Dee-Tech Pty Limited & Anor v Neddam Holdings Pty Limited

Supreme Court of NSW|2011-06-17|Before: White J, Gilbert J, Young J

Batiste v Lenin [2002] NSWCA 316 Category: Principal judgment Parties: Dee-Tech Pty Ltd (Plaintiff) Neddam Holdings Pty Ltd (Defendant) Representation: M Sahade (Plaintiff) M Moir (Defendant) File Number(s): 2007/254642; 2010/393169

Judgment 1HIS HONOUR:These proceedings were heard together. They concern a lease. Proceedings 2007/254642 concern the taking of accounts for outstanding contributions to outgoings. Proceedings 2010/393169 concern the validity of notices purportedly given under s 133E of the Conveyancing Act 1919 by reason of which the defendant denies the validity of the exercise of an option for renewal of the lease and a claim by the plaintiff for relief under s 133F of the Conveyancing Act for relief against the effect of such breaches as are found. 2The defendant ("Neddam Holdings") is the registered proprietor of premises at The Entrance Road, Erina. It purchased the premises in late 2002. The first plaintiff ("Dee-Tech") is the lessee of the premises. It entered into a lease with the previous owners on 23 November 1999. The lease was then for a period of two years commencing on 1 February 2000. It contained an option for renewal for a further three years. On 28 May 2002 Dee-Tech and the then lessors executed a variation of lease that was registered. The effect of the variation was that an initial term of five years was substituted for the initial term of two years and the lessee was given three options to renew for periods of three years each. The last of those periods expires on 31 January 2014. 3In the original lease the permitted use of the premises was described as "Computer Sales, Internet Cafe &Games". By the 2002 variation of lease this permitted use was replaced with the words "Computer Sales, Service, Games, Internet Cafe, Laundry/Laundromat and associated usages". 4Clause 8 of the variation of lease expressed the lessor's approval to Dee-Tech's granting a sublease to the second plaintiff, Bright Star Laundry Pty Limited ("Bright Star"). 5Under the original lease Dee-Tech was not liable to make contributions to outgoings. Under the 2002 variation of lease it was required to pay certain water usage charges. The 2002 variation of lease also provided for payment of outgoings under the renewed leases if the options for renewal were exercised. 6In October 2004 Dee-Tech gave notice of exercise of the first option for renewal, that is to say, for renewal of the lease for the period commencing 1 February 2005 and terminating 31 January 2008. Neddam Holdings disputed the validity of the exercise of the option. Dee-Tech commenced proceedings for specific performance. On 31 May 2005 declarations and orders were made by consent, declaring that Dee-Tech had validly exercised the option for renewal and that the covenant for renewal be specifically performed and carried into effect. Orders were made that Neddam Holdings execute all documents and do all things as were necessary to carry the covenant for renewal into effect. Neddam Holdings failed to issue a new lease on the same terms as the original lease as varied with other consequential amendments as provided for in clauses 16.3 to 16.6 of the lease. Nonetheless, there was a specifically enforceable agreement for lease that took effect as a lease in equity. 7In his judgment in the 2007 proceedings (Dee-Tech Pty Limited v Neddam Holdings Pty Limited (No. 2) [2009] NSWSC 1355), Gzell J recorded (at [4]) that on 9 June 2005 consent orders were filed under which Neddam Holdings was ordered to pay Dee-Tech's costs in the agreed amount of $4,000. Those costs were not paid. 8Dee-Tech purported to exercise a second option of renewal and claimed to be entitled to a further lease for three years from 1 February 2008 to 31 January 2011. On 26 April 2007 it filed a summons in which it sought an order that it be relieved of forfeiture of its lease on and from 1 May 2007. In its statement of claim in the 2007 proceedings Dee-Tech sought what Sackville AJA later called a "vaguely worded declaration" that it had validly exercised the option to renew for a term of three years commencing from 1 February 2008 and terminating on 31 January 2011. By a cross-claim filed by Neddam Holdings in the 2007 proceedings Neddam Holdings sought an order for possession of the premises. 9On 30 April 2007 orders were made by consent restraining Neddam Holdings from attempting to take possession of the premises or otherwise re-entering the premises or terminating the lease. The orders were made on an interim basis but were extended from time to time thereafter and remained in force until 17 December 2009. 10On 8 December 2009 Gzell J delivered his reasons for judgment on the issues raised in the 2007 proceedings and ordered rectification of the lease to provide that Dee-Tech was liable to pay outgoings from 1 February 2005 rather than 1 February 2006. His Honour found that there were discrepancies in the accounts issued by Neddam Holdings' agent, LJ Hooker, and ordered that an account be taken before an Associate Judge of the moneys due to Neddam Holdings under the lease. His Honour dealt with various notices issued by Neddam Holdings under s 129 of the Conveyancing Act by which Neddam Holdings had alleged that Dee-Tech was in breach of the lease and had required the breach to be remedied. (The service of such a notice and non-compliance with it is a prerequisite to a landlord's terminating a lease otherwise than for non-payment of rent.) Gzell J found that Neddam Holdings was entitled to serve the following notices: a)a notice given on 22 September 2006 alleging non-payment of arrears of rent and outgoings (at [80]); b)a notice given on 10 July 2008 with respect to the presence of a dog (at [83]-[89]); and c)a notice given on 1 February 2007 alleging that Dee-Tech had failed to take out and keep current and provide evidence of policies of insurance (at [96]-[107], [117]). 11Gzell J found that clause 6.1.7 of the lease required animals to be kept off the premises (at [86]). Whilst the notice was good the breach was remedied because the dog had died (at [89]). 12Gzell J found that the breaches were wilful and that there was a history of persistent breaches of the lease. His Honour refused relief against forfeiture (at [134]-[135]). 13Gzell J noted that from 30 April 2007 Neddam Holdings had been restrained from re-entering or terminating the lease or Bright Star's sublease and observed that on the injunction being lifted, and subject to the question of relief from forfeiture, Neddam Holdings would be in a position to terminate the lease by re-entry (at [111], [118]-[119]). 14On 17 December 2009 the injunction of 30 April 2007 was discharged, orders were made for the rectification of the lease and Dee-Tech and Bright Star were ordered to give Neddam Holdings possession of the premises. An order was made for the taking of an account of moneys due to Neddam Holdings under the lease. The order that the plaintiffs give possession was stayed pending application being made to the Court of Appeal. On 18 March 2010 the stay was extended by Tobias JA. On 1 November 2010 Allsop P continued the stay, but on terms that included that the plaintiffs pay $1,000 per month to Neddam Holdings in respect of outgoings due and payable under the lease on and from 18 November 2010 and $500 per month into an account of LJ Hooker to be held in escrow in respect of outgoings due and payable under the lease. 15There was no appeal from the orders for rectification of the lease. On 22 December 2010 the Court of Appeal set aside the orders for possession and related orders (Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd [2010] NSWCA 374). The Court of Appeal did not overturn or comment on Gzell J's findings that notices had been validly served under s 129 of the Conveyancing Act that entitled Neddam Holdings to terminate the lease by re-entry or otherwise, and that Dee-Tech was not entitled to relief against forfeiture. But the notices had been given in respect of the lease that terminated on 31 January 2008. The Court of Appeal found that not only had there been no termination of the lease by re-entry, but there had been no unequivocal statement by Neddam Holdings that it was treating the 2005-2008 lease as being at an end. 16On 6 October 2007 Dee-Tech exercised the option pursuant to the 2005-2008 lease for a further lease from 1 February 2008 to 31 January 2011. Sackville AJA recorded (at [36]-[37]) that Neddam Holdings did not serve any notice on Dee-Tech under s 133E of the Conveyancing Act and Neddam Holdings accepted that if it had not terminated the 2005-2008 lease, Dee-Tech had validly exercised the option so as to create the 2008-2011 lease. Because Neddam had not terminated the 2005-2008 lease, (although on the primary judge's findings it would have been entitled to do so), Dee-Tech was entitled to possession under the renewed lease from 2008 to 2011. 17On or about 17 September 2010 and 14 October 2010 Neddam Holdings served three notices pursuant to s 129 of the Conveyancing Act alleging breaches of the lease. At that time it was contending that the lease had been terminated prior to its renewal for three years from February 2008, but that contention had not been determined. That contention was rejected by the Court of Appeal on 22 December 2010. The 2008-2011 lease expired on 31 January 2011. Neddam Holdings did not purport to terminate that lease. 18On 14 October 2010 Dee-Tech gave notice of the exercise of the option to renew the lease for the final three-year term from 1 February 2011 to 31 January 2014. 19The effect of ss 133E and 133F of the Conveyancing Act is that a lessor cannot dispute the validity of the lessee's exercise of an option of renewal on the ground that the lessee was in breach of the lease unless a prescribed notice in accordance with s 133E has been served on the lessee in respect of the breach and either the lessee does not within one month apply for an order for relief against the effect of the breach pursuant to s 133F, or, if such proceedings are brought, no relief is granted or relief is granted on terms with which the lessee fails to comply. Neddam Holdings served notices expressed to be given under s 133E of the Conveyancing Act dated 26 October 2010, 9 November 2010, two notices dated 4 February 2011, and three notices dated 18 March 2011, alleging breaches of the lease. It says that Dee-Tech failed to comply with the notices and that Dee-Tech's purported exercise of the option of renewal was invalid. 20The 2007 proceedings had been referred to an associate judge for the taking of an account of the moneys owed by Dee-Tech as contributions to outgoings. The Court of Appeal noted that there was a further dispute in relation to the validity of the exercise of the third option for a lease commencing 1 February 2011. It noted that it might be desirable for there to be a single accounting of all matters in dispute (at [76], [79]). 21It is convenient to deal first with the accounting ordered in the 2007 proceedings in relation to outgoings. That is because the breaches alleged in the first notice given under s 133E of the Conveyancing Act include Dee-Tech's failure to pay all outgoings, interest on outgoings and GST on outgoings, as particularised in statements of account served on Dee-Tech on 27 April and 2 September 2010.

