The defendant, Cassegrain, leases the winery located at 764 Fernbank Creek Road, Port Macquarie, from Hastings Estate Pty Limited pursuant to a registered lease. The winery consists of a two level building that contains a wine production area, administration offices, a wine tasting and sales room known as the "Cellar Door", an Intermediate Wood Cellar, a Barrel Room and restaurant. It also has vineyards, a formal garden, a picnic area, a pond, space for horse-riding and vacant land.
On 13 September 2011, Cassegrain granted a registered sublease (the Sublease) over the restaurant premises that form part of the winery (the Restaurant) to the plaintiff, Allsvelte. The Sublease was for a period of 3 years with a 3 year option. On 11 June 2014, Allsvelte purported to exercise the option. In response, on 18 June 2014, Cassegrain served a notice pursuant to s 133E of the Conveyancing Act 1919 (NSW) specifying a number of breaches of the Sublease by Allsvelte that it claimed disentitled Allsvelte from doing so. Allsvelte then commenced these proceedings on 18 July 2014 seeking relief under s 133F of the Conveyancing Act against the effect of the alleged breaches. As a result, the term of the original Sublease was extended in accordance with s 133G of the Conveyancing Act.
Subsequently, Cassegrain served two notices under s 129 of the Conveyancing Act alleging that Allsvelte was in breach of a number of provisions of the Sublease. The first notice was served on 19 December 2014. The second notice was served on 11 May 2015. Relying on the first notice, Cassegrain purported to terminate the Sublease on 6 January 2015. Relying on the second, it purported to terminate the Sublease on 5 June 2015.
The issues in the proceedings are:
1. whether Allsvelte breached the Sublease in the ways alleged;
2. whether the notices served by Cassegrain under ss 133E and 129 of the Conveyancing Act were valid;
3. whether the Court should grant relief under s 133F of the Conveyancing Act in respect of the breaches identified in the notice served under s 133E or relief against forfeiture or under s 129(2) in respect of the breaches identified in the notices served under s 129 of the Conveyancing Act.
The proceedings also raise the question whether Allsvelte owes Cassegrain any money under the Sublease and, if so, how much. Originally, by its Cross-Summons, Cassegrain also sought an order for the taking of an account and inquiry into Allsvelte's gross sales. That relief, however, was not pressed at the hearing.
[2]
The Sublease
On the way in which Cassegrain now puts its case, the principal breaches about which it complains concern the payment of rent and other amounts due under the Sublease.
The Sublease provides for the payment of a Base Rent together with a Turnover Rent. The Base Rent was fixed for the lease period "From the commencement date to the first rent review date" at "$15,000.00 plus GST a year by monthly instalments of $1,250.00 plus GST". The Sublease provides that, after the first year, the Base Rent is to increase annually by reference to increases in the Consumer Price Index (as defined in the Sublease).
Clause 31 deals with Turnover Rent. It provides:
CLAUSE 31 TURNOVER RENT
31.1 In this clause
31.1.1 "Base Rent" means the annual rent amount specified at Item 13A of Annexure A, as varied under this Lease.
31.1.2 "Gross Sales" means the aggregate of sales net of GST of all meals, beverages, goods, wares and merchandise sold and the charges for all services performed in respect of the Lessee's business whether made for cash or credit or otherwise and whether made by the Lessee or by any permitted employee, licensee or concessionaire, whether on or off the licensed premises, without reserve or deduction for inability or failure to collect, but surcharges and fees charged by banks or credit card companies for credit and electronic payments are to be deducted and any discounts pursuant to this lease are to be deducted.
31.1.3 "GS Statement" means a written statement setting out the Gross Sales for a defined period itemised in reasonable detail or in accordance with the Lessor's reasonable requirements.
31.1.4 "Maximum Turnover Rent" equals three (3) times the Base Rent.
31.1.5 "Meeting Room" means the room within the Winery adjacent to the North Western corner of the restaurant.
31.1.6 "Turnover Rent" equals four (4%) per cent of Gross Sales for the relevant lease year or the Maximum Turnover Rent, whichever is lower.
31.2 Within the first seven (7) days of each calendar month, the Lessee must deliver to the Lessor a GS Statement with respect to the preceding month.
31.3 The Lessee must pay to the Lessor the portion of Turnover Rent that according to the GS Statement delivered under sub-clause 31.2 is referable to the preceding month, by the 15th day of each month.
31.4 If, in breach of sub-clause 31.2 the Lessee does not deliver a GS Statement by the 15th day of any month then the Turnover Rent payable for the preceding month shall be deemed to be equal to the Maximum Turnover Rent. If the Lessee subsequently delivers the required GS Statement then any difference between Turnover Rent paid under this sub-clause and the Turnover Rent due according to the GS Statement will be credited to the Lessee against Turnover Rent due the month(s) after the GS Statement is delivered.
31.5 The Lessee must have its accountant prepare and certify at the Lessee's expense a GS Statement for each lease year. Each such statement must be delivered to the Lessor within sixty (60) days after the end of each lease year. The Lessor must then reconcile the Turnover Rent payable for the said lease year with Turnover Rent actually received from the Lessee with respect to the said lease year. Any additional Turnover Rent claimed by the Lessor as a result of the said reconciliation must be paid within 30 days of delivery and any over-paid Turnover Rent paid by the Lessee ascertained as a result of the said reconciliation must be refunded by the Lessor within 30 days of delivery.
31.6 The Lessor may at any time upon reasonable written notice audit the books of account and records relating to Gross Sales. On such written request from the Lessor, the Lessee shall make those books of accountant records available to the Lessor or its representative for audit at the property, or another place if mutually agreed.
Allsvelte is required to pay a number of other amounts under the Sublease. Under cl 33.4 and Annexure "D", it agreed to reimburse Cassegrain, within 14 days of Cassegrain providing appropriate invoices or receipts, a specified proportion of Cassegrain's "liability for current advertising contracts". The specified proportion was 30 percent for advertising appearing between 1 September 2011 and 31 December 2011 and 50 percent for advertising appearing on or after 1 January 2012 until expiry of the relevant advertising contracts.
Allsvelte is also entitled to use other parts of the winery on payment of a fee in certain circumstances. Clause 34, which grants that right, is relevantly in the following terms:
CLAUSE 34 LICENCE TO USE OTHER AREAS
34.1 The Lessee may request the Lessor to licence use of certain parts of the Winery other than the restaurant and certain areas in the grounds around the Winery (to the extent such grounds are within the possession or control of the Lessor) for one-off functions or events.
34.2 The Lessor will not unreasonably refuse a request from the Lessee under subclause 34.1.
34.3 The Lessee shall pay in advance the Licence fees stated at item 21.
34.4 …
34.5 To the best of the Lessor's knowledge, any area made available to the Lessee under this clause, is licensed to permit the consumption of alcohol.
Item 21 of Annexure "A" states the prices for use of the Cellar Door, the formal gardens, the Intermediate Wood Cellar and the Barrel Room.
Clause 43 provides that the Lessee must pay by the due date charges for electricity and gas consumed in the premises, charges for any telephone service connected to the premises, charges for any other utility and charges for the pumping out of any grease arrester.
Clause 26 of the Sublease is also relevant to the issues in the case. It provides:
CLAUSE 26 RULES
26.1 The Lessor may at its discretion make, vary or delete rules not inconsistent with the terms of this Lease or the Lessee's rights or the permitted use for the management of the property, any common area made available to the Lessee and any other party, use of car parks and access to the property.
26.2 The Lessor will give the Lessee reasonable notice of the making, varying or deleting of any rules applying to the Lessee under this Clause.
26.3 The Lessee must obey the rules that apply to it under this Clause and must take all reasonable steps to ensure that its agents, contractors and invitees also comply with the rules.
26.4 For the avoidance of doubt, a breach of any rules in force under this Clause shall constitute a breach of this Lease.
The consequences of breach of the Sublease are relevantly dealt with by cl 12.2. It provides:
The lessor can enter and take possession of the property or demand possession of the property if -
12.2.1 the lessee has repudiated this lease; or
12.2.2 rent or any other money due under this lease is 14 days overdue for payment; or
12.2.3 the lessee has failed to comply with a lessor's notice under section 129 of the Conveyancing Act 1919; or
12.2.4 …
The option to renew the lease is granted by cl 4.2 of the Sublease. Clause 4.4 states:
The lessee can exercise the option only if -
4.4.1 the lessee serves on the lessor a notice of exercise of option not earlier than the first day stated in item 12D in the schedule and not later than the last day stated in item 12E in the schedule;
4.4.2 there is at the time of service no rent or outgoing that is overdue for payment; and
4.4.3 at the time of service all other obligations of the lessee have been complied with or fully remedied in accordance with the terms of any notice to remedy given by the lessor.
If this lease is extended by legislation, items 12D and 12E in the schedule are adjusted accordingly.
The date stated in item 12D of the schedule is 13 March 2014. The date stated in item 12E of the schedule is 12 June 2014.
[3]
Factual background
The sole director and secretary of Cassegrain is Mr John Cassegrain. In July 2011, Mr Cassegrain spoke to Ms Suzanne Bennett, the sole director and secretary of Allsvelte, about the possibility of Allsvelte leasing the Restaurant. At that time, the Restaurant was operated by Cassegrain. One of the issues Mr Cassegrain and Ms Bennett discussed was the provision of catering services to the Port Macquarie Performing Arts and Convention Centre (known as "The Glasshouse") through the Restaurant. On occasions, Cassegrain had provided those services and during one of their conversations Mr Cassegrain told Ms Bennett that he had been speaking to Mr Conneely, who at the time was the manager of The Glasshouse, about looking "after their catering" and that Allsvelte would get that business "once the lease is ready". Although not conceded by Allsvelte, it is apparent that, following execution of the Sublease, Allsvelte not only took over the operation of the Restaurant but began to provide some catering services to The Glasshouse using the Restaurant's facilities.
