Baby Zone (Aust) Pty Ltd (Administrators Appointed) v Keira Street Ventures Pty Ltd

Matters in issue

1. It is now necessary to deal with the matters that are in issue between the parties.

When was monthly rent payable?

1. The first issue, raised by Baby Zone, is when, on the true construction of the Lease, did the rent become payable by Baby Zone.
2. Baby Zone submitted that, on the true construction of the Lease, the rent was payable on the last day of each month. Baby Zone's submission was: 11. It is plain that the first lease payment was due on the 'Rent Commencement Date' - viz 1 June 2013. Thereafter, the rent payments were to be paid in accordance with Item 6 of the Reference Schedule - see clause 4.1.1. Item 6 did not stipulate a date or time in any particular month when the rent became due; instead it required 'monthly payments' paid 'in advance on the twenty eighth day of each month'. The item did not state that the 'months' was that which preceded the month in respect of which rent was payable. 12. The words 'month' and 'monthly' in the Item should be construed as referring to the same calendar month. The Item requires 12 'monthly' instalments, one for each calendar month. The 'month' referred to at the conclusion of the Item is that same month; the word 'each' reinforces that, because in everyday English it means 'every, of two or more considered individually or one by one'. 13. There is no reason why rent must be paid on the first day of each month. It is equally rational, from a commercial perspective, that a tenant pay at the end of the month, subject to any obligation to pay in advance. Indeed at common law the starting point is that - absent a term to the contrary - rent is payable at the end of each year of a term of years and at the end of each period of a periodic tenancy. Here an obligation to pay rent in advance was imposed, but in terms which make it clear that the rent falls due at the end of the month. 14. If that construction is correct, there was never a time when the plaintiff was more than 14 days late for the purposes of cl 15.1.1. The defendant thus never had the right to determine the lease.
3. With respect, I am not sure that I understand this submission. Item 4 of the schedule, which has been set out above, provides for an annual rent of $213,724 plus GST. Item 6 requires that that annual rent be paid by equal monthly instalments in advance on the 28th day of each month. Equal monthly instalments of the annual rent have to be paid, notwithstanding that particular months may be of unequal duration. There is nothing in the Lease that shows that the Lease was intended to operate monthly, and there is nothing to show that rent became payable for any particular month at the beginning or the end of the month. I can see no basis for the submission that rent under the Lease actually accrued calendar monthly.
4. Counsel for Baby Zone made an oral submission that the requirement in the Lease that equal monthly payments be made on the 28th day of each month, was really only a payment on account of an amount actually payable under the Lease, which was payable for a particular calendar month in arrears at the end of that month. With respect, I cannot discern any basis for that submission in the Lease.
5. The fact is that clause 4.1.1 and item 6 of the schedule required Baby Zone to pay an amount of $20,375.01 on 28 September 2015. That amount was not paid until 28 October 2015. Baby Zone acknowledged on 28 September 2015 that the payment was late. Clause 15.1.1 of the Lease entitled the Lessor to re-enter under clause 15.2, if any part of the rent was in arrears or unpaid for a period of 14 days after the date appointed for payment. It is a straightforward matter of the construction of the Lease that the Lessor became entitled to re-enter 14 days after 28 September 2015.

When did Baby Zone become liable to pay rent to Keira Street?

1. The second issue raised by Baby Zone concerned the time that Baby Zone first became directly liable to Keira Street under the Lease. Baby Zone initially understood that the transfer of the Property to Keira Street was not registered until 7 October 2015. That misunderstanding was corrected during the hearing, when Baby Zone tendered a title search that showed that the transfer occurred on 30 September 2015.
2. Baby Zone's submission was, as I understand it, that Keira Street did not have a right to terminate the Lease by re-entry on 28 October 2015, because Keira Street was not the registered proprietor of the Property on 28 September 2015, when the default occurred. Baby Zone relied upon s 40(3) of the Real Property Act 1900 (NSW) to argue that, when Keira Street became registered as proprietor, it then became seized of the reversion expectant upon the Lease, and it was only then that it had all of the powers, rights and remedies to which a reversion is by law entitled. It therefore submitted the effect of s 51 of the Real Property Act was that the rights of ownership of the Property only passed to Keira Street upon registration of the transfer, which was on 30 September 2015.
