Perpetual Trustee Company Limited v Eastern Pursuits Pty Limited

COVID-19 Leasing Principles

1. The first issue to be determined is whether Perpetual is barred from claiming the arrears in rent and expenses from the defendants. That requires consideration of the relevant regulations in operation during the pandemic.
2. On 23 March 2020, a public health order was made in response to the onset of the pandemic which required the closing of all licensed premises under the Liquor Act 2007 (NSW): Public Health (COVID-19 Places of Social Gathering) Order 2020 (NSW). Eastern closed the premises.
3. The parties agree that Stevenson J's summary of the COVID-19 regulations in Alamdo Holdings Pty Ltd v Croc's Franchising Pty Ltd (No 2) [2023] NSWSC 60 at [17]-[44] can be adopted here and I do so. There, his Honour set out the regime that was implemented by the NSW Government to assist retail tenants during the pandemic. The relevant regulations included: 1. In April 2020, the National Cabinet adopted the National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles During COVID-19 (National Code). 2. The Conveyancing (General) Regulation 2018 (NSW), schedule 5 of which was headed "Commercial leases - COVID-19 pandemic special provisions" (COVID Regulation). It was operational from 24 April 2020 to 23 October 2020 and also referred to "Leasing Principles" in the National Code. 3. From 24 October to 31 December 2020 further regulations operated (Extended COVID Regulation), and had the effect of extending the "prescribed period" under the COVID Regulation, subject to a savings provision. The "prescribed period" was the period, in which, a lessor was not to take a prescribed action against an impacted lessee of a commercial lease (cl 4). Prescribed action was defined to include the landlord taking action under the terms of a commercial lease for, inter alia, "any other remedy otherwise available to a lessor against a lessee at common law or under the law of this State".
4. As a general summary, the National Code set out the expectation that landlords and tenants would negotiate in good faith to work towards "tailored, bespoke and appropriate temporary arrangements", which could include rent relief in the form of rental waiver and rental deferrals. Such relief was to be "proportionate" to the reduction in trade "as a result of" the impact of the pandemic. Landlords were to consider the tenant's particular circumstances on a "case by case" basis.
5. On 1 July 2021, the Extended COVID Regulation was repealed. However, s 88(1) of the Retail Leases Act 1994 (NSW) included a savings provision in the following terms: The Retail and Other Commercial Leases (COVID-19 Regulation (No 3) 2020 continues to apply, despite the repeal of that regulation, to anything occurring in relation to a lease while the lease was an impacted lease within the meaning of that regulation.
6. There was no real contest between the parties that Eastern was an "impacted lessee", entitled to the regulations' protections, nor that there had been a mediation certified as unsuccessful by the Small Business Commissioner, as required by the National Code.
7. The only issue in dispute in these proceedings concerning the regulations is whether each of the parties engaged in "good faith" negotiations and the appropriate consequences.
8. Eastern alleges that Perpetual failed to engage in good faith negotiations as required, such that Perpetual is permanently barred from taking a "prescribed action" in these proceedings, namely claiming the arrears.
9. Perpetual denies it failed to engage in good faith negotiations, or that it is prevented from bringing its claim. It asserts Eastern failed to engage in good faith negotiations.

Requirement of Good Faith Negotiations

1. Both parties referred to Allsop P's statement in United Group Rail Services Ltd v Rail Corporation New South Wales (2009) 74 NSWLR 618 at 637 concerning the meaning of "good faith" when parties agree to a term in a contract requiring good faith negotiations: [70] What the phrase "good faith" signifies in any particular context and contract will depend on that context and that contract. … The phrase does not, by its terms, necessarily import, or presumptively introduce, notions of fiduciary obligation familiar in equity or the law of trusts. Nor does it necessarily import any notion or requirement to act in the interests of the other party to the contract. … It is to be anticipated at the time of entry into the contract that disputes and differences that may arise will be anchored to a finite body of rights and obligations capable of ascertainment and resolution by the chosen arbitral process (or, indeed, if the parties chose, by the Court). The negotiations (being the course of treaty or discussion) with a view to resolving the dispute will be anticipated not to be open-ended about a myriad of commercial interests to be bargained for from a self-interested perspective (as in Coal Cliff). Rather, they will be anticipated to involve or comprise a discussion of rights, entitlements and obligations said by the parties to arise from a finite and fixed legal framework about acts or omissions that will be said to have happened or not happened. The aim of the negotiations will be anticipated to be to resolve a dispute about an existing bargain and its performance. Honest and genuine differences of opinion may attend the parties' views of their rights and obligations. Such things as difficulties of proof and uncertainty as to fact or law may perfectly legitimately strike the parties differently. That accepted, honest business people who approach a dispute about an existing contract will often be able to settle it. This requires an honest and genuine attempt to resolve differences by discussion and, if thought to be reasonable and appropriate, by compromise, in the context of showing a faithfulness and fidelity to the existing bargain.
2. Eastern also relied on the further discussion of the meaning of "good faith" set out in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. At [12], Allsop P said, in the context of an express contractual term requiring "utmost good faith": The usual content of the obligation of good faith that can be extracted from [citations omitted] is as follows: (a) obligations to act honestly and with a fidelity to the bargain; (b) obligations not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; (c) an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained.
3. In that case, Hodgson JA also noted at [147] that the requirement of good faith does not demand that a party "subordinate its own legitimate interest to the interests of the other party", a proposition which has been repeated in various authorities.
4. Eastern also relies on Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd (2010) 41 WAR 318, a case concerning an express contractual obligation to negotiate in good faith in the context of a memorandum of understanding (MOU). The relevant clause did not specify a process for the negotiations and was to be determined as a matter of construction and application of the facts. At 399, Pullin JA (Newnes JA agreeing) stated: [62] … The MOU clearly contemplates that they 'deal' with each other by negotiating. This does not suggest that the content of an offer made in negotiations where the parties must deal with each other in good faith must pass some objective test of reasonableness to be assessed by the courts. The parties should 'deal' with each other in good faith by doing what Einstein J said the parties should do in Aiton's case [155] - [156], that is: (a) subject themselves to the process of negotiation; and (b) keep an open mind in the sense of being willing to consider such proposals as may be propounded by the other party and put forward options for the resolution of any differences which may develop in the negotiations. [63] To deal with each other in that fashion would be to deal with each other in good faith because that would show fidelity or loyalty to the MOU promise to negotiate (see United Rail [77]) and involve an honest standard of conduct. Unreasonable or capricious 'conduct' would be relevant but only insofar as it provided evidence from which it may be inferred that a party was not honestly subjecting themselves to the process of negotiation or not keeping an open mind and therefore not acting in good faith.
5. Murphy JA, agreeing with Pullin JA, considered that the relevant clause requiring negotiations in good faith required proposals and counterproposals to be made, serious and genuine consideration to be given to the proposals and counterproposals, a timeous approach to making and responding to proposals having regard to nature and scope of issues as well as complexity and commercial significance, and an attitude involving "honesty of purpose" and "sincerity of declaration". Further, parties were not entitled to negotiate in an arbitrary or capricious manner (at 349).
6. In Alamdo Holdings Pty Ltd v Croc's Franchising Pty Ltd (No 2) [2023] NSWSC 60, Stevenson J considered the authorities concerning good faith in the contractual context and in relation to the National Code concluded at [229]: In the context of an obligation to negotiate in good faith, the requirement to act honestly or subjectively in good faith in effect requires an absence of bad faith, including not negotiating in an arbitrary or capricious manner.
7. Here, neither party submitted that the Court should approach the task of construing "good faith" in the National Code any differently to the approaches taken in the cases above.

