Fedeli and Santopadre v Alex Constructions Pty Ltd - [2016] NSWCATCD 34 - NSWCATCD 2015 case summary — Zoe

NSWNSWCATCD

Fedeli and Santopadre v Alex Constructions Pty Ltd

[2016] NSWCATCD 34

NCAT Consumer and Commercial|2015-06-15|Before: Gilbert J, Mr J

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At a glance

Source facts

Court

NCAT Consumer and Commercial

Decision date

2015-06-15

Before

Gilbert J, Mr J

Source

Original judgment source is linked above.

Judgment (18 paragraphs)

[1]

Background of ss133E and 133F of the Conveyancing Act

As submitted by Mr Hallion, the beneficial nature of ss133E and 133F of the Conveyancing Act was introduced to address the harshness under the general law which arose out of the decision of Gilbert J McCaul (Aust) Pty Ltd v The Pitt Club Ltd (1957) 59 SR (NSW) 122 that the provisions in the lease for the exercise of an option to renew operated strictly that is, a tenant who had not complied with all the obligations under the lease would not have an enforceable claim to a renewable lease.
The New South Wales Law Reform Commission in its Report on Options and Leases (1967) referring to the decision in The Pitt Club found that: Following the result of the judgment of the Full Court it would appear to be that a breach of covenant, however trivial and however long before the time of exercise of the option the breach may have occurred, prevents the exercise of the option although the lessor may have waived the breach so far as it concerns forfeiture of the original term.
As a consequence the Law Reform Commission recommended the introduction of the provisions which took the form of ss133E and 133F in the Conveyancing Act.
Bryson J in Sydney West Area Health Service v Staracek (2008) NSWSC 744 at [16] explained that section 133E and related sections should be understood as reforming legislation which overcame what was perceived as a mischief of excessive stringency in the law in the Pitt Club case. The terms of the reforming legislation are themselves stringent in their own way, although far less than the previous law.
As Mr Hallion points out, s133E applies to a lease where there is provision by which the Lessee's entitlement to the option is made to depend on performance by the Lessee of any specified obligation. Subsection (2) provides that where there has been a breach the lessor must serve a prescribed notice in respect of the breach and "a breach of an obligation includes, where the obligation requires anything to be done, any neglect or failure to do the thing concerned" and "obligation" includes "any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing anything" (s133E(3)).

[2]

Validity of section 133E notice - the time of issue of the notice

The submission by Mr Zipser is that pursuant to section 133E(3)(a)(i) of the Conveyancing Act, the 'day of the giving of a notice by which the option is exercised' is critical for the 14 days within which the notice must be given to run. The contention is that on 6 May 2013, the GPC emailed a letter to the ALC dated 3 May 2013 which enclosed a copy of the notice exercising the option to renew the Lease. The letter is reproduced at paragraph 17 of these Reasons. Ms Cordwell received the email and attachment on the same day, i.e. 6 May 2013. Thus, if the exercise of the option to renew the Lease was received by the Lessor on 6 May 2013, then the s133E Notice had to be issued within 14 days, namely by 20 May 2013. In fact, the s133E Notice was issued on 21 May 2013, a day later, which complies with the receipt of the notice signed by Mr Gilles dated 3 May 2013 in accordance with s170 of the Conveyancing Act and ss76 and 77 of the Interpretation Act 1987 that it was received on the fourth working day after 3 May 2013.
Consequently, the submission that the day of 'the giving of the notice by which the option is exercised' was 6 May 2013. This is based upon the contention that by virtue of the correspondence between ALC and GPC between 2 April 2013 and 29 April 2013, that by 6 May 2013, the Lessor's solicitor Ms Cordwell of ALC had at least ostensible authority to receive the notice on behalf of the Lessor.
Mr Zipser then submitted that Ms Cordwell had expressed her actual authority to receive the notice based on the fact that Mr Novkovic stated in cross-examination that at the time he engaged his solicitor in April 2013, he gave her general instructions 'to deal with the legal issues' and that on 21 May 2013, Ms Cordwell herself (and as is noted by Mr Zipser in contrast to the Lessor itself) issued and served the s133E Notice in response to the exercise of option. Mr Zipser than says that this means the Lessor's solicitor, Ms Cordwell, held actual authority to issue and serve the s133E Notice. Absent evidence to the contrary, if the Lessor's solicitor had actual authority to issue and serve the s133E Notice, then she had actual authority to receive the notice exercising the option (see Young v Lamb (2001) NSWCA 225).
A further submission from Mr Zipser is that if the Lessor's solicitor had actual/express or ostensible/apparent authority to receive the notice exercising the option on 6 May 2013, then 'notice given to an agent is effective as such if the agent receives it within the scope of his actual or apparent authority' (see NINL Ltd v Man Financial Australia Pty Ltd (2006) 15 VR 156 at [38] and [40]: Young v Lamb (2001) NSWCA 225: Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203 at [38]).
Section 170 of the Conveyancing Act does not affect this conclusion. Section 133E(3)(a)(i) uses the term 'giving' rather than 'serving' and secondly, in any event, the service of notices specified in s170 of the Conveyancing Act are facultative and not exhaustive (Riltang Pty Ltd v L Pty Ltd (2002) 11 BPR 220, 281).
Mr Zipser submitted that in relation to the letter from Mr Gilles on 3 May 2013 but emailed on 6 May 2013, that letter comprised two documents, being the letter from Mr Gilles dealing with the alleged breaches and an enclosure being a copy of the notice of exercise of option. The letter stated in part: We enclose with this letter a copy of notice of exercise of option under the lease.
In Mineaplenty Pty Ltd, Brereton J at [37] stated: The issue is whether the purported exercise communicated a clear and unequivocal intention to exercise the option. This is resolved according to what a reasonable recipient of the notice, familiar with the terms of the lease and the surrounding circumstances - including the dealings between the parties - would have understood.
Mr Zipser submitted that: 1. the enclosure communicated a clear and unequivocal intention to exercise the option; 2. the letter stated an express intention to provide a copy of the notice of exercise of option to the Lessor's solicitor. There was no suggestion in the letter that the exercise of the option was conditional upon receipt by the Lessor of the actual signed letter from Mr Gilles or that the point in time of exercise of the option would be postponed until or conditional upon some other event occurring. A reasonable recipient of the letter, being a reasonable lawyer acting for the Lessor, would realise that receipt of the letter and the enclosure involved notification on that day of the exercise of the option; and 3. the covering letter added that the enclosure was also 'sent directly to your client's registered office and to his business address' however these words do not convey that the time of exercise of the option would be postponed until or conditional upon the Lessor itself receiving the enclosure which was posted 'directly to (the Lessor's) registered office and to his business address'.
Finally, Mr Zipser put forward the proposition that if we assume that the signed notice of exercise of option by Mr Gilles was not received by the Lessor and the Lessees then subsequently tried to contend that the option had not been exercised, the case law in the circumstances, as outlined, would support a conclusion that the Lessees had exercised the option by Mr Gilles emailing on 6 May 2013 with his letter dated 3 May 2013 to Ms Cordwell a copy of the notice of exercise and that in fact it would be concluded that the option to renew the Lease had been received and the Lease renewed (see Young v Lamb [2001] NSW CA 225).
Mr Zipser notes that on 21 May 2013, the Lessor served the s133E Notice. If the Tribunal agrees with the Lessees' position that the day of 'the giving of the notice by which the option is exercised' was in fact 6 May 2013, then the s133E Notice was not served within the 14 day period prescribed in s133E(3)(a)(i). This makes the notice invalid or ineffective. Bryson AJ (as he then was) in Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68 at [10-11] approved a statement from an earlier decision of the NSW Supreme Court that: The Court has taken the view that the requirement of s133E as to notice must be strictly complied with if the Landlord is to be entitled to rely upon a breach as negativing the right to exercise the option.

