Lee v YOUth OK Pty Ltd

Lee v YOUth OK Pty Ltd - [2022] NSWSC 1356 - NSWSC 2022 case summary — Zoe

[3]

Judgment

The plaintiff, Ms Annie Lee is the registered proprietor of two parcels of land on Barrenjoey Road in the commercial district of the Sydney beachside suburb of Newport ("the Newport property"). By an unregistered lease dated 26 September 2019, Ms Lee demised the Newport property to the corporate first defendant, YOUth OK Pty Limited ("YOUth OK"), for a term of three years commencing on 1 October 2019 ("the lease"). The second defendant, Mr David Hawkins, the principal of YOUth OK, guaranteed the obligations of YOUth OK under the lease.
Ms Lee claims she terminated the lease on 16 July 2020. She brings these proceedings against the defendants for possession of the Newport property, for recovery of arrears of rental alleged to be due up to the alleged date of termination, for damages under the lease or at common-law, and for loss of the balance of the lease term expiring on 30 September 2022.
The plaintiff claims that she terminated the lease by notice on 16 July 2020 on the grounds of non-payment of rent and non-payment of a security deposit required by the lease. Ms Lee's attempts to change the locks on 21 July 2021 were resisted and YOUth OK remained in physical possession until the proceedings commenced in February 2022. Ms Lee claims a notional re-entry into the premises as at 21 July 2021 for the purposes of calculating mesne profits. Ms Lee commenced proceedings by Statement of Claim on 17 August 2020. She claims this date as an alternative notional date of re-entry into the premises.
During the first few days of the principal hearing on 21, 22 and 23 February 2022 Mr Hawkins offered to vacate the premises the following Saturday, 26 February 2022. On 23 February the proceedings were adjourned part heard to 9 March 2022 to allow for the surrender of possession before final submissions. That date was rescheduled to 17 March 2022. During final submissions on that day, issues emerged as to the state of the evidence in relation to YOUth OK's reliance in its Amended Defence upon the provisions of clause 7.4 of the lease, which requires the landlord to undertake structural work on the property or other work needed to make the property safe to use.
It became clear during submissions that the parties had not properly engaged with one another on the issues pleaded in relation to clause 7.4 of the lease. Experts had already been retained by each side. Directions were made for the experts to address the clause 7.4 issues. As a result, the proceedings came before the Court for short periods on 27 April and 20 May 2022 for further evidence and submissions.
YOUth OK and Mr Hawkins resisted Ms Lee's claim on the basis that YOUth OK's obligation to pay rent was suspended when the Northern Beaches Council ("the Council") issued stop work orders preventing refurbishment of the premises to enable them to be used for the purposes provided for in the lease as a community youth centre.
By their Cross-Claim, YOUth OK and Mr Hawkins maintained that they had been induced to enter the lease due to Ms Lee's misleading and deceptive conduct. Their misleading and deceptive conduct case is propounded in their Amended Defences which the defendants filed on 18 February, the week before trial. They attempt to put that case two ways: first, that Ms Lee actively misrepresented to the defendants that no improvements had been made to the property which had not been approved by the Council, and alternatively, that Ms Lee had engaged in misleading and deceptive conduct by silence by failing to disclose that there were unapproved works on the property. The second way of putting the case was contentious, as Ms Lee contended it was not clearly articulated in the pleadings and that she was not ready to meet it. These reasons conclude that the alternative misrepresentation case was sufficiently pleaded. Other legal and factual issues were argued on the claim and the cross-claim, but this is the substance of the dispute.
Throughout the pre-lease negotiations Mr Hawkins acted for himself and YOUth OK without engaging a legal practitioner to advise or represent him. He took the same approach during this litigation. Pre-trial the Court encouraged Mr Hawkins to consider obtaining legal representation. He decided to conduct the proceedings himself. After YOUth OK passed a resolution authorising Mr Hawkins to appear for it, the Court granted him leave to represent it throughout the proceedings. Mr D. Smallbone with Mr A. Smyth, instructed by Mr G. Li of Advance Lawyers Group Pty Ltd acted for the plaintiff.
Before commencing a narrative of the Court's findings, it is appropriate to record the Court's observations about the credibility of the parties and their witnesses.

[4]

Credibility of Parties and Witnesses

Ms Annie Lee. Ms Lee was an honest witness with a reasonably good recollection of the events in which she was involved. She made concessions in cross-examination when she believed that she may have been mistaken and she was prepared to accept that there were limits to her recollection. During her evidence she made a genuine effort to recall all the events that took place before the lease was signed and during the early months of its operation. The Court generally prefers her account of events to the account given by Mr Hawkins. Her account was internally consistent and agreed more closely with the course of objectively verifiable events than did the account of Mr Hawkins.
Mr Yue Jun (Adrian) Lin. Mr Lin, the plaintiff's husband gave evidence through a Mandarin interpreter. His evidence was clear, honest, and direct. He was not seriously challenged in cross-examination. His evidence partly recounted the taking of photographs on his mobile phone. These photographs are in evidence and are not controversial. Mr Lin's evidence related to an alleged conversation between Mr Hawkins and Ms Lee. He denied that conversation took place in his presence and the Court accepts that denial. His evidence about not being involved in this conversation is objectively probable. His English is so poor that had he been present at this conversation he would only have been able to understand it if the conversation had been translated to him by Ms Lee.
Simon Au. Mr Au was the real estate agent who introduced Mr Hawkins to the Newport property in July 2019. His evidence is wholly accepted. He had a precise and reliable recollection of events. Mr Au says he only had one meeting with Mr Hawkins. That is probable because of Mr Au's role. He was not, nor was he to become, the managing agent for the property. He had sold the property to Ms Lee and others (as the vendor's agent) in 2013 and was providing later assistance to let it, solely to do her a favour. Because Mr Lin's English was so poor, Mr Au thought it would be difficult for Mr Lin to find a tenant, so he volunteered to help Mr Lin and Ms Lee. Mr Au was not paid for his work by Ms Lee and acted in a gesture of goodwill.
Mr Au was cross-examined. But the cross-examination did not damage his credibility. Mr Au denied telling Mr Hawkins that Ms Lee had all necessary building approvals. That denial is accepted. He did not know in July 2019 what approvals were in place for what parts of the property and was in no position to make any commitment about operative building approvals for the Newport property.
Mr Hawkins. Mr Hawkins was ever confident in his own opinions and recollections of events. But that confidence was not always warranted in the Court's assessment. He was understandably keen to argue his point of view and was able to do so effectively from the Bar table. But he tended to argue his case from the witness box rather than attending to precisely answering the questions asked of him. Whilst giving evidence he frequently corrected his cross-examiner's questions as to detail. His evidence was often accurate but always argumentative and weighed towards preserving what he perceived to be in his own his own self-interest. But on important contentious issues his evidence was unreliable and at times evasive. Despite his self-confidence in the quality of his own memory of events, some of Mr Hawkins' recollections on critical issues did not accord with the evidence of other reliable witnesses and objectively verifiable events and has not been accepted by the Court. All his evidence was firmly influenced by his strong conviction as to the righteousness of his position in every respect in the proceedings.
The following is a narrative of the relevant history. This narrative represents the Court's findings on the matters covered, except to the extent that the context indicates that only the parties' allegations are being recorded in these reasons. For reasons of economy this narrative does not include reference to versions of the facts that have been rejected.

[5]

Use of the Newport Property Prior to July 2019

Ms Lee engaged Mr Simon Au of Leaders Real Estate to market the Newport property for lease. Mr Au and Ms Lee had been friends for some time. Mr Au volunteered for his role as Ms Lee's real estate agent out of friendship for her. He did not charge her for his services. Mr Au introduced Mr Hawkins to the Newport property in July 2019, and showed Mr Hawkins through the property on 26 July 2019.
Ms Lee had been involved with the Newport property for some years prior to July 2019. For a five-year period commencing on 22 June 2013 and terminating on 21 June 2018, Ms Lee and two other persons, who then co-owned the Newport property with her, leased it by registered lease to a Mr Qui Hur Zhou for the permitted use as a restaurant. She bought out her co-owners in the freehold of the Newport property in 2018 before leasing it to YOUth OK.
A Chinese restaurant had been operated on the site for at least some of the period between June 2013 and June 2018. By the time Mr Au introduced Mr Hawkins to the Newport property some material residue of the restaurant's operations was still evident at the premises. Mr Hawkins says that the Newport property had long ago been operated as the "Man Wah" Chinese restaurant but that it had closed in 2010 and had remained closed until 2019.
But Ms Lee says the Newport property was operated as a Chinese restaurant during the term of the previous lease between 2013 and 2019. The Court accepts her evidence as correct. The existence of recent restaurant operations can readily be inferred from the considerable amount of restaurant related equipment and furniture which remained at the premises in July 2019. Moreover, it is commercially improbable that the Newport property would have been unutilised by a rent paying tenant between 2013 and 2019. And the Court prefers Ms Lee's testimony about events in which she was personally involved before 2019, over the testimony of Mr Hawkins who was not directly involved with the Newport property at that time.
Moreover, at least from the time that Ms Lee bought out her co-owners in the Newport property in 2018, she and her husband Mr Lin were involved in operating a Chinese restaurant at the Newport property until June 2019. It was in 2018 during this period of their closer involvement together in the property that they constructed an awning, supported by timber columns over a yard area at the rear of the Newport property.
Neither Ms Lee nor her husband Mr Lin sought or obtained approval from the Council for erecting this structure, which became the focus of the controversy in these proceedings. For convenience the awning and associated timber columns over the yard area are referred to in these reasons as "the awning structure".

[6]

The Buildings and Awning Structure on the Newport property

In the commercial precinct of Newport, Barrenjoey Road runs approximately in a north-south direction. The Newport property is situated on the western side of Barrenjoey Road. At the time Mr Au introduced Mr Hawkins to the Newport property, it consisted of two parcels of land which had been developed into a single property. The combined parcels of land comprising the Newport property have a relatively narrow frontage to Barrenjoey Road relative to their long east-west boundaries.
The Newport property consists of two buildings. A building was situated at each end of the property: one at the eastern end of the property facing Barrenjoey Road ("the Barrenjoey Road building"); and the other building at the far western end or rear of the property ("the rear building"). The Barrenjoey Road building allows for both commercial and residential uses. The rear building is configured solely for residential use.
The Barrenjoey Road building features a commercial restaurant area on the ground floor and two additional residential areas, described as "flats". These flats were commonly referred to in the proceedings by numbers to distinguish them from one another. Flat No. 1 is situated above the restaurant area at the front of the building, facing Barrenjoey Road. Flat No. 2 is above the restaurant area at the rear of the Barrenjoey Road building. These two flats in the Barrenjoey Road building were occupied in July 2019, which resulted in the insertion of special conditions in the lease to accommodate the late vacation of the tenants.
The rear building is accessible on foot, across land sloping upwards towards the west from the rear of the Barrenjoey Road building. In the rear building, Flat No. 3 is situated on the ground floor and flat No. 4 on the first floor.
The yard area over which the awning structure was erected was approximately 240 m² at the rear (or western end) of the Barrenjoey Road building. The awning structure was supported at its western end by a brick wall. On its southern side the awning structure opens onto a laneway running east-west, which separated the Newport property from the neighbouring property to its immediate south. The western end of this laneway also facilitates access from Barrenjoey Road to the rear building on the Newport property without the requirement to traverse the Barrenjoey Road building.
At the ground level, the awning structure covers less than 15% of the gross area of the property (this is without accounting for any floor area above the ground level).
Photographs of the yard area show a very basic structure of timber uprights and cross members supporting a corrugated roofing. No finishes have been applied to the raw timber. On the laneway side wooden fencing is erected to approximately chest level between the wooden uprights. A rudimentary and unsuccessful attempt has been made to cover the fencing with an attached façade, but over time this has begun to crumble away. The overall picture presented by the awning structure is of basic workmanship on an unsophisticated temporary structure.

[7]

Mr Hawkins is Introduced to the Newport Property - July 2019

When Mr Hawkins first inspected the Newport property on 26 July, he says and the Court accepts, that he could not move freely within the premises due to the volume of used restaurant furniture and equipment on the site. Mr Hawkins says, which the Court also accepts, that Mr Au said to him at their meeting that if Mr Hawkins wished to lease the premises, then an allowance would be made for the owner/registered proprietor to remove this restaurant furniture and equipment out of the premises. Mr Hawkins offered to lease the property during this inspection.
After Mr Hawkins inspected the property, Mr Au emailed him thanking him for his offer to lease the property and stating that "owner is keen to lease whole block to you. Conditions as below" those conditions were: "$165k plus GST (whole block) 3+3+3 Owner pay council and land tax. Tenant pay water and private rubbish bin (Council already have standard bin for whole block). Front house two units lease finish at Sept 2019"
Mr Hawkins replied on 28 July to Mr Au, showing an interest in proceeding and stating as follows: "If we agree to the higher figure that is for the whole property, when will the two apartments become available after September, then we need an agreed timetable for the owner to remove all the rubbish, and then a rent-free fit out. - so if we sign a lease by Monday 12 August that allows owner to remove rubbish by Monday 2 September, and then we have until Monday 30 September to fit out, and rental commences on 1 October."
Mr Hawkins continued, explaining that the lease would be in the name of YOUth OK and he accepted the lease term Mr Au had offered. He then concluded: "Normally owner pays council rates, water rates and land tax and tenant pays excess water and rubbish removal. Please send me the floor plan that you thought you had in your office."
It can be inferred from this email that there had been discussion between Mr Hawkins and Mr Au about a floor plan for the Barrenjoey Road building and that Mr Au thought he had such a plan back in his office. Mr Hawkins followed up this email with a reminder email the following day that he wanted an option to purchase "with right of first and last refusal, as we discussed" as well. The Court infers from this email such an option to purchase had been discussed at the site visit on 26 July. There was an early discussion between Mr Hawkins and Mr Au about a floor plan but no later discussions, as will be seen.
On 9 August 2019 Mr Li sent a draft lease agreement to Mr Hawkins for his consideration. Mr Li reminded Mr Hawkins of three matters: "I note that since this property is no longer offered to lease as a retail premises, the originally required disclosure statements will no longer become necessary. Further the landlord or her representative invites you to attend the premises together prior to signing the lease and agree on the scope of fixture removal therein. After the terms and conditions have been agreed on by both parties, we require that the incoming tenant to provide us: signed Lease in duplicate, payment of the first months rent, evidence of the insurance policies as required under the Lease, original bank guarantee, and relevant Lease registration fees."
Mr Hawkins replied by email the same day, 9 August 2019, to Mr Li: "Dear George, Thank you so much for this email and the draft lease, especially when you are very busy on other more demanding matters. Please advise the landlord that I will meet her and her representatives on site at a time that suits her convenience, this weekend or next week, either works for me. All your other requirements (insurance, rental in advance, bond, lease fees) are noted and will be provided as agreed. I await your advice or that of the agent as to when to meet on site."
Shortly afterwards Mr Li responded suggesting that the parties meet at the Newport property on Sunday, 11 August 2019 between 2:30 pm and 4:30 pm.

[8]

The Meeting on 11 August 2019

The meeting took place. Aspects of the 11 August 2019 meeting are contentious and are dealt with below in an analysis of the defendants' misrepresentation case. But the contemporaneous communications suggest that it went well. And it is common ground that this is the first time that the parties met and that Ms Lee gave Mr Hawkins keys to the premises on this occasion, to facilitate access by his architect and builder.
Mr Hawkins sent a text message to Ms Lee the following day, 12 August. "Hello Annie, Thank you for your time yesterday, it was good to meet you and Adrian and view the property together. I am happy with the lease, your lawyer has done a good job following instructions. As I said I will get the lease back to your lawyer this week with rent, bond and insurance. I visited the site again today with my architect and builder and I confirm that no structural works are required. My architect is preparing a change of use application to Council and we will bring it to you for consent signature of the owner once lease and payment have been made."
In the text message Mr Hawkins then gives advice to Ms Lee about a range of topics but mostly the removal of the rubbish which is on site. He advises about contractors who could possibly remove the rubbish by truck to the Kimbriki Tip at Terrey Hills. He notes that "the biggest job is removal of the stoves and old stainless coolers and fridges" but that "your husband seemed to want these, but if not I can see if I can get a second-hand dealer or scrap metal person to take them away, thus saving at least one full day" he then offers assistance to make a builder available on site and a caretaker.
On 12 August 2019 Mr Hawkins attended the site with his architect, Ms Sarah Blacker and his builder. He informed Ms Lee of this after the event by text message. On 14 August 2019, he had arranged a building certifier, Private Building Certifiers Pty Ltd, who addressed a fee proposal to the architect, Ms Blacker. Ms Blacker deleted her own name and wrote in the name of Blaxland Investment Group, one of Mr Hawkins' companies. Ms Blacker seems to have given this document to Mr Hawkins about 15 August, 2019.
Mr Hawkins was interested in getting a plan of the premises as early as his visit to the premises on 11 August. He wanted a floor plan of the premises to assist his own architect and builder. He could not easily create one himself because of the rubbish in the premises. For his architect to do a plan the original idea was that the premises would be cleared of rubbish in August, before he took possession on 2 September.
On Thursday, 15 August Mr Li followed up Mr Hawkins about his attitude to the lease that he had forwarded on 9 August. Mr Li explained to Mr Hawkins that Ms Lee "wishes to have your understanding that she will proceed to notifying the existing tenants after confirming YOUth OK's commitment."
Mr Hawkins replied that same day reaffirming that he was committed to proceeding, saying as follows: "Yes, we are 100% committed to the lease as proposed and the terms and conditions of the lease as prepared by you that reflect the agreement reached with Annie and her husband. Our trades are ready to start work once Annie advises if she and her husband want to remove the rubbish themselves, or if she wishes us to handle that task on her behalf due to the limited time availability due to her business commitments. I understand that both tenants are substantially in arrears of rental, and that Annie was to instruct you to take the proceedings in NCAT for possession - as we do not need immediate possession of the two existing tenancy spaces, we can work around them in both rubbish removal and refurbishment. As advised to Annie, once we are agreed, I will return the signed Lease by hand to your office together with the rent, bond and insurances. I will call Annie today to finalise her wishes regarding rubbish removal."
It is unclear whether Mr Hawkins and Ms Lee spoke about the subject of rubbish removal. But the draft lease which had been forwarded at that stage did contain a provision in relation to rubbish removal.

