World By Nite Pty Ltd v Michael

[2003] QSC 52

jfCO33^>SC0SR

Queensland Government

State Reporting Bureau Department of Justice and Attorney-General

Transcript of Proceedings

Copyright in this transcript is vested in the Crown.	Copies thereof must not be made or sold without the written authority
of the Director, State Reporting Bureau.

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Date,2 ttMOk______

SUPREME COURT OF QUEENSLAND
CIVIL JURISDICTION

HELMAN J

NO 11806 of 2002

WORLD BY NITE PTY LTD

(ACN 100 098 164)	Applicant
and
JAMES MICHAEL and
ANNE MICHAEL	Respondents
BRISBANE
..DATE 31/01/2003
..JUDGMENT

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1

4th Floor, The Law Courts, George Street, Brisbane, Q. 4000 Telephone: [phone] Fax: [phone]

31012003 blp (Helman J)

HIS HONOUR: The respondents are the registered proprietors

of land at 25 Warner Street, Fortitude Valley, Brisbane, on

which stands a building at present occupied by the applicant
company. On 20 August 2002 the respondents granted a lease of

the land to the applicant for a term beginning on 1 May 2002

to expire on 30 April 2005 with options for two renewals of

three years each. The permitted use of the premises
provided for in the lease was "Cabaret/nightclub, wine bar
or adult entertainment venue". The applicant conducts an
establishment on the premises that falls within that
description. The rent was $72,000 per annum plus goods and
services tax.

Clause 2.1 of the lease provided for the payments the applicant as tenant was to make to the respondents as landlords. They included the rent of course (clause 2.1(a)),

and (17) of clause 1.2, the definitions clause, the terms

and a number of other payments including "the Agreed

"Agreed Proportion of Outgoings" and "Outgoings" were defined:

"(1) 'Agreed Proportion of Outgoings' means in respect

of all other Outgoings, a proportion determined

attributable to the premises as agreed between the
parties or as determined by the proportion that the

area of the Premises bears to the Area of the Land.

(17) 'Outgoings' means the Landlord's reasonable expenses

directly attributable to the operation, or

maintenance of the Building and charges, levies,

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premiums, rates or taxes payable by the Landlord
because it is the owner or occupier of the Building

or the Land, where those expenses are not paid for

directly by the tenant, and such expenses include,

but will not be limited to, all costs associated

with the following:

(a) rates, taxes and charges payable to

any government or other authority

(b) cleaning costs and materials
(c) rubbish removal
(d) light and power charges

(e) air-conditioning and ventilation

(f) fire protection and prevention

(g) security

(h) maintenance

(i) costs for the control of pests, vermin

or insects or other similar infestation

(j) costs of maintaining gardens; and

(k) building insurance."

The agreed proportion of outgoings was 100 per cent.

Clause 2.2 of the lease provided for the manner of payment:

"2.2 Manner of Payment

(1) The Tenant must pay the Rent:

(a) by equal monthly instalments in

advance on the first day of the month

(b) the first payment must be made on the

Commencement Date

(c) if necessary the first and last

instalments must be apportioned on a daily

basis.

(2) The Tenant must pay the Agreed Proportion of

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Operating Expenses for each Financial Year in the manner notified in writing by the Landlord and in

the absence of notification in the same manner as

Rent. A certificate by the Landlord or authorised representative of the Landlord is prima facie evidence of the Operating Expenses for each Financial Year.

(3) The Tenant must make all other payments

promptly to the relevant assessing authority if

assessed directly against the Tenant but otherwise

to the Landlord upon receipt of an invoice.

(4) Payments must be made as the Landlord directs.

Outgoings for the Building or the Land for the immediately preceding Financial Year. Within fourteen (14) days of being provided with a statement, the Landlord must refund any overpaid Outgoings and the Tenant must pay any shortfall."