[3]

Lessor's contention on time of the issue of the s133E Notice

Mr Hallion submits that in the Application for Original Decision the Lessees plead an order that the Lessees have properly exercised the option on the basis that the notice in writing dated 3 May 2013 was forwarded to the respondent at the registered office of the respondent and that a copy was also sent on the same day to the business address of the respondent and the residential address of Mr Novkovic.
Then Mr Hallion points out that the Lessees asserted that they in fact rely on the email sent on 6 May 2013 being the letter of 3 May 2013 enclosing the notice of exercise of option forwarded to Ms Cordwell as the date upon which the option was exercised. The purpose of course for this contention is that if the option were exercised on that date then the s133E Notice is invalid having been issued out of time. This proposition however, requires an assessment as to whether a valid service of the exercise of the option could be affected by email on a landlord's solicitor.
Mr Hallion points to the decision of Adams J in Lo Guidice v Bivano (No 2) (1962) VR 429 where a notice of option was served on the solicitors for the landlord who were acting for the landlord on a claim for forfeiture at [434]: I do not consider proper notice of the exercise of this option was given. The lessors were not given written notice of the exercise of the option. The notice was served only on the solicitors acting for the plaintiffs in this action. In the absence of evidence that the solicitors had any authority to receive such notice, or that they in fact communicated the receipt thereof to the plaintiffs in due time or at all, and there was no such evidence of this, I am unable to conclude that the notice required by the lease was given. No authority was cited to me and I know of none to justify the conclusion that solicitors in the position of the plaintiff's solicitors in this action, as such, have implied authority to receive such notices as that under consideration on behalf of their clients.
Mr Hallion points out that it is clear from the terms of the Lease, if there is no provision for an agent or nominee to accept service of notices, then Ms Cordwell did not have the requisite authority as submitted by Mr Zipser. This is the same issue as raised by Mr Hallion that in fact the Lease has no provision for agents relating to notices at all, either the service, delivery or the giving, when challenging the notice of exercise of option signed by Mr Gilles.
Mr Hallion then referred to the summary by Kirby P whether an email can be adjudged as giving notice of exercise of an option in Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR at [673] and [677B-678BA]: 1. The primary rule is that the purported exercise of the option must express clearly and unequivocally the fact that it is intended. Ballas v Theophilos (No 2) (1957) 98 CLR 913 at 916. 2. It is not necessary for example, for the effective exercise of an option that terminology conforming precisely to the terms of the option (Ballas at 205). 3. The appropriate question to be asked is what anybody who received the letter…would fairly have understood to be the meaning of it, in all the circumstances of its receipt, Carter v Hyde (1923) 33 CLR 115 at 126 adopting Jones v Daniel [1894] 2 Ch 322. 4. Although where a notice mistakes the terms of the option it may nevertheless amount to an unqualified and unconditional exercise, Quadling v Robinson (1976) 137 CLR 192 at 201. 5. Every case ultimately depends on its own facts upon the proper construction of the document in dispute. This passage was specifically endorsed by the Court of Appeal in Young v Lamb [2001] NSWSC 225.
Consequently. the submission made by Mr Hallion is that the letter/email by Mr Gilles whereby at the end of the email there is reference to the enclosure of a copy of the notice of exercise of option does not pass the test as put forward by Kirby P. In particular a recipient of that email enclosing a copy of the notice of exercise would not have understood the meaning of it to be the actual exercise of the option to renew. This is contrary to the position put by Mr Zipser on this very point.

[4]

Resolution by the Tribunal on the question of the correct date for issue of the s133E Notice

Mr Hallion submitted that the position that the Lessees have taken is ambiguous in that on the one hand there is an assertion that the option was exercised pursuant to the written notice, albeit signed by Mr Gilles, on 3 May 2013 which was sent in a formal manner for the purpose of complying with the terms of the Lease to exercise the option to renew, and now it is argued by the Lessees that the option was in fact exercised on 6 May 2013 via the email sent to Ms Cordwell.
The analysis by Kirby P was followed by Lindsay J in C & P Syndicate Pty Ltd v Reading [2013] NSW SC 43. There, the question before the Court was whether a put option was properly exercised. Interestingly, the facts in this case are very similar to the proposition put forward by Mr Zipser referred to in paragraph 75 of these Reasons to assume that the actual exercise of option was not received by the Lessor. In C&P Syndicate the requirement for exercise of the put option was that the option may be exercised by 'the vendor…by notice in writing of the exercise, accompanied by a duly executed contract…'. The solicitor for the vendor prepared a letter of exercise and according to his evidence inserted the letter in an envelope together with an executed contract and sent it to the solicitor for the purchaser. The solicitor also sent an email shortly thereafter to the solicitor for the purchaser advising that he had instructions that the vendor intended to exercise the put option and they would formally provide a notice by mail tomorrow. Unfortunately, when the solicitor for the purchaser received the envelope and opened it, on his evidence, there was no notice of exercise in the letter as suggested but only the executed contract.
Lindsay J found firstly that in all probability the notice of exercise prepared by the solicitor for the vendor was included in the envelope with the executed contract so the put option was exercised. However, he also held after a very considered analysis that the email sent by the solicitor also constituted the requisite notice of exercise of the put option. In the circumstances of the terms of the put option and the facts in that case, Lindsay J held that the email constituted actual formal notice of exercise. I note in passing in relation to this case that no objection was made to the fact that the solicitor for the vendor and not the vendor itself had signed the notice of exercise of option.
As noted, Mr Zipser for the Lessees asserts that a notice or document can be served on a Lessor's agent if it is the case that the Lessor's agent has actual or ostensible authority to receive the document or notice. The solicitors for both parties took no objection to the execution of notices by themselves as representations but were particular to ensure that any notice served directly on a party was copied to them. This conduct is consistent that each considered themselves and each other as authorised agents to act for the parties and to issue and receive notices As the Tribunal has found, the parties adopted a course of conduct to have communications between them conducted by their respective legal advisers. In these circumstances the Tribunal finds that Ms Cordwell had the requisite authority to receive any notice of exercise of option. I believe this overcomes the submission made by Mr Hallion based on the passage of Adams J in Bivano where his Honour held that the landlord's lawyer did not have authority to receive notices.
However, it is the question of the intention of the sender of each piece of correspondence that must be determined. The Tribunal notes from the letter/email of 6 May 2013 sent by Mr Gilles that the concluding comment is: We enclose with this letter a copy of exercise of option under the lease sent directly to your client's registered office and his business address.
Following the analysis of Kirby P in Prudential and Lindsay J in C& P Syndicate it is clear that each case ultimately depends on its own facts and the proper construction of the document. I agree with the submissions by Mr Hallion. In particular I take the view that the letter/email from Mr Gilles would be read by the recipient as not intended at that time to be the actual exercise of option, but rather the notice was enclosed as a matter of courtesy. This is consistent with the arrangements between the parties, that communications would be conducted through their legal advisers and as the notice was sent to the Lessor directly, a copy is provided. Consequently, the intention was that the letter of 3 May sent to the registered office of the Lessor was the actual formal exercise of the option to renew the lease.
The Tribunal sees this problem as a question of timing. Originally the Lessees argued that the option to renew the lease was exercised by the letter from Mr Gilles on 3 May 2013 sent directly to the Lessor which upon the day of receipt would mean that the s133E Notice was issued within time. Now the Lessees submit that in fact the option to renew was exercised pursuant to the email of 6 May 2013 which was received by the Lessor (through its agent Ms Cordwell) earlier in time than the letter from Mr Gilles. The Lessees elected that the option to renew was exercised by the letter from Mr Gilles of 3 May 2013 and should not now approbate and reprobate on this point.
The Tribunal also finds that the finding in C&P Syndicate, while based on similar facts, is distinguishable because the relevant question decided by Lindsay J was not necessarily when was the put option exercised but whether in fact it was exercised at all within the exercise period. Here there is no issue about whether the option to renew, if found valid, was exercised within the exercise period under the Lease. If the letter of 3 May 2013 never arrived (as surmised by Mr Zipser) then of course it is open for the email received on 6 May 2013 to constitute a clear expression of the desire of the Lessees to exercise the option to renew. However that is not the issue. There is no doubt the Lessees always desired to exercise the option. The question the Tribunal has to determine on this matter is when in fact was the option exercised and by what means. The Tribunal finds that it was always the intention of the Lessees that the notice of exercise of option was the letter from Mr Gilles on 3 May 2013 sent to the Lessor and that notice of exercise was not displaced by the email sent on 6 May 2013.
Consequently, the s133E Notice is valid as it was issued within the requisite time as required under s133E(3) to serve on the Lessees within 14 days after the giving by the Lessees of the notice of exercise of option. The Tribunal will now consider the validity of the s133E Notice based upon the content of the Notice and the alleged breaches referred to in the Notice.

