BATISTE & 2 ORS v LENIN [2002] NSWSC 233 | Case summary

3548/01 BATISTE & 2 ORS v. LENIN JUDGMENT 1 HIS HONOUR: The litigation and the parties. The defendant Michael Petrovic Lenin is the lessor and the second plaintiff Hazaran Pty Ltd is the lessee in a lease dated 15 November 1996 registered 6201973 of the Great Northern Hotel in Scott Street, Newcastle. The hotel was constructed in 1938 and occupies a prominent position near Newcastle's principal railway station. It was once the pre-eminent hotel in Newcastle, distinguished for its patronage and decor, but by the time of the relevant events it had long been in hard times and was in a severely deteriorated state. Ms Batiste the first plaintiff described the building by saying "The Great Northern Hotel prior to the commencement of the lease was a derelict building with squatters living in it which had been effectively abandoned by the defendant." She also said that it "… required substantial refurbishment if it was to be suitable for any use as a hotel." The hotel stands on the land in Folio Identifier 100/834251; its principal frontage is to Scott Street to the north and it also has a frontage to Watt Street to the west. The lease was granted for a term of six years to commence on 22 November 1996 and terminate on 21 November 2002. It contained an option to renew for a period of six years and an option to purchase. 2 In their Statement of Claim filed on 13 July 2001 the plaintiffs make claims for a number of remedies under the Fair Trading Act 1987 (N.S.W.) based on alleged representations made by Mr Lenin in negotiations leading to the grant of the lease. The remedies claimed under the Fair Trading Act include damages, an order varying the lease agreement to extend the period for carrying out work and to extend a rent holiday, and orders which would preserve the option to renew the lease and the option to purchase. The plaintiff also claims relief against forfeiture of the lease and option in respect of breaches which have occurred. Matters pleaded in defence include denials of the representations, a claim that if the representations were made there were reasonable grounds to make them and reliance on time limitations under the Fair Trading Act subs. 68(2). In the First Cross-claim Mr Lenin claimed against Hazaran Pty Ltd judgment for possession of the hotel, and also judgment for arrears of rent, mesne profits, a declaration that the option to purchase is terminated and related remedies. The breaches of covenant upon which Mr Lenin's claim to possession is based include a number of breaches in addition to failure to pay rent. These include in para.7 failure to pay outgoings under the Lease when demanded, in para.8 failure to carry out works under Art.11.02 of the Lease, in para.9 failure to pay a proportion of income generated by poker machines, in para.10 failure to pay rent during the rental holiday period and in para.11, breach of covenant relating to maintaining insurance. During the hearing the claims relating to breaches of articles dealing with poker machine income and insurance were abandoned. It is alleged in paras.12 and 13 that Hazaran has repudiated the lease and that the lease was forfeited by service of the Cross-claim. In paras.15 and 16 it is alleged to the effect that the option to purchase has also been forfeited. 3 The Amended Defence to the Cross-claim raises a number of matters in answer to the alleged breaches of covenant; some of these need not be addressed in view of abandonment of some allegations. In para.3 Hazaran raises several bases on which it is said that moneys which it has expended in re-instating the premises should be set off or otherwise allowed to it in determining whether there have been defaults in payment of rent, or that there should be an abatement or pro tanto reduction in rent because of the condition of the premises. Para.3A expands on this allegation. It is contended that Mr Lenin is not entitled to rely on breaches of covenant. The matters put forward to show this include (para.6) a defence to the effect that it is unconscionable for Mr Lenin to rely on non-compliance with Art.11.02 because he was aware at all times that strict compliance may not have been possible, and in para.6A a defence that Art.28 of the Lease contains a covenant by Mr Lenin to make repairs which had to be completed before it was possible for Hazaran to carry out the work referred to in Art.11.02(c). In paras.7A, 7B, 7C, 7D, 7E and 7F allegations are made about the effect and operation of Art.28. In para.7G it is alleged to the effect that Hazaran is entitled to set off moneys which it has expended on the poker machines against any obligation to pay rent. The Amended Defence to Cross-claim also puts forward again the claim for relief against forfeiture. 4 A Second Cross-claim was filed shortly before the hearing commenced in which Mr Lenin makes claims against Mr Kurt Braune, who was a party to the lease as a guarantor. This cross-claim would require consideration of Article 29 Release of Guarantor, which deals with transfer of majority shareholding. I was of the view that it would not be just to attempt to compel Mr Braune to go to trial at the same time as the hearing of the principal claims, and vacated an appointment which I had earlier made for the Second Cross-claim to be heard with them. 5 When the lease and the option to purchase were executed, and those things appear to have happened on 14 November 1996, Hazaran Pty Ltd was a shelf company; it had no earlier business or activities and its directors and shareholders were persons associated with the commercial firm which had formed it; those persons had no part in the negotiations for grant of lease. In some events which have not been proved Mr Kurt Braune arranged to obtain control of Hazaran, and Hazaran executed the lease (or purportedly did so) by the affixation of its common seal and by the signature of Mr Kurt Braune over the words "sole director". The option to purchase was executed by affixing the common seal and by the signature of Mr Braune over the word "director". On the occasion when the documents were executed the solicitor who then acted for Hazaran, Mr Richard Licardy gave the solicitor who acted for Mr Lenin, Mr Wakim an undertaking that he would attend to registration of documentation to register Mr Braune as director and shareholder. However this did not ever happen. At or soon after entering into the lease Mr Braune on behalf of Hazaran paid Mr Lenin $200,000 as consideration in two payments, one of $50,000 and one of $150,000. Later when she acquired the share in Hazaran Ms Batiste paid Mr Braune $200,000 and acquired all the shares in Hazaran. The first plaintiff Donna Batiste became the sole director and the sole shareholder of Hazaran on 24 December 1996. How she became so has not been established in detail, but Mr Braune did not ever become a shareholder or a director of Hazaran according to returns filed under the Corporations Law, although on 14 and 15 November 1996 he was in control of its affairs such as they were, and acted in the character of its sole director without having any appointment as such, and there has never been any challenge to the effectiveness of execution of these documents on behalf of Hazaran. On and before 15 November 1996 the first plaintiff Ms Batiste was not a director or a shareholder of Hazaran, and there was no firm arrangement between her and Mr Braune which established any clear entitlement of hers to take control of Hazaran. 6 Provisions of the Lease. Article 3 of the Lease contains extensive covenants by the lessee to carry out alterations, repairs and maintenance, and regulates what the lessee may do. By Art.3.02(a): (a) The Lessee will at the times during the continuance of this lease maintain and keep in good repair and at the expiration or sooner determination of the term will peaceably surrender and yield up to the Lessor the premises together with all appurtenances fixtures and other things thereto belonging or which at any time during the said term shall have been erected or placed thereon by the lessor, reasonable wear and tear and damage by fire lightning flood or tempest (not attributable to any act or omission of the Lessee its servants, agents or workmen) only excepted. 7 By Art.3.01(a) the lessee is required to obtain written approval of the lessee for any work. The lessee's repair covenant is extensively supplemented by further provisions of Art.3.02. By Art.3.03 to 3.10 the lessor is given rights of inspection and rights to carry out works if required by legislation or public authorities, and there are other provisions ancillary to the lessee's covenant. 8 Article 3.04 gives the lessor power to enter and effect repairs in terms which show contemplation that the lessor may decide to do so for the purpose of carrying out alterations or repairs for which the lessee may not be liable as well as alterations or repairs for which the lessee is liable but neglects to do. That is to say, Art.3.04 deals with the subject of the lessor entering and effecting repairs in a context in which the lease does not impose on the lessor any express obligation to enter and effect repairs. 9 Article 3.06 is in these terms: Without limiting the generality of any of the preceding provisions of this lease, the Lessee shall from time to time forthwith comply with all statutes, ordinances, proclamations, orders or regulations present or future affecting or relating to the use of the premises, and with all requirements which may be made or notice or orders which may be given by any government, semi-government, municipal, health, licensing or any other authority having jurisdiction or authority in respect of the premises or the use thereof, and will keep the Lessor indemnified in respect of all such matters. The Lessees liability under this clause shall extend to any necessary structural alterations. 10 It will be seen that this extends to orders which exist at the time of the lease as well as orders which may be made in the future, and that the lessee's liability extends to any necessary structural alterations associated with those orders. Article 3.06, Art.11.02(b) and Art.20.02(a) although widely separated in the text deal with much the same subject and leave no room to doubt or qualification that it was the lessee's positive obligation to do any work, including structural work, necessary to comply with fire control orders outstanding at the time of the lease. 11 Art.3.12 provides: 3.12 Notwithstanding the provisions of Article 3-3.01 to 3.11 (inclusive), the Lessor acknowledges that it is the intention of the Lessee to carry out a major re-fit and refurbishment of the said property and that during the course of construction and/or refurbishment it may be necessary for the Lessee in order to effect such works, to bring on to the site, such equipment which otherwise would place the Lessee in breach of the terms and conditions of this Lease. 12 Article 5 obliges the lessee to pay outgoings promptly on demand. 13 Article 10 Lessor's Covenants is in the following terms: 10.1 On the Lessee paying the rent herein reserved and observing and performing all the covenants terms and conditions on the Lessee's part to be observed and performed the Lessee shall and may peaceably possess and enjoy the premises without any interruption or disturbance from the lessor or any person or persons lawfully claiming by or from or under it subject nevertheless to the terms and conditions of this lease. 10.02 The Lessee shall be entitled on or before the expiration of the term hereby demised and so long as the Lessee has paid all instalments of rental and other moneys due hereunder on or before the due date for payment of same is not otherwise in default hereunder, to remove all furniture and non fixed chattels installed by the Lessee during the term of this lease. 14 There is no repair covenant by the lessor relating to any works. There are no other express covenants by the lessor which could be understood to deal with the state of repair of the building, or any other matter relevant to the obligations which the plaintiffs alleged fall on Mr Lenin. 15 Article 11 Rental and Occupancy is: 11.01(a) The Lessee shall at such places as the Lessor may from time to time direct and otherwise without demand from the Lessor pay to the lessor during the term of this lease in the manner set out in item 6 of the Reference Schedule rental without deduction at the rate per annum set out in Item 7 of the Reference Schedule subject to increase as provided in this Article. 11.02 RENT FREE PERIOD (a) The Lessee acknowledges that at the time of commencement of this lease part of the subject premises is affected by an Order or Order from the Newcastle City Council requiring closure of the upper floors therein due to the lessor's failure to comply with council fire orders. (b) Forthwith upon commencement of this lease the Lessee shall at its own expense and as expeditiously as possible carry out such work as is required to satisfy the existing Council orders and thus facilitate the reopening of those parts of the premises presently closed. (c) Provided that the Lessee, within 5 years of the date hereof, at his own expense and in a proper and workmanlike manner and in accordance with the requirements of any statutory authority carried out all work necessary to comply with the fire orders, a copy of which are annexed to the Option to Purchase referred to Article 21 hereof, repairs the roof membrane and all external woodwork and the concrete cancer in hallways and bathrooms, the Lessor will forgo any rental payments from the date of commencement hereof until the 1st of January 1999. 16 Item 7 in the Reference Schedule provided for an annual rental of $260,000 in each of years 1 to 5 inclusive and $312,000 in year 6. Item 6 provided that rent would be paid by equal monthly instalments. 17 Article 13.01 Default by Lessee confers on the lessor power to re-enter and thereby determine the estate of the lessee upon the occurrence of defaults; these defaults include rent in arrears for 30 days in which case no formal demand is required, and default in fulfilment of any covenant or condition continuing for 30 days after notice requiring rectification. Article 13.02 provides: 13.02 The Lessor may but shall not be obliged to remedy at any time with written notice any default by the lessee and whenever the Lessor so elects all costs and expenses incurred by the Lessor (including legal costs and expenses) in remedying any default shall be paid by the Lessee to the Lessor on demand. 18 Article 14 deals with vacant possession on termination and contains a covenant by the lessee to yield up vacant possession on expiration or earlier termination of the lease. 