(5) Within ninety (90) days after the expiry of

each Financial Year the landlord must provide the

It is common ground that in 2002 the applicant failed to pay

the rent for June, July, August, October, November, and
December on time. It also failed to pay the stamp duty on
the lease and rates as it was required to do. On behalf of
the respondents, notices to remedy breaches of covenant

pursuant to s.124 of the Property Law Act 1974 were served on

the applicant beginning with one in July:

24 July 2002, rent and GST due for June and July

2002, $13,200;

5 September 2002, rent and GST due for August 2002,

$6,600;

1 October 2002, rent and GST due for October 2002,

$6,600;

23 October 2002, rent and GST due for October 2002,

$6,600;

JUDGMENT

31012003 blp (Helman J)

5 November 2002, stamp duty $856.80, rates
$3,937.15, and rent and GST due for November 2002,

$6,600;

13 November 2002, unpaid insurance, $11,229.51; and

20 November 2002, unpaid insurance, $11,972.36.

The respondents also asserted that a notice dated 10 December

2002 in respect of rent and GST due for December 2002,

$6,600, was served, but there was a dispute as to whether it

was in fact served. As the hearing progressed Mr Hackett,
on behalf of the respondents, informed me that the
respondents did not rely upon that notice. In each case sums

for compensation or costs were claimed. The defaults alleged

in the notices, apart from those dated 13 and 20 November

2002, have all been remedied.

There is an issue between the parties concerning the failure

by the applicant to pay a sum paid by the respondents by way

of an insurance premium. In the notice dated 20 November 2002

the respondents asserted $742.85 was owing for insurance in

September 2002 and $11,229.51, previously claimed in the

notice of 13 November 2002, for insurance for twelve months.

The $11,229.51 was made up of $2,607 for public liability insurance as shown in an invoice no. 16013 dated 19 September

2002 from Redcliffe Insurance Brokers to the respondents, and

$8,622.51 for business-commercial insurance shown in invoice

no. 16102 dated 26 September 2002 also from Redcliffe

JUDGMENT

business-commercial insurance was payable by 28 September

31012003 blp (Helman J)

2002. The cover referred to in the latter invoice was

$750,000 for the building at 25 Warner Street, $50,000 for all
contents other than stock, $100,000 for removal of debris,
$25,000 for accidental damage, $72,000 for business
interruption in the form of loss of rent for twelve months,
and glass at replacement value. The cover for business

interruption is at the heart of the present dispute between

the applicant and the respondents. The applicant has not paid

the $8,622.51 for reasons I shall explain. It was not,
however, in dispute that the respondents had paid the premium.

On 20 December 2002 the respondents re-entered the premises and excluded the applicant from them, relying on the applicant's failure to pay the $11,229.51 and the rent for December 2002.

Mr Peter Marinelli, the sole director and secretary of the

applicant, swore in an affidavit filed by leave on

27 December 2002 that breaches of the applicant's

obligations under the lease occurred because of a cash flow
shortage, but that it is reasonable to expect the
applicant's income from trading to grow so that it will
become prosperous by the middle of 2003. He swore further

that he is willing to support the applicant with his own funds

JUDGMENT

31012003 blp (Helman J)
for the duration of the term of the lease should that become
necessary. He swore that the applicant will comply promptly
with the terms of the lease in relation to reimbursing the
respondents for building insurance costs "as soon as the

proper meaning of that expression is determined by the court".

Searches carried out on 13 January 2003 by the solicitors
for the respondents reveal, however, that there were then no
land titles in Queensland registered in the name of the

applicant or that of Mr Marinelli.

On 27 December 2002 the applicant began this proceeding by way

of originating application seeking relief against forfeiture
of the lease, an interim injunction requiring the respondents

to give access to and possession of the premises to the

applicant, recovery of possession of the premises, and

declarations as to the proper construction of clause

1.2(17)(k) of the lease. On 27 December 2002 the application

came before Byrne J., who ordered that, pending final

determination of the application or until further order and

upon the applicant's paying $2,607 (for the liability
insurance) immediately and $6,600 (for the December rent) on

or before 2 January 2003, the applicant should, together with

its servants and agents, be entitled to access to the premises

and to remain in possession of the premises until 4 p.m. on 14

JUDGMENT

31012003 blp (Helman J)

January 2003. The originating application was adjourned to 10 a.m. on 14 January 2003.

