Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited

CASES CITED : Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited [2007] NSWSC 92 Newmont Yandal Operations Pty Limited v J Aron Corporation and the Goldman Sachs Group Inc [2007] NSWCA 195, (2007) 70 NSWLR 411

PARTIES : Greek Macedonian Club "Alexander The Great" Limited (plaintiff) Pan Macedonian Greek Brotherhood "Alexander The Great" NSW Limited (defendant)

COUNSEL : Mr H Danalis (solicitor) (plaintiff) Mr D L Warren (defendant)

SOLICITORS : H Danalis & Co (plaintiff) Spanko Soulos & Co (defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

6302/05 Greek Macedonian Club "Alexander The Great" Limited v Pan Macedonian Greek Brotherhood "Alexander The Great" NSW Limited JUDGMENT 1 HIS HONOUR: In these proceedings, in which the plaintiff Greek Macedonian Club "Alexander The Great" Limited sought an injunction restraining the defendant Pan Macedonian Greek Brotherhood "Alexander The Great" NSW Limited from taking possession of premises occupied by the Club at 160-164 Livingstone Road, Marrickville, of which the Brotherhood is the registered proprietor, asserting that it had an equitable leasehold estate in the premises, and the Brotherhood cross-claimed for possession, on the alternative bases that there was no such lease, and that if there was, the Club was in default in respect of payment of rent, I gave judgment on 16 February 2007 [Greek Macedonian Club Limited v Pan Macedonian Greek Brotherhood NSW Limited [2007] NSWSC 92], expressing the following conclusions: 86 The Club transferred No 170 to the Brotherhood, in reliance upon an expectation or assumption that it would have the benefit of a ten-year lease of the club premises at a concessional rent, being $40,000 per annum. The Brotherhood knew of and encouraged the Club's expectation and its reliant activity. The Club would suffer detriment if its expectation were now falsified, in that 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, and yet would not receive the "return" which it expected to receive for that transfer, namely a reduced rent for ten years. On the basis of a proprietary estoppel, the club is entitled in equity to a lease of the club premises for a term of ten years from 1 July 2003 at a rent of $40,000 (inclusive of GST) per annum. 87 As at 16 November 2005 when the notice of termination was served by the Brotherhood, the Club was in arrears of rent to the extent of $32,000. The Brotherhood was entitled to possession by reason of the Club's default in payment of rent according to its obligations under that equitable lease. 88 However, although there are some grounds for concern as to whether rent will be paid in the future, the Brotherhood is amply protected against that risk, because in the event of termination it will hold No 170 freed of the obligation to grant a concessional rent, and the Club should be granted relief against forfeiture, upon condition that it pay the arrears. 89 Balancing the prima facie entitlement of the Brotherhood to costs on the claim for possession and relief against forfeiture, with the prima facie entitlement to the Club of costs on the equitable lease issue, I am inclined to the view that there should be no order as to costs, to the intent that each party bear its own costs, but I will hear the parties if either wishes to contend for a different costs order. 2 I made orders as follows:

1. Declare that the plaintiff Greek Macedonian Club "Alexander the Great" Limited is entitled to a leasehold estate in the premises 160-164 Livingstone Road, Marrickville being part of the land comprised in Auto Consol 12083-31 for a term of ten years from 1 July 2003 to 30 June 2013 at a rent of $40,000 per annum. 2. Order that the defendant Pan Macedonian Greek Brotherhood "Alexander the Great" NSW Limited execute and deliver to the plaintiff a lease in registrable form complying with the declaration in order 1 and containing such other usual and reasonable terms and conditions as may be agreed by the parties and failing agreement determined by the court. 3. Upon the undertaking of the plaintiff to the Court to pay to the defendant by 23 February 2007 all arrears of rent under the lease in accordance with this judgment as at that date, order by way of relief against forfeiture that the defendant be permanently restrained from exercising any power of re-entry granted by or under the lease, in reliance upon any default of the plaintiff in respect of payment of rent prior to 23 February 2007. 4. Order that the cross claim be dismissed. 5. No order as to costs, to the intent that each party bear its own costs.

