Kyrollos 4M Pty Ltd v Bassal

Supreme Court of NSW|2018-05-28|Before: Darke J

Introduction

This case concerns a lease of a service station site in Ingleburn. The lease was entered into between the three defendants (Tarek Bassal, Maysa Bassal and Samia Bassal) as lessor, and Felix Energy Pty Ltd as lessee. The lease was for a term of five years commencing on 1 July 2010 and terminating on 30 June 2015. The lease included two options to renew, each for a further term of five years. The lease was registered as lease AG268329.
On 12 July 2012 the defendants gave their consent to a transfer of the lease to the plaintiff (Kyrollos 4M Pty Ltd). A Transfer of Lease (AH267433) from Felix Energy Pty Ltd to the plaintiff was registered on 27 September 2012.
The parties are in dispute as to whether the plaintiff validly exercised the first of the options to renew and whether the plaintiff is entitled to require the defendants to issue a new lease in accordance with the option. The parties are also in dispute as to whether the current market rent as at the commencement date of any new lease has been determined in accordance with the provisions of the lease.
The plaintiff's claims are pleaded in the Amended Statement of Claim filed on 1 August 2017. A Defence to the Amended Statement of Claim was filed on 19 August 2017. It should be noted in passing that this Defence included allegations that the defendants' consent to the transfer of the lease was invalid and hence the transfer itself was invalid. However, the defendants had in an earlier pleading admitted that the plaintiff had the registered lease transferred to it with the defendants' consent. The Court considered that the admission should be taken to include an admission that the transfer was valid. Accordingly, in circumstances where the defendants had not sought or obtained leave to withdraw the admission, the Court ruled at the commencement of the hearing that it was not open to the defendants to challenge the validity of the transfer. It should also be noted that only the second and third defendants appeared at the hearing to contest the plaintiff's claims.

Exercise of the option to renew

The plaintiff alleges that by Notice of Exercise of Option it exercised the first option to renew on 20 March 2015. The plaintiff further alleges that no prescribed notice within the meaning of s 133E of the Conveyancing Act 1919 (NSW) was served in respect of the exercise of the option. Those allegations are denied by the defendants. The defendants further allege that a notice, presumably a notice pursuant to s 133E, was served on 27 March 2015.
However, the evidence given by the plaintiff's sole director, Mr Keriakos, that on or about 20 March 2015 he hand delivered a Notice of Exercise of Option to the address set out in the lease for service on the landlord, was not challenged. Neither was Mr Keriakos' denial that he had ever received a document with a reference to s 133F of the Conveyancing Act. The defendants did not adduce any evidence that a prescribed notice within the meaning of s 133E of the Conveyancing Act was served following the giving of the Notice of Exercise of Option. It was not suggested that the form of notice of exercise was defective in any way.
In these circumstances I am satisfied that on about 20 March 2015 the plaintiff served on the defendants a notice of exercise of option (for a further period of 5 years from 1 July 2015) in accordance with cl 4.4.1 of the lease. I am also satisfied that no prescribed notice within the meaning of s 133E of the Conveyancing Act was served on the plaintiff.
Clause 4.4 contains further provisions concerning the exercise of the option to renew. Clause 4.4.2 provides that the option can only be exercised if there is at the time of service of the notice of exercise no rent or outgoing overdue for payment. Clause 4.4.3 provides that the option can only be exercised if at the time of service "all the other obligations of the lessee have been complied with or fully remedied in accordance with the terms of any notice to remedy given by the lessor". There is no suggestion that any rent or outgoing was overdue at the time of service of the notice of exercise. There is no evidence of any notice having been given by the lessor up to that time requiring any breaches of the lease to be remedied. Insofar as it may have been suggested by the defendants that the lessee had not at that time complied with all of its obligations under the lease, it is not open to the defendants to assert that such failures defeat the plaintiff's entitlement to the option. Section 133E of the Conveyancing Act operates so that, despite a provision such as cl 4.4.3, no breaches by the lessee preclude the lessee's entitlement to the option unless a prescribed notice is served on the lessee, and the lessee's rights are extinguished in relation to the notice. As no prescribed notice was served on the plaintiff, cl 4.4.3 cannot be relied upon to defeat the plaintiff's entitlement to the option.
It follows from the above that the plaintiff validly exercised the option for a further period of 5 years from 1 July 2015. The defendants thus became contractually obliged to grant a new lease to the plaintiff on terms that are the same as the initial lease, save for the exceptions specified in cl 4.6. The first of those exceptions concerns the new rent, which is to be determined as the current market rent as at the commencement date of the new lease (i.e. 1 July 2015). As mentioned earlier, the parties are in dispute as to whether the current market rent as at the commencement date of any new lease has been determined in accordance with the provisions of the lease. It is convenient to deal with this issue next.

