Ozoris Investments Group Pty Ltd v Malabar Headlands Pty Ltd; Malabar Holdings Pty Ltd v Ozoris Investments Group Pty Ltd

Ozoris Investments Group Pty Ltd v Malabar Headlands Pty Ltd; Malabar Holdings Pty Ltd v Ozoris Investments Group Pty Ltd - [2023] NSWCATCD 113 - NSWCATCD 2023 case summary — Zoe

[7]

Submissions by the Lessee- Increase in rent and payment of outgoings

On 14 July 2021 the COVID-19 Regulation came into effect. Part 2 of the COVID-19 Regulation applied to an "impacted lessee" during the "prescribed period".
Clause 6B of the Regulation stated: "6B Obligation to not increase rent The rent payable under an impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover"
Clause 3 of the Regulation defined the following terms: "impacted lessee see clause 4." "impacted lease means a commercial lease to which an impacted lessee is a party." "commercial lease means a retail shop lease...... "prescribed period means the period commencing at the beginning of 13 July 2021 and ending at the end of 13 January 2022." 26. Clause 4 of the Regulation defined an "impacted lessee" relevantly as: "4 meaning of "impacted lessee" (1) A lessee is an impacted lessee if-- (a) the lessee qualifies for 1 or more of the following, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth--- (ii,) 2021 COVID-19 Business Grant, (iii) 2021 Job Saver Payment, and (b) the following turnover in the 2020-2021 financial year was less than $50 million-- (iii) in any other case- the turnover of the business conducted by the lessee.
It is the common position that the Lessee was an "impacted lessee" having received both the Business Grant and the Job Saver Payment until at least 11 November 2021
The prohibition under clause 6B not to increase rent continues for the duration of the Regulation. There is no other provision which curtails its operation. Clause 6B states: "The rent payable under an impacted lease must not be increased during the prescribed period, other than rent or a component of rent determined by reference to turnover"
Rent would ordinarily be increased under clause 5.4 of the Lease. The review date is stated as each anniversary starting from 7 December 2017, under item 16. It is a clause whose operation occurs once a year on 7 December. It either takes effect to increase the rent on that day or it does not.
Relevantly, the date here was 7 December 2021 during the prescribed period as defined under the COVID-19 Regulation. By operation of clause 6B there can be no increase until 7 December 2022.
Thus the operation of clause 6B ought to be interpreted as suspending the operation of any rent review clause other than those determined by reference to turnover. As clause 5.4 of the Lease only operates on the actual anniversary date, this being 7 December 2021, then it is suspended for that instance and rent does not increase for that year.
Thus the Lessee had been overpaying rent in the amount of $463.25 each month from 8 March 2022 .

[11]

Application of the COVID-19 Regulation to the Lease

The Tribunal should find that on the proper construction of the COVID-19 Regulation a clause that provided for a rent increase on a review date during the prescribed period was not made illegal. As shown by the explanatory note, the object of the clause was to control a lessor's actions in reliance on such a clause during the prescribed period. The clause operated to prohibit the enforcement of a rent increase accruing under such a clause for a period within the prescribed period, it did not prohibit or make illegal a clause that had that provided for a rent increase.
The circumstances in which the Regulations were made was to provide protections for certain commercial lessees where related businesses had a fall in turnover due to lockdowns in New South Wales. The protections were necessarily targeted and limited. The COVID-19 Regulation was automatically to be repealed six months after the date it commenced (clause 10). Nothing in the Regulation excluded the rules of equity and of common law from applying to the determination of a dispute concerning the exercise or enforcement of a right of a lessor of premises (clause19).
The object of clause 6B was not to prohibit parties from agreeing to a rent review clause. That would be impossible because the Regulation was intended to apply to leases that were already in existence and not to creation of new leases. A clause with fixed rent increases like that in the Lease between the parties operates automatically and is not conditioned on any action by the lessor or lessee. The Regulation was not directed at the making of an agreement for a rent review. If it had been, that would raise difficult 'questions about whether rent review clauses in commercial leases could survive and be read down to avoid illegality if they resulted in a contravention of a prohibition on agreements to increase rent during the prescribed period. The Lease here, which is based on the Law Society standard form, does not include an interpretation or severance provision that would mitigate the effects of illegality. If clause 6B made rent review clauses that operated during the period illegal, it would have the unreasonable result of leading to rent review clauses to be severed. That clearly was not the object of the Regulation.
The Tribunal should find that the proper construction of clause 6B that is in accordance with the text, context and purpose of the Regulation, is that a lessor was prohibited from enforcing a right to increased rent that accrued under the lease for a period within the prescribed period. Clause 6B of the Regulation did not operate to make a rent review clause itself illegal or to make the operation of a rent review clause itself illegal by which an automatic increase took effect during the prescribed period.

