurance as required by Clause 8.1.1 of the Lease.

5. Parting with Possession/Assignment

The Lessee has parted with possession of part of the property to a third party, namely United Fitness Studio Pty Ltd, without obtaining the consent of the Lessor in accordance with Clause 10 of the Lease.

The Lessee has, without the consent of the Lessor, purported to assign its obligations in accordance with the Lease to a third-party.

The Lessee is required to remedy the breach by ensuring the third party ceases to occupy the property.

Lawyers acting for Steel Supplies replied by letter dated 26 June 2014 (the last day specified in the s 129 notice). Dealing with items 1, 4 and 5 that letter said:

1. Use of Premises

Beauty Salon

The Lessee does not admit that the premises have been used as a beauty salon but in any event the items and signs observed during the inspection of the property have been removed and no form of massage, nail treatment or waxing is occurring on the premises as at today.

Overflow Car Parking

The Lessee denies that the area allegedly used for overflow parking was being so used at the time of the notice and in any event, that area is not being used in that manner as at today.

Outdoor Classes

The Lessee denies that the area allegedly used for outdoor classes was being so used at the time of the notice and in any event, that area is not being used in that manner as at today.

Gymnasium

The lessee denies that there has been any failure to comply with any condition of consent pursuant to clause 6.14 of the lease. As to the development consent 2010.0388 the Lessee says:

a. The lessee did obtain a final occupancy certificate which authorised occupancy from 8 November 2010. A copy of that Final Occupation Certificate is attached.

b. The Principal Certifying Authority accepted existing landscaping plans as noted on Council's file.

c. The car parking spaces and line marking has been carried out.

d. The disabled car parking space has been identified in accordance with the approval plan.

e. A Fire Safety Certificate has been issued and displayed as required and copies of the Certificates of Compliance and Fire Safety Schedule are held on the Council file and are attached.

f. A Flammability Index Certification from Godfrey Hirst Australia Pty Ltd has been obtained and is on Council File. A copy is attached.

g. A "works as executed" drainage diagram is held on the Council File and a copy is attached.

h. A Compliance Certificate has been obtained form APL Australia Pty Ltd and is held on the Council file. A copy is attached.

i.The Certification by Chartered Professional Engineer was not required as the lessee did not undertake any of the engineering work on the road reserve. Council undertook this work.

...

4. Insurance

We attach a certificate of insurance as to the matters required in item 18 of the lease.

5. Parting with Possession/Assignment

The lessee denies that it has parted with possession of the premises. It is still in possession of the premises. United Fitness Pty Ltd is operating a business on the premises with the consent of the lessee. The lease has not been assigned nor is there any agreement to assign.

There is a question as to whether that letter was received in time. It was sent by email, but apparently the email address used was specific to a former principal of the firm to which the email was sent. In the result, little seems to turn on this. However, that does explain why it was that on 30 June 2014 Ms Shoveller's lawyers gave a notice of termination which, omitting formal parts, stated:

TAKE NOTICE that as you have failed to comply in all respects with the Notice to Remedy Breach of Lease, issue [sic.] in accordance with section 129 of the Conveyancing Act 1919, dated 4 June, 2014 and served on you on 5 June, 2014, your Lease for the above premises is hereby terminated with immediate effect.

The Lessor demands immediate possession and that you vacate the premises on 31 August, 2014.

...

In final submissions, Mr Vernier of Counsel, who appeared for Ms Shoveller, accepted that the alleged breaches relating to the beauty salon, overflow car parking and outdoor classes had been remedied. The remaining breaches that were relied upon may be summarised as:

(1) breaches relating to the conditions of the development consent relating to car parking (broadly, 21 off street car parking spaces were required, and there was a requirement for a disabled parking space "as close as practicable to the principle [sic] entrance");

(2) insurance;

(3) parting with possession in favour of, or assignment to, UFS.

The s 133E notice

On 26 September 2014, Steel Supplies caused to be served on Ms Shoveller a notice of exercise of option. As I understand it, it is accepted that, if it were then open to Steel Supplies to exercise the option, the notice was sufficient in form and given within time.

In response, Ms Shoveller caused to be served on Steel Supplies a notice under s 133E of the Conveyancing Act. That notice specified five alleged breaches of the lease, and said that subject to any order of the Court under s 133F, the lessor would treat those breaches "as precluding the Lessee from entitlement to the option". The asserted breaches were:

(1) The Lessee has failed to provide the Final Fire Safety Certificate (Environmental Planning and Assessment Regulations 2000 - Division 4, clause 170 and 173) in accordance with the requirements of DA 2010.0388 and in breach of Clause 6.1.4 of the Lease.

(2) The Lessee has failed to keep, from the commencement of the Lease, an insurance policy covering the matters set out in clauses 8.1.1 and 8.1.2 of the Lease and has breached and continues to breach clause 8.1 of the Lease.

(3) The Lessee has allowed the business known as "Swift Health and Fitness" (Swift) to operate from the Premises and, accordingly, has allowed Swift to share part of the Premises or has allowed Swift to take possession of part of the Premises in breach of Clause 10.7 of the Lease.

(4) The Lessee has allowed United Fitness Studio Pty Ltd to conduct outdoor activities and outdoor classes on the Premises in breach of the permitted use of the Premises where such act might invalidate any insurance policy covering the Premises at the relevant time in breach of clause 6.3.1 of the Lease.

(5) The Lessee has allowed Kelly-Ann Peta Hayes to operate a Beauty Salon on the premises in breach of the permitted use of the Premises where such act might invalidate any insurance policy covering the Premises at the relevant time in breach of clause 6.3.1 of the Lease.

In final submissions, Mr Vernier relied only on items 2 to 5 of the s 133E notice.

Relevant provisions of the lease

As I have noted already, the lease (as varied) was for a period of five years from 31 January 2010, with two further options for renewal, each of five years. The permitted use was:

Warehousing of steel supplies or such other use as maybe permitted under local zoning and planning.

The description of the leased property makes it clear that what was leased to Steel Supplies was the whole of the land that was described, including (but not limited to) the improvements (or "lessor's fixtures").

Clause 6 dealt with the use of the property. So far as it is relevant, it stated:

6.1 The lessee must -

6.1.1 use the property for the purpose stated in item 17 in the schedule and not for any other purpose;

...

6.1.4 comply with all laws relating to strata schemes and all other laws regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent, and keep current any licences or registrations needed for the use of the property or for the conduct of the lessee's business there.

...

Clause 8 dealt with insurance and damage. So far as it is relevant, it stated:

8.1 The lessee must keep current an insurance policy covering-

8.1.1 liability to the public in an amount not less than the amount stated in item 18 in the schedule (for each accident or event); and

8.1.2 damage or destruction from any cause to all plate glass in the windows and other portions of the property

And must produce to the lessor, upon request, the policy and the receipt for the last premium.

Clause 10 dealt with transfer and sublease. It stated:

CLAUSE 10 TRANSFER AND SUB-LEASE

Can this lease be transferred or the property shared or sub-let?

10.1 The lessee must not transfer this lease without consent.

10.2 The lessor can withhold consent only if -

10.2.1 the proposed transferee proposes to change the use to which the property is put; or

10.2.2 where the property is a retail shop, the proposed transferee has financial resources or retailing skills inferior to those of the proposed transferor and otherwise the proposed transferee has financial resources or business experience inferior to those of the proposed transferor; or

10.2.3 the lessee has not complied with clause 10.3 and, where the property is a retail shop, clause 10.4.

10.3 A request for the lessor's consent to a transfer of lease must be made in writing and the lessee must provide the lessor with such information as the lessor may reasonably require concerning the financial standing and business experience of the proposed transferee.

10.4 Where the property is a retail shop, before requesting the consent of the lessor to a proposed transfer of this lease, the lessee must furnish the proposed transferee with a copy of any disclosure statement given to the lessee in respect of this lease, together with details of any changes that have occurred in respect of the information contained in the disclosure statement (being changes of which the lessee was aware or could reasonably be expected to be aware). For the purpose of enabling the lessee to comply with this obligation, the lessee can request the lessor to provide the lessee with a copy of the disclosure statement concerned and, if the lessor is unable or unwilling to comply with such a request within 14 days after it is made, this clause 10.4 does not apply.

10.5 Where the lessee has complied with clause 10.3 and where required to do so clause 10.4, and the lessor has not within 42 days or where the Retail Leases Act1994 applies 28 days after the request was made or the lessee has complied with paragraphs 41(a) and 41(b) of the Act, whichever is the later, given notice in writing to the lessee either consenting or withholding consent the lessor is taken to have consented.