Retail Leases Act, s 28A 22Dee-Tech submitted that no amount in respect of outgoings was presently owed because the lease was a "retail shop lease" within the meaning of the Retail Leases Act 1994 and by virtue of s 28A of that Act, it was entitled to withhold payment of contributions for outgoings because, so it said, Neddam Holdings had failed to give it a written estimate of outgoings required under s 27 or an outgoings statement required under s 28. 23Section 28A of the Retail Leases Act provides: "28A Non-provision of outgoings estimate or statement (1)A lessee is entitled to withhold payment of contributions for outgoings if: (a)the lessor has failed to give the lessee a written estimate of outgoings required under section 27 or an outgoings statement required under section 28, and (b)the lessee has, at or after the expiry of the time when the estimate or statement was required to be given to the lessee, requested the lessor in writing to furnish the estimate or statement to the lessee, and (c)the lessor's failure has continued for 10 business days after the request was made. (2)The lessee must pay the withheld contributions within 28 days after the lessor furnishes the estimate or statement. (3)The lessor is not entitled to recover interest or late payment charges in respect of contributions withheld in accordance with this section. (4)The lessee is not in breach of the retail shop lease for acting in accordance with this section. (5)This section does not affect any other rights that the lessee has in connection with the lessor's failure to provide the estimate or statement." 24This contention was not raised before Gzell J. It was raised by an amended defence to the amended cross-claim filed by leave on 11 November 2010. In reply to that amended defence Neddam Holdings contended that the plaintiffs are estopped from asserting that the lease (as varied by the variation of lease) is a retail shop lease within the meaning of the Act and they are not liable to make payments in respect of outgoings. 25It is convenient to deal with the substance of the matter. For the reasons which follow I conclude that as from the variation of lease of 28 May 2002, the lease was not a "retail shop lease" or "lease" within the meaning of the Act. 26Section 3 provides that: "retail shop lease or lease means any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop: (a) whether or not the right is a right of exclusive occupation, and (b) whether the agreement is express or implied, and (c) whether the agreement is oral or in writing, or partly oral and partly in writing." 27"Retail shop" is defined as follows: "retail shop means premises that: (a)are used, or proposed to be used, wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of this paragraph (whether or not in a retail shopping centre), or (b)are used, or proposed to be used, for the carrying on of any business (whether or not a business prescribed for the purposes of paragraph (a)) in a retail shopping centre. Note 1. Section 5 limits the retail shops to which this Act applies. Note 2. Clause 17 of Schedule 3 provides that the businesses specified in Schedule 1 are taken to be prescribed for the purposes of paragraph (a) of this definition until regulations prescribing businesses and repealing Schedule 1 are made." 28"Retail shopping centre" is defined as follows: "retail shopping centre means a cluster of premises that has all of the following attributes: (a) at least 5 of the premises are used wholly or predominantly for the carrying on of one or more listed businesses, (b)the premises are all owned by the same person, or have (or would if leased have) the same lessor or the same head lessor, or comprise lots within a single strata plan under the Strata Schemes (Freehold Development) Act 1973 or the Strata Schemes (Leasehold Development) Act 1986, (c)the premises are located in the one building or in 2 or more buildings that are either adjoining or separated only by common areas or other areas owned by the owner of the retail shops, (d) the cluster of premises is promoted as, or generally regarded as constituting, a shopping centre, shopping mall, shopping court or shopping arcade." 29The businesses that are taken to be prescribed for the purposes of para (a) of the definition of "retail shop" include "internet cafes", "games and hobby shops", "shops selling ... software, electronic games, computers or computer products" and "drycleaners, collection centres for drycleaning or laundry services". 30The plaintiffs did not contend that the building of which the leased premises forms part was a "retail shopping centre" within the meaning of the Act. There are only four leased premises in the building. Paragraph (a) of the definition of "retail shopping centre" is therefore not satisfied. 31Rather, the plaintiffs submitted that the lease contained an agreement for the grant to Dee-Tech for value of a right of occupation of premises for the purpose of the use of the premises as a "retail shop". This was because, so it was said, the lease was given for the purpose of the premises being used wholly or predominantly for the carrying on of one or more of the listed businesses. 32In Moweno Pty Ltd v Stratis Promotions Pty Ltd [2002] NSWSC 1151; (2002) 11 BPR 20,565, the lease provided that the premises would be used as a restaurant (which was a listed business) but the premises were in fact used as a function centre (which was not). Barrett J (as his Honour then was) emphasised (at [8]) that under the definition of "retail shop lease" or "lease" the focus was upon: "... the content of the right of occupation granted or agreed to be granted 'under' the parties' agreement; and the question whether the occupation the subject of the right is 'for the purpose of' the use of the premises in the way described." 33That is, the definition focuses on the purpose (as regards use) for which the premises are let. This is governed by the parties' agreement. Because the lease provided that the use to which the premises would be put was as a restaurant, the lease was a retail shop lease within the meaning of the Act, notwithstanding that the premises were actually put to a different use. His Honour observed (at [14]): "[14] The definition in s3 makes it clear that the question whether a 'retail shop lease' exists at a particular time will depend on the scope and content of the parties' agreement as it exists at that time. If, in the course of a particular tenancy relationship defined by reference to a particular use the parties choose to make some fresh agreement by which the landlord grants to the tenant a right of occupation for the purpose of a new and different use, the terms of the fresh agreement will fall to be examined against the Act's criteria. It may be that an agreement that was at inception a 'retail shop lease' is replaced or supplemented in such a way that there is a new agreement that is not a 'retail shop lease'; or conversely that an agreement that was originally not within the definition is replaced or supplemented in such a way that there is a new agreement that is within it." 34This decision was upheld by the Court of Appeal (Moweno Pty Ltd v Stratis Promotions Pty Ltd [2003] NSWCA 376). 35It is clear that prior to the variation of 28 May 2002 the lease was subject to the Retail Leases Act. The original permitted use was for "Computer sales, Internet cafe & Games". However, by the variation of lease that permitted use was amended to "Computer Sales, Services, Games, Internet cafe, Laundry/Laundromat and associated usages". Some of the permitted uses remained prescribed businesses for the purposes of para (a) of the definition of "retail shop". However, the use as "Laundry/Laundromat" or "associated usages" was not a prescribed business, unless it came within the description "collection centres for dry cleaning or laundry services". The question is whether under the variation of lease Neddam Holdings agreed to grant Dee-Tech the right of occupation of the premises for the purpose of their use wholly or predominantly for carrying on one or more of the prescribed businesses. 36To ascertain the purpose for which it was agreed the premises could be used and what was the intended predominant use, it is legitimate and necessary to have regard to the objective facts known to the parties as to the intended use of part of the premises as a laundry. This was set out in the development application submitted to the Gosford City Council in 2001. The proposal was that the rear portion of the premises be used as a commercial laundry. The proposal stated: "The laundry is not for domestic use. There will be no vehicles arriving or departing from the site except for the owner/operator's delivery vehicle. ... The customer base will come from the following sources: Nursing and care facilities Hospitals Hospitality Hotel/motel Restaurant Trade/Uniforms Hair dressing Salons It is not a domestic laundry." 37The application for development approval stated that the laundry would contain eight commercial washers and four commercial dryers with associated tables and trolleys. The proposal also stated: "The laundry will not be visible from the street. ... All laundry will be by 'pick up' and 'delivery' only. There will be no customer access to the site." 38Thus the proposed laundry was not a collection centre. It was a commercial laundry. There was to be no element of retail use. 39Mrs Slattery of the plaintiffs said that there was a retail component to the laundry. She said that Bright Star provided laundry services to retail customers. There was no corroboration of that evidence and I do not accept it. In any event, that is not the question. The question is, for what predominant purpose did the parties agree the premises could be used? Their agreement was that part of the premises would be used as a commercial laundry and that the laundry would operate by the plaintiffs' collecting goods to be laundered from customers and taking the goods to the premises where they would be laundered. 40There were thus essentially two contemplated uses. Part of the premises was to be used for computer sales, games and internet cafe, and part as a commercial laundry. The former was within the list of prescribed businesses, the latter was not. 41The plaintiffs led no evidence of any budgeted revenues at the time the variation of lease was entered into. Nor did they lead any evidence of the actual revenues. It can be inferred that no such evidence would have been of assistance to the plaintiffs in seeking to establish that the prescribed businesses were predominant. 42The total area leased to Dee-Tech is approximately 505 square metres. The computer store and internet cafe occupies approximately 210 square metres. The area of the laundry is approximately 295 square metres. Thus the majority of the area leased is for the laundry operation. Approval was given on 19 July 2002 for the construction of a mezzanine floor. This is used as an additional storage area. 43Mrs Slattery deposed that the fitout costs for the laundry were approximately $178,000 and it took more than two years to complete the fitout. She deposed that the cost of plant and equipment for the laundry, including linen, was over $550,000. The plaintiffs gave no evidence of any of the costs associated with the computer sales and internet cafe business. 44The internet cafe business has no employees. Mr and Mrs Slattery who work in the business are not paid wages, but take drawings as shareholders. By contrast, the laundry business does have employees. 45In the course of applications for a stay of the order for possession made by Gzell J, the plaintiffs' then counsel described the plaintiffs' business in 2009. On 15 December 2009 counsel then appearing for the plaintiff submitted in support of the application for a stay of the order for possession that the plaintiffs conducted "principally a commercial laundry operation". 46I infer that the commercial laundry business is the principal or predominant business carried on upon the site. I infer that in 2002 when the variation of lease was entered into the parties then expected that the commercial laundry business, once established, would be the principal or predominant business. The plaintiffs have not discharged the onus that lies on them of showing that the premises were proposed to be used predominantly for the carrying on of a prescribed business. 47Accordingly, the Retail Leases Act does not apply. 48If the lease were one to which the Retail Leases Act applied, it would not have followed that Dee-Tech was entitled to withhold payment of contributions for outgoings under s 28A. That entitlement would only have arisen if, amongst other things, the lessee had requested the lessor in writing to furnish the written estimate of outgoings required under s 27, or an outgoings statement required under s 28. No such request was made. The plaintiffs contended that such a request was made on 28 September 2006 in a letter from Mrs Slattery to LJ Hooker Commercial. That letter purportedly recorded an agreement said to have been made in relation to the staged payment of outgoings. It concluded by Mrs Slattery writing: "One final point discussed was a time schedule of all outgoings, please send this through for my records at your earliest convenience." 49It is not at all clear what a "time schedule of all outgoings" was. On the face of it, Mrs Slattery was requesting a schedule of the times at which Neddam Holdings sought payment of outgoings. She did not ask for an estimate of the outgoings to which the lessee was to contribute under the lease that itemised the outgoings (s 27). Nor did she request a statement that detailed all the expenditure by the lessor in each accounting period on account of outgoings to which the lessee was required to contribute (s 28). 50Accordingly, even had I concluded that the Retail Leases Act applied, Dee-Tech did not establish that it was not required to pay its contribution to outgoings by reason of s 28A. 51As the order for account was an interlocutory order (Juul v Northey [2010] NSWCA 211 at [194]), and the question of the application of the Retail Leases Act had not been decided, the defence of estoppel could have faced difficulties. But in the light of these conclusions it is unnecessary to decide whether by not having raised this issue prior to Gzell J giving judgment, Dee-Tech was estopped from pursuing the issue.

Lease terms concerning outgoings 52Originally the lease provided that the lessee was not required to contribute to outgoings. Item 7 of the lease against the heading "Outgoings Percentage" stated "Not applicable". The lease contained no clause providing for the lessee to make a contribution to the lessor's outgoings. The amendments made by the variation of lease of 28 May 2002 were as follows: "The Lease is varied as follows: ... 5.In Item 7 on page 4 add the following 'with the exception of water usage charges over and above the amount currently being used on an average per annum basis - meter reading to be taken prior to commencement. All water usage charges over this amount to be borne 100% by the Lessee. Note: If any tenant new or existing changes their water usage or becomes a heavy water user then, the cost will be borne on a pro rata basis between this Lessee and the heavy user.' ... 9.... In the lease commencing 1 February 2006 Item 7 delete the words 'Not Applicable' and replace with the words 'the Lessee shall pay 44.6% of all reasonable outgoings in association with the premises as per Nationwide Realty Ashwell & Carroll Outgoings to be paid by the Lessee Year Ending 30 June 2000. Outgoings means - the total aggregate amount of the following costs paid or payable by the Lessor in respect of the Land, the improvements to the Land or in connection with the Premises for a year: land tax (on the basis the Land is the only land owned by the Lessor and is not subject to a special trust (within the meaning of the Land Tax Management Act 1956) and the Lessor is not a company classified under section 29 of the Act as a non-concessional company); water, drainage and sewerage rates and charges; local council rates and charges (but not water usage charges - for these charges see 18.3). 10.Add a new clause as follows: 'PART EIGHTEEN ... 18.3The parties acknowledge that the premises are separately metered for water usage. The lessee must pay all water usage charges.'" 53Gzell J ordered that clause 9 of the lease be rectified by substituting "1 February 2005" for "1 February 2006". His Honour declared that a clause was to be implied into the lease that: "19.1 the Lessee must pay the Outgoings Percentage of all reasonable outgoings in association with the premises as specified in Item 7" 54The reference to "Nationwide Realty Ashwell & Carroll outgoings to be paid by the Lessee Year Ending 30 June 2000" was to an annexure to a letter from Nationwide Realty Ashwell & Carroll dated 13 October 1999 that contained an estimate of outgoings apparently in accordance with s 28 of the Retail Leases Act. It listed three classes of outgoings, namely Council Rates, Water and Sewerage Rates and Insurance, all of which were said to be included in rental. 55Neddam Holdings has filed a statement listing each outgoing and rental charge it claims Dee-Tech owed, and listing receipts. Dee-Tech has filed a statement of falsification and surcharges. The account is voluminous. Helpfully, the parties have segregated disputed items into categories. I will deal with each such category. 56Dee-Tech had objected to being charged GST on outgoings on which GST was not payable by Neddam Holdings. Ultimately Dee-Tech did not maintain that objection. I take it that Dee-Tech does not dispute that Neddam Holdings supplies the land to it. That being so, the consideration for the supply is Dee-Tech's promise to pay both rent and a contribution to outgoings, so that GST is payable on both, irrespective of whether the lessor is itself required to pay GST on the outgoings for which contribution is to be made.

Water, sewerage and drainage charges 57The amendment to item 7 in para 5 of the variation of lease applied to the end of the initial term (as varied) of five years, that is, up to 31 January 2005. The amendment to item 7 in clause 9 applies to the renewed leases from 1 February 2005. 58The lease distinguishes between water, drainage and sewerage rates and charges and water usage charges. For the initial lease term Dee-Tech was only liable to pay water usage charges in accordance with para 5 of the lease. Neddam Holdings charged sewer discharge fees in addition to the water usage charges. Dee-Tech was not liable for the sewer discharge fees. 59When the variation of lease was entered into the parties recognised that the laundry operations would dramatically increase the water usage. They intended that water usage for the laundry would be separately metered. A separate meter was installed on 23 August 2002. Thereafter one or two separate meters recorded the water supply for the laundry. There is one main water meter that records the water supplied to all of the units. This includes the supply to the leased premises for toilets, washbasins and shower. 60There is a dispute in relation to the relationship between the new clause 9 and the new clause 18.3. The Gosford City Council was the water supply authority for the premises. The last paragraph of the definition of "outgoings" provided for the lessee to pay 44.6 per cent of all reasonable outgoings comprising local council rates and charges, but not water usage charges which were to be dealt with by clause 18.3. Clause 18.3 provided that the lessee must pay all water usage charges. Neither party contended that this meant that the lessee was required to pay all water usage charges not only for the water separately metered, but for the whole premises. In context, clause 18.3 only required the lessee to pay all water usage charges that were separately metered for the premises, that is, for the laundry. 61The plaintiffs contended that by reason of the last paragraph of the definition of outgoings, they were not liable to pay other local council charges for water usage. However, by the penultimate paragraph of the definition of "outgoings" the lessee was required to pay 44.6 per cent of all reasonable outgoings for water rates and charges, as well as drainage and sewerage rates and charges. 62Reading the clause as a whole, in light of the objective fact that water was to be supplied to the leased premises both through a separate meter or meters for the laundry, and through a common meter with the other lessees and water users, I think that Dee-Tech is required to pay 44.6 per cent of the water charges for water supplied through the common meter and all of the water usage charges for water that is separately metered. The words in brackets in the last paragraph of the definition of "outgoings" do not mean that Dee-Tech is not liable to pay any water usage charges except for that which is separately metered. Rather, the words in brackets mean that Dee-Tech is not to pay 44.6 per cent of all local council rates and charges because, in respect of water usage charges, it is to pay 100 per cent of the water that is separately metered and otherwise, pursuant to the previous sub-paragraph, is to pay 44.6 per cent of water rates and charges as well as drainage and sewerage rates and charges. 63Another question is whether Dee-Tech is liable to pay 100 per cent of the sewer discharge fees in respect of the water that is separately metered. 64By clause 9 of the variation of lease, Dee-Tech is liable to pay 44.6 per cent of water, drainage and sewerage rates and charges and other local council rates and charges, excepting water usage charges. The draftsman treated sewerage charges as being separate from water usage charges. Under clause 18.3, Dee-Tech is only liable to pay all water usage charges for the water that is separately metered. It is not liable to pay 100 per cent of the sewerage charges, even though they are calculated on water usage. Under clause 9, Dee-Tech is liable to pay 44.6 per cent of all sewerage charges, not merely those supplied through the common meter. 65That is, Dee-Tech is not liable to pay 100 per cent of the sewerage charge in respect of the water supplied through the separate meters. However, it is required to pay 44.6 per cent of those charges. 66The trade waste licence fee is not treated as a water usage charge. Mr Madden deposed that the trade waste licence fees were all charged based on the water meter reading. That is not apparent in respect of early invoices where the fee is $65 plus GST. However, even where, as in later invoices, the liquid trade waste discharge fee is calculated on the basis of the quantity of water used, it is not on that account a water usage charge. It is a separate charge under the Independent Pricing and Regulatory Tribunal (Water, Sewerage and Drainage Services) Order 1997. Nonetheless, it is a charge of the local council within the last paragraph of the definition of "outgoings". Dee-Tech is liable to pay 44.6 per cent of the charge. 67The remaining issue concerning the proper calculation of water charges is whether Dee-Tech is liable in respect of charges described by the council as "State Government Water Savings Contribution" or "State Government Climate Change Fund". As with the trade waste licence fee, this is not a separate water usage charge. However, it is a council rate or charge falling within the last limb of the definition of "outgoings". Dee-Tech is liable to pay 44.6 per cent of the charge. 68Thus for the first period (statement of account 44), which fell within the original term of the lease (as varied), Dee-Tech was liable to pay water usage charges of $502.79, but not the sewer discharge fee. It was liable to pay GST on the water usage charge. For the second period (statement of account 52) it was liable to pay a water usage charge of either $464.10 (as calculated by Mrs Slattery) or $464.96 (as calculated by Mr Madden). I will split the difference. It was also liable to pay GST. It was not liable to pay the sewer discharge fee. For the third period (statement of account 66) Dee-Tech was liable to pay the water usage fee of $377.50 plus GST. It was not liable to pay the sewer discharge fee. 69The fourth period (statement of account 88) was from 2 February 2005 to 19 June 2005. This was from the commencement of the renewed lease where Dee-Tech's obligation was to pay 44.6 per cent of water, drainage and sewerage rates and charges, not just to pay all water usage charges above existing levels. 70Neddam Holdings issued an invoice dated 14 November 2005 for $897.39 described as "water consumption 2/2/05 - 19/6/05". There was no indication on the face of the invoice as to how the sum was calculated. The explanation in Mr Madden's affidavit of 25 August 2010 (annexure B) is as follows. The water consumption account issued by Gosford City Council was in respect of three meters. Two of the meters were installed by Dee-Tech and related exclusively to the supply of water to Dee-Tech for the laundry. One meter was a common meter that recorded the supply of water to all four tenancies. Five hundred and ninety kilolitres were supplied in the period in total. Of this, 479 kilolitres was supplied through the two meters separately to Dee-Tech. One hundred and eleven kilolitres was supplied through the common meter. The water consumption account consisted of a water consumption charge ($476.40), a sewer discharge charge ($403.02) and a trade waste licence fee ($71.50 being $65 plus GST). Neddam Holdings apportioned the water consumption charge and sewer discharge charge between the separate meters and the common meter. It then charged Dee-Tech with 100 per cent of both the water consumption charge and the sewer discharge charge in respect of the separate meters. It charged Dee-Tech with 44.6 per cent of the water charge and sewer discharge charge for water usage through the common meter and 44.6 per cent of the trade waste licence fee. 71In its statement of falsifications Dee-Tech contended that the appropriate charge was $461.07. This did not include GST (because the charges made by the Gosford City Council did not include GST, except for the trade waste licence fee). It is not clear to me how the figure of $461.07 was calculated. It is not in accordance with Mrs Slattery's statement as to her view as to Dee-Tech's obligations in respect of water charges. No details of her calculation were provided. 72For the reasons above, the amount for which Dee-Tech was liable in respect of this period was as follows: a)water consumption charge for water supplied through the separate meters: $476.40 x 479590 = $386.77; b)water consumption charge for water supplied through the common meter: $476.40 x 111590 x .446 = $39.97; c)sewer discharge charge: $403.02 x .446 = $179.75; d)trade waste licence fee: $65 x .446 = $28.99; e)Total $635.48 + GST = $699.03. 73Adjustments should be made to the amounts claimed for subsequent periods consistently with the above reasons.

