McGregor v Henry

Real Property Act 1900 (NSW) Conveyancing Act 1919 (NSW) LEGISLATION CITED : Evidence Act 1995 (NSW) Interpretation Act 1987 (NSW) Retail Leases Act 1994 (NSW)

Adam P Brown Male Fashions Pty Limited v Philip Morris Inc (1981) 148 CLR 170 Fitzgerald v Masters (1956) 95 CLR 420 FAI General Insurance Co Ltd v Parras (2002) 55 NSWLR 498 Parras v FAI General Insurance Co Ltd (2001) 10 BPR 19,209 Halsbury's Laws of Australia, Vol 26, F Smith & J Ireland, Time, para [410-170] Rawlins v The Overseers of West Derby (1846) 2 CB 72; 135 ER 868 Peacock v The Queen (1858) 4 CB (NS) 264; 140 ER 1085 Child v Edwards [1909] 2 KB 753 Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850 Ng v Chong [2005] NSWSC 270 Mantsis v Danoelle Pty Ltd [2005] NSWSC 595 Griffith University v Tang (2005) 221 CLR 99 Finch v Underwood [1876] 2 Chancery Div 310 Kim v Abbey Orchid Property Investments Pty Ltd (1981) NSW Conv R 55-039 Wallville Pty Ltd v Liristis Holdings Pty Limited [2001] NSWSC 894 CASES CITED : Hillier v Goodfellow [1988] Vic ConvR 54-310 Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd (2000) 10 BPR 18,085 Tanwar Enterprises Pty Ltd v Cauchi (2004) 217 CLR 315 Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367 The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 Legione v Hately (1983) 152 CLR 406 Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562 Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837 Sufigoe Pty Ltd v Amber Properties Pty Ltd (1 August 1995, unreported, McLelland CJ in Eq) Argyle Art Centre Pty Ltd v Argyle Bond and Free Stores Pty Ltd [1976] 1 NSWLR 377 Craine v Colonial Mutual Fire Insurance Ltd [1920] 28 CLR 305 Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634 Matthews v Smallwood [1910] 1 Ch 777 Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99 National Australia Bank Ltd v Zollo (1995) 64 SASR 63 Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 Cinc v Bucan Holdings Pty Ltd [2004] NSWSC 847

PARTIES : Stephen Andrew McGregor & 1 Or v Shirley Ada Henry & 1 Or

COUNSEL : Plaintiff: T J Morahan Defendant: A C Canceri

SOLICITORS : Plaintiff: John Spence & Associates Defendant: James Lahood & Associates

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1691/05 Stephen Andrew McGregor & 1 Or v Shirley Ada Henry & 1 Or

1 HIS HONOUR: This is an application by the defendants that they be released from an undertaking given on their behalf to the Court on 7 March 2005, and for the discharge of orders made by consent on 28 June 2005. In substance, the undertaking and consent order restrained the defendants, until further order, from interfering with the plaintiffs' possession of premises at 541 Windsor Road, Vineyard. Up to early March 2006, the plaintiffs conducted a restaurant business from those premises. The defendants are the registered proprietors of the land. In these proceedings, the plaintiffs claim that they are entitled to possession of the premises as a result of their having exercised an option to renew a lease of them.

2 The proceedings were commenced on 25 February 2005. By summons, the plaintiffs seek, amongst other orders, a declaration that they have exercised an option to renew the lease and an order for specific performance. They also seek an order that the defendants be restrained from taking possession of the property.

3 On 7 March 2005, the court ordered that upon the plaintiffs, by their counsel, giving the usual undertaking as to damages, the defendants be restrained, up to and including 11 March 2005, from interfering with the plaintiffs' possession of the property. On 10 March 2005, the defendants gave an undertaking, until further order, that they would not by themselves, their servants or agents, interfere in any way with the possession of the plaintiffs of the property. The reference in the further amended notice of motion to the defendants' undertaking of 7 March 2005 is, I think, a clerical mistake for the undertaking of 10 March 2005.

4 On 28 June 2005, the defendants sought to evict the plaintiffs from possession of the property, claiming that the plaintiffs were in arrears in paying rent and that an amount of about $10,000 was outstanding. This prompted an application to the court by the plaintiffs, as they understandably contended that the action taken by the defendants was in breach of the undertaking given on 10 March 2005. On 28 June 2005, I made orders, by consent, on the plaintiffs' usual undertaking as to damages, that until further order the defendants restore to the plaintiffs possession of the property forthwith and that they be restrained, until further order, from interfering with the plaintiffs' possession of the property, including by any process of physical re-entry. The order included a proviso that it should not preclude the defendants from instituting proceedings or cross claim for possession of the property. Provision was made also for the defendants to file any application they wished to bring in relation to the undertaking given on 10 March 2005 by 7 July 2005. In the event, no such application was made at that time. On 7 July 2005 the defendants filed a cross claim. Amongst the relief sought in the cross claim, is a declaration that the plaintiffs have not validly exercised an option to renew the lease, judgment for possession of the premises, and leave to issue a writ of possession.

