Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited

Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited - [2007] NSWSC 92 - NSWSC 2006 case summary — Zoe

[14]

3 The Brotherhood, which was incorporated in or about 1993, is the corporate successor of the former unincorporated association known as Pan Macedonian Greek Brotherhood Alexander the Great established in about 1960, when it operated from premises in Newtown. The Club was incorporated in or about 1972 as Marrickville Businessmen's Club Limited and operated a registered club under that name at 160-164 Livingstone Road, Marrickville. On 3 February 1984, several members of the Brotherhood purchased from the liquidator of Marrickville Businessmen's Club Limited the assets of that company, including its property at 160-164 Livingstone Road, the assets, furniture, fittings and effects of the licensed club and restaurant operated by the Marrickville Businessmen's Club, and the share capital in Marrickville Businessmen's Club Limited, and shortly thereafter the Brotherhood resolved to ratify the actions of the Committee and pay all expenses in relation to the purchase; the property at No 160-164 Livingstone Road was transferred to trustees for the Brotherhood. Marrickville Businessmen's Club Limited was reconstituted as a company limited by guarantee, and renamed as Greek Macedonian Club "Alexander the Great" Limited. Since then, it has operated a club from No 160-164 Livingstone Road, and has paid rent to the Brotherhood (initially the unincorporated association, and since 1993 its incorporated successor), initially at the rate of $7,500 per month. This was reduced in late 1985, during an early period of financial difficulty, to $3,333.33 per month, but by early 1989 the Club had brought the rent account up to date at the original rate of $7,500 per month, and from about 1990 until the events in 2003 which precipitated this litigation, the Club was paying rent at the rate of about $9,000 per month. 4 Mr Cosmidis deposed that, notwithstanding the close relationship between the two entities, there had always been a clear division between the functions of each, with the Brotherhood focussing upon social and cultural matters (including for example the observance of Greek tradition, promotion of the Greek language and maintenance of links between members of the wider Greek community in Australia) and management of the real estate, and the Club operating a Greek social club with licensed premises and restaurant facilities.

[15]

5 There is no formal written lease between the Brotherhood and the Club. The Club has never paid the Brotherhood for the furniture, fittings and effects (which in the contract of purchase had a value attributed to them of $44,000). It is not clear whether the lease of the premises by the Brotherhood to the Club included a lease of the furniture, fittings and effects, but the Club had plainly had the use of them, and it is more likely that it was simply assumed that the right to use them was included in the lease. However, I am unpersuaded - as was suggested from time to time in the course of the Brotherhood's evidence and argument - that the Club holds its assets and undertaking upon trust for the Brotherhood. First, although the Club and the Brotherhood have an overlapping membership, their memberships are not identical. Secondly, if - as the Brotherhood suggests - the underlying purpose of the acquisition was to set up a club facility for the cultural group served by the Brotherhood, the benefits conferred on the Club are no less likely to have been intended to be a gift, than to be held on a resulting trust for the Brotherhood. Thirdly, the accounts of the Club and the Brotherhood reflect that they are separate entities, each with its own assets; they contain no suggestion that the Club's assets are held upon trust for the Brotherhood. 6 In aid of the contention that the Club's assets were held upon trust for the Brotherhood, reference was made to the circumstance that the Brotherhood expended its own moneys on the renovation and repair of the club premises. However, this does not in fact assist the contention: the Brotherhood was the registered proprietor of the land, and such expenditure on the premises maintained or improved its own real property. Nor is the Brotherhood's contention advanced by the circumstance that a concessional rent was accepted for a while in the mid-1980s, nor later in 1996: that there were negotiations in respect of the arrears, and an insistence on part-payment, with the payments ultimately being brought up to date, is at least as consistent with an arm's length relationship, as it is with a trust.

