Elsafty Enterprises Pty Ltd v Mermaids Café & Bar Pty Ltd

LANDLORD AND TENANT - RENEWALS AND OPTIONS - GENERALLY - where parties agree to options to renew -where options attached to sublease - where sublease requires Minister's consent under Lands Act 1994 - where Minister refuses consent to sublease containing options - where sublease registered without options - whether options attached to sublease enforceable without Minister's consent - whether registered interests under the Land Act hold free of unregistered interests

LANDLORD AND TENANT - RENT - PROVISIONS AS TO RENT IN AGREEMENT FOR LEASE OR LEASE - GENERALLY - where lease provides for general discount whilst tenant not in breach of lease - where tenant breaches lease - whether landlord required to give notice before removing discount

LANDLORD AND TENANT - TERMINATION OF THE TENANCY - FORFEITURE - GENERALLY - where landlord issues purported notice to remedy breach - where notice requires five defaults be remedied - where notice overstates quantum required - whether notice complies with s 124 of Property Law Act 1974 - whether relief from forfeiture should be granted

Land Act 1994 (Qld), s 298, s 302, s 325, s 332, s 335

Land Title Act 1994 (Qld), s 184

Property Law Act 1974, s 124

Beard v Wratislaw [1993] 2 Qd R 494, considered;

Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404, considered;

Friedman v Barrett [1962] Qd R 222, discussed;

Laybutt v Amoco Australia Pty Ltd [1974] HCA 49; (1974) 132 CLR 57, considered;

Mackay v Dick (1881) 6 App Cas 251, considered;

Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; (1975-1976) 136 CLR 326, discussed;

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, cited;

Whelan, Ex parte [1986] 1 Qd R 500, considered

[1] The plaintiff holds a Crown lease over beachfront land at Burleigh Heads on which there is a two storey building. The upper floor contains two restaurants and the ground floor another restaurant, a kiosk, a swimming pool/health centre, offices and other facilities. The defendant is the proprietor of the ground floor restaurant, known as "Mermaids".

[2] The defendant was granted a sublease by the plaintiff's predecessor, RJ Enterprises Pty Ltd ("RJ Enterprises"). The sublease was granted in May 2004 for a term expressed to have commenced on 26 June 2003 and to expire on 25 June 2008 ("the sublease"). It contained options to renew for three further terms each of five years.

[3] The plaintiff purchased the Crown lease held by RJ Enterprises pursuant to a contract dated 23 August 2005 which was completed on 15 November 2005. On 17 March 2006[1] the plaintiff purported to forfeit the sublease for various alleged defaults, including the non-payment of rent. The defendant has remained in occupation claiming that the sublease was not duly forfeited or that there should be relief against forfeiture.

[4] There is also a dispute as to the options to renew. The plaintiff says that if the present sublease is still in place, nevertheless the options are unenforceable and it seeks a declaration to that effect. That argument involves the effect of the refusal of Ministerial consent to the inclusion of the options clause in the sublease instrument.

[5] The plaintiff called up a bank guarantee which had secured the payment of moneys under the sublease. Originally, the defendant claimed that the plaintiff was not entitled to do that, or at least call up the whole amount, and that the defendant should be compensated for that, but ultimately the defendant did not argue that claim.

2. If it has been forfeited, should the defendant be granted relief from forfeiture, and if so, upon what terms?

3. What moneys (if any) are owing by the defendant to the plaintiff?

4. Is the defendant entitled to enforceable options to extend the sublease, and if so, upon what terms?

[7] A previous sublease to the defendant was granted by RJ Enterprises in March 1998. It was for a period of five years with two options to renew each for a further five years.

[8] Until 2001 the defendant was owned as to 49 percent by Mr Jonathan Ingall and as to the remainder by Ms Robyn Horley. Since his purchase of her shares, Mr Ingall has been the sole owner of the defendant. The restaurant comprises an indoor dining area, an outdoor area on the seafront described as "area 5D" and another outdoor area on the western side of the building together with an office and a storage area. Most of the dining area is inside. Area 5D was not used for dining until December 2003. There was then no roof or shade structure and the construction of a roof has been the subject of a dispute as I will discuss. The licence under the Liquor Act (Qld) was granted when Ms Horley was the principal shareholder and she was the nominee. It permitted the service of alcohol only inside and not in area 5D. But alcohol was served in area 5D from December 2003. The liquor licence was not extended to area 5D until 22 February 2006.

[9] The plaintiff is a company owned by Mr Ahmed Elsafty and his wife Mrs Elisa Elsafty and they are its directors. They were also shareholders in the plaintiff's predecessor, RJ Enterprises. They held 30 percent of its shares and Mr Denis Hamilton held 70 percent. Mr Hamilton and Mr Elsafty were its directors. The Elsaftys did not become registered as shareholders until some time in 2005 but as appears from Mrs Elsafty's evidence, from early 2002 they were entitled to that interest and were actively involved in RJ Enterprises.

[10] The instrument of sublease was executed on behalf of the defendant on 24 May 2004 and on behalf of RJ Enterprises on 31 May 2004. It is common ground that not all of its terms were within that instrument and that some were within a document entitled "Supplemental Deed", also dated 31 May 2004 ("the Deed").

[11] The defendant's case is that there were yet further terms, not within the instrument of sublease or the Deed, in relation to area 5D. The defendant says that it was agreed that the rent for area 5D would be discounted pending the sublessor's construction of a roof over it. This is said to be evidenced by a letter dated 5 May 2004, on the letterhead of RJ Enterprises and bearing the apparent signature of Mr Elsafty on its behalf. Mr Elsafty says that the letter is a forgery. This is curious because he does not dispute that there was an arrangement to the effect which is expressed in that letter. And thereafter the rent invoiced to and paid by the defendant for Area 5D was discounted according to the letter, and those invoices were prepared and sent on behalf of RJ Enterprises by Mrs Elsafty. This changed when the Elsaftys, through their company the plaintiff, became the landlord. The discount was not allowed in the invoices prepared by Mrs Elsafty from then.

[12] The instrument of sublease defined the demised premises as certain areas on an annexed plan. It stipulated the rental by reference to those areas: for three of them together the yearly rent was $139,073, for two further areas the rent was $19,425 and for area 5D it was $61,373. In each case the amount was "plus GST" and was to be increased yearly according to the Consumer Price Index. The rent at the commencement of any further term was to be according to the then current market rent, to be determined if necessary by a valuer.

[13] By clause 9, the defendant was to pay a fixed sum as its agreed share of outgoings which was, from 26 June 2004, $2,250 per calendar month plus GST and subject to CPI increases. The term "outgoings" was extensively defined and included local government rates and charges relating to the entire site leased by the Crown (described as "the Centre") and the cost of the provision of cleaning, rubbish removal and electricity to the Centre.

[14] Clause 10, which was headed "Other Payments", provided as follows:

10.1 You must pay on time all council and government charges, duties, fees and taxes made directly against you for, or which are directly attributable to, services separately supplied to the premises for the carrying out of your business, for example, water, electricity, gas, telephone and cleaning services including grease traps.

10.2 Your share of water consumption and trade waste water shall be determined by us from reference to your water meter and you shall be responsible for payment of your own rubbish removal based on the cost of use of your own rubbish containers for rubbish bins."

Yet another issue concerns whether certain sums very recently claimed by the plaintiff are payable under this clause.

Clause 12 provided for interest on late payments, in terms that the sublessor might "recover damages from (the sublessee) for (its) losses, including daily interest on the unpaid money at a rate 2% per annum above the Westpac Indicator Lending Rate (or equivalent)" and might "on the last day of each month ... add the interest to the unpaid money". Clause 15 required the defendant to provide a so called "security amount" of $20,798.93 in cash or by an unconditional bank guarantee. The security amount could be used to recover any loss from the defendant's breach, in which case the defendant was to "promptly replace any amount used".

[15] Clause 43 provided for the options to renew, to be exercised no earlier than six months and no later than three months before the expiry date. By clauses 44.2 and 44.3, it was agreed that if the option to renew "does not apply" or was not exercised, but the lessee was allowed to remain in occupation, it would do so under a monthly tenancy.

[16] Clause 57 provided for GST. It required the sublessor to provide tax invoices and to do all things reasonably necessary to assist the sublessee to claim and obtain input tax credits. This provision became the basis for an argument here that, because of the alleged non provision of tax invoices, some GST otherwise payable was not payable. Indeed the argument went further and suggested that the rendering of a tax invoice was a condition precedent to the sublessee's liability for the relevant rent. That submission could not be accepted upon any reasonable interpretation of the sublease. Ultimately the defendant did not prove any point about tax invoices.

[17] The Deed expressly required the defendant to "keep the details of this agreement confidential, apart from any necessary disclosure to your legal advisors or financier". The sublease was required to be approved by the Minister pursuant to s 332 of the Land Act 1994 (Qld), and to be registered pursuant to s 335. Only the instrument of sublease was delivered for Ministerial approval and registration. As appears from the evidence of Mr Thams of Hickey Lawyers who acted for RJ Enterprises, a copy of the executed sublease was sent in June 2004 for the Minister's approval. Nevertheless, no point is taken by the plaintiff as to the efficacy, and the enforceability against the plaintiff, of the Deed.

