1. The respondents are restrained until the hearing and determination of this proceeding or further order whether by themselves, their servants and agents or otherwise howsoever from entering into possession of the premises at 14 Bourke Street, Melbourne.

2. Referred to mediation on 13 November 2003 at 10.00 a.m. at 55 King Street, Melbourne.

Mr G.J. Parncutt of Counsel instructed by Brian A. McMahon, Solicitor

Mr D.P. Lloyd of Counsel instructed by Tasiopoulos Lambros and Co

1 The applicant in today's proceeding is Barfly's Nominees Pty Ltd (`Barfly's') which conducts a restaurant or nightclub under that name at 14 Bourke Street, Melbourne. On the 23rd of July 2001 the applicant company purchased the business which I have described for $410,000 and took a transfer of the lease of the premises. The lease had been entered into in 1999 with a commencing date of 1 March 1999 and a term of four years. The lease included an option to renew for one further term of four years. The applicant commenced the operation of the business on the 15th of August 2001. Around November 2001, according to an affidavit sworn by the applicant's principal, Mr Hashem, he detected a problem which he diagnosed as rising damp. On the 30th of March 2002 steps were taken to re-plaster the walls. By that stage, according to Mr Hashem, the premises were uninhabitable and Mr Hashem so advised the agent for the landlords, the respondents to this proceeding, Constantinos Manthos and Matthew Manthos.

2 On the 30th of September 2002, according to Mr Hashem, in negotiation with the landlord's managing agent it was agreed that the tenant could have options which would give it effective security of tenure in the premises for 20 years if the tenant renovated the interior of the premises. Consequently from the 30th of September 2002 the business was closed for four weeks and some $200,000 was outlaid on renovations of the interior. On the 30th of October Mr Hashem says that Barfly's exercised an option to renew the lease.

3 On the 5th of November 2002 Mr Hashem complained to the managing agent about the need or structural repairs to deal with the issue of rising damp. The managing agent at that stage was a Mr Malcolm Robertson. According to Mr Hashem, Mr Robertson told him `Hold off on the rent, I'll get my dad to speak to them', [that is, the landlords, who it seems were resident in Greece.] Mr Robertson continued according to Mr Hashem:

He'll make the call. This has become a joke. If anybody can sort it out my dad can. Obviously if you're going to spend money to fix it, you will be reimbursed for the cost of repairs.'

4 Thereafter, there have been a series of difficulties, including burst water pipes and the like. The effect is that no rent has been paid for the year 2003.

5 The landlords through their solicitors have now threatened that unless that rent is paid by the close of business today, the landlords will re-enter and terminate the lease.

6 Barfly's seeks interim or interlocutory injunctive relief from this Tribunal to prevent its eviction.

7 According to its Counsel, Mr Parncutt, the application for injunctive relief is based upon a number of grounds. First, he submits that the conversations in November 2002 constituted an agreement to suspend rental payments until the structural repairs had been effected. Secondly, he submitted that the terms of the lease required these repairs to be carried out and finally, he relied upon an obligation imposed upon the lessor to carry out structural repairs by Section 52(2) of the Retail Leases Act 2003

8 Before turning to those matters and some further submissions which were put by Mr Parncutt, it is necessary to say something a little further about the condition of the premises. I was taken to a repair notice served by the Melbourne City Council under the authority of the Building Act 1993 which required a number of works to be carried out, aimed at alleviating problems of damp within the premises. Without going to the detail of that notice, those repairs were basically what one might describe as roof repairs extending from the roof itself to the upper surfaces of certain parapet walls. Further, I was taken to the report of an architect, Mr Batsakis who inspected the premises in March 2003 and reported that urgent attention was needed to these matters and that further renovations of the interior would be pointless unless the fundamental damp problem was dealt with. Finally, I was taken to a report made by loss adjusters for an insurer of the premises which suggested that there were problems of damp in the premises both from leakage from the roof and also from below. Reference was made to bare and eroded bricks at the rear of the premises.

9 I now return to the various matters relied upon by Mr Parncutt and deal with them first in reverse order.

10 Section 11 of the Retail Leases Act 2003 provides that its substantive provisions as to leases apply to leases entered into after the commencement of the statute. It came into force on the 1st of May 2003, therefore, to the extent that Section 52 of the Retail Leases Act might imply a provision as to repair into leases entered into after the 1st of May 2003, that provision can have no application with regard to the matters that are before me now. This lease was entered into, it would seem, in March 2003 following the expiry of the 1999 lease, hence the Retail Leases Act does not apply to it.

