Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 4051 of 2000

TENTH VANDY PTY LTD (ACN 005 335 820)	Plaintiff
v
NATWEST MARKETS AUSTRALIA PTY LTD (ACN 002 987 957)	Defendant

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JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	20, 23, 24, 25, 26, 30 November and 01, 02, 03 December 2009
DATE OF JUDGMENT:	8 January 2010
CASE MAY BE CITED AS:	Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd
MEDIUM NEUTRAL CITATION:	[2010] VSC 2

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LANDLORD AND TENANT – Retail tenancy lease – Equity – Unconscionable conduct – Unconscionable exercise of legal right to re-entry for non-payment of rent – Grounds or categories for equitable relief – Equitable remedies – Evidentiary use of agreed documents – Adverse inferences when no factual witnesses called – s 17, s 17(1)(b), s 17(1) Retail Tenancies Act1986 (Vic) – s 146 Property Law Act 1958 (Vic) – Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557 (CA), Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315, Australian Competition and Consumer Commissioner v Samton Holdings Pty Ltd (2002) 117 FCR 301, Legione v Hately (1983) 152 CLR 406, Jones v Dunkel (1959) 101 CLR 298, referred to.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr JM Selimi	Radebe & Associates
For the Defendant	Mr JH Karkar QC with Mr JF Styring	Mallesons Stephen Jaques

TABLE OF CONTENTS

Background......................................................................................................................................... 2

Issues to be determined.................................................................................................................... 3

Evidentiary matters............................................................................................................................ 4

Plaintiff’s submissions..................................................................................................................... 8

Principles with respect to unconscionability............................................................................ 8

Causes of breaches of the Lease.................................................................................................... 11

Failure to warn of exercise of right of re‑entry....................................................................... 14
Gazumping the Rental Tenancies Arbitration........................................................................ 15
Financial matters......................................................................................................................... 17

Defendant’s Submissions............................................................................................................... 18

Preliminary................................................................................................................................... 18
Retail Tenancies Act.................................................................................................................... 23
Refurbishment of the Shopping Centre................................................................................... 26
Lease provisions.......................................................................................................................... 31
Performance of the Plaintiff’s business and requests of the Defendant............................. 33
Retail Tenancies Arbitration...................................................................................................... 45
Unconscionable conduct............................................................................................................ 47

Conclusions....................................................................................................................................... 49

HIS HONOUR:

Background

The dispute in this matter arises with respect to a lease of retail premises in what is now known as “Waverley Gardens Shopping Centre”, under a lease from Handevel Pty Ltd (receiver of Rents and Profits Appointed) for a term of five years commencing on 28 July 1990 (“the Lease”). The premises the subject of the Lease was shops 15.10 and 15.11 in the Waverley Gardens Shopping Centre (“the premises”). The Lease did not provide any option to renew for any further term or terms. The permitted user and nature of business under the Lease was described as “Coffee Lounge, Restaurant and Take Away Food”.[1]
[1]See clause 6.03 of the Lease.

This matter has a long history, both in this Court and under the former compulsory arbitration system under the Retail Tenancies Act 1986 (Vic).

A Notice of Dispute under Part III of the Retail Tenancies Act, claiming relief under s 17(1)(b) of that Act, was given on 13 January 1994. As a result, Mr John Permewan was appointed Arbitrator. In due course, Mr Maurice Phipps QC (as he then was) was appointed as a substitute arbitrator. However, the arbitration was discontinued by the plaintiff, which it communicated to the defendant in a letter dated 8 June 1995.

The present matter arises out of a re‑entry by the defendant landlord for the non‑payment of rent. The premises was re‑entered and the Lease terminated on 23 January 1994.

The plaintiff commenced proceedings against the defendant seeking, amongst other things, a declaration that the defendant, as landlord, was not entitled to exercise the right of re‑entry for non‑payment of rent conferred by clause 12.01 of the Lease without first serving a notice on the plaintiff tenant as required by clause 12.05 of the Lease. The trial judge accepted this proposition. The Court of Appeal subsequently reversed this finding in Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd.[2] In doing so, it characterised clause 12.05 of the Lease as a provision in the nature of a “Shevill clause”, by reference to Shevill v Builders Licensing Board[3] and Progressive Mailing House v Tabali Pty Ltd.[4]
[2](2008) 21 VR 68.
[3](2008) 21 VR 68 at 71, referring to Shevill v Builders Licensing Board (1982) 149 CLR 620 at 627 (Gibbs CJ) and 634 (Wilson J).
[4](1985) 157 CLR 17.

The Court of Appeal determined that the defendant, the landlord, was entitled to re‑enter the premises and terminate the Lease as a matter of law, and that it had done so on 23 January 1994 (“the re‑entry”).

Issues to be determined

It was common ground that the effect of the decision of the Court of Appeal was that the re‑entry was valid and effective as a matter of law. The principal difference between the parties, however, was whether there was some basis, as claimed by the plaintiff, for characterising the exercise of that legal right of re‑entry as unconscionable in the eyes of equity and, consequently, conduct which would give a right to equitable relief; including relief by way of equitable damages, equitable compensation and, additionally, an equitable set off in answer to the defendant’s claim for unpaid rental.

Additional relief of various kinds was also claimed in the further amended statement of claim filed pursuant to leave granted by the Court of Appeal on 4 May 2007. This claim for further relief included a claim for a declaration that the defendant was estopped and precluded from re‑entering the premises on 24 January 1994. Additional declarations were also sought. These included a declaration that the defendant had wrongly re‑entered the premises on 24 January 1994 and repudiated its obligations under the lease. The plaintiff, as tenant, claimed to have accepted this repudiation. Compensation was also sought, specifically, pursuant to s 17(1)(b) of the Retail Tenancies Act.

In any event, the claim based on estoppel was not pressed by the plaintiff. To the extent that it was relied upon in this matter, it appears to have been based on or only connected with the operation of the compensation provisions of s 17(1)(b) of the Retail Tenancies Act.[5] It is noted that the further amended statement of claim, upon which the trial in this matter was conducted, makes no reference to any claim based on allegations of unconscionable conduct or otherwise under the provisions of the Fair Trading Act 1999 (Vic) or the Trade Practices Act 1974 (Cth). It is not suggested that this is an omission on the plaintiff’s part, as it is entitled to put its case on any basis it thinks most advantageous to it, in a proper sense. Nevertheless, in the context of a claim which is principally based on allegations of unconscionable conduct, it is of some significance that the provisions of these Acts were not pleaded or argued. Consequently this matter has not been decided with reference to any of the provisions of the above Acts. It is noted, however, that the plaintiff in the course of closing argument made reference to the unconscionable conduct provisions contained in Part IX of the Retail Leases Act 2003 (Vic). The reference was only to indicate that unconscionable conduct issues were of importance in a landlord and tenant relationship and, further, that the Legislature also regarded unconscionable conduct as a matter of significance. These provisions were not otherwise relied upon by the plaintiff for the purposes of these proceedings.
[5]See [50] and [51] of the further amended statement of claim filed pursuant to leave granted by the Court of Appeal on 4 May 2007.

Evidentiary matters

The parties prepared a four volume court book. The defendant also prepared a supplementary court book. Both were provided to the Court. The documents contained in the court book were referred to by both parties during the course of the trial in this matter; both having indicated at the commencement of the trial that the contents of the court book would be agreed, though noting the possibility of some disagreement in relation to a few documents. The position was left on the basis that any disagreements as to the contents of the court book or the supplementary court book would be resolved by further discussion between the parties, the inclusion of documents subject to disagreement not being pressed, or, to the extent that a party did wish to rely upon a document in relation to which there was no agreement, by the matter being drawn to the attention of the Court and the matter resolved by ruling or order if necessary.

The trial proceeded on the basis of the court book and the supplementary court book. Reference was made by both parties to documents contained in these books, whether emanating from their own sources or those of the other side. Considerable reliance was placed upon correspondence between Mr Thomas, the sole director of the plaintiff, and officers of the defendant, including its board of directors, and also officers of related corporations, including the Royal Bank of Scotland.

On the afternoon of the last day of the nine day trial in this matter, the plaintiff’s counsel informed the Court that the documents agreed to be included in the court book and the supplementary court book were only agreed by the plaintiff to be evidence of the existence of the particular document and not evidence of the truth of its contents. At this point the defendant’s case had closed. The only witness called by the defendant was Mr Greg Meredith of Ferrier Hodgson Forensics who had been called as an expert witness with respect to the financial aspects of the damages claim put by the plaintiff. The plaintiff was critical of the defendant for not calling factual evidence and thereby, it was submitted, denying the plaintiff the opportunity to cross‑examine the defendant’s witnesses in support of its claim of unconscionable conduct by the defendant and its employees and officers.

The defendant, in response, submitted that the documents it relied upon, which were agreed by both parties to form the court book and the supplementary court book, should be treated as evidence of the truth of the contents of those documents (in addition to the documents being treated as evidence of the existence of each particular document). The defendant relied, in particular, on the text and authorities contained in Cross on Evidence (7^th Australian ed.) by J.D. Heydon, (a Justice of the High Court of Australia). Reference was made to the discussion in that text contained within paragraphs [1645] to [1665]. In my view, the critical passage and reference to authorities is as follows:

[1660] (2) If one party by its conduct at the trial has led the other to believe that evidence, though hearsay, may be treated as evidence of the facts stated, and the other in reliance on that belief has refrained from adducing proper evidence, the former party is precluded from objecting to the use of the evidence to prove the facts stated.[6]

[6]Hughes v National Trustees Executors and Agency Co of Australasia Ltd (1979) 143 CLR 134 at 153 per Gibbs J; see also O’Brien v Clegg; Ex parte Clegg [1951] St R Qd 1 at 13. An instance in criminal proceedings is R v Radford (1993) 66 A Crim R 250 (Vic CA).

