Supreme Court of WA|2002-03-28|Before: Murray J

Sparta Nominees Pty Ltd v Orchard Holdings Pty Ltd & Ors [2002] WASC 54 (28 March 2002)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SPARTA NOMINEES PTY LTD -v- ORCHARD HOLDINGS PTY LTD & ORS [2002] WASC 54

BETWEEN : SPARTA NOMINEES PTY LTD (ACN 008 861 345)

Landlord and tenant - Forfeiture of lease for breach of tenant's covenants - Relief against forfeiture sought - Turns on own facts

Barrow v Isaacs [1891] 1 QB 417

Civil Service Co-operative Society v McGrigor's Trustee [1923] 2 Ch 347

Ex Parte Whelan [1986] 1 Qd R 500

Fox v Jolly [1916] 1 AC 1

Govenors of Rugby School v Tannahill [1935] 1 KB 695

Pennell v City of London Brewery Co [1900] 1 Ch 496

Public Trustee v Westbrook and Another [1965] 2 All ER 398

Shepard v Lomas [1963] 2 All ER 9902

Upjohn v McFarlane [1922] 2 Ch 256

1 By a lease made on 12 March 1992 the plaintiff, which owns the Marmion Village Shopping Centre, leased a shop to a Mr and Mrs Wilson. Mr Wilson was called by the plaintiff as a witness at the trial. By cl 6.18 the lessees agreed to use the shop solely as a supermarket, which business was to be carried on under the business name "Supa Valu Marmion". The lease was for a term of 10 years from and including 20 February 1991. The term would therefore expire on 19 February 2001 but by cl 12.03 an option to renew the lease was given to the lessee upon notice given six to three months prior to the termination date. The lease could be renewed for a further term of 10 years to expire on 19 February 2011 subject to the usual proviso:

"that all rent then owing shall have been paid and there shall not then be any subexisting breach of the covenants, conditions and stipulations herein contained (provided that breaches which have been waived shall not be deemed to be unremedied breaches for the purpose of this sub-clause)...."

2 The rent was, by cl 2.02 and the Second Schedule to the lease, a fixed sum payable calendar monthly in advance on the 1st of each month. By cl 2.03, the rent was to be reviewed annually on the anniversary of the commencement date each year during the term of the lease and any extension granted by the exercise of the option to renew.

3 The supermarket business was, as its name suggests, run under a franchise granted by FAL Limited. On 10 January 1995, subject to the agreement of FAL to transfer the franchise to the purchaser and subject to the consent of the plaintiff, Mr and Mrs Wilson sold the business to the defendant. The contract of sale records that the purchase price was the sum of $575,000 allocated as to $375,000 to plant and equipment and $200,00 as to stock in trade. No allowance was made for goodwill.

4 By an undated deed stamped on 16 February 1995 Mr and Mrs Wilson, with the consent of the plaintiff, assigned to the first defendant the lease of the premises for the balance of the term. The assignment took effect on 24 January 1995. Mr and Mrs Anderson, the second and third defendants, executed the deed of assignment as guarantors for the first defendant. It will be convenient hereafter to refer to the first defendant simply as "the defendant" and to refer to Mr and Mrs Anderson by name.

5 As I have mentioned, the term of the lease expired on 19 February 2001. The notice by which the option to renew was to be exercised would therefore be required to be given between 19 August 2000 and 19 November 2000. By notice dated 13 October 2000, the defendant sought to renew the term for the further period of 10 years from and including 20 February 2001.

6 The plaintiff responded by a letter of its solicitors dated 26 October 2000. The plaintiff contended that it had terminated the lease and had instituted this action for possession of the leased premises. On that ground it regarded the notice of the exercise of the option as being of no force and effect. If that view of the legal position was not correct the plaintiff asserted that the defendant was precluded from exercising the option because as at the date of receipt of the notice it was in breach of terms of the lease, said to be continuing breaches of cl 5.02 and cl 9.02, the subject of notices of default dated 12 May 2000 and 18 June 2000, copies of which were enclosed. The date of the second notice is wrong. The actual date was 8 June 2000.

7 Because of the allegedly unremedied breaches of the clauses of the lease specified (and again the reference to cl 5.02 is wrong; the clause referred to in the notices being cl 5.06) the plaintiff contended that if it had not lawfully terminated the lease the defendant was nonetheless precluded from exercising the option to renew the lease, relying on the Property Law Act 1969 (WA) s 83C and cl 12.03 of the lease. The reference to cl 12.03 is a reference to the proviso which prevents the exercise of the option to renew at a time when the lessee is in breach of covenants of the lease applicable to it. I shall return to this contention in the context of the relevant provisions of the Property Law Act in due course. It will be necessary to discuss the particulars of the notices of default relied upon by the plaintiff in its solicitors' letter of 26 October 2000 and relied upon by the plaintiff as the ground of its action for possession, instituted by a writ issued on 13 July 2000 after the plaintiff had given the defendant notice to quit the premises on about 5 July 2000.

8 Clause 11.01 of the lease provides inter alia that if the lessee shall be in breach of a covenant of the lease after the expiration of 14 days written notice to remedy the breach, then the lessor has the option to re-enter upon and resume possession of the supermarket, so terminating the lease. The operation of that clause must be considered in light of the terms of the Property Law Act s 81 which by s 81(10) has effect notwithstanding the wording of the default provisions of the lease. So far as material, s 81 provides:

"(1) A right of re-entry or forfeiture under any provision or stipulation in a lease for a breach of any covenant or condition in the lease is not enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice -

(a) specifying the particular breach complained of;

(b) where the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) in any case, requiring the lessee to make compensation in money for the breach,

and the lessee fails, within a reasonable time after the service of the notice on him, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.

(2) Where a lessor is proceeding, by action or otherwise, to enforce or has enforced without the aid of the Court such a right of re-entry or forfeiture, the lessee may, in the lessor's action (if any) or in any action brought by himself apply to the Court for relief, and the Court -

(a) may grant or refuse relief, as the Court having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances thinks fit; and

(b) in case of relief may grant it on such terms (if any) as to costs, expenses, damages, compensation, penalty or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case, thinks fit."

9 The stipulations in cl 11.01 of the lease are not suggested to be in any way in conflict with s 81. In particular, the provision of a period of 14 days in which the lessee was allowed to remedy any breach is not suggested to be an unreasonably short period.

10 The plaintiff in this case, as I have indicated, does not proceed upon the ground that the defendant has, having regard to the nature of alleged breaches, repudiated the lease. It seeks to forfeit the lease by relying on cl 11.01 and the two notices of default dated 12 May 2000 and 8 June 2000 followed by the notice to quit dated 5 July 2000 and the admitted refusal of the defendant to vacate the premises in which it still remains in occupation. In the action for possession commenced by the writ issued on 13 July 2000 the relief claimed is therefore a declaration that the plaintiff has validly terminated the lease and an order that the defendant deliver up possession of the premises to the plaintiff.

11 In addition to seeking to enforce its asserted right of re-entry by action in the Court the plaintiff claims damages against the defendant and against Mr and Mrs Anderson that they indemnify the plaintiff for the loss and damage allegedly suffered by it as a result of the defendant's breaches of covenant and failure to vacate the premises. However, those claims were not debated at trial and I can detect in the evidence nothing which would enable an assessment of damages or cause the guarantee given by Mr and Mrs Anderson to be activated in such a way as to require them to indemnify the plaintiff for loss.

12 It is convenient at this point to note that the defence denies the validity of the notices of default in a number of respects which draw such strength as they may have from reliance upon s 81(1) of the Act. Further, the defendant offers a factual defence denying the allegations of breach particularised in the notices of default. Indeed, the defence goes further than was necessary, in my opinion, if this defence was to be put, because it does not merely deny the allegations of the plaintiff but asserts positively, in effect, that the defendant complied with the covenants of the lease raised in the specific allegations of breach made originally in the notices of default and included verbatim in the plaintiff's statement of claim.

13 There is an assertion in the defence that by issuing the notice of default dated 8 June 2000, the plaintiff abandoned or waived reliance upon or elected not to rely upon the earlier notice of default dated 12 May 2000. Finally by way of defence it is asserted that the invalidity of the notices of default caused the notice to quit which substantially relied upon them, itself to be invalid and ineffective.

14 There is a counterclaim which essentially relies upon s 81(2) of the Act and seeks from the Court the exercise of its discretion to grant relief from forfeiture if it should be held that the plaintiff has made out grounds for such an order. In broad terms the counterclaim asserts that the business was purchased by the use of borrowed monies secured against their residence in Trigg and a property owned by them in Dunsborough. The defendant asserts that it has increased the value of the business and that it has "always paid rent and outgoings in accordance with the lease and in a timely manner."

15 I digress to observe that on very many occasions monthly instalments of rent have been paid after the due date and therefore in breach of cl 3 of the lease. There is a schedule giving dates when payments were made contained in the plaintiff's further and better particulars of its defence to the counterclaim which the defendant admits accurately sets out the dates on which rent and variable outgoings were paid. It is a lengthy document covering the period from July 1995 to September 2000. It shows that very often the monthly instalment was in whole or in part paid late. Very often it is only a matter of a day or a few days but in some cases the delay is a matter of weeks and on occasions over a month.