10.6 The lessee has to pay in connection with any consent the lessor's reasonable legal costs, the reasonable costs of obtaining any mortgagee's consent, the stamp duty and the registration fee for the transfer.

10.7 Where the property is a retail shop, the lessee can sublet, grant a license or concession, share or part with the possession of the whole or any part of the property or mortgage or otherwise charge or encumber the lessee's estate or interest in this lease only with the written consent of the lessor which can be refused in the lessor's absolute discretion. Otherwise, the lessee cannot do any of these things.

Clause 12 dealt with forfeiture and end of lease. So far as it is relevant, it stated:

12.1 This lease ends-

12.1.1 on the date stated in item 3 in the schedule; or

12.1.2 if the lessor lawfully enters and takes possession of any part of the property; or

12.1.3 if the lessor lawfully demands possession of the property.

12.2 The lessor can enter and take possession of the property or demand possession of the property if -

12.2.1 the lessee has repudiated this lease; or

12.2.2 rent or any other money due under this lease is 14 days overdue for payment; or

12.2.3 the lessee has failed to comply with a lessor's notice under section 129 of the Conveyancing Act 1919; or

12.2.4 the lessee has not complied with any term of this lease where a lessor's notice is not required under section 129 of Conveyancing Act 1919 and the lessor has given at least 14 days written notice of the lessor's intention to end this lease.

...

Although reference was not made to it in submissions, I note that by cl 12.5.3 and cl 12.5.5 respectively, the lessee's obligations relating to use (cl 6.1) and transfer and sublease (cl 10) were made "essential terms".

First issue: breaches alleged in the s 129 notice

I propose to deal only with the relevant issues as they were identified by Mr Vernier (see at [47] above).

Alleged breach: car parking spaces

There are two components to this alleged breach. Once relates to a failure to provide 21 off street parking spaces. The other relates to a failure to locate the disabled access parking space as close as practicable to the principal entrance.

The relevant conditions of approval were:

5. A minimum of 21 off street car parking spaces shall be provided in accordance with Council's Development Control Plan No. 7: Parking. Details of the proposed parking layout including surface paving and drainage details must be submitted for approval of Council prior to issue of the Construction Certificate by the Principal Certifying Authority.

7. The disabled parking space shall be relocated as close as practicable to the principle [sic] entrance. Amended plans shall be submitted to the PCA for approval prior to the issue of a Construction Certificate.

The plan stamped by the Council, apparently in connection with the issue of a construction certificate on 9 November 2010, shows in all 22 spaces. 21 of those are numbered. Six appear to be existing spaces and 15 appear to be proposed additional spaces. There is a notation:

Total 21 user class 2 car spaces.

It is common ground that class 2 spaces are those not required for disabled access.

The other space is unnumbered. It has handwriting on it "disabled car space". At some distance from the space so indicated, but linked to it by an arrow, the following words appear:

Accessible parking space to AS1428.

There is no evidence as to who wrote the words "disabled car space". Ms Shoveller said, and I accept, that the plan is a copy of one she obtained from the Council, and that those words were written on it when she obtained it.

Mr Moffitt said that there are 20 "ordinary" parking spaces and one disabled access space. Although the evidence is less than clear, it seems that the disabled access space is not located in the position shown on the approved plan.

Mr Ruzicka said that Council officers, including a Mr Jonathon Pyke, inspected the property when it was fitted out and ready for use by UFS. Mr Pyke, who was (and may still be) the Council's building services coordinator, is the person who issued and signed an occupation certificate dated 13 May 2014. Among other things, that certificate stated:

1.The Bega Valley Shire Council certifies that it has been appointed as the Principal Certifying Authority under s 109E.

2.A development consent/complying development certificate is in force with respect to the building.

3.A Construction Certificate has been issued with respect to the plans and specifications for the building.

4.The building is suitable for occupation or use in accordance with its classification under the Building Code of Australia.

5.Where required, a Final Fire Safety Certificate has been issued for the building.

6.Where required, a report from the Commissioner of Fire Brigades has been considered.

In an exchange of emails with Ms Shoveller, Mr Pyke said, among other things, that the Council, as the Principal Certifying Authority (PCA), could issue an occupation certificate even though, in some circumstances, not all the conditions of consent had been met. He gave, as one of several examples, where "the consent authority agrees that the condition is no longer required". Mr Pyke said also that the Council could choose to enforce, or not enforce, conditions of consent "given the circumstances of the development and the public interest".

Ms Lane of Counsel, who appeared for Steel Supplies, submitted that it was clear, as a matter of fact, that the Council, through Mr Pyke was satisfied with the arrangements that had been made for car parking. I accept that submission. It does not follow that those arrangements satisfied, or should be taken to satisfy, conditions 5 and 7 of the consent.

Ms Lane relied on certain provisions of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act) and the Environmental Planning and AssessmentRegulation 2000 (the EPA Regulation).

Section 109C(1) of the EPA Act refers to certificates that may be issued, under the collective name "Part 4A certificates". They include an occupation certificate that authorises (as was sought in this case) a change of use for an existing building.

Section 109H(2) of the EPA Act provides as follows:

(2) An occupation certificate must not be issued unless any preconditions to the issue of the certificate that are specified in a development consent or complying development certificate, or any requirements of a planning agreement referred to in section 93F that, by its terms, are required to be complied with before such a certificate is issued, have been met.

Section 109O of the EPA Act provides as follows:

109O Certifying authorities may be satisfied as to certain matters

(1) For the purpose of enabling a Part 4A certificate or a complying development certificate to be issued by a certifying authority, the regulations may provide that any requirement for a consent authority or council to be satisfied as to any specified matter (or any matter of a specified class of matters) is taken to have been complied with if the certifying authority is satisfied as to that matter.

(2) This section applies whether the requirement is imposed by or under:

(a) this Act, the regulations or an environmental planning instrument, or

(b) the terms of a development consent or complying development certificate.

Clause 161 of the EPA Regulation provides as follows:

161 Certifying authorities may be satisfied as to certain matters: section 109O

(cf clause 79V of EP&A Regulation 1994)

(1) This clause applies to the following matters:

(a) any matter that relates to the form or content of the plans and specifications for the following kind of work to be carried out in connection with the erection of a building or the subdivision of land:

(i) earthwork,

(ii) road work, including road pavement and road finishing,

(iii) stormwater drainage work,

(iv) landscaping work,

(v) erosion and sedimentation control work,

(vi) excavation work,

(vii) mechanical work,

(viii) structural work,

(ix) hydraulic work,

(x) work associated with driveways and parking bays, including road pavement and road finishing,

(b) any matter that relates to the external finish of a building.

(2) Any requirement of the conditions of a development consent that a consent authority or council is to be satisfied as to a matter to which this clause applies is taken to have been complied with if a certifying authority is satisfied as to that matter.

I do not think that s 109H(2) is relevant. There is nothing in the terms of the development consent to suggest that conditions 5 and 7 were "preconditions to the issue of the [occupation] certificate".

The only condition of consent which in terms was a precondition of issue of an occupation certificate is condition 18. In addition, condition 19 says that a final occupation certificate cannot be issued unless the PCA is satisfied that s 109H has been satisfied.

I note for completeness that conditions 33, 34 and 35, are said to be conditions to be satisfied prior to respectively construction certificate, commencement of use and commencement of use.

Although it was not referred to in argument, I should note that when s 109H(6) is read in conjunction in cl 153 of the EPA Regulation, it provides no assistance.

Nor do I think that s 109O of the EPA Act, read in conjunction with cl 161 of the EPA Regulation, assists. Section 109O(1) is predicated on the existence of a "requirement for a consent authority or council to be satisfied as to any specified matter...", where that satisfaction is required "[f]or the purpose of enabling a Part 4A certificate... to be issued". Ms Lane did not point to any requirements for satisfaction apart from those specified in s 109H. I note, in passing, that s 109H is the only section in Pt 4A of the EPA Act that deals with the topic of "restrictions on issue of occupation certificate".

Conditions 5 and 7 are not expressed as preconditions to the issue of an occupation certificate. Further, there is no reason to imply some such qualification. It is apparent from the development consent that, when the Council wished to identify conditions that were a precondition of the issue of a certificate (or preconditions to commencement of use) it was able to do so, expressly and unequivocally.

Ms Lane submitted, in the alternative, that Steel Supplies was not required to comply strictly with the conditions as to car parking; alternatively, that those standards should be applied "flexibly". I do not agree.