[6]

Validity of s133E Notices - breach of lease obligations

As noted, the s133E Notice listed a number of purported breaches. The first was a non‑payment of rent. This arose in part out of an earlier dispute regarding the interpretation of the rent review mechanism under the Lease. The evidence before the Tribunal from Ms Fedeli was equivocal on this matter. Ultimately, as it transpired, a payment of rent was missed shortly prior to the exercise of the option. Mr Hallion in his submissions points to the following passages out of the Transcript (T52 L): Member: I understand Mr Hallion. I think we've established that there may be a concession now by the applicant that at the time the S133E Notice was given the base rent was not up to date. Do I understand that to be the concession? Zipser: I'm going to make the following partial concession and that is that subject, based on the witness' current answer we concede that the payment on 2 May of $5,000.00 was not received by the Landlord's agent and therefore at the time of the notice of exercise the option was served on 6 May, the Tenant was in arrears by $5,000.00, but the one qualification is that I'm going to ask Ms Fedeli overnight to check her computer records to see where the payment of $5,000.00 on 2 May was paid. I expect that her records will confirm what she opines now that the payment was made to another third party….
Mr Hallion states that this concession was given before Ms Fedeli was cross examined and in cross examination her evidence confirmed the basis of the concession, that is, the rent was not paid until 27 May 2013, when it was due on 1 May 2013 and that payment within 14 days of the due date was an essential term of the Lease.
It was hard to ascertain the position regarding payment of rent but, ultimately, as it transpired through the cross examination of Ms Fedeli, and the concession made, that it is an agreed fact that at the time the option was exercised, the Lessees were in breach of the Lease regarding payment of the rent for the month of May 2013.

[7]

Other Breaches

As identified in the s133E Notice (set out at paragraph 52 of these Reasons) there are a number of other alleged breaches such as the setting up of tables and chairs and the serving of patrons in the courtyard, which was contrary to the development consent, and that the use of the courtyard by these activities then caused a breach of the Lease requiring the Lessees not to do anything that might invalidate any insurance policy.
A further alleged breach was that there was excessive noise and in this regard, a key witness on behalf of the Lessor was a former tenant, Stormy Jack Waterford, who gave evidence that the restaurant did not close at 11 o'clock (again not in accordance with the development consent) and there was noise emanating from the restaurant well past 11 o'clock and sometimes up to 12 o'clock at night. The evidence of Stormy Jack Waterford however was not of great assistance to the Lessor when it was pointed out that the noise may have come from the hotel directly opposite his flat.
The other breaches alleged were that the Lessees hosed the courtyard resulting in some structural damage to the neighbouring property and the courtyard itself and further that the Lessees used the storeroom at [****]Street illegally.
It is quite clear on the evidence as presented that, significantly, these breaches are all past breaches occurring some time prior to the exercise of the option and were not currently being continued by the Lessees.
Further, it is debateable whether these alleged breaches relate to the actual restaurant premises within the building itself, which on the Lessor's submission is confined to the lock up shop, or in fact to activities within the courtyard and the next door property, which on the Lessor's submission is outside the actual premises leased to the Lessees under the Lease. Consequently it makes it very difficult for the Lessor then to allege breaches of the Lease based on activities not within the premises as asserted by the Lessor to be the subject of the Lease.

[8]

Clause 4.4.3 of the Lease

Mr Zipser referred to clause 4.4.3 which states as follows: The Tenant can exercise the option only if (4.4.3) at the time of service all the other obligations of the Tenant have been complied with or fully remedied in accordance with the terms of any notice to remedy given by the Landlord.
Mr Zipser notes that in fact no notice to remedy any of the alleged breaches of Lease was served on the Lessees prior to the exercise of the option to renew.
As far as the Tribunal can ascertain, there was no actual notice served on the Lessees to remedy any of the alleged breaches of the Lessees referred to in the s133E Notice. There is correspondence between the parties regarding a number of alleged breaches, in the main that service of patrons in the courtyard was contrary to development consent. However, it is quite clear that this practice stopped well in advance of the exercise of the option. The letter from Mr Gilles on 3 May 2013, to Ms Cordwell (this being the letter emailed enclosing the notice of exercise of option and set out in full in paragraph 17 of these Reasons) clearly shows that the Lessees had used the courtyard only occasionally for dining and now professed that they had stopped using the courtyard for such activities.. The evidence from Mr Bischof and Mr Muzica, two employees of Il Baretto, are also equivocal about the continuous use. Mr Bischof in his Affidavit of 20 August 2014 says that for a short time the restaurant seated customers outside, mainly at night time for dining and that to his recollection the courtyard was used for dining for only a few months. He further acknowledged that he was instructed by Ms Fedeli to cease using the courtyard to serve patrons of the restaurant. Mr Muzica was also less able to assert any continuous use of the courtyard by the Lessees to seat and serve patrons.
The issue of the s133E Notice by the Lessor appears to be inconsistent with clause 4.4.3 of the Lease. On one view, the parties could have treated the s133E Notice as the notice referred to in clause 4.4.3 for breaches to be remedied, although there were no current breaches at the time of issue other than unpaid rent. This does not accord with the past tense used in clause 4.4.3 that the notice to remedy must be given and there has to be time to comply with the notice to remedy the breaches. However, the approach taken by Mr Zipser in comparing the form of the 133E Notice with the requirements under s129 of the Conveyancing Act in setting out alleged breaches that needed to be remedied, failing which would entitle a Landlord to forfeit the Lease, suggests to the Tribunal that this may be the purpose of the clause.
Notice under s133E has a short time frame for a tenant to act and is issued towards the end of the lease term contemporaneously with the exercise of the option to renew. A notice under s129 of the Conveyancing Act is a notice issued by the landlord to a tenant specifying in some particularity breaches of the lease that would, if not remedied by the tenant in a reasonable time, mean that the landlord would then forfeit the lease. It is not necessary for a tenant to immediately approach the courts to seek relief against forfeiture of the lease, if a reasonable time is specified in the notice for the breaches to be remedied. If the breaches are remediable within that time then it is common for the tenant to attend to this rather than seeking the relief from the court. If the breaches cannot be remedied for some particular reason, then the tenant will approach the court for relief depending on the circumstances. The most usual case for relief against forfeiture does not in fact involve a s129 notice at all because under s129(8) re-entry in the case of non-payment of rent does not require the notice. However often the practice is to give the notice in any event as can be seen from the number of decisions on relief against forfeiture involving unpaid rent. The Tribunal is of the view that clause 4.4.3 of the Lease was a mechanism which the parties adopted requiring the Lessor to issue a notice under s129 of the Conveyancing Act and not proceed under s133E of the Conveyancing Act.
Consequently, the view of the Tribunal is that clause 4.4.3 requires a landlord, such as the Lessor, to issue in effect a s129 notice, otherwise the clause does not seem to fulfil any useful purpose. If this were the case, then it was unnecessary for the Lessor to issue the s133E Notice as it transpired that the relevant default at the time of exercise of the option was in fact the non payment of the rent for the month of May and the Lessor is already protected in this regard by clause 4.4.2 of the Lease that at the time of exercise of the option, there is no rent or outgoings overdue for payment. So the question must be asked what was the purpose of the Lessor in issuing the s133E Notice?
From the review of the history of ss133E and 133F as explained by Mr Hallion, the Tribunal notes that the sections were introduced to overcome the harsh and inequitable conduct of landlords (in current times such conduct would be viewed as unconscionable) in seeking to defeat an option by using past breaches. The reform according to Mr Hallion is that a tenant is now afforded the opportunity to challenge a landlord on the issue of the notice by seeking relief under s133F from the Supreme Court. The submission as further put is that the two sections assist the position of a tenant on an application to the court by reversing the onus of proof so that the tenant has to prove nothing, it falling on the landlord to prove the breaches of the lease. If the landlord does not establish those breaches it is only then that the tenant can request the court to exercise its discretion to either forgive any breaches that have been proven or where there are no such breaches then to grant the relief and seek the option.
However, the principal submission of Mr Hallion on the question of the s133E Notice is that it is a valid notice and that it was for the Lessees to follow up the required procedure and seek relief from the Supreme Court (not even from the Tribunal according to Mr Hallion). However, if Mr Hallion is correct in that ss133E and F are reforming legislation (see Bryson J in Sydney West Health referred to in paragraph 60 of these Reasons) then in the Tribunal's view this is not much of a reform, because ultimately it forces a tenant in the position of the Lessees to institute proceedings in the Supreme Court (according to Mr Hallion) which is very costly and an inconvenient exercise especially when the breaches are, significantly, past breaches. However, this is exactly what appears to have been the intention of the Lessor when it instructed its solicitor, Ms Cordwell to issue the s133E Notice to cause great inconvenience to the Lessees.
Mr Zipser submitted that the Lessor's conduct in issuing the s133E Notice is to be viewed as unconscionable conduct within s62B of the RLA in an endeavour to undermine the position of the Lessees to ensure that the Lessor's development could proceed and deny the Lessees the option. This may or may not be the case, however, the Tribunal does not believe it is necessary to explore this submission much further given the Tribunal's views on the s133E Notice.
In summary, the Tribunal is of the view in relation to the s133E Notice as follows: 1. it was issued within the requisite time, 2. the content is satisfactory, that is, it does not have to explain the breaches at all, 3. all the alleged breaches (other than the non-payment of the May rent) were in the past and not proven to the satisfaction of the Tribunal as having been valid breaches of the Lease in themselves, and 4. the issuing of the s133E Notice is not consistent with clause 4.4.3 of the Lease.