[12]

Tribunal's position

In reaching decisions in relation to these two applications, the Tribunal has considered the entirety of the documents admitted in evidence and the submissions. These Reasons focus on the material central to the issues but, to the extent that any evidence or a submission is not referred to, it should not be assumed that that evidence or that submission has been ignored.
The Tribunal cannot accept the proposition put by the Lessee, that the effect of the rent review mechanism in the Lease was that it was a fixed date and occurs only once a year. The proposition was put that "it either takes effect to increase the rent on that day or it does not." That is the Lessor has foregone the annual rent increase of 4%.
The proposition that if the lessor does not effect the agreed rent increase on the rent review date, then there is no rent review until the next review date is very novel, indeed. This would mean that the lessor has foregone the rent increase for a year. There is nothing in the Lease to suggest this. Rather, the position is that If the rent review is not communicated for some months but then once communicated, by for example a tax invoice, it is to have commenced on the review date and the rent increases become payable on receipt of that communication including back rent increases to the rent review date . That would mean that the lessor has not foregone the rent increase. The effect might be that the lessee has received a rent increase holiday for a period, but would have to make up the shortfall.
The same position applies to the effect of clause 6B of the COVID-19 Regulations. I agree with the position put by the Lessor that the correct interpretation of the effect of Clause 6B of the Regulation is that clause 6B merely suspends the enforcement of any rental increase as opposed to the suspension of the operation of any rental increase. The rent increase in the Lease of annually 4% was agreed between the Lessor and the Lessee at the time of entering into the Lease and would operate normally automatically. That automatic increase is suspended during the prescribed period. Thereafter the rent increase applies and is enforceable. Consequently, there was no rent credit to be applied, if it could to offset against the shortfall in payment of the insurance premium.

[15]

Estoppel by convention - principles

In Moratic Ply Ltd v Gordon [2007] NSWSC 5 at [32] Brereton J (as his Honour then was) stated that to establish a conventional estoppel it was necessary for a plaintiff to establish: 1. that the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant; 2. that the defendant has adopted the same assumption; 3. that both parties have conducted their relationship on the basis of that mutual assumption; 4. that each party knew or intended that the other act on that basis; and 5. that departure from the assumption will occasion detriment to the plaintiff
That statement of the principles to be applied was approved by Tobias JA (with whom Mason P and Campbell JA agreed) in Ryledar Piy Ltd v Euphoric Piy Ltd [2007] 69 NSWLR 603; [2007] NSWCA 65 at [200].
The Lessor assumed that the increased rent was payable for the each month from 9 March 2022. Its assumption can be demonstrated from the fact that it adopted the broader assumption that the increased rent was payable from 9 December 2021.
The Lessee assumed the increased rent was payable from 9 March 2022 and made payments of rent in the increased amount on 8 March 2022, 11 April 2022, 9 May 2022, 8 June 2022, 8 July 2022, 8 August 2022, 8 September 2022, 10 October 2022 and 8 November 2022.
The Lessor conducted its relationship with the Lessee on the basis of the mutual assumption by: 1. receiving rent in the increased amount from March 2022; 2. persisting in its demands for payment of the insurance outgoings and not contemplating that it might have received overpaid rent. 3. re-entering the premises on 11 November 2022 when the insurance outgoings had not been paid; and 4. granting a new lease to Okijin upon its assessment that it had lawfully terminated the lease with the Lessee.
The Lessee conducted its relationship with the Lessor on the basis of the mutual assumption by: 1. paying rent in the increased amount from March 2022; 2. disputing its obligation to pay the insurance outgoings and not claiming it had already overpaid rent; 3. on 20 September 2022 notifying the solicitor for the Lessor by letter in response to the s129 notice of default that the position of the Lessee was that the notice for unpaid insurance was invalid and not asserting that the insurance outgoings had been paid; and 4. on 31 October 2022 issuing a notice of insurance overpayments to the solicitor for Lessor but not a notice of any rent overpayments .
Each party clearly knew and intended that the other party act on the basis that the rent payments were for rent and the amount due for insurance was disputed. The parties were prepared to have a legal dispute on that basis, as shown by the service of the s129 Notice and the invitation by the Lessee to the Lessor to take the matter to the Tribunal .
The departure from the assumption occurred only on service of the submissions on behalf of the Lessee on 30 May 2023. There the Lessee admitted liability for the increase in full of the insurance premium. Such departure would occasion detriment to the Lessor if the Lessee is permitted to claim rent overpayments have paid the insurance outgoings: 1. the Lessor will be deprived of a ground for its re-entry; 2. unless there is another ground for the re-entry, the Lessor will be liable for damages for the remaining lease term for the Lessee (including the option period); and 3. unless there is another ground for the re-entry, the Lessee will be entitled to claim damages on a reliance basis from the Lessor and shift the onus to the Lessor to prove that the Lessee would not have recouped its initial expenditure over the remaining lease term.
In Rae and Partners Pty v Shaw [2020] TASFC 14 a Full Court (Blow CJ, Geason J and Porter AJ) reviewed the authorities and concluded that estoppel by convention could apply in relation to an assumption of law that related to parties' private legal rights, at [82]-[83].Here the parties both assumed that the COVID-19 Regulations did not prevent increased rent under the Lease being payable from 9 March 2022. In these circumstances the Lessee should be prevented from now disputing this.