16 The plaintiff said that the defendant made late or non-payment of rent and variable outgoings, the subject of notices of default dated 19 July 1999 in respect of the payment due for July 1999, dated 6 September 2000 in respect of the payments due for August and September 2000, 4 October 2000 in respect of payments due for September and October 2000, 3 November 2000 in respect of payments due for October and November 2000, 4 December 2000 in respect of payments due for that month, 4 January 2001 in respect of payments due for that month and 2 March and 16 March 2001 in respect of payments allegedly due on 1 March 2001. It will be noted that those default notices are not those upon which reliance is placed in this action and in any event, they extend well beyond the admitted schedule, the concluding entry for which is concerned with the payments due on 1 September 2000.

17 The defendant's counterclaim goes on to assert that the supermarket business is profitable and has significant goodwill. If in breach of the lease the defendant asserts that "the breaches were unintentional" and, relying upon s 81(2), seeks relief against forfeiture of the lease and against the effect of any breach in relation to the purported exercise of the option to renew.

"14.1 The comparative lack of gravity of the breaches;

14.2 The disparity between the value of the lease as compared with the damage caused by any breaches;

14.3 The loss of income to the Defendants if the lease is forfeited;

14.4 The loss of the significant value of the goodwill of the supermarket business if the lease is forfeited;

14.5 The loss which would arise from an inability to sell the stock at normal retail rates if the lease is forfeited;

14.6 The sale of stock and plant and equipment, without the sale of goodwill, will not be sufficient to discharge the borrowings in respect of the supermarket business owing to National Australia Bank."

19 In answer to that pleading, by its defence to the counterclaim the plaintiff asserts that the defendant "has persistently failed to carry on its business in accordance with the terms of the lease", and it says that as a consequence of the defendant's failure to comply with the lease the plaintiff has suffered and continues to suffer detriment in that:

"(i) there has been a diminution in the number of customers frequenting the shopping centre since the First Defendant purchased and started operating the supermarket business;

(ii) Current tenants of the shopping centre have lodged complaints with the Plaintiff and the Plaintiff's agents about the operation of the supermarket by the First Defendant to the effect that the operation of the supermarket by the First Defendant has had a detrimental effect on their businesses;

(iii) A number of current tenants of the shopping centre have informed the plaintiff that they have suffered a decrease in their turnover owing to reduced business, which they attribute to the poor operation of the supermarket by the first defendant;

(iv) A number of the current tenants of the shopping centre have informed the plaintiff that if the first defendant is a lessee in the shopping centre when their leases come up for renewal then they will seriously consider not renewing their leases.

(v) If the supermarket business continues to be conducted in the same manner as over the past 6 years, there is a real risk to the plaintiff that further lessees in the shopping centre will vacate their premises and/or will require discounted rental and further incentives to remain at the shopping centre.

(vi) As a consequence of the matters in (i) to (v) above the continued occupation by the first defendant of the premises in the shopping centre has, is and will in the future reduce the value of the shopping centre."

20 I may, of course, need to canvass the evidence led in support of those contentions if it becomes necessary to deal with the question of relief from forfeiture but, in the meantime, it is convenient to note that specifically in respect of the pleaded allegations in pars (ii), (iii), (iv) quoted above, the defendant has made relevant admissions in the following terms:

"1. The Newsagency, the Hair Dresser, the Drycleaner and the Travel Agency at the shopping centre have lodged complaints with the Plaintiff and the Plaintiff's agents about the operation of the supermarket by the First Defendant to the effect that the operation of the supermarket by the First Defendant has had a detrimental effect on their businesses.

2. The Newsagency, the Hair Dresser, the Drycleaner and the Travel Agency at the shopping centre have informed the Plaintiff that they have suffered a decrease in their turnover owing to the reduced business, which they attribute to the poor operation of the supermarket by the First Defendant.

3. The Newagency, the Hair Dresser, the Drycleaner and the Travel Agency at the shopping centre have informed the Plaintiff that if the First Defendant is a lessee in the shopping centre when their leases come up for renewal they will seriously consider not renewing their leases."

There was other evidence touching upon these matters but I consider that the admissions themselves are capable of establishing the primary facts pleaded in the paragraphs in question. Par (i) is, of course, a different matter and pars (v) and (vi) really invite conclusions on my part relevant to the exercise of the discretion as to relief from forfeiture.

21 Further as to that, the plaintiff pleads that the defendant will not suffer loss by the loss of goodwill in the supermarket or the inability to sell the supermarket if the lease is forfeited because it is pleaded that the supermarket is not profitable, and there is currently no goodwill in it, as there was no goodwill in it when the defendant purchased it.

22 So far as the plaintiff presently relies upon it, the breaches the subject of the first notice of default dated 12 May 2000 are as follows:

(a) the delicatessen department is not clean;

(b) the bulk foods department is not clean;

(c) the dairy department is not clean;

(d) the freezer department is not clean; and

(e) the meat department is not clean;

(2) contrary to clause 5.06 of the Lease it has allowed unused display bins and boxes to accumulate in the meat department at the Leased Premises;

(3) contrary to clause 9.02(b) of the Lease it has failed to keep the display windows in the Leased Premises dressed with high quality displays;

(4) contrary to clause 9.02(c) of the Lease it has failed to cause the Leased Premises to be adequately stocked at all times during which the Leased Premises is open for business.

(5) contrary to clause 9.02(c) of the Lease it has failed to cause the Leased Premises adequately staffed at all times during which the Leased Premises is open for business;

(6) contrary to clause 9.02 of the Lease it has failed to carry on and conduct upon the Leased Premises its business with due diligence in a proper, efficient and business like manner and in particular:

The appearance of the Leased Premises

(a) the Leased Premises and in particular, the delicatessen department, the bulk foods department, the dairy department, the freezer department and the meat department are not clean;

(b) the Leased Premises are poorly maintained;

The products

(c) there is an insufficient stock of products maintained during the hours of business at the Leased Premises;

(d) there is a lack of range of products on display for sale during the hours of operation of the business at the Leased Premises;

(e) some of the products displaying a use by date are displayed for sale at the Leased Premises on or after the date shown as the use by date;

(f) rotten fruit and vegetables are left on display for sale at the Leased Premises;

(g) there is insufficient quality control of the products displayed for sale at the premises;

(h) there is a poor layout of products within the Leased Premises resulting in poor presentation of the products for sale;

The staff

(i) the staff members at the Leased Premises are not well presented;

(j) the staffing levels in the fresh produce, dairy and freezer departments are inadequate;

(k) a manager is not readily available to customers at the Leased Premises during hours of operation."

I include the last allegation because it is concerned with the manner in which the business was carried on as at 12 May 2000 although counsel for the plaintiff informed me that the plaintiff did not directly pursue an allegation of breach in that the supermarket was inadequately staffed in the sense that there were too few staff members present to assist in the running of the business at any given time. The plaintiff does not therefore prove the breach alleged in par (5) above.

23 So far as it is now relied upon by the plaintiff, the second default notice dated 8 June 2000 particularised the alleged breaches in the following manner:

"(1) Contrary to clause 5.06 of the Lease the Lessee has failed to keep the Leased Premises in a thorough state of cleanliness:

DETAILS

(a) On 15 February 2000 and 17 February 2000 at the Leased Premises:

(i) each of the delicatessen, bulk foods, dairy and freezer departments was dirty;

(i) The canopy above the meat display area was dirty;

(ii) The meat department was dirty;

(iii) The delicatessen department was dirty;

(iv) The dairy department was dirty;

(i) Approximately 75% of the shelving in the grocery department was dirty;

(ii) There was mould growing in some areas of the shelving in the milk fridges;

(iii) The shelves in the fruit juice section had a considerable amount of congealed juice on them;

(iv) The cold meat cabinet in the delicatessen department was dirty;

(v) The two bread roll bins displayed in the delicatessen department was extremely dirty inside and out;

(2) Contrary to clause 9.02(b) of the Lease the Lessee has failed to keep the display windows in the Leased Premises dressed with high quality displays in that for at least the last 2 years the front windows and frames have been dirty and the only dressing has been a number of A4 FAL posters advertising specials which are sticky taped to the glass;

(3) Contrary to clause 9.02(c) of the Lease the Lessee has failed to cause the Leased Premises to be adequately stocked at all times during which the Leased Premises is open for business:

DETAILS

(a) On 15 February 2000 at the Leased Premises there were 43 product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(b) On 17 February 2000 at the Leased Premises there were 39 product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(c) On 30 April 2000 at the Leased Premises there were 46 product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(d) On 11 May 2000 at the Leased Premises there were a number of product lines advertised on the shelves as being on special but with no corresponding products available on the shelves for purchase;

(e) On 27 May 2000 at the Leased Premises:

(i) In the grocery department there was a total of 322 product lines that were advertised on the shelves but with no corresponding products on those shelves;

(ii) In the dairy department there was a total of 25 product lines that were advertised on the shelves but with no corresponding products available on those shelves;

(iii) In the frozen foods department there were 2 product lines that were advertised on the shelves but with no corresponding products available on those shelves;

(iv) Only 3 of meats in the delicatessen department were sliced and ready for purchase;

(v) There was no bacon on display in the delicatessen department;

(vi) There was no fresh salads (eg. coleslaw) available for purchase in the delicatessen department;

(vii) In the general merchandise area there were 45 product lines advertised on the shelves but with no corresponding products available on those shelves.