History of negotiations

1. As noted above, on 23 March 2020, Eastern appropriately shut the business temporarily.
2. On 25 May 2020, Eastern's advisor, MGS Private P/L, wrote to Perpetual concerning the impact of the pandemic. That letter asserted, without any supporting documents, that Eastern was an "impacted lessee", because it was eligible for Jobkeeper and had a turnover less than $50m. At the time there was no requirement to provide supporting documentation. On 3 July 2020, the COVID Regulation was amended to require lessees to provide lessors with evidence that they were "impacted lessees".
3. On 27 May 2020, the then solicitors for Eastern, M & A Lawyers (MAL), emailed the group general manager of leasing at Scentre Group, Andrew Hulls, seeking to "engage pursuant to the [National] Code to renegotiate the rent, outgoings and other terms of the Lease for the Eastern Hotel". On 15 June 2020, a follow-up email was sent.
4. On 18 June 2020, Mr Hulls sent an email to MAL, apologising for the delayed response and offering to set up a conference call, as well as seeking a copy of "Jobkeeper acceptance" for Eastern.
5. On 19 June 2020, Mr Hulls had a telephone call with Damien Michael and Cheryl Zhang from MAL. In that call, Mr Hulls requested information regarding Eastern's eligibility for rent relief pursuant to the COVID Regulation.
6. On 26 June 2020, MAL emailed Mr Hulls advising that the ground floor of the premises would reopen on 1 July 2020. That letter also included a one-page copy of the "Jobkeeper details" for Eastern.
7. On 1 July 2020, Eastern recommenced operating its business on the ground level of the premises; restrictions on numbers of patrons in that area applied. It is not in dispute that the ground floor was the most profitable level of the business.
8. On 21 July 2020, Mr Hulls received a letter from MAL seeking to negotiate rental abatements, requesting a waiver of: 1. 100% of rent for March to June 2020; 2. 75% of rent from June 2020 to the end of restrictions on public gatherings; and 3. 25% of rent from the end of the restrictions until December 2029 (ie end of Lease).
9. On 29 July 2020, Holding Redlich, on behalf of Perpetual, replied to that letter noting: 1. To that point, the parties had been negotiating directly about rent relief; 2. In those direct negotiations, Mr Hulls had already rejected that offer; and 3. Perpetual did not accept that the rent should be waived, permanently, by the ratio of the number of patrons permitted in the premises.
10. On 3 August 2020, MAL wrote to Holding Redlich again seeking to engage in negotiations concerning "the rent, outgoings and other terms of the lease". The same offer was made: … in preface to the proposed sale of the business and assignment of the Hotel License and attached Gaming Machine Entitlements.
11. Eastern provided no further information in an attempt to comply with the National Code's requirement in the "overarching principles" that the parties provide "sufficient and accurate information" during the negotiation process, that included "information generated from an accounting system, and information provided to and/or received from a financial institution".
12. On 11 August 2020, Holding Redlich replied to that letter and included: 1. An offer of rent relief for April to June 2020 by way of 50% rent reduction and 50% rent waiver; 2. A request for detailed financial information/documentation to demonstrate that Eastern was an impacted lessee and to enable Perpetual to determine a proportionate rent reduction. The information sought included profit and loss from year ended June 2019, and completed business activity statements from 1 July 2019 to 31 March 2020; and 3. An opinion that there was no basis for a permanent rent reduction until the end of the lease in December 2029.
13. By 11 September 2020, Eastern had not responded. Holding Redlich sent a follow up letter that noted that, as at that date, Eastern was in arrears of rent in the sum of $1,095,138,27, which included rent in the sum of $317,908, that had been owed as at 2 April 2020. The letter again requested the same financial information.
14. On 18 September 2020, MAL provided some of the financial information to Holding Redlich. A document entitled "profit and loss" for July 2019 to June 2020 was incomplete because it only included income, and not expenses.
15. MAL's letter also contained an amended offer, which included the following terms: 1. Waiver of 100% of rent for April, May and June 2020; and 2. From 1 July 2020 to the lifting of restrictions, a 50% waiver of rent and 50% reduction of rental payments. I note this effectively amounted to a promise to pay 25% rent.
16. The offer of 25% rental payment was said to be justified, because Eastern's turnover figures for July 2020 were approximately 45% of previous turnover figures. No information was provided about any change in expenses or profit.
17. While never provided to Perpetual at the time, Eastern tendered in evidence a profit and loss statement for July 2020 to September 2020, which demonstrated a net profit of $85,045.32. In cross-examination Mr Lazarus stated that the document was incomplete, and that profit was only possible because no rent was paid and because of government assistance in the form of Jobkeeper and tax relief.
18. On 14 December 2020, Holding Redlich replied with an offer of 100% rent assistance for the period April 2020 - June 2020 by way of 50% waiver and 50% deferral (December Offer). This was offered "in good faith and on an ex gratia basis": despite the lessee being permitted to trade in various capacities since 15 May 2020, and having not traded to the fullest extent permissible …
19. In addition, commensurate rent assistance was offered, referable to the disclosed reduction in turnover for the period July - October 2020.
20. Perpetual explained in the letter that in assessing appropriate relief, it did not have regard to estimated turnover from trade from the basement, because the nightclub could not operate. However, Perpetual had considered turnover that could have been received on levels two and three, which remained closed. It appears that Perpetual considered that Eastern could have operated from those levels and chose not to, rather than Eastern being compelled by the pandemic. Eastern had not provided any detailed explanation as to why those levels could not be opened for trade, including, for example, the basis for any predicted negative financial impact. Mr Hulls' evidence was that he saw other nearby venues that were open and busy.
21. Eastern did not reply to that letter at all.
22. On 25 January 2021, Perpetual applied for a mediation before the Small Business Commissioner under clause 6 of the COVID Regulation. The mediation occurred on 28 April 2021. No resolution was reached.
23. On 28 May 2021, Holding Redlich sent a letter to MAL making another offer in circumstances where the rent was in arrears in the sum of $2,323,121.68 (May Offer). The terms were more favourable to Eastern than Perpetual's December Offer and were: 1. Rent relief (being 50% waiver, 50% deferral) from 1 April 2020 to 31 March 2021, in the sum of $1,168,976.30; and 2. Deferred payments to commence 1 April 2021.
24. Attached to that offer was a spreadsheet, which calculated rent relief based on turnover figures provided by Eastern to the end of 2020. Rent relief was included for January to March 2021, even though Eastern had not provided any financial information to confirm Eastern's eligibility as an "impacted lessee" for that period, and in circumstances where Eastern was not trading at all.
25. On 3 June 2021, MAL responded seeking a further seven days to negotiate with "prospective purchasers" and consider the offer, enclosing a letter from Eastern's broker concerning attempts to sell the business.
26. On 4 June 2021, Holding Redlich refused the request for an extension of the time, during which the offer was open for acceptance, because a reason given was so Eastern could "continue negotiations with prospective purchasers". Doubt was expressed about what change would occur within the seven days, in circumstances where MAL's letter had not provided "any basis for asserting that there are any ongoing negotiations with prospective purchasers". No threat of litigation was made, should the offer not be accepted.
27. That same day, MAL repeated the request for an extension of time, again asserting that there were some sale negotiations with a third party, and those negotiations were not to the exclusion of the request for further time to consider the offer.
28. It does not appear that Holding Redlich responded. Eastern did not make any counter offer, nor respond providing any reasons why the May Offer was unreasonable, flawed or not in accordance with the National Code.
29. On 28 June 2021, Perpetual commenced these proceedings.