11 Secondly however there are consequential amendments made by the Retail Leases Act 2003 to the Retail Tenancies Reform Act 1998 which was the retail tenancy legislation in force at the time that the present lease was entered into viz. in March 2003. Section 107 of the Retail Leases Act introduces a new Section 25 to the Retail Tenancies Reform Act 1998. The Retail Tenancies Reform Act by the transitional provisions in the Retail Leases Act continues to operate with regard to retail leases entered into during its term of currency. The effect of adding a Section 25 to that Act which is described as landlord's liability for repairs would appear to be to create a retrospective amendment to leases entered into during the term of the 1998 Act. The 1998 statute in its terms has been repealed, however the retrospectivity is limited by sub-section (6) of the new Section 25 such that it has effect only from the 1st of November 2003. Therefore, Section 25 would seem to mean that from a few days ago these landlords have an obligation to repair these premises in accordance with Section 25 of the 1998 Act; however for the reasons already given, the rental which is said to be in arrears is rental which accrued earlier in the year than that. Again, I can put Section 25 of the Retail Tenancies Reform Act 1998 to one side without considering whether according to its terms it would oblige these landlords to carry out the repairs that are complained of or demanded here. Therefore, if this application is to be successful it must succeed without direct resort either to the Retail Leases Act 2003 or the Retail Tenancies Reform Act 1998 as creating an obligation to carry out works to alleviate the damp problems at these premises.

12 I will turn next to the first of the matters relied upon by Mr Parncutt, namely the agreement to suspend the rental payments until structural repairs have been effected. There seem to me to be difficulties in first of all characterising this as an agreement to suspend rental payments at all. What one may ask is the consideration moving from the applicant Barfly's as promisee for this agreement? None appears to have been suggested. It will be recalled that at the end of September 2003, Barfly's, according to Mr Hashem, committed to carry out certain refurbishment work on the basis that it would receive additional options to renew the lease for the premises beyond those which were bestowed by the 1999 lease. This agreement seems to be quite separate if one accepts it in the terms which are alleged, from any arrangements with regards to the carrying out of structural repairs by the lessors of for the suspension of rent. The agreement, according to Mr Hashem's account of it, was freestanding and completed on the 30th of September 2002 whilst performance of it may have stretched on. I must say I am somewhat unclear as to whether in fact it did on the one hand or on the other hand that the performance on Barfly's side was completed within the four weeks closure immediately thereafter. That agreement constituted an existing contractual arrangement. The performance of liabilities under it could not constitute consideration for a new agreement with regard to the suspension of rent or the lessors carrying out structural repairs in November 2002.

13 Mr Parncutt then suggested that the so called agreement could be treated as a matter of estoppel. In a sense the same difficulty which attends its characterisation as a contract would attend its being relied upon as an estoppel. The law of estoppel by representation is in a difficult and confused state in Australia but I venture to suggest that an essential element of it is that there be a reliance by the representee upon the representation to the representee's detriment. It is that feature which renders it inequitable or unjust for the representor to resile from his representation. So what reliance is demonstrated by Barfly's here? As previously noted the refurbishment was part of a pre-existing and separate agreement. Barfly's continuation in occupation of the premises was also in pursuance of a pre-existing contract. According to Mr Hashem's affidavit the original lease which his company purchased commenced in 1999 and became binding upon his company on the 23rd of July 2001 and his company exercised an option to renew on the 30th of October 2002 before this later alleged agreement. Again, there seems to be no reliance to detriment other than merely not paying the rent might be a reliance, but that is scarcely a detriment. There are further difficulties entailed in treating this estoppel as providing a defence to any liability for rent.

14 Mr Lloyd who appeared for the lessors took me to the Laws of Australia, the contract volume at paragraph [37] in Section 7.2 where the learned editors state that the statute of frauds provisions deriving from the Statute of Frauds 1677 of England are such that a contract which must be in writing or evidenced in writing can only be varied by writing or a note or memorandum in writing. It was Mr Lloyd's submission that the statute of frauds provision that was relevant here was Section 126 of the Instruments Act 1958. I venture to think that the relevant statute of frauds provision will be Section 53 of the Property Law Act 1958; but in the view that I take of this matter it is unnecessary for me to express any final view. Mr Lloyd conceded that the mode of performance as distinct from the existence or otherwise of an obligation under a contract could be modified without writing. Further, Mr Lloyd said that the mere appointment of an agent to manage a property did not give that agent power to make or modify contracts on behalf of the principal. He referred to the Law of Agency by G.E. Dalpont published in 2001 at page 25, paragraph [1.27] where the learned author states the well known proposition:

The law does not imply from the mere fact of employment to find a purchaser any general authority to contract on the employer's behalf or to do on behalf of the employer anything incidental to the effective of a sale.

