H.T.H. Nominees Pty Ltd atf Hudson Property Trust v Secure Parking Pty Ltd [2022] NSWSC 931 | Case summary

Summary of salient evidence

Prior to entry into the lease, Secure had for some time managed the 131 Macquarie Street car park pursuant to a management agreement. However, in about mid-April 2015, discussions commenced between representatives of the Hudson Property Trust and representatives of Secure about a lease of the car park to Secure. On the Hudson Property Trust side, the discussions involved Mr John Farey (a director of HPG) and Mr Jiang (or John) Wang, who assisted Mr Farey. On the Secure side, the discussions involved Mr Peter Seales, who held the position described as General Manager NSW/ACT.
On 27 April 2015, Mr Seales sent a lease proposal to Messrs Farey and Wang. The proposal was for a lease of 5 years plus a 5 year option over 150 parking bays (with the number to be confirmed), at an initial base rent of $1,325,000 per annum excluding GST, with a commencement date of 1 July 2015 (or to be agreed).
A meeting was held on 28 April 2015 between Messrs Seales, Farey and Wang to discuss the proposal. The oral agreement and estoppel relied upon by HPG and HTH rest, at least in part, upon a conversation that occurred in the course of the meeting. Of the attendees, only Mr Wang gave evidence. He deposed that a conversation to the following effect occurred: Mr Farey: Peter, the lease proposal looks ok. Secure knows about the 50 bays where 25 bays are reserved for the Astor residents and Hudson Pacific utilises a maximum of 25 unreserved car spots. The current draft lease reflects the 50 bays in the net amount of $1.325 million paid under the lease. HPT proposes that Secure pays the gross amount of $1.985 million ex GST, which includes the 50 bays, because Secure is actually using the whole car park premises. HPG will then enter into a separate licence with Secure to pay a fee for the 50 bays of $660,000. The net amount to be paid by Secure is $1.325 million per annum. HPT [sic - HPG] is the wholly owned unitholder of HPT, so Secure pays HPT the monthly rent payment, and then HPG will pay Secure the monthly licence fee. Mr Seales: OK John, let's do that. Secure will pay HPT on the first business day of each month, and then HPG will pay Secure for the 50 bays under the separate document.
On 29 April 2015, Mr Seales sent a revised lease proposal to Messrs Farey and Wang, together with a copy of Secure's standard lease agreement. The revised proposal was for a lease of 7 years plus a 5 year option over 150 parking bays at an initial base rent of $1,985,000 per annum excluding GST, with a commencement date of 1 July 2015 (or to be agreed). The revised proposal also included provision for 50 of the bays to be the subject of licences, viz, 25 bays to be licensed by Secure to "Hudson in house" for $300,000 per annum excluding GST, and 25 bays to be licensed to "Astor" for $360,000 per annum excluding GST.
The revised proposal was reviewed in detail by Messrs Farey and Wang, and on 30 April 2015 they further discussed the matter over the telephone with Mr Seales. It appears that some changes were agreed during that discussion, including that the rent would commence at $2,010,000 per annum excluding GST, and the commencement date would become 1 June 2015. It seems to have also been agreed that the two licences were "not to be included in Lease". These agreed changes are recorded by handwritten notes made by Mr Farey upon a copy of the revised proposal.
On 30 April 2015, Mr Farey signed the accompanying Heads of Agreement document on behalf of "the Landlord", and the documents were sent by Mr Wang to Mr Seales later that day. Mr Seales signed the Heads of Agreement document himself on 30 April 2015 on behalf of "the Tenant". A copy of the executed document was attached to an email Mr Seales sent to Mr Wang on 1 May 2015. Mr Seales stated in the email that he would send the documents to Secure's solicitors. It appears that the documents were indeed sent to Secure's solicitors on 1 May 2015, and in due course a lease document was prepared by them.
The lease, in its executed form, is dated 2 June 2015. I infer that it was executed on that day. The Deed of Licence, referred to above at [6], also bears the date 2 June 2015, and I infer that it was executed at about the same time the lease was executed. I will refer to some of the provisions of the Deed of Licence later in these reasons, when dealing with the Cross-Claim.
On 3 June 2015, Mr Wang had a telephone conversation with Mr Seales. Mr Wang deposed that the conversation was to the following effect: Mr Wang: Peter, the Lease started on 1 June 2015. HPT has not received the rent yet. You will recall we spoke to you and agreed that Secure will pay HPT on the first business day of the month, and then HPG will pay Secure the licence fee for the 50 bays. Mr Seales: Yes that's right John, leave it with me. I will speak to accounts and email you back. Mr Wang: OK, Peter. Thanks.
On 3 June 2015 an invoice was generated by "Hudson Property Trust" and sent to Mr Cotter of Secure for "Rent June 2015". The amount claimed was $184,250 including GST. That amount is equivalent to 1/12th of the Base Rent under the lease of $2,010,000 per annum plus GST. Later on 3 June 2015, Mr Wang sent an email to Mr Cotter that attached another copy of the invoice. The email included the following: As per our discussion with Peter [Seales] this morning, Hudson will receive the rent payment via EFT on Friday, 5 June 2015.
On 4 June 2015, Mr Cotter responded by email in the following terms: Thanks John, This will be paid by EFT Friday. Finance are raising the invoice to Hudson today and Mike will send across shortly. The invoice was in fact paid by Secure by electronic funds transfer on 5 June 2015.
Mr Wang deposed, and I accept, that it was or became the usual practice of Secure to pay the monthly rent by electronic funds transfer at the beginning of each month. The existence of such a practice is confirmed by the customer transactions records maintained for the Hudson Property Trust. Those records indicate that the practice was followed until April 2020 when the parties fell into dispute concerning the amount of rent payable under the lease.
As mentioned earlier, the former trustees of the Hudson Property Trust resigned and were replaced by HTH. This occurred on around 3 July 2015. Deeds of Novation in respect of both the lease and the Deed of Licence were entered into not long thereafter. As a result of the Deeds of Novation, the lease was henceforth between HTH as Lessor and Secure as Lessee, and the Deed of Licence was henceforth between Secure as Licensor, HPG as Licensee and HTH as Guarantor.
Difficulties emerged in the relationship between HTH and Secure in about early-March 2020. By that time, Mr Jonothan Elliott of Secure (who had become the General Manager NSW/ACT in about March 2019) had formed the view that the 131 Macquarie Street car park had been loss-making for Secure from the time it entered into the lease. Similarly, by February 2020, Mr Sam Wealth of Secure (an Area Manager whose responsibilities included the car park) had come to the conclusion that it would be highly unlikely that the car park could generate a profit, given the amount of rent compared to the revenue that was being earned even when the car park was operating at full or almost full capacity.
On 13 March 2020, a meeting was held between Mr Wealth, Mr Wang and Mr Vincent Tan (a director of HPG). It seems that it had been intended that Mr Elliott would also attend the meeting, but he was unable to do so.
Mr Wang and Mr Wealth provide differing accounts of what occurred at the meeting. In short, Mr Wang deposed that at the commencement of the meeting, Mr Wealth said that Secure wanted to change from the current lease agreement to a management agreement, later insisted that such a change must occur, and then abruptly walked out of the meeting. Mr Wealth deposed that he raised the option of temporarily changing to a management agreement whilst proposed works to the façade of the building were carried out. He denies that he insisted that a change to a management agreement must occur, or occur on a permanent basis. Ultimately, little if anything turns upon which version is preferred. It is clear that whatever Mr Wealth proposed about a management agreement, it was not accepted by the representatives of HTH. That is supported by the terms of the email sent by Mr Wang to Mr Elliott later on 13 March 2020, which included statements to the effect that Secure must continue in accordance with the lease.
At about that time, the public health risks associated with the emerging COVID-19 pandemic were becoming apparent. On 15 March 2020, the first of a series of public health orders was made by the Minister for Health pursuant to the Public Health Act 2010 (NSW). A further six orders of that character were made in March 2020, and another five in the period from April 2020 to June 2020. Various restrictions were imposed by the orders from time to time, in relation to matters such as the size of public gatherings, the numbers of persons allowed in certain indoor spaces, and the types of premises required to be closed to the public.