[25]

22 According to Mr Constantinidis, at the Annual General Meeting of the Brotherhood, his report was to the following effect: The Club has agreed to transfer the house to the Brotherhood. The Brotherhood will take over the balance of the loan to the Commonwealth Bank. The house will be used by the Club to house the entertainers and we will reduce the rent that the Club is paying. 23 I do not regard the absence of specific reference in the minutes to the terms of the transfer as telling strongly against Mr Constantinidis' version, which I accept, given that reference to a reduced rent was recorded in the minutes of the Club's AGM only three weeks earlier, and my general acceptance of Mr Constantinidis for reasons explained below. 24 A transfer of No 170 from the Club to the Brotherhood, expressed to be for a consideration of $1, signed on behalf of the Club by Mr Papadopoulos as president and Mr Cosmidis as secretary, and on behalf of the Brotherhood by Mr Papadopoulos as treasurer and Mr Cosmidis as secretary, was stamped with duty on $380,000 on 17 December 2002, but not registered until 26 May 2003. Negotiations as to the detail of the arrangements continued in the interim. Mr Constantinidis - then on behalf of the Brotherhood - had conversations with the Club executive headed by Mr Papadopoulos, in which Mr Constantinidis proposed a rent following transfer of No 170 of $48,000 per annum for a term of ten years. Mr Constantinidis explained the theory underlying this as being that the house was regarded as being worth $550,000, subject to a mortgage of $50,000 to the bank, so that ten years at a concession of $50,000 a year would pay for the equity in the house. [Given that the Club was paying $90,000 rent for 2002-2003, discounted from $108,000 per annum, the mathematics of this is not precise, but the rationale is clear enough]. Mr Papadopoulos pointed out that another $100,000 had been spent by the Club on extensions and renovations and suggested $40,000 a year; Mr Constantinidis said that that sounded pretty fair, and also agreed to the use of the house for entertainers, but only for five years. 25 In May 2003, the transfer was registered. Subsequently, the Brotherhood paid out the balance of the mortgage on No 170. 26 Mr Papadopoulos thereafter instructed the solicitor Mr Danalis to draw up a lease in respect of No 170, and a lease for a term of five years was prepared and submitted by Mr Danalis to Mr Papadopoulos on 19 June 2003.

[34]

39 On the other hand, the evidence of Mr Constantinidis was substantially corroborated by documentary material. It was not undermined in cross-examination. The evidence of Mr Papadopoulos was substantially consistent with that of Mr Constantinidis, although there were unsurprising and relevantly insignificant differences and inconsistencies as to dates. I accept that there were conversations between Mr Papadopoulos on behalf of the Club and Mr Constantinidis on behalf of the Brotherhood in which they reached a mutual understanding that in return for the Club transferring No 170 to the Brotherhood, the Brotherhood would reduce the Club's rent, and that subsequently greater precision was reached to the effect that the Club would pay $40,000 per annum for a term of ten years. First, it tells strongly in favour of that conclusion that both principals to the negotiations, Mr Papadopoulos for the Club and Mr Constantinidis for the Brotherhood, substantially agree that that is what was discussed and agreed, although the strength of that factor is somewhat diminished by their present common interest on behalf of the Club. Secondly, the substance of such an arrangement accords with what is recorded in the minutes of the Club. Thirdly, such an arrangement is recorded in substance in the minutes of the Brotherhood, signed by Mr Cosmidis; his explanation that this was a short term rent review is in the circumstances implausible, particularly given the contemporaneous proffer of a donation and the absence of any reference to the Club being in difficult circumstances. 40 Fourthly, there is no indication of any complaint or protest about non-payment of $9,000 a month until October 2005, during which period the Club paid reduced amounts, much more consistent with $40,000 per annum. Between 4 February 2004 and 5 December 2005, the Club paid a total of $70,000 to the Brotherhood. Finally, the minutes of the Club's Annual General Meeting on 12 December 2004, at which Mr Papadopoulos presided, record: Mr Pantzouris asked about the loss for the year and why the rental paid was so low. Mr Biskitzidis explained that the loss of $60,000 was about the same as the depreciation costs. The rental with the Brotherhood is at $40,000 per year now that the house had been transferred and the lease agreed. The Club has also paid for all the maintenance costs, fencing and legal fees. Also the security costs had doubled as it was now compulsory at the Club door. The president informed the members that the board had agreed to a further donation of $30,000 to the Brotherhood since the 30th June making it a total of $40,000 to date. 41 Although this post-dates the transfer, it records the then understanding of the arrangements. Mr Papadimitriou deposed that at a board meeting of the Brotherhood on 28 November 2004 there was a vigorous discussion between Mr Cosmidis and Mr Constantinidis about the Club's "unpaid rent", and that Mr Constantinidis made no mention of the transfer of No 170 or any proposition that the Club pay a lower rental at that meeting. No minutes of that meeting have been produced. Mr Cosmidis gave no evidence of any discussion about alleged arrears of rent at that meeting. The Brotherhood did not produce minutes of that meeting, despite a notice requiring their production. In light of the minutes of 4 February 2004 of the Brotherhood's directors, and the Club AGM minutes of 12 December 2004, in each of which reference was made to a reduced rent for the Club premises, Mr Papadimitriou's version is implausible, and I do not accept it.