5 The defendants seek to be released from the undertaking, and for the orders of 28 June 2005 to be discharged, because they contend there has been a material change of circumstances which renders continuance of the order and undertaking unjust (Adam P Brown Male Fashions Pty Limited v Philip Morris Inc (1981) 148 CLR 170 at 178). The change in circumstances is twofold. First, the defendants say that from 20 September 2005, the plaintiffs have stopped paying rent. The plaintiffs admit to having not paid rent since the end of November 2005. Secondly, on 10 March 2006 the defendants ascertained that the plaintiffs had vacated the premises, that stock had been removed, and gas tanks disconnected. On 17 March 2006 the plaintiffs applied to the Liquor Administration Board to surrender the liquor licence for the restaurant. The plaintiffs admit to having vacated the premises but say that this is a temporary state of affairs. They say they did so out of fear of physical violence. They deny having surrendered the lease.

6 The defendants say that they have been in negotiation with a prospective new lessee and wish to relet the premises. The plaintiffs submit that the only reason the defendants now seek to be released from their undertaking, and for the orders of 28 June 2005 to be discharged, is so that the defendants can physically take possession of the premises. That is clearly so.

7 On 16 November 2005, the proceedings were fixed for final hearing from 5 to 9 June 2006.

8 The application raises the following issues. First, whether there is a serious question to be tried that the plaintiffs are entitled to keep possession of the premises up to the final hearing in June. That, in turn, raises a number of additional questions or sub-issues. The first of those is whether there is a serious question to be tried that the plaintiffs validly exercised the option for renewal. Secondly, whether there is a serious question to be tried that the defendants are estopped from denying that the plaintiffs validly exercised the option for renewal. If so, thirdly, whether there is a serious question to be tried that the plaintiffs have not surrendered or abandoned the lease. Fourthly, whether there is a serious question to be tried that the defendants are not entitled to terminate such a renewed lease on the grounds of non-payment of rent, or breach of a covenant in the lease related to use of the premises. Fifthly, if the defendants would be entitled to terminate a renewed lease, whether there is a serious question to be tried that the plaintiffs would be entitled to relief against forfeiture. Sixthly, if so, whether the continuance of injunctive relief should be conditional upon the plaintiffs paying rent which is admittedly due, or which the court finds to be due. The plaintiffs offer no undertaking to pay outstanding rent. Seventhly, whether by reason of filing their cross claim seeking orders for possession, the defendants are precluded from making physical re-entry prior to the determination of their cross claim. If that be the case, there will be no occasion to discharge the existing orders and undertaking.

9 If there is a serious question to be tried that the plaintiffs are entitled to keep possession of the premises, at least up to the final hearing and its determination, the question then arises whether, on the balance of convenience, the existing orders should be continued or discharged. In that respect there is only a short period of time before the final hearing, but on the other hand the plaintiffs do not offer an undertaking to pay rent which is admittedly due and which continues to accrue, assuming that there is a lease of some kind on foot.

10 The lease in question was in the form prescribed by the Real Property Act 1900 (NSW). It was entered into between the defendants as lessor, and a Mr Barry John Lewis, as lessee. It was for a term of three years commencing on 12 February 2001 and terminating on 11 February 2004, with an option to renew for a further period of three years from 12 February 2004 to 11 February 2007. In May 2002 the plaintiffs purchased Mr Lewis' business and took an assignment of the lease. The lease has not been registered. Clause 4 provided that the tenant could exercise the option for renewal only if: " 4.4.1 the tenant serves on the landlord a notice of exercise of option not earlier than the first day stated in item 11D in the schedule and not later than the last day stated in item 11E in the schedule;

4.4.2 there is at the time of service no rent or outgoing that is overdue for payment; and

4.4.3 at the time of service all other obligations of the tenant have been complied with fully or remedied in accordance with the terms of any notice to remedy given by the landlord. "

11 Item 11D provided that the first day the option for renewal could be exercised was 1 August 2004. Item 11E provided that the last day the option for renewal could be exercised was 1 November 2004. These items contain an obvious mistake. If the options were to be exercised, the term of the renewed lease would commence on 12 February 2004. It is common ground, as I understood it, that in items 11D and 11E, the year 2004 should be read as 2003. This is necessary to avoid absurdity and inconsistency (Fitzgerald v Masters (1956) 95 CLR 420 at 426-427). In any event, the plaintiffs did not attempt to exercise the option for renewal between 1 August 2004 and 1 November 2004.

12 Clause 5.1.1 obliged the tenant to pay the rent stated in item 12 of the schedule. Item 12 provided that after 12 May 2001 the rent should be "$1,200.00 per week plus GST of $120.00 per week thereafter to the first review date being $4,800.00 per month plus GST of $480.00 (being $62,400.00 pa plus GST at $6,240.00)." The lease provided for the rent to be reviewed annually from 13 February 2002, but that does not appear to have been done.

13 Clause 6 provided: " The tenant must -

6.1.1 use the property for the purpose stated in item 16 in the schedule and not for any other purpose; 6.1.2 open for business at times usual for a business of the kind conducted by the tenant. "

14 Clause 12.5.3 provided that clause 6.1 was essential.

15 I turn to the first question, whether there is a serious question that the plaintiffs validly exercised the option for renewal. The defendants contend that the option was not validly exercised on three grounds. First, it was not exercised on time. Therefore, the condition in cl 4.4.1 was not satisfied. Secondly, when the option was purportedly exercised the plaintiffs were in arrears in paying rent, so that the condition in cl 4.4.2 was not satisfied. Thirdly, the plaintiffs did not comply with their obligation to provide a security bond or bank guarantee, and to provide evidence of insurance, such that the condition in cl 4.4.3 was not satisfied.