In my opinion, it is quite clear on the basis of the position put by the parties with respect to the contents of the court book and the supplementary court book at the commencement of the trial and the ultimate agreed tender of an index of the court book and also an index of the supplementary court book, and the documents referred to in both indices, that the plaintiff did conduct the trial on a basis which led the defendant to believe that any evidence contained in the court book or supplementary court book documents, though possibly hearsay, may be treated as evidence of the facts stated. It is also clear that the defendant relied upon this position and, consequently, refrained from adducing its own evidence as to the truth of the facts stated by way of primary rather than hearsay evidence. A further aspect of the plaintiff’s conduct of the trial in this context is that the evidence of its only factual witness, Mr Thomas, itself relies upon the truth of facts stated in, what might be termed, the defendant’s documents contained in the court books. Because of the plaintiff’s reliance on Mr Thomas’ correspondence with the defendant and its associated corporations or agents, the exclusion of these defendant’s documents as evidence of the facts stated therein would leave the evidence in a state of something like a telephone conversation where the listener‑observer only has the benefit of one side of the conversation. For these reasons, I am of the opinion that all agreed documents contained in the court book and the supplementary court book are to be treated as evidence of the truth of the facts and matters stated in each document, in addition to being treated as evidence of the existence of each particular document.

The plaintiff also raised a further evidentiary point or objection based on the application of the rule in Jones v Dunkel.[7] The plaintiff’s submission was that because the defendant called no factual witnesses an adverse inference should be drawn against it. In this respect, it was submitted that the inference should be that if those witnesses had been called, they would have given evidence in support of the plaintiff’s case. That is, that the defendant had, in all the circumstances, engaged in unconscionable conduct in exercising its legal right of re‑entry on 23 January 1994. Reference was made by the defendant to various passages in the judgments of the members of the High Court in Jones v Dunkel with respect to the circumstances in which an inference of the type sought to be drawn by the plaintiff could properly be drawn. In this respect, Kitto J said:[8]

One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed.

[7](1959) 101 CLR 298.

[8](1959) 101 CLR 298, at 305.

Similarly, the judgment of Windeyer J, where his Honour cited with approval two judgments from R v Burdett:[9]
[9](1959) 101 CLR 298, at 321, referring to R v Burdett (1820) 4 B & Ald 95 [106 ER 873].

Abbott CJ:

No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected ((1820) 4 B & Ald, at p. 161; 162 [106 ER at p. 898])

Best J:
Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probable, particularly if the opposite party has in it his power to rebut it by evidence, and yet offers none; for then we have something like an admission that the presumption is just ((1820) 4 B & Ald, at p. 122 [106 ER at p. 883]).

Applying the reasoning in Jones v Dunkel, I am of the opinion that no inference can be drawn in the present circumstances unless and until the party bearing the burden of proof of its case (the plaintiff) has by the evidence it relies upon established a case for the defendant to answer. If and when the plaintiff were to establish its case, then the defendant may, if it did not call evidence to rebut the case, be left in the position of arguing its case against the plaintiff’s unchallenged or uncontradicted evidence. This may of itself, or with the aid of inferences according to the rule in Jones v Dunkel, establish the plaintiff’s case. However, I am of the opinion that the rule in Jones v Dunkel may not be resorted to by a party, in effect, to fill in the facts of its case before the threshold for the operation of the rule is reached, as explained in the passage from the judgment of Windeyer J above.

Plaintiff’s submissions
Principles with respect to unconscionability

The fundamental question to be answered in this matter, as submitted by the plaintiff, is whether the defendant acted unconscionably or unconscientiously in exercising its legal right of re‑entry in the circumstances of this case. It was submitted that a fundamental principle of equity is that equity will respond to the unique circumstances of each case to ensure that contracting parties act conscientiously towards each other prior to the formation of the contract, during the continuation of the contract, and at the time of termination. In the present context, the reference to contract in the plaintiff’s submissions is also a reference to leases. In support of these submissions and the general proposition that equity guards against the unconscientious exercise of legal rights, reference was made to a number of authorities, including Legione v Hately.[10] Particular reference was made to the judgment of Mason and Deane JJ in that case, as follows:[11]

Underlying the approach taken in the Dagenham (Thames) Dock Case[12] and Kilmer’s Case[13] is an expansive view of the equitable jurisdiction to relieve against forfeiture. This in turn conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct.[14]

[Emphasis supplied by the plaintiff.]

[10](1983) 152 CLR 406.

[11](1983) 152 CLR 406, at 444.

[12]In re Dagenham (Thomas) Dock Co; Ex parte (1873) LR 8 Ch App 1022.

[13]Kilmer v British Columbia Orchard Lands Ltd [1913] AC 319.

[14]See Story, Commentaries on Equity Jurisprudence, 12^th ed. (1877), vol. 2, par. 1316.

Thus the plaintiff submitted that the decision in Legione v Hately makes it quite clear that the jurisdiction to relieve against forfeiture is but an illustration of the application of the underlying fundamental principle “that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct”.[15]
[15](1983) 152 CLR 406 at 444.

Further reference was made by the plaintiff to the judgment of Mason and Deane JJ in Legione v Hately:[16]

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?
[Emphasis added by the plaintiff.]

[16](1983) 152 CLR 406 at 449.

It was submitted that the relevant test with respect to unconscionable conduct was applied by the High Court in Tanwar Enterprises Pty Ltd v Cauchi,[17] where all members of the High Court in a joint judgment said:[18]
[17](2004) 217 CLR 315.
[18](2004) 217 CLR 315 at 335.

What Lord Wilberforce in Shiloh Spinners[19] called ‘the special heads of fraud, accident, mistake or surprise’ identify in a broad sense the circumstances making it inequitable for the vendors to rely upon their termination of Tanwar’s contracts as an answer to its claim for specific performance. No doubt the decided cases in which the operation of these ‘special heads’ is considered do not disclose exhaustively the circumstances which merit this equitable intervention. But, at least where accident and mistake are not involved, it will be necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation. Tanwar’s situation falls beyond that pale. The statement by Mason CJ in Stern[20] respecting the insignificance of subsequent events for which the vendors were in no way responsible is fatal to the main thrust of Tanwar’s case.
It should be made clear that what is said above does not support any proposition that the circumstances must be ‘exceptional’ before equity intervenes. In their joint judgment in Stern, Deane and Dawson JJ, with reference to what had been said by Mason and Deane JJ in Legione[21] said, in a passage which puts the point of present significance:
“Mason and Deane JJ were not saying that there must be unconscionable conduct of an exceptional kind before a case for relief can be made out. Rather, what was being said was that a court will be reluctant to interfere with the contractual rights of parties who have chosen to make time of the essence of the contract. The circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable – or, more accurately, unconscientious – conduct.”

Thus, it remains for Tanwar to show that it is against conscience for the vendors to set up the termination of the contracts. In the present appeal, as already has been indicated, there was no representation by the vendors which could found any estoppel. Nor has Tanwar asserted that there was any mistake in any relevant sense.
[Emphasis added by plaintiff.]

[19]Shiloh Spinners Ltd v Harding [1973] AC 691 at 723.

[20]Stern v McArthur (1998) 165 CLR 489 at 502-3.

[21]Legione v Hately (1983) 152 CLR 406 at 449.

Thus the plaintiff’s case is that the principles to be applied for the purpose of determining whether conduct is unconscionable or not in the eyes of a court of equity are broad and unconstrained, particularly with respect to remedies. The plaintiff submitted in its Outline of Closing Address that:

10.By parity of reasoning, irrespective of whether or not the facts of this case give rise to a strict form of estoppel within an existing category of case, the fundamental underlying principle of equity identified in Legione, Stern and Tanwar is applicable to the facts of the instant case. The mere fact that the Plaintiff did not exercise its right to seek formal relief against forfeiture of its leasehold interest does not deprive the Plaintiff of the right to seek the intervention of equity in order to vindicate the interests of justice by means of an order for equitable compensation.
…
11.Axiomatically, once the ‘conscience’ of a Court of equity is ‘pricked’ by the holistic circumstances of the particular case, the ‘cardinal principle of equity’ must be applied, namely that ‘the remedy must be fashioned to fit the nature of the case and the particular facts’: Bofinger v Kingsway Group Limited [2009] HCA 44 (13 October, 2009). In the instant case, given the passage of time, the only practical remedy is equitable compensation in such sum as this Court deems fair, just and reasonable in the circumstances.

The plaintiff also submitted, on the basis of Stern v McArthur, that it is well settled that the categories of cases of equitable intervention are not fixed or closed but, rather, equity will respond to the “unique and changing circumstances presented by each case”.

The plaintiff then turned, in its submissions, to an examination of the defendant’s conduct in the light of these principles, which it said were applicable. Particular attention was directed to the conduct of the defendant in re‑entering the premises in the light of all relevant circumstances, including the nature of the relationship between the parties, the relevant terms of the Lease, and the conduct of each of the parties in the “turbulent and challenging times” confronting both parties during the relevant period.

Causes of breaches of the Lease

On the basis that the re‑entry was a re‑entry for non‑payment of rent, the plaintiff submitted that the defendant caused or at the very least contributed to the plaintiff’s failure to pay rent as the result of various works undertaken by the defendant during the period between March 1991 and November 1992. Reliance was placed on a letter dated 6 December 1993 from Mr Thomas, on behalf of the plaintiff, to Mr Teroxy, on behalf of the defendant. As is indicated in Mr Thomas’ letter, this was a response to a letter of 8 November 1993 from Mr Teroxy to him which, at the outset, denied any responsibility on behalf of the defendant for events which Mr Thomas claimed gave rise to the possible diminution in the value of the plaintiff’s business. The 8 November 1993 letter from Mr Teroxy restated the defendant’s offer of 21 September 1993, which included the alternatives of vacating the premises prior to the expiration of the lease, without penalty or break costs, or continuing to trade and build up the business with rent concessions. These concessions were either one month base rent free, a further month at 25% of base rent, a further two months at 50% of base rent and a further one month at 75% of base rent, but with outgoings obligations to remain unchanged. The critical parts of Mr Thomas’ 6 December 1993 responsive letter were as follows:

Compensation offered by the Bank is neither fair nor reasonable in my view. The grounds for compensation are as follows:-
1.The disruption to business due to refurbishment works which commenced Oct/Nov 1991 and continued until Oct/Nov 1992.
2.The creation of a food court.
3.The failure to replace my signs, removed on 1/8/92, despite numerous requests and the installation of new signs to fellow tenants at the landlords expense and the replacement of one tenants sign.
4.The installation of fixed illuminated signs for the food court and McDonalds throughout the centre, the nearest approximately 30 metres from my tenancy (the power for which I assume is included in budgeted outgoings).
5.The purchase and installation of signs, advertising the food court tenants businesses (the nearest approximately 20 metres from my tenancy).
6.The removal of fixed tables and chairs adjoining my tenancy.
7.The removal of tables and chairs adjacent to my tenancy despite every other food tenant having tables and chairs adjacent to their premises.