[16]

Submissions by the Lessee

The first element is that there must be a common assumption shared between the parties: Moratic Ptv Ltd v Gordon [2007] NSWSC 5 at [32]; Unruh v Seeberger [2007]HKCFA 9 at [133]. The assumption must be communicated between the parties and acted upon: Unruh at [135]; Handley, Estoppel by Conduct and Election (Sweet & Maxwell, 3rd Ed, 2016) 139, 8-0 12. It is insufficient that each party independently arrives at the same mutual mistake: The August Leonhardt [1985] 2 Lloyd's Rep 28 CA at 34-5, in that case Kerr L J said at para 15-017: 'All estoppels must involve some statement or conduct by the party alleged to be estopped on which the alleged representee was entitled to rely and did rely.., in cases of so-called estoppels by convention, there must be some mutually manifest conduct by the parties... in the present case... each acted or failed to act independently from the other on the basis of a mutual mistake which remained uncommunicated between them. There cannot be any estoppel unless the alleged representor has said or done something, or failed to do something, with the result that- across the line between the parties - his action or inaction has produced some belief or expectation in the mind of the alleged representee.
The same point was approved in The Indian Grace (No 2) [1998] AC 878, 913 where the court said "the assumption being either shared by them both or made by one and acquiesced in by the other... It is not enough that each of the... parties acts on an assumption not communicated to the other". See also (Coghlan v S H Lock (Australia,) Ltd [1985] 4 NSWLR 158 and Eslea Holdings Ltd v Butts [1986] 6 NSWLR 175.)
In its submissions the Lessor states that each party had an assumed position but does not say how it was communicated by one to the other. The Lessor states that "Each party clearly knew and intended that the other party act..", but fails to point to a single communication between the parties of the assumed position. Thus, the estoppel must fail at this first hurdle.
The assumption must form the basis of the action or inaction: Thompson v Palmer [1933] 49 CLR 507 at 547. What then is the transaction entered into by the Lessor? The act was the Lessor's purported termination of the lease on the basis of unpaid outgoings. That act was not done on the basis of unpaid rent on the higher amount. Rather what the Lessor now complains is that had it known the proper position it would not have purported to terminate. But that act of termination was not done on the basis of the common assumption and indeed the Lessor does not contend that to be the case at all. Thus it must fail on this second reason.
A further element of estoppel by convention requires that the departure from the assumption must be unjust Grundt v The Great Boulder Proprietary Gold Mines Ltd [1937] 59 CLR 641 at 675. In Grundt Dixon J at 675-6 said: "The justice of an estoppel is not established by the fact in itself that a state of affairs has been assumed as the basis of action or inaction and that a departure from the assumption would turn the action or inaction into a detrimental change of position. It depends a/so on the manner in which the assumption has been occasioned or induced. Before anyone can be estopped. he must have played such apart in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. But the law does not leave such a question of fairness or justice at large. It defines with more or less completeness the kinds of participation in the making or acceptance of the assumption that will suffice to preclude the party if the other requirements for an estoppel are satisfied."
At 676 Dixon J then gave categories of the kinds of circumstances citing Thompson v Palmer (1933)49 CLR 507 at 547. Those categories are: 1. The assumption formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment. 2. One party has exercised against the other party rights which would exist only if the assumption were correct. 3. One party knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so. 4. One party's imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption. 5. One party made the representations upon which the other party founded the assumption.
In the present case there is no suggestion by the Lessor that the present case fits within any one of those categories. For that reason, even if there was departure from a common assumption it was not unjust and for that reason the estoppel must fail.