[18] The Deed relevantly provided for two matters. The first was what the arguments describe as the general discount. The second was for the erection of shade structures, including one over area 5D.

[19] The general discount provisions were in clauses 3.1 and 3.2 as follows:

"3.1 If you do not breach the lease, then during the initial lease period plus any extended terms thereof, you will receive a discount of 22.47% applied to the monthly rental of areas 3A, 3B, 5D and 6 whilst Jonathon Patrick Ingall of 29 Jefferson Land, Palm Beach retains a controlling interest in Mermaids Café and Bar Pty Ltd.

3.2 If you are in breach of the lease and that breach is not remedied in accordance with the terms of the lease then the rental concession referred to in clause 3.1 above shall cease on and from the date you breached the lease as determined by us provided however we may in our absolute discretion reinstate the rental concession referred to in clause 3.1 above at such time and upon such terms and conditions as we in our complete discretion may decide."

[20] The provisions for shade structures were as follows:

(a) We agree to provide outside water proof shade structure capable of supporting drop down clears or doors to the northern deck area (5D) as approved by the Gold Coast City Council.

(b) We agree to provide outside weather proof shade structure/awning to the western side of the premises as approved by the Gold Coast City Council.

(a) In consideration of 8.1(b) you shall pay the sum of Two thousand five hundred dollars (2,500.00) per annum plus GST for rental of the outside improvements. This rate is not subject to increase and allows for maintenance and repairs of the shade structure."

The Deed also provided that there should be no annual rent payable for area 5D until 26 June 2004 and that the CPI rental increase should not apply to the rent for that area until 26 June 2005.

[21] The defendant says that a further discount (which I will call the "5D discount") was agreed for area 5D according to that letter of 5 May 2004 which was addressed to Mr Ingall and as follows:

"As agreed at the meeting today with yourself, D Hamilton and A Elsafty. Prior to the new roof for the area 5D being completed, provided you pay 80% of the proposed rent for area 5D from June 04 as per your new lease and Supplemental Deed then until the roof is completed we will reimburse your 80% less $1,000 per month. This Reimbursement shall be included with payment made for work done on our behalf at the beach pavilion."

The defendant says that this records an agreement whereby it was to pay only $1,000 per month for area 5D until completion of the proposed roof for the area, i.e. the roof which the sublessor was to provide pursuant to the Deed. Mr Ingall says that this was agreed at the meeting to which the letter refers. I accept Mr Ingall's evidence about that. As I have said, that there was an understanding to that effect between the defendant and RJ Enterprises is not disputed by Mr Elsafty. But the plaintiff argues that it had no contractual effect, because it lacked consideration or the parties' rights became merged in the sublease and Deed which made no provision for the 5D discount.

[22] Two things in the letter require explanation. The first is the specification of 80 percent. The evidence does not suggest any explanation for that other than that it is a broad reference to the general discount under the Deed of 22.47 percent. The second is the reference to the reimbursement (less the $1,000 per month) to be "included with payment made for work done on our behalf at the beach pavilion". Mr Ingall is also a builder and I accept his evidence that at the same time it was proposed that he would do some work around this building for the sublessor. But there seems to be no dispute that the consensus was that regardless of this work being done, the defendant's liability for rent for area 5D would be $1,000 until construction of the roof. I find also that in May 2004 it was expected that this would occur within a matter of weeks and that there was no anticipation by either side that the roof would not be built until 2006.

[23] Should it matter, I reject Mr Elsafty's assertion that he did not sign this letter and that his apparent signature is a forgery. There was no reason for Mr Ingall to forge his signature on this letter, because on and from the sublease of area 5D, the rent invoiced by the sublessor allowed the 5D discount according to this letter. And as already mentioned, those invoices were prepared for RJ Enterprises by Mrs Elsafty. I find that Mr and Mrs Elsafty well knew from May 2004 of the arrangement for the 5D discount.

[24] The fact that the parties expected that the 5D discount would be in place only for a short time explains why they did not provide for it in the Deed. Importantly, Mr Elsafty does not suggest that the 5D discount was the subject of some further discussion in which the parties agreed to abandon it. On the contrary, as I have said the invoices prepared and sent by Mrs Elsafty allowed for it. Between 5 May and 24 May 2004 (the date the defendant executed the sublease) there was correspondence between the solicitors for the parties as to the drafts of the sublease and the Deed, but none concerned with this subject.

[25] In these circumstances, RJ Enterprises became bound to give effect to that consensus by allowing the 5D discount. It was bound either contractually or by an estoppel. The parties did not become contractually bound until 31 May 2004, but when they did, their apparent intention was to include the matter evidenced by the letter of 5 May. As at the date of that letter, there was no concluded argument for the (new) sublease. The parties did not make a contract on 5 May: rather, they reached a consensus on what would be paid for Area 5D, which as at that date was not part of the land subleased to the defendant, but which was to be sublet by the sublease then being negotiated.

[26] The plaintiff's argument as to lack of consideration misunderstands the defendant's case, which is not that the plaintiff became bound by the letter of 5 May 2004 when it was signed, but that when the parties did become contractually bound they agreed to include this term. The same applies to the plaintiff's argument that rights merged in the sublease and the Deed: there were no rights until the sublease was executed.

[27] Alternatively, if the parties should not be understood to have intended to incorporate this as a contractual term, nevertheless the facts were such as to estop RJ Enterprises from claiming more than $1,000 for area 5D for any period prior to the construction of the roof. All of the necessary elements of an equitable estoppel, as explained by Brennan J in Waltons Stores (Interstate) Ltd v Maher,[2] would be established if this understanding did not become a term of the contract. The defendant, through Mr Ingall, expected that the sublessor would be bound to allow this discount, an expectation which was induced by RJ Enterprises; the defendant acted in reliance on that expectation by proceeding to execute the sublease and Deed as the sublessor knew or intended; and the sublessor's disallowance of the discount would occasion detriment to the defendant if its expectation was not fulfilled. Put another way, RJ Enterprises represented that its rights according to the sublease instrument and the Deed would not be enforced and that only the discounted sum of $1,000 would be required to be paid for area 5D, in consequence of which the defendant did not insist that the area 5D discount be expressed within the Deed.

[28] Because this became a term of the sublease, the plaintiff became bound by it when it took its assignment from RJ Enterprises. Alternatively, if RJ Enterprises was bound not by a contract but by an estoppel, any person deriving title from RJ Enterprises was also bound. A person who derives title from the representor is bound by the estoppel: Taylor v Needham[3]; Inwards v Baker[4]; E.R. Ives Investments Pty Ltd v High[5]; PW & Co v Milton Gate Investments Ltd[6], cited (with other authorities) for this by Handley in Estoppel by Conduct and Election (2006) at 6-009. As the author there notes, the position under Torrens title land is different because a successor takes its title by registration and has the benefit of the indefeasibility provisions. In the current (fourth) edition of Spencer Bower Estoppel by Representation, the authors qualify the proposition that an estoppel binds any person deriving title to land from the representor, and express the view that "an estoppel which will be satisfied by a grant of a proprietary right, creates, even before that grant, a proprietary right that will bind the purchaser with notice or volunteer successor to property."[7] But upon their analysis, the plaintiff here would be bound by the estoppel in relation to this discount. This estoppel was one to "be satisfied by the grant of a proprietary right": it had the effect of entitling the defendant to occupy area 5D on payment of merely the discounted rent. And the plaintiff undoubtedly took with notice: indeed the plaintiff, through Mr and Mrs Elsafty had actual knowledge of the facts by which the defendant had that entitlement.

[29] There is no submission by the plaintiff that what happened in relation to Ministerial consent affected the 5D discount. Nor is it suggested that there is any provision of the Land Act which affects that matter. The only other argument advanced by the plaintiff is that the defendant is said to have wrongly prevented the plaintiff from constructing the roof and thereby becoming entitled to the full rental for the area, by conduct from November 2006 until the roof was ultimately constructed in March 2007. I shall return to that argument.

[30] Hickey Lawyers for RJ Enterprises wrote on 18 June 2004 to the effect that there was an error in the drafting of the provision for CPI increases which, had it not been corrected, would have had the sublessee paying more than the parties had intended. There is no issue about that, but the letter is relevant to show that the Elsaftys were not remote from the negotiations of the sublease, as Mr Elsafty now wants to suggest. Other documents exhibited to the affidavit of Mr Thams (of Hickey) show that it was Mrs Elsafty who gave him the instructions about that matter.

[31] On 23 June 2004 Mr Thams wrote to the Department of Natural Resources and Mines, enclosing a copy of the sublease and seeking the approval of the Minister. On 15 July 2004 an officer of the Department replied. Her letter began:

"... A sublease, as proposed in the draft documented (sic) submitted, will be allowed in terms of section 332(3) of the Land Act 1994, provided the duly executed and stamped document, is returned to this office for the endorsement of the Delegate of the Minister for Natural Resources, Mines and Energy, along with the following schedule requirements and amendments as detailed ..."

