Kearsley Hotel Hunter Valley Pty Ltd v Iwaszkiewicz [2025] NSWSC 412 | Case summary | Zoe

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Kearsley Hotel Hunter Valley Pty Ltd v Iwaszkiewicz [2025] NSWSC 412 | Case summary | Zoe

The Landlords and the Tenant have been in dispute since last year about the performance of their respective obligations under the Lease. The Landlords have alleged numerous breaches of the terms of the Lease by the Tenant over the period of the dispute. Those alleged breaches have included monetary breaches resulting from the failure to pay outgoings allegedly due under the Lease. They have also included non-monetary breaches, including the failure to carry out various works which the Tenant was allegedly obliged to undertake under its repair covenant. At various stages it has also been alleged that rent has not been paid, although, as I understand it, it is not alleged that the rent is now in arrears. For its part, the Tenant alleges that the Landlords have failed to undertake works which they were obliged to undertake pursuant to the terms of the Lease.
On 13 August last year, the Landlords issued what purported to be a notice under s 129 of the Conveyancing Act 1919 (“CA”) requiring the Tenant to remedy various alleged breaches (both monetary and non-monetary), failing which the Landlords would forfeit the Lease and re-enter the premises. A second notice was issued on 18 September, which identified no less than 32 separate alleged (non-monetary) breaches. On 9 October the Landlords purported to terminate the Lease on the ground of breach and re-entered the premises, appointing a third-party manager to operate the Hotel business.
These proceedings were commenced in the Duty List on the same day. An interlocutory regime was established by Hammerschlag CJ in Eq whereby the Tenant was to obtain a safety report on the premises and was permitted to go back into occupation and manage the Hotel business in conjunction with the Landlords’ manager. Both the Tenant and the Landlords gave the usual undertakings as to damages. The proceedings were later transferred to the Expedition List.
In its statement of claim, the Tenant seeks a declaration that the purported termination of the Lease on 9 October last year was invalid, or, alternatively, relief against forfeiture. The Tenant disputes the allegations of breach in the s 129 notices, and contends that in any case, to the extent established, they do not justify forfeiture of its leasehold interest. The Tenant also seeks orders in the nature of specific performance which would require the Landlords to undertake the works on the premises which they are allegedly obliged to undertake under the Lease.
The Landlords filed a defence maintaining the validity of last year’s notices. But the dispute about alleged breaches by the Tenant has moved on. The Landlords now rely on the safety report to support their claims of breaches of the Tenant’s repair covenants. The dispute about outgoings has also moved on, with some payments having been made but further alleged non-payments being raised.
Ordinarily in a case of contested re-entry such as the present one would expect the landlord to file a cross-claim seeking a declaration that the lease had been validly terminated, and damages for breach. The timetable originally fixed in the duty list provided for any cross-claim by the Landlords to be filed by November last year. No such cross-claim was filed. It appeared, based on statements made by counsel for the Landlords to the Court on 22 November and again 7 February, that the Landlords would not seek to support the grounds on which last year’s re-entry took place.
That position changed on 14 February when the Court was informed that the Landlords did wish to maintain that the re-entry on 9 October had been lawful. Directions were made for the filing of a cross-claim and an amended defence by 5 March, but this date was missed. Eventually, on 13 March, the notice of motion currently before the Court was filed on behalf of the Tenant. Meanwhile, on 27 February, against the possibility that its October re-entry was invalid, the Landlords issued a further s 129 notice, the time for which has now expired.
Originally the Tenant’s motion was to be heard on 21 March. But on that day counsel for the Landlords made an oral application to amend their defence and to file a cross-claim in accordance with proposed pleadings presented to the Court. The parties agreed that it was convenient for me to deal with this application first.
I refused the application as I considered that the proposed pleadings were not adequate. In particular, they sought to support termination of the Lease on every single one of the 32 alleged breaches in the September notice, which counsel conceded was not sustainable. The time spent in dealing with the application meant that there was insufficient time to deal with the Tenant’s motion and it was put over for hearing on 11 April.

