ICECHEST CORP PTY LTD -v- QUAN [2017] WASC 345 (4 December 2017)

3 The plaintiff paid the rent arrears in instalments received by the defendants on 28 and 29 August. The plaintiff commenced this action on 31 August. The plaintiff claimed that the Default Notice was deemed to be served in the ordinary course of the post on 21 August and therefore the defendants had wrongfully terminated the lease. The plaintiff claimed damages for wrongful termination. The plaintiff claimed that it had paid the outstanding rent and outgoings. The plaintiff claimed an order that it be relieved from forfeiture of the lease. On the same day, 31 August 2017, the plaintiff sought and obtained an urgent interlocutory injunction requiring the defendants to give possession of the premises to the plaintiff and restraining them from taking possession of the premises.

4 On 20 September the plaintiff amended its statement of claim by withdrawing the claim that the defendants had wrongfully terminated the lease. On 10 October, by consent, the court discharged the interim injunction and ordered that the plaintiff be relieved from forfeiture of the lease. Each party now seeks orders in relation to costs. For the reasons which follow I will order that the plaintiff pay the costs of the defendants, including reserved costs, on an indemnity basis. I will further order that the plaintiff pay the defendants $1,232 as reimbursement for the cost of the security guard engaged at the time of termination of the lease.

Costs of action for relief against forfeiture principles

5 Subject to the provisions of the Act and the rules of court or any other Act the costs of proceedings in the court shall be in the discretion of the court: Supreme Court Act 1935 (WA) s 37. Subject to the express provisions of any statute and of the rules the costs of proceedings shall be in the discretion of the court but, without limiting the general discretion conferred on the court by the Act, the court will generally order that the successful party to the action recover their costs: Rules of the Supreme Court 1971 (WA) O 66 r 1(1). Ordinarily this general rule is a just outcome because a defendant who turns out to have unjustifiably given a plaintiff cause to have recourse to the court to obtain its rights should be required to recompense the plaintiff in costs.

6 The general rule that costs follow the event will not usually be a just outcome in an action brought by a lessee for relief against forfeiture. The usual approach of the court in such cases is that the party who sought relief against forfeiture should bear the costs of the action except so far as they have been increased by the other party unnecessarily or unreasonably resisting its claim and those costs must be borne by that other party. That approach was explained by Chadwick LJ in Bland v Ingrams Estates Ltd (No 2) [2002] Ch 177 at 184 as follows:

Third, the object of the court when granting relief is to put the lessor (as well as the lessee) back in the position in which he would have been if there had been no forfeiture: see Egerton v Jones [1939] 2 KB 702, 706. It is this principle which underlies the practice of requiring the applicant, as a term of relief, to pay the costs properly incurred by the lessor in connection with the reentry and the proceedings for relief. Accordingly, the applicant will normally be required to pay the lessor's costs of the forfeiture proceedings, save in so far as those costs have been increased by the lessor's opposition to the grant of relief, upon appropriate terms: see Howard v Fanshawe [1885] 2 Ch 581, 592, and Abbey National Building Society v Maybeech Ltd [1985] Ch 190, 206. Prima facie, the costs which the applicant will be required to pay to the lessor as a term of obtaining relief will be assessed on an indemnity basis; if it were otherwise the lessor would not obtain the indemnity against proper expenses to which he is entitled: see Egerton v Jones [1939] 2 KB 702, 710. But, to the extent that costs have been increased by the lessor's unnecessary opposition to the grant of relief, the normal rules apply: the lessor will normally be ordered to pay the applicant's costs on the standard basis, and the applicant will be able to set those costs off against what he would otherwise be required to pay to the lessor as a term of obtaining relief from forfeiture.

7 The practice referred to by Chadwick LJ is the usual approach but does not derogate from the discretion of the court which must be exercised having regard to the circumstances of each case. In Riviera Holdings Pty Ltd v Fingal Glen Pty Ltd (in liq) (No 3) (2013) 120 SASR 515 Nicholson J reviewed a number of authorities concerning the award of costs in actions for relief against forfeiture and concluded:

My general review of the authorities to which my attention has been drawn suggest that each case will turn on its own facts; sometimes the landlord is entitled to be fully indemnified with respect to its costs, sometimes a landlord will receive only some of its costs and sometimes a landlord will be required to pay some or all of the tenants' costs [17].

8 The plaintiff submits that the defendants, properly advised, should have realised that they had no proper basis to resist the plaintiff's claim for relief against forfeiture and should have reinstated the plaintiff's lease without the plaintiff having to commence proceedings. Further, the plaintiff says that the defendants should not have resisted the plaintiff's application for an interlocutory injunction on 31 August and unreasonably delayed in consenting to an order for relief against forfeiture and thereby unnecessarily and unreasonably caused the plaintiff to incur costs.