As I have said, the Sublease was granted on 13 September 2011. Sometime after that, disputes began to arise between Cassegrain and Allsvelte concerning the operation of the Sublease. On 9 November 2012, Cassegrain served a notice under s 129 of the Conveyancing Act alleging that Allsvelte was in breach of the Sublease in a number of respects. The alleged breaches related to the storage of garbage, the installation of a large sign on the external wall of the winery, a failure to operate the Restaurant in accordance with the standards set out in the Sublease, trading hours, the price at which wine was sold and the failure to supply within the first 7 days of the month the preceding month's GS Statement in accordance with cl 31 of the Sublease.
A number of the disputes were resolved at a meeting between Mr Cassegrain and Ms Bennett on 6 December 2012. However, others persisted and new ones arose. It is not necessary to refer to them all in any detail. But two are of particular significance to the case.
The first concerns the provision of GS Statements in accordance with cls 31.2 and 31.5 of the Sublease and the audit of Allsvelte's books of account in accordance with cl 31.6.
During 2012 Allsvelte was on occasions late in providing monthly GS Statements. In particular, on 24 September 2012, Mr Corey Richardson, who at the time worked for Cassegrain, sent an email to Ms Bennett saying:
I ask once again that you provide as a matter of urgency the Gross turnover of the restaurant for the months of June, July and August. Despite insurances [sic] over the last couple of weeks that you or your husband Steve would bring these around, we still have nothing. On receipt I will invoice you for the turnover rent, and ask you pay by return, as these amounts are well overdue.
Ms Bennett claimed that she had given Mr Richardson the figures for June and July and it appears that the issue was subsequently resolved, although further disputes concerning the provision of monthly GS statements arose in 2014.
More significantly, on 15 December 2012, Mr Cassegrain wrote to Ms Bennett in relation to a number of issues. In that email, Mr Cassegrain said:
As discussed, unless we agree on variations to the lease, in the meantime I request compliance to the existing lease. Apart from the points listed in the email I sent on Tuesday and noted for discussion on Monday, there are other outstanding lease compliance issues, including;
1 …
2 …
3 Provision of a Gross sales Statement, prepared by your accountants. (see clause 31.5) This was due within 60 days at the end of the least [sic] year. Therefore due by November 12th. If you are not in a position to provide in the very short term, which due to the time of year is understandable, if you could advise what extension in time you require.
In the same email, Mr Cassegrain asked for details of all functions held by Allsvelte on the winery grounds in respect of which no licence fee had been paid. Cassegrain did not receive a response to the second request. It did receive in early February 2013 a letter prepared by Allsvelte's accountant stating the Gross Sales for the period February 2012 to June 2012. On 12 February 2013 Mr Cassegrain wrote to Ms Bennett asking when Cassegrain would receive a statement for the balance of the lease year and, on or about 19 February 2013, Cassegrain received a copy of an unsigned letter prepared by Allsvelte's accountant providing the Gross Sales figures for the periods 13 September 2011 to 12 October 2011, 13 October 2011 to 30 November 2011, 1 December 2011 to 31 December 2011 and 1 January 2012 to 31 January 2012. On the same day, Mr Cassegrain thanked Ms Bennett for those statements and asked when Cassegrain would receive a signed statement and a statement for the balance of the year. Allsvelte provided Cassegrain with the former document on 21 February 2013. However, it did not provide a statement for the period July 2012 to September 2012.
In her affidavit evidence, Ms Bennett says that she was having difficulties with her accountants and at some stage she engaged new accountants (Accounting Services Tailor Made (ASTM)). Those accountants eventually prepared a statement dated 5 September 2014 covering the whole of the period from 13 September 2011 to 12 August 2014, and a number of subsequent statements.
In the meantime, on 9 January 2013, Mr Cassegrain asked when he could view records relating to Gross Sales "including copies [sic] invoices including POS [Point of Sale] system generated invoices; for the period 1st November 2012 to the end of December 2012." Ms Bennett replied the same day saying that she was snowed under, that she would get the figures next week, that the POS system had crashed for a period but that "we do have manual records as well as the bank records". On 15 January 2013, Ms Bennett said in an email that the records were with the accountant and that she would deliver the documents in accordance with cl 31.6 of the Sublease the following week. Mr Cassegrain sent a reminder on 24 January 2013 to which Ms Bennett replied that the documents were still with the accountant. Mr Cassegrain sent a further reminder on 31 January 2013 saying that if the documents were not made available within 14 days he would consider it a breach of the lease. He then sent a further reminder on 19 February 2013. Ms Bennett replied to that email on the same day in the following terms:
I was under the understanding that tax agent/registered accountant's audit of the figures for the preceding year is what is required under the lease - and of course at my expense.
I have forwarded your email to my lawyer for his view on your request to sit down and go through the meal order dockets and POS slips and whether this is necessary or normal. Accurate daily takings information is entered into our QB offsite program including direct deposits for functions. Direct deposits are not included on the POS system, nor are set menu small parties or coach tour payments by cheque.
There was further correspondence between them in relation to the issue. Ms Bennett explained that the POS program was down during November. On 20 February 2013, Mr Cassegrain asked whether the system was down for the whole of November. He also repeated the request for records from 1 November 2012 to the end of December 2012.
Allsvelte did supply bank statements for the period 1 November 2012 to 30 November 2012. It did not provide other documents that Mr Cassegrain had requested, and it appears that Ms Bennett did not reply to Mr Cassegrain's email dated 20 February 2013. When cross-examined, Ms Bennett explained that POS receipts were not available because the system had crashed and that the manual records Allsvelte had, such as order dockets, would not provide information concerning the amount charged, although that is not an explanation she offered to Mr Cassegrain at the time. Her email dated 9 January 2013 suggested that Allsvelte did have manual records that would be of assistance. Although it appears that Mr Cassegrain did not take the matter further at that stage, as will become apparent, access to documents became a major issue later.
The second issue concerned rules made by Cassegrain pursuant to cl 26 of the Sublease. On or about 28 December 2012, Cassegrain introduced a requirement that Allsvelte complete a booking request form for use of areas outside the Restaurant. The form required Allsvelte to provide details of the relevant function, including the customer name and contact details, and the locations sought to be used. It stated that "Confirmation of this booking is not valid until receipt of payment is received and acceptance in writing of any specific conditions". Despite a request made by Mr Cassegrain on 28 December 2012 that Allsvelte use the form for all future bookings, it appears that Ms Bennett sought on occasions to raise bookings directly with Cassegrain staff. It appears that one complaint Ms Bennett had was that Mr Cassegrain was too slow in responding to requests to use other parts of the winery. To overcome that problem, she requested but was refused access to a shared calendar showing other bookings for the areas that Allsvelte were entitled to license. It appears that Ms Bennett's position was that the other areas should be available on a first come first served basis, whereas Mr Cassegrain wanted to consider each request in the context of an overall plan for use of the winery facilities.
Ms Bennett also objected to the fact that the booking form required Allsvelte to give contact details for the customer. Ms Bennett was concerned that Cassegrain would use that information to compete with Allsvelte, although cl 42.1 of the Sublease provided that "The Lessee [clearly, a reference to Cassegrain] must not suffer or permit, by lease or licence or otherwise, any person to sell any food or beverage within the Winery for immediate consumption, in competition with the Lessee". Ms Bennett's concern arose because Cassegrain had published a function price list which specified the costs of hiring various parts of the winery and its grounds. The original list identified Allsvelte and another caterer as recommended caterers. It was also Cassegrain's position that the Sublease did not prevent customers from engaging another caterer for functions held outside the winery building. In addition, Cassegrain had held one or more special functions in the winery building where it had engaged outside caterers.
The issue was discussed at a meeting between Mr Cassegrain and Ms Bennett in or about January 2013 and in or about May 2013 Cassegrain introduced a new system which did not require Allsvelte to supply customer details until the request had been approved. Despite that, it is apparent that on occasions Allsvelte accepted bookings to use areas other than the Restaurant without first obtaining approval or paying the licence fee. Ms Bennett accepted in cross-examination that in the majority of cases Allsvelte did not provide the contact details of the person who was booking the event, and that it maintained that it was not obliged to do so. It is apparent from the correspondence between the parties that the issue continued to be a source of tension.
On 8 August 2013 the parties attended a mediation following an application filed by Allsvelte with the Retail Tenancy Unit. As a result, they entered into a Heads of Agreement that was intended to settle a number of disputes between them. The Heads of Agreement contemplated that the parties would execute a variation of the Sublease to give effect to their agreement, although they never did. The agreement resolved disputes concerning the amount Allsvelte could charge for Cassegrain wines in the Restaurant, wheelchair access, the service of non-Cassegrain wines in the Restaurant and Allsvelte's contribution to advertising costs (it agreed to pay 50 percent up to a maximum of $1,250 per month). The agreement also provided that Cassegrain (but not third parties) could conduct functions in the winery building (but outside the Restaurant) using another caterer, but all other catering had to be provided by Allsvelte. There were a number of disputes relating to the amount Allsvelte owed Cassegrain in respect of matters such as the purchase of wine and the payment of licence fees. In relation to those, it was agreed that the parties would meet to resolve all outstanding accounts within seven days and that any amount outstanding would be paid within 14 days.
Following the mediation, Cassegrain amended its function booking form to make it clear that any functions within the winery building had to be catered for by Allsvelte. Although some attempt was made to resolve the issues in relation to the outstanding accounts, no final resolution was reached.
Allsvelte's failure to comply with Cassegrain's booking procedure for functions outside the Restaurant continued to be a source of tension and on 27 March 2014 Mr Cassegrain sent an email to Ms Bennett saying:
Suzanne in light of your failure to comply with the wineries [sic] reasonable request, if you have a client (or potential client) who wishes to use parts of the winery other than the restaurant and areas within the grounds for one off functions, they are to come directly to me to make the arrangement.