Perpetual

1. Eastern relied on Robb J's decision in Darzi Group Pty Ltd v Nolde Pty Ltd (No 2) [2022] NSWSC 643 to assert that Perpetual was permanently barred from seeking the arrears from it, because it had failed to negotiate in good faith as required by the National Code. However, in that case Robb J was required to decide whether s 88 of the Retail Leases Act 1994 (NSW) allowed a landlord to re-instigate negotiations after the regulations were repealed. His Honour concluded the landlord was not so permitted, because the Court had found that the landlord had earlier terminated the negotiations. That is a different situation to this case. Here, Perpetual did not cease negotiating; Eastern ceased engaging in the process as detailed below.
2. I consider that Perpetual engaged in good faith negotiations within the meaning of the National Code, despite the fact that no compromise was reached.
3. As Pullin JA explained in Strzlecki, it is not necessary for the Court to determine whether the offers made by Perpetual passed some "objective test of reasonableness" and ought to have been accepted. The focus is on the conduct of the parties.
4. I consider Perpetual continued to engage in the process contemplated by the National Code, including making increasing concessions in favour of Eastern until May 2021. There is no evidence that Perpetual would have refused to consider a counter-offer from Eastern, had one been made. Perpetual had earlier also sought a mediation, when Eastern had not responded to its December 2020 offer.
5. I also do not accept Eastern's submission that Perpetual failed to approach Eastern's request for rent relief on a "case by case" basis. Mr Hull's clear evidence was that Perpetual's offers to Eastern were not simply the same as offers made to all tenants in the shopping centre. Instead, the correspondence demonstrates that Perpetual explained its offers by reference to Eastern's own documents and turnover.
6. I do not accept Eastern's criticism that it was incumbent upon Perpetual to continue to agitate for further financial information from Eastern. Eastern had consultants and lawyers, who repeatedly referred to the operation of the National Code, which included a requirement for Eastern to provide "sufficient and accurate information". Met without complete documentation Perpetual nevertheless made offers of rental assistance to Eastern. For example, the May Offer was made without Eastern having provided Perpetual any evidence that it was an impacted lessee between 24 October 2020 and 31 December 2020, when the Extended COVID Regulation operated.
7. Therefore, I consider that Perpetual has demonstrated that it complied with the National Code in its approach to Eastern's request for rental relief.
8. Eastern in effect opted to stop negotiating and instead defend the litigation, which amounted to an "all or nothing" approach.
9. It follows that Perpetual was entitled to both commence these proceedings, and also call on its bank guarantee.
10. Even if that conclusion is incorrect, before the COVID Regulation, Eastern was in default of rental payments in the sum of $317,908. Therefore, Perpetual was entitled to recover that sum, including from the bank guarantee, without consideration of the operation of the regulations. Therefore, at most, only the recovery of $70,092 from the bank guarantee would have been prohibited.

