Interslice Pty Ltd v CCA Investments - Bass Hill Pty Ltd - [2024] NSWSC 481 - NSWSC 2023 case summary

Supreme Court of NSW|2023-08-14|Before: Richmond J

Background

The original proprietor of the Land was the RSL Club. In or around 2006, the RSL Club sought to refurbish the building on the Land, and in July 2006, submitted to Bankstown City Council (the Council) a development application, which was given the reference 755/2006 (DA), along with a statement of environmental effects (SEE).
On 10 November 2006, the Council issued a development consent in respect of the DA (Consent), which permitted the development of the Land for the following purpose (subject to the conditions and requirements set out therein): Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children's Play Area and Rear External Terrace.
Condition 2 in the Consent was that "the development shall take place in accordance with [the DA], submitted by Paynter Dixon Constructions Pty Ltd, accompanied by Drawing No. A01 and CC02 (Issue B) prepared by Paynter Dixon, dated 10 July 2006 and Drawing No. 1175-06 prepared by Lyle Marshall and Associates Pty Ltd dated September 2006 and affixed with Council's approval stamp dated 10 November 2006, except where otherwise altered by the specific amendments listed here and/or except where amended by the conditions contained in this approval".

Issues

The issues in dispute between the parties are: 1. Whether Interslice was in breach of cl 10.1(a)(ii) of the Equitable Lease. 2. Did CCA repudiate the Equitable Lease by repeatedly refusing to issue a lease in registrable form to Interslice from 15 October 2019? 3. Alternatively, did CCA otherwise repudiate the Equitable Lease by its conduct prior to 7 April 2020? 4. If the answer to (2) or (3) is yes, how should Interslice's damages be calculated? 5. If the answer to (2) or (3) is no, did Interslice repudiate the Equitable Lease as a consequence of its purported termination of the lease on 7 April 2020? 6. If the answer to (5) is yes, how should CCA's damages be calculated? 7. If the answer to (5) is yes, can CCA call on the guarantees under the lease? 8. Whether Interslice is entitled to the return of the Bond.
As Ms Bakic did not give evidence at trial, Interslice abandoned its pleadings in relation to estoppel.

Issue 1: Was Interslice in breach of cl 10.1(a)(ii) of the Equitable Lease?

At the heart of the dispute between the parties and central to the defendant's case on repudiation is the question whether Interslice was in breach of cl 10.1(a)(ii) of the Equitable Lease, because once CCA purchased the Land there was no valid development approval that permitted Interslice to operate a gym/health club from the Premises. The plaintiff submits that Interslice was permitted to operate a gym from the Premises as an existing use after CCA purchased the Site. The defendant submits that the plaintiff was operating unlawfully, and that it had validly issued the breach notice described above at [53].
There was no dispute that if Interslice was in breach of planning legislation following the closure of the RSL Club then it would be in breach of cl 10.1(a)(ii) of both the Lease and the Equitable Lease. Both parties proceeded on the basis that if Interslice was in breach of cl 10.1(a)(ii) of the Lease, cl 2.2(a)(iii) did not prevent the Equitable Lease coming into existence. I assume this was on the basis of s 133E of the Conveyancing Act 1919 (NSW), as no notice under s 133E(2)(a) had been given to Interslice. Both parties led expert evidence on the planning issues at the hearing although ultimately the question whether there was a breach of cl 10.1(a)(ii) is a question of law for the Court.

Plaintiff's Submissions

The plaintiff submits that it was permitted to operate a gym from the Premises under the existing use provisions in the EPA Act.
Section 4.66(1) of the EPA Act provides: Except where expressly provided in this Act, no thing in this Act or an environmental planning instrument prevents the continuance of an existing use.
Section 4.65 of the EPA Act provides: … existing use means - (a) the use of a building, work or land for a lawful purpose immediately before the coming into force of an environmental planning instrument which would, but for this Division, have the effect of prohibiting that use, and (b) the use of a building, work or land - (i) for which development consent was granted before the commencement of a provision of an environmental planning instrument having the effect of prohibiting the use, and (ii) that has been carried out, within one year after the date on which that provision commenced, in accordance with the terms of the consent and to such an extent as to ensure (apart from that provision) that the development consent would not lapse.
The plaintiff submits that the use of the Premises as a gym was consented to by the Council pursuant to the Consent, and therefore constituted a lawful existing use within the scope of the EPA Act.
The plaintiff's planning expert, Mr Grech, gave evidence that in his view the proper construction of the Consent, when considered in light of the DA and the SEE, was that it contained separate consents for the refurbishment of the RSL Club and the construction and operation of the gym.
The plaintiff submits that this evidence means that the gym was a lawful existing use at the time the RSL Club ceased operation in late 2018 so that when the RSL Club ceased to operate, this had no bearing on the ability of Interslice to continue to operate a gym at the Premises as it was a lawful existing use within the scope of the EPA Act.
Further, the plaintiff submits that the following matters should be taken into account when assessing whether the gym was a separate and distinct use of the Premises from the RSL Club: 1. the distinct and separate area dedicated to the use of the gym; 2. the operation of the gym by a separate legal entity to the gym and the Lease; 3. the clear demarcation between the business operations of the RSL Club and the gym, with no integration between those operations.
The plaintiff also relied on two further matters. First, it sought to argue that separate construction certificates were issued for the RSL Club refurbishment and the construction of the gym and that this was relevant to whether the gym use under the Consent was auxiliary to the refurbishment of the RSL Club or a separate use. However, the evidence does not establish that two construction certificates were issued, including a separate one for the gym (T409.11). Even if there was a separate construction certificate for the construction of the gym, I do not see this as relevant to the proper interpretation of the Consent under the principles referred to at [84] below. Second the plaintiff relied on the evidence of Mr Scott Dickson, the chief executive officer of the RSL Club, that at the time of lodging the DA it was always envisioned that the gym and the RSL Club would be separate. Again, this is extrinsic evidence which is not admissible in relation to the construction of the Consent under the principles referred to at [84] below.

