New Dragon Investments Pty Ltd v Morgan & Banks Development Pty Ltd

Supreme Court of NSW|2006-10-27|Before: Brereton J, Mr P

CITATION : New Dragon Investments Pty Ltd v Morgan & Banks Development Pty Ltd [2006] NSWSC 1139

JURISDICTION : Equity Division Duty List

DECISION : Application for interim injunction to restrain re-entry by lessor refused.

LEGISLATION CITED : (NSW) Conveyancing Act 1919, s 129

CASES CITED : Pakwood Transport Ltd v 15 Beauchamp Place Ltd (1977) 36 P & CR 112.

PARTIES : New Dragon Investments Pty Ltd (plaintiff) Morgan & Banks Development Pty Ltd (defendants)

COUNSEL : Mr K Pierce (plaintiff) Mr S Kerr & Mr P Kulevski (defendant)

SOLICITORS : Leitch Hasson Dent (plaintiff) Bartier Perry (defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

5534/06 New Dragon Investments Pty Ltd v Morgan & Banks Developments Pty Ltd JUDGMENT 1 HIS HONOUR: The applicant New Dragon Investments Pty Ltd is the lessee and the respondent Morgan and Banks Developments Pty Ltd is the lessor of premises formerly known as the Club Watersports Building at 136-150 Dry Dock Road, Tweed Heads South, under lease registered number AB389317 for a term of 22 years commencing from 1 October 2004. On 22 March 2006, Morgan & Banks' solicitors Bartier Perry gave New Dragon notice of breaches of three of the lessee's covenants, and also that it was in arrears of rent. On 1 May 2006, Bartier Perry gave New Dragon notice that by reason of those alleged breaches remaining unremedied, the lease was terminated and converted into a monthly tenancy. On 26 September 2006, Bartier Perry gave New Dragon notice that the monthly tenancy was terminated with effect from one calendar month after service of the notice, and requiring that New Dragon remove its property from the premises and return the keys by that time. During the afternoon of 26 October 2006 - the day on which the notice to quit expired - New Dragon approached the court ex parte with an application for an injunction restraining Morgan & Banks from taking possession of, and from excluding it from, the premises. When the hearing of the application resumed on Friday 27 October, counsel appeared on behalf of Morgan & Banks, and the matter proceeded as an opposed application for an interim injunction. At the conclusion of the hearing on 27 October, I indicated that I would not grant interim relief; these are my reasons for that decision which, because of the significant potential consequences for the parties, are more elaborate than would ordinarily be appropriate in the circumstances.

2 The lease contained covenants by New Dragon (called "the Tenant" in the lease):

· To pay the Base Rent (initially $150,000 per annum exclusive of GST) by equal monthly instalments in advance, commencing from 1 October 2005 (clause 3). (Although the Commencement Date under the lease was 1 October 2004, the obligation to pay rent did not commence until 1 October 2005); · To pay the Tenant's Share of Outgoings (being that proportion of the rates taxes charges and impositions payable in respect of the whole of four parcels of land, of which the premises form part, which the area of the premises bears to the area of the whole land) (clause 7);

· By 1 October 2005 to pay to Morgan & Banks (called "the Landlord") $400,000 by way of bank cheque for the purchase of the Landlord's Fixtures, being certain fixtures in the premises which had been supplied by the Landlord (clause 8.1(q)); and

· To deliver a bank guarantee to the Landlord, in an amount of the lesser of $200,000 and the equivalent of six months' rent, by 1 October 2005 (clause 21, as amended by Deed of Variation dated 7 March 2005). (The obligation to provide the bank guarantee was originally due on 1 October 2004, but the Deed of Variation of 7 March 2005 deferred it to 1 October 2005).

3 Each of those covenants was expressed to be an essential term of the lease (clause 16.1). Failure to comply with any essential term is a default (clause 16.2(a)). So too is a repudiation of the lease (clause 16.2(b)), and a failure to comply with a non-essential term which is not remedied within a reasonable time after a request to remedy it (clause 16.2(c)). If the Tenant defaults, the Landlord may, inter alia, by notice to the Tenant elect to convert the balance of the term into a monthly tenancy, in which event the lease is terminated from the giving of the notice (clause 16.5(c)), and replaced by a monthly tenancy terminable on one month's notice, or immediately in the event of a default (clause 2.2).