19 Article 15 deals with abatement of rent and its provisions are based on the introductory words - "If the whole or any part of the premises shall be taken for any public purpose or be destroyed or damaged by fire flood lightning storm tempest or other disabling cause including war damage …" None of these events has happened. 20 Article 16.06 provides: The covenants and conditions contained herein or by statutory implication shall comprise the whole of the agreement between the parties who acknowledge and declare that no other terms and conditions shall be deemed to be implied herein or to arise by way of collateral warranty. 21 Article 17 confers on the lessee an option of renewal "provided that there is no subsisting breach by the lessee of any of the terms or conditions herein contained ….". The option is to be exercised at the time and manner indicated, not more than 180 days prior to the expiration of the term; and the time for exercise of the option will begin on 25 May 2002. 22 Article 20 Renovation includes in para 20.02(a) a covenant to carry out works additional to the covenant in Art.3.02(a) and imposes a different obligation to that imposed by the repair covenant. Article 20 is ARTICLE 20 RENOVATION 20.01 The Lessor and the Lessee acknowledge that at the date of commencement of this Lease the subject premises are affected by notices issued by the Newcastle City Council requiring compliance with Ordinance 70 and other matters. 20.02 The Lessor covenants and agrees with the Lessee that: (a) The Lessee will at his own expense in all respects carry out works required to satisfy outstanding notices of the Newcastle City Council in accordance with the requirements of the Newcastle City Council, the Australian Heritage Commission and the Heritage Council of New South Wales. (b) In respect of the carrying out of works referred to in subclause 20.02(a) hereof the provisions for abatement of rental set out in article 15 hereof shall not apply. 23 Article 21 Option to Purchase is: ARTICLE 21 OPTION TO PURCHASE 21.1 The Lessor and Lessee shall at the time of signing this agreement enter into an Option Agreement for the sale of the subject property for a consideration of Three Million Dollars ($3,000,000.00) such option being capable of being exercised between the 1st December 2006 and 30th December 2008. 24 Article 28 Poker Machines is: 28 POKER MACHINES It is agreed between the Lessor and the Lessee that if the Lessee is lawfully entitled to install poker machines in the subject premises then the Lessee and the Lessor by mutual agreement share the cost and income of the said poker machines, up to a maximum of 15, on either of the following basis: (i) the Lessor will contribute 50% of the cost of acquisition of the said poker machines and will carry out the necessary work to rectify the defects set out in point 1, 2, 3, 4 and 5 as detailed in the report of Burgess and Arnott Pty Limited dated 5th November 1996, whereupon the Lessor shall be entitled to receive 50% of the income generated by the said poker machines after such deductions as are required to be made to the controlling statutory authorities and after the deduction of agreed costs of providing staff, electricity and banking services for the machines; OR (ii) the Lessor will contribute 25% of the cost of acquisition of the said poker machines and will carry out the necessary work to rectify the defects set out in point 1, 2, 3, 4 and 5 as detailed in the report of Burgess and Arnott Pty Limited dated 5th November 1996, whereupon the Lessor shall be entitled to receive 25% of the income generated by the said poker machines after such deductions as are required to be made to the controlling statutory authorities and after the deduction of agreed costs of providing staff, electricity and banking services for the machines; OR (iii) the Lessor contributes 10% of the acquisition costs of the said poker machines and shall be entitled to receive 10% of the income generated by the said poker machines, free of any deductions. 25 The terms of Art.28 show that the contents of the Burgess & Arnott report of 5 November 1996 and the references in it to defects were known to the lessee when the lease was executed. 26 Provisions of the Option to Purchase. The Option to Purchase referred to in Art.21 is a Deed dated 15 November 1996 between Mr Lenin as grantor and Hazaran as grantee which recited Mr Lenin's ownership of the property, the lease agreement of even date and an agreement to grant an option to purchase on the terms set out. Clause 1 granted an option to purchase for a fee of $10, which by cl.2.1 was to be exercised after 22 November 2006 up to 21 November 2008 "… provided always however that it is an essential term of this agreement that the Grantee have validly exercised the option contained 'in the Lease' and is not in default of any of the essential covenants contained 'in the Lease'." The option contained in the lease is the option of renewal. A number of provisions deal with mechanical matters relating to the manner of exercise, payment on exercise and related matters. Clause 5 Early Termination of Lease provided: 5. EARLY TERMINATION OF LEASE In the event that the Lease shall terminate for any reason prior to exercise of the Option hereby granted, whether before or after the commencement of the option period as a result of default by the Grantee, this Option shall terminate and be of no further force or effect and the Option Fee may be retained by the Grantor. 27 A form of contract and a number of other documents were annexed and were required to be used on exercise of the option to purchase. Among the documents annexed was a letter from Burgess & Arnott Pty Ltd, consulting structural civil and hydraulic engineers, to Newcastle City Council dated 5 November 1996 and a report of two pages also dated 5 November 1996 referring to the Great Northern Hotel and headed "Subject: Structural Adequacy of Building". The report referred to damage to the building during the 1989 earthquake and to earlier reports in 1990 and 1992, to a recent inspection on 1 November 1996, stated that the movements then found were to be considered very slight, and went on: Therefore, it is our opinion that the construction is acting in a manner that is structurally adequate to safely support the dead loads, live loads, wind loads and earthquake loads as laid down in A.S.1170. Provide that the following defects are attended to prior to. 1. Lintel at northern elevation over external doorway be replaced and brick wall areas over the rebuilt or repaired as specified in the previous report. 2. Repair floor slabs in the following locations where reinforcement is exposed and corroded. · Cellar roof near keg room access at cnr of Scott & Watt sts. · 3rd floor female toilet ceiling · 5th floor female toilet ceiling · 5th floor male toilet ceiling 3. Repair brickwork at 5th floor male toilet where corrosion of window lintels has caused disruption to brickwork. 4. Awning tierods that are corroded should be replaced and wall anchors checked. 5. The Fascia of the building should be checked for loose elements such as broken bricks at window heads, parapet copings, etc., which are endanger of dislodgment. These elements should be made good by replacement or repair. 6. External handrails to balconies and roof areas should be replaced. 7. Roof water proof members to be repaired to water tight condition or repaired. The main structure of the hotel being a steel frame for the first two stories suffered little or no damage during the earthquake, however, the infill masonry walls were buffered by the lateral movements which cause cracking to the element. This did not affect the adequacy of the main steel frame structure. The top three floors of load bearing brickwork suffered no major damage and most faults in this area of building are due to old maintenance problems. In summary, we consider all faults mentioned in this and previous reports should be rectified to prevent future high maintenance costs. However, we have tried to verify the order of importance of attendance to the remedial work for this building. Namely:- Items 1 to 3 are of structural significance and should be attended to prior to occupation or shored in a manner to ensure safety until repairs can be made. Items 4 to 5 are matters of public safety and therefore should be attended to as soon as possible. Item 7. Water penetration to this building is a major factor in the cause of deterioration. Water tightness of habitual building is a basic requirement and should be made good. We would suggest temporary measures such as tarpaulins be used until a approved waterproof membrane system is installed. 28 Many other documents were annexed to the option, containing an array of information of various kinds about the hotel, title to the hotel and actions of various public authorities. A number of orders which had been made by Newcastle City Council were annexed. An order dated 19 September 1990 under s.317B(i) of the Local Government Act 1919, required a chimney to be put in repair. The evidence did not deal further with this notice and so far as appears it was complied with at some time. An order dated 21 May 1992 under s.317B(ii) of the Local Government Act 1919 required Mr Lenin to prepare and submit to Council within three months particulars of work he considered necessary to make provision for fire safety works specified in the Notice; these works included fire isolated stair and other works. The order noted that the Heritage Council of New South Wales was to be consulted in connection with any order under s.317D(ii). An order dated 24 December 1992 under s.317D(ii) again ordered preparation of particulars of work considered necessary for various fire safety works principally fire isolated stairs. By letter dated 23 March 1993 to Mr Lenin, Newcastle City Council referred to details submitted as required by the order of 24 December 1992 and approved particulars submitted as detailed by drawings 1-2/92F, 2-2/92F and 3-2/92A and associated specifications prepared by Porter Designs and Project Management Pty Ltd, with modification which was stated. The modifications included para.25 "Structural details prepared and certified by a practising structural engineer are to be submitted to Council prior to the commencement of any structural alterations." Council also in 1993 required the existing stair around the goods lift on the eastern side of the hotel to be converted into a fire stair, and this was done by Mr Lenin. 29 By an order under s.317D(i)(a) entitled "Order to upgrade fire safety and essential services in an existing building" dated 5 May 1993 Newcastle City Council ordered Mr Lenin to complete works described in the Second Schedule (Exhibit 1 p97-99). Many works were required for the stated purpose of "ensuring that adequate provision for fire safety is made" and various times, the longest being 24 months, were given for different works. The works included 5.0 "Provide the new fire stair to the western end of the building in accordance with Part D1.3 of the Building Code of Australia" and "5.2 Complete all outstanding works as detailed by drawing Nos 1 and 2-2/92F, 3-2/92A and associated specification … except where modified …". 30 By an order dated 9 September 1994 (Exhibit 1 p94) under Local Government Act 1993 Ch.7 Pt.2 Newcastle City Council ordered Mr Lenin by 10 October 1994 to cease to conduct the activity of occupation of the residential portion of the premises until some of the items of work in the order of 5 May 1993 had been completed in full, the reason given being "The activity constitutes a life threatening hazard due to the lack of fire safety provisions within the building." The Land and Environment Court enforced this order by injunction late in 1994. From that time on the residential portion of the building being the second to fifth floors has not been occupied. 31 Observations on the Lease and Option to Purchase. The knowledge of both parties of the matters in the option to purchase and in all documents annexed to it is of importance for any address to context or surrounding circumstances which may be required in considering whether some term should be implied in the lease. It must be understood that the lessee knew the terms of the report of Burgess & Arnott Pty Ltd annexed to the option to purchase; that report is referred to in Art.28 at two places. The lessee must also of course be understood to have known the terms and the requirements of the outstanding notices from the Newcastle City Council which were referred to in Art.11.02(c) and Art.20.02(a). 32 The meaning and effect of the express provisions of the lease relating to repair obligations is of high importance for addressing any question whether there were implied obligations on either party relating to repairs. They are also of importance in addressing the probabilities of whether there were, as alleged, express representations, or some circumstances in which an alleged failure to make a disclosure constitutes misleading and deceptive conduct, in the course of negotiations before entering into the lease. The lessee's covenant in Art.3.02(a) to maintain the building and keep it in good repair should in my view be understood with the statement in Art.3.12 of the lessee's intention to carry out a major refit and refurbishment and measured against the state of the building at the time of the lease, when the building was in a severely deteriorated state. It had suffered earthquake damage in 1989. It had been the subject of several orders of Newcastle City Council relating to repairs and fire safety, and the orders requiring works for fire safety had not been complied with, as was clear to the parties. The business of a licensed hotel had been conducted in the building by a lessee from Mr Lenin until some date in or about 1994, when that lease expired, an injunction made by the Land and Environment Court of New South Wales prevented further occupation of the residential part of the hotel, and Mr Lenin brought hotel trading to an end and caused the building to be closed up, occupied only by a resident caretaker or manager. There were incursions from time to time by squatters and other intruders, and there had been fire damage caused by an intruder to a room variously described but usually referred to as the florist's shop on the ground floor; this damage occurred within a few days or weeks before 14 November 1996. In the last years of hotel trading until 1994 residential accommodation business had been carried on as low price or budget accommodation; the furniture and furnishings in the residential section had not been cleared away and were in such a deteriorated state as to be of no practical use. The residential section suffered from entry of water through roof leaks, broken windows and decayed wooden window frames, and from disruption of plumbing pipes apparently caused by theft of copper piping. There were signs of concrete cancer, meaning spalling of concrete caused by corrosion of steel reinforcement. Quite apart from the outstanding fire notices and the injunction, there were many difficulties in the path of returning to residential use. The deteriorated state of the building was well understood to the lessee, in the person of Mr Braune, at the time when the lease was entered into, as he had had inspections of the premises. 