70 The variation of lease deleted cl 16.3 to cl 16.10 and replaced them with a provision in the following terms:
"16.3 The new lease shall have the same terms as this Lease except that:
16.3.1 as the Lessee may renew this and successive leases the number of times specified in Item 14, so that the Lessee may have the total number of leases (including this lease) specified in Item 14, each successive lease except the last will provide an option for a further term. The numbers in Item 14 will be reduced by one in each successive lease;
16.3.2 any variation agreed shall be included;
16.3.3 the day to be inserted in Item 2 of the new lease shall be the day immediately following the day specified in Item 3 of this Lease;
16.3.4 the day to be inserted in Item 3 of the new lease shall be the last day of the term of the new lease;
16.3.5 the days when and the manner in which rent shall be adjusted under the new lease shall be those specified in Item 14; and
16.3.6 the rent payable for the first year of the term of the new lease shall be the greater of the rent payable during the last year of the term multiplied by the current CPI divided by the previous CPI OR the rent payable during the last year of the term of this Lease."
71 Dee-Tech made a submission in the alternative to its submission that there was an agreement that its payment of outgoings should commence on 1 February 2006. It claimed that the effect of cl 16.3.3 was that the date specified in the provision amending Item 7 should have been 1 February 2008. It was submitted that the variation of Item 7 only applied where there was a renewal of the lease consequent upon the giving of notice exercising the option. It was submitted that the first time Dee-Tech would seek to obtain a new lease would be in the period leading up to 1 February 2008.
72 I reject that submission. Dee-Tech exercised the option to renew and obtained a new lease commencing on 1 February 2005 consequent upon the order of the court. Equity regards as done that which ought to have been done. Clause 16.3.3 required the date in Item 2 of the new lease to be the day immediately following the date in Item 3 of the original lease. Item 3 of the original as varied stated the terminating day as 31 January 2005. Clause 16.3.3 required the commencing date of the new lease to be 1 February 2005.
73 Dee-Tech submitted that the provision should be construed with respect to the first occasion after 31 May 2005 that Dee-Tech would seek to exercise the option by a notice. 31 May 2005 was the date upon which orders for specific performance of the term for renewal were made. And the court declared that there had been a valid exercise of the option in October 2004. It is with respect to that exercise that the appropriate date in the variation of lease with respect to Item 7 is to be determined.
Transfer of shares
74 Clause 9.9 of the lease was in the following terms:
"9.9 If:
9.9.1 the Lessee is a company which is neither listed nor wholly owned by a company which is listed on the Australia Stock Exchange; and
9.9.2 there is a proposed change in the shareholding of the Lessee which would result in all of the persons who are shareholders at the Commencing Day beneficially holding less than 51% of the shares in the Lessee
then the Lessee may not make that change unless the Lessee obtains the Lessor's consent and complies with this Part as if the new shareholder or shareholders were the proposed transferee."
75 On 1 February 2000, the commencing day of the lease, Mrs Streltschenko held the two shares on issue in Dee-Tech. They were transferred to Leon Slattery without seeking the consent of Mr and Mrs Colmer some time before 17 May 2001.
76 The transfers by Leon Slattery of one share to each of Mr and Mrs Slattery on 15 May 2004 were without the consent of Neddam.
77 On 21 July 2004 there was an allotment of one share to each of Mr and Mrs Streltschenko, again without the consent of Neddam. And on 1 November 2005 Mr and Mrs Streltschenko transferred their shares to Mr and Mrs Slattery without the consent of Neddam.
78 Neddam submitted that the transfers before 17 May 2001 and on 15 May 2004, the allotments on 21 July 2004 and the transfers on 1 November 2005 infringed cl 9.9. I do not agree.
79 The effect of the order for specific performance was that consequent upon the valid exercise of the option the lease was renewed for a further period of three years. That meant that the commencing day for the purposes of cl 9.9 was 1 February 2005. On that day Mr and Mrs Slattery and Mr and Mrs Streltschenko held one share each in Dee-Tech. The transfer on 1 November 2005 increased the 50% holding by Mr and Mrs Slattery to 100%. There was, in my view, no infringement of cl 9.9.2.