9 I find that the defendants did not act unreasonably in not agreeing to reinstate the plaintiff's lease before the commencement of proceedings, in not consenting to the plaintiff's application for an interlocutory injunction and not consenting to an order for relief against forfeiture until 10 October.

10 The defendants sent the Default Notice dated 16 August 2017 to the plaintiff at the leased premises by priority post on 16 August. Under the terms of the lease the notice was deemed to have been given when it would normally be delivered in the ordinary course of the post. It is common ground that in the ordinary course of post a priority post letter posted on 16 August would normally be delivered on 17 August. The notice stated the following defaults:

1. outstanding outgoings (electricity consumption);
2. outstanding rent for July and August 2017; and
3. failure to deliver Security Deposit of $50,000.

The notice required the plaintiff to remedy the defaults by paying the outstanding rent within 7 days and to pay the outstanding outgoings and deliver the Security Deposit within 14 days of the service or deemed service of the notice.

11 On 28 August the defendants terminated the lease by reentering the premises and served on the plaintiff notice of termination and reentry. On 28 August the plaintiff paid the outstanding rent by three payments which were received by the defendants on 28 and 29 August.

12 At 7.26 pm on 28 August the plaintiff's solicitors emailed a letter to the defendants' solicitors stating the following. First, the Default Notice posted on 16 August is not deemed to be served until 21 August and accordingly the defendants have wrongfully entered the premises and purported to terminate the lease. Secondly, the plaintiff has paid the outstanding rent. Thirdly, upon being given access to the premises the plaintiff will be able to pay the outstanding outgoings from monies on the leased premises. Fourthly, the plaintiff is endeavouring to raise $50,000 for the Security Deposit. Fifthly, the plaintiff will seek relief against forfeiture and an urgent injunction unless the defendants immediately reinstate the lease.

13 The defendants did not accede to the plaintiff's demand that they reinstate the lease. They did not act unreasonably. First, the plaintiff's claim that the defendants had wrongfully reentered the premises and terminated the lease was incorrect. Secondly, the plaintiff had not remedied the defaults under the Default Notice. There remained two outstanding defaults payment of the outstanding outgoings and delivery of the Security Deposit.

14 There were further communications between the plaintiff's solicitor and the defendants' solicitor. The defendants offered to reinstate the lease on condition that all defaults set out in the Default Notice were remedied including delivery of the Security Deposit, the defendants' costs associated with the defaults were paid, all future rent was paid on the first day of each month in accordance with the lease and all outgoings were paid in accordance with the lease. I find that was a reasonable position for the defendants to take.

15 At 5.53 pm on 30 August the plaintiff's solicitors made a further proposal. First, all defaults set out in the Default Notice had been remedied except for the reinstatement of the Security Deposit. The plaintiff has undertaken to provide the Security Deposit by no later than 29 September. Secondly, the plaintiff agrees to pay the defendants' reasonable costs arising from the defaults. Thirdly, the plaintiff was ready, willing and able to pay the September rent on 1 September. Fourthly, if the defendants do not agree to reinstate the lease and allow the plaintiff to resume trading by 9.00 am the following day, 31 August, the plaintiff will apply for relief against forfeiture and an urgent interlocutory injunction.

16 The defendants did not immediately accede to the plaintiff's demand. I find that it was reasonable for them not to do so. The plaintiff had not remedied one of the outstanding defaults providing the Security Deposit. The plaintiff was not proposing to do so until the end of the following month. The plaintiff had provided no adequate assurance that the Security Deposit would then be paid.

17 On 31 August the plaintiff commenced this proceeding by writ of summons and applied for an urgent interim injunction, which application I heard that afternoon. Counsel for the defendants, Mr Engelter, had become aware of the matter a couple of hours before the hearing. He had incomplete instructions and no opportunity to put on evidence. The plaintiff said that it had a prima facie case on two bases. First, the defendants had wrongfully reentered the premises because the plaintiff had not failed to remedy its defaults within the period specified in the Default Notice. The plaintiff said that the Default Notice was deemed to be served on 21 August and therefore the plaintiff had until 28 August to remedy the default in respect of outstanding rent which it had done and the time for remedying the failure to pay the outgoings and the Security Deposit had not yet expired. Secondly, and alternatively, the plaintiff said that if the defendants were entitled to reenter the premises, the plaintiff sought relief against forfeiture. I found that the plaintiff had made out a prima facie case that the defendants had wrongfully re-entered the premises because the time for remedying the defaults under the Default Notice had not expired at the time of reentry and alternatively if the reentry was not wrongful then there was a prima facie case for relief against forfeiture. I found that the balance of convenience was in favour of the plaintiff. I ordered that the defendants give possession of the premises to the plaintiff and restrained the defendants until further order from taking possession of the premises on condition that the plaintiff pay the rent instalment due on 1 September. I adjourned the matter to 5 September.