It may be accepted that the Bega Valley Development Control Plan No. 7 (DCP 7) read in conjunction with s 79C(3A) of the EPA Act, can be applied flexibly. However, the scope for flexible application is something to be considered at the time the Council is dealing with an application for development consent. I set out s 79C(3A):

(3A) Development control plans

If a development control plan contains provisions that relate to the development that is the subject of a development application, the consent authority:

(a) if those provisions set standards with respect to an aspect of the development and the development application complies with those standards-is not to require more onerous standards with respect to that aspect of the development, and

(b) if those provisions set standards with respect to an aspect of the development and the development application does not comply with those standards-is to be flexible in applying those provisions and allow reasonable alternative solutions that achieve the objects of those standards for dealing with that aspect of the development, and

(c) may consider those provisions only in connection with the assessment of that development application.

In this subsection, standards include performance criteria.

Section 79C is dealing with the evaluation of development applications. So much appears from the relevant words of subs (1):

In determining a development application, a consent authority is to take into account...

(a) The provisions of:

... (iii) Any development control plan...

Thus, flexible application of the requirements of DCP 7 was a matter for the Council at the time it considered the development application. That time has passed. Consent has been granted on conditions. The question now is not whether those conditions were reasonably imposed. It is whether they have been complied with. They have not.

I accept that it may be inferred, as a matter of fact, that the Council is not concerned with the non-compliance. But that does not mean that there is no non-compliance. Nor can the non-compliance be cured by a retrospective and inapt application of the flexibility provisions of s 79C(3A).

In similar vein, Ms Lane submitted that cl 6.1.4 of the lease imposed a "performance standard". Again, I do not agree. Clause 6.1.4 is clear. Steel Supplies must comply with, among other things, any conditions of consent. It is not in dispute that the terms of the development consent are "conditions of consent" for the purposes of cl 6.1.4.

The purpose of cl 6.1.4 is to ensure that the use or occupation of the leased premises accords with all relevant requirements of the law. As a matter of fact, it may well be the case that the Council is unlikely to take any action in respect of non-compliance with conditions 5 and 7. However, in my view, the wording of cl 6.1.4 is designed to ensure compliance in fact, not to put upon Ms Shoveller, as lessor, the risk of non-compliance in the event that the Council's attitude is not as it appears to be.

Ms Lane referred also to s 121B of the EPA Act, dealing with enforcement. As I have just indicated, it may well be correct to say, as a matter of reality, that it is unlikely that the Council would take any action to enforce the non-compliance with conditions 5 and 7. Even if that be the case, it does not undo the breach of cl 6.1.4 of the lease.

I should add that there was no evidence:

(1) to explain why conditions 5 and 7 had not been complied with;

(2) to show that they could not be complied with; or

(3) that the Council had been asked to vary those conditions so as to legitimise, even if not retrospectively, the present position as to car parking.

I conclude that the breach of cl 6.1.4 has been made out, and that it is a continuing breach.

Alleged breach: insurance

The evidence in relation to insurance was confused. That confusion was increased by the needless tender of numerous, mostly irrelevant, documents and by the submissions based on them.

The short position established by the evidence is that:

(1) at all relevant times, UFS had in place insurance in respect of the perils specified in cl 8.1 of the lease;

(2) up until 26 June 2014, Steel Supplies had various insurances in place, some of which arguably may have extended to some of those perils, but at no time did it have in place, in its own name and in respect of the leased premises, insurances in respect of all the perils specified in cl 8.1; and

(3) the policies taken out by UFS were amended to include Steel Supplies as an insured. For one of those policies, issued on behalf of underwriters at Lloyd's, the amendment was stated to be effective from 11 June 2014. For the other, issued by QBE, the amendment appears to have been treated as retrospective to the date of commencement of the policy on 30 November 2013. Even if that amendment were not retrospective, it was certainly effective from the date of issue of the amended certificate, and that in turn was issued before 26 June 2014.

Thus, there was a breach up until, at the latest, 26 June 2014. There has been no breach thereafter.

Although Mr Vernier submitted that it was not clear that the policies (in particular, the Lloyds' policy) answered the requirements of cl 8.1, that submission seemed to me to reflect more a failure to consider the whole of the evidence (the terms of the Lloyds' policy were in evidence, despite Mr Vernier's submission to the contrary) than any shortcoming in the terms of cover of the policies themselves.

Alleged breach: parting with possession or assignment

There is no evidence that Steel Supplies has transferred the lease to UFS. Thus, cl 10.1 of the lease is not engaged.

Mr Vernier submitted that Steel Supplies had licensed, shared, or parted with possession to, with or in favour of UFS, in contravention of cl 10.7. I do not agree.

Mr Vernier relied on the last words of cl 10.7. He submitted that they applied whether or not the premises were a retail shop (that being the condition introducing the first sentence of cl 10.7). Ms Lane submitted that the second sentence of cl 10.7 applied only in the circumstances described by the introductory words of the first sentence.

On balance, I think, Ms Lane's construction is to be preferred. There are difficulties in each approach, and each produces what seem to me to be inconsistencies in the operation of cl 10 as a whole.

On Mr Vernier's approach to construction, there is a prohibition on transferring the lease without consent, but (even leaving aside s 133B of the Conveyancing Act) the circumstances in which the lessor could withhold consent are limited to those set out in cl 10.2. On the other hand, where what is proposed is subletting, licensing (or any of the other things specified in cl 10.7), the lessor has an absolute and seemingly unqualified discretion whether or not to grant consent.

The effect of registration of a transfer of lease may well be to bring to an end privity of estate and of contract between the lessor and the lessee upon registration of the transfer (certainly, to do the former of those things). Registration will also bring about privity of estate and of contract between the lessor and the transferee. Thus, the lessor might be thought to have a significant interest in satisfying itself as to the capacity of the person who is to undertake the obligations of the lessee under the lease.

By contrast, the dealings with the lease referred to in cl 10.7 (leaving aside the general words "or otherwise charge or encumber the lessee's estate or interest in this lease") do not destroy the privity of estate and contract between the lessor and the lessee. Thus, even if those things are done, the lessee remains answerable to the lessor for the due and proper performance of all the lessee's covenants under the lease.

It seems to be reasonably clear that cl 10 was intended to reflect the operation of relevant provisions of the Retail Leases Act 1994 (NSW). Part 5 of that Act (comprising ss 39 to 45) deals with assignment and termination. Section 39 sets out the grounds on which consent to assignment can be withheld:

39 Grounds on which consent to assignment can be withheld

(1) The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances):

(a) if the proposed assignee proposes to change the use to which the shop is put,

(b) if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor,

(c) if the lessee has not complied with section 41 (Procedure for obtaining consent to assignment),

(d) the circumstances set out in section 80E.

(2) This section does not preclude any right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the consent, so long as the lessor has substantiated those expenses to the lessee at the request of the lessee.

Clauses 10.1, 10.2 effectively reflect s 39. Although I will not set it out, s 41 is reflected in cls 10.3, 10.4 and 10.5.

Section 42 of the Retail Leases Act permits the lessor to reserve the right to refuse consent to sublease:

42 Lessor may reserve right to refuse sublease, mortgage

A retail shop lease may contain a provision which allows the lessor to refuse in the lessor's absolute discretion:

(a) consent to the grant of a sublease, licence or concession in respect of the whole or any part of the shop, or

(b) consent to the lessee parting with possession of the whole or any part of the shop, or

(c) consent to the lessee mortgaging or otherwise charging or encumbering the lessee's estate or interest in the lease.

Section 42 is reflected in cl 10.7.

It was common ground that the lease is in a standard form issued under the auspices of the Law Society of New South Wales. It is clear that cl 10 at least was drafted on the assumption that the provisions of the Retail Leases Act, in relation to assignment and the like and termination, could well apply. That would appear to explain what might otherwise be thought to be the anomalous variation between the way in which assignment on the one hand and subletting (etc) on the other are treated.

If Ms Lane's construction were correct, the lessee could not transfer the lease in the absence of consent. It could however sublet, license or part with possession (or, for that matter, do any of the other things referred to in cl 10.7). It could be seen as anomalous that the lease specifically imposed restrictions on the right to transfer but, where the premises were not a retail shop, imposed no restrictions on the right to sublet, license or part with possession.

The difficulty with Mr Vernier's construction is that it takes a provision (cl 10.7) which evidently, by reference to its statutory source, was intended to be self-contained, and seeks to extract a particular part of that so as to make it of general application. To my mind, it is clear that the prohibition in the second sentence of cl 10.7 was intended to state, in negative form, the consequences or effect of the first sentence.