3. Baby Zone relied upon the decision of the High Court in Measures v McFadyen [1910] HCA 74; (1910) 11 CLR 723. That case decided that a right to sue for damages for breach of covenant, not being a continuing breach, which is complete before transfer, does not pass to the transferee of land under ss 51 and 52 of the Real Property Act. The relevant covenant required the lessee to do building work on the demised premises up to a specified value forthwith. Griffith CJ said at 731, in relation to the wording of s 51: "The estate or interest transferred is one thing, and the personal right of action in respect of an antecedent completed breach of contract is another. In my opinion the words of this section are not sufficient to transfer the right to bring an action in respect of such a past breach… I do not think that it was intended to transfer also mere choses in action in respect of past and completed breaches of covenant".
4. Baby Zone also relied upon the judgment of Basten JA, with whom Tobias and McColl JJA agreed, in Provident Capital Ltd v Pinty [2008] NSWCA 131; (2008) 13 BPR 25,199 at [37], where his Honour said (citations omitted): "That is, the transfer of the registered lease did not confer on the assignee of the lease rights in relation to arrears of rent, which were accrued but unpaid".
5. Keira Street relied upon s 117 of the Conveyancing Act 1919 (NSW), which relevantly provides: (1) Rent reserved by a lease and the benefit of every covenant or provision therein contained having reference to the subject-matter thereof and on the lessee's part to be observed or performed, and every condition of re-entry and other condition therein contained shall be annexed and incident to, and shall go with the reversionary estate in the land or in any part thereof immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and shall be capable of being recovered, received, enforced, and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part as the case may require of the land leased. This subsection extends to a covenant to do some act relating to the land, notwithstanding that the subject-matter may not be in existence when the covenant is made. (2) The benefit of every condition of re-entry or forfeiture for a breach of any covenant or condition contained in a lease shall be capable of being enforced and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part, as the case may require, of the land leased, although that person became, by conveyance or otherwise, so entitled after the condition of re-entry or forfeiture had become enforceable.
6. Section 116 of the Conveyancing Act has the effect that s 117 applies to leases of land under the Real Property Act.
7. In the present case, the condition of re-entry or forfeiture became enforceable 14 days after 28 October 2015.
8. Until the second day of the hearing, Baby Zone believed, because of the absence of evidence concerning the contract between the Transferor and Keira Street, and the date of completion of that contract, in addition to the absence of a notice of attornment, that there was a reasonable basis for Baby Zone to argue that Keira Street was not a person entitled, as at 28 September 2015 or 12 October 2015, to the income from the Property.
9. Once it became clear, upon the reading of Keira Street's solicitor's affidavit, that the contract of sale that was entered into on 1 July 2015 was completed on 21 July 2015, and that a notice of attornment by the Transferor had been served on Baby Zone by Keira Street on 24 July 2015, the position adopted by Baby Zone became untenable. As Keira Street did not rely upon the registration of the transfer of the Property to support its entitlement to terminate the lease, the principles discussed in Measures v McFadyen do not apply.
10. The evidence now establishes that, on both dates, Keira Street was entitled to receive the rent from Baby Zone under the Lease.
11. I add that, although the evidence in its initial form was unsatisfactory, I would have drawn that inference anyway, on the basis of that evidence.
12. It is clear that a covenant to pay rent touches and concerns demised land: Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237 at [74].