On 14 January 2003 the application came before me. At first the applicant merely sought an extension of the order made by Byrne J. to a further date when submissions on the final determination of the application could be heard, but in the course of the hearing the parties agreed that there was no impediment to my proceeding to hear the submissions of the parties as to the final determination of the application since the central issue was one of construction of the lease. Accordingly, I heard those submissions and extended the order made by Byrne J. pending my determination.

On 14 January 2003 the applicant sought and obtained leave

to file and read an amended originating application claiming

the following relief:

"1. Time for service of this application be abridged pursuant to r7 of the Uniform Civil Procedure Rules.

2. That pursuant to sl24 of the Property Law Act

1974, the applicant be relieved from forfeiture of

the lease comprising exhibit 'A' (the 'lease') to
the affidavit of Peter Marinelli sworn 24 December

2002 and to be filed herein by leave.

3. Pending final determination of this originating
application, by way of interim relief, an injunction
requiring the respondents and their servants and
agents to give access to and possession of the
premises (as described in the lease) to the

applicant, its servants and agents.

JUDGMENT

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4. Further and alternatively, that the applicant do

recover possession of the premises described as lot
8 on RP 806838 County of Stanley Parish of North

Brisbane title reference 18151123, and as described

in the lease.

5. Declarations that:

(a) the proper construction of clause

1.2(17)(k) of the lease obliges the tenant

to reimburse the landlord for insurance

premiums relevant to building insurance.

(b) the proper construction of the

expression 'building insurance' in clause

1.2(17)(k) does not include insurance

cover in the nature of business

interruption insurance or loss of rent

insurance.

6. Further and alternatively, declarations that:

(a) the proper construction of the first
sentence of clause 2.2(2) of the lease
requires, if a notice is to be given by

the landlord notifying a manner of payment

of the 'Agreed Proportion of Operating

Expenses', that such notice be given

before the commencement of the financial

year to which the 'Operating Expense'

relates;

(b) the proper construction of the first
sentence of clause 2.2(2) of the lease
requires, if no notice is given by the

landlord before the commencement of the

financial year notifying a manner of

payment of the 'Agreed Proportion of

Operating Expenses', the 'Agreed

Proportion of Operating Expenses' for that financial year shall be paid in the same manner as rent; that is - by equal monthly instalments in advance of the first day of each month (clause 2.2(1) (a)) .

7. That:

(a) the respondents' costs of and
incidental to this application be paid by
the applicant to be assessed on a standard

basis; or

JUDGMENT

31012003 blp (Helman J)

(b) alternatively, there be no order as to

costs;

(c) alternatively, that the respondents

pay the applicant's costs of and
incidental to this application, to be
assessed on a standard basis."

The relief sought in the originating application was, it may be seen, amended by adding an application for relief as set out in paragraph 6. In the course of the hearing the applicant abandoned its application for the order set out in

paragraph 4. The relief sought in paragraphs 2, 5, and 6 is

that for my consideration. It is convenient to begin with 5

and 6, and then to consider 2.

The applicant's contention is that it is not obliged to pay
the $8,622.51 first because if the correct construction of
clause 1.2(17) is as asserted in paragraphs 5(a) and (b) of
the amended originating application, that sum includes cover
for a risk not referred to in clause 1.2(17), viz business
interruption or loss of rent, although it includes cover for a

risk referred to in that clause, viz building insurance.

Until an apportionment of the premium between the risk not

covered and the risk covered is provided, so the argument

runs, the applicant is not obliged to pay the sum demanded.

Mr Gynther's argument for the applicant focussed on

paragraph (k) of clause 1.2(17), contending that it was the

end of the matter if the sum sought was not for insurance

JUDGMENT

31012003 blp (Helman J)

for the building itself.