The drafting of cl 10 generally has sought to extend its operation beyond the circumstances covered by Pt 5 of the Retail Leases Act. However, that does not seem to me to justify taking a prohibition which, in terms (and as a matter of plain English) is engaged only where the property is a retail shop, and extending its operation to all classes of property. In effect, that approach would extend the operation of Pt 5 of the Retail Leases Act to any property the lease of which is effected on the terms that, in this case, the parties used.

The last sentence of cl 10.7 is intended to state what is the situation "otherwise" than that the first sentence applies. The first sentence applies where the property is a retail shop. It gives a limited right of subletting, etc, but only with the written consent of the lessor. Further, it gives the lessor an absolute discretion to withhold that consent.

In context, in my view, the statement that "[o]therwise, the lessee cannot do any of those things" means that, without the written consent of the lessor, the lessee cannot sublet etc. "where the property is a retail shop". That is to say, "these things" are the subletting etc. of a retail shop; not subletting etc. at large, or in the abstract.

For these reasons, I think that the last sentence of cl 10.7 does not apply where the premises the subject of the lease are not a retail shop.

However, even if I were wrong and Mr Vernier's construction were correct, the proper inference from the evidence is that Steel Supplies has agreed to sublease part of the property to UFS. Mr Moffitt sought permission for that. Ms Shoveller set out the information that Mr Walden (who was then alive) would require to consider the request for consent. In due course, consent to sublease was given. Thereafter, UFS conducted its business from the leased property.

At the same time Steel Supplies from time to time used the undeveloped land at the rear of the property for its own purposes.

In circumstances where Steel Supplies and UFS sought consent to sublease, that consent was granted, and thereafter UFS commenced to use part of the leased premises for its business purposes, the proper inference to draw is that it did so pursuant to the sublease for which consent had been requested. It does not matter, for present purposes, that the sublease is effective only in equity, and not at law.

There is some other evidence that to my mind confirms the existence of an agreement to sublease. Steel Supplies has always paid, and continues to pay, the full rent owing under the lease. Mr Moffitt said and I accept, that Steel Supplies was "reimbursed" for this by UFS. In the ordinary way, where a lessee subleases the whole or part of the leased premises, the lessee remains liable to the lessor for rent and the sublessee is liable to the lessee/sublessor for whatever is payable under the sublease. That is the position in this case.

It may seem surprising that the sublease was not formalised. However, given the close working relationship between Mr and Mrs Moffitt on the one hand and Mr Ruzicka and Ms Hayes on the other, and given the financial interest of Mr and Mrs Moffitt in the UFS business, it is perhaps understandable (although unwise) that they dispensed with further formalities.

Mr Vernier sought to argue that Steel Supplies had parted with possession in favour of UFS. I do not agree. First, as I have indicated, the proper inference from the evidence is that Steel Supplies and UFS have done that which they sought consent to do: namely, sublease part of the property from the former to the latter. Secondly, the evidence does not make good the proposition that, otherwise, Steel Supplies has parted with possession. On the contrary, as Mr Ruzicka and Mr Moffitt said (and I accept), from time to time Steel Supplies has stored steel materials on the undeveloped land at the rear of the leased property.

Mr Vernier also argued, I think, that there was at the very least a sharing of possession. That may be so, in the sense that, after the agreement for sublease was made, UFS was in possession of, and used, part of the leased property; and Steel Supplies was in possession of, and used, the other part. But where parting with or sharing possession are alternatives to subletting, licensing or granting a concession, it seems to me that a several use which is no more than a consequence of (in this case) subletting should not be regarded, alternatively and so as to put Steel Supplies in breach of the lease, as a "sharing". Were it otherwise, a formal sublease, with express written consent, of part of the property, leaving the lessee/sublessor to use the other part of the property, would nonetheless create a breach of cl 10.7 (if, contrary to my view, it applied).

I do not think that a construction which produces that result should be favoured.

Thus, the factual answer to this complaint of breach is that there has been an agreement for sublease of part of the property that was the subject of an express grant of consent. UFS is in possession pursuant to that agreement.

Second issue: relief against forfeiture

On my conclusions, the only breach in respect of which this question arises is the continuing failure to comply with conditions 5 and 7 of the development consent.

For Steel Supplies to have relief in equity against forfeiture of its interest as lessee under the lease, it must show that it would be unconscionable for Ms Shoveller to insist on forfeiture. So much appears from the judgment of Mason and Deane JJ in Legione v Hateley (1983) 152 CLR 406 at 444, 449; and note the analysis of Gibbs CJ and Murphy J at 429.

I have put the matter this way, taking into account the distinction that Mason and Deane JJ drew in Legione at 444 - 445 between relief against penalties (that is, covenants intended to secure the enjoyment of a collateral object) and relief against forfeiture of an interest in land which is not in the nature of a penalty.

Section 129 of the Conveyancing Act gives an express power to grant relief against forfeiture. I set out that section so far as it is relevant:

129 Restrictions on and relief against forfeiture of lease

(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.

(2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.

In Hyman v Rose [1912] AC 623, Earl Loreburn LC said at 631, of an English statutory provision in similar terms, that "the discretion given by the section is very wide". His Lordship continued by pointing out:

The Court is to consider all the circumstances and the conduct of the parties. Now it seems to me that when the Act is so express to provide a wide discretion, meaning, no doubt, to prevent one man from forfeiting what in fair dealing belongs to some one else, by taking advantage of a breach from which he is not commensurately and irreparably damaged, it is not advisable to lay down any rigid rules for guiding that discretion.

His Lordship pointed out, further, that even general statements (or "useful maxims in general") which might ordinarily be regarded as relevant to an application for relief under the statute should be disregarded where necessary, because "otherwise the free discretion given by the statute would be fettered by limitations which have nowhere been enacted".

McGarvie J cited those principles, as relevant to the Victorian equivalent of s 129, in Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646 at 669.

In Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504, Keane JA (with whom Douglas J, although giving short separate reasons, agreed) said at [163], of the Queensland equivalent of s 129(2), that:

[163] Consideration of the question of relief from forfeiture requires attention to a number of issues: the gravity of the breach or breaches in question, whether the breach was inadvertent or wilful, the damage to the covenantee and the relative loss to the covenantor if relief is not granted.

At a level of some generality, the Courts should be slow to regularise, by granting relief against forfeiture (either in equity or pursuant to statute), an ongoing breach of a lease. As Lord Wilberforce said of relief in equity in Shiloh Spinners Ltd v Harding [1973] AC 691 at 723, equity expects people to perform their bargains, and is not disposed to allow them to "buy their way out by uncovenanted payment". That observation, in my view, states a consideration that is relevant also to exercise of the statutory discretion to relieve.

Further as Mason and Deane JJ pointed in Legione at 447, it is not the role of equity to remake a contract simply because, as events have occurred, one party has made a bad bargain. Again, that consideration is relevant to the statutory discretion.

More generally, the Courts should be slow to foist on parties to a commercial bargain terms other than those on which the parties agreed. However, as Earl Loreburn made plain in Hyman, those considerations, important as undoubtedly they are, should not be used as invariable fetters on the statutory discretion.

Speaking of the equitable jurisdiction to relieve against forfeiture, Mason and Deane JJ in Legione at 449:

Whether the exceptional circumstances exist in a given case hinges on the existence of unconscionable conduct. It is impossible to define or describe exclusively all the situations which may give rise to unconscionable conduct on the part of a vendor in rescinding a contract for sale. None the less it may be said that where the conduct of the vendor, though not creating an estoppel or waiver, has effectively caused or contributed to the purchaser's breach of contract there is ground for exercising the jurisdiction to relieve. And if it also appears that the object of the rescission is not to safeguard the vendor from adverse consequences which he may suffer as a result of the contract remaining on foot, but merely to take unconscientious advantage of the benefits which will fortuitously accrue to him on forfeiture of the purchaser's interest under the contract, there will be even stronger ground for the exercise of the jurisdiction.

In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise. The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser's breach? (2) Was the purchaser's breach (a) trivial or slight, and (b) inadvertent and not wilful? (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach"? (4) What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? (5) Is specific performance with or without compensation an adequate safeguard for the vendor?

Again, whilst those considerations should not be taken as enacted conditions of the statutory discretion to relieve, they point to factors that may be relevant in particular cases.

On the basis that, in effect, the greater includes the lesser, I propose to consider the question of relief by reference to s 129. If Steel Supplies does not make out a case for relief under the statute, it is not going to succeed on purely equitable principles.