In the present case, no separate argument was directed to the provision in cl 6.6(c) of the Lease for payment of outgoings instalments (as will be seen below, it is doubtful whether the Landlords validly invoked this procedure in the present case). The payment of an outgoings instalment pursuant to the provision was in some ways similar to the payment of an instalment of Rent. In particular, once an Outgoings Estimate had been given, the amount due by way of instalment could be calculated by the Tenant without the need for any further action from the Landlords. Even so, a payment under cl 6.6(c) was a payment “on the same [date] and in the same manner” as the Rent, not a payment “as part of” the Rent. It is unnecessary for the purposes of this judgment to discuss the provision any further.
I turn then to the payment of outgoings reimbursements pursuant to cl 6.6(b). The obligation to pay the Tenant’s Proportion of Outgoings in the present case was not expressed as being “in addition to” the Rent, as it was in Drama Unit. It was nevertheless a separate obligation under the Lease, which, like the obligation in Drama Unit, required payment of outgoings to be made independently of payments for Rent. This is not the hypothetical case suggested by Brereton JA of outgoings being paid “as part of” the Rent. Applying the reasoning in Drama Unit, non-payment of an outgoings reimbursement was, on the face of it, not a non-payment of “rent” for the purposes of 129(8).
Is this prima facie conclusion displaced by the deeming provision in cl 19.12? This first requires some consideration of how that clause operated.
The starting point is that the clause applied to any monies due under the Lease. That would include payments of Rent as well as other monetary obligations such as payment of outgoings reimbursements. Furthermore, such monies were deemed to be “rent” rather than “Rent”. But it is unclear whether this was deliberate, because the Lease did not contain any other provisions dealing with payment of “rent”.
Clause 6.6 contained a detailed procedure for quantifying and making payment of the Tenant’s Proportion of Outgoings. The procedure was quite different from the procedure for quantifying and paying Rent under cl 6.1 (which included in cll 6.2-6.5, provision for annual rent reviews). If one reads the reference in cl 19.12 as a reference to “Rent”, it would be nonsensical to say that Outgoings were deemed to be Rent for the purposes of cl 6.
Nor did cl 19.12 purport, on analysis, to do so. It only came into play once monies had fallen “due” under the Lease. I think the clause is best understood as only having provided, in effect, that all monies owing under the Lease, once they had fallen due, were to be deemed, for the purposes of the Lease, to be unpaid “rent”.
Even read in this way, there was still a difficulty with cl 16.1. That clause expressly created a distinction between payments of Rent, which, under subclause (a), had to be unpaid for 14 days before the Tenant was in default, and other monetary payments, for which the period of time before default was 7 days under subclause (b). To read cl 19.12 as applying to cl 16.1 would, as counsel for the Landlords accepted, mean that no default would arise for failure to pay an outgoings reimbursement until 14 days after the due date. Subclause (b) would effectively be read out of the Lease.
In the end, it is not necessary to decide these questions of interpretation. I am prepared to deal with the Landlords’ argument on the assumption that the effect of cl 19.12 was to deem overdue outgoings reimbursement payments to be overdue payments of Rent.
The ultimate question for the Court is whether non-payment of an outgoings reimbursement due under the Lease was a non-payment of “rent” within the meaning of that term in CA s 129. Obviously to answer that question the Court must have regard to the terms of the Lease. But the question remains one of statutory construction: whether, on the proper construction of those terms, such a payment fell within the statutory term “rent”.
For this purpose, I think that the Court must focus on the operative provisions of the Lease. If, on the proper construction of those provisions, a payment was not a payment of “rent” under s 129, the parties could not make it one by including some other term to that effect in the Lease. I think this is a consequence of the prohibition on ‘contracting out’ in s 129(10).
In this regard, the very fact that cl 19.12 was a deeming provision is significant. Deeming is a process whereby, for particular purposes, something is given a legal attribute that it does not actually have. The very fact that outgoings have to be deemed to be “rent” underlines that actually they were not.