Then followed several pages of required alterations to the sublease instrument, including the following:

Note: The Land Act 1994 does not allow for continuation of registered interests as stated in this clause. (refer sections 234-245 of the Land Act 1994). Referral of a new lease arrangement must be provided to the Department for consideration by the Minister's delegate in adequate time prior to expiry of the lease. An extension of the original term of sublease is not permitted.

Note: Section 335 of the Act states if a lease issued under this Act is subleased, the sublease must be registered. Periodic Tenancies are not recognised tenancies under the Act."

The letter reveals some misunderstandings by the author. Firstly, ss 234-245 of the Act have no immediate relevance. Secondly, the author seems to have thought that if the Minister consented to a sublease which contained options to renew, the Minister would be fettering the exercise of the Ministerial discretion if and when the option was exercised and the new sublease was presented for approval. There is no provision in the Land Act which precludes a sublease being granted with an option to renew or being approved and registered with that option as part of the lease instrument. The approval of the sublease with provision for the options would not have bound the Minister to approve a sublease resulting from a later exercise of the option. This would not involve a "continuation of registered interests", but instead (subject to Ministerial approval) a new sublease.[8]

[32] Although Hickey Lawyers received this letter on 16 July 2004 they did not tell the defendant's solicitors of it until 17 December 2004. They then sent a copy of the letter and asked whether the defendant agreed to the Department's amendments. By 11 January 2005 there had been no reply from the defendant's solicitors and Hickey Lawyers sent a reminder letter. On 25 January 2005 the defendant's solicitors replied saying that they had "finally received instructions from our sublessee client that it approves the amendments to the sublease as required and set out in the copy letter you sent us of 15 July 2004 from the Land Administration Office". They continued: "You have our authority to make those changes as necessary and to then further lodge the document for registration". It seems that Mr Thams did that and sent the amended document back to the Department, after which it received the approval of the Minister's delegate and it was registered. In its registered form clause 43 (the option provisions) and clauses 44.2 and 44.3 (the holding over provisions) were simply ruled through.

[33] However Mr Ingall says that he and Mr Hamilton for RJ Enterprises agreed otherwise. Mr Hamilton was not called but Mr Ingall gave evidence that after he was informed by his solicitors on 21 December 2005 of the correspondence from the Department, he arranged a meeting with Mr Hamilton on that day at the restaurant. He says he discussed with him the deletion of the option provisions and said words to the effect of "I have concerns about continuing with the lease unless I have the security of future options. The original sublease I signed contained options". By the original sublease he was referring to that between the same parties and dated 12 March 1998 which, as mentioned, had contained two options to renew each for five years, the initial term expiring in 2003. Mr Ingall says , and I accept, that the defendant had not exercised the first of those options to renew because the parties had agreed to include area 5D and as that was not within the original sublease, they agreed that it would be preferable to simply to have a new sublease which included area 5D rather than two subleases. He says that Mr Hamilton said words to the effect that RJ Enterprises was under pressure from its financiers to have its leases registered, "there should be no concern" and that "[the defendant] would be granted the option and that it was in their interest to let me [the defendant] have the options so there would not be any further delays". Mr Hamilton said words to the effect that "regardless of the Lands Act position, the options were secure". Mr Ingall says he trusted Mr Hamilton about that. He says he confirmed this agreement by writing this letter dated 24 December 2004:

"Further to our discussions of today's date regarding Hickey Lawyers' letter of the 17/12/04 and Lands Department changes to the lease, we confirm your advice that if we are to enter the lease, you as the landlord will give us the future options listed in the schedule as part of the original signed lease."

The "options listed in the schedule" referred to the specification of the options to renew in the schedule to the sublease instrument, and to the fact that although the Department had required the deletion of the option clause, it had not required the amendment of the schedule in that respect.

[34] I accept Mr Ingall's evidence as to this meeting. It is relevant that Mr Hamilton was not called as a witness when clearly he would have been expected to give evidence relevant to this issue. But I am persuaded to accept the evidence mainly because it is inherently likely. It is likely that Mr Ingall would have been very concerned by the prospect that he would not have any option to renew, especially when, apart from area 5D, there had been within the defendant's original sublease options to renew through to 2013. So it is very likely that he would have discussed the problem with Mr Hamilton. I am unable to determine whether RJ Enterprises was under any particular pressure to have the leases registered. But the defendant had been in occupation since 1998 and according to a letter from RJ Enterprises in 2002, it had been a good tenant. RJ Enterprises had agreed to grant the options when the sublease had been executed and there is no indication of anything which would have made it think differently by the following December. The personal relationship between Mr Hamilton and Mr Ingall seems to have been a good one. Mr Ingall's account is also consistent with the fact that his solicitors took so long to reply. Probably he believed that no instructions had to be given to his solicitors because he was content with Mr Hamilton's assurance. Then ultimately he was prepared to give them instructions to agree to the deletion of clause 43 because of the assurance he had received. I think it is highly unlikely that he would have simply accepted the loss of any entitlement to renew and not sought legal advice, or sought, for example, an amendment to the terms of the sublease for the fact that he was giving up valuable rights of renewal. It is credible that he took some comfort from the fact that the schedule to the sublease still contained references to the options so that there would remain some record of the agreement for them. I accept also that he wrote the letter of 24 December 2004 confirming this agreement. I reject the suggestion that this letter is a fabrication.

[35] It was Mr Elsafty's evidence that he was aware that the option clause had been deleted. But he was unable to say how and when he became aware of this. It was not inevitable that the solicitors for RJ Enterprises would inform each of its directors about this, rather than simply addressing correspondence to Mr Hamilton. Nor is it unlikely that Mr Hamilton would have thought it unnecessary to discuss it with Mr Elsafty, especially in circumstances where, as Mr Elsafty was keen to emphasise in his evidence, their relationship was a poor one.

[36] Mr Elsafty says that the plaintiff purchased the Crown lease in the belief that the option clause had been ruled out and that the defendant had no options to renew. That evidence is quite inconsistent with the contemporaneous documents and I reject it. First there is the contract between RJ Enterprises and the plaintiff for the sale and purchase of the Crown lease. That contract contained a schedule of leases for the building, which relevantly set out the defendant's sublease as being for a term of five years with two further options each of five years. That was a mistake because the defendant was either entitled to three options or to none at all. Nevertheless, the fact that Mr and Mrs Elsafty signed a contract with this provision is inconsistent with Mr Elsafty's claim that he believed that there were no options. He and Mrs Elsafty say that this provision in the contract of sale resulted from an error by Mrs Elsafty in providing information for the completion of the schedule, which I do not accept.

[37] Then the existence of these options was referred to in several valuation reports prepared on the instructions of the plaintiff both before and after the conveyance of the Crown lease. In a report by Landmark White dated 29 August 2005 addressed to the plaintiff, the sublease was shown as having two options to renew (it described the "term/option" as "five + five + five"). A further report by the same firm, dated 27 April 2006, again prepared for the plaintiff, recited that "the majority of the leases for the building are on a five year term with two or three five year options, the exception being "On the Beach" (another restaurant) which has a single term of seven years without any options". In a valuation of 3 January 2007, again prepared by the same firm and for the plaintiff, it is said that "lease terms are mainly for a five (5) year term with varying levels of options" and that "the majority of the leases for the building are on a 5 year term with two or three, five year options". Mr Elsafty says that these references are errors, which he did not notice. This is unlikely, especially when the instructions to the valuers came from the Elsaftys. It is more probable that Mr and Mrs Elsafty, and in turn the plaintiff, at all times believed that there were options. The specification of the options in the contract of sale of the head lease was handwritten by Mrs Elsafty, who says that she did this "from the item schedule on the front of the lease which I had at the time". She says that she did not know about the Department's letter. She did the same when instructing the valuers. According to her evidence, she had not spoken to Mr Elsafty about the options. Having regard to Mrs Elsafty's active role in the management of this building, both before and after the transfer to the plaintiff, it seems unlikely, if Mr Elsafty believed that the defendant had lost the options, that he would not have told her of that. It is more probable that either he was unaware of the Department's letter or that he thought it did not matter because the options remained on foot. Either way, I find that the Elsaftys each signed for the plaintiff believing that the defendant was entitled to the options according to the instrument of sublease as it had been when executed.

[38] When Mr Thams was called, there was some investigation of a diary note on his file about what it might evidence of some conversation between Mr Elsafty and someone from his office about the options. The diary note is dated 7 September 2005. It was not his diary note and the matter went no further in his evidence. This trial occupied five days with an interval of some weeks between the third and fourth days. Within that time the defendant served a notice to admit facts. The notice was addressed, wrongly, to Mr Elsafty personally (although it was addressed to him "of the plaintiff"). It required the admission of the following facts:

"1. That on or about 7 September 2005 you telephoned the offices of Hickey Lawyers.

2. That you said to Kay Podmore words to the effect that the lease that had been provided to the valuers had the options crossed out and you would like to know why they were crossed out.