The competing contentions generally will be apparent both from what I have said and from the particular considerations to which I refer in the following paragraphs. I should however note that Mr Vernier put a group of submissions which took as their starting point the proposition that although it was Steel Supplies that was seeking relief against forfeiture, it was plain from Mr Moffitt's evidence that, in effect, it was doing so only for the benefit of UFS. It seems to me that those submissions ought be regarded as more relevant to the question of relief under s 133F, and it is in that context that I consider them. It will however be apparent from what I say (see at [198] to [210] below) that, were those submissions to be considered in the present context, they would not affect the view to which I have come.

The competing considerations are finely balanced. Tending against exercise of the discretion to relieve are the considerations that the breach is ongoing, and deliberate in the sense that, although it has been pointed out (including by way of the s 129 notice), Steel Supplies seems to have done nothing to ensure that its (and UFS's) occupation and use of the premises complies with the conditions of consent.

Considerations that tend in favour of the exercise of discretion include that the breach is, in context, trivial, and that, on the evidence, it seems clear that the Council is not concerned by it. If it were otherwise, the Council, after inspecting the property and presumably becoming aware of the non-compliance, is unlikely to have issued an occupation certificate.

If matters went no further, I would be disinclined to exercise the discretion. To do so would be to regularise an ongoing breach, contrary to the parties' bargain. However, it seems to me, there are other relevant considerations.

First, the breach in my opinion is intrinsically incapable of causing any loss to Ms Shoveller. If the Council decided to take action against Steel Supplies (or UFS) for non-compliance, one of two things would happen. They would take action to ensure that, prospectively although not retrospectively, they did comply with the conditions. That is to say, they would take action to ensure that there were 21 class 2 car parking spaces and, in addition, one disabled access parking space located as close as practicable to the principal entrance to the building. Alternatively, Steel Supplies might seek and obtain a variation of the conditions under s 96 of the EPA Act. If either of those things were to happen, there would be no ongoing breach of cl 6.1.

Alternatively, it might be that Steel Supplies and UFS would not (or perhaps could not) comply, or obtain a s 96 variation. In those circumstances, by hypothesis, the Council could order them to cease their use of the premises in contravention of the conditions. Since that is precisely what Ms Shoveller wants, it could cause her no loss.

That leads to the second point. It is clear that Ms Shoveller is seeking, by every means legally available to her, to bring the lease to an end, so that she can proceed with her planned redevelopment of the property. It seems to me that her insistence on compliance with all the conditions of the lease (including, through cl 6.1, compliance with conditions 5 and 7 of the consent) is intended not so much to secure compliance for its own sake but, rather, to bring about, if legally possible, a situation where she can (as she has sought to do) terminate the lease. To adapt the language of Mason and Deane JJ in Legione at 449, I think it is clear that Ms Shoveller is seeking to take advantage of the benefits which would fortuitously accrue to her by forfeiture based on non-compliance.

To put it another way, I think that the true interest that Ms Shoveller has in pursuing breaches of the lease is not to secure compliance, or to protect herself from the consequences of breach, but, rather, to create a situation where she can recover possession.

Thirdly, and in contrast to the point made at [139] above, if the discretion to relieve is not exercised in favour of Steel Supplies, it will lose the benefit of the remaining two months of the term of the lease. However, with that loss (which of itself might not be significant), it would lose also the benefit of the option. That is because, on the hypothesis presently under consideration, Ms Shoveller's notice of termination given on 30 June 2014 (before Steel Supplies sought to exercise the option) would be effective. The loss of the further term of five years (and the loss to have, at the end of those five years, another term of five years) is, at least potentially, very significant indeed.

In all the circumstances, I conclude that the proper outcome of the balancing exercise is that Steel Supplies should have relief against forfeiture, pursuant to s 129(2) of the Conveyancing Act, in respect of the breach of cl 6.1 of the lease.

Because I have decided that there is no breach (past 26 June 2014) in respect of insurance, the question of relief against forfeiture does not arise. However, in case I were wrong in my conclusion, and in any event because the actions taken did not cure the pre-existing default, I should say that I would grant relief against forfeiture in respect of that breach.

It is clear that insurances of the kind required have always been in place, through UFS. It is equally clear that Steel Supplies' failure itself to insure was inadvertent. Mr Moffitt in effect said, and I conclude, that he thought that it was necessary only that UFS should insure, and that it had done so.

There is no evidence of any detriment flowing from the failure to insure in accordance with the lease. Mr Vernier speculated about hypothetical trespassers who might have been injured in the past, and might bring a claim in years to come. He referred to cases, decided on quite different facts, where judges had said that failure to insure was a serious matter, and should not be the subject of relief against forfeiture (see, for example, the decision of Atkinson J in Beaudesert Metal Fabricators Pty Ltd v Beaudesert Shire Railway Support Group Inc [2005] QSC 17). I do not think that the exercise of the discretion to relieve should be based on speculation, nor on the uncritical application of statements taken, devoid of factual context, from decisions involving quite different facts.

Since the policies have been varied to include Steel Supplies as a lessee, and in circumstances where I have found that they comply with the requirements of the lease, the position prospectively is clear: Ms Shoveller has the benefit for which the lease provides, in respect of insurance.

Third issues: breaches alleged in the s 133E notice

Again, I propose to deal only with the relevant issues as they were identified by Mr Vernier (see at [50] above).

Alleged breach: insurance

For the reasons that I have given, I am satisfied that:

(1) up until some time in June 2014 which cannot be identified precisely, but no later than 26 June 2014, Steel Supplies had not kept current insurance of the kind required by cl 8.1 of the lease; and

(2) thus, there was a breach of cl 8.1 up until, at the latest, 26 June 2014 but;

(3) there has been no ongoing breach since, at the latest 26 June 2014.

Alleged breach: Swift Health and Fitness

Ms Debra Ringland is the proprietor of the registered business name "Swift Health and Fitness" (SHF). At some time in the past, she operated that business under her own name and with her own customers. It was apparently a small business. Mr Ruzicka caused UFS to employ her. That employment appears to have commenced, according to some wage records that were produced later than perhaps they should have been, and admitted into evidence over objection, in December 2010.

Mr Moffitt said that he had discussed with Mr Ruzicka the employment of Ms Ringland, and that one of the motives for employing her (apart from her ability) was "'she'll probably bring her clients with her', words to that effect" (T45.25). Mr Moffitt added, when questioned further about Ms Ringland (T45.30-.34):

She's been - she's been on a wage ever since she came to work for us. She's - there has never been, to my knowledge, an invoice written on Swift paperwork, and we never received payment direct to Swift since she came to work for us.

Mr Ruzicka gave the following evidence (T77.3-.36):

Q. One of the issues we have here is in relation to the business called Swift Health?

A. Swift Health and Fitness.

Q. Swift Health and Fitness, yes, and that business was conducted by Debbie Ringland, isn't it?

A. Yes, it is.

Q. She still conducts that business?

A. Yes, she does.

Q. You were aware that business was being conducted at 44 West Street?

A. No, it wasn't.

Q. Sorry?

A. No, it wasn't.

Q. But you were aware that she put down as her contact details, 44 West Street?

A. On her website?

Q. Yes.

A. So her clients knew where to come to fill out the membership.

Q. Yes.

A. Yes, I bought her business, I bought her property of her business and in the part of that agreement it was for clients to be able to finish their memberships at my business.

Q. So she continues to conduct then the Swift business, just to get in people from 44 West Street?

A. No, she only does aqua, that's the only thing she really wanted to keep the name for is to do aqua at the local pool with the seniors and stuff. I had no objection to that, it is not intruding on my clients.

I accept as truthful and accurate the evidence given by Messrs Moffitt and Ruzicka as to Ms Ringland and SHF. It is consistent with the wage records. It is not relevantly controverted by any other contemporaneous material.

As I have said, what was said to be (and on its face was) a wages book for Ms Ringland was produced and admitted into evidence over objection. It shows that she started employment on 3 December 2010 and remained employed up until 10 October 2014.

UFS was asked to provide payslips. It did not do so. There was no satisfactory explanation of the failure. However, Mr Ruzicka said that all the cheque butts, showing payments to employees including Ms Ringland, had been produced to Ms Shoveller's legal representatives. None of those cheque butts were tendered. Mr Vernier did not seek to show that, contrary to Mr Ruzicka's description, the cheque butts did not in fact show regular weekly payments to (among others) Ms Ringland.

The obvious inference from those matters, which I draw, is that the cheque butts were consistent with the wages book.

I add that although the argument over tender of the wages book took place on the (adjourned) second day of hearing, 3 November 2014, Mr Ruzicka said, and it was not controverted, that the wages book had been provided as at 14 October 2014 (T77.47-.48). Thus, those acting and appearing for Ms Shoveller had ample opportunity, over the period of the adjournment, to consider its contents.