Council rates 74The first issue in relation to council rates is the charge made by Neddam Holdings by an invoice dated 11 February 2005. It claimed the sum of $1,439.42 being 44.6 per cent of the rates payable for the third quarter of the 2004-2005 financial year ($2,934 + GST). 75Neddam Holdings failed to apportion the rate for the month of January 2005. It accepts that it should have done so. 76Mrs Slattery asserted that GST was not payable, but Dee-Tech did not press that contention. Accordingly, the amount payable was $943.62, not $1,439.42. 77For the third quarter of the 2005-2006 financial year, Neddam Holdings issued two invoices: one for $466.41, and the other for $2,125.91. The council notice for that quarter was for rates of $2,642. The amount payable by Dee-Tech was $1,178.33 plus GST. Apart from the issue of GST, so far as I am aware, the only other issue in relation to the calculation of Dee-Tech's liability to contribute to council rates that appeared to be raised on the affidavits is in respect of two invoices dated 11 March 2010 and 12 October 2009 claiming "council rate rates adjustment" for the months of July and August 2008 and July and August 2009. To this is to be added GST. When GST is added to the amount for which Dee-Tech admits it is liable, there is no difference between the parties' positions.

Lessor's insurance costs 78A further issue is whether Dee-Tech is liable to make a contribution to the lessor's insurance costs. Neddam Holdings contends that it is required to do so because insurance costs were included in the outgoings provided for in the statement from Nationwide Realty Ashwell & Carroll. However, the relevant clause is that the lessee "pay 44.6 % of all reasonable outgoings in association with the premises as per Nationwide Realty Ashwell & Carroll Outgoings ...". "Outgoings" are then defined to mean only some of the outgoings referred to in the relevant statement. It is only the outgoings, as defined, that are picked up by the words "shall pay 44.6 per cent of all reasonable outgoings [etc]". As insurance is not included in those outgoings, the lessee is not required to contribute.

Backflow device 79Neddam Holdings (through LJ Hooker Commercial) invoiced Dee-Tech for what was called either annual backflow inspection charges or monthly backflow prevention inspection charges. Such charges are not included in the definition of "outgoings" unless they fall within the last paragraph "local council rates and charges". 80Mr Madden deposed that a backflow charge was a charge imposed by the Gosford City Council. There was no corroboration of that statement. None of the invoices from the Gosford City Council referred to such a charge. The council required the owner to arrange for regular inspection of the backflow prevention device by a licensed plumber. There is no evidence that the council carried out the inspection and no evidence, except for Mr Madden's say so that the council levied the charge. In a later affidavit Mr Madden exhibited invoices issued by a licensed plumber, Mr Schofield, addressed to Neddam Holdings for carrying out the annual inspection and testing of the backflow prevention device. This confirms that, contrary to his affidavit, the charge was not one imposed by the council. I uphold Dee-Tech's objection to these charges.

Land tax 81Item 63 in Neddam Holdings' statement of account stated that Dee-Tech was liable to contribute $5,475.10 as outgoings for land tax in the 2005 financial year. Mr Madden now concedes that the contribution to land tax that was payable (before GST) was $4,554.63, as contended by Dee-Tech. However, GST is to be added to this sum and the sum to be allowed is $5,010.09. 82In respect of land tax for 2006, the parties are agreed that Dee-Tech's liability for land tax (before GST) is $6,019.22. It is now conceded that GST is payable. 83In respect of the 2007 financial year, the parties are agreed that Dee-Tech's liability for land tax is $6,297.23 (before GST). GST is now conceded.

SRD Electrics 84Item 140 of Neddam Holdings' statement of account claimed a sum of $517 as being due to "SRD Electrics". This was in respect of a handwritten invoice dated 14 August 2006 from an electrical contractor to LJ Hooker Commercial for "the rectification of Energy Australia Defect to Gigabites Cafe and Bright Star Laundry Meter Board Defect no. 33189". On 16 June 2006 Energy Australia had issued the defect notice. The defects were that "the metallic wiring enclosure containing the current transformer metering was not earthed" and that "the metallic cubicle containing the service fuses and the current transformers was accessible to live parts due to no barrier installed when the door is in open position. Note require clear perspex type cover inside cubicle." 85Counsel for Neddam Holdings said that Dee-Tech was liable under clause 4.10.2 of the lease to pay this sum because it was a reasonable cost payable or incurred by the lessor for remedying a default by the lessee. Further, when the previous lessors gave their consent to the lessee carrying out electrical work for the laundry, they did so on the basis that "all costs involved in this work is to be for your account". 86The lease requires Dee-Tech to comply with all requirements of any Authority in connection with the premises or its business (Clause 6.1.12). Mrs Slattery said that the upgrading of the electrical work to the property was completed in November 2001 and she understood that it had been checked and certified by Energy Australia before power was switched on. One trusts that that would be so. She says that the power board the subject of the defect notice related to all four of the tenancies in the building and that after 2001 the other tenants also had access to the power board which was the subject of the defect notice. Mr Madden responded by saying that the electrical meters for each tenancy are situated outside each tenancy on the wall and that it is the insulation installed by the plaintiffs which was defective. 87The defect notice itself refers to the insulation address as being for units 3 and 5 and the insulation being for the customer name "Bright Star Laundry and Gig-a-Bites". 88I cannot resolve this dispute by preferring the word of Mrs Slattery to Mr Madden or vice versa. I regard neither as reliable. I think the strongest objective evidence is in the terms of the defect notice itself from which I infer that the power board to which the defect notice relates is a power board installed for the purposes of the plaintiffs' businesses. The plaintiffs were responsible for correcting the defects and Neddam Holdings is entitled to be reimbursed for the costs it incurred in doing so. I reject the challenge to this item of charge.

Legal costs 89Items 141 and 196 of Neddam Holdings' statement of accounts claim $2,594.76 and $3,987.50 in respect of "legal costs". 90Clause 4.10.2 of the lease provides that the lessee must pay on demand the reasonable costs payable or incurred by the lessor for remedying a default by the lessee. Neddam Holdings contends that the legal costs were incurred when Neddam Holdings engaged solicitors to advise them about a breach of the lease by Dee-Tech relating to the non-payment of outgoings by Dee-Tech, the lack of provision of an insurance policy and the fact that Dee-Tech kept a dog on the premises. Cameron & Myers prepared and issued a notice under s 129 of the Conveyancing Act. Neddam Holdings says that after the notice was issued Dee-Tech paid $12,331.29 on 10 October 2006 and $4,303.32 on 29 September 2009. The other invoice for $3,987.50 was for the costs of counsel in preparing for a mediation and attending the mediation on 16 May 2007. The mediation was said to have been arranged after service of the s 129 notice. 91None of these costs related to the lessor's remedying a default by the lessee. However, although not referred to in counsel's submissions, I take it that Neddam Holdings relies on clause 4.10.3 of the lease whereby Dee-Tech is liable to pay the lessor's reasonable legal costs relating to a default by the lessee. 92As counsel for Dee-Tech submitted, it is not possible to say how much of the costs claimed relate to a default by the lessee. Some part of the costs were incurred in relation to the prior proceedings between Dee-Tech and Neddam Holdings in 2005. Dee-Tech was successful in those proceedings. Other parts were incurred in relation to mediation. In so far as the alleged defaults related to non-payment of outgoings, whilst it is clear that Dee-Tech has not paid all of the outgoings for which it was liable, it is also clear that Neddam Holdings was claiming more by way of contribution to outgoings than it was entitled to claim. The s 129 notice referred to the non-payment of outgoings under invoices, some of which were for an incorrect amount, two of which had the same invoice number and the same date, but were in different amounts, one of which had been paid in full, three of which bore the same date and had the same number, but were for different amounts, one of which was in respect of insurance charges for which I have found Dee-Tech not to be liable, and one of which was in respect of backflow prevention device charges for which I have found Dee-Tech not to be liable. Although there were defaults by Dee-Tech, it is not possible to say how much of the costs the subject of the invoices related to such defaults. I reject the claims for legal costs.

Acoustic consulting 93The next item in dispute was a charge of $2,277 in respect of acoustic consulting. On 3 September 2007 Neddam Holdings claimed compensation for an expense described as "acoustic assessment and advice carried out by Acoustis [sic] Dynamics Ltd in response to undue noise and vibration eminating [sic] from Bright Star Laundry". The amount claimed was $2,277. In submissions counsel for Neddam Holdings relied on clauses 6.3.7 and 6.3.8 of the lease. Those clauses provided that the lessee was not to allow on or near the premises any loud noise or in any other manner to cause a nuisance, disturbance or annoyance to any other person using the Land, the building or the common area, or to any owner or occupier of neighbouring land, and not to do anything on the premises which in the lessor's reasonable opinion might be annoying, dangerous or offensive. The sum was claimed as a reasonable cost incurred by the lessor for remedying a default by the lessee. 94The lessor asserted that complaints had been made about noise and vibration. Mr Madden deposed that Mrs Slattery had admitted that there were complaints about noise and vibrations generated by the laundry equipment. I was referred to part of the transcript of the cross-examination of Mrs Slattery before Gzell J. Mrs Slattery admitted before Gzell J that there had been a complaint from an adjoining tenant, but said that the problem had been fixed and the tenant had said that he had no further issue with it. Another complaint was said to have been conveyed. According to Mrs Slattery she was told by the council that the complaint had emanated from the landlord. This was not denied by Mr Madden. 95The council carried out or arranged for the carrying out of acoustical tests. By letters dated 5 April and 10 May 2004 the council advised that the results received were below the recommended maximum noise levels for the relevant industrial noise policy guidelines. In the letter of 10 May 2004 the council advised that a complainant might be successful in obtaining a noise abatement order from the local court under s 268 of the Protection of the Environment Operations Act 1997. It appears that no such application was made. 96The evidence does not establish that the lessee was in breach of the lease in causing a nuisance or disturbance or annoyance or doing anything which in the lessor's reasonable opinion was annoying, dangerous or offensive. Nor was the money spent on acoustical testing money spent in remedying a default of the lease (if the lessee had in fact been in default). Rather, the money was spent in order to determine whether the lessee was conducting its operations in a manner that was a nuisance or otherwise offensive. 97For these reasons I reject the claim for acoustic costs.