While the expression "building insurance" could be construed

in that narrow way, I am not persuaded that it is

necessarily so restricted. Building insurance could, I

think, embrace insurance to cover losses such as business

interruption by way of loss of rent inevitably associated
with damage to or destruction of the building. For that
reason I am not persuaded that the applicant is entitled to
the declaration sought in paragraph 5(b) of its amended
originating application, although it would clearly enough be

entitled to the declaration sought in paragraph 5(a), about

which there could be little contention. But in any event, a

premium for insurance cover which included cover for business

interruption or loss of rent comes within the ambit of the
general definition of outgoings. It is a reasonable expense
directly attributable to the operation or maintenance of the

building. The list in paragraphs (a) to (k) of clause

1.2(17) was not, it should be noted, an exhaustive one.

The declarations sought in paragraph 6 of the amended

originating application concern clause 2.2 of the lease. Clause 2.2(2) provided for the manner of payment for the agreed proportion of operating expenses for each financial

year. There was no definition of "agreed proportion of

operating expenses" or "operating expenses" in clause 1.2,

JUDGMENT

31012003 blp (Helman J)
but there was a definition of "agreed proportion of
outgoings", as I have related. The argument for the applicant
proceeded on the premiss that the insurance premium in dispute
came within the category of agreed proportion of operating
expenses for each financial year. Although there was no
definition of operating expenses in the lease, the expense in
question here is, in my view, an operating expense of a
building as ordinarily understood.

With one reservation the construction of clause 2.2(2) contended for on behalf of the applicant appears to me to be correct when one reads it in the context of clause 2.2(5), as one must. What was provided for was a certified estimate by the landlord or authorized representative of the landlord of the operating expenses for a financial year given before the beginning of a financial year (clause 2.2(2)) and then a statement of the actual outgoings after the end of that financial year (clause 2.2(5)). That what is certified must be an estimate of operating expenses given before the

beginning of a financial year is demonstrated by the effect of

the absence of the written notice provided for in clause
2.2(2). If no notice is given, the agreed proportion of the
certified sum must be paid by equal monthly instalments on the
first day of each month, as clause 2.2(1) (a) provided rent
must be. For a financial year that payment regime can only

mean twelve equal monthly instalments, so that that regime

JUDGMENT

31012003 blp (Helman J)
could apply only if it were triggered by an event that must
occur before the beginning of the financial year. It follows
that the written notice provided for in clause 2.2(2) must

also be given before the beginning of the financial year if it

is to be given at all.

in paragraph 6(a) of the amended originating application, and to that sought in paragraph 6(b) with the proviso that a certified estimate must have been given before the beginning of the financial year.

Since the evidence does not show that any certificate or any sought
notice of the kinds referred to in clause 2.2(2) had been
given to the applicant, the respondents cannot rely on the
tenant's obligations provided for in that clause in
requiring payment of the insurance premium in dispute.

But I do not read clause 2.2 to have provided in paragraph (2) an exclusive payment regime for outgoings. If the landlord so

chooses, invoices may be sent to the tenant under paragraph

(3). That is what happened in this case. In other words, the
lease gave the landlord the option of requiring payment for
all operating expenses as estimated by the landlord or the
landlord's authorized representative, or waiting until

invoices arrive and then passing them on to the tenant.

JUDGMENT

31012003 blp (Helman J)

It follows that the applicant's refusal to pay a sum equal

to the insurance premium paid by the respondents was
contrary to its obligations under the lease. The
respondents were entitled to re-enter the premises, but
should relief against forfeiture be granted to the
applicant?