On the ASIC documentation relating to registration of the business name, Ms Ringland gives the leased property as her business address. I accept, as Mr Vernier submitted, that there were advertisements linking the business of SHF to that address. However, it does not follow that Ms Ringland uses the leased property to conduct such independent business as SHF still has from the leased property, or that she has ever done so. Nor does it follow that, in respect of her work at the leased property. Ms Ringland has ever been anything other than an employee of UFS. Nor, finally, does it follow that Ms Ringland has had possession or use of any part of the leased property for the purposes of her business.

Ms Shoveller did not seek to adduce any evidence from people who had had dealings with Ms Ringland at the leased property in her capacity as the principal of SHF rather than in her capacity as an employee of UFS. Such evidence as there was to the residual business of SHF suggested that it is limited to the conduct of aqua aerobics classes, which of necessity requires the use of a pool. Mr Ruzicka said that this was done "at the local pool with the seniors and stuff [sic; presumably, "staff"]" (T77.35).

I find that, to the extent that Ms Ringland has worked as a fitness instructor at the leased property, she has done so in her capacity as an employee of UFS. I find that she has not conducted the business of SHF from the leased property. I find that her activities conducted at the leased property did not involve any breach of cl 10 of the lease.

Alleged breach: outdoor activities

There can be no doubt that, from time to time, UFS conducted some of its activities outside the building. There is no evidence that it has done so since 26 June 2014.

At the time the Council granted development consent for the use proposed by UFS, the property was zoned 4 (a) Industrial Zone. The forms of development permissible with consent included "recreation facilities (indoor only)". Any development other than those permissible without development consent (which was limited to "environmental facilities") or permissible only with consent (a number of uses, including "recreation facilities (indoor only)"), was prohibited.

The relevant planning instrument at the time, the Bega Valley Local Environmental Plan 2002, defined "recreation facility" to include a building or place used for indoor recreation, or a gymnasium.

Mr Ruzicka's evidence was that he had used the open area at the back of the leased property "a couple of times" during summer because "it was a bit hot inside" (T75.39-.44). However, he said he had not taken classes outside "for a couple of years" and reiterated that it had only been done "a couple of times where [sic] the room was considered too hot and the clients wanted to go outside" (T76.24-.26).

On that evidence, which I accept, it may be, as Ms Lane submitted, that there is no breach of the terms of consent, because the few occasions when classes were conducted outside could be seen as ancillary to use under the terms of the consent.

To my mind, even if it is not correct to regard the use as permissible because it is ancillary to the permitted use, any resulting breach of the terms of the development consent is so minimal that it does not require detailed consideration. Although Mr Vernier submitted that it might have invalidated the terms of the insurance policies affected, he did not go to the policies to show that this was so, or why it might be so. And viewed in terms of the requirement to "comply with any conditions of consent" contained in cl 6.1.4 of the lease, it is difficult to conceive of a breach more properly to be characterised as "de minimis".

Alleged breach: beauty salon

Mr Ruzicka was asked about an advertisement in the local newspaper dated 16 September 2011. He accepted that, from September 2011, beauty therapy services were provided from the leased property. The therapist was Ms Hayes. Mr Ruzicka gave the following evidence (T62.20-63.10):

Q. Who was the beauty therapist?

A. Kelly Hayes.

Q. That is your partner?

A. Yes, it is.

Q. She is also a director of United Fitness?

A. Yes, she is.

Q. She is the beauty therapist that is performing the services that are in the dot points towards the bottom of that ad?

A. Yes, she is.

Q. Those services were conducted from September 2011?

A. Yes, probably, for a brief time.

Q. When do you say they ended?

A. It wouldn't have been very long after that, actually, I mean, I have four children with Kelly and it was just a service that we discussed early on in the piece that we were going to provide. Peter was aware of it and I think shortly after that Kelly fell pregnant again.

Q. So would it be

A. It wouldn't even have went passed Christmas.

Q. So you did this for three months?

A. If that. Kelly's mobile. She does mobile beauty therapy work.

Q. Was there anyone else that took over from Kelly as the beauty therapist?

A. No, there was not.

Q. You ceased to provide, on your evidence, the beauty therapy services in about, what, December 2011?

A. I would say so, yes.

Q. Those services were provided in what is called the storeroom on 44 West Street?

A. Well, it was a room that Peter told me should be better utilised.

Q. We have been referring to it as the storeroom, is that

A. It's being used as a storeroom currently, yes.

I accept that evidence.

Mr Ruzicka was asked about photographs that Ms Shoveller had taken of the storeroom when she inspected the property in May 2014. He said that they represented "some of what was in the storeroom, yes" (T63.29). He agreed, further, that the photographs showed a wax pot, ear buds, cotton buds, sticks and an air freshener can (T63.42-64.9). He said that those items had remained in the room since September 2011 "until I removed them after I heard the landlord [sic] was unhappy with them being there" (T64.13-.14). Again, I accept that evidence.

Mr Ruzicka accepted that Ms Hayes' certificates of qualification as a beauty therapist were displayed on the wall of the storeroom, as shown in the photographs (T65.22-.37).

In the course of cross-examination, it became apparent that when from time to time Mr Ruzicka sought renewals of insurance policies, he had marked the renewal forms to indicate that beauty therapy treatment was offered from the leased property. He said, and I accept, that he did this against the possibility that, one day, such treatments might resume.

I should add that, in addition to my general predisposition to accept Mr Ruzicka as a witness of truth, he gave convincing reasons, relating to the family that he and Ms Hayes have, why she had stopped providing beauty therapy treatments from late in 2011 and why she had not resumed that business up until the present time.

There is no doubt that waxing treatments were offered, that the photographs taken by Ms Shoveller included observations of what, the Court was assured, are articles used in that treatment, and that (as Mr Ruzicka conceded) waxing treatments were from time to time provided over the three or so months that beauty therapy services were offered from the leased property.

Mr Vernier submitted that waxing is a "skin penetration procedure" for the purposes of s 51 of the Public Health Act 1991 (NSW). Thus, he submitted, there were specific requirements prescribed that had to be satisfied, including notifying (in this case) the Council. It was common ground that the Council had not been notified. Mr Vernier submitted, and I am disposed to agree, that the room where such services were offered did not meet relevant regulatory requirements.

Mr Vernier submitted that for these reasons, the use "might" invalidate any relevant insurance policy (the inverted commas come from his written submissions). Again, he did not demonstrate this by reference to the terms of the policies. What is clear is that the renewal applications had been marked so as to require cover for beauty therapy processes. Mr Vernier did not point to any material which suggested that waxing procedures would not have been covered under that rubric.

There is no evidence as to the extent to which waxing procedures were in fact performed at the leased property. What is clear is that, to the extent that they were, there was a breach of the Public Health Act. Whilst breach of a statute designed to ensure public safety and well-being may be serious, the evidence suggests that the use was relatively sporadic, limited to a short period of about three months (with no evidence as to how many waxing procedures were in fact carried on over that time), and has not been carried on for the last three years.

Whilst I accept that there has been a breach of the lease in the past, that breach was not extensive. It was confined both in extent and temporally. And, as I have said, it came to an end three years ago. In those circumstances, and acknowledging the importance of statutes such as the Public Health Act, I do not regard the breach of the lease as serious. Again, in my view, it is a breach "de minimis".

Fourth issue: s 133F

Mr Vernier's primary point was that, because the lease had been terminated by the time Steel Supplies purported to exercise the option, the purported exercise was ineffective. The conclusions to which I have just come, as to the extent of the breaches and as to relief under s 129 of the Conveyancing Act, make it necessary to move on to the detail of the breaches and the application for relief under s 133F.

The statutory scheme

I start by setting out ss 133E and 133F of the Conveyancing Act:

133E Breach of certain obligations not to preclude option except in certain circumstances

(1) This section applies to a lease that contains:

(a) an option exercisable by the lessee, and

(b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised.

(2) Despite any provision of the kind referred to in subsection (1) (b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless:

(a) the prescribed notice has been served on the lessee in respect of the breach, and

(b) the lessee's rights are extinguished in relation to the notice.

(3) In subsection (2):

breach of an obligation includes, where the obligation requires any thing to be done, any neglect or failure to do the thing concerned.

obligation includes any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing any thing.

prescribed notice means a notice in writing:

(a) specifying the lessee's breach of the relevant obligation and served on the lessee:

(i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or

(ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and

(b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option.

(4) For the purposes of subsection (2) (b), the lessee's rights are extinguished in relation to a prescribed notice:

(a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or

(b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or

(c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose.