Defendant's submissions

The defendant submitted that once the RSL Club ceased operating this constituted an abandonment of the uses permitted by the Consent, and therefore Interslice did not have a valid development consent to operate its gym from the Premises.
The defendant's expert, Mr Turrisi, gave evidence that the DA was for one purpose, the refurbishment of the RSL Club including the construction of a health club; not, as Mr Grech had opined, the refurbishment of the RSL Club and, separately, the construction of gym. The defendant also submitted that the Court could have reference to the SEE in order to understand the scope of the Consent: Allandale Blue Metal Pty Ltd v RMS (2013) 195 LGERA 182; [2013] NSWCA 103 at [45]-[48] and [160]-[163].
The defendant submitted that: 1. the plans submitted to the Council showed an interchange between the Premises and the remainder of the Land; 2. the SEE referred to the health club as being for 'members and guests' which should be understood as members and guests of the RSL Club; 3. the SEE also referred to seeking consent for the 'entire' development; 4. the Consent refers to the refurbishment of the RSL Club 'including' inter alia the construction of the health club.
The defendant submitted that while s 107(1) of the EPA Act, as in force when LEP 2015 was gazetted, like its successor s 4.66(1) set out earlier, permitted the continuance of an existing use, this was subject to s 107(2)(e) which stated: (2) Nothing in subsection (1) authorises: … (e) the continuance of the use therein mentioned where that use is abandoned. This is in the same form in the present s 4.66(2)(e) of the EPA Act.
The defendant submits that by the time, at latest, that CCA purchased the Land, the use for which the Consent had been granted had been abandoned. That the gym had been operating separately from the RSL Club had no bearing as the only consideration was what the permitted use was under the Consent. That use only envisioned the operation of the RSL Club with an ancillary health club open for members and guests of the RSL Club.