For these reasons, I think that the non-payment of outgoings was not a non-payment of “rent” for the purposes of CA s 129. This means that, on the concessions made by the Landlords, they are unable to justify their re-entry under s 129(1). The Tenant’s application for summary judgment must succeed.
Adequacy of pleadings**:** In case I am wrong in my conclusion about s 129(1), however, I will consider the Tenant’s application on the assumption that it was sufficient for the purpose of the Landlords’ defence for the Tenant to have in fact been in default of its obligation to pay its Proportion of Outgoings at the time that re-entry took place.
I do not propose to strike out the Defence as a whole for “want of due dispatch”. The Tenant’s claim for a mandatory injunction for the carrying out of works by the Landlords remains in issue. Nothing in the Landlords’ conduct of the proceedings would justify their being deprived of an opportunity to mount their pleaded defence to that claim. The question is whether their pleaded defence concerning their purported termination is tenable.
The relevant paragraphs in the pleadings are as follows:

The Landlords’ defence is that they were entitled to terminate the Lease under cl 16.1. That makes it necessary for them to plead that alleged entitlement.
The outgoings allegedly due, as pleaded at [36(c)], include both “actual historical outgoings” and a “claim in advance” of $16,000. Presumably these components are intended to correspond with outgoings reimbursement and outgoings instalment obligations. I will proceed on that basis and assume for the sake of argument that it was permissible for the Landlords to rely simultaneously upon both regimes for outgoings recovery.
The allegation of breach by non-payment of outgoings reimbursements requires five elements to be established as at the date of the purported termination (9 October): (1) the relevant outgoings must have been incurred in fact; (2) the Tenant’s Proportion of the outgoings must have been ascertained (noting that the nature of the outgoings affected the proportion for which the Tenant was liable); (3) the Tenant’s Proportion must have been the subject of a notice under cl 6.6(b); (4) two weeks must have elapsed from the date of the notice for payment to fall due; and (5) there must have been a default for at least 7 days (cl 16.1(b), or, depending on the meaning of cl 19.12, 14 days (cl 16.1(a)).
The Landlords’ defence at [36] does not address these elements. Instead [36] combines allegations of past breaches going back to July 2023 with allegations of current breaches, including breaches expressly referable to events after 9 October last year.
The defence does refer to a notice given on 30 September that $22,000 was then due by way of “actual historical outgoings”. But notification on that date would have been too late to justify termination on 9 October, less than two weeks later. It is possible that amounts notified earlier remained outstanding on 9 October, but that is not specifically alleged and there may, for all the Court knows, have been payments in the meantime. Moreover, there is no pleading of material facts to establish that the outgoings had actually been incurred and what the applicable Tenant’s Proportions were.
Nor does [36] adequately plead an allegation of non-payment of outgoings instalments. The obligation is not an obligation to pay a lump sum in advance, but to pay an estimate for the period by way of monthly instalments. That would require pleading that an estimate had been given; the period over which the estimate extended (so that it was possible to identify the monthly instalment amount); and the failure to make the relevant payments. These elements are missing from [36], and the repeated reference to a single estimate figure of $16,000, rather than to instalments, suggests that the mechanism laid down in the Lease is unlikely to have been complied with.
For these reasons, [36(c)] is untenable as a defence. This leaves the non-admission in [36(a)], but that merely puts the Tenant to proof and the evidence clearly establishes the invalidity of the re-entry because of a failure to comply with s 129(1).
I accept that, as at 9 October last year, there may in fact have been outstanding outgoings. But in a case such as this where there is a dispute about the lawfulness of a re-entry by the Landlords, speedy determination of that dispute is important. The Landlords appear to have issued their notices, and then filed their defence, without paying proper attention to the actual terms of the Lease. They were given ample opportunity to reformulate their case, if they could, and failed to do so. It is also relevant that a proposed cross-claim which was provided to the Court on 11 April claimed the amount owing to be $8,000. This would only be a tiny fraction of the costs which have been expended on the case so far.
Given the procedural history of the case there would be no justification for permitting the Landlords a further opportunity to amend their defence so as to plead the necessary elements of a valid defence under the Lease. Indeed, I did not understand counsel to seek any such further opportunity.