4 As at the date of the purported conversion of the lease to a monthly tenancy (1 May 2006), as at the date of the notice of termination of the monthly tenancy (26 September 2006), and still as at the date of hearing (27 October 2006), New Dragon was in default of each of the four covenants mentioned. Prima facie, Morgan & Banks was entitled to take each of the steps it took. However, New Dragon submits that it was not, because of dealings which took place between the parties in June 2005.

5 If the lease was validly converted to a monthly tenancy, then there is no apparent basis on which it could be said that Morgan & Banks were not entitled to terminate it, as they have purported to, simply by giving one month's notice, and thereupon to exclude New Dragon. It is only if they were not entitled to convert the lease to a monthly tenancy that it could be argued that New Dragon was entitled to remain in possession. In that respect, it is highly relevant to the exercise of discretion to grant interim relief that - save for a letter from New Dragon's solicitors Leitch Hasson Dent on 4 May - there had until 26 October been no earlier challenge to the efficacy of the 1 May Notice. It is notorious that an applicant for ex parte or interim relief is expected to act expeditiously; here there has been delay for only a few days short of six months. In those circumstances, at the very least, a last-minute applicant for ex parte or interim relief must adduce evidence of the essential elements of the case for final relief which it advances as being seriously arguable.

6 At the date of the lease, the premises had the benefit of a "dine and drink licence" only. The lease contemplated that a liquor licence might be obtained, and that the premises would become a licensed hotel, but it did not require and was not conditional upon those things happening. The Landlord was obliged to apply to the local council for consent to use of the premises as a licensed hotel, and the Tenant was obliged to apply for and use its best endeavours to obtain an hotelier's licence, and to keep the Landlord informed of progress (clause 30). The annual Base Rent was to increase from $150,000 to $250,000 (or $300,000, depending upon the number of poker machine entitlements) from the date on which a liquor licence was granted. If the Tenant was not prepared to pay a Base Rent of at least $300,000 as at 1 April 2007, it could terminate without penalty (clause 32).

7 Conduct of the premises under a dine and drink licence was uneconomical. On 7 June 2005, the parties met at the offices of Morgan & Banks in Neutral Bay. Minutes kept of that meeting on behalf of New Dragon record the following: At this point, Morgan and Banks and New Dragon Investments mutually agreed to cease trade as The Aquatic Bar & Grill from midnight tonight. Verbal agreement was made to pay $1,500 to P. & M. Blunt [the principals of New Dragon] in caretaker model (basic care/maintenance of building/plant) + $700 per week current lease payments ($2,200 per week). Utilities to be paid for by M&B., Media release statement to be agreed up between M&B and New Dragon. New Dragon accepts onus for costs of $65,000 related to Hotel application. M&B accepts onus for feasibility/scoping study costs of $5000. Present 22year lease re-starts from date of reopening (- 1 year). Hotel licence remains property of New Dragon.

8 On 8 June 2005, Morgan & Banks sent New Dragon an email, relevantly as follows: Further to our recent meeting we are writing to confirm the interim arrangements. a) New Dragon Investments to cease trading from close of business 7 June 2005. b) Morgan and Banks Investments P/L to pay $2,200 per week to Dragon Investments P/L as an interim measure to maintain the property, plant and equipment and the lease of equipment by New Dragon Investments. c) Financial support from Morgan and Banks Investments P/L to continue as an interim measure until the scoping study is received from the licence consultants engaged by Morgan and Banks P/L. d) The current lease of the premises between Morgan and Banks Investment and New Dragon Investments to remain on foot, save that it will be modified to reflect a financial return to MBI for providing the support set out above.