16 There is a factual dispute in relation to the alleged breach concerning the payment of the surety deposit and provision of evidence of insurance. That is not a dispute which can be resolved on an interlocutory hearing. Those matters do not preclude there being a serious question to be tried that the option for renewal was validly exercised.

17 As to the contention that the plaintiffs were in arrears of rent, the plaintiffs submitted that the rent due was $4,800 per calendar month plus GST. However, item 12 of the lease described the rent due as $1,200 per week plus GST, which was said to be $4,800 per month plus GST, and was also said to be $62,400 pa plus GST. $1,200 per week is not $4,800 per calendar month. Nor is $4,800 per calendar month $62,400 per annum. $1,200 per week is $5,214 per calendar month on a 365-day year. Item 12 only makes sense if the word "month" is read not as a calendar month, but as a lunar month of four weeks. The rent due was $1,200 per week plus GST, not $4,800 per calendar month plus GST. The plaintiffs did not submit that the rent was up to date when the option was purportedly exercised if this was the rent due.

18 However, no notice was given by the defendants under s 133E of the Conveyancing Act 1919 (NSW) in relation to the failure to pay the rent required by the lease as a condition for the exercise of the option.

19 Section 133E provides: " 133E Breach of certain obligations not to preclude option except in certain circumstances (1) This section applies to a lease that contains: (a) an option exercisable by the lessee, and (b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised. (2) Despite any provision of the kind referred to in subsection (1) (b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless: (a) the prescribed notice has been served on the lessee in respect of the breach, and (b) the lessee's rights are extinguished in relation to the notice. (3) In subsection (2): breach of an obligation includes, where the obligation requires any thing to be done, any neglect or failure to do the thing concerned. obligation includes any agreement, covenant, condition or stipulation by which the lessee is required to do or refrain from doing any thing. prescribed notice means a notice in writing: (a) specifying the lessee's breach of the relevant obligation and served on the lessee: (i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or (ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and (b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option. (4) For the purposes of subsection (2) (b), the lessee's rights are extinguished in relation to a prescribed notice: (a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or (b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or (c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose. " 20 It was faintly argued for the defendants that the correspondence sent by the defendants' solicitors before the option was purportedly exercised requiring, amongst other things, the payment of all arrears of rent and of the security deposit, and provision of evidence of a current insurance policy before a fresh lease could be entered into, qualified as a prescribed notice for the purposes of subs 133E(2). However, this correspondence was not served within the time provided by para (a) of the definition of prescribed notice in subs 133E(3). Nor did it include a statement to the effect of that required by para (b) of that definition. Accordingly, by virtue of subs 133E(2), the failure to pay all rent due before the purported exercise of the option does not preclude there being a serious question to be tried that the option was validly exercised. The plaintiffs have not relied upon s 133E in their grounds of defence to the cross claim. I do not consider that that precludes its being taken into account on the present application.

21 There remains the question whether the option was exercised in time. It will be recalled that the express terms of the lease required that the option be exercised by 1 November 2003 (once the evident mistake in the lease is corrected). The letter exercising the option was dated 3 November 2003. It was signed by the plaintiffs and addressed to the defendants, and stated: " We refer to the abovementioned lease and we would like to confirm that we will be continuing with our tenancy for the next three year option of the lease commencing 12 February 2004.

Would you please confirm your acceptance in writing by 14 November 2003. "

22 1 November 2003 was a Saturday. The plaintiff's evidence is that the letter of 3 November 2003 was delivered personally to the defendants on the next business day, being Monday 3 November. The defendants say that the notice was not delivered until 4 November 2003. The question of whether the notice was delivered on 3 or 4 November 2003 is not one which can be decided on an interlocutory application.

23 The issue remains whether an option to be exercised by 1 November 2003, being a Saturday, could be validly exercised on the following Monday. The plaintiffs say that it could on three grounds. First, they submitted that there was a general principle of interpretation of contracts to that effect. Secondly, they submitted that it could by reason of s 170 of the Conveyancing Act 1919 (NSW); and thirdly, by reason of subs 36(2) of the Interpretation Act 1987 (NSW).

24 In support of the first proposition, the plaintiffs referred to the decision of the New South Wales Court of Appeal in FAI General Insurance Co Ltd v Parras (2002) 55 NSWLR 498, where the court, without discussion, stated that the last day for exercise of an option for renewal which expired on Easter Monday, was the following day (at [16], [34]). However, it is clear from the decision at first instance that it was an express term of the lease in that case that where any matter or thing was to be done on a Saturday, Sunday or public holiday, it could be done on the next succeeding day, which was not a Saturday, Sunday or public holiday (Parras v FAI General Insurance Co Ltd (2001) 10 BPR 19,209 at [13]). There is no such provision in the lease in the present case. This authority is of no assistance to the plaintiff.

25 At common law, and unless a statute makes contrary provision, there is nothing to prevent parties performing their contract on a Saturday or Sunday or any other day. Saturday, Sunday and public holidays count in determining the period in which an act must be done (see Halsbury's Laws of Australia, Vol 26, F Smith & J Ireland, Time, para [410-170]). In Rawlins v The Overseers of West Derby (1846) 2 CB 72; 135 ER 868, a statute fixed a time for making a claim to be included on a register. The last day for doing that was a Sunday. Tindal CJ said at (79; 871): "Many things at common law were feasible and were held valid if done on a Sunday: an entry for condition broken, or to preserve an estate, was equally valid whether made on a Sunday or on any other day; so, a demand of possession, to support an ejectment, might well be made on that day; and all contracts, not made in the ordinary callings of the parties, are still valid though made on a Sunday."