33 In my view the provisions of Art.11.02(c) relating to work to be carried out by the lessee and to the rent-free period do not impose an obligation on the lessee to carry out work necessary to comply with the fire orders failure to perform which the lessor could complain of; nor impose an obligation to carry out the other work of repairing the roof membrane and all external woodwork and the concrete cancer in hallways and bathrooms. On its plain terms as a matter of language Art.11.02(c) contains no such promise; its structure is quite different and shows that it states circumstances in which the lessor will forgo the rental payments referred to, leaving it to the lessee either to fulfil the circumstances and obtain the benefit of rent being forgone or to leave them unfulfilled and remain under the obligation to make all rental payments. The language used in para.(c) is itself enough to show this conclusion is correct, but it is also supported by integration of the provisions of para.(c) with other provisions of the lease including Art.3.12 which recorded the intention of the lessee to carry out a major refit and refurbishment, which would be likely to include repairs to the roof membrane, external woodwork and concrete cancer, and Art.20.02 which creates a positive obligation of the lessee to comply with the fire orders. Not only is there no express obligation in the lease for the lessor to do any work necessary to comply with the fire orders or other repairs; it would be adverse to the lessee's interest under Art.11.02(c) for the lessor to carry out that work or part of it, because to do so would diminish or preclude the lessee's opportunity to perform the work and obtain the benefit of the rent-free period; this is a powerful factor against any such implication, quite apart from other considerations. 34 The language of Art.28 Poker Machines contains several anomalies, some minor and some important. It is anomalous that in the third line "share" is in the present tense although it is plain enough that the word relates to something which the parties are to do in the future and for the continuing period while poker machines are operated and the lease remains in effect. The words "by mutual agreement" are also a little difficult to understand as it could be said that everything in the lease was entered into by mutual agreement and the words are superfluous. It is anomalous that three bases are referred to in the phrase "on either of the following basis"; "basis" is used for the plural and "either" is used although there are three to choose from. On the whole terms of Art.28 I am of the view that what was contemplated was a mutual agreement to take place in the future adopting one of the three bases in cll.(i), (ii) and (iii) for contribution and sharing. 35 Article 28 shows contemplation that in some event the lessor would carry out the necessary work to rectify the defects set out in Points 1 to 5 of the Burgess & Arnott report of 5 November 1996. Plaintiffs' counsel put forward contentions which were not altogether clear but seemed to be directed to show, or seemed to assume that the provisions of Art.28 impose on the lessor an obligation to the lessee to carry out the work in Points 1 to 5, or created an entitlement or expectation on the part of the lessee that the lessor would carry out that work which has some implication for entitlements of the parties under other parts of the lease. The lessee did in fact, after several years, commence trading under a liquor licence of some kind on the ground floor, and installed poker machines. The lessor did not contribute any part of the cost of acquisition of the poker machines and did not carry out any of the work necessary to rectify the defects in Points 1 to 5. The parties did not ever come to any agreement relating to sharing the cost of income of poker machines or adopting one of the clauses in Art.28. In cross-examination Ms Batiste maintained that the question whether the proportion in Art.28 would be 50, 25 or 10% was "on the table" and she maintained "… We had agreed that it was 25 or 50 because of the work that was done" but agreed that that was virtually agreed but never really resolved. 36 The lessor asserted, in very uncertain terms, a right of some kind to an interest in poker machine revenue; the most that happened on this subject was that a solicitor representing Mr Lenin made a highly imparticular demand for a share in poker machine profits, nominating an amount between $500,000 and $700,000; the lessee did not comply with this demand, and appears to have taken no real notice of it, reasonably enough as it was obviously groundless. This groundless demand had no influence on the lessee's conduct. A claim in respect of poker machine revenue was made in the cross-claim, but was abandoned at the hearing, reasonably enough as no grounds appeared for such a claim. 37 As the parties did not ever come to any further agreement adopting one of the three bases, I am of the view that the provisions of Art.28 relating to sharing income and costs have not come into effect. They could not come into effect unless, by agreement or in some other way one of the bases stated was made operative. As election was referred to in argument as a possible means of making one of the bases operative I will say that the terms of Art.28 show that the matter is not simply one of election, and further that on the evidence there has not been any election by the lessor, nor has there been any election by the lessee, of any one particular basis which is to operate. 38 The letter demanding a share in poker machine profits could not be an election by the lessee of some particular basis as it does not distinctly refer to any one of the bases in Art.28. Further, if it should be important, the lessee did not act on any such election. Yet further, if basis (i) or basis (ii) had come into effect, neither contained any promise by the lessor to contribute a percentage of the cost of acquisition of poker machines or to carry out work to rectify defects in Points 1 to 5; the language used is such that doing those things is a condition which the lessor must wholly fulfil if he is to be entitled to receive a percentage of the income generated by the poker machines. Failure to do all things in the condition would produce the result that the lessor was not entitled to a share of income, but would not produce any other results. Basis (iii) is structured differently. 39 Lessee's contention that the lessor was obliged to rectify defects in Points 1 to 5. Plaintiffs' counsel contended that the meaning and effect of the lease is that it is an obligation of the lessor to carry out the work in the first five of the seven points listed in the Burgess & Arnott Report; the first five points are referred to in cll.(i) and (ii) (but not in cl.(iii)) of Art.28. These five points do not relate to fire safety matters or to work which has been required to be carried out by any order from a statutory authority. There is no express covenant by the lessee in the lease which obliges the lessee to carry them out. The principal submission was that this obligation appears from the express terms of the lease taken as a whole, and alternatively it was submitted that there is an implied obligation to that effect. In support of the existence of this obligation plaintiffs' counsel's contentions were to the following effect. When Hazaran took the lease Hazaran was confronted with a number of matters which had to be done for public safety, being Points 1 to 5 in the Burgess & Arnott Report, and Points 1, 2 and 3 were of structural significance. There were substantial problems which made the building unusable until a large sum of money had been expended. The draftsman of the lease should have made it clear who was to pay for these matters which had to be dealt with at once and required an enormous amount of money to be spent, which the plaintiffs have spent. Provisions of the lease modifying covenants otherwise implied under the Conveyancing Act 1919 bear on the topic in a round-about way namely Art.1.06 which excludes s.84 of the Conveyancing Act 1919 and Arts 1.07, 1.08 and 1.09 which modify the powers in s.85. 40 Counsel submitted that the first five points were matters which required repairs which the landlord should have carried out, but did not ever give notice of intention to repair or carry out work. It was submitted that it was implied in the lease that these works were to be undertaken by someone, and that the lessee did them and should be paid otherwise the landlord will be getting a benefit. The building is described in the lease as the Great Northern Hotel and the permitted use specified in Item 10 of the Reference Schedule is "Licensed Hotel (including accommodation restaurant and function rooms)". It was submitted that it was clear that a licensed hotel was to be conducted there and had to be conducted there. If that was to happen the works in the first five points had to be carried out first. Impliedly the lessee was to receive a building suitable for the permitted use stated in the lease. If the lessor wished to state some difficulty in the path of doing this the lessor should have stated that difficulty expressly in the lease. It was contended that the building had no effective water service or electrical service and as there was no express obligation of the lessee to restore them, the lessor was obliged to restore them. It was contended that Art.28 does not prevent the lessee from relying on a more general right of recoupment in respect of the works mentioned. Points 1 to 5 are matters of safety, Points 4 and 5 of public safety, someone has to do these works and the lease should be read contra proferentem against the lessor. If the lease did not bear the meaning contended for there would be simple unfairness as the lessee would do the works, including structural works, and the lessor would snap up the benefit. No clause provides that the lessee has to do it yet the work must be done. Those facts provide a relevant basis in law for the obligation of the lessor contended for. The lessee spent money in good faith on the premises, was compelled by circumstances to spend it and could not avoid spending it, and having spent it should have a contribution from the landlord. 41 In my opinion the matters referred to by counsel do not show that the true meaning of the lease is that the lessor is obliged to carry out the work in Points 1 to 5, or is obliged by the lease to carry out any work in the interest of public safety, or in the interest of making the building suitable for the permitted purpose. The deteriorated state of the building, the terms of the outstanding orders, the matters reported on by Burgess & Arnott and the lessee's intention to carry out a major re-fit and refurbishment were well known to both parties, and are prominent parts of the factual matrix into which the lease is to be set when approaching its construction. When so understood, the lessee while entitled to use the building for the permitted purpose faced the practical difficulties of doing whatever was necessary to make it possible to use it; including all practical problems from whatever source, whether they related to obtaining appropriate personnel, obtaining statutory licences and permissions of statutory authorities or to putting the structure into a condition of being fit to use. The lessee was given a large concession of over two years' rent on condition that the lessee carried out stated work; the contemplation that the lessee would have a great deal to do before it could embark on paying rent, and needed a long time to do it, was clear. The obligations of each party to the lease, with respect to repairs as with respect to many other matters, were stated in terms by the lease, and the extensive express statements are a considerable difficulty for any further implication. Article 16.06 makes a declaration which is inconsistent with the implication of the term contended for. The observations relating to there being, as a matter of fact, a pressing need for extensive work to be carried out before the building could be used do not in my view go any distance before establishing that the lease imposes an implied obligation on either party to carry out that work; the opportunity was there for the lessee to carry out the works and get the benefit in terms of utility of the building for the permitted purpose. The opportunity was no doubt also there for the lessor to carry out the work, but that opportunity cannot be promoted into an obligation. 42 In the application of the test for implication adopted by Mason J in Codelfa Construction Pty Ltd v. State Rail Authority of NSW (1982) 149 CLR 337 at 347 the term propounded, if considered to be an implied term, does not meet any of the first three tests namely: "(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'". It cannot in my opinion be said that it is necessary for business efficacy of the lease, or that it goes without saying that it should be the lessor's obligation to put the hotel into a state where it is suitable for conduct of a hotel business. It can just be readily stated that it is necessary for the lessee to put the hotel into a fit state, but the attribution of the obligation to either party by implication fails any test of necessity. 43 I do not see any significance in the modifications to ss 84 and 85 of the Conveyancing Act. 44 The provisions of Art.28 show a contemplation that in some events the work in Points 1 to 5 would be carried out by the lessor. That contemplation and the terms of Art.28 do not as a proposition of logic establish that the lessor did not have an obligation from some other source to carry out that work, but the mechanism of Art.28 clearly contemplates that there might be any of three outcomes, in one of which the lessor would not do this work, while in the others the consequence of not doing the work would be that the lessor would not gain the benefit but otherwise there would be no stated consequence, and the mechanism includes a need for a further mutual agreement before any one of these three outcomes was selected; this mechanism is strongly adverse to a conclusion that the lessor was obliged to carry out those works in any event. 