18 The defendants acted reasonably in not consenting to the urgent interlocutory injunction applied for by the plaintiff. First, the first basis on which the plaintiff sought relief that the defendants had wrongfully reentered the premises and terminated the lease was wrong. Secondly, counsel for the defendants had had no proper opportunity to obtain instructions. Thirdly, the plaintiff was still in default of the lease provision concerning the delivery of the Security Deposit.

19 Prior to the hearing on 5 September the plaintiff informed the defendants that the plaintiff would deliver the Security Deposit within seven days. The plaintiff maintained that there was a serious question to be tried as to whether the defendants were entitled to terminate the lease. Thus, the plaintiff at that time persisted in its claim for relief, including damages, on the basis that the defendants had wrongfully reentered the premises and terminated the lease a claim which it subsequently conceded to be unfounded.

20 At the hearing on 5 September the parties agreed that the interim injunction granted on 31 August be extended until the trial of the action or further order and the continuation of the injunctions be conditional upon the plaintiff continuing to pay monthly rent on or before the first day of each month. The defendants proposed that the continuation of the injunctions also be conditional upon the plaintiff within seven days depositing with the defendants a security deposit in the sum of $50,000 in accordance with the lease. The plaintiff proposed that the continuation of the injunction be conditional upon the plaintiff depositing with the defendants a security deposit in the sum of $50,000 in accordance with the lease, within seven days of the defendants providing the plaintiff with the details of their separate interest bearing account with a respectable financial institution. Each party made submissions in support of their proposed orders. I made an order in the terms proposed by the defendants and adjourned the matter to 21 September. I find that the defendants were justified in adopting the position they did on 5 September. Indeed, the orders I made were those proposed by the defendants.

21 The plaintiff delivered the Security Deposit to the defendants on 5 and 6 September. On 20 September the plaintiff served an amended statement of claim in which it withdrew its claim that the defendants had wrongfully reentered the premises and terminated the lease. The plaintiff conceded that the defendants were entitled to terminate the lease for nonpayment of rent.

22 By letter of 20 September the plaintiffs maintained that they had a strong claim for relief against forfeiture. The plaintiff proposed a settlement by which the lease is reinstated and the parties mutually release each other in respect of all claims for costs and damages. The plaintiffs said that that was a reasonable proposal because the defendants should have reinstated the lease prior to the commencement of proceedings and the plaintiff had incurred costs as a result. As I have said, the defendants acted reasonably in not reinstating the lease prior to the commencements of the proceedings.

23 There were further communications between the parties. On 9 October the defendants proposed that the plaintiff be relieved from forfeiture of the lease. On 10 October, by consent, I ordered that the injunction granted on 31 August and extended on 5 September be discharged, that the plaintiff be relieved from forfeiture of the lease and that the parties make submissions in respect of costs.

24 The plaintiff asserts that it was successful in the litigation and costs should follow the event. I find that the plaintiff was not wholly, or even substantially, successful in the litigation. The plaintiff abandoned its claim that the defendants had wrongfully reentered the premises and terminated the lease.

25 The plaintiff was successful in obtaining relief against forfeiture. The defendant did not unnecessarily or unreasonably resist the claim for relief against forfeiture. The defendants consented to relief soon after the plaintiff had remedied the defaults and withdrawn its assertion that the defendants had wrongfully reentered and terminated the lease.

26 This is a case where the tenant should pay the landlords' costs. The defendants should be put in the position in which they would have been if there had been no default and forfeiture. The plaintiff should pay the costs properly incurred by the defendants in connection with the reentry and the proceedings for relief. I find that neither the plaintiff nor the defendants' costs of the proceedings have been increased by any unnecessary or unreasonable resistance by the defendants to the granting of relief against forfeiture. It is appropriate that the plaintiff be required to pay the defendants' costs on an indemnity basis so that the defendants are not out of pocket for any costs incurred as a result of the plaintiff's default and application for relief against forfeiture, except in so far as any costs may have been unreasonably incurred.

27 There will be orders that the plaintiff pay all the costs incurred by the defendants, including reserved costs, except so far as they are of an unreasonable amount or have unreasonably incurred so that, subject to those exceptions, the defendants are completely indemnified by the plaintiff for their costs. Further, the plaintiff is to pay the defendants $1,232 to reimburse the defendants for the costs of a security guard engaged at the time of termination of the lease.