Conveyancing Act notices
80 Neddam gave a number of notices under the Conveyancing Act, s 129. The first was on 22 September 2006 and alleged arrears of rent and outgoings. In light of my finding that Dee-Tech was obliged to pay its proportion of outgoings from 1 February 2005, the notice was good.
81 On 21 February 2007, a notice was sent alleging the share transfers and allotments of 15 May 2004, 21 July 2004 and 1 November 2005 infringed cl 9.9 of the lease. For the reasons above that notice was ineffective.
82 A further notice relating to the changes in shareholding was sent on 10 July 2008. It was ineffective.
83 On 10 July 2008 a notice was sent with respect to the presence of the dog.
84 Clause 6.1.7, so far as is relevant for present purposes was as follows:
"6.1 The Lessee must, at the Lessee's expense where these obligations require the expenditure of money:
…
6.1.7 keep the Premises free from rodents, insects, pests, birds and animals…"
85 The letter of 21 December 2007 alleging that the provision did not apply stated:
"We submit that Part 6.1.7 of the Lease deals with animals in the context of uninvited pests and not a dog which is kept on the premises for security purposes."
86 The provision is not so limited. It is of general application and requires animals to be kept off the premises.
87 Dee-Tech submitted that there was no breach of the lease because the requirement to keep the premises free from animals only arose if it involved a requirement for the expenditure of money.
88 I reject that submission. The words "at the Lessee's expense where these obligations require the expenditure of money" are in parenthesis. The provision requires the lessee to do the specified things and, if that requires the expenditure of money, it is at the lessee's expense. Thus, the lessee must keep the premises free from animals and if that requires the expenditure of money the lessee must pay.
89 The notice was good but the breach was remedied when the dog died.
90 On 14 July 2008 a notice was sent alleging a breach of cl 7.2.1 to cl 7.2.4 in failing to allow entry to the premises by a building inspector. The provisions in question were as follows:
"7.2 After giving the Lessee reasonable notice, the Lessor is entitled to enter the Premises:
7.2.1 to determine if the Lessee is performing and observing the terms of this Lease;
7.2.2 to inspect the state of repair and condition of the Premises;
7.2.3 to inspect the Lessor's property;
7.2.4 for the purposes of complying with the terms of any present or future legislation affecting the Premises or of a notice served by an Authority upon the Lessor, Lessee, or a sublessee, licensee, or other occupier provided that in complying with the terms of such legislation or notice the Lessor shall cause as little inconvenience and disturbance to the occupation and use of the Premises by the Lessee, or other occupier having possession of the Premises with the consent of the Lessor, as the circumstances and nature of the works required to comply with the legislation or notice reasonably demand."
91 On 7 August 2008, Naomi Anne Neilson from LJ Hooker went to the premises with Ross Hemsworth, a development and building and environmental consultant. Ms Neilson was given access to the premises. Mr Hemsworth was not.
92 On 27 May 2008, the solicitors for Dee-Tech wrote to the solicitors for Neddam saying, as indicated in earlier correspondence, Dee-Tech had no issue with reasonable and lawful entry consistent with the lease and that they would arrange a convenient time for a representative of LJ Hooker to attend the premises and carry out an inspection. The letter went on to say:
"In relation to the building inspector, however, your client places a reliance on a broad breadth of provisions, with no specific details as to the identity, office and actual intended purpose of the visit. Your client has provided no indication of the building permits or approvals that you are seeking to check of the occupier or staff or to the extent to which your client believes that these are in some way deficient. Please provide these and our clients may be able to further facilitate the process and provide the necessary approval."
93 The response was that Neddam regarded the correspondence "to be merely a time wasting exercise."
94 Maybe it was. But, nevertheless, Mr Hemsworth's inspection was not needed to determine if Dee-Tech was performing and observing the terms of the lease. His inspection was not needed to inspect the state of repair and condition of the premises, nor to inspect the lessor's property and no indication had been given of the need for his inspection with respect to present or future legislation affecting the premises or a notice served by an authority.
95 Neddam has not established that in this regard Dee-Tech was in breach of the lease. The notice was ineffective.
96 On 1 February 2007, a notice was given alleging a breach of Pt 5 of the lease, it being alleged that Dee-Tech had failed to take out, keep current and provide evidence of policies of insurance.
97 LJ Hooker wrote to Dee-Tech on 19 January 2006 saying they did not have a current copy of an insurance policy and asked for one within seven days. There was no response.