[9]

A meeting on 15 or 16 August 2019?

On the second day of his oral evidence Mr Hawkins gave an account of a meeting with Ms Lee in which he proffered to her a "complying development application her signature". This was not in relation to the awning structure but, Mr Hawkins said he was seeking her consent to the change of use, probably in accordance with lease clause 6.2. The complying development application that had been issued by the certifier for this project required the owner's consent to be endorsed on it.
But it is unlikely that this meeting took place on this occasion, as he claims, because his architect, Ms Blacker only had her plans and specifications ready on 19 September 2019, the date they bear. Moreover, as a practical matter it is difficult to see how Ms Blacker could have had sufficient time by 15 August to access the Newport property and draw up plans to a sufficiently complete stage to seek Ms Lee's endorsement. Ms Blacker had only first come to the property on 12 August and the lease was not signed for about another four weeks. Added to this, there is no email correspondence planning a meeting on 15 August or referring to it having occurred on that day.
Mr Hawkins began to explain that draft plans may have been available from Ms Blacker before 15 August, but no draft plans were discovered, and the Court does not accept that any plans of the proposed development of the Newport existed as early as 15 August. Moreover, at one point Mr Hawkins conceded that he would not have had Ms Blacker's drawings until 19 September. His change of position on this issue damaged his credit considerably and leads the Court to the conclusion that no meeting took place on or about 15 or 16 August 2019 between Mr Hawkins and Ms Lee.
A meeting on 15 or 16 August is improbable for another reason. The complying development application that Mr Hawkins says he gave Ms Lee is not signed by her. Mr Hawkins explains this by saying that upon the seeing documents Ms Lee said to him, "I will talk to George [Mr Li]". Two matters are inconsistent with that explanation, that make it impossible to accept. The Court does not accept that Mr Hawkins followed up with Ms Lee whether she had spoken to Mr Li. And strangely Mr Hawkins did not give a copy of the complying development application to Ms Lee to take away because he only had one copy.
The significance of this to the defendants' misrepresentation case is that Mr Hawkins agrees that on 11 August 2019 he met Ms Lee for the purposes of picking up the keys from her, but he denies that on that occasion there was any discussion of the awning structure. He briefly suggested to Ms Lee in cross examination that such a discussion might have taken place, contrary to his own affidavits. Thus, for him to make a misrepresentation case based upon Ms Lee making statements directly to him, he needed to posit the existence of another meeting before the lease is signed. This is that meeting. But the Court does not accept that it took place. Thus, the Court does not accept there was any meeting before the lease was signed at which Ms Lee was present and she made representations directly to Mr Hawkins that the structures on the Newport property had development approval and there were "no surprises".
On Monday 19 August Mr Li enquired by email of Mr Hawkins, "please advise of a solicitor is assisting in your leasing process" and seeking a timeframe for the next steps. This provoked a quick and firm response from Mr Hawkins. "Dear George, Thank you for your email. We do not require a lawyer to assist with this Lease, and we have agreed to the Lease Terms as per our previous advice. We are ready to proceed and as per the timeline set out in the Lease, we will be looking at taking possession on 2 September by returning the Lease, insurance, bond and rent, before 30 August. We were waiting for Annie to advise if she was removing the rubbish or wanted our assistance because that is a huge job likely to take a week. However today and he said that she had started removing the rubbish. As also advised, the two tenants who are in rental arrears were to receive notices from you to give vacant possession before the end of September - so please advise status of that issue. We will take possession of the remainder of the property regardless as we want to start work in our rent-free period." Please call me tomorrow if you need to clarify any other matter, as we want to accommodate the owner where possible."
Ms Lee had contacted Mr Hawkins earlier that day by text message and indicated that she had started to move the material out of the premises "a couple of days ago". Mr Hawkins replied by text message, promising to return the lease to Ms Lee's lawyer "this week as we discussed" and promised: "As per the lease, we will pay the rent and bond before the end of August, so that we take over on 1st September. Please confirm that you agree with this timeline which is in the lease.".
Mr Hawkins requested early occupation of the premises. Ms Lee recalls, and the Court accepts, that early occupation was requested on the basis that Mr Hawkins was arranging public liability insurance. Ms Lee agreed to Mr Hawkins' occupying the premises in advance of the lease being executed on that basis. Ms Lee says that Mr Hawkins was provided keys to the premises in about mid-August 2019 and that he remained in occupation prior to execution of the lease from then, through until his execution of the lease in mid-September. The Court accepts this evidence. Indeed, Mr Hawkins commenced building works during this period, which are discussed in more detail later in these reasons.
Mr Hawkins emailed Mr Li again on Thursday 22 August, reaffirming that he had signed the lease as director of YOUth OK and as guarantor, and that the lease in its present form was acceptable save for the need to insert a special condition covering the option to purchase, which he wanted. He noted that "the majority of" the rubbish was still in the building. He noted that as he was intending to get the money and insurance back to Ms Lee before 1 September, as the rent-free period was to start on 2 September "by which time all the rubbish was to have been removed" he repeated his offer to assist Ms Lee with rubbish removal.
Mr Hawkins did not receive a reply to this email, so he resent it to Mr Li on Monday 26 August. On 28 August Mr Hawkins wrote again complaining that some of the workers removing fixtures at the property had left water leaks which may cause damage to the structure. He then expressed doubts that the premises would be ready for occupation by Monday 2 September, stating: "As an observation, there is still a huge volume of materials and rubbish in the property and I doubt if it will be ready for us by Monday 2 September as planned - from our viewpoint, this is not a critical date if Annie needs more time, and we will be working in with her on the date of possession. Please send me the Option to Purchase page/clause as this is all that is missing from the Lease, and I would like to return it to Mr Li to complete the paperwork."
There was delay in the paperwork for including the proposed option to purchase in the Lease. Ms Lee had probably not yet given firm instructions to Mr Li to include it in the lease. Mr Hawkins wrote again to Mr Li on 29 August following up the need to include the option to purchase saying that Ms Lee "was open to a sale if we could agree price and settlement details". All the while the clock was running down on the commencement of the rent-free period.
Monday 2 September passed; the discussed rent-free period had started but the lease was still not signed. On Tuesday 3 September Mr Hawkins followed up with an email to Mr Li, recording that Mr Hawkins had inspected the property "last Sunday" (1 September) and there was still "a lot of old cooking and car equipment on site, plus a lot of rubbish". He estimated it would take about three days to remove the material that was there unless the owner intended to finish off the removal work. He sought advice from Mr Li about the situation. And he then finished as follows, proposing that the rent-free period be adjusted by a week: "Therefore, I intend to return the Lease, insurance, bond and rental to your office on Friday so that we can commence on Monday 9 September, meaning that a four-week rent free period will run from nine September to 14 October, so please confirm that this is acceptable to the owner".
There was no other email correspondence between the parties about these subjects before the lease was signed on 12 September. The email correspondence and the text messages between Mr Hawkins and Ms Lee's representatives set out here do not record any of the representations that Mr Hawkins says that Ms Lee and Mr Au made to him about the Newport property complying with the Environmental Planning and Assessment Act 1979 (EPA Act).
The draft lease that Mr Li forwarded to Mr Hawkins on 9 August contained two provisions relevant to the discussions that had taken place with Mr Hawkins. Item 20 of the draft lease provided for a rent-free fit out between 2 September 2019 and 30 September 2019, but the period was qualified by the words "if this lease is signed by 01/09/2019." The draft lease also contained in clause 6.7 which provided "The lessee must arrange for the removal of all rubbish from the premises." The same provisions appeared in the final lease that Mr Hawkins executed on 12 September. Mr Hawkins did not ask for either of these provisions to be changed. He signed the form of lease presented to him with these provisions in it.
By the time the lease was signed the qualification to the rent-free fit out period was operative and no free fit out applied under the lease. Mr Hawkins seems to have thought that a free fit out period still applied but was deferred. But Mr Hawkins did not seek legal advice and continued to maintain in writing to Ms Lee that the draft lease was acceptable to him. They were entitled to assume that he had read the lease and that he was willing to be bound by what he signed.
The case that YOUth OK and Mr Hawkins presents does not seek to rectify the lease on the basis that the real agreement between the parties was not reflected in the lease. Nor do they seek to maintain a case in unilateral mistake: that they were actively misled about the contents or legal effect of the lease document that they were given either on 9 August or 12 September. Some conversations to a different effect of the lease are alleged but the Court does not accept they occurred.

[10]

The Pre-Lease Alleged Representations by Ms Lee and Mr Au

Ms Lee strongly contested that she or her agent Mr Au made any positive pre-contractual representations inducing YOUth OK to lease the Newport property. Mr Hawkins gave several different accounts of his pre-contractual interactions with Mr Au and Ms Lee. The plaintiff used the differences between these accounts to challenge Mr Hawkins' credibility. It is useful to discuss this contest at this point in the narrative of findings.
The starting point is the affidavit evidence of Mr Hawkins. He read three affidavits containing material supporting his misrepresentation case. Mr Hawkins' principal affidavit of 2 June 2021 deposed that at his first meeting with Mr Au, Mr Au made two representations to him that he relied upon. Neither of these representations related to an assurance that there were no unauthorised works on the Newport property. Mr Hawkins deposed to what Mr Au said to him, as follows: "(10) I was advised by the managing agent Simon Au that all of these four Flats would be included in the leased premises, and that vacant possession of Flats No 1 & 2 would be provided once the tenants had vacated as these Flats were occupied at this time (July 2019). (11) I was also advised that a lengthy rent-free period would apply once vacant possession of the whole property was available due to the poor condition of the property, and after all of the restaurant furniture and equipment had been removed. (12) On the basis of those representations made to me by the managing agent I agreed to proceed with the Lease in late July 2019."
Mr Hawkins filed a second affidavit on 23 June 2021 in which he did not elaborate upon Mr Au making any positive representations before YOUth OK entered into the lease, that the building work on the Newport property was compliant with Council regulations. This second affidavit describes the representations that the defendants rely upon in the following general terms. "(4) The First and Second Defendants maintain that the Plaintiff seriously mislead the First and Second Defendants by concealing from them that she had undertaken structural work at the premises without the approval of Northern Beaches Council as the designated Consent Authority in any of the pre-lease or post-lease discussions. (5) The First and Second Defendants maintain that the Plaintiff has subsequently made false and misleading representations to them that she had obtained development approval when no such approval had been obtained."
The timing of this second affidavit only three weeks after the first affidavit indicates that Mr Hawkins was seeking to complete his evidence to ensure that any gaps were covered. The way he expresses the representations he relies upon at this point should be closely scrutinised. This second affidavit adds material that supports a case of concealment of information from YOUth OK before the lease was executed. It does mention positive assurances about development approval in relation to the Newport property but only what it describes as "subsequently". The inference readily to be drawn from the affidavit evidence filed on behalf of the defendants up to this point, is that any positive assurances about the Newport property having development approval were made after execution of the lease. Other parts of Mr Hawkins' evidence support this inference.
The other feature of both of Mr Hawkins' early affidavits is that they both rely upon representations made by Mr Au. In neither affidavit does Mr Hawkins assert that Ms Lee directly made representations to him about the state of development approval of the premises before he signed the lease. This position did not change after he was given leave to file an additional affidavit shortly before the hearing.
The Court considered pre-trial directions on Friday, 11 February 2022. At this hearing the Court granted liberty to Mr Hawkins to file a further affidavit, as it appeared to the Court that some of the assertions that Mr Hawkins was making from the Bar table about the course of events relevant to the lease had not been included in his evidence. The Court considered that placing the matters he was asserting in affidavit form would allow the hearing to be conducted more efficiently. Mr Hawkins filed another affidavit on 17 February 2022. In that affidavit Mr Hawkins described in more detail his interactions with the agent, Mr Au. He described meeting Mr Au on Tuesday, 23 July 2019 at the Newport property and then a series of telephone calls that he had with Mr Au between 23 and 26 July 2019.
That this contact took place can be accepted. Mr Hawkins deposed to having the following telephone conversation with Mr Au on the morning of 26 July 2019 in the following terms: (12) During the last of these telephone calls with Mr Au on the morning of 26 July 2019 we discussed the following: - (a) The number of separate properties to be leased. (b) The term of any lease. (c) When all of the properties would be available as some were occupied. (d) The NCAT proceedings against one tenant of the shop top floor above 317 Barrenjoey Road who refused to vacate. (e) The reasons why the former tenants of the Man Wah Restaurant vacated when they had a thriving business. (f) The mountain of rubbish at 317 Barrenjoey Road and whether the other properties being offered were in a similar condition. (g) Individual rentals for the various properties. (h) The possibility of leasing the entire area at 317 - 321 Barrenjoey Road. (i) Whether there were any approvals to operate businesses in place given that the Man Wah Restaurant had left many years ago. (j) Whether any work had been done on the property. (k) Whether any work was required to be done on the property. (13) Although these several conversations with Mr Au were nearly three years ago, I do recall clearly the gist of what we discussed as being: - (a) That I could lease any or all of the properties. (b) The owner wanted at least three years on the restaurant and one year for all other properties. (c) That he was not sure as to when all would be available due to the NCAT proceedings. (d) He was told that the NCAT proceedings were being finalised in September. (e) He was told that there was a falling out between the owner and the restaurant owner, and they moved to another location. (f) The owner's husband would remove the rubbish as he was responsible for it. (g) He would check the new rentals with the owner for either the whole property or part and get back to me. (h) Leasing the whole property to one lessee was the owner's preferred position as less 'headaches'. (i) He did not know about any existing approvals and would check with the owner, but as Man Wah had gone some time ago, any approval would have lapsed after 12 months vacancy - and he assumed that the residential occupancies were approved and would check with the owner. (j) He said that his instructions were that nothing had been done to the property for years, and that he would check with the owner. (k) He said to me words to the effect "as you can see it requires a lot of work" and that he would check if any work had been ordered by council."
But Mr Hawkins' affidavit of 17 February 2022 still did not refer to his having any direct contact with Ms Lee before the signing of the lease.
According to Mr Hawkins' 17 February 2022 affidavit, he had further contact with Mr Au on 29 July 2019, when Mr Au telephoned him. Mr Hawkins says he relied upon those further telephone conversations in the following paragraphs of his 17 February 2022 affidavit: "(17) Sometime after lunch on 29 July 2019 I received a call from Simon Au who advised: - (a) He could not find the floor plan and the owner said she did not have one, or if she did have one then she could not find it. (b) The owner had no approvals from previous tenants of the restaurant, and she did not need approvals for the residential tenancies as those leases had all been registered with Fair Trading. (c) The owner had no building approvals as she had not done any work on the property. (d) Her husband Adrian would remove all the rubbish within a week. (e) That I should contact the owner's lawyer George Li as he was now in control as his services as managing agent had been terminated by the owner. (18) I relied upon the statements by the managing agent for the Plaintiff in forming my intention to proceed with the lease, and that this time (29 July 2019) it was still not possible to undertake an inspection of the whole property due to the mountain of rubbish stored in every section of the property, and due to existing tenancies."
This completes Mr Hawkins' affidavit evidence about the pre-contractual representations he alleges were made to him. None of this affidavit evidence included Ms Lee making any statement to Mr Hawkins about the premises.
But when the hearing commenced Mr Hawkins added oral evidence, which implicated Ms Lee in making positive pre-contractual representations as to whether all the building structures at the Newport property had Council approval.