13. In Waterhouse v Waugh [2003] NSWCA 139, Handley JA (Giles JA and Young CJ in Eq agreeing) said at [23] to [28]: [23] The freehold in the Hotel remained registered in the names of the brothers until 22 December 1994. Although a transfer of the legal title to a reversionary estate would prima facie operate under s 117(1) to transfer accrued causes of action under the lease (London & County Ltd v W Sportsman Ltd [1971] Ch 764 CA) the reversion expectant on this weekly tenancy was determined along with that tenancy when the tenant vacated on 4 November 1992. The reversionary estate ceased to exist and could not be transferred to the appellants in 1994. [24] The appellants therefore have to rely on the transfer of possession in September 1992 as a transfer of the reversionary estate. Their counsel place some reliance on the decision in Dalegrove Pty Ltd v Isles Parking Station Pty Ltd (1988) 12 NSWLR 546, but that decision was not based on the first limb of s117(1) which, as Bryson J recognised, requires a transfer of the legal estate (550). [25] The second limb of s117(1), read with the opening words, provides: "Rent reserved ... and the benefit of every covenant ... shall be capable of being recovered ... [and] ... enforced ... by the person ... entitled, subject to the term, to the income of the land leased". Bryson J held that an equitable assignee of the reversion was within the second limb and entitled, as such, to enforce the covenants in the lease. [26] The September transaction purported to operate as an immediate delivery of possession to the appellants with the right to future rent (para18). Since the tenant was in possession under a weekly tenancy which had not been determined the brothers could not give the appellants possession as such, or even the immediate right to possession. Their clear intention, confirmed by their letter to the tenant of 2 October (para7) was to transfer "your tenancy arrangements" to the appellants as from 28 September. [27] As Young CJ in Eq suggested during argument, the law can only give effect to this intention by treating the transaction as a concurrent lease, that is, as a tenancy at will from the brothers to the appellants of the reversion expectant on the tenant's weekly tenancy… [28] In the absence of a contrary intention a concurrent lease passes to the concurrent lessee the concurrent lessor's accrued rights under the existing lease. See Cole v Kelly [1920] 2 KB 106 CA and London & County Ltd v W Sportsman Ltd [1971] Ch 764 CA, 781-2. This accords with the second limb of s 117 (1). However the section operates subject to any contrary intention expressed by the parties, and it is clear that the brothers did not intend to transfer the arrears of rent to the appellants (para5, para7, para 8(8), para10).
14. In my view, the evidence establishes that, by 28 September 2015, even though Keira Street was not yet the legal owner of the Property, by reason of the fact that the transfer was not registered until 30 September 2015, it was the person entitled to the income from the whole of the Property, for the purposes of the second limb of s 117(1) of the Conveyancing Act. It had been so entitled since no later than 24 July 2015. Accordingly, when the rent payment due on 28 September 2015 was not paid, that was a breach of the rent covenant capable of being enforced by Keira Street.
15. Accordingly, Keira Street was entitled to exercise the power in clause 15.2 of the Lease to re-enter and forfeit the Lease, which it did on 28 October 2015.

Were there any waivers by either party?

1. The third issue raised by the parties concerned waiver. Baby Zone submitted that Keira Street waived the breaches of the covenant to pay rent that were committed by Baby Zone, because Keira Street accepted late payment. I would accept that argument for the payments that were paid late, in the period up to 28 September 2015. However, it is immaterial whether or not Keira Street waived those breaches, because on the proper construction of the Managing Agent's letter to Baby Zone on 28 October 2015, Keira Street was only relying upon the failure to pay the instalment of rent due on 26 September 2015 in advance, for the month of October, when it re-entered the Property and forfeited the Lease.
2. Keira Street did not waive that breach before it re-entered the Property and forfeited the Lease. As I have said above, the re-entry happened at about 7 AM on 28 October 2015. I infer from the email correspondence, that Baby Zone made the 28 September 2015 rent payment by bank transfer at some time between 8:24 AM and 9:29 AM (being the emails by which the Managing Agent served the letter advising of the forfeiture, and Baby Zone's email advising of the payment). It cannot be said that Keira Street retained that rent payment on a basis that was consistent with the continuation of the Lease. Keira Street only did so on the understanding that it had negotiated with Baby Zone for a continuation of that company's occupation of the Property on a monthly tenancy, but otherwise on the terms of the Lease.
3. Keira Street also submitted that Baby Zone had waived its rights. The nature of the alleged waiver was that Baby Zone had waived its entitlement to seek relief against forfeiture, because it agreed with Keira Street to continue in occupation of the Property on a monthly tenancy. Alternatively, Keira Street submitted that Baby Zone had entered into a compromise agreement under which it released its right to seek relief against forfeiture, in return for being allowed to continue in occupation on a monthly tenancy.