(4) ....

(5) Contrary to clause 5.01 of the Lease the Lessee has failed to keep the Leased Premises including the floor coverings, other glass, fixtures, fittings, equipment, appurtenances and furnishings in good and substantial tenantable repair, order and condition:

DETAILS

As at the date hereof:

(a) Many of the floor tiles in the meat department and particularly in front of the meat cabinet are missing or are lifting;

(b) Many of the floor tiles in front of the dairy cabinet are missing or are lifting;

(c) The grocery fixtures and checkout area have chipped wood or paint and are generally in poor condition;

(d) Much of the shelving is in poor condition with paint and wood chipped;

(e) The seals between the glass panels on the cold meat cabinet in the delicatessen department are defective and need replacing;

(f) A small room at the rear of the store has missing brickwork which needs to be plugged to prevent vermin from entering the Leased Premises from the outside;

(6) Contrary to clause 9.02 of the Lease the Lessee has failed to carry on and conduct upon the Leased Premises its business with due diligence in a proper, efficient and business like manner and in particular:

The appearance of the Leased Premises

(a) The Leased Premises and in particular, the delicatessen department, the bulk foods department, the dairy department, the freezer department and the meat department have regularly not been cleaned to the requisite standards and regularly manifest a dirty appearance:

DETAILS

The Lessor repeats the details under paragraph B(1) above;

(b) The Leased Premises, fixtures and fittings have been poorly maintained:

DETAILS

The Lessor repeats the details under paragraph B(5) above.

The products

(c) The Lessee has failed to maintain a sufficient stock of products during the hours of business at the Leased Premises:

DETAILS

The Lessor repeats the details under paragraph B(3) above;

(d) Some of the products displaying a use by date have been displayed for sale at the Leased Premises on or after the date shown as the use by date

DETAILS

(i) On 15 February 2000 at the Leased Premises there were at least three different products that were available for sale and their expiry dates had already passed;

(ii) On 17 February 2000 at the Leased Premises there were at least:

(I) 3 different products available for sale and their expiry dates had already passed; and

(II) 3 different products available for sale with an expiry date of 17 February 2000;

(iii) On 19 February 2000 at the Leased Premises there were at least 2 different products available for sale with an expiry date of 19 February 2000;

(iv) On 23 February 2000 there were at least 2 different products available for sale and their expiry dates had already passed;

(v) On 27 February 2000 there were at least 6 different products available for sale and their expiry dates had already passed;

(vi) On 29 February 2000 there were at least 5 different products available for sale and their expiry dates had already passed;

(vii) On 1 March 2000 there were at least 2 different products available for sale and their expiry date had already passed.

(viii) On 11 March 2000 there were at least 2 different products available for sale and their expiry date had already passed.

(ix) On 30 April 2000 at the Leased Premises there were some dairy products available for sale and their expiry date had already passed;

(I) there were at least 5 different products in the pre-packed cold meat section which were available for sale and their expiry date had already passed;

(II) The majority of stock on show in the meat department had a use by date of 27 May 2000;

(e) Rotten fruit and vegetables have been left on display for sale at the Leased Premises

DETAILS

(i) On 15 and 17 February 2000 at the Leased Premises there was rotten fruit and old vegetables left on display;

(ii) On 30 April 2000 at the Leased Premises rotten tomatoes were available for sale;

(I) Some of the eggplants available for sale were rotten;

(II) Some of the kiwi fruit were very soft and bruised;

(IV) Some of the onions were old and discoloured and mould growing on them;

(I) Some sweet potatoes, fresh ginger, oranges and strawberries had mould growing on them;

(II) Both loose and pre-packed onions were rotting;

(III) The majority of root vegetables was black and dried out;

(VI) Silverbeet ends were black and leaves were limp;

(f) There has been insufficient quality control of the products displayed for sale at the premises:

DETAILS

The Lessor repeats the details at paragraphs B(6)(d) and B(6)(e) above and adds that at the Leased Premises:

(i) On 15 and 17 February 2000 there was no recording of the cabinet temperatures in the meat department;

(ii) On 30 April 2000 the olives displayed in black trays in the delicatessen department were stale in appearance;

(I) The majority of the loose white potatoes for purchase were green;

The staff

(g) The staff members at the Leased Premises have not been well presented;

DETAILS

24 It has been seen that in its action for possession, the plaintiff relies upon both default notices. I see no reason why it may not do so. Clause 11.01 of the lease confers the right of re-entry in a case where non-performance of a covenant by the lessee remains unremedied for 14 days after "written notice to the Lessee to remedy the same". The plaintiff could have chosen to assert its right of re-entry based solely upon the notice of 12 May 2000 which I interpret to refer to breaches of clauses of the lease upon that date. The plaintiff chose not to take that course but issued the second default notice of 8 June 2000 covering specific dates: 15, 16, 17, 19, 23, 27 and 29 February 2000, 1 and 11 March 2000, 30 April 2000, 11 May 2000 (the day before the issue of the default notice of 12 May) and 27 May 2000, either as dates upon which particular breaches were alleged to have occurred or in support of allegations of a general breach. I understand the allegation to be that the defendant was in breach in the manner alleged as at 8 June 2000. For myself, I see no reason why that default notice may not also be relied upon upon the basis that the breaches alleged, or any of them, were not remedied within the 14-day period allowed both by cl 11.01 and, I think, the Act, s 81, to support the notice to quit which was issued on 5 July and the subsequent action for possession when the defendant declined to quit the premises but, on the contrary, purported to exercise the option to renew.

25 In my opinion, nothing in s 81(1) would preclude reliance in that way upon a number of default notices, each one satisfying the provisions of the section, if one takes the view, as I would, that to allow 14 days to remedy the breach would be to allow a reasonable time and would satisfy that aspect of s 81(1).

The Validity of the Default Notices: The Need for Particulars

26 When turning to the question of whether the plaintiff has established all or any of the breaches alleged in the default notices and the related questions of interpretation of the covenants of the lease relied upon, it is convenient to look at the arguments raised by the defendant in support of its contention that the default notices are invalid.

27 The first contention is that they do not sufficiently specify the alleged breaches. By s 81(1)(a), the notice must specify "the particular breach complained of". The leading case is the decision of the High Court in Gerraty v McGavin [1914] HCA 23; (1914) 18 CLR 152. The relevant section of the Conveyancing Act 1904 (Vic) was worded in the same way as s 81(1)(a). It was held that the requirement was to sufficiently particularise the breach so that the tenant might reasonably understand, not merely what covenant it is alleged has been breached, but what is required to be done to remedy the alleged breach. A notice which simply refers to a breach of the covenant, and does no more by way of particulars, falls short of what is required.

28 To understand the point better, it is necessary to have regard to the terms of the lessee's covenants relied upon. Clause 5.06 of the lease states:

(a) At the Lessee's own cost and expense keep the Leased Premises in a thorough state of cleanliness and not allow any rubbish trade waste cartons boxes containers produce or accumulation of useless property within the Leased Premises or deposit the same in the vicinity thereof and not leave rubbish bins or other waste materials and garbage including wet refuse (if any) to be removed from the Leased Premises regularly and ensure that all wet refuse is stored in fly and rodent proof receptacles within the Leased Premises.

(b) Except to the extent of standard pest control carried out by the Lessor's contractors at the Lessee's own cost and expense keep the Leased Premises free and clear of all vermin including (but not limited to) rodents cockroaches and termites."

29 As to cl 5.06(a), it is to be noted that it is the leased premises comprising the supermarket which are to be kept "in a thorough state of cleanliness". Cleanliness is clearly a matter of degree but, in my opinion, what is a sufficient state of cleanliness to be described as "thorough" in the case of leased premises which are a supermarket, must depend upon questions of hygiene in the handling of foodstuffs and matters of that kind, although as can be seen from the separate requirement of the clause that rubbish, trade waste, cartons and the like should not be allowed to accumulate within the premises, the clause also imports considerations of tidiness and presentation.

30 That interpretation, to my mind, reveals that particulars (i) and (ii) of the notice of 12 May 2000 insufficiently particularised the breaches complained of. To say no more than that particular departments are "not clean" and that unused display bins and boxes have accumulated in the meat department, says nothing more than that it is a breach of cl 5.06(a) of which complaint is made. There is nothing to indicate what particular aspect of the cleanliness of the departments identified was found wanting.

31 However, before leaving consideration of cl 5.06(a), I should say I respectfully agree with the approach to its interpretation adopted in argument by learned counsel for the plaintiff. The clause refers to the defendant's duty to keep the premises in a thorough state of cleanliness. Things are not to be allowed to accumulate. Wet refuse is to be stored in a particular way. In cl 5.06(b), again there is a duty to keep the premises free and clear of vermin. In my opinion, particular instances of uncleanliness may, but will not necessarily, provide evidence that the premises are not kept in a state of cleanliness. The clause would seem to me to require a conclusion that uncleanliness was of a more than transient kind, but was a state generally to be found.