[9]

Breach of clause 4.4.2 of the Lease (set out in paragraph 27 of these Reasons)

This clause requires that for the option to be exercised by the Lessees there be at the time of service of the exercise no rent or outgoings that is overdue for payment. As it has been established, at the time of exercise of the option by Mr Gilles, the Lessee had not paid the May rent.
The relevant question then for the Tribunal to answer is if the Lessees sought relief under s133E from the Supreme Court or from this Tribunal for relief against the forfeiture of the option, whether the Notice is relevant or not, or, alternatively, seek relief from an alleged breach of clause 4.4.2 of the Lease, would the Court or, is the Tribunal able to, grant the relief sought by the Lessees in this regard. Alternatively, would the Tribunal now grant the relief sought in relation to clause 4.4.2 of the Lease. Mr Zipser submitted that the breach of the non payment of the May rent was de minimus, that is, it was small and of a trivial nature. In fact, the rent was ultimately paid 27 days later after the exercise of the option to renew. The Tribunal has the power to make an order declaring the rights and liabilities of the parties under law (s72(1)(f)(iii)).
Mr Hallion points to evidence regarding what he termed 'the desultory approach of the Lessees to the payment of rent obligations reflects a cavalier attitude'. He says that so far, of the 36 payments due in advance under the Lease from January 2011 to January 2014 are concerned, none were paid on time, with payment as late as 25 days in March 2013 and at the time of exercise of the option, the rent was unpaid until 27 May 2013. Mr Hallion in his written submissions advised the Tribunal that after commencement of proceedings in the Tribunal, the Lessees have been exemplary in paying rent when due. He draws an inference from this that the Lessees would only pay the rent at the times to suit themselves and not necessarily in compliance with the terms of the Lease.
Mr Hallion then in earlier submissions on the content of the s133E Notice referred to the decision of Einstein J in Nameless, Shameless and Legless Pty Limited v 2 Roslyn Street Pty Limited (2004) NSW SC 519. That case is very instructive as the dispute was on whether the Court would grant relief under s133F to allow a tenant to keep its lease on exercise of the option. His Honour held at [66] and [76] the following: 66. I have found this a particularly difficult exercise of discretion to adjudicate, and for these reasons. It is tolerably clear from the evidence put before the court that during the whole of the period of difficulty, running, as I have said, a goodly part of the period when the current Lessee has been the Lessee, the Lessee has been in default in terms of failing to pay the monthly instalments upon the due dates. The problems which appear to have beset the Lessee in terms of its inability to comply with the lease in that regard have been exposed on the evidence to a certain extent. 76 Ultimately, having taken all these matters into consideration, it does seem to me that this particular Lessee, which it seems to me has come within a straw of having lost the present application, should be given one‑only last chance. The proper exercise of the court's discretion is to grant the s133F relief but making very plain to the Lessee the fact (albeit at any application in the future will be obviously determined on its merits by the court) this will likely be the last time that this Lessee will ever survive in terms of being in a position to continue as Lessee should it again default or be late in its instalments of rental.
The Tribunal notes that the Lessees paid the May rent and are now no longer in breach of the Lease for rent payments, and in fact are paying according to the terms of the Lease. The Tribunal cannot ascribe any motive to the Lessee's in this regard other than they seek to comply with the terms of the Lease. In these circumstances, the Tribunal considers that with the tenant in Nameless, Shameless, the Lessees would have been granted relief under s133F if the Lessees had applied for such relief.
The Tribunal has power to make an order declaring the rights and liabilities of the parties under law (see s72(1)(iii)). In relation to the breach of rent for 27 days, as indicated, the Tribunal has the jurisdiction to apply equitable principles (White J in State Plains Olive Farm). The Tribunal believes that equity would intervene to consider such a breach to be de minimus and in these circumstances the Tribunal would allow for the option to proceed as exercised. Further, the Tribunal would, if necessary, grant relief to restrain the Lessor from seeking to forfeit the Lease to enable the Lessees, if necessary, to approach the Supreme Court for the appropriate order for specific performance to grant a new lease.
The Tribunal has taken this position in accordance with the principles that equity would intervene to allow the new lease to proceed notwithstanding the breach of clause 4.4.2. I note that Mr Zipser has sought the assistance of the unconscionability provisions of the RLA in particular under s62D. If it was thought necessary to deal with this matter then the Tribunal's views is that it would have granted the relief sought under those unconscionable provisions in light of the evidence and circumstances surrounding the issue of the s133E especially given what appears to be the purpose of issuing the s133E Notice.

[11]

Evidence on use

Ms Fedeli in her affidavit of 29 May 2014 says at paragraphs 18‑20: …I continue to trade utilising the courtyard only for storage and delivery. No complaint was made or notice given that this was in breach of any law or order or not permitted by the lease. Because of the difficulties with the toilets in the courtyard and because water does not drain properly, we did not utilise the courtyard for patrons. 19. In about 2004 or 2005 Domenico and I renovated the café and in 2012 we purchased new tables and chairs. The old furniture was placed in the courtyard. The old tables and chair have been used by the staff after work for a chat but only very occasionally have we had people out in the courtyard, mostly friends. 20. Domenico and I did not become aware of the issues regarding the courtyard or that courtyard dining was not allowed until we received a copy of the DA from our solicitor, Mr Joseph Gilles in about 2012. Domenico and I were not concerned about this as we had not used the courtyard in that way for the most part but we were particularly careful after that not to allow customers outside and have utilised that area for storage only. Our cleaners brought in plants that have been used to screen the bins but there is no outside dining.
Mr Karl Muzica who worked at 'Il Baretto' from about 2004 to 2008 as a waiter/maitre‑d says in an affidavit dated 20 August 2014 at paragraph 5: I know Chris Momitsas from my time at the restaurant, and I say that he is mistaken about dining in the courtyard. Whilst I did not work every day, I worked several shifts each week and I never observed tables or chairs outside or people dining.
Mr Dirk Bischoff who worked as a chef at Il Baretto for the last ten years says in an affidavit also dated 20 August 2014 at paragraphs 6 and 7: 6. To my recollection the courtyard was used for dining for only a few months. I understood from conversations that I had with Gabriella Fedeli, one of the owners, that dining ceased because they were advised by the landlord, Milan Novkovic, that the restaurant is not allowed to serve people outside. … 7. From the time that I became aware that there was an issue with dining in the courtyard, I observed that all dining in the courtyard ceased. People might have sat out there to have a cigarette or may have taken their drink to have with their cigarette in the courtyard at the same time but certainly customers were not seated in the courtyard for dining.
Further Ms Fedeli in her affidavit of 29 May 2014 says at paragraph 13: In about 2002 Rosita (Caro) and I stopped using the outdoor area for seating of customers We had issues with the toilet continuously blocking and we did not think it was hygienic. If customers wanted to wait out there or have a cigarette we allowed them to go out the back but we did not use it for dining. There were no tables out there until I caused new tables to be purchased for the cafe in about 2012. We had some stools and chairs used when extra seating was required inside but no tables.