3. That you left your telephone number 0407 112 711 for a return call from Hickeys."

The notice to admit was tendered towards the end of the defendant's case when the plaintiff's counsel said that, if necessary, he would apply to set aside any deemed admission. There was some debate as to whether a notice to admit facts could be given after a trial had commenced. But for all of that, any deemed admissions are inconsequential. At their highest, they tend to prove that Mr Elsafty was then aware that clause 43 had been ruled through, and that he had previously been unaware of that. If the Elsaftys became aware prior to the settlement of their contract that clause 43 had been ruled out, nevertheless they had constructive notice that these were enforceable options, because the facts as then presented to them should have put them on inquiry as to whatever the options which had been agreed were still enforceable. I infer that they continued to believe that the options were enforceable from the evidence of the references to the options in subsequent valuations prepared on their instructions.

[39] Subject to the operation of the Land Act, the result of the meeting between Mr Hamilton and Mr Ingall in December 2004 was that RJ Enterprises remained bound by the options to renew. The parties had agreed on the options in May 2004. They agreed to vary that in December 2004 only in that whilst the registered sublease was not to contain the options, the options would remain part of their contract. Alternatively, the same result came from an estoppel. The defendant was in receipt of a representation by which it was induced to believe, as RJ Enterprises must have known, that the options would remain enforceable, and the defendant acted to its detriment by agreeing to go ahead in reliance upon that expectation. As to that, the plaintiff argues that the defendant would not have done anything else but in my view the defendant could have and would have done so. Properly advised the defendant would have pressed for a clarification of the Department's correspondence to the end of preserving the enforceability of its options whilst leaving the Minister free to consider whether to grant extended terms if and when an option was exercised. Or it would have sought some compensating amendment to the terms of its sublease for the loss of such a valuable right.

[40] Again, according to the general law, such an estoppel would bind the plaintiff, at least if it had notice of the defendant's entitlement. According to my findings, the plaintiff not only had notice but believed that the defendant had enforceable options to renew. It may have been unaware of all of the events relevant to that entitlement but still that was its belief. Its state of mind was at least sufficient to amount to constructive notice of the defendant's entitlement and as already discussed, it thereby took subject to any rights from an estoppel. And on the alternative and better view that the defendant was entitled to the options because the agreement of May 2004 in that respect had not been abandoned but simply qualified in relation to registration, the agreement bound the plaintiff as the successor in title of RJ Enterprises because it took with notice.

[41] The plaintiff's principal argument as to the options to renew is that the result of the delegate's decision to approve the lease with the deletion of clause 43 is that, by operation of the Land Act, the defendant can have no entitlement against the plaintiff, and indeed, it had no entitlement against RJ Enterprises.

[42] The plaintiff argues that the options are unenforceable because the Minister's delegate refused to approve a sublease which provided for them. The claim is pleaded within para 42E of the Second Amended Statement of Claim where the only ground is that the Minister did not consent to the options. The defendant pleaded in response that "pursuant to the lease there exists an option to extend the lease". It pleaded that "the director and controlling mind of the plaintiff was the director and controlling mind of RJ Enterprises", an apparent reference to Mr Elsafty. The defendant further pleaded that the plaintiff took an assignment of the lease "with the full knowledge of the existence of the options". In the plaintiff's Reply, there is a denial that Mr Elsafty was the controlling mind of RJ Enterprises and an allegation that its controlling mind was Mr Hamilton. Otherwise, the Reply pleads matters which relate only to the effect of the refusal of Ministerial approval of the options.

[43] At the commencement of the trial it emerged that some issues had not been properly exposed by the pleadings. For example, it then emerged that there was a dispute as to whether the 5D discount should be allowed because the defendant allegedly had prevented the plaintiff from constructing the roof. But there was no indication until the last day of the trial, and after the completion of the evidence, that the plaintiff would make a further argument about the options, which was that Mr Hamilton lacked actual or ostensible authority to bind RJ Enterprises in the meeting of December 2004. Counsel for the plaintiff simply handed up a one page submission to that effect which was not addressed in oral argument. There was no complaint by counsel for the defendant but nor did he say that he was content for this new argument to be raised. I have the impression that he simply failed to notice the effect of the submission. But as there was no objection to this unpleaded case I will consider it.

[44] The two directors of RJ Enterprises were Mr Hamilton and Mr Elsafty. Mr Hamilton controlled 70 per cent of the shares. The plaintiff pleads that Mr Hamilton was the controlling mind of the company. That supports an inference that Mr Hamilton had the authority of the company to agree or represent as he did in December 2004.

[45] I accept that Mr Elsafty had not expressly authorised Mr Hamilton to say what he did in the meeting of December 2004. That meeting was called by Mr Ingall, and although Mr Hamilton must have gone to the meeting knowing that the options were to be discussed, I find that Mr Hamilton did not first obtain the concurrence of Mr Elsafty to agree as he did.

[46] The written submission by the plaintiff argues that "it ought to be found that Ingall and Hamilton got on well and that where Ingall had a problem with Elsafty he complained to Hamilton" and that "Ingall and Hamilton kept the 'agreement' in relation to the options ... from Elsafty". The submission continues:

"In these circumstances it is submitted that anything Mr Hamilton did, did not bind RJ Enterprises Pty Ltd because it was done behind Mr Elsafty's back and in these circumstances, Hamilton had no authority (whether actual or implied) to bind the company".

It appears that this argument about authority is dependent upon those factual premises that Mr Ingall and Mr Hamilton were deliberately keeping Mr Elsafty in the dark. I reject these premises. I accept that the relationship between Mr Hamilton and Mr Elsafty was not entirely harmonious. But it far from appears that the Elsaftys were being excluded from the operation of RJ Enterprises. As I have said, Mrs Elsafty had an active administrative role.

[47] Accordingly, the factual premises for this belated argument of lack of authority are not established. But two further matters should be mentioned. The first is that the defendant's claim to be entitled to the options upon a contractual basis relies upon the contract made upon the execution of the instrument of sublease in May 2004 as well as the meeting of December 2004. It is not as if the defendant was being granted options for the first time within that meeting. The effect of the agreement at the meeting was that to satisfy the requirements of the Department, clause 43 would be ruled through but without affecting the true agreement which it had expressed. The defendant thereby agreed to forgo the benefit of the options being within a registered sublease. As I will discuss, these affected the enforceability of the options against an assignor of the head lease without notice, but not as against RJ Enterprises or the plaintiff. The conditional contract which the options represented (a contract for a further term or terms conditional upon the exercise of the relevant option or options) thereby remained in force notwithstanding the letter from the Department. It remained in force unless the parties to it agreed to abandon it, which is not what happened at the December meeting. The variation to that contract agreed between Mr Hamilton and Mr Ingall was of no consequence to RJ Enterprises, other than its facilitating the registration of the sublease. From its perspective, this was merely an administrative matter and plainly to its advantage. It is likely that Mr Hamilton had implied authority to agree to that. Had the plaintiff pleaded this point, the facts might have been clearer.

[48] Secondly, if the December meeting gave rise to an estoppel, the fact (as the plaintiff pleads) that the controlling mind of RJ Enterprises was Mr Hamilton is important. What would bind the conscience of RJ Enterprises would be the knowledge of relevant matters by that person whose mind constitutes the company's mind. Absent the plaintiff's allegation that there was some conspiracy between Mr Hamilton and Mr Ingall, this would be sufficient to bind RJ Enterprises by an estoppel.

[49] I turn then to the basis which is pleaded for the unenforceability of the options. Section 332 of the Land Act 1994 (Qld) provides as follows:

(1) A lease issued under this Act may be subleased only -

(a) if the Minister has given written approval to the sublease or the lessee holds a general authority to sublease; and

(b) to a person who is eligible to hold the sublease under this Act.

(2) A copy of the proposed sublease must accompany the application seeking the Minister's approval.

(b) approve the sublease on the conditions the Minister considers appropriate; or

(4) The Minister's approval lapses unless the sublease is lodged in the land registry within 6 months after the Minister's approval.

(5) The Minister may extend the time mentioned in subsection (4).

(6) If the Minister decides not to approve a sublease, the sublessor must be given written notice of the decision and the reasons for the decision.

(7) The sublessor may appeal against the Minister's decision."

[50] There is a distinct requirement for the registration of subleases which is within s 335. But it is s 332 which is the basis for the plaintiff's argument.

[51] The plaintiff argues that a sublease which does not have the Minister's approval is of no effect even between the parties. It concedes that parties may agree for the grant of a sublease conditional upon the Minister's approval, and that pending the decision of the Minister, the parties would be bound. But it argues that if the Minister or the Minister's delegate refuses to approve the agreed sublease, the agreement is at an end. The plaintiff's argument is in these terms:

"The whole point of s 332 Land Act 1994 is to ensure that the Crown retains control over Crown land and what interests are created therein. The parties cannot set the statute at nought by merely agreeing between themselves to do something in this case, which the Minister has said they cannot do. They cannot avoid the effect of the refusal of the Minister's consent by so agreeing in defiance of that refusal".

The argument turns then on the effect of s 332, and in particular, upon whether an option to renew constitutes part of the "sublease" as that term is used in the section.

[52] The prevailing view is that an option is a conditional contract rather than an irrevocable offer: Laybutt v Amoco Australia Pty Ltd,[9] Traywinds Pty Ltd v Cooper[10] and David Deane & Associates Pty Ltd v Bonnyview Pty Ltd.[11] Gibbs J said in Friedman v Barrett,[12] that whichever view is correct, the exercise of an option to renew results in a new lease.