Consideration

As at July 2006, when the RSL Club sought development approval for, among other things, the inclusion of a gym in the building on the Land, the Land was owned and operated by the RSL Club as a registered club. At that time, the LEP 2001 was in force. Both experts agree that pursuant to cl 11(1) of the LEP 2001, land zoned 'Residential 2(a)', as the Land was, could not be used as a registered club or as recreational facilities (which includes a gym). This was subject to cl 12 which conferred a discretion on the consent authority (being the Council) to grant consent for a development that is not permitted under cl 11 where it is satisfied that the proposed development met the requirements in cl 12(2).
It follows that, as at July 2006, the RSL Club was prohibited from operating a gym or a registered club at the Land under the LEP 2001. However, as the RSL Club had been operating a club registered under the Registered Clubs Act 1976 (NSW) on the Land since well before LEP 2001 came into force, it was entitled to continue its operation as a registered club as an existing use pursuant to former s 107 of the EPA Act as in force at that time.
Former s 107, like its successor s 4.66 set out earlier, provided in subsection (1) that nothing in the EPA Act or an environmental planning instrument prevents the continuance of an existing use, but went on, as does s 4.66, to provide in subsection (2) that nothing in subsection (1) authorises any alteration or extension to or rebuilding of a building or work. Accordingly, in order to refurbish the premises of the registered club, including the addition of a gym, developmental approval was necessary.
In July 2006, the RSL Club lodged the DA, which was accompanied by the SEE, seeking approval from the Council for a development described as a "proposed rear external terrace, extension to numbers to existing terrace, internal alterations, health club and kids play area".
The Consent issued by the Council describes the development which has been approved as (emphasis added): "Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children's Play Area and Rear External Terrace."
The question that arises is whether, on the proper construction of the Consent, the development which was approved was for a use of the Land for a health club as part of the operation of the RSL Club, or rather what was approved was a refurbishment of the RSL Club and a separate and independent use of the Premises for a health club. Mr Turrisi, the town planning expert called by the defendant considered the first alternative to be correct, whereas Mr Grech, the town planning expert called by the plaintiff, considered the second alternative to be correct.
The nature of the use of the Land approved by the Consent turns on the proper construction of the Consent.
In Bunderra Holdings Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd (2017) 96 NSWLR 434; [2017] NSWCA 263 at [158] Payne JA summarised the principles relating to the construction of development consents as follows: (1) The nature and extent of the approved development must be determined by construing the document of approval, including any plans or other documents which it incorporates, aided only by that evidence admissible in relation to construction which establishes, or helps to establish, the true meaning of the document as the unilateral act of the relevant authority, not the result of a bilateral transaction between the applicant and the Council. Thus evidence of the nature of the site would always be admissible for this purpose, as would be, in appropriate cases, evidence as to the meaning of the marks on plans, or indeed, the meaning of the absence of particular marks: Parramatta City Council v Shell Co of Australia Ltd [1972] 2 NSWLR 632 at 637 (Hope JA). (2) A development consent is to be construed according to its terms, having regard to its enduring nature. A development consent has an enduring nature because it is not personal to the applicant but is a public document operating in rem for the benefit of third parties such as subsequent owners, occupiers and security holders, and in some respects is equivalent to a document of title: House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498; [2000] NSWCA 44 at [23]; Winn v Director-General of National Parks and Wildlife (2001) 130 LGERA 508; [2001] NSWCA 17 at [4]: The enduring nature of a development consent encourages a fair but liberal reading of the rights it confers upon a landowner who may spend considerable money acting upon it and who is likely to wish to sell the land sooner or later: House of Peace at [41]. (3) A development consent is to be construed not as a document drafted with legal expertise, but to achieve practical results: Westfield Management Ltd v Perpetual Trustee Company Ltd [2006] NSWCA 245 at [36]; Baulkham Hills Shire Council v Ko-veda Holiday Park Estate Ltd (2009) 167 LGERA 395; [2009] NSWCA 160 at [105]. (4) As a general rule, a development consent, being a public document operating in rem for the benefit of third parties, should be construed without reference to extrinsic evidence other than to identify a thing or place referred to in it. That extrinsic evidence is not led to vary the consent but to identify a thing or place referred to in it. Evidence as to the nature or physical features of the land may also be admissible for that purpose, at least those features observable by a third party at the time of the consent: Allandale Blue Metal Pty Ltd v Roads and Maritime Services (2013) 195 LGERA 182; [2013] NSWCA 103 at [44]; Shell Co of Australia at 637.
If one starts, as is necessary, with the terms of the Consent itself, in my view it is clear that what is being approved is the refurbishment of the RSL Club, including various alterations or additions to the RSL Club, one of which is the construction of a health club. This follows from the ordinary natural meaning of the word "including" being "to contain, embrace, or comprise, as a whole does parts or any part or element" (Macquarie Dictionary, 9th ed, 2023). The words following "includes" are a description of particular items which the "refurbishment" contains or comprises. What is being refurbished is the RSL Club. This is confirmed when regard is had to what is said to be included in the refurbishment beyond the health club, being internal alterations and the construction of the children's play area and the rear external terrace, each of which is clearly part of the RSL Club. There is no reason to treat the construction of the health club differently from those other items.
Second, the Consent states in Condition 2, as noted above, that the development shall take place in accordance with the DA submitted by Paynter Dixon Constructions Pty Ltd, accompanied by the drawings included with the DA and stamped by Council with its approval stamp. It is apparent from those drawings (Ex 7) that there was physical access available between the gym (to be located on the lower ground floor) and the main part of the RSL Club (located on the ground floor) through internal stairs. There is nothing in the plans to suggest that doors between the two areas would not be readily accessible. Also, it is clear that the registered club would continue to operate on parts of the lower ground floor which were not intended to be used for the health club.
Third, the parties agreed that regard could be had to the SEE in construing the Consent, on the basis that this was one of the documents submitted by Paynter Dixon Constructions Pty Ltd as part of the DA and hence is a document incorporated by reference into the Consent due to Condition 2 (see the first principle stated in Bunderra set out above). Approaching the matter on this basis, in my view, there is nothing in the SEE which is contrary to the conclusion I have reached on the basis of the first two matters set out above. The SEE serves only to confirm what is apparent from the terms of the Consent itself, read with the drawings, is the correct construction. In particular, the SEE begins with the following: This Statement of Environmental Effects has been prepared by Andrew Martin Planning Pty Ltd at the request of Paynter Dixon on behalf of Bass Hill RSL Club (the 'Club') to accompany a Development Application for a rear external terrace, increase to patron numbers permitted within the existing terrace fronting Hector Street, internal kids play area, alternations and lower level health club. In order to address current trends and legislative requirements the Club must modify the existing floor areas. The Club now must consider other more suitable uses for the existing licensed area such as the inclusion of a kids play area. The change in strategy is partly prompted by the proposed banning of smoking within licensed clubs in 2007. The existing lower level is proposed to be converted to a health club which is to serve members and guests. There is no increase in the gross floor area (GFA) of the building and in fact the licensed area is reduced.
The last paragraph refers to the health club and states that it is to serve "members and guests". Although the plaintiff submitted to the contrary, in my view it is clear that the members and guests being referred to are members of the RSL Club and their guests. There is also a reference in this paragraph to the licensed area being reduced and this is picked up in the conclusion to the SEE which states that: "There is no intensification of use given that the gross floor area does not increase, and the proposed health club replaces what was previously licensed area". This suggests that the health club is put forward as part of the RSL Club as it replaces the licensed area of the RSL Club.
It is also clear from the introduction to the SEE that the DA is made seeking the exercise of the discretionary power conferred by cl 12 of the LEP 2001. Various other observations in the SEE were referred to by the parties, but in my view, none detracts from the conclusion that the health club was a development which was put forward as part of the RSL Club. Further, there is certainly nothing in the SEE to indicate that the health club was being put forward as a separate and independent use of the Land.
As noted above, following the renovation of the Land pursuant to the Consent, a series of gyms were operated from the Land, including most recently by Interslice pursuant to the Lease. As noted earlier, the Lease contained a provision requiring that a person becoming a member of the health club must also become a member of the registered club. While this is not a matter relevant to the construction of the Consent, it indicates that the RSL Club required its lessee to conduct its business consistently with what I consider to be the proper construction of the Consent.
As at the end of September 2019, when CCA acquired the Land, there was a new planning instrument in place, being LEP 2015. Under that instrument, the Land was zoned 'Residential, Low Density R2'. Under the Land Use Table contained in LEP 2015, development of land with this zoning (including a use of that land) for either "recreation facilities (indoor)" (which was defined to include a gym) or a "registered club" was prohibited.
LEP 2015 was gazetted on 5 March 2015. As at that date, the EPA Act provided relevantly as follows: 1. Section 76B provided that if a LEP provided that a specified development was prohibited on land to which the provisions applies, a person was not able to carry out that development on the land. "Development" was defined to include the use of land. 2. Section 106(b) defined an "existing use" to be "the use of building, work or land: (i) for which development consent weas granted before the commencement of a provision of an [LEP] having the effect of prohibiting the use, and (ii) that has been carried out, within one year after the date on which that provision commenced, in accordance with the terms of the consent and to such an extent as to ensure (apart from that provision) that the development consent would not lapse". 3. Section 107(1) stated that except where expressly provided in the Act, "nothing in this Act [or an LEP] prevents the continuance of an existing use", but 107(2)(e) stated that s 107(1) did not authorise the continuance of a use where the use is abandoned. 4. Section 109(1) stated that nothing in an LEP "operates so as to require consent to be obtained under this Act for the continuance of a use of a building, work or land for a lawful purpose for which it was being used immediately before the coming into force of the instrument or so as to prevent the continuance of that use except with consent under this Act being obtained". Again, s 109(2) of the Act provided that nothing in s 109(1) authorised the continuance of a use where that use is abandoned.
Sections 107 and 109 of the EPA Act did not apply in the present case because, by early 2019, the Land had ceased to be used as an RSL Club, and certainly that use was abandoned when CCA purchased the Land. Thus, the existing use (being the use for which approval was given under the Consent) had by then been abandoned as the RSL Club had closed. As Mr Turrisi confirmed, the fact that the gym had been operating prior to the LEP 2015 does not mean it could continue to do so afterwards as an existing use. The only lawful use prior to the LEP 2015 was to operate the gym as part of the RSL Club. Consequently, from at the latest, 13 September 2019, the use of the Premises for a gym was not permitted, and in breach of s 76B of the EPA Act (now s 4.3 of the EPA Act).
For these reasons Interslice was in breach of cl 10.1(a)(ii) of the Equitable Lease from the time of its commencement.
Interslice also put, rather faintly in final submissions, that if it was wrong on this issue, its inability to continue to use the Premises as a gym after the sale of the land to CCA was a frustration of the Equitable Lease. The short answer to that point is that the Equitable Lease imposes on the Tenant the obligation to comply with relevant planning laws (see cl 10.1(a)(i) and (ii)) and contains an indemnity and a release by the Tenant for any breach by it of environmental laws (which would include planning laws) or the lease. In other words, compliance with the planning laws is a matter on which Interslice bears the risk.