However, Allsvelte did not comply with that new rule. It continued to ask either through booking request forms or by email when particular areas were available to be licensed by Allsvelte. Ms Bennett's position was that the new rule was not reasonable. In addition, there were a number of occasions on which Allsvelte held functions outside the Restaurant without obtaining Cassegrain's approval or accepted bookings without referring the customer to Cassegrain or obtaining Cassegrain's prior approval.
On 10 April 2014, Cassegrain sent Allsvelte invoices for the base rent, March turnover rent and utilities/advertising. For reasons that remain unclear, the direct debit in respect of the base rent was not processed. Ms Bennett had instructed an employee of her company to check that the transfer had been processed, but it appears that he did not do so.
On 12 June 2014, Allsvelte served a notice dated 11 June 2014 on Cassegrain purporting to exercise the option for a sublease of a further three years.
On 16 June 2014, Cassegrain notified Allsvelte that the base rent for April had not been paid. It appears that Ms Bennett did not learn of that fact until the evening of 17 June 2014. Ms Bennett immediately arranged to transfer the amount of the base rent from her personal account with the Commonwealth Bank.
In any event, Allsvelte submits that as at 11 June 2014 it had overpaid Cassegrain the sum of $2,268, with the result that it was not late in paying base rent for April. It submits that that overpayment had occurred in respect of an advertising contract with Plasma-Tech. Under the terms of the Heads of Agreement, Allsvelte was obliged to pay 50 percent of the amount payable in respect of that contract. That came to $283.50 per month. The contract came to an end in September 2012. However, Allsvelte had made further payments in each month until May 2013. It claimed a credit for those overpayments on 9 September 2014. Cassegrain was not aware of the overpayment before then. It refunded the amount of the overpayment on 8 October 2014.
On 18 June 2014, Cassegrain served a notice on Allsvelte pursuant to s 133E of the Conveyancing Act. That notice specified the following breaches of the Sublease as precluding Allsvelte from exercising the option:
(a) You are in arrears in rental as, as [sic] at 11 June 2014, one (1) month's base rent owing had not been paid.
(b) Regularly throughout the term of the Sublease you have failed to pay the turnover rent in accordance with Clause 31.
(c) Regularly throughout the term of the Sublease you have failed to deliver to the Sublessor the requisite written statement setting out the gross sales in accordance with Clause 31.
(d) Regularly throughout the term of the Sublease you have not provided true and correct details of all gross sales in accordance with Clause 31.
(e) Regularly throughout the term of the Sublease you have not provided accurate Gross Sales Statements, prepared and certified by your Accountant, required in accordance with Clause 31.5 of the Sublease.
(f) Regularly throughout the term of the Sublease you have not complied with the rules made by the Sublessor (in accordance with Clause 26) designed to assist with the facilitation of the provisions of Clause 34 of the Lease.
(g) Regularly throughout the term of the Sublease you have failed to comply with Clause 32.2.3.
(h) You have breached the provisions of Clause 40 of the Sublease and, in particular, have failed to conform and comply with the provisions of the Liquor Act in your conduct of the licensed premises.
(i) You have failed to pay utility charges on the due date as provided for in Clause 43 of the Sublease.
As a result, Cassegrain claimed that the lease was to expire on 12 September 2014.
On 7 July 2014, Cassegrain sought to audit the books of account and records of Gross Sales for the period from 13 September 2011 through to 30 June 2014. It stated that "This should include gross sales on revenues from Off-site catering, such as the Glass-house".
On 14 July 2014, Ms Bennett wrote to Mr Cassegrain claiming that Cassegrain had misapplied the terms of the Sublease. According to her, turnover rent was payable for each month commencing on the 13th day of each month. The GS Statement in respect of each month was due on the 7th of the following month and payable on the 14th of that month.
On 18 July 2014, Allsvelte commenced these proceedings, seeking relief under s 133F of the Conveyancing Act.
On 5 September 2014, Allsvelte provided a GS Statement for the period 1 August 2014 to 12 August 2014.
On 9 September 2014, Allsvelte emailed Cassegrain a certificate from ASTM dated 5 September 2014 stating that "We have extensively audited all the sales accounts of figures as supplied by our client" for the period 13 September 2011 to 12 August 2014 and that the gross sales figures for that period were $1,250,238.00 "Ex of GST". The certificate also gave the GST inclusive figure.
Cassegrain replied to that email on 10 September 2014 stating that the certificate did not provide reasonable detail and requesting that it contain a breakdown of the following:
Cash/Cheque Sales
Credit Card Sales
Direct Deposits
BBX & Barter Card Sales
Online Internet Sales (Paypal)
Offsite Catering & Functions
Ms Bennett replied in the following terms to that request:
The full approx. 250 page audit which includes bank statements, tax returns, non-cash trading statements and paypal sales have all been provided to my lawyer and is in his hands in Sydney now. All of the below items you have suggested are contained therein.
I would like to suggest that Cassegrain Wines lawyer [sic] on behalf of Cassegrain Wines contact with my lawyer directly in regards to this as they are in near proximity and would have an understanding of industry standard "reasonable requirements".
Allsvelte provided a further consolidated GS Statement dated 25 September 2014 prepared by ASTM covering the whole of the period from 13 September 2011 to 12 September 2014. Again, however, the statement did not contain the details requested by Cassegrain. Cassegrain maintained that that statement and the statement provided on 5 September were not in accordance with the Sublease and, by email dated 14 November 2014, it purported to exercise its right under cl 31.4 to charge the maximum turnover rent. Allsvelte took issue with its right to do so.
After that time, there was further correspondence between the parties concerning the period that should be covered by the monthly GS Statements and the information that GS Statements should contain. In particular, on 7 October 2014, McCabes, Cassegrain's solicitors, wrote to JP Capsanis & Co, Allsvelte's solicitors, stating that the certificates from ASTM dated 5 September 2014 and 25 September 2015 did not comply with cl 31.5 of the Sublease because they were not in respect of "each lease year", they were late and they contained no indication of how the Gross Sales figures were derived and consequently were not "itemised in reasonable detail" as required by cl 31.1.3. The letter requested statements for each year setting out total sales for each payment method and details of any surcharges and fees charged by banks or credit card companies for credit and electronic payments that had been deducted by 4.00 pm on Tuesday 21 October 2014.
Also on 7 October 2014, McCabes wrote to JP Capsanis & Co demanding that Cassegrain have access to all books of account and records relating to Gross Sales. JP Capsanis & Co replied to that letter on 9 October 2014 asking a number of questions concerning the methodology to be used in carrying out the audit, who would conduct it, how long the procedure would take and why the audit was necessary in view of the statements that had been supplied. Mr Capsanis also confirmed that he held a "bundle of material related to audit purposes" and suggested that it was logical that the parties agree that the audit take place in Sydney. McCabes replied to that letter on 15 October 2014. They answered a number of Mr Capsanis's questions. They pointed out that the audit was to take place in Port Macquarie, but stated that "in light of the fact that the deadline [for the inspection] has now lapsed … our client consents to copies of the relevant documents … being provided to our office". The response concluded:
We look forward to receiving the relevant documents as a matter of urgency and by no later than 4pm on Friday 17 October 2014. In the event that we do not receive all of the necessary documents by that time, our client will treat your client's failure to comply with clause 31.6 as a breach of the Sublease and will take such action as it thinks appropriate accordingly.
On 10 October 2014 McCabes wrote to JP Capsanis & Co restating the rules in relation to the use of areas outside the Restaurant. The rules were stated in these terms in the letter:
1. Your client is to forward any requests made by any customer or potential customer for the use of any parts of the winery other than the restaurant for one off functions or events to our client, including the customer's contact details. Alternatively, your client is to provide the customer with our client's contact details so that the customer can make the relevant enquiries with our client directly.
2. Our client will liaise with your client and with the customer in relation to the request and will advise whether any such request has been approved or declined and, if approved, whether the approval is subject to any special conditions.
3. In the event that the request is approved and any special conditions have been agreed to, your client is to pay the relevant licence fee pursuant to clause 34.3.
For the avoidance of any doubt, under no circumstances is your client permitted to approve any such requests made by customers or to advise the customer that a particular date is available for the function or event.
Allsvelte continued to provide monthly GS statements for the period commencing on the 13th of each month and ending on the 12th of the following month. On 14 November 2014, Mr Cassegrain sent Ms Bennett an email maintaining that those statements were not in accordance with the Sublease and purporting again to charge Allsvelte the Maximum Turnover Rent for the months of August, September and October 2014 because it had failed to provide the relevant GS Statements.
On 26 November 2014, Cassegrain served a notice to produce on Allsvelte seeking documents relevant to the Gross Sales. On 15 December 2014, Allsvelte filed a notice of motion seeking to have that notice to produce set aside. Following a contested hearing on 9 April 2015, the court ordered that Allsvelte produce most of the documents called for by the notice to produce. After further delays, most of the documents were finally produced on 18 June 2014 and the balance has been produced subsequently.
In the meantime, on 19 December 2014, Cassegrain served a notice pursuant to s 129 of the Conveyancing Act. The notice largely relied on Allsvelte's failure to comply with the requests set out in McCabes' letters dated 7 October and 10 October 2014. So far as the audit was concerned, the notice stated that Allsvelte was required to remedy the breach "by making the books and records available to us by delivery to our solicitors, McCabes … within 14 days from the date of this notice". The notice required certified annual GS Statements "itemised in reasonable detail or in accordance with our reasonable requirements" within 14 days. It required monthly GS Statements "for each month of the Sublease period, itemised in reasonable detail or in accordance with our reasonable requirements" within 14 days. It also required GS Statements for the calendar months of September, October and November 2014 within 14 days and the payment of the Maximum Turnover Rent for the calendar months of September and October. Lastly, the notice listed a number of functions that were held by Allsvelte outside the Restaurant without approval, although it did not identify any steps to be taken by Allsvelte to remedy those breaches.
On 6 January 2015, Cassegrain served a notice terminating the Sublease relying on the failure to make available books and records relating to Gross Sales, the failure to provide certified and monthly GS statements and the failure to pay maximum turnover rent.