Determination of current market rent for the new lease

The relevant provisions of the lease concerning the determination of current market rent are cll 5.12 to 5.21. (Clause 5.16 as contained in Annexure B to the lease was amended by force of Item 19 in the Schedule.)
Clause 5.15 provides that: If the lessor and the lessee do not agree on the amount of the new rent 30 days before the rent review date, the current market rent will be decided by a valuer appointed under clause 5.16. It is common ground that there was no agreement on the amount of the new rent such that the current market rent under any new lease fell to be decided by a valuer appointed under cl 5.16.
Clause 5.16 provides: The lessor and lessee can either agree upon a valuer or can ask the President of the Law Society of NSW to nominate a person who is a licensed valuer to decide the current market rent. Where the property is a retail shop, the valuer appointed must be a specialist retail valuer.
The question of the appointment of a valuer was under consideration by the parties in the latter half of 2015. There was evidently some uncertainty as to whether the property was a retail shop. In October 2015 the plaintiff made an application to the New South Wales Civil and Administrative Tribunal seeking the appointment of a specialist retail valuer. However, it seems that the Tribunal took the view that it had no jurisdiction to deal with the matter because the lease was not a retail shop lease within the purview of the Retail Leases Act 1994 (NSW). The application to the Tribunal was thus dismissed by consent on 15 December 2015. Steps were then taken to request the President of the Law Society to nominate a valuer.
On 2 February 2016 the President of the Law Society (Mr Ulman) nominated a valuer, Mr Peter Kempthorne, to determine the current market rent of the property.
Clauses 5.17 to 5.21 of the lease provide: 5.17 The valuer will act as an expert not an arbitrator. The lessor and the lessee can each make submissions in writing to the valuer within 14 days after they receive notice of the valuer's appointment but not later unless the valuer agrees. 5.18 The valuer's decision is final and binding. The valuer must state how the decision was reached. 5.19 If the valuer 5.19.1 does not accept the nomination to act; or 5.19.2 does not decide the current market rent within 1 month after accepting the nomination; or 5.19.3 becomes incapacitated or dies; or 5.19.4 resigns, then another valuer is to be appointed in the same way. 5.20 The lessor and lessee must each pay half the valuer's costs. 5.21 If the lessor and lessee do not agree upon a valuer and neither asks for a valuer to be nominated before - 5.21.1 the next rent review date passes; or 5.21.2 this lease ends without the lessee renewing it; or 5.21.3 this lease is transferred after the rent review date with the lessor's consent; or 5.21.4 the property is transferred after the rent review date then the rent will not change on that rent review date.
On 5 February 2016 Mr Kempthorne sent a letter to the firms of solicitors who were acting for the parties. The letter includes the following: I advise that I have received a letter dated 2nd February 2016 from the President of The Law Society of New South Wales (The Law Society) informing me that I have been nominated to determine the Current Market Rent of the Premises known as 6/58 Stennett Road, Ingleburn. The Law Society has advised me that you are the respective contacts on behalf of the Lessors and the Lessee. The Law Society has been provided me [sic] with a copy of Registered Lease AG268329M between the parties and I have relied on this document with respect to this task. Subsequent to my review of the Lease I advise as follows. … Timing The Lease is silent in respect of any timeframe within which the determination is to be completed. Nevertheless I will complete my determination as soon as practicable and in accordance with the Proposed Procedure set out in this letter. Final and Binding Pursuant to the provisions of Clause 5.18 of the Lease my determination will be final and binding upon the parties. On this basis no correspondence will be entered into subsequent to the release of my determination. I also note that I must state how my decision was reached. Costs of the Determination Clause 5.20 of the Lease requires my costs of the determination to be paid in equal shares. My fees are set out below. Written Submissions by the Parties Clause 5.17 of the Lease states that the parties can make written submissions to me within a period of 14 days. I will allow at least 14 days for the parties to make written submissions after they have accepted my terms and conditions of this determination in writing. … Proposed Procedure In the absence of any formal guidelines contained with the Lease, I will adopt the following procedure to determine the Current Market Rent of the Premises, subject to me receiving formal acceptance from the parties. Please note that all correspondence will be conducted via email. Receive written acceptance of my appointment from each party (as set out on the last page of this letter). I will then write to each party requesting a detailed written submission to be provided to me within 14 days from the date of that letter. I will issue separate tax invoices to each party for their respective share of my fee with the letter in Procedure 2 above. Receive the written submissions which must address the issues of the Lessors' Fixtures and Fittings, Value of the Lessee Improvements, Area of the Premises, Car Parking Bays and Upgrading of Premises. Inspect the Premises after the written submissions have been received by me. Conduct