[53] Nevertheless there is a connection between a lease and an option to renew a lease which must be considered in determining what is meant by "sublease" in s 332. This was discussed by Gibbs J in Mercantile Credits Ltd v Shell Co of Australia Ltd[13] as follows:

"It then becomes necessary to consider the nature of a covenant for renewal. It is well settled that such a covenant runs both with the land and with the reversion. In Muller v Trafford Farwell J, in the course of explaining why a covenant for renewal is not void for remoteness, described the effect of such a covenant in the following words:

'It must bind the land from its inception, because it would otherwise be an executory interest in land arising in futuro, and therefore obnoxious to the rules against perpetuity. Perpetuity has no application to covenants which run with the land, because they are so annexed to the land as to create something in the nature of an interest in the land. As between lessor and lessee, therefore, the lessee accepts and the lessor grants something which is more or less, according to the point of view from which you look at it, than the actual term or interest granted. It is a term subject to something and with the benefit of something. It is a reversion subject to something and with the benefit of something, and those two somethings are annexed to and form part of the land from the beginning of the term in such a sense that the doctrine of perpetuity has no application.'

It follows from this statement that the right of renewal is an incident of the lease and directly affects the nature of the term itself. However, it is clear that when the right is exercised 'a new lease, a new demise' comes into being; see Gerraty v McGavin; Friedman v Barrett; Ex parte Friedman and 195 Crown Street Pty Ltd v Hoare".

[54] In Friedman v Barrett the question was whether an option to renew was within the word "tenancy" in the protection given to an unregistered tenancy by s 11 of the Real Property Act 1877 (Qld). It was held that although the right to renew was an incident of the tenancy, it was only the tenancy itself which was protected and not the tenancy with all its incidents so that the option was not enforceable against a subsequent registered proprietor.[14] The word "tenancy" was held to have a narrower meaning than the expression "interest of any tenant" which had appeared in the Torrens statutes of some States, and which Gibbs J said "might well be wide enough to refer to an option to renew".[15] On the other hand, in Mercantile Credits Ltd v Shell, it was held that a registered lessee enjoyed priority over a subsequently registered mortgagee, not only in relation to the lease but also for an option to renew within the lease. Each of these cases turned upon the terms of the statute being considered. Nevertheless, Friedman v Barrett strongly indicates that the term "sublease" in s 332 is limited to the sublease itself, and not the sublease with all of its incidents. In my conclusion, that is how the section should be understood.

[55] Accordingly, an option to renew does not itself require the Minister's approval under s 332. Contrary to the plaintiff's argument, that involves no risk to the proper management of Crown land. If and when an option to renew is exercised, undoubtedly there is a new sublease which itself requires the Minister's approval. And to exclude options to purchase from the requirement for approval under s 332 does not fetter the Minister's discretion in considering whether to approve the new sublease. Clearly the Land Act does not require that an agreement to sublease be approved. Nor does it require approval for the grant of an option to take a sublease, its character being that of a conditional contract for a sublease. For the proper management of the Crown land, there is no reason then to require approval of such an option when granted an existing sublessee.

[56] The option to renew might have been contained within a different or later instrument. Had it been created within a later instrument, s 336, which requires approval to an amendment to a registered sublease, would not have been engaged because the sublease itself would not have been amended.

[57] However, s 332 confers a wide discretion upon the Minister. The Minister is empowered to refuse approval, approve the sublease unconditionally or approve the sublease on conditions the Minister thinks appropriate. The plaintiff appears to argue that the effect of the delegate's decision was to approve the sublease only on condition that the sublessee should have no right to a renewal. Upon that characterisation of the delegate's letter, the sublessee could not maintain the validity of its sublease according to s 332, and at the same time maintain against the sublessor that it was entitled to an option. Put another way, it is said that the delegate has required the sublessee to abandon its entitlements as a grantee of options and not to make some further agreement for an option, as a condition of an approval of the current sublease under s 332. So although an agreement to sublease or the grant of an option to take a sublease, including an option granted to an existing sublessee, does not require Ministerial approval, in this case the Minister's delegate has been prepared to approve the present sublease only on the condition that the sublessee has and will have no such right.

[58] It is difficult to read the delegate's decision in that way. Without saying that the delegate would have no power to impose such a condition, nevertheless there would be no rational explanation for the imposition of such a condition, at least in these circumstances. As I have said, the management of Crown land would not be affected by the mere grant of an option. The better view of the delegate's letter is that rather than requiring that there be no option at all, the delegate was requiring that there be no option within the instrument of sublease. The delegate was being asked to approve a sublease and in terms of an instrument to be registered. The evident concern of the delegate was that an approval of an instrument of sublease which itself contained an option to renew would be interpreted as approval of a further sublease. So the delegate wrote to require the deletion of the option provision from the instrument of sublease, rather than in terms that there was to be no option, by any instrument. The delegate was not seeking to preclude the parties from making some enforceable agreement for a further term. Indeed, her reference to a "referral of a new lease arrangement ... to the Department for consideration by the Minister's Delegate in adequate time prior to the expiry of the lease" anticipated that there would arise a right to a further sublease conditional upon Ministerial approval.

[59] It follows that the plaintiff's argument against the options fails. But there is a further question as to the effect of the Land Act upon these options to renew. The Act contains provisions which prescribe the consequences of registration which it is necessary to consider.

[60] Section 295 provides that if a person lodges a document "transferring or creating an interest in land under this Act, the chief executive must register the document ..." By s 297, documents are to be registered in the order they are lodged. Section 298 provides in part as follows:

(1) Registered documents have priority according to when each of them was lodged and not according to when each of them was executed.

(3) Subsection (1) is not affected by actual, implied or constructive notice."

The benefits of this division apply to a document whether or not valuable consideration has been given.

1. Interest in land not transferred or created until registration

A document does not transfer a lease or licence or create a legal interest in a lease until it is registered.

• (1) On registration of a document expressed to transfer or create an interest in land, the interest -

(a) is transferred or created in accordance with the document; and

(c) vests in the person identified in the document as the person entitled to the interest.

(a) all other interests in the land previous registered; and

(b) all rights and interest of the State in the land, other than interests subsequently registered."

Section 325 prescribes the effect of registration of a transfer of a lease:

(a) all the rights, powers, privileges and liabilities of the transferor vest in the transferee; and

(b) the transferee holds the interest in the land subject to the registered interests affecting the interest."

[61] The plaintiff has become registered as the holder of the head lease. The plaintiff holds that interest "subject to all other interests in the land previously registered" (s 302(2)(a)) or "the registered interests affecting the interest" (s 325). So clearly the plaintiff holds subject to any prior registered interest. But is the effect of the provisions which I have set out that the plaintiff holds free of any other interest, or in other words, that it holds subject only to previously registered interests?

[62] Counsel for the plaintiff disavowed any submission that these provisions introduced a Torrens system of title, and did not attempt to make some other argument as to how they could assist the plaintiff's case. Counsel for the defendant argued that they do not assist the plaintiff's case and cited the commentary by Mr Boge in his Annotated Land Act 1994 to the effect that there is no indefeasibility of title under this Act. In particular, Mr Boge points out the absence in s 302(2)(a) of the words "but free of all other interests" which appear in s 184(1) of the Land Title Act 1994 (Qld), which provides that "a registered proprietor of an interest in a lot holds the interest subject to registered interests affecting the lot but free from all other interests".[16]

[63] That difference is significant. The Land Act 1994 was enacted after the enactment of the Land Title Act 1994. The Explanatory Note to the Land Bill 1994 said of Chapter 6 (of which these provisions are part) that:

"Wherever possible or reasonable, this Chapter has been written to mirror the provisions of the Land Title Act 1994 so that registration procedures for freehold and leasehold land are as similar as possible".[17]

The Land Act 1994 implemented the recommendations of The Review of Land Policy and Administration in Queensland (the Wolfe Report). The only discussion in that report of present relevance appears at para 1.7.2 headed "Ease of Transferability - One System of Registration". Its effect was not to recommend a Torrens system for Crown leasehold (although reference was made to that system affecting freehold land under the then Real Property Acts 1861-1988). Rather, its effect was that there should be administrative changes and in particular that the Department of Lands "be given all the necessary support and resources to provide a central register for all land parcels held by Crown instrumentalities and Departments, and for all Crown land leased to individuals; and for all freehold lands". That recommendation was not implemented but s 276 of the Land Act 1994 does provide that a number of registers, including relevantly here the leasehold land register, are to be kept by the chief executive. Within the Explanatory Note, there is no expressed intention to introduce a Torrens system. The expressed intention was to make the registration "procedures" for freehold and leasehold land as similar as possible.

[64] In Beard v Wratislaw,[18] it was held that the previous statute, the Land Act 1962, did not confer the protection on registered interests of a Torrens system. McPherson SPJ said"[19]

"Nothing like that state of things prevails in relation to leases and transfers of leases under the Land Act. In practice something resembling the same procedure is evidently followed in recording dealings under both systems; but the 'historical register sheet' has nothing like the status of the Torrens system register on which, by ss 33 and 44, the Real Property Act confers qualities of conclusiveness and indefeasibility. Under the Land Act particulars of leases under the Act, and of transfers 'and other dealings therewith', are by ss 226 and 227 to be recorded in a register or registers; and in the course of these recordings 'priority of registration of the dealing' is to be maintained; ss 226(3) and 227(1). Nowhere, however, does the Act ascribe to such registers or the entities in them any of the legal character or consequences of a register or registration under the Torrens system".