6. Grant liberty to either party to apply by arrangement with my associate: 6.1 to dissolve the injunction in order 3 if the arrears are not paid in accordance with the undertaking contained in it; 6.2 to set aside order 5 and for some other costs order in its place; 6.3 in the event of any difficulty arising in determining the arrears under the lease payable in accordance with order 3 or otherwise in connection with the implementation of these orders including in determining the terms of the lease. 7. Direct that these orders not be entered before 1 March 2007. 3 The parties have now agreed the terms of their lease, except in one respect. The lease proposed by the Brotherhood is exhibit DX102. In DX102, proposed clause 5 provides for the Club as lessee to pay to the Brotherhood as lessor an "Outgoings Contribution" including the whole of the council rates, water rates, land tax, building insurance premiums, public liability insurance premiums and pest control costs in respect of the premises. Whether the agreed concessional rent was a "gross" or "net" rent was not argued in the substantive proceedings. The orders make no specific reference to outgoings. By Notice of Motion filed on 20 March 2009, the Brotherhood applies for an order that the Club execute the draft lease in a form including the proposed clause 5. It argues that the judgment, properly understood, has the effect that outgoings are payable by the lessee to the lessor for the term of the lease; alternatively, that the payment of outgoings is a "usual and reasonable term" and ought to be included. The Club resists inclusion of such a term. 4 Although the orders are silent on the question of outgoings, the evidence was not, and in the substantive judgment the references to the critical conversations from which it was concluded that the estoppel arose touched on the issue. The circumstances from which the relevant assumption - that the concessional rent would be $40,000 per annum - arose, were described as follows: 24 … 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. 5 The judgment records subsequent negotiations between the parties, as follows (emphasis added): 32 Mr Constantinidis presided, and Mr Cosmidis and Mr Papadopoulos were amongst those present, at a meeting of the board of directors of the Brotherhood held on 4 February 2004. The minutes, which were prepared and signed by Mr Cosmidis, record that the president [Mr Constantinidis] had agreed with the committee [of the Club] to review the Club's rent from $9,000 monthly to $40,000 annually and to draw up a "license lease", and that a letter would issue to the Brotherhood to the effect that the Club would give some donation to the Brotherhood during the financial year. The minutes further recorded receipt of a donation of $10,000 from the Club, which was in effect payment of three months' rent. 33 Mr Papadopoulos says that Mr Constantinidis said: "I recommended that the rent for the Club should be $48,000 a year over ten years. Bill said that he thought that this was too much in view of the money put in by the Club for the purchase and the renovations and suggested $40,000 a year and we should accept $40,000 and the Club to continue to pay all the council rates, water rates and insurance on the building ". Mr Papadopoulos says he responded: "My board has agreed to this and because the house was transferred in May the new rent should start from 1 July 2003", that there was no contrary view expressed, and that Mr Cosmidis was instructed to contact Mr Danalis to draw up a lease. That part of Mr Papadopoulos' evidence was unchallenged. 34 Mr Constantinidis says that he said to the meeting: "Following the discussions with Bill [Papadopoulos] and the executive of the Club, the rent for the Club premises should be reduced to $48,000 over ten years. This will enable the Club to be repaid for the money it has spent. Bill proposed $40,000 and I think it's reasonable in view of the fact that the Club would also be paying the council rates, water rates and insurance for the Club's premises ". He says that this was carried unanimously at a vote. In re-examination, Mr Constantinidis said that (although it does not appear in the minutes) reference was made to the term of the proposed lease, as a ten-year lease with a ten-year option. 6 The evidence of Mr Constantinidis and Mr Papadopoulos was accepted: 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. … 7 It was against that background that I concluded (at [53]): 53 … 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. 8 In my view, the evidence establishes that the concessional rent of $40,000 per annum was agreed and accepted on the basis that the Club would pay council rates, water rates and insurances. That was not adverted to in the substantive judgment, because it was not a matter then apparently in dispute. 