On 20 March 2020, Mr Elliott sent an email to Mr Wang which included the following: I'm hoping to work with you closely to implement a plan that sees us work through this current situation, in partnership. As you know, our revenue is underpinned by people coming to work, meetings, events etc. in the nearby vicinity. As a result of authorities enacting limits on gatherings & tourism in addition to companies enforcing work from home policies, volumes and revenue have declined significantly. Together, we'll get through this and as such, I am reaching out for some support by way of rent relief or temporary restructure of our current deal. I am seeking your permission to send some ideas through to get the discussion started.
Mr Wang's email in response invited Mr Elliott to provide his ideas.
On 26 March 2020, Mr Elliott sent an email to Mr Wang in the following terms: Thank you for your consideration here. As discussed, we have been working through this current situation as it has evolved. Part of the process we have gone through has involved the review of our entire operation to minimise overheads. Sadly, as is the case across many sectors we have this week had to stand down staff across Australia & NZ as there simply is not the volume and revenue coming through our car parks. Amongst many, one of our key priorities is to support our customers, and landlords for the long term. I kindly ask that Hudson consider a short term arrangement whilst we work through this challenging scenario. Such an arrangement may look like: Lease to be suspended and a management agreement commenced Secure Parking to manage the carpark under a $0 management fee for the duration of the pandemic All revenue to be remitted to the owner for the duration of the pandemic Agreed expenses (labour etc.) to be deducted from revenue Many thanks for your consideration.
Mr Wang sent an email in response on 1 April 2020 (at 12:27pm) in the following terms: Thank you for your email. We value highly our long term relationship and also share the serious problems faced by tenants and landlords everywhere. As we have our loan covenants to comply with our bankers can you please provide us the Carpark's financials monthly revenue for permanents and casuals from Oct 2019 to 31 March 2020 and your forecast monthly financials for April to Jun[e] 2020. With these [sic] information we can approach our bankers for assistance.
On 1 April 2020 (at 1:17pm), Mr Elliott sent an email to Mr Wang which contained most of the financial information requested. The email included the following: Given the dynamic and changing circumstances each day as a result of COVID-19, we are unable to provide guidance on where revenue will end up over the coming months. I have provided total revenue from October to Feb for your reference. (March is still being finalised, but I have also included the daily drive up revenue decline throughout March) We are committed to transparency and partnership. We are simply seeking a 'hibernation state' throughout this period whereby we pass all revenue through to Hudson.
Later on 1 April 2020, Mr Wang was in contact with Mr Tim Evans of Secure concerning payment of the rent. Mr Evans sent an email to Mr Wang (at 4:13pm) in which it was stated that the payment was "on hold" in accordance with an instruction given by Mr Elliott. Mr Wang promptly sent an email to Mr Elliott in which he asked him to approve the payment.
On 2 April 2020, Mr Wang and Mr Elliott had a telephone conversation in which Mr Wang asked why the April rent had not been paid. Mr Elliott deposed that he hadn't paid it "as I am assuming the amount is about to change", and further said that Secure were seeking "a hibernation state". Mr Wang's version of the conversation is similar, save that it does not include any reference to Mr Elliott saying that he assumed the rent amount was about to change. However, Mr Wang seemed to concede in cross-examination that Mr Elliott had said those words.
Later on 2 April 2020, Mr Elliott sent an email to Mr Wang in the following terms: We are committed to transparency and partnership. As discussed, we are simply seeking a 'hibernation state' throughout this period whereby we pass all nett revenue through to Hudson. With this in mind we provide the below forecast for April 2020. Casual Revenue $24,700.00 Perm Revenue $52,441.82 Total Revenue $77,141.82 Expenses $13,133.95 Total Forecast Nett $64,007.87 Revenue April 2020 I have attached a Letter of Variation of Lease that documents this short term arrangement for your consideration. If all is agreed, Secure Parking will release $64,007.87 upon receipt of the signed variation. (please note this excludes the perm revenue from Hudson) The attached Letter of Variation of Lease provided for a variation to the lease (the validity of which was expressly recognised) by introducing a period where rent would be reduced to 100% of nett revenue per month from 1 April 2020 "until the situation around COVID-19 has passed and revenue has returned to normal". I note that at that time, expiry of the lease term was still 26 months away.
Mr Wang and Mr Elliott had two telephone conversations on 7 April 2020. Their versions of the conversations differ in some respects, but in my view they do not differ substantially. It seems that in the first conversation, Mr Wang asked about the April rent payment that was "now overdue", and Mr Elliott spoke about the proposal referred to in his email of 2 April 2020. It also seems that Mr Elliott referred to the challenging situation facing Secure, and referred to cl 21.1 of the lease "which requires the rent to be reduced in proportion to the loss". Mr Wang said that the parties must "stick to the lease", but went on to offer Secure a rent reduction (or rent deferral) of $35,000 per month for 3 months.
In the second conversation, Mr Elliott told Mr Wang that a $35,000 per month reduction (or deferral) was not enough. Mr Wang responded by saying that in order to assist Secure, the rent could be deferred until the end of the term for the portion of revenue loss Secure was experiencing. Mr Wang deposed that Mr Elliott rejected that, stating that Secure required the Variation of Lease to be signed. Mr Elliott deposed that he said Secure's preference was for the Variation of Lease to be signed but, if not, then cl 21.1 entitled Secure to a reduction in rent "in proportion to our loss".
Mr Elliott sent an email to Mr Wang at 8:14pm on 7 April 2020. The email was in the following terms: As per our phone discussions; I refer to Clause 21.1 of our Lease, Adverse Impact. In accordance with Clause 21.1, the Lessee (Secure Parking) shall be entitled to a reduction in the current Base Rent in proportion to the loss. I note that we have paid March 2020 rent. This will need to be reviewed and adjusted in due course. On the basis of clause 21.1 it is best we wait until April is finalised to confirm the full loss incurred. We can then make necessary adjustments to the base rent payable for April - I believe this will be the most effective and accurate way to handle this moving forward.
Mr Wang responded by email on 8 April 2020 in the following terms: I refer to your email below, please note the following. Clause 21.1 has no application to the present circumstances. There is no law, policy or action by any Authority having any jurisdiction over the Lessor which is restricting or adversely affecting your use, enjoyment, trade or business carried on in or from the Premises. Cars are still permitted to park in the parking bays by law. There is no change in the flow of vehicular traffic or a closure of roads adversely impacting or restricting your use, enjoyment, trade or business carried on in or from the Premises. Accordingly, clause 21.1 does not operate in these circumstances. Please pay April 2020 rent immediately in accordance with the lease agreement.
On 14 April 2020, Mr Elliott sent an email to Mr Wang in the following terms: I refer to your email of 8 April 2020. Having read your response closely it appears that you have misinterpreted the clause in several respects. Firstly the clause does not require the law, policy or action by an Authority to be in connection with the lessor. On the contrary, such law, policy or action are those adversely affecting Secure's use, enjoyment, trade or business…". Clearly, the laws, policies and actions of both the Federal and State Governments in relation to Covid-19, in particular the direction for all citizens to remain at home, has had a demonstrable effect on our business and both the Federal Government and State Government have jurisdiction to make those laws, policies and actions. Secondly the particular affectations referred to in your email are only examples in the clause. I draw your attention to the words "..and without in any way limiting the generality thereof…" prior to the words "includes". Accordingly, we are of the firm view that clause 21 does apply and we propose to proceed as indicated in my email of 7 April 2020. Of course we are happy to discuss the methodology for calculating the reduction in rent if you believe there is a better way.
On 15 April 2020, Mr Wang sent an email to Mr Elliott in the following terms: We refer to your email dated 14 April 2020. Contrary to your claim regarding clause 21.1, there is no law, policy or action adversely affecting Secure's use, enjoyment, trade or business. Your email refers to the alleged reduction of business and citizens remaining at home having "a demonstrable effect on our business". There is no Federal, State or local law, policy or action preventing Secure's customers attending places of business in the City CBD for work, and therefore continuing to use the car park. On the contrary, the Prime Minister has stated that "Everyone who has a job in this economy is an essential worker". To the extent that people have chosen to work and stay at home as referred to in your email as the alleged reason for Secure's reduction of business, this is not "by reason of" an Authority's law, policy or action. Covid-19 is a deadly and highly contagious virus. If your customers are working from and staying at home, it is because they do not want to expose themselves or their family (and their employers do not want to expose their staff) to Covid-19. Accordingly your claim with respect to clause 21.1 is rejected. We note that your website states that Secure is the largest car park operator in Australia, which was acquired by "one of the largest parking operators in the world" - a six billion dollar company, PARK24 GROUP listed on the Tokyo Stock Exchange which lists as essential factors of its Corporate Governance as "the establishment of trusting relationships with all stakeholders…seeks to strengthen and enhance the level of corporate governance by continuing to improve the fairness, reasonableness and transparency of management". Hudson is surprised and disappointed that Secure would choose not to pay its lease obligations citing clause 21.1, which is not applicable in the present circumstances. Please pay April 2020 rent immediately in accordance with the lease arrangement, and no later than Friday 17 April 2020.