[39]

Is the Club entitled to a lease? 48 The Club contends that it transferred No 170 to the Brotherhood in reliance upon an expectation or assumption, of which the Brotherhood knew, that the Club would have the benefit of a ten year lease of the club premises at a concessional rent, being $40,000 per annum. The Brotherhood denies that there was any such arrangement, in October 2002 or at any other time, and contends that the transfer was, as recorded in the Club's financial statements, by way of gift. 49 The basis in equity of the Club's claim is properly to be seen as falling in the rubric of equitable proprietary estoppel. Equity comes to the relief of a plaintiff who has acted to its detriment on the basis of a fundamental assumption in the adoption of which the defendant has played such a part that it would be unfair or unjust if the defendant were left free to ignore it; equity intervening on the footing that it would be unconscionable for the defendant to deny the assumption [Grundt v Great Boulder Gold Mines Limited (1937) 59 CLR 641, 675; Thompson v Palmer (1933) 49 CLR 507, 547; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 404 (Mason CJ and Wilson J)]. It is essential to an equitable estoppel that the defendant knows or intends that the party who adopts the assumption will act or abstain from acting in reliance on it [see Crabb v Arun District Council [1976] Ch 179, 188; Waltons v Maher, 423 (Brennan J)]. Such knowledge or intention may easily be inferred where the adoption of the assumption or expectation is induced by the making of a promise, though it may also be found where the defendant encourages a plaintiff to adhere to an assumption or expectation already formed, or acquiesces in an assumption or expectation when in conscience, objection ought to be stated [Waltons v Maher, 423 (Brennan J)]. The unconscionability which attracts the intervention of equity is the defendant's failure, having induced or acquiesced in the adoption of the assumption or expectation, with knowledge that it would be relied on, to fulfil the assumption or expectation or otherwise to avoid the detriment which that failure would occasion [Waltons v Maher, 423 (Brennan J)].

[40]

50 Generally speaking, the matters that a plaintiff must establish to found such an equitable estoppel may be characterised as including certain conduct of the plaintiff, certain conduct of the defendant, and certain qualities of the subject matter which may be sufficiently summarised as follows [cf Young v Lalic [2006] NSWSC 18, [74]; O'Neill v Williams [2006] NSWSC 707, [40]]. First, as to the conduct of the plaintiff, that the plaintiff acted, or abstained from acting, in reliance upon an assumption or expectation that a particular relationship existed, or would exist, between the plaintiff and the defendant, or that the plaintiff had or would acquire some interest in the defendant's property. Secondly, as to the conduct of the defendant, that the defendant induced the plaintiff to adopt the assumption or expectation and encouraged the reliant activity of the plaintiff, or at least failed to deny the assumption or expectation with knowledge that the plaintiff was relying on it to the plaintiff's potential detriment and that the expectation could be fulfilled only by transfer of the defendant's property, a diminution of the defendant's rights, or an increase in the defendant's obligations. Thirdly, as to the subject matter, that the assumption or expectation in respect of it was one that the defendant could lawfully satisfy [see generally Waltons v Maher, 428-429 (Brennan J); Meagher, Gummow & Lehane, Equity: Doctrines & Remedies, 4th ed, [17-105]]. 51 The doctrine has been applied in the context of leasehold interests. While Waltons v Maher is perhaps the paradigm in this context, in Taylors Fashions Limited v Liverpool Victoria Trustees Co Limited [1981] 1 All ER 897, specific performance was granted of a contract to renew a lease, an option to renew being unenforceable due to lack of registration, where, both parties not appreciating that the option was invalid, the lessor had improved the premises in expectation of exercising the option and the lessor knew of the lessee's activities. 52 Although it is often said that to found an estoppel a representation must be clear and unequivocal [Woodhouse AC Israel Cocoa Limited SA v Nigerian Produce Manufacturing Co Limited [1971] 2 QB 23, 60; Legione v Hateley (1983) 152 CLR 406, 436-437 (Mason & Deane JJ)], a representation that is insufficiently precise to give rise to a contract may nonetheless found an estoppel [Australian Crime Commission v Gray [2003] NSWCA 318, [184]-[200] (Ipp JA); Galaxidis v Galaxidis [2004] NSWCA 111, [81]-[93] (Tobias JA)]. As Brooking JA said in Flinn v Flinn [1999] 3 VR 712, 738, "a promise may be definite in the sense that there is a clear promise to do something even though the something promised is not precisely defined, and this has always been recognised in the cases". 53 In the present case, the relevant reliant activity of the Club was the transfer to the Brotherhood of No 170. The negotiations between Mr Constantinidis for the Brotherhood and Mr Papadopoulos for the Club to which I have referred demonstrate that the Club assumed or expected that it would have a lease of the Club premises at a concessional rent to compensate it for the transfer. The negotiations between Mr Papadopoulos and Mr Constantinidis, and the Club AGM minutes for 2003 and the Brotherhood's director's minutes of 4 February 2004, tell against the proposition that the transfer was as a gift. In a sense there was a "gift", in that the consideration was expressed to be $1.00 and no price was payable on the transfer; but that is not inconsistent with an accompanying representation, expectation or assumption that the Club would be granted a concessional lease.