my own independent investigations and consider the written submissions. Subsequent to points 4, 5 and 6 above I will offer each party the opportunity to meet with me in order that they can provide any additional information and / or speak to their written submission. Providing there is not a requirement for me to obtain any supplementary information from the parties or seek a legal opinion on any matter, I will then write to the parties and The Law Society formally accepting the appointment. My determination will then be completed and issued to the parties within 21 days from the date of my formal acceptance of the appointment to the API. … In order to simplify matters and progress the rent determination, I have prepared an acceptance of: the terms and conditions of my appointment; the proposed procedure set out in this letter; that my determination will be final and binding; and my fee; at the foot of this letter for each party's separate consideration.
As stated in the letter, a draft letter of acceptance was included.
It appears from a letter sent from Mr Kempthorne to the President of the Law Society on 14 June 2016 that the defendants accepted the terms and conditions of his nomination on 14 February 2016 and the plaintiff accepted the terms and conditions of his nomination on 22 February 2016. I infer that the parties signed and returned the letter of acceptance to Mr Kempthorne on or about those dates.
Mr Kempthorne's letter of 14 June 2016 also includes the following: 4. Following receipt of the acceptance I sent a joint letter to the parties dated 25th February 2016 (via a joint email on 25th February 2016) requesting a written submission from each party. 5. I received a written submission from the Lessors via email on 24th March 2016. 6. I received a written submission from the Lessee's solicitor via email on 17th March 2016. 7. After reviewing the written submissions I sought and received some additional information from the Lessee and the Lessors via exchanges of emails on 24th March 2016, 9th April 2016 and 18th April 2016 respectively. 8. I inspected the Property, the Premises and the comparables on 3rd May 2016. 9. Also on 3rd May 2016 I had separate meetings with the Lessors and the Lessee. … 12. I am now in [a] position that I am satisfied that I have received all the relevant information to complete this rental determination. 13. In accordance with the terms and conditions of my nomination (please see a copy of my letter dated 5th February 2016 attached) which have been agreed by the parties I now formally accept the nomination of the President and agree to be appointed to carry out this rental determination. 14. Therefore the purpose of this letter is to advise the President of my acceptance of the appointment in the first instance and secondly to trigger the time period of 21 days in which the rental determination must be completed and sent to the parties. 15. Each party will receive a copy of this letter formally advising them that the 21 days has commenced and that the determination must be forwarded to them no later than the close of business on Tuesday 5th July 2016.
It appears (from paragraph 1.15 of the Determination that later issued) that copies of Mr Kempthorne's letter to the Law Society dated 14 June 2016 were provided to the parties on 15 June 2016.
Mr Kempthorne provided his Current Market Rent Determination to the parties on about 28 June 2016. That is the date the report was signed, and it is also the date the plaintiff's solicitors stated that it was received, in their letter to the defendants' solicitors of 7 July 2016. It was not suggested by the defendants that Mr Kempthorne's determination was not received by them, or that it was not received by them until after 5 July 2016. The defendants admit in their Defence to the Amended Statement of Claim that the determination occurred on 28 June 2016.
Mr Kempthorne determined the current market rent of the property as at 1 July 2015 to be $225,000 per annum (excluding GST). This was lower than the rent of $262,254 (excluding GST) that applied at the end of the initial term of the lease.
It is not disputed that if Mr Kempthorne's determination is binding, the plaintiff has overpaid rent under any new lease in an amount of $40,980.
The defendants submitted that Mr Kempthorne's determination is not binding as it was not undertaken in accordance with the terms of the lease. It was submitted that the valuer was mistaken in two related respects concerning the requirements of the lease. It was put that Mr Kempthorne was mistaken in relation to the notion of acceptance of the nomination, and also in relation to the time within which the determination had to be made. In essence, it was submitted that the acceptance of the nomination was to be given to the parties to the lease, not to the President of the Law Society, and that the acceptance should be taken to have occurred once Mr Kempthorne agreed to undertake the task for the parties. As I understood the submission, it was contended that the acceptance occurred no later than about 25 February 2016 when Mr Kempthorne requested written submissions from the parties, not when he formally accepted his nomination and appointment on 14 June 2016. On that basis, it was submitted that Mr Kempthorne was required by cl 5.19.2 to decide the current market rent within 1 month of the February 2016 acceptance, and his failure to do so has the result that another valuer is required to be appointed to carry out the task. The defendants contended that the procedure followed by Mr Kempthorne was thus inconsistent with the terms of the lease.