Conclusions**:** Counsel for the Landlords emphasised that summary judgment should not be given except in cases where the lack of defence is clear without any doubt: General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125. But in the present case the question is one of statutory construction, based on the terms of the Lease which are before the Court. There was no suggestion that there was anything in the factual matrix which would affect the interpretation of the Lease and rectification was not pleaded. In my view the outcome is sufficiently clear.
For these reasons, I am satisfied that the Tenant is entitled to summary judgment.

Counsel for the Landlords pointed out that the Tenant’s application for summary judgment originally extended to the Landlords’ works claim, as well as the claim about illegality of the Landlords’ re-entry. But counsel accepted that the Tenant should obtain an order for its costs of the motion, except to the extent that those costs had been increased by including the claim for summary judgment on the Landlords’ work claim. This qualification was accepted by counsel for the Tenant.
Hammerschlag CJ ordered that the costs of the initial proceedings before him be costs in the cause. I have already ordered that the Landlords pay the Tenant’s costs of the oral application made on 21 March to amend their defence and obtain an extension of time to file a cross-claim. An earlier application by the Landlords, made by way of notice of motion filed on 13 February, was made for variation, and continuation, of the interlocutory regime established last October. That application was not in the end pursued and was dismissed. I did not, however, make a formal order on that occasion against the Landlords that they pay the Tenant’s cost of that motion.
Counsel for the Landlords accepted that, as a result of my decision, the Tenant had succeeded in its claim concerning the illegality of the re-entry, and that this success justified an order in its favour for the general costs of the proceedings to date, as well as for the costs specifically referable to that claim. It was also accepted that the general costs should include the costs of the proceedings before Hammerschlag CJ last October, as well as the costs of the defendant’s notice of motion dated 13 February and of the application of 21 March. All of this is subject to the qualification that the costs order in favour of the Tenant should not include any increased costs occasioned by the Landlords’ works claim.
In the end, the parties agreed on the form of order. The costs of the application of 21 March have already been the subject of an order and do not require any further order. Otherwise, there is to be an order for costs in favour of the Tenant for the whole of its costs of the proceedings up to 17 April (including the summary judgment motion and the other applications to which I have referred), except to the extent solely referrable to the Landlords’ works claim, up to 17 April. As will be seen, the Tenant has also achieved sufficient success on the costs application to justify also including its costs of that application within the order to be made.

The application made on behalf of the Tenant was that the Landlords be ordered to pay a lump sum on account of their costs liability in the proceedings to date (that is, the costs liability under the order to be made pursuant to this judgment, together with the existing liability under the order for payment of the costs of the Landlords’ oral motion of 21 March). In support of the application, counsel referred to the well-known judgment on the application of UCPR r 42.7 of Barrett J in Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1. In that judgment, his Honour identified three circumstances which had led the Court to make an order for payment of assessment and payment of an interlocutory costs forthwith: (1) that the subject matter of the order was a discrete part of the proceedings; (2) that the conduct of the proceedings had been oppressive or in some other way involved misconduct; and (3) that the final determination of the proceedings was some time off.
Counsel submitted that all three factors were present in this case. Concerning the second, counsel referred to the conduct of the Landlords, who had earlier appeared to indicate that they would not attempt to defend the validity of the re-entry, and then later resiled from that position. Counsel also noted that the Landlords initially relied on all of the numerous non-financial alleged breaches of the Lease by the Tenant to support the s 129 notice, but at the hearing of the application this was abandoned, and the notice was defended only on the grounds of alleged financial breaches, namely alleged failure to pay outgoings.
In contesting the application, counsel for the Landlords referred in particular to this second factor. Counsel characterized the making of an order under UCPR r 42.7 (and, by parity of reasoning, an order for payment of a lump sum on account) as being effectively punitive, like an order for indemnity costs. Counsel submitted that the Landlords should not be punished for having adopted a responsible approach at the hearing of the application and narrowed their case accordingly.