9 On 9 June, New Dragon responded "We are considering the terms you've sent and will respond tomorrow". On 10 June, New Dragon inquired whether a formal agreement would be drawn up based on the terms, and observed: Based on our understanding of the arrangements made on Tuesday 7th June 2005:- Terms The business ceased trading by mutual agreement as at midnight Tuesday 7th June 2005. From Wednesday 8th June 2005, Morgan and Banks Investments Pty. Ltd. will pay $2,200 weekly to New Dragon Investments Pty. Ltd. for lease payments for the agreed items and management fees for Peter and May Anne Blunt ($1,500 per week) as an interim measure. Power and water charges to be met by Morgan and Banks until trade recommences under the hotel or tavern licence (paperwork to follow to transfer electricity account name). We understand as advised by you, that there is no breach of the lease in undertaking the changed conditions as outlined by Morgan and Banks. For the sake of clarity, none of the changed operating items, as agreed, will constitute any default or other trigger in relation to termination of the registered lease held by New Dragon Investments Pty. Ltd. A rent-free period of 5 months be an amended condition upon reopening the premises as a hotel or tavern. We undertake to reopen the premises under a hotel or tavern licence to the best of our endeavours given timeframes for re-staffing, re-commissioning plant, re-stocking, marketing needs and other operational necessities. The current lease of the premises to remain on foot, modifications to be finalised and formalised. 10 It is not possible to find a clear acceptance of an offer in this correspondence, and even if there was it is not apparent that there was any consideration moving from New Dragon. At the highest (from the perspective of New Dragon), there was consensus that:

· New Dragon would cease trading from the premises as The Aquatic Bar & Grill from close of business 7 June 2005. · As an interim measure, Morgan and Banks would pay $2,200 per week for New Dragon to maintain the property, plant and equipment ($1,500) and fund the equipment leases ($700), until a scoping study was received from the licence consultants engaged by Morgan and Banks.

· The lease would remain on foot, with some modifications to be made.

· Compliance with these arrangements would be treated as satisfaction during the interim of the tenant's obligations under the lease.

11 However, although it was not expressly recorded, I accept that it is at least seriously arguable that the parties also agreed that the lease would be suspended for some time - to the intent that the term, and the dates for performance by New Dragon of its obligations (including to commence paying rent, to pay for the Landlord's Fixtures, and to provide the bank guarantee) would be extended by the suspension period, so that New Dragon would be allowed an additional period equivalent to the length of the suspension after the due date for performance of its obligations. The critical issue is the duration of the suspension. There is no direct evidence of any discussion, let alone agreement, in that respect. The minutes of 7 June and the ensuing email correspondence as to the terms are silent on the topic. Mr Blunt's statement says only that at a meeting on 20 May 2005 he asked Richard Drummond of Morgan & Banks "Would you be willing to drop fixtures and fittings and rent until the hotel licence is in place?", and that he does not recall the response, although Mr Drummond seemed sympathetic. The question must be answered by inference from the subsequent acts and statements of the parties, and in particular their correspondence which forms most of the evidence. The emphasised portions in the extracts below are those which are most telling in this respect.

12 In a letter dated 26 July 2005 to New Dragon's solicitors Leitch Hasson Dent, Morgan & Banks referred to the arrangement for a feasibility study to be carried out to determine whether there were reasonable prospects of obtaining a tavern licence, and continued: MBD agreed to pay for this feasibility and to suspend the operation of the lease while it was carried out. The arrangements would then be reviewed depending upon the outcome of the feasibility . Initially MBD agreed for the feasibility to be carried out using your client's consultants. On reflection, however, we believed the potential for conflicts of interest existed and that, accordingly, MBD should obtain its own advices. As MBD was paying for the advice and had agreed to suspend the operation of the lease while it was being prepared this did not seem an unreasonable position to take. … I agree that the changed lease arrangements between the parties should be documented. However, it is not entirely clear what the final arrangements will be and this will not be known until the outcome of the feasibility process. Accordingly I believed that the documentation could wait until this relatively short process was completed. 13 This refers to a suspension pending completion of a feasibility study, which is also consistent with the duration of the "financial support" referred to in the 8 June letter. That it was not envisaged to be a long period is apparent from its description as "this relatively short process". This does not suggest any consensus that there would be a suspension until an hotelier's licence was granted.

14 According to Mr Blunt, on 24 August there was a meeting at the premises between the parties, in which the representatives of Morgan & Banks said that they were going to sell the site for $9 million, would consider compensation to New Dragon, would not proceed with the hotel licence; and that the suspended lease was to start on time (presumably a reference to rent commencing on 1 October 2005) or else New Dragon should walk away from the lease or, as an alternative, sell the lease. They asserted that there would be considerable difficulty in gaining a licence with New Dragon as licensee, due to breaches allegedly committed on or about 29 April 2005.