[11]

The Linoleum Meeting

Mr Hawkins said in oral evidence that he met Ms Lee at the Newport property between 11 August 2019 and 12 September 2019, the latter-date being when he signed the lease. He said that conversation took place in the context of the parties together with the architect and the builders inspecting some linoleum which had been made directly onto the dirt floor in the restaurant area of the Barrenjoey building. The meeting thus became known in the proceedings as "the linoleum meeting". But the date it occurred became controversial.
For convenience it is placed here in the narrative of findings where Mr Hawkins says it occurred, but it probably occurred in October 2019, well after the signing of the lease. Investigating the dirt floor under the linoleum with Ms Blacker and other builders being present most probably places the meeting after the lease, when all of these persons had been engaged and major investigations of the premises were possible and underway. Therefore in the outset, anything said at this meeting cannot be relied upon as a pre-contractual representation.
Mr Hawkins states the following conversation took place between himself and Ms Lee on this occasion: Mr Hawkins: "I still haven't got the floor plan, where is it? I was promised it by your agent and I haven't got it. Ms Lee: "I don't have a floor plan". Mr Hawkins: "You can see the work we're doing. This floor doesn't comply. It's linoleum on dirt, there's no floorboards. We've had to take that up. Is there anything else that doesn't comply?" Ms Lee: "No it's all okay. Yeah, all good. I haven't been here, prior tenants, not me."
The relevant substance of this conversation has Mr Hawkins allegedly asking, "is there anything else that does not comply?" To which Ms Lee allegedly replies "no it is all okay. Yeah, all good." Mr Hawkins also gave a slightly different version during his evidence. Mr Hawkins said that instead of him asking "is there anything else that does not comply" that he may have asked in different words, "any more surprises…that doesn't comply?"
Mr Hawkins said that this was a natural conversation for them to have had at that moment because they were standing in the restaurant area of the premises looking at the floor, which he said was obviously non-compliant with Council regulations relating to restaurants. According to Mr Hawkins the floor consisted merely of linoleum attached directly to the earthen floor below, without underlying floorboards or concrete. Mr Hawkins said that that is not acceptable, especially in food premises, and would not have been approved by Council. He says this prompted him to raise the broader issue of compliance with Council requirements.
Mr Hawkins put the substance of this conversation in cross-examination to Ms Lee. She denied that the conversation ever occurred, either at that time, in that location or at all. She denied that she had any contact with Mr Hawkins before the lease was signed on 12 September 2020. Mr Hawkins says that at the linoleum meeting he complained to Ms Lee that he had still had not received the floor plan which Mr Au had promised him. But the Court does not accept that any conversation about Ms Lee not providing a floor plan took place at the linoleum meeting.
The Court accepts her denial. In addition to the Court's general preference for the reliability of Ms Lee's evidence over Mr Hawkins' evidence, the Court has little confidence in Mr Hawkins' version of a conversation with Ms Lee, which only emerged for the first time at the hearing after multiple opportunities to record it in affidavit form.
The conversation Mr Hawkins alleges that he had with Ms Lee about Council approvals at the Newport property is unlikely to have occurred, or to have occurred in August - September, for several reasons which will be discussed below.
If the conversation did take place, it would have been after Mr Hawkins decided to proceed with the lease. This can be deduced from objective materials. Mr Hawkins' building work on site only commenced about 20 September 2019. The builders' invoices describe the work being charged as commencing no earlier than 20 September. The pulling up the floor linoleum is the backdrop to the claimed Hawkins - Lee conversation. It took about 3 weeks and could not have commenced earlier than 20 September. Mr Hawkins' claimed conversation with Ms Lee is unlikely to have taken place before 20 September. But Mr Hawkins had already signed the lease on 12 September. Thus, any conversation between Mr Hawkins and Ms Lee could not have influenced his decision to sign the lease.
But quite apart from timing issues, the conversation is unlikely to have occurred for several reasons. First, Mr Hawkins did not include it in any of his affidavits despite including detailed accounts of conversations with some other persons.
Second, if Ms Lee had made the representations that Mr Hawkins claims, they would have been unforgettable when the Council first brought the non-compliance to attention. Mr Hawkins would have immediately appreciated that the representation was false. Strangely he did not assert in contemporaneous correspondence that this representation had been made to him and was not honoured within about two months of being made. He had all the information needed to make such an assertion but failed to do so.
Third, the conversation was implausible. Mr Hawkins had no basis to assume that Ms Lee knew of what approvals had been given or not given in relation to the works by Council. The linoleum floor was non-compliant and old work, possibly well before Ms Lee became the registered proprietor. Ms Lee only became sole registered proprietor in 2018 and had only been a co-owner from 2013. Mr Hawkins had no idea what work had been done before Ms Lee became a sole owner and what work after she was a co-owner. He had little knowledge of how familiar she was with the development history of the building. It is difficult to understand why he would even ask her the question or seek the assurance that he claims that he did. If he was really after that kind of assurance, a search of relevant development approvals at the Northern Beaches Council was the obvious course. By his own account Mr Hawkins is an astute and experienced property developer. Why he would even seek to rely upon Ms Lee about such a subject is a mystery.
Fourth, Mr Hawkins was unlikely to ask Ms Lee for her opinion about any Council approval of prior works, when he would have expected that she (or her solicitor) would hold planning approvals from Council clearly showing what was, and was not, approved work on the Newport property. He could easily ask for the documents showing what had been approved by the Council. As a developer he had all the background knowledge to make such a request an easy step. But he had not asked her for any planning approvals, nor had she produced any. It is improbable that he would have sought to rely upon her oral assurances without an accompanying question about planning approvals.
Fifth, Mr Hawkins had experts he could rely upon to ascertain whether there were unapproved works. He had a certifier, an architect, and a builder. It is implausible he, as an experienced developer of over 70 properties, would ask Ms Lee about what could easily be requested from these experts who were on hand for him.
Sixth, it is also improbable that Ms Lee would have answered Mr Hawkins' question in the manner that he claims, "Is there anything else that doesn't comply?" Her involvement with the property up to that point did not equip her to answer that question unequivocally, or the other alleged question that Mr Hawkins relied upon, "Any more surprises?" It is improbable objectively that she would have replied in the negative, the response that Mr Hawkins attributes to her. She did not strike the Court as someone who would make reckless statements about matters of which she had little or no knowledge. As to the compliance of the awning structure, the Court finds she did not know either way whether it was compliant prior to the Council's November 2019 notice.
Finally, various other versions of the representation case were put in the defendants' pleadings. These were different again to the versions in Mr Hawkins' affidavit and oral evidence.
Several of the factors that make the Lee - Hawkins conversation improbable also are a basis to infer that even if the representations had been made, Mr Hawkins would not have relied upon them given his background and experience as a developer.

[12]

The Lease and the Architectural plans - 12 to 19 September 2019

Mr Hawkins signed the lease on behalf of YOUth OK and himself as guarantor on 12 September 2019. Ms Lee signed it with her solicitor Mr Li on 26 September 2019. The commencement date of the lease was 1 October 2019 and its termination date 30 September 2022. It provided for two options to renew for three years and an option to purchase. Annual rent for the first year was $165,000 plus GST payable by monthly instalments of $13,750 plus GST. Thereafter, a new yearly rent would begin on each annual review date and be payable by monthly instalments of 1/12 of the new yearly rent, which was fixed to increase at 5 per cent per annum.
The lease was in registrable form under Real Property Act 1900. But it was not lodged for registration and was never registered. The Lease itself is a two-page document signed by the parties which incorporates the provisions set out in two annexures, Annexure A and Annexure B. Annexure A provides a schedule of variable items such as the rent and Annexure B provides the more detailed covenants of the lease. Each of Annexure A and Annexure B to the lease is headed up with the words in capital letters "SEE A SOLICITOR ABOUT THIS LEASE". Mr Hawkins did not consult a legal advisor before signing the lease.
Annexure A provided, in Item 15, for an interest rate upon overdue monies under the lease of 10 per cent. Item 17 identified the permitted use of the premises under the lease as a "Community Youth Centre (heavy cooking prohibited)". Item 19 provided for a bank guarantee of "three months base rent increased by the rate of GST applicable from time to time".
And item 20 provided for a rent-free fit out period from 2 September 2019 to 30 September 2019, if the lease was signed by 1 September 2019. It is common ground the lease was not signed by 1 September 2019 but was first signed by Mr Hawkins on 12 September 2019. Therefore, the rent-free fit out did not apply.
Mr Hawkins engaged a Potts Point based architect and interior designer, Sarah Blacker, to draw up some architectural "concept design" plans for the ground floor of the Barrenjoey Road building. She did not yet have access to the Flat No. 1 or Flat No. 2 area. Some finishes she had chosen were available on 12 September 2019. Her concept design plans were available on 19 September 2019. These were in plan and elevation and were, qualified by her statement "Approximate general arrangement plan only: all dimensions to be verified on site. Wall thicknesses to be verified. Works STCA".

[13]

The Terms of the Lease

The contest between the parties brings into focus several provisions of the lease. First the lease declares that it operates as a deed, even if it is not registered (clause 1.2).
The tenant must pay rent to the landlord as stated in Item 13 in the Schedule, which was the sum of $13,750 plus GST per month: clause 5.1.1. The tenant was also required to pay the landlord the reasonable cost to the landlord of remedying a default by the tenant: clause 5.1.3. If the tenant defaults the tenant must pay the landlord's reasonable legal costs relating to the default, clause 5.1.8. The first month's instalment of rent is to be paid by the commencement date - that is 1 October and each later month's instalment of rent is to be paid in advance: clause 5.2. Each month's rent was therefore due on the first of the month. Interest was payable on monies due under clause 5.1 at the rate stated in item 15 of the Schedule, namely 10%: clause 5.1.5. Rent reviews were regulated by clauses 5.4 to 5.19 and Item 16 of the Schedule and had the effect stated earlier in these reasons.
The lease required the tenant to use the property for the purposes stated in Item 17 - that is as a community youth centre and not for any other purpose (clause 6.1.1). The tenant must keep the property clean and dispose of waste properly (clause 6.1.3). And clause 6.1.4 provides that the tenant must: "Comply with all rules relating to strata schemes and all other rules regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent, and keep current any licences or registrations needed for the use of the property or for the conduct of the tenant's business there."
The landlord can consent to a change of use but cannot withhold a consent unreasonably (clause 6.2). The lessee must arrange for the removal of all rubbish from the premises (clause 6.7).
Clause 7 of the lease relates to the condition of the premises and repairs. The landlord had an obligation to maintain the premises in a state of good condition and serviceable repair and must fix structural defects, maintain the property in a structurally sound condition and maintain essential services: clause 7.1.1 - 7.1.3. The tenant must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition. But the tenant is not obliged to alter or improve the property or to fix structural defects or repair fair wear and tear (clause 7.2).
Clauses 7.4 and 7.6 were the subject of contest and submissions and were as follows: "7.4 If an authority requires work to be done on the property and it is structural work or work needed to make the property safe to use then the landlord must do the work unless it is required only because of the way the tenant uses the property. But if it is any other work or is required only because the way the tenant uses the property then the tenant must do the work. … 7.6 The tenant must make any structural alteration to the property. Any other alterations require the landlord's consent in writing (but the landlord cannot withhold consent unreasonably)."
Clause 7.5 authorised the landlord to do any work which the tenant had failed to do, after giving the tenant notice of the tenant's default and requiring the tenant to do the work. There is no equivalent in the lease authorising the tenant to undertake work that the landlord must do under the lease, permitting the tenant to carry out the work at the cost of the landlord. The contest in these proceedings involved an allegation by the tenant that the landlord had failed to carry out her obligations to the tenant.
The lease requires the tenant to take out public liability and damage insurance (clause 8.1). If the property or the building of which it is part is damaged or destroyed then the clauses 8.2.1, 8.2.2 and 8.2.3 may apply: "8.2.1 the tenant is not liable to pay rent, or any amount payable to the landlord in respect of outgoings and other charges, that is attributable to any period during which the property cannot be used under this lease or is inaccessible due to that damage; 8.2.2 if the property is still useable under this lease but its useability is diminished due to the damage, the tenant's liability for rent and any amount in respect of outgoings attributable to any period during which useability is diminished is reduced in proportion to the reduction in useability caused by the damage; 8.2.3 if the landlord notifies the tenant in writing that the landlord considered that the damage is such as to make its repair impracticable or undesirable, the landlord or the tenant can terminate this lease by giving not less than 7 days notice in writing of termination to the other and no compensation is payable in respect of that termination"
The lease contains a form of covenant of quiet enjoyment. It provides that if the tenant does all things "that must be done by the tenant under this lease", the landlord must allow the tenant to possess and use the property in any way permitted under the lease without interference: clause 11.1. The landlord must pay all outgoings for the land or buildings when they fall due: clause 11.2.
Clause 12 of the lease provides for the forfeiture and ending of the lease and the landlord's entry into possession. Item 3 in the Schedule provides for the end date of the lease of 30 September 2022. Clauses 12.1 and 12.2 provide as follows: "12.1 This lease ends - 12.1.1 on the date stated in item 3 in the schedule; or 12.1.2 if the landlord lawfully enters and takes possession of any part of the property; or 12.1.3 if the landlord lawfully demands possession of the property. 12.2 The landlord can enter and take possession of the property or demand possession of the property if - 12.2.1 the tenant has repudiated this lease; or 12.2.2 rent or any other money due under this lease is 14 days overdue for payment; or 12.2.3 the tenant has failed to comply with a landlord's notice under section 129 of the Conveyancing Act 1919; or 12.2.4 the tenant has not complied with any term of this lease where a landlord's notice is not required under section 129 of the Conveyancing Act 1919 and the landlord has given at least 14 days written notice of the landlord's intention to end this lease. 12.3 When this lease ends, unless the tenant becomes a tenant of the property under a new lease the tenant must - 12.3.1 return the property to the landlord in the state and condition that this lease requires the tenant to keep it in; and 12.3.2 have removed any goods and anything that the tenant fixed to the property and have made good any damage caused by the removal. Anything not removed becomes the property of the landlord who can keep it or remove and dispose of it and charged to the tenant the cost of removal making good and disposal."
Clause 12.5 provides that the obligation to pay rent not later than 14 days after the due date for payment of each periodic instalment is an essential term of the lease. Clauses 12.6 and 12.7 provide for the landlord's right for recovery of damages for the breach of an essential term as follows: "12.6 If there is a breach of an essential term the landlord can recover damages for losses over the entire period of this lease but must do every reasonable thing to mitigate those losses and try to lease the property to another tenant on reasonable terms. 12.7 The landlord can recover damages even if - 12.7.1 the landlord accepts the tenant's repudiation of this lease; or 12.7.2 the landlord ends this lease by entering and taking possession of any part of the property by demanding possession of the property; or 12.7.3 the tenant abandons possession of the property; or 12.7.4 a surrender of this lease occurs."
The lease, clause 13 provides for the obligations of the guarantor, Mr Hawkins. The guarantor guarantees to the landlord, the performance by the tenant of all the tenant's obligations under the lease: clause 13.2. If the tenant does not pay any money due under the lease the guarantor must pay the money to the landlord on demand: clause 13.3. The terms of the guarantee apply even if the lease is not registered: clause 13.8.
The lease, clause 16, provides for the provision of a bank guarantee if Item 19 of the Schedule in Annexure A to the lease is completed. Item 19 was completed and states a period of three months. Therefore, clauses 16.2 to 16.5 relating to the bank guarantee, as set out below, are applicable: "16.2 On or before the commencement date of this lease the lessee will deliver to the lessor a guarantee by a bank trading in the State of New South Wales in the form of an unconditional and irrevocable undertaking to pay drawn in favour of the lessor (unlimited as to time) in a form acceptable to the lessor and for an amount equivalent to the number of months referred to in item 19 in the schedule. 16.3 The lessor is entitled to claim under the guarantee an amount equal to any moneys due but unpaid by the lessee to the lessor under this lease. 16.4 The lessee agrees to vary the amount of the guarantee immediately upon each rent review so that the amount at all times represents the equivalent of the number of months referred to in item 19 in the schedule. 16.5 The lessor will deliver the guarantee (or so much of it as is then held by the lessor) to the lessee on the last of: 16.5.1 the terminating date of this lease; 16.5.2 the expiry date of any holding over under this lease; and 16.5.3 the date that the lessee has not further obligations under this lease or at law.
Clause 20 was added to the lease in relation to representations concerning the suitability of the property: "20. NO REPRESENTATIONS CONCERING SUITABILITY OF PROPERTY 20.1 The lessee acknowledges and declares that no promise, representation, warranty or undertaking has been given by or on behalf of the lessor or its agents in respect of the suitability of the property for any business to be carried on therein or as to other businesses to be carried on in the property; 20.2 The lessee acknowledges and declares that it is the lessee's obligation to obtain any approval required by Public Authorities for its use of the leased premises."
Before execution of the lease the parties had disclosed the tenancies in Flat 1 and Flat 2. These were provided for in clause 23 of the lease as follows: "23 EXISTING TENANTS AT LEASE COMMENCEMENT The lessor discloses that at the time of executing this Lease agreement there are two existing tenants in the property leasing one two-bedroom unit ("Unit 1) and one one-bedroom unit ("Unit 2") and that both these tenancies are due to end shortly. The lessor shall, within seven (7) days after both parties executing this Lease, give written termination notice for the existing tenants to vacate the property. The parties agree that in the event that any existing tenant fails to vacate the property by 1 October 2019, the lessee shall still pay rent and occupy the property except for the unit or units still occupied by the existing tenant(s) however the lessor shall allow a rent reduction to the lessee in the amount of $450.00 per week for Unit 1 and $350.00 for Unit 2, calculated on a pro rata and daily basis, until the lessee obtain[s] full possession of the property."
The executed lease did not include an option to purchase.