4. I do not accept either Keira Street's waiver or compromise submissions.
5. The issue depends upon the effect of Mr Guglani's 28 October 2015 email at 10:48 AM to the Managing Agent. The email was sent after Baby Zone became aware that the Lease had been terminated. The comment that the termination had been "forwarded to my legal team", plainly implied that Baby Zone was seeking legal advice about the validity of the termination, and Baby Zone's rights in respect of the termination. The email then said: "Subject to our legal rights, we acknowledge your position of month to month lease". In my view, that was clearly a reservation to Baby Zone of whatever legal rights it might have. Baby Zone's position was that it could not recommence its business unless it was first let back into occupation of the Property. It would have been catastrophic, if Baby's Zone had been unable to continue its business. It had little choice but to agree with Keira Street to continue on a monthly tenancy, but it only did so with the reservation that it could pursue whatever legal rights it had.

Should relief against forfeiture be granted?

1. The fourth issue is whether the court should make an order granting Baby's Zone relief against forfeiture of the Lease.
2. I have set out my understanding of the relevant principles in Kofoo Sussex Pty Ltd v Commerce Building Pty Ltd [2014] NSWSC 1079; (2014) 17 BPR 33,147. It will be convenient for me to restate the principles by setting out extracts from my judgment at [111] to [114] and [135] to [138]: [111] In submissions Kofoo Sussex relied upon the decision of Campbell J (as his Honour then was) in Wilkinson v S & S Gikas Pty Ltd [2006] NSWSC 1314; (2006) 12 BPR 23,685, at [23] and [24]: [23] The granting of relief against forfeiture is discretionary. In relation to a lease, the principle that is generally applied is that the power to re-enter or forfeit for non-payment of rent is regarded as being in substance security for the rent. Provided the lessor and other persons concerned can be put in the same position as before the forfeiture or re-entry, the Court will usually grant relief against forfeiture upon payment of rent, costs, interest and other expenses: Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of New South Wales Ltd (1970) 2 BPR 9562. If those terms are offered, it is only in a rare case that the Court would refuse relief against forfeiture. The principle on which that is done is that, once the landlord has got all that the right of re-entry was, in equity's eyes, security for, it would be unconscionable for the landlord to insist on its legal right to re-enter. [24] However, such a rare case can occur if the tenant is unable to pay future rent, or may reasonably be expected to become so: Direct Food Supplies Victoria Pty Ltd v DLV Pty Ltd [1975] VR 358; Tannous v Cipolla Bros Holdings Pty Ltd [2001] NSWSC 236 at [38]. If there is a sufficiently serious risk that the tenant will not be able to perform its obligations in the future, it may be that the consequence is that it is not unconscionable for the landlord to insist on its strict legal right. ... [114] Kofoo Sussex also relied on statements of principle in Peter Butt, Land Law, (6th ed 2010, Thomson Reuters), extracts from which I will set out below, without including the authorities referred to in footnotes upon which the principles were based: [15218] The mere fact that, since the forfeiture, the landlord has re-let the premises to a third party is not, of itself, a bar to granting relief against forfeiture. Nevertheless, as a matter of discretion, the court will generally decline to grant relief where a third party has acquired rights over the property without notice of the tenant's claim. But if the third-party knew of the circumstances surrounding forfeiture of the lease, then he or she may be taken to have notice of the tenant's claim to seek relief and will take subject to that claim. The consequence of granting relief and reinstating the lease will then be to make the third-party a concurrent lessee, interposed between the landlord and the restored tenant… [15223] Equity has long exercised a jurisdiction to relieve against forfeiture for breach of the covenant to pay rent. Equity looks on the landlord's power of forfeiture for non-payment of rent as "security" for payment, not in the sense of conferring a charge or similar interest to secure repayment but rather in the sense of ensuring or bringing about payment. Provided that the rent is actually paid (even if late) and the landlord is compensated for any loss caused by the tenant's default, then the "security" has served its purpose and the tenant ought to have the lease restored. The court can impose terms on the grant of relief against forfeiture. For example, in addition to requiring the tenant to pay all arrears of rent, the court may require the successful tenant to pay the landlord's costs of the proceedings and to arrange for future rent payments to be made by standing order with a bank… [15224] Courts normally relieve against forfeiture for non-payment of rent. Provided the landlord is compensated for all arrears of rent and any loss arising from the non-payment, the tenant will generally succeed in having the lease restored. This is particularly so where the tenant stands to lose a valuable lease for a relatively trivial breach: a concept akin to "proportionality" requires that the lease be reinstated… In line with this principle, a history of tardy payment is not of itself grounds for refusing relief against forfeiture. Nevertheless, the tenant is not entitled to relief as of right. The court retains the discretion, and in exceptional cases relief will be denied… It has also been denied where the grant of relief would injure third parties who have since acquired rights over the property in ignorance of the tenant's claim… [15225] Relief generally will be refused where the tenant is hopelessly insolvent, for in such a case an order reinstating the lease would be futile. This is so even though the tenant is able to pay the arrears of rent at the time of the proceedings, because the court is entitled to take into account the improbability that rent will be paid in the future, or that its payment may be a preference for creditors. But where the tenant's financial position was not "hopeless", and the tenant has entered into a scheme of arrangement with creditors to try to trade out of its difficulties, relief was granted on payment of arrears to date. Likewise, relief was granted where the tenant's financial difficulties were due solely to the initial costs of establishing its business on the premises, or poor management practices that had since been improved, or where it was feasible that the tenant's financial predicament would be solved by sale of the business which the tenant conducted on the premises. Relief is unlikely to be refused where the lease provides for a guarantee or bond to cover the tenant's obligation to pay rent.