Surcharges 98Dee-Tech also issued a notice of surcharges. First it claims credit for the sum of $4,000 for which it has obtained judgment. Whilst it is entitled to that credit, the judgment sum should not be set off in the taking of the statement of account. The judgment sum would not operate as a set-off in equity. Interest is payable on the judgment sum at a different rate than will be payable on the outstanding debt for outgoings. Once the debt, including interest, for outgoings is determined there can be a set-off of that sum against the judgment debt for costs plus interest at the rates prescribed for the purposes of s 101 of the Civil Procedure Act 2005. 99Mrs Slattery claimed surcharges for three other sums of $1,096.57 said to have been paid on 4 June 2010, $5,000 paid on 5 August 2010, and $4,539.05 paid on 1 September 2010. Neddam Holdings denies receipt of the sum of $1,096.57 said to have been paid to LJ Hooker. Whilst there is evidence that the cheque was drawn there is no evidence that it was paid. I reject that claim to surcharge. Otherwise Neddam Holdings accepts that the payments of $5,000 and $4,539.05 were received. Credit is to be given for those amounts. 100The lessee is obliged to pay interest on unpaid moneys at the rate of two per cent above the rate applied by the lessor's bank on unsecured overdraft accommodation of $100,000 calculated on a daily basis. Interest payable is simple and not compound interest. 101A new statement of account should be prepared by Neddam Holdings consistently with these reasons. Neddam Holdings should then calculate the interest payable at the specified rates on outstanding balances from time to time. There may be a question as to the time from when interest is payable. The lease does not specify a time for the payment of contributions to outgoings. I have heard no submissions in relation to the time from which interest should be payable. That can be addressed when the fresh statement of account is prepared in accordance with these reasons.

102Sections 133E, 133F and 133G of the Conveyancing Act provide: "133EBreach of certain obligations not to preclude option except in certain circumstances (1)This section applies to a lease that contains: (a) an option exercisable by the lessee, and (b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised. (2) Despite any provision of the kind referred to in subsection (1) (b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless: (a)the prescribed notice has been served on the lessee in respect of the breach, and (b) the lessee's rights are extinguished in relation to the notice. (3) In subsection (2): breach of an obligation includes, where the obligation requires any thing to be done, any neglect or failure to do the thing concerned. obligation includes any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing any thing. prescribed notice means a notice in writing: (a) specifying the lessee's breach of the relevant obligation and served on the lessee: (i)within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or (ii)within 14 days after the breach, if the breach occurred after the giving of that notice, and (b)states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option. (4) For the purposes of subsection (2) (b), the lessee's rights are extinguished in relation to a prescribed notice: (a)if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or (b)if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or (c)if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose. 133F Court may grant relief from breach of certain obligations (1) Relief referred to in section 133E may be sought: (a)in proceedings instituted in the court for the purpose, or (b)in proceedings in the court in which: (i) the existence of an alleged breach by the lessee of the lessee's obligations under the lease, or (ii)the effect of the breach from which relief is sought, is in issue. (2)The court may, in proceedings in which relief referred to in section 133E is sought: (a)make such orders (including orders affecting an assignee of the reversion) as it thinks fit for the purpose of granting the relief sought, or (b)refuse to grant the relief sought. (3)The court may, in proceedings referred to in subsection (2), take into consideration: (a)the nature of the breach complained of, (b)the extent to which, at the date of the institution of the proceedings, the lessor was prejudiced by the breach, (c) the conduct of the lessor and the lessee, including conduct after the giving of the prescribed notice referred to in section 133E (2), (d)the rights of persons other than the lessor and the lessee, (e)the operation of section 133G, and (f)any other circumstances considered by the court to be relevant. (4)The court: (a)may make an order under subsection (2) on such terms as to costs, damages, compensation or penalty, or on such other terms, as the court thinks fit, and (b)may make any consequential or ancillary order it considers necessary to give effect to an order made under that subsection. 133G Lease to continue in force until issue decided (1) Except as otherwise provided by this section or by an order of the court, a lease that would otherwise expire during any of the following periods is continued in force by this subsection until the end of the period concerned: (a) a period of 14 days referred to in paragraph (a) of the definition of prescribed notice in section 133E(3), (b) a period of one month referred to in section 133E(4)(a), (c) the period commencing with the commencement of proceedings referred to in section 133E (4) (b) and ending at the time when: (i) those proceedings are disposed of in the manner referred to in that paragraph, or (ii) effect is given to orders made by the court in granting relief referred to in that paragraph, in so far as such orders affect the lessor or relate to an assurance by the lessee. (2) Paragraph (c) of subsection (1): (a) does not apply to or in respect of a lease that, but for that paragraph, would continue in force for a period longer than the period for which it is, by the operation of that paragraph, continued in force, and (b) does not, where a lessee fails to comply with terms imposed upon the lessee pursuant to paragraph (a) of subsection (4) of section 133F, operate to continue the lease in force beyond the time of that failure by the lessee. (3) Where, under subsection (1), a lease continues in force after the day on which, but for that subsection, it would expire: (a) the lease so continues in force subject to the provisions, stipulations, covenants, conditions and agreements in the lease (other than those relating to the term and the option contained in the lease) but without prejudice to any rights or remedies of the lessor or lessee in relation to the lease, and (b) the lessee, if the lease is of land under the provisions of the Real Property Act 1900 and the lessee is in possession of the demised premises, has the protection of paragraph (d) of section 42 of that Act as if the lease were a tenancy referred to in that paragraph. (4) Subject to subsection (5), where, pursuant to an option contained in a lease continued in force under subsection (1), the lease is renewed or a new lease is granted, the period during which the lease was so continued in force shall be deemed to be part of the term for which the lease was renewed or the new lease granted, and any lease granted pursuant to an exercise of the option shall be expressed to have commenced when the lease containing the option would, but for subsection (1), have expired. (5) Subsection (4) does not apply to or in respect of a lease that stipulates for the commencement of any lease granted pursuant to an exercise of the option contained therein on a day that is later than the day on which the lease so granted would, but for this subsection, commence under subsection (4)." 103Under the lease as varied Neddam Holdings was only required to grant a new lease following service by Dee-Tech of a notice stating that it wanted a new lease, if Dee-Tech was not in breach of the lease when it gave the notice, and was not in breach of the lease between that day and the last day of the existing term (clause 16.1.2 and 16.3.4 as inserted in the variation of lease). Hence, the questions in the 2010 proceedings are whether Dee-Tech was in breach of the lease as claimed in notices given under s 133E of the Conveyancing Act, and if so, whether relief should be given under s 133F against the loss of the option of renewal if the breaches are established. 104Neddam Holdings submitted that if a breach the subject of a notice under s 133E is established, in the exercise of the discretion to relieve against the breach, the court should take into account any other breaches of the lease that are established, even though they were not the subject of a notice under s 133E. Dee-Tech did not submit to the contrary. I will return to this question after dealing with the claimed breaches.

The s 133E notices: Their validity irrespective of whether Dee-Tech was in breach of the lease 105The first notice under s 133E is dated 26 October 2010. It alleged that Dee-Tech had breached the lease by: a)not keeping a current Liquid Trade Waste Approval; b)not having had a Backflow Prevention Device tested since 19 November 2008; c)not having paid all outgoings particularised at $62,190.56 in a statement of account served on Dee-Tech on or about 27 April 2010, and a supplementary statement of account served on or about 2 September 2010; d)not having paid interest on outgoings; e)not having paid GST on outgoings; f)not having kept current insurance policies in the name of the lessor; g)not having kept a current workers' compensation insurance policy; h)not having kept insurance policies that included terms specified in clauses 5.2.4 and 5.2.5 of the lease. 106When this notice was served the appeal from the orders of Gzell J had not been determined. The notice was served under cover of a letter from McDonald Johnson Lawyers, solicitors for Neddam Holdings, that stated: "Our client, Neddam Holdings Pty Ltd, considers that your client, Dee-Tech Pty Ltd, does not have a lease in relation to the abovenamed premises, and therefore your client does not have entitlement to an option. This conclusion follows from the judgment of Gzell J delivered on 8 December 2009. However, in the event that your client does have a lease, then we enclose by way of service our client's Notice issued pursuant to s 133E of the Conveyancing Act 1919. Both this letter and the enclosed Notice are issued 'without prejudice' to our client's position outlined above." 107Dee-Tech submitted that it was not open to Neddam Holdings to issue a notice under s 133E of the Conveyancing Act whilst asserting that there was no lease on foot pursuant to which Dee-Tech had the obligations asserted in the s 133E notice. 108I do not accept this submission. Neddam Holdings was not put to an election between asserting that the lease had come to an end and asserting that if it had not, Dee-Tech's breaches of the lease precluded it from exercising the option. On either basis Dee-Tech would not be entitled to a renewed lease. Neddam Holdings was not acting inconsistently by asserting both positions in the alternative. 109Counsel for Dee-Tech submitted that the statement required of the lessor under s 133E(3)(b) precluded the lessor from maintaining what was said to be an inconsistent position that there was no lease on foot or, if there were, that the lessee was in breach of the lease that precluded it from exercising the option. Section 133E(3)(b) does not have that effect. All it requires is that the prescribed notice state that the lessor proposes to treat the breach as precluding the lessee from entitlement to the option. I see no reason that a prescribed notice cannot be given on the basis that the lessor asserts that if there is a lease on foot, the lessee is in breach of it and by reason of the breach, is not entitled to the option. 110The second s 133E notice was given on 9 November 2010. It asserted that Dee-Tech was in breach of the lease by taking a dog into the premises and permitting it to remain in the premises. Counsel for Dee-Tech submitted that this notice was also invalid because at the time it was served, Neddam disputed that there was a lease on foot. For the same reasons I reject that submission. 111The third s 133E notice was dated 4 February 2011. This was after the Court of Appeal had delivered judgment. The notice asserted that Dee-Tech was in breach of the lease by not having consent from the Gosford City Council to use the premises for "computer sales, Service, games and an internet cafe". This was the use specified in the original lease and was a use to which the premises had been put since 1999. Neddam Holdings asserted that development consent from the council was required for such a use. 112The notice asserted that Dee-Tech was in breach of clauses 6.1.3 and 6.1.12 of the lease. Those clauses provided: "6.1The Lessee must ... 6.1.3obtain and renew when required the approvals, licences, permits and registrations applicable to the Permitted Use and comply with any conditions in them; ... 6.1.12comply with all laws and the requirements of any Authority in connection with the Premises, the Lessee's business, the Lessee's Property, the employment of any person by the Lessee, the presence upon the Premises or the use in the Premises of any fixtures, fittings, plant, machinery, substances or goods and the use or occupation by the Lessee of the Premises." 113It is a question of construction of a covenant as to whether the covenantor has breached the covenant once and for all and thereafter failed to remedy the breach, or whether there are continuous breaches. If a time is specified for the doing of a thing, or it is implied that the thing is to be done within a reasonable time, failure to do the thing within time involves a breach once and for all. On the other hand, if there is a continuing covenant that a state of affairs will be maintained, failure to maintain that state of affairs will be a continuing breach (Larking v Great Western (Nepean) Gravel Ltd (in liq) (1940) 64 CLR 221 per Dixon J at 234, 236-237). 114If development consent was required, the breach of cl 6.1.3 occurred when the premises were first occupied and used by Dee-Tech. On the other hand, clause 6.1.12 was a continuing covenant. This notice under s 133E was not given until 4 February 2011. That was more than 14 days after the giving of the notice by which the option was exercised. Neddam Holdings submitted that this was a continuous breach and therefore fresh breaches had occurred within 14 days of the service of the notice. So far as the notice alleged a breach of cl 6.1.3, I do not agree. There would be one breach of cl 6.1.3 (failure to obtain development consent for the use of the premises) that occurred when the premises were occupied and used for the lessee's business after the lease was entered into. Thereafter, the alleged breach was not remedied. However, the alleged breach of cl 6.1.12 would be a continuing breach for each moment in time the lessee was failing to comply with the laws in connection with the premises, its business, and its use and occupation of the premises. 115In so far as the notice alleged a breach of cl 6.1.3, it did not comply with the requirements of para (a) of the definition of "prescribed notice" in s 133E(3). However, in so far as the notice alleged a breach of cl 6.1.12 it complied with sub-para (a)(ii) of the definition of "prescribed notice". 116The fourth s 133E notice was also dated 4 February 2011. It asserted that Dee-Tech was in breach of the lease by failing to paint the interior of the premises prior to the expiry of the lease on 31 January 2011. There is a question as to when Neddam Holdings directed Dee-Tech to paint the premises and whether the direction was validly given. I deal with this below. This notice was not out of time. 117The fifth s 133E notice dated 18 March 2011 asserted that Dee-Tech was in breach of the lease by failing to give Neddam Holdings a copy of each insurance policy and a certificate of currency for each insurance policy in respect of the premises. The sixth s 133E notice also dated 18 March 2011 asserted that Dee-Tech was in breach of the lease by failing to have the premises inspected for pest activity. The seventh s 133E notice also dated 18 March 2011 asserted that Dee-Tech was in breach of the lease by failing to permit the lessor or its agent to inspect the premises. 118Clause 16.1 of the lease provides: "16.1The Lessor must grant a new lease to the Lessee in accordance with this clause to commence on the day after the day specified in Item 3 if: 16.1.1the Lessee gives the Lessor a notice stating that the Lessee wants a new lease of the Premises for the term specified in Item 14 not earlier than six months and not later than three months before the day specified in Item 3; 16.1.2the Lessee is not in breach of this Lease when the Lessee gives that notice and has not breached this Lease between the day the Lessee gives that notice and the day specified in Item 3; ..." 119By the variation of lease dated 28 May 2002 the day to be inserted in item 3 of a new lease was to be the last day of the term of the new lease (clause 9, new clause 16.3.4). That day is to be taken to have been 31 January 2011. Hence, a breach that by the terms of the lease would preclude the lessee from exercising the option of renewal, must have been a breach that occurred by 31 January 2011. A prescribed notice under s 133E was required to be given within 14 days of the occurrence of the breach. Neddam Holdings contended that the breaches were continuing breaches. Whether that is so or not, only breaches occurring up to 31 January 2011 could preclude Dee-Tech from exercising the option of renewal. A notice in respect of such breaches was required to be given by 14 February 2011 under s 133E. The notices of 18 March 2011 did not comply with the requirement in the definition of paragraph (a)(ii) of the definition of "prescribed notice" in s 133E(3) that the notice be given within 14 days of the breach. 120Thus I reject Dee-Tech's submission that the first two notices were invalid because when they were given, Neddam Holdings asserted no lease was in existence. I conclude that the notices of 4 February 2011 were not invalid as they were given within 14 days of the occurrence of an alleged breach said to have occurred after the option of renewal was exercised. I accept Dee-Tech's submissions that the notices dated 18 March 2011 did not comply with s 133E as they were not given within 14 days of the occurrence of a breach that must have occurred by 31 January 2011 if the breach were to preclude the valid exercise of the option.