26 Maule J said (at 80; 871): "Certain things are by statute declared void if done on a Sunday: but prima facie any act may be done on that day." 27 In Peacock v The Queen (1858) 4 CB (NS) 264; 140 ER 1085, Willes J said (at 268; 1087): "Sunday, at common law, is just like any other day".

28 In Child v Edwards [1909] 2 KB 753, rent was due in monthly instalments payable on the 24th day of each month. On the 25th day of the month, which was a Monday, the landlord levied distress for the non-payment of rent due on the 24th. The tenants contended that the rent was not, by law, payable on the Sunday and did not become payable until the next day. Ridley J rejected this argument, saying (at 756): "… as the rent for which the defendant distrained became due on the Sunday under the contract of June 24, 1908, and as there is no statute by which it is enacted that rent cannot be legally paid on that day, it was lawfully due on the Sunday, and as it was not paid on that day it became in arrear on the following Monday, and the distress was therefore lawfully made."

29 In Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850, an instalment under a time charter of a ship fell due on a Sunday when banks were closed. Payment was made the following day. It was common ground that the payment was late and the charterers were in breach of contract by failing to tender payment on or before the due day. The issue was as to the effect of the acceptance of the late payment. Nonetheless, Lord Salmon observed (at 875) that this concession was rightly made. His Lordship said: "Punctual payment cannot be made on the day after it falls due, but I cannot see any reason in the present case why it could not be made before that day. If the hire is to be paid to the owners' bank semimonthly in advance and an instalment happens to fall due on a Sunday when the banks are closed, then as the banks are also closed on Saturday, payment, in my view, should be tendered on the previous Friday. This will be payment in advance. If it is not tendered until the Monday it will not be made in advance of the period for which it is tendered."

30 Lord Fraser said (at 881): " The arbitrators found that the hire was due on Friday, April 10, being the last day on which banks were open to enable payment to be made timeously, and in the Court of Appeal counsel for the charterers conceded that they had failed to pay the hire punctually. Lord Denning M.R. suggested that the concession might not have been rightly made, and that, when a payment was due on a day on which the banks were closed, it might be punctually made if it were made on the next business day. But no judicial authority for a rule to that effect has been cited and the arbitrators' finding seems to show that no such rule is recognised by the business community. I do not think the rule could properly be introduced by this House in its judicial capacity. "

31 I see no distinction between a case where the last date for service of a notice exercising an option is Sunday, let alone a Saturday, and a case where that is the day for the doing of any other act, such as making a payment.

32 Even if it had not been possible to serve the notice exercising the option on 1 November 2003, it would not follow by any principle of common law for the interpretation of the lease that the time for doing so was extended. In fact there is no evidence in this case that it was not possible to serve the notice on Saturday 1 November 2003.

33 Section 170 of the Conveyancing Act does not assist the plaintiff. It prescribes what are sufficient modes of service of notices required or authorised by that Act, and prescribes the time by which documents served through a document exchange facility are to be taken to have been served. It does so by reference to a number of business days following delivery of the notice to a document exchange facility. Neither that section, nor like provisions dealing with the deemed time for service by post (Evidence Act 1995 (NSW) s 160; Interpretation Act 1987 (NSW) s 76), bear on the question whether the lease should be interpreted as permitting the exercise of the option on the next business day, where the option expires on a Saturday, Sunday or public holiday.

34 Subsection 36(2) of the Interpretation Act provides: "36 Reckoning of time … (2) If the last day of a period of time prescribed or allowed by an Act or instrument for the doing of any thing falls: (a) on a Saturday or Sunday, or (b) on a day that is a public holiday or bank holiday in the place in which the thing is to be or may be done, the thing may be done on the first day following that is not a Saturday or Sunday, or a public holiday or bank holiday in that place, as the case may be."

35 Subsection 3(1) provides that: " 3 Definitions (1) In this Act: instrument means an instrument (including a statutory rule or an environmental planning instrument) made under an Act, and includes an instrument made under any such instrument. "

36 If the lease were an instrument to which subs 36(2) applies, then that subsection would have the effect of extending the time for the exercise of the option to Monday 3 November. In Ng v Chong [2005] NSWSC 270 and Mantsis v Danoelle Pty Ltd [2005] NSWSC 595, Hamilton J assumed that subs 36(2) applied to notices to complete given under contracts for the sale of land. However, it does not appear that his Honour was referred to s 3. I do not consider that those cases answer the question whether the lease was an instrument made under an Act.

37 No authority was cited on the meaning of that expression in subs 3(1), and in the limited time available I have found none. Subsection 3(1) must be construed having regard to the context, subject, scope and purpose of the Interpretation Act. An instrument is defined as including a statutory rule. A statutory rule is defined to mean: "(a) a regulation, by-law, rule or Ordinance ...". However, an instrument is not confined to statutory rules or environmental planning instruments. There is no express requirement that the instrument to which the Act applies be wholly, predominantly, or even partially, legislative in character. However, the predominant purpose of the Act is to provide for the interpretation, application and operation of legislative instruments.

38 At the very least it appears from subs 32(1) that the instruments referred to are those made under the authority of a power conferred by an Act. Subsection 32(1) provides: " 32 Instruments to be construed so as not to exceed the powers conferred by the Acts under which they are made

(1) An instrument shall be construed as operating to the full extent of, but so as not to exceed, the power conferred by the Act under which it is made ."