Eastern

1. Based on the conclusion above, it is not necessary to determine whether Eastern "forfeited any protections provided to the tenant under this Code" (Leasing Principle, clause 2). However, I consider that Eastern did, in fact, forfeit those protections, because it failed to comply with clause 2, which provides: 2. Tenants must remain committed to the terms of their lease, subject to any amendments to their rental agreement negotiated under this Code. Material failure to abide by substantive terms of their lease will forfeit any protections provided to the tenant under this Code.
2. Eastern relied upon Robb J's judgment in Darzi Group Pty Ltd v Nolde Pty Ltd [2021] NSWSC 774 to support its decision not to pay any rent during the pandemic and during negotiations. In Darzi, the lessee, who was seeking rental relief, unilaterally decided to commence paying rent in accordance with an offer it had made, even though it had not been accepted by the lessor. Robb J stated at [130] (emphasis added): … I do not accept that the intent of leasing principle 2 was to require impacted lessees to continue to pay full rent until agreements to the contrary were made with lessors. In my view, leasing principle 2 was directed at all of the other terms of the lease, breaches of which are not the subject of the prohibitions and restrictions contained in clause 6 of the COVID-19 Regulation (No 1). Some support for this conclusion is found in the fact that leasing principle 2 is not listed in the Note to clause 7(4) of the COVID-19 Regulation (No 1) as being a leasing principle to be taken into account in the renegotiation process.
3. However, his Honour also found that the lessee had paid reduced rent not "on the basis of a final and absolute statement of position … Properly understood, it was an interim arrangement" (at [131]), where the lessee expected the impact of the pandemic may continue and also expected the lessor would quickly comply with the obligation to engage in good faith negotiations pursuant to the National Code.
4. Perpetual submitted that here the facts were very different, because Eastern had unilaterally decided to cease paying any rent whatsoever, even though its offer of 18 September 2020 contemplated paying 25% rent from 1 July 2020. I accept Perpetual's submission, that by failing to pay any rent, even where Eastern's own records indicated it had made a profit, Eastern had failed to abide by the substantive terms of the Lease in a material way. I do not consider this approach inconsistent with Robb J's conclusion in Darzi, because his Honour merely accepted that an impacted lessee need not continue to pay "full rent" on an interim basis, while negotiations were on foot.
5. I note for completeness, had it been necessary to decide, that Eastern failed to engage in good faith negotiations. Eastern did seek to engage in the negotiation process, however, it failed to engage in good faith for the following reasons.
6. First, there was no legitimate or reasonable reason for Eastern to make the first offer on 21 July 2020 seeking a 25% reduction in rent for the remainder of the Lease term. Such an offer was, as counsel for Perpetual put it, a "try on". Mr Lazarus resisted the description and instead stated the offer was "part of a negotiation". Instead, that part of the offer appears only relevant to Eastern's intention to sell the business, which would be assisted by amended lease terms.
7. This attitude is consistent with concerns expressed by Eastern's broker on 31 May 2021 who had been involved in sales campaigns over "the last 3-4 years" that included: Over the years we have received very strong and genuine interest from the below well-known groups… Each of [those who made an offer] subsequently had meetings with Westfield representatives to progress lease negotiations. It is our understanding that each of these negotiations were unfortunately unsuccessful. … The commonly held view is that The Eastern lease is very constraining in its fundamental structure notwithstanding the total rental quantum. The fact that the Lease requires a Personal Guarantee and the rent is currently over $1.7M, has meant that except for some early stage interest from [a buyer] the asset has otherwise proven unsaleable.
8. It is also consistent with MAL including in its various correspondence the following: 1. Eastern's wish to "renegotiate… other terms of the lease", when the COVID Regulation did not require such renegotiation; and 2. Eastern asking Perpetual to extend the period an offer was open so it could "continue negotiations with prospective purchasers and to consider the Offer in further detail."
9. This attitude of Eastern is a further reason why I conclude that Perpetual engaged in good faith negotiations. As noted above, Perpetual made increasing concessions in Eastern's favour, despite Eastern's attitude.