[12]

Description under the Lease

Mr Zipser submits the Lease describes the land as 'Lot 1, DP783010 (part) being lock‑up shop situated on Ground Floor,[****]Surry Hills, known as 'Il Baretto". Mr Zipser submits that if the description of the land in the Lease was just 'lock‑up shop' then the cases support the conclusion that a yard behind the lock up shop is not usually part of the description of lock up shop and not part of the premises (see Ong v Luong (1991) 9 BPR 16, 759). The point of distinction between 'Il Baretto' and the line of cases in Ong is of the additional words handwritten on the front page of the Lease form known as Il Baretto.
Mr Zipser submits that between 1999 and just prior to the Lease being signed when the lease was negotiated the Lessees used the areas (a), (b) and (c) as part of the restaurant. They seated and served customers in the courtyard up to 2002 but from that date until just prior to the dispute the Lessees allowed customers to smoke in the courtyard and customers sometimes 'took their drinks to have their cigarette in the courtyard'. Further since 1999 customers have had to walk through part of the courtyard to reach the toilets. The customers would have observed the storage of the items relating to the restaurant in the courtyard. As part of the submission Mr Zipser maintains that customers as well as passers by would assume that the toilets and the courtyard were solely for the use of customers and staff at the restaurant Il Baretto.
The next submission from Mr Zipser is that the Lessor had knowledge of most of these matters relating to the use of the courtyard by the Lessees as the Lessor occupied the upstairs office and its director Mr Novkovic was often present in the building and walked through the courtyard and would have observed the use by the Lessees. Thus Mr Zipser's submission is that the name 'Il Baretto' connotes a wider use of the premises than as referred to by the Lessor as being the premises on the front page of its copy of the Lease and in accordance with the decision of Ong.

[13]

Wheeldon v Burrows

Mr Zipser makes a further submission based on the case of Wheeldon v Burrows. Professor Peter Butt in his book Land Law, Fifth Edition, Law Book Company 2006 at (446) says: Easements may be impliedly granted under what has come to be known as the rule in Wheeldon v Burrows (1879) 12Ch D31 … … There are four elements necessary for the implied grant of an easement under the rule in Wheeldon v Burrows: (1) there must be a grant of part of the land - a severance; (2) at the time of the severance, exercise of the quasi‑easement must be 'continuous and apparent'; (3) the quasi‑easement must be necessary for the reasonable enjoyment of the land granted …; and (4) at the time of the severance, the grantor must have used the quasi‑easement for the benefit of the land granted. All four elements must be satisfied if the easement so granted is legal not merely equitable.
Mr Zipser submits that each of these four elements are established in the present matter. In relation to element one there was a grant of part of the land or severance at the time of commencement of the Lease. In relation to the second element the evidence indicates that in the years leading up to the commencement of the Lease including the period of negotiation there was a continuous and apparent use by the Lessees of the courtyard for storage of items for the restaurant and use by the staff and patrons of the restaurant to walk around, relax and smoke as well as access for the toilets. Further, the Lessees have also used the courtyard to receive deliveries of food and drink for the restaurant. This is evidenced by the fact that a lattice work fence between 494 and 496 Bourke Street was erected and that fence is still in place and that over the years the Lessees have used the courtyard to receive deliveries of food and drinks.
In relation to the third element, Mr Zipser refers to the decision of Handley JA in Wilcox v Richardson (1997) 43 NSW LR 4 at [14‑15] as follows: Easements and other ancillary rights, sometimes described as apparent accommodation … are implied in accordance with the rule in Wheeldon v Burrows, where they are necessary for the reasonable enjoyment of the property expressly granted … The true test, implicit in the general authorities, and expressed in Wheeldon v Burrows, is the more liberal test of whether the implied rights were 'necessary for the reasonable enjoyment of the property granted'. The difference is significant, because rights which are not necessary for the operation of the business may be necessary for its reasonable operation and hence for the reasonable enjoyment of land leased for that business. Expressed in other words, such rights may be needed to give such business efficacy to the transaction as must have been intended at all events by both parties who are businessmen.
Mr Zipser also draws the Tribunal's attention to the decision of Palmer J in Kavia Holdings Pty Ltd v Bellavista Pty Ltd (2006) NSW SC 633 at [10]: The test is one of reasonable convenience and practicality, not of absolute necessity, and convenience and practicality must be assessed in the light of the factual matrix at the time the estate and land was granted. So, if both parties to the grant contemplate that the grantee uses its land for a certain purpose or in a certain way, and at the time of the grant the land is in fact used in that way or for that purpose by means of an accommodation over the grantee's land, that in itself will usually be strong evidence that the accommodation is necessary, in the sense of reasonable convenient and practicable, for the reasonable enjoyment of the estate granted.
Mr Zipser puts forward the proposition that the nature of the Wheeldon v Burrows easement in respect of the courtyard is an easement to use the courtyard for the business of the Lessees. This easement was and is necessary for the reasonable enjoyment of the property expressly granted under the Lease, namely the lock up shop for Il Baretto. It is asserted that at the time of the grant of the Lease, the Lessor and the Lessees 'contemplated that the grantee will use' the courtyard for the business of the Lessees and the land was in fact used in that way. As stated in Kavia Holdings 'that in itself will usually be strong evidence that the accommodation is necessary, in the sense of reasonably convenient and practicable for the reasonable enjoyment of the estate granted'.
Mr Zipser's next submission is that the Lessees have an easement over the areas (a), (b) and (c) based on common intention of the parties in light of the evidence and facts adduced during the hearing. Finally, he submits that the Lessor is estopped from denying the entitlement of the Lessees to use the areas (a), (b) and (c) based on the conduct of the Lessor in allowing such areas to be used by the Lessees during the time that 'Il Baretto' occupied the building and it would be unconscionable for the Lessor to depart from this alleged waiver.
Mr Hallion submitted that the Lessor has always acknowledged that the Lessees have ancillary rights to use the courtyard and the facilities pursuant to the Lease. It is significant that the effect of the assertions now made by Mr Zipser on behalf of the Lessees as to proprietary rights in the courtyard is to reinstitute what was given up under the 1999 lease and which the Lessees acknowledge at the time of entering into the Lease is no longer part of the subject matter of the Lease, namely the garden area/courtyard. This was acknowledged by Ms Fedeli in the deed of assignment in 2004 that in relation to the garage at the rear, there were proposed development works being considered by the Lessor. Mr Hallion contends that the ancillary rights to use the toilets and the courtyard for storage cannot give rise to a prescriptive right to the Lessees to stipulate that the Lessor will not during the term of the Lease remove or change the access to toilets and storage from as it was at the commencement of the Lease. The Lessor also had use of the courtyard and the toilets and access through the courtyard to enter his office upstairs. There is nothing in the evidence provided on behalf of the Lessees to imply that the use over the courtyard by the Lessees is exclusive. In fact there was evidence from the Lessor by Mr Novkovic that he and his invitees used the toilets and accessed his office via the courtyard entering at the rear. The evidence as provided on behalf of the Lessees shows a casual use of these facilities and in conjunction with other occupants of the building. There is no creation of an easement to prevent the proposed development by the Lessor.