Moynihan J expressed the same view.[20] Had the intention been to impose a Torrens system for Crown leasehold, contrary to the declared position under the Land Act 1962, it is likely that some indication of that would have appeared in the Explanatory Note. There are several differences between the Land Title Act 1994 and the Land Act 1994 which indicate that the intention was not to create a Torrens system.[21]

[65] There is no equivalent of s 184(2) of the Land Title Act which provides that the registered proprietor is not affected by actual or constructive notice of an unregistered interest affecting the lot. There is no exception for fraud by the holder of a registered interest or by someone from whom that person derived that registered interest, as in s 184(3). There are not any of the exceptions to indefeasibility as found in s 185 and in particular that of an "equity arising from the act of the registered proprietor". And as Mr Boge points out, the Land Act 1994 confers no right to compensation for the effects of incorrect registration comparable to s 188 of the Land Title Act, it confers no right to lodge a caveat and makes no provision for "settlement notices" as does Part 7A of the Land Title Act.

[66] Sections 302 and 325 are beneficial although they do not provide the indefeasibility of a Torrens statute. In particular, they benefit those already registered by protecting their interests against the holder of an interest registered subsequently. Section 298(3) provides that s 298(1) is not affected by notice, whether that be actual, implied or constructive notice. However, s 298(1) is concerned with the priority between registered documents. It operates with s 297 which provides that "documents must be registered in the order in which they are lodged". Registered documents create legal interests in leases: s 301. Accordingly, s 298 affects the priority between two legal interests. It does not address the priority between an earlier equitable interest and a later registered interest. It might be considered unusual that it would make this provision for priority between legal interests but leave a legal interest to be exposed to a prior claim by the holder of an equitable interest. However, that is not a basis for extending the operation of s 298 beyond its express terms. Moreover, the position of the registered holder of an interest is protected in many circumstances by other provisions which require certain dealings to be registered for them to have any effect. A transfer of a lease, licence, sublease or mortgage must be registered (s 323), as must a sublease (s 335) and a surrender of a sublease (s 328). As already discussed, the Act does not require the registration of a grant of an option to take or renew a sublease. If such an entitlement was expressed within an instrument of sublease which was itself registered, then at least arguably the entitlement of the grantee would prevail over the right of a subsequently registered transferee of the head lease.[22] But where that entitlement is not contained within a registered sublease, as it need not be according to the Act, the grant is susceptible to the claim of a subsequently registered transferee who takes for value and without notice. The question is whether the Act provides that in such a context, actual or constructive notice of the grantee's entitlement is irrelevant. Section 298 does not deal with such a case and nor is there any other provision which has that effect. In summary, the plaintiff's concession that the Land Act does not confer an indefeasible title is rightly made.

[67] For these reasons, the plaintiff became the holder of the head lease subject not only to the defendant's sublease but to the options to renew. It would not matter that the plaintiff was unaware of the precise facts and circumstances from which the defendant is entitled to those options. The plaintiff contracted to buy the head lease expressly subject to the subleases and the options (or at least two of them). Indeed, the plaintiff expressly agreed to be bound by the subleases (and thereby the options) specified in the contract. (It was not argued that this promise was enforceable by the defendant under s 55 of the Property Law Act 1974 (Qld) or otherwise). The plaintiff had constructive notice that the defendant was entitled to the options and became bound by them. If the present sublease has not been forfeited, or relief is to be granted against its forfeiture, the options are enforceable. There is no pleaded case to the effect that by some default or defaults by the defendant, the options are no longer enforceable. Although there is no counterclaim for declaratory relief in relation to the options it is appropriate that it be declared that the options are enforceable against the plaintiff, subject to the present sublease being on foot.

[68] On 15 November 2005 the plaintiff settled its purchase of the head lease. Within a few days, Mr and Mrs Elsafty were having discussions with Mr Ingall. Mrs Elsafty says that she then queried Mr Ingall as to whether the defendant was permitted by its liquor licence to serve alcohol in area 5D. Mr Ingall denies this was raised as early as November 2005 but nothing turns on this. Nor does anything turn on the difference between the evidence of the Elsaftys and of Mr Ingall as to what they said to each other in the following weeks about the liquor licence.

[69] Some things are common ground. A liquor licence was required for the service of alcohol to area 5D. The licence held by the defendant did not extend to area 5D until 22 February 2006. Alcohol was served in area 5D at least until 20 December 2005 and again from 12 January 2006. The service of alcohol in area 5D before the extension of the liquor licence was a breach of clause 58 of the sublease, which provided that the sublessee was not to allow anything to be done whereby its licence might be forfeited or be liable to be taken away and that the sublessee was to do everything necessary to keep its premises duly licensed to carry on the use permitted by the sublease.

[70] There are three factual issues which were extensively explored in the evidence. The first is whether, as the plaintiff alleges and the defendant denies, alcohol was served in area 5D from 20 December 2005 to 12 January 2006. The second is whether there was some time within the period 15 November 2005 to 20 December 2005 during which the plaintiff waived the requirements of clause 58. The third was whether the plaintiff unreasonably withheld its consent to the defendant's application for the extension of the licence to area 5D, an application which the defendant made, with that consent, on or about 20 December 2005.

[71] The plaintiff called evidence from Mr Elsafty and another person to give eye witness accounts of the service of alcohol in this area between 20 December 2005 and 12 January 2006. Mr Ingall's evidence was that as far as he was aware, this did not happen. There was similar evidence from the manager of his restaurant. The start and finish of that period requires some explanation. On 20 December 2005 the plaintiff gave to the defendant a notice to remedy breach of covenant ("the first notice"), which included a complaint that clause 58 had been breached and which required that breach to be remedied by "the cessation of the service of alcohol in leased Area 5D". The defendant's case is that until this first notice, the plaintiff had effectively represented that it would not be relying upon clause 58 as long as the defendant took steps to obtain an extension of its licence. Once the first notice was received, undeniably the plaintiff was taking the point. Mr Ingall says that he then instructed his staff to cease the service of alcohol in the area. On 12 January 2006, Mr Ingall had a conversation with an officer from the licensing authority as to the progress of the application for extension, from which he felt confident enough to instruct his staff to immediately resume the service of alcohol. The officer in question was called in the plaintiff's case. It is unnecessary to decide precisely what was discussed between them, because on any view of the evidence the defendant was still without the necessary extension until 22 February 2006 as Mr Ingall should have understood.

[72] There are detailed accounting records of the restaurant's trading during the 23 days in question. There are several instances where those records evidence the service of alcohol to tables which are conceded to have been within area 5D. For the defendant, the explanation was that the patrons had ordered and consumed the drinks inside before going outside where they ate but did not drink. Having regard to the content of those records, this cannot be accepted. On the other hand, these records indicate that there was relatively little alcohol served in the area within this period, especially having regard to the time of year. Overall I am satisfied from those records that alcohol was served within that period although I accept the evidence of Mr Ingall and his manager that the defendant was attempting to avoid that. It appears that from time to time customers would sit outside and require the service of drinks to which some staff responded.

[73] As to the next factual issue, even on Mr Ingall's evidence, the plaintiff cannot be said to have represented that clause 58 would not be enforced for any period. Alcohol had been served in area 5D for as long as it had been occupied by the defendant, as Mr and Mrs Elsafty well knew. This may have provided some surprise to Mr Ingall when their company took over the head lease and they took the point. But having regard to the correspondence, I find that there was no representation or waiver as the defendant suggests.

[74] The question of whether the plaintiff unduly delayed the application for the extension of the licence, by withholding for some days its consent to that application, is of no moment. As the defendant was in breach by serving alcohol in area 5D it was obliged to stop doing so until it had a liquor licence for that area. Its breach was in continuing to serve alcohol. Any delay from the plaintiff's not producing its written consent did not cause that breach to continue.

[75] Therefore I find that the defendant was in breach of clause 58 by serving alcohol in area 5D without the necessary licence from 15 November 2005 to 22 February 2006. This has a consequence for the general discount to which the defendant was entitled if not in default.

[76] The arguments advanced various interpretations of clauses 3.1 and 3.2 of the Deed set out above at [21]. For the purposes of assessing the availability of the discount to the present date, the facts make it unnecessary to decide those questions. That is because the default in relation to the liquor licence occurred between 15 November 2005 and 22 February 2006, by which time there was at least one further default, which was in relation to the requirement of a security deposit, and the defendant has been in default in that respect and others since then.

[77] I have mentioned the first notice which was given on 20 December 2005. Amongst the defaults required to be remedied by that notice, were the non-payment of the security deposit and the service of alcohol in area 5D. On 22 December 2005 the defendant remedied the former by delivering a bank guarantee in the required sum of $20,798.93.