32 It is necessary, I think, to make good an allegation of breach of this covenant, that something more than isolated or transient situations should be established. The repetition of particular occasions of lack of cleanliness may be sufficient to enable the inference to be drawn that there has been a failure to keep the premises in a thorough state of cleanliness. To interpret the clause so that any individual falling away from the appropriate standard of cleanliness would constitute a breach of the covenant would, in my opinion, be contrary to the purpose of the clause in the context of the commercial lease of a supermarket. No purpose would be served by exposing the lessee to forfeiture of the lease when, on any individual occasion of inspection of the premises, there is seen to be a falling short of what the lessor would regard, and what may objectively be seen to be, an acceptable state of cleanliness. In addition, it seems to me, that the construction which I would give to the clause is supported by the fact that it is the leased premises as a whole which are to be kept in the thorough state of cleanliness to which the clause refers.

33 There is one aspect of the submissions of counsel with which I disagree. It seems to me that, contrary to counsel's submission, in proceedings such as these the onus remains upon the plaintiff lessor to establish the breach of the covenant. I have said that, in my view, it may do so by accumulating a sufficient number of instances of uncleanliness to enable the inference to be drawn that the state of the premises generally fell short, over a period, of the cleanliness required so as to establish that they were kept in that state. In my opinion, no legal or evidentiary onus shifts to the lessee to establish that "individual instances of uncleanliness" proved by the plaintiff were "isolated instances rather than evidence of a state of uncleanliness". On the contrary, in my opinion, it is for the plaintiff to prove the state of cleanliness of the premises as at the date of the alleged breach.

"Clause 9.02 - Conduct of Business:

Carry on and conduct upon the Leased Premises the business specified in Item 6 of the Second Schedule with due diligence in a proper efficient and business like manner strictly in accordance with all statutory requirements and in particular (without limiting the generality of the foregoing) shall:

(a) ...

(b) keep the display windows (if any) in the Leased Premises properly clean and tidy and dressed with high quality displays and properly electrically lighted at all times during the normal trading hours whilst the Leased Premises are open for trading whichever shall be the later or during such long hours as may be prescribed by the Lessor;

(c) cause the Leased Premises to be adequately stocked and staffed at all times during which the Leased Premises shall be open for business;"

35 Again, so far as the first default notice is concerned, to understand the submission that the breaches alleged are insufficiently specified, the test in Gerraty v McGavin is to be applied and it is necessary to arrive at a conclusion as to the proper construction of the relevant portions of cl 9.02 of the lease in its context. The general point is, of course, that the business specified, that of a supermarket, is to be conducted with due diligence in a proper, efficient and businesslike manner. So far as the paragraphs of the clause relied upon are concerned and, in particular, so far as cl 9.02(c) is concerned, the adequacy of the stocking and staffing of the premises must be related to the nature of the business being conducted. Beyond that, I find it difficult to attribute a sensible meaning to the concept of adequately stocking the premises, but it is the premises overall which are to be adequately stocked as a supermarket and so again it is the general state of the stock levels to which regard is to be had.

36 Further, the breach will occur if the lessee shows a lack of due diligence, efficient and businesslike operation. It is the lessee who must "cause" the leased premises to be adequately stocked. In my opinion, he will not fail to cause the premises to be adequately stocked if the proper conclusion is that although the premises are inadequately stocked from time to time, it is not the fault of the lessee but of its suppliers, because in that case it seems to me that the inadequate stocking is not demonstrative of any failure to conduct the business with due diligence, but to circumstances beyond the lessee's control.

37 A more difficult question would arise if the proper conclusion was that although the persons, in this case, Mr and Mrs Anderson, representing the management and will of the corporate lessee, had in place instructions and procedures requiring their departmental managers to keep stock at adequate levels by placing timely orders with FAL Ltd and other suppliers, those employees on occasions, perhaps even with a degree of regularity, by reason of their own fault, failed to keep their particular departments adequately stocked. That, in my opinion, might demonstrate a failure on the part of the lessee, in the person of those constituting its management, to cause adequate stocking by monitoring what employees were doing or failing to do and remedying the situation.

38 It is to be noted that, particularly in respect of the stocking of the leased premises as a supermarket, the state of the premises, and it is the premises overall to which regard is to be had, is dependent not only upon the actions of the management and staff of the defendant's business but also of others. It is upon the fault or lack of due diligence on the part of those who represent the guiding will of the defendant, or those for whose conduct they are responsible, that attention is to be focused in the context of an alleged breach of cl 9.02.

39 Again, it is the requirement of the clause that the business be carried on and conducted in a particular way. It follows, in my opinion, that a degree of persistence or habituation will have to be established by the plaintiff, if the allegation of breach is to be made out, rather than one or more instances where the appropriate standard of behaviour was not achieved, which instances might be regarded as isolated rather than indicative of a general lack of due diligence in the carrying on of the business.

40 There are some particular matters concerning the construction of this provision in respect of the stocking of the premises to which, having regard to the evidence in this case, reference should be made. I have said that it is the premises which must be adequately stocked and staffed during the times when they are open for business. That undoubtedly refers to stocking and staffing in a way which is calculated to relate to the manner in which the business is carried on and conducted, but inadequacy in relation to such matters, in my opinion, would not be established by evidence to show that on particular occasions, the staff member responsible for a particular department of the store was not available on the floor where shoppers might have access to him or her if that staff member was, nonetheless, on duty and performing some other function, such as obtaining stock from a stock room, which was concerned with the proper operation of the business. I think the plaintiff recognises the correctness of that view and it is that sort of consideration which is behind its abandonment of reliance upon those aspects of the default notices which allege inadequate staffing.

41 Further, the alleged inadequacy must again be related to the nature of the business. A Supa Valu supermarket is a supermarket business of a moderate size. There are businesses within the FAL Ltd franchise system which are both larger and smaller. If one is considering a supermarket business conducted by the large chains, then such a business will often be very much larger than Supa Valu Marmion. Nonetheless, the supermarket stocks a very wide variety of products. It features every type of merchandise which one would expect to encounter in a supermarket. There is a wide range of grocery products and frozen foods. There is a fruit and vegetable department, a reasonably substantial diary department, a delicatessen which includes in its product the provision of takeaway lunches; cigarettes are sold. There is a bulk food section, a butcher's shop and, in this store, a general merchandise section the stocking of which, on the evidence, appeared at relevant times to be substantially the responsibility of FAL. To aid the retail process, an automatic teller machine is provided as well as what are known as EFTPOS facilities at the five checkouts, some or all of which may be operated at any given time depending upon the volume of business.

42 The range of products is divided, particularly in the grocery section, into "lines". This term refers to particular packages of a product. For example, each different quantity of a particular type of coffee is an individual line, whereas the range of produce refers to different types or brands of coffee. A line of stock may be unavailable but a similar line in another brand might be available. As I understand the evidence, it is all a question of maintaining, so far as the effort of the management and staff may reasonably do so, the availability of a reasonably wide range of products and providing consumer choice of different lines within those products. As can be imagined, the supermarket stocks thousands of different lines of different products. It is against that background that the fact, when established, that a certain number of lines of individual stock items were out of stock or unavailable is to be judged to determine whether in the light of the evidence as a whole the inference that the business is not being carried on with due diligence and in a proper, efficient and businesslike manner because the premises have not been caused to be adequately stocked may be drawn.

43 As to the default notice dated 12 May 2000, the allegation in par (3) of breach of cl 9.02(b) may be shortly disposed of on a different basis. In my opinion, on the evidence, this store does not have "display windows" within the meaning of the clause. As I understand the evidence, one enters the store in the area in front of the checkout stations through doors adjacent to which there is an area of glassed wall upon which at relevant times were often displayed copies of advertisements put out by FAL of products which were on "special" in the sense that they were advertised for sale at a reduced price. It may be that other notices were affixed to this glassed area.

44 But this was not an area of glass which was, or was intended, to enable the display to the passer-by of produce for sale within the store. Clause 9.02(b) had no application to the leased premises because there were no display windows to be kept "properly clean and tidy and dressed with high quality displays". The breach alleged of cl 9.02(b) in the first default notice is not made out.

The Particularisation of the First Default Notice

45 As to the reliance in that notice upon cl 9.02(c) and inadequate stocking (the reliance upon inadequate staffing having been abandoned), it seems to me that merely to allege that the defendant has failed to cause the leased premises to be adequately stocked at all times during which the premises are open for business, does not comply with the requirement to specify the particular breach complained of. In my opinion, the plaintiff may not rely on pars (4) and (5) of this default notice.

46 Further, as to par (6) of this notice and the general reliance upon cl 9.02, there is insufficient particularity in the allegations of breach. For example, it tells the lessee nothing to allege that the premises and particular departments are not clean, that they are poorly maintained, that there is insufficient stock, a lack of range of products, breach, in some cases not specified, of "use by date" requirements, that rotten fruit and vegetables are left on display, that there is insufficient quality control of produce, that there is a poor layout of produce, that staff members are not well presented, staffing levels are inadequate and that a manager is not readily available.