On 16 April 2020, Mr Elliott sent an email to Mr Wang in the following terms: I refer to your email of 15 April 2020. Contrary to your assertions there are very clear laws which have been passed and actions taken by the NSW Government in relation to Covid-19 including pursuant to Orders made under the Public Health Act. These laws require the people of NSW to stay at home, other than in very limited circumstances. For your ease of reference we refer you to the Government's website at www.nsw.gov.au/covid-19/what-you-can-and-cant-do-under-rules. In addressing your specific reference to workers attending a place of business, such people represent only one type of customer and under the Orders made only attend work if they cannot work from home which clearly the majority can from the down turn in trade amongst this category of customer. As has widely been reported in the media a breach of these Orders can result in a maximum penalty of $11,000, 6 months imprisonment or both. Further the NSW Police are empowered to issue on the spot fines of $1000 for an offence. So to say there are no laws preventing our customers from attending our car parks is simply wrong. As a result Secure's use, enjoyment, trade or business has been adversely affected. Accordingly, we again reiterate our proposed course of action as outlined in my email of 14 April 2020 but remain open and willing to discuss a mutually acceptable methodology for calculating the required reduction in rent.
On 17 April 2020, Mr Wang sent an email to Mr Elliott which included the following: Hudson does not accept your interpretation of clause 21.1 of the Lease Agreement and the contents of your emails. We are prepared to consider a reasonable proposal from Secure, that an agreed amount of rent be deferred with respect to any alleged COVID-19 business reduction in revenue to be amortised over a reasonable period.
Mr Elliott responded by email later on 17 April 2020, stating that Secure's position regarding cl 21.1 stood, and that its proposal remained in accordance with the suggested Variation of Lease.
The parties had thus reached an impasse in relation to the operation of cl 21.1 of the lease.
On 24 April 2020, Piper Alderman, solicitors for HTH, sent a letter to Secure. It was asserted in the letter that the failure to pay the April rent (of $207,375) was a breach of an essential term of the lease. Notice was given that if the April rent was not paid by 28 April 2020, HTH may commence proceedings against Secure to enforce the lease.
On 28 April 2020, the General Counsel of Secure sent a letter in response, which included the following: In relation to your reference to the Lessee's obligations under clauses 3.1 and 11.4, both clauses must be read in conjunction with clause 21 which provides that "the Lessee shall be entitled to a reduction in the current Base Rent" as a result of its use, enjoyment, trade or business carried on in or from the Premises being restricted and/or materially adversely affected by reason of any of those matters described in the clause. In this case the actions and laws of the NSW Government in relation to Covid-19 have demonstrably restricted and adversely affected Secure Parking's trade and business at the above Premises. By email dated 2 April 2020 from Jon Elliott to the landlord's John Wang, Secure Parking put forward a proposal to reflect a reduced rent payable under clause 21. Notwithstanding Secure Parking's proposed mechanism and as is noted in the above email and subsequent emails on 14 and 16 April 2020 it expressed its openness to discuss a mutually acceptable methodology for calculating the required reduction in rent. To date the Lessor has refused to engage with Secure Parking in determining this amount. The rent payable under the lease must be ascertained in accordance with the terms of the lease, including clause 21. As the rent for April has not yet been determined it cannot be payable. Accordingly, Secure refutes that it is in default of the Lease. Further, we reiterate the notice of Jon Elliott in his email of 7 April 2020 that once the methodology for determining the reduction in rent is agreed, Secure will require an adjustment in respect of the March rent, which had already been paid in advance, as a result of Secure's business being impacted. Without limiting the above and for the avoidance of doubt, Secure Parking remains ready willing and able to pay all rent payable once determined in accordance with the lease terms, including clause 21. To this end we request that your client contact Jon Elliott directly discuss and agree to the reduced rent payable for March and April 2020.
On 29 April 2020, Piper Alderman sent a letter to Secure. Issue was taken as to whether cl 21.1 had any application in the prevailing circumstances. It was further stated that, even if cl 21.1 is enlivened, it does not result in an automatic reduction in the rent payable; rather it provides an entitlement to have the rent reduced in accordance with cl 11.4, with the written consent of HTH. It was reiterated that Secure was in default of an essential term of the lease, and it was stated that unless the April rent was paid by 1 May 2020, HTH may commence proceedings against Secure to enforce the lease.
The amount claimed for the April rent was not paid by 1 May 2020 as demanded. On that day, an invoice was issued for rent for May 2020 in the sum of $207,375.
Before any reply was received to its earlier letter, Piper Alderman sent another letter to Secure on 4 May 2020. This letter included the following: Our client's position 2. Our client does not resile from any aspect of the position set out in our previous correspondence. 3. It maintains that, by virtue of its failure to pay rent for the month of April 2020, your company is in default of an essential term of the Lease. Your company's position 4. Your company appears to take the position that your company is under no obligation to pay any rent for the month of April 2020 5. It has given an internal instruction to its staff that payments to our client are to be put "on hold", that is, an instruction not to make any payment to our client. Dispute resolution 6. The parties are in dispute. 7. Clause 23 of the Lease sets out a mechanism for disputes arising under the Lease to be resolved by an independent expert. Nomination of expert 8. For the purpose of clause 23.2, our client now nominates Jim Johnson, barrister, to resolve the dispute. Mr Johnson is a commercial barrister of many years standing. He is not regularly (nor currently) briefed by this firm. We enclose a copy of Mr Johnson's curriculum vitae. 9. Kindly confirm that your client agrees to Mr Johnson's appointment for the purpose of clause 23.1 of the Lease. 10. If your client does not agree, kindly let us know your client's proposed expert, and provide a copy of his or her curriculum vitae, by 5:00PM on Wednesday, 6 May 2020. 11. In the event the parties are unable to agree on an expert, our client will approach the President of the NSW Bar Association for the nomination of an expert pursuant to clause 23.2 of the Lease.
On 6 May 2020, Thomson Geer, solicitors for Secure, sent a letter to Piper Alderman in response to their three letters. The letter included the following: We note that disputes have arisen between the parties concerning the lease of the abovementioned Premises and that Hudson has nominated Mr Johnson of counsel as expert to determine the disputes under article 23 of the lease. Payment of revised Base Rent pending outcome of the dispute resolution process As you know, it is our client's contention that the rent reduction in clause 21.1 does operate in the circumstances that our client finds itself in, and further it is already entitled to a Base Rent reduction on an ongoing basis. The correspondence between the parties to date seems to be working on the assumption that rent is paid monthly in advance under the lease. That is not the case. Clause 15 makes it clear that rent is paid monthly in arrears. … Our client does not agree to Mr Johnson being the expert in this matter. Our client suggests Mr Gregory Burton SC be appointed by the parties as expert. … Prior to embarking on the expert determination process under Article 23 of the lease our client considers it appropriate for the parties to try and distil and agree the key matters in dispute to be determined by the expert. At present there is a melange of correspondence dealing with the matters in dispute making it difficult for the expert to know what precisely he has to determine. Our client believes it is in the interests of both parties to try and deal with all disputes and related questions in the one expert determination process by agreeing the terms of the questions to be put to the expert. We would suggest the questions in dispute requiring expert determination be initially described to the expert by the parties as including the following: whether in the circumstances that Secure Parking has experienced, Secure Parking is entitled to a reduction in the Base Rent applying as of March 2020 by operation of clause 21.1 of the lease; to the extent Secure Parking is entitled to a reduction in the Base Rent applying as of March 2020 under clause 21.1, the amount of that reduction and the revised Base rent applicable; to the extent a reduction in the Base Rent under clause 21.1 applies, from what date does the revised Base Rent take effect; to the extent a reduction in the Base Rent under clause 21.1 applies, is there an end date when the reduction ceases to operate and the Base Rent reverts to the Base Rent originally applying as of March 2020; and does any reduction in the Base Rent under clause 21.1 have to be agreed or determined by way of a binding determination of the expert before it takes effect. There are obvious various other issues of contractual construction that arise in the correspondence between the parties and the terms of the lease, but we consider most fall within the above broad parameters. If there are other questions that you believe should be expressly set out and dealt with as part of the dispute resolution process, please advise us. If you believe the questions in dispute should be differently worded please provide us with your suggestions for our client's consideration.