Sir, once again I write in good faith seeking a satisfactory resolution to our dispute.
You are aware of the elements previously raised and by way of compensation I suggest that a settlement of $400,000 is not unreasonable.

The plaintiff first submitted that the defendant caused or at least contributed to the plaintiff’s failure to pay rent as a result of the removal of the plaintiff’s illuminated signage on 1 August 1992. In support of the submission that illuminated signage is of significance, reference was made to the Waverley Gardens Shopping Centre – Information Booklet and Tenancy Guidelines for Speciality Shops dated July 1991 with respect to signage:

Signage is one of the most essential elements or components of the overall shopfront, it is critical to the success of the tenancy that the signage is exciting and innovative … Signs which are not acceptable include: non‑illuminated signs (unless otherwise approved)

On this basis it was submitted in the plaintiff’s Outline of Closing Address that it was not surprising that the plaintiff’s business continued to suffer after the completion of the works “in view of the rather boring, non‑illuminated signage used by the Plaintiff, whilst his competitors had the benefit of illuminated signage”. Reference was made to a series of photographs of other premises in the shopping centre that had illuminated signage. Additionally, it was submitted that it was self‑evident that the illuminated signage which had been erected by the plaintiff outside the premises and which had been removed for the purposes of the works could have been re‑erected on the new bulkhead above the shop front windows. This submission was said to be founded on the evidence of Mr Thomas which the plaintiff maintained was not contradicted by any evidence called by the defendant.

A further unconscientious circumstance, as put by the plaintiff, was said to be the removal of the plaintiff’s external tables and chairs. It was submitted that this occurred in circumstances where, as the photographic evidence indicated, there was sufficient space to accommodate tables and chairs outside the premises without impeding traffic flow in the shopping centre walkway. Further, it was said that the other tenants were permitted to have tables and chairs outside their premises, with the result that the plaintiff was precluded from embarking upon fair competition with the other tenants.

Factors said to have been of importance in contributing to the plaintiff’s failure to pay rent were the creation of the new food court, the installation of illuminated signage advertising the new food court and the McDonalds restaurant throughout the shopping centre, and the change in the tenancy mix in the shopping centre. No specific reference was provided by the plaintiff to evidence in support of these propositions, but it is sufficient for present purposes to note that Mr Thomas gave oral evidence to this effect and that Mr Thomas’ outward correspondence to the defendant and others makes these assertions. In relation to the issue of the tenancy mix, it is noted, however, that to the extent that the plaintiff relies upon the operation of s 17 of the Retail Tenancies Act it does so by reference to sub‑s 17(1), generally or more specifically with reference to paragraph (b) of that sub‑section. Reliance is, however, not placed on sub‑s 17(2), which is the provision of the Retail Tenancies Act directed to changes in tenancy or usage mix of a shopping centre. These are not matters to which sub‑s 17(1) is directed.

Failure to warn of exercise of right of re‑entry

Drawing closer to the circumstances surrounding the re‑entry in January 1994, the plaintiff submitted that the defendant failed to give any explicit warning that it would exercise its rights of re‑entry in the event that the plaintiff continued to be late in the payment of rent. Particular reference was made to the letter of demand dated 19 January 1994 from the defendant’s then solicitors, Holding Redlich, to Mr Thomas on behalf of the plaintiff which, omitting formal parts, is as follows:

We refer to correspondence from Retail Realty Pty Ltd dated 14 October, 25 October, 17 November, 24 November, 13 December and 22 December, 1993 concerning arrears of rental due in respect of your Lease of the above premises.
Unless your current arrears in the sum of $13,634.05 are paid prior to 4pm on Friday 21 January, 1994 the Lessor of those premises may have recourse to its rights at law in respect of these arrears without further notice.

It was submitted by the plaintiff that this letter was particularly ambiguous in view of previous correspondence merely warning the plaintiff that late payment would attract interest.[22] In support of the position with respect to ambiguity, reference was made to the comment by the defendant’s senior counsel during his closing address that the letter of 19 January 1994 could have been construed in two distinct ways. The particular comment relied upon by the plaintiff as a claimed concession was, “what could that be other than re‑entry or suing for the moneys?”.
[22]Referring to letters from Retail Realty Pty Ltd to Mr Thomas on behalf of the plaintiff; dated 14 October 1993 and 17 November 1993. There is also a letter in similar terms from Retail Realty Pty Ltd dated 25 October 1993. Retail Realty Pty Ltd was the shopping centre manager.

Gazumping the Rental Tenancies Arbitration

A further aspect of the defendant’s conduct which was said by the plaintiff to constitute or evidence unconscientious behaviour was, as the plaintiff put it, the act of re‑entering the premises on 23 January 1994 to “gazump” the jurisdiction of the arbitrator appointed under the Retail Tenancies Act to enquire in relation to the matters alleged in the plaintiff’s Notice of Dispute under s 21 of the Retail Tenancies Act.[23] It is helpful for present purposes to set out the statement of the nature of the dispute as set out formally in the Notice of Dispute:
[23]Noting the further allegation that the defendant re‑entered the premises for the improper purpose of attempting to thwart the arbitrator’s inquiry into the recoverability of the alleged “management fee”. (See para (e) of the Notice). In this context it should be noted that the recovery of management fees paid by the plaintiff to the defendant was not an issue in these court proceedings as a result of the judgment of Master Kings (as her Honour then was) on 18 June 2001.

The nature of dispute between the parties is as follows:
During the term of the tenancy the Landlord has acted in a manner which has been vexatious, discriminatory, unconscionable, prejudicial to the tenancy and the tenant’s quiet possession and enjoyment of the premises and in breach of section 17.1(b) of the Retail Tenancies Act 1986 including
(a)removal of signage from the premises
(b)failure to replace signage from the premises
(c)constructing signs which unfairly direct customers to other tenancies
(d)the creation of a food court
(e)charging management fees
(f)removal of furniture in areas adjacent to the premises.

The Relief or Award which the Arbitrator will be asked to make or grant is as follows:
(a)a reduction of rental and/or
(b)an abandonment of arrears of rental and/or
(c)damages and/or compensation for loss of profits.

The basis upon which relief was sought was a claimed breach of the tenant’s quiet possession and enjoyment of the premises and a breach of s 17(1)(b) of the Retail Tenancies Act.

The relationship between the bases of the plaintiff’s claim as set out in the Notice of Dispute was clarified in the Plaintiff’s Outline of Closing Address, as follows:

26.h. (i) the allegation that the Defendant had interfered with the tenant’s right to quiet possession and enjoyment of the premises in breach of section 17(1)(b) of the Retail Tenancies Act 1986. This is significant as the conduct of the works and substantial refurbishment of the Centre disrupted and diverted the flow of customers away from the Plaintiff’s business thereby entailing ‘either a breach of the covenant of quiet enjoyment or derogation from the grant of the lease or inconsistent with the original basis of granting and renewing the Lease: Softplay v Perpetual [2002] NSWSC 1059 … and other cases cited therein at paragraph 8. This is relevant in assessing the propriety of re‑entry in circumstances where there is an inquiry pending, mandated by statute which might have resulted in an order for the waiver of rent or other compensation;
(ii)the allegation that the Defendant had acted in a vexatious, discriminatory, unconscionable and prejudicial manner;
i.the Defendant re‑entered the premises for the improper purpose of attempting to thwart the Arbitrator’s inquiry into the recoverability of any alleged ‘management fees’; and
j.the re‑entry occurred at a time when the general economic conditions in the Australian economy were improving thereby depriving the Plaintiff of the ability to recover from its previous downturn in sales

This appears to clarify and confirm that the allegation of the breach of the tenant’s quiet enjoyment was by reference to sub‑s 17(1)(b) of the Retail Tenancies Act and not a claim at large based on a breach of the Lease covenant for quiet enjoyment.

Financial matters

The plaintiff also submitted that the re‑entry in January 1994 occurred at a time when general economic conditions in the Australian economy were improving after a recession. Consequently, it was said that the plaintiff was deprived of the opportunity of trading in an improving economy, and hence the ability to recover from its previous downturn in sales.[24]
[24]Relying on the Economic Loss Report prepared by Mr Brian N. Jones, Director, Ahead For Business Pty Ltd, dated 8 April 2009 and the Response to Ferrier Hodgson Forensic Report prepared by Mr Brian N. Jones, Director, Ahead For Business Pty Ltd dated 13 October 2009 and also Annexure C to the report of Mr Greg Meredith of Ferrier Hodgson Forensics Expert’s Report dated 9 June 2009.

With respect to the effect of the recession, the plaintiff submitted that Mr Gary Meredith of Ferrier Hodgson Forensics, the author of the Expert’s Report dated 9 June 2009, and the Expert’s Reply Report dated 16 November 2009, relied upon by the defendant, confirmed that “endogenous or internal factors” as mainly created by the defendant contributed towards the plaintiff’s adverse financial performance. It was also submitted that Mr Meredith ventured the opinion that the recession was not “a major factor” in explaining the decline in the business. At this point it is helpful to clarify that careful reading of Mr Meredith’s evidence at the transcript pages relied upon by the plaintiff indicates that Mr Meredith conceded that the recession would have been a contributing factor to the decline in the plaintiff’s business but not a “major factor”. The plaintiff also submitted that Mr Meredith conceded that “the business of the plaintiff did not disappear as a result of the recession”. Consequently, it was submitted that the business did have some value as at 23 January 1994 “irrespective of how wounded it was partly as a result of the recession, and principally due to the defendant’s impugned conduct” (as the plaintiff put the position in its submissions).