47 Bearing in mind that the purpose of requiring sufficient specification of the particular breach is to enable the lessee to know what particular matters must be attended to to remedy the breach, in my opinion, these allegations fall short of the required degree of particularity. In the final analysis therefore, in each of its allegations, for the reasons given in this and previous portions of this judgment, in my opinion, the default notice dated 12 May 2000 may not be relied upon. Perhaps its inadequacy explains the service of the default notice dated 8 June 2000.

The Particularisation of the Second Default Notice

48 Again, however, the defendant contends that that notice, in particular aspects, is substantially invalid because of lack of sufficient particularity. For the reasons which I have discussed above, it seems to me that there is merit in this contention so far as it concerns par 1(a), (b)(ii), (iii), (iv), but otherwise par (1) would, in my view, comply with s 81(1)(a).

49 I have already commented on par (2) that, in my opinion, no further attention need be given to this allegation because the windows in question are not display windows within the meaning of cl 9.02(b) of the lease. I can see no problem with par (3) which raises allegations of a breach of cl 9.02(c) although I think, as I have already noted, it should not be overlooked that that allegation of inadequate stocking of the premises is, under cl 9.02, to be regarded as the ground upon which it is said by the plaintiff that the clause was breached in that the defendant failed to carry on and conduct the business of the supermarket with due diligence in a proper, efficient and businesslike manner. It does not, in my opinion, have a life of its own as an allegation of breach of one of the lessee's covenants.

50 It is noteworthy that par (6) which makes the allegation of breach of cl 9.02 of the lease draws in as a particular the allegation previously made in respect of inadequate stocking. It seems to me that this is the proper place for that allegation and legally no added significance is to be found in the allegation made in par (3). The defendant complains of a lack of particularity in portions of par (6). Oddly, there is no complaint about par (6)(a) and (b) although these paragraphs appear to me potentially to suffer from the same vice as that identified in the equivalent paragraphs of the first notice. However, it seems to me that the purpose of the allegation in these paragraphs is actually to particularise one aspect of the allegation that the lessee has failed to carry on and conduct the business of the supermarket with due diligence in that the leased premises generally are not maintained at an appropriate standard of cleanliness, "regularly manifested a dirty appearance" and the premises, fixtures and fittings have been poorly maintained.

51 In the final analysis, it seems to me that although it is fairly arguable that these allegations lack the required degree of particularization, I would not be prepared to hold that in these respects the allegation of breach of cl 9.02 of the lease may not be maintained because of a failure to comply with s 81(1)(a). It follows from what I have already said that I have no difficulty in that regard with par (6)(c) and although a complaint of this character is made about the particularisation in subparagraph (d), I can see no merit in the contention in that regard; nor do I see any such difficulty in respect of the complaint of this character about subparagraph (e)(i).

52 It is therefore the case that although I would uphold this ground of defence in respect of the formal invalidity of the first default notice, I would substantially reject that conclusion in respect of the second default notice.

53 Before leaving the formal consideration of the second notice, I should comment upon the allegation in par (5) of the breach of cl 5.01 of the lease which is the standard clause imposing a covenant by the lessee to keep the premises in good and tenantable repair and condition. I do not think I need to set this clause out in full. It is to be read with cl 5.02 obliging the lessee to make good any "breakage, defect or damage" to the leased premises where that is caused by "want of care, misuse or abuse" on the part of the lessee, its employees, agents, contractors and the like. Of course, the obligation under cl 5.01 is wider as it requires of the lessee positive action to keep the premises in good and substantial repair. The obligation to keep the premises and its various parts in "good and substantial repair" imposes a higher standard than a covenant simply to keep in "good tenantable repair": Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349.

54 In this case, the obligation is of a rolled up kind, to keep "in good and substantial and tenantable repair, order and condition". There is no limitation in the clause which takes the standard of repair at the commencement of the lease, or in this case the assignment of the lease, as being the benchmark for the appropriate standard of repair, and so it would be the case that if the premises were in a state of disrepair upon the commencement of the term, the defendant would be required to put them into such a state of repair as would satisfy the covenant, although there would be no obligation to remedy any inherent defect in the premises: Clowes v Bentley Pty Ltd [1970] WAR 24.

55 Further, in considering what must be done to comply with a covenant to repair, regard must be had to the age of the premises, their general state, the fact in this case that they were commercially leased as a supermarket, the nature of the alleged defect and the cost of necessary remedial work and like factors: Eyre v McCracken [2000] EWCA Civ 501; (2000) 80 P & CR 220. There is no exemption from the obligation in this case of "fair wear and tear" and therefore damage or defects of this kind would also fall within the lessee's obligation: Clowes at 27 - 8. I will need to return to this alleged breach but for the moment, having found it convenient to address what appear to me to be relevant aspects of the construction of cl 5.01, it is necessary only to note that there is no objection to the validity of the allegation of breach based upon the contention that s 81(1)(a) has not been complied with.

56 For the plaintiff, in relation to the line of defence concerned with insufficient particulars in the notices, a further argument is put that it is a difficult defence to maintain because in par 7 of the defence with respect to the first default notice, and in par 10 of the defence with respect to the second default notice, it is affirmatively contended, contrary to the allegations of breach, that the various departments identified were clean and the premises were adequately stocked and adequately staffed at all times. Other more particular answers were made to the allegations contained in the notices. The point made is that such affirmative pleading does not sit well with an argument of lack of sufficient particularity but, to my mind, there is no tension of that kind within the pleading by way of defence. I do not see the difficulty in making the defence concerned with the validity of the notice, but at the same time, on the basis that that defence may not succeed, making an effective denial of breach on the basis that whatever may be the particular complaint, the defendant would lead affirmative evidence of compliance with the clause in question.

57 Then the defendant contends in respect of s 81(1)(b) that each notice of default is invalid because it does not specify what was required to be done to remedy the alleged breaches. In my opinion, the section does not require such a specification and nor, of course, does cl 11.01 of the lease, which simply requires notice to the lessee to remedy the breach of the lessee's covenant alleged. Each notice did contain that requirement. With respect to all of the alleged breaches that is all that was required.

58 Then the defence in respect of both notices alleges that they were invalid because the breaches alleged at par (2), (3), (4) and (5) of the first notice and (1), (2), (3), (4) and (6) of the second notice were not alleged to be current at the date of issue of the notice of default and were therefore not capable of remedy. Clause 11.01 is relied upon in support of this argument.

59 It is to be noted that s 81(1)(b) recognises, as must in fact be the case, that a breach of covenant relied upon to ground a right of re-entry or forfeiture may not be capable of remedy and yet still be a breach upon which reliance can be placed. Only if the breach is capable of remedy does the Act require that the notice shall require the lessee in default to remedy the breach. The purpose is clear. The section is designed to prevent the exercise of a right of re-entry or forfeiture under a lease in respect of a breach of covenant by a lessee which is capable of remedy and is remedied within a reasonable time.

60 In my opinion, however, cl 11.01 of the lease is in different terms and provides a more restricted right of re-entry for breach of covenant. I have not quoted the terms of cl 11.01 but so far as it is necessary to do so, it provides, firstly, for the case where there is a default in the payment of rent and then continues that:

"... in the case of breach or non-observance of any of the other covenants conditions or stipulations on the Lessee's part herein before or hereinafter contained or implied and such breach or non-performance continue after the expiration of fourteen (14) days written notice to the Lessee to remedy the same ... THEN and in any such case the Lessor may at its option re-enter upon occupy and resume possession of the Leased Premises or any part thereof in the name of the whole and thereupon the Term shall cease and determine."

In my view, it is clear that the power conferred only applies in respect of breach or non-performance of a covenant which is current at the time of giving the notice and continues after the expiration of the 14-day period allowed to the lessee to remedy the breach.

61 In other words, s 81 of the Act envisages a provision in the lease which provides a more ample power than that in fact provided in this lease. As I have mentioned, by s 81(10), if that is the case, then the power will be restricted by the terms of the Act which cannot be contracted out of. But that is the reverse case to this. In my opinion, the point made by way of defence is right. The breach alleged must be alleged to exist as at the date of the notice and must be established to continue for 14 days thereafter. However, it is also my opinion that the breaches relied upon in the first notice of default (subject, of course, to any other source of invalidity) in pars (2), (3), (4) and (5) are to be interpreted as relying upon current breaches. I would interpret pars (1), (2), (3) and (6), the breach originally alleged in par (4) not now being relied upon, of the second default notice in the same way.

62 Put shortly, having taken the view that the notice of default dated 12 May 2000 may not be relied upon to ground the action for forfeiture I confine my observations as to validity to the notice of default dated 8 June 2000. So far as it is presently relied upon by the plaintiff, it alleges firstly that as at 8 June 2000 the defendant was in breach of cl 5.06(a) of the lease in that it was not keeping the leased premises in a thorough state of cleanliness. It sufficiently particularised that allegation by reference to the situation as it was found to be on 27 May 2000, but the plaintiff would not be precluded from making good the allegation, and that the breach continued until at least 22 June 2000, by relying upon other evidence directed to establishing that over a period of time the supermarket was not kept in a thorough state of cleanliness. Indeed, having regard to my interpretation of cl 5.06 of the lease, the plaintiff would be bound, if it is to succeed, to lay an evidentiary basis for the drawing of the inference of failure to keep over a period.