[14]

Events After Signing the Lease - September to November 2019

YOUth OK's building works at the Newport property probably commenced on Monday, 23 September 2019. YOUth OK seems to have been allowed into possession sometime between 12 September and 23 September 2019. Builders' invoices from Liebke Projects Pty Ltd describing the earliest building work being billed is for the week ending Friday, 27 September 2019. The invoices for the supply of services mention dates as early as Monday, 23 September. Mr Hawkins says he was actively directing work on the premises from about this time, which was just under two weeks after he signed the lease. Some photographs taken before the building works commenced show the degradation and neglect on the site and the extent of the work that was required to make the premises usable. Some of the competing evidence about the execution and quantification of the value of the building work is examined later in these reasons.
On 18 October 2019 Ms Lee sent Mr Hawkins a text message complaining that another week had gone by and "still no sign of any money that you said will be in my account". YOUth OK paid the first month's rent on 28 October 2019. But on 1 November 2019 it was in default once again: rent being due on the first of the month.
The terms of the lease required the first instalment of rent and the bank guarantee to be paid by YOUth OK on the date of commencement of the lease, 1 October 2019. Mr Hawkins had discussions with Mr Li about their provision and said he would do so "as soon as possible".
After execution of the lease Ms Lee chased the rent and bank guarantee due from Mr Hawkins through Mr Li, her solicitor. Mr Li reported back to her on several occasions in late September and early October 2019 that "I have contacted David, he asked me to wait and that he will be paying soon".
By mid-October 2019 neither the bank guarantee nor the rent had been paid. Mr Li was continuing to chase Mr Hawkins. Finally on 28 October 2019 Ms Lee received the sum $15,125 on account of the first month's rent. Due to the offset on account of the occupation of Flat No. 1 the amount due was less than this by $450 per week. The bank guarantee of three month's rent ($41,250, calculated as $13,750 x 3) was then still outstanding and remained outstanding until termination of the lease.
On Ms Lee's instructions Mr Li began corresponding with Mr Hawkins about his default in the payment of rent and the provision of the bank guarantee. Mr Hawkins refused to pay these amounts until the other issues in relation to the Council's order had been settled. But even by the time the Council's first order was issued on 13 November 2019, although YOUth OK had paid the first month's rent, it was in default under its second month's rent, due on 1 November 2019, and still had not provided the bank guarantee.
On 21 November Mr Li requested payment of the rent due and the outstanding bank guarantee by no later than 30 November. He followed up this request again on 5 December and 18 December 2019, and 20 January 2020 seeking compliance. But it is common ground that no rent was paid after 28 October 2019 and the bank guarantee was never paid. Mr Li also pursued Mr Hawkins about these payments by telephone.

[15]

The Council Issues a Stop Work Order - 13 November 2019

On 13 November 2019 the Council issued a "Stop Works Order" to Ms Lee under section 9.34 of the EPA Act and under clause 6 (2)(a) of Part 5 of Schedule 5 to the EPA Act in respect of the address of the southern parcel of the Newport property. Citing those statutory provisions, the order stated as follows: "You are ordered to stop works immediately as directed in the order below as Northern Beaches Council ("the Council") has formed the opinion that building work or subdivision work has been carried out in contravention of the EPA Act. Accordingly, the Council hereby gives a stop works order which will require that this unsatisfactory state of affairs be rectified and otherwise remedied by the carrying out of the action specified in the order. The actions required in the relevantly applicable circumstances and the reasons for the stop works order are detailed below within the table description of the formal order made by Council. Council advises you not to ignore this stop works orders and to attended to the matters immediately. Fines may be issued or court proceedings may be commenced without further notice if you fail to comply with this order. If the subject non-compliance has been complied with, it is your responsibility to advise Council in writing."
The accompanying table entitled "Order 2 - Stop Works Order" specified what the orders given required. The table described the "applicable circumstances" as "building work or subdivision work is carried out in contravention of this act". The table also describes what the order required of the recipient under the heading "to do what", as follows: Order No. 2 - Stop Works Order To stop building work or subdivision work carried out in contravention of this Act, specifically: 1. Immediately stop and cease all works associated with the part of the building at the north-west elevation of the property known as 317 Barrenjoey Road, Newport (as indicated in the attached Appendix 1), until such time that the relevant consents have been obtained for the works and/or further notice from Council. The associated works include the timber decking, roofed awning and associated supports, the south-west timber elevation and access openings.
The Stop Works Order provided reasons for the order, in compliance with EPA Act, pt 5, cl 5, including: 1. Council received a complaint alleging that unauthorised building work has been undertaken at 317 Barrenjoey Road, Newport. 2. An inspection undertaken by [a] Council Officer on 12 November 2019 revealed the following observations: An awning over an open decked area at the rear, ground floor, section of the property appeared to have been previously constructed. An additional timber framed elevation, currently under construction, on the south-west elevation of the ground floor roofed area. Additional timber supports for the awning structure. 3. The building work is not considered exempt from development consent under the provisions set out within the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008, and a further search of Council's records identified that no prior approvals have been obtained for the building work to have occurred. … 6. It is in the public interest that this unsatisfactory state of affairs be remedied as soon as possible.
Council required that the order be complied with immediately. The remainder of the Stop Works Order dealt with matters including offences and penalties resulting from non-compliance, and rights of appeal against the order, as provided by the EPA Act, pt 8, div 8.5, cl 8.18, being 28 days after service of the order.
On 19 November 2019 the Council also issued a notice of intention to issue a development control order, which is referred to in the Council's later correspondence.
After the 19 November notice of intention to issue a development control order, Mr Li emailed Mr Hawkins on 21 November, stating: "It is Annie's position that Council's order must be complied with before it could be challenged, and if the challenge becomes successful, then works can be resumed. Another approach is for us to coordinate and lodge an application for the situation to be rectified with a fresh DA. Also please attend to the payment of all your rent at your earliest convenience, and in any event no later than 30 November 2019. This timeframe also applies to the outstanding bank guarantee. Annie has been patient and we seek your understanding to make up the payment soon. Thank you for your prompt attention to this matter."
It is important to understand what positions the parties were taking immediately after the service of the first notice from Council. As earlier indicated, the 13 November 2019 order was clearly directed towards the awning structure and not the rest of the Barrenjoey Road building, or any other part of the Newport property. Ms Lee's email of 21 November implies that Mr Hawkins will cause YOUth OK to stop work in that area at least, until any challenge to Council's order is resolved, or a fresh DA retrospectively approving the work has been lodged and approved. She seems to be open to both.

[16]

After Mr Li's 21 November Email - A Meeting on 25 November?

After Mr Li's 21 November 2019 email controversy, exists as to whether a meeting took place, between Mr Hawkins and Ms Lee on or about 25 November 2019. Mr Hawkins affidavits do not refer to the meeting. But he stated in oral evidence that a few days after Mr Li's 21 November email Mr Lin and Ms Lee came down to the premises.
Mr Hawkins was vague about this meeting having taken place. He also asserted that the only meetings that had occurred between himself and Ms Lee on site were on 15 August 2019 and January 2020. There is no contemporaneous email correspondence between the parties about a meeting on that day.
On 28 November 2019 Ms Lee asked Mr Hawkins if she could go "and have a look inside the shop that you lease in Newport tomorrow morning". It is likely that she visited the Newport property the following day.
On 3 December 2019 Ms Lee sent a text message to Mr Hawkins about a neighbour's complaint. He responded about an issue concerning a sewer line. Then in the same email on the issue of payment he held out hope of payment in the near term "Regarding rent and bond, I am waiting on advice tonight and my transfer and will update you and George [Mr Li] tomorrow"
This seems to indicate that Mr Hawkins was intending shortly to organise money to be transferred to pay the two month's rent which by then were due. The defendants allege in their Amended Defences that after Ms Lee received the notice of intention to issue a development control order on 19 November 2019 that it was agreed between less or unless either that payment of the bank guarantee could be provided under the lease once Ms Lee had attended to the issue of vacant possession and non-compliance with the Council's requirements. But the Court does not accept any such discussions took place between Ms Lee for her agent, Mr Au, and Mr Hawkins. Moreover, if such discussions had taken place is to be expected that their agreed outcome would have been recorded in this email, which it was not.
Mr Li met Mr Hawkins on Friday, 13 December 2019. The issue of the outstanding rent was discussed. On Wednesday, 18 December 2019 Mr Li advised that Ms Lee had "still not received the rent nor the funds for the bank guarantee". Mr Li asked for "payment at your earliest convenience." Mr Li pointed out that his request should be treated "with utmost priority now because tenant has breached the lease terms for quite some time". The correspondence from Mr Li sought an amicable solution but it kept open the possibility of terminating the lease and seeking damages. It is not obvious from the evidence whether Mr Hawkins responded to this email.
But what is clear is that neither this correspondence, nor any of the other quite courteous demands from Mr Li, resulted either in payment from Mr Hawkins or in Mr Hawkins indicating that he had been misled on any basis, or was withholding rent because of Ms Lee's breach of the lease. No other correspondence between the parties is available for the balance of 2019. Already by the end of 2019 Mr Hawkins had made many unfulfilled promises of payment yet, Ms Lee seemed to continue to trust that payment would eventually be forthcoming.

[17]

The Council Issues a Development Control Order - 2 January 2020

On 2 January 2020 the Council issued a development control order to Ms Lee. This notice relevantly provided as follows: In accordance with section 9.34(1)(a) of, and the terms of orders in the tables to Part 1 of Schedule 5 to the Environmental Planning and Assessment Act 1979 (the "EP&A Act") you are hereby ordered to complete the works directed in the order (the "Order") below as Northern Beaches Council (the "Council") has formed the opinion that unauthorised development has been undertaken at the above mentioned premises for which a planning approval is required but has not been obtained. A notice of intention to issue a development control order was served on you on 19 November 2019, advising that you could make representations as to why the order should not be given, or asking for modification of the proposed order. After reviewing and considering your representations, Council has determined to issue the order without change from the notice of intention.
The order itself is dated 2 January 2020 and relevantly provided as follows: Order No. 11 - Compliance Order: To do whatever is necessary so that any building or part of a building that has been unlawfully erected complies with relevant development standards: 1. Comply with Subdivision 6 of the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008, in relation to the roofed deck structure at the northwest elevation of the property known as 317 Barrenjoey Road, Newport (as indicated in the attached Appendix 1), including: a) Reducing the area of the structure to a maximum of 25m2, b) Reducing the enclosed walls to a maximum height of 1.4m.
The Compliance Order also provided reasons why it was being given: … 3. A Notice of Intention to give an Order was issued by Council on 19 November 2019, Reference: EPA2019/0370. Council is of the opinion that the terms of the Notice of Intention are still appropriate and determine that circumstances exist justifying the making of an Order. … 6. As the building works have not been subject to a formal development assessment or the issuing of a construction certificate, it's unknown if the structural integrity of the building works meet the requirements of the Building Code of Australia (BCA) and the building work may pose a serious risk to the occupants and neighbouring properties if the structure were to fail and collapse. 7. It is in the public interest that this unsatisfactory state of affairs be remedied as soon as possible.
Council required that the order be complied with within 98 days from the date of the order.
As with the Stop Works Order, the remainder of the Compliance Order dealt with matters including offences and penalties resulting from non-compliance, and rights of appeal against the order, as provided by the EPA Act, pt 8, div 8.5, cl 8.18, being 28 days after service of the order.
This notice is to be distinguished from another notice that Council issued on 6 January 2020 in respect of a different part of the Newport property premises. This 6 January 2020 notice and the accompanying order were framed in respect of the address of the northern parcel of the Newport property (a different address from the Stop Works Order of 13 November, which had been the southern parcel of the Newport property) and required the demolition or removal of a pergola as another unauthorised structure. This notice was irrelevant to the issues in these proceedings as the pergola structure was demolished soon afterwards.

[18]

Further Communications - January to May 2020

On 7 January 2020 Mr Hawkins proposed to Ms Lee by email that she execute an authority which would have authorised his solicitor at Clyde & Co to deal with the Council on her behalf as well as his behalf. Mr Hawkins' email set out his approach in an email to Ms Lee sent the same day. It gives an accurate account of Mr Hawkins' contemporaneous response to the 2 January 2020 notice: "I am not concerned about the Order provided that it is properly and legally addressed, and as advised earlier, I have offered to have our lawyers Clyde & Co handle this matter at our cost if you give them the authority to represent us both as owner and the tenant - please discuss this with George and advise as we would want to lodge the appeal within a week. I make this observation, that this issue arises because of your former tenant and her complaints, and that it has nothing to do with any of the work we have done, because Council could not find fault with any of our work. Please let me have your instructions"
The reference to the "former tenant" appears to be a reference to a person who occupied Flat No 1 who had complained to the Council about an aspect of the Newport property. This email is objective confirmation that Mr Hawkins did make an offer to have Clyde & Co conduct an appeal against the notices from the Council. But there was an issue between the parties as to whether Mr Hawkins actually sent an authority with this email.
This was further confirmed the following day, 7 January when Ms Lee emailed Mr Hawkins stating that she was "happy to authority (sic) your lawyer to do what he has to do". She suggested that if there were "any documents you want me to sign could you please send them to George so he can explain" them to her.
Mr Hawkins wrote back to both Ms Lee and Mr Li as follows. "Good morning, Annie and George, Thank you for your confirmation regarding the authority for us to represent you as the registered owner and to defend the proceedings taken against you by the Council in relation to work done by Adrian prior to our lease. We confirm that our lawyers represent YOUth OK Pty Ltd as lessee and myself and my related companies, and that we will pay the costs associated with the defence as part of our contribution as lessee and general goodwill. The authority is attached for your approval and signature and when it is ready I will collect the original from George and take it to our lawyers. I confirm that the outstanding rental and bond will be paid this week.
The email has an attachment which appears to be the following authority: Dear Sir, Subject: Myself and Northern Beaches Council 317 - 321 Barrenjoey Road Newport Beach NSW 2106 Development Control Order EPA2019/0368 & 0370 I am the registered owner of the property located at 317 to 321 Barrenjoey Road Newport Beach that is subject to two Orders made on 2 January 2020 relating to work undertaken in 2018 when the property was vacant. This letter will authorise our lessee YOUth OK Pty Limited and its director David Hawkins to represent my interests as registered owner, and to enable them to instruct your firm to represent both myself as registered owner and YOUth OK Pty Limited as lessee, in relation to any proceedings required in order to defend the above Development Control Orders. The legal and other costs in relation to the proceedings will be paid by YOUth OK Pty Limited and David Hawkins, and you will not look to me to pay any legal or other costs associated with the above matter. Dated: Signed by Annie Lee
After two days the authority had not been signed. Mr Hawkins followed up the need for signature on 9 January by text message. "Annie, I sent the authority to you and George on Monday? I will send it again as I am seeing them next Monday to start the court action at my cost. David."
Mr Hawkins did not follow up again with Ms Lee as to why the above authority had not been signed and returned to him. In at least one version of his evidence Mr Hawkins suggests that he gave other documentation to Ms Lee to sign in January 2020. The Court can accept that Mr Hawkins sent this authority to Ms Lee by email on 7 January, as there is an attachment to the email, which refers to the authority.
But the Court does not accept that either in January 2020 or at any time thereafter Mr Hawkins gave to Ms Lee for her consent any other documents, such as a complying development application to authorise YOUth OK's change of use of the premises, or any document addressed to the Council to seek retrospective development approval for the awning structure. Effectively there was no positive action on Mr Hawkins' part to solve the problem created by the Council's two notices.
As to any document addressed to the Council to seek retrospective development approval for the awning structure, Mr Hawkins did not keep or have available a copy of any such document for production from his own records even though he says that he typed it on his own computer.
Ms Lee replied with some information about what had happened. The reply contains some errors which are corrected in square brackets in the text below: "Morning David, We put the roof on around March last year to proven [prevent] people throwing rubbish into the yard after I spent a lot of money to remove rubbishes from time to time. The Council officer [who] came for the other issues did take some photos of it for records. Also if your lawyer can prepare the authority paper to flight [fight] for that matter then I will sign it no problem. Thanks, Annie."
The authority was never signed. Ms Lee must have changed her mind. The reasons for her change of mind are obscure but can be readily inferred from the circumstances. Ms Lee probably begun to lose faith that she could really trust Mr Hawkins' promises to underwrite the cost of litigation on her behalf in the Land and Environment Court, which may expose her to financial risk, given that YOUth OK was already two months overdue on rent and the bank guarantee.
As time passed Mr Hawkins made more promises to pay which were dishonoured. From about mid-January the parties began to drift further away from their previously relatively cordial correspondence as Mr Hawkins' delay in payment extended. On Monday 20 January Mr Li wrote a reminder letter to Mr Hawkins: "Dear David, I was instructed by Annie that the rent and bond as promised have not arrived yet. Please take notice that if payment is not received within the next seven days, the landlord will have no other option but to terminate the lease and pursue all the rights and interests under the lease agreement. Please treat this as a matter of urgency. Thank you."
Mr Hawkins was away at the time this email was sent. He replied about both the issues of rent and the authority on Tuesday, 28 January 2020, as follows: "Good morning, George and Annie, The writer has today returned from holidays and read your email below, and while I appreciate that there rental and bond are major issues, I am hoping that you will both be patient for a few more days while I sort out payment of both once our HKG banker returns to work tomorrow and makes the long overdue transferred to my bank in Australia. Further I have not received the authority from you enabling us to challenge the Council's Order (Roof) on the property that was issued because of work done prior to the start of our lease, and as you will appreciate, we are unable to use the premises for the intended purpose while this order remains in force. We have already attended to the Council Order (sewerage) successfully at our own cost and we have already undertaken $294K in repairs/refurbishment at the property, and so we are really committed to this project and the lease. We will confirm payment once HKG opens tomorrow, but will have everything in order by the end of the week."
The email record resumes on 16 February 2022, when Mr Hawkins forwards to Mr Au an email sent to him by a third party, Andy Fung & Associates, a firm of lawyers in Hong Kong, who were said to owe him money, some US$20 million. The Andy Fung & Associates email has a studied vagueness, finished with ill-fitting amateurish financial terminology. The email declared to Mr Hawkins that "we have relayed your requests on update progress of your funding schedules per your signed agreement with Archasia World represented by Ms Stephanie and still waiting for her direct response to you". To anyone of Mr Hawkins' financial competence, the email he was forwarding was a piece of financial nonsense in which it is difficult to accept that he had any belief. Yet his covering email to Mr Au claimed that he expected "my other money from Belgium next week", when "I will pay the bond and rental in full". This correspondence was clearly designed to convey the impression that he was going to pay the rent and the bond in the near term. But the material which Mr Hawkins propounded to convey that impression is nothing in which he could have had any real faith.
On 27 February Mr Li emailed Mr Hawkins seeking "as a matter of urgency" information "whether you can make payment of the outstanding rent as well as the amount for the bank guarantee" by the end of February. His email pointed out that "Annie has again given you further opportunity to arrange the funds" but will soon have to take action to rectify the situation. The same afternoon Mr Hawkins emailed Mr Au asking him, "if you could settle both Annie and George down for a day or two more, please". Mr Hawkins seems to have been able to use Mr Au to his advantage in dealing with Ms Lee.
Once again, this correspondence from Mr Hawkins is striking for its absence of reference to any of the issues litigated in these proceedings. Whatever Mr Hawkins was saying orally to Mr Li, he was not yet putting any complaint in writing that resembles the issues in these proceedings.
Mr Hawkins said in evidence that between 19 November 2019 and June 2020 he repeatedly said to Ms Lee and Mr Li that Ms Lee would not receive any more rent payments "until she fixed the problem" with the awning structure. But the Court does not accept that he said that to her at any time. It is not reflected in any of the emails he sent to her and to Mr Li in reply to their requests for the payment of rent. In that correspondence he relied upon a different excuse, his own failure to receive money from Hong Kong. Also, his failure then to attribute his non-payment of rent to her alleged failure to deal with this unapproved awning structure, makes it very more difficult for him now to contend that Ms Lee has breached the contract by failing to act to cure the unapproved status of the awning structure.
Even as late as May 2020, some six months after receiving the 13 November 2019 order from the Council, Mr Hawkins was not fielding the accusations of being misled that he has made in these proceedings against Ms Lee. Text messages on 8 May 2020 suggested that they were both arranging to meet at a Westpac Bank branch, presumably to try and make a withdrawal for payment to Ms Lee although none was made. And again on 20 May 2020 they discussed by text the possibility of meeting with the Council, but the meeting did not seem to have taken place.
But Mr Hawkins' communication tone changed abruptly when Ms Lee appointed a new agent, Mr Slava Sokolov of Raine & Horne Avalon Palm Beach ("Raine & Horne") on 27 May 2020. That day Mr Sokolov communicated with Mr Hawkins and asked to meet him. Mr Hawkins replied indicating he was available to meet and stating: "I am pleased that you have been appointed given that my friend Annie has ignored the Council's order, despite my multiple offers to fix the issue."
Here Mr Hawkins is beginning to shift the blame to Ms Lee for ignoring his assistance to rectify the problem.