Finally, with respect to financial matters, the plaintiff noted that its expert, Mr Jones, conceded having made “elementary errors in quantifying damages” in his Economic Loss Report but said that he corrected those errors once they were brought to his attention. They were, in the course of the trial, brought to his attention as a result of the Expert’s Report dated 9 June 2009 prepared by Mr Greg Meredith and, as the plaintiff put the position, corrected by Mr Jones in his Response to Ferrier Hodgson Forensic Report (being his second expert report). It is this report that the plaintiff relies upon, together with the submission that the existence of such errors “does not negate the weight and value of his evidence, once such errors are taken into account”. An issue with respect to the calculation of claimed loss and damage is the duration of the lease term in the absence of any option to renew. The lease term was due to expire on 27 July 1995. As to this the plaintiff submitted that:

It is reasonable to assume that the Lease could have been renewed if the Plaintiff had been given the opportunity to ‘ride the wave out’ of the recession in 1994-1995.

No evidence was adduced which specifically addressed the likelihood, or otherwise, of the Lease being renewed; by reference to the conduct and performance of the plaintiff as a tenant under the Lease or with respect to other tenants under other leases of premises in the shopping centre.

Defendant’s Submissions
Preliminary

In addition to the principal question whether the conduct of the defendant in seeking to insist on its legal right of possession made that reliance unconscientious, the defendant noted that a related and subsidiary question of liability raised by the plaintiff was whether the defendant converted the plaintiff’s goods and chattels when it took possession of the premises. In this respect, it was submitted that there is no evidence before the Court identifying the goods and chattels allegedly converted and no admissible evidence about the value of those goods at the time of the conversion. This subsidiary claim was certainly not pressed by the plaintiff in the course of the trial. I accept the defendant’s submissions there was no admissible evidence led about the value of any goods allegedly converted at the time the conversion. Consequently I propose to treat this subsidiary claim as having been abandoned.

The defendant also submitted that in view of the extensive contemporaneous written record appearing in the correspondence contained in the court book and the supplementary court book, this written material should be “the sole point of reference for a confident examination of the various matters and issues as they occurred”. It was further submitted, particularly in view of the time that has elapsed since the relevant events in the early to mid 1990s, that where evidence has been given orally that is inconsistent with that written record, the written record should be preferred. In my opinion, this is the appropriate course in the present circumstances, particularly as no evidence has been referred to of contemporaneous diary notes or the like apart from the correspondence contained in the court book and the supplementary court book.

In relation to the parties, the defendant notes in its submissions that the plaintiff is a trustee of a trust known as the “LJ & L Thomas Family Trust” and that the plaintiff did not conduct any other business during its tenancy of the premises. Further, it is noted that at all relevant times the directors of the plaintiff were Mr Lesley Thomas and his wife Mrs Lena Thomas.

It was common ground that the defendant was the second mortgagee of the shopping centre freehold from Handevel Pty Ltd, as mortgagor. Handevel Pty Ltd was placed in receivership on 27 July 1989 and was wound up on 16 August 1990. The defendant entered into possession of the freehold of the shopping centre, including the premises, on 1 February 1991 and the shopping centre was subsequently sold by the defendant, as mortgagee, to ISPT Pty Ltd which became the registered proprietor on 6 November 1998. Further, it was noted that the defendant changed its name to Natwest Australia Bank Limited on 28 February 1994 but that it has been known by its current name, Natwest Markets Australia Pty Ltd since 25 June 1999. None of these matters were controversial in the present proceeding.

It was also common ground that the premises was located on the corner of two corridors at the north‑east end of the shopping centre and was within the same area of the shopping centre as the fresh food hall. The northern wall of the premises was glazed and faced the secondary mall running in an east‑west direction. The eastern wall of the premises was also glazed and faced the Target store. As appeared from various photographs which were referred to by the parties during the course of the trial, scripted sign writing in a large arc over three panels of the east facing windows contained the words “The Inn Thing”, also with the words “Eat Inn Take Away” in block letters centred below the apogee of the arc. It was also clear from photographs that similar sign writing, though smaller in size, appeared on a north‑east facing window near the entrance to the premises. It could also be seen from outside the premises that front counter service was across bain maries with dining in the premises at fixed rectangular tables and fixed bench seats. As was also noted in the defendant’s submissions, soft drinks were on display for purchase by shoppers “in a refrigerated unit with a well-known logo displayed across the top of the unit”. The photographs also indicated that the bulkhead of the shop before refurbishment had three panels of lit tubular scripted signage affixed to it with the words “The Inn Thing” and, under those words “Eat Inn Take Away”. The defendant also submitted, without dissent from the plaintiff, that until the refurbishment of the fresh food hall area, white plastic round tables and pink plastic chairs on white frames were located down the east‑west corridor of the shopping centre adjacent to the premises. Importantly in the present context, Mr Thomas agreed in cross‑examination that the nature of the business conducted at the premises was self‑evident.

The defendant submitted that the financial information in relation to the business conducted at the premises revealed it to be a “modestly performing one”. This was consistent with Mr Thomas’ agreement in cross‑examination that the net profits of the business were very modest and were just sufficient for a family to live on. It was common ground that the plaintiff’s only source of income was from the business conducted at the premises, and that neither Mr Thomas nor apparently Mrs Thomas, had any other source of income other than that generated by this business.[25] To the extent that this may not have been common ground, it was not contradicted in the evidence‑in‑chief or subsequent evidence of Mr Thomas. In any event, this appears to be confirmed by Mr Thomas’ concession in cross‑examination that the operating profit (as shown in the accounts of the business conducted at the premises before distribution by the plaintiff trustee) was the amount of money he took home from the business. Further, as appears from Appendix V(i) of the Economic Loss Report of Mr Brian Jones, dated 8 April 2009, the plaintiff did not, during its tenancy of the premises, pay any wages to Mr or Mrs Thomas, save for $1,000 paid to Mrs Thomas in 1994.
[25]Subject to the exception, in 1994, noted below.

The plaintiff settled the purchase of the business conducted at the premises on 23 August 1985. This was prior to the time when Handevel Pty Ltd was in receivership and before its subsequent liquidation. The parties entered into the Lease at the expiration of the term of the earlier lease which was assigned to the plaintiff on its purchase of the business. As the provisions of the Lease indicate, the rent payable during the first year of the term was $54,810 per annum, which was payable calendar monthly in advance at the rate of $4,567.50.

The proviso for re‑entry was contained in clause 12.01 of the Lease, as follows:

If –
(a)the rent hereby reserved or any part thereof or any other moneys payable by the Lessee hereunder shall be in arrear and unpaid for a period of seven days after any of the days on which the same ought to have been paid whether formally demanded or not …

then and in any one or more of such events the Lessor at any time or times thereafter shall have the right to re‑enter into and upon the demised premises or any part thereof in the name of the whole to have again repossess and enjoy the same as its former estate anything herein contained to the contrary notwithstanding and thereupon this Lease and the term hereby created shall absolutely determine but without prejudice to any action or other remedy which the Lessor has or might or otherwise could have for arrears of rent or breach of covenants or for damages as a result of any such event and thereupon the Lessor shall be freed and discharged from any action suit claim or demand by or obligation to the Lessee under or by virtue of this Lease.

As the defendant submitted, the provisions of clause 12.01 do not require notice to be given by the defendant, as landlord, to the plaintiff, as tenant, prior to re‑entry for non‑payment of rent.[26] Neither do the provisions of s 146 of the Property Law Act 1958 require notice in these circumstances. This was common ground in the present proceedings to the extent that, as the plaintiff puts its case, this represents the position at law (but not in equity).
[26]And see Natwest Markets Australia Pty Ltd v Tenth Vandy Pty Ltd (2008) 21 VR 68; and see para 5, above.

Further, clauses 6.07 and 12.03 of the Lease governed the rights of the parties in relation to the plaintiff’s stock, fixtures and fittings as a result of re‑entry by the defendant, as follows:

Clause 6.07:
In the event of the Lessee ceasing to carry on business on the demised premises or in the event of the Lessee suspending the conduct of the said business for any reason whatsoever (including any cessation or suspension caused by the exercise by the Lessor of its rights to determine the Lease or to re‑enter or obtain possession of the demised premises or by the realization of any security granted by the Lessee) then –
(a)where the Lessee is indebted to the Lessor in respect of any amounts due under the terms of this Lease then the Lessor shall have the right to seize and take possession of all of the stock of the business and all of the fixtures, fittings, plant, equipment and other chattels used in connection therewith at the demised premises and to retain the same until the whole of the Lessee’s indebtedness is discharged; and,
(b)whether or not the Lessee is indebted as aforesaid the Lessee shall pay forthwith to the Lessor the sum of $5000.00 as and by way of a security bond to protect and hold the Lessor safe against any damage which might be caused to the demised premises arising out of or in connection with the removal by or on behalf of the Lessee of the Lessee’s fixtures, fittings and equipment subject to and upon the following conditions –
(i)the Lessee shall have no right or entitlement whatsoever to remove any of the said fixtures, fittings and/or equipment unless and until the said sum is paid by the Lessee and the Lessor shall have the right to seize and retain the same until the said sum is so paid;
(ii)in the event that no damage is caused to the demised premises as is referred to above then subject to (v) hereunder the said sum shall be paid or credited to the Lessee by the Lessor within 7 days of the removal of the last of the fixtures, fittings and equipment;
(iii)in the event that damage is caused to the demised premises as is referred to above then the Lessor shall be entitled to retain out of the said sum for its own benefit absolutely sufficient moneys to compensate it for and in respect of such damage; and,
(iv)the Lessor shall be entitled to retain the whole or any part of the said sum which may remain after implantation of the foregoing conditions for its own benefit absolutely in circumstances where and to the extent the Lessee is indebted to the Lessor on any account whatsoever and the indebtedness of the Lessee shall be correspondingly reduced.