The plaintiff submitted that the 1 month period referred to in cl 5.19.2 commenced on 14 June 2016 when Mr Kempthorne formally accepted the nomination and appointment. It was submitted that it was not to the point whether the acceptance was communicated to the President of the Law Society or to the parties themselves. The plaintiff submitted that in any event the procedure followed by Mr Kempthorne was done with the express agreement of both parties, and it was now too late for the parties to complain about it.
The procedure adopted does seem to depart from that which is envisaged under the terms of the lease, notably cll 5.17 and 5.19. Those clauses contemplate that notice of the valuer's appointment will be given to the parties, who then have 14 days to make submissions in writing. The decision itself is to be made within 1 month after the valuer accepts the nomination. The clauses, when read together, seemingly envisage the valuer accepting the nomination, thereby effecting the appointment, followed by the valuer giving notice of the appointment, the making of submissions by the parties within the next 14 days, and the making of the decision no later than 1 month after acceptance of the nomination.
In my view, the clauses should not be read in such a way that the appointment of the valuer may occur separately from the acceptance of the nomination. To my mind, once the valuer accepts the nomination the valuer must be treated as having been appointed (and in a position to give notice of the appointment to the parties). Further, I do not think that the valuer can be treated as having been appointed if the valuer has not accepted the nomination.
The procedure proposed by Mr Kempthorne in his letter to the parties dated 5 February 2016 is quite different. This procedure involved the parties accepting Mr Kempthorne's appointment, followed by various steps including the parties providing written submissions and the valuer conducting investigations, the "formal" acceptance by Mr Kempthorne of the appointment, and the making of the decision within 21 days of that formal acceptance. In my opinion, the procedure proposed by Mr Kempthorne was not in accordance with the terms of the lease, notably cll 15.17 and 15.19.
However, the proposed procedure was clearly described in detail in Mr Kempthorne's letter of 5 February 2016, and both parties expressly agreed, in writing, to the proposed procedure, by signing and returning the letter of acceptance to Mr Kempthorne. Both parties thereby agreed that the rent review would be conducted in that manner, and further that they would each be bound by Mr Kempthorne's determination. The parties thereafter participated in the procedure (including by making submissions, meeting Mr Kempthorne, and providing further information to him) without demur. The conduct of the parties manifested their mutual assent to the procedure (see Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [71]-[82]).
In these circumstances, the parties should be taken to have effected a variation of the lease insofar as the rent review is concerned. Alternatively, the parties could be regarded as having become bound by an estoppel by convention. Both parties apparently adopted an assumption that the rent review would be conducted in accordance with the proposed procedure and that the resulting determination would be binding upon them. Thereafter both parties participated in the procedure, apparently upon the basis of that assumption. Further, viewing the conduct of the parties objectively, each party may be taken to have intended the other to act on that basis. Finally, departure from the assumption by one party would occasion at least some detriment to the other in the form of wasted time and effort in participating in the agreed procedure (see Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713; [2007] NSWSC 5 at [32]; Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500; [2017] NSWCA 106 at [42]-[44]).
In my opinion, whether because of a variation of the lease, or alternatively an estoppel by convention, the defendants cannot establish that the procedure followed by Mr Kempthorne was not in accordance with the terms of the lease. I therefore do not accept the defendants' contention that Mr Kempthorne's determination is for that reason invalid and not binding upon the parties.
I think it is correct that Mr Kempthorne actually accepted the nomination and appointment by no later than 25 February 2016. However, this acceptance was expressly given on the basis that the parties agreed to certain things, including Mr Kempthorne's proposed procedure. That agreed procedure, which involved a departure from the terms of the lease, contemplated that the determination would be made within 21 days of Mr Kempthorne's "formal" acceptance of his appointment, which acceptance would not occur until after various steps were taken, including the provision of submissions by the parties and the conducting of investigations by Mr Kempthorne. Under the agreed procedure, Mr Kempthorne was not required to make his decision within 1 month of his actual acceptance of the nomination (cf cl 5.19.2). The challenge to Mr Kempthorne's determination based on the time when it was made is not made out.
In my view, the parties are bound by Mr Kempthorne's determination of the current market rent as at 1 July 2015 of $225,000 per annum (excluding GST). Accordingly, that is the new rent for any new lease granted pursuant to the exercise by the plaintiff of the first option to renew. That rent applies from the commencement of the new term to the first rent review date 12 months later, when the rent increases by 3%. The rent thereafter increases by 3% every 12 months throughout the term.

