22 The evidence, including evidence of contemporaneous complaint, establishes that the plaintiff's claim for breach of the covenant for quiet enjoyment is genuine and not spurious, assuming that the claim is not otherwise excluded by the terms of the lease.
23 It was submitted by counsel for the defendant that because of various provisions of the lease, the plaintiff could not maintain such a claim.
24 First, counsel submitted that the covenant for quiet enjoyment was given by the lessor only if, and where, the lessee paid the rent and duly observed the covenants to be observed on its part. By reference to a rental schedule of the defendant's managing agent, counsel submitted that there were extensive periods for which the plaintiff had not paid its rent on time. According to the agent's records, the last time the plaintiff was up to date in rent was on 29 August 2006. There were periods prior to then when the plaintiff was in arrears.
25 There is a long line of authority that, even though a covenant for quiet enjoyment is expressed to be conditional upon a lessee duly paying rent and observing the covenants to be performed on the part of the lessee, nonetheless, the lessor's covenant to afford quiet enjoyment is independent of the lessee's covenants to pay rent and observe the terms of the lease (Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906; Edge v Boileau (1885) 16 QBD 117 at 120; Taylor v Webb [1937] 2 KB 283 at 292; Dowse v Wynyard Holdings Limited [1962] NSWR 252 per Jacobs J at 263; Hawkesbury Nominees Pty Ltd v Battik [2000] FCA 185 at [50].)
26 Counsel for the defendant did not attempt to distinguish or explain or, indeed, even refer to, these authorities. I was referred this morning to a decision of the Court of Appeal in Lend Lease Development Pty Ltd v Zemlicka (1985) 3 NSWLR 207, in particular, to the judgment of Kirby P at 218, where His Honour observed that it is well established that the parties can, by specific arrangement, modify or vary covenants in a lease that will otherwise be implied. I was not taken to anything in that judgment which in any way qualifies or even comments upon the principle in the cases to which I have referred.
27 To say the least, it is seriously arguable that the defendant's claim for damages for breach of the covenant for quiet enjoyment would not be defeated if it were proved that for certain periods the plaintiff was behind in its rent.
28 Secondly, it was submitted that the lessee was not entitled to expect any better premises than those it got. This was said to follow from the fact that the lease provided that the lessee's contribution to rates, taxes and outgoings, including the costs of caretaking, management, air conditioning and cleaning, was nil. It was submitted that as the lessee was not required to contribute to these costs, it could not complain if, for example, the air conditioning habitually failed, or the toilets were not cleaned.
29 I do not accept that the fact that the lessee was not obliged to contribute to such costs means that it was not entitled to the services referred to. It can be presumed that the fact that the lessee was not liable to contribute to such costs was reflected in the amount of rent it was liable to pay. Rather, the lease implies that the lessor would provide the services referred to. Nor does the fact that the lessee was not liable to contribute to such costs qualify the covenant for quiet enjoyment.
30 Thirdly, reliance was also placed on clause 7.8 of the lease. That clause also does not qualify the covenant for quiet enjoyment. Clause 7.8 is concerned with the lessor's liability for accident, loss, damage, death or injury occurring on or near the premises. It is not a release of any claim for damages for economic loss suffered by the lessee by reason of its peaceable enjoyment of the premises being interrupted. Such loss is not suffered on or near the premises.
31 In any event, the release is inapplicable if the lessor is negligent. If it were relevant, which I do not think it is, there would in any event be a serious question to be tried as to whether the conditions about which the plaintiff complains were caused by the negligence of the defendant or its agents or contractors.
32 The defendant also placed reliance upon clause 8. The effect of clause 8.1 is that the lessee is to have the same responsibility for the premises as if it were the owner. Clause 8.1 then provided for the lessee to indemnify the lessor against all actions, claims, demands, notices, losses, damages, costs and expenses to which the lessor is or may become liable in respect of, inter alia, any loss or damage to property, death or injury caused or contributed to by the use or occupation of the premises. Clause 8.2 provided that the lessee would indemnify the lessor against all such claims, et cetera, for which the lessor may become liable in respect of or arising from, inter alia, any overflow or leakage of water into or from the premises caused or contributed to by any act or omission on the part of the lessee.
33 Clause 8 is irrelevant to the present issues. Clause 8 does not qualify the covenant for quiet enjoyment. There is no issue raised in the evidence of the lessee being required to indemnify the lessor against any liability of the lessor to any third party.
34 So far as damage from the leakage of water is concerned, clause 8.2 is irrelevant as there is no question of any damage having been caused by any act or omission of the plaintiff.
35 As the judgments of Palmer J in Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 and of Barrett J in Elm Financial Services v MacDougall [2004] NSWSC 560 quoted earlier in these reasons make clear, it is not sufficient for the plaintiff to demonstrate a genuine claim that the defendant breached the lease. To be entitled to have the demand set aside, the plaintiff must be able to show that its claim is for an amount which arguably exceeds the debt claimed in the statutory demand, or at least when deducted from the admitted debt, would reduce the balance below the statutory minimum. The plaintiff has so quantified its claim. There is evidence from the plaintiff that its claim for damages exceeds the outstanding rent.
36 First, there is evidence that as a result of the leaking roof the plaintiff has had to replace computers, fans, and a kettle, and also to carry out repairs to electrical wiring. The cost of those items came to $3,172.70.
37 The plaintiff also quantified a claim for wages paid whilst employees were unable to work in a sum of $15,360 or, alternatively, a claim for loss of productivity on the basis of lost time in the sum of $48,720. Whilst there would be questions as to whether the lost productivity was made up, it is clear that the claim for expenses incurred and for wages paid where the employees could not work or, alternatively, for lost productivity comfortably exceeds the demand for outstanding rent of $5,587.88.
38 There is also evidence that the rental value of the premises in the condition they were in, as alleged by the plaintiff, for the year preceding the termination of the lease, was more than $5,587.88 less than the rent payable under the lease.
39 Accordingly, the plaintiff has satisfied the onus of showing that it has a genuine claim for damages for loss exceeding the amount of rent admittedly outstanding.
40 The defendant submitted that the plaintiff had failed to adduce evidence of its solvency. Of course, such evidence has no direct relevance to an application under s 459G. As I understood the way the point was ultimately put, it was that it could be inferred that the reason the plaintiff was late in paying rent during 2005 and 2006 was because it was insolvent, and that in the absence of evidence from the plaintiff as to its solvency, the Court should not accept that the asserted offsetting claims were genuine. Rather, it should be inferred that they were raised to provide an excuse for non-payment where the real reason was that the plaintiff was unable to pay. I do not accept that submission. The evidence as to the condition of the premises plainly establishes a genuine offsetting claim. I do not infer that the reason the plaintiff was in arrears from time to time during 2005 and 2006 in paying rent was due to its financial position. Its being in arrears may well have been in relation to disputes regarding the condition of the building. In any event, the genuineness of its claim is attested by the contemporaneous evidence of complaints to the managing agent. Moreover, on 2 April 2007, the plaintiff advised the defendant that it would be vacating the premises. It gave as its reasons for vacating the premises the various complaints which it makes on this application regarding the condition of the premises. The statutory demand was served after the delivery of that letter of complaint.
41 For these reasons, it follows that the substantiated amount of the demand within the meaning of s 459H is less than the statutory minimum. Indeed, the "offsetting total" exceeds the "admitted total".
42 For these reasons, I order that the statutory demand dated 11 April 2007 served by the defendant on the plaintiff be set aside. I will hear the parties on costs.