Clause 12.03:
The Lessor may upon re‑entry as aforesaid remove from the demised premises any stock‑in‑trade and other fittings and fixtures of the Lessee and store the same in a public warehouse or elsewhere at the cost of and for the account of the Lessee without being deemed guilty of conversion or becoming liable for any loss or damage occasioned thereby.

The provisions of Part IVA of the Landlord and Tenant Act 1958 (Vic) (Removal and Disposal of Goods Left on Vacated Premises) were not raised or relied upon by the plaintiff. Thus, for present purposes, it is sufficient to consider, solely, the contents of the Lease provisions.[27]
[27]Noting that the plaintiff’s subsidiary claim for conversion of its goods and chattels was apparently abandoned (see para 38, above).

Retail Tenancies Act

It was common ground between the parties that the Retail Tenancies Act applied to the Lease and that the defendant, as mortgagee in possession of the freehold of the premises, was also a “landlord” under that Act.

As indicated previously[28] the plaintiff relied upon the provisions of paragraph 17(1)(b) of the Retail Tenancies Act, which it is helpful to set out:
[28]See para 29 and paras 32 to 34, above.

17(1) A retail premises lease is to be taken to provide that if the landlord –
(a) …
(b) except with the consent of the tenant, takes any action (other than action lawfully required by any public statutory authority or government department) that would substantially alter or inhibit the flow of customers to the retail premises.
…

and the landlord does not rectify the matter within a reasonably practicable time after receiving from the tenant a written notice asking the landlord to do so, then the landlord is liable to pay the tenant for any loss or damage suffered by the tenant as a consequence reasonable compensation as agreed in writing between the parties or, in the absence of agreement, determined under Part 3.

The defendant submitted that the plaintiff only relied on paragraph 17(1)(b) of the Retail Tenancies Act. It was said that the plaintiff alleged in paragraph 25 of the further amended statement of claim[29] that in the course of the refurbishment of the shopping centre, and by the conduct of agents of the defendant during the refurbishment, there was a substantial alteration and inhibition in the flow of customers to the premises. The plaintiff alleged that as a result it suffered a substantial decline in sales revenue generated by the business, and was consequently unable to pay rental to the defendant for the period November 1993 to January 1994. The defendant also said that the Notice of Dispute under s 21 of the Retail Tenancies Act claimed a breach at paragraph 17(1)(b) of that Act, but that no breach of clause 13.11 of the Lease was claimed, and no breach of that clause was alleged in the statement of claim. Clause 13.11 expressly conferred on the landlord the right to undertake works, by way of additions or otherwise, to the shopping centre. The provisions and effect of the clause are discussed further below.[30] It was also alleged, in paragraph 50 of the statement of claim, that the defendant was estopped and precluded from re‑entering the premises as it was unconscionable and unconscientious of the defendant to purport to exercise the legal right of re-entry whilst the arbitration was extant and without taking into account the plaintiff’s statutory right to compensation pursuant to s 17(1)(b) of the Retail Tenancies Act. The defendant submitted, with respect to this claim, that it is “without any relevant content and is not meaningfully formulated”. I accept the defendant’s submissions in this respect. I do so on the basis of the pleading (as it appears in the further amended statement of claim), and having regard to the argument and submissions by the plaintiff (which did not indicate how the estoppel claim was formulated or came within the principles spelt out in this respect in cases such as Waltons Stores Interstate Ltd v Maher[31] or Commonwealth v Verwayen[32], for example). In any event, it appears to me that any claim of estoppel as formulated on the basis of paragraph 17(1)(b) of the Retail Tenancies Act must depend upon the extent to which these statutory provisions might operate in the present circumstances.
[29]Filed pursuant to leave granted by the Court of Appeal on 4 May 2007
[30]See paragraph 65.
[31](1988) 164 CLR 387.
[32](1990) 170 CLR 394.

The defendant made two submissions with respect to the operation of these provisions of s 17 of the Retail Leases Act. The first was that the plaintiff’s claim on the basis of these provisions raises a clear question of causation. The defendant submitted that the question is essentially one of fact, and that in determining issues of this kind the law approaches the matter as an exercise of pragmatic common sense.[33] Secondly, it was submitted that if the section is relevant to the plaintiff’s claim, it “failed to make out all the requisite elements of the section, namely:

(a)the landlord took ‘action’;
(b)without the consent of the tenant;
(c)that would substantially alter or inhibit the flow of customers to the retail premises;
(d)the tenant gave a written notice to the landlord asking the landlord to rectify ‘that matter’ – (that is, the ’action’);
(e)the landlord did not rectify ‘the matter’ within a reasonably practicable time after receiving the tenant’s written notice.”

[33]Referring to March v Stramare(E & MH) Pty Ltd (1991) 171 CLR 506 at 515-6 (Mason CJ).

I accept the defendant’s submission that there is no evidence of any written notice from the plaintiff to the defendant to ”rectify the matter” and, consequently, no relevant failure by the defendant to rectify pursuant to these provisions of s 17 of the Retail Tenancies Act. Additionally, I am not satisfied that the other requisite elements of paragraph 17(1)(b), in the context of sub‑s 17(1) of the Retail Tenancies Act, have been made out. On the basis of the evidence of Mr Thomas on behalf of the plaintiff, it seems clear that the plaintiff did consent to the works (or the “action”, as the defendant puts it). Further, there was no evidence provided by the plaintiff of any substantial alteration or inhibition of the flow of customers to the retail premises.[34] Finally, I am not satisfied that there is any evidence that the landlord did not carry out the works within a reasonably practicable time, in other words “rectify the matter”; even assuming that the plaintiff had given written notice to the landlord in accordance with these provisions before the commencement or during the progress of the works.
[34]Apart from the general assertions by Mr Thomas in this respect; assertions which were not supported by any evidence of actual customer flow numbers or evidence of changed customer flows within the shopping centre. In contrast the defendant provided detailed monthly figures of customer flows in the shopping centre; figures which were at odds with these general assertions (see the document entitled “Waverley Gardens Customer Counts”, in volume three of the court book at page 772).

I accept that the provisions of paragraph 17(1)(b) of the Retail Tenancies Act do not operate at large but, rather, require a written notice from the tenant to the landlord to “rectify the matter” and it is from the time of the giving of such notice that an assessment needs to be made as to whether “the matter” is rectified “within a reasonably practicable time”. However, in the absence of any evidence of a written notice from the plaintiff to the defendant to “rectify the matter”, the issue of what is or is not “a reasonable practicable time” does not arise. Hence there is no relevant failure by the defendant to “rectify” and no right to compensation arises in favour of the tenant. In summary, I am of the opinion that paragraph 17(1)(b) of the Retail Tenancies Act has no application in the circumstances of this matter. Any of the plaintiff’s claims by reference to the applicability and operation of these provisions in its favour must therefore fail. As the plaintiff has not relied upon sub‑s 17(2) in this matter, any question of compensation under those provisions as a result of changed tenancy mix does not arise.

Refurbishment of the Shopping Centre

The shopping centre originally opened in 1997 as a small neighbourhood shopping centre and was expanded on two subsequent occasions. By 1990 the shopping centre was drab, poorly designed and generally unattractive and uninspiring. General building maintenance had been neglected and, by then, there had been a significant reduction in the level of retail activity and an increase in vacant premises.[35] In any event, Mr Thomas agreed in cross‑examination that the shopping centre was in desperate need of an upgrade.
[35]See Waverley Gardens Shopping Centre – Proposal for Expansion and Refurbishment of the Centre, prepared by First Abbott Corporation Limited, May 1990.

After the defendant took possession of the shopping centre as mortgagee in possession, it commissioned a feasibility study about the centre and its refurbishment by AT Cox and Partners Pty Ltd.[36] Prior to the AT Cox Feasibility Study being available, Richard Ellis Professional Services Asset Management advised shopping centre management, Retail Realty Pty Ltd, that the shopping centre looked tired and was in desperate need of refurbishment. The view was expressed that the shopping centre had been let go and was in need of professional management, together with the comment that “a return to the basics of retailing is required. A rationalisation of tenancy mix is vital.” The plaintiff did not contend otherwise.
[36]Waverley Gardens Shopping Centre – Financial Assessment, by AT Cox and Partners Pty Ltd, September 1991 (the “AT Cox Feasibility Study”).

The AT Cox Feasibility Study made recommendations for the refurbishment of the shopping centre with a view to expanding retail activity. In particular, the following comments were made in relation to proposed works designed to achieve this result:[37]

The proposed works program offers many advantages and little drawback other than cost. If properly executed it will allow the introduction of another major tenant into the centre. This will improve the draw of the centre, firstly because of the new attraction and secondly because the proposed tenant Franklins is well suited to the difficult economic times and the demographics of the area. Importantly, this would be the only Franklins amongst the surrounding shopping centres.
The proposed works will also allow the establishment of a cohesive food court. Current trends in shopping centre planning indicate that food courts are instrumental in attracting shoppers to centres and help keep shoppers in centres longer which will result in a higher dollar spend per customer. This initiative will also help to enliven a flat spot which exists in the centre because of poor mall design.
Franklins’ presence will similarly improve traffic flows through the rear mall at the east end of the centre and allow a successful food hall to be conducted. Other relocations resulting from the works program will enable tenant mix to be improved by agglomerating like uses to give the centre a pattern of shopping precincts, in keeping with modern trends.
Removal of the ramp leading to centre management will simply reduce waste space and provide for replacement of lost retail floor area. At the same time installation of a lift will, in conjunction with entry upgrading and canopy erection, signify to customers an overall improvement in the level of amenity offered at Waverley Gardens.

[37]AT Cox Feasibility Study, at p 21.