39 There is nothing in the Interpretation Act which indicates an intention that it apply to instruments, embodying private contracts or disposing of property, which are regulated by an Act, or even to instruments required by an Act (such as a lease of Real Property Act land for more than three years, see Real Property Act s 53), where the authority to make the instrument is not conferred by an Act.

40 The expression "decision of an administrative character made under an enactment" in legislation providing for the judicial review of administrative decisions has been considered on many occasions (Griffith University v Tang (2005) 221 CLR 99). However, the context in which such provisions appear, and the scope and purpose of such legislation, are very different from the context, scope and purpose of s 3 of the Interpretation Act. Those authorities do not provide direct guidance for the meaning of subs 3(1). On the other hand, there is nothing in those authorities which is inconsistent with my view that for an instrument to be one "made under an Act", within the meaning of subs 3(1), it must at least be made under the authority of a power conferred by an Act.

41 Although the lease is an instrument, the authority of the parties to make it is not derived from any Act of Parliament. Nor, if it be relevant, which I do think it is, does the legal efficacy of the lease in this case, being an unregistered lease, derive from a statute. It is true that if the lease is governed by the Retail Leases Act 1994 (NSW), that Act requires an instrument to be brought into existence containing the terms of the lease. It is true also that the lease is regulated by an Act: either the Retail Leases Act, or the Real Property Act, or the Conveyancing Act, or all three. However, none of that is sufficient, in my opinion, for the lease to be "an instrument made under an Act" within the meaning of subs 3(1).

42 Accordingly I am of the view that there is no serious question to be tried that the option was validly exercised. The time for exercising the option expired on Saturday 1 November 2003.

43 Although a submission was made that the defendants are estopped from denying the validity of the exercise of the option, no separate submission was made that the exercise of the option could be saved on the principles on which equity grants relief against forfeiture. Equity regards the time for exercise of an option as being essential. There is much authority that equity cannot relieve a tenant from the consequences of failing to exercise an option for renewal in time (see for example Finch v Underwood [1876] 2 Chancery Div 310 at 314, 315; Kim v Abbey Orchid Property Investments Pty Ltd (1981) NSW Conv R 55-039; Wallville Pty Ltd v Liristis Holdings Pty Limited [2001] NSWSC 894 at [29]). On the other hand, in Hillier v Goodfellow [1988] Vic ConvR 54-310, Murphy J stated that the principle is a prima facie one which applied as a general rule, and that equity might grant relief against a minor time defalcation which was accidental and inconsequential, and not wilful or deliberate (63,968, 63,970). In Leads Plus Pty Ltd v Kowho Intercontinental Pty Ltd (2000) 10 BPR 18,085, Young J, as his Honour then was, expressed the tentative view (at [20] and [21]) that equity does have jurisdiction to relieve against the forfeiture of an equitable interest in property that exists under an option to renew, but said that before the jurisdiction could be exercised there must be a finding of unconscionable conduct.

44 As the issue of the availability of this jurisdiction was not argued, I will express no view about it. The requirement stated by Young J in Leads Plus Pty Ltd v Kowho Intercontinential Pty Ltd that before the jurisdiction can be exercised, assuming it exists, there must be a finding of unconscionable conduct, must be reinforced by the decisions of the High Court in Tanwar Enterprises Pty Ltd v Cauchi (2004) 217 CLR 315 and Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367. It is sufficient to say I am satisfied that in this case there is no basis for a claim based on equity's jurisdiction to relieve against forfeiture where unconscionable conduct must be found, which would not support the estoppel claim.

45 I turn to the second question: whether there is a serious question to be tried that the defendants are estopped from denying the validity of the exercise of the option. The plaintiffs submitted that the estoppel arose because the defendants remained silent after receiving the letter of 3 November 2003. They did not dispute the validity of the purported exercise of the option and they continued to accept rent. It was submitted that the plaintiffs assumed they were entitled to a renewed lease, and expended time, money, and perhaps capital, in building up a business, which they would not have done had it been indicated that the lessor would hold them to a monthly tenancy.

46 Estoppel is not pleaded as a defence to the cross claim seeking possession, but I do not regard that as being fatal to its being considered on this application. It is likely that the pleadings will require attention before the final hearing. Nonetheless, I am of the view that the evidence read on this application does not provide an arguable basis for the estoppel claimed.

47 On 1 September 2003 the solicitors for the defendants advised the plaintiffs that the defendants would enter into a "fresh lease" on certain terms and conditions. These included payment of arrears, payment of security deposit, payment of one month's rent in advance and provision of evidence of a current insurance policy. On 15 October 2003 the defendants' solicitors wrote again to the plaintiffs. They said: "We refer to our letter of 1 September 2003.

We are instructed that our clients are no longer prepared to enter into a fresh lease due to your failure [to] respond to our said letter.

We advise that our client is frustrated by your insistence to not pay rent, the security deposit, remove the caveat and provide us with evidence of insurance.

Our client is however prepared to allow you to stay in the premises on the provision that you pay your rent and your tenancy will continue as a month to month tenancy.

48 It will be recalled that the plaintiffs' letter of 3 November 2003 sought the defendants' confirmation, in writing, that they accepted the exercise of the option. No such confirmation was given. On 5 November the defendants' managing agent wrote to the plaintiffs saying: "Thank you for your letter dated 3 November 2003 outlining your intentions to continue your tenancy of the abovementioned property. We direct you to the landlord's solicitor [name given] . They will be handling all correspondence relating to this matter."