First s 133E notice: liquid trade waste approval 121The first breach alleged in the first notice was not keeping current a liquid trade waste approval. 122Following the variation of the lease, the permitted use for the premises included use as a laundry and associated usages. On 3 September 2001 the Gosford City Council gave development approval for the establishment of a commercial laundry on the premises. The applicant was Bright Star Laundry Pty Ltd who is said to be the sublessee of the laundry. (No written sublease has been produced, but the former owners approved the grant of the sublease in the variation of lease.) Bright Star carries on business of a commercial laundry from the premises. Clause 6.1.3 of the lease required Dee-Tech at its expense to obtain and renew when required the approvals, licences, permits and registrations applicable to the Permitted Use and comply with any conditions within them. Clause 6.1.12 required Dee-Tech at its expense to comply with all laws and the requirements of any Authority in connection with the Premises and the use in the Premises of any substances and the use or occupation by the Lessee of the Premises. 123The Gosford City Council was the relevant water supply authority. Bright Star as the entity carrying on the activity of the laundry was required to have an approval from the Gosford City Council for the discharge of liquid waste into the sewer. It is clear from the brochure published by the Council in July 2005, which in turn makes reference to s 68 of the Local Government Act 1993, that it is the person who carried on the activity of discharging waste into the sewer that was required to have the prior approval of the council. The council stated that either the owner of the premises or the tenant who carried out an activity on the premises could apply for approval and that a tenant must have the written consent of the owner in order so to apply. 124A liquid trade waste approval was issued by the Council on 23 November 2004. In accordance with the Council's policy, the approval was for a period of five years and expired on 23 November 2009. Mrs Slattery of Dee-Tech and Bright Star gave evidence in cross-examination that she had a telephone conversation with a Mr Bruce Sinclair, the co-ordinator, liquid trade waste and plumbing regulatory services with Gosford City Council, about the renewal of the approval. She said that Mr Sinclair told her that the Council would send the application for renewal out to the owner when it was due for renewal. According to her, Mr Sinclair said that sometimes they did not send out the applications for renewal for six months or so, but all inspections had been fine and it was not a major issue. 125Mrs Slattery was aware that the trade waste approval expired on 23 November 2009. She was aware that Neddam Holdings had raised this as an issue. She said that when she had not received the application she downloaded the relevant form of application from the internet and forwarded it to LJ Hooker (Neddam Holdings' agent) in March 2010. She produced a copy letter addressed to LJ Hooker dated 8 March 2010 enclosing an application for approval for the discharge of liquid trade wastes saying "as you will see it requires the owner's or agent signature. Please complete the applicable areas and forward to Gosford council." The application form had been partially filled out by Mrs Slattery who had also signed the document and dated it 8 March 2010. 126Neddam Holdings did not see this document until October 2010. According to Mr Madden of Neddam Holdings, he was informed by Ms Naomi Nielson of LJ Hooker that she had no recollection of receiving the letter. There was no evidence from Ms Nielson or LJ Hooker that the letter of 8 March 2010 and enclosed application form was not received. 127I accept Mrs Slattery's evidence that she had a conversation with Mr Sinclair as she described and that she sent the letter to LJ Hooker. Given the history of the dispute between the parties and the fact that this had already been raised as an issue, there was every incentive for Dee-Tech to do what was necessary on its part to be done to obtain the Council's trade waste approval and no reason for it not to do so. There was no reason to doubt that the approval would be given. Mrs Slattery subsequently obtained confirmation from Mr Sinclair of the Council that since November 2004 all inspections by the Council's trade waste officers had found that pre-treatment facility for liquid trade waste had been maintained as per the Council's policy, and that "no notices (breaches) were issued by the Council regarding the pre-treatment facility being not maintained satisfactorily". 128Another copy of the application form that had previously been sent to LJ Hooker under cover of the plaintiff's letter of 8 March 2010 was provided to Neddam Holdings immediately before a settlement conference that commenced on 20 October 2010. Neddam Holdings has refused to sign the document giving its consent to the application. It has cited three reasons: namely, that the document with which it was provided was a copy; that the form of application did not properly describe the business; and that certain details on the form had been left blank. 129There is no reason that Neddam Holdings could not consent to the application by placing its original signature on a copy of the application. As to the second objection, the application form described the business as "laundry". That was an accurate description. Neddam Holdings contends that Bright Star's business was that of a commercial laundry. So it is, but it is nonetheless a laundry. The description would be perfectly adequate for the purposes of the application. It is fanciful to suggest, as Neddam Holdings did, that it might be prejudiced by signing the form that described Bright Star's business as "laundry" because it might be taken to be an admission relevant to the dispute between the parties about the application of the Retail Leases Act. 130Some of the details provided for by the form were left blank. One of these was the applicant's name, although it otherwise clearly appears from the form that the applicant was Bright Star Laundry Pty Ltd. Other parts of the form concerned technical details which Mrs Slattery was unable to answer and about which she needed to speak to the trade waste officer in order to complete. The other details omitted were details about the owner that Neddam Holdings could have filled out. 131Neddam Holdings would not have been prejudiced by signing the form in the state in which it was provided to indicate its consent. I do not accept Mr Madden's evidence that he was concerned that the plaintiffs might complete the form in a way which was misleading and that this was a reason why Neddam Holdings did not give its consent. I am satisfied that the reason Neddam Holdings did not sign the form was because it wished to take advantage of the position where it could contend that Dee-Tech was in breach of the lease by not having obtained the trade waste approval. 132There was a breach of the lease from 4 November 2009 to 8 March 2010, although the breach did not adversely affect Neddam Holdings. The breach was remedied on 8 March 2010 when the plaintiffs sent the necessary application form to LJ Hooker for the owner to give its consent to the application. Neddam Holdings did not provide its consent and has continued to refuse to provide its consent after the form was resubmitted on 22 October 2010. It is true that the plaintiff could have followed up its correspondence to LJ Hooker of 8 March 2010, but had it done so, Neddam Holdings would have taken the same position as it has taken subsequently. In my view the substantial reason for Dee-Tech's not currently holding a trade waste approval is Neddam Holdings' failure to give its consent to the making of the application for that approval. Were the application made, it is clear that approval would be given. In my view, at the date the option was exercised and the date on which the former lease expired, Dee-Tech was not in breach of the lease by reason of its not having council trade waste approval.

First s 133E notice: Backflow prevention testing 133The second alleged breach was that Dee-Tech had not had a backflow prevention device tested since 19 November 2008. This was said to be contrary to its obligations under clauses 6.1.12 and 12.2 of the lease. 134Clause 12.2 of the lease is not relevant. It was a warranty given at the time the lease was entered into that Dee-Tech had obtained all approvals, licences or permits required to enable it lawfully to use the premises for the permitted use, or that it was satisfied that such approvals, licences or permits as may be required would be issued. The warranty spoke of the position as at the commencement of the lease. 135Clauses 6.1.3 and 6.1.12 are set out at para [112] above. The s 133E notice did not allege that Dee-Tech was in breach of clause 6.1.3 by not having the backflow prevention device tested since 19 November 2008. 136In 2005 the Gosford City Council required Neddam Holdings to install a backflow prevention device and to provide testing and inspection certificates to conform with the NSW Code of Practice (a reference to the NSW Code of Practice for Plumbing and Drainage). Mr Madden obtained an information sheet from the Gosford City Council website about backflow prevention. It stated that a backflow accredited plumber must commission and test the backflow prevention device and that it was the responsibility of the property owner to pay for the device, installation and annual re-tests. The obligation was imposed by clause 13 of the Water Management (Water Supply Authorities) Regulation 2004. That clause imposed the obligation on the owner of land to install the water service and to ensure that the water service complied with the Plumbing and Drainage Code of Practice and was kept in good order and condition. The Plumbing and Drainage Code of Practice also stated that it was the property owner's responsibility to maintain the plumbing and drainage works on the property. 137The backflow prevention device for the laundry is located inside the premises. In October 2005 Neddam Holdings arranged for a plumber to attend the premises to carry out an inspection of the device. However, the plaintiffs were not advised that the plumber would be attending and was authorised by the owner to carry out the test. Mrs Slattery refused the plumber access because he had no credentials. It does not appear that Neddam Holdings has made any subsequent attempt to test the backflow prevention device. Inspections were arranged by the plaintiffs in July 2006, July 2007 and on 28 November 2007. There was a further inspection arranged by the plaintiffs in November 2008. Mrs Slattery arranged for a further inspection by a plumber on 22 October 2010. The device was not tested between 23 November 2008 and 22 October 2010. 138This was not a breach of the lease by Dee-Tech. It was Neddam Holdings' obligation to carry out the testing. The lease required Dee-Tech to comply with all laws and requirements of the Council in connection with the premises and the lessee's business. In my view that obligation applied to those laws and requirements that bound the occupier of the premises or the person conducting the lessee's business. It did not require Dee-Tech to comply with the laws that bind only Neddam Holdings in connection with the premises, or the requirements of any authority in connection with the premises imposed only on Neddam Holdings. The fact that from time to time in the past the plaintiffs had undertaken a responsibility that the law imposes on Neddam Holdings, does not mean that Dee-Tech was obliged to carry out the testing, or was in breach of the lease for not doing so. 139The notice did not assert that the alleged failure to carry out testing was a breach of clause 6.1.3. The obligation to install and test the backflow prevention device was not an approval, licence, permit or registration.

First notice: Outgoings, interest and GST 140Although Dee-Tech did not pay all the contribution to outgoings for which it was liable, its breach was not the breach alleged in the notice of having failed to pay $62,190.56. The lessor was demanding more by way of contribution to outgoings than it was entitled to be paid. 141Dee-Tech will have failed to pay interest on outgoings, but I am not yet in a position to say how much interest was payable when the notice was given. 142Dee-Tech now accepts that it is liable to pay GST on the amount of its contribution to outgoings, even in respect of those outgoings for which no GST was charged to Neddam Holdings. Dee-Tech must be taken to accept that the contribution to outgoings is part of the consideration provided by it for a supply made to it by Neddam Holdings. 143Whilst Dee-Tech accepts it is liable to pay GST, it was not self-evident that a lessee who agrees to make a contribution to the outgoings should be liable to pay an amount for which the lessor (being the assignee of the reversion) was not liable.