45 My view then is that the lessee did not have the benefit of any express or implied covenant by the lessor to carry out the works in Points 1 to 5 and had no entitlement to damages or other remedy when the lessor did not carry them out and the lessee did, and there can be no money obligation arising in that way which the lessee could be entitled to recoup out of rent, or to set off against rent, or could go in reduction of its obligation to pay rent. 46 Probabilities and circumstances - whether the representations were made. The terms of the lease and the structure of the obligations undertaken under the lease, taken in conjunction with the terms of the option to purchase and of all the documents referred to in it, have a strong bearing on the probabilities of the plaintiffs' claim that the lessee entered into the lease after having received, and on the basis of accepting and acting on representations which amounted to assurances that the relationship between lessor and lessee would, in very important respects, be quite different to that indicated by the terms of their lease. Before accepting that there were any such representations it has to be considered carefully whether there is any explanation for the parties' behaving in so strange a way as to make one set of arrangements orally about who would do work and how it would be done, and about the difficulties and responsibilities attending doing the work, and then enter into another set of arrangements, carefully recorded in documents which stated the arrangements at length. 47 It is also fundamental for an address to claims based on the Fair Trading Act that the lessee Hazaran was at the time of the negotiations for the lease and at the time of making the lease under the practical control of Mr Kurt Braune who was able to act the part, completely successfully although incorrectly, of the sole director of the company; Mr Wakim the solicitor who then represented Mr Lenin was aware from search information that Mr Braune was not an officer of the company and delivered the documents on the basis of an undertaking by Mr Richard Licardy, who then represented Hazaran, which was not fulfilled. Mr Braune was the controlling mind of Hazaran at the time of the negotiations for and of making the lease, but there is no evidence which establishes that he relied on or even knew of the representations alleged; the most that can be said is that it is alleged that he was present on occasions when they were made in conversations between Mr Lenin and Ms Batiste, so that Mr Braune had the opportunity to hear them. It was forensically incumbent on Hazaran, if it was to make out a case on the balance of probabilities that Mr Braune knew of these representations and that they influenced his conduct, to call Mr Braune to give evidence of them; no evidence explains his absence as a witness, and while no doubt either party could have called him if so minded, the fact that he was at the relevant time the controlling mind of Hazaran, with the burden of proof borne by the plaintiffs, is a formidable difficulty. There is no indication in evidence that Mr Braun is not associated with the plaintiffs. 48 Another matter which should be mentioned, and disposed of shortly, is that Chrysalis Holdings Pty Ltd the third plaintiff was not incorporated until the year 2000 and had no part whatever on any possible view in the negotiations which led up to the grant of the lease in 1996. Chrysalis Holdings is distantly related to the facts in that after a series of transactions and a significant dispute with another person with whom she once acted in co-operation, Ms Batiste caused Chrysalis Holdings Pty Ltd to become, in or after 2000, the owner of an adjoining property in Watt Street, referred to as Tattersall's Club. Chrysalis Holdings Pty Ltd has no possible interest in any of the relief claimed. 49 The plaintiffs' claim is that significant representations were made before and on the date of executing the document to the first plaintiff Ms Batiste. There is overall difficulty in understanding in what character she took part in the negotiations, in what was represented or explained about her part to Mr Lenin or to Mr Roberton, who assisted Mr Lenin in important ways at the time, or in what interpretation should be made of her participation on the information available now. From what can be understood now from her evidence, without the benefit of any evidence from Mr Braune, she was then interested in obtaining a lease of the hotel, and had had some dealings with Mr Braune which had the effect that she was contemplating obtaining the benefit of the lease from Mr Braune under an agreement or arrangement which had not yet been fully matured, but she was also contemplating that Mr Braune might become and remain the lessee, according to whatever arrangements later did or did not emerge between them. She was thinking seriously of acquiring control over the lease, in some way not yet determined, from Mr Braune if he first obtained a lease, but she had not given Mr Braune a commitment to do so. Her position was certainly not explained in this way to Mr Lenin or to Mr Roberton. From their point of view Ms Batiste's part was that she was in some way associated with Mr Braune, it might be by being a consultant or giving him advice. It was not explained to them that she was making inquiries on behalf of Hazaran or was receiving information or representations on behalf of Hazaran, and indeed she was not. In addressing the probabilities about whether significant representations about the state and history of the building and future conduct were made to her it has to be asked why would Mr Roberton or Mr Lenin deal with her and give her significant information or assurances if she did not appear to be or to represent a negotiating party. 50 Credit of principal figures. The credit and credibility of the principal figures in the negotiations is an important matter. I formed a very poor view of the credit of Ms Batiste as a witness, based on her approach to evidence, which was characterised by opportunistic intrusions and argumentative material, often delivered with rapidity too great to be recorded or understood. Plainly she did not have any objectivity about the controversy. I had the advantage of observing her demeanour while giving evidence for an unusually lengthy period. She was extremely combative. She made what were obviously quite far-drawn endeavours to include material which she saw as adverse to her opponent, or in some way supporting her overall position, when the material intruded was not directly responsive to a question and sometimes had very little relation to it. I did not regard her as a witness on whom much reliance can be placed on any matter for which there is not fairly strong objective corroboration. 51 I also formed an adverse view of the credit of Mr Lenin. His evidence and his demeanour showed that he has an obdurate cast of mind, and this can lead him into adopting and holding positions which have elements of improbability which he cannot recognise. A particularly striking example is Mr Lenin's obdurate refusal to accept that Hazaran Pty Ltd had passed into the control of Ms Batiste. He also showed an obdurate position in declining on some occasions to deal with or answer letters or messages which he regarded as in some way unsuitable. In my finding he was a witness with a strong sense of engagement in the controversy and he should not be regarded as an objective source of information. An aspect of Mr Lenin's obdurate refusal to recognise Ms Batiste as interested in the lease is his treatment of letters and messages from her. Her letter of 14 July 1997 Exhibit B p187, which listed at great length work which has been done, asked him to agree to structural changes in the building and looked forward to a future good working relationship; he did not respond and indeed his evidence is that he destroyed the letter. The firmness of his mind against having any dealings or communications with Ms Batiste was very strong. In my view his evidence denying any communication with her before entering into the lease, and indeed denying having met her or seen her until the court hearing, was affected by this obduracy. 52 Mr Roberton conducted significant parts of the relevant business on behalf of Mr Lenin, although at the time of the negotiation he did not have the whole of Mr Lenin's affairs in his hands and did not purport to do so. At later stages he became the sole practical channel for communications between Ms Batiste and Mr Lenin. Mr Roberton appeared to me to be a frank and open witness, and I see no reason to think that consideration of the balance of advantages entered into the terms of his responses to questions; where appropriate his answers included ready acknowledgment of matters which might be thought adverse to Mr Lenin's interest. Mr Roberton has over the years done a lot of work for Mr Lenin, not in a relationship of employment but in some form of consultancy or agency in which he was paid for the time he actually gave to Mr Lenin's affairs. He did not give any sign observable by me of an undue attachment to Mr Lenin's affairs and interests. While it is important, with Mr Roberton as with all witnesses, to direct attention to any facts which can be regarded as objectively establishing what findings should be made, and to the overall probabilities of the matters with which evidence deals, I have confidence in Mr Roberton as a witness of truth. 53 Inspections before 14 November 1996 and events at Bondi Lodge. The representations alleged in the Statement of Claim to have been made to Ms Batiste include three representations which are alleged to have been made to Ms Batiste by Mr Braune as agent for Mr Lenin. There was no substantial evidence that Mr Braune in fact was an agent for Mr Lenin and the first three representations were not relied on or dealt with in counsel's final submissions. The fourth and fifth representations were alleged to have been made by Mr Lenin himself to Ms Batiste at the meeting at Bondi Lodge, which took place on 14 November 1996. The making of the representations was alleged to be in breach of s.42 of the Fair Trading Act 1987, which relates to misleading and deceptive conduct in trade or commerce. The fourth representation was (Statement of Claim para.17(a)) "The fire exit stairs proposal as shown in the plan solved the problem of fire egress for the above-ground floors on the Watt Street side of the property." It was said (as an alternative) that this was a representation with respect to a future matter, namely, the resolution of the problem of fire egress for the above-ground floors on the Watt Street side of the property, and it was alleged that the defendant did not have reasonable grounds for making the representation. The fifth representation (Statement of Claim para.21(a)) was alleged to be that "(a) Engineers' advice had been received that the building was structurally solid. (b) Minor vandalism in the form of a small fire in the course of that week had caused minor damage only." The sixth representation (Statement of Claim para.22) was "Subject to specified repairs, the building was structurally adequate to safely support anticipated load." This representation is alleged to have been made by communicating the draft contract of sale to which the Burgess & Arnott Report was annexed. 54 In para.25 of the Statement of Claim a number of respects were alleged in which the fourth representation relating to fire exit stairs was misleading and deceptive. Particulars (a), (b), (c) and (d) were based on the footing, which is plainly wrong in fact, that the plans the construction of the fire exit stairs had not been approved by Newcastle City Council and Heritage Council of New South Wales; plainly they had been. Particular (e) was "Construction of fire exit stairs from the fifth floor to the ground floor on the Watt Street side of the property in the position shown in the plans were not viable." Particulars of the falsity of the fifth representation in Statement of Claim para.26 are "(a) Substantial damage had been caused to the property by the said fire; (b) Substantial structural work was required on the property." 55 Part (a) of the fifth representation, if it was made, was undoubtedly true as the Burgess & Arnott Report said among other things "Therefore, it is our opinion that the construction is acting in a manner that is structurally adequate to safely support the dead loads, live loads, wind loads and earthquake loads as laid down in AS1170." The Report went on, in language which was not completely clear, to indicate that seven defects should be attended to and that Points 1 to 3 were of structural significance and should be attended to or shored up prior to occupation. No reliance was placed on part (a) of the alleged fifth representation in counsel's final submissions and in my view there was no basis for such reliance. The sixth representation is an epitome of the Burgess & Arnott Report and there was no substantial evidence that the matter allegedly represented was not correct. 56 If the fourth and fifth representations alleged were made, they were made in the context of discussion of a proposed transaction in which documents were to be entered into, and the documents were available and under consideration at the meeting, and included among other things approved plans showing the fire exit stairs proposal, the conditions of approval including the requirement for structural engineer's work and further approval of it and a copy of the Burgess & Arnott Report. In approaching the meaning of anything which is alleged to be a representation and also the effect which the representation could have produced, it is important to keep steadily in view this context and the volume of detailed information which was actually before Hazaran and, if Ms Batiste felt interested in Hazaran's affairs, readily available to her. There is nothing in the circumstances shown in evidence which could indicate that Mr Lenin was called on to point out any more clearly than was pointed out in the documents under consideration what impact the fire exit stairs proposal would have on the problem of fire egress. 57 In or before November 1996, before she met Mr Roberton or anyone who represented Mr Lenin in any way, Ms Batiste was taken to Newcastle to see the hotel by Mr Braune, who owned a real estate agency, and inspected the hotel with him. She says that they were unable to go beyond the fourth floor. The accommodation is on four floors, the second to the fifth floors. Mr Braune pointed out the position on the west side of the building on the second and third floors where he said the fire egress stairs were to go. He gave her a set of stamped and approved plans showing the fire egress stairs and he pointed out the need to meet the fire ordinance requirements and refurbish the building. He also showed her the existing staircases and again pointed out the location for the fire stairs and the need for them. Mr Braune knew of the drawings and the proposals for construction of the fire stair because he had been shown the drawings by Mr Porter, the architect who had prepared them on Mr Lenin's behalf. 