15 Tweed Shire Council issued a Development Consent for use of the premises as an hotel on 31 August 2005. On 28 September, Leitch Hasson Dent wrote to Morgan & Banks, asserting that the lease was and had been suspended from 7 June; that it would remain suspended "until the grant of an hoteliers license or earlier reopening under the drink and dine license"; and that time for payments in respect of the lease, including payment for fixtures, would be postponed by a period equivalent to the length of suspension of the lease. There is no evidence that Morgan & Banks had ever assented to the proposition that the suspension was to be "until the grant of an hoteliers license or earlier reopening under the drink and dine license".

16 Morgan & Banks responded by letter dated 10 October 2005. They expressed agreement with the proposition that the lease was and had been suspended from 7 June. In response to the assertion that it would remain suspended until the grant of an hoteliers license or earlier reopening under the drink and dine license, they said that in discussions with Mr Blunt on 24 August it had been indicated (1) that it would be very difficult to obtain a tavern licence while New Dragon was the proposed licensee, and (2) that in those circumstances Morgan & Banks would be unwilling to leave the lease in suspension and New Dragon would have to use its own resources to pursue the licence and at the same time meet its lease obligations. (That is substantially consistent with Mr Blunt's version of the 24 August meeting). They agreed that time for payments in respect of the lease, including payment for fixtures, would be postponed by a period equivalent to the length of suspension of the lease. They concluded: Despite the discussion at our meeting on 24 August we have left the arrangements in place while attempting to sell the property either to Mr Blunt or to other interested parties. However there seems little progress in this regard and, accordingly, we intend to terminate the suspension of the lease on 16th October 2005 . 17 On 12 October, Leitch Hasson Dent on-forwarded that letter to New Dragon, with the comment that it did not mention that Morgan & Banks had not organised a scoping study at the time, thereby delaying New Dragon's application for a licence, and questioning whether they should respond on the basis that the suspension should be extended for that reason. That is significant because it does not assert that a further suspension had already been agreed. On 14 October, Leitch Hasson Dent responded to Morgan & Banks, disputing that it would be as difficult to obtain a hotelier's licence as had been suggested, and continuing: As previously advised our client is pursuing the grant of a licence. We note that it's application has been delayed due to your company's insistence on taking responsibility for obtaining a feasibility study. Your letter to us dated 26 July 2005 states that you would suspend the operation of the lease until the feasibility was carried out . We are unaware whether the feasibility study has been completed or even if has commenced. The burden of the consequent delay should not be borne by our client. The lease has always been based on our client obtaining a hotelier's licence and the agreement to suspend the lease resulted from the delays in respect to that application that were not caused by our client. The application for a licence has not been abandoned by our client and the agreed arrangements should continue. 18 Again, the reference is to suspension until the feasibility study was carried out. Morgan & Banks replied on 14 October 2005, relevantly as follows: In view of the considerable support provided to your client by our company we receive the comments in relation to the purported delays caused top your client with dismay. Your client willingly allowed us to pursue the licence issue because we were paying for the cost of the process and were supporting your client by providing them with funds to live off and pay their leasing obligations as well as temporarily suspending their obligations under the lease. When we received the advice that there was considerable doubt over the issue of a licence we advised your client on 24 August of that fact and that we would not be continuing with the process . What delay and what burden are you referring to? Would you please advise which clause in the lease states that the lease is based on your client obtaining an hotelier's licence so that we may give the matter further consideration? … We also advise that your client is indebted to us in respect of outgoings for the period prior to the suspension of the lease … 19 That description of the 24 August meeting is, again, consistent with Mr Blunt's version. On 20 October 2005, Morgan & Banks wrote to New Dragon: As the Lease is now back on foot , the transfer of responsibility for the electrical supply to the building will be effective 27 October 2005. Country Energy will be notified of the disconnection on this date - please make alternative arrangements should you wish to maintain this supply. 20 On 4 November 2005, Morgan & Banks forwarded to New Dragon a copy of the Deed of Variation of 11 March (which deferred until 1 October 2005 the obligation to provide the bank guarantee) and said: Please ensure that the Bank Guarantee is delivered on or before Friday 24 February 2006. This date is equivalent to period of the length of suspension of the Lease . 21 1 October 2005 to 24 February 2006 is a period of 4 months and 23 days, in fact a little in excess of the period from 7 June to 16 October - 4 months and 9 days - which was the apparent duration of the suspension.