[46]

Q. You as the president of the Club and as a member of the board of directors, you took the step of paying a reduced rent on the basis that, given that the property had been transferred, that the Brotherhood would be prepared to provide financial accommodation of that type to the club as the need arose? A. Yes. 57 Mr Miller, for the Brotherhood, submits that this is fatal to the Club's claim. I disagree. First, the question that focuses on what the Club "should reasonably expect" in return from the Brotherhood is simply not relevant. The issue is what expectation or assumption the Club in fact entertained to the knowledge of the Brotherhood, not what it should reasonably expect. Next, Mr Papadopoulos did not assent to the proposition that mere continuation of financial and other cooperation were his expectations in May 2003; to the contrary, he referred specifically to the rent reduction from $9,000 a month to $40,000 a year. Thirdly, the cross-examiner never put, and Mr Papadopoulos never agreed, that he did not entertain at the relevant time an assumption or expectation that there would be a lease at a concessional rent. I do not regard the answers set out above as involving any departure from, let alone abandonment by Mr Papadopoulos of, the suggestion that he on behalf of the Club assumed that in return for the transfer the Club would be granted a lease at a concessional rent. 58 Accordingly, the Club transferred No 170 to the Brotherhood in reliance upon the expectation that it would be granted a lease at a concessional rent of $40,000 per annum for ten years. The only evidence as to the commencement date is that of Mr Papadopoulos, to the effect that the reduced rent would commence with effect from July 2003. Although in fact rent at $9,000 per month was paid until September 2003, the better view is that as July 2003 was discussed and apparently accepted on the basis that the transfer took place in May 2003, 1 July 2003 should be adopted as the commencement date. 59 As to conduct on the part of the defendant, the Brotherhood, through Mr Constantinidis, plainly induced the Club to adopt the relevant expectation, and promoted and encouraged the Club's reliant activity namely the transfer of No 170. The negotiations between Mr Constantinidis and Mr Papadopoulos, and the statements made by him at the 2002 Brotherhood AGM, implicate the Brotherhood both in the creation of the expectation, and in encouragement of the transfer. 60 As to the subject matter, the grant of a lease at a concessional rent is plainly something that the Brotherhood could lawfully do. 61 Mr Miller advanced an argument that "in the light of the overall financial relationship between the two entities over relevant years", as at June 2006 the Club had not suffered any material detriment from the transfer of No 170 to the Brotherhood albeit for nominal consideration. Elaborating this submission, it is said that there has been an overall cooperative relationship between the parties, with the Club guaranteeing borrowings of the Brotherhood, and the Brotherhood at times granting concessions to the Club. More particularly, it was submitted that - assuming rent of $9,000 per month - the Club had enjoyed the benefit of financial accommodation from the Brotherhood to the extent of (a) in the order of $330,000 uncollected rent, (b) $250,000 on renovations to the club premises; (c) $140,000 which the Club could have earned in rent from 170 Livingstone Road; and (d) $45,000 being the Club's debt to the Commonwealth Bank secured on 170 which was discharged by the Brotherhood. In addition, it was said that the Club has had the benefit of the business assets of the registered club, which were purchased by the Brotherhood and for which the Club has never paid. 62 These submissions are misconceived. First, to the extent that in earlier years prior to the transfer of No 170 the Brotherhood has sometimes permitted rent concessions to the Club is simply irrelevant to the question of whether detriment would be occasioned to the Club now if the truth of its assumption or expectation were denied, and if since the transfer, rent has been paid only in conformity with the assumption as to a concessional rent, that is not to be offset against any potential detriment. Secondly, the renovations were to the Brotherhood's premises, which it leases to the Club; that is not financial accommodation for the Club. Thirdly, the circumstance that the Club had the use of No 170 before the transfer, and after the transfer had use of part of it, in accordance with the understanding at the