[17]

Lessor's response

In response to the submission regarding lack of communication, the Lessor directs the attention of the Tribunal to the following series of emails passing between the parties.
The Lessee initially disputed the rent increase. Then it changed its position. The communications which set out its new (and until these proceedings final) position in relation to the rent increase were as follows: Email from Mr Selim to Gladwin Legal, 9 December 2021 : That 's (sic) gives us the right to be entitled to. a reasonable recovery period according to clause 13 of the code of conduct and regulation 6B does apply to the landlord, that could be beyond the 13/1/22, but we voluntary choose to be 13/1/22 as we explained previously. Letter from Gladwin Legal to Mr Selim, 14 December 2021: My client notes that the tenant has refused to pay the rental increase effective as from 9 December 2021 and will instead commence paying the correct rent inclusive of rental increase effective as from 9 January 2022. Email from Mr Selim to Gladwin Legal, 15 December 2021: Accordingly, ... 3 - The rent increase will be paid after the end of the prescribed period Email from Mr Illek to Mr Selim, 16 January 2022: Jam surprised by your failure to pay the correct amount given you stated in your own email of 9 December 2021 to Gladwin Legal, 'but we voluntary choose to be 13/1/22 as we explained previously' referring to the fact that you will pay the 4% increased rent in January 2022. Email from Mr Selim to Mr Illek, 16 January 2022: Please check our email to your solicitor on 15/12/21 and in particular the last paragraph which we explained the following 3- The rent increase will be paid after the end of the prescribed period (unless extended) As a result of that and as you should be aware that the government has updated the code of conduct on 13/1//22 and extended the prescribed period to ends on 13/3/22 According/v ire confirm that the rent increase will be paid after the end of the prescribed period (unless further extension) that's according to the current regulation and the code of conduct. Email from Mr Selim to Gladwin Legal, 23 January 2022: 2-And as the current regulation has extended the prescribed period from 13/1/22 to 13/3/22 as the pandemic intensifies and affects all the business community including our business. 3-And as the code of conduct in clause (13) prohibits any rent increase during the prescribed period therefore clause 5.1.1 or 5.1.5 of the lease is irrelevant and can't apply to our case as impacted lessee during the prescribed period. 4-Accordingly, your client is in a breach of the current regulation 2022 and the code of conduct (clause 13) for demanding a rent increase during the prescribed period and we reserve our rights. 5- we confirm again that the rent, increase according to the current regulation will be paid after end of the prescribed period (unless further extension).

[18]

The Tribunal's position

The Tribunal is satisfied that the Lessee communicated to the Lessor its acquiescence that the rent increase was payable after the prescribed period. Further, acquiescence by one party to an assumption made by another is sufficient to constitute a conventional estoppel. In the "Indian Grace" ( No2) AC 878 at 913, Lord Steyn said in the judgement: " an estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared.. or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would eb unjust to allow him to go back on the assumption…" This passage was approved in Ryledar Pty Ltd v Euphoric Pty Ltd [2007] 69 NSWCA 65 [198] 9 Tobias JA, Mason P and Campbell JA agreeing).
The termination of lease was on the basis of unpaid outgoings (as well as alleged unpaid rent) as is evident from the Notice of Default and the Notice of Re-entry. Departure from the common assumption is unjust to the Lessor. It falls within the second category referred to by Dixon J in Grundt, one party has exercised against the other party rights which would exist only if the assumption were correct. The unjustness of the departure from the assumption for a conventional estoppel is established as the lessor placed reliance on the assumption and detriment would be suffered by the Lessor in breaching the Lease by an illegal re-entry exposing the Lessor to damages (Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65 [202-203]). This is further supported by the categories determined by Dixon J in Thompson v Palmer [1933] 49 CLR 507 at 547 as set out in paragraph 74 of these Reasons, particularly the second where one party has exercised against another party rights which would exist only if the assumption were correct.
The Tribunal finds that Estoppel by convention is established and the Lessee is resisted from now claiming that the payment of the monthly rent increases was not the case but in fact was an overpayment of the rent.