Eastern's Liquor Licence and Gaming Machine Entitlements

1. As noted above, at the time of entry into the Lease, Eastern purchased rights to use the Licence, to which gaming machine entitlements are connected, from an entity related to Perpetual.
2. By its cross-claim, Eastern sought various relief that was difficult to understand. First, Eastern sought the following declaration: A declaration that upon the expiry for whatever cause of the Lease [Eastern] is entitled to deal with, dispose of, or transfer the said liquor licence and associated gaming machine entitlements, if [Perpetual] does not exercise its option to acquire those rights, and [Perpetual] is obliged to exercise all such rights if may have under the Liquor Act 2007, the Gaming Machines Act 2001 or otherwise in regard to the liquor licence and associated rights in the event that it does not exercise the said option, to aid [Eastern] in dealing with the liquor licence and associated gaming machine entitlements in the fashion just described.
3. That relief is said to be necessary because of Eastern's concern about the operation of clause 30 of the Lease which provides Perpetual with an option to purchase the Licence for market value, when the Lease comes to an end in various ways detailed in the clause.
4. Clause 30 of the Lease is silent on what will happen to the Licence if Perpetual does not exercise its option at the end of the Lease but is in possession of the premises, and therefore have a legislative entitlement under s 61 of the Liquor Act to apply for a transfer of those rights to itself.
5. Eastern alleges that at the time of formation of the Lease it was the parties' "common intention", or "arrangement", or "common understanding", or "collateral, shared, common intention or arrangement" that Perpetual would not do any act to prevent Eastern dealing with those rights, should Perpetual not exercise the option rights in clause 30. Counsel for Eastern described the "common intention" in various terms throughout the course of hearing, and such terms were used interchangeably, a course which I will also adopt in this judgment.
6. Eastern asserts that the declaration will have the effect of ensuring Perpetual is estopped from resiling from that common assumption. Alternatively, the declaration will give effect to a remedial constructive trust, whereby Perpetual will hold any rights pursuant to s 61 of the Liquor Act on trust for Eastern.
7. Eastern also asserts that Perpetual engaged in misleading or deceptive conduct or unconscientious conduct within the meaning of ss 18 and 20 of the ACL, because it refused to provide Eastern with a written acknowledgement of the alleged "common understanding" when Eastern was negotiating a sale of the business in 2017.
8. In its opening submissions, Eastern explains the relief sought in the following way: a. the common intention of Perpetual and Eastern to the effect that that if Perpetual did not exercise its option to acquire the License on the expiration of the Lease, Eastern Pursuits (or a subsequent holder of the License) was entitled to otherwise realise the value of the License by way of transfer to other premises as it saw fit; b. that Perpetual is estopped from failing to give effect to the common intention referred to in (a) above; c. that Perpetual engaged in misleading or deceptive conduct in failing to confirm the rights of Eastern Pursuits in respect of the License, despite those rights existing, that is, Perpetual represented that the rights of Eastern Pursuits in respect of the License do not exist when the true position is that those rights do exist; and d. that the conduct referred to above was, further or, alternatively, unconscionable conduct by Perpetual.
9. The "common intention" was pleaded as follows: At all material times from the date of the [lease], it was the common intention of Perpetual and Eastern that: a. in consequence of Eastern having paid $1.9million dollars for the Liquor License that all rights in regard to the Liquor License would be exercisable by Eastern, subject only to Perpetual's option under the Lease (Clause 30) to acquire the Liquor License on expiry of the Lease. b. Perpetual would otherwise act on the direction of Eastern upon expiry of the Lease to permit Eastern to transfer the Liquor License to such other premises as it saw fit. c. Perpetual would not otherwise seek to acquire the Liquor License other than by exercising its option under the Lease and paying market value.
10. The essential question to be determined for each of the different ways Eastern puts its case, is whether there was a "common assumption" or "arrangement" or "understanding" as alleged.
11. I note that ordinarily, if a contracting party can demonstrate to the requisite standard that the parties had a "common intention" that is not recorded in the documented contract, then an order for rectification is sought: see, eg, Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [108] (Tobias JA, Mason P and Campbell JA agreeing). However, here, Eastern disavowed rectification, which I consider tells against any of the other formulations of its position being likely to succeed. I consider each of them below after considering the issue of the alleged common assumption.

Did the parties have a common assumption outside the Lease?