15 In the end I find it unnecessary beyond having identified these difficulties to say anything further about the alleged agreement or the alleged estoppel.

16 Mr Parncutt further submitted that there would be an unconscionability for the landlords to be able to terminate the current lease in the circumstances described, leaving his clients to lose the $200,000 outlay which it had made in improving the premises. He referred to a decision of the High Court of Australian in Legionie v Hateley (1983) 154 CLR 406 where the High Court of Australia considered that there was equitable jurisdiction to relieve a rescinded purchaser under a terms contract of sale of land from a forfeiture of that purchaser's interest in the land, the subject of the contract. Here of course the situation is somewhat different because Barfly's is not proposing, albeit on a late basis, to tender any part of the $53,000 which is claimed by the lessors here as justifying their threatened re-entry. Rather, Barfly's contention is that in the events that have occurred, it has a legal or equitable excuse for not paying. It wants the premises rectified as to the damp problem and no doubt once that rectification is complete, its excuse for non-payment of rent will be brought to an end. However, it will not, as I understand it, then desire to make a late payment of rent for the year 2003. Its contention is that the events that have occurred have given it a final and unconditional excuse from paying any of that rent.

17 The lease at Clause 4(b) provides in fairly orthodox terms, that the landlord can re-enter if the rental is in arrears for some seven days or more. If the landlord's case is accepted, those circumstances now exist and the landlords have the entitlement to re-enter.

18 What then is to be said as to the reliance which Mr Parncutt places upon the terms of the lease itself? The general rule at common law with regard to leases is that absent an express covenant of repair by a lessor, a lessor is not responsible for the repair of the demised premises nor does the lessor give any condition or warranty as to the fitness of leased premises for any particular purpose. So much appears from the authorities which I considered and referred to in the Tribunal's recent decision in Ali v Hazim (2002) V ConvR 58-570 and from a decision of Balmford J in the Supreme Court published shortly thereafter in the matter of Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272; (2002) V ConvR 54-663. Accordingly, the provisions which Mr Parncutt and his client placed reliance upon if they are there, must be found within the four corners of the lease.

19 He referred me to Clause 2(p) of the lease which provides in the following terms:

The Lessee will give notice to the Lessor promptly of all structural imperfections which may appear in the demised premises and of the happening of any accident or the discovery of any defect in any service or any lighting heating or sanitary apparatus installed in or upon the building of which the demised premises forms part and all cisterns pipes, wires and accessories appearing thereto and whether it is the Lessee's or the Lessor's obligation to repair the same but the Lessor's obligation hereunder shall be limited to structural imperfections and defects of a serious nature of which the Lessor ought reasonably to be given notice.

20 Mr Parncutt's submission was that the damp problem which is described in his client's affidavit material is a structural imperfection and a defect of a serious nature and hence within the terms of Clause 2(p).

21 On behalf of the landlords Mr Lloyd submitted that these problems were not of that serious nature. He drew my attention, for instance, to the notice from the Melbourne City Council to which I made reference earlier. That characterised the works which it required to be carried out as being of a minor character.

22 In addition one might say that the sub-clause relied upon by Mr Parncutt is in somewhat curious and perplexing terms. In so far as it refers in the very last few words to the lessor's obligations hereunder it appears to assume the existence of a repairing covenant on the part of the lessor elsewhere or at any rate, some statement earlier in this sub-clause positively obliging the lessor to carry out works. The reference at the very end to the lessor's obligations being limited to structural imperfections, seems to be more of a proviso than a set of words apt to create a separate and free-standing obligation. Be that as it may, these proceedings are at an interlocutory or interim stage and for the purpose of the grant of the relief sought, I need only, subject to issues such as the balance of convenience, be satisfied that there is a serious question to be tried. I am satisfied that there is a serious question to be tried in all the circumstances as to whether the lease by Clause 2(p) or otherwise imposes an obligation upon these lessors to carry out structural repairs to the premises.

23 If the matter goes to trial, I believe that the perplexing terms of this lease may be elucidated by an examination of the factual matrix and the somewhat surprising terms of Cause 2(p) may become clear in a way that they cannot be rendered clear on the run in an interlocutory proceeding such as the present. But merely to find that there is a serious question to be tried as to whether the lessors have an obligation to carry out structural repairs does not, at least at the first stage in considering whether interlocutory relief should be granted, get this applicant home.

24 I should say initially that having looked at the photographs which were produced and upon the basis of the characterisation of these matters by Mr Hashem, I have concluded that the matters complained of here by Barfly's are properly characterised as structural imperfections or as defects of a serious nature or again, at the very least, there is a serious question to be tried as to whether they really do bear that character.