On 11 May 2015, Cassegrain served a further notice pursuant to s 129 of the Conveyancing Act. The notice raised a number of issues which are no longer pressed (including damage to part of the deck of the winery by a marquee erected by Allsvelte without authority, blocking of wheelchair access, the failure to provide certain discounts and the failure to ensure that the restaurant waste was sorted). It also required Allsvelte to provide GS Statements for the calendar months of December 2014, January 2015, February 2015, March 2015 and April 2015 and to pay maximum turnover rent for those months. Cassegrain served a further notice of termination based on those breaches on 5 June 2015.
Based on the documents that Allsvelte produced, Cassegrain claimed that Allsvelte's total Gross Sales for the period 13 September 2011 to 28 November 2014 were $1,534,427.16 (excluding GST). The figure disclosed by Allsvelte was $1,410,740.06, making a difference of $123,687.10. In supplementary submissions filed after the hearing had concluded, Cassegrain submits that the figure is $131,390.43.
In addition, according to the un-contradicted evidence of Mr Cassegrain, Cassegrain has issued the following invoices that have not been paid by Allsvelte:
Wine Sales
Date of Invoice Amount of Invoice Amount Outstanding as at 12 June 2015
12/03/2012 $1,400.54 $350.14
18/03/2013 $288.06 $72.02
27/03/2013 $536.39 $134.10
05/04/2013 $10.65 $2.67
11/04/2013 $803.16 $200.79
18/04/2013 $873.41 $218.36
26/04/2013 $2,713.10 $678.28
03/05/2013 $15.14 $3.79
06/05/2013 $320.70 $80.18
10/05/2013 $693.55 $173.39
22/05/2013 $861.34 $215.34
11/06/2013 $1,008.93 $252.24
21/06/2013 $620.74 $155.19
23/06/2013 $42.57 $10.65
Advertising
01/01/2013 $1,404.07 $825.00
17/02/2014 $1,375.00 $1,079.43
13/03/2014 $1,375.00 $1,080.00
10/04/2014 $1,375.00 $1,079.43
13/05/2014 $1,375.00 $1,079.43
Inventory Hire Fees
10/01/2013 $4,461.60 $4,461.60
15/01/2013 $1,405.80 $1,405.80
Licence Fees
21/12/2012 $990.00 $726.00
21/01/2013 $1,936.00 $660.00
05/06/2013 $242.00 $242.00
[4]
The evidence is supported by copies of the actual invoices. Allsvelte has not produced any evidence that the invoices have been paid. I accept Mr Cassegrain's evidence on this issue.
[5]
Relevant Legal Principles
Section 133E of the Conveyancing Act provides:
Breach of certain obligations not to preclude option except in certain circumstances
(1) This section applies to a lease that contains:
(a) an option exercisable by the lessee, and
(b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised.
(2) Despite any provision of the kind referred to in subsection (1) (b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless:
(a) the prescribed notice has been served on the lessee in respect of the breach, and
(b) the lessee's rights are extinguished in relation to the notice.
(3) In subsection (2):
breach of an obligation includes, where the obligation requires any thing to be done, any neglect or failure to do the thing concerned.
obligation includes any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing any thing.
prescribed notice means a notice in writing:
(a) specifying the lessee's breach of the relevant obligation and served on the lessee:
(i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or
(ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and
(b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option.
(4) For the purposes of subsection (2)(b), the lessee's rights are extinguished in relation to a prescribed notice:
(a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or
(b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or
(c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose.
Section 133F of the Conveyancing Act relevantly provides:
Court may grant relief from breach of certain obligations
(1) …
(2) The court may, in proceedings in which relief referred to in section 133E is sought:
(a) make such orders (including orders affecting an assignee of the reversion) as it thinks fit for the purpose of granting the relief sought, or
(b) refuse to grant the relief sought.
(3) The court may, in proceedings referred to in subsection (2), take into consideration:
(a) the nature of the breach complained of,
(b) the extent to which, at the date of the institution of the proceedings, the lessor was prejudiced by the breach,
(c) the conduct of the lessor and the lessee, including conduct after the giving of the prescribed notice referred to in section 133E (2),
(d) the rights of persons other than the lessor and the lessee,
(e) the operation of section 133G, and
(f) any other circumstances considered by the court to be relevant.
In any proceedings for relief under s 133E the burden of proof of a breach of the lease lies upon the lessor, while the burden of demonstrating that relief should be granted, assuming that the alleged breaches are made out, lies upon the lessee: Re Denny's Restaurants [1977] Qd R 92, applied in Evanel Pty Ltd v Stellar Mining NL [1982] 1 NSWLR 380 at 387-8.
It is apparent from the terms of the Sublease and s 133E that Allsvelte is prevented from exercising the option only if:
1. at the time of service of the notice exercising the option, rent or any outgoing was overdue for payment by Allsvelte or other obligations of the lessee have not been complied with or "fully remedied in accordance with the terms of any notice to remedy given by the lessor"; and
2. Cassegrain served a prescribed notice in respect of the breach; and
3. Allsvelte's rights in relation to the prescribed notice are extinguished in accordance with s 133E(4).
The prescribed notice must be in writing "specifying the lessee's breach of the relevant obligation". The section does not identify clearly how the breach is to be specified. In my opinion, it must be specified with sufficient particularity to enable the lessee to make a decision whether or not to seek relief under s 133F and to seek that relief if it decides to do so, since it is for that purpose that the notice is given: see Nameless, Shameless and Legless Pty Ltd v 2 Roslyn Street Pty Ltd [2004] NSWSC 519 at [36] per Einstein J.
There is nothing in s 133E which requires separate notices to be given in respect of separate breaches. Consequently, the issue in relation to each breach identified in the notice served by Cassegrain is whether that is a breach that precludes the exercise of the option under the lease and is identified with sufficient specificity to enable Allsvelte to make a decision whether to seek relief under s 133F in respect of that breach and to seek that relief if it decides to do so. That conclusion is consistent with the approach taken by White J in Dee-Tech Pty Limited v Neddam Holdings Pty Limited [2012] NSWSC 251.
[6]
Was Allsvelte disentitled from exercising the option?
Allsvelte is disentitled from exercising the option in two broad circumstances. One is where rent or some outgoing was overdue. The other is where it has not complied with all the obligations of the lease or fully remedied them in accordance with the terms of any notice to remedy given by Cassegrain.
In the first case, the rent or outgoing must be overdue at the time the notice exercising the option is served. The notice specifying the breach must identify the overdue amount with sufficient specificity to enable Allsvelte to decide whether it should seek relief in respect of that breach and to formulate that relief if it decides to do so.
In the second case, the position is less clear. Clause 4.4.3 states that, as at the time the notice exercising the option is served, Allsvelte must have complied with all other obligations under the Sublease or fully remedied them in accordance with any notice given by Cassegrain. The first disjunct ("at the time of service all the other obligations of the lessee have been complied with") only appears to apply if Allsvelte has not during the term of the Sublease breached the relevant obligation. In other words, it is saying that if, at the time the notice is served there has not been a breach of a non-monetary obligation at any time, then Allsvelte is entitled to exercise the option. The second disjunct ("at the time of service all the other obligations of the lessee have been … fully remedied in accordance with the terms of any notice to remedy given by the lessor") is saying that if there has been a breach at any time then, provided that, at the time the notice exercising the option is served, the breach has been fully remedied in accordance with the terms of any notice served by Cassegrain, Allsvelte may still exercise the option. That much seems clear and is consistent with the position in relation to monetary defaults. But what role does the qualification "in accordance with the terms of any notice to remedy given by the lessor" play? One possibility is that if Cassegrain serves such a notice Allsvelte must comply with it in order to exercise the option; otherwise, it must simply fully remedy the breach. Another possibility is that the obligation to remedy is only imposed if Cassegrain serves such a notice; otherwise, Allsvelte is entitled to exercise the option notwithstanding the breach.
Of these two interpretations, I prefer the latter. If the position is that Allsvelte, in order to exercise the option, was required to remedy any breach fully, what does it add to say that it must do so in accordance with any notice served by Cassegrain? If Cassegrain simply identifies what must be done in accordance with the Sublease to remedy the breach, the notice appears to add nothing. On the other hand, if Cassegrain required Allsvelte to do something other than, or different from, what the Sublease requires, how can it be said that that involves remedying the breach? Rather, it involves complying with a new obligation imposed by Cassegrain. It is hard to believe that that is what the parties intended.
Moreover, the second interpretation recognises that some non-monetary breaches of the lease could be trivial. It makes commercial sense for the parties to have agreed that only those non-monetary breaches that have been the subject of a notice to remedy by Cassegrain, and that have not been remedied, should disentitle Allsvelte from exercising the option. On that basis, the "breach" for the purposes of the notice required by s 133E of the Conveyancing Act is not the breach of the Sublease giving rise to the notice to remedy, but the failure to comply with the notice to remedy.
Paragraphs (a), (b) and (i) of Cassegrain's notice dated 18 June 2014 identify breaches concerning the payment of rent or outgoings. Paragraph (a) is concerned with base rent. Paragraph (b) is concerned with turnover rent. Paragraph (i) is concerned with utility charges. Paragraph (a) does not identify the instalment of base rent that was unpaid at the time the notice was served. However, in my opinion, that is not fatal to the validity of the notice in respect of that alleged breach. It is apparent from the notice that Cassegrain was asserting that one month's base rent was in arrears. It would have been a simple matter for Allsvelte to determine whether it agreed with that assertion or not, and whether or not it agreed, to decide whether it should commence proceedings for relief under s 133F of the Conveyancing Act in respect of that alleged breach and to do so if it chose to.