3. And: [135] In Direct Food Supplies Victoria, one of the cases upon which Campbell J relied at [24], Starke J noted at 360 that counsel for the lessor submitted that it was clear on the evidence that it was improbable that any future rent would be paid and that, if payments were made, they may turn out to be preferences. His Honour at 361 declined to grant relief against forfeiture on the grounds that the lessee had conceded that it could not pay all of its debts as they fell due, the lessee could only trade its way out of its financial difficulties if it was entitled to use receipts that may in fact have been payable to a related company, and a creditors' petition for winding up had already been issued against the lessee. Thus, Starke J rejected the application for relief against forfeiture on grounds that were more extreme than the submission made by counsel, and which went much further than an improbability that rent would be paid if relief against forfeiture was given. In Tannous Barrett J at [38] accepted that "if it is shown that the tenant is unable to pay future rent (or may reasonably be expected to become so), the Court will in all probability find that it is not just and equitable to grant relief against forfeiture", but his Honour had earlier noted that "very special circumstances" were required before relief against forfeiture would be denied. Barrett J also quoted at [27] the dictum of Young J in Courtney Creche Pty Ltd v Okko's Fine Art and Custom Framing Pty Ltd (unreported, 22 June 1995): "The current state of the authorities is that before a tenant is refused the remedy of relief against forfeiture, the tenant's attitude to the lease must be such that no reasonable landlord could expect the tenant to honour its obligations." [136] In Twinside Pty Ltd v Phoenician Nominees Pty Ltd [2008] WASC 110 at [36] and [37] Beech J accepted the views of Professor Butt from the fifth edition of his book equivalent to [15225] and [15225] set out above, and continued: [38] It is notable that in Greenwood Village Pty Ltd v Tom The Cheap (WA) Pty Ltd [1976] WAR 49, the lessee had entered into a scheme of arrangement with its creditors. Nonetheless, relief against forfeiture was granted. [39] In Old Papa's Franchise Systems [131]-[132], McLure J (Murray and Parker JJ agreeing) said as follows: There is authority to the effect that where a tenant undertakes to remedy the breaches giving rise to forfeiture, relief against forfeiture should be granted usually as of course and refused only in exceptional circumstances: Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584; Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49. In both cases there was evidence of reasonably based concerns as to the financial ability of the lessees to comply with their financial obligations under the relevant leases. Indeed, in the Greenwood Village case the lessee had entered into a scheme of arrangement with its creditors. The approach in these cases is a reflection of the principle that equity regards forfeiture of the lease as an ultimate security mechanism to ensure compliance with the agreement and if that can be achieved without forfeiture, relief will be granted: Love v Gemma Nominees Pty Ltd [1983-84] ANZ Conv R 68 at 71. Seen in that light, a lessee may properly be given the benefit of any uncertainty concerning its financial capacity to comply with its obligations because any subsequent breach of the lease can be met with a further termination for which relief from forfeiture is unlikely to be granted … [40] It is evident that the starting point is a general rule that relief against forfeiture for non-payment of rent will be granted to a lessee which has remedied its defaults in payment of rent. However, the remedy is discretionary and in exceptional circumstances relief may be refused for reasons arising from the lessee's poor financial position. [41] In Direct Food Supplies (Vic) Pty Ltd v DLV Pty Ltd [1975] VR 358 at 361 relief was refused on the ground that the lessee company was insolvent and so could not pay its debts, including the rent, and if rent was paid the lessor may well have been asked to disgorge those payments by a liquidator. In that case, a director of the lessee had conceded that the company could not pay its debts as and when they fell due. [42] The existence of serious grounds for concern as to whether the lessee is able to pay rental in the future is not a sufficient reason to refuse relief. That is because, as McLure J explained in Old Papa's Franchise Systems, any subsequent breach of the lease will lead to a future termination by the lessor from which relief