Western Choice Pty Ltd v Lenz Corp Pty Ltd - [2015] WASC 316

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: WESTERN CHOICE PTY LTD -v- LENZ CORP PTY LTD [2015] WASC 316

CORAM: KENNETH MARTIN J

HEARD: 7 AUGUST 2015

DELIVERED : 7 AUGUST 2015

PUBLISHED : 21 AUGUST 2015

FILE NO/S: CIV 1872 of 2015

BETWEEN: WESTERN CHOICE PTY LTD
Plaintiff
AND
LENZ CORP PTY LTD
Defendant

Catchwords:

Relief against forfeiture - Rent in arrears - No evidence of insolvency - Account paid into credit - Irrelevant materials raised not pertaining to notice of default - Unreasonable stance in litigation - Indemnity costs

Legislation:

Nil

Result:

Judgment awarded in favour of the plaintiff
Indemnity costs ordered against defendant

Category: B

Representation:

Counsel:

Plaintiff: Mr P F Fletcher
Defendant: Mr J L Sher

Solicitors:

Plaintiff: Fletcher Law
Defendant: Integra Legal

Case(s) referred to in judgment(s):

Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S)
Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110
KENNETH MARTIN J:

(This judgment was delivered extemporaneously on 7 August 2015 and has been edited from the transcript.)
This is an expedited trial which came on in urgent circumstances after I heard an application for an urgent interlocutory injunction on 9 June 2015. At that time, as per the plaintiff's writ of summons, also filed on 9 June 2015, the plaintiff sought either a declaration that a termination notice issued by the defendant to the plaintiff on 25 May 2015 was invalid and ineffective or, alternatively, relief against forfeiture (and costs).
The basic facts underlying this application are simple and straightforward. Around April 2014 an agreement for lease was entered into between the defendant (Lenz Corp Pty Ltd) as landlord and the plaintiff (Western Choice Pty Ltd) as lessee in respect of Tenancy Number 4 at Byford Village, on the corner of South West Highway and Abernethy Road, Byford. The duration of that lease was for a five‑year term with a five‑year option. The lease was prepared in registrable form.
The basis for these proceedings stems from a default notice issued on 11 May 2015 to Western Choice under the terms of the lease entered into between the parties, in respect of an arrears amount of $3,919.61 plus $660 (which represented the legal costs associated with issuing the notice of default).
That notice of default was communicated to Western Choice by way of an email sent on 11 May 2015 from Lenz Corp's solicitors, Integra Legal, to Mr Shameem Chowdhury, the director of Western Choice. That notice of default needs to be read in the context of the terms of the parties' lease (see attachment SC‑1 of Mr Chowdhury's affidavit of 8 June 2015 made in support of the original interlocutory injunction application). The permitted use of the property in respect of this lease can be seen at item 8 of the lease schedule. This is as an 'Indian Restaurant' with the trading name Tandoori Palace.
Clauses of the lease relevant to defaults are to be found at cl 12 of the lease, under the heading 'Default by Tenant'. Subclause 12.1 is in these terms:
12.1Default Provisions
(a)The following shall constitute and be deemed a default of the Tenant under this Lease:
(i)the Minimum Rent or any other rentals, Operating Expenses or moneys payable by the Tenant under this Lease shall at any time be unpaid for seven (7) days after the same shall have become due and been the subject of a tax invoice or demand given to the Tenant.
I pause to observe that this lease requires the monthly rental payments to be paid in advance on the first day of each month (cl 4.2(c)). Accordingly, Western Choice had failed to pay the monthly rent due and owing to its lessor on time for the month of May 2015. This gave rise to the notice of default to Western Choice, given in accordance with cl 12.1(a)(i) as seen above.
The lease also required a bank guarantee from the lessee, in the amount of $8,422. This was under cl 18.23 of the lease (see also item 9B of the First Schedule).
So, the terms of the default notice of 11 May 2015 required that the arrears of rent be paid within 7 days, plus $660, being legal costs claimed associated with issuing that default notice. The amount was not paid in that 7‑day period.
Consequently, a further notice of default, this time issued as a termination notice, was issued on behalf of the lessor on 25 May 2015. It was given in accord with the terms of cl 12.1(a)(ii) and cl 12.1(b) of the lease. Those clauses state, respectively:
(a)The following shall constitute and be deemed a default of the Tenant under this Lease:
…
(ii)in the case of the breach, non-performance or non-observance of any other of the Tenant's Covenants and that breach, non-performance or non-observance continues after the expiry of fourteen (14) days' written notice to the Tenant to remedy the same;
…
(b)In the event the Tenant is in default of a term or covenant under this Lease then (subject to the provisions of the Bankruptcy Act 1966) the Landlord at its option may re-enter upon, occupy and resume possession of the Leased Premises or any part thereof in the name of the whole and thereupon this Lease ceases and determines but without prejudice to any action or other remedy which the Landlord has or might have or otherwise but for the re-entry could have for arrears of Minimum Rent or any other rental, moneys or amount payable pursuant to this Lease or for breach of covenant or for damages as a result of those events hereinbefore provided.