On 7 May 2020, Thomson Geer sent an email to Piper Alderman that included the following: Further to our letter to you of 6 May 2020 we advise that our client has now undertaken its calculation for the Base Rent reductions it contends it is entitled to commencing from March 2020. For the avoidance of doubt, in addition to the dispute concerning the unpaid April invoice and the amount of Base Rent payable our client disputes that the Base Rent it paid in advance pursuant to your client's March 2020 invoice was the correct amount for March as Article 21.1 operated to give relief to Secure Parking from March 2020 and not just from April 2020, The methodology used and calculation undertaken takes this into account. … Attached is a worksheet prepared by Secure Parking which, we are instructed, contains the monthly actual revenue for the car park at the Premises for the past financial year up to [the] end [of] April 2020. Secure Parking has used the average monthly revenue it has derived from the Premises YTD for FY20 (Jul-Feb) to calculate the average monthly revenue figure being $182,714.84 (Baseline revenue figure). Using the monthly revenue figures in the worksheet Secure Parking has then compared the actual revenue figures recorded for each of March and April 2020 against the Baseline revenue figure. March and April 2020 resulted in declines of -10% and -31% respectively compared to that Baseline revenue figure. … Secure Parking contends that the reduction in revenue for March and April compared to the Baseline revenue figure has therefore been caused by reason of the laws, policies or actions of the Federal and NSW State Governments applied or conducted from March forward. Consistent with clause 21.1 of the lease the relevant percentage reduction for each of March and April compared to the Baseline revenue figure has been applied to the Base Rent calculation for those months to obtain a reduction in proportion to the loss or damage suffered by Secure Parking as required. Based on that calculation Secure Parking has made payment today to Hudson of $110,871.03 plus GST today, which, Secure Parking contends, results in it having met its rental obligations in full up to end April 2020. As stated in the letter, Secure in fact made a payment of $110,871.03 to HTH on 7 May 2020.
On 20 May 2020, Piper Alderman sent a letter to Thomson Geer. Issue was again taken with the contention that cl 21.1 operated in the circumstances, and issue was taken with the contention that rent was payable in arrears. The letter stated that HTH did not agree to the appointment of Mr Burton SC, and that it would approach the President of the NSW Bar Association for the nomination of an expert pursuant to cl 23.2 of the lease. Lastly, the letter contained a request that further financial information be provided.
On 27 May 2020, Piper Alderman sent another letter to Thomson Geer. The letter included the following: 2. Your client, Secure Parking Pty Ltd, is in breach of the lease between the parties dated 2 June 2015 (Lease) due to the following: 2.1 a large part of the April rent has remained unpaid for fourteen days (clause 10.1(a)); and 2.2 your client has failed to perform or observe a number of covenants, agreements and provisions expressed and implied in the Lease (clause 10.1(c)), including: (a) the obligation in clause 4.3 of the Lease and Item 11 of Schedule 1 to "at all time [sic] keep the Premises open for business"…"24 hours a day, 7 days a week"; and (b) the obligation in clause 4.2 of the Lease to "at all times during the usual business of the Car Park provide facilities and staff…adequate for the conduct of the Lessee's business will [sic] all diligence and efficiency and in a proper and businesslike manner". … 7. In accordance with clause 10.1 of the Lease, our client hereby gives your client 14 days' written notice for your client to rectify the above defaults. 8. Your client is required to rectify each default (including the rent default) within that period. 9. The amount required to be paid in order to rectify the rent default is $96,503.97, being the difference between the April rent ($207,375.00) and your client's previous part payment ($110,871.03).
On 10 June 2020, Thomson Geer sent a letter to Piper Alderman. The letter included the following: We do not wish to litigate by letter given that there is going to be an expert determination in this matter. However, we have been instructed to make the following comments on your letter of 20 May 2020. The following paragraphs are headed by reference to the paragraph number they are responding to in your letter of 20 May 2020. … For the avoidance of doubt the claims and notices you have made in your 27 May 2020 letter are disputed by our client. So there is no mistake, these claims are submitted to and subject to the process set out in Part 23 of the Lease. Our client, however, wishes to make it clear that to the extent any further amount of rent is lawfully determined by the expert as being owing as a result of the Part 23 dispute resolution process it will, of course, without admission, pay any such sum without delay. The letter was accompanied by certain financial information, provided in response to the request made on 20 May 2020.
On 11 June 2020 (at 11:56am), Piper Alderman sent an email to Thomson Geer. The email included the following: We confirm receipt of your letter dated 10 June 2020, and attach our letter dated today. As set out in our letter, our client will exercise its right of re-entry at midday today. At that time, a physical copy of the attached letter will be delivered to your client's representative on site. Representatives of our client will then assume possession. I hope this will be able to be achieved without fuss.
The attached letter referred to Piper Alderman's earlier letter of 27 May 2020, and stated that the defaults referred to in that letter had not been rectified within the 14 day period specified. The letter continued: … 6. The Notice Period of 14 days has expired. 7. Your client has not rectified any of the three defaults, all three of which are continuing. 8. No genuine dispute has been raised about the Rent Default. 9. No genuine dispute has been raised about the Hours of Operation Default. 10. No dispute at all has been raised about the Conduct of Business Default. Dispute resolution, and interim arrangements 11. Without admitting that your client has raised any justiciable dispute, but solely for the sake of putting an end to the contention that any dispute exists, our client will shortly approach the President of the New South Wales Bar Association in accordance with clause 23.4(a) of the Lease. 12. In the meantime, the Notice Period having expired, our client will at midday today (11 June 2020) exercise its contractual right of re-entry pursuant to clauses 10.1 and 10.4 of the Lease. … 15. At midday today, 11 June 2020, representatives of our client will attend the leased premises (Premises) to arrange the orderly handover of possession.
HTH in fact took steps to retake possession of the car park at about midday on 11 June 2020. That seems to have been achieved "without fuss". The car park has since that time been managed by Wilson Car Parking.
Also on 11 June 2020, Secure made a payment, based on calculations it had performed, of $127,897.81 towards the amount claimed for the May rent. It is not clear whether this payment was made before or after the retaking of possession.
So, by 11 June 2020: 1. the whole of the claimed rent for March 2020 had been paid; 2. $110,871.03 had been paid towards the claimed April 2020 rent of $207,235; 3. $127,897.81 had been paid towards the claimed May 2020 rent of $207,235; and 4. no rent had been paid towards any amount claimed for June 2020.
On 16 June 2020 Thomson Geer sent a letter to Piper Alderman. The letter included the following: By your letter of 11 June 2020, HTH Nominees, inter alia, purported to give notice that it was electing to exercise a right of re-entry to the Premises, considered that Secure Parking no longer had any right of access to the Premises and demanded that Secure Parking immediately vacate the Premises. Further, consistent with your letter of 11 June 2020, shortly after noon on 11 June 2020, employees of HTH Nominees attended the Premises, provided a copy of the letter, asserted that HTH Nominees had exercised its contractual right of re-entry under the Lease and required Secure Parking's staff to leave the Premises. Also in attendance were employees of another carpark operator, Wilson Parking, and we are instructed Wilson Parking is now operating the car park at the Premises and that our client has been excluded from possession. For reasons which follow, your client's actions were in breach of the Lease and constituted a repudiation of the Lease. … Secure Parking hereby accepts HTH Nominees' repudiation of the Lease. The Lease is accordingly terminated and Secure Parking therefore has no further ongoing obligations under the Lease.
Whilst the above dispute carried on, no payments of Licence Fee were made by HPG in respect of April, May or June 2020. On 4 August 2020, Secure sent a letter to HPG demanding payment of the sum of $158,644 as the amount of unpaid Licence Fees.

Determination

Many of the issues raised for determination involve questions of construction of the lease. There was no dispute concerning the principles that are to be applied in answering such questions. The principles are those stated by the High Court in cases such as Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]-[52], and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]. Accordingly, the meaning of the terms of a written commercial contract is to be determined objectively, by what a reasonable businessperson, placed in the position of the parties, would have understood the terms to mean.