133F Court may grant relief from breach of certain obligations

(1) Relief referred to in section 133E may be sought:

(a) in proceedings instituted in the court for the purpose, or

(b) in proceedings in the court in which:

(i) the existence of an alleged breach by the lessee of the lessee's obligations under the lease, or

(ii) the effect of the breach from which relief is sought,

is in issue.

(2) The court may, in proceedings in which relief referred to in section 133E is sought:

(a) make such orders (including orders affecting an assignee of the reversion) as it thinks fit for the purpose of granting the relief sought, or

(b) refuse to grant the relief sought.

(3) The court may, in proceedings referred to in subsection (2), take into consideration:

(a) the nature of the breach complained of,

(b) the extent to which, at the date of the institution of the proceedings, the lessor was prejudiced by the breach,

(c) the conduct of the lessor and the lessee, including conduct after the giving of the prescribed notice referred to in section 133E (2),

(d) the rights of persons other than the lessor and the lessee,

(e) the operation of section 133G, and

(f) any other circumstances considered by the court to be relevant.

(4) The court:

(a) may make an order under subsection (2) on such terms as to costs, damages, compensation or penalty, or on such other terms, as the court thinks fit, and

(b) may make any consequential or ancillary order it considers necessary to give effect to an order made under that subsection.

Although s 133F(3)(e) refers to the operation of s 133G, it is not necessary to set that section out.

Principles relating to the exercise of the discretion

Counsel's submissions appeared to proceed on the basis that the relevant discretionary considerations were either the same as, or not materially different from, those relevant to the discretion under s 129(2).

That position, I think, is correct. Wootten J considered the s 133F discretion in Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380. An appeal from his Honour's decision was dismissed: [1983] ACLD 267.

At a level of some generality, Wootten J, following the analysis of Kneipp J on analogous Queensland legislation in Re Denny's Restaurants Pty Ltd [1977] Qd R 92, said at 387-388 that the section worked by placing the burden of proving any breaches on the lessor, and the burden of proving exercise of the discretion in the lessee's favour, on the lessee.

Turning to the nature of the discretion and considerations relevant to its exercise, Wootten J said at 388 that it was:

... not inconsistent, and indeed natural and proper, to approach the exercise of the discretion in accordance with the long established equitable principles regarding forfeiture of leases, except in so far as those principles may be inconsistent with the legislation or with any policy indicated by it, or inappropriate having regard to the nature of the matter against which relief is given, viz, the forfeiture of an option, in this case to renew.

His Honour found nothing in the legislation inconsistent with established equitable policies. In setting out those policies, his Honour referred to the speeches of Lord Wilberforce and Lord Simon of Glaisdale in Shiloh Spinners at, respectively, 723 -724 and 726 - 727.

Lord Wilberforce, having made the point to which I have referred at [130], said (and I summarise):

(1) it would be appropriate, in limited cases, to relieve against forfeiture where the primary object of the bargain was to secure a stated result, which can be attained when the matter comes before the Court and where the forfeiture provision is security for the result;

(2) in considering this question, the Court should look at the conduct of the applicant for relief, including whether the default was wilful; at the gravity of the breaches; and at the disparity between the value of the forfeiture and the damage caused by the breach.

Lord Simon spoke to similar effect. He, too, emphasised the policy of the law "that contractual promises should be observed and contractual rights respected", and referred to "the undesirability of the law appearing to condone flagrant and contemptuous disregard of obligations".

The competing submissions

In general, the nature of the submissions will be apparent both from what I have said and from what follows. However, as foreshadowed at [135] above, Mr Vernier put submissions based specifically on the "interest" of Steel Supplies in renewing the lease.

In brief, Mr Vernier submitted that:

(1) Steel Supplies was the lessee and party seeking relief; UFS was not a party and did not seek relief;

(2) Steel Supplies had no commercial interest in the property and had never conducted its business from the property;

(3) UFS paid utilities and rent, and occupied the whole of the "premises" (Mr Vernier's word);

(4) It was Mr Moffitt's intention, that UFS "will keep on carrying the lease" (T37.14); and

(5) It was also Mr Moffitt's intention that Steel Supplies should not remain as lessee from the time when the lease is renewed.

Decision

I start with the general position. The s 133E notice specified five breaches, of which the first is not, but the second to fifth are, now relied upon (see at [49], [50] above).

None of those breaches is current (or continuing). None of them was current when Steel Supplies purported to exercise the option. Each of them has been rectified, at least prospectively. As to insurance: that was rectified from, at the latest, 26 June 2014. As to use as a beauty salon: that was rectified from, on my findings, no later than the end of 2011.

There is no evidence that Ms Shoveller has suffered any loss or damage by reason of such of the breaches as have been made out.

None of the breaches can be characterised as "flagrant" or "contemptuous". The worst that can be said - and this relates to insurance - is that the breach reflected both an imperfect understanding of Steel Supplies' obligations as lessee, and a very imperfect attention to detail, on the part of Mr Moffitt, as to those obligations. Steel Supplies did not persist in, or continue to perpetrate, any of the specific breaches once (or a short time after) the s 129 notice was given.

The s 133E notice did not specify, as a breach of obligation, what I have found to be non-compliance with conditions 5 and 7 of the development consent. Thus, the consequences of that breach do not require consideration in the context of the statutory discretion. I say that because s 133E makes it clear what a notice must do (and say), and s 133F (read in conjunction with s 133E(4)) makes it clear that the Court's attention is to be focused on the breaches specified in the notice.

To put it another way, I do not see why the Court should be troubled, in considering the exercise of its discretion, by a breach that the lessor Ms Shoveller did not think it necessary to specify in her notice under s 133E.

If matters went no further, those conclusions, coupled with what I have said at [136] to [144] above, would in my view require that the discretion be exercised in favour of UFS.

I turn now to Mr Vernier's specific submissions based on the asserted position of Steel Supplies.

It is correct to say that it is Steel Supplies that has commenced proceedings and is seeking relief, and that UFS has not and does not. That is hardly surprising, given that Steel Supplies is the lessee at law and that UFS is not.

In my view, it is not correct to say, as Mr Vernier submitted, that Steel Supplies has no commercial interest in the premises. If one is to go behind the issue of legal interest (which is what Mr Vernier's submission invites the Court to do), and look at what might be called commercial reality, the position is quite otherwise. Steel Supplies is the corporate creature of Mr and Mrs Moffitt. Mr and Mrs Moffitt are shareholders in and directors of UFS. UFS conducts its business from part of the premises. Mr and Mrs Moffitt have a commercial interest in that business, because they lent money to UFS (or to Mr Ruzicka) to fund its business and they are being repaid out of its earnings.

If it is appropriate to disregard legal interests (such as the interest in land held by a lessee under a registered lease) for the purpose of considering some form of commercial reality, it is equally appropriate, at least in the context of a family company, to look behind the veil of incorporation.

Nor do I agree that Steel Supplies has never conducted its business from the "premises" (if by that, Mr Vernier meant "the leased property"). The evidence of both Mr Moffitt and Mr Ruzicka (which I accept) is clear. From time to time Steel Supplies has made use of the property for the purpose of storing of fabricated steel on the undeveloped land at the rear. That use was not continuous. Nor, on the evidence, has it been substantial. But it has continued, on and off, over the term of the lease. There is no reason to think it will cease.

For the same reason, it cannot be said that the property has been vacant, apart from the exceptions that Mr Vernier conceded.

One of those exceptions related to a period of time when Mr Moffitt (he said, and I accept, with the consent of Mr Walden) permitted a local car dealer to store surplus stock on the property. Presumably, Steel Supplies was remunerated for this. The other use of the premises, apart from the intermittent use made by Steel Supplies, is of course that of UFS.

UFS is using the building for the purposes of its business. It pays (as one might expect), utilities charges. However, UFS does not pay rent to Ms Shoveller. Steel Supplies pays (and has always paid) rent. It is reimbursed by UFS. Mr Vernier submitted that the effect of this arrangement was "as if the plaintiff is paying the rent to the defendant on behalf of UFS". I do not agree. Steel Supplies pays the rent because it is obliged to do so, and because if it does not do so, Ms Shoveller will have another ground to evict it. That payment is for the benefit of UFS, because UFS is conducting its business from the property. However, as I have explained, Mr and Mrs Moffitt have a financial stake in the continued operation and success of the business of UFS.

It is not correct to say, as Mr Vernier submitted, that UFS occupies the whole of the "premises", if by that he meant the leased property. I have said already why this is so. Of course, if by "premises" Mr Vernier was referring only to the building, then his submission is correct.