49 This letter was not a confirmation that the defendants accepted the validity of the exercise of the option. So far as appears, the plaintiffs did not pursue the matter further with the defendants' solicitors.

50 On 31 October 2003, that is shortly before the purported exercise of the option, and again on 4 November 2003, the defendants' managing agent wrote to the plaintiffs complaining that rent was in arrears and asserting that this was a serious breach of the tenancy agreement. On 20 November 2003, Mr McGregor, the first plaintiff, wrote to the managing agent and said: "Thank you for your time recently in discussing our rental situation with you. I believe that if business continues as it is at this present pace, we will be able to bring our rent up to date in approximately 6-8 weeks. I trust that this a satisfactory time frame to both yourself and Henrys ...".

51 It does appear to be the case that at this stage the defendants did not deny that the option had been validly exercised. Nor did they accept that it had been.

52 The estoppel relied upon is essentially an estoppel by representation by silence and acceptance of rent. That silence, and the acceptance of rent after 1 February 2004, is at least equally consistent with the defendants' adhering to the view expressed by their solicitors in their letter of 15 October 2003 that the tenancy would continue on a month to month basis. The plaintiffs must have been aware that the defendants were complaining that rent was unpaid and that there had been other breaches. I accept that there is or will be evidence that the plaintiffs assumed that the option had been validly exercised. However, to ground an estoppel the plaintiffs would need to establish that the defendants played such a part in the plaintiffs' adoption of, or persistence in, that assumption, that they would be guilty of unjust or oppressive conduct were they allowed to depart from it (The Commonwealth v Verwayen (1990) 170 CLR 394 at 444).

53 I do not think on the present material it is seriously arguable, having regard to the correspondence which immediately preceded the purported exercise of the option, and the correspondence which followed, that it would be unconscionable for the defendants to deny the validity of the assumption which the plaintiffs say they made.

54 Moreover, an estoppel based on a representation must be clear (Legione v Hately (1983) 152 CLR 406 at 435-436). A representation may be implied by silence, but it must still be clear and unambiguous. Here there was no such clear representation.

55 Nor does the evidence read before me establish that the plaintiffs carried on their business in a different way from that in which they would otherwise have done had they known, assuming they did not, that the defendants would treat them as monthly tenants after the expiry of the lease term. The highest the plaintiffs' evidence went in this respect was that Mr McGregor deposed: "Both my wife and myself regard the option to have been exercised and we consider the lease to be validly on foot, and we have proceeded to act accordingly."

56 I rejected that sentence of Mr McGregor's affidavit, but counsel submitted that I ought to reconsider that ruling having regard to the basis upon which the estoppel claim was put. One difficulty with the sentence is that no content is given to the statement that "we have proceeded to act accordingly". Mr McGregor has not deposed specifically to what was done on the assumption that the relevant lease was on foot. Nor does the evidence establish that the plaintiffs would have acted differently had they appreciated that the lessors did not accept the validity of the exercise of the option. Indeed, the plaintiffs continued to operate their business for a considerable time after they were aware that the defendants disputed the validity of the exercise of the option. Nor is there evidence that the defendants knew that the plaintiffs assumed that the option had been validly exercised, and assumed that the defendants would not contend that they were monthly tenants only. Nor is there evidence that the defendants knew that the plaintiffs had in any way changed their position on the basis of such an assumption.

57 For those reasons I do not think there is a serious question to be tried that the defendants are estopped from denying the validity of the exercise of the option.

58 Subject to the argument that the defendants are precluded from re-entry by reason of their having sought orders for possession in their cross claim, these conclusions would be sufficient to dispose of the application. However, in case I am wrong, I will consider the other issues I identified.

59 I accept that there is a serious question to be tried that by vacating the premises the plaintiffs did not evince an unequivocal intention to abandon the lease. Mr McGregor's evidence was that he intended to vacate the premises only temporarily and did so as a result of threats to him and his family. This evidence was challenged by the defendants. However, it is not appropriate to determine questions of credit on an interlocutory application. I do not propose to deal specifically with the grounds of the challenge. There is clearly evidence which, if accepted, shows that the plaintiffs, by vacating the premises, did not indicate an intention to abandon the lease, but that that was a temporary step taken in the interests of the plaintiffs' safety and that of their family. That is sufficient to show that there is a serious question on this issue.

Defendants' Right to Terminate a Renewed Lease for Breach

60 Assuming that there were a renewed lease, the defendants submit that it is unarguable that the plaintiffs have breached such a renewed lease, and that they are entitled to terminate it. The defendants relied on two grounds: the vacation of the premises and ceasing to carry on business, which is alleged to be a breach of clauses 6.1.1 and 6.1.2; and non-payment of rent.

61 The plaintiffs submit that clause 6.1.1 did not impose a mandatory requirement, but should be construed as meaning that the specified use of the premises, as a restaurant/steakhouse, was the only permitted use to which the premises could be put: not that the premises must be used for that purpose. I do not think that that is the natural meaning of the words in clause 6.1.1. However, clause 6.1.2 specifies the period for which the premises must be kept open for business as a restaurant as the times "usual for a business of the kind conducted by the tenant". I think there is a serious question to be tried as to whether closure of the premises for the period in question, even if that period extended up to June, would be a breach of clause 6.1.2 of the lease. There may also be a serious question as to whether the plaintiffs would be in breach of the lease for not opening the premises if the reasons for not doing so are those deposed to by Mr McGregor. In any event, the defendants could not terminate the renewed lease for breach of clause 6.1.1 or 6.1.2 without first serving notice under s 129 of the Conveyancing Act, giving the plaintiffs the opportunity to remedy the breach.