Allsvelte submits that it was not in breach of the obligation to pay an instalment of Base Rent because it was entitled to set-off the overpayment it had made in respect of advertising. There are, however, two problems with that submission. The first is that the right of set-off does not operate automatically. Allsvelte's apparent assumption that it does confuses a right of set-off with a running account. There was no running account between Cassegrain and Allsvelte in relation to the payments in question. Cassegrain was entitled to the payment of Base Rent under the Sublease. Allsvelte was entitled to recover an overpayment under the Heads of Agreement in respect of advertising costs as money had and received. It is difficult to see how the right of set-off could have arisen at least until Allsvelte asserted that it was entitled to a refund of the money that it claimed it had overpaid. That did not occur until after 11 June 2014.
Second, according to the evidence of Mr Cassegrain, which I accept, as at 15 January 2013, Allsvelte owed Cassegrain $5,867.40 in respect of inventory hire fees. Those fees were not payable under the Sublease. But nor was the refund of the overpayment of the advertising contribution payable under the Heads of Agreement. If a right of set-off was automatic, then it is difficult to see why it would not also have operated in respect of the amount Allsvelte owed Cassegrain in respect of the hire fees. On that basis, Cassegrain was entitled to set-off the overpayments against those amounts, leaving nothing to be set-off against the Base Rent.
The position in relation to paras (b) and (i) is more difficult. Paragraph (b) appears to address the wrong question. The question is not whether Allsvelte breached cl 31 of the lease regularly and throughout the term of the Sublease. The question is whether there was an instalment of turnover rent that, as at the time the notice was served, had not been paid in accordance with cl 31. Moreover, it is difficult to know what is being asserted. The obligation to make payments of turnover rent turns on the delivery of monthly GS Statements within the first seven days of each calendar month, the payment of turnover rent in accordance with those statements and the payment by one party or the other of an adjustment at the end of each year following the provision of an annual GS Statement in accordance with cl 31.5 of the Sublease. However, it is unclear what amounts are asserted not to have been paid in accordance with those provisions. For example, is it alleged that some different amount of turnover rent than the amount actually paid was payable in respect of each month, with the result that as at the date the notice exercising the option was served the correct turnover rent had not been paid for each month? If so, is that because it is alleged that Allsvelte calculated the turnover rent incorrectly (and Allsvelte's obligation was to pay correctly calculated turnover rent), or is it because it is alleged that the monthly GS Statements were invalid for that reason or because they contained insufficient particulars so as to trigger the obligation to pay the maximum turnover rent in each month, which was not paid? Or is it alleged that, although turnover rent was payable in accordance with the GS Statements actually served, one or more instalments were overdue at the time the notice was served? Paragraph (b) is so general that it is difficult to see how Allsvelte could properly consider the question whether it should seek relief in respect of the paragraph or how it should frame that relief. Accordingly, in my opinion, it does not satisfy the requirements of s 133E.
Paragraph (i) also appears to address the wrong question. The question is not whether Allsvelte failed to pay utility charges on the due date. The question is whether there were utility charges that were overdue at the time the notice exercising the option was served. There is no evidence that any amount payable in respect of utility charges was overdue as at 12 June 2014. Accordingly, para (i) does not identify a relevant breach.
The remaining breaches identified in the notice concern non-monetary breaches. The breaches on which Cassegrain continues to rely are those identified in paras (c), (d), (e) and (f). However, there are two difficulties with each of those paragraphs.
First, none of them is expressed as a failure to remedy a breach fully in accordance with the terms of any notice to remedy given by Cassegrain. Or, to put the point another way, none of them specifies a breach that disentitles Allsvelte from exercising the option. They simply specify breaches that could have been the subject of a notice to remedy under cl 4.4.3 of the Sublease.
In addition, there are difficulties with paras (c) and (d). Paragraph (d) assumes that it is a breach of the Sublease for Allsvelte not to serve accurate GS Statements. I do not accept that that is so. It may be a beach of the Sublease knowingly to serve inaccurate monthly GS Statements. But I do not think that it is a breach of the Sublease to serve GS Statements that are found later to be incorrect. The purpose of the annual GS Statements and the clause that permits Cassegrain to audit the records in relation to gross sales is to provide mechanisms for detecting any inaccuracies and making any necessary adjustments if there are. Consequently, in my opinion para (d) does not even identify a breach of the Sublease. The difficulty with para (c) is that it is not clear what is being alleged. Is it said that the GS Statements are not in accordance with cl 31 because the amount was calculated incorrectly or because the statements were not served on time or because they contained inadequate detail or for some other reason? In my opinion, Allsvelte needed to know that information in order to consider and to make an application under s 133F, assuming that the paragraph otherwise identified a relevant breach.
Secondly, there are no relevant notices to remedy. Cassegrain served several formal notices of breach prior to 11 June 2014. However, the only notice which is relevant to the breaches that Cassegrain now relies on is the notice served on 9 November 2012. One of the breaches identified in that notice was a breach of the covenant under cls 31.2 and 31.3 "to supply within the first 7 days of the month the preceding months [sic] Gross sale statement, and to pay the turnover rent according to this statement by the 15th day of the month". The conduct required to remedy that breach was said to be "The lessee to pay all outstanding turnover rent within 14 days of this notice, and in future undertakes to comply by the covenant". To the extent that the notice of remedy required the payment of outstanding turnover rent in accordance with the GS Statements that had been served, it seems clear that that breach had been fully remedied well before 12 June 2014. To the extent that the notice to remedy required that Allsvelte "undertakes to comply by the covenant", it is difficult to see how that could be conduct necessary to remedy the breach fully.
As is apparent from the factual background referred to above, there are other emails sent by Mr Cassegrain in which he complains about Allsvelte's conduct and requires Allsvelte to comply with the provisions of the Sublease. A number of those emails were specifically concerned with Allsvelte's failure to comply with the rules made in accordance with cl 26 that were designed to assist in implementing cl 34, which is the subject of para (f) of the notice under s 133E. However, those emails are not expressed as notices of breach or notices requiring Allsvelte to remedy a breach and it is difficult to see how they could meet the description of a notice to remedy for the purposes of cl 4.4.3 of the Sublease.
It follows that the only breach of the Sublease that disentitled Allsvelte from exercising the option was the failure to pay Base Rent on 12 April 2014. The question is whether it is entitled to relief in respect of that failure under s 133F of the Conveyancing Act.
[7]
Relief under s 133F of the Conveyancing Act
Section 133F(3) lists various matters the court may take into account in exercising the discretion conferred by the section. The court is not required to take any one of the particular factors set out in s 133F(3) into account or place particular weight on any of them, nor to exclude any additional considerations that may be relevant to the exercise of the court's discretion to grant relief that are not set out in s 133F(3). The granting of relief referred to in s 133E(4) is discretionary and the power is to be exercised in a way that will best achieve justice between the parties in the circumstances of the particular case: Best and Less (Leasing) Pty Ltd v Darin Nominees Pty Ltd (1994) 6 BPR 13,783 at 13,788 per McLelland CJ in Eq. Among the matters the court will consider are "the nature, circumstances and importance of the breach, the likelihood of its repetition and the effect of its repetition on the lessor in the future": Evanel at 390. Also relevant is whether the breach was wilful: Dee-Tech Pty Limited v Neddam Holdings Pty Limited [2012] NSWSC 251. In some decisions (for example R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 310; as well as Total Destination Marketing Pty Ltd v Horizons Snowy Mountains Pty Ltd (Formerly Ainline Pty Ltd) [2011] NSWSC 1575), the court has also taken into account the general relationship between the parties and refused to grant relief where the relationship "has soured and is likely to remain disputatious": P Butt, Land Law (2010, 6th ed, Law Book Co) at 423-4.
On the other hand, relief is generally granted where the breaches have not caused any appreciable harm to the lessor: Courtney Creche Pty Ltd v Okko's Fine Art & Custom Framing Pty Ltd (1995) 7 BPR 14,337 at 14,358.
A curious feature of the present case is that, on the findings I have made, the only breach that disentitles Allsvelte from exercising the option under the lease is the failure to pay one instalment of Base Rent on time. That failure was clearly inadvertent, caused no appreciable harm to Cassegrain and is unlikely to be repeated.
It is, however, plain that the court can take into account matters that are not breaches that were the subject of a notice given in accordance with s 133E and, in this case, there are a number of matters which, when taken together, have caused me to conclude that this is not an appropriate case in which to exercise the discretion conferred by s 133F in Allsvelte's favour.
First, Allsvelte has persistently failed to provide Cassegrain with annual GS statements in accordance with the Sublease. The Turnover Rent was an important component of the rent payable by Allsvelte. Cassegrain was dependent on receipt of the annual GS Statements and its right of audit in order to be satisfied that Allsvelte was calculating Turnover Rent correctly in accordance with the Sublease. Consequently, Cassegrain's right to receive annual GS Statements was an important right it had under the Sublease. The first annual GS Statement was due on 12 November 2012. It was not provided at that time. Cassegrain requested it on 15 December 2012. However, despite subsequent requests, Cassegrain did not receive a GS Statement for the complete year. Nor did it ever receive a statement that provided a reasonable level of detail. In my opinion, that detail was important because it would have enabled Cassegrain to make some assessment of whether it thought that the definition of "Gross Sales" in cl 31.1.2 was being applied correctly and to consider whether it should conduct an audit or not.
For example, it is conceded that Allsvelte's calculation of Gross Sales did not include Bartercard transactions or income earned from The Glasshouse. Allsvelte disputes that income earned from The Glasshouse was to be included in Gross Sales. I return to that issue below. It also submits that the revenue derived from Bartercard transactions was small and the failure to include it was an oversight. However, that is beside the point. If Cassegrain had been provided with an annual GS Statement that provided a reasonable level of detail, the issues are likely to have been identified and Cassegrain would have been able to take the steps it considered appropriate having regard to its rights under the Sublease.
It appears that Cassegrain stopped pressing for the provision of an annual GS Statement that complied with the Sublease in respect of the first year and began to focus on other issues including access to Allsvelte's records to conduct an audit of gross sales and issues concerning the licensing of other areas of the winery. But the obligation was on Allsvelte to supply the annual GS Statement. The obligation was not on Cassegrain to continue to demand it, even though its previous requests had not been met.