22 Although there was other correspondence between the parties or their solicitors, and although New Dragon pursued an application for an hotelier's licence, no correspondence on behalf of New Dragon disputed that the lease was no longer suspended. On 12 December 2005, Morgan & Banks wrote to New Dragon: Please be advised that the Tenant is obliged to purchase the fixtures for $400,000 by way of bank cheque on or before Friday 24 February 2006. This date is equivalent to period of the length of suspension of the Lease . 23 Again that in fact slightly exceeds the period of the suspension from 7 June to 16 October 2005. There is no evidence of any response which disputed that this sum was payable of 24 February 2006. To the contrary, a letter from a finance broker acting for New Dragon to Morgan & Banks dated 31 January 2006 recorded:

Peter Blunt has advised that settlement of the plant and equipment transaction $400,000 is scheduled for 24 February 2006.

24 On 9 February 2006, Leitch Hasson Dent wrote to Morgan & Banks, stating that New Dragon was pursuing the grant of an hotelier's licence, and that once it had filed a Social Impact Assessment with the Liquor Administration Board it would have done everything it could to pursue the application. The letter continued: We note from your letter to us of 26 July 2005 you state that you would suspend the operation of the lease until the feasibility was carried out. At that time our client was under the impression that the feasibility study was being undertaken by your firm. Unfortunately it was not until 17 August 2005 that our client was notified that you were not going to proceed with the process and that you were intent on selling the site. In addition, we note that consent from Council did not issue until 31 August 2005. Our client was then burdened with a delay inn pursuing its application for the hotelier's licence. We note that during this time rent was suspended and the payment for furniture and equipment was postponed. Our client is now faced with the situation of not being able to operate the premises in accordance with the originals intention of the parties. That is, to operate the premises as a Hotel As stated in earlier correspondence the lease has always been based on our client obtaining a hotelier's licence Our client requests a further extension to the rent-free period and a postponement of the amount pay able for furniture and equipment, until the determination of the application by the Licensing Court. 25 About this letter, it is to noted, first, that although it repeats the assertion that the lease was based on New Dragon obtaining an hotelier's licence, there was never a response to the request to identify what provision of the lease had that effect, and, secondly, that the request for a further extension of the "suspension" is not expressed as an assertion of an entitlement or existing agreement or understanding, but as a request for a further indulgence.

26 Morgan & Banks replied by letter dated 10 February 2006, relevantly as follows: In relation to the matter of the feasibility, we note that it was carried out and in our determination as advised by our consultants, was not feasible to obtain a Hoteliers Licence for the reasons set out in our letter 10 October 2005 . The intentions of the parties are clearly set out in the Lease and it does not contemplate the obligations of New Dragon Investments being subject to the grant of a Hoteliers Licence Accordingly we cannot grant your request.

27 There is no evidence to contradict Morgan & Banks' assertion that the feasibility study was carried out. By letter dated 16 February 2006, Leitch Hasson Dent responded: We note that you have kindly suspended the Lease and the payment for furniture and equipment until Friday 24th February 2006. 28 Significantly, this does not suggest a contractual suspension, but a voluntary act of forbearance. Moreover, it apparently accepts that the payment obligations, as things stood, were deferred only until 24 February, consistent with a suspension of the lease from 7 June to 16 October 2005.

29 The Leitch Hasson Dent letter then proceeded to propose three options in relation to payment of the $400,000 and the matter generally. The first was provision of a bank guarantee for $400,000 in lieu of payment, by 24 February, which could be called on upon grant of the hotelier's licence, with payment of rent and outgoings suspended until grant of the hotelier's licence, when an a further guarantee for $200,000 would be put in place. The second was payment of $300,000 on 24 February and $100,000 within one month of grant of the hotelier's licence, an additional guarantee for $200,000 to be put in place at that time, with payment of rent and outgoings suspended until grant of the hotelier's licence. The third was for Morgan & Banks to buy out the lease for $1.65 million within four weeks, or $2.4 million within four weeks of the grant of an hotelier's licence, with New Dragon not being required to pay rent or outgoings. Nothing in it suggests that New Dragon was already excused any longer from payment of rent and outgoings; to the contrary, it suggests that further agreement to that effect was sought.