[19]

Ms Lee Attempts to take Possession - July 2020

Following Mr Sokolov's appointment, his first task was to address the lessee's rental arrears. Failing the recovery of rental arrears, Mr Sokolov was engaged to terminate the lease and organise a new lease over the property.
Mr Sokolov sent an introductory email to Mr Hawkins on 27 May 2020, in which he outlined lease arrears as an agenda item for a proposed onsite meeting with Mr Hawkins on 1 June 2020. The meeting did not take place. On 29 May 2020 Mr Sokolov sought to confirm a meeting with Mr Hawkins on 1 June 2020 at the Newport property. But the proposed meeting with Mr Hawkins appears not to have taken place. Instead a meeting with someone with the first name "Marc" took place at the Newport property.
Following that meeting on 9 June 2020, Mr Sokolov emailed Mr Hawkins pointing out that the two major issues still to be resolved were the bond, rent and outgoings which are "are severely in arrears and need to be brought up-to-date as a matter of urgency", an issue which Mr Sokolov described as follows: "The order placed on the premises by the Council. Despite your previous discussions with the landlord, where your builder/contractor was to resolve with Council the issues in the order, the landlord will now organise to resolve this issue with Council independently. I may be in contact with you for access to the premises in the coming days."
Here Mr Sokolov is conveying the impression that the lack of progress on the issue with Council was the result of failed action by Mr Hawkins.
With his 9 June email, Mr Sokolov attached a letter alleging YOUth OK was in default under essential terms of the lease and demanded payment of the sum of $165,000 by cleared funds by 4 pm on 23 June 2020. The letter, written by Ms Lara Rowell, Principal / Director of Raine and Horne, stated that if the breach was not remedied, the landlord intended to "re-enter and take possession of the premises without further notice". This was a clear escalation and an indication on Ms Lee's part that she was intending to exercise her rights under the lease if arrears were not brought up to date.
Mr Slava followed the 9 June letter of demand up with Mr Hawkins with further communications on 11 June 2020 and 18 June 2020.
Mr Hawkins replied on 12 June acknowledging receipt and indicating that a reply could be expected "next week". On 22 June 2020, Mr Hawkins sent a four-page letter to Ms Lee and Mr Li which lifted the curtain on his claims back against Ms Lee.
The Mr Hawkins' 22 June 2020 letter referred to the change in agent from Mr Au to Raine & Horne and then set out an account of the history of the dealings of the parties. The letter referred to a complaint by a neighbour in October 2020 which prompted the Council's interest in the premises, followed by a Council inspection on 11 November 2019 and the 13 November 2019 order. The letter referred to YOUth OK offering to assist the landlord and the submission of an authority to Ms Lee for signature, "to attend to satisfaction of this compliance order". The only authority Mr Hawkins in fact proffered to Ms Lee was on 7 January 2020, a matter which is dealt with below. The letter asserts that Ms Lee said she would attend to the matter of achieving compliance herself.
The letter denies that the premises were fit and proper for the purposes for which they were provided under the lease and there was no disclosure of the defect in relation to the unauthorised awning structure. The letter contended that $263,775.84 had by then been expended on refurbishment of the Newport property on the faith of a lease that did not suffer from the defects which were subsequently discovered. The letter submitted that rent should abate during the Covid-19 period and because of the unfitness of the premises. The letter then offered from the date on which the premises were made good, and all restrictions issued by the Council were removed through to the end of the Covid-19 restrictions, that the tenant would in good faith to pay 40% of the applicable rental and 40% of the agreed bond, and then after 24 October 2020 the full amount of rental and the balance of the agreed bond.
Mr Hawkins indicated that YOUth OK would contest any threatened termination of the lease. He gave Ms Lee the option of facing contested action for termination, paying the tenant for the renovation costs and having a surrender of the lease, and continuing the lease on these amended terms. Mr Hawkins was asking Ms Lee to face up to a series of difficult options.
But what might readily be inferred to be Mr Hawkins' secondary motivation for his conduct throughout this this period was disclosed in a separate email he also sent to Mr Au on 22 June 2020, the same day as his letter to Ms Lee and Mr Li. Mr Hawkins commenced his email to Mr Au with the words "Hello Simon, This email is only for your eyes please." Mr Hawkins forwarded to Mr Au the correspondence with the new agent, Mr Sokolov, who Mr Hawkins accused of "damaging everything". Mr Hawkins explained to Mr Au that he would have to "protect our position" but would "rather negotiate a solution in good faith that suits everyone". Mr Hawkins then revealed his plans and a proposal to Mr Au: From what we can gather, Annie wishes she was done with the property at Newport as it is a headache, not so much because of us but rather because of the Council, and they will not go away unless they get what they want, which means more headaches for her. Our email today we gave her an proposal whereby the lease is restored in this current Cover-19 World, and we both know that no Tribunal will evict us during this time. Our preferred pathway forward is to make Annie's headaches go away buy selling the property to us, and this is where we trust you to negotiate that sale if you are interested, and we would prefer if you go the sale commission and not the new fancy agents at Palm Beach. When we spoke about a sale to Annie before she said she wanted $3M plus and that was before Covid-19 arrived which has sent all prices down, both residential and commercial, but you know that better than we do, and you are aware of the present market price for this property. However, we would pay Annie her $3M price clear to her, and we would pay you your 2.2% agent commission either as the seller's agent or as the buyer's agent. Our funds from Hong Kong are now locked up and safe, and they will come to us in late July or early August when the Court finalises our claim. Therefore we would agree to buy Annie's property for $3M net to her with a 10% deposit paid on/before 31 July and the balance on/before 31 August. Please give me a call and let me know if you are willing to handle this transaction.
It is to be remembered that before the lease was signed in September 2018 Mr Hawkins had unsuccessfully attempted to negotiate an option to purchase the Newport property as part of the lease. He was now attempting to revive this idea and to secure the same opportunity. But the attempt was unsuccessful.
Mr Li replied to Mr Hawkins' 22 June 2020 letter on 9 July 2020. Mr Li reaffirmed that Raine & Horne were the managing agent for the Newport property. The letter pointed out what was the case, that Mr Hawkins' 22 June 2020 letter had raised the issue of rubbish or old kitchen equipment needing to be removed as affecting his refurbishment work. The letter rejected the complaint about the tenant in Flat No. 1 moving out late, pointing out that this was expressly provided for in the lease. The letter further pointed that Ms Lee did not have any involvement in the Council's dealings with Mr Hawkins about YOUth OK's proposed use of the premises but that YOUth OK needed to seek permission from Council to use the premises, in the way that it wanted, if any such permit was needed. In relation to non payment of rent and the bank guarantee Mr Li noted the written promises that Mr Hawkins had continually made and then proceeded to point out the following: "6. Your reasons for the non- or late payment were given to us always as the funds were held up in Hong Kong. We are now suddenly advised in your letter of 22 June 2020 that you had spent over $263,000.00 on the refurbishment work. Our client's position is that if you have spent so much on refurbishment, without paying the rent, and without making us aware that that much money were to be spent when we wrote to you repeatedly advising you our client's intention to terminate Lease, then whatever you spent on our client's premises would only be a risk to be borne solely by you as the tenant who is in breach. 7. Also, your letter of22 June 2020 was the first time that you complained about your refurbishment work having been held up or delayed by council's Compliance Order(s). While our client is organising professionals to address the issues raised by council, our client holds the position that if you were genuinely encountering troubles with council's orders then it would have been raised at least eight months ago."
The letter concluded by threatening to terminate the lease if resolution could not be reached within 7 days.
Mr Sokolov advised Ms Lee in July 2020 that Mr Hawkins was being unresponsive to her correspondence. She advised Ms Lee to instruct her lawyer to formally terminate the lease. Mr Li signed a Notice of Termination on behalf of Ms Lee on 16 July 2020, which was subsequently served upon Mr Hawkins. Shortly after, the plaintiff instructed Mr Sokolov to erect signage on the property to deter trespassers, and to arrange for a locksmith to change the locks.
On 20 July 2020, the day prior to the planned change of locks, Mr Sokolov attended the property to prepare for the lockout. He warned the tenants of the impending lock changes. The following day, 21 July, Mr Sokolov attended the Newport property to seek to achieve vacant possession of the premises. He says in his affidavit evidence, and the Court accepts, that a short altercation took place with Mr Hawkins as he was attempting to take possession. The police were called to the property.
The police advised Mr Sokolov that he should "speak to lawyers as to the lockout" but they otherwise took no further action. Mr Sokolov consulted Ms Lee's solicitor, Mr Li, who advised Mr Sokolov that he should not attempt to further pursue the lockout, and that he would talk to Ms Lee about applying for orders for possession from the New South Wales Civil and Administrative Tribunal ("NCAT") or from the Court. Mr Sokolov ceased attempting to take possession of the property, and Ms Lee did not make any other attempts to take possession of the property. Instead, Ms Lee commenced these proceedings by her Statement of Claim on 17 August 2020, after Mr Li demanded from YOUth OK and Mr Hawkins that they make payment in the amount of $179,095.62 which was then said to be outstanding. After the notice of termination of 16 July 2020 and the failed attempts to take possession on 21 July, Mr Li sent an email of a letter of demand to YOUth OK and Mr Hawkins, pointing to Ms Lee's right to re-enter under clause 12 of the lease and specifically for a contention of the landlord's right to re-enter and take possession for non-payment of rent or other money due under the lease of more than 14 days.
Ms Lee made her own attempts on 20 July 2020 to try and solve the issue of compliance with the awning structure. She obtained a certificate from an engineer, Mr Zed Onodi entitled the "Structural Certificate" which provided as follows: "This is to certify that we have inspected the 'unauthorised roof' at the rear of the above site and it complies with the relevant Australian Standards and [is] structurally adequate to support loads as described in AS1170 (Loading Code)"
This must have been sent to Council, because it resulted in a response by Council on 7 August 2020 which also considered wider issues.
From August 2020 onward the correspondence between the parties became more formal and needs less detailed attention. It consists of further demands for payment under the lease. Ms Lee continued correspondence with Council to try and achieve retrospective compliance. She did so in a position of disadvantage because she did not have full possession of the premises. The pergola seems to have been demolished by about September 2020. The Council seemed open to discussion about proving that the awning structure was compliant. No application was made to the Council for the retrospective compliance of the awning structure before the reserving of judgment in these proceedings.

[20]

Later Correspondence

Ms Lee continued to negotiate with the Council about the notices as late as August 2020, after she had made an unsuccessful attempt to recover the premises. The correspondence shows that the Council was accommodating about the way the problem would be rectified and was not giving any warnings about the use of the premises as being unsafe. Rather in its email of 7 August 2020 to Ms Lee the Council was providing further time, as follows: Dear Ms Lee, Thank you for the email and engineering letter. As previously advised, Council provided further time to allow the resolution of Council's order, this being either submitting a building information certificate application to seek retrospective approval for the roofed deck at 317 Barrenjoey Road, Newport, or to conduct works to comply with the terms of the order. Council's order stipulates: 1. Comply with Subdivision 6 of the State Environmental Planning Policy (Exempt and Complying Development Codes) 2008, in relation to the roofed deck structure at the northwest elevation of the property known as 317 Barrenjoey Road, Newport (as indicated in the attached Appendix 1), including: a) Reducing the area of the structure to a maximum of 25m2, b) Reducing the enclosed walls to a maximum height of 1.4m. The engineering letter only relates to the roof area of the deck and it is noted that the letter does not provide the accreditation information of the engineer. As such, Council cannot accept this. With regard to the pergola, Council accepts the removal of this and will conduct an external inspection to confirm the removal. Moving forward, Council will grant an extension of 28 days to submit a building information certificate application or conduct works to comply with the terms of the order or conduct works to remove the roofed deck structure. Should you require further information to the above please contact me.
The awning structure was still in place up to the time of the hearing in February to May this year. This fact indicates the Council continued to take an accommodating stance towards unauthorised works comprised in the awning structure. Whilst this was not necessarily foreseeable in 2020 it is consistent with the information available during late 2019 and early 2020.

[21]

Analysis of the Claim and Cross-Claim

The Statement of Claim. Ms Lee seeks three main categories of relief: (1) a declaration that the lease has been validly terminated and judgment for possession; (2) outstanding rent and mesne profits and damages to the end of the term; and (3) interest pursuant to s 100 of the Civil Procedure Act 2005 and costs.
As to (1), YOUth OK has already given up possession and that was noted on the Court record on 17 March 2022. But the question of the valid termination of the lease is still in issue.
As to (2), Ms Lee seeks an order that the defendants pay to the plaintiff the sum of $581,416.40, subject to any adjustment required by reason of the proviso in lease clause 12.6 that the landlord "must do every reasonable thing to mitigate" losses by leasing the property to another tenant. The sum of $581,416.40 is calculated as follows: (a) rent, interest and GST payable under the lease from 1 October 2019 to the claimed date of termination on 16 July 2020 in the sum of $179,095.62; (b) rent and GST otherwise payable under the lease from 16 July 2020 to 30 September 2022 in the sum of $400,791.78; and (c) legal costs including GST in connection with the termination of the lease in the sum of $1,529.
As to (3), as these reasons explain below, calculations of interest can only take place after a net amount due is ascertained after consideration of the claim and any set off in the Cross Claim. Moreover, the appropriate order for costs may be a matter of contention and is reserved for further consideration. These reasons will deal with each of these claims.
The Cross Claim. YOUth OK and Mr Hawkins each seek the same prayers for relief on their Cross-Claim. They claim: (1) that the lease and consequently Mr Hawkins' guarantee can be avoided (a) for Ms Lee's breach of her obligations under the lease or alternatively (b) for her misleading and deceptive conduct; (2) that the lease and consequently Mr Hawkins' guarantee were discharged under doctrines of frustration by reason of the unauthorised building works and as a result YOUth OK's expenditure on building and other works may be recovered under doctrines of frustration; (3) that the first month's rent paid under the lease of $15,125 and YOUth OK's expenditure on building and other works may be recovered under the principle of unjust enrichment; and (4) interest and costs.
In addition to the forms of relief both the defendants' Amended Defences and their Cross Claim pleaded a wide range of facts and allegations, that did not fully correspond prayers for relief Cross Claim. These wider allegations alleged for example that Ms Lee had been guilty of unconscionable conduct. These wider allegations were not always fully or well-articulated in the written and oral submissions put on behalf of YOUth OK. But these reasons endeavour to deal with them below.