Issue 2: Did CCA repudiate the Equitable Lease by failing to provide a registrable lease?

The primary basis on which the plaintiff alleged repudiation was CCA's delay in providing a lease in registrable form, and registering that lease, despite requests from Interslice. There was no dispute that the principles of repudiation apply to leases: Leitz Leeholme Stud Pty Ltd v Robinson [1977] 2 NSWLR 544; Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 at 29-30; Markham Real Estate Partners (KSW) Pty Ltd v Misan (2022) 20 BPR 42,553; [2022] NSWSC 733 at [106] (affirmed on appeal in Misan v Markham Real Estate Partners (KSW) Pty Ltd [2023] NSWCA 51). Nor was there any dispute that there was an implied term in the Lease requiring the defendant to provide a lease in registrable form to the plaintiff within a reasonable time for the lease for the Option Period. Time was not of the essence for this obligation, and no time was fixed for performance. The plaintiff's case relied upon a contention that there had been a repudiation on the basis of the defendant's delay in performing the implied term of the contract.

Plaintiff's submissions

Interslice submitted that s 118(1) of the Conveyancing Act 1919 (NSW) meant that the defendant was bound by the exercise of the option to grant a lease over the Premises to the plaintiff in accordance with cl 2.2 of the Lease.
Interslice further submitted that it was an implied term of both the Lease and the Equitable Lease that CCA was required to deliver to the plaintiff a lease in registrable form for the Option Period. Interslice submitted that the circumstances were analogous to Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23. The plaintiff pointed to ten occasions on which it requested a registrable lease from the plaintiff. The failure of the defendant to issue a lease in registrable form following these requests meant that it had evinced an intention to no longer be bound by the terms of the contract, or only to perform the contract as and when it suited CCA.