Ms Bennett says that Allsvelte was having difficulty in obtaining the GS Statement from its accountant, although she does not explain precisely what those difficulties were. Those difficulties may explain why there was some delay in providing the statement. However, they do not explain why the statement was never provided or why Allsvelte resisted providing a statement with any detail subsequently. It must be concluded that the failure to provide the statements was wilful.
The annual GS Statement for the second year was due on 12 November 2013. It was not provided and Allsvelte did not provide a GS Statement that was certified by its accountant until the statement provided on 9 September 2014. That statement contained no detail and Allsvelte has never provided Cassegrain with a GS Statement certified by its accountant that is itemised in reasonable detail.
Secondly, Allsvelte has persistently failed to permit Cassegrain to audit Allsvelte's books of account and records in relation to gross sales. Mr Cassegrain first made a request to review the records relating to gross sales for the period from 1 November 2012 to 31 December 2012 on 9 January 2013. It appears from the correspondence that Allsvelte was initially prepared to give Mr Cassegrain access to those records. However, despite several reminders, it did not do so and on 19 February 2013 Ms Bennett sent an email to Mr Cassegrain in which she queried Cassegrain's right to obtain access to the menu order dockets and POS slips and stated that she was obtaining legal advice on that issue. After some further correspondence, the matter was allowed to drop until 7 July 2014, when Cassegrain sought access to the records for the period from the beginning of the Sublease to 30 June 2014.
It is plain from what happened subsequently that Allsvelte resisted giving Cassegrain access to its records to enable Cassegrain to conduct an audit. It appears that it relied on legal advice, but that does not make the conduct any less wilful. Allsvelte submits that access only needed to be given to a qualified auditor. In my opinion, there is no merit in that submission. Clause 31.6 states that "The Lessor may at any time but upon reasonable written notice audit the books of account and records relating to Gross Sales" (emphasis added). It is plain that Cassegrain is to be given access to carry out the activity of auditing the records - that is, the activity of examining them to determine whether the figures that had been supplied to Cassegrain in the GS Statements were accurate.
Allsvelte also submits that Cassegrain wanted copies of the relevant records, which it was not entitled to obtain under the Sublease. However, Cassegrain's request for copies must be understood in context. Cassegrain had requested access to the relevant documents in accordance with the Sublease. When that was refused, Allsvelte sent some of the relevant documents to its solicitors in Sydney. As an alternative to inspecting the documents in Port Macquarie, Cassegrain stated that copies of those documents could be delivered to its solicitors in Sydney. Cassegrain and its staff are based in Port Macquarie. It would have been impractical for its staff to travel to Sydney to audit the records. The Sublease required the records to be made available "at the property". It was reasonable in those circumstances for Cassegrain to offer as an alternative that copies could be delivered to its solicitors.
The failure to provide itemised GS Statements and access to records to conduct an audit is significant. Cassegrain eventually obtained access to the relevant records as a result of its notice to produce and orders made by the court. Based on those records, Cassegrain contends that Gross Sales for the period from 13 September 2011 to 28 November 2014 were understated by $131,390.43. Allsvelte takes issue with that figure on a number of grounds, to which it will be necessary to return. However, for present purposes, what is significant is that there is a significant dispute between the parties concerning the calculation of Gross Sales. That dispute only became apparent when the relevant records were produced.
The third reason why, in my opinion, it is not appropriate to exercise the discretion conferred by s 133F in Allsvelte's favour is Allsvelte's conduct in relation to use of other parts of the winery. Clause 34 of the Sublease gives Allsvelte a right to request a licence of other parts of the winery for "one-off functions or events". Cassegrain was not entitled to refuse that request unreasonably. In determining whether to refuse a request, Cassegrain was entitled to take into account the nature of the function, precisely how the area would be used, its own use of the area and other arrangements it had or intended to make for use of the area. It was reasonable in those circumstances for Cassegrain to put in place rules in accordance with cl 26 of the Sublease governing requests to use any of the relevant areas. Allsvelte does not appear to suggest otherwise. It submits that the only area of dispute was Cassegrain's insistence that Allsvelte provide the name and contact details of the customer. However, that is an over-simplification of the issue. Certainly, the provision of contact details was a major source of dispute. However, it is also apparent that Ms Bennett thought that the procedure that had been devised by Mr Cassegrain was cumbersome and caused delay in obtaining a response to requests to license particular areas; and, as I have said, there are occasions when she did not follow it.
In my opinion, the procedure that Cassegrain put in place for the booking of other areas of the winery was not contrary to the provisions of cl 34. Cassegrain was entitled to know exactly what areas were sought to be licensed and the precise use that was to be made of them. It was entitled to a reasonable time to consider a request and to have the request in writing so that there could be no misunderstanding concerning what was sought. The booking form and the procedure that Mr Cassegrain devised for completing it and the giving of approval achieved those goals.
Moreover, in my opinion, it was not contrary to cl 34 for Cassegrain to make approval dependent on supply of the name and contact details of the customer. There may have been occasions on which it was necessary or more efficient for Cassegrain to contact the customer directly in relation to particular aspects of the proposed function. The only reason Allsvelte gives for why that condition was unreasonable is that Cassegrain was in competition with Allsvelte for the business of putting on functions and the provision of the information assisted Cassegrain to compete. However, that concern was addressed by cl 42.1 of the Sublease, the agreement reached in the Heads of Agreement concerning the limited circumstances in which Cassegrain could hold its own functions and Mr Cassegrain's agreement to alter the rules so that the details of the customer only had to be provided once Cassegrain had given its approval to the use of the space.
Consequently, it was a breach of the Sublease for Allsvelte to refuse to comply with the rules made by Cassegrain for the licence of other areas of the winery; and again it seems clear that that breach was wilful.
Mr Cassegrain did purport to change the rules again so as to require customers to deal directly with Cassegrain in relation to the use of areas outside the Restaurant. In my opinion, that requirement was inconsistent with cl 34. Clause 34 gave Allsvelte a right to request a licence of spaces within the winery for one-off functions and prevented Cassegrain from unreasonably refusing those requests. A rule that prevented Allsvelte from making any requests and requiring the request to come from Allsvelte's customer was inconsistent with that right. However, the significance of this fact is diminished by the fact that the rule was not followed by Allsvelte and was one that was only imposed in response to Allsvelte's failure to comply with rules that were valid under cl 26.
Lastly, in my opinion, this is a case where the relationship between Allsvelte and Cassegrain has soured and is likely to remain disputatious to the point where it would not be appropriate for the court to exercise its discretion under s 133F.
It is apparent that since not long after the Sublease commenced there have been a range of issues between Cassegrain and Allsvelte concerning the operation of the Sublease. In submissions, Allsvelte complained that Cassegrain had engaged in hands‑on management of a significant part of Allsvelte's business that had the effect of depriving Allsvelte of its right of quiet enjoyment and it is that view that has driven much of Allsvelte's conduct. However, I do not accept that that is a fair characterisation of what has happened. The Restaurant forms part of the winery and the likelihood is that most customers would not distinguish between the two. For that reason, Cassegrain had a very real interest in the way in which the Restaurant business was conducted, and a number of the terms of the Sublease reflect that fact, including cl 24 dealing with the disposal of garbage, the rule making power in cl 26, the obligation imposed by cl 32 on Allsvelte to sell Cassegrain wines in the Restaurant at prices that did not exceed those specified in the Sublease and the obligations imposed by cl 37 in relation to the standards to be met by the Restaurant. Cassegrain was entitled to enforce those obligations and that is what it sought to do. On the other hand, Ms Bennett's attitude was that the Restaurant was Allsvelte's business and Cassegrain should not interfere with it. It was that view and Cassegrain's attempts to enforce the terms of the Sublease strictly that led to many of the disputes between Allsvelte and Cassegrain, including the disputes that were resolved by the Heads of Agreement and the disputes concerning the provision of GS Statements and access to Allsvelte's books and records for the purpose of conducting an audit of Gross Sales. It is apparent from the correspondence between the parties that the relationship between them deteriorated substantially as a consequence of the disputes.
Following service of the notice under s 133E of the Conveyancing Act, Cassegrain began to insist on strict compliance by Allsvelte of its obligations under the Sublease, including matters that it had previously let slip, such as the provision of GS Statements in the form required by the Sublease and access to documents to conduct an audit. Allsvelte's response was to resist complying with obligations it clearly had and to take its own points under the Sublease. Its insistence that monthly GS Statements were to be supplied in respect of "lease" months and not calendar months is an example. Clause 31.2 states that within the first seven days of each calendar month Allsvelte "must deliver to [Cassegrain] a GS Statement with respect to the preceding month". In my opinion, the reference to the "preceding month" is a reference to the month immediately before the calendar month in which the GS Statement must be delivered. That month itself must be a calendar month. That is how the parties interpreted the clause until Cassegrain served the notice under s 133E and started to insist on strict compliance with other provisions of the Sublease. Allsvelte's change of position is further evidence of the deterioration of the relationship between the parties.
Allsvelte submits that once the court resolves the issues in dispute, there is no reason to think that disputes will continue. I do not accept that submission. The nature of the Sublease requires a considerable degree of co-operation between the parties. The parties have been in dispute throughout most of the term of the Sublease. A previous mediation did not bring an end to the disputes. It appears that the relationship between the parties has deteriorated further since Cassegrain served the notice under s 133E. The position taken by Allsvelte in relation to a number of the disputes appears to have been unreasonable. Its failure to provide annual GS Statements or give Cassegrain access to its records in relation to Gross Sales or its position that the monthly GS Statements were to cover the period from the 13th of each month to the 12th of the next are examples. It is apparent that the relationship has soured between the parties as a consequence of their disputes. Although this judgment may resolve specific issues that have been the subject of dispute, there is no reason to think that it will alter the nature of the relationship between the parties.
It follows that Allsvelte's application for relief must be dismissed.