25 Nevertheless, it was Mr Lloyd's submission that a breach of this covenant, if we were to assume for the sake of the argument that the lessors were shown to be in breach of it, would not give this tenant an entitlement to withhold rent unless the tenant had expended the money itself to rectify the breach of covenant and thereby created a liquidated cost demand. Where no such step had been taken, the best that could be said was that there was an unliquidated cross-demand and that was insufficient to constitute an answer to a claim for the payment of rent. As to this point I should note first, that the covenant to pay rent is in the following terms in Clause 2(a)(i) of the lease:

To pay the stipulated rental punctually in the manner set forth during the term hereby granted to the Lessor at the address of the Lessor hereinafter mentioned or as the Lessor may otherwise from time to time by writing direct.

26 `The manner set forth hereafter' is to be found in the schedule. It is unnecessary to go to the schedule. It merely sets out figures and dates for payment.

27 I note for instance that this covenant to pay rent does not include the words `without deduction'. I express no view as to whether those words had they been there, would have excluded the possibility of there being some form of setoff. I merely note that since they are not there they cannot be relied upon as any setoff preventer. I invited Mr Lloyd to refer me to any authority which would support the submission which he was making on this point and he was unable to do.

28 Mr Parncutt submitted that Mr Lloyd was wrong on this point; but he likewise was unable to refer to any authority. The following authorities are those to which I have been able to refer myself in the short time available this afternoon. M.E.K. Nominees Pty Ltd v Billboard Entertainments Pty Ltd (1993) V ConvR 54-468 is a decision of Tadgell J (as he then was), then siting in the Supreme Court's Trial Division. His Honour was concerned with an application for leave to enter final judgment by a landlord seeking possession of premises for non-payment of rent. The tenant claimed to have an arguable defence based upon equitable setoff. The setoff relied upon was flooding of part of the premises with sewerage from a malfunctioning installation elsewhere on the landlord's property. His Honour concluded that whilst this was an unliquidated cross-demand, it represented, if the evidence were accepted, a breach of the covenant for quiet enjoyment. He said that an unliquidated claim for damages could be an effective equitable setoff against a demand for rent if, in all the circumstances, the unliquidated cross-demand could be regarded as so closely associated with the obligation to pay rent that it impeached the demand for the rent. His Honour concluded in the circumstances that the demand for rent was impeached and so gave leave to defend.

29 The allegation here is not that there has been a breach of the covenant for quiet enjoyment; rather, the allegation is that there has been a breach of an express repairing covenant. However, I should note that Tadgell J referred without evident disapproval and I think it not an exaggeration to say with evident approval, to a decision of Forbes J in British Anzani (Felixstowe)Ltd v International Marine Management (UK) Ltd [1980[ 1 QB 137. It might be thought paradoxical to find what has become a leading authority on equitable setoff emanating from the Queen's Bench Division of the High Court of Justice in England rather than Chancery Division but that is as it is.

30 The matter before His Lordship was that the tenants were resisting a claim for possession under an underlease from their sub-lessor based upon alleged breaches of a building agreement whereby the sub-lessor had erected the demised premises for the tenant. That contract provided that defects which occurred in the first two years of occupation should be rectified by the builder. There was no such provision in the lease. The tenants were in arrears under the lease and the landlord said that a cross-claim or cross-demand based upon an alleged breach of a separate agreement could not be an effective equitable setoff. His Lordship concluded that there was so close an association between the demand for rent and the obligations of the landlord under the building contract that the second effectively impeached the first. This is a weaker case for the tenant than the one that I have before me because the covenant breach of which was said to create an effective equitable setoff for unliquidated damages was to be found in a separate agreement. Here the clause relied upon by Mr Parncutt is to be found in the lease itself.

31 I conclude therefore that in the circumstances Clause 2(p) and the matters alleged by Mr Hashem in his affidavit constitute a potential equitable setoff such that I am satisfied that there is a serious question to be tried as to whether the landlords are in truth legally entitled or equitably entitled to terminate the lease in these circumstances.

32 Mr Lloyd on behalf of the lessors did not address any argument upon the balance of convenience. He conceded that if a serious question to be tried was demonstrated in favour of the applicant tenant the balance of convenience would favour the maintenance of the status quo.

33 Mr Parncutt said that he was instructed to offer the usual undertaking as to damages. What I have said already indicates that I am of the view that interlocutory relief should be granted in the present case. Mr Lloyd however submitted that were I to reach such a conclusion, he would want to make particular submissions as to the form of the order.