against forfeiture is most unlikely to be granted. [43] Indeed, there is authority that even if a lessee is insolvent a court may, nonetheless, exercise its discretion to grant relief against forfeiture: Hayes v Gunbola (1986) 4 BPR 9247 at 9250-9251; Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 [32]. [137] Beech J's summary of the attitude of the court when it is asked to decline relief against forfeiture because of an appearance that the lessee will not be able to pay rent in the future is an accurate review of the authorities, albeit given in an interlocutory judgment. [138] In Wynsix Hotels Young J at [33] focused on the significance of any rental guarantee available to the lessor, which may be available to protect it against future failures by the lessee to pay rent, and also said that the court should be ready to grant relief against forfeiture on the lessee's first application, because the lessor should be able to protect itself from future breaches by a further termination of the lease, whereupon the court's sympathy to the lessee may expire.
4. In In the matter of Hi-Fi Sydney Pty Ltd (administrator appointed) [2015] NSWSC 1312, Brereton J was concerned with an application for relief against forfeiture under s 129 of the Conveyancing Act, as the forfeiture was not based on a breach of an obligation to pay rent. His Honour said: [26] So far as the equitable jurisdiction is concerned, Lord Wilberforce explained in Shiloh Spinners Ltd v Harding [1973] 1 All ER 90 ; [1973] 2 WLR 28 ; [1973] AC 691, 722-723, that there were three situations where equity gives relief: first, where it is possible to state that the object of the transaction and of the insertion of the right to forfeit is essentially to secure the payment of money; secondly, where there has been fraud, accident, mistake or surprise (the traditional heads of equitable jurisdiction); and thirdly, where the primary object of a bargain is to secure a stated result which can be effectively obtained when the matter comes before the court and where the forfeiture provision is security for the production of that result [see also Wynsix, [20]]. [27] The considerations applicable on an application for relief against forfeiture, at least in this general context, were summarised by Keane JA (as his Honour then was) in Ace Property Holdings Pty Ltd v Australian Postal Corporation [2011] 1 Qd R 504 ; [2010] QCA 55, [163], as involving the conduct of the applicant for relief, including whether the default was inadvertent or wilful; the gravity of the breaches; the damage to the covenantee or lessor; the relative loss to the covenantor or lessee; and the disparity between the value of the property forfeited and the damage caused by the breach. [28] The first and third of the Shiloh Spinners categories have as their essential touchstone that the forfeiture is seen in equity, like other forms of security, as a means of securing the bargain, and not of providing to the secured party benefits over and above what are necessary to achieve that end, nor to impose on the party giving security a penalty or sanction over and above the primary purpose of the bargain. That notion underlies much of the approach of equity to the law of penalties and forfeiture. [29] In the present context, that then begs the question, what is the primary object of the bargain and, in particular, of cl 22.1(d). In Melacare, Bryson J suggested that the purpose of such a clause was (at [17]): plainly enough to protect the lessor against being held in a continuing relationship with a lessee which was not financially responsible and was not able to sustain the relationship. [30] I would perhaps state it slightly, but not very, differently, as being to protect the lessor from being required to continue to suffer an insolvent tenant. [31] Arguably, such provisions might also have as their purpose the protection of the lessor from any requirement to deal with an insolvency administration - whether involving an administrator, a deed administrator or a liquidator. However, that purpose would cut across the statutory policy embodied in Corporations Act, Pt 5.3A - especially, first, s 440B, which prevents re-entry during administration, and secondly, s 444F, which authorises the court in connection with the deed of company arrangement to make an order that a lessor not retake possession of premises if its interests can be adequately protected. That said, it seems to me that essentially underlying these provisions is the idea that the lessor should not be required to continue to suffer an insolvent tenant with the associated risk that the rent will not be paid.