I accept, as Mr Moffitt said and Mr Vernier submitted, that Mr Moffitt would like Steel Supplies to drop out of the situation on renewal of the lease, and for UFS to become the lessee. However, if Ms Shoveller will not agree to this, the likelihood is that the present situation will continue (assuming that relief is granted under s133F) because of the commercial interest that Mr and Mrs Moffitt have in the continued operation and financial success of the business of UFS.

Balancing the various considerations, I conclude that the discretion should be exercised in favour of Steel Supplies. To some extent, this follows the approach that I have already taken in relation to relief under s 129(2). However, the position is slightly different because:

(1) In relation to s 133F, Ms Shoveller does not rely on breach of conditions 5 and 7 of the consent; and

(2) the particular submissions of Mr Vernier, with which I have just dealt, seem to me to be relevant more to the discretion under s 133F than to the discretion under s 129(2).

As to the former of those matters: the consequence is that there is no ongoing breach that is relevant for the purposes of the notice under s 133E. Thus, considerations that might have been relevant were such a breach alleged and made good do not need consideration.

As to the second matter: I have dealt with those submissions and indicated why, in my view, they go nowhere.

Otherwise, as I have said, the balancing consideration relevant to s 129(2) seems to me to be relevant also to the discretion under s 133F. I see no point in repeating what I said on the former topic. Steel Supplies has made good its claim to relief under s 133F.

Conclusions; an appeal to common sense

On my findings, Steel Supplies is not entitled to the first declaration sought: namely, that the lease is valid and subsisting. It is however entitled to an order in its favour for relief against forfeiture of that lease, under s 129(2) of the Conveyancing Act.

Although it was not expressly raised in the summons, the question of relief under s 133F was raised and argued. Steel Supplies is entitled to an order in its favour under s 133F of the Conveyancing Act, in respect of its attempted exercise of the option for renewal.

That leaves for consideration the precise form of the orders, including the terms (if any) on which relief should be granted. It leaves for consideration also the question of costs. Neither of those issues is straightforward. On the contrary, in cases where relief against forfeiture is sought and in principle to be granted, both terms and costs can involve considerations of some complexity.

There is no reason to consider any question of interlocutory relief until those issues are resolved. That is because, on 25 August 2014, the Court ordered (by consent but without admissions) that upon Steel Supplies' giving the usual undertaking as to damages, Ms Shoveller should be restrained from re-entering the leased property. That order gives effect to the policy embodied in s 133G of the Conveyancing Act; as I have said already, it is not necessary to set out that section.

I think that the best way to deal with the remaining issues is to direct a regime of written submissions to be exchanged, and then written submissions in reply; and for the questions to be decided "on the papers" unless the parties (for good reason) request otherwise, or the Court decides otherwise.

Before I make those orders, I will however suggest that the parties should now give very serious consideration to their respective positions.

Assuming that orders are made of the kind that I have indicated, and assuming no appellate intervention, the position will be that Steel Supplies has made good its claim to a lease for the balance of the present term, and to a renewal of that lease for a further term of five years. Assuming no further breaches, Steel Supplies would be entitled to a further term of five years thereafter. That lease is of the whole of the property.

Further, in view of Mr Walden's consent, it may well be open to Steel Supplies to grant a registrable sublease of the property to UFS, and to require Ms Shoveller to do what is necessary to enable that sublease to be registered.

However, and regardless of any question of registering a sublease, the result is that Ms Shoveller's desire and plans to redevelop the property cannot proceed without the consent of Steel Supplies.

As a matter of commercial reality, it is clear (as I have said above) that Steel Supplies would like to drop out of the picture, and to leave Ms Shoveller as lessor and UFS as lessee in a direct relationship of estate and contract. It is clear that UFS can conduct its business in a satisfactory way utilising only the front half of the land: the portion on which the improvements are erected. Thus, it is clear that if matters are rearranged between the parties (which can only be done by consent) Ms Shoveller could proceed with her subdivision and development, and UFS could have its lease of the front portion of the property. I accept that there would need to be detailed commercial negotiations as to the terms of any such arrangement (including terms applicable to such disturbance as might be caused by the execution of the works proposed by Ms Shoveller).

The parties have a number of choices. They can (more accurately, Ms Shoveller could) seek to take the matter further, with attendant delay, uncertainty and expense. They could leave matters where they will stand once final orders are made, with consequent disruption to Ms Shoveller's plans. Or they could seek to negotiate an outcome which, as I see it, is available and which would give effect to the commercial desires that each of them legitimately holds.

In those circumstances, I do urge the parties to direct their resources towards reaching a commercial accommodation, rather than to the prolongation of legal disputation and litigation. Having said that, if the parties wish to continue their battle, I shall resolve the remaining disputes.

Although, as foreshadowed, I will make orders for exchanges of written submissions, I should make it quite clear that if the parties wish to pursue this opportunity to negotiate, I will suspend those orders for whatever reasonable period they may require.

Orders

I make the following orders:

(1) direct the parties to exchange and deliver to my Associate, by 28 November 2014, written submissions setting out the specific orders that each seeks and the reasons why those orders are sought;

(2) direct the parties to exchange and forward to my Associate, by 12 December 2014, written submissions in reply;

(3) direct that, subject to any application by the parties and order of the Court, the remaining issues be dealt with "on the papers";

(4) reserve all questions of costs;

(5) reserve liberty on apply on two days' notice.

**********

Decision last updated: 24 December 2014

[2014] NSWSC 1612

14 November 2014

Key Legal Topics

Areas of Law

Landlord and Tenant Law

Legal Concepts

Breach of Contract

Relief Against Forfeiture

De Minimis

Commercial Interest

Medium Neutral Citation:	Steel Supplies Bega v Shoveller [2014] NSWSC 1612
Hearing dates:	14/10/2014 and 3/11/2014
Decision date:	14 November 2014
Jurisdiction:	Equity Division
Before:	McDougall J
Decision:	Plaintiff entitled in principle to relief under ss129, 133F of the Conveyancinig Act. Parties to put written submissions on terms of relief, form of orders and costs.
Catchwords:	LANDLORD AND TENANT - termination of the tenancy - provisions giving right to terminate in named circumstances - service of section 129 notice in relation to breaches of lease - alleged breaches of the lease - where alleged breaches in relation to car parking spaces - where clause in lease that lessee must comply with any conditions of consent - where car parking does not comply with conditions of development consent - where council has taken no action in relation to breach of conditions and has issued occupation certificate irrespective of development consent - where alleged breach in relation to insurance - where occupant of the premises had insurance of the kind required in place in relation to the premises for duration of occupancy - where insurance amended to name lessor as an insured - where alleged breach in relation to parting with possession or assignment of lease - where consent to sublease sought and given by lessor - where sublease effective only in equity and not at law - where sublease not formalised - whether continued breaches of the lease - whether lessor entitled to terminate lease on basis of breaches LANDLORD AND TENANT - termination of the tenancy - application for relief against forfeiture - general principles in relation to relief against forfeiture - exercise of discretion - where breach incapable of causing loss to lessor - where breach trivial - balancing exercise - where lessor seeking to take advantage of the benefits which would accrue by forfeiture - whether to grant relief against forfeiture LANDLORD AND TENANT - renewals and options - relief against loss of option for renewal - where notice served under section 133E - whether breaches of lease were "de minimis" - whether breaches of lease subsisting at time of service of notice - where breaches caused no loss to the lessor - whether to grant relief under s 133F - discretionary considerations - where breaches not current or continuing at the time the lessee sought to exercise the option - no evidence that the lessor suffered any loss or damage due to breaches of lease - whether lessor had commercial interest in property and therefore whether lessor would suffer loss by forfeiture
Legislation Cited:	Conveyancing Act 1919 (NSW) Environmental Planning and Assessment Act 1979 (NSW) Environmental Planning and Assessment Regulation 2000 (NSW) Public Health Act 1991 (NSW) Retail Leases Act 1994 (NSW)
Cases Cited:	Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646 Beaudesert Metal Fabricators Pty Ltd v Beaudesert Shire Railway Support Group Inc [2005] QSC 017 Legione v Hateley (1983) 152 CLR 406 Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380 Hyman v Rose [1912] AC 623 Re Denny's Restaurants Pty Ltd [1977] Qd R 92 Shiloh Spinners Ltd v Harding [1973] AC 691
Category:	Principal judgment
Parties:	Steel Supplies Bega Pty Ltd (Plaintiff) Carmen Maree Shoveller (Defendant)
Representation:	Counsel: P M Lane (Plaintiff) A Vernier (Defendant) Solicitors: David Griffiths Lawyers (Plaintiff) A R Walmsley & Co (Defendant)
File Number(s):	2014/245619