The 25 May 2015 termination notice was sent to the plaintiff under email by Integra Legal, the defendant lessor's solicitors. It is found in Mr Chowdhury's affidavit of 8 June 2015, which was tendered at trial as exhibit A1, as attachment SC-5 at pages 106 and 107.
The termination notice referred back to the previous default notice of 11 May 2015 and stated that there was still due and owing to the lessor $3,919.61. That amount constitutes a claim for the legal costs of the first notice of 11 May 2015 plus more legal costs for the subsequent termination notice of 25 May 2015.
The 25 May 2015 termination notice then substantively concluded:
Pursuant to clause 12.1 of the Lease, the Landlord hereby provides you as a Tenant notice that:
(a)the Lease shall be determined and brought to an end with effect from close of business on the 9th June 2015 (the 'termination date');
(b)the Landlord shall formally take possession of the Leased Premises as from the Termination Date; and
(c)the Landlord is entitled to receive recovery of all Arrears, costs, expenses, losses and other monies due and payable by you pursuant to the Lease and at law.
Notice of termination then having been given, if it were not otherwise interrupted, it would, by its terms, have brought the lease to an end at the close of business on 9 June 2015.
On 27 May 2015, Mr Chowdhury, on behalf of Western Choice, caused the electronic transfer of funds in the amount of $15,000 to be paid into the account of Lenz Corp's managing property agent - that is, Colliers International. That money was received and held for some weeks (as I explain). There was then much more correspondence passing between the parties and their solicitors.
The bottom line is that Lenz Corp's solicitors, upon their instructions, would not accept any interruption to a termination of the lease that would follow under the notice of 25 May 2015. That position was communicated notwithstanding some without prejudice correspondence and various rejected offers I do not need to consider.
But the 27 May 2015 payment of $15,000 by the plaintiff, as will be seen by the maths, had put the plaintiff substantially into credit (the rental amount owing per annum was $22,500: see Mr Chowdhury's affidavit of 8 June 2015, page 82). If $15,000 had been accepted by the lessor, then Western Choice would effectively have cleared its arrears and have been paying more rent in advance of the rent as required on the first day of each month.
However, Lenz Corp continued to proceed on the basis that the lease was to be terminated on 9 June 2015 and continued with that forfeiture stance. Western Choice, as a result, brought an application for an urgent interlocutory injunction, heard before me, on 9 June 2015. It issued its writ that day. I issued an interim injunction restraining the defendant from seeking to enforce the threatened repossession of the premises under its termination notice of 25 May 2015. I did so on the basis of applying very basic equitable principles as regards the availability to a lessee of relief against forfeiture. This arose where, on the evidence then before me at that time, the lessee's rent, effectively, was, as from 27 May 2015, in credit to the extent of some $10,320.21 and the arrears had been closed (see Mr Chowdhury's affidavit, par 8).
Though that was an urgent hearing, notice had been provided to Lenz Corp's solicitors. Ms Tavelli, of Integra Legal, attended - though she did so in circumstances where she had only a very limited opportunity to obtain instructions. The significance of that appearance, however, is that it was plain to all concerned, at that first hearing, that Western Choice had made the $15,000 payment to Lenz Corp's agent, Colliers International. I need to say that because, subsequently, Mr Lenz, a director of Lenz Corp, by his affidavit of 24 July 2015, effectively suggests that he had not known about Colliers International's receipt of $15,000 from the plaintiff until some later time, at which point he says he gave an instruction to Colliers International for that amount to be refunded (see affidavit of Steven Lenz sworn 24 July 2015, pars 14 - 15).
The accrual date of the refunded repayment turned out to be 3 July 2015 (see Mr Chowdhury's affidavit of 31 July 2015, par 4). Hence, it may be seen that the $15,000 electronically transferred by Western Choice had been held on behalf of Lenz Corp by its agent, Colliers International, from 27 May 2015 up until 3 July 2015.
Moreover, there followed a directions hearing held before me on 24 June 2015 concerning how the action would progress in the wake of the urgent injunction. At that inter-parties directions hearing, reference once again was made to the payment of the $15,000 in the presence of Ms Tavelli, again appearing for the defendant at that time. I had asked a question that day, 'Has the $15,000 been returned?' (transcript (ts) page 3). Mr Fletcher, counsel for Western Choice, responded, 'No'. I then asked a further question, 'So it has been accepted?' to which the answer from Mr Fletcher was, 'Yes'. At the time counsel for the defendant did not contradict that state of affairs. I then made some directions for an expedited trial. This has now taken place.