A tenant is not entitled to relief against forfeiture as a right. The Court has a discretion in the matter. The test

is one of unconscionability. In a recent case in which

in the payment of rent, resort by the landlord to his strict legal right of re-entry would be unconscionable; or, if I may put this another way, whether the tenant has been guilty of conduct over and above the remedied default in payment of rent which is of such

there had been a forfeiture for non-payment of rent the tenant's remedying of the default

gravity that, even accepting that the default for which the

right of re-entry is security has been satisfied, it would not

be unconscionable on the landlord's part to insist on his

strict legal right." (Tannous v. Cipolla Bros Holdings Pty Ltd

(2001) 10 BPR 18,563, at p.18,568). "If arrears of rent,

costs and interest are paid and the lessor can be put into the
same position as before forfeiture or re-entry, the lessee

will ordinarily be entitled to relief absent 'very special

JUDGMENT

31012003 blp (Helman J)

circumstances'.": Meagher, Gummow and Lehane1s Equity

Doctrines and Remedies, 4th ed., 2002, para. 18-025, p.581. Those statements of principle apply mutatis mutandis to the circumstances of this case in which the default relied on is

in the payment for something other than rent and about which

there was a genuine dispute, but which default the tenant
has undertaken to remedy.

In resisting the granting of relief to the applicant the respondents would, of course, be entitled to rely on the applicant's history of failing to pay the rent on time, but,

as Ormiston J. said in Jam Factory v. Sunny Paradise Pty Ltd

[1989] V.R. 584 at p.591:

"The power to refuse relief is clearly reserved for cases

of consistently lengthy defaults which may fairly

lead to an inference that, even if relief be given, there

is a reasonable likelihood that the rent will not be paid

in future, at least for some considerable time after the

due date for payment."

See also on this subject the words of McLelland C.J. in Equity in Hace Corp. Pty Ltd v. F. Hannan Pty Ltd (1995) 7 BPR 14,326

at p.14,329:

"The general principles on which an application for
relief against forfeiture is dealt with may be

briefly stated as follows. The court treats a power

to forfeit a lease for non-payment of rent as a

security for the rent and, generally speaking, on
payment of any outstanding rent the court will grant
relief against any such forfeiture on such
conditions as it may consider appropriate in the
particular circumstances, which will usually involve

payment of the lessor's costs and expenses.

JUDGMENT

31012003 blp (Helman J)

Although relief against forfeiture is a
discretionary remedy, the burden of establishing
that a forfeiture for non-payment of rent should not
be relieved against, where all arrears of rent have
been paid and where no interests of third parties
have intervened, is a very heavy burden and normally

involves demonstrating that by reason of the conduct

of the lessee or for some other reason, the grant of

relief against the forfeiture would be inequitable

(see generally Pioneer Quarries (Sydney) Pty Ltd v.

Pty Ltd v. Ryleaco Pty Ltd (1989) 4 BPR 9635, Hayes v. Gunbola Pty Ltd (1986) 4 BPR 9247, and Cicinave v. Jasco Pty Ltd (1989) 5 BPR 11,139).

Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562,

In the present case there has been a long history of

untimely payment of rent, but it must be said that
the delays in payment could not be described as
having been particularly gross. One can understand

the frustration of a lessor where payments of

monthly rent are almost invariably delayed for

periods of at least two or three weeks, as in most
cases here, but that is not the sort of default
which would normally lead to a refusal of relief

against forfeiture."

And see MacDonald, McCrimmon, Wallace, and Stephenson, Real

Property Law in Queensland, 1998, pp.587-588.

This case could be regarded as on the borderline. The applicant defaulted in payment of the rent and other required payments for six of the eight months in the

currency of the lease last year. There could have been no

doubt about the respondents' insistence on timely payments.

They issued at least seven notices to remedy breaches of

covenant before they re-entered. It is not suggested,

however, that although the applicant was short of money last

year, it is on the brink of insolvency. The reason for the

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31012003 blp (Helman J)
applicant's defaults have been explained in Mr Marinelli's
affidavit. It cannot be said, on my assessment of the

evidence before me, that there is a reasonable likelihood that

the rent will not be paid in future, and no interests of third

of the breaches not in dispute have been remedied. If relief against forfeiture is refused, the applicant will lose a considerable asset when one takes into account the term of the lease and the options to renew. In those circumstances I shall grant the relief against forfeiture sought, but on conditions upon which I shall invite further submissions.

parties have intervened. The fact that there are no land evidence that all

titles registered in the names of the applicant or of Mr

JUDGMENT