58 Ms Batiste at first denied but later accepted that she had attended a meeting with Council officers, Mr Roberton and Mr Braune and she said also with Mr Porter. In my finding it is clearly established by the evidence of Mr Roberton that on 13 November, before the meeting at the Bondi Lodge, Ms Batiste was present at a meeting at the Newcastle City Council Chambers with aldermen and officers of the City Council, and later attended an inspection of the hotel in the company of Mr Braune and Mr Roberton, in which the fire damage to the florist shop was inspected. Mr Braune introduced Ms Batiste to Mr Roberton at the meeting at Newcastle City Council chambers, which was the first occasion Mr Roberton had met her, as "my associate". Mr Roberton was not told that she was a principal in the proposed dealings or that she proposed to become one, and he did not believe that she was; he thought that she was Mr Braune's decorator. It was Ms Batiste's evidence that she did not recall going to the Great Northern Hotel with Mr Roberton and Mr Braune on the occasion she first met Mr Roberton; she said she had been to the hotel with Mr Braune, it would seem on earlier occasions. She firmly said however that the first time she saw the fire damage to the lobby shop was "on or about the Christmas period when I went back to the hotel after I had taken over the lease." It was Ms Batiste's evidence that she met Mr Roberton after the meeting with Mr Lenin at the Bondi Lodge. In my finding it is clearly established that she met Mr Roberton before that meeting, and that they both were present at the meeting with Newcastle City Council officers and at the inspection on 13 November, before the meeting at Bondi Lodge. It was Mr Roberton's evidence that the party inspected every floor from the roof to the cellar. I accept this evidence, and it follows that there was nothing for Ms Batiste to learn from any representation by Mr Lenin on 14 November about the damage or the extent of it. She was in a position to appraise the damage for herself, and any representation which Mr Lenin made about the extent of the damage could not really have had any significant effect on her decisions or conduct. 59 Mr Lenin very firmly denied that Ms Batiste was present at the meeting at Bondi Lodge on 14 November 1996, and of course denied that he had made any representations to her then. There can be no doubt that Mr Lenin, his solicitor Mr Wakim, Mr Braune and Hazaran's solicitor Mr Licardy were present at the meeting. Mr Licardy's evidence was to the effect that he was present with Mr Braune, Ms Batiste, Mr Lenin and Mr Wakim sitting at a table together discussing the proposal concerning the Great Northern Hotel. It was Mr Licardy's evidence that he was acting for Ms Batiste and that a solicitor whose name he could not recall was acting for Mr Braune and on behalf of Hazaran, and that solicitor was not present. At the meeting Mr Braune executed on behalf of Hazaran both the lease and the Deed of Option and also executed the lease as guarantor. Mr Licardy did not corroborate the making of the alleged representations. Mr Licardy's evidence was that Mr Lenin made some statement to Ms Batiste at the meeting about there having been some very minor damage caused to the hotel as a result of a small fire or action of vandals, but his evidence does not in my view establish what was said. The plaintiffs did not call evidence of Mr Braune nor did the defendant, and is not known whether Mr Braune would or could corroborate either case. Mr Wakim's evidence, which was not in my view successfully challenged by cross-examination, was to the effect that Ms Batiste was not present at the meeting inside Bondi Lodge but that he had a short conversation with her after the meeting outside on the footpath and after the transaction had taken place and the documents had been signed. It was Mr Wakim's evidence that Ms Batiste was introduced to him on the footpath outside the Bondi Lodge following the meeting by Mr Braune who referred to her as "my advisor". Although Mr Wakim gave me a favourable impression as a witness in whom I felt I should have confidence, his evidence to the effect that Ms Batiste did not attend the meeting inside Bondi Lodge is outweighed by the evidence of Ms Batiste and Mr Licardy to the effect that she was there. Mr Lenin's denials on that subject do not have any real weight. However Mr Wakim's evidence and his obvious sincerity as a witness support the view of the facts that Ms Batiste although present did not take any prominent part. Only her own evidence suggests that she did. 60 Ms Batiste claims that Mr Lenin made a statement to her about there having been a fire at the hotel that week, minimising the extent of the damage. Her evidence was that the actual extent of the damage, when she found out what it was by seeing the hotel later, was so great that what Mr Lenin said about the matter was misleading and deceptive. It is Ms Batiste's evidence that she found the extent of the damage early in December when she took the clean-up team into the building. I am satisfied that the fire damage and its extent were already well known to her before then. It is in my view quite clear as a matter of fact that Ms Batiste had inspected the hotel the day before the meeting at Bondi Lodge, as on 13 November she attended a meeting with Council officers, followed by an inspection of the hotel at which she was in a position to see the fire damage. The fact that she conducted this inspection, and did so on 13 November, is established by the evidence of Mr Roberton, whom I regard as a reliable witness. I do not accept Ms Batiste's evidence to the effect that she saw the fire damage only after the meeting at Bondi Lodge. Her account of the events is quite improbable because on her own evidence she did see the extent of the damage caused by the recent fire well within the period of several weeks after the meeting at Bondi Lodge which she says passed before she made an arrangement with Mr Braune to take over Hazaran Pty Ltd. If there had been any misrepresentation it can have had no part in the causation of her taking over Hazaran, because even on her own evidence she saw the true position before she took it over. 61 Ms Batiste's evidence is that she was present at the meeting for the purpose of signing the lease and option at Bondi Lodge; she says that it took place on 15 November but it is clear that it took place on 14 November. She does not in her affidavit evidence say that she or anyone else told Mr Lenin what was the purpose of her being present. She says that she had a discussion with Mr Lenin in which he answered affirmatively to her question whether the new fire stairs shown in the plans solved the problem of the fire egress. As narrated by her, the conversation was very bare and did not include any reference to the economic impact of constructing the fire stairs, in terms of implications for using any part of the hotel for any particular purpose. It is her evidence that Mr Lenin said to the effect "I think it will cost around $250,000 but then you can have all the hotel business to pay for it." 62 Mr Lenin's attitude to Ms Batiste suffers from nimiety as he has declined to recognise her as having an interest, refused to speak to Mr Braune for several years when it was suggested that he had conferred an interest on her, reacted in an excessive way to lodgement of a caveat which in the circumstances was not a remarkable thing to do, refused to answer but destroyed a significant message from her, refused to consider proposals that he sell the hotel to her or to Hazaran and maintained in evidence that he had never seen her until he saw her in court during the hearing. Of course as part of these positions he denied that she was present at the meeting on 14 November 1996 and that he said anything to her. He took markedly oppositional positions on every fact and circumstance relevant to her and I do not find his evidence on any matter of detail about communications with her to be reliable. The unreliability of his evidence is not, however, a ground for finding to the contrary of what he said; that could only be based on acceptation of Ms Batiste's evidence. In the circumstances of the meeting of 14 November, and on the assumption that Ms Batiste was present as she says, it is very unlikely that Mr Lenin embarked on giving any assurances about the feasibility of the construction project when the sensible and rational thing to do, if asked, would be to refer to the plans, their preparation by an architect and the approvals which had been given. 63 It has not been established that any clear explanation of Ms Batiste's presence was given to Mr Lenin. It was Mr Licardy's evidence that prior to the meeting he told Mr Wakim "I am acting for Donna Batiste in relation to the lease and option to purchase the Great Northern Hotel." This did not fully explain her presence and participation in discussions, as she was not and had not then decided to be a party to the lease or the option to purchase or to take control of Hazaran. Mr Licardy's evidence is not sufficiently precise to enable an exact finding to be made of what he told Mr Wakim about how Ms Batiste was interested and what stage her interest had reached. Mr Wakim denies having been given any such explanation. It is clear, even on Mr Licardy's evidence that Mr Wakim was not told that Ms Batiste was interested in the transaction as a principal or was in control of Hazaran Pty Ltd, or that she had an interest in Hazaran Pty Ltd. In my finding Mr Wakim may have been told something before the meeting by Mr Licardy about Ms Batiste being connected with the transaction in some way but whatever he was told did not suggest that she was a principal or had an important part in the transaction; and she was not and did not. At the meeting of 14 November Mr Licardy in my finding took the part appropriate for the solicitor representing Hazaran and Mr Braune. Mr Licardy's records contemporaneous with the transaction include written confirmation that he did act for Hazaran, the only principal of which then was Mr Braune. 64 The evidence of Mr Licardy and a letter which he wrote in January 1997 make it probable that the meeting at Bondi Lodge and the execution of the lease and option agreement took place on Thursday 14 November, the day before the date they bear, and the documents were exchanged or treated as exchanged the following day. It seems that some event had to happen before they would be treated as exchanged; that event could have been clearance of a cheque for $150,000, although, having regard to evidence given by Mr Wakim, there may have been some other event outstanding. 65 In a letter from Mr Licardy to Mr Wakim referring to the hotel and dated 10 December 1996 there was an assertion that the fact that there had been a fire in the lobby shop on the ground floor was noticed on 1 December 1996; the suggestion in the letter seems to be that it was then noticed for the first time and it was said that it appeared to have taken place between exchange of option agreements at the meeting of 14 November 1996 and 1 December 1996. The letter contains references to "our client" not identified in the letter and, on the terms of the letter, more probably referring to Hazaran Pty Ltd than to Ms Batiste. On the one hand the letter asserts that knowledge of the fire was obtained, it would seem (although not clearly stated) for the first time on 1 December 1996; on the other hand it speaks of a fire which appeared to have happened since 14 November, and does not assert that Mr Lenin made any statement to Ms Batiste about the extent of fire damage. The letter is unclear in significant ways and does not assist me to reach a finding about whether there was any representation about the fire and its effects on 14 November, or about when Ms Batiste learnt of the fire damage. 66 The evidence of the alleged maker Mr Lenin and the evidence of the alleged recipient Ms Batiste of the fourth and fifth representations are both unreliable. There is no evidence which corroborates in any real way that either representation was made. Circumstances make it highly improbable that anything said by Mr Lenin on the subjects of these representations would have been or seemed of any importance, or of any force or interest at all, given the presence of much other written information and the state of knowledge available to Hazaran. It is highly unlikely that these representations were made, the plaintiff has not established that they were, and I find that they were not. 67 If it were found that Mr Lenin did make misrepresentations as alleged, it could not be said that the misrepresentation was made to Hazaran, as there is no basis in the evidence for finding that Ms Batiste in any way represented Hazaran in the negotiations, or that representations to her had any effect on Hazaran's decision to enter into the lease. Ms Batiste's decision to take over the shares and control of Hazaran was not under consideration, so far as Mr Lenin could know, on 14 November 1996. The subject of Ms Batiste acquiring shares in Hazaran was simply not under discussion, and there would be no discernible element of causation by a statement of Mr Lenin on 14 November of conduct of Ms Batiste over a month later after having performed due diligence and having many sources of information about the hotel and about work possibly to be carried out on it. Even on Ms Batiste's own telling she was not present as a principal in the transaction, and the business in hand did not include giving her information to consider for a later decision to take over Hazaran. It has not been established that the representation was made at all. 68 Addressing issues on Statement of Claim paras.6 to 16, there were no negotiations between Ms Batiste and Mr Lenin with a view to leasing the property with an option to purchase; Mr Lenin's negotiations were with Mr Braune and Mr Lenin believed, as was correct, that Hazaran was introduced as a company controlled by Mr Braune. Mr Braune was not an agent of Mr Lenin to deal with Ms Batiste, and she did not take the part of a principal in negotiations with Mr Lenin. 69 Causation of Ms Batiste's acquisition of Hazaran. Paragraphs 31 and 32 of the Statement of Claim are in the following terms: 31. The acquisition took place upon the understanding between Kurt Braun and the first plaintiff that in the event that the first plaintiff wished to proceed with the proposal, then the first plaintiff could acquire all the shares in the second plaintiff upon the payment of $200,000.00 32. Induced by, and acting in reliance upon the representations, the first plaintiff acquired all the shares in the second plaintiff after the acquisition took place. 70 I have already found that the representations alleged in paras. 