In circumstances where Lenz Corp's agent, Ms Tavelli, as counsel, had been present at court as explicit reference was made to the $15,000 payment, Mr Lenz's suggestion by his affidavit that the $15,000 had simply just sat in Colliers International's account with that fact never being communicated to Lenz Corp, seems to me to be an assumption as to a lack of knowledge that is wholly untenable. It is a position that seeks to distance Lenz Corp from the explicit knowledge of its agents (Colliers International and Ms Tavelli of Integra Legal) in circumstances where, on my analysis, such a stance is not open.
Further, subsequent to the directions hearing, and a repayment of the $15,000 on 3 July 2015, Western Choice has made further payments to Colliers International. These are attested to, being of $2,700 on 24 June 2015 (see Mr Chowdhury's affidavit of 26 June 2015, at par 3), $5,000 on 5 July 2015 (see Mr Chowdhury's affidavit of 31 July 2015, at par 5), and $2,700 on 24 July 2015 (see Mr Chowdhury's affidavit of 31 July 2015, at par 8). Mr Chowdhury, on behalf of Western Choice, has asked for a statement in terms of where Western Choice stands as regards its overall rent payments (Mr Chowdhury's affidavit of 31 July 2015, at par 7).
Pleadings have been exchanged in this matter. The amended writ filed on 26 June 2015 seeks to narrow the plaintiff's claim to only a case for relief against forfeiture. This was preceded by a statement of claim filed on 26 June 2015. A defence and counterclaim was filed on behalf of the defendant on 6 July 2015, then a reply and defence to counterclaim on 9 July 2015.
In addition to all that, I have had the written submissions of the plaintiff of 3 August 2015 and the written submissions of the defendant of 5 August 2015.
The situation in the end distils down, essentially, to whether or not the court, in the exercise of its discretion, should grant relief against forfeiture as sought by the plaintiff. In my view it should. The case authorities binding me in relation to that question have been referred to and are well known to counsel on each side.
They are conveniently collected under the reasons for decision of Beech J in the case of Twinside Pty Ltd v Venetian Nominees Pty Ltd [2008] WASC 110, by reference to what was then the current (fifth) edition of Professor Peter Butt's Land Law (2006) at [15224]. A sixth edition of that text has subsequently been published. It states an almost identical position with respect to the law in this area and is referred to by Mr Fletcher in the plaintiff's outline of submissions. But, as stated by Professor Butt, and as quoted by Beech J at [36] in Twinside (referring to the 2006 edition), the underlying relief principle is clear:
Courts normally relieve against forfeiture for non-payment of rent. Provided the landlord is compensated for all arrears of rent and any loss arising from the non-payment, the tenant will generally succeed in having the lease restored … In line with this principle, the history of tardy payments is not, of itself, grounds for refusing relief … [15224].
I accept that there is before me some earlier history of late payments by the plaintiff lessee through 2014 and also early in 2015. That position is frankly acknowledged by the plaintiff (see Mr Chowdhury's affidavit of 8 June 2015, at par 20). But the relief principle is clear and remains of force. Late rental payments are not, in themselves, grounds for refusing relief. Professor Butt had continued at [15225] of the sixth edition:
Relief generally will be refused where the tenant is hopelessly insolvent, for in such a case an order reinstating the lease would be futile. This is so even though the tenant is able to pay the arrears of rent at the time of the proceedings, because the court is entitled to take into account the improbability that rent will be paid in the future, or that its payment may be a preference for creditors. (footnotes omitted)
There was some limited evidence before me about Mr Chowdhury's financial circumstances (see Mr Chowdhury's affidavit of 31 July 2015, attachments SC‑34 and SC‑35 at pages 68 - 76): a business activity statement for Western Choice being a final quarterly statement of the 2014 calendar year and the first quarter of 2015; profit and loss statements for the same quarters; and a 'profit projection worksheet' that Mr Chowdhury prepared. Those materials were the subject of Mr Chowdbury's brief cross‑examination by Mr Sher, counsel for Lenz Corp. At the end, I am not satisfied that this is one of those cases where relief against forfeiture is to be denied because of a hopelessly insolvent position of the lessee. In fact, I would infer to the contrary, based on the overall evidence that I have received from the plaintiff. So that line of case, in terms of a hopelessly insolvent tenant, drawing out a position that is hopeless, does not present on all the evidence.