Specific performance of the obligation to grant a new lease

The plaintiff seeks an order requiring the defendants to execute all documents and do whatever else is necessary to carry to completion the exercise of the option. It is relief in the nature of specific performance.
The defendants contend that the relief should be withheld on discretionary grounds, due to breaches of the lease on the part of the plaintiff since the exercise of the option in March 2015. The defendants submitted in closing address that the plaintiff has failed over a lengthy period to discharge its maintenance and repair obligations in relation to the petrol pumps, and has breached its obligations concerning pollution. Reference was made to Sydney West Area Health Service v Staracek (2008) 73 NSWLR 68; [2008] NSWSC 744 at [21] where Bryson AJ observed that, whilst there is always a discretionary element in a decision to grant or withhold specific performance, the claim for specific performance of an entitlement to a new lease term is a very strong one. In that case, his Honour was prepared to order specific performance but he required the lessee to first discharge its outstanding repair obligations or else pay money to the lessor on account of damages (see at [31]).
I accept that there is always a discretionary element in a decision whether to grant orders in the nature of specific performance. In the context of options to renew leases that is so even where, as here, no s 133E notice has been served. However, I think it would be difficult to justify the withholding of relief in circumstances where: 1. the exercise of the option to renew is relevantly conditioned only upon there being no breaches by the lessee at the time of service of the notice of exercise; 2. no prescribed notice under s 133E of the Conveyancing Act was served on the lessee; 3. the lease provides (in cl 4.5) that if the lessee does not comply with its obligations after exercising the option the lessor can treat any breach as "a breach of the new lease as well as of this lease"; 4. the lessor served a Notice of Breach of Lease on the lessee on about 8 May 2017; 5. the Court subsequently issued an interlocutory injunction restraining the lessor from exercising any power of re-entry under the lease; and 6. the lessor has not filed any cross-claim seeking relief based upon breaches by the lessee, including orders for possession of the property or damages. I consider that, at the very least, the existence of serious breaches on the part of the lessee would need to be established in order to justify the withholding of specific performance.
In relation to the petrol pumps, the defendants pointed to a portion of the plaintiff's submission to Mr Kempthorne which included the following: The premium unleaded pumps need replacement as they are not operating any more. The remaining bowsers break down on a weekly basis.
That submission was made in March 2016. In cross examination, Mr Keriakos said that all of the unleaded fuel pumps have not worked for "months". He later said that it was at least 6 months. Mr Keriakos also agreed that some of the pumps have been broken down for "a very long time". He referred to a letter from "the technicians" Americo Petroleum Services Pty Ltd dated 21 April 2017 concerning the problems with those pumps. That letter includes the following: Our company has been serviced [sic] the petrol pumps at Felix Energy Ingleburn, 58 Stennett Road Ingleburn, but it is coming to a point where we can't service them anymore, for various reasons. The pumps are too old, very hard to get parts, the level of corrosion inside the pumps are so high that the meters do not measure the litres correctly, so the site is losing fuel.
In the course of cross-examination, Mr Keriakos was shown the quoted portion of the submission made to Mr Kempthorne, but it was erroneously suggested to him that the submission was made in May 2017 (not March 2016). On that basis, Mr Keriakos agreed that the premium unleaded fuel pumps have not been working for about a year.