Further, in relation to the new food court the comment was made:[38]

The introduction of a food court is well justified according to data from other centres where this has been done. Shoppers are more inclined to increase their stay and in turn increase their spending in centres which have food courts. The development of a food court is a logical adjunct to the introduction of a Franklins store given the complementary nature of these two operations.

[38]AT Cox Feasibility Study at p 24.

Yencken Project Services Pty Ltd were commissioned to provide general project management services from November 1991, with the actual construction works undertaken by ProBuild Constructions Pty Ltd under a Construction and Management Contract.[39] As the Project Summary indicates, the works were undertaken with a project budget for refurbishment of $7.5M. Work was scheduled to commence in late 1991, with the completion of the final stages coinciding with the opening of the new Franklins Discount Supermarket in late October 1992.[40]
[39]See Waverley Gardens Shopping Centre – Stage 1 and 2 Refurbishment – Project Summary – February 1993, by Yencken Project Services Pty Ltd, February 1993 (the “Project Summary”).
[40]Project Summary – 1993, at paragraph [1.0].

The Stage 1 and 2 refurbishment works involved the successful completion of the following:[41]
[41]Project Summary – 1993, at paragraph [1.0].

(a)Stage 1A – The upgrading and refurbishment of the main entrances [to the Centre]. [This consisted largely of the refurbishment of the Police road elevation of the Centre, the construction of two major entrance canopies, a bus shelter and substantial landscape works.] …
(b)Stage 1B – The removal of the [internal] foot ramp and the introduction of additional commercial space and a lift at the Target end [east end] of the Centre, including construction of a new foot ramp between the lower carpark level and the main retail level.
(c)Stage 2A – The introduction of a new Food Court surrounded by speciality food shops contained within a conservatorium-type space with setdown seating areas, together with a McDonald’s drive-through [This was essentially a completely new food court but in the location of the original food court in the north-western part of the Centre].
(d)Stage 2B – The subdivision of the existing Venture area to allow for the inclusion of a Franklins discount supermarket.
(e)Stage 2C – the upgrading and substantial extension of the existing Fresh Food Hall.
(f)Stage 2D – The upgrading and relocation of part of the existing gymnasium tenancy, including refurbishment of the area.

It is not necessary for present purposes to set out the detail of the completion of these works, save to note that the external works commenced and were completed in the last quarter of 1991, and that the internal works at the eastern end of the centre, where the plaintiff’s premises was situated, started in March 1992 and were completed in October 1992. Internal works at the western end of the centre started in April 1992 and were completed in September 1992. The plaintiff did not dispute that the shopping centre tenants, including the plaintiff, were informed regularly of the progress of the shopping centre works by newsletters, memoranda, and bulletins from shopping centre management. It appears that meetings between shopping centre management and tenants were also held.

Mid-way through the period within which the internal works were carried out, Mr Thomas, on behalf of the plaintiff, had a view positive view and said in a letter dated 27 July 1992 to Mr Lonton, the then shopping centre manager, that:

I am optimistic as to the long term positive effect of these works, particularly the supermarket, will have on the centre, and more particularly, my own business.

He did, however, also request a rent reduction and reduction of centre charges to “more equitably reflect the lack of trade and current turnover” on the basis that “it is still more than four months since the anticipated opening and with both entrances to the Fresh Food Hall boarded up traffic flow has declined even further”. Mr Thomas again wrote to Mr Lonton, by letter dated 11 November 1992:

It is conceded and appreciated that the landlord has made a substantial contribution to refurbish of the Centre.

This letter also reiterated the request for rent reduction and centre charges reduction as indicated in previous correspondence.

The defendant in its submissions also made reference to a Design Report prepared by Buchanan Laird & Bawden, the project architects for the works, which made the following observations in relation to the Fresh Food Hall:[42]

The creation of a “Fresh Food Hall” shopping environment incorporated the renovation of the existing mall leading up to the new Franklins entry, together with opening out public space adjacent to Franklins.
The existing mall had long suffered the trading problems associated with secondary loop malls. Apart from being dull and cluttered with mall furniture, poor visibility to the mall was a factor.
By opening out the mall at the Franklins entry, a large fresh food “hall” space has been created. This (and Franklins) acts as a door from the east end of the fresh food mall; the ‘hall’ also opens the Franklins entry and the Fresh Food area to the main retail mall itself, achieving a “fresh food” focus.
The existing terrazzo floor finish has been extended, fresh tile patterns have been used on columns and demising wall faces, and the ceiling treatment incorporates coffers and upgraded lighting levels. A much lighter, brighter and fresher ambience has resulted.
In the medium term, existing tenants are being encouraged to install bright 3‑dimensional bulkhead signage which will assist in creating a colourful, bright and fun-filled market atmosphere.
The upgraded mall area opened with Franklins in late November 1992.

[42]Section 2C (“Fresh Food Hall”) at page 4 of Buchanan Laird & Bawden Design Report, which forms Section 4.0 of the Project Report.

In my opinion, it is clear that the shopping centre was not in an attractive state when refurbishment works commenced and that retail trade in the centre was, at that time, not growing but probably declining. Whilst one might possibly assume that shopping centre works could adversely affect customer numbers and passing trade with respect to a particular retail business, or businesses in the centre in general, the plaintiff has provided no evidence in this respect apart from general assertions as to declining customer numbers. In any event, any right to compensation under sub‑s 17(1)(b) of the Retail Tenancies Act requires a substantial alteration or inhibition of the flow of customers to the retail premises. In my opinion, the plaintiff’s evidence must be regarded as falling well short of establishing this position, even if sub‑s 17(1)(b) were applicable.[43] Consequently, I accept the position put by the defendant that the shopping centre was in serious need of refurbishment and that there were probably other factors exacerbating the decline of customer numbers in the area of the shopping centre in which the plaintiff’s premises was situated, particularly as outlined in the Buchanan Laird & Bawden Design Report.
[43]See above, paras 52 to 54; and, particularly, para 53 n 34.

Lease provisions

By way of background to submissions made by the defendant in relation to the effect of the provisions of the Lease with respect to the plaintiff’s claims, I note that s 24 of the Retail Tenancies Act provides, in sub‑s (2), that:

A provision of a retail premises lease is void insofar as it is contrary to or inconsistent with anything in this Act or with anything that by this Act the lease is taken to provide.

Sub‑s 17(1) is prefaced by the words “[a] retail premises lease is taken to provide“. In other words, the provisions of paragraph 17(1)(b) are provisions which the Lease is to be taken to provide and which if inconsistent with other provisions of the Lease would prevail. As the elements of paragraph 17(1)(b) have not been established by the plaintiff, they have no application.[44] It thus follows that the Lease operates according to its terms, uninhibited by these provisions of the Retail Leases Act.

[44]See above, para 54.

In relation to the lease provisions, the defendant made the following submissions:

46.Nor is it disputed by the plaintiff that the Lease, by clause 13.11, expressly reserved to the defendant as landlord the right to undertake the refurbishments in such a manner as to cause a minimum of inconvenience to the plaintiff. That clause provided:
The Lessor reserves the right to add to or reduce vary extend modify redesign and/or build additional storeys on any building or common area constituting the Centre of any part thereof or to incorporate buildings in the Centre; any such additions additional storeys or incorporated adjoining building shall for purposes hereof become part of the Centre but no portion thereof shall form part of the demised premises; the Lessor shall give one months notice in writing to the Lessee of any proposed works in regard to the foregoing and shall ensure that any such works are carried out in such manner as to cause a minimum of inconvenience to the Lessee. To the extent permitted by Law the Lessee covenants that it will make no objections to any of the aforesaid works being carried out and will not make any claim or commence or maintain for breach of the covenant contained in 11.01 hereof or otherwise any suit or action which but for this Clause it may have been entitled to make commence or maintain.

47.No breach of clause 13.11 or of clause 11.01 (covenant of quiet enjoyment) is alleged by the plaintiff in respect of the works.
48.BLB [Buchanan, Laird & Bawden] prepared a design report after the refurbishment. As to the fresh food hall in particular, and in which area the plaintiff’s business was located, BLB said that the creation of a fresh food hall shopping environment incorporated the renovation of the existing mall leading up to the new Franklins entry, together with opening out the public space adjacent to Franklins. They reported that the existing mall had long suffered from trading problems associated with secondary loop malls, before adding that apart “from being dull and cluttered with mall furniture, poor visibility to the mall was a factor. “By opening out the mall at the Franklins entry, a large fresh food ‘hall’ space had been created. This (and Franklins) acts as a draw from the east end of the fresh food mall”.
49.Clause 6.16 of the Lease expressly provided that the plaintiff could not obstruct the common areas or use the same for business without the prior written consent of the lessor. This was reinforced by rule 1 of the rules and regulations of the Centre (Appendix 1 of the Lease) which provided that the outside of the demised premises, the entrance halls and passages of the Centre were under the absolute control of the lessor and were not to be obstructed by the lessee or used for purposes except ingress and egress to and from the demised premises.
50.Clause 6.16 was as follows:
The Lessee shall not obstruct or permit its employees agents customers or invitees to obstruct the Common Areas or any part thereof or use the same for business or display purposes or otherwise for any purposes other than those for which they are designed or intended without the prior written consent of the Lessor and shall not without the like consent conduct any auction fire bankruptcy or liquidation sales on or from the demised premises and then only in accordance with such terms and conditions (if any) as the Lessor may in writing agree.

51.Rule 1 stated:
The outside of the demised premises the entrance halls and passages of the Centre shall be under the absolute control of the Lessor and shall not be obstructed by the Lessee or their employees agents clients invitees customers or used by them for other purposes except ingress and egress to and from the said premises.