First notice: Insurance policies 144Clause 5.1 and 5.2 of the lease provide as follows: "5.1The Lessee must take out and keep current in the names of the Lessee and the Lessor at the Lessee's cost insurance policies for: 5.1.1public liability insurance for at least the amount in Item 9 (or as varied by notice from the Lessor to the Lessee) for each accident or event; and 5.1.2plate glass insurance against damage or destruction from any cause if there is plate glass in the Premises; 5.1.3damage or destruction from any cause to the Lessee's Property to its full insurable value; 5.1.4other insurance which is required by law or which, in the Lessor's reasonable opinion, a prudent Lessee would take out. 5.2All insurance policies under clause 5.1 must: 5.2.1be on terms approved by the Lessor (which approval shall not be unreasonably withheld); and 5.2.2be taken out with an insurance company approved by the Lessor (which approval shall not be unreasonably withheld); and 5.2.3be endorsed to note the interest of any person designated by the Lessor as mortgagee or otherwise; and 5.2.4contain a term that the insurer must not cancel, change or alter any of the terms of the insurance policy without having given the Lessor ten days prior written notice; and 5.2.5contain a term providing that each insured person will be treated as if each has a separate policy, and that the acts of one will not affect the rights of another, and a term providing that the insurer gives up any rights the insurer may have, because the insurer has paid a claim, to stand in the place of an insured person to take action against another insured person." 145The notice alleged that contrary to clause 5.1 Dee-Tech: a)had not kept current insurance policies in the name of the lessor; b)had not kept a current workers' compensation insurance policy for the lessee; and c)had not kept current insurance policies which contained the terms specified in clauses 5.2.4 and 5.2.5 of the lease. 146The particulars of the allegation that the lessee had not kept current insurance policies in the name of the lessor were as follows: "CGU Insurance Limited Business Insurance Policy No. ... and Austbrokers Central Coast Pty Ltd Coverage Summary dated 18 February 2010 identify the Lessor as an 'interested party' only." 147The policies required to be taken out by clause 5.1 were policies of public liability insurance, plate glass insurance, damage or destruction to the lessee's property, and any other insurance required by law or which, in the lessor's reasonable opinion, a prudent lessee would take out. The particulars of the first breach did not include an allegation that any loss suffered by the lessor arising from damage or destruction to plate glass or to the lessee's property was not insured. The allegation was that the naming of the lessor as an "interested party" did not satisfy the obligation to take out insurance policies "in the names of the lessee and the lessor". 148I was not provided with the coverage summary from Austbrokers Central Coast Pty Ltd dated 18 February 2010. However, a certificate of currency issued by CGU Insurance dated 16 March 2010 in respect of a policy of business insurance of the same policy number names as "Interested Parties": "Neddam Holdings Pty Ltd in accordance with additional benefit 2a cover for others and Australia and New Zealand Banking Group Mortgage ... as per Lessee's lease 5.2.3 for Lessor's mortgage." 149The reference to "benefit 2a cover" appears to be to clause 2(a) of a cover of a section of the policy providing for insurance against liability to pay compensation in respect of personal injury, property damage or advertising liability. Clause 2(a) provides for cover to be extended to directors and certain other persons. The effect of the endorsement is that Neddam Holdings would also be entitled to cover in respect of such liability. It does not appear that this extension of cover applies in respect of each of the classes of coverage provided for in the insurance policy. However, this was not an issue raised in the notice. Nor were submissions made about it. 150Section 48(1) of the Insurance Contracts Act 1984 (Cth) provides that: "48 Entitlement of named persons to claim (1)Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract." 151The present question is whether the policies were kept "in the names of the lessee and the lessor" when the lessor was named as an interested party and was not named as an insured. Clause 5.1 did not require the lessor to be named as an insured. It only required a policy to be kept current in both its name and the name of the lessee. The purpose of the clause must be to allow the lessor to recoup under the insurance policy any loss that it suffers as a result of an event against which insurance is taken. Being named as a "person interested" would be sufficient to specify it as a person to whom the insurance cover was provided. In my view, Dee-Tech was not in breach of clause 9 of the lease by reason only that the lessor was named not as an insured person, but as an "interested party". 152This was also the view of Tobias JA in his judgment on a notice of motion for the continuance of a stay of the orders of Gzell J of 1 March 2010 (at [19]). 153The particulars of the allegation that Dee-Tech had not kept a current workers' compensation insurance policy was that the only workers' compensation policy taken out was in the name of Bright Star Laundry Pty Ltd and it related to the laundry and drycleaning operation and did not give cover to Dee-Tech, nor to its operations as an internet cafe. Dee-Tech denied that it was obliged to take out workers' compensation insurance. Mrs Slattery said that Dee-Tech was not required to take out a policy of workers' compensation insurance because there were no employees of the business to whom wages were paid in excess of $7,500 per annum. She said that the persons who worked in the business were she and her husband who are shareholders of the business and who took drawings, not wages. 154There was no corroboration of this evidence. Dee-Tech did not produce any financial statements. Neither Mr nor Mrs Slattery produced tax returns. Counsel for Neddam Holdings was critical of the plaintiffs' evidence in this respect. However, the onus of establishing a breach of the lease is on Neddam Holdings. It does not establish that Dee-Tech was obliged to take out a policy of workers' compensation insurance merely by reference to the undisputed fact that Dee-Tech carries on a business of an internet cafe and games. It provided no evidence that Dee-Tech has employees to whom wages are paid in excess of the threshold. This alleged breach is not established. 155The final breach alleged in the first notice was that the CGU Insurance business insurance policy did not contain the terms specified in clause 5.2.4 and 5.2.5 of the lease. 156There is no doubt that that is so. This was one of the breaches found by Gzell J that his Honour found justified termination of the lease. However, in the present proceedings Dee-Tech read an affidavit of a Mr Troy Jasinski sworn on 30 July 2010 in the Court of Appeal. The effect of Mr Jasinski's evidence as elaborated in cross-examination was that had any request been made to amend the policy terms to comply with clauses 5.2.4 and 5.2.5 of the lease, that request would have been refused. Mr Jasinski said that CGU would not have negotiated a higher premium as the price for amending its standard policy terms. His evidence was that such requests would simply not be entertained. I accept that evidence. 157Although the policy with CGU did not contain a term in accordance with clause 5.2.4 of the lease, that was not a source of any potential prejudice. I was not referred to, nor have I identified, any term of the policy which would give the insurer the right to change any of the terms of the policy during the period of cover. In other words, the policy was more favourable to the insured parties than clause 5.2.4 of the lease contemplated. 158The policy does not contain terms to the effect of those provided for in clause 5.2.5 of the lease. It does contain a term that where the policy covers the interest of more than one party, an act or omission of an individual party will not prejudice the rights of the remaining parties. However, that is subject to a qualification that the remaining parties immediately on becoming aware of any act or omission relevant to the insurer's acceptance of the risk, or which increases the risk of loss, damage, or liability, give notice of the circumstances to the insurer and agree to pay such reasonable additional premium as the insurer may require. There is no term whereby the insurer agrees to surrender its rights of subrogation if it pays one insured in respect of any claim that that insured might have against another insured. 159I accept that there was a breach of the lease by Dee-Tech's not obtaining an insurance policy which included the term provided for in clause 5.2.5 of the lease. On the other hand, I accept that Dee-Tech could not have obtained such a term in a policy of insurance with CGU. There is no evidence as to the position of other insurers, but I think it unlikely that an insurer would agree to the terms referred to in clause 5.2.5. On the other hand there is no evidence of any attempt by Dee-Tech to obtain policies of insurance which contain such terms. 160Dee-Tech is in breach of the lease in this respect. But the breach is not one that would be likely to cause any loss or damage to the lessor. Neddam Holdings would not suffer any loss by an insurer's not agreeing to abandon any right of subrogation it might otherwise have, because if Neddam Holdings were liable to its co-insured lessee, the lessee would be entitled to maintain the claim against it, whether or not the insurer was subrogated to its rights. It is possible, but there is no evidence that the possibility is anything more than theoretical, that the lessor might be prejudiced by the non-inclusion of a term that its insurance was to be treated as if it were a separate policy. Under the CGU policy the lessor is covered (to the extent provided) notwithstanding any act or omission on the part of the lessee, provided that it notifies the insurer if it becomes aware of any such act or omission relevant to the risk. If the lessor were refused cover because it failed to make such disclosure, it would only have itself to blame. The extent of its potential loss might be that it is required to pay an additional premium if such disclosure was made. This, however, is purely theoretical.

Second notice: Dog on premises 161Clause 6.1.7 of the lease provides that the lessee must keep the premises free from rodents, insects, pests, birds and animals. Gzell J held that the clause was of general application and required animals to be kept off the premises. He found that the lessee had been in breach of the lease by keeping a dog on the premises, but the breach was remedied when the dog died. The second s 133E notice dated 9 November 2010 alleged that Dee-Tech was in breach of the lease by "taking a large dog of German Shepherd appearance into the Premises and permitting the said dog to remain in the Premises". 162This breach is established but it is trivial. On 27 October 2010 Mrs Slattery and her husband entered the premises with a German Shepherd dog. This was a different dog from the one in issue before Gzell J. Mrs Slattery gave the following evidence: "Q.You are aware that His Honour held that it was a breach to bring a dog to the premises? A. Yes. Q. You are aware of this since His Honour ruling since December 2009? A. Yes. Q. And yet you and your husband chose to bring a dog to the premises less than a year later? A. Yes, I brought her to the property so I could take her for a diagnosis or some treatment, medication as she had a wound on her side when we woke that morning. I brought her to work because I wanted to take to her to Pet Stop which is just down the road at Erina. I brought her in briefly and got some money so I could pay for her visit there and then I took her down to see the people at Pet Stop and the veterinarian there. Q. So you believe that you were justified to bring the dog to the premises notwithstanding His Honour's ruling? A. It was a one off occasion. As the weather was hot I couldn't leave her in the car and I knew I had to get her treatment. I took her for that treatment and I returned home with her and left her at home which she stays every day." 163I accept that evidence.

Third s 133E notice: failure to obtain consent to use the premises for "computer sales, Service, games and an internet cafe". 164This breach was alleged in a notice given on 4 February 2011. If there is no development consent for the use of the premises for computer sales, games or as an internet cafe, and such consent is required for the lawful use of the property, the lessee has been in breach of the lease since its commencement. No prior complaint had been made by Neddam Holdings in relation to this matter. Gosford City Council has been well aware of the use of the premises. It has approved the erection of signs advertising that use. It also gave approval for the erection of a mezzanine level above the computer store and internet cafe. When the Council gave approval to Bright Star Laundry for use of part of the premises as a laundry, one of the conditions of consent was that if separate tenants occupied the laundry and computer business, a review of the exit requirements would be necessary. 165It does appear that no separate development consent has been given for the use of the premises for the computer sales, service, games and internet cafe, although the use of the premises for the business "Gig-a-bites Computers and Internet Cafe" is noted on other development approvals. 166According to advice provided to Mrs Slattery by a town planner at Gosford City Council, none of the other tenants has development consent for its business. Neddam Holdings is not concerned about the position of the other tenants. Ultimately, after considerable equivocation, Mr Madden accepted that he made inquiries of the Council as to whether Dee-Tech had development consent for use of the premises for computer sales, service, games and an internet cafe because he was looking for breaches of which he was unaware, to find if any existed which he could use against Dee-Tech (T134). 167Neddam Holdings did not tender the environmental planning instrument regulating development of the land (including its use). The absence of development approval is established, but it has not been established whether use of the land for computer sales, service, games and an internet cafe requires the Council's consent. Accordingly, the breach is not established. 168If (which is not established) the absence of development consent for the use of the land in this way were a breach of the lease, the breach has caused no prejudice to Neddam Holdings. Neither Neddam Holdings nor the original lessors was concerned about the absence of development consent.

Fourth notice: Painting 169The fourth notice, also dated 4 February 2011, alleged that Dee-Tech was in breach of the lease by failing to paint part or parts of the interior of the premises with two coats of good quality paint by 31 January 2011. Clause 6.1.22 of the lease provided that "the Lessee must, at the Lessee's expense ... during the last three months of the Term, where directed by the Lessor and as approved by the Lessor and in a proper and workmanlike manner, paint at least two coats of good quality paint such part or parts of the interior of the Premises as are painted as at the Commencing Day ...". The lease expired on 31 January 2011. The last three months of the term commenced on 1 November 2010. 170On 17 January 2011 Dee-Tech received a letter from McDonald Johnson Lawyers, who act for Neddam Holdings, dated 20 December 2010. The letter directed that during the last three months of the term of the lease Dee-Tech "paint such part or parts of the interior of the premises as are painted in a proper and workmanlike manner with at least two coats of good quality paint". 171It is an implied term of the lease that the lessor exercise its powers to give directions to the lessee reasonably and in good faith (Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Alcatel Australia Limited v Scarcella (1998) 44 NSWLR 349). Mr Madden said that the direction was given because he observed that the premises were unpainted and in need of re-painting. 172In cross-examination Mr Madden said that painting was quite low on the priority list. 173Whilst I do not doubt that Neddam Holdings could properly have given a direction requiring Dee-Tech to paint the premises in the last three months of the lease, it was not reasonable to give such a direction on either 17 January 2011 or 20 December 2010. It was put to Mrs Slattery in cross-examination, and she agreed, that it was a very large job to paint the interior of what are very large premises. To comply with its obligation under clause 6.1.22 of the lease Dee-Tech was required to carry out the painting during the last three months of the term. To allow only two weeks, or five and a half weeks that included the Christmas and New Year holiday, to do the work, was not reasonable. 174Mrs Slattery said that she and her husband had commenced doing some painting in the back section of the property. It is not clear whether that work commenced before or after 31 January 2011. Even if the work did not commence until after 31 January 2011, I do not consider that as at that date Dee-Tech was in breach of the lease for not having carried out the painting as directed by the lessor. That is because the lessor did not act reasonably in giving the notice. 175Mrs Slattery did not respond to the notice regarding painting until 13 April 2011. She explained the delay by reason of the fact that her former solicitor had ceased to act for her on 1 February 2011 and that she was not aware that she could respond directly to the lessor's solicitors. I do not accept that she was unaware that she could not correspond with the lessor's solicitors, but even if she were of that view there was no reason she could not have responded directly to the lessor. In her letter of 13 April 2011 she said that clause 6.1.22 only applied where there was both a direction by the lessor for painting to be carried out and where the lessor had given its approval to the work to be carried out. She said that the lessor had not given its approval. That was specious reasoning. Clearly the lessor approved the work being carried out by having given direction for it. The requirement for approval is approval as to the manner in which the work is to be done, for example, in relation to the choice of colour of paints. Had a direction been validly given under clause 6.1.22 Dee-Tech ought to have consulted the lessor in relation to the manner in which the painting would be carried out and obtained the lessor's approval. The need for such approval as to the manner in which the work is to be done reinforces the unreasonableness of the timing of the direction to paint.

Conclusion as to Notices under s 133E 176For these reasons I conclude that the lessor was entitled to give the notices which it gave pursuant to s 133E only in respect of the breaches concerning: a)non-payment of interest and GST; b)not ensuring that insurance policies contain the terms specified in clause 5.2.5 of the lease; and c)taking a dog onto the premises.

Other alleged breaches 177Neddam Holdings argued that in determining whether any relief should be granted under s 133F in respect of the prescribed notices that allege breaches under s 133E, regard is to be had to other breaches of the lease that were not the subject of a prescribed notice under s 133E. Any such breaches are said to be relevant to whether relief under s 133F should be given (s 133F(3)(c) and (f)). 178Other breaches were asserted by Neddam Holdings in notices given pursuant to s 129 of the Conveyancing Act and in later notices purportedly given under s 133E of the Conveyancing Act, but given outside the prescribed period. Other breaches were asserted in correspondence.

Workers' compensation insurance 179On 15 September 2010 Neddam Holdings through its solicitors gave a notice pursuant to s 129 of the Conveyancing Act alleging that Dee-Tech was in breach of clause 5.1.4 of the lease by not having taken out workers' compensation insurance. Clause 5.1.4 of the lease requires the lessee to take out and keep current insurance that is required by law or which, in the reasonable opinion of the lessor, a prudent lessee would take out. 180For the reasons previously given, Neddam Holdings has not established that Dee-Tech is required by law to take out policies of workers' compensation insurance. Counsel for Neddam Holdings argued that nonetheless it was required to take out workers' compensation insurance because the lessor reasonably formed the opinion that that was insurance that a prudent lessee would take out. 181Mr Madden gave no evidence as to whether, and if so when, and on what grounds, Neddam Holdings formed an opinion that Dee-Tech as a prudent lessee would take out workers' compensation insurance even if it were not required by law to do so. On 14 January 2011 McDonald Johnson sought confirmation that Dee-Tech had current workers' compensation insurance covering the internet cafe and computer shop. They did not receive that confirmation. However, there is no evidence that Neddam Holdings formed the opinion in clause 5.1.4 in relation to workers' compensation insurance, let alone that any such opinion would have been reasonable. I reject this claim.