5. In the present case, after Keira Street purchased the Property, Baby Zone paid the monthly rent late on a number of occasions, but not so late as to give rise to an event of default. There is no evidence that Keira Street warned Baby Zone that it might forfeit the lease if any monthly rent payment was late by more than 14 days. The rent due on 28 September 2015 remained outstanding for more than 14 days, and Keira Street re-entered the property and forfeited the lease on 28 October 2015. It did so following a single event of default. Baby Zone then paid the amount in default immediately. Thereafter, and particularly after the Administrators were appointed, the monthly rent has been paid on time, and the rent is up-to-date. Accordingly, Keira Street has not suffered any loss.
6. Mr Kite gave evidence that the Administrators have not yet completed their report to creditors for the purposes of the second meeting of creditors. He said, however, that the financial circumstances of Baby Zone were such that its business was not viable, and the Administrators expect that the creditors will resolve under s 439C(c) of the Corporations Act that the company be wound up.
7. If that were to happen before the Administrators were able to assign the lease to Baby Bounce, then a new event of default will occur under clause 15.1.3(a) of the Lease. Indeed, if the Administrators convene the second meeting of creditors with a recommendation that the creditors resolve to wind up Baby Zone, that would probably also constitute an event of default.
8. In my view, were it not for the possibility that Baby Zone could sell its business and assign the Lease to Baby Bounce, this would be a case, such as that considered in Direct Food Supplies (Vic) Pty Ltd v DLV Pty Ltd [1975] VR 358 at 361, where it would be appropriate to refuse the application for relief against forfeiture, because Baby Bounce is insolvent in the longer term, and the grant of relief against forfeiture would be futile.
9. However, the fact that Baby Zone is insolvent, or will inevitably soon be insolvent, is not an absolute ground for refusing relief against forfeiture: see Hayes v Gunbola (1986) 4 BPR 9247 at 9250-9251; and Wynsin Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 at [32]. Indeed in Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49, relief against forfeiture was granted in favour of a lessee that had entered into a scheme of arrangement with its creditors.

Is Keira Street entitled to withhold its consent?

1. The real issue in this case is whether Baby Zone is entitled to the relief that it claims in par 5 of its interlocutory process, for an order that Keira Street do what is necessary to give effect to the assignment of the Lease to Baby Bounce. If Baby Zone is entitled to that relief, then it will be able to realise the value of the Lease for the benefit of creditors. That would be the first step in a process of reasoning that would justify the court granting relief against forfeiture.
2. That will not end the matter, because it will still be necessary to decide whether, following an assignment of the Lease to Baby Bounce, Keira Street would be sufficiently protected, compared to its present entitlements under the Lease, to justify a grant of relief against forfeiture.
3. The principals of Baby Bounce are Mr Badr Hamdache and his wife Ms Lola Taleb. They were in the business of owning and operating the My Baby Warehouse chain of retail baby products stores at three locations in New South Wales between 22 September 1999 and 21 October 2009. They operated the business through BHLS. In 2009, Mr Hamdache and his wife sold their shares in BHLS to Mr Ajay Arora, who is the principal of Baby Zone and BHLS, for $1.8 million. They continued to be the operations managers for the My Baby Warehouse Chain, until about April 2010. Mr Hamdache reinvested $650,000 into BHLS in return for 20% of the shares. Within three years, the My Baby Warehouse business had grown to 20 stores. By 2013, the turnover of the business was approximately $70 million per annum. The retail store owned by Baby Zone was one of the stores purchased by BHLS during this period. Mr Hamdache sold his shares in BHLS to Mr Arora for $2.2 million in October 2013. In September 2015, Mr Hamdache returned to the baby product industry, and purchased 10 of the My Baby Warehouse retail stores from Mr Arora. In December 2015, Mr Hamdache became aware that BHLS and Baby Zone had been placed into administration. Baby Bounce entered into a contract, on 18 December 2015, to buy the baby products in the possession of BHLS or Baby Bounce at 11 stores, including the Property. Baby Bounce has negotiated new leases in relation to five stores previously operated by BHLS. On 18 January 2015, Baby Bounce entered into the contract to purchase Baby Zone's business, to which I have referred above. In addition to those five stores, Baby Bounce operates 10 additional stores throughout New South Wales, Queensland and Western Australia. Mr Hamdache said that Baby Bounce is the second largest independent baby product retail chain in Australia.