[22]

Clause 7.4 of the Lease

Pleading Issues. The defendants allege that Ms Lee breached the lease, clause 7.4. The contest about clause 7.4 only arose in final submissions. The cross-claim, paragraphs 18 and 19, raised an issue relating to clause 7.4. Paragraph 18 pleads that YOUth OK has not been able to use the Newport property for the purposes for which it was leased, because Ms Lee undertook unauthorised building work on the premises without the approval of the Council and has failed to make the property compliant with planning laws and safe for occupation. Paragraph 19 of the Cross-Claim pleads that YOUth OK has not been able to use the property for the purpose for which it was leased, namely the provision of services of adolescent health and mental well-being. But the Cross-Claim appeared to limit the loss to claims for loss of reputation and potential claims by prospective employees against YOUth OK. It was not at all obvious from the pleading or the claims for relief that it was being said that rent was not payable because of a breach of clause 7.4, or that any substantive claim for damages for breach of that clause was being propounded.
During argument that took place about the scope of the pleadings during submissions on 17 March 2022, Mr Hawkins directed the Court's attention to paragraph 5(f) and (g) of his Amended Defence. Paragraph 5(f) pleaded that YOUth OK as lessee should not be obliged to pay rent from 19 November 2019 because of the Council issuing the notice that day. Paragraph 5(g) pleaded that the lessee should not be obliged to pay rent from 19 November 2019 because Ms Lee "knew or ought to have known that the building was not compliant" as she and her husband had done work on the property without development approval. But even taking this pleading at its highest, leaving aside allegations of misleading deceptive conduct, the basis in the lease for which it was said that YOUth OK need not pay rent was obscure.
But the Court has not decided this matter solely on pleading issues. The Cross-Claim, paragraph 19, certainly pleads that the property could not be used for the purpose for which it was leased. But the defendants have not established that to the Court's satisfaction.
It was unfortunate that the contest about clause 7.4 only arose in final submissions. Mr Hawkins did not take advantage of the opportunity the Court provided to lodge written submissions before the hearing. His oral submissions did not mention clause 7.4. Mr Hawkins did not press parts of the Amended Defence and the Cross-Claim during the hearing. The Court needed to decide the contest according to the way Mr Hawkins presented the case for the defendants and what he indicated to the Court he was contesting. Clause 7.4 was mentioned in Mr Hawkins' written closing submissions. During the final closing oral submissions on 17 March 2022, noting the reference to clause 7.4 in the defendants' final written submissions, the Court asked Mr Hawkins whether the issue was being pressed. He answered in the affirmative.
The Court decided that in fairness, and to overcome any misunderstanding that had occurred, late evidence on the issue should be permitted. The Court gave directions for expert engineers who had already been engaged on both sides to be allowed to adduce evidence on the clause 7.4 issue and to confer to see if some agreement could be reached to facilitate its determination. The analysis that follows results from that expert evidence and the parties' submissions on the issue.
The Court attended to the case as pleaded in relation to clause 7.4 and explained in oral submissions. The case did not allege a simple breach by Ms Lee of the landlord's obligations under lease clause 7.1.1 and 7.1.2 to fix structural defects and to maintain the property in a structurally sound condition. And the Court did not deal with such a case, which would have taken the conduct of the proceedings in a wholly different direction, where reliance upon engineers with more detailed evidence about the structure would have been required. Clause 7.4 operates without the need for such evidence and is predicated upon the requirement of an authority requiring "structural work" to be undertaken on the property. The Court decided to proceed to determine the matter in accordance with clause 7.4 as pleaded.
It should be noted at this point, given these procedural decisions that a litigant in person is not entitled to be relieved from rules that would apply to a party who is represented: Nobarani v Mariconte (2018) 265 CLR 236 at [47]. Had Mr Hawkins been represented, the Court would have attempted to manage as fairly as possible the pleaded issue of clause 7.4, without allowing the defendants to expand their case into what would have been a very different case under clauses 7.1.1 and 7.1.2. Moreover, even if such a case had been allowed to proceed, the quantum of any claim that may have been available to YOUth OK from any proven breach of these provisions may have been quite limited in the circumstances. For example, for any substantial damages to be recovered, it would still have been necessary for YOUth OK to prove the structural defects had the effect that it could not use the premises. It is not at all clear that a refusal to pay rent for the whole of the premises was a proportionate and causal response to any breach of clause 7.1.1 or 7.1.2 in any event.
Features of Clause 7.4. Before examining the relevant evidence clause 7.4 should be construed. It is to be contrasted with clauses 8.2.1 and 8.2.2, which apply when the property or the building of which it is part is damaged or destroyed. Clause 8.2.1 relieves the tenant of liability to pay rent and outgoings for any period "during which the property cannot be used under this lease or is inaccessible due to that damage". Clause 8.2.2 provides that, but where usability is diminished due to the damage, the liability for rent is diminished "in proportion to the reduction in usability caused by the damage". Clause 8.2 thus provides a regime for recognising an abatement of rent moulded around the premises being unusable or inaccessible. The provision contains a mechanism to resolve disputes about partial usability or accessibility.
Clause 7.4 contains no similar provisions and does not confer any automatic right to relief from the obligation to pay rent under the lease. Whilst the landlord's obligations to carry out the work required by am authority under clause 7.4 exists, the tenant's obligation to pay rent continues. But as a practical matter if the landlord is in breach of its obligation under clause 7.4 that "the landlord must do the work, unless it is required only because of the way the tenant uses the property", and that breach results in the tenant not being able to use the property or being unable to gain access to it, the measure of damages available the tenant may include some or all of the rent during the period the structure is unremediated in conformity with the notice.
The Expert Evidence. The expert evidence that the parties called pursuant to the Court's leave after 17 March 2022, did not advance the clause 7.4 issue much. YOUth OK originally adduced evidence from Mr Lucas Molloy of Barrenjoey Consulting Engineers in a report dated 15 February 2022 to the effect that a masonry retaining wall at the very rear or western end of the Barrenjoey Road building (and at the western end of the area surmounted by the awning structure) was failing and placing loading onto the terrace area roof structure. The report recommended demolition and replacement of the wall with an engineered structure. This report did not say that the awning structure was a structural danger or a safety issue. It was not initially admitted into evidence because Ms Lee did not have a chance to respond to it by retaining her own engineer and it was not obvious that the issue to which it was addressed had come to the attention of the Council.
When YOUth OK retained Mr Molloy in February 2022 it did not seek his specific opinion about the issues raised in clause 7.4. By the time the issue emerged in submissions on 17 March 2022 Ms Lee had engaged her own expert consulting engineer, Mr Morris Bitar of SJA. On 17 March 2022 the Court made directions for these experts to confer and to answer two questions. The first question was whether the work described in the Council's 2 January 2020 notice is "structural work as that term is understood by the engineers". Both experts agreed in a joint report that became Exhibit F, that the requirement of the 2 January 2020 notice was "structural work". Although the expert engineers had inspected the property in May 2022, they said that their response to the question asked of them was likely to be similar on 2 January 2020 to what it was in May 2022. The experts declined to answer the second question about the safety of the awning structure as being beyond their expertise.
This opinion of the engineers ultimately did not change the Court's assessment of the issues. It can be accepted that work required by the Council's 2 January 2020 notice is "structural work" and would enliven clause 7.4 for that reason. But notwithstanding that, YOUth OK has not established a breach of clause 7.4 or that any breach has caused YOUth OK to suffer any loss.
No Damage Caused by any Breach of Clause 7.4. The defendants cannot use the Council's notices themselves as a prima facie basis to argue that the premises were unusable. The notices were issued under a statutory regime under the EPA Act, which allows the Council the statutory option to issue different kinds of notices, some of which include prohibiting the use of the premises, and some of which do not. But here neither the 13 November 2019 order nor the 2 January 2020 notice prohibits the premises from being used unless or until the required work is done in response to the notices.
The 13 November 2019 order and 2 January 2020 notice state that they are issued under EPA Act, Division 9.3 and Schedule 5. EPA Act, s 9.34(1) authorises "development control orders" to be made under the EPA Act in various categories, including "general orders" in accordance with the Table to Part 1 of Schedule 5. The scheme of Schedule 5 is to classify general orders according to what the order is for, as the schedule states "To do what?", when it may be issued "When?" and to whom it may be issued "To whom?". General order 1 is a "Stop Use Order" which is to "stop using premises or building" or "to stop conducting an activity on the premises". General order 2 is a "Stop Work Order", which is "to stop building work or subdivision work carried out in contravention of this act". General order 3 is a "Demolish Works Order" which is to demolish or remove the building. General order 11 is a "Compliance Order" which is "to comply with the planning approval for the carrying out of works". Most of these orders can be issued to the owner of the premises and to a range of other persons.
Here, the 6 January 2020 notice in respect of the unauthorised timber pergola on the northern side of the building on the Newport property, served a Demolish Works Order on Ms Lee. It was complied with and can be ignored for present purposes.
The 13 November 2019 Stop Work Order on Ms Lee, and as its name suggests required Ms Lee to "stop and cease all works associated with [the awning structure]" until relevant consents has been obtained. And the associated works were described as "the timber decking, roofed awning and associated supports". Mr Hawkins was undertaking some timber decking in the area about the awning and associated supports that predated his arrival as a tenant. Properly construed the notice prevented construction activity in relation to the awning structure. It did not prevent access to the premises or use of the premises by the tenant, YOUth OK. Mr Hawkins seems to have wrongly interpreted it as having done so. Perhaps there was a risk that a Stop Use Order might be issued in respect of that part of the premises in the future. But even accepting that that risk existed, it may only have existed in respect of that part of the premises. Moreover, to the extent that the risk was likely to be realised, it could have been readily alleviated. Mr Hawkins evidence, which is accepted in this aspect, was that it may have cost only $8000-$10,000 to comply with the 13 November 2019 order and 2 January 2020 notice.
Similar observations could be made about the 2 January 2020 notice, serving a Compliance order, not a Stop Use Order. The 2 January 2020 notice referred to the same awning structure and indicated that compliance could be achieved by reduction of the structure to a maximum of 25 m² or reducing the enclosed walls to a maximum height of 1.4 m. Once again, this notice did not prevent access to the premises or use of the premises by the tenant, YOUth OK.
Thus, the 13 November 2020 and 2 January 2020 notices did not themselves prevent YOUth OK using the premises. YOUth OK did not develop a case or establish that notwithstanding the lack of a Stop Use Order with either of these notices, that it could not use the premises, or a substantial part of the premises by reason of the two notices, other than by mere assertion. YOUth OK chose not to use the premises or to invest in improving the Newport property after the first notice. But that does not establish that the premises were not usable, and it is not obvious that they were not usable, especially as the area only represented 15% of the gross area of the land. The Court does not accept Hawkins bare statements that the property was unusable by YOUth OK as a result of the notice. For example, the nature and extent of any safety issues at the premises as related to the awning structure were uncertain.
No Breach of Clause 7.4. There are significant practical obstacles in YOUth OK establishing a breach of clause 7.4. YOUth OK claims that it could not use the property because of these notices from the Council. But this contention, must reconcile itself to the choices Mr Hawkins made in January 2020. Mr Hawkins was presented with options when confronted with the fact of the 13 November 2019 order and 2 January 2020 notice. YOUth OK could seek to vary the orders and apply to the Land and Environment Court to permit the awning structure to remain. Alternatively, it could have asked the landlord to carry out the work. But Mr Hawkins really had to make a practical choice between these options. In the meantime, there was no obvious obstacle to him using the property.
Ms Blacker's architectural plan provided for the placing of wooden decking over a concrete floor underneath the awning structure and the placing of lights under the awning, a design that appears to have been carried through as is evidenced in various later photographs of the area, all with the objective of creating an assembly and informal recreational area.
The authority that Mr Hawkins sent on 7 January 2020 to his solicitor to enable the solicitor to act for Ms Lee in an appeal against the making of the order, was the approach that he chose. This choice clearly involved a decision not to ask the landlord to do the work required by the Council's orders but rather to seek to amend the orders retrospectively so that the work would not have to be carried out. It is true that Ms Lee seemed reluctant to give such authority to Mr Hawkins' solicitor to act for her. This position was understandable because she would be giving authority to embroil herself in litigation and if costs orders were made against her, leaving her to call upon and test Mr Hawkins' already shaky financial promises to indemnify her.
But once she took that position and declined to assist in an appeal, Mr Hawkins did not call on her to comply with the notices. Therefore, it is difficult for him now to contend Ms Lee breached clause 7.4 by failing to do work, which he was content for her to avoid doing by encouraging her to appeal.

[23]

The Alleged Warranty of Fitness for Purpose

The defendants' final written submissions and the Amended Defences and the Cross Claim constantly referred to the Newport property premises not being fit for purpose and that that unfitness entitled YOUth OK not to pay rent under the lease.
But the contention is not persuasive. The lease, clause 20, contains an express acknowledgment the lessee that no "promise, representation, warranty or undertaking" as being given by or on behalf of the lessor in respect of the suitability of the property for any business to be carried on therein". This provision is effective. Moreover, the plaintiff's evidence of representations made by or on behalf of Ms Lee before the signing of the lease does not include any representation that the premises were fit for the conduct of YOUth Ok's business as a community centre. This contention does not entitle the defendants to a defence to the plaintiff's claim for rent.
Moreover, it must be assumed that Mr Hawkins was familiar with clause 20. The draft version of the lease sent to him on 9 August 2020 included clause 20, and three days later Mr Hawkins responded by text message that he was "happy with the lease". On 15 August Mr Hawkins emailed Mr Li that "we are 100 per cent committed to the lease as proposed" stating that "the terms and conditions of the lease as prepared by you" reflect the agreement reached.
In the face of clause 20 an implication of the warranty and fitness for purpose is not maintainable.
Clause 20 is an answer to another part of the way the defendant's case that Mr Hawkins raised as the proceedings commenced. Mr Hawkins sought to tender a report of Mr Lucas Molloy of Barrenjoey Consulting Engineers dated 15 February 2022, that is only a few days before the commencement of the hearing. This report offered the opinion that a masonry retaining wall running north - south at the rear of the area covered by the awning structure was failing. And if left unattended the engineer's opinion was that this wall was likely to collapse. Ms Lee was not able to deal with late service of this material which would have required an amendment to the pleadings and an adjournment to afford the opportunity to the plaintiff to adduce countervailing expert evidence. The pleadings were not amended and the contest on this report did not develop. The Court focused the hearing on engineering evidence relating to the awning structure itself. But even if this engineering issue had been explored further, clause 20 was probably an answer to it.

[25]

Misleading and Deceptive Conduct

The case of positive misleading and deceptive conduct that YOUth OK and Mr Hawkins propound fails at the threshold. The Court has concluded that neither Mr Li nor Ms Lee made any positive statements about the Council approval of any part of the Newport property or that it was compliant with Council requirements. Moreover, the lease that he signed, whilst consciously declining to take legal advice at the time, was inconsistent with his reliance upon any such positive statements.
To the extent that YOUth OK and Mr Hawkins propound a case of misleading and deceptive conduct by silence, the outcome is no better. It was difficult for Ms Lee and the Court to grapple with this case. The opening submissions advanced on behalf of Ms Lee complained with some justification that the defendants' case of misrepresentation by silence was put in very general terms, complaining of nondisclosure of the unapproved awning structure but without identifying the elements of that case which imposed on the plaintiff any duty to speak, or other circumstances relied on to make silence misleading. The defendants did not articulate those elements and Mr Hawkins did not, so far as the Court could see, cross examine Ms Lee for her witnesses upon them. Ms Lee submitted that the case was therefore procedurally unfair and should not be permitted to be advanced. But the Court has dealt with as best it can and it fails on other grounds.
This case firstly fails because of the lease, clause 20 which applies equally to misrepresentations by silence as it would to positive representations. A representation by silence about the unapproved nature of the awning structure which the defendant say has impeded in carrying on business at the Newport property falls within the description of a representation "in respect of the suitability of the property or any business to be carried on therein" in clause 20.
Clause 20 serves another purpose in the context of this case. It negatives any "duty to speak" on the part of Ms Lee about the suitability of the premises for YOUth OK's business.
This case also fails because for the reasons discussed elsewhere in this judgment, that Mr Hawkins' own expertise and knowledge about the building and property industry made it unlikely that he would rely upon anything said to him about the suitability of the Newport property for the conduct of YOUth OK's business.
The defendant's misrepresentation by silence case seems to be that Ms Lee was conscious that the awning structure was unapproved because she had been required by Council to undertake work on the awning structure in early 2019 and that she actively took steps to conceal that fact from Mr Hawkins. But the evidence that the defendants rely upon does not make out such a case.
The defendants appear to rely upon the fact that Mr Johnny Eid, the building control officer of the Council apparently visited the site in February 2019 and would have seen the work that had been done to the awning structure by that time. But that visit did not result in Ms Lee being given notice by the Council to rectify an unapproved awning structure. Ms Lee explains in her affidavit, and the Court accepts, that neighbours and passers-by would throw rubbish into the then open parking area at the rear of the premises. She received a Council notice to clear the rubbish in early 2019. In response Ms Lee and Mr Lin cleared the rubbish and built a roof on top of the area to prevent people from throwing more rubbish onto the Newport property. Mr Eid's inspection was related to the removal of the rubbish. The Court accepts that Mr Eid saw the awning structure during the inspection and did not raise any issue about it being unauthorised works, probably because it solved the rubbish problem and he did not need to look beyond that at that time.
Nothing in the evidence of communications with Mr Eid contradicts what the plaintiff says in her affidavit about this subject. And compounding the difficulties in fact finding fairly on this issue, the defendant's apparent allegation that this February 2019 encounter with Mr Eid caused Ms Lee to become aware of the unapproved nature of the awning structure was not squarely put to Ms Lee in cross examination.
The evidence does not show any active steps of concealment on the part of Ms Lee or her agents or that she was even aware of that the work was not approved until Council's notices in November 2019. Nor does the evidence disclose any statement on Ms Lee's part or other circumstances from which a duty for her not to stay silent on this issue should be inferred.
The defendants' submissions about misleading deceptive conduct also refer to some conduct on behalf of Ms Lee after the signing of the lease. It is not obvious how that conduct might have occasioned any loss to YOUth OK, as it had already entered the lease.