Boiler 182Neddam Holdings served a notice under s 129 of the Conveyancing Act asserting that Dee-Tech was in breach of the lease by failing to obtain a Pressure Equipment Inspection Report and a Certificate as required by Workcover New South Wales for a boiler used in connection with the laundry operation. There was no dispute that this equipment is required to be registered with Workcover New South Wales in accordance with the Occupational Health and Safety Act 2000 and its regulations and in accordance with Australian Standard/New Zealand Standard 3788. 183On 22 October 2010, in response to the notice, the solicitors for Dee-Tech sent to McDonald Johnson copies of a certificate of plant item registration issued by Workcover on 15 October 2010, expiring 14 October 2011, and a Pressure Equipment Inspection Report issued by an inspecting engineer, Mr Harvey of VERO Insurance Limited dated 19 April 2010. This report had identified two items requiring attention, namely exposed wiring on the terminal box for the fan motor and absence of face glass on the pressure gauge for a feed water pump. 184Mr Madden produced a copy of a Workcover certificate of plant registration dated 9 February 2009 that expired on 25 October 2009. Neddam Holdings contended that no certificate had been provided for the period from 25 October 2009 to 15 October 2010. None was produced in evidence. It was put to Mrs Slattery that Neddam Holdings had been seeking such evidence for an extended period of time. She said that she had tendered what she could locate. 185An inspection report from Mr Harvey dated 31 October 2008 stated that the next date for examination should be 31 October 2009. It does appear that the next examination carried out by an inspecting engineer was by Mr Harvey on 19 April 2010. I accept Neddam Holdings' contention that the inspection required on 31 October 2009 did not take place until 19 April 2010. The items identified in the report of 19 April 2010 as being matters requiring attention were attended to. 186The inspection report of 19 April 2010 said that the next examination was required on 19 April 2011. An inspection of the boiler occurred on 28 April 2011. A further inspection was scheduled for 30 July 2011. 187I accept Neddam Holdings' submission that there was a breach of clauses 6.1.3 and 6.1.12 of the lease in that an inspection of the boiler that was required by 31 October 2009 did not take place until 19 April 2010. The breach had been remedied prior to service of the s 129 notice. There was no outstanding breach when the s 129 notice was given, nor when the option was exercised, nor subsequently.

Provision of insurance policies to the lessor 188On 14 January 2011 McDonald Johnson wrote to Principal Lawyers, who acted for Dee-Tech at that time. McDonald Johnson said that if Dee-Tech was entitled to an option or was permitted to remain in occupation of the premises after 31 January 2011 (the return date of the plaintiffs' summons), then it would be obliged to comply with the provisions of part 5 of the lease dealing with insurances. It said that: "Under Part 5, our client considers that your client's minimum obligations would be: 1.To replace its current CGU 'Business Insurance' which expires on 28 February 2011. 2.To replace its current Comprehensive Machinery Breakdown Insurance when it expires in February 2011; 3.To take out and maintain Rental Insurance in relation to the premises from 1 February 2011 given that, in our client's reasonable opinion, a prudent lessee would take out this insurance (cl 5.1.4 of the lease); 4.To provide evidence of the above insurance policies at least two weeks prior to the commencement date of each policy, in order that the lessor is given a reasonable opportunity to consider the policies in accordance with cll 5.2.1 and 5.2.2 of the lease." 189Principal Lawyers prepared a letter dated 1 February 2011 which said that it enclosed a copy of the CGU business insurance policy and certificate of currency. They also asked what was meant by the term "rental insurance". The letter was not sent at that time. Principal Lawyers ceased to act for Dee-Tech. 190On 18 March 2011 McDonald Johnson served a notice purportedly pursuant to s 133E of the Conveyancing Act asserting that Dee-Tech was in breach of the lease by failing to comply with clause 5.4 of the lease by not giving the lessor a copy of each insurance policy required by clause 5.1 and a certificate of currency for each such policy on each anniversary of the commencing date. 191Mrs Slattery responded to this notice on 13 April 2011. She enclosed a copy of Principal Lawyers' letter of 1 February 2011 and said: "... I am enclosing copies of my Certificate of Currency relating to my Insurance as well as copies of the Policy for 2010 to 2011 as requested. I note these documents have been supplied previously during earlier court proceedings. As you know, my insurance renewal date is 28 February 2011, which has been renewed. On 9 April 2011, I received certificates of currency and insurance policy wording. I enclose copies of certificate of currency and policy for the period of 28.2.2011 to 28.2.2012." 192The documents enclosed were not copies of the policies of insurance or certificates of currency of insurance from 28 February 2011 to 28 February 2012. The documents enclosed were invoices from the broker which also provided a summary of the coverage. Mrs Slattery did not provide evidence that the invoices had been paid. The only certificate of currency from an insurer that was enclosed was from CGU Insurance in respect of the business insurance policy for the period expiring on 28 February 2011. 193In cross-examination Mrs Slattery said that the invoices had been paid in April. There was no corroboration of that evidence. At the hearing Dee-Tech produced a certificate of currency from VERO Insurance for equipment breakdown insurance for the period from 28 February 2011 to 28 February 2012. It remained the position that the plaintiff had not provided the insurance policies and satisfactory evidence of currency of the policy of business insurance. This is the most serious of the breaches that would justify termination of the renewed lease if notice were given under s 129 of the Conveyancing Act that was not satisfied within the prescribed time (subject to the possibility of relief against forfeiture being given).

Rental insurance 194Neddam Holdings also contended that Dee-Tech was in breach of the lease for not taking out rental insurance, by which it meant insurance against the failure of the lessee to pay rent. Whilst there was evidence that such insurance could be available to a lessor, there was no evidence that such insurance was also available to a lessee. It would be surprising if an insurer were prepared to insure a lessee against the consequences of the lessee's failing to pay rent. A policy of insurance which the lessee could be required to take out pursuant to clause 5.1.4 would be insurance available in the names of both the lessee and the lessor. Whilst the solicitors for Neddam Holdings asserted that Neddam Holdings had formed the opinion that a prudent lessee would take out policies of rental insurance, there was no evidence of the facts by reason of which Neddam Holdings considered it reasonable for a prudent lessee to take out such insurance. There was no evidence that any such insurance was available to both a lessee and a lessor. Dee-Tech was not in breach of the lease by failing to take out policies of rental insurance.

Lessor's inspection of premises 195On a date which is unclear a letter was sent from LJ Hooker Central Coast to Dee-Tech dated 17 January 2011 advising that LJ Hooker on behalf of the lessor wished to carry out an inspection of the premises on 2 February 2011 between 9am and 10am. I infer that Ms Nielson from LJ Hooker attended the premises at that time, but could not obtain access to the premises. According to Mrs Slattery, she telephoned Ms Nielson on 2 February 2011 and told Ms Nielson that she had not received the letter requesting an appointment. Mrs Slattery said that she also indicated that such an appointment was not an issue, save for Ms Nielson's attendance having been one hour prior to the plaintiff's opening hours. She said that she suggested an alternate date which was not suitable for Ms Nielson to attend. 196On 18 February 2011 Mrs Slattery wrote to Ms Nielson and advised that "I have forwarded the correspondence that I have recently received from you to my solicitor and will reply in due course." 197On 24 February 2011 McDonald Johnson wrote to Principal Lawyers and requested that Dee-Tech permit the managing agent to visit the premises. It was about this time that Principal Lawyers ceased to act for Dee-Tech. 198On or about 18 March 2011 McDonald Johnson for Neddam Holdings served a notice purportedly pursuant to s 133E of the Conveyancing Act asserting that Dee-Tech was in breach of clause 7.2 of the lease by failing to permit the lessor or its agent to inspect the premises. In response, on 13 April 2011, Mrs Slattery said that she was happy to arrange for a visit by LJ Hooker Commercial in accordance with the terms of the lease as varied. She also asked Neddam Holdings to forward a lease in accordance with part 16 of the lease for the period commencing 1 February 2011. She complained that Neddam Holdings had not complied with its obligation to supply a new lease. She also referred to having previously told Ms Nielson that inspection was not an issue, save that when Ms Nielson had attended on 2 February 2011 it was an hour prior to opening hours. 199It does not appear that after 13 April 2011 either party took any further step to arrange for a visit to the premises. No evidence was adduced from Ms Nielson. 200I am not satisfied that reasonable notice of the visit on 2 February 2011 was given. It does not appear that LJ Hooker Commercial then attempted to make any subsequent appointment to inspect the premises. Whilst McDonald Johnson's letter to Principal Lawyers requested Principal Lawyers to ask Dee-Tech to permit LJ Hooker to visit the premises, I am not satisfied that Dee-Tech refused such permission. This alleged breach has not been established.

Pest inspection 201Finally, on 1 March 2011 McDonald Johnson on behalf of Neddam Holdings wrote to Principal Lawyers advising of their instruction that Neddam Holdings required Dee-Tech as tenant to have the premises inspected for pest activity. They said: "Please have your client ensure that the inspection takes place within fourteen (14) days. The landlord makes this necessity for an inspection an essential term of the Lease." 202On or about 18 March 2011 McDonald Johnson on behalf of Neddam Holdings gave a further notice purportedly under s 133E of the Conveyancing Act asserting that Dee-Tech was in breach of clause 6.1.7.1 to 6.1.7.3 of the lease. Those clauses require the lessee to keep the premises free from rodents, insects, pests, birds and animals and if requested by the lessor, but no more than once a year, to arrange for a recognised pest exterminator to inspect the premises, promptly comply with the recommendations of the pest exterminator and provide the lessor with a report from the pest exterminator setting out his or her findings on inspection, any recommendations, and the action, if any, taken by the pest exterminator. 203By the notice of 18 March 2011 Neddam Holdings asserted that Dee-Tech was in breach of those clauses. Clause 6.1.7 does not specify the time by which the lessee is to comply with a request made under clause 6.1.7. The implication is that compliance must be within a reasonable time. Mrs Slattery arranged for the pest inspection to take place on 22 March 2011. She said that she was unable to book the inspection prior to that date. The pest inspection was clear. She provided copies of the pest inspector's report on 13 April 2011. 204There was no breach of clause 6.1.7 in relation to a pest inspection when the notice dated 18 March 2011 was served. Dee-Tech was not then in breach of the requirement that the inspection by a pest exterminator take place within a reasonable time of the lessor's request. It is not suggested that Dee-Tech failed to comply with any recommendation of the pest exterminator. Tellingly enough, the only relevant recommendation was that on future inspections treatment to an adjoining property be carried out at the same time. I infer that the landlord did not ask for an inspection of the whole building, but only of the leased premises, which is a curious position to adopt if it were genuinely concerned to check for the presence of pests. 205The only arguable breach was of clause 6.1.7.3. Assuming Dee-Tech received the pest exterminator's report on 22 March 2011, which I infer from the nature of the report that Dee-Tech would have done, then I think more than a reasonable time elapsed before that report was provided to Neddam Holdings. Neddam Holdings suffered no prejudice from that delay.