17 to 28 and referred to in para.32 were not made by Mr Lenin to Ms Batiste. I find that no representations of the kind alleged had any part or could have had any part in causing Hazaran to enter into the lease and option agreement. If they had been made to Ms Batiste, it would be so highly unlikely that they could have had any influence in causing her to acquire shares and become the sole director of Hazaran that they should not be found to have caused her to do those things. On her case at its highest, the representations were not made in any context in which her acquiring shares in Hazaran or her acquiring the lease were under consideration or discussion, and she had such an extensive opportunity to inform herself about the terms of the lease and the condition of the hotel, and to obtain expert assistance from Mr Porter and possibly from others by the time she acquired the share in Hazaran and became its director on 24 December 1996 that such representations could not be regarded as having a part in causing her to do so. 71 In my finding the understanding or arrangements between Ms Batiste and Mr Braune had not on 14 November become as defined and clear as alleged in para.31, and no definite understanding emerged until some weeks later. On 14 and 15 November 1996 Ms Batiste had not decided whether or not she would take the lease, and at that time she had an arrangement with Mr Braune to the effect that she acted on Mr Braune's saying "Look, we'll buy it in a company name. I'll be the director and shareholder and I'll put up the deposit and you can decide whether you want to go ahead and I'll then transfer to you the shares and you can be the director. Provided you make a decision I will sign over the company to you and you'll pay me back the $200,000. Otherwise I'll keep the company and do the development myself." It is her evidence that the arrangement for her to take over Hazaran Pty Ltd was made some weeks later, she became its sole director and shareholder and paid Mr Braune $200,000. Mr Licardy's evidence was that Ms Batiste acquired Mr Braune's shares within three or four weeks after 14 November. The date 24 December as the date on which Ms Batiste acquired the shares is taken from a return of the Corporate Affairs Commission. There is no other evidence establishing the day of the event in any clear way, although Ms Batiste agreed in cross-examination that 24 December "would be correct." The probabilities are that it in fact occurred on the date returned, 24 December. 72 Before acquiring shares in Hazaran Ms Batiste had had the opportunity to inspect the hotel including the ground floor and the first floor and had done so, she had consulted Mr Porter and engaged him to act as architect and he had done some things in that capacity, she had seen the approved plans, she had attended a discussion with Newcastle City Council aldermen and officers about the plans and the work required, she knew that the plans for the fire stair had been approved by Newcastle City Council and the Heritage Council and she had had legal advice from Mr Licardy on a number of occasions about the contract and the lease. The ambit of outstanding work required by the fire orders was pointed out in strong terms by Mr Licardy to Ms Batiste in a message on 8 November 1996 Exhibit 4. She had had access to the second and third upper storeys but not to the fourth and fifth; she says that all the mattresses were there and she could not get there. In my finding however she has exaggerated the difficulties created by the mattresses. She acknowledged clearly that she had inspected the hotel on and after 1 December. She has acquired a number of properties in her working life and was accustomed to the process of making inquiries before proceeding to a commercial acquisition; she referred to the inquiries as "due diligence". She said, when cross-examined to the effect that when she acquired the shares in Hazaran she was relying on Mr Porter's plans of 1993 showing the staircase, and she was relying on Mr Lenin telling her that the staircase did work. 73 Having regard to the other sources of information available to her I regard it as extremely improbable that, if Mr Lenin had said something to her at the meeting at the Bondi Lodge on 14 November about fire damage or about the feasibility of constructing fire stairs, that would have had any influence on her. A few words from Mr Lenin, without any detail, bearing in mind that Mr Lenin was in the position of a seller in negotiations, were most unlikely to have any impact on the decision of an experienced business person who had much better sources of information available. However that may be, I have not been satisfied that Mr Lenin said anything in the nature of a representation at all. 74 Although it is not distinctly so alleged, it seems that the meaning of paras. 33 to 35 of the Statement of Claim is that it is alleged that Ms Batiste caused Chrysalis Holdings the third plaintiff to acquire the Tattersalls Building, the neighbouring building to the south of the Great Northern Hotel in Watt Street, so that construction of fire exit stairs could be effected using part of the land occupied by the Tattersalls Building, and that she was caused to do so by representations made by Mr Lenin. Ms Batiste followed a complicated course in acquiring the Tattersalls Building, at first through a joint venture company with a person who has not been involved in the present litigation, and then after disputes and lawsuits she caused Chrysalis Holdings which was not incorporated until 2000 to acquire the property. If the representations had been made it could not be found, on any reasonable view of the facts, that acquisition by Chrysalis Holdings was caused by any of the representations; there was too much intervening time and there were too many intervening events for causation to be traced to a representation made years earlier. 75 Whether it is possible to construct the fire stairs. Evidence and debate about the Newcastle City Council's orders dealt almost exclusively with the requirement for providing a new fire stair and completing the works in the approved drawings as work outstanding under the order of 5 May 1993, on the basis that the outstanding fire control work related to the residential floors to which the order of 9 September 1994 and the injunction relate. The fire stair and the works in the drawings appear to be by far the most important works required. As the parties did not treat them as important I have been left to suppose that any fire control works required for the cellar, ground floor and first floor have been carried out. The drawings are architect's drawings, do not attempt to deal with structural engineering design or work necessarily to construct the fire stair and could not be implemented without study and design work by a structural engineer and approval of structural engineering drawings as required by Condition 25 of the conditions of approval of the drawings. Hazaran and Ms Batiste have not undertaken any of the necessary structural engineering works. 76 In early 1997 Ms Batiste came to believe that it was not possible to construct the fire stairs shown in the approved plan. Her belief is not reasonably based on any view of technical difficulties, whether engineering problems or other problems, in the path of constructing the fire stairs as designed and approved. Her belief is based rather on her view of the economic impact of building the fire stairs and losing the use of part of the building. Her belief is not reasonably based on any engineering problems which stand in the way of building the fire stairs. Those engineering problems have never been fully studied or addressed, but, acting on the probabilities, I accept Mr Porter's view that any engineering questions can be overcome. Refurbishment of the ground floor of the hotel as an Irish bar commenced about March 1999 and used some of the space which would be occupied by the fire stair. It is Mr Porter's view that this work has probably made it more difficult and more costly to construct fire stairs. Mr Porter was clear and firm in his view that construction of the fire stair is feasible and maintained his position in a firm way under cross-examination. Mr Porter took part in extensive consideration and negotiations directed to arranging an alternate fire stair using land owned by Tattersalls Club. He also took part in submissions to and meetings with Newcastle City Council staff to discuss various alternative fire exits, none of which was ever approved. 77 The plaintiff called the evidence of Mr Harold Stuart, who is an accredited building surveyor and practises as a building and fire safety consultant. He has done so since 1993; until then he was employed in Local Government and was Newcastle City Council's Director of Health and Building Services from 1986 to 1993. When he held that office he had some part in Council's considerations and actions relating to the Great Northern Hotel. In February 2002 he was asked by Ms Batiste to report on whether the proposed fire stair as approved by Council was an appropriate fire safety option for the occupation of the whole building. He pointed out that the fire isolated stair necessitated penetration of all floor levels from ground level to the fifth floor and required major structural adjustment of some existing walls. Further it required partial reconstruction of toilet facilities on the ground floor, first floor and first floor mezzanine resulting in loss of substantial toilet accommodation. There were difficult structural issues to consider including support beams, low bearing walls and structural columns, and these are not provided for in the approved drawings. He expressed the view that the proposed fire safety upgrading was not viable and gave three reasons. The first related to the limited egress which would be provided from the first floor level; the Building Code of Australia requires stairs with an aggregate exit width in the order of six metres for the floor area of the first floor but the three stairs which would be provided would provide a total of about 3.3 metres aggregate width, well short of Building Code requirements. The second reason was that the existing sanitary accommodation falls short of current requirements for licensed premises and places of public entertainment, some of that accommodation would be lost and this would limit the use of the area, for which a central location for toilets including disabled toilet facilities is essential for the first floor to operate as separate function areas. The third reason was that one of the existing stairs, the existing service stair is 900 mm wide whereas the Building Code of Australia requires one metre of clear width. Providing complying stair width would require additional load bearing walls and there was a problem with the door swinging into the stairs, which encroached more than provided for by the Building Code of Australia. Mr Stuart was familiar with consideration of other proposals to deal with fire exits, which have had attention over the years but have not obtained approval of Newcastle City Council or of the Heritage Council. 78 At the heart of Mr Stuart's adverse opinion was the view that the solution was not viable for occupation of the first floor because limited aggregate stair exit width and minimal number of toilets would restrict the use and occupation of the first floor for licensed premises or as a place of public entertainment. The essence of this is that the first floor would not be usable to appropriate economic advantage. This view was expressed in relation to proposed use of the space on the first floor for separate function rooms, being uses different to the uses indicated by the plan of the proposed fire safety upgrading and improvements approved by Newcastle City Council. Use as separate function rooms in the manner proposed by the plaintiffs and considered by Mr Stuart has not been the subject of any development or building approval; its standing is that it is the use to which Ms Batiste wants to put the first floor. Mr Stuart accepted in cross-examination that it is within Council's discretion to vary the requirements of the Building Code of Australia, and that this is commonly done for Heritage buildings, and Mr Stuart agreed that the necessity to comply with the Building Code of Australia simply does not arise where work is being done in order to comply with a fire safety order and is not being done under any application for new building or development of property. A new development application would raise consideration of the Building Code of Australia and there is room for discretion of Council in applying the Code. If the occupier of the building were to use the first floor in accordance with the uses shown by the descriptions of various rooms in the plan which Council approved there would be no need for further compliance with the Building Code of Australia. Mr Stuart's evidence in cross-examination also established that there is nothing within his knowledge or expertise which would enable him to suggest that the fire stair could not be physically constructed or approved, notwithstanding the reference in his report to difficult structural issues. 79 In my view Mr Stuart's evidence tends, quite strongly, to support the finding that construction of the fire stairs in accordance with the lessee's covenant is feasible, and that any difficulties which arise are not difficulties of the construction of the fire stairs but difficulties of implications of doing so for changes in the use of the first floor from the uses indicated on the approved plans to some uses of greater intensity. 80 Ms Batiste would not agree that the construction of the fire stairs now would require demolition of a substantial part of the bar area on the ground floor as she has installed it. However in my finding her denial is quite wrong and the construction of fire stairs according to the approved plans would involve use of part of the space in which she has constructed an Irish bar. Her development of the Irish bar is inconsistent with the need to construct the fire stairs in some of the same space. 