time of the transfer, is not financial accommodation provided by the Brotherhood for the Club. Finally, the circumstance that the Brotherhood paid the mortgage of about $45,000, which was the only encumbrance on No 170 at the time of its transfer to it when it was worth at least $380,000 and perhaps $550,000, is hardly equivalent to the benefit received by the Brotherhood from the transfer. While it is true that the Club has had the benefit of the business assets of the registered club which were originally purchased by the Brotherhood, that is to be explained either on the basis that they were given to the Club by the Brotherhood, or that they are leased with the premises. Much has been made by the Brotherhood of the circumstance that reduction of the rent from $108,000 to $40,000 per annum would impose a significant strain on the finances of the Brotherhood. So it might, but these arguments are not only irrelevant; they overlook that the transfer to the Brotherhood for nominal consideration of a property - for which a market appraisal had been obtained at $380,000, but the parties apparently regarded as worth $550,000 - was a very great benefit to the finances of the Brotherhood. 63 But the more important answer is that the true issue on detriment is whether the plaintiff would suffer detriment if the assumption on which it acted were now falsified. Plainly it would: it would have transferred No 170 to the Brotherhood absolutely, for nominal consideration, when but for its expectation of a concessional lease it would not have done so, yet it would not receive the "return" which it expected to receive for that transfer, namely a reduced rent for ten years. The historical evaluation and balancing of dealings between the Club and the Brotherhood is irrelevant to this exercise. 64 Accordingly, in my opinion, the Club has established the elements of an equitable proprietary estoppel the consequence of which is that it is entitled in equity to a leasehold interest in the club premises for a term of ten years from 1 July 2003 at a rent of $40,000 per annum.

[47]

Cross-claim for possession - arrears of rent 65 However, the Brotherhood contends that it is entitled to possession in any event, because the Club is in default even of the terms of such a concessional lease. 66 The minutes of the Brotherhood's board meetings in July, August, September and October 2005 suggest that the Club was in difficulty and in arrears of rent. The Brotherhood contends that, as a result of overpayments in 1999 and 2000 and underpayments in 2001, 2002 and 2003, there were already arrears of $46,582 as at 30 June 2003. On the basis that the concessional rent commenced on 1 October 2003, the Brotherhood calculates that the arrears as at December 2005 amounted to $107,264. On the alternative basis that the concessional rent commenced from 1 July 2003, it calculates the arrears as at December 2005 as $88,562. If the rent outstanding as at 1 July 2003 is removed, those figures reduce to $59,782 and $41,070 respectively. Accordingly, the Brotherhood submits that even if credit is given for the payment of $20,000 tendered on 5 December 2005, on the scenario most favourable to the Club it would have been in arrears by at least $21,070, which is equivalent to more than six months of rent at the concessional rate. 67 However, these calculations invite a number of comments. First, in respect of the years 2001, 2002 and 2003, rents of $87,273, $96,545 and $90,000 respectively were paid, according to the annual audited accounts for those years, which show no outstanding rent. In addition, the accounts for each of those years contain a statement "the company charges the Club rent for use of the company's premises. The amount charged for the year was $87,273 (2001) [$96,545 (2002), $90,000 (2003)]". Mr Constantinidis gave unchallenged evidence that for those three years, and taking into account capital works performed by the Club on behalf of the Brotherhood, the rental was adjusted to ten payments of $9,000 per month instead of twelve payments. The financial statements apparently reflect that agreement. On the other hand, the financial statements also reflect that more than $108,000 was charged in some earlier years. On the available evidence, I am not satisfied that the rent should be regarded as either in arrears or in advance as at 30 June 2003, and the start point from that date should be a zero balance. This is particularly supported by the absence of any asset for unpaid rents or any liability for overpaid rent in any of the financial statements for that period.