1. Eastern relies on negotiations in relation to the terms of the Lease to prove the alleged "common intention". The documented negotiations took place between 5 November 2002 and 11 March 2004. They were carried out between sophisticated parties represented by lawyers.
2. Key documented negotiations provided in evidence are outlined below. Not all the correspondence was included in the evidence.
3. On 26 November 2002 Westfield Shopping Centre Management Co Pty Limited wrote to Eastern noting a signed acceptance of proposal and that solicitors would be instructed to issue lease documentation. One of the agreed items was: Item 9 - The lessor agrees that the Lease … will be entered into simultaneously with the Agreement for the Sale of the Liquor License and settlement of the purchase of the Liquor License will occur twenty one (21) days prior to the commencement of the lease.
4. Further details were provided in that letter: 9. The Lessor agrees to sell the liquor license held in the name of Bobian Pty Limited for the sum of $1.9million plus GST subject to: The Lessor having the first right of refusal on the purchase of the license on lease termination or surrender; however in the event of an assignment of lease of lease the first right will be transferred to the new lessee …
5. As part of the Lessee's disclosure statement: Apart from the statements or representations set out above, no other promises, representations, warranties or undertakings (other than those contained in the lease) have been made by the lessor to the lessee in respect of the premises …
6. In signing the acceptance form, Eastern also acknowledged that: … no promise, representation, warranty or undertaking has been made to me/us in relation to the potential profitability
7. On 8 July 2003, Eastern's solicitors provided 67 comments on the draft lease provided by Perpetual's solicitors. The draft lease is not in evidence. Eastern sought to amend the assignment clause, so that Perpetual could not "unreasonably withhold consent".
8. Eastern also sought amendment of clause 30, which concerned Perpetual's option to purchase the Licence. Further, they sought agreement to include a new clause 31 in these terms: 31.1 The Lessor confirms that apart from the interest disclosed in this Lease, the Lessor does not have any estate or interest in the License. 31.2 The Lessor will if the Lessor elects not to exercise its rights under clause 30 of this Lease and if requested to do so by the Lessee: 31.2.1 consent to the removal of the License from the Premises; 31.2.2 consent to the posting of notices upon the Premises pursuant to the requirements of the Liquor Act and Regulations… 31.2.3 sign a statement confirming that it has not estate or interest in the License apart from the interest disclosed in this Lease.
9. On 23 July 2003, Perpetual's solicitors responded, including that Perpetual would not agree to the amendments to the assignment clause, or clause 30 or the new clause 31.
10. On 15 August 2003, Eastern's solicitors responded. They continued to agitate for a different form of assignment clause, pressed for their amendment to clause 30 and pressed for the inclusion of their proposed clause 31 with the following reasoning: In the event that Westfield elects not to acquire the License under clause 30 then [Eastern] should be entitled to deal with the License in any way it is at law entitled.
11. Apparently on 8 September 2003, Perpetual's solicitors responded, but that correspondence is not in evidence.
12. On 19 September 2003, Eastern's solicitors responded and stated that the matters referred to above (inter alia) were "essential" and "must be resolved in the short term (and which all relate to the Lease only)."
13. On 10 October 2003, Perpetual's solicitors responded. They indicated that a minor amendment to the assignment clause and clause 30 would be possible. In relation to the proposed clause 31, the response was: If our client elects not to acquire the licence on the expiry of the lease then it will acknowledge that the Lessee is entitled to remove it.
14. It appears that there was further correspondence, but the next letter in evidence was dated 4 December 2003 from Eastern's solicitors proposing a new form of clause 31 and an additional clause 32 dealing with valuation and an additional clause 33 providing "interpretation" for clauses 31 and 32.
15. It appears that there was a meeting on 18 December 2003 to negotiate lease terms. On 6 January 2004, Eastern's solicitors continued to agitate for clarity around the assignment clause inter alia. The letter further stated: Right to Purchase License Subject to ALL of the Agreement to Lease and Lease terms being settled this provision is acceptable to our client.
16. The form of "this provision" referred to in that letter was not in evidence. No further correspondence concerning negotiations was in evidence.
17. On 11 March 2004, the relevant parties agreed to an agreement for sale of the licence and the agreement to lease.
18. The executed Lease contained the following relevant clauses: 1. Clause 17 concerning the transfer of the Lease. 1. Clause 17.3 required Eastern to provide Perpetual with a right of first refusal if an assignment was sought, allowing Perpetual 60 days to consider such application. If Perpetual did not exercise that option, then Eastern could make an application under clause 17.1. 2. Clause 17.1 prohibited Eastern assigning the lease. However, if conditions precedent (a)-(n) were satisfied then an assignment was possible. Those conditions included Perpetual retaining an "absolute discretion" as to various matters, including in relation to the assignee being an appropriate person and providing a guarantee acceptable to Perpetual of the Lessee's obligations. 3. Clause 17.4 provided an acknowledgement by the parties that an assignment would include a transfer of the goodwill, equipment, stock and the Licence. 1. Clause 19.7 provided an entire agreement clause, including that "all warranties conditions and representations collateral or otherwise concerning the leasing whether written oral express or implied and whether consistent with this document or not are cancelled except so far as they are contained in this Lease…" 2. Clause 28 dealt with Eastern's obligations in relation to the Licence, including by reference to clause 30. 3. Clause 30 provided Perpetual with a right to purchase the Licence for market value within 60 days of a defined "Sale Event" occurring, which included the termination of the Lease by expiry or otherwise.
19. No clause 31 was included in the executed Lease. Nevertheless, Eastern submits that the negotiations demonstrate a "common intention" about what should occur, should Perpetual not exercise its clause 30 rights, namely, that Eastern would be entitled to deal with the Licence rights to the exclusion of Perpetual and that Perpetual would co-operate with Eastern in that regard.
20. I do not accept that Eastern has demonstrated that the parties had a common intention as alleged. Instead, the evidence reveals negotiations where the parties compromised their positions in various ways prior to the execution of the final Lease. In those circumstances, it is not open to Eastern to prove that Perpetual held an intention in common with Eastern about the substance of a proposed clause 31, when, by agreement, that clause was never included. Had the parties held the common intention alleged, then a term concerning the issue would have been included in the Lease. Had such term been included, other terms may have been changed. I consider the executed Lease is the final statement of the parties' common intention, particularly in light of the entire agreement clause and the detailed negotiations before execution.
21. Even if that conclusion is wrong, then the highest the "common intention" could rise on the documents would be Perpetual's statement on 10 October 2003 that: If our client elects not to acquire the licence on expiry of the lease then it will acknowledge that the Lessee is entitled to remove it.
22. Eastern submits that by reason of the common intention, Perpetual was obliged to take positive steps to provide an acknowledgement of that intention to Eastern if requested to assist Eastern sell the business. Read in the most favourable light for Eastern, the statement above did not provide a promise that Perpetual would provide a further acknowledgment of Eastern's rights, at any time requested by Eastern.
23. Eastern was not able to identify any authority, pursuant to which a Court has ordered a person to provide an acknowledgment of a representation: Cf Mander Forklift Pty Ltd v Dairy Farmers Cooperative (Supreme Court (NSW), Cole J, 15 March 1990, unrep); Lake Cumbeline Pty Ltd v Effem Foods Pty Limited [1995] FCA 451; Halton Pty Ltd v Stewart Bros Drilling Contractors Pty Ltd (1992) ATPR 41-158.
24. I do not accept that there is principled reason why the Court would require a party to a non-contractual "arrangement" to "co-operate" by providing a further acknowledgment of the arrangement on demand. Either the law recognises that there is an existing arrangement, and it would provide a remedy, or it does not.
25. Further, as detailed further below, I do not accept that by refusing to provide the acknowledgement sought, Perpetual: 1. engaged in misleading or deceptive conduct by silence; 2. engaged in unconscientious conduct; 3. ought to be estopped from resiling from the alleged common assumption, or 4. ought be found to hold any s 61 Liquor Act rights on trust for Eastern.
26. Each was only faintly developed and therefore may be dealt with briefly.

Common intention constructive trust

1. The common intention for a constructive trust is ordinarily that a person has an interest in property owned by another, and that person has acted to their detriment relying on that common intention: Galati v Deans [2023] NSWCA 13 at [54] (White JA). In this case, there can be no common intention constructive trust without the common intention claimed by Eastern.

Unconscientious conduct

1. I also do not accept that Perpetual's conduct can be described as unconscientious within the meaning of s 20 of the ACL. Senior counsel for Eastern contended that Perpetual's conduct was unconscientious, because it gave rise to an estoppel, relying on Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 72-73 where Gummow and Hayne JJ stated (citations omitted): [42] The term "unconscionable'' is used as a description of various grounds of equitable intervention to refuse enforcement of or to set aside transactions which offend equity and good conscience. The term is used across a broad range of the equity jurisdiction. … the various doctrines and remedies in the field of estoppel, at a general level, may be said to overcome the unconscionable conduct involved in resiling from the representation or expectation induced by the party estopped. [43] It will be unconscientious for a party to refuse to accept the position which is required by the doctrines of equity. But those doctrines may represent, as the above examples indicate, the outcome of an interplay between various themes and values of concern to equity. The present editor of Snell has noted the use of the terms unconscionable'' and unconscientious'' in areas as diverse as the nature of trusteeship and the doctrine of laches''; he rightly observed that this may have masked rather than illuminated the underlying principles at stake''.
2. I do not accept that this passage supports the submission that unconscionable conduct within the meaning of s 20 of the ACL is established by separate proof of an estoppel. Unconscionable conduct under s 20 requires proof of a special disadvantage. No special disadvantage on the part of Eastern, through its controlling mind, Mr Lazarus, was pleaded. No special disadvantage was developed in submissions during the hearing. Here, Eastern was at all times represented by lawyers and was a sophisticated commercial party. There is nothing to suggest Mr Lazarus was unable to make a judgment about his or his company's interests: Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 77 (Gummow and Hayne JJ). Eastern's claim for unconscionable conduct, to the extent it is pressed, must fail.
3. Further, I do not accept any estoppel arises in the circumstances. The principles of estoppel are well known. Here, there is no unequivocal representation pleaded or demonstrated. Further, no detrimental reliance is pleaded, nor proved.