Defendant's submissions

While CCA accepted that it was an implied term of the Lease that a lease in registrable form be delivered to the plaintiff within a reasonable time from the commencement of the Option Period, CCA denied that such a term was implied into the Equitable Lease, as it would be duplicative of the term in the Lease and serve no purpose. Further, it submits that the implication of the term into the Lease was through cl 2.2, and as that would not be carried over into the Equitable Lease there is no basis for the implication of the term. I do not accept this submission. In my view, it was an implied term of both the Lease and the Equitable Lease that a registrable lease be provided within a reasonable time.
CCA claims that there was no breach of this implied term for essentially four reasons. First, the requirement for the lease to be registered in a 'reasonable time' must be understood in circumstances where Interslice was in breach of the Equitable Lease by reason of being in non-compliance with the Development Consent. This planning issue needed to be resolved prior to the lease being registered, as CCA was concerned that registering the lease while Interslice was in breach would amount to a waiver of its rights to enforce those terms.
Second, the requirement for a reasonable time period should be considered in light of the time period within which the Lease was registered, eight months after execution, compared to the delay in relation to the new lease which was only 6 months.
Third, the delay in responding to requests for a 'new lease' to be issued by the plaintiff should be understood in circumstances where Mr Assaf took that to be a request for a lease on different terms than the Equitable Lease.
Fourth, CCA submitted that even if there was a breach of the implied term, that was not a breach of sufficient seriousness that it could be characterised as a repudiation of the Equitable Lease. CCA submitted that the High Court in Laurinda had identified that 'something more' was needed before delay could amount to a repudiation: Laurinda at 433 (Mason CJ); 650 (Deane and Dawson JJ); 667 (Gaudron J). Here, the defendant submitted that this aspect was missing because it had repeatedly shown that it affirmed its intention to be bound by the contract, and that it was operating under the genuine belief that it needed to resolve the planning issues prior to registering the lease.
In answer to the plaintiff's claim of repudiation, the defendant submitted that in order to validly terminate a contract on the basis of a repudiation, the party terminating must be ready, willing, and able to perform the contract: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 433. Here, CCA submitted that Interslice was not ready, willing and able to perform the contract as it had been in breach of the lease since the Option Period commenced as a result of non-compliance with the planning laws. As I have found above, Interslice was in breach of cl 10.1(a)(ii) of the Equitable Lease for that reason.

Consideration

In DCT Projects Pty Ltd v Champion Homes Sales Pty Ltd [2016] NSWCA 117 at [39] Gleeson JA (Macfarlan JA and Sackville AJA agreeing) summarised the principles governing repudiation relevantly as follows: [39] For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract, or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620 (Shevill) at 625-626 (Gibbs CJ); Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623 at 634, 647-648, 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 (Koompahtoo) at [44]. Repudiation is a serious matter and is not to be lightly found or inferred: Shevill at 633 (Wilson J). … [41] A renunciation can be made either by words or conduct, provided it is clearly made: Universal Cargo Carriers Corporation v Citati at 436. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it: Koompahtoo at [44]; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 659 (Deane and Dawson JJ) and 647 (Brennan J).
Interslice relied on Laurinda in support of the submission that the delay in issuing a registrable lease amounted to a repudiation of the Lease and/or Equitable Lease. In Laurinda a delay of some nine months by a landlord in issuing a registrable lease was held to constitute a repudiation of the agreement for lease. The landlord had delayed for that period without explanation, and it was found at trial that it had deliberately delayed in executing and registering a lease because the landlord's commercial interests were better served by delay (at 647). It was a case where the words and conduct of the landlord would convey to a reasonable person in the situation of the tenant that the landlord would not be bound by the contract or would fulfil it only in a manner substantially inconsistent with the landlord's obligations and in no other way: Mason CJ at 636-637; Brennan J at 648-649; Deane and Dawson JJ at 659; Gaudron J at 667.
Unlike Laurinda, the delay in executing and registering a new lease in the present case was not unexplained. CCA raised the issue of non-compliance with the planning laws at the very first meeting with Interslice on 19 September 2019. It then sought legal advice on the question and communicated that advice to Interslice by an email on 14 January 2020. It put forward its view that Interslice was in breach of cl 10.1(a)(ii) of the Lease based on that legal advice in the email of 14 January 2020.
Further, the words and conduct of CCA did not indicate an intention to perform the Equitable Lease in a manner substantially inconsistent with its obligations under it; rather, CCA indicated that it intended to perform its obligations under the Equitable Lease, but could only do so if Interslice "resolved" the planning issue and the consequential breach of cl 10(a)(ii) of the Lease. Significantly, while Interslice instructed solicitors to act for it in January 2020, those solicitors did not engage in any meaningful way with CCA's position as stated in the email of 14 January 2020, and based on counsel's advice, that Interslice was in breach of cl 10(a)(ii). Instead, Interslice's solicitor in a letter of 2 March 2020 reiterated the request for a new lease to be issued and said that in the event that a new lease is not issued, "our client will contemplate legal action against CCA for breach of the Lease". Significantly, Interslice's solicitors did not assert that the failure to issue a new lease was a repudiation of the agreement for lease, but instead said it would "contemplate legal action for breach".
The notice issued by CCA to Interslice on 11 March 2020 indicated a willingness to perform the Equitable Lease, provided that Interslice demonstrated to CCA's reasonable satisfaction, within one month of the letter being sent, that the breach of cl 10.1(a)(ii) of the Lease could be rectified.
In my view, CCA's notice of 11 March 2020 and the words and conduct of CCA which preceded it, would not convey to a reasonable person, in the situation of Interslice, that CCA renounced either the Equitable Lease as a whole or a fundamental obligation under it.
Further, even if the conclusion that CCA did not repudiate the Equitable Lease is incorrect, it does not follow that Interslice was entitled to terminate the Equitable Lease for repudiation. The fact that, as I have found above, the use of the premises as a gym was no longer permitted under planning law is an insuperable difficulty for Interslice. As the plurality said in Chan v Cresdon Pty Ltd at 252 "the Court's willingness to treat the agreement as a lease in equity, on the footing that equity regards as done what ought to be done and equity looks to the intent rather than the form, rests upon the specific enforceability of the agreement."
In circumstances where the lessee is not ready and willing to perform the essential terms of the contract, specific performance will not be available: PG Turner, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane's Equity Doctrines & Remedies (5th Ed, Lexis Nexis, 2015) at [20-120]. Compliance with cl 10.1(a)(ii) was an essential term of the Lease. Another way of putting what is essentially the same point is that, as submitted by CCA, it was not open to Interslice to rescind for anticipatory breach when it was not itself willing to perform the Equitable Lease on its proper interpretation: DTR Nominees at 433.