81 The plaintiffs' repairs and renovations. Ms Batiste's belief that it was not possible to construct the fire stairs led her to take a very elaborate course directed to obtaining an interest in the adjoining building in Watt Street known as Tattersalls Club, to the south of the Great Northern Hotel. The possibility of using an external stair case to connect up with a fire stair in the Tattersalls Club premises was first brought before Ms Batiste by Mr Roberton in response to her observing about how expensive the internal fire stair would be and how much disruption it would make in the bar area. The first inquiries in this direction, in which Mr Roberton participated, produced no real result but Ms Batiste and another investor associated with her took further initiatives, leading to an arrangement with Tattersalls Club, which itself failed financially at some stage, and then conflict and litigation between Ms Batiste and her co-investor. At first her endeavours were directed to getting an easement, but later after some difficulties and disputes Chrysalis Holdings Pty Ltd acquired the Tattersalls building, at some time in the year 2000 or later. The residential floors cannot be used because the fire stairs have not been constructed, but Hazaran trades as a hotel on the ground floor, seven days a week and for a minimum of 15 hours a day. Hotel operations began in 1999. There are other obstacles to residential occupation of the upper floors, as they need extensive renovation and refurbishment, and the plumbing is very severely deteriorated, due among other things to blockages of pipes and removal of pipes. Hazaran has carried out very extensive repair and renovation works including removal of asbestos, repinning the face of the building façade up to two storeys above the awning, stripping back concrete cancer and treating steel rods in all bathrooms, waterproofing the roof, replacing the awnings and re-welding the steel rods supporting the awnings, and many other significant pieces of work. The ground floor has been completely rebuilt and refurnished. The evidence of Mr Killorn, a building surveyor who inspected the building on 6 December 2001 shows that, while much work has been carried out, the building is still in disrepair in very many respects, many matters required by Newcastle City Council notices have not been carried out and the first floor and higher levels remain in a state of disrepair and are not suitable for occupation. 82 The Compensation representation. In paras. 36 to 38 it is alleged that in 1999 Mr Lenin made what was referred to as the compensation representation through the agency of Mr Roberton. 83 After the documents were signed Mr Roberton was the only effective means of communication between Ms Batiste and Mr Lenin. It is Ms Batiste's evidence that at some time which appears to be in 1997 she had a short telephone conversation with Mr Lenin which he terminated abruptly. He denies that this conversation took place. While there may have been some such conversation as she alleges, I am unable to make a clear finding and do not regard the question whether there was such a conversation as important. 84 There have been communications between Ms Batiste and Mr Roberton in which she contended that work which Hazaran was doing on the hotel was structural work and not refurbishment, and that that was not work for which Hazaran should be paying, but Mr Lenin should pay for it. Ms Batiste's evidence is to the effect that on one occasion Mr Roberton told her on the telephone to this effect "I've spoken to Lenin and he'll cover the structural costs when you finish the ground floor." Mr Roberton denies this. Mr Roberton denies giving any assurance about payments or structural works. It is his evidence that in response to suggestions that Mr Lenin should contribute to work being done on the hotel he gave a standard answer to the effect that "Michael will only consider a proposal once all rent and outstandings are paid up to date." He had many communications with her about outstanding claims for rent, rates or other outgoings; substantially there have been some defaults in respect of some payment at almost all times since 1 January 1999. 85 Mr Roberton's understanding was that Mr Lenin had no obligation with respect to refurbishing or paying for repairs. He denied that Ms Batiste requested an abatement of rent because of the state the building was in. 86 Mr Roberton denied (t3/95) that he ever gave anything in the nature of an assurance that Mr Lenin would make a contribution to structural work. Although taken to the point several times he adhered to his evidence that Mr Lenin made no commitment and said no more than that if the rent were brought up to date and all outstandings were paid he would then consider making a payment, and that the most Mr Roberton told Ms Batiste was to relay this to her. 87 There is no written record of a commitment by Mr Lenin or on his behalf to make any such contribution. Indeed there is very little sign in writing that there was a request or a series of requests, or that an expectation that some payment would be made had anything to do with the defaults in payment of rent. It might be that Ms Batiste has overstated the number of times and intensity of her requests directed to Mr Lenin through Mr Roberton for contributions, but it is clear that she made such requests and in my finding they were not responded to with any assurance of payment. The references in the correspondence are not specific as to the amount requested, or as to what had been spent on works in relation to which there should be a payment. 88 In my view it is extremely unlikely that Mr Lenin would give any such commitment or authorised Mr Roberton to do so, and it is also extremely improbable that Mr Roberton told Ms Batiste anything to the effect alleged. I have confidence in Mr Roberton's denial of ever having given a commitment of this kind, and I find that there was no such commitment. There was no basis on which Mr Lenin was obliged to make any such payment and the many communications on the subject had no effect on the entitlements of the parties. If there had been a commitment of that kind I see no reason why Mr Lenin would be legally obliged to keep it. 89 Time Limitation under Fair Trading Act subs.68(2). In para.12 of the Defence Mr Lenin relies on the three year time limitation in s.68(2) of the Fair Trading Act 1987. Compliance with the time limitation is one of the conditions upon which a cause of action is conferred by s.68, and the onus of proof of compliance rests on the plaintiffs. To identify the time when damage occurred and the limitation period began to run requires close attention to the nature of the damage or loss proved in relation to the misleading or deceptive conduct and the manner in which the loss was caused. The defendant's counsel contended that, if the plaintiff had a cause of action, it arose at the latest on completion of the events in which Hazaran carried out works which it said the lessor was obliged to do or to pay for, sought payment from Mr Lenin and received Mr Lenin's refusal. Events such as these happened, or first happened, according to the plaintiffs' case, in 1997 at some time which the plaintiffs' evidence does not establish clearly. This seems to be the most likely accrual time in accordance with Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514; and see Kenny & Good Pty Ltd v. MGICA (1999) 199 CLR 413 at 424 paras 14 and 15 (Gaudron J). Defendant's counsel contended that this chain of events was completed well before 30 July 1998, three years before the commencement of the present proceedings, and that for that reason the claim was out of time. As it has been found that the representations alleged were not made, this exercise cannot begin. 90 Disposition of plaintiffs' claims. For these reasons none of the principal grounds of relief claimed in the Statement of Claim should be granted. At a later point I will consider the claim for relief against forfeiture of the lease. 91 Amendment of the Statement of Claim. At the conclusion of the cross-examination of Mr Roberton on the fourth day of the hearing, after all the plaintiffs' evidence had been produced, the plaintiffs' counsel sought leave to make an amendment of the statement of claim, not formulated in writing but to the effect that about 13 November 1996, during the course of the inspection at the hotel before documents were signed, Mr Roberton as Mr Lenin's agent made positive statements as to the use to which the first floor of the hotel could be put, namely that it could be used as a discotheque, as a function room and for accommodating pinball machines and that it would be possible to restore the hotel's first floor to its status during its glory days (which as both parties understood involved its use in those ways). It was further sought to amend so as to allege that Mr Roberton as agent of Mr Lenin well knew that Ms Batiste and Ms Braune intended to use the first floor for those purposes whereas both were aware at the time of the negotiations at the Bondi Lodge that the plan approved by Council which had been shown to Mr Braune and Ms Batiste reasonably contemplated use of the first floor only as a dining room or for uses which necessarily would not involve large numbers of people being on the first floor; and that they did not disabuse Mr Batiste and Mr Braune of their misunderstanding concerning the uses which they had in view. 92 My view was that it would not be procedurally just to allow the plaintiffs to make a radical change in the basis of their claim at the stage in the hearing and adduction of evidence which had then been reached. The allegation that Mr Roberton had made some relevant representation is not found in the pleadings and was quite new and made for the first time in the application for leave to amend after he had been cross-examined. Earlier evidence had been given by Ms Batiste and Mr Roberton which showed that at the inspection (and it seemed to be her principal case that the inspection was not pre-contractual) she had referred to the Crystal Room and to other expressions suggesting the possibility of use of the rooms on the first floor as function rooms in a manner more intense than the uses indicated by the names given to them on the approved plans. However there was no element in the evidence of support for a view that Mr Roberton had in some way endorsed the suitability of the rooms on the first floor for any particular use, by reference to the Crystal Room or like grandiose expressions, or in any other way, and there was no evidence of any statements in the course of the inspection or any other statements which might give support to the view that Mr Braune or Ms Batiste was being led into views about what use they could make of particular parts of the hotel premises by any representations by Mr Roberton. In my view the evidence which had been given before the amendment application was not reasonably open to the view that Mr Roberton made any particular representations about the suitability of rooms for any particular purpose, or that there was any indication in circumstances that Mr Braune or Ms Batiste were in any way relying on Mr Roberton to disabuse them of any wrong ideas, or relying on Mr Roberton in any way for forming their own future plans. It will be remembered that Mr Braune was at that time the principal of Hazaran which was proposing to acquire the hotel, and that Mr Braune has not given any evidence of any such reliance. 93 The amendment if made would have confronted the defendant with a very sharp turn into a new case, at a time which would involve large problems of reconsideration of the manner in which the defendant's case was to be conducted, without there being any matter which I regarded as substantial in support of the supposed new case. It is not as if some previously unknown or unavailable evidence had emerged by accident in the course of the hearing; if there was a case of misrepresentation by Mr Roberton, it would have been fully known to the plaintiffs when the litigation was commenced, or if not then, long before the amendment application was made. As I regarded the proposed new case as not having any real substance, and its presentation as procedurally unfair, I refused the application. 94 Cross-claim for possession. As to the claim for breach of covenant relating to payment of rent, the table of calculations in Exhibit 1, which is the only evidence dealing in a clear way with the subject, shows that, in a calculation of rent commencing on 1 January 1999, rent outstanding on 31 October 2001 was $201,593.35. The table also shows a long continuing pattern of arrears of rent, commencing soon after 1 January 1999. There was extensive correspondence between solicitors representing the parties relating to outstanding rent and outgoings. Solicitors' correspondence complaining about arrears of rental and referring to the need to make arrangements to pay outgoings began on 8 February 1999 with a call to bring matters into order and a threat to retake possession of that did not happen. Payment of rent, interests and outgoings has never been in a satisfactory state at any stage since then. Ms Batiste, in the context of the rent being in arrears said that the dispute started very much early in the piece, and explained the dispute by saying that Hazaran found problems in the property and asked Mr Roberton for Mr Lenin what he was going to do to contribute to the problem. 95 The claim for arrears of rent includes a claim for rent for the period 22 November 1996 to 1 January 1999, which is not included in the table in Exhibit 1. Ms Batiste acknowledged (second day t57) that some of the work on which the rent holiday was conditional has not been done, although she said that a substantial part of the work has been done. Although the rent holiday period closed on 1 January 1999, the proviso in Art.11.02(c) offered Hazaran the opportunity to carry out the stated works within five years of the date of the lease, that is by 15 November 2001, and until that date it was, at least in concept although with diminishing probability, possible that the proviso would be complied with and the defendant was in no position to demand or enforce an entitlement for rent for the early period. Now it is clear that the conditions for forgoing rent were not fulfilled and rent to 1 January 1999 is unpaid. 96 With respect to non-payment of outgoings, the table in Exhibit 1 shows that outgoings of $40,147.30 were outstanding as at 30 November 2001. Hazaran's failure to maintain payment of Newcastle City Council rates led to the City Council suing Mr Lenin for outstanding rates in Local Court proceedings, under the compulsion of which Mr Lenin paid Council $19,624.15 about 11 July 2001. This forms part of the outstanding outgoings. Further City Council rates have since accrued. 97 In breach of the covenant in Art.11.02(b) Hazaran has not carried out the work required to satisfy the existing Council orders, which it was required to do forthwith upon commencement of the lease; over five years have elapsed, the work has not been completed nor has it begun and the breach is clear. The defendant also in the cross-claim relies on Hazaran's not having performed the work referred to in the proviso in Art.11.02(c) but in my opinion there is no covenant to carry out that work and there has been no breach of covenant; the work has not all been done but the significance of its not having been done is limited to the lessee's not being entitled to forgoing of rental payments from 22 November 1996 until 1 January 1999. 98 The cross-claimant relies on the issue of the cross-claim on 5 December 2001 as effecting re-entry for breaches of lessee's covenants, as it is entitled to do without any actual attempt to take possession of the hotel. 