63 I note that no similar complaint about the second notice of default is made in respect of the allegation of breach of cl 5.01 in par (5), an allegation made in terms that the lessee has failed to keep the leased premises in good and substantial tenantable repair, order and condition. It is, of course, beyond argument that that is intended to convey and should be read as conveying the fact that, as the particulars to par (5) expressly put it, at the date of the notice, the premises were not, and therefore had not been kept, in good and substantial tenantable repair.

64 Finally, as to pars (3) and (6) of the second notice and the allegation that there has been a breach of cl 9.02, at least in respect of matters which may be particularised as falling within subclause (c), again I would take the view that the breach alleged is that as at the date of the notice on a consistent basis from time to time over a period, the business of a supermarket was not conducted by the defendant with due diligence in a proper, efficient and businesslike manner in that the leased premises were not adequately stocked and by reason of the other matters particularised in par (6). Again, the particular instances seem to me to be properly included as evidentiary examples of the matter of the allegation and therefore as indications to the lessee of the manner in which the ongoing breach could be remedied within the reasonable time, the period of 14 days after service of the notice, which was allowed.

65 Finally, in discussing defences of this character concerned with the form and requirements of the notices of default, I should mention the defence that neither notice of default, at least in the respects now pursued, required the defendant to "make compensation in money for the breach", as required by the Act, s 81(1)(c). In my opinion, the defence is without merit. I cannot think that s 81(1) should be read as compelling the lessor to make a claim for compensation in respect of a breach. It may take the view that it does not wish to impose a money claim or, as in this case, that the breaches complained are not compensable except by their remedy so that they do not recur in the future. I think it is perfectly open to a lessor to issue a notice of default which does not require the lessee to pay a sum of money in compensation for the breach, but if the lessor proposes to claim compensation, pursuing an appropriate cause of action in that regard in respect of an alleged breach of the lessee's covenant, then I think the lessor may do so by the notice, specifying the breach complained of and, where possible, seeking to have it remedied. In that way, the payment of reasonable compensation, not necessarily the amount claimed, will become a condition for the avoidance of the exercise of the right of re-entry or forfeiture.

66 In summary then, the first group of issues which I must address seem to me to be these. As at 8 June 2000, the date of service of the second notice of default, and for 14 days thereafter:

(1) Was the defendant in breach of cl 5.01 of the lease and the duty to keep the premises and every part of them, both exterior and interior, in good and substantial and tenantable repair having regard to the nature of the premises, their age, their general condition, their commercial purpose and the like?

(2) Was the defendant in breach of cl 5.06 of the lease and the duty to keep the premises in a thorough state of cleanliness having regard to the nature of the premises, hygiene (including the obligation to keep the premises free and clear of vermin) and tidiness, rather than that there was from time to time transient or occasional instances of particular aspects of uncleanliness?

(3) Was the defendant in breach of cl 9.02 of the lease imposing the duty to carry on and conduct the business of a supermarket with due diligence, particularly having regard to the obligation to keep the premises adequately stocked, as a result of neglect or inadequacy on the part of the defendant or for which it is properly to be held responsible? Again, it is to be remembered that it is the failure to carry on the business in a particular way which is at issue, implying a degree of persistence or repetition rather than what may be regarded as individual instances of a failure to stock particular lines of produce.

67 I would turn now to the facts concerning these matters. I should commence by commenting that the evidence of witnesses on both sides was, with some exceptions, led in what has become an unremarkable process by taking into evidence the statement of a witness, deleting those parts in respect of which objection was taken and agreement resulted, or upon which I was required to rule, and using the statement as the witness's evidence-in-chief. I allowed the statements to be supplemented by oral evidence-in-chief to the extent required. The presence of a witness who gave viva voce evidence in the witness box was therefore substantially concerned with cross-examination.

68 Even so, the case occupied some eleven sitting days to try. There were fourteen witnesses for the plaintiff and so there was a considerable volume of material in their primary and, very often, responsive witness statements. Similarly for the defendant, there were thirteen witnesses and an equally voluminous amount of material was generated by their witness statements. In addition, the taking of the evidence generated some 1100 pages of transcript. Further, the parties respectively, but the plaintiff in particular, relied upon some 700 documentary exhibits, numbers of which were of quite considerable length. In those circumstances, in an effort to keep this judgment to the minimum length required to explain my reasoning and findings of fact, I will not refer in any detail to the evidence led and will not deal with its specific terms unless absolutely necessary for the resolution of an issue which requires decision.

69 The reliance upon documentary material was both a strength and a weakness in respect of the hearing and the decision of the case. In the first place, I should say at once that the parties' legal advisers, and particularly counsel, are to be commended for their capacity to smooth the process of trial by agreement, their disinclination to rely upon technical matters in respect of the evidence led and their general co-operation with the Court in the endeavour to try the matter expeditiously and deal with the issues efficiently. I am satisfied that neither party was placed at any disadvantage in the presentation of its case by those endeavours which enabled the parties to present their own case while thoroughly testing that of the opposing party.

70 Even so, the trial of the action took about double the number of days originally allocated to it, hence the adjournment in July 2001 and the incapacity to resume the trial until some four months later in November. The plaintiff's case was completed in July and I heard the substantial portion of the defendant's first witness, Mr Anderson. The incapacity to resume the trial earlier than was the case meant, of course, that my decision has been delayed by the need to reread with some care the statements, transcript and exhibits relied upon and discussed in July to refresh my memory of their content.

71 One witness in particular of some importance to the plaintiff's case, a Mr Markey, was out of the jurisdiction when he would otherwise have been called. His evidence was admitted in documentary form by agreement. There were also reports which he had made contemporaneously with the events with which he was concerned. The evidence would, in any event, have been admissible under the Evidence Act 1906 (WA), s 79C, but its admission by agreement enabled the case to proceed and enabled the plaintiff to have that evidence available to it. Nonetheless, I have at the back of my mind that the evidence must carry less weight because the defendant was unable to test it by cross-examination and I should be careful to ensure that the lack of a challenge in that way is not converted in my mind to giving the evidence the status of incontrovertible rather than uncontroverted evidence.

72 The plaintiff relied also upon records and various reports generated by the Health Department of the City of Joondalup and its predecessor which was the relevant local government. Again, the material was, in my opinion, clearly admissible under s 79C of the Evidence Act and that overcame any capacity to object to its obviously hearsay content when the material referred to the inspections conducted by local government inspectors, and the hearsay upon hearsay involved in the reference in reports to complaints received from often unidentified shoppers. Again, in my opinion, these reports carried little weight, although counsel for the plaintiff sought to bolster them by putting particular reports to Mr Anderson and eliciting from him the observation that he did not take issue with their accuracy. It was clear to me that by that concession, he meant that he had no information available to him now to enable him to disprove assertions made in relation to particular matters connected with the cleanliness of the premises some years ago. I do not take the concession as a matter which may bolster the weight to be attached to the reports and generally speaking I would not be prepared to draw conclusions adverse to the defendant on the basis of this material.

Some Comments upon the Credibility of Witnesses

73 So far as matters of credibility are concerned, there was, thankfully, very little challenge to the genuineness and honesty of particular witnesses. The defendant was obviously unhappy with the attitude and evidence of Mr Sparta, a director of the plaintiff and its first witness, but, in truth, Mr Sparta had little relevant evidence to give in the way of direct evidence concerned with the matters currently at issue.

74 On the other hand, the plaintiff mounted a strong challenge to the credibility of Mr Anderson and, in my opinion, it did so with some success. I formed an unfavourable impression of him as a witness. I consider that on occasions Mr Anderson evinced a tendency to make a broad statement which was obviously favourable to the defendant and, when confronted with contradictory material, he resiled without being prepared to admit error or explain the original statement. His animosity towards Sparta was very evident as, indeed, was the fact that Mr Sparta reciprocated. Mr Anderson made some rather wild accusations on occasion, unsupported by any evidence, but I do not regard that as a matter of any great persuasive force in relation to his credibility. He was cross-examined for a very long period of time and, after the adjournment to which I have referred the cross-examination was renewed with renewed vigour, sometimes canvassing areas dealt with in July, not repetitiously but because preparation in the interim appeared to have generated new points which were required to be put. It was evident to me that Mr Anderson became rather frustrated that he continued to be pressed.

75 A classic example of this situation was in relation to an inspection done by Mr Powell on 27 May 2000 when his evidence was that throughout the store he counted some 400 product lines advertised as being on the shelves, which lines were unavailable. It is certainly a considerable number. The defendant queried Mr Powell's capacity to accurately count, without recording, so many lines of product out of stock. Mr Powell was cross-examined about it. He maintained that he could count accurately.

76 Mr Anderson, giving evidence in November, suggested an explanation which had not been put to Mr Powell. He said that he thought a particular issue of a trade magazine "The Communicator" put out by FAL must have been the source of the number of lines out of stock which had been incorporated in the report. He could not support the allegation and, in my view, it was clearly nonsense, although in giving evidence later, Mrs Anderson loyally said that she thought that might have been the explanation. She did not purport to offer any personal investigation as the source of that view.