52.The plaintiff does not allege that the defendant was unable to rely on clauses 6.16, 10.03 or rule 1 for the removal of the plaintiff’s mall furniture. Clause 10.03 provided:
The Common Areas and the Centre generally shall at all times be subject to the control of the Lessor who shall have the right in particular to prevent and prohibit any person (including the Lessee) from entering and remaining thereon between the hours of 9pm and 6am from Monday to Friday inclusive and between the hours of 1pm on Saturday and 6am on Monday and during public holidays and all other times during which trading in the demised premises is not permitted by Law or during which the Centre or the Common Areas or any parts thereof are required by law to be closed. The Lessor reserves the right form [sic] time to time to discontinue or to change the size location and nature of the Common Areas or any part thereof and to make repairs or changes and may close or lock-off the same permanently or otherwise and may do such other acts in and to the Common Areas or any part thereof as in its judgment may seem to it to be desirable.

53.The plaintiff’s mall furniture was removed prior to the refurbishment of the fresh food hall area.
54.Separately to the refurbishment, and on 5 July 1993, a vehicular external on/off ramp opened at the Centre.
[Footnotes omitted].

The plaintiff did not, in its claims or the presentation of its case, seriously challenge the application of these provisions according to their terms as submitted by the defendant, save on the general basis that the exercise by the defendant of its legal right of re‑entry was unconscionable. I accept the defendant’s submissions as to the effect and application of these Lease provisions on the basis, first, that they are effectively unchallenged and, secondly, because in my view they are supported by the proper construction of these Lease provisions and the evidence, to the extent that it is expressly relied upon in these submissions.

Performance of the Plaintiff’s business and requests of the Defendant

In general terms, the defendant’s submissions were that the plaintiff’s business was a very modestly performing business which suffered from a lack of funds or inclination to modernise or refurbish in line with the refurbishment works and modernisation of the shopping centre itself. Additionally, it was submitted that the plaintiff failed to help itself in the development of its business by arranging for the installation of new signage as offered by the defendant landlord (but at the plaintiff’s expense) to the extent this might have assisted its business; but having regard to its corner location in one of the shopping centre malls and the obvious nature of its business. In other words, the defendant’s position is that signage was important but not critical to the state of the plaintiff’s business.

In light of the defendant’s submissions and the plaintiff’s claims in this matter it is necessary to consider, in some detail, the performance of and factors affecting the performance of the plaintiff’s business from the year ending 30 June 1986 to the year ending 30 June 1994. Further, in considering this business performance, regard should be had to the fact that the business conducted at the premises provided the plaintiff’s only source of income, and that neither Mr Thomas or Mrs Thomas (with one minor exception) received any wages for their work in the business.[45] Consequently, the net profit for the business was the annual income for Mr and Mrs Thomas and their family.
[45]See above, para 43.

The net profit for the year ending 30 June 1986 was $11,264. Mr Thomas acknowledged that this was a very modest sum and he conceded that his contention that the business was “doing very well” was only to be understood in the context of the initial stages of the plaintiff taking over the business in 1986.

The sales of the business during the year ending 30 June 1987 were $398,952 but the EBIT (earnings before interest and tax) was $52,909. The net profit (the take home profit for Mr and Mrs Thomas) during that financial year was only $25,909. Consequently, the plaintiff did not have any capacity to repay the principal of loan moneys advanced to it, on which it had paid interest during that financial year of $27,008. There was a decline in sales to $390,952 in the year ending 30 June 1998 and the net profit for the year was $26,224. In cross‑examination, Mr Thomas conceded that there was a substantial decrease in EBIT to $45,588 during this financial year because, as was the position previously, the plaintiff had no capacity to repay loan moneys, on which it paid interest during this financial year of $19,364.

The law of equitable set-off may also be explained by the same concern of equity to prevent the harsh exercise of rights. … Another application of the principle that equity will not allow the unconscionable insistence upon rights is in relation to time stipulations in contracts. Equity would intervene to restrain the termination of a contract for breach of a time stipulation if time has not been said to be of the essence. As Deane and Dawson JJ explained in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 624:
“The whole point of equity’s intervention in relation to stipulations as to time was that, in the absence of express or implied contractual provision to the contrary, it regarded it as inequitable or unconscionable for a party to a contract to rescind for breach of a time stipulation without having given reasonable warning to the party in default.”

More broadly, the courts’ concern to restrain the harsh exercise of rights may be seen in equity’s attitude to remedies. Specific performance may be denied on the grounds of hardship to the defendant, and injunctions are discretionary. Indeed, the courts have traditionally insisted that equitable remedies are not ‘of right’ at all, and this discretionary element can be used to ensure that harsh and oppressive outcomes do not occur. …

Professor Parkinson, in his concluding comments in the chapter on the conscience of equity, said, in a manner reflective of the statement of the High Court in Tanwar to which inference has been made:[65]

The conscience of equity must not be given a life of its own, independent of the specific doctrines through which it finds expression.

Similar comments are to be found in On Equity.[66]

[65]The statement in Tanwar is set out above, para 103; and Parkinson’s comment is at 53. This is consistent with Parkinson’s earlier comment (at 35): “Courts have usually proceeded cautiously in this area, however, since without a focus upon specific acts of wrongful conduct, the notion of unconscionability can become all too subjective.”

[66]Young, Croft and Smith, On Equity (2009, LBC), 299-301, para 5.220; and as to the caveat applying with respect to views expressed in non‑judicial writing by judges, see Cordell v Second Clanfield Properties Ltd [1969] 2 Ch 9 at 16 and 17 (Megarry J).

A cautious approach to “unconscionability” is also evident in more recent cases. In Attorney-General (NSW) v World Best Holdings Ltd,[67] Spigelman CJ (with whom Mason P and Tobias JA generally agreed) said:[68]
[67](2005) 63 NSWLR 557 (CA).
[68](2005) 63 NSWLR 557 at 583; see also Canon Australia Pty Ltd v Patton (2007) 244 ALR 759 where this passage was cited with approval.

120.Unconscionability is a well-established but narrow principle in equitable doctrine. It has been applied over the centuries with considerable restraint and in a manner which is consistent with the maintenance of the basic principles of freedom of contract. It is not a principle of what ‘fairness’ or ‘justice’ or ‘good conscience’ requires in the particular circumstances of the case. As Deane J put it in Muschinski v Dodds (1985) 160 CLR 583 at 616:
‘[P]roprietary rights fall to be governed by principles of law and not by some mix of judicial discretion …, subjective views about which party ‘ought to win’ … and ‘the formless void of individual moral opinion’ … Long before Lord Seldon’s anachronism identifying the Chancellor’s foot as the measure of Chancery relief, undefined notions of ‘justice’ and what was ‘fair’ had given way in the law of equity to the rule or ordered principle which is of the essence of any coherent system of rational law. The mere fact that it would be unjust or unfair in a situation of discord for an owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other’

To similar effect are the observations of Dean J, with whom Gibbs CJ, Mason, Wilson and Dawson JJ concurred, when rejecting the proposition that the common law recognised a tort of unfair competition. His Honour described the concept as ‘a cause of action whose main characteristic is the scope it allows, under high sounding generalisations, for judicial indulgence of idiosyncratic notions of what is fair in the market place’. Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 445-446.
121.… Unconscionability is a concept which requires a high level of moral obloquy. …

Similarly, in Bofinger v Kingsway Group Limited,[69] the High Court emphasised the importance of the court first considering “well developed principles, both specific and flexible in character” rather than approaching the case first on the basis that the particular circumstances of the case being considered produce an “unconscionable result” the avoidance of which required the consideration of some equitable doctrine. In so doing reference was made to the last three sentences in the paragraph in the joint judgment in Tanwar Enterprises Pty Ltd v Cauchi,[70] which is set out above.[71]
[69](2009) 239 CLR 269.
[70](2009) 239 CLR 269 at 297-298 (Gummow, Hayne, Heydon, Kiefel and Bell JJ) referring to Tanwar; (2003) 217 CLR 315 at 324, para 20.
[71]See para 103; and see Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 72 and following (Gummow and Hayne JJ).

More particularly, and with reference to the judgment below in Bofinger, the High Court said:[72]

However Sackville A-JA appears to have proceeded, not in accordance with that passage [ie from Tanwar], particularly its last sentence, but by asking whether and in what way the doctrine of subrogation was ‘needed to avoid an unconscionable result’ and answering that there was nothing unconscionable or unjust in the first mortgagee applying the surplus proceeds of sale to the second mortgage.

In other words, the matters considered by the Court of Appeal were inappropriately reversed, with the consideration of the “well developed principles” of equity being postponed to and subsumed in the prior consideration of general “notions of unconscientious conduct”.

[72](2009) 239 CLR 269 at 298, para 82.

Continuing, the High Court, in Bofinger, said:[73]

As these reasons have sought to show, the relevant principles of equity do not operate at large and in an idiosyncratic fashion. So it was that in Boscawen v Bajwa,[74] Millett LJ, after denying that subrogation is a remedy which the court has a general discretion to impose whenever it thinks fit to do so, went on:
‘The equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff.’

[73](2009) 239 CLR 269 at 301 (Gummow, Hayne, Heyron, Kiefel and Bell JJ), para 94.

[74][1996] 1 WLR 328 at 335; [1995] 4 All ER 769 at 777.

The judgment of the Full Federal Court in Australian Competition and Consumer Commission v Samton Holdings Pty Ltd,[75] in my respectful view, provides an accurate summary and statement of the principles and categories of the circumstances in which equity will intervene on the basis of unconscientious or unconscionable conduct. The relevant part of the joint judgment of Gray, French and Stone JJ is as set out in the Defendant’s Closing Submissions, though it is helpful to put that passage in context as it appears in the joint judgment, as follows:[76]
[75](2002) 117 FCR 301.
[76](2002) 117 FCR at 317-8; and as to the relevant part of the Defendant’s Closing Submissions, see para 103, above.