I agree that the Court should be careful not to exercise its costs powers in a way which might dissuade parties from making sensible concessions at trial (or, in this case, at the hearing of a summary judgment application). But the second factor to which Barrett J referred is not a necessary condition for the making of an order under UCPR r 42.7. No criticism was, or fairly could have been, made of the way in which counsel for the Landlords conducted the application. But I do not consider that an application under UCPR r 42.7 is necessarily punitive in character, and I certainly do not accept that it is so in the present case. It is simply a particular application of the usual principle which governs the award of costs; it is compensatory in nature. It is a particular application of that principle in circumstances where, in the Court’s estimation, it is just for the party who has obtained an interlocutory cost order to obtain compensation immediately rather than waiting for the end of proceedings.
In the end, my decision rested on the application of Real Property Act 1900 s 129 in the light of the terms of the Lease. The invalidity of the re-entry, although it involved a breach of the Lease, raised quite different contractual (and no doubt factual) issues from those which arise under the Landlords’ works claim. The assessment of damages will also be an entirely different task from determining the validity of the re-entry.
The shape of future proceedings is unclear, but it seems to me likely that, if there is a contest, it is likely to involve both lay evidence and expert evidence, in the form of building reports and the like, and may be quite complex. The parties’ decision that the remainder of the case should be managed, at least in the first instance, in the Real Property List rather than the Expedition List, is a recognition of the fact that cannot be expected to reach hearing at the same pace it would reach hearing in the Expedition List. At the moment, completion of the case appears some time off, at least several months and possibly longer.
It follows, in my view, that both the first and the third factors mentioned by Barrett J are found in the present case. In my view, they would be sufficient on their own to justify an order under UCPR r 42.7, and, by parity of reasoning, an order for a lump sum cost payment on account. It is therefore unnecessary to find, and I do not find, that the conduct of the proceedings involved some form of misconduct in the relevant sense.
But the reversal of position by the Landlords is in my view of some relevance. Had the Landlords maintained what appeared to be their initial position, namely that they would not be defending the s 129 notices, the question of invalidity would have been resolved in the Tenant’s favour and would not have assumed any great prominence in the case. It was the Landlords decision to resile from that position (coupled with the attempt to maintain, and even expand, the interlocutory regime established last October) which turned the invalidity of the notices into a critical issue which spurned the various interlocutory applications on which the Landlords were ultimately unsuccessful. In short, the Landlords’ conduct tends to underline the point I have already made, namely that the costs so far expended in the proceedings have largely concerned a discrete issue on which the Landlords have been unsuccessful.

The application was supported by an affidavit from the Tenant’s solicitor, Mr Anthony Lin. Mr Lin quantified the total costs incurred by the Tenant in the prosecution of the proceedings from 9 October, the date of the first hearing, onwards, and included an estimate for the costs hearing.
Mr Lin recognised that allowance had to be made for reduction of these amounts on assessment. Mr Lin adopted a 30% reduction for solicitor’s fees and 10% for counsel, with no reduction for disbursements. The total was $143,000 (this figure, like all other figures in this section of the judgment, includes GST).
Mr Lin’s claimed figure was made up of $44,000 in solicitors’ fees, $79,000 in fees for the two counsel retained for the Tenant, and $18,000 in disbursements. Although no breakdown was provided in the affidavit itself, I was later informed that about three quarters of counsel’s fees were charged by leading counsel Mr Young, and junior counsel Ms Lim charged about one quarter.
Mr Lin also recognised that allowance had to be made for costs solely referable to the Landlords’ works claim. In the case of “mixed” costs such as the costs of drafting pleadings or affidavits relating to more than one claim, some form of apportionment was required (see Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 3) [2024] NSWSC 1483 at [178]). But the reduction applied by Mr Lin to take account for this was small: he made apportionments only for the statement of claim and one of the affidavits, resulting in a reduction of about $2,500. The net claim was left at about $140,000.