[49]

Is the Club entitled to relief against forfeiture? 71 However, the Club submits that in that event it is entitled to relief against forfeiture. 72 Relief against forfeiture is ordinarily given to a lessor whose sole breach is non-payment of rent, where the rent has now been paid, although the matter always remains discretionary [Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Limited (1970) 2 BPR 9562]. The burden of establishing that a forfeiture for non-payment of rent should not be relieved against, where all arrears of rent have been paid and where no interested third parties have intervened, is a very heavy one which normally involves demonstrating that, by reason of the conduct of the lessee, or otherwise, the grant of relief would be inequitable [Pioneer Quarries; Steiper v Deviot Pty Ltd (1977) 2 BPR 9602; Tutita Pty Ltd v Ryleaco Ltd (1989) NSW ConvR 55-486; Hayes v Gumbola (1986) 4 BPR 9247; Cicinave Pty Ltd v Jasco Pty Ltd (1989) 5 BPR 11,139; Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd (1995) 7 BPR 14,326, 14,329; Mineaplenty Pty Ltd v Trek 31 Pty Ltd [2006] NSWSC 1203, [67]]. 73 Although it was once the case that before relief against forfeiture would be granted, the relevant breaches and if need be the forfeiture must first be admitted by the plaintiff [Langley v Foster (1909) 10 SR (NSW) 54; T Hyland Enterprises Pty Limited v Alliance Acceptance Co Limited (Powell J, 2 October 1984, BC8400245)], there is no reason in equity why a tenant who bona fide disputes that it has been in breach of an obligation under a lease should be denied relief against forfeiture for that breach if it is ultimately established. This was illustrated by Helman J's decision in World by Nite Pty Ltd v Michael [2004] 1 QdR 338, holding that where there was a genuine dispute between a landlord and tenant (in that case, as to the obligation to pay certain insurance premiums), and the tenant had undertaken to remedy its default and the landlord could be put in the same position as before forfeiture, the tenant would ordinarily be entitled to such relief. In that case, the disputed obligation to pay premiums was litigated in the proceedings for relief against forfeiture; the tenant failed on that dispute, and Helman J concluded that since the issue was resolved adversely to the applicant, its refusal to pay the premiums was contrary to its obligations under the lease, so that the respondents were entitled to re-enter, but his Honour nonetheless granted relief against forfeiture (at 343-344): A tenant is not entitled to relief against forfeiture as a right. The Court has a discretion in the matter. The test is one of unconscionability. In a recent case in which there had been a forfeiture for non-payment of rent Barrett J put the test in this way: "whether, in the light of the tenant's remedying of the default in the payment of rent, resort by the landlord to his strict legal right of re-entry would be unconscionable; or, if I may put this another way, whether the tenant has been guilty of conduct over and above the remedied default in payment of rent which is of such gravity that, even accepting that the default for which the right of re-entry is security has been satisfied, it would not be unconscionable on the landlord's part to insist on his strict legal right." ( Tannous v Cipolla Bros Holdings Pty Ltd (2001) 10 BPR 18,563, at 18,568). "If arrears of rent, costs and interest are paid and the lessor can be put into the same position as before forfeiture or re-entry, the lessee will ordinarily be entitled to relief absent 'very special circumstances'.": Meagher, Gummow and Lehane's Equity Doctrines and Remedies , (4th ed., 2002), para 18-025, p 581. Those statements of principle apply mutatis mutandis to the circumstances of this case in which the default relied on is in the payment for something other than rent and about which there was a genuine dispute, but which default the tenant has undertaken to remedy. 74 In Mineaplenty, I concluded that where the tenant had disputed its liability for certain alleged arrears of rent but indicated at the outset of the hearing that if the issue were resolved adversely to it it would pay those arrears, the circumstance that it disputed liability and whether there was any breach did not deprive it of a claim for relief against forfeiture, at least so long as the dispute was bona fide [Mineaplenty, [70]]. In World by Nite, Helman J granted relief against forfeiture on conditions, which included payment of the outstanding insurance premium. Ultimately, the applicant's counsel informed the court that it could not pay the amount of the outstanding premium, whereupon the application was dismissed and an order for possession made. 75 I take it to be implicit in the Club's submission that it should be granted relief against forfeiture that it undertakes to pay such arrears as I might find to be due. 76 Here, the Brotherhood submits that relief should be refused having regard to the long history of wilful disregard of the obligation to pay rent, particularly where the club knew that the Brotherhood was reliant upon the rent for a very substantial proportion of its revenue, and despite demands for payments repeated over a period of several months during 2005. The Brotherhood relies on the following matters: · The Club was either unable or unwilling to pay its rent as it fell due at least through the second half of 2005, as appears from the statements made on its behalf at the Brotherhood's board meetings referred to above; · If, as appears to be the case, the Club had cash reserves of $200,000 or more in December 2005, or thereabouts, far from assisting the Club, that demonstrates that the failure to pay was wilful; · The tender of $20,000 on 5 December 2005, 19 days after service of the notice, was too late, and in any event was an implied admission by the Club that rent was then at least six months in arrears; · It follows that the $10,000 paid in August 2005 must have been at best for the months April, May and June 2005, and was itself late. 77 In considering whether relief against forfeiture should be declined, it is necessary to consider the conduct of the lessee, the nature and gravity of the breach, and its relationship to the value of the property that might be forfeited. Relief is granted in respect of wilful breaches only in exceptional cases, and is not granted where future compliance appears unlikely [Shiloh Spinners Limited v Harding [1973] AC 691, 725-6 (Lord Wilberforce)]. Thus in Shiloh Spinners, Lord Wilberforce concluded that the refusal of relief was justified by a case of clear and wilful breaches of more than one covenant which if individually not serious were certainly substantial, and of continuous disregard by the respondent of the appellant's rights over a period of time, and a total lack of evidence regarding the respondent's ability to speedily and adequately make good the consequences of default, and finally a failure to show any disproportion between the expenditure required and the value of the interest involved as to amount to a case for hardship. In Batiste v Lenin [2002] NSWCA 316, the Court of Appeal upheld a decision of Bryson J, as his Honour then was, refusing relief against forfeiture where there had been a failure to pay rent for long periods, in circumstances where the tenant failed to demonstrate any ability to pay rent up to date, in the light of other breaches of covenant which extended far beyond failures to pay money, and the absence of any expression of readiness to comply with a covenant relating to fire stairs.