Equity is directed to the prevention of unconscionable behaviour. The fundamental principle upon which equitable relief is granted is that a party having a legal right may not exercise it in such a way that the exercise amounts to unconscionable conduct – Legione v Hateley (1983) 152 CLR 406 at 444 (Mason and Deane JJ). Those words may encompass duress, undue influence and ‘unconscionable dealing as such’ – Hardingham “Unconscionable Dealing’ in Finn (ed), Essays on Equity (1985), p 1. Professor Finn (as he then was) himself identified ‘four not altogether distinct ways’ in which the language of unconscionable conduct has been used in the case law:
1.As an organising idea informing specific equitable rules and doctrines which do not in terms refer to, or require, an explicit finding of unconscionable conduct – for example, rules on stipulations as to time and notices to complete.
2.In relation to specific equitable doctrines of which estoppel, unilateral mistake, relief against forfeiture and undue influence are examples. They are united by the idea that equity will prevent an unconscionable insistence on strict legal rights and are conditioned upon the explicit finding of unconscionable conduct in the persons against whom they are invoked – Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Stern v McArthur (1988) 165 CLR 489 and Taylor v Johnson (1983) 151 CLR 422.
3.In relation to the discrete doctrine of unconscionable dealing which concerns one species of unconscionable conduct – Commercial Baqnk of Australia Ltd v Amadio; Louth v Diprose (1992) 175 CLR 621.
4.In relation to unconscionable conduct founding a cause of action not mediated by any discrete doctrine – Baumgartner v Baumgartner (1987) 164 CLR 137.

Finn, ‘Unconscionable Conduct’ (1994) 8 Journal of Contract Law 37 at pp 38-39.
Four classes of case attracting the application of the language of unconscionability are described in Laws of Australia, Vol 35, Unfair Dealing, 35.5 Notion of Unconscionability [1]-[38]:
(i)        Exploitation of vulnerability or weakness;
(ii)       Abuse of position of trust or confidence;
(iii)      Insistence upon rights in circumstances which make that harsh or oppressive;
(iv)     Inequitable denial of legal obligations;

These are said to be supported by three broad standards:
(i)That those in positions of strength or influence should not take advantage of another’s relative weakness.
(ii)That people should not, by appeal to strict legal rights, cause hardship to others by violating their reasonable expectations.
(iii)That those in fiduciary positions should act only in the interests of those to whom those fiduciary duties are owed.

Under the rubric of unconscionable conduct, equity will:
(i)…
(ii)…
(iii)…
(iv)…
(v)…

Each of these categories of case (the list may not be exhaustive) involves the identification of unconscionable conduct, albeit its content and degree will vary according to the category. It is a term which has various shades of meaning according to its context. There are different thresholds of conduct in various categories, all of which may be described as unconscionable – G Dal Pont, “The Varying Shades of ‘Unconscionable’ Conduct – Same Term, Different Meaning” (2000) 19 Aust Bar Rev 135 at p 165.

[The omitted parts of this passage are the parts of the judgment set out in the Defendant’s Closing Submissions.][77]

[77]See above; and see para 103, above.

It is clear from the authorities to which reference has been made, and is consistent with the general discretionary nature of equity, that the approach of a court of equity to allegations of unconscientious or unconscionable conduct is not strictured in any rigid way but that it is, nevertheless, based on established principles. Consequently, I am of the opinion that there is no general jurisdiction in equity to intervene in the present circumstances as argued for by the plaintiff. It follows that the plaintiff’s claim for relief on this basis must fail.

However, in the present circumstances, I am of the view that equity would not have turned its back on the plaintiff had it sought to utilise one of the recognised rubrics of unconscionable conduct, namely relief against forfeiture and penalty; though it by no means follows that, in all the circumstances, relief against forfeiture or penalty would have been granted. In my opinion, the general statements with respect to unconscionable conduct (to which reference has been made by the plaintiff) in the judgments of the High Court in Legione v Hately and Stern v MacArthur are to be read in the context of these cases as flowing from applications for relief against forfeiture. The Tanwar Enterprises case falls into the same category. Nevertheless, as indicated, the plaintiff did not seek relief against forfeiture or any other equitable remedy at or about the time of the alleged wrongful re‑entry, which now occurred over 15 years ago.

Rather than avail itself of the possibility of equitable relief of this kind, it now seeks relief on the more general basis that the plaintiff’s conduct was unconscientious or unconscionable in re‑entering the premises and determining the Lease because it had contributed to the plaintiff’s breach. It thus invokes the relevant principles with respect to an application for the relief against forfeiture, as stated by Mason and Deane JJ in Legione v Hately, as follows:[78]
[78](1983) 152 CLR 406 at 449; the statement which was approved by the High Court in Tanwar Enterprises Pty Ltd v Couchi (2003) 217 CLR 315 at 329.

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?

In view of the time that has now elapsed, it is not possible to contemplate specific performance of the Lease with or without compensation. Thus, the question is whether those principles are applicable with respect to unconscionable conduct on the broad basis put by the plaintiff, or whether they are confined to situations where a party in the plaintiff’s position has invoked equitable jurisdiction by an application for relief against forfeiture.

In my opinion, the principles and authorities reviewed and summarised in ACCC v Samton Holdings support the view that plaintiff’s proper remedy was an application for relief against forfeiture in which it would have needed to address the relevant principles or subsidiary questions identified in the joint judgment of Mason and Deane JJ in Legione (which is set out above).[79] For the reasons which follow the plaintiff would, in my view, fail to resolve the first principle or subsidiary question identified by Mason and Deane JJ. Further, to the extent that recourse should be had to the “three broad standards” referred to by the Full Federal Court in ACCC v Samton Holdings it could not be said that the defendant offended the second of these “standards” by causing hardship to the plaintiff by violating their reasonable expectations.
[79]See para 117.

In my opinion, the evidence establishes that the plaintiff was or should have been well aware from the correspondence received from the defendant, particularly in the latter half of 1993 and early 1994, that the defendant in the course of its various demands and letters was indicating to the plaintiff that it was prepared to exercise all its available rights and remedies under the Lease. This included termination of the lease. In my opinion, Mr Thomas’ evidence and the submissions on behalf of the plaintiff that the final demand by the defendant prior to the re‑entry[80] was ambiguous in light of previous correspondence or demands for payment threatening penalty interest under the lease, is simply not plausible.
[80]See, paras 30 and 31, above.

Mr Thomas in the course of his constant correspondence with the defendant over many years clearly demonstrated an awareness of party rights in the landlord and tenant relationship. In light of this, Mr Thomas could not, in my view, be heard to say that he was so inexperienced in relation to leases or commercial matters that he would not have realised that there was a real possibility that following the ongoing default of the plaintiff under the lease provisions (with respect to rent and outgoings), it was not a distinct possibility that the defendant might exercise all of its rights as landlord under the Lease. This included re‑entry, or seeking to determine the Lease on the basis of an allegation of repudiation by the plaintiff, as tenant. In any event, the defendant took the not unusual step on the part of landlords, by re‑entering the premises under the provisions of the proviso for re‑entry (clause 12.01). This clause enabled the defendant to re‑enter on this basis, without notice (as would s 146 of the Property Law Act).[81]
[81]See para 45, above.

Even if the plaintiff were correct in arguing for a general jurisdiction in equity to intervene on the basis it has argued, I am of the opinion that its claim would not be established.

The crucial principle or issue as stated in Legione and upon which the plaintiff relied as the basis of its case, was whether the conduct of the defendant as landlord contributed to the plaintiff’s breach of the lease as tenant? In my opinion, for the reasons indicated previously with respect to both the plaintiff’s and the defendant’s submissions, this question must be answered negatively.

The defendant carried out works to the centre which the plaintiff agreed were desirable and necessary. There was no evidence that the plaintiff in carrying out those works did not do everything practicable and reasonable to minimise disruption to traders in the shopping centre and to complete them in a timely manner. Indeed, as a second mortgagee in possession seeking to refurbish the shopping centre and realise its security asset, it would not reasonably be thought that the defendant would have any interest in protracting these works or disrupting trade in the centre any more than necessary. This is particularly so, given that any delay may negatively affect the income of its tenants, their rent levels, and hence the value of its security asset on sale.

Further, in my opinion, the evidence indicates that the plaintiff, as tenant, did little to help itself in a number of respects. It is clear from the evidence that the plaintiff’s premises needed refurbishing and to be made more attractive and inviting for passing potential customers. The plaintiff failed to refurbish its premises to the extent required, apart from some repainting. This failure occurred in spite of requests from the shopping centre management, which can reasonably be inferred to have been made with the knowledge and authority of the defendant; and requests which also offered some incentive or indirect funding to enable the plaintiff to achieve satisfactory refurbishment in its then financial circumstances.

Finally, the evidence establishes, in my view, that the plaintiff’s business was quite a modest one and produced a relatively low annual net profit during the years it was operating. There seems little doubt that the economic recession of the early 1990s had some adverse effect on the business and at various times the internal and external works may have had some adverse effect on the business as well. Nevertheless, there is, in my view, no basis for any claim under paragraph 17(1)(b) of the Retail Tenancies Act as the elements for an entitlement for compensation under these provisions were not established, including the requirement that there be a substantial alteration or inhibition to the flow of customers. Additionally, the evidence indicates that the centre management, on behalf of the defendant, did not insist on a rent increase to which it was apparently entitled under the terms of the Lease. It also provided rent relief to varying extents over a reasonable period of time. In spite of this, the evidence is that the plaintiff was in arrears in rent payments for significant periods of time. Considering all these factors, I am of the opinion that the position as submitted by the defendant is the correct one, namely that the plaintiff’s business was a modest one which, for a variety of reasons, could not survive and meet its obligations under the Lease. This was not the result of the conduct of the defendant contributing to the position of the plaintiff’s business. Thus, the defendant’s conduct was not causative of the plaintiff’s breach of lease obligations which led to or enabled the defendant to exercise its rights and re‑entering the premises (as it was entitled to do as a matter of law).

Consequently, even if one were to accept the plaintiff’s position as to the principles to be applied in the context of a general jurisdiction in equity to intervene on the basis it has argued, there is no basis for any claim with respect to the conduct of the defendant, the landlord, exercising its legal rights to re‑enter the premises and so determine the Lease.

For the preceding reasons, the plaintiff’s claim must fail. I will hear the parties further in relation to appropriate orders and in relation to the question of costs.

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[2010] VSC 2

8 January 2010