[8]
Termination for failure to comply with the s 129 notices
Having regard to the conclusions I have reached it is not strictly necessary to deal with the issues concerned with the question whether Cassegrain was entitled to terminate the Sublease on the ground that Allsvelte failed to comply with the two notices served under s 129 of the Conveyancing Act. However, I should say something about those issues.
Section 129 of the Conveyancing Act relevantly provides:
Restrictions on and relief against forfeiture of lease
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:
(a) specifying the particular breach complained of, and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and
(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,
and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.
(2) Where a lessor is proceeding by action or otherwise to enforce such a right of re-entry or forfeiture, or has re-entered without action the lessee may personally bring a suit and apply to the Court for relief; and the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, may grant or refuse relief, as it thinks fit; and in case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.
The statutory jurisdiction to grant relief under s 129(2) is "co-extensive with the inherent power of a court of Equity to give such relief": Hillam v Leduva Pty Ltd [2010] NSWSC 1360 at [67]; see also the judgment of Kirby P, with whom Mahoney and Meagher JJA agreed, in Minister for Lands and Forests v McPherson (1991) 22 NSWLR 687 at 698-703.
Similar principles apply to an exercise of the statutory discretion conferred by s 129(2) and the equitable jurisdiction to grant relief against forfeiture: see Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 at [21] per Young CJ in Eq (as he was then).
In both cases, it is normally only appropriate for the court to consider breaches that are identified in the notice: Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9,562, approved in Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 9,635.
In both cases also, it is relevant to consider "the gravity of the breach or breaches in question, whether the breach was inadvertent or wilful, the damage to the covenantee and the relative loss to the covenantor if relief is not granted": Ace Property Holdings Pty Ltd v Australian Postal Corporation [2010] QCA 55; [2011] 1 Qd R 504 at [163] (dealing with the statutory jurisdiction). Compare Shiloh Spinners Ltd v Harding [1973] AC 691 at 723-4 per Lord Wilberforce (dealing with the equitable jurisdiction). Also relevant is whether the lessee has taken any steps to remedy the alleged breach, and whether it has undertaken, or avowed some intention, not to repeat the breach complained of: Rose v Spicer; Rose v Hyman [1911] 2 KB 234 at 241-2, per Cozens-Hardy MR; Lindholm, in the matter of Munday Group Pty Ltd (Receivers and Managers Appointed) (In Liquidation) v Tsourlinis Distributors Pty Ltd [2011] FCA 195 at [35] per Finklestein J. As Lord Wilberforce explained in Shiloh Spinners at 725 "continuous disregard [for the lessor's] rights over a period of time" as well as a "lack of evidence as to the [lessee's] ability speedily and adequately to make good the consequences of his default" will often justify a denial of relief.
One difference between the statutory and equitable jurisdictions may be where the breach is wilful. In the latter case, the court will only grant relief against forfeiture in exceptional circumstances: Shiloh Spinners at 725; Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279. In the statutory context, the wilfulness of the breach is simply one of the matters to be taken into account by the court in exercising its discretion, albeit an important one: see Ladies Sanctuary Pty Ltd v Parramatta Property Investment Ltd (1997) 7 BPR 15,156 at 15,161 per Windeyer J.
It has been suggested that the fact that the relationship between the parties has soured and is likely to remain disputatious carries far greater weight in the case of an application under s 133F in respect of the renewal of an option than it does when considering relief against forfeiture of an existing lease or under s 129(2): see Total Destination Marketing Pty Limited v Horizons Snowy Mountains Pty Limited (formerly Ainline Pty Limited) [2011] NSWSC 1575 at [14] per Pembroke J, referring to P Butt, Land Law (2010, 6th ed, Law Book Co) at 423-4. The reason for the distinction is put on the basis that it is one thing to saddle a lessor with a lease that it has already agreed to. It is another thing to saddle a lessor with a new lease resulting from the exercise of an option granted by the lessee. However, as White J explained in Dee-Tech Pty Limited v Neddam Holdings Pty Limited [2012] NSWSC 251 at [207]ff that conclusion appears to be inconsistent with the decision of the Court of Appeal in Stellar Mining NL v Evanel Pty Limited (1983) NSW ConvR 55-118. Moreover, it is not easy to understand why the exercise of the discretion should depend on whether the lessor has a right to bring the lease to an end or the lessee has lost a right to exercise an option. In each case, the effect of the relief sought is to extend a lease that has otherwise come to an end.
Where the breach on which the forfeiture is based is a non-payment of rent, and arrears of rent have been paid, there is a heavy burden on the lessor to demonstrate why equitable relief should not be granted and would typically require "demonstrating that, by reason of the conduct of the lessee, or otherwise, the grant of relief would be inequitable": per Brereton J in Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited [2007] NSWSC 92 at [72].
The notice dated 19 December 2014 identified 9 breaches:
1. the failure to make books of account and records relating to Gross Sales available in accordance with McCabes' letter dated 7 October 2014. The notice required that breach to be remedied by delivering the relevant records to McCabes within 14 days;
2. the failure to provide certified GS Statements for each sublease year "itemised in reasonable detail or in accordance with our reasonable requirements" in accordance with McCabes' letter dated 7 October 2014. The notice required that breach to be remedied by providing the GS Statements to McCabes within 14 days;
3. the failure to provide monthly GS Statements for each month of the Sublease period "itemised in reasonable detail or in accordance with our reasonable requirements" in accordance with McCabes' letter dated 7 October 2014. The notice required that breach to be remedied by providing the GS Statements to McCabes within 14 days;
4. the failure to follow the rules established pursuant to cl 26 and notified by letter dated 10 October 2014 in relation to, and to obtain Cassegrain's approval for functions held "inside the winery grounds (other than the restaurant)" on 11 October 2014, 18 October 2014, 25 October 2014, 8 November 2014, 15 November 2014, 22 November 2014, 29 November 2014 and 6 December 2014;
5. The failure to provide monthly GS Statements for the calendar months of September, October and November 2014 "itemised in reasonable detail or in accordance with our reasonable requirements". The notice required that breach to be remedied by providing the GS Statements to McCabes within 14 days;
6. The failure to pay Turnover Rent for the calendar month of September 2014 by 15 October 2014;
7. The failure to pay the Maximum Turnover Rent for the calendar month of September 2014. The notice required that breach to be remedied by paying the rent within 14 days;
8. The failure to pay Turnover Rent for the calendar month of October 2014 by 15 November 2014;
9. The failure to pay the Maximum Turnover Rent for the calendar month of October 2014. The notice required that breach to be remedied by paying the rent within 14 days.
Leaving aside (4) for the moment, each of these paragraphs identified existing breaches of the Sublease with sufficient particularity so as to comply with s 129(1). For the reasons I have given, Allsvelte was under an obligation to permit Cassegrain to audit its records relating to gross sales and it did not do so. It was required to provide the GS Statements referred to in the notice that were itemised in reasonable detail and in each case it did not do so. It was required to pay Turnover Rent by the 15th day of each month in respect of the previous month and it did not do so. It was also required to pay Maximum Turnover Rent as a result of its failure to provide GS Statements and it did not do so.
With the exception of (1), the notice required Allsvelte to remedy breaches that were capable of being remedied. In the case of (1), the Sublease does not impose an obligation to make copies of the records available to Cassegrain. Rather, the obligation is to make the records available for inspection at the "premises", meaning the Restaurant. I have explained why Cassegrain maintained that copies of the records should be made available to it. However, that cannot alter the nature of the obligations imposed by the Sublease. Absent some agreement between the parties, the breach identified in (1) could only be remedied by making the records available for inspection at the Restaurant. A notice that required Allsvelte to take some other action to remedy the breach was not a notice requiring it to remedy the breach for the purposes of s 129 and consequently did not meet the requirements of that section.
In the case of (4), in my opinion the rules with which it is said Allsvelte failed to comply were inconsistent with cl 34 of the Sublease. The effect of the rules stated in McCabes' letter dated 10 October 2014 was that Allsvelte was prevented from making any requests to license other parts of the winery. Instead, Allsvelte was required to pass any requests from customers on to Cassegrain. For that reason, the alleged breach identified in (4) was not a breach of the Sublease.
It follows that Cassegrain served a valid notice under s 129 in respect of the breaches other than those identified in (1) and (4) and was entitled to terminate the Sublease based on that notice.
In my opinion, Allsvelte should not be granted relief against forfeiture or relief under s 129(2) of the Conveyancing Act in respect of those breaches. Essentially, the reasons are similar to the reasons for refusing relief under s 133F. The breaches in relation to the provision of GS Statements have been persistent and wilful. In my opinion, they alone provide a sufficient ground for refusing relief. However, in my opinion, it is also appropriate to take into account Allsvelte's refusal to permit Cassegrain to audit the records relating to gross sales. Although that breach was not a breach that was the subject of a valid notice under s 129, it was a breach identified in the notice and again the breach was a persistent and wilful one. It is also relevant to bear in mind that the notice in respect of that breach was not valid because it proposed a method of rectifying the breach that was designed to accommodate Allsvelte, not a means by which Cassegrain was attempting to achieve something to which it was not entitled under the Sublease.
The notice dated 11 May 2015 relevantly related to the failure to provide GS Statements in respect of the months from December 2014 to April 2015. It does not raise any different considerations from the notice given on 19 December 2014. It gave rise to a right to terminate the Sublease. For similar reasons to those I have already given, I would not give Allsvelte relief in respect of that right.
[9]
The amount recoverable by Cassegrain
The amounts recoverable by Cassegrain fall into two principal categories. First, Cassegrain makes a claim in respect of a number of unpaid invoices. A list of the relevant invoices is set out in [53] above. For the reasons I have given in that paragraph, I accept that those amounts are payable.
Second, Cassegrain makes a claim for unpaid turnover rent on the basis that Allsvelte understated Gross Sales for the period from 13 September 2011 to 28 November 2014. As I have said, its final position was that Gross Sales were understated by an amount of $131,390.43. Allsvelte disputes that amount.