As stated in Electricity Generation Corporation v Woodside Energy Ltd (supra) at [35], the Court is required to consider: …the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". (footnotes omitted).
It may be added that a commercial contract should be construed as a whole, and, if possible, so as to render its terms harmonious (see Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109).
One of the questions of construction, namely, whether the lease provides for payment of the Base Rent in arrears, brings into play the more particular principles concerning "rectification by construction" that have been recently considered by the Court of Appeal in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [6]-[11]; HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296 at [48]-[53]; and James Adam Pty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311 at [26], [31]-[34] and [55]-[56]). I will turn to that question now.
The payment of rent is dealt with in various provisions of the lease, including cll 3.1, 3.4 and 15.1, each of which has been set out at [10] above. It can be seen that cl 3.1 imposes an obligation upon the Lessee during the term of the lease to duly and punctually pay to the Lessor the Base Rent free of all deductions. The Base Rent is to be "calculated and payable in the manner provided in Part 15". Clause 3.4 then provides that the Lessee shall pay the Base Rent from the date set out in Item 9 of Schedule 1. The date referred to in that Item is 1 June 2015. Clause 15.1 (which is within Part 15) employs language that is to some extent repetitious of the language found in cl 3.1 in relation to the payment of the Base Rent. It goes on to describe such payment as: …in arrears by regular and consecutive monthly payments each equal to 1/12th of the Base Rent on the first day of each month in each year during the Term (except the first and last payments which if necessary will be proportionate) the first being payable on the date for commencement of payment for rent provided for in Item 9 of Schedule 1.
Based on the language of cl 15.1, and in particular the use of the words "in arrears", Secure contends that the lease provides for payments of Base Rent to be made monthly in arrears throughout the term of the lease. HTH, on the other hand, contends that giving a literal meaning to the word "arrears" would give rise to inconsistency with those provisions of the lease that clearly provide for monthly payments to commence on 1 June 2015, being the first day of the lease term. HTH submitted that there was a clear intention that payments of Base Rent would be made monthly in advance throughout the term of the lease. It was put that the inclusion of the words "in arrears" in cl 15.1 was a mistake, and that it was open to the Court, as a matter of construction, to correct the mistake by construing those words to mean "in advance".
In my view, when the provisions of the lease concerning the payment of rent are considered in their entirety, it is evident that it was the intention of the parties that payments of Base Rent would be made by regular and consecutive monthly payments of 1/12th of the Base Rent on the first day of every month, with the first such payment to be made on 1 June 2015 (being the date set out or provided for in Item 9 of Schedule 1).
The requirement to make the first payment of Base Rent on 1 June 2015 is plainly stipulated in both cl 3.4 and cl 15.1. That date is the same as the Commencing Date of the lease, so it is difficult to understand how the payment of rent in that fashion could be described as payment in arrears.
Secure noted that the words in parentheses in cl 15.1 provided an exception for the first payment, which could be a proportion of 1/12th of the Base Rent. It was then suggested that the proportion for the first payment could be nil, thereby bringing about a situation where there was no payment required until 1 July 2015. In that way, the payment of rent would accord with the description of payment in arrears.
However, it seems to me that the words in parentheses are directed to a situation where the first payment is to be made on a date other than the first day of a month, or where the lease term ends on a date other than the last day of a month. In the former case, it would be necessary to proportionately reduce the first payment, because otherwise a payment of 1/12th of the Base Rent would be made in respect of a period of less than a month. In the latter case, it would be necessary to proportionately reduce the last payment, because otherwise a payment of 1/12th of the Base Rent would be made in respect of a period of less than a month. There is no such necessity here because the first payment is to be made on 1 June 2015, and the lease term ends on 31 May 2022. The words in parentheses thus have no application. A payment of 1/12th of the Base Rent was required to be paid on 1 June 2015, another such payment was required on 1 July 2015 as the first day of the next consecutive month, and so on throughout the term of the lease.
I think that the inclusion of the words "in arrears" in cl 15.1 should be regarded as a clear error. It makes no sense for the payment of rent, as provided for in cll 3.1, 3.4 and 15.1, to be described as payment "in arrears". Read literally, that description is absurd, and is unable to be reconciled with the balance of the provisions concerning the payment of rent which, in my view, embody the real intention of the parties (see GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1; [2003] FCA 50 at [306]). Those provisions self-evidently reveal an intention that payments of rent would be made monthly in advance. In my opinion it is open to the Court to disregard the words "in arrears" in order to avoid the absurdity and inconsistency, in accordance with the principles discussed in the cases cited above at [71].
Moreover, notwithstanding the inclusion of the words "in arrears" in cl 15.1, I consider that a reasonable businessperson in the position of the parties would not have understood the lease to provide for the payment of the Base Rent in arrears. Rather, reading the lease as a whole, it would have been understood to provide for monthly payments of 1/12th of the Base Rent to be made on the first day of each month throughout the term, the first such payment to be made on 1 June 2015.
The next issue to consider is the whether the failures of Secure to make monthly payments of rent on 1 April 2020, 1 May 2020 and 1 June 2020 constituted breaches of the lease. Based on the above construction of the lease, those failures appear, prima facie, to be plain breaches. However, Secure contends that it was not in breach, due to the operation of cl 21.1 of the lease. Secure submitted that cl 21.1 was engaged because its business carried on from the premises was, from about late-March 2020, materially adversely affected by reason of the public health orders made under the Public Health Act, and that it was accordingly entitled to a reduction in the Base Rent. Clause 21.1 provides that in such circumstances the Lessee "shall be entitled" to a reduction in the current Base Rent in proportion to the loss or damage caused. Secure submitted, correctly in my view, that those are words of immediate entitlement, though it accepted that the extent of such entitlement would remain to be determined, either by agreement between the parties or pursuant to the dispute resolution provisions of cl 23.
Assuming for the moment that cl 21.1 was engaged, so that Secure was entitled to a reduction in the Base Rent, a question arises as to what rent is payable pending the determination of the amount of the reduction. That question is not answered expressly by the terms of cl 21.1. Its terms do not specify that payments must continue at the existing rate without regard to the claimed reduction, or that payments are suspended or calculated on some other basis, pending the determination of the claimed reduction.
The clause provides that the reduction is in proportion to the loss or damage caused to the Lessee. Given that such questions of causation may not be straightforward, and may be contested, the amount of any reduction might not be ascertained for some time. Accordingly, and particularly where, as I have found, the obligation is to pay rent monthly in advance, it is likely to be necessary to make retrospective adjustments so that payments of Base Rent are brought into line with the Base Rent as reduced under cl 21.1.
It seems to me unlikely that the parties intended that where the Lessee invoked cl 21.1 (at least where that is done in good faith) the Lessee is nonetheless bound to make monthly payments of rent calculated in accordance with the current Base Rent, with no allowance for the reduction claimed under cl 21.1. I think that the parties are more likely to have intended that the Lessee in that position would, in the absence of agreement, be permitted to make monthly payments, within a reasonable time and in good faith, that take into account the reduction claimed under cl 21.1, pending the determination of the reduction (if any). I think that in the absence of any provisions that deal with what is to occur with payments of rent once clause 21.1 is invoked, a term or terms to that effect would be implied into the lease. I appreciate that cl 3.1 calls for the payment of Base Rent "free of all deductions", but it seems to me that this is directed to deductions from Base Rent of other off-setting amounts, not a reduction in Base Rent itself as provided for in cl 21.1.
By late-March 2020, Secure, through Mr Elliott, was seeking to negotiate a new agreement with HTH to take into account the decreases in revenue it had begun to experience. In that context, and, it seems, in the expectation that a new agreement would be reached, Mr Elliott made a decision to halt the making of the payment for the April 2020 rent. Mr Elliott gave evidence to the effect that he hoped the decision to withhold the rent would "speed things up" towards the making of a new agreement as sought by Secure. Mr Elliott also gave evidence, which I accept, that he was aware at that time that cl 21.1 existed and was "available". However, he did not formally invoke cl 21.1 until he spoke about it with Mr Wang on 7 April 2020. I am satisfied that in the circumstances that emerged in connection with the COVID-19 pandemic, the invocation of cl 21.1 by Secure was done in good faith.
It is clear that Secure thereafter maintained that it had an entitlement under cl 21.1 to a reduction in the current Base Rent (including in respect of March 2020), and HTH, through Mr Wang, denied that there was any such entitlement. Secure suggested, on the basis of cl 21.1, that it would be best to "wait until April is finalised to confirm the full loss incurred". However, HTH called for the April 2020 rent to be paid immediately "in accordance with the lease agreement".
