Tadros v 711 Hogben Pty Ltd [2016] NSWSC 697
711 Hogben Pty Ltd v TadrosTadros v 711 Hogben Pty Ltd [2016] NSWSC 1683
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125(2020) 19 BPR 40,443[2020] NSWSC 996
Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236(2004) 17 BPR 32,633
Judgment (3 paragraphs)
[1]
Solicitors:
One Group Legal (Plaintiff/Cross-Defendant/Respondent)
Finn Roache Lawyers (Defendants/Cross-Claimants/Applicants)
File Number(s): 2015/330101
[2]
Judgment
The position now reached in these longstanding proceedings is that:
1. it has been determined by Expert Determination and judgments of the Court [1] that the lease between the plaintiff (the "Lessor") and the defendants (the "Lessees") of the Lessor's premises in Kogarah commenced on 18 May 2015;
2. the Lessor was required to carry out certain work on the premises (the "Works") in order that the premises be suitable to be used as a childcare centre;
3. the Works were carried out by the Lessor by 8 October 2020;
4. under the terms of the Lease, the Lessees were obliged the pay rent from, at the latest, April 2021;
5. the Lessees have paid no rent; and
6. on 10 September 2021, the Lessor purported to terminate the Lease on the basis of non-payment of rent.
711 Hogben Pty Ltd v Tadros [2021] NSWSC 1463 | Case summary | Zoe
By their Cross-Claim, the Lessees claim damages from the Lessor arising out of the Lessor's delay in causing the Works to be effected.
Now, by Amended Notice of Motion filed on 18 October 2021, the Lessees seek leave to amend the Cross-Claim to include a claim for relief against forfeiture in the following terms:
"The cross-claimants are entitled to relief against forfeiture of their rights under the Equitable Lease in the circumstances that:
(a) The cross-claimants' default is a default in the payment of rent;
(b) Equity treats the right of a landlord to terminate for non-payment of rent as, in essence, merely a security for the payment of rent;
(c) The cross-claimants can and will make good the unpaid rent by way of a set-off allowed to the cross-defendant out of the damages to which the cross-claimants are entitled to claim from the cross-defendant in these proceedings; and
(d) The cross-defendant has contributed to the cross-claimant's default by the cross-defendant's conduct by:
a. repeatedly challenging the Expert Determination and thereby causing the cross-claimants great cost and delay, including the payment of in excess of $680,000 in legal fees and expert's fees;
b. refusing to complete the Landlord's Works in accordance with the Plan during the period April 2014 and 19 August 2020;
c. hindering and delaying the cross-claimants from lodging the Modification Application and the application for the Construction Certificate;
d. preventing the cross-claimants from commencing trading from the Premises from about 1 July 2015 and thereby generating profits of $316,142 in FY2016, $517,112 in FY2017 and $567,746 in FY2018, as set out in the report of John Wall dated 9 July 2017 and continuing to generate profits in ensuing years; and
e. as a result of the above conduct causing the cross-claimants to incur such expenses and to lose such income as to make it difficult for the cross-claimants to pay rent under the equitable Lease; and
(e) The cross-claimants have expended approximately $350,000 on the Tenant's Works and it would be unconscionable to allow the cross-defendant to retain the benefit of the Tenant Works; and
(f) The damages which the cross-claimants claim pursuant to the Cross-Claim will greatly exceed such amount of rent which the cross-defendant may be found entitled to claim under the Equitable Lease but which has not been paid by the cross-claimant."
The Lessor opposes leave being granted on the basis that the Lessees' claim for relief against forfeiture is bound to fail.
The Lessor accepts, for the purposes of this application, that:
1. I should assume that the Lessees will establish the contentions set out at [3] above; and
2. it would follow that prima facie the Lessees are entitled to:
1. relief against forfeiture;
2. set off, in equity, their damages against the rent due under the Lease.
Usually, relief against forfeiture will only be granted on the condition that the lessee pay outstanding rent.
However, as I have set out above, in the proposed cross-claim, the Lessees seek relief upon the basis that they will "make good the unpaid rent by way of set-off" out of the damages they seek from the Lessor.
The Lessor contends that the complete answer to that claim is contained in cl 20.2 of the Lease which provides, relevantly:
"(a) The Lessee will during the whole of the said term pay to the Lessor without any prior demand therefore free of exchange and without any deductions or abatements in each year the annual rent …
…
(e) All payments of rent and other moneys to be made hereunder shall be made free of exchange … without any prior demand therefore and without any deduction or set-off whatsoever otherwise than as provided in this Lease." (Emphasis added.)
The Lessor pointed to authorities which are to the effect that the use by parties of the words I have emphasised in these clauses are effective to exclude what might otherwise be a lessee's entitlement to set-off in equity a claim it has under the lease against its obligation to pay rent.
Thus, on behalf of the Lessor it was submitted:
"21. Although the authorities in New South Wales are unsettled in relation to whether the words 'without any deductions' alone are sufficient to exclude a tenant's equitable entitlement to set-off, the additional words 'without any deduction or set-off whatsoever' which appear in the Lease, in the plaintiff's submission, put the matter beyond doubt. Those words could not reasonably be interpreted in any way which would be consistent with the tenants retaining a right to assert an equitable set off. The authorities referred to below clearly support that construction.