[26]

Variations on the Misrepresentation Case

Mr Hawkins made an oral opening of his case. His written and oral closing did not fully match either the oral opening, or the pleadings. But the various other ways that he put his case of misleading and deceptive conduct have not been made out. They are briefly mentioned here.
Mr Hawkins contended in his opening that Mr Au and Ms Lee told him that she had done "no work" to the property. Mr Hawkins did adduce evidence to support this case.
At the opening of the hearing all the defendant's evidence attributed any evidence to representations relied upon not to Ms Lee but to Mr Au on her behalf. At the end of the first day of hearing the Court sought to clarify with Mr Hawkins the misrepresentations upon which his case relied. He was giving evidence at that time. He had said at various times that there was nothing wrong with the property and that "no work had been done". But questioned as to what that meant he said, "no work had been ordered to be done". It emerged through this answer that Mr Hawkins was alleging that it had been misrepresented to him that there were no orders in place for work to be done. Even if that representation had been made, it was not false at the time, because there was no formal order by the Council for work to be done. The unauthorised work to the awning structure was yet to be discovered by Council. It only appears to have been discovered when a neighbour made a complaint at some time in October 2019 during the works that Mr Hawkins was conducting on the side.
Ms Lee and Mr Hawkins met face to face at only one meeting before signing the lease, on 11 August 2019. But Mr Hawkins' affidavit evidence does not suggest that the awning structure was discussed at that meeting, which he alleges was taken up with rubbish removal and the work that the defendant's intended to carry out.
This meeting did take place. Mr Hawkins' affidavit evidence can be accepted that at this meeting "there was no discussion about the roof but rather the discussion centred on the intended internal refurbishment works and the rubbish that needed to be removed".
Although Mr Hawkins' evidence identifies and considers this meeting in his written evidence, if Ms Lee represented anything at this meeting it is likely that it would have been mentioned in Mr Hawkins' first affidavit where this subject was discussed. Rather Mr Hawkins adds it as an afterthought as the hearing developed.
Mr Hawkins' final affidavit has Mr Au stating that he "did not know about any existing approvals and would check with the owner" and that his instructions were that "nothing had been done to the property for years and that he would check with the owner", and that "the owner had no building approvals as she had not done any work on the property". The Court does not accept that Mr Au made these representations. Mr Au was too experienced an agent to be making representations of this broad kind. Moreover, had such representations been made at some stage, it could be expected that Mr Hawkins would ask Mr Au what the outcome was of him checking with the owner. No such follow up conversations occurred.

[27]

Reliance and Causation Issues

Even if any of the representations alleged were made the Court cannot accept that someone of Mr Hawkins' experience would have relied upon them. Mr Hawkins had decades of experience as a developer. He understood the property industry so well that it is likely that he would have preferred his own sources and resources to relying upon anything that Ms Lee said about the property. Moreover, he had every reason not to rely upon her word. His knowledge of her actual prior involvement in the property was sketchy. And according to him he was already complaining that she had not been able to produce a floor plan for his use.
Mr Hawkins' attempts to explain his expectations of Ms Lee were very confused and unsatisfactory. At one point Mr Hawkins stated that he assumed that Ms Lee had obtained a building inspection report from the Council, which was the basis of her authority to speak about the building. But if that evidence was correct, Mr Hawkins could not adequately explain why he did not just ask to be given that report.
Mr Hawkins described his own property development experience as, "I knew what I was doing" and he agreed that he had developed seventy properties, including blocks of land, apartment buildings and restoration of historic and commercial buildings.
Mr Hawkins agreed that when he received the development control order, he had at least 3 options. One option was to comply with the order and demolish the awning. But fixing structural issues was the landlord's obligation under the lease. A second option, with Ms Lee's agreement, would be to apply for retrospective approval of the awning structure to make it compliant with planning law and then have the Council voluntarily withdraw the control order. The third option was to appeal against the making of the control order and challenge the Council's order in Court, again with Ms Lee's consent.
Option 2 appeared to be the most straightforward. If Mr Hawkins was serious about opening a community youth centre on this site it was difficult to understand why he did not pursue Option 2 vigorously. But he did not. One of the reasons he advanced for not being concerned about the Council's November 2019 notice was that he could put in a retrospective application and "it all goes away". The Court infers that he was not seriously motivated to solve the problem which the Council notice presented by pressing Ms Lee for consent to him lodging a retrospective development application. The evidence suggests that this would have been a relatively low risk and low-cost exercise from both Ms Lee's point of view and the defendants' point of view.
Why did the defendant not pursue this second option? Pursuing this option was sufficiently economically rational for a tenant keen to open a business that it can be inferred that Mr Hawkins had decided that it was not in his best interest to fix this problem. Instead, he allowed the situation to fester, delaying his establishment of a community youth centre and continuing to not pay rent. This put Ms Lee in a difficult economic position.
Mr Hawkins was cross-examined about his promises to pay the outstanding rent and to provide the bank guarantee. He contended that he refused to pay any money to Ms Lee "until she fixed the awning or gave me the authority to do it". But that cannot be right. Mr Hawkins made unqualified promises to pay the outstanding rent and to provide the bank guarantee in writing. His email communications on this subject were not linked Ms Lee fixing the awning structure with his payment of rent. The Court does not accept that he made the linkage orally when he did not do so in writing. In the Court's view he deferred demanding fixing of the awning until June 2020, until he knew he was on the point of eviction. The best explanation for him doing this is that he calculated that his prospects of being able to purchase the Newport property would be increased the more that Ms Lee was suffering financial distress because he had not paid her.

[28]

Frustration of the Contract Represented by the Lease

YOUth OK pleads that the lease was frustrated in the events that occurred and that it is entitled to restitution of benefits conferred by reason of the frustrated agreement. The claim is not persuasive.
The doctrine of frustration probably does not apply to leases: Firth v Halloran [1926] HCA 24; (1926) 38 CLR 261 ("Firth"). The issue of the application of Firth to the present circumstances, is like that faced by Barrett J in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 29 at [213]-[228] ("Narui"). Barrett J held in Narui that the High Court's decision did not bind him. I respectfully adopt Barrett J's reasoning and reach the same conclusion on that issue. But Firth is nevertheless highly persuasive authority that the doctrine does not apply to leases for the reasons given by Knox CJ and Gavan Duffy J that need not be elaborated here. I agree with Barrett J in Narui that the question was not decided in Progressive Mailing House Pty Ltd v TabaIi Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, notwithstanding the contrary analysis of Young J (as his honour then was) in Ashington Holdings Pty Ltd v Wipema Services Pty Ltd (No. 2) (1998) NSWSC 414.
But there are other reasons why the defendants' frustration case fails. A demanding test applies for the application of the doctrine of frustration. It has been put in various ways, but is most concisely summarised by Lord Radcliffe in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 728-729, adopted by Aicken J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 ("Codelfa"): "Frustration occurs whenever the law recognises that without default of either party contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non hoec infoedera veni. It was not this that I promised to do. It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligations that the thing undertaken would, if performed, be a different thing from that contracted for."
In Codelfa, Mason J (as his Honour then was) reframed the question in terms of the following four propositions: 1. What was the substance of the contract, being the assumption or condition or state al things which was necessary for the jidfilment al the contract? 2. Was that condition or state of things prevented? 3. Was the event which prevented the performance of the contract of such a character that it cannot reasonably he said to have been in the contemplation of the parties? 4. Was the change so unexpected that, if performed, the contract would be radically different from that which was contracted?
Here the requirements of the application of the doctrine cannot be met. The lease clauses 20.1 and 20.2 exclude any representation or warranty of suitability of the property and have the tenant acknowledging it was its own obligation to obtain approvals required by public authorities for its use of the leased premises. These provisions together with the similar clause 6.1.4 and the absence of any provision of the lease exempting the tenant from payment of rental in a case of want of consent for the permitted user, displace any suggestion that these parties contracted on the basis that the whole of the Newport property would have approvals that would permit YOUth OK to use the whole of the premises for the permitted use.
This case is not dissimilar to Smith Bros Trade & Transport Terminal Pty Ltd v Pacific Power [1998] NSWCA 212, where with similar lease terms, the loss of of 50% of the land for the permitted relevant use of the tenant was insufficient to trigger the doctrine of frustration. Here, as in Smith Bros, the tenant, YOUth OK, was able to use substantial parts of the property (85%) notwithstanding the Council's notices.

[29]

Unconscionable Conduct

YOUth OK puts its unconscionable conduct claim in many ways, not all of which resemble recognised remedies for unconscionable conduct at general law. But the defendants' submissions can nevertheless be dealt with in the manner that they are elaborated.
Under the heading "conclusions" the defendants contend as follows: "The unauthorised structural work done by the Plaintiff before the Lease commenced is the work that should have been done by the Plaintiff, and the Plaintiff has consistently refused to do that work, or authorise the Defendants to do that work, purely to seek an unfair and unconscionable advantage for herself."
This contention should be interpreted as saying that the unauthorised work on the awning structure should have been done as authorised structural work after seeking permission from Council. But even put that way, this submission is not made out. The evidence does not establish that Ms Lee refused to undertake work on the awning structure herself after the Council's notices or that she refused to authorise the defendants to do that work. Rather the evidence establishes that Ms Lee and Mr Hawkins discussed her authorising his solicitors to challenge the notices, but when Ms Lee was lukewarm about committing to this course, and understandably so, Mr Hawkins did not press it further. The Court has not accepted any evidence in which Mr Hawkins clearly asks Ms Lee for permission either to reconstruct the awning structure, so it will comply with Council's requirements, or for him to take all necessary steps to apply for retrospective approval of the structure.
The Court's findings on these matters do not provide any basis for the conclusion that Ms Lee took unconscientious advantage of YOUth OK. The Court's findings do not warrant the conclusion that Mr Hawkins was in a position of special disadvantage with respect to Ms Lee and that he and that he and conscientiously used his position of ascendancy to her disadvantage.
To the contrary, the evidence shows Mr Hawkins applying calculated commercial pressure to Ms Lee by not paying rent under the lease between October 2019 and June 2020 and then positioning himself to purchase the property from her. He did not attempt to advance evidence that he was in financially strained circumstances, other than the correspondence from the Hong Kong solicitors. But this does not speak to his other financial resources and his overall financial position at the time was not disclosed to the Court and relied upon as an aspect of his vulnerability.
If YOUth OK was genuinely keen to commence activities as a youth community centre during this period, there should have been clear evidence of it advancing solutions to the impasse that had been reached by late November 2020. But the history does not show YOUth OK was keen to establish its business and was thwarted by Ms Lee taking advantage of some position of weakness on its part.
In related submissions the defendants further contended that the only party responsible for the present situation, where the premises have been closed by Council Orders is Ms Lee who was responsible for building the unauthorised roof. The defendants further contended: "The only party who can remedy the Council Orders is the Plaintiff who has had the invitation and opportunity since November 2019 and although stating that she would sign the Authority to enable the Defendants to apply for retrospective approval, has failed to do so on multiple occasions."
This is really a reworking of the earlier submission of unconscionable conduct, which has no basis in the Court's findings. It is true that Ms Lee did not sign any authority to seek retrospective approval to the unauthorised works, but she was not presented with one. She was presented with an authority to instruct solicitors to commence an appeal against the notice. But not signing that authority was reasonable. Signing it would have exposed her to the potential for orders for legal costs being made against her and would place her at financial risk if Mr Hawkins promises to underwrite her legal costs were not honoured. By the time the authority was being offered, Ms Lee already had ample grounds to be cautious that any underwriting promise given by Mr Hawkins would be of dubious value. Thereafter she commenced her own genuine discussions with Council to solve the problem.
The defendants' pleading of unconscionable conduct does not identify any special disability. This is perhaps understandable because it is difficult to discern any in this case. The defendants' submissions on the subject seek to identify a case of non-disclosure of the unauthorised structural work, based on a submission that as the owner of the property, Ms Lee knew she required development approval for any structural work. But the answer to that, once again, is clause 20 of the lease.
The following are to be remembered in this context. Mr Hawkins signed the lease contrary to contemporaneous advice to consult a solicitor first. YOUth OK and Mr Hawkins were free to undertake their own investigations at the Council with the benefit of their own consultants, the architect and builder, about existing approvals on the Newport property, and Mr Hawkins had the expertise to do so.
Ms Lee and the defendants were commercial counterparties to a lease which had been negotiated at arm's length, with Ms Lee's solicitor even suggesting that Mr Hawkins obtain legal advice which he expressly declined. The defendants' unconscionable conduct case is not made out.

[30]

Retail Leases Act Issues

The Amended Defences of YOUth OK and Mr Hawkins and their Cross-Claim seek relief under the Retail Leases Act 1994. The misleading deceptive conduct case and the unconscionable conduct case were put under the Retail Leases Act as well as under the Australian Consumer Law and the general law. But Retail Leases Act, ss 70 and 71 confers primary jurisdiction to consider a "retail tenancy claim" on the New South Wales Civil and Administrative Tribunal ("NCAT"). But if proceedings are commenced in relation to a retail tenancy claim in a Court if the interests of justice require the matter to be dealt with by the court, the matter can be left in the court: Retail Leases Act, s 75. Moreover, in the case of an unconscionable conduct claim Retail Leases Act, s 76A permits removal of proceedings to the Supreme Court. There was no application by either party for these proceedings to be remitted to NCAT and given the complexity of the issues, issues about whether this here is a retail lease and whether there is a retail tenancy claim under the Retail Leases Act, and the range of remedies sought at general law, the interests of justice in any event require the matter to be dealt with in this Court.
The primary question is whether the Retail Leases Act applies to this lease of the Newport property. For the following reasons the Court concludes that it does not.
In addition to remedies under the Australian Consumer Law and at general law, YOUth OK and Mr Hawkins invoke the statutory causes of action and remedies provided for under Retail Leases Act Part 7A - Unconscionable conduct and misleading or deceptive conduct. Part 7A applies to a "retail shop lease" as defined in the Retail Leases Act. But this lease is not a retail shop lease Part 7A does not apply to it. These reasons have already analysed the failure of YOUth OK's and Mr Hawkins' unconscionable conduct and misleading deceptive conduct claims. To the extent that YOUth OK and Mr Hawkins claim similar remedies under the Retail Leases Act, this section of these reasons concludes that they are not available in any event.
The Retail Leases Act, s 3 defines a "retail shop" as premises that "are used or proposed to be used wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of this paragraph". The premises in Schedule 1 are taken to be prescribed for the purposes of the definition: Schedule 3, clause 17 and 84A. A "retail shop lease" or "lease" within the Retail Leases Act is defined as being an agreement by which a person grants to another person for value a right of occupation of premises for the purposes of the use of the premises as a "retail shop".
A wide range of retail businesses are prescribed in Retail Leases Act, Schedule 1. The sole permitted use of the Newport property under the lease was as a "Community Youth Centre (heavy cooking prohibited)": lease, Schedule Item 17 and clause 6.1. This is not one of the businesses listed in Retail Leases Act, Schedule 1. The Retail Leases Act does not apply to the lease.