[14]

Resolution by the Tribunal

The Tribunal notes from the evidence presented by the Lessees regarding use of the courtyard that it is predominantly in respect of recreational activities such as the casual smoking and taking of drinks by employees and patrons and the storage of restaurant items. It is notable that there has been no significant use of the courtyard to serve meals to the patrons of II Baretto. It is hard to see how the use of the courtyard by employees and patrons for stretching their legs and the taking of a drink or a cigarette can of itself give rights to a proprietary interest in the courtyard, especially on such a casual and adhoc basis of use.
In adjudging the evidence presented by Ms Fedeli to the Tribunal, the Tribunal believes that Ms Fedeli perhaps tended to over reach on various aspects, for example in paragraph 5(u) of her Affidavit of 20 August 2014 she says 'there is only one small storage cupboard and the café utilises the courtyard area as a whole for storage.' If this were the case, then there would be no room for the employees and customers to stretch their legs and take a cigarette or have a casual drink as suggested by other witnesses. It is hard to believe that in fact the Lessees use the whole courtyard area as storage. This is but one of many examples. Mr Hallion made very strong submissions on the reliability of the evidence from Ms Fedeli. The Tribunal, however, does not find it necessary to make any further comment.
Access to the toilets again is in common with other occupants of the building. The fact that items are stored sometimes in the courtyard with the consent of the Lessor is only an ancillary right or a license and again gives no proprietary interest to the Lessees in the courtyard. In the Tribunal's view none of the facts satisfy the elements in Wheeldon v Burrows. Smoking or stretching legs in the courtyard cannot be necessary for the reasonable enjoyment of the property granted. The employees and patrons can go into the street to smoke and relax if they wished. It is not necessary that they go into the courtyard for the enhancement of the Lease of the restaurant premises. None of this gives the Lessees significant proprietary rights over the courtyard as a result of the casual use of the courtyard by patrons and employees and storage by the Lessees.
There was a significant change to the conduct of the business of II Baretto in that the Lessor now sought to ensure that the Lessees were complying with the development consent as it was understood and not to serve patrons food and drink in the courtyard. This change in the conduct of the business was acknowledged in the evidence by Ms Fedeli and her employees. Cessation of that use was confirmed by Mr Gilles in his letter of 3 May 2013 when enclosing a copy of the exercise of the option. Further, the Tribunal is of the firm view that the casual storage of items does not of itself create any proprietary interest in the courtyard.
The addition of the words 'known as Il Baretto' does not of themselves change anything. Leaving aside again the question of who added these words to the registration copy of the Lease and by what authority, the Tribunal is satisfied that in 2008 when the Lease was entered into between the parties the area occupied by the restaurant and known to be occupied by the restaurant was only the lock up shop as denoted in the Lease. Any extension into the courtyard by the Lessees is, as acknowledged by the Lessor, only pursuant to ancillary rights.
Significantly, clause 11.3 of the Lease states as follows: 11.3 If the property is part of a building owned or controlled by the landlord: 11.3.2 if the property has facilities and service connections shared in common with other persons the landlord must:- 11.3.2.1 allow reasonable use of the facilities and service connections including- The right for the tenant and other persons to come and go to and from the property over the areas provided for access. 11.3.2.2 maintain the facilities and service connection in reasonable condition.
The Tribunal accepts the position put forward by Mr Hallion on behalf of the Lessor that the common intention of the parties is as expressed in the Lease and in the previous leases that if the courtyard/garden was included then it was part of the demised premises. However where it is not included then there is an ancillary right to come and go over the courtyard in association with ancillary rights to use the facilities in accordance with clause 11.3 of the Lease. Mr Zipser raised the question of estoppel on the Lessor. The Lessor does not dispute a right for the Lessees to use and to store items in the courtyard as ancillary rights consistent with clause 11.3 of the Lease. Accordingly, the Tribunal agrees with the submission by the Lessor that these rights of the Lessees to use the areas (a), (b) and (c) are ancillary only in accordance with clause 11.3.2 of the Lease and create no proprietary interest in those areas in the Lessees.

[15]

Derogation from the grant

As Mr Hallion submitted, the final question for consideration by the Tribunal is whether the proposed development of the Lessor derogates from the right of the Lessees under the Lease in respect of the use of the areas (a), (b) and (c).
In relation to the proposed works, Ms Fedeli says in her affidavit of 29 May 2014 at paragraphs 30‑32: 30. The Landlord's proposed redevelopment will, according to the plans, and documentation I have seen, require the demolition of the current toilets and storage facility that are utilised by Domenico and me for running the business. 31. The plans are for a new mix commercial and residential building to be built in the courtyard area both 494 and 496 Bourke Street, Surry Hills. 32. At present, the café utilises the toilets and storage in the courtyard and accesses those facilities through the courtyard. The courtyard is also used for storage and it is where Domenico and I place the bins for the café.
In a further affidavit dated 20 August 2014, Ms Fedeli expands on the effect of the proposed development by the Lessor on the business of Il Baretto. She says at paragraph 5(u): 5(u) … I say that the proposed works do not address the issue of bin storage, nor does it allow for space to store the items such as the heaters, gas bottles, and dirty linen that we currently store in the courtyard. There is also no clear indication of how the issue of ventilation is to be addres (sic). Presently the café draws its fresh air from the front and rear doors because many of the side windows are painted or nailed shut. Those that open are open to the elements and must be closed during foul weather. I also note: (i) there is no plan for use or placement of the temporary toilets during the period of construction; (ii) there is no time‑frame for work to be completed; (iii) there is no indication of the stages to be undertaken; (iv) the toilets are referred to as disabled toilets on the plan but the property is not disability friendly ‑ it has a step to enter and a step to exit and there is no mention of any works to be done to alter this; (v) the bin storage provider allows for two bins, the café uses five bins; (vi) there is only one small storage cupboard and the café utilises the courtyard area as a whole for storage. (vii) … we utilise all five bins for the restaurant and they are filled daily. …
Mr Zipser on behalf of the Lessees strongly submits that the decision of Kavia Holdings Pty Ltd v Bellavista Pty Ltd (2006) NSW SC633 has some similarities to this dispute. There a restaurant had operated on the site since 1988 under an arrangement whereby garbage was placed in a 'garbage room' on common property. In 2006 the landlord informed the tenants that under the terms of the lease the restaurant's garbage now had to be stored and disposed of from the restaurant's premises.
In Kavia, Palmer J applying the rule in Wheeldon v Burrows accepted the tenant's submission that 'accommodation on the common property of the festival market building, whether in the garbage room or elsewhere, for the storage of garbage, removed from the restaurant premises is, and was at the time of grant of the sub-lease to Kavia, necessary for the reasonable enjoyment of the demised premises so that a term of forwarding such an accommodation or ancillary right is to be implied in the grant'. However, what Palmer J did not accept at [41] was that 'this implied or ancillary right gives Kavia some sort of prescriptive right over the garbage room or over the loading dock nor does it entitle Kavia to stipulate, in its own discretion, where that area is to be located. However, the location must be reasonably convenient to the demised premises.' Finally, Palmer J at [42] went on to decline the injunction sought by the tenants in Kavia 'because it is open to Bellavista to designate some area on the common property other than the garbage room or the loading dock as a rubbish storage area in accordance with the declaration I propose, I do not think it is appropriate at this stage to grant injunctions against Bellavista on the terms presently sought in the Amended Statement of Claim. If Bellavista does not provide a garbage storage area in accordance with Kavia's rights, as declared, Kavia may bring the matter back for the working out of further orders and the granting of further relief.'
The result in Kavia, as noted in the previous paragraph, is consistent with the submission on behalf of the Lessor that the ancillary rights that the Lessees have to use of the areas (a), (b) and (c) does not give the Lessees some sort of 'prescriptive right' nor does it entitle the Lessees 'to stipulate, in its own discretion' the convenient means of giving affect to these rights.