77 More serious was Mr Anderson's statement that in the current financial year the turnover of the supermarket had increased by 30 per cent in the quarter just past as compared with the figures for the previous year. A comparison of exhibits A508 and A509 shows that the true figure as at 30 September in each of the years 2000 and 2001 was in the order of 13-14 per cent. In addition, Mr Anderson thought that the total indebtedness of the business currently was in the order of some $718,000 less a number of recent payments but, ultimately, the parties agreed that the defendant's current financial situation was an overall state of indebtedness of between $750,000 and $780,000.

78 Further, it is clear that Mr Anderson was of the view that when purchased, the supermarket business had goodwill to the value of about $200,000 and yet no allowance was made for this in the contract of sale but the entire purchase price was, as has been seen, allocated to plant and equipment and stock in trade. Assuming the allowance for stock in trade to be accurate, this means that the goodwill was, effectively, hidden in the sum allocated to plant and equipment, thereby increasing the deductions which might be claimed in subsequent trading years in respect of taxation by the allowances to be made for the depreciation of plant and equipment. Both Mr Anderson and his accountant, Mr Del Carlo, were aware that this was the effect and purpose of structuring the purchase price in this way. Mr Del Carlo said he thought the business had no goodwill because it was not then trading profitably. Mr Anderson simply said that he thought this conduct was proper because he acted upon advice.

79 Again, Mr Anderson, at that time, operated a building company known as Keith Anderson Constructions Pty Ltd. In the 1995 and 1996 financial years, payments were made to that company of over $105,000 in each year. The assertion appears to have been that the payments were legitimate because, as Mr Del Carlo put it, the construction company provided services to the defendant in the form of Mr Anderson, thus enabling the defendant's expenditure in this regard, to the extent mentioned, to be paid to the credit of the construction company which had tax losses to offset against the income. Again, the financial and taxation purpose is self-evident. The practice stopped when the tax losses were absorbed. Again, Mr Anderson said he thought that this was justified although it was evident that the payments stopped when the tax losses could no longer be offset. Mr Del Carlo said that, coincidentally, the defendant company at that time had no further use for services provided by the construction company, Mr Anderson's continuing services being provided directly as an officer of the defendant.

80 Then there was the occasion when Mr Anderson caused the defendant to render to the plaintiff an invoice in the sum of $3,650 for expenses incurred in the laying of tiles which I think were, under cl 5.01 of the lease, the lessee's responsibility in any event. However that may be, Mr Anderson was quite unable to justify the substantial bulk of this claim. There were no particular accounts or primary source documents to support the invoice and Mr Anderson's evidence about it was quite unpersuasive.

81 Some of these matters reveal cause for concern about Mr Anderson's credibility in what I would describe as his tendency to make favourable statements of fact, at least without sufficient care as to their accuracy, but those and other matters cause me to conclude that Mr Anderson is a person inclined to behave with dubious propriety if he perceives that it is to his advantage. Both aspects of his character reflect adversely upon his credibility and although I was not prepared to abandon him entirely as a reliable witness, I have approached his evidence with great care and by and large have sought independent confirmation of it before relying upon it.

82 So far as Mrs Anderson is concerned, the plaintiff places reliance particularly upon her evidence, also given by Mr Anderson, about some pot plants. These were a product introduced by the defendant and were apparently originally placed outside the supermarket on the pavement at the front. According to Mr and Mrs Anderson, the customers appreciated them. They were purchased and they were quite profitable but the Andersons had not sought permission to so occupy this part of the common area of the shopping centre. By mid-1997, the managing agent had written to them saying that the stand of pot plants must be removed. That was quickly followed up by a default notice alleging that the pot plants were obstructing the pavement and that they were a nuisance or annoyance to other tenants.

83 The pot plants were still a subject of discussion with the agents and were still the subject of default notices almost a year later in May 1998 and yet the evidence of Mr and Mrs Anderson was that they removed the plants when they were asked to do so. Thereafter, Mrs Anderson said they were only taken outside to be watered and then they were taken inside, but I think that is not the true position. I think the Andersons reacted in the way that Mrs Anderson mentioned in evidence. The stands of pot plants were popular with customers; they sold well. The Andersons took the view that they were doing no harm and that there was no reason for them to be removed and yet the plaintiff through its agent continued to press the point and, finally, the Andersons capitulated and the pot plants were removed and not displayed or sold again. It is a rather sad little episode. It no doubt reflects adversely upon Mrs Anderson's credit as it does upon that of Mr Anderson, but more clearly, to my mind, it demonstrates the depth of the breakdown in the relationship between landlord and tenant which certainly by this stage had occurred.

84 The genesis of that breakdown may, I think, have in part at least resided in the mishandling on both sides of the proposed repair to flooring in the supermarket in the vicinity of the butcher's department. This again is said to be a matter relevant to the credit of Mr and Mrs Anderson as, indeed, it is.

85 It appears that in two different areas of the store, changes have been made to remove walls which had previously been there so as to increase the floor area of the supermarket. I do not know when that was done but it does not matter. Although internal walls, they do not appear to have been constructed upon a concrete slab but upon lower foundations. Upon the removal of the wall, the brick work was taken to a level below the concrete floor on either side and concrete fill was laid to provide a common surface. On that surface tiles were laid to provide an even floor for customers, but the nature of the construction resulted in the sub-floor moving and the cement work breaking down.

86 This has created a constant problem of the lifting of tiles and the disruption of the floor surface. From time to time the defendant has replaced tiles but this is essentially a cosmetic solution. The real solution appears to lie in the repair of the floor surface beneath the tiles and that, I think, would not be work which would be the lessee's obligation under cl 5.01 of the lease. Indeed, so much appears to have been ultimately accepted by the plaintiff and eventually by February 1997, the plaintiff was putting in train the carrying out of works to effect more permanent repairs.

87 Mr Sparta senior, Mr Sam Sparta, appears to have been in charge of this effort. Workmen were arranged and the work was supposed to have been done overnight to avoid any disruption to the defendant's trading activities. It appears the work was not completed and Mrs Anderson had to arrange to use trolleys as an informal barricade to keep customers from walking into areas where the floor was being worked upon, to avoid a consequent risk of injury.

88 After the store closed on the following evening, while Mrs Anderson and an employee, described as the shop boy, were working back, Mr Sparta arrived with workmen and sought to recommence the work. Mr and Mrs Anderson had arranged a family social function. Neither could remain at the store to oversee the operations. Mr Sparta was prepared to do so, but that was not satisfactory to Mrs Anderson, nor to Mr Anderson who was telephoned by his wife. They refused Mr Sparta permission to do the work. Cross words were spoken on both sides and over the next few days, the plaintiff, acting by its managing agent, communicated to the defendant the decision that the plaintiff would do no further work to repair the floor, noting that the refusal to permit the work to be carried out on the night in question had caused the plaintiff, at its own expense, to have to dispose of the ready mixed concrete that it had purchased for the job.

89 I received no clear explanation from Mr and Mrs Anderson about their reasons for causing the breakdown in the carrying out of the work. Mrs Anderson said that it was necessary for one or other of them to stay over the period of some hours which would probably be required for the work to be completed. When asked why it was not possible to leave Mr Sparta in charge, she said he had not offered to supervise closely the workers concerned and she feared that they might steal stock from the store. I suspect that they were cross that the work had not been carried out when previously arranged, cross that they had been inconvenienced during trading hours and cross at the high handed attitude of Mr Sparta who turned up unannounced with workers and a batch of ready mixed concrete just before Mrs Anderson finished work and went home for the evening.

90 The Spartas, for their part, appear to have taken the view that they were putting themselves out to do the work and they were cross when permission was withheld and they were occasioned expense by the loss of the concrete. It rather seems to me that all involved behaved in a rather petulant and childish fashion and it was certainly from this time on that relations soured between Mr Sparta on the one hand and Mr and Mrs Anderson on the other, although they had rather been deteriorating prior to this time.

91 Mr Sparta says that from early in the defendant's tenancy, he noticed a deterioration in the trading activities of the shopping centre generally and in the number of customers. He adds that he was constantly receiving complaints from individual tenants and I have mentioned the pleaded contentions and the agreed facts in relation to them, in the context of the defendant's counterclaim for relief from forfeiture.

92 But an indication of the way in which matters developed from early 1997 is, in my opinion, that by April of that year Mr Sparta had drafted a letter to the plaintiff dated 29 April 1997 to be signed by various tenants complaining that since the defendant took over the lease of the supermarket, customers had been complaining about it, the number of customers patronising the shopping centre was decreasing and these other tenants had suffered "significant falls to our revenues, in some cases up to 50 per cent over the last 12 months." A number of tenants' signatures were obtained and, in addition, signatures were obtained from the proprietor of the adjoining Caltex Service Station and the medical centre on the opposite side of the shopping centre itself.

93 Ultimately, as Mr Sparta frankly conceded and his agent effectively confirmed, the decision taken by those concerned in the management of the plaintiff was that the defendant was a troublesome tenant, often in breach of different covenants in the lease, and they wished to have the tenancy terminated. They took the view, correctly I think, that the supermarket was the anchor tenant of the shopping centre and upon its capacity to draw customers to the centre, the viability of businesses of smaller, more dependent tenancies depended. As has been seen by the nature of the default notices, the plaintiff puts difficulties adversely affecting the profitability of such businesses at the door of the defendant.