[31]

The Covid 19 Regulation

YOUth OK's Amended Defence, paragraphs 15(e) and l6(f) plead that "as and from 24 April 2020 Ms Lee is unable to terminate the lease due solely to non-payment of rental by the first defendant", due to the provisions of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 ("the Covid Regulation").
The Covid Regulation commenced on 24 April 2020. During its operation, if the lessee qualified as an "impacted lessee" under the Covid Regulation certain prohibitions applied preventing the lessor from taking what is described as "prescribed action" during what is described as a "prescribed period": Covid Regulation, r 6. The concept of "prescribed action" includes a range of action including exercising a right of recovery of premises, a forfeiture of the lease, claiming damages for breach of the lease, and terminating the lease on the grounds of failure to pay rent, failure to pay outgoings, or failure to keep the premises open during the hours specified in the lease.
The "prescribed period" under the Covid Regulation was only a period of six months. But subsequent re-enactments of the Covid Regulation, (see the Retail and Other Commercial Leases (COVID-19) Regulation 2021) extended the "prescribed period" until 13 January 2022.
But for several reasons the Covid Regulation does not apply to the lease of the Newport property in question here and on the evidence before the Court the Covid Regulation has no impact on the relief that Ms Lee seeks in these proceedings.
First, the Covid Regulation was made under the Retail Leases Act. The Covid Regulation, r 5 defined its application to a "commercial lease", a term defined in Covid Regulation, r 3 as a "retail shop lease," with certain exclusions. The Court's earlier analysis shows that the lease of the Newport property premises between these parties does not qualify as a "retail shop lease". On its own this is a complete answer to this defence. But there are other difficulties for the defence.
Second, YOUth OK has not adduced evidence that it qualifies as "an impacted lessee": Covid Regulation, r 4. No evidence was adduced as to the turnover of YOUth OK. But it can probably be accepted that YOUth OK's turnover was less than $50,000,000 in the 2018 - 2019 financial year. But YOUth OK did not adduce any evidence that it satisfied the other requirement, namely that it qualified for the "job keeper" scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) ("Economic Response Package Rules"). To qualify for the Economic Response Package Rules would require YOUth OK to establish that it would satisfy the "decline in turnover test prescribed under Economic Response Package Rules, rr 7 & 8. The Court can overlook that satisfying this element of been pleaded. But evidence to show that this element has been satisfied is not simple. YOUth OK did not make any attempt to advance evidence to satisfy it and the Court cannot draw reliable inferences about that subject from the existing evidence.
Third, the Covid Regulation had a limited application in time, from its commencement on 24 April 2020 and its extended operation concluded on 13 January 2022. It can be accepted that Ms Lee's July 2020 attempts to retake possession of the property and her commencement of these proceedings took place during the period when the Covid Regulation was operative. But the attempt to retake possession was unsuccessful and no further attempt to retake possession was initiated before the hearing of these proceedings in February 2022, when YOUth OK voluntarily gave up possession, after the expiry of all iterations of the Covid Regulation on 13 January 2022.
Although not pleaded by the defendants, Mr Smallbone of counsel drew the Court's attention to Schedule 5 of the Conveyancing (General) Regulation 2018, a schedule which was created pursuant to the powers conferred in Retail Leases Act, s 87, a provision which gives additional regulation making power under "a relevant Act", to deal with matters for the purposes of responding to the public health emergency caused by the COVID - 19 pandemic. A s 87 "relevant Act" includes any Act relating to the leasing of premises or land for commercial purposes and would therefore be wide enough to include, for example, the Conveyancing Act 1919.
Conveyancing (General) Regulation 2018, Schedule 5 operated for the same period as the Covid Regulation, and continued further on a limited basis by reason of the Retail Leases Act, s 88, which continued the Covid Regulation to apply despite its repeal, "to anything occurring in relation to a lease while the lease was an impacted lease within the meaning of the Covid Regulation. The Conveyancing (General) Regulation 2018, Schedule 5 contains a wider definition of "commercial lease" than in the Covid Regulation, that could apply to the lease of the Newport property, because the lease is "the leasing of premises or land for commercial purposes". But even accepting that the Conveyancing (General) Regulation 2018, Schedule 5 applies to the lease, YOUth OK has not established in these proceedings that it is an "impacted lessee" because it qualified for a COVID - 19 disaster payments made to the lessee by the Commonwealth of Australia. Thus, it is difficult to make any allowance in favour YOUth OK based on the application of these regulations.
It should be observed when consideration of the recovery of rent is underway and the calculation of the quantum of that rent in these proceedings that Covid Regulation, rr 6 and 7 prohibit the increase of rent and taking of prescribed action based for the recovery of rent against an "impacted lessee" on the increased rent. But a precondition for the application of the provision is that the lessee must demonstrate to the lessor in a statement and provide evidence that it is an "impacted lessee". There is no evidence that YOUth OK demonstrated to Ms Lee that it was an "impacted lessee" within the meaning of Covid Regulation, rr 6 and 7, nor has it demonstrated that to this Court.

[32]

A Cross Claim in Restitution

In their Cross Claim, YOUth OK and Mr Hawkins claim the sum of $363,780.14 was expended in reliance upon Ms Lee's alleged misleading and deceptive conduct. The claim is primarily put as one for compensation because YOUth OK relied upon Ms Lee's alleged misleading and deceptive conduct and was disadvantaged by Ms Lee's alleged unconscionable conduct. The claim fails, because the claims of misleading and deceptive conduct and unconscionable conduct are not made out against Ms Lee.
But the language of the Cross Claim also refers to Ms Lee being "unjustly enriched at the expense of [Mr Hawkins]" by alleged expenditure on the Newport property totalling the sum of $363,780.14, for what is described as "refurbishment work" on the Newport property. YOUth OK's Amended Defence also refers to sums of $10,000 paid to the architect, Ms Sarah Blacker and $9,789.48 paid to Perla plumbing.
The Court will interpret this pleading broadly and treat the Cross Claim as including a claim in restitution, separate from a claim for compensation for misleading deceptive conduct and unconscionable conduct.
The Cross Claim pleads that refurbishment of the Newport property commenced on 23 September 2019, continued until 29 November 2019 and was undertaken by Liebke Projects Pty Limited ('Liebke'). The amount of $363,780.14 claimed is represented in five invoices that Liebke issued between 9 October 2019 and 17 January 2020. The following were these invoices: 1. Liebke Invoice 0809 dated 09 October 2019: $34,139.09, 2. Liebke Invoice 0815 dated 21 October 2019: $76,317.45, 3. Liebke Invoice 0817 dated 13 November 2019: $145,266.21, 4. Liebke Invoice 0824 dated 22 November 2019: $37,701.52, and 5. Liebke Invoice 0829 dated 17 January 2020: $70,355.96.
Each of these invoices is issued to "Blaxland Investment Group", which the evidence provides a basis to infer is a reference to a private company Mr Hawkins controls, Blaxland Investment Group Pty Ltd ("Blaxland"). The Court is satisfied that the refurbishment work recorded in these invoices was undertaken. The photographic evidence of the premises shows the progress of the work and the substantial nature of it, which appears to have significantly improved the premises from the disordered state in which Mr Hawkins found them. Mr Hawkins caused flooring to be installed, walls to be covered and finished, lighting and electrical fittings to be installed, and painting and finishes to be applied that very significantly improved the presentation of the property.
But there are legal and factual difficulties with this claim. As to the legal difficulties, a claim in restitution is not available in respect of this expenditure as it is covered by the terms of the lease.
A party in breach of a contract may be entitled to a claim in restitution where work is conducted outside the scope of the contract: K Mason and J W Carter, Restitution Law in Australia (1995, LexisNexis) ('Mason and Carter on Restitution') at 528 [1159]. The rule of reasonable remuneration to a plaintiff by way of restitution arises when it is established that the benefit conferred to the defendant was freely accepted independently of the contract: Sumpter v Hedges [1898] 1 QB 673 at [1155]; Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344 at 374; Mason and Carter on Restitution at 531 [1163]. The starting point for valuing a claim in restitution is at the market price of the services provided, and quantum meruit may be available to an innocent party, particularly for works conducted outside the project: Mann v Paterson Constructions Pty Ltd [2019] HCA 32 ('Mann') at [203] (per Nettle, Gordon and Edelman JJ).
But here the lease, clause 12.3 specifically deals with expenditure on fixtures and fittings such as this. The starting point is clause 12.3's definition of when the lease "ends". That is when the landlord "lawfully demands possession of the property". For the reasons earlier stated that was in either July or August 2020. Once that occurs and the lease "ends", unless a new lease is signed the tenant's obligation is to return the property to the landlord and remove "any goods and anything that the tenant has fixed to the property and [to] have made good any damage caused by the removal". And anything not removed "becomes the property the landlord who can keep it" or "remove and dispose of it and charged to the tenant the cost of removal, making good and disposal". Ms Lee has not made a claim for making good, so it can be inferred that she is keeping what has been added to the property and left. But she is entitled to do that under the lease, clause 12.3. Because the contract represented by the lease covers the present circumstances restitution is not available to Mr Hawkins against Ms Lee.
But there are factual difficulties with the claim in restitution as well at several levels. It has not been established that the works were undertaken at Mr Hawkins' or YOUth OK's cost. The cost of the works was invoiced to Blaxland. The financial relationship between Blaxland and YOUth OK and Mr Hawkins is not sufficiently clear in the evidence for the Court to be able to say that this expenditure was to the account of Mr Hawkins or YOUth OK. For example, there was no evidence showing that Mr Hawkins or YOUth OK had an obligation to reimburse Blaxland for the expenditure. In the absence of a clear legally binding arrangement between these two entities, it is difficult for the Court to infer that what appears to be Blaxland's expenditure was to the account of Mr Hawkins YOUth OK.
Moreover, Mr Hawkins has produced little documentary evidence to prove the monies invoiced by Liebke were spent as alleged in the Cross Claim. To prove payment Mr Hawkins relies upon an bank statement which initially did not indicate who is the owner of the bank account making the payments, but as a result of supplementary evidence the Court accepts that it was opened in the name of the Blaxland Investment Group. This bank statement records two transfers - one of $40,000 on 28 October 2019 and one of $60,000 on 07 November 2019 - each with the description of "Liebke Projects".
But the connection between these payments and Liebke's invoices is obscure. Liebke's invoices record the receipt of prior payments, somewhat like a statement. Liebke's invoices show that $100,000 was received prior to 21 October 2020 on account of this project. But the two payments made from Mr Hawkins' bank statement in the name of Blaxland Investment Group are made commencing on 28 October 2020. These two payments cannot readily be appropriated to specific Liebke invoices. One inference from this material is that Liebke's account was credited earlier with $100,000 from a separate bank account to that now relied upon by the defendants, possibly that of the company, Blaxland, and that this is a reimbursement of Blaxland. But the arrangement by which Mr Hawkins reimbursed Blaxland, if that be proper inference in the circumstances, is also obscure. Even if the Court were to infer that Mr Hawkins himself paid Liebke $100,000 through Blaxland Investment Group and Blaxland as his agents, the defendants have not produced evidence that Mr Hawkins paid the balance of the Liebke invoices, being approximately $263,780.14 although Ms Blacker was paid her $10,000.
Mr Hawkins has argued the case for restitution of this amount and may feel a sense of unfairness with this outcome. But the outcome is a direct result of the terms of the lease that Mr Hawkins signed, as well as the quality of the evidence that he relies upon.
The defendants also plead that no money is due under the lease by reason of Ms Lee's breaches of the lease. But it is not necessary to consider any question of the availability of the pleaded set off, because Ms Lee's breaches of the lease are not established, nor is any amount on YOUth OK's Cross Claim.

[35]

Calculation of Loss and Damage and Issues of Costs

The three-year term of the lease from 1 October 2019 to 30 September 2022 has just been completed. Loss and damage accruing to Ms Lee can now readily be ascertained, subject to an inquiry as to whether the property has been re-leased since the proceedings were last before the Court. The plaintiff will be required to put on further affidavit evidence to verify Ms Lee's claim from when the defendants vacated the property on 26 February 2022 to the end of the lease on 30 September 2022. This should include the costs and receipts, if any, on account of re-leasing of the property.
The essential facts relating to the calculation of Ms Lee's loss and damage are uncontested. YOUth OK paid only one instalment of rent in October 2019. All other rental payments remain unpaid. As YOUth OK did not observe the obligation to pay rent "not later than 14 days after the due date for payment of each periodic instalment", within clause 12.5.1 it breached an essential term and can recover rent and damages for losses over the entire period of the lease, subject to an obligation to mitigate loss and to attempt to release the property: lease, clause 12.6.
Ms Lee is entitled to rent under the lease up to 21 July 2020 when she attempted re-entry to the premises and was resisted by YOUth OK, notwithstanding she had legal entitlement to re-enter the premises. Thereafter YOUth OK became a trespasser and Ms Lee became entitled to mesne profits until YOUth OK vacated the premises on 26 February 2020. These mesne profits are measured by the prevailing rent under the lease. Thereafter Ms Lee is entitled to damages under lease clause 12.6 and 12.7 for loss of rental income for the balance of the lease up until 30 September 2022.
The rent from time to time under the lease is the measure of Ms Lee's recovery for each of these periods. The recovery of damages for the period from 27 February 2022 to 30 September 2022 is subject to a proviso which is discussed below.
The quantum of that calculation can be briefly analysed. The rent for the first year of the lease up to 30 September 2020 is set out in the lease. The rent for the two subsequent years should be indexed upwards by 5% in each year in accordance with lease clause 5.7 and Annexure A, Item 13 by the nominated "Method 1".
These reasons deal in turn with the rent, mesne profits and damages accruing during each of these periods of time. But the Court will not calculate interest and instead will require the plaintiff to calculate interest on the damages figure at which the Court has arrived, subject to the Court's arithmetic being checked by the parties.
Under the lease, clause 5.1.1 and Annexure A, Item 13, Ms Lee is entitled to rent (and the equivalent of rent in the form of mesne profits) until 26 Feb 2022. When calculating the balance of rent owing in year 1 of the lease, the figure applied $15,125 per month (being $13,750 plus GST of $1,375). This will be subject to the calculation of an abatement of rent of $450 per week for Flat No. 1, as the tenant remained in possession for five weeks after the commencement of the lease: lease, Annexure A, Item 23.
Mr Hawkins paid $15,125 for the month of October 2019, which did not factor in the abatement. The abatement of $2,250 (calculated as 5 weeks rent at $450 per week) is subtracted from the first month owing, which is November 2019. Therefore, for year 1, the rent owing is $164,125 (calculated as ($15,125 - $2250) + (10 months at $15,125)). No allowance has been made for a rent-free period as YOUth OK did not qualify for this allowance under the lease and Court does not accept that any conversation took place between the parties varying the conditions under which the entitlement to the rent-free period would arise under the lease.
Commencing 1 October 2020 (at the anniversary of the lease) the first rent review occurs and the annual rent is increased by 5%. Therefore, in year two, after one round of 5% indexation, Ms Lee is entitled for the second 12 months of the lease from 1 October 2020 to 30 September 2021 to a monthly rent of $15,881.25 (inclusive of GST). The total rent owing in year 2 of the lease equates to $190,575 inclusive of GST.
Commencing 1 October 2021, after a second round of 5% indexation, Ms Lee is entitled to a monthly rent of $16,675.32 inclusive of GST. This includes four full months between 1 October 2021 and 31 Jan 2022, and the period of 01 Feb - 26 Feb 2022. The rent owing between 1 October 2021 and 26 February 2020 is $82,185.48 inclusive of GST (calculated as (4 months at $16,675.32 = $66,701.25) + ((26 days divided by 28 days = 0.929) x $16,675.32)).
Therefore, the total rent owing between 01 Nov 2019 and 26 February 2022 is $436,885.47 inclusive of GST.
The recovery of damages under clause 12.6 of the lease is subject to a proviso that the landlord must do every reasonable thing to mitigate losses and to try and lease the property to another tenant on reasonable terms. Assessing compliance with that proviso is relatively straightforward for most of the period in question in this case. It was impossible for Ms Lee to re-lease the property whilst YOUth OK was in possession and refusing to give up possession. YOUth OK did not surrender possession until about Saturday, 26 February 2022. Thus, questions of mitigation would only arise in the last seven months of the lease between 27 February 2022 and September 2022.
The Court will direct Ms Lee to file affidavit evidence as to whether the Newport property has been re-leased to another tenant since the Court reserved judgment in May this year. And if it has been re-leased the Court will direct Ms Lee to account for any rent that she has received pursuant to any fresh lease of the Newport property and the costs associated with this new lease. Once that has been undertaken, judgment can be entered for any net amount of unpaid rent mesne profits and damages, due to Ms Lee. Then Ms Lee will be directed to undertake an interest calculation up to the date of entry of judgment at the rate of 10% per annum, in accordance with lease clause 5.1.5 and Annexure A, Item 15.
The Court will enter judgment both for the principal claim for rent and damages for the whole term of the lease, once the correct amount has been fully ascertained and once a final interest calculation has been undertaken to the satisfaction of the Court or is agreed between the parties. The proceedings will be listed on Wednesday 2 November 2022 at 9:30 am for the entry of judgment provided Ms Lee has complied with the requirements to file and serve an affidavit verifying her claim for damages for the period between 27 February and 30 September 2022 and has undertaken the necessary interest calculations.
Ms Lee has been wholly successful and is entitled to recover her costs of these proceedings. She is at least entitled to costs on the ordinary basis and an order to that effect is made below. The lease, clause 5.1.8 allows Ms Lee to recover "the landlord's reasonable legal costs relating to the default" if the tenant defaults. YOUth OK has clearly defaulted here, and Ms Lee will be entitled to her "reasonable legal costs relating to the default". Whether or not that may entitle her to indemnity costs has not been debated in the proceedings. Ms Lee claims indemnity costs. Whether she is entitled to indemnity costs may be the subject of contest.

[36]

Conclusions and Orders

For these reasons the Court makes the following declarations, orders, and directions: 1. For the purposes of these orders the expression "the Newport property" means the premises described in the Statement of Claim filed in these proceedings on 17 August 2020 and "the lease" means the lease of the Newport property made on 26 September 2019 between the plaintiff as lessor and the first defendant as lessee and the second defendant as guarantor and commencing on 1 October 2019 for a term of three years expiring on 30 September 2022; 2. Declare that the first defendant first breached an essential term of the lease by failing to pay rent (inclusive of GST) due under the lease no later than 14 days after the first due date for payment, namely 1 November 2019 and by continuing to fail to pay rent due on the first day of each month thereafter; 3. Declare that the plaintiff validly terminated the lease on 16 July 2020; 4. Declare that the second defendant is liable to the plaintiff as guarantor under the lease for all amounts calculated as due and owing by the first defendant to the plaintiff; 5. Direct the plaintiff shall by 12 noon on Monday, 31 October 2022 file an affidavit giving an account of the following matters: whether the Newport property has been released to another tenant since the Court reserved judgment in May this year; and what is the quantum of any net rent that the plaintiff has received for any fresh lease of the Newport property; 6. Direct the plaintiff to calculate interest up to the date of entry of judgment, which the Court proposes to enter on 2 November 2022, at the rate of 10% per annum in accordance with lease clause 5.1.5 and Annexure A, Item 15; 7. Order the first and second defendants pay the plaintiff's costs of these proceedings on the ordinary basis; 8. Reserve for further consideration on 2 November 2022, or such other date as may be arranged with the associate to Slattery J, the question whether the plaintiff's costs of these proceedings should be paid on the indemnity basis; and 9. Direct the parties to provide written submissions to the Court and to one another by Friday, 28 October 2022 in relation to the issue of whether the plaintiff is entitled to the costs of these proceedings on the indemnity basis.

At a glance

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Judgment (37 paragraphs)

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Cases Cited (11)

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