Issue 3: Did CCA repudiate the Equitable Lease through its conduct prior to 7 April 2020?

Alternatively, Interslice claimed that CCA had repudiated the lease by a combination of delay in providing a lease in registrable form, the attempt to invoice Interslice for electricity supply charges and other costs, and alleged derogations from the right of quiet enjoyment under cl 14.1(a) of the Equitable Lease.
Interslice submits that the disruptions to electricity supply to the Premises and the attempts by CCA to charge Interslice for electricity, insurance and management fees by invoices issued in the period from 14 September 2019 to 31 January 2020 in the amount of $15,396.49, was a breach of the covenant of quiet enjoyment under the Equitable Lease that was sufficiently serious, when considered in light of the refusal to provide a lease in registrable form, that CCA had to be taken to have objectively renounced its obligations under the contract. Interslice submits that CCA did not have a right to insist upon payment of these invoices. Interslice submits that this conduct amounted to an objectively evinced intention either not to perform the contract, or only to do so in a manner substantially inconsistent with the contract.
CCA accepts that it was not permitted to charge the plaintiff for insurance and management fees but says that it was permitted to charge Interslice for the electricity supply costs to the Premises. However, it says that there was no breach of the contract in seeking recovery of these amounts as it never insisted upon payment and nothing was ever paid in respect of these invoices. In so far as electricity was concerned, its ultimate position was to require Interslice to obtain a separate meter for electricity to the Premises which it would pay for directly to the supplier.
Otherwise, the defendant submits that the various disruptions to Interslice's business were not sufficiently serious to amount to a repudiation either by evincing an intention not to be bound by the contract or a serious breach of an intermediate term of the Equitable Lease. CCA submits that in all the circumstances, none of this conduct taken together amounted to an indication that it renounced its obligations or only intended to perform them as and when it suited CCA.

Consideration

I accept CCA's submissions on this issue. It is true that the claims made for payment of the invoices for electricity, insurance and management fees were unjustified. It is also true that the disruptions to Interslice's business and its right to quiet enjoyment caused by the interruptions to the electricity supply were unfortunate and involved errors by the electrician engaged by CCA, which Mr Assaf subsequently acknowledged. However, none of those matters, either alone or in conjunction with the delay in providing a registrable lease, would convey to a reasonable person in the situation of Interslice that CCA would not be bound by the contract or would fulfil it only in a manner substantially inconsistent with CCA's obligations and in no other way.

Issue 4: What is the amount of Interslice's damages

In light of my conclusions on the first two issues, this issue does not arise. However, in case the matter goes further, I will deal with it.
Interslice claimed damages for the loss of the opportunity to trade for five years from the Premises.
In my view, Interslice has not established an entitlement to damages. First, CCA's failure to provide a registrable lease was not the cause of Interslice's business ceasing to operate from the Premises. Both Mr Assaf's evidence (eg. T 314.13-314.14) and contemporaneous documents (eg. Mr Assaf's email of 14 January 2020) indicate that CCA wanted Interslice to continue in occupation as tenant. The cause of the loss was the inability of CCA to seek or obtain the necessary planning consent for its continued occupation of the Premises as a gym.
Second, I do not accept the evidence of Interslice's accounting expert, Mr Calvetti, that Interslice's loss of pre-tax profits over the period 1 April 2020 to 30 September 2024 (relevant period) was $1,176,803 is reliable, for a number of reasons: 1. His estimate of future revenue was based on the application of a percentage increase from year to year despite the fact that this involved adopting a revenue figure for the first year (the 2020 financial year) of $393,382, which was inconsistent with the BAS statements for Interslice which indicated that its revenue for that year was around $240,000. 2. He did not adequately take into account that Interslice's revenue had declined during the 2019-2020 financial years, which was highly relevant when seeking to predict the likely revenue in the relevant period. 3. His estimates for the revenue in the last quarter of the 2020 financial year and for the 2021 and 2022 financial years (for each of which he predicted an increase in revenue) did not properly take into account the impact of the COVID lockdown. On 23 March 2020 a public health order required the closure of gyms and fitness centres in New South Wales and Mr Calvetti's view that it was possible for the Interslice business to "pivot" to earn more revenue after the Premises were closed, rather than open, was not adequately explained or supported. 4. He made an assumption that the wages cost of the business would drop from $132,000 to $79,000 per annum on the assumption that Mr Robinson and Ms Bakic would continue to work for the business but not draw a salary, which was not plausible given that in every previous year they had done so. 5. Finally, Mr Calvetti did not apply any discount to his calculations of expected revenue and profit to take into account the uncertainty and risk of Interslice deriving that revenue and profit. This is particularly significant in light of the COVID lockdown and the risks that posed for Interslice's business at the commencement of the relevant period.
Mr Ferrier, the accounting expert called by CCA, prepared a report in which he calculated the loss of profits suffered by Interslice in the relevant period to be $110,749. I consider his reasoning and approach to be more realistic but note that the conclusion reached in his report was qualified by two concessions he made in the course of his oral evidence. First, it became apparent that in his calculations Mr Ferrier had assumed that Interslice was entitled to operate a gym from the Premises, and he accepted that if this was a wrong assumption this would have a substantial downward effect on any revenue from the business. Second, Mr Ferrier accepted that his calculations assumed that Interslice did not have to pay for the electricity used in the Premises. I accept CCA's submission that it was likely that Interslice would have been required in the relevant period to pay for its electricity supply through a separate meter for the Premises, and that if the likely expense for electricity for the Premises over the relevant period is added back to Mr Ferrier's calculations, this would effectively reduce the expected profit from $110,749 to zero.
For all these reasons, Interslice has failed to establish that it suffered any loss from the termination of the Equitable Lease.