Is there any other reason, then, why relief against forfeiture should not be granted, bearing in mind the apparent solvency of Western Choice? First, there is the return of the $15,000 on 3 July 2015 caused by Mr Lenz, on behalf of the defendant, Lenz Corp. That was an act of his doing. If the arrears the subject of the default and termination notices are now not in his or, more correctly, Lenz Corp's receipt, that is because of Mr Lenz. He and, thereby, Lenz Corp, chose to take that course notwithstanding the discussion I had with counsel on 24 June 2015 at the directions hearing. The defendant has, in effect, tried to play 'hard ball'. That was its choice. But in the end, it must pay a penalty for taking that decision, in the face of what I would consider to be the very clear state of the law about relief against forfeiture. The defendant has also tried to shore up its termination position not only in its defence, but under a counterclaim, by contending that the relationship between the plaintiff and the defendant has 'broken down irretrievably' (see par 4(d) of the defence and counterclaim).
A cardinal deficiency with that submission is that it is untenable as a matter of principle in a lease situation. The relationship between these commercial parties is governed by the terms of their lease. To contend that a whole host of matters, including failure to arrange appropriate approvals for operating as a dine‑in restaurant, alleged dirty marks on ceilings, fire extinguishers not being tagged in accordance with government regulations, the proper use of bins, and sundry other matters of that kind somehow aggregate and together provide a basis for resisting relief against forfeiture is, in my view, blown away by the fact that none of those issues were ever the subject of a notice of breach given under cl 12.1(a)(ii) of the lease, as they well might have been. Had a notice of breach included a complaint over such sundry issues, Western Choice would then have been on proper notice as to those issues being of a significant concern and if not fixed, then liable to a breach of the lease agreement
But to try and assemble these sundry grievances, which can be common aggravations between lessors and lessees, and use them as a basis outside the relevant context of unpaid rent and outgoings to defend a position of not only not accepting, but strongly resisting, the claim for relief against forfeiture is unconvincing and unprincipled. It is a stance taken in the face of clear case authority and legal principle. Lenz Corp has taken a stance which has wasted the plaintiff's as well as this court's resources by forcing the court to embark upon an unnecessary hearing which, had Lenz Corp been more reasonable and amenable to acting in accordance with the state of the law, would have been unnecessary.
In all those circumstances, I will grant the relief against forfeiture that is sought. The termination notice of 25 May 2015 will be set aside. I am satisfied, however, that a condition of a grant of relief against forfeiture should include the making good of any arrears arising out of the foolish return of the $15,000 on 3 July 2015. I characterise that conduct as a foolish, unnecessary and provocative act. It was conduct that was unhelpful, in circumstances where it has always been crystal clear what the law is with respect to the likely grant here of relief against forfeiture.
In terms of costs, as noted above, on 24 June 2015, at a directions hearing, I had mentioned to the defendant's solicitor, Ms Tavelli, that the defendant was at some risk of an order for indemnity costs being made against it if it pursued an unreasonable resistance to the plaintiff's claim for relief against forfeiture and in the end lost (ts 7):
KENNETH MARTIN J: All right. Well, then, the only thing the defendant should also - maybe you've pointed this out as well, but let me put it on the record. The defendant is vulnerable to an order for indemnity costs in this situation.
TAVELLI, MS: Yes, sir. He has been made aware of that issue as well.
'He' in that exchange presumably refers to Mr Lenz of Lenz Corp. Given today's outcome, Mr Fletcher moves for an order for indemnity costs. This does seem to me to be one of the scenarios addressed by the Court of Appeal in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) at [10] - where a court ought mark its disapproval of unreasonable conduct which, in my view, has in the end caused unnecessary waste and expense for Western Choice and, indeed, the court. The outcome here was always likely, indeed almost inevitable. There has been very little debate before me concerning the state of the law as to relief against forfeiture. The law is clear. To the extent that a person takes an election to play hard ball and stubbornly insists upon a position, if they are proven wrong at the end of the day by playing hard ball, then cost consequences must follow. Fortunately, for the defendant, the case has been able to be resolved in a half day, rather than a full day. That will be of some measure of amelioration to the force of an indemnity costs order, which in the circumstances is fully appropriate.

Accordingly, as regards costs, I order that the defendant pay all of the plaintiff's costs of the action, including the trial, save as to the extent that those costs have been unreasonably incurred or are of an unreasonable amount.