30 On 22 February, Morgan & Banks responded that Option 2 was acceptable, but noted that rent payments were due to commence shortly and that there were outgoings owed of $20,153.47. Thus the terms of the acceptance, in relation to rent and outgoings, differed from those of the offer, so it could not have constituted an acceptance. Leitch Hasson Dent replied on 24 February, pointing out that Option 2 as offered involved deferral of rent and outgoings until the grant of the licence, and that payment of the $300,000 was contingent on New Dragon securing finance which would require a mortgage of the lease for which Morgan & Banks' consent was awaited. Morgan & Banks responded by letter dated 2 March 2006, relevantly as follows: We apologise for not previously noticing the proposal in relation to rent & outgoings in option 2. We cannot agree to the deferral of outgoings. We will give consideration to the further deferral of rent but cannot agree to defer it to a future date that may not occur such as the issue of an Hotelier's Licence. As your client has now completed all requirements for the application for the Hotelier's Licence we suggest a further period of deferral of rent of 6 months. We have received a conditional offer for purchase of the property that is contingent upon vacant possession of the hotel premises. Would you please provide us with a dollar amount that your client would be willing to accept in order to vacate the property (in addition to the proposed payment of $300,000 referred to in option 2 that it would be refunded upon such a sale) within the next 6 months. 31 In late February and early March 2006, there were a number of communications in which New Dragon foreshadowed recommencing trade under the dine and drink licence in the first half of March. On 8 March, Leitch Hasson Dent responded to Morgan & Banks' letter of 6 March, that vacant possession would be offered for $2.4 million, with no rent until settlement sand no payment for fixtures, or $1.65 million if settled in four weeks. Morgan & Banks replied by letter dated 10 March, that the offers were unacceptable, and: The issue of your client's vacant possession and receiving some payment in return first arose at our meeting with your client on site in August 2005. At that meeting your client indicated that they had invested some $800,000 to date in the venture and that prospects for recovery of these funds seemed remote. I indicated to your client that the project had not been successful for us either and that we intended to sell the property. I also indicated that, if possible, I would provide your client with the opportunity in any sale to mitigate their potential loss. This is the background to the offer made to your client to provide vacant possession and it is also the basis for our willingness to consider your client's requests to vary the Lease because of their apparent inability to meet their contractual obligations. Contrary to our understanding it seems you client believes they are in possession of a valuable asset. Accordingly there seems no reason for them to fail to meet their obligations under the Lease. Therefore we request your client immediately rectify its current breaches of the Lease including: · Payment of $400,000 for plant & equipment · Provision of bank guarantee of $200,000 · Payment of rent & outgoings now owing.

32 On 22 March 2006, New Dragon recommenced trade from the premises under the dine and drink licence. On the same day, the Notice of Breaches of Covenant was served. There is no evidence of any disputation of the alleged breaches, nor of any attempt to rectify them. The Notice converting the lease into a monthly tenancy followed on 1 May 2006. On 4 May, Leitch Hasson Dent wrote to Bartier Perry, denying the allegation of repudiation of the lease and disputing the validity of the 1 May Notice, asserting that New Dragon had been in continual negotiation with Morgan & Banks in respect of the lease because "through no fault of our client, the application for a hotel licence upon which the lease is based has been delayed", and that during those negotiations New Dragon had assisted in the presentation of the premises by fitting them out and opening as a dine and drink restaurant, and continuing: As recently as 24th April 2006 our client was advised by Gavin McCarthy that your client had agreed to suspend interim payments pending completion of a sale of the premises then in negotiation. Your client has agreed to the payment of $400,000.00 pursuant to clause 8.1(q) by payment of $300,000 now and the payment of the further $100,000.00 on the granting of the Hotel Licence. Your client also consented to our client mortgaging the Lease to obtain finance for the initial payment. … Our client will attend to the payment of outgoings. We request a continuation of suspension of rental payments. Upon completion of formal documents for your client's consent to mortgage the lease our client will attend to the payment to your client of $300,000.00 as agreed.

33 The assertion that the arrangements for payment of $300,000 and $100,000 had been agreed overstated the position; not all the terms which would be required before there was in truth an agreement had been agreed. The request for a continuation of the suspension does not savour of an assertion of right, but a request for an indulgence.

34 Bartier Perry replied by letter dated 8 May. They denied that Morgan & Banks had agreed to suspend payments to be made under the lease as alleged, and pointed out that if Gavin McCarthy had done so, he was not an officer or agent of Morgan & Banks. They denied any agreement for the $400,000 to be paid in instalments. They observed that Leitch Hasson Dent had not addressed the failure to provide the bank guarantee. They maintained that the termination of the lease and its conversion to a monthly tenancy was valid.