To understand the dispute, it is necessary to say something about how it arose. Allsvelte paid amounts it received from customers into bank accounts it held with the National Australia Bank and the Commonwealth Bank. It also received some payments through Bartercard, BBX and PayPal, together with some cash payments. Relying on the documents produced by Allsvelte in response to the notice to produce served by Cassegrain, Cassegrain calculated the Gross Sales by taking the total amounts paid into the two bank accounts together with the other sources of payment and allowing certain deductions to arrive at a figure for Gross Sales. During the course of the hearing, I granted Allsvelte leave to file supplementary submissions following the conclusion of the hearing dealing with Cassegrain's original calculations. In those supplementary submissions, Allsvelte relied on the definition of "Gross Sales" in the Lease. It also relied on s 20(1) of the Retail Leases Act 1994 (NSW), which provides:
Turnover rent
(1) For the purposes of any provision of a retail shop lease that relates to the determination of rent or a component of rent by reference to turnover, turnover does not include any of the following:
(a) the amount of losses incurred in the resale or disposal of merchandise reasonably and properly purchased from customers as trade-ins in the usual course of business,
(b) the amount of deposits and instalments received on account of lay-bys, hire purchase or credit sales, and which are refunded to customers,
(c) the amount of a refund on a transaction when the proceeds of the transaction have been included as part of turnover,
(d) the amount of any service, finance or interest charges payable to any financier in connection with provision of credit to customers (other than commissions on credit or store cards),
(e) the price of merchandise exchanged between shops of the lessee if the exchange is made solely for the convenient operation of the business of the lessee and not for the purpose of concluding a sale made at or from the shop to which the lease relates,
(f) the price of merchandise returns to shippers, wholesalers or manufacturers,
(g) the proceeds of sale of the lessee's fixtures and fittings after their use in the conduct of business at or from the retail shop to which the lease relates,
(h) the amount of discounts allowed to customers in the normal course of business,
(i) the amount of uncollected credit accounts that are written off,
(j) the amount paid or payable by the lessee as GST,
(k) the amount of delivery charges,
(l) the amount received from the sale of lottery tickets and similar tickets (other than commission on those sales).
Relying on those provisions, Allsvelte contended that the following amounts were not to be included in Gross Sales;
1. Transactions where money is refunded to customers;
2. Transfers between different accounts of the business;
3. Deposits held in relation to future (non-finalised) sales;
4. Government incentives for staff training;
5. Insurance claim payouts and refunds:
6. Errors on account;
7. Returned (bounced) debits;
8. Loans to Allsvelte made by its directors or other companies;
9. Sales of fixtures, fittings, plant and equipment;
10. Postage;
11. Sales at other premises and, in particular, The Glasshouse and 22 Karungi Crescent.
It annexed schedules to its submissions identifying the items in the bank statements falling into those categories.
In addition, Allsvelte claimed that it was entitled to deduct merchant fees, POS fees, and amounts paid in respect of Good Food Gift Cards and Edge Food Cards.
According to it, the effect of these adjustments meant that it had actually overpaid turnover rent.
In those supplementary submissions, Allsvelte disclosed that some cash sales should be included in the total for Gross Sales. In submissions in reply, Cassegrain took Allsvelte's figures and made the adjustments it submitted were appropriate to arrive at the figure of $131,390.43.
Allsvelte's supplementary submissions raise two questions. One is whether amounts meeting the relevant descriptions should be excluded from the calculation of Gross Sales. The other is whether the amounts identified meet those descriptions.
There can be little doubt that items falling within categories (a) to (j) are not to be included in the calculation of turnover rent, either because of the definition in the Lease of "Gross Sales" or because of the operation of s 20 of the Retail Leases Act.
On the other hand, I do not think that sales at The Glasshouse are excluded either by the definition of "Gross Sales" or by s 20(1). "Gross Sales" is defined to include sales "whether on or off the licensed premises". Allsvelte submits that that phrase refers to the Restaurant (the licensed premises) and other areas of the winery (off the licensed premises). It does not refer to sales at other locations. But there are difficulties with that interpretation. "Licensed Premises" is defined in cl 40.1 of the Sublease to mean "the property (or any part thereof) which is at any time licensed premises within the meaning the Liquor Act". Although not capitalised, in my opinion, the reference to "licensed premises" in the definition of "Gross Sales" was intended to pick up that definition. There is a licence covering the Restaurant. However, there are other licences covering other parts of the winery and, in fact, in cl 34.5 Cassegrain warrants that to the best of its knowledge "any area made available to the Lessee under this clause, is licensed to permit the consumption of alcohol". Consequently, the reference to "licensed premises" in the definition of "Gross Sales" is a reference to licensed areas of the winery and not just the Restaurant. If the parties had intended to refer to the Restaurant only, it is to be expected that they would have used that word. Moreover, at the time the Sublease was negotiated, it was expected that Allsvelte would take over the restaurant business carried on by Cassegrain. To the knowledge of both parties that included supplying The Glasshouse using the restaurant facilities and Cassegrain took steps so that Allsvelte would take over that business. The reference to sales "off the licensed premises" must be interpreted as intending to pick up sales arising from that business.
Allsvelte submits that s 20(1)(e) makes it clear that the entitlement to turnover rent is limited to sales "made at or from the retail premises to which the lease relates". But that is not correct. It is plain that the exclusion only relates to exchanges between shops operated by the lessee. The provision of catering services to The Glasshouse does not meet that description.
There is no evidence before the court concerning sales from 22 Karungi Crescent. Allsvelte submits that it sold merchandise from its restaurant website. That merchandise was also available directly from 22 Karungi Crescent and on that basis Allsvelte submits that the sales cannot be considered to have been "made at or from" the restaurant and is therefore not turnover rent. However, there is no evidence to support that submission. Moreover, it turns on an incorrect interpretation of s 20(1)(e).
As to the deduction of merchant fees and related transactions, Cassegrain accepts that, consistently with the definition of Gross Sales, fees charged in respect of individual transactions are to be deducted as "surcharges and fees charged by banks or credit card companies for credit and electronic payments". However, it does not accept that fees unrelated to individual sales, such as monthly account keeping fees may be deducted. In addition, it does not accept that fees charged by Bartercard, BBX and PayPal are deductible on the basis that they are not fees charged by "banks" or "credit card companies". I accept Cassegrain's submissions. Monthly and similar fees that are unrelated to any particular transaction are part of the overheads of the restaurant (like, for example, staff wages). In my opinion, they are not excluded by the definition of Gross Sales. It would have been natural to exclude fees charged by other payment systems. However, the wording of the definition of "Gross Sales" is clear, and it only excludes fees charged by banks and credit card providers.
According to Allsvelte's submissions, a number of fees charged in relation to PayPal transactions relate to postage or a shipping charge for gift certificates or merchandise. However, those submissions rely on webpages that are not in evidence and documents that do not disclose the nature of the fees. I accept that it is plain that any shipping charges, including postage, for merchandise sold through the Restaurant are to be deducted in accordance with s 20(1)(k). However, there is insufficient evidence to establish the relevant items that fall within that category. In any event, the amount involved is trivial.
As I have said, I accept that amounts falling within categories (a) to (i) should be excluded from the definition of Gross Sales. The difficulty is in identifying those amounts. Allsvelte relies principally on the bank statements and seeks in its submissions to identify the nature of the relevant items from their description in the statement. In some cases the description is sufficiently clear that that can be done. In particular, I accept that the receipt on 5 October 2011 of $3,048.00, described as "ATO" was a refund from the ATO and that the receipt on 18 June 2012 of $3,000, on 27 June 2013 of $1,559.00 and on 13 December 2013 of $5,557.80 related to an insurance claim. However, it is not possible from the bank statements alone to determine the nature of the other payments. For example, Allsvelte points to payments from Sunabe, an associated company, and seeks in its submissions to characterise those payments as loans. But there is nothing in the bank statements that indicate that the payments had that character and there is no other evidence to that effect. It is possible, for example that the payments could have been adjustments arising from the payment of gross sales into the wrong account. Similarly, it points to amounts said to have been received from the government as incentives for staff training, but the description in the bank statements for those items is "DEEWRCOM4DRASTAL". It is impossible from that description to know to what the payments relate. The bank statements for the accounts in question record the receipts of the restaurant business. In my opinion, the onus lay with Allsvelte to establish that some of those receipts did not properly fall within the definition of Gross Sales. Except to the limited extent that I have identified, I am not satisfied that Allsvelte has discharged that onus.
Allsvelte also submitted that deposits taken in respect of functions that did not proceed should be excluded from Gross Sales. However, that submission depends on the assumption that those deposits were refunded. I am not satisfied that they were. Allsvelte's terms and conditions in respect of functions state that deposits were not refundable. Ms Bennett gave evidence that, despite that term, she thought deposits were refunded. However, if deposits were refunded, it is to be expected that the relevant refunds could be identified from Allsvelte's bank accounts. Allsvelte did not attempt to do so. On the basis of the available evidence, I think Ms Bennett's recollection in this respect was faulty.
It follows that, on the available evidence, Gross Sales were understated by $118,225,60 (that is, the $131,390.43 claimed by Cassegrain, less the specific receipts I accept should not be included in the amount of Gross Sales). On that basis, Allsvelte underpaid turnover rent by an amount of $4,729.03 up to 28 November 2014 and Cassegrain is entitled to judgment for that amount.
Cassegrain submitted that further amounts may be payable in respect of rent from 28 November 2014 up until the date of the termination of the Sublease. I accept that judgment should also be given for those amounts.
[10]
Costs and orders
Cassegrain has been successful in the proceedings. Subject to any submissions the parties may wish to make, it appears that the appropriate order in relation to costs is that the plaintiff should pay the defendant's costs of the proceedings.
The parties should bring in short minutes of order to give effect to this judgment. If there are any outstanding issues concerning the terms of those orders, the matter should be relisted to deal with those issues.
[11]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 22 September 2015