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78 Although it is sometimes said that relief should be given to a tenant whose rent is not in arrears for more than six months if the rent is paid [Wynsix Hotels (Oxford St) Pty Ltd v Toomey, [2004] NSWSC 236 [22]-[23]], the jurisdiction to grant relief against forfeiture is not limited to such a case and extends to one in which the arrears exceed six months. The "statutory flavour" for the proposition derived from (NSW) Landlord & Tenant Act 1899, ss 8, 9, referred to by Young CJ in Eq in Wynsix v Toomey, has to be seen in light of the express provision in s 8(3) and s 9 for application to be made for relief against forfeiture notwithstanding that the rent is six months in arrears. Indeed the effect of s 8 was that application for possession could only be made once the rent was six months in arrears, and notwithstanding even six months' arrears, application for relief against forfeiture might thereafter be made. Generally speaking, relief against forfeiture for failure to pay rent is refused only in cases of consistently lengthy defaults which support an inference that even if relief be given it is reasonably likely that the rent will not be paid punctually in the future [Jam Factory v Sunny Paradise Pty Ltd [1989] VR 584, 591; Hace Corp Pty Ltd v F Hannan (Properties) Pty Ltd]. In World by Nite, there had been default for six of eight months in the last year of the currency of the lease, but relief was still granted. 79 The evidence establishes that at a time when the Club was protesting its inability to pay more than it had paid to the Brotherhood, it in fact had cash reserves of in the order of $200,000. To that extent, I accept that there was a "wilful" aspect to its default, and that is a matter of significance on an application for relief against forfeiture. Nonetheless, it has to be seen in the overall context, which includes the following: · For very many years, since the mid-1980s, the Club paid rent to the Brotherhood in accordance with the arrangements made between the two entities from time to time. Those arrangements were flexible in the sense that in some years the Brotherhood accepted less than the full $9,000 per month, and in other years the Club paid more to make up the arrears from the past. But overall there was a very lengthy history of general compliance with the obligation to pay rent, albeit that there was a degree of flexibility. · There was no formal lease specifying any particular date for payment of any particular instalment of rent, and there does not appear to have been any established pattern in the past. · When the rent was changed from $9,000 per month to $40,000 per annum, the parties did not address whether it was payable in advance, or by any and if so what instalments. At least until the later half of 2005, payments on account of rent were made apparently sporadically without objection. · At least until late 2004, there was a substantial overlap of persons involved in the management of the Brotherhood and those involved in the management of the Club. Their relations were on a basis that until that point had provided flexibility for the Club when its financial circumstances required it. Following the change in control of the Brotherhood in late 2004, there appears to have been a falling out in about mid-2005. To the extent that there was a wilful element in the Club's non-payment of rent, that falling out initiated it, and the view that any moneys paid by the Club to the Brotherhood would be used to fund litigation against the Club. While that does not justify the Club's position, the circumstance that it was an attitude adopted in the context of the breakdown of a previously harmonious relationship mitigates the severity of an intentional refusal to pay, particularly in circumstances where the Brotherhood had in effect repudiated the arrangement for reduction of rent. The context provided by the Brotherhood's demand for arrears at the original rate, despite the parties' arrangements for a concessional rent, also mitigates to some extent the severity of an intentional refusal by the Club to pay. · When demand was made, the Club tendered $20,000 that was returned on 13 December 2005. While not entirely rectifying the default, this payment if accepted would have reduced the arrears to $12,000. The state of the rent account as at late 2005 was confused and unclear to the parties, given the dispute as to the applicable rate of rent, whether GST was payable, and the consequences of overpayments and underpayments in previous years.