[19]

Approbate and Reprobate

A principle of general application was held by Sir Nicholas Browne- Wilkinson V-C ( as he then was) in Express Newspapers PLC v News ( UK) Ltd [1990] 18 IPR 201 where his Lordship said [210] "There is a principle of law of general application that it is not possible to approbate and reprobate. That means you are not allowed to blow hot and cold in the attitude you adopt. A man cannot adopt two inconsistent attitudes towards another: he must elect between them and having elected to adopt one stance, cannot thereafter be permitted to go back and adopt an inconsistent stance " The above is discussed in Apotex Pty Limited v Sanofi [2013] FCA 1425 [12] as applicable to Australia.
Brennan J in Commonwealth v Verwayen [1990] 170 CLR 394 at [421] acknowledged the existence of the doctrine of approbation and reprobation. His Honour said that it "precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he exercised.."
The Lessee now says that the rent increases did not apply and in fact were illegal under the COVID-19 Regulations contrary to the position it took as clearly evidenced in the email correspondence referred to in paragraph 77 of the Reasons. There the Lessee was quite clear that it would pay the 4% rent increase after the prescribed period had been determined. Further, the Lessee now says that the sum of $2, 529.33 being the balance of the insurance premium outgoing was payable as at the date of re-entry, 11 November 2022, again contrary to the position taken by Mr Selim as evidenced from his witness statement recited in paragraph 55 of the Reasons that he was adamant that the increased amount was not payable.
This a clear case of approbation and reprobation by the Lessee, initially taking one position, that the increase in outgoings was payable after the prescribed period and that the insurance premium increase was not payable, and now saying the increase in rent was not payable but the insurance premium was payable, being a reversal of each position. The Lessee should be denied the opportunity to now change its position. The detriment to the Lessor in relation to reversal of the Lessee's attitude to the rent increases is evident, as the Lessor now seeks to rely on Estoppel by convention to secure its position without which, if the Lessee was correct in the interpretation of Regulation 6B of the COVID-19 Regulations ( but it is not correct in such interpretation) the re-entry may be illegal. The Lessee should not be allowed to approbate and reprobate its position in relation to rent increases. It was prepared to accept the position put by the Lessor (with a minor exception to the rent increase for 3 months during the prescribed period) and should be held to that position. In relation to the reversal of the Lessee's position on the outgoing of the increase in insurance premium, this leads to the next proposition put by the Lessor that at the time of re-entry the Lessee by maintaining it was not liable to pay and had no intention of paying the outgoing, repudiated the Lease.

[20]

Submissions by the Lessor

The Lessor asserts that the Lessee repudiated the Lease by deliberately refusing to pay the full amount of the insurance outgoings and such refusal was a repudiation entitling the Lessor to accept the repudiation upon re-entering the premises and determining the Lease.
Repudiation occurs when a party evinces an intention no longer to be bound by an agreement, or to fulfil it only in a manner substantially inconsistent with that party's obligations: CCS 251 Elizabeth St Ply Ltd v Hellenic Club Ltd [2021] NSWCATAP 279 (Hellenic Club) at [98] following Progressive Mailing House Ply Ltd v Tabali Ply Ltd (1985) 157 CLR 17 at 33, Shevill v Builders Licensing Board(1982) 149 CLR 620 at 6256.
The mere presence of a right of re-entry does not exclude other methods of terminating a lease including the right to terminate for repudiation or breach of a fundamental term: Nat West Markets Australia Pty Ltd v Tenth Vandy Ply Ltd (2008) 21 YR 68; [2008] VSCA 207 per Neave JA at [50] (Nettle JA and Ashley JJA agreeing), cited in Hellenic Club at [94].
Repudiation may arise where there is an anticipatory breach if, prior to performance being due, a party manifests an inability or unwillingness to perform the contract at all or in substance: Foran v Wright (1989) 168 CLR 385 at 441.
Re-entry is to be seen as acceptance of the repudiatory conduct by conduct inconsistent with the continuation of the lease, thereby terminating the lease: Hellenic Club at [119].
Even if repudiation was not relied on at the time of termination, an innocent party may support its termination by reference to conduct that it had not relied on at the time of termination: Hellenic Club at [126].
The Tribunal should find that the Lessee repudiated the lease. It did not merely fail to pay the amount of insurance outgoings that was due, but it: 1. asserted a right not to pay the full amount at all, or that it would pay only on a condition that it received a further and more detailed expert opinion that it did not have a right to demand under the Lease; 2. asserted that past payments had been overpaid without a reasonable basis; 3. asserted that it had a right to recover amounts in respect of past payments without a reasonable basis; and 4. asserted that it had a right to set-off that amount against future rent payments without a reasonable basis.
The Tribunal should find that, alone or in combination, by this conduct the Lessee evinced an intention no longer to be bound by the lease, or to fulfil it only in a manner substantially inconsistent with the obligations of the Lessee, and that the Lessor was entitled to accept the repudiation by re-entering the premises on 11 November 2022.

At a glance

Court

Decision date

Source

Judgment (30 paragraphs)

Cases Cited (10)