Mr Kempthorne's Determination records that when he inspected the property on 3 May 2016 two of the (four) diesel pumps were not working and "a few petrol pumps were not in operation".
Mr Keriakos deposed that he has maintained and repaired the pumps on the site to the best of his ability. In cross-examination he maintained that the plaintiff tries to fix problems with the pumps but some of the pumps cannot be fixed. He stated that he had sought the lessor's consent to replace the pumps (at the plaintiff's cost), but the consent was not given. It is correct that the plaintiff's solicitor's letter to the defendants dated 11 May 2017 contains a request for consent to the replacement and upgrade of the fuel dispensers.
Mr Keriakos gave evidence in his affidavit of 16 May 2017 (by reference to paragraph 3 of the Notice of Breach of Lease dated 8 May 2017) that "the only pumps that are not working are due to fair wear and tear over the course of time since their installation (approximately 19 years)". Mr Keriakos' evidence that the pumps were about 19 years old was not challenged.
I accept Mr Keriakos' evidence to the effect that, as problems with the fuel pumps arise, the plaintiff attempts to have the problems fixed, but that some of the pumps (in particular the unleaded fuel pumps) can no longer be fixed. There is some imprecision in the evidence. Nevertheless, it is likely in my view that the unleaded fuel pumps have been out of operation for at least a year, and it seems that some of them have been out of operation at various times prior to that, as submitted by the plaintiff to Mr Kempthorne and as later observed by Mr Kempthorne himself.
I further accept Mr Keriakos' evidence (which is supported by the advice given by Americo Petroleum Services) to the effect that the problems are the result of the age of those pumps and wear and tear upon them, not a failure to undertake maintenance and repairs. It would not be in the plaintiff's interests to fail to have routine maintenance and repair works carried out. Not having any unleaded fuel pumps working can reasonably be expected to have a not insignificant negative effect upon the plaintiff's business. That may explain the plaintiff's request to replace the fuel pumps that are no longer working.
The lessee's repair and maintenance obligations under the lease (cll LC3 and 7.2) do not require the lessee to repair or otherwise overcome fair wear and tear. I am not satisfied on the evidence that the plaintiff has breached its repair and maintenance obligations as alleged.
I am also not satisfied that the plaintiff has breached its obligations concerning pollution. The photographs of the site (taken shortly before the hearing) show that there has been a deal of spillage of diesel fuel in the vicinity of the two diesel pumps. The concrete in the area is clearly stained. Mr Keriakos accepted in cross-examination that there had been a fair amount of spillage. Mr Keriakos further stated that if there is a diesel spill "we clean it all the time", using chemicals and de-greasor. He said that the area is then washed away to the drain for the "separator". He denied that it is washed into a storm grate located some metres away. I accept Mr Keriakos' evidence in relation to how the plaintiff deals with such spills.
I do not think it has been established that the diesel spills that occur from time to time from filling, as referred to by Mr Keriakos in cross-examination, amount to "pollution" as defined for the purposes of cl LC2. Even if they were caught by the definition, I am not satisfied that the plaintiff failed to do what was necessary to cause the cessation of that which brings about the pollution, as required by cl LC2.3. At most, the plaintiff would be guilty of failing to give notices in writing to the defendants about the occurrence of the pollution (see also the notice requirements of cl LC2.4). I would not regard breaches of that character as anywhere near serious enough to warrant withholding specific performance from the plaintiff, which has validly exercised the option to renew such that the defendants are contractually obliged to grant a new lease. I note that the Notice of Breach of Lease given in May 2017 makes no reference to the lessee's obligations in relation to pollution.