62 However, the case in respect of the non-payment of rent is different. The plaintiffs admit non-payment of rent from the end of November 2005. Mr McGregor deposes, in substance, that the plaintiffs decided to stop paying rent in order to obtain "some collateral, set off or bargaining position" with the landlord. He also deposes that: "Because the likelihood was that Bradley Henry would continue to take an uncompromising approach so that an acceptable result in practical terms (and regardless as to any decision which might be made by the Court) would not come about, my thought was that it would not be advisable for us to make further payments to the Landlords particularly where those payments might well be applied to the funding of the ongoing legal proceedings against us".

63 Those are not proper reasons for withholding rent.

Relief Against Forfeiture if Renewed Lease were Terminated

64 Equity regards the lessor's right to determine a lease by re-entry for non-payment of rent as security for the rent due. Provided the lessee pays the outstanding rent and other moneys and costs, it will only be in special circumstances that relief against forfeiture for non-payment of rent will be refused. Even so, relief remains discretionary (Pioneer Quarries (Sydney) Pty Ltd v Permanent Trustee Co of NSW Ltd (1970) 2 BPR 9562).

65 Having regard to the other alleged defaults and the lack of a bona fide reason for stopping payment of rent, it would be a serious question whether the plaintiffs were entitled to relief against forfeiture if the defendants terminated the new lease for non-payment of rent. However, I do not think it unarguable that the plaintiffs would not be entitled to relief against forfeiture, provided they paid the outstanding rent, interest and any other moneys which might be due. It is quite clear that relief against forfeiture would not be given without their making such a payment. There is no offer at the moment by the plaintiffs to make such a payment. It is not clear to me whether such an offer would be made at the final hearing.

66 The significance of this for the plaintiffs' entitlement to continued interlocutory relief is that a lessee may be entitled to interlocutory relief to protect an arguable claim for relief against forfeiture of the lease, even though it has been brought to an end (Solowave Pty Ltd v Nechi Holdings Pty Ltd [2005] NSWSC 837). However, where that is so, it will, at least usually, be a condition of the relief that the lessee pay the rent which is admittedly due, or which the court is satisfied is due. (See for example Sufigoe Pty Ltd v Amber Properties Pty Ltd (1 August 1995, unreported, McLelland CJ in Eq), and Solowave Pty Ltd v Nechi Holdings Pty Ltd). As the defendants would be entitled to terminate a renewed lease for non-payment of rent, and as the plaintiffs would only be entitled to interlocutory relief to protect a claim for relief against forfeiture of such a lease, the plaintiffs should not be entitled to the continued protection of their claim for possession without their doing equity by paying the rent that is due.

67 That brings me to the seventh question which I identified earlier in these reasons, namely, whether the defendants are precluded from obtaining possession by re-entry by reason of their having sought orders for possession in their cross claim. The plaintiffs submitted: "By taking curial proceedings (as the defendants have done in these proceedings by way of the cross claim) for the purpose of obtaining possession, a party is precluded from taking physical action to obtain possession, Argyle Art Centre Pty Ltd v Argyle Bond and Free Stores Pty Ltd [1976] 1 NSWLR 377."

68 In the Argyle Art Centre case, a notice to quit was given and ejectment proceedings were instituted in the Court of Petty Sessions. The lessor accepted rent after the expiry of the notice to quit. Needham J held that this gave rise to an implied new tenancy. That implied new tenancy would be an answer to the plaintiffs' claim for possession in the ejectment proceedings. A second notice to quit was given. His Honour held this was apt to determine the new tenancy. Following the expiry of the second notice to quit, the lessor made a physical re-entry, which the tenants sought to restrain. The tenants successfully argued that by taking curial proceedings for the purpose of obtaining possession on the basis of the first notice to quit, the lessor had made an election between those proceedings and physical action to obtain possession. After distinguishing authorities relied on by the lessor, his Honour concluded (at 386): "I would, therefore, be of the opinion that, even if a positive right in the plaintiffs here had not been established, the decisions to which I have referred would not require me to hold that the re-entry by the defendant was justified. In such a case I would be of opinion that the defendant had elected to try his right to possession in the Court of Petty Sessions and not by re-entry at common law. But, as I have said, the evidence before me leads me to the conclusion that a new tenancy arose by the acceptance of rent in December1975.

It might then be argued that, that tenancy having been determined by the expiration of the second notice to quit on 6th March, 1976, the defendant was entitled at common law to re-enter because of that determination, and that the re-entry should be deemed to have taken place under that right. However, I think that, where a landlord has issued two notices to quit and has taken curial proceedings under the first notice and has continued those proceedings after the issue and expiration of the second notice to quit, a case of election arises, and he cannot, at least before the termination of the curial proceedings, take action under the second notice to quit, as if the first and the curial proceedings had never existed."

69 With respect, his Honour there stated the conclusion rather than the reasons for the conclusion, that the landlord had made an election by the institution and continuance of proceedings, which precluded his terminating the lease by physical re-entry on the basis of a subsequent notice to quit. For a person to be bound by an election, he or she must have elected between one of two or more rights which are inconsistent or mutually exclusive (Craine v Colonial Mutual Fire Insurance Ltd [1920] 28 CLR 305 at 326; Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634 at 642, 655; The Commonwealth v Verwayen at 408, 421, 472 and 481). As Toohey J said in Verwayen (at 472): "An election implies that a choice must be made between two rights which are mutually exclusive."