98 On 22 May 2006, LJ Hooker wrote that they had spoken to Mrs Slattery on various occasions regarding up to date copies of insurance and compliance certificates and had not received them. They were requested within a further seven days.
99 On 29 May 2006, LJ Hooker wrote again stating they had not received copies of insurance or compliances.
100 A certificate of currency of a business insurance policy relating to fire was provided on or about 6 June 2006.
101 On 27 June 2006, LJ Hooker wrote to Dee-Tech saying that with respect to cl 5.4 - cl 5.8 of the lease they had been requesting copies of insurance policies since 28 November 2005 and were yet to receive them, and asserting that due to the nature of the business conducted by Dee-Tech it was in the landlord's best interest and also part of the lease that they be supplied.
102 Clause 5.1 of the lease was in the following terms:
"5.1 The lessee must take out and keep current in the names of the Lessee and the Lessor at the Lessee's cost insurance policies for:
5.1.1 public 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
5.1.2 plate glass insurance against damage or destruction from any cause if there is plate glass in the Premises;
5.1.3 damage or destruction from any cause to the Lessee's Property to its full insurable value;
5.1.4 other insurance which is required by law or which, in the Lessor's reasonable opinion, a prudent Lessee would take out."
103 Clause 5.4 provided that on each anniversary of the commencing day the lessee was obliged to give the lessor a copy of each insurance policy required by cl 5.1 and a certificate of currency for each such policy.
104 On 30 June 2006 the solicitors for Dee-Tech wrote to LJ Hooker stating that they had already been provided with certificates of currency for insurance policies under the lease. And they would forthwith provide full copies of the relevant policy documents. Contrary to these assertions, relevant insurance policies were not provided. And the certificate provided on or about 6 June 2006 indicated that the policy was not in the names of Dee-Tech and Neddam. Nor was Neddam named as an interested party.
105 Clause 5.2 of the lease was in the following terms:
" 5.2 All insurance policies under clause 5.1 must:
5.2.1 be on terms approved by the Lessor (which approval shall not be unreasonably withheld); and
5.2.2 be taken out with an insurance company approved by the Lessor (which approval shall not be unreasonably withheld); and
5.2.3 be endorsed to note the interest of any person designated by the Lessor as mortgagee or otherwise; and
5.2.4 contain 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
5.2.5 contain 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."
106 The certificate provided on or about 6 June 2006 gave no indication of compliance with these requirements.
107 There was no response by Dee-Tech to the notice of 1 February 2007. The notice was effective. Dee-Tech was in breach of Pt 5 of the lease.
108 The lease contained a termination provision. Clause 11.5 was as follows:
"11.5 The Lessor is entitled to terminate this Lease by giving the Lessee notice or by re-entry, with force, if necessary, if:
11.5.1 the Lessee has repudiated this Lease, or is in breach of an essential term of this Lease; or
11.5.2 Rent or any other money due to the Lessor under this Lease is not paid within fourteen (14) days of the due day; or
11.5.3 the Lessee has failed to comply with a notice given by the Lessor to the Lessee under Section 129 of the Conveyancing Act 1919 as provided in that section."
109 Clause 11.6 of the lease defined essential terms of the lease to include Pt 5. The stipulation by the parties of what are the essential terms of the lease should be respected (Honner v Ashton (1979) 1 BPR 9478 at 9483; Hewitt v Debus [2004] NSWCA 54; (2004) 59 NSWLR 617 at 636 [93]).
110 Thus, Neddam, irrespective of any common law right, was entitled to exercise its contractual right to terminate the lease by re-entry or notice for breach of an essential term upon compliance with the Conveyancing Act, s 129, or for Dee-Tech's failure to comply with the notice.
111 On 30 April 2007, however, Neddam was restrained from taking, or attempting to take, possession of the premises; or otherwise re-entering the premises; or terminating either Neddam's lease or Bright Star's sub-lease or any part thereof; or in any way inferring with the rights to use and enjoyment of the premises. Neddam did not waive its right to act on Dee-Tech's breach of contract.