In my opinion, the conduct of the plaintiff in relation to the petrol pumps and spills of diesel does not afford any basis to withhold specific performance.
The defendants raised one further argument against the grant of specific performance. It was submitted that specific performance should not be granted because two of the three guarantors to the lease (who are themselves parties to the lease by virtue of cl 2.3) are undischarged bankrupts and, further, the plaintiff is not in a position to procure the guarantors to become parties to any new lease. The three guarantors are individuals who, presumably, were associated with the original lessee Felix Energy Pty Ltd.
It was submitted, correctly, that cl 13 of the lease forms part of any new lease (see cl 4.6). As I understood it, it was then submitted that it was the obligation of the plaintiff to provide "viable" guarantors to become parties to the new lease, or at least the plaintiff was obliged to procure the existing guarantors to become parties to the new lease. It was submitted that if the existing guarantors were not provided, the lessee would be asking the lessor to enter into a new lease with different parties.
I am unable to accept those submissions. It is correct that cl 13, which contains the obligations of the guarantors, would form part of any new lease. However, cl 13.1 makes it clear that cl 13 applies if a guarantor named in the Schedule has signed "this lease or, if this lease is a renewal of an earlier lease, the earlier lease". It follows that the obligations of the guarantor apply to a new lease by virtue of their execution of the initial lease. There is no need for the guarantors to sign the new lease.
I can discern no obligation on the part of the plaintiff to cause the guarantors to sign the new lease, or otherwise become parties to it. Neither can I discern any obligation on the part of the plaintiff to procure, for the new lease, replacement guarantors for the two who are bankrupt. In my view, the situation in relation to the guarantors affords no reason to withhold specific performance from the plaintiff.

Conclusion

The plaintiff has validly exercised the first option to renew under the lease. It is entitled to receive a new lease accordingly. There are no grounds to withhold orders for specific performance to enforce the lessor's obligation to provide that lease. Moreover, in circumstances where Mr Kempthorne's Determination is binding upon the parties, the new rent that applies from the commencement of the new lease is $225,000 per annum (excluding GST). It follows, in those circumstances, that the plaintiff has overpaid rent in the amount of $40,980 and is entitled to have that amount refunded to it. As the plaintiff has succeeded in its claims, an order for costs should be made in its favour.
The Court will make the following orders: 1. Declare that the plaintiff has validly exercised the first option to renew in registered lease AG268329 and is entitled to a new lease as stipulated in the lease. 2. Order that the lessor under registered lease AG268329 forthwith execute all such documents and do all such things as are necessary to grant the new lease to the plaintiff. 3. Judgment for the plaintiff against the defendants in the sum of $40,980. 4. Order that the defendants pay the plaintiff's costs of the proceedings. 5. Grant liberty to apply in relation to order 2 if necessary.

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: 06 June 2018

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Judgment (6 paragraphs)

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