Misleading or deceptive conduct

1. Currently, there is no suggestion from Eastern that Perpetual has resiled from the 10 October 2003 statement. The Lease has not expired and Perpetual has not been required to decide whether to exercise the clause 30 option.
2. Eastern submitted that Perpetual's misleading or deceptive conduct was its refusal to provide an acknowledgement about the Licence rights, was conduct "towards" the potential purchaser, Mr Ryan, and caused Mr Ryan not to pursue the purchase of the business. I do not accept that submission for the reasons above. Further, no witness for Ryan Hotels gave any evidence that it was misled. To the contrary, as detailed below, the correspondence in evidence makes clear that Mr Ryan understood a variation of Lease was required to achieve the desired position concerning the Licence, amongst other things.
3. I do not accept that Perpetual engaged in misleading or deceptive conduct by silence, by not acknowledging the alleged "common assumption".

Relief pursuant to ACL

1. If, contrary to the above, I should have concluded that there was a common assumption giving rise to a finding of misleading or deceptive conduct or unconscientious conduct, I nevertheless do not consider Eastern has demonstrated it is entitled to the relief sought.
2. In order to obtain a remedy under ss 237 and 243 of the ACL, Eastern seeks to demonstrate that: 1. Perpetual's conduct in failing to provide an acknowledgment of the alleged common intention when requested amounted to conduct prohibited by ss 18 and/or 20; and 2. By reason of Perpetual's conduct, in 2017 Eastern lost a sale of the business to Mr John Ryan.
3. That lost sale is said to justify a remedy in the form of: 1. relief from the obligation to pay arrears, for which Perpetual sues; and 2. a further rent waiver for 12 months to allow Eastern to sell the business with the benefit of the declaration sought.
4. As senior counsel for Eastern put it: We say the evidence shows that in consequence of that failure to give that [acknowledgement], Ryan Hotels abandoned their sale - it wasn't an offer that was binding, but there was a sales advice that had been provided. They abandoned the negotiations. There were other negotiations on different terms some weeks later with Ryan which were inconclusive. There were inconclusive negotiations with others, but what we say is that we were close to a deal with Ryan and we lost that opportunity because Perpetual did not give the acknowledgement. If it's actionable as a misrepresentation or unconscionable conduct under the Australian Consumer Law, then we say the appropriate remedy here is a remedy that preserves us from the liability of rent, to pay rent, unpaid because had that Ryan hotel deal gone through, we would've escaped the liability of paying rent during the COVID period, and indeed we would've escaped the liability to pay rent up to today. The hotel never re-opened after the second lockdown; it's never resumed business.
5. The submission went on: Secondly, we say if I persuade you of the other aspects in regard to what happened with the Ryan Hotels sale, then your Honour would make an order under 243 restraining them from being able to recover the rent from the period that we fell into arrears up to 12 months from the date of the declaration.
6. Section 237(1) confers a power to make orders as the Court considers appropriate, subject to the conditions in s 237(2): (2) The order must be an order that the court considers will: (a) compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or (b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons.
7. Section 243, without limiting the generality of s 237(1), provides for specific orders that may be made.
8. Eastern must demonstrate that it has suffered, or is likely to suffer, loss or damage because of the conduct of another person that was engaged in a contravention, being either s 18 or s 20 of the ACL: s 237(1)(a)(i) (emphasis added).
9. The conduct need not be the sole cause of the loss or damage: see I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at [57] (Gaudron, Gummow and Hayne JJ). If loss or damage has or will be caused by the conduct, Allsop P explained in Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 at [43], that the Court must engage in an "evaluative assessment of what is the appropriate relief to compensate for, or to prevent the likely suffering of, loss or damage "by" the conduct".
10. Eastern must therefore prove on the balance of probabilities that Perpetual's failure to provide the acknowledgment was a cause of the loss of the sale. For the following reasons, I find it has failed to do so.