112 Bruce Graham Madden with his brothers and his father were the directors of Neddam. He remained concerned about the question of insurance and instructed Neddam's solicitors to pursue the matter with Dee-Tech during 2007 and 2008. They did so. They wrote on 4 October 2007 asking for compliance certificates forwarded to LJ Hooker to be forwarded to them. On 19 October 2007 they informed the solicitors for Dee-Tech that LJ Hooker had not received a compliance certificate and copy of the insurance policy. On 26 October 2007 Dee-Tech's solicitors forwarded a certificate of currency for the business insurance in the name of Dee-Tech alone.
113 On 19 November 2007, Neddam's solicitors wrote saying a certificate of currency was not in compliance with Pt 5 of the lease. Dee-Tech's solicitors responded on 21 December 2007 asking in what respects the certificate did not comply with Pt 5 of the lease and enclosing a renewal notice in relation to the business insurance policy then in the name of Dee-Tech and Bright Star and a renewal notice for a machinery breakdown policy also in the name of Dee-Tech and Bright Star.
114 A year elapsed. On 22 December 2008 the solicitors for Neddam wrote specifying the breaches of Pt 5. The policies were not in the names of Dee-Tech and Neddam; Dee-Tech had failed to seek Neddam's approval of any policy; Dee-Tech had failed to take out any policy with an insurance company approved by Neddam; Dee-Tech had failed to endorse any policy to note the interest of any person designated by Neddam as mortgagee; and Dee-Tech had failed to ensure that any policy contained the provisions specified in cl 5.2.4 and cl 5.2.5 of the lease. That drew a response from the solicitors for Dee-Tech on 6 January 2009 enclosing a certificate of currency endorsed to note the interest of Neddam.
115 The solicitors for Neddam wrote again on 19 January 2009 repeating their assertion that the policies did not comply with Pt 5 of the lease, and adding further alleged infringements. The certificate of currency for the public liability insurance policy did not specify whether the amount insured was for each accident or event as required by cl 5.1.1 or whether it was a cumulative amount. In terms of cl 5.1.3. the certificate did not contain any details about the valuation to be covered and contained no details of what else was covered for the purpose of cl 5.1.4.
116 On 6 February 2009 the solicitors for Neddam wrote saying they had received no response to their letter of 19 January 2009. On 13 February 2009 the solicitors for Dee-Tech forwarded a coverage summary of the business insurance still in the name of Dee-Tech and Bright Star with no attempt having being made to remedy the matters raised by the solicitors for Neddam.
117 These attempts following the giving of notice under the Conveyancing Act did not constitute a waiver of Neddam's rights. They were its attempt to have remedied Dee-Tech's breach of important provisions of the lease while it was prevented from enforcing its rights of termination.
Waiver
118 Dee-Tech points to the lack of an unequivocal act on the part of Neddam, inconsistent with the continued subsistence of the lease, as an act of terminating it. Neddam continues to receive rent and a contribution towards outgoings. Its correspondence continued to assert its entitlement to insurance in conformity with Pt 5 of the lease. Dee-Tech submitted that by calling for compliance with the lease with full knowledge of previous breaches, Neddam is to be taken to have waived those breaches.
119 But this is not the ordinary case of a party free to take an unequivocal step inconsistent with the continuation of a contract. Neddam has been prevented from terminating the lease. If the injunction is lifted, and subject to the question of relief from forfeiture, Neddam will be in a position to terminate the lease by re-entry.
Arrears of rent and outgoings
120 There is a constant flow of correspondence alleging that Neddam was in arrears of rent and its contribution to outgoings. For example, on 2 April 2007, LJ Hooker gave notice of intention to lock out for arrears of $17,846.42.
121 Dee-Tech is in arrears of outgoing contributions from 1 February 2005 to 31 January 2006. It is not apparent how much, if any, is presently owed. Mrs Slattery has pointed to deficiencies in the accounting system of LJ Hooker. For example, on 22 May 2006, LJ Hooker issued an invoice to Dee-Tech for $897.39 for water consumption from 2 February 2005 to 19 June 2005 that appears to have been paid. LJ Hooker then issued a revised invoice with the same number and date for $713.61 that also appears to have been paid. Then on 14 November 2007 LJ Hooker issued yet another revised invoice reverting to the amount of $897.39.
122 In view of these apparent discrepancies, the appropriate course is to order the taking of an account of the moneys due to Neddam under the lease by an Associate Judge.