[51]

80 When the notice purporting to terminate the lease was issued, the rent was approximately $32,000 in arrears. On the other hand, the Club had occupied the premises and paid rent reliably for 20 years. There was a bona fide dispute as to the balance of the rent account, and the Brotherhood had inflated its claim not only by ignoring the arrangement for a concessional rent, but by adding a claim for GST and failing to give credit for rent concessions in 2001, 2002 and 2003. At trial, there was a legitimate dispute as to whether or not there were arrears: if credit were given for the overpayments in 1999 and 2000, there would not have been any. 81 If relief against forfeiture were not granted, the consequences for the Club would be extreme. Not only would it lose its main asset, the benefit of the leasehold, but it would also lose the ongoing benefit for which it transferred No 170 to the Brotherhood. On the other hand, there would be an enormous windfall to the Brotherhood, in that it would retain No 170, freed of any obligation to return to the Club the benefit of a reduced rent for the Club premises for ten years. The circumstance that such a benefit would accrue to the Brotherhood is very telling on a question of relief against forfeiture [Wynsix v Toomey, [63]-[70]]. 82 While judgment was reserved, the Brotherhood made an application to terminate the interlocutory injunction, upon the grounds that the Club had not complied with its obligation to pay rent of $3,333.33 per month. By the time that application was listed, the Club had remedied that default. Although that circumstance has caused me concern as to whether rent will be paid in the future, the practical protection which the Brotherhood has - that in the event of termination it will be freed of the obligation to grant a concessional rent - persuades me that it is nonetheless still appropriate to grant relief. In short, the Brotherhood is amply protected against the risk of future default, by the circumstance that in the event of a further default justifying re-entry, it will then hold No 170 freed of any obligation to give a concessional rent. Relief against forfeiture should be granted.

At a glance

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Judgment (64 paragraphs)

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Cases Cited (11)

Cited By (8)