99 The matter pleaded in the Amended Defence to the Cross-claim includes in para.3 contentions to the effect that against the claim to re-enter for failure to pay rent and outgoings Hazaran is entitled by way of set-off or recoupment to have expenditure of at least $2.45m in some way set against or treated as recoupment of the obligations to pay rent. These contentions relate to the allegation of an implied term that the entirety of the property will be fit for use and occupation and would be available to Hazaran in the conduct of its business. For reasons which I have stated earlier I am of the view that there is no implied term and that the defendant is not in breach of any obligation to Hazaran with respect to an implied covenant as to the condition of the property. However I will state my opinion on recoupment. 100 I have not embarked on consideration of which of the items of repair and re-instatement particularised in the Amended Defence to the Cross-claim should rightly be treated as relating to any such obligation, or of the amounts of such items. These amounts have not been shown by evidence. In the absence of any finding that there was an implied obligation, that consideration cannot begin. If it had to be undertaken, it would be extensive and would involve an inquiry or reference to deal with matters evidence of which was not given at the hearing before me. It is not known now what amounts are involved in the lessee's claim to recoupment or other set-off against rent. 101 Mr Lenin has a clear right to re-enter based on Art.13 of the Lease and the failure to pay rent for long periods, including any rent at all from June 2001 onwards, and his right to possession was perfected by commencement of the cross-claim which has the same effect as an actual re-entry to terminate the lease. A further ground for his right of re-entry is failure to pay outgoings, admitted on the pleadings. 102 Recoupment as an answer to failure to pay rent. In answer to the lessor's cross-claim for possession insofar as it was based on breaches of covenants to pay rent and outgoings the lessee relied upon the right of recoupment established by the judgment of Goff J in Lee-Parker v. Izzet [1971] 1WLR 1688. His Lordship referred to the history of recoupment at 1692G to 1693F and concluded "I do not think this is bound up with technical rules of set off. It is an ancient common law right. I therefore declare that so far as the repairs are within the express or implied covenants of the landlord, the third and fourth defendants are entitled to recoup themselves out of future rents and defend any action for payment thereof. It does not follow however that the full amount expended by the third and fourth defendants on such repairs can properly be treated as payment of rent. It is a question of facts in every case, whether or to what extent the expenditure was proper." The subject was considered again, with further references to authority, in British Anzani (Felixstowe) Ltd v. International Marine Management (UK) Ltd [1980] 1 QB 137. Payments made by a lessee in situations of necessity which had the effect of meeting some obligation which by the terms of the lease the lessor was obliged to meet have been treated as payments to the use of the lessor and as discharging pro tanto the obligation to pay rent. The lessor's obligations considered have usually but not invariably been obligations to repair. There is no reason in principle why the same rules should not be applied to recoup lessee's expenditure against other moneys payable to the lessors, such as obligations to repay outgoings. 103 Plaintiffs' counsel was not able to refer me to any case in which a right of recoupment has been upheld notwithstanding a provision to the effect that rent will be paid "without deduction", as in Art.11. Counsel contended that recoupment by the lessee under this principle is not a deduction but that when the obligation to pay rent arises it is immediately discharged, so that there is no further obligation to make a payment, and withholding an amount paid to meet an obligation which the lessor should have met is not a deduction. Counsel pointed to the view expressed by Mr Andrew Waite in his article "Repairs and Deduction from Rent" in The Conveyancer and Property Lawyer, (1981) 45 Conv. (NS) 199; at p210 Mr Waite expressed the view that "Where the tenant has carried out repairs in accordance with the rules and deducted the cost from rent, the rent is deemed to have been paid. In other words the tenant has lawfully spent the rent on carrying out the repairs. The landlord has no claim for the rent. The tenant's action does not merely provide a defence to a claim for rent (as in the case of set-off), it negates the landlord's claim." Mr Waite went on to refer to Sapsford v. Fletcher (1792) 4 T.R. 511, 100 ER 1147 which however does not directly deal with a covenant to pay rent without deduction. 104 In Debonair Nominees Pty Ltd v. J & K Berry Nominees Pty Ltd (2000) 77 SASR 261 at 271 Mullighan J decided to the effect that literal operation should be given to a provision that rent must be paid clear of all deduction. The authorities to which his Honour referred relate to the principle, which is well established, that the lessee's obligation to pay rent is independent of any obligation of the lessor to effect repairs; the premises may be in disrepair or may have been destroyed but, subject to any provision of the lease, the obligation to pay rent continues. The operation of reference to payment without any deduction whatsoever in Pt.2 of Schd.4 of the Conveyancing Act 1919 was noted, without decision, by McLelland J in Lambert Pty Ltd v. Papadatos Pty Ltd (1991) 5 ACSR 468 at 471. 105 My view is that on the literal and true meaning of the covenant to pay rent without deduction, there is no room for reliance on the right of recoupment referred to in Lee-Parker v. Izzett. In my opinion the literal meaning of "without deduction" makes this clear, and looking further to the purpose of using those words, there is no other purpose available than to prevent the lessee from relying on rights or claims to be entitled to set off, recoup or otherwise withhold payment of part of the rent. In the ordinary use of language to recoup another obligation out of rent is to make a deduction from the rent, and if the use of the words "without deduction" did not achieve this result I cannot see what they would achieve, as the ordinary obligation of a debtor is to pay the whole debt. 106 Unconscionability and impossibility of strict compliance. The Amended Defence to Cross-claim in paras 5 and 6 puts forward contentions in relation to the alleged breaches of Art.11.02 to the effect that the covenanted work has been carried out as far as Hazaran is able and that it is unconscionable for the defendant to insist on strict compliance because the defendant was at all times aware that strict compliance may not have been possible. The basis of this claim is the view that it is not possible to construct the fire stairs as approved, and I have found that it is possible to construct the stairs. If that were not possible there is no reason why it would be unconscionable to rely on the lessee's covenant. In paras 6A, 7B, 7C, 7D, 7E, 7F and 7G Hazaran put forward a number of contentions based on views of Art.28 which in my view are not correct, to the effect that Mr Lenin was under or came under a positive obligation to perform the work referred to in Points 1 to 5 in the Burgess & Arnott Report and in cll.(i) and (ii) of Art.28. For reasons which I have shown earlier, I am of opinion that he did not come under any such obligation. The Amended Defence to Cross-claim also contains a number of formal joinders of issue and again shows reliance on relief against forfeiture. 107 Relief against forfeiture. Hazaran did not bring forward as part of its case any offer to pay arrears of rent or otherwise make good breaches of covenant in support of its claim for relief against forfeiture. When I raised Hazaran's ability to pay rent up to date Ms Batiste's evidence was that, for the rent from 1 January 1999 on, Hazaran could not pay the rent up to date if it had to but possibly Provident Capital could; Provident Capital is Hazaran's funder for the property. This was not accompanied by any evidence of willingness to make advances from the finance company. As to rent for the period up to 1 January 1999, Ms Batiste said that if the Court decided that Hazaran was not entitled to a rent holiday, Provident Capital would pay that rent; I understand from this that Hazaran could not pay that rent except with finance from its funder. This passage (second day of transcript 56, 57) was the closest approach made in evidence to an offer to pay rent as a condition of relief against forfeiture with a showing of ability to do so. The plaintiffs did not show, in a clear way, whether Provident Capital has given any commitment to fund the arrears of rent and the first two years' rent if the need arises. The breaches of covenant extend far beyond failures to pay money, and the plaintiff has not expressed any readiness to comply with the covenant relating to the fire stair but has maintained that it is impossible and has never departed from that position. 108 The amounts involved are quite large and it cannot be readily assumed that money of the order required could be made available. There is no substantial evidence that any money is available. Until observations by counsel in final address nothing which could be recognised as a clear offer to make payments was made. There was no offer to overcome the failure to comply with the breach of covenant requiring the performance of works; to the end the plaintiffs' contention was that the works covenanted are impossible. On any reasonable basis there is nothing to hope for from affording an opportunity to the lessee to make outstanding payments and perform the covenants as a condition of relief against forfeiture; compliance is not reasonably to be expected. A further ground on which relief against forfeiture should be refused is that the relationship has been a very poor one. The relationship has been highly combative, characterised by habitual and long-continued lateness in paying rent, going to the length that no rent at all has been paid since the proceedings were commenced in July 2001, even in respect of current occupation. Ms Batiste has beset Mr Lenin for years with requests and claims for him to make contributions which were not on any reasonable view based on any obligation he actually had. Hazaran and Ms Batiste have brought an elaborate and groundless claim asserting misleading and deceptive conduct of Mr Lenin himself in these proceedings. The relationship of the parties to the lease is such an extremely poor one that I am of the view that it should not be continued by a discretionary decision of the Court of Equity. 109 Repudiation. As well as claiming possession under a right of re-entry for breach of covenant the cross-claim puts forward a contention to the effect that the breaches of covenant alleged in the circumstances show that Hazaran has repudiated the lease and that the repudiation was accepted by the cross-claim. 110 There have been very significant breaches of the lease. The covenant to do works relating to fire stairs has not been complied with; indeed there has not even been a gesture towards compliance. The obligation to pay rent up to 1 January 1999 has not been complied with and important items of work on condition of which that rent was to be forgone under Art.11.02(c) have not been performed. The fire stairs have not been built. Not all the external woodwork has been repaired, although some of it has been repaired; and the condition of the external woodwork is very severely deteriorated in many places. The rent to 1 January 1999 was not paid when on 15 November 2001 it was established that the conditions on which it was forgone had not been met. For rent from 1 January 1999 to the present there has been a continuing pattern of arrears, punctuality in payment of the rent has never been observed and the task for the lessor to obtain payment was a continuing struggle. There was at most times significant failure to observe the obligation to pay outgoings. There is no basis for relying on a supposed right of recoupment, or on any other form of set off, as a modification of the interpretation of Hazaran's conduct as repudiatory. Overall, these breaches have in my view evinced an intention of Hazaran not to comply with the terms of the lease; in the case of the rent and outgoings, not to comply except on terms imposed by the lessee which involved delays and difficulties of collection, while in the case of the works relating to fire orders, having regard to the time which has elapsed and the altogether inadequate explanations put forward by Ms Batiste, accompanied by a contention for which there was no real basis that it is not possible to comply with the fire orders, it must be concluded that this important part of the lessee's obligations has been entirely repudiated and there is no real prospect of the lessor ever obtaining compliance with it. In the circumstances my conclusion is that the lessee has repudiated the lease and that that repudiation was accepted by initiating the cross-claim. 111 Disposition of the Cross-claim. Notice of the claim for possession was given to the apparent occupier by delivery by a process server to the apparent occupant on 7 December 2001, but no occupier has sought to appear in or otherwise take part in the proceedings. 112 I will give to the cross-claimant judgment for possession, leave to issue a writ of possession, judgment for arrears of rent and outgoings to 5 December 2001 the date of the Cross-claim which effected re-entry, judgment for mesne profits from that date until actual surrender of possession and a declaration that the Option to Purchase Agreement has been terminated. I propose to reserve further consideration of the claim for mesne profits, which cannot be ascertained until possession is in fact recovered. It may be suitable to the parties to adopt the lease rent for the assessment of mesne profits, but if there is no agreement the amount of mesne profits remains a subject for consideration. I also propose to reserve further consideration of the claim relating to transfer of the licence. The plaintiff is entitled to interest at 15% in accordance with Art.6 and I will give judgment for the amount of that interest when ascertained. 113 On the plaintiffs' claim I will give judgment for the defendants with costs. 114 ORDERS:

BATISTE & 2 ORS v LENIN

At a glance

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Before

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Judgment (7 paragraphs)

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Legislation Cited (1)

Cases Cited (4)

Cited By (11)