94 On the other hand, Mr and Mrs Anderson contend that any downturn in business is not the fault of their management of the supermarket but more related to the limited catchment in the Marmion area where, apart from the much larger shopping centre at Karrinyup, there are a number of other shopping centres comparable to Marmion Village, or somewhat larger, which they assert, being nearby, draw customers from the Marmion Village Shopping Centre. Those discussed by the witnesses include Carine Glades, a centre nearby on Marmion Avenue, the Duncraig Shopping Centre a little further to the north, and two shopping centres a little further to the south at North Beach Plaza and Lynn Street, Trigg.

95 All this evidence was, to my mind, highly subjective. There was little in the way of hard evidence of primary fact. I was unable to draw any conclusion about the causes of movements of which the evidence spoke in the trading histories of those involved in the Marmion Village Shopping Centre. Undoubtedly, a number of the businesses were not as profitable as their owners had hoped they would be, but the causes seem to me to be highly speculative and I mention this evidence now merely because it seems convenient to do so in the context of a brief discussion of the history of the relationship between lessor and lessee. So far as it was suggested that other tenants who gave evidence could make a contribution to the allegations of breach of lease by the defendant, I must say that I found the evidence to lack utility in this regard.

96 I include in the observation as to the lack of utility the evidence of Mr Thomas, a real estate agent employed by Colliers Jardine, who has had a long association with this shopping centre, as the managing agent from 1991 to 1994 and then from June 1997. Mr Thomas gave general evidence and also referred to occasional visits to the supermarket. It was evident that he did not have a good relationship with the Andersons, both of whom he described as "consistently surly". Mr Thomas' visits to the store generally followed the receipt of complaints on various occasions since June 1997.

97 During a short period at the end of 1997 and early 1998 when the previous tenant, Mr Wilson, returned, employed to assist in the management of the supermarket, Mr Thomas said that he noticed a drop in the number of complaints but he said the number rose again when Mr and Mrs Anderson took over the management. Initially when he raised the complaints with them, he said their response was "very antagonistic". It seems that in light of that response Mr Thomas soon ceased to raise such matters with either Mr or Mrs Anderson.

98 There is no doubt that Mr Thomas encountered difficulties in dealing with other tenants, particularly in respect of the payment of rent and at times when rent reviews arose. His evidence was that since 1997, rent increases for such tenancies have been either waived by the plaintiff or substantially reduced from that which would ordinarily apply under the terms of their leases, and there have been difficulties in obtaining agreement from tenants to incur additional expenditure to fit out tenancies where the presentation of the stores was suffering by reason of age. Specific cases were referred to, but Mr Thomas' evidence about them was substantially of a hearsay character and, as I have said, little concrete evidence emerged.

99 His superior, the director of retail management at Colliers Jardine, a Ms Langson, was also called by the plaintiff. It seems that very shortly after Colliers Jardine took over the management of this property for the plaintiff, she arranged a meeting attended by Mr Sparta with a Mr Dekok of FAL. It appears that the purpose of the meeting was to see whether the plaintiff might enlist the aid of FAL in dealing with the defendant for breaches of the franchise agreement. I think that was designed to assist the plaintiff in its efforts to terminate the lease, although Mr Sparta denied that that was the case.

100 At the meeting, it was decided that the agents would check the lease to see what legal action might be instituted and it was decided that as soon as there was any late payment of rent, a default notice would be issued. Solicitors would be consulted to see if other breaches might ground default notices. The agents were to contact the Health Department to "get them to do an inspection of the premises so as to put as much pressure as we can on the lessee." They were to investigate the defendant's financial position and provide to the other tenants the opportunity to put their complaints in writing. It was undoubtedly the case that a campaign was got underway.

101 It is distasteful evidence but it does not cause me to react adversely to the plaintiff's case upon that ground. Its motivation was, I think, a genuine concern that the inadequacies of the defendant's operations were damaging the plaintiff financially. By the year 2000, Ms Langson said, she was of the view that, although FAL pronounced themselves satisfied with the functioning of the supermarket in the context of the franchise agreement, its operation continued to present inadequacies damaging the profitability of the shopping centre. I am not able to derive any assistance from that evidence but, rather, I am concerned to see to what extent the plaintiff was able to offer evidence of primary fact to support the conclusion of breach upon which its case depends.

102 I have mentioned that a number of other tenants were called. They include Mr Passmore senior and Mrs Passmore, the proprietors of the newsagency adjacent to the supermarket. Their son, Mark, was called. He operates the Australia Post office located within the newsagency. The newsagency has suffered a decline in turnover of about 20 per cent since the 1996/97 financial year. It was clear that Mr Passmore attributes that to the operation of the supermarket, but it was very evident that he was unable to offer any clear evidence to establish that fact.

103 Similarly, Mrs Passmore was in no better position. She used to shop regularly at Marmion Supa Valu but now does not do so. She says that her decision has been taken because upon some occasions, products which she particularly wanted were out of stock; pikelets that she wanted for her son's morning tea, the only brand of icecream that her husband and she eat. She purchased some bad chicken on one occasion.

104 It seems clear to me that she has developed an antipathy towards the Andersons. She thought that the store was "messy and untidy". The shelves were "often dirty". The quality of fruit and vegetables has deteriorated and her relationship with the Andersons has deteriorated to the extent that, she says, Mrs Anderson has banned her from the supermarket after an incident when she called Mrs Passmore at home because "my husband had laughed at her when she had glared at us earlier that day at the shopping centre". Mrs Passmore was banned and although she attempted to revisit the store, Mrs Anderson has insisted, she says, that she should not shop there, threatening to call the police if Mrs Passmore would not leave, saying "get out, fatso".

105 Mrs Anderson, of course, denies any such exchange. I do not know what to make of it. It seems quite extraordinary that people should behave in such a childish fashion, but, in the end, if it did occur, the way in which the matter is put to me in evidence makes it clear that Mrs Passmore entirely lacks objectivity and I would not feel comfortable to rely upon her evidence in any degree.

106 Mr Passmore junior confirmed the animosity which has developed between his family and the Andersons. He also referred to out-of-stock items which he could not buy and products which were bad when purchased. He says he ceased to shop at the supermarket in about June 2000 when the Andersons threatened him with legal action because he was gathering the names and addresses of customers who had complained to him about the supermarket when they came into the newsagency. Again, his evidence about the inadequacies of the supermarket lacked objectivity or any precision of detail. I did not find it helpful.

107 Other tenants who gave evidence included the proprietor of Quality Drycleaning, a quite large tenancy in terms of area, adjacent to the supermarket and the newsagency. This was Mrs Beardmore. I thought her to be a witness who presented a balanced outlook. Her drycleaning business does much of its work from these premises, although the shop is a retail outlet. She has other such outlets in the northern suburbs. The turnover at this particular outlet has been in decline for some time and that is not a situation she encounters at other outlets.

108 She attributes this to the fact that the supermarket does not draw customers. Its appearance is generally old and tired and it needs refurbishment. There is a lack of hygiene and produce is sold out of date. Mrs Beardmore did not detail specific instances and so I am left merely with her general impression and her conclusion that it is inadequacies in the running of the supermarket which is leading to a reduction in the profitability of her shop. Whether she is right about the cause remains for my conclusion, but there is no doubt about the genuineness of this witness and I think her evidence was reliable. It was objectively given and provides useful background material. Her concern is such that she has sought favourable treatment on rent reviews, including in March 2000, and she says that if she is to commit to a renewal of her lease, she would much prefer that her present lease for a term of years be replaced by a periodic tenancy.

109 Ms Shaw, the co-proprietor of a travel agency at the shopping centre, gave evidence. Again I found her to be an acceptable witness. She has lived in the Marmion area for many years and gave evidence of a general deterioration in the standard of the supermarket over the last five or six years. For a time she ceased to shop there because of concern about the freshness of produce and the incapacity always to be able to purchase all that she wished.

110 Nonetheless, she and her partner took a three-year lease of the travel agency some two years ago. She then recommenced doing her shopping at Supa Valu, Marmion. She said she was surprised at the extent of the further deterioration which had occurred since she had previously shopped there. Again, the evidence lacked precision, but I accept it as background evidence, generally describing accurately Ms Shaw's subjective impressions of the supermarket.

111 The plaintiff called the previous proprietor of the supermarket, Mr Wilson. He and his wife owned the business from 1986 until 1994. I have mentioned at the outset of these reasons the history of the lease since 1992 and the circumstances of the sale of the business to the defendant at the beginning of 1995. Mr Wilson was again employed in the business to assist with its management generally and particularly to assist with the grocery department, from August 1997 until his resignation in January 1998. Mr and Mrs Anderson said they were moved to take that course, not only to have the expert assistance, but also because they thought that Mr Wilson might improve their capacity to deal with the plaintiff.

Sparta Nominees Pty Ltd v Orchard Holdings Pty Ltd & Ors [2002] WASC 54

At a glance

Court

Decision date

Before

Catchwords

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Judgment (401 paragraphs)

Sparta Nominees Pty Ltd v Orchard Holdings Pty Ltd & Ors [2002] WASC 54 (28 March 2002)

Parties

Legislation Cited (1)

Cases Cited (4)