Counsel for the Landlords was only prepared to concede a much lower figure, $40,000. Counsel complained that full details had not been provided of the fees charged by leading counsel for the Tenant, which limited the Landlords’ ability to respond to the claim. Counsel submitted, by reference to decisions on the making of lump sum cost orders under s 98(4)(c) of the Civil Procedure Act 2005, that this was a reason not to make any lump sum order, or, alternatively, to do so on a highly discounted basis.
Without limiting the generality of this complaint, counsel for the Landlords raised the following specific points.
Counsel submitted that the costs order had to be confined to costs incurred in the conduct of the proceedings. For this reason, costs associated with the general administration of the contract, including advice on contractual steps taken by the parties, were not covered.
For similar reasons the Tenant’s costs for preparing and lodging a caveat over the property should not be covered.
Counsel submitted that the allowance for costs solely referable to the Landlords’ works claim was too low. In particular, counsel pointed out that the bill included a disbursement of $5,000 to Mr Carl Strautins. Mr Strautins was the person who produced the safety report on the premises pursuant to the interlocutory regime established by Hammerschlag CJ. The order specifically provided that the costs of the report were to be borne by the Tenant “pending final determination of responsibility”. In addition, there appeared to be items in the bills referring to conferences or other communications with Mr Strautins about the preparation of his report.
Counsel also questioned the retainer of two counsel (junior counsel was not retained at the initial hearing in October but was retained from November onwards). Counsel submitted that there was likely to have been duplication (although because of the lack of information, it was not possible to give specific instances of this). Counsel submitted that the additional cost was unwarranted.
Counsel for the Tenant accepted that the first two categories of costs could not be claimed. Counsel maintained that there were no contractual costs but acknowledged that the fee notes included about $700 in caveat costs.
The authorities concerning the evidence required to quantify a lump sum costs claim to which counsel for the Landlords referred are not decisive in the present case. An order for payment of a lump sum on account of a costs liability is not the same as a lump sum assessment of that liability under s 98(4)(c). A s 98(4)(c) order finally determines the amount due. An order for payment on account does not. The principles which apply to making a lump sum assessment under s 98(4)(c) therefore only have a somewhat attenuated application in the present case. There must be some basis for the figure fixed by the Court, but the brush which may be used is even broader.
Nor was I impressed by the submission about the retainer of two counsel, at least at a level of principle. I do not think the Court should start from the assumption that a party in the Tenant’s position would have willingly incurred unnecessary additional costs. In an appropriate case, the retainer of an additional counsel to undertake more routine tasks reduces the overall costs burden rather than increasing it.
Counsel for the Tenant pointed out that at an earlier stage of the proceedings the Landlords were themselves represented by senior counsel. Counsel submitted that, even when added together, their charge-out rates compared favourably with the charge-out rate one might expect for a silk. Counsel for the Landlords made no response to these points.
Having said this, there is some force in the criticism about the lack of information concerning counsel’s fees. That was brought out when the initial bill by leading counsel was produced and was shown to contain $7,000 in fees for work done prior to 9 October. Counsel for the Tenant immediately accepted that these fees should be deducted, but the episode did reinforce the difficulty for the Landlords in responding to the claim without full information.
Counsel for the Tenant did not concede the point about Mr Strautins’ fees. Counsel submitted that the fees were properly characterized as disbursements associated with the conduct of the proceedings. In counsel’s submission, they were comparable to expert witness fees, which would be properly allowable as a disbursement.
I do not agree. In my opinion there is a clear distinction between the costs (which are necessarily legal costs) incurred in mounting an application for interlocutory orders, on the one hand, and expenses (which are not necessarily be confined to legal expenses) incurred in complying with those orders. Mr Strautins’ fees (and, probably, the costs of communications between the Tenant’s solicitors and Mr Strautins) fall into the latter category. If recoverable at all as a consequence of the orders which I have made, they would be recoverable under the undertaking as to damages. In my view they should be excluded from the calculation of any amount due by way of lump sum.
The result is, in my view, that $140,000 is too high. I have identified reductions of $13,000 but it is not possible to be precise. In the exercise of my judgment, I propose to order payment of $120,000. I repeat that this will only be a payment on account and there will need to be an adjustment when the costs of the proceedings are ultimately assessed.