22. A similar rent clause was considered in High Impact Holdings Pty Ltd v Famhall Pty Ltd [2] . There, the clause referred to 'any abatement, reduction, set-off, defence, counter claim or recoupment'. The Court found that wording was sufficient to exclude the tenant's entitlement to claim an equitable set-off in respect of its obligation to pay rent, notwithstanding the tenant's claim for breaches of the lease …
23. In Norman; in the matter of Forest Enterprises Ltd v FEA Plantation Limited, [3] the Full Federal Court similarly concluded that the entitlement to assert an equitable set off with respect to rent was expressly excluded by inclusion of the words 'without any deduction whatsoever'. The Court found at [199]:
[199] When considered in light of these principles, it is difficult to see how the words 'without any deductions whatsoever' are consistent with an entitlement to maintain an equitable set off. A commonsense businesslike approach to the construction of what reasonable people would understand by this expression is that the parties intended that FEAP could not make any deduction of any kind from rent, including a deduction by way of equitable set off.
24. That commentary has since been referred to with approval in Palaniappan v Westpac Banking Corporation [4] … in the context of a guarantee which referred to the 'right of set-off or counterclaim'. In that case, the WA Court of Appeal found that the expression 'right of set-off' in the guarantee included 'all forms of set-off', and that the reference to 'set-off' alone in such a clause includes equitable set-off: ...
25. These authorities are consistent with the conclusion reached in Butt's Land Law …, [5] which states (citations omitted):
The parties may exclude the equitable right of set-off by an appropriate provision in the lease. However, since parties are not lightly presumed to intend to abandon their rights, clear language is required. Whether a provision that rent is to be paid 'without deduction' is sufficient to preclude equitable set-off is unclear: some cases hold that it is sufficient, others that it is not. However, the phrase 'without any deductions whatsoever' has been held to preclude any equitable set-off claims, so in light of the division of authority on the effect of 'without deduction', should be used to avoid uncertainty.
26. Thus, there is no reasonably arguable case, on the authorities summarised above, that the tenants in the present case are entitled to assert an equitable set-off in respect of rent."
There is force in these submissions, although in none of these cases was it held, in terms, that a clause such as cl 20.2 was, without more, an answer to a claim for relief against forfeiture based on an asserted equitable set off against rent of damages arising under the lease. [6]
However, the discretion to grant relief against forfeiture is a wide one and is to be considered in the context of all of the facts of the case.
There have been cases where relief against forfeiture has been granted notwithstanding the insolvency of the lessee, [7] and thus in circumstances where the lessee cannot pay rent.
As can be seen from the proposed cross-claim, the Lessees do not contend that they cannot pay rent. Rather they say that, because of the Lessor's conduct, they have incurred expenses and lost income so as to "make it difficult" to pay rent.
However, in the proposed cross-claim, the Lessees also contend, as I have set out, that they expended some $350,000 on "Tenant's Works" in the premises such that it would be "unconscionable" to allow the Lessor to retain the benefit of those Tenant's Works.
If, as the Lessees contend and as I must assume for present purposes, it would "unconscionable" to allow the Lessor to retain the benefit of the "Tenant's Works" in those circumstances, that may well be a factor relevant to whether or not the Court grants relief against forfeiture, notwithstanding the absence of payment of rent by the Lessees.
On behalf of the Lessor it was submitted that, as it accepts that I should deal with this application upon the assumption that the Lessees will establish the allegations proposed to be made in the cross-claim, I am in "as good as a position as the trial judge" to assess the Lessees' likely prospects and that the Lessees' case "could not get any better" at the trial.
In my opinion, the situation is a little more nuanced than this.
The trial judge will make a decision as to whether to grant the Lessees relief against forfeiture in the light of detailed evidence as to the parties' dealings that led to the Lease and all of the circumstances in which the Lessees contend for the "unconscionability" to which I have referred. The nature of any "unconscionability" that the Lessees are able to establish may well place the trial judge in a much better position than I am to assess the merits of the Lessees' claim for relief against forfeiture.
There may be challenges ahead for the Lessees in making out the claim for relief against forfeiture. However, I am not able to conclude that their prospects are "so obviously untenable that [they] cannot possibly succeed" such that "to allow them … would involve useless expense". [8]
Accordingly, I propose to grant the Lessees leave to amend their cross-claim as they propose.
The parties should bring in short minutes to give effect to these reasons.
I propose to order that the Lessees pay the Lessor's costs thrown away by the amendment but that otherwise the costs of this application be costs in the cause.
The parties should also confer and agree the directions necessary to bring on the Lessees' cross-claim for hearing as soon as possible.
I stand the matter over for directions on 19 November 2021 before the Commercial List Judge.
[3]
Endnotes
Including that of Beech-Jones J in 711 Hogben Pty Ltd v Tadros; Tadros v 711 Hogben Pty Ltd [2016] NSWSC 1683; my judgment in 711 Hogben Pty Ltd v Tadros; Tadros v 711 Hogben Pty Ltd [2016] NSWSC 697; and that of Hammerschlag J in 711 Hogben Pty Ltd v Tadros [2018] NSWSC 628.
[2010] QSC 272 at [16]-[17] (Boddice J).
(2011) 195 FCR 97; [2011] FCAFC 99 (Jacobson, Nicholas and Yates JJ).
[2016] WASCA 72 at [69] and [76] (Buss JA).
(7th ed, 2017, Lawbook Co) at [7.1530], p 428.
Although Boddice J in High Impact Holdings v Farnhall appears to have been inclined to this view on the facts in that case: see [21] to [23].
For example, Hayes v Gunbola Pty Ltd (1986) 4 BPR 9247 at 9250-1 (Young J); Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236; (2004) 17 BPR 32,633 at [32] (Young CJ in Eq); Sneakerboy Retail Pty Ltd t/as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 996; (2020) 19 BPR 40,443 at [73] (Robb J).
Adopting the familiar words from General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69 at [129] (Barwick CJ).
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Decision last updated: 15 November 2021