[16]

Submission by the Lessees

Mr Zipser refers to clause 11.1 of the Lease which is the covenant for quiet enjoyment. It states as follows: 11.1 So long as the tenant does all the things that must be done by the tenant under this lease the landlord must allow the tenant to possess and use the property in anyway permitted under this lease without interference from the landlord or any person claiming under the landlord or having superior title to the land.
Mr Zipser relies on the decision of Kazas & Associates Pty Ltd v Multiplex (Mountain Street) Pty Ltd 2003 [NSW] SC840, another decision by Palmer J, where the Court considered a proposed development and the interference with the tenant's right of quiet enjoyment. Whilst that decision is very instructive on the issues, I agree with Mr Hallion that it can be easily distinguished from the circumstances in this case. The proposed development was a very substantial development of a building which had been used as a warehouse and was being converted into residential units. The tenant leased an area on the first floor and the proposed development would significantly interfere with its quiet enjoyment, rendering the premises less fit for the purpose for which the lease was given and consequently derogate from the grant. The tenant applied to the Court for an injunction restraining the landlord carrying out certain aspects of the development during the course of the tenancy. The Court granted some of the requirements of the tenant, but in this case its quite clear that the proposed development is not as substantial as in Kozas.
Again Mr Hallion submits that the business of 'Il Baretto' as a restaurant being the dining and kitchen facilities and the service of patrons would be unaffected by the proposed works. The City of Sydney Council granted the development consent for the development after due consideration of the Notice of Objection from the Lessees. It is notable that Mr Novkovic gave evidence to the Tribunal in both his capacity as a director of the Lessor and as a builder and engineer of many years' experience in undertaking developments that a methodology would be adopted in relation to the development that would allow the Lessees to continue their proposed business. And his evidence was not challenged. There was also consideration in the manner in which alternate facilities for toilets and storage were to be provided and it should be noted that Mr Novkovic took expert advice and had the original proposal regarding the development amended to accommodate a number of the concerns of the Lessees.
Finally, Mr Hallion refers to strong cross-examination of Ms Fedeli in putting to her that she had no legitimate complaint about interference to the business of 'Il Baretto' and to the extent she had raised issues with the Lessor, these have been attempted to be addressed by the Lessor but on the evidence of Ms Fedeli nothing would be acceptable unless there was some commercial advantage to the Lessees.
The submission by Mr Zipser in seeking an injunction similar to what was granted to the tenant in Kazas relies significantly on a greater interest in the areas (a), (b) and (c) than what the Tribunal found that the use of areas (a), (b) and (c) are ancillary rights pursuant to the Lease, in accordance with clause 11.3. The Tribunal is satisfied regarding the evidence that the interference with the tenancy of 'Il Baretto' would be insignificant other than the usual rights that a lessee would have pursuant to section 34 of the RLA for disturbance.
Finally, Mr Hallion submits that the evidence from Mr Novkovic in his affidavit of 2 March 2015 taken with his evidence in cross-examination and in the absence of any contrary expert evidence on behalf of the Lessees, is that: 1. post development, the existing storage area is in fact doubled from 2.04sqm to 5sqm; 2. the present common area under the stairs while not forming part of the demised premises under the Lease will only be accessed by the Lessees and in effect be for the Lessee's exclusive use; 3. the current area leased is 80sqm being the lock up shop and will after the development of the area give the Lessees exclusive access to a further 31sqm where the toilets and storage are situated; 4. the new area under the Lessees control would exceed what the Lessees claim as 80sqm plus common access to the 28sqm of the courtyard if their submissions were accepted; 5. objectively the areas in which the Lessees would have effective exclusive access and the area under the Lessee's control is increased by an overall 38.75%; and 6. the area for staff to take breaks will continue, the development consent presently does not allow staff to take their meals in the courtyard if in doing so they sit at a table and chair. Thus there is no change in the usage of the rear area from present. However, staff will be able to continue to take breaks.
As noted in paragraph 2 of these Reasons, the dispute between the parties has traversed some very complex issues and in the end turns on the inconvenience to the Lessees for storage of restaurant items and the allocation and position of the bins used by the Lessees. The Tribunal is satisfied that these issues are being accommodated by the Lessor in the proposed development as outlined by Mr Novkovic. In these circumstances the Tribunal rejects the application by the Lessees for an injunction.

[18]

Orders

The Tribunal makes the following orders: 1. The option to renew was exercised in accordance with the terms of the Lease; 2. The Applicants are entitled to the option to renew the Lease notwithstanding the s133E Notice; 3. The Applicants are entitled to the option to renew the Lease notwithstanding a breach of clause 4.2.2. 4. Any costs application pursuant to section 60 of the Civil and Administrative Tribunal Act 2013 or Rule 38 of the Civil and Administrative Tribunal Rule 2014 must be lodged in the Tribunal and served on the costs respondent within 21 days of the date of this order either attaching or referring to the documents relied upon in support of the application. 5. The costs respondent will have 21 days after the date of receipt of the costs application referred to above, to lodge in the Tribunal and serve on the costs applicant the submissions, if any, in response to the costs application, such submissions either attaching or referring to the documents relied upon. 6. The cost applicant will have 14 days after the date of receipt of the cost respondent's submissions to lodge in the Tribunal and serve on the costs respondent the submissions, if any, in reply, such submissions either attaching or referring to the documents relied upon. 7. The Tribunal will determine any costs application on the basis of the papers lodged in the Tribunal. D Bluth Senior Member Civil and Administrative Tribunal of NSW 4 March 2016 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 June 2016

Parties

Applicant/Plaintiff:

Fedeli and Santopadre

Respondent/Defendant:

Alex Constructions Pty Ltd

Legislation Cited (2)

(Interpretation Act 1987(NSW)

Supreme Court Act 1970(NSW)

Cases Cited (17)

Cronulla Newsagency Pty Ltd v Piazzala [2002] NSWADT 121

Steak Plains Olive Farm Pty Ltd v Australian Executor Trustee Limited [2015] NSWSC 289