Secure pressed its suggested course, and made it clear that it was willing to discuss an acceptable methodology for calculating the reduction in rent. It seems that no such discussions were held. On 28 April 2020, Secure reiterated its willingness to discuss a mutually acceptable methodology for calculating the reduction in rent. Secure also stated that "as the rent for April has not yet been determined it cannot be payable". HTH, through its solicitors, asserted that even if cl 21.1 is enlivened, it does not result in an automatic reduction in the rent payable. It was suggested that the clause provides only an entitlement to have the rent reduced with the written consent of HTH.
The dispute concerning the rent and the operation of cl 21.1 continued. By 4 May 2020, the solicitors for HTH had sought to invoke the dispute resolution provisions of cl 23 of the lease.
On 7 May 2020, the solicitors for Secure provided to the solicitors for HTH revenue calculations said to show declines in revenue for March and April 2020 of 10% and 31% respectively (against a calculated baseline monthly revenue figure of $182,714.84). It was asserted that the reduction in revenue was caused by the laws, policies and actions of the Federal and State Governments. The email continued: Consistent with clause 21.1 of the lease the relevant percentage reduction for each of March and April compared to the Baseline revenue figure has been applied to the Base Rent calculation for those months to obtain a reduction in proportion to the loss or damage suffered by Secure Parking as required. Based on that calculation Secure Parking has made payment today to Hudson of $110,871.03 plus GST today, which, Secure Parking contends, results in it having met its rental obligations in full up to end April 2020.
A payment of $110,871.03 was made accordingly. HTH continued to assert that cl 21.1 did not operate in the circumstances, and that Secure was in breach of its obligations to pay rent.
The revenue calculations which underpinned the payment of the $110,871.03 were shown, in the cross-examination of Mr Elliott, to be erroneous in various respects. It was not shown, however, that the calculations were made other than as part of a genuine effort, made in good faith by Secure, to make monthly payments that took into account the reduction in rent claimed under cl 21.1. I would thus conclude that, once the payment was made on 7 May 2020, Secure could not be said to be in breach of its obligations in respect of the April 2020 rent.
In my view, Secure remained under an obligation to continue to make monthly payments of rent, within a reasonable time and in good faith, calculated to take into account the reduction claimed under cl 21.1, pending the determination of the reduction (if any). Arguably, such a payment should have been made in respect of the May 2020 rent prior to 11 June 2020, when HTH took possession of the car park. It is not necessary to express a view on that question. The purported exercise by HTH of the right under cl 10.1 of the lease, to re-enter following default and terminate the lease, was not based upon any failure to pay the May 2020 rent (or the June 2020 rent). The relevant notice requiring rectification of the default (given on 27 May 2020) referred only to the failure to pay the difference between the April 2020 rent of $207,375 and the "part payment" of $110,871.03.
Secure contends that even if it had been in default of its obligations to pay rent as at 11 June 2020, HTH did not have an entitlement under cl 10.1 of the lease to re-enter the premises and terminate the lease. In this regard, Secure submitted that as a dispute had arisen under the lease that fell within the ambit of cl 23, cl 23.8 operated to preclude HTH from taking action to terminate the lease unless HTH had complied with the provisions of cl 23.
That submission should be accepted. It is clear that by 8 April 2020 a dispute had arisen between the Lessor and the Lessee concerning the lease within the meaning of cl 23.1. The dispute concerned the Lessee's obligation to pay rent in circumstances where the Lessee claimed that it was entitled to an immediate reduction in the current Base Rent pursuant to cl 21.1. By cl 23.1, the existence of the dispute obliged the parties to jointly appoint an expert to decide it. Some steps were taken towards such an appointment.
On 4 May 2020, the Lessor sought the Lessee's agreement to the appointment of a nominated expert. On 6 May 2020, the Lessee declined to agree, instead suggesting that a different expert be appointed. On 20 May 2020, the Lessor declined that suggestion, and stated that it would approach the President of the NSW Bar Association for the nomination of an expert pursuant to cl 23.2 of the lease. On 11 June 2020, the Lessor again stated that it would approach the President of the NSW Bar Association, albeit that it did not admit that the Lessee had raised any "justiciable dispute".
Clause 23.8 of the lease provides: Neither the Lessor or the Lessee may terminate the Lease, start court or arbitration proceedings concerning a dispute that arises under this Lease or take any other action unless that party has complied with the provisions of this clause. This restriction does not prevent a party from taking immediate steps to seek urgent interlocutory relief from a court.
The clause prohibits a party from doing certain things unless the party has complied with the provisions of cl 23. I think that compliance with cl 23 entails participation throughout a dispute resolution process that culminates in the making of a decision by an appointed expert that is (except in certain circumstances) final and binding upon the parties. Pending such compliance, the parties are prohibited from terminating the lease, starting court or arbitration proceedings concerning a dispute that arises under the lease, or taking "any other action". The language of the prohibition is expressed somewhat awkwardly. However, it seems clear enough that the prohibition at least extends to a termination of the lease on the basis of a matter (such as an alleged breach of the lease) that is the subject of the dispute being determined under cl 23.
The question whether Secure was in breach of its obligation to pay rent was the subject of the dispute within cl 23 and was in the process of being determined in accordance with that clause. It could not be said, as at 11 June 2020, that HTH had complied with the provisions of cl 23. It had not participated throughout the dispute resolution process required by cl 23. The process, which both parties appeared to invoke, was incomplete. It had not even reached the point where the expert had been appointed. In those circumstances, I do not think it was open to HTH to terminate the lease or take any other action on the basis of the alleged breach by Secure of its obligation to pay rent. In particular, it was not open to HTH, based on that alleged breach, to seek to exercise a right of re-entry and terminate the lease. In so doing, HTH acted contrary to cl 23.8 of the lease.
Nor was it open to HTH to re-enter and terminate the lease on 11 June 2020 on the basis that Secure had repudiated the lease. As I have found, Secure was not then in breach of its obligations in respect of the April 2020 rent. Even if Secure should have made a payment in respect of the May 2020 rent prior to the re-entry, I do not think that its conduct in respect of rent should be regarded as repudiatory in nature. At the very least, Secure was maintaining a reasonably arguable position based on cl 21.1, and on 10 June 2020 it made it clear that should it be determined by the expert that further amounts were owing, those amounts would promptly be paid (cf Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 at 283). Further, insofar as HTH alleges that Secure was in breach of cll 4.2 and 4.3 of the lease, I am not satisfied that any such breaches have been established. I generally accept the submissions made by Secure on those matters. In short, I do not think that cl 4.3 of the lease required Secure to keep the car park open for all types of business (including casual parking) 24 hours a day, 7 days a week. It was sufficient that it was "open for business" throughout those times for permanent parkers who had electronic key access to the premises. As for cl 4.2, it requires Secure to provide facilities and staff that it deems to be necessary and adequate, and to do so with all diligence and efficiency and in a proper and businesslike manner. Mr Wealth gave extensive evidence concerning the operation and staffing of the car park, including in the period following the onset of the COVID-19 pandemic. It was not put to him that the provision of facilities or staff in any particular fashion exhibited a want of diligence or efficiency, or unbusinesslike conduct, on the part of Secure.
It follows from the above that HTH had no entitlement, whether under cl 10.1 of the lease or by reason of a repudiation by Secure, to re-enter and terminate the lease on 11 June 2020. Its claim for damages in the nature of loss of bargain damages, whether calculated under cl 10.7 of the lease or in accordance with general law principles, must therefore fail.
Before concluding this section, I should note that HTH submitted that the prohibition in cl 23.8 upon taking "any other action" precluded Secure from making payments of rent other than monthly in advance without regard to any claimed reduction under cl 21.1. It should be apparent from what I have already said that I do not accept that submission. I think that the payment of rent in the fashion undertaken by Secure was in accordance with the implied term or terms I have referred to above at [83]. Moreover, the expression "any other action" within cl 23.8 seems to me to be directed not to the performance of obligations under the lease, but rather the exercise of rights or the taking of enforcement action in relation to a matter that is the subject of a dispute being determined under cl 23.
The next question to consider is whether the conduct of HTH in re-entering the premises and terminating the lease on 11 June 2020 amounted to a repudiation of the lease.