Background

1. In early 2017, CBRE Hotels was advertising the business for sale by Eastern.
2. On 3 March 2017, Mr Lazarus emailed Perpetual's representative concerning the potential sale including: Just a reminder to send the Westfield clause regarding the incoming tenant's capacity and experience Also, is a decision on my lease reduction request likely soon. …
3. On 1 August 2017, CBRE's Daniel Dragicevich emailed Mr Lazarus and John Ryan stating that: Johns lawyers… have raised concerns about the purchase and value of the Hotel License and 18 [machine entitlements]… John is concerned about the 60 days first right of refusal in favour of the landlord and in no longer being the tenant that the licence and [entitlements]'s ownership revert back to the landlord as owners in possession.
4. That appears to have been a reference to an email Mr Dragicevich had received from Mr Ryan's solicitors, raising the possibility that Perpetual would be entitled to make an application to the Office of Liquor and Gaming pursuant to s 61 of the Liquor Act, for a transfer of the licence back to itself as the entity in possession of the premises, to which the licence was attached.
5. On 4 August 2019, Mr Lazarus received a Sales Advice for the sale of the Eastern Hotel at a price of $4,700,000 containing a condition: Conditions: Subject to agreement on lease amendment request
6. Eastern did not provide Mr Ryan with a copy of the negotiations concerning the Lease, including the 10 October 2003 letter. Instead, on 9 August 2017 Eastern's solicitors wrote to Perpetual providing notice of the potential sale to Mr Ryan. That letter indicated: Apart from obtaining the consent of the Landlord to the assignment of the Lease, the Contract will include, as Conditions Precedent to completion, the Landlord … agreeing to clarify its right under clause 28 to acquire the Hotel License… at the end of the term of the Lease.
7. The letter also referred to clause 30 of the Lease and seeking a confirmation "preferably by way of Variation of Lease" that: 1 Eastern is the beneficial owner of the License having acquired the License under the 2004 Agreement; and 2 the restrictions contained in clause 28.2 of the Lease in relation to the Lessee taking steps to remove the License only apply before the Expiry Date of the Lease (and so that the Lessee shall be allowed to remove and/or make any applications to remove the License from the Premises on or after the Expirty Date of the Lease and that the Landlord will not object to such application. 3 consistent with this the Landlord, would be required to sign promptly any documents the Lessee may require to engage the applications to be dealt with and should allow the Lessee to affix any notices to the Premises that the Lessee is required to affix to enable the applications in paragraph 2 above to be dealt with by the relevant Authority, even if the Lessee is not longer in possession of the Premises; and 4 in the event that any application is not dealt with by the Expiry Date of the Lease, then the License may remain attached to the Premises in a dormant capacity pending such applications being determined (and which would not affect the Landlord using the Premises for other purposes). … … Eastern Pursuits enquires therefore whether or not the Landlord … would agree to amend the Lease to clarify clause 30.
8. On 17 August 2017, Perpetual indicated to Eastern's solicitors that the documentation and request were being reviewed.
9. On 21 August 2017, Mr Dragicevich reported to Mr Lazarus that Mr Ryan's "engagement in the deal" was being affected by not having a substantive response from Perpetual.
10. On 23 August 2017, Eastern's solicitors emailed Perpetual's solicitors indicating that the parties "appear to be working towards an amendment to the Lease". Discussions appeared to have continued into September 2017.
11. On 5 September 2017, Eastern's solicitors reported to Mr Ryan's representatives: Westfield are not willing to provide any confirmation of these variations until such time as your client makes a formal application for consent to assign the Lease.
12. On the same day Eastern's solicitors reported to Mr Lazarus and Mr Dragicevich that Mr Ryan's "primary concern was to ensure he couldn't lose the [gaming machine entitlements]."
13. On 11 September 2017, Mr Lazarus complained to Perpetual: CB551 …This deal has fallen over due to your lawyers making a very simple request over five weeks ago so difficult.
14. The nature of the "simple request" was not explained.
15. However, despite Mr Lazarus' complaint, negotiations with Mr Ryan appeared to continue. On 9 October 2017, Eastern's solicitors wrote to Mr Ryan's solicitors offering a sale subject to "conditions precedents" that included "the Landlord agreeing to vary the Lease" in relation to the transfer of the Lease and the Licence.
16. Mr Hulls' evidence was that there were various reasons why the sale to Mr Ryan did not eventuate, including the issue of the proposed assignee of the Lease and a refusal to provide guarantees in accordance with clause 17.1(k).

Application

1. Eastern has failed to prove that a material reason for the sale to Mr Ryan failing was Perpetual's refusal to provide an acknowledgement of the common intention before 11 September 2017.
2. If it was the case that the common intention was demonstrated by the pre-execution correspondence, then Eastern could have provided that documentation to Mr Ryan. It did not.
3. Further, Eastern's solicitor sought a variation of the Lease for the purposes of the sale, not only in relation to the Licence, but also in relation to clause 17 concerning transfer of the Lease. Clause 17 is not said to be part of the common intention, and therefore is fatal to the claim.
4. Additionally, Eastern has failed to demonstrate that the pre-conditions of an assignment in clause 17.1(a)-(n) were satisfied or would have been satisfied.
5. Because there was no obligation on Perpetual to provide any acknowledgment, I do not consider it relevant to whether Perpetual caused the loss of the sale in 2017, that later in May 2020 Perpetual was prepared to provide to Mr Lazarus a form of acknowledgment. That document in evidence (Exhibit B) provided an acknowledgment by Perpetual of Eastern's beneficial interest in the Licence and that Perpetual would not seek to obtain an interest in the License, unless it exercised its option in clause 30. In any event, the decision to provide such a document does not equate with Perpetual accepting that it was obliged to do so.

Conclusion and orders

1. For the reasons above, Perpetual is entitled to recover the arrears sought. Perpetual seeks interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). Eastern made no submission against interest being payable, and I consider it appropriate to order such interest in circumstances where Eastern has failed to pay any arrears whatsoever since 21 March 2020, such interest to run from the date that Perpetual commenced these proceedings.
2. Further, for the reasons above Eastern has failed to demonstrate an entitlement to any relief sought in its Amended Statement of Cross-Claim.
3. The appropriate orders are therefore: 1. Order the first, second and third defendants to pay the plaintiff the sum of $2,104,111.70. 2. Order the first, second and third defendants to pay interest on the sum in Order 1 from the date of commencement of the proceedings on 28 June 2021 to the date of judgment pursuant to s 100 Civil Procedure Act 2005 (NSW). 3. The Amended Statement of Cross-Claim is dismissed with costs. 4. Order the first, second and third defendants to pay the plaintiff's costs as agreed or assessed on the ordinary basis. 5. Should any party seek an alternative costs order: 1. The parties are to attempt to resolve the issue and provide consent orders by email to the Associate to Peden J within seven days of this judgment. 2. Failing agreement, any party seeking an alternative costs order is to provide any evidence and submissions (no more than four pages) by email to the Associate to Peden J within 10 days of this judgment, and the opposing party is to provide responsive evidence and submissions (no more than four pages) within 15 days of this judgment. 3. Any costs application will be determined on the papers if appropriate.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 July 2023