[78] On 31 January 2006, the plaintiff's solicitors wrote to the defendant referring to the first notice and the continued default in the service of alcohol. They wrote that the defendant was no longer entitled to the general discount and was "liable to pay the full rent under the lease since at least ... 15 November 2005".

[79] On 6 February 2006 the plaintiff gave a further notice to remedy breach of covenant ("the second notice"). One of the alleged defaults was again the service of alcohol in area 5D. On the same day, the plaintiff demanded payment of the whole of the bank guarantee. It received payment from the Bank on 13 February 2006.

[80] On 9 March 2006 the plaintiff gave a further notice to remedy breach of covenant ("the third notice"). It is upon this notice that the plaintiff relies for the purported forfeiture of the sublease. It required the defendant to remedy five defaults. One of them was the liquor licence matter. But this had been remedied when the defendant received an extension of its licence on 22 February.[23] Three of the alleged defaults concerned unpaid rent. An amount of $21,441.26 was claimed according to calculations in an attached schedule, $590.87 was claimed for interest to 28 February 2006 and $6.80 per day for interest from 1 March 2006. Lastly, there was a demand for replacement of the security of $20,798.93.

[81] The plaintiff now concedes that its attached calculation of the outstanding rent was incorrect in two respects. The first is for an amount described as "allowed on settlement", where the plaintiff gave the defendant credit for an adjustment in its favour on completion of its purchase of the head lease. It allowed $5,530.85 instead of $6,083.94. Secondly, there was an error in adding up the arrears month by month which had the effect of overstating the rent due by a further amount of approximately $6,000. So the plaintiff concedes that the outstanding rent was overstated by more than $6,000. However there was also an error in the plaintiff's failure to allow for the 5D discount.

Clause 42 of the sublease provides, in part, as follows:

42.1 If you breach the lease, we must, if required by law, serve you with a notice under Section 124 of the Property Law Act 1974 specifying the breach and, if it can be remedied, asking you to remedy the breach within a reasonable time.

42.2 If you breach the lease and do not remedy it as required, or if the breach can't be remedied, we may do any one or more of the following:

(c) recover from you or the guarantor any loss we suffer, due to your breach;

(d) use the security amount to recover any loss we suffer, due to your breach;

The defendant argues that clause 42.2, by its reference to the use of the security amount in paragraph (d), means that the security amount cannot be used save for a default which has been the subject of a notice under clause 42.1. That argument is supported by the terms of clause 15, which requires the security amount to be provided and which describes its permitted use. Clause 15.2 provides:

"We may use the security amount to recover our loss due to your breach (see clause 41 and 42). You must promptly replace any amount used. When the lease ends and you have vacated the premises, we must promptly refund to you any part of the security amount not needed to recover our loss."

It is unusual that a notice under s 124 of the Property Law Act 1974 would be required, not only as a step prior to forfeiture, but as a step required to exercise any other default power including recourse to the security amount. Despite that, I would be prepared to accept the defendant's argument. However, the point is inconsequential. The defendant was credited with the amount of the security recovered from the Bank, as the plaintiff was obliged to do regardless of whether it had been entitled to call upon the security. Ultimately the plaintiff's claim for interest allows for the fact that it had the benefit of the Bank's payment. And the defendant, perhaps because of that, did not argue for damages from the wrongful calling up of the security.

[82] The defendant made a number of arguments as to the general discount. It argued that upon their proper interpretation, clauses 3.1 and 3.2 of the Deed meant that if the sublessee remedied its breach then the discount applied, even for the period during which it had been in breach. Alternatively, the discount applied from the time when the breach was remedied. It further argued that the discount was not lost until there was a failure to remedy the breach in response to a notice given under clause 42.1. This argument focused upon the words "breaches not remedied in accordance with the terms of the lease" within clause 3.2 of the Deed. The plaintiff argued that no notice under clause 42.1 was necessary before it could determine that the general discount did not apply. I accept that argument. There is not the same link here with clause 42.1 as exists in relation to the security deposit. Clause 42 refers to the use of the security amount and clause 15 of the sublease refers to clause 42. Clauses 3.1 and 3.2 of the Deed do not expressly refer to clause 42. The plaintiff further argued that absent a remedy of the breach, it was entitled to cancel the discount permanently as it did on 31 January 2006. It is unnecessary to resolve these issues in the events which occurred. The defendant was in breach of clause 58 and that breach was not remedied by 31 January 2006 when the plaintiff required the full rent to be paid as from 15 November 2005. Because no notice to remedy breach of covenant was required before suspension or cancellation of the general discount, the full rent was properly demanded on 30 January 2006 and because the defendant has been in default since then, it is unnecessary to decide whether a remedy of all outstanding defaults would have revived the general discount.

[83] As at the date of the plaintiff's recourse to the security amount (6 February 2006) the defendant had lost the benefit of the general discount but was entitled to the 5D discount. I accept Mrs Elsafty's calculation of the amount then owing for rent, outgoings and interest upon those two premises, save that I do not accept that the plaintiff was entitled to $150 which is claimed under clause 10 for one half of a security deposit provided to Energex. Clause 10[24] obliges the sublessee to pay charges etc made "directly against" the sublessee or which are "directly attributable to services separately supplied to the premises". Electricity is mentioned in clause 10.1. But this was not a charge for electricity "separately supplied to the premises". It is Mrs Elsafty's apportionment of the one electricity charge for these premises and another part or parts of the building. Otherwise accepting Mrs Elsafty's calculations[25] I find that the total owing as at 6 February 2006 was $10,529.13. It was this amount (if any) which the plaintiff was entitled to demand, and not the full security amount of $20,798.93.

[84] Once the full security amount had been paid to the plaintiff, the defendant was substantially in credit. The defendant's then obligation was to replace $10,529.13 of the security amount. On an alternative view (as the defendant would argue about the security), the defendant was in arrears of rent for the same amount.

[85] Returning then to the third notice, it can be seen that the claim for outstanding rent was much overstated, quite apart from the mistakes now conceded by the plaintiff. Consequently, the amount claimed for interest by the notice was overstated. Further, the plaintiff was not entitled to the whole of the security amount but only to a replacement of about half the sum demanded. And the notice also wrongly claimed rent for March in that the 5D discount again was not allowed. In these circumstances, the defendant argues that the third notice was so erroneous as to not satisfy s 124.

[86] Section 124(1) required that the notice specify the particular breach or breaches complained of and that the lessee remedy those breaches. As is common ground, a notice is not invalid in every case where it complains of a default which does not exist or which has been remedied, or where it demands an excessive sum: Clarke v Japan Machines (Australia) Pty Ltd;[26] Ex Parte Whelan.[27] In Clarke v Japan Machines, the notice being considered was given under s 84(1)(a) of the Property Law Act, as a notice precedent to the exercise of the mortgagee's power of sale. However Thomas J, with whom Campbell CJ and Andrews SPJ agreed, likened the requirement of s 84 to specify the default to be remedied to that in s 124 and similar provisions in other jurisdictions dealing with leases. Thomas J cited Fox v Jolly[28] as indicating that such notices have "the same broad object of requiring an opportunity to the lessee or mortgagee (as the case may be) to rectify a breach before the giver of the notice may proceed to exercise an extreme remedy".[29] The requirement of a notice, in that case under s 84(1), was summarised by Thomas J as follows:[30]

"Where a default in the payment of principal and interest (or both) is relied on, s 84(1) requires an amount to be specified. An error in specification of the appropriate sum will not be the end of the matter. A question of fact and degree is involved in every case. The most relevant factors determining validity will be the extent of the error, and the capacity of the notice to give the mortgagor a reasonable opportunity to do what he is obliged to do".

That passage was cited by Thomas J in his judgment in Ex Parte Whelan, with which Kneipp and Shepherdson JJ agreed. In that case, a notice given under s 124 was upheld where although there were some errors, "a reading of the notice as a whole could not have misled the lessees, and it was not suggested that they were in fact misled". [31]

[87] In the present case, the notice very substantially overstated the defaults. Save for the question of the security amount, the plaintiff was then in a position where it had been overpaid. All that the plaintiff was entitled to was the replacement of $10,529.13 by way of security. The defendant was entitled to provide that either in cash or by a bank guarantee. There was a wide gulf between what the defendant was obliged to do and what was demanded of it. Nevertheless the plaintiff argues that the defendant was not prejudiced because it was able to calculate the true extent of its obligations. But one difficulty was in relation to the error, conceded by the plaintiff, in allowing too little for the adjustment in the plaintiff's favour on the settlement of its purchase. This error would not have been apparent to the defendant: it is not suggested that the defendant had been informed of the true adjustment. At least for that reason, the defendant was not in a position to calculate the precise figure which it was to pay or to provide by way of security. And apart from that problem, the defendant was put to the task of properly calculating the relevant amounts for both rent and interest. Having regard to these difficulties and the large disparity between what was demanded and what the sublease in the circumstances required, this notice did not comply with s 124.