70 Thus in Matthews v Smallwood [1910] 1 Ch 777, a case subsequently treated as one of election, Parker J, describing the principle as one of waiver, said (at 786): "Waiver of a right of re-entry can only occur where the lessor, with knowledge of the facts upon which his right to re-enter arises, does some unequivocal act recognizing the continued existence of the lease."

71 If the curial proceedings brought by the landlord in the Argyle Art Centre case had been dismissed before physical re-entry, there would have been no bar against physical re-entry. If it had succeeded, the lessor would have been entitled to re-entry pursuant to the orders then made. It is difficult, with respect, to see how the pursuit of such a curial remedy was inconsistent with the landlord's rights to take possession, at least where the claim to re-enter was not based on the same grounds as those upon which the curial remedy was sought. Clearly the landlord did not acknowledge the existence of a binding lease. Its position was to the contrary. It is, with respect, difficult to see how the pursuit of a curial remedy for the lessee's failure to comply with the first notice, could be an election against making a physical re-entry on the basis of non-compliance with the second.

72 The decision in Argyle Art Centre Pty Ltd v Argyle Bond & Free Stores Pty Ltd has been treated as authority for the proposition that an election to pursue a court remedy by way of an action for possession excludes the right to take physical possession (Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99 at 101; National Australia Bank Ltd v Zollo (1995) 64 SASR 63 at (68-69). In Wynsix Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236, Young CJ in Eq spoke more guardedly saying (at [62]) that: "Once a person takes a step and communicates that step, usually he or she may not withdraw. Moreover, once a person embarks on a course of letting his or her tenant know that proceedings for ejectment will be taken in the ' gentleman's way' by notice and action, there may be an election against physical re-entry; ... see Argyle Art Centre Pty Ltd v Argyle Bond and Free Stores Pty Ltd ".

73 Considered as a case of election, it may be possible to say that by not taking up the opportunity in June and July 2005 to discharge the undertaking and consent orders, and by filing a cross claim for possession, the defendants elected not to enforce such right they may then have had to terminate the plaintiffs' lease by re-entry. However, I cannot see how the taking of those steps could be an election not to terminate the lease by re-entry if grounds arose subsequently for it to do so. In my view Argyle Art Centre Pty Ltd v Argyle Bond and Free Stores Pty Ltd is better understood, not as a case of election, but as an instance of the court's denying the efficacy of steps taken out of court which could adversely affect the integrity of the curial process; see Cinc v Bucan Holdings Pty Ltd [2004] NSWSC 847 at [34]. As the authorities referred to in that case demonstrate, it may be an abuse of process, and in some cases it may be a contempt, for a party who seeks to obtain relief by court proceedings, to attempt to gain in some other way the same relief whilst the proceedings remain on foot. It may be that in the circumstances of the Argyle Art Centre case, the taking of possession of the premises by extra-curial means was an abuse of process of the Court of Petty Sessions which the Supreme Court would prevent by denying the efficacy of the steps taken.

74 In the circumstances of this case, I do not consider that there would be an abuse of the court's processes were the defendants to terminate whatever tenancy the plaintiffs have by physical re-entry. They would then be exercising a right on a basis which did not exist when they filed the cross claim. They would be entitled to exercise those rights by reason of the non-payment of rent from at least the end of November last year. I accept that there is a good reason for them to apprehend that a judgment which they might ultimately recover for unpaid rent or for damages may be irrecoverable. In that event, the court's processes would be abused if they were to continue to be restrained from enforcing what, on any view, is their existing right to terminate any such lease for non-payment of rent. That is especially so where the expressed ground for withholding rent is to make it more difficult for the defendants to pursue their claims in this litigation.

75 In the Argyle Art Centre case, Needham J refused to grant the injunction sought because of the shortness of the remaining time before the expiry of the lease. His Honour left the lessee to its claim for damages. If I am wrong in my view that that case should be understood as one in which the court acted to protect the integrity of the curial process, nonetheless, I do not think that the plaintiffs are entitled to continued injunctive relief where they do not do equity by withholding the rent admittedly due. Particularly is that so where their express purpose in taking that course is to make it more difficult for the defendants to pursue this action.

76 Accordingly, and notwithstanding the shortness of time until the final hearing, I consider that the defendants are entitled to have the existing undertaking released and the consent order of 28 June 2005 discharged.

77 It was submitted for the plaintiffs that this motion was in substance an application for possession, and such a claim should not be entertained by motion. I do not consider that that is the effect of the application. The release of the undertaking and discharge of the orders removes the impediment which the defendants otherwise have to asserting their rights under the lease. If, which I do not consider that to be the case, they are not entitled to terminate whatever lease exists by re-entry, the plaintiffs' claim for damages would not be adversely affected.

78 I order that the defendants be released from the undertaking given on their behalf to the court on 10 March 2005. I discharge the order made on 28 June 2005 that the defendants restore to the plaintiffs' possession of the property situated at 541 Windsor Road, Vineyard forthwith, and that they be restrained, until further order, from interfering with the plaintiffs' possession of the property, including by any process of physical re-entry.

79 I also order that the plaintiffs pay the defendants' costs of the notice of motion.

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