The Tribunal's view on the exercise of option to renew the Lease

Section 72 of the Retail Leases Act 1994 (RLA) states: 72. Section 72 ‑ Powers of Tribunal relating to Retail Tenancy Claims (1) In proceedings for a retail tenancy claim lodged with the Tribunal under this part, the Tribunal is empowered to make any one or more of the following orders that it considers appropriate: (f) An order: (iii) declaring the rights and liabilities of parties under law, whether any consequential relief is or could be claimed or not, …
The Tribunal notes that the Lessor, upon receipt of the signed exercise of option, instructed Ms Cordwell to issue the s133E Notice, presumably for the effect of giving notice to the Lessees of the alleged breaches of Lease in the notice and that unless the Lessees took the appropriate action under s133F of the Conveyancing Act the Lessor would treat the breaches as precluding the Lessees from exercising the option. That notice was actually signed by Ms Cordwell, solicitor for the Lessor, and was not executed by the Lessor itself.
There is no legislative empowerment that I could find in the Conveyancing Act, to allow a solicitor to sign a notice prescribed by the Conveyancing Act such as a s133E notice. For the same reasons as asserted by Mr Hallion on behalf the Lessor regarding the notice of exercise of option that there is no specific right under the Lease for an agent, such as a solicitor, to sign notices of behalf of the Lessor, there is also no specific right for a solicitor to execute notices issued under the Conveyancing Act on behalf of a lessor.
Many issues were raised by both Counsel in their submissions regarding the authority for lawyers to act, including whether the communications were privileged between client and solicitor, what was the actual authority of Mr Gilles, what was he instructed to do or not to do, what did Ms Fedeli mean when she referred to the authority of Mr Gilles in her evidence and cross-examination, and what was she advised by Ms Becker to do about receipt of a direction in the form of a notice from Ms Cordwell on behalf of the Lessor. Further, relevant witnesses were not cross-examined specifically on these issues, partly because of the lateness in the hearing when the issue of the validity of the exercise of the option was raised on behalf of the Lessor in the conduct of the case. Both sides then sought to draw Jones v Dunkel inferences that although witnesses were called and cross examined, certain questions were not put to those witnesses relating to the matters that are now canvassed and that inferences should be drawn as to what those witnesses would have said if those questions had been put to them.
Whilst I have some sympathy for the position of the Lessees that the raising of this issue of the authority to sign the exercise of option to renew the Lease within the closing submissions at the end of the lengthy hearing, that is to say it comes very late in the proceedings, should on the submission of the Lessees therefore be rejected, nevertheless the Tribunal views that this is a very important issue to be determined between the parties. However, its resolution is not easy given the current state of authorities and the specific terms of the Lease and the circumstances of this matter.
The first starting point for the Tribunal is that I am satisfied that Mr Gilles had the requisite authority from the Lessees when he signed the notice of exercise of option as that is exactly what the Lessees' desired and they have not wavered from this position. So there can be no question of Mr Gilles going outside of his instructions or authority to act.
Mr Hallion relied on the decision of White J in Zhang to assert that Mr Gilles was not authorised. The issue in Zhang was whether the lawyer had ostensible authority to commit the parties to a concluded agreement. The former clients of the solicitor, being the purchasers, sought to resile from the subsequent amendments made by the solicitor without, apparently, their authority. This case and other cases such as Pianta v National Firemen & Trustees Pty Ltd (1964) 180 CLR 146 also relied upon by Mr Hallion, are concerned with the authority of a solicitor to commit the clients to a binding and concluded contract and whether that authority of the solicitor was ostensible or actual in the circumstances, when that authority is now subsequently questioned by the former clients of the solicitor, who no longer seek to be bound by their solicitor's actions in relation to the concluded agreement.
As I have indicated, this is not the situation here. Rather, it is a question of whether the executed notice of exercise of option by Mr Gilles is a proper exercise and results in a binding agreement pursuant to clause 4.1 of the Lease. As I have said, I am satisfied that Mr Gilles had the requisite authority to commit his clients, the Lessees, to an exercise of the option to renew.
The next issue is whether the actual notice is to be served personally by the Lessees. The Tribunal finds the construction of clause 4.1 of the Lease by Mr Hallion on behalf of the Lessor, that the Lessees must serve the notice personally and not through an agent because there is no entitlement to do so in the Lease, as too restrictive in the context of actual physical service. Surely if the notice of exercise of option is served by a courier and not in the post or by personal service by the Lessees it is still served within the terms of the Lease and would be valid service and be regarded as a proper exercise of the option to renew.
In relation to whether the execution by Mr Gilles of the notice to exercise the option has the effect of creating the binding agreement pursuant to clause 4.1, the Tribunal finds it instructive that the parties have corresponded through their lawyers for some time before Mr Gilles was instructed to exercise the option. Irrespective of the precise nature of the correspondence, the correspondence was clearly about the Lease between the parties including references to the alleged breaches, the proposed development on the property and a proposed new lease between the parties.
Why clients seek to use lawyers is explained by Pincus JA in Kent v Hogarth (1995) QCA 472 as follows: A reason why people use solicitors in business transactions is to ensure that their dealings will be properly documented: One would not usually expect a solicitor, engaged in relation to a prospective contract, to have authority to contract orally, creating a situation fraught with the risk of dispute about the content and indeed the existence of the contract, a risk the avoidance of which is one of the purposes of engaging a solicitor.
The respective solicitors did not as far as the Tribunal is aware, communicate orally but reduced their communication to writing (as demonstrated by the voluminous evidence produced in this dispute), no doubt for the reasons advanced by Pincus JA. Consequently, there was a course of conduct adopted by the Lessor and the Lessees to have their communications conducted through their respective lawyers. As can be seen, correspondence sent directly to the Lessor was subsequently answered on the Lessor's behalf by the Lessor's lawyer Ms Cordwell. This form of communication included, in the Tribunal's view, notices under the Lease and also notices under relevant legislation, such as the Conveyancing Act. It was a course of conduct followed by the Lessor, who immediately upon receipt of the written communication from Mr Gilles enclosing the signed notice of exercise of option by him did not object to the exercise on the basis that it was not signed by the Lessees personally. The Lessor instructed Ms Cordwell to issue the s133E Notice.
The Lessor's position is that the option was not properly exercised by the Lessees because it was signed by Mr Gilles and not the Lessees personally. The Lease contains no provision for agents to do the acts that the parties are required to do themselves under the Lease and consequently, the option to renew was not validly exercised. However, the Lessor seeks to rely on the s133E Notice if it is found by the Tribunal that the Lessees have exercised the option to renew to deny the Lessees the option because of the failure by the Lessees to institute the proceedings as required under the s133E Notice. The s133E Notice and the direction to pay rent into a new bank account were both signed by Ms Cordwell personally and not by the Lessor.
Stevenson J. in New South Wales Netball Association Ltd v Probuild Construction (Aust) Pty Ltd VC 2015 08874 held in relation to the principle of general law not to approbate and reprobate at [41-42]: [41] In a passage cited with approval by the Full Court of the Federal Court of Australia in Acohs Pty Ltd v Ucorp Pty Ltd [2012] FCAFC 16 at [200] per Jacobson, Nicholas and Yates JJ, Browne-Wilkinson V-C put the matter this way in Express Newspapers plc v News (UK) Ltd (1990) 18 IPR 201 at 210: There is a principle of law of general application that it is not possible to approbate and reprobate. That means you are not allowed to blow hot and cold in the attitude that you adopt. A man cannot adopt two inconsistent attitudes towards another: he must elect between them and, having elected to adopt one stance, cannot thereafter be permitted to go back and adopt an inconsistent stance. [42] In Acohs, Jacobson, Nicholas and Yates JJ also referred with approval to the observations of McClure JA (as her Honour then was) in Mandurah Enterprises Pty Ltd v Western Australian Planning Commission [2008] WASCA 211. Her Honour at [109] and [110]: There is authority in Australian law for an independent doctrine of approbation and reprobation: Commonwealth v Verwayen (1990) 170 CLF 394 at 421-422 per Brennan J; Fried v National Australia Bank Ltd [2000] FCA 910. The doctrine is summarised in Halsbury's Laws of Australia, Vol 190 [190-35] as follows: A person may not "approbate and reprobate", meaning that a person, having a choice between two inconsistent courses of conduct and having chosen one, is treated as having made an election from which he or she cannot resile once he or she has taken some benefit from the chosen course. In Halsbury's Laws of England, Vol 60 [962] the authors state: Thus a claimant, having two inconsistent claims, who elects to abandon one and pursue the other may not, in general, afterwards choose to return to the former claim and sue on it; but this rule of election does not apply where the two claims are not inconsistent and the circumstances do not show an intention to abandon one of them.
Notwithstanding the earlier advice proffered to Ms Fedeli by Ms Becker on notices under the Lease, the Lessees clearly instructed Mr Gilles to exercise the option to renew the lease on their behalf. Mr Gilles signed the notice of exercise of option and sent it to the Lessor. Subsequently, he did not object to the execution of the s133E Notice by Ms Cordwell. However, the Lessor now objects to the execution by a solicitor, in effect as agent for the Lessee, in signing the notice of exercise of option. In these circumstances the Tribunal finds the Lessor is engaging in the conduct of approbating and reprobating. The Lessor having itself allowed its lawyer Ms Cordwell to sign the s133E Notice should not be allowed to object to the execution of the notice of exercise of option by Mr Gilles.
On reviewing the evidence, the Tribunal finds that the parties had adopted a course of conduct by way of business communication between their respective lawyers regarding the Lease, including the signing of notices. In adopting this course, the Tribunal finds that the Lessor waived the requirement under the Lease that the notice of exercise of option should be executed by the Lessees personally. This is consistent with the position that its own solicitor could sign notices under the Lease and did so in issuing the s133E Notice and the notice of redirection of rent.

[2008] WASCA 211

(1997) 43 NSW LR 4

(1964) 180 CLR 146

(1990) 18 IPR 201

(1982) 1 NSWLR 380

(2006) 15 VR 156

(2008) 73 NSWLR 68

(1957) 98 CLR 913

(1923) 33 CLR 115

(1976) 137 CLR 192