Non-payment of costs
123 Neddam argued that the $4,000 it was ordered to pay for costs in the other proceedings should be set off against any arrears due to it under the lease.
124 This non-payment should be brought into the account to be taken by the Associate Judge.
Relief from forfeiture
125 Where relief from forfeiture is sought with respect to non-payment of rent, the court generally regards the power to re-enter or forfeit for non-payment as security for the rent and, provided the lessor and other persons concerned can be put in the same position as before the forfeiture or re-entry, the lessee is entitled to be relieved against forfeiture upon payment of rent, costs and other expenses. In these circumstances, however, the lessee is not entitled to relief as of right. The court has a discretion in the matter even though it may be only in special circumstances that relief is refused (Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 at 9571-9572).
126 Were it not for the breach of the essential provision requiring insurance cover and Neddam was limited to breaches for non-payment of rent and non-payment of outgoings, Dee-Tech might have expected the court's discretion to be exercised in its favour.
127 But Neddam relies upon the breach of the insurance clause, a wilful default of an essential provision. There is no suggestion that the breach arose from ignorance or inadvertence. When its attention was drawn to its breaches, Dee-Tech deliberately decided not to remedy the situation.
128 In Shiloh Spinners Ltd v Harding [1973] AC 691 at 723, Lord Wilberforce said that no case supported the view that there was a general power in courts exercising equitable jurisdiction to relieve against men's bargains apart from the special heads of fraud, accident, mistake or surprise. His Lordship went on to say at 723-724:
"But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word "appropriate" involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach."
129 In Hayes v Gunbola Pty Ltd (1986) 4 BPR 9247 at 9250, Young J said that with a breach of a lease other than non-payment of rent, it was clear from the authorities that formerly one could never get relief against forfeiture where the breach was wilful and even nowadays it is difficult to get such relief.
130 In Sparta Nominees Pty Ltd v Orchard Holdings Pty Ltd [2002] WASC 54 at [253], Murray J said that the court, on occasions, displays a rather punitive attitude and may refuse relief in the exercise of discretion where the applicant for relief is a recidivist, in breach of the lessee's covenants on numerous occasions, or where the breach is wilful or deliberate, unless the lessee can be seen to recognise the error of his ways.
131 In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2004) 217 CLR 315 the court considered relief from forfeiture under a contract for sale of land where the purchaser was unable to complete for lack of finance but obtained that finance on the day following the completion date. It was held that since the vendors had not caused or contributed in any way to the purchaser's breach and it was not unconscientious for them to exercise their contractual right to terminate the contract, relief from forfeiture was not available. At 335 [58], the majority referred to what Lord Wilberforce had said in Shiloh and said that where accident and mistake were not involved it would be necessary to point to the conduct of the vendor as having in some significant respect caused or contributed to the breach of the essential time stipulation. Their Honours endorsed what was said by Deane and Dawson JJ in Stern v McArthur [1988] HCA 51; (1987-1988) 165 CLR 489 at 526 about what was said in Legione v Hateley [1983] HCA 11; (1982-1983) 152 CLR 406 at 449:
"Mason and Deane JJ were not saying that there must be unconscionable conduct of an exceptional kind before a case for relief can be made out. Rather, what was being said was that a court would be reluctant to interfere with the contractual rights of parties who have chosen to make time of the essence of the contract. Circumstances must be such as to make it plain that it is necessary to intervene to avoid injustice or, what is the same thing, to relieve against unconscionable - or, more accurately, unconscientious - conduct."
132 Counsel for Dee-Tech cited Gregory v Wilson (1852) 9 Hare 683; 68 ER 687 as authority for the proposition that where there was a breach of an insurance provision in a lease the court could give relief against forfeiture in respect of such a breach.
133 The authority is to the contrary effect. A decree for specific performance of an agreement for a lease was sought and it was argued that there had been such defaults as should prevent a decree being made. There had been for many years non-compliance with an insurance covenant and waiver and acquiescence was argued. But Turner VC concluded that the covenant was a continuing one and there was no ground for waiver beyond the period in which it was not sought to be enforced. The Vice Chancellor then said at [688], 690:
"The landlord may, no doubt, have so dealt with the tenant as to have created an equity against himself sufficiently strong to control his legal right; but it cannot, I think, be disputed that a strong case would be required for the purpose."