[88] As a result the purported forfeiture of the sublease, said to have been made by the commencement of these proceedings, was ineffective. The sublease remains on foot. Had I been persuaded otherwise, I would have granted relief from forfeiture upon the usual conditions. I would have rejected the argument that relief should be refused because the defaults are said to have been deliberate and serious, at least in relation to the liquor licence. That breach had been remedied, and in any case, the breach did not involve such serious misconduct as to justify the refusal of relief. There was a claim for mesne profits. Had I upheld the plaintiff's case for forfeiture, I would have awarded the plaintiff mesne profits upon the basis of the premises having a market rental of $360,000 plus GST, according to a valuation which I accept. The valuer was cross-examined but ultimately there was no submission that I should reject this evidence. The amount I would have allowed would have corresponded with this value less what has been paid for rent, outgoings and clause 10 payments.

[89] The plaintiff has constructed the shade structure over area 5D as required by the Deed. As the defendant now concedes, this occurred by 5 March 2007 and at least from that date, the 5D discount has not applied. The plaintiff alleges that the discount should be disallowed from 6 November 2006. It says that the defendant wrongfully prevented it from erecting the structure from then until the following March so that the defendant became precluded from relying upon the absence of the structure within that period. The defendant's conduct is said to have involved a breach of its obligation to do all things necessary to enable the plaintiff to have the benefit of the contract.[32] Alternatively, it is said that the erection of the structure was something which could not be done without the concurrence of both parties, and that the defendant was in breach of an obligation to do all that was necessary to be done on its part.[33] But in my view the erection of the structure was not something which required the concurrence of both parties. The plaintiff was obliged to perform that work and it was entitled to enter the premises to do so. The question is whether the defendant did prevent the plaintiff from erecting the structure earlier than March 2007.

[90] On 6 November 2006, the plaintiff by its solicitors, wrote to the defendant asking for access to the premises to erect the structure on 14 and 15 November. There was a further request on 21 November, to erect the structure on 27 and 28 November. The defendant wrote a letter to the Gold Coast City Council on 23 November to request a meeting with council officers purportedly to discuss concerns over the detail of the proposed structure. This did not result in a delay although it is said that this was Mr Ingall's intention in writing the letter. The plaintiff remained entitled to enter the premises and do the work. On 5 February 2007 the plaintiff's solicitors wrote to the defendant's solicitors saying that the plaintiff intended to start work that night. On 11 February 2007 the plaintiff's contractor wrote to Mr Ingall saying that with Mr Ingall's support the contractor wished to install the structure on 13 February. On the following day the defendant's solicitors wrote to the plaintiff's solicitors asking for detailed plans of the structure upon the basis that the defendant needed to "arrange for his own tradesmen to attend to necessary electrical and other work and to dovetail structural works such as bi-fold doors that interface with the existing structure". There was also an expressed concern about the impact on trading on Valentine's Day. I accept that it was reasonable for the defendant to endeavour to coordinate the timing of his work with the plaintiff's work. On 27 February the plaintiff's solicitors wrote to the defendant's solicitors asking for access on the following day. The work was done in the week leading up to 5 March 2007.

[91] I am not persuaded that there was any breach by the defendant of an implied obligation that it not interfere with the erection of the structure or that it cooperate in allowing the structure to be erected. I have the impression that the defendant was not particularly keen to have the structure in place. But I am not persuaded that anything which it did or did not do should have contributed to the delay. Despite the defendant's response to its requests for access, the plaintiff was entitled to enter earlier than it did. The result is that the 5D discount applied until 5 March 2007.

[92] There is an issue concerning outgoings and other payments under clause 10 of the sublease. I have considered already one item in this category which is a claim for a share of an electricity bill. Mrs Elsafty said that the consumption of power for areas 4A, 4B, 4C and 4F within the building is recorded on a single electricity meter and charged by Energex to the plaintiff. Areas 4C and 4F are within the sublease, but not areas 4A and 4B. For the reasons given earlier in relation to another electricity charge, the various electricity accounts which Mrs Elsafty has apportioned are not within clause 10 of the sublease and are not payable by the defendant.

[93] Next there is a claim for water. Mrs Elsafty says that each tenancy in the building has an "internal and separate water meter", from which the level of water consumption by the defendant's restaurant can be determined. The Gold Coast City Council charges the plaintiff for water which Mrs Elsafty apportions according to the consumption of each tenant determined by its meter. I accept that this is a charge which is "directly attributable to services separately supplied to the premises" and is therefore recoverable under clause 10.

[94] It seems that waste water is apportioned by Mrs Elsafty according to water consumption. However, this is merely an approximation rather than the calculation of an amount directly attributable in the sense of clause 10. It does not follow that this waste water has been produced by the various tenancies in direct proportion to their water as supplied. Then there is a charge by the Council for the provision of the services of three garbage containers. Mrs Elsafty apportions that equally between the defendant and another restaurant. Again, this is not a service separately supplied to the premises and the amounts claimed are not within clause 10.

[95] Of the amounts claimed by the plaintiff for these items of refuse, waste water and water consumption, I would allow the amounts for water consumption, $905.84 plus GST ($996.42) for 2005/2006 and the amount of $2,522.80 plus GST ($2,775.08) for 2006/2007.

[96] Finally, at one stage of the trial it was suggested by the defendant that the plaintiff had not sent a tax invoice in each case, which was said to have had the consequence either that GST could not be recovered or indeed that none of the relevant rent could be recovered. Subsequently, further tax invoices were tendered through Mrs Elsafty. The defendant now appears to have abandoned the point there being no reference to it within its written or oral argument.

[97] The remaining matter is the calculation of the amount due to the plaintiff. Mrs Elsafty has calculated[34] the amount due to about 5 November 2007, upon the premises that there is no general discount, there is a 5D discount to be applied until March 2007 and the various amounts claimed under clause 10 are recoverable. In that last respect the calculations need to be adjusted but otherwise, apart from interest, I accept them. The result is that, apart from interest, there is a shortfall of $121,670.70.[35] It is also necessary to adjust interest for the disallowance of some items. I am able to do this only approximately but the amounts involved are relatively small. The amount of clause 10 payments I have disallowed for the year 2005/2006 is $7,507.21 and the interest adjustment on that over 17 months will be rounded up to $1,350. The clause 10 matters disallowed for 2006/2007 are $18,531.86, and the approximate interest on that for five months is $950. I will therefore deduct $2,300 from Mrs Elsafty's interest calculation resulting in $10,809.52. These adjustments reduce the amount from Mrs Elsafty's schedule to $132,480.22 which I find to be the net amount due to the plaintiff as at 5 November 2007.[36]

[98] Accordingly, to remedy its default, the defendant must pay that sum (and whatever shortfall has accrued in the last month) and provide the agreed security amount, which will not be included in the judgment sum because the defendant has the option of providing it by a bank guarantee.

[99] The plaintiff will have judgment against the defendant in the sum of $132,480.22. The plaintiff's claim is otherwise dismissed. It will be declared that as against the plaintiff, the defendant is entitled to options to renew the sublease according to the terms of clause 43 of the instrument of sublease as it was when executed in May 2004. I shall hear the parties as to costs.

[1] By the commencement of these proceedings: [42] of the statement of claim

[2] (1988) 164 CLR 387 at 428-429

[3] [1810] EngR 119; (1810) 2 Taunt 278 at p 283 per Lord Mansfield

[4] [1965] EWCA Civ 4; [1965] 2 QB 29

[5] [1966] EWCA Civ 1; [1967] 2 QB 379

[8] Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152 at 162-164; Friedman v Barrett [1962] Qd R 498 at 507; FAI Insurance Ltd v Winneke [1982] HCA 26; (1981-82) 151 CLR 342 at 378

[9] [1974] HCA 49; (1974) 132 CLR 57 at [71] - [76]

[10] [1989] 1 Qd R 222

[11] [2005] QCA 270

[12] [1962] Qd R 498 at 507

[13] [1976] HCA 9; (1975-1976) 136 CLR 326 at 344-345

[14] As Gibbs J summarised Friedman v Barrett in Mercantile Credits Ltd v Shell [1976] HCA 9; (1975-1976) 136 CLR 326 at 347

[15] [1962] Qd R 498 at 510

[16] Annotated Land Act 1994 at 914/36

[18] [1993] 2 Qd R 494

[19] [1993] 2 Qd R 494 at 500

[20] [1993] 2 Qd R 494 at 515

[21] Annotated Land Act 1994 at [301.3A]

[22] cf Mercantile Credits Ltd v Shell Co of Australia Ltd [1976] HCA 9; (1975-1976) 136 CLR 326

[23] There is no submission that this or any other breach was incapable of being remedied. This concession is rightly made: see the discussion by Neuberger LJ (with whom Mummery LJ agreed) in Akici v LR Butlin [2005] EWCA Civ 1296; [2006] 1 WLR 201 at 213-2217.

[26] [1984] 1 Qd R 404

[27] [1986] 1 Qd R 500

[28] [1916] 1 AC 1

[29] [1984] 1 Qd R 404 at 410

[30] [1984] 1 Qd R 404 at 413

[31] [1986] 1 Qd R 500 at 505

[32] Butt v McDonald (1896) 7 QLJ 68 at 70-71 per Griffith CJ; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607-608

[33] Mackay v Dick (1881) 6 App Cas 251 at 263

[35] $147,978.75 less the sums of $8,503.64, $21,306.94 and $268.98 claimed under clause 10 plus the amounts of $996.42 and $2,775.08 allowed for water consumption.