35 Remarkably, there is no evidence of any further disputation about the 1 May Notice, and no application to the Court was made by New Dragon, or even foreshadowed, before the Notice to Quit was served on 26 September 2006. After the 26 September Notice was served, there is no evidence of any disputation of its validity, nor of any threat to commence proceedings, before the Court was approached ex parte on the afternoon of 26 October, save for a facsimile letter sent by Leitch Hasson Dent to Morgan & Banks and Bartier Perry at 13.42 on 25 October, foreshadowing the application for an injunction unless an undertaking was forthcoming.

36 The above analysis of the communications between the parties reveals no agreement, representation, or acknowledgment on the part of Morgan & Banks that the lease would be suspended, or New Dragon's obligations under it deferred, until an hotelier's licence was granted. The highest any consensus reached was a suspension of the lease until the feasibility study was concluded; that was a period of something in excess of four months, and resulted in deferral of the dates for payment of the $400,000, provision of the bank guarantee, and commencement of rent, from 1 October 2005 until not later that 24 February 2006. The evidence does not reveal any agreement, representation, or acknowledgment on the part of Morgan & Banks that there would a deferral after that date: although at one stage a further six months' rent concession was offered, the accompanying terms were not accepted by New Dragon and no agreement was ever reached in that behalf. The evidence does not establish that New Dragon assumed that there would be a suspension of its obligations until an hotelier's licence was granted, as its requests for further deferrals of its obligations after 24 February show; but even if it did entertain any such assumption, there is no evidence of any sufficient participation by Morgan & Banks in the creation or encouragement of any such assumption as would make it unconscionable for them to deny its truth.

37 Not only is there is no evidence of Morgan & Banks having assented to a suspension beyond the conduct of the feasibility study, but there is no evidence to contradict Morgan & Banks' position that that study was completed by 24 August (although they permitted the suspension was permitted to continue until 16 October); to the contrary, the correspondence contains considerable evidence to the effect that all parties accepted that the suspension came to an end and the lease was reinstated on or about 16 October, with the consequence that the payment obligations originally due on 16 October were deferred to not later than 24 February 2006. Nor is there any evidence (or submission) that the facts constituting the breaches relied on for the 1 May Notice were non-existent; and there is no evidence (nor submission) that those breaches have at any stage up to today been rectified.

38 It follows that in my opinion there is evidence of neither agreement nor estoppel precluding Morgan & Banks from insisting upon performance New Dragon's obligations under the lease on and from 24 February 2006, and treating breaches of those obligations thereafter as defaults under the lease. It follows that the evidence discloses no seriously arguable case that Morgan & Banks was not entitled to give the 1 May Notice and convert the lease into a monthly tenancy. Once that conclusion is reached, it follows that no seriously arguable basis for denying it the right to take possession of the premises from one month after service of the 26 September Notice has been established.

39 The summons also includes a claim for relief against forfeiture. The statutory jurisdiction to grant relief against forfeiture under Conveyancing Act 1919, s 129(2) is enlivened as soon as the lessor serves a notice of breach of covenant under s 129(1) [Pakwood Transport Ltd v 15 Beauchamp Place Ltd (1977) 36 P & CR 112]. And I would not deny the possibility that injunctive relief might be granted in aid of an application for relief against forfeiture, though normally such relief is granted only on a final basis. But in the absence of any evidence of any attempt or intent to remedy the breaches, or of ability to pay the rent in the future, there is no seriously arguable case, at this stage, for relief against forfeiture - though it is conceivable that that might change by the time of a final hearing.

Upon (A) the undertaking of Warren David Staples to pay the appropriate filing fees, and (B) the undertaking of the defendant's solicitor to file a Notice of Appearance: 1. Grant leave to New Dragon Investments Pty Ltd to file a summons in the form initialled by me dated this day and placed with the papers, such summons to be returnable instanter.

Dismiss the claim for interlocutory relief in claims 1 and 2 of the Summons.

Stand over the balance of the summons to 6 November 2006 at 9.30 am before the Registrar for directions.

Order that the plaintiff pay the defendant's costs of the interlocutory application.

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

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