Accepting that a finding of repudiation of a contract is not one lightly made, I am comfortably satisfied that, in re-entering the premises and claiming to terminate the lease, without having an entitlement to do so, HTH evinced an intention no longer to be bound by the lease; it was conduct that objectively conveyed a disavowal of the whole contract (see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 633-4 and 658-9). That being so, it was open to Secure to accept the repudiation and thereby terminate the contract. Secure did that by the letter sent by its solicitor on 16 June 2020. It was not submitted that if HTH had so repudiated the lease, Secure was not entitled to accept it on 16 June 2020. It was not suggested, for example, that cl 23.8 precluded it from taking that step. I would not have acceded to such a suggestion had it been made. Clause 23.8 prevents the taking of action to terminate the lease based on a matter that is itself the subject of a dispute being determined under the clause. It would not prevent the taking of action to terminate the lease based on a matter that is not the subject of such a dispute, particularly where the matter is conduct that itself amounts to a breach of cl 23.8 and is repudiatory in nature.
Upon the termination of the lease on 16 June 2020, both parties were discharged from further performance. However, it remains open to the parties to recover amounts pursuant to the lease in accordance with rights that had accrued prior to the discharge (see McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477). In this regard, it is necessary to consider the claim by HTH for outstanding rent in respect of the period up to 16 June 2020. The focus of this enquiry is the extent to which cl 21.1 operated (if at all) to give Secure an entitlement to a reduction in the Base Rent.
Secure claims that its business carried on in or from the car park premises was materially adversely affected by reason of the public health orders made under the Public Health Act in the period from 15 March 2020 to 1 June 2020. It is accepted by HTH that those orders fall within the notion of a law, policy or action of an Authority having jurisdiction in the matter, for the purposes of cl 21.1. However, HTH takes issue with the proposition that the orders relevantly caused the business to be materially adversely affected.
HTH submitted that the causal requirement of cl 21.1 could only be satisfied if the orders materially limited the ability of Secure either to use the car park or to operate its business in or from the car park. It was submitted that the orders did not limit the ability of Secure to use the car park, and did not limit its ability to operate its business in or from the car park.
It may be accepted that the orders did not operate to restrict the use of the car park, or restrict Secure in the operation of the car park. However, I do not think that cl 21.1 should be construed in the confined manner suggested by HTH. It seems to me that the ordinary meaning of the words used in the clause extends to any material adverse affect upon the business by reason of the orders, regardless of whether the affectation involves restrictions upon the use or operation of the car park itself. Where such an affectation is established, the Lessee is entitled to a reduction in the current Base Rent "in proportion to the loss or damage caused to the Lessee". It is thus necessary to show that "by reason of" the law, policy or action, there was a material adverse affect, and that loss or damage was thereby caused to the Lessee.
Secure seeks to demonstrate an entitlement to a reduction in rent by reference to the nature of the public health orders which "progressively restricted the ability of businesses to operate and for people to go about their business in the CBD", and an examination of its revenue figures from March to June 2020 compared with earlier periods. That comparison showed significant reductions in revenue. Secure accepted that it had to establish a causal connection or relationship between the orders and the reduced revenue. It submitted that the expression "by reason of" did not mean solely by reason of, and it was sufficient to establish that the orders were an effective cause of the reduced revenue. HTH, on the other hand, submitted that cl 21.1 was only activated if it could be shown that loss or damage was caused solely and directly by the orders.
I prefer the submissions of Secure as to the nature of the causation requirement within cl 21.1. I do not think that it is necessary to establish that the orders were the sole cause of a material adverse affect upon the business. I think it is sufficient if, applying a practical or common sense approach, the orders can be regarded as an effective cause of the affectation such that it can be seen to have occurred by reason of the orders. Nor is it necessary to establish that the orders were the direct cause of the affectation, although I accept that a less direct causal link might make it more difficult to conclude that the orders were an effective cause of the affectation.
The first of the public health orders commenced operation on 16 March 2020. It prohibited public events where more than 500 people were likely to attend. The next order, which commenced on 18 March 2020, extended the prohibition to outdoor gatherings of more than 500 people, and indoor gatherings of more than 100 people. The Public Health (COVID-19 Places of Social Gathering) Order 2020, which commenced operation on 23 March 2020, required the closure to the public of certain premises including pubs, clubs, restaurants and entertainment venues (although pubs and clubs could sell takeaway food or beverages). The Public Health (COVID-19 Restrictions on Gathering and Movement) Order 2020, which commenced operation on 31 March 2020, included a direction that a person must not, without reasonable excuse, leave the person's place of residence, and prohibited gatherings of more than two persons in public places. The restrictions that were in place by the end of March 2020 remained in place, with relatively minor modifications, until 15 May 2020 when the Public Health (COVID-19 Restrictions of Gathering and Movement) Order (No 2) 2020 came into operation. The order relaxed the existing restrictions in a number of respects. For example, pubs were permitted to open for the purposes of selling food and drinks, for not more than 10 persons at a time, to consume on the premises. The order also removed the "stay at home" direction, but provided that employers must allow employees to work at home where that was reasonably practicable. A further relaxation of restrictions occurred when the Public Health (COVID-19 Restrictions on Gathering and Movement) Order (No 3) 2020 came into operation on 1 June 2020. It remained the case that employers were required to allow their employees to work at home where reasonably practicable.
Average monthly revenue of the car park, based on the 12 month period from January 2019 to December 2019, was $182,367.18. Based on the period from March 2019 to June 2019, the average monthly revenue figure was $182,470.87.
Revenue for March 2020 was $166,114.63; for April 2020 it was $139,268.24; for May 2020 it was only $132,090.64; and for the eleven days Secure operated the car park in June 2020 it was $49,064.88. On a pro rata basis, the latter figure is equivalent to a monthly figure of $133,813.31.
It can thus be seen that from at least the beginning of April 2020, the car park revenue was considerably below average. In April and May 2020, monthly revenue was an average of $135,679.44 compared to an average of in excess of $182,000 based on 2019 figures. In those months, the average monthly revenue was less than 75% of average monthly revenue based on 2019 figures. The below average revenue appears to have continued into June 2020.
Secure submitted that the Court should find that the reduced revenue was a result of the introduction of the various restrictions imposed by the public health orders in response to the COVID-19 pandemic. It was submitted that these restrictions would obviously have the effect of reducing patronage for the car park, particularly amongst casual parking customers.
HTH submitted that the above approach was overly simplistic. It was put that whilst it could be said that COVID-19 and the community's response to it caused the downturn in revenue, it could not be said that the public health orders themselves were the cause. HTH submitted that quite apart from the orders, members of the public modified their behaviour out of fear of the virus, and businesses (including Secure itself) made arrangements for staff to work at home as much as possible. It was put that the orders themselves should be seen as nothing more than responses to the pandemic, which was the true cause of the downturn.
It is undoubtedly the case that the public health orders were made in response to the emerging pandemic. However, it is inescapable that the orders operated to curtail, by making unlawful, a wide range of commonly undertaken activities. It is possible that, absent the orders, members of the public may have voluntarily curtailed those activities to a degree, but the very purpose of the orders was to ensure that such curtailment actually occurred, as a matter of urgency. I think that the reduction in revenue experienced in the period from about late-March 2020 ought be seen as a consequence of the making of the orders. Compliance with the orders resulted in a quite sudden and significant reduction in various activities (including coming into the city for work) that by their nature would otherwise involve demand for car parking services in the central business district of Sydney. I think that it would be artificial to attribute the reduction in revenue to the pandemic, rather than the orders. Whilst the pandemic can be seen as the underlying cause of the making of the orders, I think that viewing the matter in a practical and commonsense manner, the relevant changes in behaviour amongst members of the public ought to be regarded as effectively caused by the orders which mandated that change in behaviour. I have therefore concluded that Secure's business carried on in or from the car park was materially adversely affected by reason of the laws, policies or actions of an Authority within the meaning of cl 21.1 of the lease. Secure thus became entitled to a reduction in the current Base Rent.
The entitlement was to a reduction "in proportion to the loss or damage caused to the Lessee". In my view, the loss or damage referred to is the loss or damage suffered by reason of the relevant laws, policies or actions of an Authority; it is the measure, expressed in monetary terms, of the material adverse affect caused by the laws, policies or actions.