Issue 5: Did Interslice repudiate the Equitable Lease?

If it is found that Interslice's claim is unsuccessful, CCA submits that Interslice repudiated the Equitable Lease by wrongfully purporting to terminate the lease.
Wrongfully terminating a contract is well recognised as a basis for a finding of repudiation: Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444 at 453; Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214; White and Carter (Councils) Ltd v McGregor [1962] AC 413; World Best Holding Ltd v Sarkar (2010) 14 BPR 27,549; [2010] NSWCA 24.
Interslice's termination of the Equitable Lease was wrongful and amounted to a repudiation of the contract that CCA was entitled to accept. The cross-defendants did not contend otherwise. The submissions in relation to the Cross-Claim related to quantum and whether CCA could call on the guarantee.

Issue 6: Quantum of damages on the Cross-Claim

CCA claims that it is entitled to all future rental profits under the Equitable Lease as a consequence of Interslice's repudiation. The only evidence adduced in support of the damages claimed in the Cross-Claim was CCA's future entitlement to rent under the Equitable Lease if it had not been terminated.
Interslice submits that the lack of any evidence of attempts to mitigate its loss means that any damages must be reduced by the amount that CCA would have received if it had taken reasonable steps to mitigate.
At the hearing, counsel for CCA frankly accepted that there was no evidence before the Court that CCA sought a new tenant for the lower ground floor area which had previously been leased to Interslice (T446.20-446.40).
Where a landlord terminates a lease as a consequence of repudiation, and claims damages for loss of its bargain, the measure of damages is assessed by reference to the difference between future rental payments and the benefits that a landlord will receive from re-letting the premises: Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254 at [33]; Gigi Entertainment Pty Ltd v Schmidt [2013] NSWCA 287 at [108]; Darlington No. 1 Pty Ltd v White Label Hospitality Group Pty Ltd [2020] NSWSC 1301 at [57]. The burden to show that loss is on the landlord: Luxer Holdings Pty Ltd v Glentham Pty Ltd (2007) 35 WAR 254 at [33]; Progressive Mailing House v Tabali (1985) 157 CLR 17 at 31; AMEV-UDC Finance Ltd v Austin [1986] HCA 63 (1986) 162 CLR 170 at 186; B Edgeworth, Butt's Land Law (7th ed, 2017) at [7.1620].
In the circumstances, CCA has failed to prove its loss and is only entitled to nominal damages. It had to prove that there was some detriment as a result of being put in the position where Interslice's tenancy ended early. Mere assertion of that fact in submissions is not enough. CCA can only recover loss of bargain damages if it establishes that it has tried unsuccessfully to obtain a new tenant at the rent stipulated in the terminated lease: Gumland Property Holdings v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 [55]-[56].
That was the approach of the Court of Appeal when a similar issue arose in Gigi Entertainment Pty Ltd v Schmidt (2013) 17 BPR 32,611; [2013] NSWCA 287 [71]-[73] (emphasis added): [71] The last three of the above-mentioned paragraphs of Mr Gerzilis' affidavit are those to which it is contended her Honour failed to have regard in making her findings on the loss of bargain damages (appeal ground 6). In those paragraphs, Mr Gerzilis says nothing as to any enquiries he or anyone else on behalf of Gigi had made in relation to the re-letting of the premises after the termination of the lease. He gives no evidence as to any attempts made to do so. At its highest, this evidence goes no further than to show that Mr Gerzilis was aware, prior to the termination of the lease, that an agent was seeking a buyer for the leasehold interest; and, after the termination of the lease, that the prospective purchaser that had been identified might not have the money to proceed. [72] Mr Gerzilis' evidence does not disclose any attempt by him to ascertain the existence of any alternative lessee: no marketing of the premises; no instructions to agents as to the re-leasing of the premises or the like. This may be contrasted with what had apparently occurred in the Luxer Holdings case and in Buchanan v Byrnes. Nor was there any expert opinion from a real estate agent as to the market value of the lease or the likely time that might be required in order to find an alternative tenant for the premises. [73] As to the reliance placed by Mr Pritchard on the lack of any allegation of failure to mitigate, before any question of mitigation can arise the landlord must establish a prima facie loss. Mr Robertson submits, and I agree, that there was no evidence to establish such a loss, there being nothing to suggest that the landlord did not obtain a benefit from the early termination by then being in a position to re-lease the premises at the same or a higher rent.
As CCA has failed to demonstrate any loss, it is only entitled to damages of $10 as a result of the termination of the Equitable Lease.

Issue 7: Can CCA call on the guarantees?