4. Mr Hamdache provided a profit and loss statement for Baby Bounce, for the period July 2015 to March 2016, which was prepared by the company's internal accountant. It had a total income of $7,669,062.66, and a net profit of $1,154,988.80.
5. Mr Hamdache said that he would agree to provide a bank guarantee equivalent to three months' rent, to secure an assignment of the Lease, as well as a personal guarantee to Keira Street, as additional security for Baby Bounce's obligations, in accordance with item 15 of the Lease. That is a guarantee of 15 months' rent plus GST.
6. Keira Street did not make any significant challenge to Mr Hamdache's evidence in cross-examination.
7. In its resistance to Baby Zone's application, Keira Street did not identify any substantial, or even significant, disadvantage that it would suffer, if Baby Bounce became the assignee of the Lease, rather than it being permitted to lease the Property to Baby and Toddler.
8. On the issue of whether Keira Street could withhold its consent to an assignment of the Lease under clause 13.1 of the Lease, Keira Street supported its entitlement to withhold its consent by relying upon clause 13.1.1. That clause requires that the Lessee not be in default under the Lease. Keira Street argued that Baby Zone was in default, because of a contravention of clause 15.1.6. That clause provides that Keira Street is entitled to exercise the right of re-entry in clause 15.2 "if the Lessees stops or threatens to stop payment of its debts or without the prior written consent of the Lessor ceases or threatens to cease to carry on its business".
9. However, while clause 15.1.6 establishes a possible event of default, the occurrence of that event does not involve any default in performance of any term of the Lease. It appears that clause 15.1.6 might be satisfied, but that does not mean that Keira Street is entitled to withhold its consent to an assignment on the ground contained in clause 13.1.1 of the Lease.
10. I do not think that this conclusion is inconsistent with the view expressed in the cases discussed by Brereton J in Re Hi-Fi Sydney at [15] to [23], which suggests that, on the proper construction of s 129 of the Conveyancing Act, the words "for a breach of any covenant, condition or agreement…in the lease", extends to an event of default such as that contained in clause 15.1.6, even though the default does not strictly constitute a breach. Keira Street did not put any submission to the contrary of this proposition.
11. Keira Street did not make any submission that Baby Bounce is not a respectable, responsible, solvent, fit and proper person, capable of adequately carrying on the business, whilst performing and observing the terms and conditions of the Lease, within the meaning of clause 13.1.2.
12. Keira Street is entitled to have its costs and expenses of granting its consent paid, as required by clause 13.1.3.
13. Keira Street is also entitled to have Baby Bounce enter into a deed containing the covenants required by clause 13.1.4.
14. Keira Street did not make any submission that the guarantees offered by Mr Hamdache were inadequate to satisfy clause 13.1.5.
15. In all of these circumstances, I am satisfied that the court should, in the exercise of its equitable jurisdiction, make the order granting relief against forfeiture sought by Baby Zone in par 4 of its originating process.
16. Keira Street did not make any submission that the court should not make order 5, concerning the assignment of the Lease to Baby Bounce, if it granted the relief against forfeiture sought by Baby Zone, and held that Keira Street was not entitled to withhold its consent to the assignment.
17. The parties should bring in short minutes of order to reflect these reasons for judgment. Those short minutes should make provision for the relief against forfeiture, and the order that Keira Street should facilitate the assignment of the Lease to Baby Bounce only becoming effective on the condition that the matters to which Keira Street is entitled under clause 13.1 of the Lease, as discussed above, and the bank guarantee and guarantee offered by Mr Hamdache in his affidavit, are actually provided to Keira Street.
18. If the parties are unable to agree as to an appropriate order for costs, I will hear the parties, at the time when I make the orders necessary to dispose of these proceedings.

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: 09 May 2016