9 But the Club argues that the outgoings clause is not one of the "usual and reasonable terms and conditions" of a commercial lease, so that it is not within Order 2; and that if that be correct, then the proposed order could only be made pursuant to the "slip rule", but the circumstances are not within that rule. 10 Order 2 must be construed in the context in which it appears - immediately in conjunction with Orders 1 and 6.3, more remotely in the context of the reasons for judgment as a whole, and also in the context of the evidence. "Such other usual and reasonable terms and conditions as may be agreed by the parties and failing agreement determined by the court" does not mean, and was not intended to mean, only terms that were standard and would invariably appear in a commercial lease - had it been intended to bear that meaning, it would have been unnecessary to provide for agreement between the parties or determination by the Court. It was designed to describe a broad area within which the parties could negotiate or the Court could determine the remaining terms of the lease, having regard to the context and the evidence - an area that excluded the unusual and the unreasonable. Liberty was reserved to apply to the Court - as distinct from directing that the lease be settled by the Registrar - because the Court had heard evidence as to the negotiations and was best positioned, in the light of that evidence, to resolve any dispute. Part of the evidentiary matrix was the discussion about rates and insurances. It was precisely to permit resolution of this type of dispute that the orders were framed as they were. 11 What was usual and reasonable necessarily has to be judged by the basis on which the concessional rent of $40,000 was agreed. The evidence of Mr Tzannes establishes, at least, that a term that obliges the lessee to pay outgoings is not unusual, although, as with any other term, the parties may or may not in an individual case agree to include it. 12 In my view, the relief sought by the Brotherhood can be granted pursuant to the liberty to apply reserved in Order 6.3. But if I am wrong in that respect, and by adopting the word "usual" in Order 2 I have so limited the liberty that this relief cannot now be granted, that was an unintended result which could be corrected in the inherent jurisdiction, if not pursuant to the "slip rule" [see Newmont Yandal Operations Pty Limited v J Aron Corporation and the Goldman Sachs Group Inc [2007] NSWCA 195, (2007) 70 NSWLR 411, [18]-[19]]. 13 For the Brotherhood, Mr Warren submits that there was then no mention of land tax, because land tax was not then payable by the Brotherhood, but that it is an outgoing as much as water rates and council rates and should similarly be payable. However, land tax is assessed on the whole of a landowner's holdings, on an annual basis, and is not referable to a specific property in the same direct manner as rates. Moreover, it was not discussed at the time. While it is true that it would diminish the benefit to the Brotherhood as lessor, below what might have been anticipated at the time of the negotiations, it would also increase the cost to the Club as lessee above that which was then anticipated. Unlike rates and insurance, payment by the Club of land tax was not implicit in the agreement that the concessional rent would be $40,000. Conclusion 14 My conclusions may be summarised as follows. 15 The concessional rent of $40,000 per annum was agreed and accepted on the basis that the Club would pay council rates, water rates and insurances. However, this did not extend to land tax. 16 The court can grant relief to reflect this under the liberty to apply reserved by Order 6.3, but if I am wrong in this and, by use of the word "usual", Order 2 limits that liberty, it was not intended to do so and relief may therefore be granted in the inherent jurisdiction if not pursuant to the "slip rule". 17 The costs of this application are incidental to the costs of the proceedings, in respect of which, for reasons previously given, I made no order, to the intent that each party bear its own. Moreover, each party has had a measure of success and a measure of failure. There should be no order as to costs of this application. 18 My orders are: 1. Order that the lease referred to in order 2 made on 16 February 2007 be in the form of Exhibit DX102, subject to the omission from clause 5 of para (a)(C) (land tax).

2. No order as to costs of the motion filed on 20 March 2009, to the intent that each party bear its own costs. **********

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