In the course of submissions, the parties suggested various ways in which the relevant loss or damage might be calculated using the financial records of Secure that were in evidence. Some of the suggested calculations were based upon comparisons of revenue figures alone. I do not think that such an approach is suitable in seeking to measure an amount of loss or damage. It is necessary in my view to take into account expenditure as well as revenue. This is reinforced by the evidence that shows that, as its revenue declined from about late-March 2020, Secure took steps to reduce some of its costs, including labour costs. I have therefore attempted to quantify the extent to which Secure's profit and loss position was adversely affected by the public health orders.
As Secure was regularly incurring losses in the operation of the car park, the exercise is one of quantification of the extent to which the public health orders caused it to incur larger losses than would otherwise have been incurred.
Based upon its profit and loss statements (with adjustments made for May 2020 to reflect a rent amount of $188,522.73), Secure sustained losses in March, April and May 2020 of $41,820.41, $59,322.22 and $65,774.56 respectively. Those figures for March, April and May 2019 were $38,944.33, $38,448.96 and $27,353.95. There were thus increases in the amount of loss in each of those months of $2,876.08, $20,873.26 and $38,420.61 - a total increase of $62,169.95.
Looked at another way, the losses incurred in those months were a total amount of $166,917.19, whereas if losses were incurred at the rate of the monthly average of $33,274.82 (derived from the figures for January to December 2019), the total amount would be $99,824.46, a figure $67,092.73 less than the actual losses incurred.
The above calculations suggest that Secure incurred losses in March, April and May 2020 that were larger than usual by an amount of between $62,169.95 to $67,092.73.
As Secure was in possession until only 11 June 2020, the position is more complicated in relation to June 2020. Adjustments should be made to reflect a rent amount of $69,125 (which is 11/30 x $188,522.73). On that basis, the total expenses for the month were $86,935.79. Against that, revenue for the month was $49,064.88, leaving a loss of $37,870.91. However, the expenses include an unusually large amount of $12,244 for legal fees. These are likely to be legal fees associated with the dispute with HTH concerning the rent. I think that the loss figure should therefore be reduced by that amount, to $25,626.91. That is less than the June 2019 loss of $27,871.29, and less than the 2019 monthly average loss of $33,274.82. In these circumstances, I cannot be satisfied that Secure suffered any additional loss in June 2020.
However, I am satisfied that in respect of the overall period from late-March 2020 to 11 June 2020, Secure sustained larger than usual losses in an amount of no less than $62,169.95. Further, I am satisfied that that amount of loss or damage was suffered by reason of the public health orders that operated during that period. Those orders resulted in a significant reduction in the revenue of the car park. Secure was not able to reduce its costs commensurately, and it therefore sustained the greater than usual losses. It follows that Secure was entitled to a reduction in the current Base Rent "in proportion to" that amount. In my view, that means that Secure became entitled to a reduction in the Base Rent to that extent. To my mind, a reduction in the current Base Rent of that amount should be regarded as a reduction in proportion to the relevant loss or damage caused to Secure.
Absent any operation of cl 21.1, the amounts of rent that would be payable on each of 1 April 2020 and 1 May 2020 would have been $188,522.73 (plus GST). Taking into account the truncated period of occupation in June 2020, the amount that would be payable for that month should be reduced to $69,125. The total of those amounts would therefore be $446,170.46 (plus GST). If the current Base Rent in respect of that period was reduced by $62,169.95, the amount payable would become $384,000.51 plus GST (or $422,400.56). Secure in fact paid only $110,871.03 on 7 May 2020, and $127,897.81 on 11 June 2020 - a total of $238,768.84. Secure thus paid an amount that was $183,631.72 less than the amount required in accordance with the determination of the reduction to the rent under cl 21.1 of the lease. In my opinion, HTH is entitled to recover that amount of outstanding rent from Secure, together with interest at court rates from, say, 1 May 2020 (which is approximately the mid-point of the relevant period).
I turn now to consider the Cross-Claim brought by Secure.
As noted earlier, the Cross-Claim is based upon the Deed of Licence dated 2 June 2015, which concerned 50 car parking bays within the car park. Secure seeks to recover outstanding Licence Fees of $158,664 from HPG (as Licensee) and HTH (as Guarantor).
There was no dispute by HPG or HTH that under the terms of the Deed of Licence, they were liable to pay the Licence Fee for the period from 1 April 2020 to the date when the lease (and hence the Deed of Licence) was terminated. No such fees were paid in respect of that period. I have found that the termination occurred on 16 June 2020, when Secure accepted HTH's repudiation of the lease. On that basis, Secure calculated the amount of outstanding Licence Fees to be $158,664. There was also no dispute about that calculation.
However, HPG and HTH raised two arguments in answer to the claim. First, they contend that an estoppel operates to preclude Secure from claiming the fees unless and until Secure has paid the rent due under the lease. (The alleged oral agreement, to similar effect, was not pressed in submissions.) Secondly, they contend that a set-off is available in equity in relation to outstanding amounts of rent.
The alleged estoppel is said to arise primarily from the discussion that occurred at the meeting held on 28 April 2015 between Messrs Seales, Farey and Wang (see at [19] above). The meeting occurred in the course of the negotiations for the lease and the Deed of Licence.
Even assuming that a conversation occurred to the effect of that deposed to by Mr Wang, I do not think that any estoppel arose. The discussion proceeded on the basis that the trustees of the Hudson Property Trust and Secure would be the parties to a lease, and that HPG and Secure would be the parties to a separate licence. In that context, Mr Farey (of HPG) said words to the effect that Secure would pay the trust the monthly rental payment "and then" HPG would pay Secure the monthly licence fee. Mr Seales (of Secure) expressed his agreement to what had been said. Viewed objectively, the conversation does not convey in sufficiently clear terms that HPG's obligation to pay the monthly licence fee would only arise if and when Secure had paid the monthly rent. The essence of the conversation ought rather be understood as a general description of the manner in which payments under the two agreements were envisaged to occur, namely, a payment of rent by Secure to the trust on the first day of each month "and then" a payment of licence fee by HPG to Secure. It would be reading too much into the words "and then" to regard them as meaning something like "and then, and only then". The telephone conversation of 3 June 2015, deposed to by Mr Wang (see at [24] above) does not seem to me to take the matter any further.
There are in any case other reasons why I would not find any estoppel as alleged. These include: 1. that there was no evidence from any relevant decision maker that any such conversation was relied upon in some way in deciding to enter into the Deed of Licence, or the later Deed of Novation; 2. that the Deed of Licence contains an entire agreement clause (cl 1.1); and 3. that the Deed of Novation contains a warranty by the original parties (including HPG and the former trustees of the Hudson Property Trust) that the Deed of Licence is the whole agreement and that there are no other understandings, arrangements, promises or collateral agreements between them that in any way modify, change or enhance the rights and obligations of any of the original parties under the Deed of Licence (see Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 196).
It follows that, notwithstanding any failure of Secure to pay the full amount of the rent due under the lease on 1 April 2020, 1 May 2020 or 1 June 2020, HPG was obliged to pay the Licence Fee under cl 3.1 of the Deed of Licence until the deed was terminated on 16 June 2020. HTH was similarly obliged pursuant to the guarantee and indemnity provisions of the Deed of Licence (see cll 8.3 and 8.4).
I do not think that any set-off arises as between HPG and Secure. The liability of Secure for outstanding rent is to HTH, not HPG. Counsel for HTH and HPG referred to the decision of Giles J in Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 at 464-5 for the proposition that in certain circumstances equitable set-off may be available even where there is a lack of mutuality. However, in circumstances where the parties to the transaction deliberately chose to enter into separate lease and licence agreements the parties to which were not common, I fail to see why the existence of HTH's claim under the lease against Secure should be held to go to the root of or impeach the title of Secure to recover from HPG under the Deed of Licence.
Of course, insofar as Secure obtains a judgment against HTH pursuant to the Deed of Licence, HTH will be able to set-off its judgment against Secure for outstanding rent under the lease (see Civil Procedure Act 2005 (NSW), s 21).
Accordingly, Secure is entitled to judgment against HPG for $158,664, together with interest at court rates calculated from the dates the payments of Licence Fee were due. Secure is also entitled to judgment against HTH for $158,664 plus interest. However, pursuant to cl 8.5 of the Deed of Licence, Secure is entitled to interest at the rate specified in that clause.

H.T.H. Nominees Pty Ltd atf Hudson Property Trust v Secure Parking Pty Ltd

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