Orders under s 133F 206Subsection 133F(3) sets out matters which the court "may" consider in deciding whether to grant relief against forfeiture of the option. Included in the matters specified are the conduct of the lessor and the lessee and any other circumstance considered by the court to be relevant. 207In Evanel Pty Limited v Stellar Mining NL [1982] 1 NSWLR 380 Wootten J considered the approach to be taken to applications under s 133F. In that case the landlord contended that an option for renewal had not been validly exercised because the lessee had not paid all the rent that was due. Wootton J discussed the jurisdiction to relieve against forfeiture of a lease both where the lease has been terminated for non-payment of rent and where the lease has been terminated for other breaches. His Honour concluded that no different principles should be applied in considering whether relief against forfeiture of the option should be given than apply when the court is considering whether to grant relief against forfeiture of a lease (at 389-390). Wootten J referred to the submission of the lessor that a condition that the lessee could only exercise an option to renew a lease has as its purpose not merely the securing of the payment of rent, but protecting the lessor against having to renew the lease for a further term in favour of the defaulting lessee. His Honour said (at 390): "The argument loses weight as a basis for drawing a distinction between the principles applicable to the forfeiture of an existing term and those applicable to the forfeiture of an option to renew when one recalls that in the former case the effect of relief may well be to saddle the lessor with an unsatisfactory tenant for much longer than in the latter case. ... this does not seem to me to be a valid basis for saying that relief against the exercise of an option should be on different principles to relief against the forfeiture of an existing term." 208Relief against forfeiture of the option was granted. This decision and the reasoning of Wootten J was upheld in the Court of Appeal (Stellar Mining NL v Evanel Pty Limited (1983) NSW ConvR 55-118). Hope JA, with whom Glass and Samuels JJA agreed, said (at 56-868 - 56-869): "Difference between lease and option It is submitted that the principal distinction between these two situations is that in the case of an option to renew a lease, the lessor (in a case such as the present) has to negotiate with the lessee for the rent of the new lease, and in any event has to grant to the lessee a lease for a further term. In the case of re-entry the lessor is seeking to exercise his power during the currency of a term already granted, and if relief is granted to the lessee, the lessor is merely precluded form cutting that term short, and the existing lease continues. This undoubtedly is a distinction but, in my opinion, it is not a distinction which would suggest that in relation to the granting of relief different considerations should be applied as to the manner in which a right to re-enter for non-payment of rent should be treated. As his Honour pointed out, in applying the undoubted principle that powers to re-enter for non-payment of rent should be treated, in relation to the grant of relief against forfeiture, as security for the payment of rent, a lessor may be saddled with a lessee for a much longer term than a lessor against whom following the grant of relief under s 133F there is enforced a covenant to renew. However that may be, it seems to me that the two obligations and the power to grant relief are essentially analogous in kind, and that it is appropriate that similar principles should be applied in each case." 209Although the breach of the lease under consideration in Stellar Mining NL v Evanel Pty Limited was a failure to pay all of the rent that was due, the statement of principle that similar considerations apply to the exercise of the power under s 133F as apply to applications for relief against forfeiture of a lease, was not confined to that situation (Best & Less (Leasing) Pty Ltd v Darin Nominees Pty Ltd & Ors (1994) NSW ConvR 55-724 per McLelland CJ in Eq at 60-180). 210In R & J Lyons Family Settlement Pty Ltd v 155 Macquarie Street Pty Ltd [2008] NSWSC 310; (2008) 13 BPR 25,161 Bryson AJ expressed the view (at [153]) that it is an error to attribute great significance to the analogy with relief against forfeiture for non-payment of rent or other breach of covenant when exercising jurisdiction under s 133F. His Honour said that: "The analogy is distant because a long-term lease subject to re-entry for non-payment of rent is much more readily thought of as a piece of valuable property subjected to a charge to secure payment of rent than is a renewed lease the entitlement to which itself depends upon there being no breach of covenant. An assumption that the renewal has in fact taken place followed by treatment of that renewed lease as property charged to secure payment of rent has a large element of circularity. The discretion should always be exercised with a primary view to the considerations mentioned in s 133E(iii) [scil. s 133F(3)] rather than to elements introduced by judicial exposition. What is under consideration is much more than whether the lessor can get remedies for past breaches: the discretion affects whether the relationship should be continued by the power of the Court when the contractual relationship does not require it continue and the lessor does not want it to continue." 211With respect, where it has been settled since 1982 with the approval of the Court of Appeal and of McLelland CJ in Eq that principles relating to the discretion to relieve against forfeiture of leases are applicable by analogy to the jurisdiction conferred by s 133F, it is not open to a single judge to adopt a different position. For my part, I would not accept that a long-term lease subject to re-entry for non-payment of rent is more readily thought of as a piece of valuable property subject to a charge to secure payment of rent than is a renewed lease, the entitlement to which depends upon there being no breach of the covenant. To the contrary, a lease with options of renewal is more valuable property than a long-term lease for a term equivalent to the combined terms of the shorter lease plus options for renewal. The lessee has greater flexibility. It can choose to bring the relationship to an end at the end of any of the terms by not exercising the option for renewal. It is true that under s 133F the court is asked to exercise a power to determine whether a relationship should be continued when the parties' contract does not require it to continue. But it is equally true that when the court is asked to give relief against forfeiture of a lease, the court must determine whether the relationship should continue when the parties' contract does not require it to be continued. The distinction to which Bryson AJ refers was the foundation of the law laid down in Finch v Underwood (1876) 2 Ch D 310 and Bastin v Bidwell (1880) 18 Ch D 238 and applied in Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) SR (NSW) 122 which the legislation is intended to remedy. Unless and until the Court of Appeal reconsiders the approach to the exercise of discretion under s 133F, I am bound by what was decided in Stellar Mining NL v Evanel Pty Limited. 212The principles of relief against forfeiture of a lease are discussed in Shilo Spinners Limited v Harding [1973] AC 691 at 724, 725. The question is whether: a)the primary object of the bargain embodied in the lease can be effectively attained when the matter comes before the court on the application to be relieved against forfeiture of the option; b)whether the lessee's default was wilful or persistent; c)the gravity of the breaches; and d)any disparity between the value of the property of which forfeiture is claimed compared with the damage caused by the breach. 213These considerations are also engaged by s 133F(3). 214In the case of forfeiture of leases it is settled that as a general rule in deciding whether relief against forfeiture should be given, the court should have regard only to those breaches which could warrant forfeiture of the lease. Except in the case of covenants to pay rent, a lessor is not entitled to terminate the lease by re-entry or otherwise for breach of the lease without giving notice under s 129 of the Conveyancing Act and that notice not being complied with. Hence, as a general rule, it is only the failure to pay rent or those breaches which have been the subject of a s 129 notice and that have not been remedied that can be taken into account in deciding whether relief against forfeiture should be granted (Pioneer Quarries (Sydney) Pty Limited v Permanent Trustee Co of NSW Limited (1970) 2 BPR 9,562 at 9,576; Tutita Pty Ltd v Ryleaco Pty Ltd (1989) 4 BPR 9,635 at 9,638; Hayes v Gumbola Pty Ltd (Young J, 17 June 1986, unreported; BC8600926 at 9); Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203 at [68]). 215However, the principle is not absolute. In the exercise of the broad discretion conferred by s 129 the court can have regard to other breaches in considering whether to exercise the discretion to grant relief, at least where special circumstances exist (Batiste v Lenin [2002] NSWCA 316 at [61]-[62]). That will particularly be so if there have been breaches of the lease after notice under s 129 was served (Tutita Pty Ltd v Ryleaco Pty Ltd at 9,638). 216The application of these principles analogically was not considered in Evanel Pty Limited v Stellar Mining NL. Regard must be had to the wide words of s 133F(3)(c) and (f) by which the court may take into consideration the conduct of the parties and any other relevant circumstance. It could be argued that the appropriate analogy is that just as only those breaches which could justify termination of a lease can usually be taken into account in exercising a discretion to relieve against forfeiture, so any breach which would preclude the lessee from exercising the option can be taken into account in exercising the discretion under s 133F if a valid notice has been given under s 133E. Sections 133E and 133F do not use comparable language to s 129(1) making any right of re-entry or forfeiture under any stipulation in a lease to be unenforceable unless notice is given under the section that is not complied with. On the other hand, it could be said that the appropriate analogy is that, except in special circumstances, only those breaches that have been the subject of a notice under s 133E can be relied on by a lessor who resists forfeiture of the option. 217In my view the width of s 133F(3)(c) and (f) is such that the court may have regard to such other breaches in deciding whether the power under s 133F(2) should be exercised. Counsel for Dee-Tech did not submit to the contrary. 218The initial focus is on the breaches that were the subject of notices under s 133E. I will consider them individually. Ultimately the judgment has to be made in respect of the totality of the breaches that have been established. 219Dee-Tech was in breach of its obligations to pay interest and GST in respect of unpaid outgoings. These breaches were the subject of the first s 133E notice. It was also in breach of its obligations to pay a contribution to outgoings, albeit not in the amount the subject of the notice. 220I do not consider that Dee-Tech's failure to pay outgoings, and interest and GST on outgoings, was wilful. Part of the default was in not paying outgoings from 2 February 2005. Prior to the order for rectification of the lease, the lease made no such requirement. Of course, rectification of the lease operates retrospectively. Retrospectively it can be seen that Dee-Tech was in breach of the lease in not paying outgoings in 2005. But it was not suggested that Dee-Tech's defence of the claim for rectification was in bad faith or unreasonable. It was not until Gzell J gave judgment in 2009 that Dee-Tech definitively knew that it had that obligation. From 2009 the amount for which Dee-Tech was liable was to be determined by the taking of an account. 221For the reasons given earlier in this judgment, Dee-Tech failed to pay all of the outgoings for which it was liable in other respects. On the other hand, Neddam Holdings demanded more than Dee-Tech was liable to pay. Moreover, Neddam Holdings' statements of account did not provide the calculations from which Dee-Tech could have determined whether the amount demanded was properly due. I do not consider that the failure to pay outgoings or interest on outgoings could warrant forfeiture of the option. That is particularly so given that an order for relief under s 133F would be conditional upon Dee-Tech paying the amount found to be due. 222Somewhat different considerations apply to Dee-Tech's not paying GST on those outgoings for which Neddam Holdings was not liable to pay GST. Whilst Dee-Tech now accepts that GST was payable, it was not unreasonable for Dee-Tech to proceed on the basis that its obligation to make a contribution to outgoings incurred by the lessor did not require it to pay more than the lessor was liable to pay. The fact that Dee-Tech now accepts that that is the position does not mean that the breach in failing to pay GST in respect of those outgoings, for which the lessor was not liable to pay GST, was a wilful breach. There is no evidence that Neddam Holdings has suffered prejudice as a result of the non-payment of GST. It gave no evidence that it had remitted to the Commissioner of Taxation amounts of GST that it had not recovered from Dee-Tech. In any event, Neddam Holdings will be compensated by receipt of the appropriate payment from Dee-Tech. The GST that will be payable will be calculated on the amount of outstanding outgoings plus interest. It will be a condition of an order under s 133F(2) that the amount due on the account be paid. 223I have found that Dee-Tech was also in breach of cl 5.2.5 of the lease in not ensuring that insurance policies contain the term specified in that clause. For the reasons given at para [160] the breach is not likely to cause any loss or damage to Neddam Holdings. There is no evidence as to whether Dee-Tech could obtain policies which contain the terms required in clause 5.2.5 except that such a policy could not be obtained from its current insurer, CGU. I think it unlikely that an insurer would agree to modify the terms of its policy to incorporate a term such as provided for in clause 5.2.5, but this has not been fully put to the test. 224Neddam Holdings contended that the breach was wilful. It points to the fact that Gzell J found that Dee-Tech had failed to comply with a notice given under s 129 of the Conveyancing Act on 1 February 2007 that alleged a breach of Part 5 of the lease in relation to the taking out and keeping current and providing evidence of policies of insurance (at [96]-[107], [112]-[117]). His Honour found (at [134]) that the refusal to comply with Part 5 of the lease was wilful. The breaches of Part 5 of the lease that his Honour found went significantly beyond the failure to ensure that the insurance policy contain the provisions specified in clause 5.2.5 of the lease. His Honour found that the policies also did not contain provisions specified in clause 5.2.4. His Honour did not refer to the terms of the policies, and although his Honour did not say so, it may be that, unlike the current policies, they provided a means whereby the insurer could modify the terms of the policy during the period of cover without the consent of the lessor. His Honour also found other breaches that I have not found. It appears that no issue was raised before his Honour as to the availability of cover that included terms provided for in clause 5.2.5. 225Before I could conclude that the failure to include such terms in the policy with which I am concerned was a wilful breach, I would have to be satisfied that such terms could have been obtained. Counsel for Neddam Holdings submitted that there was no reason such terms could not be obtained at a price. Whilst in theory that might be so, the evidence of CGU indicates that in practice that is unlikely to be the position. It is not the case that every consumer of insurance products is able to negotiate his or her own terms with the insurer. I am not satisfied that the breach of clause 5.2.5 was wilful. 226The last breach that was the subject of a notice validly given pursuant to s 133E was in taking a dog onto the premises. Again, Neddam Holdings contended that this was a wilful breach as Gzell J had made it clear that the lease prohibited the lessee from bringing any animal onto the premises (at [86]). Mrs Slattery was aware of the prohibition. In this sense the breach was wilful. However, there was an excuse as set out in Mrs Slattery's evidence extracted at [162]. Mrs Slattery breached the lease in order to act humanely. 227Considering only the breaches alleged in notices given under s 133E, I am satisfied that the relief against forfeiture of the option should be given conditionally upon Dee-Tech paying the amount to be calculated for the outstanding outgoings, interest and GST. The breaches have not caused damage to Neddam Holdings, except in so far as it has been out of pocket in respect of non-payment of all of the outgoings, interest and GST that are payable. It will be compensated for that by the award of interest. 228I also take into account that Dee-Tech was in breach of clause 6.1.3 and 6.1.12 of the lease in not arranging for an inspection of the boiler between 31 October 2009 and 19 April 2010. This was not a breach which would have in itself precluded the exercise of the option. I take it into account as part of the conduct of the lessee which is material to whether relief under s 133F should be given. Clearly it is important that the boiler be regularly inspected. An explosion of the boiler could cause serious damage to the property and a risk to personal safety of those in the vicinity. 229I have also accepted that Dee-Tech failed to provide insurance policies and satisfactory evidence of currency of the policy of business insurance. That was a serious breach, particularly having regard to Gzell J's finding of 8 December 2009 of other breaches in relation to the taking out of insurance policies. 230Neddam Holdings did not suffer prejudice as a result of the breach in relation to the inspection of the boiler. There is no evidence that it suffered prejudice as a result of the breach in failing to provide evidence of currency of the policy of business insurance. It did not establish that the policy was not in fact current, only that satisfactory evidence of currency had not been provided. Likewise, Neddam Holdings did not suffer any prejudice from the delay in providing Neddam Holdings with the pest inspection report of 22 March 2011. 231In accordance with s 133F(3)(c), the evidence in relation to these further breaches that were not the subject of a s 133E notice is to be taken into account as conduct of the lessee that is relevant to the exercise under the power of s 133F(2). 232Also relevant is the conduct of the lessor. It is clear, as Mr Madden ultimately admitted, that Neddam Holdings has been actively seeking to establish breaches of the lease by Dee-Tech. The plethora of notices that it has served, most of which were unwarranted, demonstrates that it is more than "micromanaging the lease" as its counsel submitted. Rather it is seeking to bring about a situation where the lessee is in breach of the lease in order to take back possession. Partly this is due to the poisonous relationship between the parties that has resulted in years of litigation. Partly it is due to the fact that the rent payable by Dee-Tech is substantially below current market rent. Mrs Slattery said that when a lease was offered by Neddam Holdings' then solicitor in November 2004, it provided for a rental increase of 62 per cent. There was no contrary evidence. This indicated the discrepancy between the rent payable under the lease and what the landlord regarded as current market rent as at 2004. The position taken by the landlord, is also a relevant matter to take into account in the exercise of the discretion under s 133F. 233Also relevant is the value of the property that would be forfeited. Dee-Tech or Bright Star made substantial capital investment in the laundry operation. The renewed lease is valuable property. Forfeiture of the option would be out of proportion to the significance of the breaches that have been established. 234Taking all of these matters into account I consider that the proper exercise of the discretion under s 133F(2) is to grant relief against forfeiture of the option, provided that Dee-Tech pays the outstanding outgoings, interest and GST. 235Neddam Holdings contended that relief should be withheld because Dee-Tech had not established that the guarantor of the lease would be willing or capable of giving a fresh guarantee of a renewed lease. Mrs Slattery's response was to say that no renewed lease had been proffered and the question of obtaining the guarantor's execution of a guarantee of a new lease could not yet be addressed. The guarantor is Mrs Streltschenko, Mrs Slattery's mother-in-law, who is now elderly. 236By her signature as guarantor of the original lease, Mrs Streltschenko guaranteed Dee-Tech's obligations both under the lease and any renewal of the lease (clause 15.3). In my view, no fresh guarantee would be required as a condition of renewal. Dee-Tech's obligations under the renewed lease are already guaranteed. The current capacity and willingness of Mrs Streltschenko is not relevant to the exercise of the power under s 133F(2). 237In my view, the breaches that have been established, whether subject of notices under s 133E or not, are not of such seriousness as to warrant denial to Dee-Tech of the option of renewal, provided the amount due on the taking of the account is promptly paid. 238I will stand the proceedings over to a convenient time for the parties to bring in short minutes of order consistent with these reasons, to deal with questions of interest on outgoings, and to deal with costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 March 2012

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