The issue does not arise given my conclusion on Issue 6. However, as it was argued I will deal with it briefly.
Mr Robinson and Ms Bakic each gave a guarantee in the Lease pursuant to cl 21. Clause 21.2 of the Lease provided (emphasis added): The Guarantor unconditionally and irrevocably guarantees to the Landlord the due and punctual performance and observances by the Tenant of its obligations: (a) under this lease, even if this lease is not registered or is found not to be a lease or is found to be a lease for a term less than the Term; and (b) in connection with its occupation of the Premises, including the obligations to pay money.
Clause 21.1 states that the Guarantor gives the guarantee in that clause "in consideration of the Landlord agreeing to enter into this Lease at the request of the Guarantor". Clearly "this Lease" includes the option to renew under cl 2.2, which contemplates that any new lease granted on exercise of the option would include a guarantee in the same terms as cl 21. Of course, once such a guarantee was given in the new lease, there would be no need to have recourse to cl 21.2 of the Lease. However, in the period prior to execution of that new lease there is no reason why cl 21.2(b) should not apply, on its plain terms, to the continued occupation of the Premises by the Tenant under the equitable lease arising on exercise of the option.
Consequently, a sensible and commercial construction of cl 21.2(b) is that it would extend to all amounts owing by the Tenant to the Landlord in connection with any lease arising on exercise of the option prior to grant of the new registrable lease incorporating a new guarantee, being relevantly the Equitable Lease.

Issue 8: Is Interslice entitled to the return of the Bond?

The plaintiff seeks under prayer 2 of the ASOC an order for the return of the Bond of $30,000. The defendant seeks in the Cross-Claim judgment for arrears of rent, outgoings and other moneys outstanding under the Lease up to the date of termination.
Mr Assaf's evidence was that there were no arrears of rent for the period up to the date when Interslice left the premises on 29 April 2020. Outgoings which CCA claims in the Cross-Claim were particularised as being for electricity, insurance and management fees for the period from 14 September 2019 to 31 January 2020 in the amount of $15,396.49.
CCA now accepts that it was not entitled to charge Interslice for insurance and management fees. However, CCA maintains that it was entitled to charge Interslice for electricity on the basis that while there was no separate meter for the electricity to the Premises, as the only person using the electricity in the Premises during the relevant period was Interslice, it was entitled to charge for electricity supplied to the Premises.
In my view, it is clear from cl 4.1 of the Equitable Lease that CCA was only entitled to charge Interslice for Services, such as electricity, which "are separately metered to and consumed in the Premises". There was no separate meter for electricity used in the Premises during the period prior to termination and consequently, no entitlement arose under cl 4.1.
It follows that Interslice is entitled to the return of the Bond of $30,000.

Conclusion

For the above reasons, the plaintiff has failed in its claim for damages for repudiation and termination of the Lease or the Equitable Lease. However, it is entitled to the return of the Bond under cl 20 of the Original Lease and the Equitable Lease.
For the above reasons, the defendant is entitled to a declaration in the terms of prayer 1 of the Cross-Claim and to nominal damages of $10.
I will list the matter for directions for the purpose of hearing the parties on the final orders to be made, including as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 May 2024

JUDGMENT

These proceedings concern the termination of a lease formerly held by the plaintiff and cross-defendant, Interslice Pty Ltd (Interslice) over part of the Land comprised in folio identifier 101/1053893 located at 330 Hector Street, Bass Hill (Land). The property leased to Interslice was described in the lease as part of the lower ground floor of the building located at 330 Hector Street (Premises).
Interslice operated a gym from the Premises under the name Move Fitness Leisure Centre. Interslice occupied the Premises pursuant to a registered lease for a term of five years commencing on 16 October 2014 (Lease), which contained an option to renew the lease for a further term of five years. It is not in dispute that Interslice exercised this option on 6 April 2019 with the new lease to commence on 15 October 2019. No lease in registrable from was provided to Interslice, but it continued in occupation of the Premises under an equitable lease.
At the time the Lease was granted, the Land was owned by City of Bankstown RSL Community Club Limited (the RSL Club). The defendant and cross-claimant, CCA Investments - Bass Hill Pty Ltd (CCA), acquired the Land from the RSL Club on 13 September 2019.
Under its Amended Statement of Claim (ASOC) Interslice claims that CCA repudiated the Lease and the equitable lease by a course of conduct from September 2019 to April 2020. Interslice contends that it accepted this repudiation and terminated the equitable lease on 7 April 2020. CCA has not returned the bond of $30,000 which it paid to the landlord under the Lease (Bond). Interslice claims damages for breach of contract and an order that CCA return the Bond.
Under its Cross-Claim (Cross-Claim) CCA cross claims for damages for breach of contract by Interslice. CCA claims that Interslice's purported termination of the equitable lease on 7 April 2020 amounted to a repudiation of the lease, and that it accepted this repudiation on 14 April 2020. CCA seeks the following relief in the Cross-Claim: 1. A declaration that the lease operative between CCA and Interslice was validly terminated by CCA; 2. Judgment for arrears of rent, outgoings and other monies outstanding under the lease operative between the parties up to the date of the termination; 3. Damages for breach of contract.
The second cross-defendant, Ms Danka Bakic (Ms Bakic), is the sole director of Interslice. The third cross-defendant, Mr David Robinson (Mr Robinson) was a director of the plaintiff until 7 December 2017, and along with Ms Bakic ran the day-to-day operations of Interslice. Both Ms Bakic and Mr Robinson are guarantors under the Lease, though there is a dispute as to whether that guarantee applies to the new equitable lease arising on exercise of the option.
In the first judgment in these proceedings, Interslice Pty Ltd v CCA Investments - Bass Hill Pty Ltd [2021] NSWSC 1578, Ward CJ in Eq (as her Honour then was), ordered that the plaintiff provide security for the defendant's costs in the sum of $20,000.

(2013) 195 LGERA 182

(2001) 130 LGERA 508

(2009) 167 LGERA 395

Interslice Pty Ltd v CCA Investments - Bass Hill Pty Ltd

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